As filed with the Securities and Exchange Commission on October 4, 2022
Registration No. 333- ________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
(
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Chief Executive Officer
(
(Name, address, including zip code, and telephone number, including area code, of agent for service)
with a copy to:
Alison Newman, Esq.
Zev M. Bomrind, Esq
Fox Rothschild LLP
100 Park Avenue
New York, NY 10017
(212) 878-7951
As soon as practicable after the effective date of this registration statement.
(Approximate date of commencement of proposed sale to the public)
If
any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the
following box: ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company
| |
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall hereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER __, 2022
21,366,700 Shares of Common Stock
This prospectus relates to the resale of up to 21,366,700 shares of common stock of One World Products, Inc., a Nevada corporation, which may be resold by Tysadco Partners, LLC (which we refer to as Tysadco or the selling stockholder), consisting of up to 20,000,000 shares of common stock issuable pursuant to an equity financing facility established by the terms of the Purchase Agreement described in this prospectus, and 1,366,700 shares of common stock issuable to Tysadco upon the conversion into common stock of 13,667 shares of Series B Preferred Stock we issued to Tysadco as a commitment fee for entering into the Purchase Agreement with us. We may draw on the equity financing facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Purchase Agreement, by delivering “Request Notices” to Tysadco
We are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of the shares of our common stock by the selling stockholder. We will, however, receive proceeds from the sale of common stock directly to Tysadco pursuant to the Purchase Agreement. When we put shares of our common stock to Tysadco, the per-share purchase price that Tysadco will pay to us in respect of the put will be equal to 88% of the of the lowest daily volume weighted average price of our common stock during the period of 10 trading days beginning five trading days preceding the day we deliver the applicable put notice to Tysadco.
Tysadco is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933. Tysadco may sell the shares of common stock described in this prospectus at fixed prices, at prevailing market prices at the time of sale or at prices negotiated with purchasers, to or through one or more underwriters, dealers or agents, or through any other means described in this prospectus under “Plan of Distribution”.
Our common stock is quoted on the OTCQB tier of the OTC Markets under the symbol “OWPC”. On September 29, 2022, our common stock closed at $0.105 per share.
These are speculative securities. Investing in these securities involves significant risks. You should purchase these securities only if you can afford a complete loss of your investment. You should carefully consider the risk factors beginning on page 4 of this prospectus before purchasing any of the shares offered by this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Prospectus dated [●], 2022.
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
You should rely only on the information contained in or incorporated by reference in this prospectus. We have not authorized any person to provide you with different or inconsistent information. If anyone provides you with different or inconsistent information, you should not rely on it. This is not an offer to sell or seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and the documents incorporated by reference is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since such dates.
We further note that the representations, warranties and covenants made by us in any document that is filed as an exhibit to the registration statement of which this prospectus is a part and in any document that is incorporated by reference herein were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
Unless the context otherwise requires, the terms “One World Products”, the “Company”, “we”, “us”, “our” and similar terms used in this prospectus refer to One World Products, Inc. and its subsidiaries, including One World Pharma SAS, a Colombian company.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this prospectus “forward-looking statements” about our business, financial condition and prospects based on our current expectations, assumptions, estimates, and projections about us and our industry. All statements other than statements of historical fact are “forward-looking statements”, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Unless otherwise required by law, we do not intend, and undertake no obligation, to update any forward-looking statement.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.
You should read the matters described in “Risk Factors” below and disclosed in the documents incorporated by reference in this prospectus and the other cautionary statements made in this prospectus and in the documents incorporated by reference in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus and in the documents incorporated by reference in this prospectus. We cannot assure you that the forward-looking statements in this prospectus and in the documents incorporated by reference in this prospectus will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.
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PROSPECTUS SUMMARY
This summary highlights certain information described in greater detail elsewhere or incorporated by reference in this prospectus. Before deciding to invest in our securities you should read the entire prospectus carefully, including the “Risk Factors” section contained in this prospectus, and our consolidated financial statements and the related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other documents incorporated by reference into this prospectus.
Company Overview
We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses from Colombian regulators to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the first companies in Colombia to receive licenses for seed, cultivation, extraction and export from the Colombian government.
We planted our first crop of cannabis in Popayan, Colombia in 2018, and began initial harvesting in the first quarter of 2019 for the purpose of further research and development activities and quality control testing of the cannabis we have produced. We commenced limited shipping of non-psychoactive products to customers in May of 2020.
Our first cultivation site is located in Popayan, Colombia and our extraction facility will be located in the outskirts of Bogota, Colombia, in the town of Funza. Our cultivation facility encompasses approximately 30 acres and includes a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell their harvested products to us on an exclusive basis.
We employ modern propagation and cultivation techniques drawn from U.S. practices that allow us to rapidly multiply the cells of a specific plant strain to produce large numbers of genetically consistent progeny plants using our own plant tissue culture method. We believe this technique allows us to cultivate plants which are stable, robust and able to produce genetically superior cannabis and hemp derived products. We intend to have our processes and products certified as compliant with international standards, including Good Agricultural Practices (“GAP”), Good Manufacturing Practice (“GMP”) and the standards set forth in EU Pharmacopoeia, a publication that sets forth quality standards applicable to the European pharmaceutical industry.
We currently have 120,000 square feet of covered greenhouse capacity, which we intend to increase to 160,000 square feet. We are building out our extraction and production facility and expect it to be operational before the end of 2022. From August 2021 through March 2022, we made payments of approximately $1,400,000 for the purchase of a state of the art distillation machine that we expect to be placed in service within our vertically integrated extraction facility during the third quarter of 2022. Once the equipment is placed in service, we will be one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils. In addition, we have a contractual relationship with a local co-operative under which they agree to assist us in cultivation at our facility.
On June 3, 2020, Isiah L. Thomas III was appointed to serve as our Chief Executive Officer. Mr. Thomas was a 12-time NBA All Star, two-time NBA champion, and is an accomplished international business executive. In 2021, through ISIAH International, LLC, of which he is the sole member, Mr. Thomas purchased $3,000,000 of our Series B Preferred Stock in installments over a period of time ending in July 2021.
Our principal offices are located at 3471 W. Oquendo Road, Suite 301, Las Vegas, Nevada 89118. Our telephone number is (800) 605-3210. We maintain a website at www.oneworldproducts.com. Information contained on our website does not constitute part of this prospectus
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Tysadco Purchase Agreement
This prospectus relates to the resale of shares of our common stock that Tysadco has committed to purchase from us following our delivery to Tysadco of “Request Notices” from time to time under the terms of a Purchase Agreement we entered into on September 1, 2022. Pursuant to the Purchase Agreement, subject to the effectiveness of the registration statement that includes this prospectus and our compliance with other terms set forth therein, Tysadco has committed to purchase up to $10,000,000 of our common stock upon our delivery of Request Notices, at a price equal to 88% of the lowest daily volume weighted average price of our common stock during the period of 10 trading days beginning five trading days preceding the applicable Request Notice. Each purchase under the Purchase Agreement will be in a minimum amount of $25,000 and a maximum amount equal to the lesser of (i) $1,000,000 and (ii) 500% of the average daily trading value of our common stock over the seven trading days preceding the delivery of the applicable Request Notice. Tysadco’s commitment to purchase common stock under the Purchase Agreement will terminate approximately 36 months after we have satisfied all of the conditions to effecting sales of common stock under the Purchase Agreement, which conditions include obtaining the effectiveness of the registration statement that includes this prospectus. The Purchase Agreement also provides that Tysadco is not required to purchase common stock to the extent that following such purchase, Tysadco would beneficially own in excess of 4.99% of our outstanding shares of common stock.
In connection with the Purchase Agreement, we issued to Tysadco as a commitment fee 13,667 shares of our Series B Preferred Stock convertible into 1,366,667 shares of common stock. The resale of the shares we may issue to Tysadco upon conversion of the Series B Preferred Stock issued to Tysadco under the Purchase Agreement is also covered by this prospectus.
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The Offering
The following summary contains basic information about the offering and the securities being registered hereunder and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the securities we are offering, please refer to the sections of this prospectus titled “Description of Capital Stock.”
| Securities Being Registered: | 21,366,700 Shares of common stock. | |
| Shares of Common Stock Outstanding Before the Offering: | 67,202,907 | |
| Shares of Common Stock Outstanding After the Offering: | 88,569,607 | |
| Use of Proceeds: | The shares offered by this prospectus will be sold by the selling stockholder. We will not receive any proceeds from the sale of shares by the selling stockholder. However, we will receive proceeds from the sale of shares of our common stock to Tysadco under the Purchase Agreement. These proceeds would be used for general working capital purposes. | |
| Risk Factors: | An investment in our securities involves a high degree of risk and could result in the loss of your entire investment. Prior to making an investment decision, you should carefully consider all of the information in this prospectus and, in particular, you should evaluate the risk factors set forth under the caption “Risk Factors” beginning on page 4 of this prospectus. | |
| OTCQB Trading Symbol: | OWPC |
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RISK FACTORS
Investment in our securities involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus. Each of the risks could adversely affect our business, financial condition, results of operations and prospects, and could result in a complete loss of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks mentioned above.
Risks Relating to our Company
Limited Operating History
We are an early stage company that has generated minimal revenues and, we have a limited operating history upon which our business and future prospects may be evaluated. We are subject to all of the business risks and uncertainties associated with any new business enterprise, including the risk that we will not achieve our operating goals. In order for us to meet future operating requirements, we will need to successfully grow, harvest and sell our cannabis products. Until such time as we are able to fund our business from operations, we will be required to raise funds through various sources, including the sale of equity and debt securities, Failure to generate cash from operations and to reach profitability may adversely affect our success.
We have had a history of losses, we expect losses in the future, and there can be no assurance that we will become profitable in the future.
We have experienced operating losses on an on-going basis. For the six months ended June 30, 20202, and our fiscal years ended December 31, 2021 and 2020, we incurred net losses of $1,300,996, $3,784,562 and $7,965,160, respectively. As of such dates, we had accumulated deficits of $22,217,884, $19,916,888 and $16,132,326, respectively. We expect our losses to continue for the foreseeable future. These continuing losses may be greater than current levels. If our revenues do not increase substantially or if our expenses exceed our expectations, we may never become profitable. Even if we do achieve profitability, we may not sustain profitability on a quarterly or annual basis in the future.
Our auditor has given us a “going concern” qualification, which questions our ability to continue as a going concern without additional financing.
Our independent certified public accountant has added an emphasis paragraph to its report on our financial statements for the year ended December 31, 2021 regarding our ability to continue as a going concern. Key to this determination is our recurring net losses, an accumulated deficit, and a working capital deficiency. In the event sales do not materialize at the expected rates, management would seek additional financing or would conserve cash by further reducing expenses. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations or cause substantial dilution for our stockholders. If we are unable to obtain additional funds, our ability to carry out and implement our planned business objectives and strategies will be significantly delayed, limited or may not occur. We cannot guarantee that we will become profitable.
Change of Cannabis Laws, Regulations and Guidelines
Cannabis laws and regulations are dynamic and subject to evolving interpretations which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. Regulations may be enacted in the future that will be directly applicable to certain aspects of our businesses. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. Management expects that the legislative and regulatory environment in the cannabis industry in Colombia and internationally will continue to be dynamic and will require innovative solutions to try to comply with this changing legal landscape in this nascent industry for the foreseeable future. Compliance with any such legislation may have a material adverse effect on our business, financial condition and results of operations.
Public opinion can also exert a significant influence over the regulation of the cannabis industry. A negative shift in the public’s perception of the cannabis industry could affect future legislation or regulation in different jurisdictions.
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Reliance on Colombian Licenses, Authorizations and Quotas
Our ability to import seeds, grow, store and sell cannabis and hemp in Colombia or internationally is dependent on our ability to sustain and/or obtain the necessary licenses and authorizations by certain authorities in Colombia and/or the importing jurisdiction. The licenses and authorizations are subject to ongoing compliance and reporting requirements and our ability to obtain, sustain or renew any such licenses and authorizations on acceptable terms is subject to changes in regulations and policies and to the discretion of the applicable authorities or other governmental agencies in foreign jurisdictions. Failure to comply with the requirements of the licenses or authorizations or any failure to maintain the licenses or authorizations would have a material adverse impact on our business, financial condition and operating results. In addition, Colombian regulators limit the cultivation and sale of psychoactive cannabis by Quotas issued on an annual basis to licensed producers.
Although we believe that we will meet the requirements to obtain, sustain or renew the necessary licenses and authorizations, there can be no guarantee that the applicable authorities will issue these licenses or authorizations. In addition, to date we have not been issued Quotas that would allow us to commence the commercial sale of psychoactive cannabis products. Should the authorities fail to issue the necessary licenses or authorizations, including required Quotas, we may be curtailed or prohibited from the production and/or distribution of cannabis and hemp or from proceeding with the development of our operations as currently proposed and our business, financial condition and results of the operation may be materially adversely affected.
Regulatory Compliance Risks
Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by applicable governmental authorities and obtaining all regulatory approvals, where necessary, for the sale of our products in Colombia and other jurisdictions where we intend to distribute and sell our products. We will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Civil or criminal fines or penalties may be imposed on us for violations of applicable laws or regulations. Vigorous enforcement of these laws could require extensive changes to our operations, increase our compliance costs or give rise to material liabilities, which could have a material adverse effect on our business, results of operations and financial condition.
Competition
There are many companies engaged in the cannabis business who we will compete with, including larger and more established companies with substantially greater marketing, financial, human and other resources than we have. These companies include PharmaCielo, CannaVida, Empresa Colombiana de Cannabis, Khiron Life Sciences Corp., MedCan, Canopy Growth Corporation, and Clever Leaves. Although we believe we are competitively positioned to be a leader in the medicinal cannabis industry given our early entry into the market, the management team’s expertise in medical product branding, marketing, quality control, and market relationships, competition in the medical cannabis industry is growing quickly. As more competitors enter the market, prices may be reduced. We believe our approach in creating brand loyalty will allow us to effectively compete in the market but there is no assurance that will be the case, and our competitors may adopt a similar or identical approach. To date, we have obtained four licenses in Colombia that authorize us to engage in cannabis activities, and there are currently few authorized producers there. However, Colombia offers an open process to apply for licenses and there are no significant barriers to entry. As a result, our ability to generate revenues and earnings may be reduced as competition intensifies, thereby causing a material adverse effect on our business and financial condition.
Ability to Establish and Maintain Bank Accounts
Many banking institutions in countries where we or our prospective customers operate will not accept payments related to the cannabis industry, whether owing to domestic laws and regulations or pressure exerted by the United States on banks with laws subject to the laws of the United States (including, the Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act)). Failure to conduct our business through normal banking channels may impede our ability to make payments for goods and services and transact business in the ordinary course. Failure to operate in normal banking channels may also increase our cost of doing business and negatively affect our business. In the event financial service providers do not accept accounts or transactions related to the cannabis industry, it is possible that we may be required to seek alternative payment solutions. If the industry was to move towards alternative payment solutions we would have to adopt policies and protocols to manage our volatility and exchange rate risk exposures. Our inability to manage such risks may adversely affect our operations and financial performance.
Anti-money Laundering Laws and Regulations
We are subject to a variety of laws and regulations within Colombia and internationally that involve money laundering, financial recordkeeping and proceeds of crime. In the event that any of our investments, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such investments are found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under applicable legislation. Money laundering laws could restrict or otherwise jeopardize our ability to declare or pay dividends, effect other distributions or subsequently cause the repatriation of such funds back to the United States or to any shareholders’ jurisdiction of residence. Furthermore, while we have no current intention to declare or pay dividends on our common stock in the foreseeable future, in the event that a determination was made that the revenues from our cannabis operations could reasonably be shown to constitute proceeds of crime, we may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.
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Foreign Trade Policies
Our international operations are subject to inherent risks, including changes in the regulations governing the flow of cannabis products between countries, fluctuations in currency values, discriminatory fiscal policies, unexpected changes in local regulations and laws and the uncertainty of enforcement of remedies in foreign jurisdictions. In addition, foreign jurisdictions could impose tariffs, quotas, trade barriers and other similar restrictions on our international sales and subsidize competing cannabis products. All of these risks could result in increased costs or decreased revenues.
United States Regulation
Although we do not believe that our limited U.S. activity will subject us to regulation under U.S. federal or state laws applicable to the sale of cannabis and marijuana, we cannot assure you that current or future U.S. laws and regulations will not detrimentally affect our business. Local, state and federal cannabis laws and regulations in the United States are constantly changing and they are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or to alter one or more of our product or service offerings. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our revenues, profitability, and financial condition. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
Liability, Enforcement, Complaints, etc.
Our participation in the cannabis and hemp industries may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by third parties, other companies and/or various governmental authorities against us. Litigation, complaints, and enforcement actions involving us could consume considerable amounts of financial and other corporate resources, which could have an adverse effect on our future cash flows, earnings, results of operations and financial condition.
Legal Proceedings
From time to time, we may be a party to legal and regulatory proceedings, including matters involving governmental agencies, entities with whom we do business and other proceedings arising in the ordinary course of business. We will evaluate our exposure to these legal and regulatory proceedings and establish reserves for the estimated liabilities in accordance with generally accepted accounting principles. Assessing and predicting the outcome of these matters involves substantial uncertainties. Unexpected outcomes in these legal proceedings, or changes in management’s evaluations or predictions and accompanying changes in established reserves, could have an adverse impact on our financial results.
Environmental Regulations
We are subject to Colombian environmental laws governing the use of natural resources, which prohibit such use that causes harm to the interests of the community or of third parties. Parties that cause environmental damage while acting under the authority of a permit are responsible for incurring the costs to rectify the damage. The imposition of environmental sanctions is in addition to civil and criminal penalties that may be imposed. Environmental damage caused while a party is acting without a license may lead to the imposition of sanctions, in addition to civil or criminal proceedings. Parties that cause environmental damage, in addition to sanctions or penalties that apply, are also required to carry out studies to assess the characteristics of the damage. Colombian environmental authorities may investigate potential claims, authorize preventative measures, or impose sanctions on parties breaching environmental law. Any such measures imposed on us could have a material adverse effect on our business.
Demand for Cannabis and Derivate Products
The global sale of cannabis and hemp products is a new industry as a result of recent legal and regulatory changes. Although we expect the demand for licensed cannabis to be in excess of the supply being produced by the licensed producers, there is a risk that such demand does not develop as anticipated. Further, there is a risk that the adoption rate by pharmacies to sell medical cannabis is lower than expected or that such adoption rate may take longer than anticipated. There is also a risk that the international export market for medicinal cannabis and extracts, such as CBD, CBG and CBC, will not materialize as projected or not be commercially viable. Should any of such events materialize, they may have a material adverse effect on our business, results of operations and financial condition.
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Weather, Climate Change and Risks Inherent in an Agricultural Business
Our business involves growing cannabis, which is an agricultural product. Although our medical cannabis is intended to be grown in greenhouses, hemp used as feedstock for medicinal extracts and derivatives will be grown both outdoors and in greenhouses. Further, our prospective Colombian medicinal cannabis operations will initially focus on outdoor production. The occurrence of severe adverse weather conditions, especially droughts, hail, floods or frost, is unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply of cannabis and hemp. Adverse weather conditions may be exacerbated by the effects of climate change and may result in the introduction and increased frequency of pests and diseases. The effects of severe adverse weather conditions may reduce our yields or require us to increase our level of investment to maintain yields. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of insects and pests, which could negatively affect cannabis crops. Future droughts could reduce the yield and quality of our cannabis production, which could materially and adversely affect our business, financial condition and results of operations.
The occurrence and effects of plant disease, insects and pests can be unpredictable and devastating to agriculture, potentially rendering all or a substantial portion of the affected harvests unsuitable for sale. Even when only a portion of the production is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs may have been incurred. Although some plant diseases are treatable, the cost of treatment can be high and such events could adversely affect our operating results and financial condition. Furthermore, if we fail to control a given plant disease and the production is threatened, we may be unable to supply our customers, which could adversely affect our business, financial condition and results of operations. There can be no assurance that natural elements will not have a material adverse effect on any such production.
Product Liability
As a manufacturer and distributor of products designed to be ingested or inhaled by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused damages, loss or injury. In addition, the sale of our products involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Adverse reactions resulting from human consumption of our products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning health risks, possible side effects or interactions with other substances. A product liability claim or regulatory action against us could result in increased costs, could adversely affect our reputation with our clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all.
Energy Prices and Supply
We require substantial amounts of diesel and electric energy and other resources for our harvest activities and to transport cannabis and hemp. We rely upon third parties for our supply of energy resources used in our operations. The prices for and availability of energy resources may be subject to change or curtailment, respectively, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, interruptions in production by suppliers, imposition of restrictions on energy supply by government, worldwide price levels and market conditions. If our energy supply is cut for an extended period of time and we are unable to find replacement sources at comparable prices, or at all, our business, financial condition and results of operations would be materially and adversely affected.
Retention and Acquisition of Skilled Personnel
We will be required to attract and retain top quality talent to compete in the marketplace. We believe our future growth and success will depend in part on our abilities to attract and retain highly skilled managerial, product development, sales and marketing, and finance personnel. There can be no assurance of success in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to be successful. At present and for the near future, we will depend upon a relatively small number of employees primarily in Colombia to develop, manufacture, market, sell and distribute our products. As the size of our business increases, we will seek to hire additional employees in other jurisdictions. Expansion of marketing and distribution of our products will require us to find, hire and retain additional capable employees who can understand, explain, market and sell our products and/or our ability to enter into satisfactory logistic arrangements to sell our products. There is intense competition for capable personnel in all of these areas and we may not be successful in attracting, training, integrating, motivating, or retaining new personnel or subcontractors for these required functions.
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Emerging Market Risks
Emerging market investment generally poses a greater degree of risk than investment in more mature market economies because the economies in the developing world are more susceptible to destabilization resulting from domestic and international developments.
Colombia’s legal and regulatory requirements in connection with companies conducting agricultural activities, banking system and controls as well as local business culture and practices are different from those in the United States. Our officers and directors must rely, to a great extent, on our local legal counsel and local consultants retained by us in order to keep abreast of material legal, regulatory and governmental developments as they pertain to and affect our business operations, and to assist us with our governmental relations. We must rely, to some extent, on the members of management who have previous experience working and conducting business in Colombia to enhance our understanding of and appreciation for the local business culture and practices in such countries. We also rely on the advice of local experts and professionals in connection with current and new regulations that develop in respect of banking, financing and tax matters. Any developments or changes in such legal, regulatory or governmental requirements or in local business practices are beyond our control and may adversely affect our business.
We also bear the risk that changes can occur to the Government in Colombia and a new government may void or change the laws and regulations that we are relying upon. Currently, there are no restrictions on the repatriation from Colombia of earnings to foreign entities and Colombia has never imposed such restrictions. However, there can be no assurance that restrictions on repatriation of earnings will not be imposed in the future. Exchange control regulations for Colombia require that any proceeds in foreign currency originated on exports of goods from Colombia be repatriated to Colombia. However, purchase of foreign currency is allowed through Colombian authorized financial entities for purposes of payments to foreign suppliers, repayment of foreign debt, payment of dividends to foreign stockholders and other foreign expenses.
Due to our location in Colombia, our business, financial position and results of operations may be affected by the general conditions of the Colombian economy, price instabilities, currency fluctuations, inflation, interest rates, regulatory changes, taxation changes, social instabilities, political unrest and other developments in or affecting Colombia, over which we do not have control.
Risks Related to Conducting Operations in Colombia
We recently were granted medicinal cannabis licenses in Colombia. Over the past 10 to 15 years, the Government of Colombia has made strides in improving the social, political, economic, legal and fiscal regimes. However, operations in Colombia will still be subject to risk due to the potential for social, political, economic, legal and fiscal instability. The Government of Colombia faces ongoing problems including, but not limited to, unemployment and inequitable income distribution and unstable neighboring countries. The instability in neighboring countries could result in an influx of immigrants resulting in a humanitarian crisis and/or increased illegal activities. Colombia is also home to a number of insurgency groups and large swaths of the countryside are under guerrilla influence. In addition, Colombia experiences narcotics-related violence, a prevalence of kidnapping, extortion and thefts and civil unrest in certain areas of the country. Such instability may require us to suspend operations on our properties.
Other risks exist relating to the conduct of business in Colombia. These risks include the future imposition of special taxes or similar charges, as well as foreign exchange fluctuations and currency convertibility and controls. Other risks of doing business in Colombia include our ability to enforce our contractual rights or the taking or nationalization of property without fair compensation, restrictions on the use of expatriates in our operations, renegotiation or nullification of existing concessions, licenses, permits and contracts, changes in taxation policies, or other matters.
The Government of Colombia recently reached a peace accord with the country’s largest guerrilla group. The Government of Colombia also entered into and dissolved formal discussions with the country’s second largest guerrilla group due to their unwillingness to cease criminal and violent crimes. There is no certainty that the agreements will be adhered to by all of the members of the guerrilla groups or that a peace agreement will be ultimately reached with the country’s second largest guerrilla group. There is a risk that any peace agreement might contain new laws or change existing laws that could have a material adverse effect on us. Furthermore, the achievement of peace with the country’s guerrilla groups could create additional social or political instability in the immediate aftermath, which could have a material adverse effect on our operations.
Global Economy
Financial and commodity markets in Colombia are influenced by the economic and market conditions in other countries, including other South American and emerging market countries and other global markets. Although economic conditions in these countries may differ significantly from economic conditions in Colombia, investors’ reactions to developments in these other countries, such as the recent developments in the global financial markets, may substantially affect the capital flows into, and the market value of securities of issuers with operations in Colombia.
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Insurance Coverage
Our production is, in general, subject to different risks and hazards, including adverse weather conditions, fires, plant diseases and pest infestations, other natural phenomena, industrial accidents, labor disputes, changes in the legal and regulatory framework applicable to us, and environmental contingencies. We will endeavor to obtain appropriate insurance covering these risks in amounts sufficient to support a downturn in the sale of our products due to these potential production risks. The cost of such insurance may be high and we may not be able to obtain sufficient amount of insurance to cover these risks.
Operations in Spanish
As a result of our conducting most of our operations in Colombia, our regulatory licenses and books and records, including key documents such as material contracts and financial documentation, are principally negotiated and entered into in the Spanish language and English translations may not exist or be readily available.
General Business Risks
The outbreak of the COVID-19 coronavirus has negatively impacted and could continue to negatively impact our business and the global economy. In addition, the COVID-19 pandemic could negatively impact our ability to obtain financing when required.
The recent outbreak of the COVID-19 coronavirus has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19 or other public health epidemic, poses the risk that we or our employees, customers, and other commercial partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease or shutdowns requested or mandated by governmental authorities. While it is not possible at this time to estimate the full impact that COVID-19 will have on our business, during our fiscal years ended December 31, 2021 and December 31, 2020, the Company’s cultivation operations in Colombia significantly declined due to the Colombian quarantine restrictions resulting from COVID-19. COVID-19 has also had an adverse impact on global economic conditions, which could impair our ability to raise capital when needed.
Inability to Manage Growth
We may not be able to effectively manage our growth. Our strategy envisions growing our business. We plan to expand our production and manufacturing capability and create a distribution network on a global basis. Any growth in or expansion of our business is likely to continue to place a strain on our management and administrative resources, infrastructure and systems. As with other growing businesses, we expect that we will need to further refine and expand our business development capabilities, our systems and processes and our access to financing sources. We also will need to hire, train, supervise and manage new employees. These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. We cannot assure you that we will be able to:
| ● | expand our systems effectively or efficiently or in a timely manner; | |
| ● | create a distribution network | |
| ● | allocate our human resources optimally; | |
| ● | meet our capital needs; | |
| ● | identify and hire qualified employees or retain valued employees; or | |
| ● | obtain and maintain necessary licenses in relevant jurisdictions |
Our inability or failure to manage our growth and expansion effectively could harm our business and materially and adversely affect our operating results and financial condition.
Speculative Forecasts
Any forecasts we provide will be highly speculative in nature and we cannot predict results in a development stage company with a high degree of accuracy. Any financial projections, especially those based on ventures with minimal operating history, are inherently subject to a high degree of uncertainty, and their ultimate achievement depends on the timing and occurrence of a complex series of future events, both internal and external to the enterprise. There can be no assurance that potential revenues or expenses we project will be accurate.
Limited Management Team
Our limited senior management team size may hamper our ability to effectively manage a publicly traded company while operating our business. Our management team has experience in the management of publicly traded companies and complying with federal securities laws, including compliance with recently adopted disclosure requirements on a timely basis. They realize it will take significant resources to meet these requirements while simultaneously working on cultivating, developing and distributing our products. Our management will be required to design and implement appropriate programs and policies in responding to increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to the imposition of fines and penalties and harm our business.
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Risks Related To Our Common Stock
The issuance of such additional shares of common stock may depress the price of our common stock.
We have outstanding obligations to issue additional shares of common stock in the future. These include the following:
| ● | We may sell and issue to Tysadco up to $10,000,000 of shares of common stock under the Purchase Agreement; | |
| ● | There are 11,011,650 shares of common stock issuable pursuant to common stock warrants outstanding as of September 30, 2022; | |
| ● | There are 6,523,300 shares of common stock issuable upon conversion of our Series A Preferred Stock as of September 30, 2022; | |
| ● | There are 23,850,100 shares of common stock issuable upon conversion of our Series B Preferred Stock as of September 30, 2022; | |
| ● | There are 5,000,000 shares of common stock issuable pursuant to convertible debt instruments outstanding as of September 30, 2022. |
Any shares of common stock issued pursuant to these securities would further dilute the percentage ownership of existing stockholders. The terms on which we could obtain additional capital during the life of these securities may be adversely affected because of such potential dilution. Finally, we may issue additional shares in the future other than as listed above. There are no preemptive rights in connection with our common stock. Thus, the percentage ownership of existing stockholders may be diluted if we issue additional shares in the future. Future issuances of additional shares pursuant to options, warrants other convertible securities could cause immediate and substantial dilution to the net tangible book value of shares of common stock issued and outstanding immediately before such issuances. Any future decrease in the net tangible book value of such issued and outstanding shares could materially and adversely affect the market value of the shares.
Limited Trading
Although prices for shares of our common stock are quoted on the OTCQB tier of the OTC Markets, there is little current trading and no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained. The OTC Markets is generally regarded as a less efficient and less prestigious trading market than other national markets. There is no assurance if or when our common stock will be quoted on another more prestigious exchange or market. The market price of our common stock is likely to be highly volatile because for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on the stock price.
We may issue additional stock without stockholder consent.
Our Board of Directors has authority, without action or vote of the stockholders, to issue all or part of our authorized but unissued shares. Additional shares may be issued in connection with future financing, acquisitions, employee stock plans, or otherwise. Any such issuance will dilute the percentage ownership of existing stockholders. The Board of Directors can also issue preferred stock in one or more series and fix the terms of such stock without stockholder approval. Preferred stock may include the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion and redemption rights and sinking fund provisions. The issuance of preferred stock could adversely affect the rights of the holders of common stock and reduce the value of the common stock. In addition, specific rights granted to holders of preferred stock could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. Such issuance could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
Broker-dealers may be discouraged from effecting transactions in our common stock because it is considered a penny stock and is subject to the penny stock rules.
Our common stock currently constitutes “penny stock.” Subject to certain exceptions, for the purposes relevant to us, “penny stock” includes any equity security that has a market price of less than $5.00 per share. Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended, impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving a “penny stock.” In particular, a broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse), must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks.
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The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of the shares and impede the sale of our shares in the secondary market.
Because our Board of Directors does not intend to pay dividends on our common stock in the foreseeable future, stockholders may have to sell their shares of our common stock to realize a return on their investment in the company.
Holders of our common stock are entitled to receive dividends when, as and if declared by our Board of Directors out of funds legally available. To date, we have paid no dividends. Our Board of Directors does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in our business operations. Accordingly, a return on an investment in shares of our common stock may be realized only through a sale of such shares, if at all.
Control of Common Stock will Influence Decision Making
Our officers, directors and principal stockholders are able to exert significant influence over us and may make decisions that are not in the best interests of all stockholders. Our officers, directors and principal stockholders (greater than 5% stockholders) collectively own approximately 44.1% of our fully-diluted common stock. As a result of such ownership, these stockholders are able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of our company or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of our company. This, in turn, could have a negative effect on the market price of our common stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of our common stock.
We are an Emerging Growth Company Within the Meaning of the Securities Act.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of the end of any second quarter of a fiscal year, in which case we would no longer be an emerging growth company as of the end of such fiscal year. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
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Antitakeover Protections
Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline. Our articles of incorporation, as amended, bylaws and Nevada law contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.
Risks Relating to Our Agreements with Tysadco Partners, LLC
The sale of our common stock to Tysadco may cause dilution, and the sale of the shares of common stock acquired by Tysadco, or the perception that such sales may occur, could cause the price of our common stock to fall.
Pursuant to the Purchase Agreement, Tysadco has committed to purchase up to an aggregate of $10,000,000 of our common stock. The shares that may be sold pursuant to the Purchase Agreement in the future may be sold by us to Tysadco at our discretion from time to time, commencing after the SEC has declared effective the registration statement that includes this prospectus and until approximately three years after such date. The per share purchase price for the shares that we may sell to Tysadco under the Purchase Agreement will fluctuate based on the price of our common stock, and will be equal to 88% of the of the lowest daily volume weighted average price of our common stock during the period of 10 trading days beginning five trading days preceding the day we deliver the applicable put notice to Tysadco. Depending on market liquidity at the time, sales of shares of common stock to Tysadco may cause the trading price of our common stock to fall.
We generally have the right to control the timing and amount of any sales of our shares to Tysadco, except that, pursuant to the Purchase Agreement, we may not sell shares to Tysadco if the sale would result in its beneficial ownership of more than 4.99% of our outstanding common stock. Tysadco may ultimately purchase all, some or none of the shares of our common stock that may be sold pursuant to the Purchase Agreement and, after it has acquired shares, Tysadco may sell all, some or none of those shares. Therefore, sales to Tysadco by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Tysadco, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
Tysadco will pay less than the then-prevailing market price for our common stock for purchases under the Purchase Agreement.
The common stock to be issued to Tysadco pursuant to the Purchase Agreement will be purchased at a 12% discount to the lowest volume weighted average price of our common stock during the during the period of 10 trading days beginning five trading days preceding the day we deliver the applicable put notice to Tysadco. Tysadco has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Tysadco sells the shares, the price of our common stock could decrease. If our stock price decreases, Tysadco may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price.
We may not be able to put to Tysadco all $10,000,000 of shares available under the Purchase Agreement.
The Purchase Agreement provides for the purchase by Tysadco of up to $10,000,000 of shares of our common stock. Our ability to draw down funds and sell shares under the Purchase Agreement requires the satisfaction of a number of conditions, including that the registration statement of which this prospectus is a part be declared effective by the SEC and continue to be effective at the time of the put, as well as Tysadco’s compliance with its obligations under the Purchase Agreement. Accordingly, there can be no guarantee that we will be able to draw down all or any portion of the $10,000,000 available to us under the Purchase Agreement.
USE OF PROCEEDS
The Shares offered by this prospectus will be sold by the selling stockholder. We will not receive any proceeds from the sale of common stock by the selling stockholder. However, we will receive proceeds from the sale of shares of our common stock to Tysadco under the Purchase Agreement, and upon the exercise of warrants held by the selling stockholder. These proceeds would be used for general working capital purposes.
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SELLING STOCKHOLDER
This prospectus relates to the possible resale from time to time by the selling stockholder of our common stock, including shares of common stock that may be issued by us to Tysadco under the Purchase Agreement, and upon the conversion of shares of Series B Preferred Stock we issued to Tysadco under the Purchase Agreement. In addition, on September 1, 2022, we entered into a Securities Purchase Agreement with Tysadco (the “SPA”) under which Tysadco agreed to purchase an aggregate of 20,000 shares of our Series B Preferred Stock for a total purchase price of $300,000 in two closings of 10,000 Series B Preferred Shares each. The first closing of 10,000 Series B Shares occurred following the execution of the SPA, and the second closing under the SPA is to occur within five days after the filing of the registration statement that includes this prospectus. Except for the transactions contemplated by the SPA and the Purchase Agreement, including our obligations under the related Registration Rights Agreement pursuant to which we have filed the registration statement of which this prospectus is a part, Tysadco has not had any material relationship with us within the past three years.
The table below presents information regarding the selling stockholder and the shares of common stock that they may offer from time to time under this prospectus. This table is prepared based on information supplied to us by the selling stockholder, and reflects holdings as of September 30, 2022. As used in this prospectus, the term “selling stockholder” includes the selling stockholder named below and any donees, pledgees, transferees or other successors in interest selling shares received after the date of this prospectus from the selling stockholder as a gift, pledge, or other non-sale related transfer. The number of shares in the column “Maximum Number of Shares of common stock to be Offered Pursuant to this prospectus” represents all of the shares of common stock that the selling stockholder may offer under this prospectus. The selling stockholder may sell some, all or none of its shares in this Offering. We do not know how long the selling stockholder will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the selling stockholder regarding the sale of any of the shares.
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act, and includes shares of common stock with respect to which the selling stockholder has voting and investment power. The percentage of shares of common stock beneficially owned by the selling stockholder prior to the Offering shown in the table below is based on an aggregate of 67,202,907 shares of our common stock outstanding on September 30, 2022. The fourth column assumes the sale of all of the shares offered by the selling stockholder pursuant to this prospectus.
Beneficially Owned Prior to Offering | Number of Shares Being Offered by Selling | Beneficially Owned After Offering | ||||||||||||||||||
| Selling Stockholder | Number of Shares | Percent | Stockholder in Offering | Number of Shares(1) | Percent | |||||||||||||||
| Tysadco Partners, LLC (2) | 3,366,700 | (3) | 4.77 | % | 21,366,700 | 2,000,000 | 2.21 | % | ||||||||||||
| * | Less than one percent. |
| (1) | Assumes the sale of all shares being offered pursuant to this prospectus. Shares owned after the offering consist of shares of common stock issuable upon conversion of 20,000 shares of Series B Preferred Stock. |
| (2) | The business address of Tysadco Partners, LLC is 210 West 77th Street, #7W, New York, NY 10024. Tysadco’s principal business is that of a private investment firm. We have been advised that Tysadco is not a member of FINRA, or an independent broker-dealer, and that neither Tysadco nor any of its affiliates is an affiliate or an associated person of any FINRA member or independent broker-dealer. We have been further advised that Jeffrey Hart is the Managing Member of Tysadco, and that Mr. Hart has definitive power to vote or to direct the vote and definitive power to dispose or to direct the disposition of all securities owned directly by Tysadco. |
| (3) | Includes shares of common stock issuable upon conversion of shares of Series B Preferred Stock described above, which are subject to the limitation that Tysadco may not convert such securities to the extent that Tysadco would beneficially own more than 4.99% of our outstanding common stock. In accordance with Rule 13d-3(d) under the Exchange Act, we have excluded from the number of shares beneficially owned prior to the Offering all of the shares that Tysadco may be required to purchase under the Purchase Agreement, because the issuance of such shares is solely at our discretion and is subject to certain conditions, the satisfaction of all of which are outside of Tysadco’s control, including the Registration Statement of which this prospectus is a part becoming and remaining effective. |
This prospectus also covers any additional shares of our common stock which become issuable in connection with the shares being registered by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration which results in an increase in the number of our outstanding shares of common stock.
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PLAN OF DISTRIBUTION
This prospectus relates to the resale of up to 21,366,700 shares of our common stock by the selling stockholder.
The selling stockholder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of the shares covered hereby on any stock exchange, market or trading facility on which our common stock is traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholder may use any one or more of the following methods when selling shares:
| ● | ordinary brokerage transactions and transactions in which the broker dealer solicits purchasers; | |
| ● | block trades in which the broker dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker dealer as principal and resale by the broker dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part; | |
| ● | in transactions through broker dealers that agree with the selling stockholder to sell a specified number of shares at a stipulated price per security; | |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| ● | a combination of any such methods of sale; or | |
| ● | any other method permitted pursuant to applicable law. |
The selling stockholder may also sell Shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker dealers engaged by the selling stockholder may arrange for other brokers dealers to participate in sales. Broker dealers may receive commissions or discounts from the selling stockholder (or, if any broker dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the shares or interests therein, the selling stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the shares in the course of hedging the positions they assume. The selling stockholder may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
Tysadco is an “underwriter” within the meaning of the Securities Act and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Tysadco has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the shares. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
The selling stockholder may from time to time pledge or grant a security interest in some or all of the shares owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholder to include the pledgee, transferee or other successors in interest as selling stockholder under this prospectus.
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The selling stockholder also may transfer the shares in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus and may sell the shares from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholder to include the pledgee, transferee or other successors in interest as selling stockholder under this prospectus.
Because Tysadco is an “underwriter” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of our securities by the selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholder and have informed it of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
MARKET FOR OUR COMMON STOCK
There is a limited public market for our common stock. Shares of our common stock trade on the over-the-counter market and are quoted on the OTCQB tier of the OTC Markets under the symbol “OWPC”.
The following table sets forth, for the fiscal quarters indicated, the high and low bid information for our common stock, as reported on the OTC Markets. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
| High | Low | |||||||
| Fiscal Year Ending December 31, 2022 | ||||||||
| First Quarter | $ | 0.14 | $ | 0.08 | ||||
| Second Quarter | $ | 0.24 | $ | 0.07 | ||||
| Third Quarter | $ | 0.19 | $ | 0.09 | ||||
| Fiscal Year Ended December 31, 2021 | ||||||||
| First Quarter | $ | 1.00 | $ | 0.10 | ||||
| Second Quarter | $ | 0.32 | $ | 0.27 | ||||
| Third Quarter | $ | 0.30 | $ | 0.10 | ||||
| Fourth Quarter | $ | 0.14 | $ | 0.07 | ||||
| Fiscal Year Ended December 31, 2020 | ||||||||
| First Quarter | $ | 4.65 | $ | 0.13 | ||||
| Second Quarter | $ | 0.87 | $ | 0.18 | ||||
| Third Quarter | $ | 0.54 | $ | 0.11 | ||||
| Fourth Quarter | $ | 0.16 | $ | 0.06 | ||||
As of September 30, 2022, there were 67,202,907 shares of our common stock held by approximately 112 shareholders of record. Such number does not include any shareholders holding shares in nominee or “street name”.
DIVIDEND POLICY
We have not declared or paid any dividends on our common stock since our inception and do not anticipate paying dividends for the foreseeable future. The payment of dividends is subject to the discretion of our board of directors and depends, among other things, upon our earnings, our capital requirements, our financial condition, and other relevant factors. We intend to reinvest any earnings in the development and expansion of our business. Any cash dividends in the future to common shareholders will be payable when, as and if declared by our board of directors, based upon the board’s assessment of our financial condition and performance, earnings, need for funds, capital requirements, prior claims of preferred stock to the extent issued and outstanding, and other factors, including income tax consequences, restrictions and applicable laws. There can be no assurance, therefore, that any dividends on our common stock will ever be paid.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 30, 2022, certain information with regard to the record and beneficial ownership of the Company’s common stock by (i) each person known to the Company to be the record or beneficial owner of 5% or more of the Company’s common stock, (ii) each director of the Company, (iii) each of the named executive officers, and (iv) all executive officers and directors of the Company as a group. The address of each of our directors and executive officers named in the table is c/o One World Products, Inc., 3471 W. Oquendo Road, Suite 301, Las Vegas, Nevada 89118:
| Series A | Series B | |||||||||||||||||||||||
| Common Stock | Preferred Stock | Preferred Stock | ||||||||||||||||||||||
| Name of Beneficial Owner(1) | Number of Shares | % of Class(2) | Number of Shares | % of Class | Number of Shares | % of Class | ||||||||||||||||||
| Officers and Directors: | ||||||||||||||||||||||||
| Isiah Thomas, III, Chairman and CEO(3) | 25,000,000 | 27.3 | % | - | - | 200,000 | 85.5 | % | ||||||||||||||||
| Dr. Kenneth Perego II, Vice Chairman(4) | 11,100,000 | 16.0 | % | 11,000 | 16.9 | % | - | - | ||||||||||||||||
| Timothy Woods, Chief Financial Officer | - | - | - | - | - | - | ||||||||||||||||||
| Terry L. Buffalo, Director | - | - | - | - | - | - | ||||||||||||||||||
| Directors and Officers as a Group (4 persons) | 36,100,000 | 38.5 | % | - | - | - | - | |||||||||||||||||
| 5% Shareholders | ||||||||||||||||||||||||
| ISIAH International, LLC(3) | 20,000,000 | 22.9 | % | - | - | 200,000 | 85.5 | % | ||||||||||||||||
| Craig Ellins(5) | 3,968,397 | 5.9 | % | - | - | - | - | |||||||||||||||||
* less than 1%
| (1) | Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock owned by such person. |
| (2) | Percentage of beneficial ownership is based upon 67,202,907 shares of common stock and 238,501 and shares of Series B Preferred Stock outstanding as of September 30, 2022. For each named person, this percentage includes common stock that the person has the right to acquire either currently or within 60 days of September 30, 2022, including through the exercise of an option; however, such common stock is not deemed outstanding for the purpose of computing the percentage owned by any other person. |
| (3) | Includes 4,500,000 shares of common stock that may be acquired upon exercise of a vested option, and 20,000,000 shares of common stock that may be acquired upon conversion of Series B Preferred Stock currently held by Isiah International, LLC. Mr. Thomas is the sole member and Chief Executive Officer of ISIAH International. |
| (4) | Includes 7,000,000 shares of common stock held by CB Medical, LLC, of which Dr. Kenneth Perego, II is the controlling member. Includes 350,000 shares of common stock that may be acquired under an option, and 550,000 shares of common stock that may be acquired under a warrant. In addition, includes 11,000 shares of Series A Preferred Stock, convertible into 1,100,000 shares of common stock with each share of preferred carrying 50 voting rights. |
| (5) | Based solely on a Schedule 13D filed by Craig Ellins with the SEC on September 30, 2021. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Through our wholly-owned subsidiary, One World Pharma S.A.S, a licensed cannabis cultivation, production and distribution (export) company located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the only companies in Colombia to receive seed, cultivation, extraction and export licenses from the Colombian government. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which we began harvesting in the first quarter of 2019 for the purpose of further research and development activities and quality control testing of the cannabis we have produced. We have been generating revenue from the sale of our seeds since the second quarter of 2020. From August 2021 through March 2022, we made payments of approximately $1,400,000 for the purchase of a state of the art distillation machine that we expect to be placed in service within our vertically integrated extraction facility during the third quarter of 2022. Once the equipment is placed in service, we will be one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils.
Results of Operations for the Three Months Ended June 30, 2022 and 2021
The following table summarizes selected items from the statement of operations for the three months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Increase / | |||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Revenues | $ | 32,864 | $ | 42,323 | $ | (9,459 | ) | |||||
| Cost of goods sold | 20,840 | 173 | 20,667 | |||||||||
| Gross profit | 12,024 | 42,150 | (30,126 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 387,807 | 368,146 | 19,661 | |||||||||
| Professional fees | 113,805 | 306,194 | (192,389 | ) | ||||||||
| Depreciation expense | 12,172 | 13,114 | (942 | ) | ||||||||
| Total operating expenses: | 513,784 | 687,454 | (173,670 | ) | ||||||||
| Operating loss | (501,760 | ) | (645,304 | ) | (143,544 | ) | ||||||
| Total other expense | (189,730 | ) | (107,890 | ) | 81,840 | |||||||
| Net loss | $ | (691,490 | ) | $ | (753,194 | ) | $ | (61,704 | ) | |||
Revenues
Revenues during the three months ended June 30, 2022 were $32,864, compared to $42,323 during the three months ended June 30, 2021, a decrease of $9,459, or 22%. Revenues decreased slightly as we continued to shift our focus toward producing and selling CBD and THC oils.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2022 were $20,840, compared to $173 for the three months ended June 30, 2021, an increase of $20,667, or 11,946%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.
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General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2022 were $387,807, compared to $368,146 during the three months ended June 30, 2021, an increase of $19,661, or 5%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses increased primarily due to increased salaries and wages and lease expenses in Colombia over the prior year. General and administrative expenses included non-cash, stock-based compensation of $29,347 and $115,322 during the three months ended June 30, 2022 and 2021, respectively.
Professional Fees
Professional fees for the three months ended June 30, 2022 were $113,805, compared to $306,194 during the three months ended June 30, 2021, a decrease of $192,389, or 63%. Professional fees included non-cash, stock-based compensation of $11,799 and $111,167 during the three months ended June 30, 2022 and 2021, respectively. Professional fees decreased primarily due to decreased stock-based compensation efforts during the current period.
Depreciation Expense
Depreciation expense for the three months ended June 30, 2022 was $12,172, compared to $13,114 during the three months ended June 30, 2021, a decrease of $942, or 7%. Depreciation expense decreased minimally during the current period.
Other Income (Expense)
Other expenses, on a net basis, for the three months ended June 30, 2022 were $189,730, compared to other expenses, on a net basis, of $107,890 during the three months ended June 30, 2021, an increase in net expenses of $81,840, or 76%. Other expenses consisted of $190,730 of interest expense, including $126,671 of stock-based finance costs on the amortization of debt discounts, as partially offset by $1,000 sublet income on our office space, for the three months ended June 30, 2022, compared to $116,634 of interest expense, including $96,106 of stock-based finance costs on the amortization of debt discounts, as partially offset by $7,500 of sublease income on sublet office space and $1,244 of interest income during the three months ended June 30, 2021.
Net Loss
Net loss for the three months ended June 30, 2022 was $691,490, or $0.01 per share, compared to $753,194, or $0.01 per share, during the three months ended June 30, 2021, a decrease of $61,704, or 8%. The net loss decreased primarily due to decreased stock-based compensation during the current period.
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Results of Operations for the Six Months Ended June 30, 2022 and 2021:
The following table summarizes selected items from the statement of operations for the six months ended June 30, 2022 and 2021.
| Six Months Ended June 30, | Increase / | |||||||||||
| 2022 | 2021 | (Decrease) | ||||||||||
| Revenues | $ | 43,011 | $ | 65,605 | $ | (22,594 | ) | |||||
| Cost of goods sold | 30,796 | 7,752 | 23,044 | |||||||||
| Gross profit | 12,215 | 57,853 | (45,638 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 769,190 | 1,108,572 | (339,382 | ) | ||||||||
| Professional fees | 284,855 | 525,657 | (240,802 | ) | ||||||||
| Depreciation expense | 24,657 | 22,998 | 1,659 | |||||||||
| Total operating expenses: | 1,078,702 | 1,657,227 | (578,525 | ) | ||||||||
| Operating loss | (1,066,487 | ) | (1,599,374 | ) | (532,887 | ) | ||||||
| Total other expense | (234,509 | ) | (194,037 | ) | 40,472 | |||||||
| Net loss | $ | (1,300,996 | ) | $ | (1,793,411 | ) | $ | (492,415 | ) | |||
Revenues
Revenues during the six months ended June 30, 2022 were $43,011, compared to $65,605 during the six months ended June 30, 2021, a decrease of $22,594, or 34%. Revenues decreased slightly as we continued to shift our focus toward producing and selling CBD and THC oils.
Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2022 were $30,796, compared to $7,752 for the six months ended June 30, 2021, an increase of $23,044, or 297%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2022 were $769,190, compared to $1,108,572 during the six months ended June 30, 2021, a decrease of $339,382, or 31%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses decreased primarily due to decreased stock-based compensation over the prior year. General and administrative expenses included non-cash, stock-based compensation of $58,694 and $438,134 during the six months ended June 30, 2022 and 2021, respectively.
Professional Fees
Professional fees for the six months ended June 30, 2022 were $284,855, compared to $525,657 during the six months ended June 30, 2021, a decrease of $240,802, or 46%. Professional fees included non-cash, stock-based compensation of $23,566 and $324,241 during the six months ended June 30, 2022 and 2021, respectively. Professional fees decreased primarily due to decreased stock-based compensation efforts during the current period.
Depreciation Expense
Depreciation expense for the six months ended June 30, 2022 was $24,657, compared to $22,998 during the six months ended June 30, 2021, an increase of $1,659, or 7%. Depreciation expense increased as additional equipment was placed in service.
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Other Income (Expense)
Other expenses, on a net basis, for the six months ended June 30, 2022 were $234,509, compared to other expenses, on a net basis, of $194,037 during the six months ended June 30, 2021, an increase in net expenses of $40,472, or 21%. Other expenses consisted of $356,922 of interest expense, including $251,951 of stock-based finance costs on the amortization of debt discounts, as partially offset by $1,000 sublet income on our office space, a gain on early extinguishment of debt of $121,372 on the forgiveness of a PPP Loan and $41 of interest income, for the six months ended June 30, 2022, compared to $ $210,095 of interest expense, including $170,033 of stock-based finance costs on the amortization of debt discounts, as offset by $14,500 of sublease income on sublet office space and $1,558 of interest income during the six months ended June 30, 2021.
Net Loss
Net loss for the six months ended June 30, 2022 was $1,300,996, or $0.02 per share, compared to $1,793,411, or $0.03 per share, during the six months ended June 30, 2021, a decrease of $492,415, or 27%. The net loss decreased primarily due to decreased stock-based compensation during the current period.
Results of Operations for the Years ended December 31, 2021 and 2020
The following table summarizes selected items from the statement of operations for the years ended December 31, 2021 and 2020.
| For the Years Ended | ||||||||||||
| December 31, | Increase / | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Revenues | $ | 38,264 | $ | 59,568 | $ | (21,304 | ) | |||||
| Cost of goods sold | 19,744 | 104,729 | (84,985 | ) | ||||||||
| Gross profit | 18,520 | (45,161 | ) | 63,681 | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 2,924,284 | 3,960,791 | (1,666,507 | ) | ||||||||
| Professional fees | 915,217 | 3,878,006 | (2,962,789 | ) | ||||||||
| Depreciation expense | 40,321 | 33,610 | 6,711 | |||||||||
| Total operating expenses: | 3,249,822 | 7,872,407 | (4,622,585 | ) | ||||||||
| Operating loss | (3,231,302 | ) | (7,917,568 | ) | (4,686,266 | ) | ||||||
| Total other expense | (553,260 | ) | (47,592 | ) | 505,668 | |||||||
| Net loss | $ | (3,784,562 | ) | $ | (7,965,160 | ) | $ | (4,180,598 | ) | |||
Revenues
Revenues for the year ended December 31, 2021 were $38,264, compared to $59,568 during the year ended December 31, 2020, a decrease of $21,304, or 36%.
Cost of Goods Sold
Cost of goods sold for the year ended December 31, 2021 were $19,744, compared to $104,729 during the year ended December 31, 2020, a decrease of $84,985, or 81%. Cost of goods sold consists primarily of labor, depreciation and maintenance on cultivation and production equipment, and supplies consumed in our operations. Our gross margins were approximately 48% for the year ended December 31, 2021, compared to negative 76% during the year ended December 31, 2020. Our prior year cost of goods sold were greater than the current year due to the learning curve associated with commencing operations.
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General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2021 were $2,294,284, compared to $3,960,791 for the year ended December 31, 2020, a decrease of $1,666,507, or 42%. General and administrative expenses decreased primarily due to decreased stock-based compensation. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs, including $638,036 of stock-based compensation, of which $55,234, consisting of 673,582 shares, were issued as compensation payment in lieu of cash to our former CFO, and $582,802 of expense related to stock options that were issued to our officers. The expenses for the prior period included $2,581,933 of stock-based compensation, of which $1,100,000, consisting of 2,000,000 shares, were issued as severance pay to our former CEO, and $275,000, consisting of 500,000 shares of common stock, along with $1,206,933 of expense related to stock options that were voluntarily surrendered and cancelled at year-end was incurred in connection with the employment of Isiah Thomas as our new Chief Executive Officer in June 2020.
Professional Fees
Professional fees for the year ended December 31, 2021 were $915,217, compared to $3,878,006 during the year ended 2020, a decrease of $2,962,789, or 76%. Professional fees included non-cash stock-based compensation of $496,553 during the year ended December 31, 2021, compared to $3,167,252 during the year ended December 31, 2020, a decrease of $2,670,699, or 84%. Professional fees decreased primarily due to decreased stock-based compensation during the current period.
Depreciation Expense
We had $40,321 of depreciation expense for the year ended December 31, 2021, compared to $33,610 of depreciation expense for the year ended December 31, 2020, an increase of $6,711, or 20%. Depreciation expense increased during the current period as additional assets have been placed in service.
Other Income (Expense)
Other expenses, on a net basis, for the year ended December 31, 2021 were $553,260, compared to other expenses, on a net basis, of $47,592 for the year ended December 31, 2020. Other expense during the year ended December 31, 2021 consisted of a loss on disposal of fixed assets of $71,487 and $511,131 of interest expense, as partially offset by $27,000 of sublease income and $2,358 of interest income. Other expenses consisted of $47,592 of interest expense for the year ended December 31, 2020.
Net Loss
Net loss for the year ended December 31, 2021 was $3,784,562, or $0.06 per share, compared to $7,965,160, or $0.16 per share, during the year ended December 31, 2020, a decrease of $4,180,598, or 52%. The net loss for the year ended December 31, 2021 included non-cash expenses consisting of $40,321 of depreciation, a $71,487 loss on disposal of fixed assets, $1,134,589 of stock-based compensation, and $511,131 of interest expense, including $456,656 on the amortization of debt discounts, for the year ended December 31, 2021. The net loss for the year ended December 31, 2020 included non-cash expenses consisting of $33,610 of depreciation, $5,749,185 of stock-based compensation, and $47,592 of interest for the year ended December 31, 2020.
Liquidity and Capital Resources
The following table summarizes our total current assets, liabilities and working capital at June 30, 2022, December 31, 2021 and 2020.
| June 30, | December 31, | |||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Current Assets | $ | 628,466 | $ | 644,183 | $ | 420,619 | ||||||
| Current Liabilities | $ | 2,429,092 | $ | 1,523,593 | $ | 1,702,437 | ||||||
| Working Capital | $ | (1,800,626 | ) | $ | (879,410 | ) | $ | (1,281,818 | ) | |||
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The following table summarizes our cash flows during the six months ended June 30, 2022 and the years ended December 31, 2021 and 2020, respectively.
| For the Six Months | For the Year Ended | |||||||||||
| Ended | December 31, | |||||||||||
| June 30, 2022 | 2021 | 2020 | ||||||||||
| Net cash used in operating activities | $ | (905,472 | ) | $ | (3,728,702 | ) | $ | (1,429,112 | ) | |||
| Net cash used in investing activities | $ | (43,201 | ) | (388,001 | ) | (62,567 | ) | |||||
| Net cash provided by financing activities | $ | 879,320 | 4,218,938 | 1,274,841 | ||||||||
| Effect of exchange rate changes on cash | $ | 4,472 | (11,477 | ) | (36,622 | ) | ||||||
| Net change in cash | $ | (64,881 | ) | $ | 90,758 | $ | (253,460 | ) | ||||
The increase in funds used in operating activities for the year ended December 31, 2021, compared to the year ended December 31, 2020, was primarily due to increased operations in the current year as we rebounded from the global effects of the Covid-19 pandemic. The cash used in operating activities during the six months ended June 30, 2022 was primarily attributable to our net loss in that period.
The increase in funds used in investing activities for the year ended December 31, 2021, compared to the year ended December 31, 2020, was due primarily to increased purchases of fixed assets in the year ended December 31, 2021. The cash used in investing activities during the six months ended June 30, 2022 consisted of purchases of fixed assets.
The increase in funds provided by financing activities for the year ended December 31, 2021, compared to the year ended December 31, 2020, was due primarily to increased proceeds from the sale of our securities and debt financing received during the year ended December 31, 2021. The cash provided by investing activities during the six months ended June 30, 2022 consisted of the proceeds of debt financing during such period.
Ability to Continue as a Going Concern
As of June 30, 2022, our balance of cash on hand was $54,797, and we had negative working capital of $1,800,626 and an accumulated deficit of $21,217,884. We do not currently have sufficient funds to fund our operations at their current levels for the next twelve months. As we implement our cannabis cultivation business and attempt to expand operational activities, we expect to continue to experience net negative cash flows from operations in amounts not now determinable, and will be required to obtain additional financing to fund operations. Our ability to continue as a going concern is dependent upon our ability to raise additional capital and to achieve sustainable revenues and profitable operations. Since inception, we have raised funds primarily through the sale of equity securities. We will need, and are currently seeking, additional funds to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations or cause substantial dilution for our stockholders. If we are unable to obtain additional funds, our ability to carry out and implement our planned business objectives and strategies will be significantly delayed, limited or may not occur. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the competitive and evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability and our failure to do so would adversely affect our business, including our ability to raise additional funds.
Our financial statements included in this prospectus 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. Our financial statements included in this prospectus also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
Off-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
While our significant accounting policies are more fully described in notes to our financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. The Company’s sales to date have primarily consisted of the sale of seeds. These sales include multi-element arrangements whereby the Company collects 50% of the sale upon delivery of the sales, and the remaining 50% upon the completion of the harvest, whether the seeds result in a successful crop, or not. In addition, the Company has a right of first refusal to purchase products resulting from the harvest. At June 30, 2022, the Company had $33,510 of deferred revenues and $22,132 of deferred cost of goods sold, as included in other current assets on the balance sheet, that are expected to be recognized upon the customers’ completion of their harvests in 2022.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
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DESCRIPTION OF OUR BUSINESS
Overview
On February 21, 2019, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with OWP Merger Subsidiary, Inc. (“OWP Merger Sub), our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”). Under the Merger Agreement, the acquisition of OWP Ventures by us was effected by the merger of OWP Merger Sub with and into OWP Ventures, with OWP Ventures being the surviving entity as our wholly-owned subsidiary (the “Merger”). The closing (the “Closing”) of the Merger occurred on February 21, 2019.
Immediately prior to the Closing, we were a public “shell” company with nominal assets. As of the Closing, we are no longer a public shell. As a result of the Merger, we are engaged in OWP Ventures’ business, including the business of its wholly-owned subsidiary, One World Pharma, S.A.S., a Colombian company (“OWP Colombia”). On November 23, 2021, we changed our name from One World Pharma, Inc. to One World Products, Inc. through the merger of One World Products, Inc., a recently formed Nevada corporation wholly-owned by us, with and into us. This merger was effected solely to effect the change of our name, and had no effect on our officers, directors, operations, assets or liabilities. In this Form 10-K, the terms “we,” “us,” “our” and “our company” refers to One World Products, Inc. and its wholly-owned direct and indirect subsidiaries, OWP Ventures and OWP Colombia.
On June 3, 2020, Isiah L. Thomas III was appointed to serve as our Chief Executive Officer and Vice Chairman. Mr. Thomas was a 12-time NBA All Star, two-time NBA champion, and is an accomplished international business executive. In 2021, through ISIAH International, LLC, of which he is the sole member, Mr. Thomas purchased $3,000,000 of our Series B Preferred Stock in installments over a period of time ending in July 2021.
We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses from Colombian regulators to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the first companies in Colombia to receive licenses for seed, cultivation, extraction and export from the Colombian government (the “Licenses”).
We planted our first crop of cannabis in Popayan, Colombia in 2018, and began initial harvesting in the first quarter of 2019 for the purpose of further research and development activities and quality control testing of the cannabis we have produced. We commenced limited shipping of non-psychoactive products to customers in May of 2020. Although we hold the four Colombian Licenses, we will need to obtain additional approvals from Colombian regulators before we can fully execute our business plan, particularly with respect to the sale psychoactive products. As described further under “Regulation” below,
| ● | We will need to obtain quota approvals from the Colombian authorities before we can commence commercial sale of our psychoactive products under our Cannabis Manufacturing License and Psychoactive Cultivation License; | |
| ● | We have successfully registered three non-psychoactive distinct cannabis strains and have received the certification required by Colombia’s National Registrar as of April 2020; and | |
| ● | We have been issued the sanitary registrations needed to sell our products intended for human consumption; and | |
| ● | We have successfully registered eight psychoactive distinct cannabis strains and have received the certifications required by Columbia’s National Registrar as of December 2020; and | |
| ● | We will proceed to get quota approvals for 2022. |
Our first cultivation site is located in Popayan, Colombia and our extraction facility will be located in the outskirts of Bogota, Colombia, in the town of Funza. Our cultivation facility encompasses approximately 30 acres and includes a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell their harvested products to us on an exclusive basis.
We employ modern propagation and cultivation techniques drawn from U.S. practices that allow us to rapidly multiply the cells of a specific plant strain to produce large numbers of genetically consistent progeny plants using our own plant tissue culture method. We believe this technique allows us to cultivate plants which are stable, robust and able to produce genetically superior cannabis and hemp derived products. We intend to have our processes and products certified as compliant with international standards, including Good Agricultural Practices (“GAP”), Good Manufacturing Practice (“GMP”) and the standards set forth in EU Pharmacopoeia, a publication that sets forth quality standards applicable to the European pharmaceutical industry.
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We currently have 120,000 square feet of covered greenhouse capacity, which we intend to increase to 160,000 square feet. We are building out our extraction and production facility and expect it to be operational before the end of 2022. . From August 2021 through March 2022, we made payments of approximately $1,400,000 for the purchase of a state of the art distillation machine that we expect to be placed in service within our vertically integrated extraction facility during the third quarter of 2022. Once the equipment is placed in service, we will be one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality CBD and THC oils. In addition, we have a contractual relationship with a local co-operative under which they agree to assist us in cultivation at our facility.
We have received full registrations from the Instituto Colombiano Agropecuario (the “ICA”) for the full registration of 3 non-psychoactive high CBD strains and 13 proprietary high THC cannabis strains. Only registered strains may be sold under Colombian law. We are now able to start the quota process, which is required in order to commercialize THC products. We believe we will receive a supplementary quota during 2022 that will allow us to sell THC products before year end 2022.
We believe there is a large and growing market for cannabis and hemp products around the world. The market for CBD has shown particular demand and growth. We will pursue sales into this market using a direct sales force to establish direct customer relationships and distributor relationships. We will seek out customers who have large and recurring needs and demands. Countries that we intend to focus on include EU countries, the UK, Poland, Israel, and Canada. We have commenced limited initial shipments of non-psychoactive products to customers in May of 2020. However, we remain subject to numerous risks that may affect or delay future sales, including regulatory requirements imposed or that may in the future be imposed by the Colombian regulating authorities. In addition, we will need to obtain quota approval from Colombian regulators before making we can make sales of our psychoactive products.
History and Background
One World Pharma S.A.S., is a Colombian company (“OWP Colombia”), incorporated on July 14, 2017 with the goal of procuring the following Colombian Licenses.
On December 20, 2017, the Colombian Ministry of Health, by means of resolution No. 5251 of 2017, granted OWP Colombia its license for the production of cannabis derivatives for domestic use and export, allowing OWP Colombia to extract high tetrahydrocannabinol (“THC”) compounds (“Cannabis Manufacturing License”). This license will expire on December 20, 2022.
On December 26, 2017, the Colombian Ministry of Justice, by means of resolution No. 1087 of 2017, granted OWP Colombia its license to use seeds for sowing for sale or delivery of seeds and/or for scientific research purposes, allowing for genetic and seed bank registration (“Cannabis Seed Possession License”). This license will expire on December 26, 2022.
On December 26, 2017, the Colombian Ministry of Justice, by means of resolution No. 1088 of 2017, granted OWP Colombia its license to grow non-psychoactive cannabis plants (less than 1.0% THC). Under this license, OWP Colombia can produce seeds for planting, deliver and make sales of the cannabis crop in order to produce cannabis derivatives and deliver and make sales of the cannabis crop for industrial purposes (“Cannabis Non-Psychoactive Cultivation License”). This license will expire on December 26, 2022.
On January 4, 2018, the Colombian Ministry of Justice, by means of resolution No. 0015 of 2018, granted OWP Colombia its license to grow psychoactive cannabis plants (greater than 1.0% THC) (“Psychoactive Cultivation License”). Under this license, OWP Colombia can produce seeds for planting, and deliver and make sales of the cannabis crop in order to produce cannabis derivatives. This license will expire on January 4, 2023.
Six months prior to the expiration of each of the Licenses, we can apply for successive renewals for additional five-year periods. In each renewal application, the corresponding Ministry will assess compliance with all the relevant requirements in determining whether or not to renew the License.
On March 27, 2018, OWP Ventures, Inc. was formed as a Delaware corporation for the purpose of acquiring OWP Colombia.
On May 30, 2018, OWP Ventures entered into a Stock Purchase Agreement with the shareholders of OWP Colombia whereby the shareholders of OWP Colombia transferred their shares in OWP Colombia to OWP Ventures in exchange for 10,200,000 shares of common stock of OWP Ventures.
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Products
We are focused on cultivating, processing and supplying crude cannabis oil, distillate and isolate to customers’ specification. We plan to sell as a wholesaler to industrial companies making cannabis related products. We also plan on supplying the hemp plant bio-mass remaining after our extraction process to industry participants that utilize hemp in the manufacture of their products. Hemp is used to make a variety of commercial and industrial products, including rope, textiles, clothing, shoes, food, paper, bioplastics, insulation and biofuel.
We are currently in the process of cultivating medicinal cannabis at our facility in Popayan, Colombia for a variety of medical conditions. We have registered 25 varieties or strains of cannabis with the Colombian Ministry of Health. See “Strains of Cannabis” below. The development of these strains enables us to select mother plants and identify the concentrations of cannabinoids required for the products which we intend to distribute. The cannabis will be produced in accordance with GMP Standards. We are committed to developing final products consistent with medicinal cannabis industry standards and pharmaceutical procedures. Our products will include a variety of cannabinoids and terpenes designed to address specific medical conditions. The composition of the strains will include a wide range of THC and CBD ratios.
Industry
Medicinal cannabis refers to the use of cannabis and its constituent cannabinoids and terpenes to treat disease or ameliorate symptoms such as pain, muscle spasticity, nausea and other indications. Cannabinoid is a blanket term covering a family of complex chemicals, both natural and man-made, that bind with cannabinoid receptors (protein molecules on the surface of cells) and effect a wide number of responses. Cannabinoid receptors in the human body are part of a system called the endocannabinoid system. This system produces chemicals called endocannabinoids, which also bind with cannabinoid receptors. Cannabinoid receptors are found in the brain and throughout the body. Scientists have found that cannabinoid receptors in the endocannabinoid system are involved in a vast array of functions in our bodies, including helping to modulate brain and nerve activity (including memory and pain), energy metabolism, heart function, the immune system and even reproduction. While there are a large number of active cannabinoids found in cannabis, the two most common currently used for medical purposes are tetrahydrocannabinol and cannabidiol. Although no clinical trials have been completed in the United States to validate the effectiveness of tetrahydrocannabinol or cannabidiol in managing disease and improving symptoms, scientific studies have identified that they, alone and/or in combination, may potentially provide treatment benefits for a large number of medical conditions. For example, tetrahydrocannabinol, a psychotropic cannabinoid, has been shown to activate pathways in the central nervous system which work to block pain signals and has shown potential to assist patients with Post Traumatic Stress Disorder (PTSD) and stimulate appetite in patients following chemotherapy. Cannabidiol, on the other hand, is non-psychotropic and has shown potential to relieve convulsion and inflammation, and is the active ingredient in Epidolex, which in June 2018 was approved by the FDA for the treatment of two rare and severe forms of epilepsy.
Regulation
Our active business operations are currently conducted solely within Colombia, and as such, the discussion below is limited to Colombian laws and regulations applicable to our business, which require us to hold the relevant licenses, quotas and other permits, as described below. Our activities in the United States consist solely of corporate administrative activities at our Las Vegas headquarters, including accounting, finance and SEC compliance functions. We believe that our current activities in the United States will not subject us to regulation under the U.S. Controlled Substances Act or other applicable U.S. federal or state laws with respect to our proposed business plans. All export activities will be conducted from Colombia, and we do not intend to export any of our products to jurisdictions where such sales are not legal under local law. Accordingly, we do not currently intend to export our products to the United States to the extent such products may be subject to regulation under the U.S. Controlled Substances Act or other applicable U.S. federal or state regulations.
Regulatory Authorities
Several authorities interact in the Colombian cannabis industry. The Ministry of Health is in charge of granting the Cannabis Manufacturing and Distribution License and exercises administrative control over the production of cannabis derivatives. The Ministry of Justice, through the subsection for the Control and Supervision of Chemical Substances and Narcotic Drugs, is the competent authority for issuing the Cannabis Seeds Possession License, the Cannabis Psychoactive Cultivation License and the Cannabis Non-Psychoactive Cultivation License and for exercising administrative control over cannabis operations and cultivation. The National Narcotics Fund (“FNE”) exercises administrative and operational control over activities related to the management of psychoactive and non-psychoactive cannabis and its derivatives. The National Food and Drug Surveillance Institute (“INVIMA”) is in charge of issuing and monitoring compliance under the health and phytosanitary registrations that may be applicable to products containing cannabis derivatives. The Colombian Agricultural Institute (“ICA”) is responsible for maintaining the registry of the Genetic Pool or ¨Fuente Semillera” and the registration of cannabis seeds and strains under the “Registro Nacional de Cultivares Comerciales”.
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In exercising the administrative and operational control activities discussed above the Ministry of Justice, Ministry of Health, ICA and FNE are required to coordinate their activities to the extent necessary, according to their competencies, with the Ministry of Agriculture and Rural Development through ICA, as well as with the National Police.
Licenses
Under Colombian law, there are four types of cannabis licenses that authorize different activities concerning the various stages of the production line of the medical cannabis industry: (i) the Cannabis Seeds Possession License; which is required for the domestic sale and delivery of seeds (but not export) and for scientific research purposes; (ii) the Cannabis Psychoactive Cultivation License, which is required for the production of seeds for sowing; for grain production; production of cannabis derivatives; for scientific research purposes, for storage, and for final disposal; (iii) the Cannabis Non-Psychoactive Cultivation License, which is required for the production of grain and seeds for sowing; production of cannabis derivatives; for industrial purposes; for scientific research purposes; for storage; and for final disposal; and (iv) the Cannabis Manufacturing and Distribution License, which is required for the production of cannabis derivatives for domestic use; production of cannabis derivatives for scientific research purposes; and production of cannabis derivatives for exportation. OWP Colombia holds all of these licenses.
The legal framework currently in force in Colombia regarding medical cannabis is established in Law 1787 of 2016 (the “Law”) and the Decree 613 of 2017 (the “Decree”). Cannabis licenses must be issued by the Ministry of Health or the Ministry of Justice in an estimated time of 60 days, however, in practice, this process can take between four and six months. In accordance with Colombia’s international obligations, there is a limit in the amount of Cannabis allowed for fabrication or cultivation assigned by the Colombian Government (specific crop or manufacturing quotas) that must be requested by each licensee when applying for a Cannabis Psychoactive Cultivation License or a Cannabis Manufacturing License. The activities of cultivation and manufacturing can only be started once the specific quotas have been granted to the licensee.
Duration of Licenses
The Cannabis Seeds Possession License, the Cannabis Psychoactive Cultivation License, the Cannabis Non-Psychoactive License, and the Cannabis Manufacturing and Distribution License are granted by the Ministry of Justice and/or the Ministry of Health (as applicable), when the applicant fulfills the general criteria described in Article 2.8.11.2.1.5 of the Decree, and the specific requirements for each type of license. Each of these licenses is valid for up to five years. The Ministry of Justice and the Ministry of Health (as applicable) maintain the right to monitor the activities performed by the corresponding licensee, and in the event of a breach by the licensee of the obligations and duties set forth in the Decree, the licenses may be revoked. The relevant Ministry may renew these licenses for additional and successive five-year periods. In each renewal application, the Ministry will assess compliance with all the relevant requirements in determining whether or not to renew the license.
Quotas
As described above, regulations of cannabis in Colombia provides an additional requirement applicable to the Cannabis Psychoactive Cultivation License and Cannabis Manufacturing License, which require the grant of crop and manufacturing quotas (the “Quotas”). According to Article 2.8.11.2.6.2 of the Decree, the assignment of Quotas is collectively made by the Ministry of Health, the Ministry of Justice, the ICA, the INVIMA, and the FNE.
According to Article 2.8.11.2.6.5 of the Decree, there are two types of Quotas: (i) crop quotas for psychoactive cannabis (for holders of the Cannabis Psychoactive Cultivation License) which are granted by the Ministry of Justice; and (ii) the manufacturing quotas for psychoactive cannabis (for holders of the Cannabis Manufacturing License) which are granted by the Ministry of Health.
These Quotas are requested by the licensees no later than the last calendar day of April of each year, and, if they are granted by the corresponding authority, they can only be used by the licensees during the next calendar year (for instance, if a licensee requests a specific crop Quota in March, 2018, and this Quota is granted by the Ministry of Justice, the licensee will be allowed to use the Quota from January 1, 2019 to December 31, 2019). In extraordinary events, the licensees can request a supplementary Quota that will apply to the calendar year requested (the issuance of these Quotas depends on the special circumstances defined by the Colombian governmental authorities).
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On December 3, 2018, by means of resolution 1256 of 2018, Colombia´s Ministry of Justice granted OWP Colombia a supplementary Quota for growing psychoactive mother plants; six for each of 13 varieties, for a total of 78 “mother” plants. However, before we commence the commercial sale of our psychoactive products (greater than 1% THC content), we will need to obtain Quotas from the Ministry of Health. This will require us to conduct successful agricultural characterization tests approved by and registered with the ICA/Ministry of Agriculture and Rural Development, and stabilized extracts characterization tests approved by INVIMA/Ministry of Health, of product samples grown by us under Quotas obtained from the Ministry of Justice. We have already requested from the Ministry of Health and Justice our annual Quotas for the export sale of psychoactive ingredients in 2022, and are awaiting the issuance of such Quotas in order to start our production process.
Strains of Cannabis
Strains of cannabis are registered in Colombia in two manners:
| ● | Registration of the Genetic Pool or “Fuente Semillera”: Under Article 2.8.11.11.1 of the Decree, licensed producers of cannabis had until December 31, 2018 to register the genetics of strains of cannabis with the ICA. Under this transitory article, the government allowed a limited period for licensed producers of cannabis to source genetics currently available in Colombia and register these as their “fuente semillera”. We registered 25 varieties under this article. This registration enables us to grow our own strains of cannabis as opposed to having to purchase registered strains from other licensed producers. | |
| ● | Registration Under the “Registro Nacional de Cultivares Comerciales”: Licensed producers of cannabis have to be granted a breeding/research license to be able to develop, select and trial stabilized cannabis cultivars. This registration allows licensed producers to register unique and stable varieties of cannabis for commercial production within Colombia. We were granted such license in the first quarter of 2018. Licensed producers can then request from ICA a registration trial, which is a field flowering trial with the supervision of ICA officials. The data collected in these trials can lead to registration of the cultivar in the National Registrar. Only registered varieties will be allowed to be produced commercially. We have received full registration for 3 non-psychoactive high CBD strains which have been approved for sale. We have also received permission to take 13 psychoactive THC strains through this process and anticipate the completion of such by year end 2021. |
Sanitary Registration
The commercialization of cannabis-based finished products intended for human consumption requires the issuance of sanitary registrations by the INVIMA, and in the case of products intended for animal consumption, by the ICA.
Environmental
Under Colombian law, general principles of environmental law are set out in Law 99 of 1993 and Article 9 of the National Code of Natural Resources and Protection of the Environment. These laws establish principles governing the use of natural resources, including that use must occur without causing harm to the interests of the community or of third parties. Parties that cause environmental damage while acting under the authority of a permit are responsible for incurring the costs to rectify the damage. The imposition of environmental sanctions is in addition to civil and criminal penalties that may be imposed. Environmental damage caused while a party is acting without a license constitutes a breach of Law 99 of 1993 and may lead to the imposition of sanctions, in addition to civil or criminal proceedings that may result. Parties that cause environmental damage, in addition to sanctions or penalties that apply, will also be required to carry out studies to assess the characteristics of the damage. Under Colombian law, liability for environmental damage creates a presumption of liability in case of a: (i) breach of environmental laws; (ii) environmental damage; and (iii) breach of environmental license or any other administrative act from the environmental authorities. The Environmental Authorities may investigate potential claims, authorize preventative measures, or impose sanctions on parties breaching environmental law.
Competition
The market for medicinal cannabis is characterized by unsatisfied patient demand, with few authorized producers. Although competition in the market is growing and Colombia offers an open process to apply for the licenses, we believe we are competitively positioned to satisfy the demand for medicinal cannabis given our early entry into the market, the management team’s expertise in medical product branding, marketing, quality control and domestic market relationships. In addition, the Colombian government has published for comment a draft decree that requires any applicant for any of the four Licenses to furnish evidence that it has completed the seed registration process before the ICA and obtained the corresponding technical sheet for the cannabis plants and varieties. If enacted, this new regulation will result in stricter requirements on potential competitors seeking a Colombian License.
Cultivation in Colombia has natural cost advantages. However, management believes the more sustainable competitive advantage is to create patient loyalty and brand preference, as opposed to the distribution of more homogeneous products. Domestically our competition consists of PharmaCielo, CannaVida, Empresa Colombiana de Cannabis, Khiron Life Sciences Corp., MedCan, Canopy Growth Corporation, and Clever Leaves.
Intellectual Property
Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on trade secrets, including know-how, employee and third-party nondisclosure agreements and other contractual rights to establish and protect our proprietary rights in our technology.
Seasonality
Colombia and its vertical offering of microclimates is the ideal country for year-round growing and processing of all possible varieties of cannabis in a natural, environmentally friendly manner.
Principal Executive Offices
Our principal executive offices are located at 3471 W. Oquendo Road, Suite 301, Las Vegas, Nevada 89118. Our telephone number is (800) 605-3210. We believe our facilities are adequate to meet our current and near-term needs.
Employees
As of September 30, 2022, we had 42 full-time employees. Since inception, we have never had a work stoppage, other than due to the Covid-19 quarantine from March 2020 through May 25, 2020, and our employees are not represented by labor unions. We consider our relationship with our employees to be positive.
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DESCRIPTION OF PROPERTY
Our principal executive offices are located at 3471 W. Oquendo Road, Suite 301, Las Vegas, Nevada 89118, Telephone No.: (800) 605-3210. Our leased premises are 3,210 square feet and are utilized for corporate business offices. Our Nevada premises are subject to a lease agreement expiring October 31, 2022. In addition, OWP Colombia leases an office and a home in Bogota under leases expiring in less than a year. On January 1, 2022, OWP Colombia commenced a ten-year warehouse lease. The leased premise is 38,750 square feet and will be used for our extraction facility. Our anticipated future lease commitments on a calendar year basis in US dollars, excluding common area maintenance fees, under non-cancelable operating leases are as follows:
| Minimum | ||||
| Year Ending | Lease | |||
| December 31, | Commitments | |||
| 2022 | $ | 231,157 | ||
| 2023 | 188,988 | |||
| 2024 | 194,664 | |||
| 2025 | 200,496 | |||
| 2026 | 206,508 | |||
| Thereafter | 1,129,308 | |||
| Total future minimum lease liabilities | $ | 2,151,121 | ||
We believe that our current facilities are adequate for our current needs. We intend to secure new facilities or expand existing facilities as necessary to support future growth. We believe that suitable additional space will be available on commercially reasonable terms as needed to accommodate our operations.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
DESCRIPTION OF CAPITAL STOCK
The following is a brief description of our capital stock. This summary does not purport to be complete in all respects. The brief description is based upon our Articles of Incorporation, including the Certificate of Amendment to our Articles of Incorporation, (as amended, our “Articles of Incorporation”), our Bylaws (our “Bylaws”), and provisions of applicable Nevada law. This summary does not purport to be complete and is subject to, and qualified in its entirety by, the full text of our Articles of Incorporation and Bylaws, copies of which have been filed with the SEC, and by Florida law.
General
Our Articles of Incorporation authorizes us to issue up to 310,000,000 shares of capital stock, consisting of 300,000,000 shares of common stock, par value $0.001 common stock (“common stock”), and 10,000,000 shares of preferred stock, par value $0.001 per share, of which 500,000 shares have been designated Series A Preferred Stock and 600,000 shares have been designated Series B Preferred Stock, with the remaining 8,900,000 shares of preferred stock available for designation from time to time by the Board as set forth below. As of June 30, 2022, we had outstanding 65,861,631 shares of common stock, 65,233 shares of Series A Preferred Stock and 238,501 shares of Series B Preferred Stock. Our Articles of Incorporation authorizes our Board of Directors (our “Board”) to determine any number of series into which the undesignated shares of preferred stock may be divided and to determine, at any time and from time to time, the rights, preferences, privileges and restrictions granted to any series of such preferred stock, as described below.
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Common Stock
Dividend Rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our Common Stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors may determine.
Voting Rights
Each holder of our Common Stock is entitled to one vote for each share of our Common Stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our articles of incorporation, as amended, which means that the holders of a majority of the voting shares voted can elect all of the directors then standing for election.
No Preemptive or Similar Rights
Holders of our Common Stock do not have preemptive rights, and our Common Stock is not convertible or redeemable.
Right to Receive Liquidation Distributions
Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our Common Stock, subject to the preferential rights and payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
Preferred Stock
Series A Preferred Stock
Each share of Series A Preferred Stock is currently convertible into fifty shares of common stock. The conversion price is subject to equitable adjustment in the event of stock splits and other adjustments in the Company’s capitalization, and is subject to reduction to the price at which the Company sells common stock in the future, subject to customary exceptions. Additional terms of the Series A Preferred Stock include the following:
● The Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable annually in cash or additional shares of Series A Preferred Stock, at the Company’s election.
● Upon the liquidation or dissolution of the Company, or any merger or sale of all or substantially all of the assets, the shares of Series A Preferred Stock are entitled to receive, prior to any distribution to the holders of common stock, 100% of the purchase price per share of Series A Preferred Stock plus all accrued but unpaid dividends.
● Each share of Series A Preferred Stock carries a number of votes equal to the number of shares of common stock into which such Series A Preferred Stock may then be converted. The Series A Preferred Stock generally will vote together with the common stock and not as a separate class.
Series B Preferred Stock
Each share of Series B Preferred Stock is currently convertible into 100 shares of common stock. The conversion price is subject to equitable adjustment in the event of stock splits and other adjustments in the Company’s capitalization. Additional terms of the Series B Preferred Stock include the following:
● The shares of Series B Preferred Stock are entitled to dividends when, as and if declared by the Board as to the shares of the common stock of the Company into which such Series B Preferred Stock may then be converted.
● Upon the liquidation or dissolution of the Company, or any merger or sale of all or substantially all of the assets, the shares of Series B Preferred Stock are entitled to receive, prior to any distribution to the holders of common stock, but after distributions to the holders of Series A Preferred Stock, 100% of the purchase price per share of Series B Preferred Stock plus all accrued but unpaid dividends.
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● Each share of Series B Preferred Stock carries a number of votes equal to the number of shares of common stock into which such Series B Preferred Stock may then be converted. The Series B Preferred Stock generally will vote together with the common stock and not as a separate class.
Blank Check Preferred Stock
The remaining 8,900,000 shares of preferred stock may be issued in series, and shall have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issuance of such stock adopted from time to time by the Board. The Board is expressly vested with the authority to determine and fix in the resolution or resolutions providing for the issuances of preferred stock the voting powers, designations, preferences and rights, and the qualifications, limitations or restrictions thereof, of each such series to the full extent now or hereafter permitted by the laws of the State of Nevada.
Anti-takeover Provisions
Certain provisions of our articles of incorporation, as amended, and Nevada law may have the effect of delaying, deferring or discouraging another person from acquiring control of our company.
Nevada Law
In addition, Nevada has enacted the following legislation that may deter or frustrate takeovers of Nevada corporations:
Authorized but Unissued Stock – The authorized but unissued shares of our Common Stock are available for future issuance without stockholder approval. These additional shares may be used for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock may enable our board of directors to issue shares of stock to persons friendly to existing management.
Evaluation of Acquisition Proposals – The Nevada Revised Statutes expressly permit our board of directors, when evaluating any proposed tender or exchange offer, any merger, consolidation or sale of substantially all of our assets, or any similar extraordinary transaction, to consider all relevant factors including, without limitation, the social, legal, and economic effects on our employees, customers, suppliers, and other relevant interest holders, and on the communities and geographical areas in which they operate. Our board of directors may also consider the amount of consideration being offered in relation to the then current market price of our outstanding shares of capital stock and our then current value in a freely negotiated transaction.
Control Share Acquisitions – Nevada has adopted a control share acquisitions statute designed to afford stockholders of public corporations in Nevada protection against acquisitions in which a person, entity or group seeks to gain voting control. With enumerated exceptions, the statute provides that shares acquired within certain specific ranges will not possess voting rights in the election of directors unless the voting rights are approved by a majority vote of the public corporation’s disinterested stockholders. Disinterested shares are shares other than those owned by the acquiring person or by a member of a group with respect to a control share acquisition, or by any officer of the corporation or any employee of the corporation who is also a director. The specific acquisition ranges that trigger the statute are: acquisitions of shares possessing one-fifth or more but less than one-third of all voting power; acquisitions of shares possessing one-third or more but less than a majority of all voting power; or acquisitions of shares possessing a majority or more of all voting power. Under certain circumstances, the statute permits the acquiring person to call a special stockholders’ meeting for the purpose of considering the grant of voting rights to the holder of the control shares. The statute also enables a corporation to provide for the redemption of control shares with no voting rights under certain circumstances.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is vStock Transfer, LLC. Its mailing address is 18 Lafayette Place, Woodmere, NY 11598, its telephone number is (212) 828-8436, and its facsimile number is (646) 536-3179.
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MANAGEMENT
Set forth below are the present directors and executive officers of the Company. There are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer.
| Name | Age | Position | ||
| Isiah Thomas, III | 61 | Chief Executive Officer, Chairman of the Board | ||
| Dr. Kenneth Perego, II | 53 | Vice Chairman of the Board | ||
| Terry L. Buffalo | 57 | Director | ||
| Timothy Woods | 56 | Chief Financial Officer |
Biographies
Set forth below are brief accounts of the business experience of each director and executive officer of the Company.
Isiah Thomas, III has been our Chief Executive Officer since June 2020, and our Chairman of the Board since December 2021. Mr. Thomas has also been the Chairman and Chief Executive Officer of Isiah International, LLC, a holding company with interests in a diversified portfolio of businesses, since 2011. Mr. Thomas also has been a Commentator and Analyst for NBA TV, since 2014, and Turner Sports, since 2012. He previously served as the President & Alternate Governor of the New York Liberty of the Women’s National Basketball Association from 2015 to February 2019, the Head Basketball Coach at Florida International University, from 2009 to 2012, the General Manager, President of Basketball Operation and Head Coach of the New York Knicks of the National Basketball Association (“NBA”), from 2006 to 2008, the Head Coach of the Indiana Pacers of the NBA from 2000 to 2003, the Owner of the Continental Basketball Association from 1998 to 2000, Minority Owner & Executive Vice President of the Toronto Raptors of the NBA from 1994 to 1998 and point guard for the Detroit Pistons of the NBA from 1981 to 1994. Mr. Thomas has served as a director of Get in Chicago, an organization focused on stopping gun and related violence in Chicago, since 2013, and as a director of Madison Square Garden Entertainment Corp. since April 2020. He is also the Founder of Mary’s Court Foundation, a charitable organization established in 2010. We believe that Mr. Thomas’s business experience qualifies him to serve as our chairman and CEO.
Dr. Kenneth Perego, II was a director of OWP Ventures prior to the Merger and was appointed to our Board of Directors pursuant to the Merger Agreement, before being appointed Vice Chairman of the Board on December 7, 2021. He has been a practicing urologic surgeon in private practice since 2001 with an emphasis in urologic oncology and reconstructive urology. He has a strong clinical background in research and is focused on new drug discovery. We believe that Dr. Perego’s medical experience qualifies him to serve as our director.
Terry L. Buffalo was appointed to our Board of Directors on September 7, 2022. Mr. Buffalo previously served as the Chief Executive Officer and a director of American Cannabis Company, an OTCQB traded company, from June 1, 2017 until December 31, 2022, and in addition served as its Chief Financial Officer from August 2020 until December 31, 2022. He is also the founder and principal of Buffalo Cannabis Advisors, a cannabis advisory company. Mr. Buffalo has extensive experience in the financial services industry and was the Chief Executive Officer of a regional broker dealer for over 10 years. We believe that Mr. Buffalo’s financial and public company experience qualify him to serve as our director.
Timothy Woods was appointed to serve as the Company’s Chief Financial Officer on February 14, 2022. From 2015 until his appointment as our Chief Financial Officer, Mr. Woods served as the Director of Business Development and General Sales Manager of Lithia Motors, Inc., one of the largest automotive retailers in the United States. Prior to his tenure with Lithia Motors, Mr. Woods was the Chief Financial Officer of Spend Consciously, a technology-based start-up. Mr. Woods also served as the Chief Financial Officer and energy services division Vice President of Finance for WGL Holdings Inc., providing high-level financial functions and advanced reporting, including the generation of quarterly and annual SEC filings, Sarbanes-Oxley compliance, and benefit plans. Earlier in his career, Mr. Woods was VP of Finance for Freddie Mac; a divisional CFO & North American controller for Stanley Works; and assistant global controller for General Electric’s Lighting Division. Mr. Woods holds a Bachelor of Business Administration in Accounting from Cleveland State University and is a graduate of the GE Financial Management program. He has achieved multiple honors, including being named “Business Leader of the Year” by the National Association of Black Accountants.
Director Independence
Our board of directors currently consists of Isiah Thomas, III, our Chief Executive Officer and Chairman, Dr. Kenneth Perego, II, our Vice Chairman, and Terry L. Buffalo. As an executive officer, Mr. Thomas does not qualify as “independent” under standards of independence set forth by national securities exchanges. Our Board of Directors has determined that Dr. Kenneth Perego, II and Terry L. Buffalo are “independent” in accordance with the NASDAQ Global Market’s requirements. As our common stock is currently quoted on the OTCQB, we are not currently subject to corporate governance standards of listed companies.
Board Committees and Audit Committee Financial Expert
We do not currently have a standing audit, nominating or compensation committee of the board of directors, or any committee performing similar functions. Our board of directors performs the functions of audit, nominating and compensation committees. We believe that Mr. Buffalo qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K promulgated under the Securities Act.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our code of ethics may be obtained free of charge by contacting us at the address or telephone number listed on the cover page hereof.
| 32 |
EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation table sets forth the aggregate compensation we paid or accrued during the fiscal years ended December 31, 2021 and 2020 to Isiah Thomas, III, our Chief Executive Officer (our “Named Executive Officer”), who was our only executive officer that received total compensation in excess of $100,000 during 2021.
| Name and | Fiscal | Stock | Option | |||||||||||||||||
| Financial Position | Year | Salary | Awards(2) | Awards(3) | Total | |||||||||||||||
| Isiah Thomas, III, | 2021 | $ | 120,000 | (1) | $ | - | $ | 645,624 | (4) | $ | 765,624 | |||||||||
| Chief Executive Officer and Chairman | 2020 | $ | 70,000 | (1) | $ | 275,000 | $ | - | $ | 345,000 | ||||||||||
| (1) | Consists of $120,000 and $70,000 of accrued salary for the years ended December 31, 2021 and 2020, respectively, not yet paid. |
| (2) | The aggregate fair value of the common stock awarded based on the closing price of the Company’s common stock on the date of grant. |
| (3) | Excludes options granted in 2020 and voluntarily surrendered on December 31, 2020. |
| (4) | On January 1, 2021, we granted Mr. Thomas the option to purchase 5,500,000 shares of common stock at an exercise price of $0.13 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1174, was $645,624. |
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2021, our Named Executive Officer had outstanding unexercised options as set forth below. Our named Executive Officer did not have any unvested stock awards outstanding at December 31, 2021.
| Name | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Option Exercise Price ($) | Option Expiration Date ($) (2) | ||||||||||
| Isiah Thomas, III | 3,500,000 | 2,000,000 | $ | 0.13 | June 30, 2030 | |||||||||
Director Compensation
The following table summarizes the compensation paid or accrued by us to our directors that are not Named Executive Officers for the year ended December 31, 2021.
| Name | Fees Earned or Paid in Cash | Option Awards(1) | All other Compensation | Total | ||||||||||||
| Dr. Kenneth Perego, II | $ | - | $ | 40,943 | $ | - | $ | 40,943 | ||||||||
| Bruce Raben (2) | $ | - | $ | 55,565 | $ | - | $ | 55,565 | ||||||||
(1) On January 1, 2021, we granted Dr. Perego the option to purchase 350,000 shares of common stock at an exercise price of $0.13 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170, was $40,943. On January 1, 2021, we granted Mr. Raben the option to purchase 475,000 shares of common stock at an exercise price of $0.13 per share. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170, was $55,565.
(2) Includes payments received during 2021 for service as our Interim Chief Financial Officer. Mr. Raben resigned as a director of the Company on August 31, 2022.
Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors.
| 33 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Party Transactions
Other than the transactions described below, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party:
| ● | in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years; and | |
| ● | in which any director, executive officer, stockholders who beneficially owns more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest. |
Advances by and repayments to Dr. Kenneth Perego, II, M.D.
On August 5, 2022, the Company received an advance of $50,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On July 7, 2022, the Company received an advance of $5,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On May 5, 2022, the Company received an advance of $20,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On December 29, 2021, the Company received an advance of $200,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board, pursuant to an unsecured promissory note due January 1, 2024 that carried an 8% interest rate.
On September 14, 2020, the Company received an advance of $26,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board, pursuant to an unsecured demand note that carried a 6% interest rate. A total of $27,201, consisting of $26,000 of principal and $1,201 of interest, was repaid on March 29, 2021.
Advances by and Repayments to Isiah Thomas, III
On August 2, 2022, the Company received an advance of $4,500 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On June 3, 2022, the Company received an advance of $10,000 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On May 5, 2022, the Company received an advance of $10,000 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate.
On December 16, 2020, the Company received an advance of $125,000 from Mr. Isiah Thomas, III, our Chairman of the Board, pursuant to an unsecured demand note that carried a 6% interest rate. A total of $130,610, consisting of $125,000 of principal and $5,610 of interest, was repaid on September 15, 2021
On October 28, 2020, the Company received an advance of $50,000 from Mr. Isiah Thomas, III, our Chairman of the Board, pursuant to an unsecured demand note that carried a 6% interest rate. A total of $52,918, consisting of $50,000 of principal and $2,918 of interest, was repaid on October 19, 2021.
| 34 |
Series A Preferred Stock Sale to Dr. Kenneth Perego, II, M.D.
On July 10, 2020, the Company received proceeds of $110,000 from the sale of 11,000 units to the Company’s Chairman of the Board, Dr. Ken Perego. Each unit consisted of one share of Series A Preferred Stock and five-year warrants to purchase 50 shares of common stock at an exercise price of $0.25 per share. The proceeds received were allocated between the preferred stock and warrants on a relative fair value basis.
Series B Preferred Stock Sales to Isiah Thomas, III
On February 7, 2021, the Company and ISIAH International, LLC (“ISIAH International”), entered into a Securities Purchase Agreement (the “Purchase Agreement”) under which ISIAH International agreed to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of 200,000 shares of the Company’s newly designated Series B Preferred Stock (“Series B Preferred Stock”), convertible into an aggregate of 20,000,000 shares of the Company’s common stock, for a purchase price of $15 per share of Preferred Stock, and an aggregate purchase price of $3 million. Each share of Series B Preferred Stock has a Stated Value of $15 and is convertible into common stock at a conversion price equal to $0.15. Isiah Thomas, the Company’s Chief Executive Officer, is the sole member and Chief Executive Officer of ISIAH International. Pursuant to the Purchase Agreement, ISIAH International purchased the 200,000 shares of Series B Preferred Stock from the Company according to the following schedule:
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | 16,666 | $ | 249,990 | |||||
| February 22, 2021 | 16,667 | 250,005 | ||||||
| March 8, 2021 | 16,667 | 250,005 | ||||||
| March 22, 2021 | 16,667 | 250,005 | ||||||
| April 5, 2021 | 16,666 | 249,990 | ||||||
| April 19, 2021 | 16,667 | 250,005 | ||||||
| May 17, 2021 | 33,334 | 500,010 | ||||||
| June 14, 2021 | 33,333 | 499,995 | ||||||
| July 12, 2021 | 33,333 | 499,995 | ||||||
| Total | 200,000 | $ | 3,000,000 | |||||
On various dates in May, 2021, the Company also received total proceeds of $50,010 from the sale of an aggregate of 3,334 shares of Series B Preferred Stock at a price of $15 per share to trusts whose beneficiaries are adult children of Isiah L. Thomas III. Mr. Thomas disclaims beneficial ownership of the shares held by these trusts.
DISCLOSURE
OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES LIABILITIES
Our articles of incorporation have eliminated our directors’ and officers’ personal liability for damages for breaches of fiduciary duty but do not eliminate or limit the liability of a director officer for (a) acts or omissions which involve intentional misconduct, fraud or a knowing violation of the law, or (b) the payment of dividends in violation of applicable law. The effect of this provision of our articles of incorporation is to eliminate our rights and those of our stockholders to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except as provided above or under certain situations defined by statute. We believe that the indemnification provisions in our articles of incorporation are necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
LEGAL MATTERS
Certain legal matters relating to the validity of our securities offered by this prospectus will be passed upon for us by Fox Rothschild LLP, New York, York.
| 35 |
EXPERTS
Our consolidated financial statements as of December 31, 2021 and 2020 and for the years then ended included in this prospects have been audited by M&K CPAS, PLLC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We are filing with the SEC this registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedule thereto, certain parts of which are omitted in accordance with the rules and regulations of the SEC. For further information regarding our common stock and our company, please review the registration statement, including exhibits, schedules and reports filed as a part thereof. Statements in this prospectus as to the contents of any contract or other document filed as an exhibit to the registration statement, set forth the material terms of such contract or other document but are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference.
We file annual, quarterly, and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC’s web site at www.sec.gov and on the investor relations page of our website at www.oneworldproducts.com. Information on our web site is not part of this prospectus. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street N.E., Washington, D.C. 20549. You can also obtain copies of the documents upon the payment of a duplicating fee to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.
| 36 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
| F-1 |
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Right-of-use assets | ||||||||
| Security deposits | ||||||||
| Fixed assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenues | ||||||||
| Dividends payable | ||||||||
| Current portion of lease liabilities | ||||||||
| Convertible notes payable, net of $ | ||||||||
| Notes payable, current maturities | ||||||||
| Notes payable, related parties, current maturities | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liability | ||||||||
| Notes payable, long-term portion | ||||||||
| Notes payable, related parties, long-term portion | ||||||||
| Total Liabilities | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; shares issued and outstanding | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Subscriptions payable, consisting of shares at December 31, 2021 | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
See accompanying notes to financial statements.
| F-2 |
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Depreciation expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Sublease income | ||||||||||||||||
| Gain on early extinguishment of debt | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Gain (loss) on foreign currency translation | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Net other comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Series A convertible preferred stock declared ($ per share) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic | ||||||||||||||||
| Net loss per share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - fully diluted | ||||||||||||||||
| Net loss per share - fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Dividends declared per share of common stock | $ | $ | $ | $ | ||||||||||||
See accompanying notes to financial statements.
| F-3 |
ONE WORLD PHARMA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| For the Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of series A convertible preferred stock | ( | ) | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| 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, June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| For the Three Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| 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, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| F-4 |
| For the Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of series A convertible preferred stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | - | - | ||||||||||||||||||||||||||||||||||||||||||
| 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, June 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| For the Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| 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, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
See accompanying notes to financial statements.
| F-5 |
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six Months Ended | ||||||||
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | ||||||||
| Gain on early extinguishment of debt | ( | ) | ||||||
| Amortization of debt discounts | ||||||||
| Stock-based compensation | ||||||||
| Amortization of options issued for services | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Right-of-use assets | ||||||||
| Security deposits | ( | ) | ( | ) | ||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenues | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of convertible note payable | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Proceeds from notes payable, related parties | ||||||||
| Proceeds from sale of preferred and common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash - beginning | ||||||||
| Cash - ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Fair value of common shares issued for conversion of debt | $ | $ | ||||||
| Value of commitment shares issued as a debt discount | $ | $ | ||||||
| Dividends payable | $ | $ | ||||||
| Initial recognition of right-of-use assets and lease liabilities | $ | $ | ||||||
See accompanying notes to financial statements.
| F-6 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Nature of Business and Significant Accounting Policies
Nature of Business
One
World Products, Inc., formerly known as One World Pharma, Inc. (the “Company,” “we,” “our” or “us”)
was incorporated in Nevada on September 2, 2014. On February 21, 2019, we entered into an Agreement and Plan of Merger with OWP Merger
Subsidiary, Inc., our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”), which is the parent company of One
World Pharma SAS, a Colombian company (“OWP Colombia”). Pursuant to the Merger Agreement, we acquired OWP Ventures (and indirectly,
OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being the surviving entity as our
wholly-owned subsidiary (the “Merger”). As a result of the Merger (a) holders of the outstanding capital stock of OWP Ventures
received an aggregate of shares of our common stock; (b) options to purchase shares of common stock of OWP Ventures
at an exercise price of $ automatically converted into options to purchase shares of our common stock at an exercise price
of $; (c) the outstanding principal and interest under a $
OWP
Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30, 2018, it
acquired OWP Colombia. OWP Colombia is a licensed cannabis cultivation, production and distribution (export) company located in Popayán,
Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial
uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant
for medicinal, scientific and industrial purposes. Specifically, we are one of the few companies in Colombia to receive all four licenses,
including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction
and export. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis
and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe
members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques,
and sell their harvested products to us on an exclusive basis. We began harvesting cannabis in the first quarter of 2019 for the purpose
of further research and development activities, quality control testing and extraction. We have been generating revenue from the sale
of our seeds since the second quarter of 2020. In August 2021, we paid total deposits of $
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC). Intercompany accounts and transactions have been eliminated.
The unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements, and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
| F-7 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at June 30, 2022:
| State of | ||||||||
| Name of Entity | Incorporation | Relationship | ||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. As of August 1, 2022, the Company’s headquarters are located in Coral Gables, Florida and substantially all of its production efforts are within Popayán, Colombia.
Foreign Currency Translation
The functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional currency, and translated those financial statements to the US Dollar (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.
| F-8 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 sales to date have primarily consisted of the sale of seeds. These sales include multi-element
arrangements whereby the Company collects 50% of the sale upon delivery of the sales, and the remaining 50% upon the completion of the
harvest, whether the seeds result in a successful crop, or not. In addition, the Company has a right of first refusal to purchase products
resulting from the harvest. At June 30, 2022, the Company had $
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts.
The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance will require companies to apply the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of ASU 2021-08 is not expected to have a material impact on the Company’s financial statements or related disclosures.
| F-9 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options. ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2021-04 has not had a material impact on the Company’s financial statements or related disclosures.
In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of ASU 2020-04 did not have a material impact on the Company’s consolidated financial statements, as we transitioned from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates, as well as utilizing the aforementioned expedients and exceptions provided in ASU 2020-04.
In August 2020, the FASB issued ASU No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or related disclosures.
No other new accounting pronouncements, issued or effective during the period ended June 30, 2022, have had or are expected to have a significant impact on the Company’s financial statements.
Note 2 –Going Concern
As
shown in the accompanying condensed consolidated financial statements as of June 30, 2022, our balance of cash on hand was $
In the event sales do not materialize at the expected rates, management would seek additional financing and would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The condensed consolidated financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
| F-10 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 3 – Fair Value of Financial Instruments
Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
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 June 30, 2022 and December 31, 2021, respectively:
| Fair Value Measurements at June 30, 2022 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use asset | ||||||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Lease liabilities | ||||||||||||
| Convertible notes payable, net of $ | ||||||||||||
| Notes payable | ||||||||||||
| Notes payable, related parties | ||||||||||||
| Total liabilities | ( | ) | ( | ) | ||||||||
| $ | $ | ( | ) | $ | ( | ) | ||||||
| Fair Value Measurements at December 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, net of $ | ||||||||||||
| Convertible notes payable | ||||||||||||
| Total liabilities | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the six months ended June 30, 2022 or the year ended December 31, 2021.
| F-11 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 – Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts. Inventory consisted of the following at June 30, 2022 and December 31, 2021, respectively.
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less obsolescence | ( | ) | ( | ) | ||||
| Total inventory | $ | $ | ||||||
Note 5 – Other Current Assets
Other current assets included the following as of June 30, 2022 and December 31, 2021, respectively:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| VAT tax receivable | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Deferred cost of goods sold | ||||||||
| Other receivables | ||||||||
| Total | $ | $ | ||||||
Note 6 – Security Deposits
Security deposits included the following as of June 30, 2022 and December 31, 2021, respectively:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Utility deposits | $ | $ | ||||||
| Refundable deposit on equipment purchase | ||||||||
| Down payment on distillation equipment | ||||||||
| Security deposits on leases held in Colombia | ||||||||
| Security deposit on office lease | ||||||||
| $ | $ | |||||||
| F-12 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7 – Fixed Assets
Fixed assets consist of the following at June 30, 2022 and December 31, 2021, respectively:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| Equipment and machinery | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation
and amortization expense totaled $
Note 8 – Accrued Expenses
Accrued expenses consisted of the following at June 30, 2022 and December 31, 2021, respectively:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued withholding taxes and employee benefits | ||||||||
| Accrued ICA fees and contributions | ||||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
Note 9 – Leases
The
Company leases its
The
Company also leases a residential premise under a non-cancelable real property lease agreement that commenced on September 1, 2021 and
expires on August 31, 2024, at a monthly lease term of
The
Company leases another residential premise under a non-cancelable real property lease agreement that commenced on June 1, 2022 and expires
on May 30, 2024, at a monthly lease term of
In addition, the Company leases its corporate offices and operational facility in Colombia under short-term non-cancelable real property lease agreements that expire within a year. The Company doesn’t have any other office or equipment leases that would require capitalization. The extraction facility and office leases contain provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The extraction facility lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
| F-13 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The components of lease expense were as follows:
| For the Six | ||||
| Months Ended | ||||
| June 30, | ||||
| 2022 | ||||
| Operating lease costs: | ||||
| Amortization of assets | $ | |||
| Interest on lease liabilities | ||||
| Lease payments on short term leases | ||||
| Total lease cost | $ | |||
Supplemental balance sheet information related to leases was as follows:
| June 30, | ||||
| 2022 | ||||
| Operating leases: | ||||
| Operating lease assets | $ | |||
| Current portion of operating lease liabilities | $ | |||
| Noncurrent operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
| Weighted average remaining lease term: | ||||
| Operating leases | ||||
| Weighted average discount rate: | ||||
| Operating leases | % | |||
Supplemental cash flow and other information related to leases was as follows:
| For the Six | ||||
| Months Ended | ||||
| June 30, | ||||
| 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows used for operating leases | $ | |||
| Leased assets obtained in exchange for lease liabilities: | ||||
| Total operating lease liabilities | $ | |||
| F-14 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Future minimum annual lease commitments under non-cancelable operating leases are as follows at June 30, 2022:
| Operating | ||||
| Leases | ||||
| 2022 (for the six months remaining) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total minimum lease payments | ||||
| Less interest | ||||
| Present value of lease liabilities | ||||
| Less current portion | ||||
| Long-term lease liabilities | $ | |||
Note 10 – Convertible Note Payable
Convertible note payable consists of the following at June 30, 2022 and December 31, 2021, respectively:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| On September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $ The Note matures on Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $ The obligations of the Company to AJB Capital under the Note and the Purchase Agreement are secured by a lien on the Company’s assets pursuant to a Security Agreement between the Company and AJB Capital. | $ | $ | ||||||
| Total convertible notes payable | ||||||||
| Less: unamortized debt discounts | ||||||||
| Convertible note payable, net of discounts | $ | $ | ||||||
| F-15 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recognized aggregate debt discounts on the convertible notes and notes payable to AJB Capital for the six months ended June 30, 2022 and the year ended December 31, 2021, as follows:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Fair value of | $ | $ | ||||||
| Fair value of warrants to purchase | ||||||||
| Original issue discounts | ||||||||
| Legal and brokerage fees | ||||||||
| Total debt discounts | ||||||||
| Amortization of debt discounts | ||||||||
| Unamortized debt discounts | $ | $ | ||||||
The
aggregate debt discounts of $
The
convertible note limits the maximum number of shares that can be owned by the note holder as a result of the conversions to common stock
to
The
Company recorded interest expense pursuant to the stated interest rates on the convertible note in the amount of $
Note 11 – Notes Payable
Notes payable consists of the following at June 30, 2022 and December 31, 2021, respectively:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| On June 13, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | $ | $ | ||||||
| On June 17, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received
proceeds of | ||||||||
| On May 31, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received
proceeds of | ||||||||
| On May 30, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of | ||||||||
| On April 29, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of | ||||||||
| On March 1, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On February 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $ | ||||||||
| On May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $ Under the Payroll Protection Program, the Company was eligible for loan forgiveness up to the full amount of the PPP Note and any accrued interest. The forgiveness amount was equal to the amount that the Company spent during the 24-week period beginning May 4, 2020 on payroll costs, payment of rent on any leases in force prior to February 15, 2020 and payment on any utility for which service began before February 15, 2020. The maximum amount of loan forgiveness for non-payroll expenses was | ||||||||
| Total notes payable | ||||||||
| Less: current maturities | ||||||||
| Notes payable, long-term portion | $ | $ | ||||||
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable in the amount of $
Note 12 – Notes Payable, Related Party
Notes payable, related party, consists of the following at June 30, 2022 and December 31, 2021, respectively:
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| On June 3, 2022, the Company received an advance of $ | $ | $ | ||||||
| On May 5, 2022, the Company received an advance of $ | ||||||||
| On May 5, 2022, the Company received an advance of $ | ||||||||
| On December 29, 2021, the Company received an advance of $ | ||||||||
| Total notes payable. related party | ||||||||
| Less: current maturities | ||||||||
| Notes payable, related party, long-term portion | $ | $ | ||||||
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable, related party, in the amount of $
| F-16 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recognized interest expense for the six months ended June 30, 2022 and 2021, as follows:
| June 30, | June 30, | |||||||
| 2022 | 2021 | |||||||
| Interest on convertible notes | $ | $ | ||||||
| Interest on notes payable | ||||||||
| Interest on notes payable, related parties | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of debt discounts, common stock | ||||||||
| Amortization of debt discounts, warrants | ||||||||
| Interest on accounts payable | ||||||||
| 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.
The Series A and B Preferred Stock have been classified outside of permanent equity and liabilities. the Series A Preferred Stock embodies conditional obligations that the Company may settle by issuing a variable number of equity shares, and in both the Series A and B Preferred Stock, monetary value of the obligation is based on a fixed monetary amount known at inception.
Series A Preferred Stock Issuances
shares of Series A Preferred Stock were issued during the six months ending June 30, 2022.
Preferred Stock Dividends
The
Series A Preferred Stock accrues dividends at the rate of
Series B Preferred Stock Issuances
shares of Series B Preferred Stock were issued during the six months ending June 30, 2022.
| F-17 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 14 – Changes in Stockholders’ Equity
Common Stock
The Company is authorized to issue an aggregate of shares of common stock with a par value of $. As of June 30, 2022, there were shares of common stock issued and outstanding.
Common Stock Issued on Subscriptions Payable
On March 29, 2022, the Company issued shares of common stock on a Subscriptions Payable for the December 1, 2021 award of common stock to COR IR for services.
Amortization of Stock-Based Compensation
A total of $ of stock-based compensation expense was recognized from the amortization of options to purchase common stock over their vesting period during the six months ended June 30, 2022.
Note 15 – Common Stock Options
Stock Incentive Plan
On February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which had been adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides for the issuance of up to shares of common stock to the Company and its subsidiaries’ employees, officers, directors, consultants and advisors, stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and other performance stock awards. Options granted under the 2019 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant. Unless sooner terminated in accordance with its terms, the Stock Plan will terminate on December 10, 2029.
The
Company recognized a total of $, and $ of compensation expense during the six months ended June 30, 2022 and 2021, respectively,
related to common stock options issued in the prior year to Officers, Directors, and Employees that are being amortized over the implied
service term, or vesting period, of the options. The remaining unamortized balance of these options is $
Note 16 – 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 six months ended June 30, 2022, and the year ended December 31, 2021, the Company incurred a net operating loss and, accordingly,
no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of
the realization of any tax assets. At June 30, 2022, the Company had approximately $
Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at June 30, 2022 and December 31, 2021, respectively.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 17 – Subsequent Events
Debt Financing, Related Parties
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
July 7, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $
Increase in Authorized Shares of Series B Preferred Stock
On August 2, 2022, the Company filed a Certificate of Amendment to the Certificate of Designation of the Company’s Series B Preferred Stock with the Secretary of State of the State of Nevada increased the number of authorized shares of the Series B Preferred Stock from to .
Disposal of Fixed Assets
On
August 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., sold its office furniture and equipment with a
net book value of $
| F-18 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of One World Products, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of One World Products, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, consolidated stockholders’ equity (deficit) and consolidated cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Convertible Preferred Stock
As discussed in Note 15, the Company has complex financial instruments due to the issued and outstanding preferred stock, resulting in the classification of the financial instruments outside of permanent equity due to the terms of the instruments. Given the factors, the related audit effort in evaluating management’s judgments in determining the appropriate classification was extensive and required a high degree of auditor judgment.
We tested the Company’s classification of the financial instruments by examining and evaluating the agreements along with management’s evaluation of the key terms and management’s disclosure of the transactions.
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2018.
Houston, TX
April 14, 2022
| F-19 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Right-of-use assets | ||||||||
| Security deposits | ||||||||
| Fixed assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Deferred revenues | ||||||||
| Dividends payable | ||||||||
| Current portion of lease liabilities | ||||||||
| Convertible notes payable, net of $ | ||||||||
| Notes payable | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liability | ||||||||
| Notes payable, related party, long-term portion | ||||||||
| Total Liabilities | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; and shares issued and outstanding at December 31, 2021 and 2020, respectively | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; and -- shares issued and outstanding at December 31, 2021 and 2020, respectively | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding at December 31, 2021 and 2020, respectively | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at December 31, 2021 and 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Subscriptions payable, consisting of and shares at December 31, 2021 and 2020, respectively | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-20 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Operating expenses: | ||||||||
| General and administrative | ||||||||
| Professional fees | ||||||||
| Depreciation expense | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Sublease income | ||||||||
| Loss on disposal of fixed assets | ( | ) | ||||||
| Interest income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other expense | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss: | ||||||||
| Loss on foreign currency translation | $ | ( | ) | $ | ( | ) | ||
| Net other comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Series A convertible preferred stock declared ($ per share) | ( | ) | ( | ) | ||||
| Deemed dividend on common stock warrants, series A preferred stock | ( | ) | ||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding - basic and fully diluted | ||||||||
| Net loss per share - basic and fully diluted | $ | ( | ) | $ | ( | ) | ||
| Dividends declared per share of common stock | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-21 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
| Series A | Series B | Accumulated | Total | |||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | Additional | Other | Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Preferred stock units sold for cash | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of series A convertible preferred stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Exercise of cashless options | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Warrants issued as a debt discount | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-22 |
ONE WORLD PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Bad debts expense | ||||||||
| Depreciation and amortization expense | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Amortization of debt discounts | ||||||||
| Stock-based compensation | ||||||||
| Amortization of options issued for services | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Other current assets | ( | ) | ||||||
| Right-of-use assets | ||||||||
| Security deposits | ( | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Deferred revenues | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Proceeds received on disposal of fixed assets | ||||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of convertible note payable | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds from sale of preferred and common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash - beginning | ||||||||
| Cash - ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Cost of preferred shares exchanged for conversion to common stock | $ | $ | ||||||
| Value of commitment shares issued as a debt discount | $ | $ | ||||||
| Value of warrants issued as a debt discount | $ | $ | ||||||
| Dividends payable | $ | $ | ||||||
| Par value of cashless exercise of common stock options | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-23 |
ONE WORLD PRODUCTS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Business and Significant Accounting Policies
Nature of Business
One
World Products, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in Nevada
on September 2, 2014. On February 21, 2019, One World Pharma, Inc. (“One World Pharma”) entered into an Agreement and Plan
of Merger with OWP Merger Subsidiary, Inc., our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”), which is
the parent company of One World Pharma SAS, a Colombian company (“OWP Colombia”). Pursuant to the Merger Agreement, we acquired
OWP Ventures (and indirectly, OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being
the surviving entity as our wholly-owned subsidiary (the “Merger”). As a result of the Merger (a) holders of the outstanding
capital stock of OWP Ventures received an aggregate of shares of our common stock; (b) options to purchase shares
of common stock of OWP Ventures at an exercise price of $ automatically converted into options to purchase shares of our
common stock at an exercise price of $; (c) the outstanding principal and interest under a $
OWP
Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30, 2018, it
acquired OWP Colombia. OWP Colombia is a licensed cannabis cultivation, production and distribution (export) company located in Popayán,
Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial
uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant
for medicinal, scientific and industrial purposes. Specifically, we are one of the few companies in Colombia to receive all four licenses,
including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction
and export. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis
and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe
members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques,
and sell their harvested products to us on an exclusive basis. We began harvesting cannabis in the first quarter of 2019 for the purpose
of further research and development activities, quality control testing and extraction. We have been generating revenue from the sale
of our seeds since the second quarter of 2020. In August 2021, we paid total deposits of $
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”). All references to Generally Accepted Accounting Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”) and the Hierarchy of Generally Accepted Accounting Principles.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein.
| F-24 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at December 31, 2021:
| Name of Entity | State of Incorporation | Relationship | ||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
The consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign Currency Translation
The functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional currency, and translated those financial statements to the US Dollar throughout this report. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.
Comprehensive Income
The Company has adopted ASC 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income, its components, and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
| F-25 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
The Company adopted ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:
| - | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| - | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| - | Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The carrying value of cash, accounts receivable, accounts payables and accrued expenses are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.
Cash in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts.
Fixed Assets
Fixed assets are stated at the lower of cost or estimated net recoverable amount. The cost of property, plant and equipment is depreciated using the straight-line method based on the lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy:
| Buildings | |||
| Office equipment | |||
| Furniture and fixtures | |||
| Equipment and machinery | |||
| Leasehold improvements |
Repairs and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which have extended the useful life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold, the cost and related accumulated depreciation and amortization are eliminated and any resulting gain or loss is reflected in operations.
Revenue Recognition
The
Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction
price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance
obligation is satisfied. The Company’s sales to date have primarily consisted of the sale of seeds. These sales include multi-element
arrangements whereby the Company collects 50% of the sale upon delivery of the sales, and the remaining 50% upon the completion of the
harvest, whether the seeds result in a successful crop, or not. In addition, the Company has a right of first refusal to purchase products
resulting from the harvest. At December 31, 2021, the Company had $
Advertising Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 2021 and 2020, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
The Company accounts for equity instruments issued in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
| F-26 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Uncertain Tax Positions
In accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s various filing positions.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s financial statements or related disclosures.
In May 2020, the SEC adopted final rules that amend the financial statement requirements for significant business acquisitions and dispositions. Among other changes, the final rules modify the significance tests and improve the disclosure requirements for acquired or to be acquired businesses and related pro forma financial information, the periods those financial statements must cover, and the form and content of the pro forma financial information. The final rules do not modify requirements for the acquisition and disposition of significant amounts of assets that do not constitute a business. The final rules were effective January 1, 2021. The Company has considered these final rules and updated its disclosures, as applicable.
In November 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 are part of an initiative to reduce complexity in accounting standards and simplify the accounting for income taxes by removing certain exceptions from Topic 740 and making minor improvements to the codification. ASU 2019-12 and its related amendments are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The provisions of this update did not have a material impact on the Company’s financial position or results of operations.
There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows.
| F-27 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 – Going Concern
As
shown in the accompanying financial statements, the Company had $
The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3 – Related Party Transactions
Advance from Vice Chairman of the Board
On
December 29, 2021, the Company received an advance of $
Debt Repayments, Related Party
On
October 18, 2021, the Company repaid a total of $
On
September 15, 2021, the Company repaid a total of $
On
March 29, 2021, the Company repaid a total of $
Advances and Repayment to former CEO
On
various dates between May 3, 2018 and November 23, 2018, our then CEO advanced us short-term unsecured demand loans, bearing interest
at
Series A Preferred Stock Sales
On
July 10, 2020, the Company received proceeds of $
| F-28 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series B Preferred Stock Sales
On February 7, 2021, the Company and ISIAH International, LLC (“ISIAH International”), entered into a Securities Purchase Agreement (the “Purchase Agreement”) under which ISIAH International agreed to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of shares of the Company’s newly designated Series B Preferred Stock (“Series B Preferred Stock”), convertible into an aggregate of shares of the Company’s common stock, for a purchase price of $ per share of Preferred Stock, and an aggregate purchase price of $ million. Each share of Series B Preferred Stock has a Stated Value of $ and is convertible into common stock at a conversion price equal to $. Isiah Thomas, the Company’s Chief Executive Officer, is the sole member and Chief Executive Officer of ISIAH International. Pursuant to the Purchase Agreement, ISIAH International purchased the shares of Series B Preferred Stock from the Company according to the following schedule:
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | $ | |||||||
| February 22, 2021 | ||||||||
| March 8, 2021 | ||||||||
| March 22, 2021 | ||||||||
| April 5, 2021 | ||||||||
| April 19, 2021 | ||||||||
| May 17, 2021 | ||||||||
| June 14, 2021 | ||||||||
| July 12, 2021 | ||||||||
| Total | $ | |||||||
On
various dates in May, 2021, the Company also received total proceeds of $
Common Stock Issued for Services
On
December 31, 2021, the Company issued shares of common stock in lieu of cash compensation to its former Chief Financial Officer,
Vahé Gabriel. The aggregate fair value of the shares was $
On
December 31, 2020, the Company awarded shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for
services provided. The aggregate fair value of the common stock was $
On
December 31, 2020, the Company awarded shares of common stock to one of the Company’s Directors, Bruce Raben, for services
provided. The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas III,
as a signing bonus. The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to the Company’s former Chief Executive Officer, Craig Ellins,
pursuant to a Separation Agreement. The aggregate fair value of the common stock was $
On
May 31, 2020, the Company awarded shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for services
provided. The aggregate fair value of the common stock was $
Common Stock Options Issued for Services
On May 28, 2021, the Company awarded options to purchase shares of common stock under the Company’s 2019 Stock Incentive Plan (the “2019 Plan”) at an exercise price equal to $ per share, exercisable over a period to the Company’s CFO and COO, Vahé Gabriel. The options vested immediately as to shares, and vest as to the remaining shares quarterly in increments over the following two quarters. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2021.
| F-29 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
January 1, 2021, the Company awarded options to purchase shares of common stock at an exercise price equal to $ per share
to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the 2019 Plan
and are exercisable over a period. The options vested immediately as to shares, and vest as to the remaining
shares quarterly in increments over the following eleven quarters. The estimated value using the Black-Scholes Pricing Model,
based on a volatility rate of % and a call option value of $, was $. The options are being expensed over the vesting
period, resulting in $ of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a
total of $
On January 1, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal to $per share, exercisable over a period to the Company’s Vice Chairman of the Board, Dr. Ken Perego. The options vest in equal quarterly installments over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2021.
On January 1, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal to $ per share, exercisable over a period to Bruce Raben, the Company’s former Interim Chief Financial Officer and a Director of the Company. The options vest in equal quarterly installments over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2021.
On June 3, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the Company’s 2019 Plan and are exercisable over a period. The options vest as to shares immediately, as to shares 120 days following the issuance of the option (the “Second Vesting Date”), and as to the remaining shares vesting quarterly over the three years following the Second Vesting Date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following , beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to Bruce Raben, one of the Company’s Directors. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following , beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
| F-30 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Fair Value of Financial Instruments
Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet as of December 31, 2021 and 2020:
| Fair Value Measurements at December 31, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Convertible notes payable, net of $ | ||||||||||||
| Convertible notes payable | ||||||||||||
| Total liabilities | ( | ) | ||||||||||
| $ | $ | ( | ) | $ | ||||||||
| Fair Value Measurements at December 31, 2020 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use-asset | ||||||||||||
| Total assets | ||||||||||||
| Liabilities | ||||||||||||
| Lease liabilities | ||||||||||||
| Notes payable | ||||||||||||
| Total liabilities | ( | ) | ( | ) | ||||||||
| $ | $ | ( | ) | $ | ( | ) | ||||||
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2021 or 2020.
| F-31 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 – Major Customers and Accounts Receivable
The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:
For the year ended December 31, 2021, four customers
accounted for
At December 31, 2021, one customer accounted for
Note 6 – Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts. Inventory consisted of the following at December 31, 2021 and 2020, respectively.
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less obsolescence | ( | ) | ( | ) | ||||
| Total inventory | $ | $ | ||||||
Note 7 – Other Current Assets
Other current assets included the following as of December 31, 2021 and 2020, respectively:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| VAT tax receivable | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Deferred cost of goods sold | ||||||||
| Other receivables | ||||||||
| Total | $ | $ | ||||||
Note 8 – Security Deposits
Security deposits included the following as of December 31, 2021 and 2020, respectively:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Utility deposits | $ | $ | ||||||
| Refundable deposit on equipment purchase | ||||||||
| Down payment on distillation equipment | ||||||||
| Security deposits on leases held in Colombia | ||||||||
| Security deposit on office lease | ||||||||
| $ | $ | |||||||
| F-32 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 – Fixed Assets
Fixed assets consist of the following at December 31, 2021 and 2020, respectively:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| Equipment and machinery | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Construction in progress consisted of equipment and capital improvements on the Popayán farm that were not placed in service until the year ended December 31, 2021.
On
November 30, 2021, the Company disposed of a building that was damaged in a storm at the Popayán farm.
On
July 27, 2021, the Company sold a truck previously used at the Popayán farm. The Company received proceeds of $
On
July 1, 2021, the Company disposed of equipment used at the Popayán farm that is no longer in service.
Depreciation
and amortization expense totaled $
Note 10 – Accrued Expenses
Accrued expenses consisted of the following at December 31, 2021 and 2020, respectively:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued withholding taxes and employee benefits | ||||||||
| Accrued ICA fees and contributions | ||||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
Note 11 – Deferred Revenues
Arrangements
with customers include multiple deliverables, consisting of an initial delivery of seeds and a contingent portion of the sale that is
dependent on the customers future harvest of the seeds. Deferred revenues associated with these multiple-element arrangements were $
| F-33 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 – Leases
The Company’s corporate offices and operational facility in Colombia under short-term non-cancelable real property lease agreements that expire within a year. The Company doesn’t have any other office or equipment leases subject to the recently adopted ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects that lease options will be exercised. The Company’s corporate office is under a real property lease that contains a one-time renewal option for an additional 36 months that was amended to enable the Company to extend the lease for 12 months instead of 36 months. The Company is reasonably certain that it will not extend the lease beyond its extended term of October 31, 2022. The office lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide an implicit discount rate, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.
The components of lease expense were as follows:
| For the | ||||
| Year Ended | ||||
| December 31, | ||||
| 2021 | ||||
| Operating lease cost: | ||||
| Amortization of assets | $ | |||
| Interest on lease liabilities | ||||
| Total lease cost | $ | |||
Supplemental cash flow and other information related to leases was as follows:
| For the | ||||
| Year Ended | ||||
| December 31, | ||||
| 2021 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows used for operating leases | $ | |||
Note 13 – Convertible Note Payable
Convertible note payable consists of the following at December 31, 2021 and 2020, respectively:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| On September 24, 2021, the Company completed the sale of a (i) Promissory Note in the
principal amount of $ The Note matures on Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $ The obligations of the Company to AJB Capital under the Note and the Purchase Agreement are secured by a lien on the Company’s assets pursuant to a Security Agreement between the Company and AJB Capital. | $ | $ | ||||||
| Total convertible notes payable | ||||||||
| Less: unamortized debt discounts | ||||||||
| Convertible note payable, net of discounts | $ | $ | ||||||
| F-34 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized debt discounts for the years ended December 31, 2021 and 2020, as follows:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Fair value of | $ | $ | ||||||
| Fair value of warrants to purchase | ||||||||
| Original issue discounts | ||||||||
| Legal and brokerage fees | ||||||||
| Total debt discounts | ||||||||
| Amortization of debt discounts | ||||||||
| Unamortized debt discounts | $ | $ | ||||||
The
aggregate debt discounts of $
The
convertible note limits the maximum number of shares that can be owned by the note holder as a result of the conversions to common stock
to
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $
Note 14 – Notes Payable
Notes payable consists of the following at December 31, 2021 and 2020, respectively:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| On December 29, 2021, the Company received an advance of $ | $ | $ | ||||||
| On January 20, 2021, the Company completed the sale of a Promissory Note in the principal amount of $ | ||||||||
The First AJB Note carried interest at a rate of
Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $ | ||||||||
| On February 3, 2020, the Company, through its wholly-owned subsidiary, One World Pharma SAS, received an advance of | ||||||||
| On December 16, 2020, the Company received an advance of $ | ||||||||
| On October 28, 2020, the Company received an advance of $ | ||||||||
| On September 14, 2020, the Company received an advance of $ | ||||||||
On May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $
Under the Payroll Protection Program, the Company was eligible for loan forgiveness up to the full amount of the PPP Note and any accrued interest. The forgiveness amount was equal to the amount that the Company spent during the 24-week period beginning May 4, 2020 on payroll costs, payment of rent on any leases in force prior to February 15, 2020 and payment on any utility for which service began before February 15, 2020. The maximum amount of loan forgiveness for non-payroll expenses was | ||||||||
| Total notes payable | ||||||||
| Less: current maturities | ||||||||
| Notes payable, long-term potion | $ | $ | ||||||
| F-35 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company recorded interest expense in the amount of $
The Company recognized interest expense for the year ended December 31, 2021 and 2020, respectively, as follows:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Interest on convertible notes | $ | $ | ||||||
| Interest on notes payable | ||||||||
| Amortization of debt discounts | ||||||||
| Amortization of stock-based debt discounts | ||||||||
| Interest on accounts payable | ||||||||
| Total interest expense | $ | $ | ||||||
Note 15 – Convertible Preferred Stock
Preferred Stock
The
Company has authorized shares of $ par value “blank check” preferred stock, of which shares have
been designated Series A Preferred Stock and shares have been designated Series B Preferred Stock.
The Series A and B Preferred Stock have been classified outside of permanent equity and liabilities. the Series A Preferred Stock embodies conditional obligations that the Company may settle by issuing a variable number of equity shares, and in both the Series A and B Preferred Stock, monetary value of the obligation is based on a fixed monetary amount known at inception.
Series A Preferred Stock Sales
shares of Series A Preferred Stock were sold during the year ended December 31, 2021.
On
various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $
Series A Preferred Stock Conversions
On November 15, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
On April 6, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
On March 24, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock. The shares of common stock were subsequently issued on April 7, 2021.
On January 26, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
On January 12, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
| F-36 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred Stock Dividends
The
Series A Preferred Stock accrues dividends at the rate of
Series B Preferred Stock Sales
On February 7, 2021, the Company and ISIAH International entered into a Securities Purchase Agreement under which ISIAH International agreed to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of shares of the Company’s newly designated Series B Preferred Stock, convertible into an aggregate of shares of common stock, for a purchase price of $ per share of Preferred Stock, and an aggregate purchase price of $ million. Each share of Series B Preferred Stock has a Stated Value of $ and is convertible into common stock at a conversion price equal to $. Isiah Thomas, the Company’s Chief Executive Officer, is the sole member and Chief Executive Officer of ISIAH International. Pursuant to the Purchase Agreement, ISIAH International purchased the shares of Series B Preferred Stock from the Company according to the following schedule:
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | $ | |||||||
| February 22, 2021 | ||||||||
| March 8, 2021 | ||||||||
| March 22, 2021 | ||||||||
| April 5, 2021 | ||||||||
| April 19, 2021 | ||||||||
| May 17, 2021 | ||||||||
| June 14, 2021 | ||||||||
| July 12, 2021 | ||||||||
| Total | $ | |||||||
In
addition to the shares sold to ISIAH International, the Company received total proceeds of $
No shares of Series B Preferred Stock were sold during the year ended December 31, 2020.
Note 16 – Stockholders’ Equity
Preferred Stock
The Company has authorized shares of $par value “blank check” preferred stock, of which shares have been designated Series A Preferred Stock and shares have been designated Series B Preferred Stock, See Note 15 above for a description of the features and issuances of the Series A Preferred Stock and Series B Preferred Stock.
Common Stock
The Company is authorized to issue an aggregate of shares of common stock with a par value of $. As of December 31, 2021, there were shares of common stock issued and outstanding.
Common Stock Options Exercised
On July 26, 2021, a total of shares of common stock were issued upon exercise on a cashless basis of options to purchase shares of common stock at a price $ per share.
Common Stock Sales
No shares of common stock were sold during the year ended December 31, 2021.
On
November 27, 2020, the Company sold an aggregate of shares of common stock at a price of $ per share for total cash proceeds
of $
| F-37 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock Issued on Subscriptions Payable
On
January 6, 2020, the Company issued shares of common stock that were purchased on December 31, 2019 at $ per share for proceeds
of $
Common Stock Issued as a Promissory Note Commitment
As
disclosed in Note 14 above, the Company paid a commitment fee to AJB Capital of $
Also,
as disclosed in Note 13, above, the Company paid a commitment fee to AJB Capital in the form of
Common Stock Issued for Services, Employees and Consultants
On
May 25, 2021, the Company awarded a total of shares of common stock pursuant for consulting services to two individuals. The
aggregate fair value of the shares was $
On
August 20, 2019,
On
June 1, 2021, the Company entered into a new agreement with COR and issued another shares of common stock to COR. The
fair value of the shares was $
On
December 31, 2020, the Company awarded shares of common stock to a consultant for services performed. The aggregate fair value
of the common stock was $
On
September 21, 2020, the Company awarded shares of common stock to a consultant for services performed. The aggregate fair value
of the common stock was $
On
July 1, 2020, the Company awarded an aggregate of shares of common stock to four employees and consultants for services provided.
The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to a consultant for services performed. The aggregate fair value of
the common stock was $
On
various dates between January 4, 2020 and May 31, 2020, the Company awarded an aggregate of shares of common stock to ten employees
and consultants for services provided. The aggregate fair value of the common stock was $
| F-38 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock Issued for Services, Officers and Directors
On
December 31, 2021, the Company issued shares of common stock in lieu of cash compensation to its former Chief Financial Officer,
Vahé Gabriel. The aggregate fair value of the shares was $
On
December 31, 2020, the Company awarded shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for
services provided. The aggregate fair value of the common stock was $
On
December 31, 2020, the Company awarded shares of common stock to one of the Company’s Directors, Bruce Raben, for services
provided. The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas III,
as a signing bonus. The aggregate fair value of the common stock was $
On
June 3, 2020, the Company awarded shares of common stock to the Company’s former Chief Executive Officer, Craig Ellins,
pursuant to a Separation Agreement. The aggregate fair value of the common stock was $
On
May 31, 2020, the Company awarded shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for services
provided. The aggregate fair value of the common stock was $
Note 17 – Common Stock Options
Stock Incentive Plan
On February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which had been adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides for the issuance of up to shares of common stock to the Company and its subsidiaries’ employees, officers, directors, consultants and advisors, stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and other performance stock awards. Options granted under the 2019 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant. Unless sooner terminated in accordance with its terms, the Stock Plan will terminate on December 10, 2029.
Common Stock Options Issued for Services
On
May 28, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal
to $ per share, exercisable over a period to the Company’s CFO and COO, Vahé Gabriel. The options vested
immediately as to shares, and vest as to the remaining shares quarterly in increments over the following two
quarters. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $,
was $. The options were expensed over the vesting period, resulting in $
On
May 25, 2021, the Company awarded options to purchase an aggregate shares of common stock under the 2019 Plan at an exercise
price equal to $ per share, exercisable over a period to three advisory board members. The options vest in equal quarterly
installments over two years. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of %
and a call option value of $, was $. The options are being expensed over the vesting period, resulting in $ of stock-based
compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $
On
January 1, 2021, the Company awarded options to purchase shares of common stock at an exercise price equal to $ per share
to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the 2019 Plan
and are exercisable over a period. The options vested immediately as to shares, and vest as to the remaining
shares quarterly in increments over the following eleven quarters. The estimated value using the Black-Scholes Pricing Model,
based on a volatility rate of % and a call option value of $, was $. The options are being expensed over the vesting
period, resulting in $ of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a
total of $
| F-39 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On
January 1, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal
to $ per share, exercisable over a period to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest
in equal quarterly installments over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate
of % and a call option value of $, was $. The options were expensed over the vesting period, resulting in $
On
January 1, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal
to $ per share, exercisable over a period to Bruce Raben, one of the Company’s Directors. The options vest in equal
quarterly installments over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and
a call option value of $, was $. The options were expensed over the vesting period, resulting in $
On
January 1, 2021, the Company awarded options to purchase an aggregate shares of common stock under the 2019 Plan at an exercise
price equal to $ per share, exercisable over a period to seven consultants and employees. The options vest in equal quarterly
installments over one year. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and
a call option value of $, was $. The options were expensed over the vesting period, resulting in $
On
December 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal
to $ per share to a consultant. The options vest in equal quarterly installments over the following year. The estimated value using
the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were
expensed over the vesting period, resulting in $
On
December 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal
to $ per share to a consultant. The options vest in equal quarterly installments over the following year. The estimated value using
the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were
expensed over the vesting period, resulting in $
On
December 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal
to $ per share to a consultant. The options vest in equal quarterly installments over the following year. The estimated value using
the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were
expensed over the vesting period, resulting in $
On July 1, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to a consultant. The options are exercisable over a period. The options vested quarterly over six months. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020.
On July 1, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to a consultant. The options were exercisable over a period. The options will vest quarterly over three years. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On July 1, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to a consultant for Advisory Board services. The options are exercisable over a period. The options will vest quarterly over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options are being expensed over the vesting period, resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively.
| F-40 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 3, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the Company’s 2019 Plan and are exercisable over a period. The options vest as to shares immediately, as to shares 120 days following the issuance of the option (the “Second Vesting Date”), and as to the remaining shares vesting quarterly over the three years following the Second Vesting Date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following two years, beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to $ per share to Bruce Raben, one of the Company’s Directors. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following two years, beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On May 31, 2020, the Company awarded options to purchase an aggregate shares of the Company’s Common Stock at an exercise price equal to $ per share to six consultants and employees. The options vest as to shares immediately, with the remaining shares vesting quarterly over the following three years, beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options were being expensed over the vesting period, resulting in $ of stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase an aggregate shares of the Company’s Common Stock at an exercise
price equal to $ per share to two consultants. The options vest as to shares immediately, with the remaining shares
vesting quarterly over the following three years, beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model,
based on a volatility rate of % and a call option value of $, was $. The options are being expensed over the vesting period,
resulting in $ and $ of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, a total of $
Common Stock Options Exercised
On July 26, 2021, a total of shares of common stock were issued upon exercise on a cashless basis of options to purchase shares of common stock at a price $ per share.
| Shares Underlying | ||||||||||||||
| Shares Underlying Options Outstanding | Options Exercisable | |||||||||||||
| Weighted | ||||||||||||||
| Shares | Average | Weighted | Shares | Weighted | ||||||||||
| Underlying | Remaining | Average | Underlying | Average | ||||||||||
| Range of | Options | Contractual | Exercise | Options | Exercise | |||||||||
| Exercise Prices | Outstanding | Life | Price | Exercisable | Price | |||||||||
| $ - $ | years | $ | $ | |||||||||||
| F-41 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Prices | |||||||
| Balance, December 31, 2019 | $ | |||||||
| Options granted | ||||||||
| Options exercised | ( | ) | ( | ) | ||||
| Balance, December 31, 2020 | ||||||||
| Options granted | ||||||||
| Options exercised | ( | ) | ( | ) | ||||
| Balance, December 31, 2021 | $ | |||||||
| Exercisable, December 31, 2021 | $ | |||||||
Note 18 – Common Stock Warrants
Warrants
to purchase a total of
On
September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $
On
various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $
The following is a summary of information about our warrants to purchase common stock outstanding at December 31, 2021.
| Shares Underlying | ||||||||||
| Shares Underlying Warrants Outstanding | Warrants Exercisable | |||||||||
| Weighted | ||||||||||
| Shares | Average | Weighted | Shares | Weighted | ||||||
| Range of | Underlying | Remaining | Average | Underlying | Average | |||||
| Exercise | Warrants | Contractual | Exercise | Warrants | Exercise | |||||
| Prices | Outstanding | Life | Price | Exercisable | Price | |||||
| $-$ | years | $-$ | $-$ | |||||||
The fair value of each warrant grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Average risk-free interest rates | % | % | ||||||
| Average expected life (in years) | ||||||||
| Volatility | % | % | ||||||
| F-42 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
weighted average fair value of warrants granted with exercise prices at the current fair value of the underlying stock was approximately
$
The following is a summary of activity of outstanding common stock warrants:
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Prices | |||||||
| Balance, December 31, 2019 | $ | |||||||
| Warrants granted | ||||||||
| Balance, December 31, 2020 | ||||||||
| Warrants granted | ||||||||
| Balance, December 31, 2021 | $ | |||||||
| Exercisable, December 31, 2021 | $ | |||||||
Note 19 – Commitments and Contingencies
Legal Contingencies
There are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
Note 20 - Income Tax
The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For
the years ended December 31, 2021 and 2020, the Company incurred a net operating loss and, accordingly, no provision for income taxes
has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization of any tax assets.
At December 31, 2021, the Company had approximately $
The
provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 were assuming a
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Federal statutory income tax rate | % | % | ||||||
| State income taxes | % | % | ||||||
| Change in valuation allowance | ( | )% | ( | )% | ||||
| Net effective income tax rate | ||||||||
| F-43 |
ONE WORLD PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the Company’s deferred tax asset are as follows:
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Net deferred tax assets before valuation allowance | $ | $ | ||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2021 and 2020, respectively.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 21 – Subsequent Events
Debt Financing
On
March 1, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $
On
February 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $
Common Stock Issued on Subscriptions Payable
On March 29, 2022, the Company issued shares of common stock on a Subscriptions Payable for the December 1, 2021 award of common stock to COR for services.
Lease Commitment
On January 1, 2022, OWP Colombia entered into
a lease for a warehouse over a -year term. The leased premise is
| F-44 |
21,366,700
SHARES OF COMMON STOCK
OF
ONE WORLD PRODUCTS, INC.
PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The Date of This prospectus is [●], 2022
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses relating to the sale of our securities being registered hereby. All amounts are estimates except the SEC registration fee.
Total expenses for this offering are estimated to be approximately $22,747.23 including:
| Amount (1) | ||||
| SEC registration fees | $ | 247.23 | ||
| Legal fees and expenses | 15,000 | |||
| Accounting fees and expenses | 5,000 | |||
| Transfer Agent Fees | 2,500 | |||
| Total | $ | 22,747.23 | ||
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are a Nevada corporation. The Nevada Revised Statutes and certain provisions of our articles of incorporation, as amended, and bylaws under certain circumstances provide for indemnification of our officers, directors and controlling persons against liabilities which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference to our bylaws and to the statutory provisions.
In general, any officer, director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to which such person is a party, if that person is not liable due to conduct that constituted a breach of his or her fiduciary duties and such breach involved intentional misconduct, fraud or a knowing violation of law, and that person’s actions were in good faith, were believed to be in our best interest, and were not unlawful. Indemnification may not be made for any claim as to which the person seeking indemnity has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be liable to our company unless the court in which the action or suit was brought or another court of competent jurisdiction determines that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court deems proper. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by independent decision of our board of directors, by legal counsel, or by a vote of our stockholders, that the applicable standard of conduct was met by the person to be indemnified. Under our articles of incorporation, as amended, and bylaws , we will advance expenses incurred by officers, directors, employees or agents who are parties to or are threatened to made parties to any threatened, pending or completed action by reason of the fact that such person was serving in such capacity, prior to the disposition of such action and promptly following request therefor, upon receipt of an undertaking by or on behalf of such person to repay such advances if it should be determined ultimately that such person is not entitled to indemnification.
The circumstances under which indemnification is granted in connection with an action brought on our behalf is generally the same as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement of the action. Indemnification may also be granted pursuant to the terms of agreements which may be entered in the future or pursuant to a vote of stockholders or directors. The Nevada Revised Statutes also grant us the power to purchase and maintain insurance which protects our officers and directors against any liabilities incurred in connection with their service in such a position, and we have obtained such a policy.
A stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
| II-1 |
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Over the past three years, we have issued and sold the following securities without registration under the Securities Act:
Year ending December 31, 2022
On March 29, 2022, the Company issued 262,066 shares of common stock to COR IR for services.
On September 1, 2022, the Company entered into a Purchase Agreement (the “ELOC Purchase Agreement”) with Tysadco Partners, LLC (“Tysadco”). Pursuant to the ELOC Purchase Agreement, Tysadco has agreed to purchase from the Company, from time to time upon delivery by the Company to Tysadco of “Request Notices,” and subject to the other terms and conditions set forth in the ELOC Purchase Agreement, up to an aggregate of $10,000,000 of the Company’s common stock. Pursuant to the ELOC Purchase Agreement, the Company agreed to issue Tysadco 13,667 shares of Series B Preferred Stock. In connection with the ELOC Purchase Agreement, on September 1, 2022, the Company and Tysadco also entered into a Securities Purchase Agreement under which Tysadco agreed to purchase 20,000 shares of Series B Preferred Stock for a total purchase price of $300,000 in two closings of 10,000 shares each. The first closing of 10,000 shares occurred following the execution of the SPA, and the second closing under the SPA is to occur within five days after the filing of this registration statement.
On September 20, 2022, the Company issued 1,341,276 shares of common stock as a “make-whole” payment to AJB Capital Investments LLC under the securities purchase agreement it entered into with AJB Capital Investments LLC on September 24, 2021.
Year ended December 31, 2021
On January 1, 2021, the Company awarded options to purchase (i) 5,500,000 shares of common stock at an exercise price equal to $0.13 per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman, (ii) 350,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, and (iii) 475,000 shares of common stock to Bruce Raben, one of the Company’s Directors.
On January 1, 2021, the Company awarded options to purchase an aggregate 1,842,000 shares of common stock under the 2019 Plan at an exercise price equal to $0.13 per share, exercisable over a ten year period to seven consultants and employees. The options vest in equal quarterly installments over one year. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170, was $215,475. The options were expensed over the vesting period, resulting in $215,475 of stock-based compensation expense during the year ended December 31, 2021.
On January 20, 2021, the Company completed the sale of a Promissory Note in the principal amount of $290,000 to AJB Capital Investments LLC (“AJB Capital”) and paid a commitment fee to AJB Capital in the form of 2,000,000 shares of common stock.
On February 7, 2021, the Company and ISIAH International entered into a Securities Purchase Agreement under which ISIAH International agreed to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of 200,000 shares of the Company’s newly designated Series B Preferred Stock, convertible into an aggregate of 20,000,000 shares of common stock, for a purchase price of $15 per share of Preferred Stock, and an aggregate purchase price of $3 million. Each share of Series B Preferred Stock has a Stated Value of $15 and is convertible into common stock at a conversion price equal to $0.15. Isiah Thomas, the Company’s Chief Executive Officer, is the sole member and Chief Executive Officer of ISIAH International. Pursuant to the Purchase Agreement, ISIAH International purchased the 200,000 shares of Series B Preferred Stock from the Company according to the following schedule:
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | 16,666 | $ | 249,990 | |||||
| February 22, 2021 | 16,667 | 250,005 | ||||||
| March 8, 2021 | 16,667 | 250,005 | ||||||
| March 22, 2021 | 16,667 | 250,005 | ||||||
| April 5, 2021 | 16,666 | 249,990 | ||||||
| April 19, 2021 | 16,667 | 250,005 | ||||||
| May 17, 2021 | 33,334 | 500,010 | ||||||
| June 14, 2021 | 33,333 | 499,995 | ||||||
| July 12, 2021 | 33,333 | 499,995 | ||||||
| Total | 200,000 | $ | 3,000,000 | |||||
| II-2 |
In addition to the shares sold to ISIAH International, the Company received total proceeds of $527,520 on various dates between March 9, 2021 and April 22, 2021 from the sale of an additional 35,167 shares of Series B Preferred Stock at a price of $15 per share to seven accredited investors, including proceeds of $50,010 from the sale of an aggregate of 3,334 shares of Series B Preferred Stock at a price of $15 per share to trusts whose beneficiaries are adult children of Isiah L. Thomas III. Mr. Thomas disclaims beneficial ownership of the shares held by these trusts.
On May 25, 2021, the Company awarded a total of 50,000 shares of common stock pursuant for consulting services to two individuals.
On May 28, 2021, the Company awarded options to purchase 1,000,000 shares of common stock at an exercise price equal to $0.1782 per share, exercisable over a ten year period to the Company’s CFO and COO, Vahé Gabriel.
On May 25, 2021, the Company awarded options to purchase an aggregate 425,000 shares of common stock at an exercise price equal to $0.17 per share, exercisable over a ten year period to three advisory board members.
On July 26, 2021, a total of 60,000 shares of common stock were issued upon exercise on a cashless basis of options to purchase 125,000 shares of common stock at a price $0.13 per share.
On September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $750,000 to AJB Capital, (ii) a three-year warrant to purchase 1,500,000 shares of common stock at an initial exercise price of $0.25 per share, and (iii) a three-year warrant to purchase 2,000,000 shares of common stock at an initial exercise price of $0.50 per share, for an aggregate purchase price of $705,000.
On December 31, 2021, the Company issued 673,582 shares of common stock in lieu of cash compensation to its former Chief Financial Officer, Vahé Gabriel.
Year ended December 31, 2020
On various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $1,502,330 from the sale of 150,233 units, consisting in the aggregate of 150,233 shares of Series A Preferred Stock and five-year warrants to purchase 7,511,650 shares of common stock at an exercise price of $0.25 per share to twenty-two accredited investors.
On November 27, 2020, the Company sold an aggregate of 750,000 shares of common stock at a price of $0.10 per share for total cash proceeds of $75,000.
On December 31, 2020, the Company awarded 100,000 shares of common stock to a consultant for services performed.
On September 21, 2020, the Company awarded 250,000 shares of common stock to a consultant for services performed.
On July 1, 2020, the Company awarded an aggregate of 875,000 shares of common stock to four employees and consultants for services provided.
On June 3, 2020, the Company awarded 200,000 shares of common stock to a consultant for services performed.
On various dates between January 4, 2020 and May 31, 2020, the Company awarded an aggregate of 2,006,000 shares of common stock to ten employees and consultants for services provided.
On December 31, 2020, the Company awarded 750,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for services provided.
On December 31, 2020, the Company awarded 750,000 shares of common stock to the Company’s Interim Chief Financial Officer/Director, Bruce Raben, for services provided.
On June 3, 2020, the Company awarded 500,000 shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas III, as a signing bonus.
On June 3, 2020, the Company awarded 2,000,000 shares of common stock to the Company’s former Chief Executive Officer, Craig Ellins, pursuant to a Separation Agreement.
On May 31, 2020, the Company awarded 350,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for services provided.
| II-3 |
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
| II-4 |
* Filed herewith
| II-5 |
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement, and
(iii) Include any additional or changed material information on the plan of distribution.
provided, however, that paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of this registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(5) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(7) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time it was declared effective.
For determining any liability under the Securities Act, treat each post- effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time as the initial bona fide offering thereof.
(8) Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
| II-6 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Coral Gables, State of Florida, on October 4, 2022.
| One World Products, Inc. | ||
| By: | /s/ Isiah L. Thomas III | |
| Isiah L. Thomas III, Chief Executive Officer | ||
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Isiah L. Thomas III and Dr. Kenneth Perego, II, or either of them, with full authority to act without the others, his true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated:
| Signature | Title | Date | ||
| /s/ Isiah L. Thomas III | Chief Executive Officer and Director | |||
| Isiah L. Thomas III | (Principal Executive Officer and Financial Officer) | October 4, 2022 | ||
| /s/ Dr. Kenneth Perego, II | Vice Chairman of the Board | |||
| Dr. Kenneth Perego, II | October 4, 2022 | |||
| /s/ Timothy Woods | ||||
| Timothy Woods | Chief Financial Officer | October 4, 2022 | ||
| /s/ Terry L. Buffalo | ||||
| Terry L. Buffalo | Director | October 4, 2022 |
| II-7 |