ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This
discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of
the Company for the fiscal year ended December 31, 2019 and the period from inception (March 27, 2018) to December 31, 2018. The
discussion and analysis that follows should be read together with the section entitled “Forward Looking Statements”
and our financial statements and the notes to the financial statements included elsewhere in this annual report on Form 10-K.
Except
for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties
and are based upon judgments concerning various factors that are beyond the Company’s control. Consequently, and because
forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially
from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the
various disclosures made by us in this report.
Overview
On
February 21, 2019, we entered into the Merger Agreement with OWP Merger Sub, our wholly-owned subsidiary, and OWP Ventures. Under
the Merger Agreement, the acquisition of OWP Ventures by us was effected by the merger of OWP Merger Sub with and into OWP Ventures,
with OWP Ventures being the surviving entity as our wholly-owned subsidiary. The Closing of the Merger occurred on February 21,
2019. As a result of the Merger (a) holders of the outstanding capital stock of OWP Ventures received an aggregate of 39,475,398
shares of our common stock; (b) options to purchase 825,000 shares of common stock of OWP Ventures at an exercise price of $0.50
automatically converted into options to purchase 825,000 shares of our common stock at an exercise price of $0.50; (c) the outstanding
principal and interest under a $300,000 convertible note issued by OWP Ventures became convertible, at the option of the holder,
into shares of our common stock at a conversion price equal to the lesser of $0.424 per share or 80% of the price we sell our
common stock in a future “Qualified Offering”; (d) 875,000 shares of our common stock owned by OWP Ventures prior
to the Merger were cancelled; and (e) OWP Ventures’ chief operating officer became our chief operating officer and two of
OWP Ventures’ directors became members of our board of directors.
OWP
Ventures, Inc. is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May
30, 2018, it acquired One World Pharma S.A.S. One World Pharma S.A.S, is a licensed cannabis cultivation, production and distribution
(export) company located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and
hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses to cultivate, produce
and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically,
we are one of the only companies in Colombia to receive seed, cultivation, extraction and export licenses from the Colombian government.
Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and
hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous
tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation
techniques, and sell their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which
we began harvesting in the first quarter of 2019 for the purpose of further research and development activities and quality control
testing of the cannabis we have produced. We consummated our first sales and revenue beginning in the second quarter of 2020 with
initial sales of fully registered non-psychoactive seeds.
The
Merger was accounted for as a reverse merger (recapitalization) with OWP Ventures deemed to be the accounting acquirer. Accordingly,
the financial statements included in this 10-K and the following discussion reflect the historical operations of OWP Ventures
and its wholly-owned subsidiary One World Pharma S.A.S prior to the Merger, and that of the combined company following the Merger.
The historical financial information for One World Pharma, Inc. (formerly Punto Group Corp.) prior to the Merger has been omitted.
Critical
Accounting Policies
The
establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our financial
statements in accordance with generally accepted accounting principles in the United States (“GAAP”), as well as ensuring
compliance with applicable laws and regulations governing financial reporting. While there are rarely alternative methods or rules
from which to select in establishing accounting and financial reporting policies, proper application often involves significant
judgment regarding a given set of facts and circumstances and a complex series of decisions.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission (“SEC”). All references to Generally Accepted
Accounting Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”)
and the Hierarchy of Generally Accepted Accounting Principles.
These
statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary
for fair presentation of the information contained therein.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which were under common
control and ownership at December 31, 2019:
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State of
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Name of Entity
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Incorporation
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Relationship
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One World Pharma, Inc.(1)
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Nevada
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Parent
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OWP Ventures, Inc.(2)
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Delaware
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Subsidiary
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One World Pharma S.A.S.(3)
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Colombia
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Subsidiary
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Colombian Hope, S.A.S.(4)
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Colombia
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Subsidiary
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(1)
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Holding company in the form of a corporation.
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(2)
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Holding company in the form of a corporation and wholly-owned subsidiary of One World Pharma, Inc.
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(3)
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Wholly-owned subsidiary of OWP Ventures, Inc. since May 30, 2018, located in Colombia and legally constituted as a simplified stock company
registered in the Chamber of Commerce of Bogotá on July 18, 2017. Its headquarters are located in Bogotá.
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(4)
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Wholly-owned
subsidiary of OWP Ventures, Inc., acquired on November 19, 2019, located in Colombia and legally constituted as a simplified stock
company. This company has yet to incur any income or expenses.
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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.
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These
reclassifications had no effect on previously reported results of operations or retained earnings.
Segment
Reporting
ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.
The management approach model is based on the way a company’s management organizes segments within the company for making
operating decisions and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
Fair
Value of Financial Instruments
The
Company adopted ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The
three levels are defined as follows:
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Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
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-
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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.
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-
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Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement.
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The
carrying value of cash, accounts receivable, accounts payables and accrued expenses are estimated by management to approximate
fair value primarily due to the short-term nature of the instruments.
Cash
in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed
by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. The Company had $274,597 in excess
of FDIC insured limits at December 31, 2019, and has not experienced any losses in such accounts.
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue
when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be
reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has
occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably
assured.
There
was no impact on the Company’s financial statements from ASC 606 for the years ended December 31, 2019 or 2018.
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. Inventory consisted of $24,682 of raw materials at December 31, 2019.
Advertising
Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $114,244 for the year
ended December 31, 2019. No advertising and promotions expense was incurred for the period from inception (March 27, 2018) to
December 31, 2018.
Basic
and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by
the weighted average number of common shares outstanding plus potential dilutive securities. For the year ended December 31, 2019
and the period from inception (March 27, 2018) to December 31, 2018, potential dilutive securities had an anti-dilutive effect
and were not included in the calculation of diluted net loss per common share.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC
718) and Equity-Based Payments to Non-employees pursuant to ASC 505-50 (ASC 505-50). All transactions in which goods or services
are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the
fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete
or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently
large disincentives for nonperformance.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets
and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be
recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such
assets to be more likely than not.
Uncertain
Tax Positions
In
accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing
authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These
standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The
assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with
the Company’s various filing positions.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
Results
of Operations for the Year ended December 31, 2019 and the period from inception (March 27, 2018) to December 31, 2018
The
following table summarizes selected items from the statement of operations for the year ended December 31, 2019 and the period
from inception (March 27, 2018) to December 31, 2018.
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For the
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From Inception
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Year Ended
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(March 27, 2018) to
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December 31,
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December 31,
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Increase /
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2019
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2018
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(Decrease)
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Revenues
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$
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-
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$
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-
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$
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-
|
|
|
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|
|
|
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Operating expenses:
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General and administrative
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2,245,219
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|
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903,913
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|
|
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1,341,306
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Goodwill impairment
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102,000
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|
|
|
-
|
|
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102,000
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Professional fees
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3,473,300
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|
|
|
917,936
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|
|
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2,555,364
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Bad debts expense
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|
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-
|
|
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50,000
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|
|
|
(50,000
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)
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Total operating expenses:
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|
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5,820,519
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|
|
|
1,871,849
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|
|
|
3,948,670
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating loss
|
|
|
(5,820,519
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)
|
|
|
(1,871,849
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)
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|
|
3,948,670
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|
|
|
|
|
|
|
|
|
|
|
|
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Total other expense
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|
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(386,665
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)
|
|
|
(88,234
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)
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298,431
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|
|
|
|
|
|
|
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|
|
|
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Net loss
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$
|
(6,207,184
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)
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|
$
|
(1,960,083
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)
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|
$
|
4,247,101
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|
Revenues
We
did not generate any revenues during the year ended December 31, 2019 and the period from inception (March 27, 2018) to December
31, 2018, and there were limited expenses in the comparative period prior to the acquisition of One World Pharma, SAS by OWP Ventures,
Inc. on May 30, 2018, when activities were ramped up to develop operations.
General
and Administrative Expenses
General
and administrative expenses for the year ended December 31, 2019 were $2,245,219, compared to $903,913 during the period from
inception (March 27, 2018) to December 31, 2018, an increase of $1,341,306, or 148%. The expenses for the current period consisted
primarily of compensation expenses, office rent, and travel costs.
Goodwill Impairment
Goodwill impairment, for the year ended December 31, 2019 was $102,000, compared to $-0- during the period
from inception (March 27, 2018) to December 31, 2018, an increased expense of $102,000.
Professional
Fees
Professional
fees for the year ended December 31, 2019 were $3,473,300, compared to $917,936 during the period from inception (March 27, 2018)
to December 31, 2018, an increase of $2,555,364, or 278%. Professional fees included non-cash stock-based compensation of $1,727,492
during the year ended December 31, 2019, compared to $285,600 during the period from inception (March 27, 2018) to December 31,
2018, an increase of $1,441,892, or 505%. Professional fees increased primarily due to increased stock-based compensation during
the current period.
Bad
Debts Expense
We
had no bad debts expense for the year ended December 31, 2019, compared to $50,000 during the period from inception (March 27,
2018) to December 31, 2018, a decrease of $50,000. Bad debts expense consisted of a $50,000 allowance for doubtful accounts on
a note receivable during the comparative period.
Other
Income (Expense)
Other
expenses, on a net basis, for the year ended December 31, 2019 were $386,665, compared to other expenses, on a net basis,
of $88,234 during the period from inception (March 27, 2018) to December 31, 2018, an increase in net expenses of $298,431,
or 338%. Other expenses consisted of a $4,087 loss on disposal of assets and $382,582 of interest expense, as offset
by $4 of interest income for the year ended December 31, 2019. Other expense during the period from inception (March 27, 2018)
to December 31, 2018 consisted of $88,234 of interest expense.
Net
Loss
Net
loss for the year ended December 31, 2019 was $6,207,184, or $0.15 per share, compared to $1,960,083, or $0.06 per share, during
the period from inception (March 27, 2018) to December 31, 2018, an increase of $4,247,101, or 217%. The net loss for the year
ended December 31, 2019 included non-cash expenses consisting of $19,668 of depreciation, $1,727,492 of stock-based compensation,
and $382,582 of interest, including $132,332 of amortization on debt discounts for the year ended December 31, 2019. The net loss
for the period from inception (March 27, 2018) to December 31, 2018 consisted primarily of general and administrative expenses
of $903,913, professional fees of $917,936, and $88,234 of interest expense.
Liquidity
and Capital Resources
As
of December 31, 2019, the Company had current assets of $574,168, consisting of cash of $282,380, other current assets of $267,106,
and inventory of $24,682. The Company’s current liabilities as of December 31, 2019 were $1,132,619, consisting of $330,521
of accounts payable, $109,665 of accrued expenses, $55,101 of current lease liabilities, and $637,332 of debts.
The
following table summarizes our total current assets, liabilities and working capital at December 31, 2019 and 2018.
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December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Current Assets
|
|
$
|
574,168
|
|
|
$
|
156,696
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
$
|
1,132,619
|
|
|
$
|
1,169,760
|
|
|
|
|
|
|
|
|
|
|
Working Capital
|
|
$
|
(558,451
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)
|
|
$
|
(1,013,064
|
)
|
The
following table summarizes our cash flows during the year ended December 31, 2019 and the period from inception (March 27, 2018)
to December 31, 2018, respectively.
|
|
For the
|
|
|
From Inception
|
|
|
|
Year Ended
|
|
|
(March 27, 2018) to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net cash used in operating activities
|
|
$
|
(4,060,940
|
)
|
|
$
|
(1,268,497
|
)
|
Net cash used in investing activities
|
|
|
(467,179
|
)
|
|
|
(753,661
|
)
|
Net cash provided by financing activities
|
|
|
4,696,811
|
|
|
|
2,152,094
|
|
Effect of exchange rate changes on cash
|
|
|
(12,158
|
)
|
|
|
(4,090
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
$
|
156,534
|
|
|
$
|
125,846
|
|
The
increase in funds used in operating activities for the year ended December 31, 2019, compared to the period from inception (March
27, 2018) to December 31, 2018, was primarily due to the increased net loss, as offset by approximately $2,000,000 of non-cash
expenses.
The
decrease in funds provided by investing activities for the year ended December 31, 2019, compared to the period from inception
(March 27, 2018) to December 31, 2018, was due to decreased investments in mergers and notes receivable in the year ended December
31, 2019.
The
increase in funds provided by financing activities for the year ended December 31, 2019, compared to the period from inception
(March 27, 2018) to December 31, 2018, was due primarily to increased proceeds from the sale of our securities during the year
ended December 31, 2019.
Satisfaction
of our Cash Obligations for the Next 12 Months
As
of December 31, 2019, we had $282,380 of cash on hand and negative working capital of $558,451. We do not currently have sufficient
funds to fund our operations at their current levels for the next twelve months. As we implement our cannabis cultivation business
and attempt to expand operational activities, we expect to continue to experience net negative cash flows from operations in amounts
not now determinable, and will be required to obtain additional financing to fund operations. Our ability to continue as a going
concern is dependent upon our ability to raise additional capital and to achieve sustainable revenues and profitable operations.
Since inception, we have raised funds primarily through the sale of equity securities. We will need, and are currently seeking,
additional funds to operate our business. No assurance can be given that any future financing will be available or, if available,
that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue
restrictions on our operations or cause substantial dilution for our stockholders. If we are unable to obtain additional funds,
our ability to carry out and implement our planned business objectives and strategies will be significantly delayed, limited or
may not occur. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the competitive and
evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability and our failure to
do so would adversely affect our business, including our ability to raise additional funds.
The
accompanying consolidated financial statements appearing in this 10-K have been prepared assuming that we will continue as a going
concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course
of business. The consolidated financial statements do not include any adjustments related to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue
as a going concern.
Off-Balance
Sheet Arrangements
We
have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage
in trading activities involving non-exchange traded contracts.
ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk
We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
the information under this item.
ITEM
8. Financial Statements and Supplementary Data
ONE
WORLD PHARMA, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2019 AND
THE PERIOD FROM INCEPTION (MARCH 27, 2018) TO DECEMBER 31, 2018
TABLE
OF CONTENTS
|
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Page
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Report of Independent Registered Public Accounting Firm, M&K CPAS, PLLC
|
|
F-1
|
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|
|
Consolidated Balance Sheets as of December 31, 2019 and 2018
|
|
F-2
|
|
|
|
Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2019 and the period from inception (March 27, 2018) to December 31, 2018
|
|
F-3
|
|
|
|
Consolidated Statement of Stockholders’ Equity (Deficit) for the year ended December 31, 2019 and the period from inception (March 27, 2018) to December 31, 2018
|
|
F-4
|
|
|
|
Consolidated Statements of Cash Flows for the year ended December 31, 2019 and period from inception (March 27, 2018) to December 31, 2018
|
|
F-5
|
|
|
|
Notes to Consolidated Financial Statements
|
|
F-7
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of One World Pharma, Inc.,
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of One World Pharma, Inc. (the Company) as of December 31, 2019 and
2018, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash
flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as
the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in
the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States
of America.
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.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 2 to the financial statements, the Company has suffered net losses from operations and has a net working capital deficiency,
which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters
are discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
M&K
CPAS, PLLC
We
have served as the Company’s auditor since 2018.
Houston,
TX
May
29, 2020
ONE
WORLD PHARMA, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
282,380
|
|
|
$
|
125,846
|
|
Inventory
|
|
|
24,682
|
|
|
|
-
|
|
Other current assets
|
|
|
267,106
|
|
|
|
30,850
|
|
Total current assets
|
|
|
574,168
|
|
|
|
156,696
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
|
502,706
|
|
|
|
-
|
|
Security deposits
|
|
|
72,527
|
|
|
|
4,494
|
|
Fixed assets, net
|
|
|
697,863
|
|
|
|
356,439
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,847,264
|
|
|
$
|
517,629
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
330,521
|
|
|
$
|
121,194
|
|
Accrued expenses
|
|
|
109,665
|
|
|
|
34,425
|
|
Current portion of lease liabilities
|
|
|
55,101
|
|
|
|
-
|
|
Convertible notes payable
|
|
|
507,332
|
|
|
|
300,000
|
|
Advances from shareholders
|
|
|
-
|
|
|
|
514,141
|
|
Notes payable
|
|
|
130,000
|
|
|
|
200,000
|
|
Total current liabilities
|
|
|
1,132,619
|
|
|
|
1,169,760
|
|
|
|
|
|
|
|
|
|
|
Long-term lease liabilities
|
|
|
453,251
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,585,870
|
|
|
|
1,169,760
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit):
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2019 and 2018, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 300,000,000 shares authorized; 44,804,305 and 34,291,905 shares
issued and outstanding at December 31, 2019 and 2018, respectively
|
|
|
44,804
|
|
|
|
34,292
|
|
Additional paid-in capital
|
|
|
8,150,004
|
|
|
|
1,278,352
|
|
Subscriptions receivable, consisting of 6,012,500 shares at December 31, 2018
|
|
|
-
|
|
|
|
(602
|
)
|
Subscriptions payable, consisting of 500,000 shares at December 31, 2019
|
|
|
250,000
|
|
|
|
-
|
|
Accumulated other comprehensive loss
|
|
|
(16,248
|
)
|
|
|
(4,090
|
)
|
Accumulated (deficit)
|
|
|
(8,167,166
|
)
|
|
|
(1,959,982
|
)
|
|
|
|
261,394
|
|
|
|
(652,030
|
)
|
Noncontrolling Interest
|
|
|
-
|
|
|
|
(101
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
|
261,394
|
|
|
|
(652,131
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
1,847,264
|
|
|
$
|
517,629
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ONE
WORLD PHARMA, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
For the
Year Ended
|
|
|
From Inception (March 27,
2018) to
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenue:
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,245,219
|
|
|
|
903,913
|
|
Goodwill impairment
|
|
|
102,000
|
|
|
|
-
|
|
Professional fees
|
|
|
3,473,300
|
|
|
|
917,936
|
|
Bad debts expense
|
|
|
-
|
|
|
|
50,000
|
|
Total operating expenses
|
|
|
5,820,519
|
|
|
|
1,871,849
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(5,820,519
|
)
|
|
|
(1,871,849
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Loss on disposal of assets
|
|
|
(4,087
|
)
|
|
|
-
|
|
Interest income
|
|
|
4
|
|
|
|
-
|
|
Interest expense
|
|
|
(382,582
|
)
|
|
|
(88,234
|
)
|
Total other expense
|
|
|
(386,665
|
)
|
|
|
(88,234
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,207,184
|
)
|
|
$
|
(1,960,083
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
|
-
|
|
|
|
101
|
|
Net loss attributable to One World Pharma, Inc.
|
|
$
|
(6,207,184
|
)
|
|
$
|
(1,959,982
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
Loss on foreign currency translation
|
|
$
|
(12,158
|
)
|
|
$
|
(4,090
|
)
|
|
|
|
|
|
|
|
|
|
Net other comprehensive loss
|
|
$
|
(6,219,342
|
)
|
|
$
|
(1,964,072
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic and fully diluted
|
|
|
41,089,784
|
|
|
|
31,992,168
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and fully diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.06
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
ONE
WORLD PHARMA, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Stockholders’
|
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Subscriptions
|
|
|
Subscriptions
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Payable
|
|
|
Income
(Loss)
|
|
|
Deficit
|
|
|
Interest
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 27, 2018 (Origination)
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold for cash
|
|
|
23,411,905
|
|
|
|
23,412
|
|
|
|
978,703
|
|
|
|
(602
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,001,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
680,000
|
|
|
|
680
|
|
|
|
284,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
285,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
capital
|
|
|
-
|
|
|
|
-
|
|
|
|
136,440
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
136,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation
of One World Pharma, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
(349,420
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(349,420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for purchase of One World Pharma S.A.S.
|
|
|
10,200,000
|
|
|
|
10,200
|
|
|
|
152,709
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
162,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature on convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,090
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,959,982
|
)
|
|
|
(101
|
)
|
|
|
(1,960,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
|
|
34,291,905
|
|
|
$
|
34,292
|
|
|
$
|
1,278,352
|
|
|
$
|
(602
|
)
|
|
$
|
-
|
|
|
$
|
(4,090
|
)
|
|
$
|
(1,959,982
|
)
|
|
$
|
(101
|
)
|
|
$
|
(652,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
received on subscriptions receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold for cash
|
|
|
8,260,700
|
|
|
|
8,260
|
|
|
|
4,122,090
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,380,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock sold to CEO, debt cancelled in lieu of cash payment
|
|
|
400,000
|
|
|
|
400
|
|
|
|
199,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless
exercise of common stock options
|
|
|
51,040
|
|
|
|
51
|
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued on debt conversions
|
|
|
1,253,493
|
|
|
|
1,253
|
|
|
|
500,144
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
501,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
99,666
|
|
|
|
100
|
|
|
|
236,460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
236,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of common stock options issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
1,402,635
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,402,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of common stock options issued for services, OWP Ventures, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
88,297
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of OWP Ventures, Inc. shares for One World Pharma, Inc. shares (1:1)
|
|
|
1,322,501
|
|
|
|
1,323
|
|
|
|
(10,730
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
(9,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock cancelled pursuant to merger with OWP Ventures, Inc.
|
|
|
(875,000
|
)
|
|
|
(875
|
)
|
|
|
875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature on convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
332,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
on foreign currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,158
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,207,184
|
)
|
|
|
-
|
|
|
|
(6,207,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
|
|
44,804,305
|
|
|
$
|
44,804
|
|
|
$
|
8,150,004
|
|
|
$
|
-
|
|
|
$
|
250,000
|
|
|
$
|
(16,248
|
)
|
|
$
|
(8,167,166
|
)
|
|
$
|
-
|
|
|
$
|
261,394
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ONE
WORLD PHARMA, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
From
Inception
|
|
|
|
For
the Year Ended
|
|
|
(March
27, 2018) to
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,207,184
|
)
|
|
$
|
(1,959,982
|
)
|
Minority
interest in net loss
|
|
|
-
|
|
|
|
(101
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Bad
debts expense
|
|
|
-
|
|
|
|
50,000
|
|
Depreciation
and amortization expense
|
|
|
19,668
|
|
|
|
1,961
|
|
Loss
on disposal of fixed assets
|
|
|
4,087
|
|
|
|
-
|
|
Impairment of goodwill
|
|
|
102,000
|
|
|
|
-
|
|
Amortization
of debt discounts
|
|
|
332,332
|
|
|
|
75,000
|
|
Stock-based
compensation
|
|
|
236,560
|
|
|
|
285,600
|
|
Amortization
of options issued for services
|
|
|
1,490,932
|
|
|
|
-
|
|
Decrease
(increase) in assets:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(24,682
|
)
|
|
|
-
|
|
Other
current assets
|
|
|
(245,562
|
)
|
|
|
135,982
|
|
Right-of-use
assets
|
|
|
45,510
|
|
|
|
-
|
|
Security deposits
|
|
|
(68,033
|
)
|
|
|
(4,494
|
)
|
Increase (decrease)
in liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
209,327
|
|
|
|
123,870
|
|
Accrued expenses
|
|
|
83,969
|
|
|
|
23,667
|
|
Lease liability
|
|
|
(39,864
|
)
|
|
|
-
|
|
Net cash used in operating
activities
|
|
|
(4,060,940
|
)
|
|
|
(1,268,497
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Cash acquired in merger
|
|
|
-
|
|
|
|
4,739
|
|
Investment in Colombian
Hope, S.A.S.
|
|
|
(102,000
|
)
|
|
|
-
|
|
Investment in One World
Pharma, Inc.
|
|
|
-
|
|
|
|
(350,000
|
)
|
Investment in note
receivable
|
|
|
-
|
|
|
|
(50,000
|
)
|
Purchase of fixed assets
|
|
|
(365,179
|
)
|
|
|
(358,400
|
)
|
Net cash used in investing
activities
|
|
|
(467,179
|
)
|
|
|
(753,661
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from convertible
note payable
|
|
|
500,000
|
|
|
|
300,000
|
|
Proceeds from shareholders
|
|
|
-
|
|
|
|
514,141
|
|
Repayment of advances
from shareholders
|
|
|
(314,141
|
)
|
|
|
-
|
|
Proceeds from notes
payable
|
|
|
130,000
|
|
|
|
200,000
|
|
Proceeds from contributed
capital
|
|
|
-
|
|
|
|
136,440
|
|
Proceeds from subscriptions
receivable
|
|
|
602
|
|
|
|
-
|
|
Proceeds from sale
of common stock
|
|
|
4,380,350
|
|
|
|
1,001,513
|
|
Net cash provided by
financing activities
|
|
|
4,696,811
|
|
|
|
2,152,094
|
|
Effect
of exchange rate changes on cash
|
|
|
(12,158
|
)
|
|
|
(4,090
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
156,534
|
|
|
|
125,846
|
|
Cash
- beginning
|
|
|
125,846
|
|
|
|
-
|
|
Cash - ending
|
|
$
|
282,380
|
|
|
$
|
125,846
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
28,558
|
|
|
$
|
310
|
|
Income
taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing
and financing transactions:
|
|
|
|
|
|
|
|
|
Fair
value of net assets acquired in merger
|
|
$
|
9,306
|
|
|
$
|
-
|
|
Notes
payable exchanged for convertible note payable
|
|
$
|
207,332
|
|
|
$
|
-
|
|
Value of shares issued
for conversion of debt
|
|
$
|
701,397
|
|
|
$
|
-
|
|
Initial recognition of right-of-use
assets and lease liabilities
|
|
$
|
548,216
|
|
|
$
|
-
|
|
Par value of cashless exercise
of options
|
|
$
|
51
|
|
|
$
|
-
|
|
Beneficial
conversion feature
|
|
$
|
332,332
|
|
|
$
|
75,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
1 – Nature of Business and Significant Accounting Policies
Nature
of Business
One
World Pharma, 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 39,475,398 shares of our common stock; (b)
options to purchase 825,000 shares of common stock of OWP Ventures at an exercise price of $0.50 automatically converted into
options to purchase 825,000 shares of our common stock at an exercise price of $0.50; (c) the outstanding principal and interest
under a $300,000 convertible note issued by OWP Ventures became convertible, at the option of the holder, into shares of our common
stock at a conversion price equal to the lesser of $0.424 per share or 80% of the price we sell our common stock in a future “Qualified
Offering”; (d) 875,000 shares of our common stock owned by OWP Ventures prior to the Merger were cancelled; and (e) OWP
Ventures’ chief operating officer became our chief operating officer and two of OWP Ventures’ directors became members
of our board of directors. The Company’s headquarters are located in Las Vegas, Nevada, and all of its customers are expected
to be outside of the United States. On January 10, 2019, the Company changed its name from Punto Group, Corp. to One World Pharma,
Inc.
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
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. To date, we have not yet generated any revenues from our activities.
The
Merger was accounted for as a reverse merger (recapitalization) with OWP Ventures deemed to be the accounting acquirer. Accordingly,
the financial statements included in this Annual Report on Form 10-K reflect the historical operations of OWP Ventures
and its wholly-owned subsidiary OWP SAS prior to the Merger, and that of the combined company following the Merger. The historical
financial information for One World Pharma, Inc. (formerly Punto Group Corp.) prior to the Merger has been omitted.
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.
ONE
WORLD PHARMA, INC.
NOTES
TO 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, 2019:
|
|
State of
|
|
|
|
Name
of Entity
|
|
Incorporation
|
|
Relationship
|
|
One
World Pharma, Inc.(1)
|
|
Nevada
|
|
Parent
|
|
OWP
Ventures, Inc.(2)
|
|
Delaware
|
|
Subsidiary
|
|
One
World Pharma S.A.S.(3)
|
|
Colombia
|
|
Subsidiary
|
|
Colombian
Hope, S.A.S.(4)
|
|
Colombia
|
|
Subsidiary
|
|
(1)
|
Holding company in the form of a corporation.
|
(2)
|
Holding company in the form of a corporation and wholly-owned subsidiary of One World Pharma, Inc.
|
(3)
|
Wholly-owned subsidiary of OWP Ventures, Inc. since May 30, 2018, located in Colombia and legally constituted as a simplified stock company
registered in the Chamber of Commerce of Bogotá on July 18, 2017. Its headquarters are located in Bogotá.
|
(4)
|
Wholly-owned
subsidiary of OWP Ventures, Inc., acquired on November 19, 2019, located in Colombia and legally constituted as a simplified stock
company. This company has yet to incur any income or expenses.
|
The
consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s
headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign
Currency Translation
The
functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional
currency, and translated those financial statements to the US Dollar throughout this report. Monetary assets and liabilities denominated
in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at
the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional
currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income (loss) for the respective periods.
Comprehensive
Income
The
Company has adopted ASC 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive
income, its components, and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive
income represents the accumulated balance of foreign currency translation adjustments.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These
reclassifications had no effect on previously reported results of operations or retained earnings.
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.
ONE
WORLD PHARMA, INC.
NOTES
TO 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 $250,000, under current regulations. The Company had $37,928
in excess of FDIC insured limits at December 31, 2019, and has not experienced any losses in such accounts.
Goodwill
Goodwill
is the excess of the consideration transferred over the fair value of the acquired assets and assumed liabilities in a business
combination. Goodwill is not amortized but rather tested for impairment at least annually. We test goodwill for impairment on
the first day of the fourth quarter each fiscal year. Goodwill is also tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying
amount. When testing goodwill for impairment, we may assess qualitative factors for some or all of our reporting units to determine
whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is
less than its carrying amount, including goodwill. Alternatively, we may bypass this qualitative assessment for some or all of
our reporting units and perform step 1 of the two-step goodwill impairment test. If we perform step 1 and the carrying amount
of the reporting unit exceeds its fair value, we would perform step 2 to measure such impairment. Impairment testing for goodwill
is done at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known
as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete
financial information is available, and segment management regularly reviews the operating results of that component. During the
year ended December 31, 2019, we recognized $102,000 of goodwill impairment on the acquisition of Colombian Hope, S.A.S., as disclosed
in Note 3, below.
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue
when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be
reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has
occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably
assured.
There
was no impact on the Company’s financial statements from ASC 606 for the years ended December 31, 2019 or 2018.
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. Inventory consisted of $24,682 of raw materials at December 31, 2019.
Advertising
Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $114,244 for the year
ended December 31, 2019. No advertising and promotions expense was incurred for the period from inception (March 27, 2018) to
December 31, 2018.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Basic
and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by
the weighted average number of common shares outstanding plus potential dilutive securities. For the year ended December 31, 2019
and the period from inception (March 27, 2018) to December 31, 2018, potential dilutive securities had an anti-dilutive effect
and were not included in the calculation of diluted net loss per common share.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC
718) and Equity-Based Payments to Non-employees pursuant to ASC 505-50 (ASC 505-50). All transactions in which goods or services
are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the
fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete
or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently
large disincentives for nonperformance.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets
and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be
recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such
assets to be more likely than not.
Uncertain
Tax Positions
In
accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing
authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These
standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The
assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with
the Company’s various filing positions.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
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
June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which
expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option
pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern
of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2018, with early adoption permitted. There was no impact on the Company’s
financial statements as a result of adopting this ASU for the year ended December 31, 2019 and the period from inception (March
27, 2018) to December 31, 2018.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
In
February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income. The guidance permits entities to reclassify tax effects stranded in Accumulated Other Comprehensive Income as a result
of tax reform to retained earnings. This new guidance is effective for annual and interim periods in fiscal years beginning after
December 15, 2018. Early adoption is permitted in annual and interim periods and can be applied retrospectively or in the period
of adoption. There was no impact on the Company’s financial statements as a result of adopting this ASU for the years ended
December 31, 2019 or 2018.
In
February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02, which requires lessees to recognize
the rights and obligations created by leases on the balance sheet and disclose key information about leasing arrangements. Topic
842 was subsequently amended by ASU No. 2018-11, Targeted Improvements, ASU No. 2018-10, Codification Improvements to
Topic 842, and ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842. The new standard establishes
a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases
with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern
and classification of expense recognition in the statement of operations.
The
new standard became effective for fiscal years beginning after December 15, 2019, with early adoption permitted. A modified retrospective
transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity
may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial
statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing
leases also apply to leases entered into between the date of initial application and the effective date. The entity must also
recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative
periods. The Company adopted the new standard on January 1, 2019 using the modified retrospective transition approach as of the
effective date of the initial application. Consequently, financial information will not be updated and the disclosures required
under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of
optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits
entities not to reassess under the new lease standard prior conclusions about lease identification, lease classification and initial
direct costs. The Company does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements.
The
most significant effects of the adoption of the new standard relate to the recognition of new ROU assets and lease labilities
on our balance sheet for office operating leases and providing significant new disclosures about our leasing activities.
The
new standard also provides practical expedients for an entity’s ongoing accounting. The Company has also elected the short-term
leases recognition exemption for all leases that qualify. This means that the Company will not recognize ROU assets or lease liabilities,
and this includes not recognizing ROU assets and lease liabilities, for existing short-term leases of those assets in transition.
The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for its leases.
There
are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material
effect on its financial position, results of operations, or cash flows.
Note
2 – Going Concern
As
shown in the accompanying financial statements, the Company has incurred recurring losses from operations resulting in an accumulated
deficit of ($8,167,166), and as of December 31, 2019, the Company’s cash on hand may not be sufficient to sustain operations.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is actively
pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital to fund
short term operations. Management believes these factors will contribute toward achieving profitability. The accompanying financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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 –Mergers and Acquisitions
Reverse
Merger
On
February 21, 2019, One World Pharma, Inc. entered into an Agreement and Plan of Merger with OWP Merger Subsidiary, Inc., our wholly-owned
subsidiary, and OWP Ventures, which is the parent company of 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. As a result of the Merger (a) holders of the outstanding capital stock of OWP
Ventures received an aggregate of 39,475,398 shares of our common stock; (b) options to purchase 825,000 shares of common stock
of OWP Ventures at an exercise price of $0.50 automatically converted into options to purchase 825,000 shares of our common stock
at an exercise price of $0.50; (c) the outstanding principal and interest under a $300,000 convertible note issued by OWP Ventures
became convertible, at the option of the holder, into shares of our common stock at a conversion price equal to the lesser of
$0.424 per share or 80% of the price we sell our common stock in a future “Qualified Offering”; (d) 875,000 shares
of our common stock owned by OWP Ventures prior to the Merger were cancelled; and (e) OWP Ventures’ chief operating officer
became our chief operating officer and two of OWP Ventures’ directors became members of our board of directors.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Acquisition
On
December 6, 2019, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., acquired 51% of the outstanding shares
of capital stock (the “Shares”) of Colombian Hope, S.A.S., then known as Colcannapy S.A.S., a Colombian company (“Colombian
Hope”), for a purchase price of US$102,000, pursuant to a Share Purchase Agreement (the “Purchase Agreement”)
among OWP Ventures, Inc. and Colombian Hope’s shareholders. Colombian Hope is the holder of a Colombian seed license and
23 registered Colombian cultivars.
Concurrently,
with the Company’s acquisition of the Shares, Federación Colombiana de Consejos Regionales (“Fedecoré”)
was supposed to have purchased the remaining 49% of Colombian Hope’s outstanding shares of capital stock from Colombian
Hope’s shareholders, so that the Company and Fedecoré would be the only shareholders of Colombian Hope. However,
Fedecoré, a non-profit Colombian entity, was unable to acquire such shares, which were then acquired by OWP Ventures, Inc.,
resulting in 100% ownership. No assets or liabilities were acquired pursuant to the acquisition, resulting in $102,000 of goodwill
that was impaired and expensed on December 31, 2019 due to the lack of current operations. To date, Colombian Hope has not incurred
any income or expenses.
Note
4 – Related Party Transactions
Advances
and Repayment to CEO
As
described further in Note 13 below, on various dates between May 3, 2018 and November 23, 2018, our CEO advanced us short-term
unsecured demand loans, bearing interest at 6% per annum, in an aggregate amount of $514,141, of which $207,000 was repaid on
various dates from March of 2019 through May of 2019.
On
February 13, 2019, the remaining outstanding obligations under these advances were exchanged for an amended and restated promissory
note in the principal amount of $307,141 that bore interest at 6% and was payable upon the earlier of (i) a public or private
offering of our equity securities, resulting in gross proceeds of at least $5,000,000, or (ii) February 13, 2022. All indebtedness
outstanding under this note, consisting of $307,141 of principal and $13,791 of interest, was repaid in full during the year ended
December 31, 2019, with $200,000 of such principal paid by the issuance of 400,000 shares of common stock to the CEO, as described
below.
Common
Stock Sale
On
September 4, 2019, the Company sold 400,000 shares of common stock at a price of $0.50 per share for $200,000 to the Company’s
CEO in which the consideration for such shares was paid by the cancellation of $200,000 of outstanding indebtedness owed to the
CEO under the Amended Note, in lieu of cash payment.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
5 – Fair Value of Financial Instruments
Under
FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation
framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements
and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50
details the disclosures that are required for items measured at fair value.
The
Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the measurement date.
Level
2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability
(e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market
data by correlation or other means (market corroborated inputs).
Level
3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset
or liability.
The
following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet
as of December 31, 2019 and 2018:
|
|
Fair
Value Measurements at December 31, 2019
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
282,380
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
assets
|
|
|
282,380
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
508,352
|
|
Convertible
notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
507,332
|
|
Notes
payable
|
|
|
-
|
|
|
|
130,000
|
|
|
|
-
|
|
Total
liabilities
|
|
|
-
|
|
|
|
130,000
|
|
|
|
1,015,684
|
|
|
|
$
|
282,380
|
|
|
$
|
(130,000
|
)
|
|
$
|
(1,015,684
|
)
|
|
|
Fair
Value Measurements at December 31, 2018
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
125,846
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total
assets
|
|
|
125,846
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
300,000
|
|
Advances
from shareholders
|
|
|
-
|
|
|
|
514,141
|
|
|
|
-
|
|
Notes
payable
|
|
|
-
|
|
|
|
200,000
|
|
|
|
-
|
|
Total
liabilities
|
|
|
-
|
|
|
|
714,141
|
|
|
|
300,000
|
|
|
|
$
|
125,846
|
|
|
$
|
(714,141
|
)
|
|
$
|
(300,000
|
)
|
There
were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the year ended December 31, 2019 and
the period from inception (March 27, 2018) to December 31, 2018.
Note
6 – 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. Inventory consisted of $24,682 of raw materials at December 31, 2019.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
7 – Other Current Assets
Other
current assets included the following as of December 31, 2019 and 2018, respectively:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
VAT
tax receivable
|
|
$
|
54,814
|
|
|
$
|
-
|
|
Prepaid
expenses
|
|
|
132,338
|
|
|
|
30,850
|
|
Other
receivables
|
|
|
79,954
|
|
|
|
-
|
|
Total
|
|
$
|
267,106
|
|
|
$
|
30,850
|
|
Note
8 – Security Deposits
Security
deposits included the following as of December 31, 2019 and 2018, respectively:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Refundable
deposit on equipment purchase
|
|
$
|
50,000
|
|
|
$
|
-
|
|
Security
deposits on leases held in Colombia
|
|
|
18,033
|
|
|
|
-
|
|
Security
deposit on office lease
|
|
|
4,494
|
|
|
|
4,494
|
|
|
|
$
|
72,527
|
|
|
$
|
4,494
|
|
Note
9 – Fixed Assets
Fixed
assets consist of the following at December 31, 2019 and 2018, respectively:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Land
|
|
$
|
138,248
|
|
|
$
|
-
|
|
Office
equipment
|
|
|
44,027
|
|
|
|
18,314
|
|
Furniture
and fixtures
|
|
|
27,914
|
|
|
|
23,595
|
|
Equipment
and machinery
|
|
|
174,072
|
|
|
|
-
|
|
Construction
in progress
|
|
|
335,231
|
|
|
|
316,491
|
|
|
|
|
719,492
|
|
|
|
358,400
|
|
Less:
accumulated depreciation
|
|
|
(21,629
|
)
|
|
|
(1,961
|
)
|
Total
|
|
$
|
697,863
|
|
|
$
|
356,439
|
|
Construction
in progress consists of equipment and capital improvements on the Popayán farm that have not yet been placed in service.
Depreciation
and amortization expense totaled $19,668 and $1,961 for the year ended December 31, 2019 and the period from inception (March
27, 2018) to December 31, 2018, respectively.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
10 – Accrued Expenses
Accrued
expenses consisted of the following at December 31, 2019 and 2018, respectively:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Accrued
payroll
|
|
$
|
67,479
|
|
|
$
|
6,327
|
|
Accrued
withholding taxes and employee benefits
|
|
|
14,386
|
|
|
|
6,387
|
|
Accrued
ICA fees and contributions
|
|
|
1,912
|
|
|
|
8,514
|
|
Accrued
interest
|
|
|
25,888
|
|
|
|
12,924
|
|
Deferred
rent obligations
|
|
|
-
|
|
|
|
273
|
|
|
|
$
|
109,665
|
|
|
$
|
34,425
|
|
Note
11 – Leases
The
Company’s corporate offices and operational facility in Colombia under non-cancelable real property lease agreements that
expire on October 31, 2021 and September 30, 2029, respectively. 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 we determined would be reasonably certain to be extended,
while the Company’s operational facility in Colombia contains a 60 month extension option that we did not determine to be
reasonably certain to be extended. 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,
|
|
|
|
2019
|
|
Operating
lease cost:
|
|
|
|
|
Amortization
of assets
|
|
$
|
45,510
|
|
Interest
on lease liabilities
|
|
|
22,235
|
|
Total
lease cost
|
|
$
|
67,745
|
|
Supplemental
balance sheet information related to leases was as follows:
|
|
December
31,
|
|
|
|
2019
|
|
Operating
leases:
|
|
|
|
|
Operating
lease assets
|
|
$
|
502,706
|
|
|
|
|
|
|
Current
portion of operating lease liabilities
|
|
$
|
55,101
|
|
Noncurrent
operating lease liabilities
|
|
|
453,251
|
|
Total
operating lease liabilities
|
|
$
|
508,352
|
|
|
|
|
|
|
Weighted
average remaining lease term:
|
|
|
|
|
Operating
leases
|
|
|
9.75
years
|
|
|
|
|
|
|
Weighted
average discount rate:
|
|
|
|
|
Operating
leases
|
|
|
6.75%
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Supplemental
cash flow and other information related to leases was as follows:
|
|
For the
|
|
|
|
Year
Ended
|
|
|
|
December
31,
|
|
|
|
2019
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating
cash flows used for operating leases
|
|
$
|
39,864
|
|
|
|
|
|
|
Leased
assets obtained in exchange for lease liabilities:
|
|
|
|
|
Total
operating lease liabilities
|
|
$
|
548,216
|
|
Future
minimum annual lease commitments under non-cancelable operating leases are as follows at December 31, 2019:
|
|
Operating
|
|
|
|
Leases
|
|
|
|
|
|
2020
|
|
$
|
160,858
|
|
2021
|
|
|
80,877
|
|
2022
|
|
|
34,528
|
|
2023
|
|
|
35,909
|
|
2024
|
|
|
37,345
|
|
Thereafter
|
|
|
198,669
|
|
Total
minimum lease payments
|
|
|
548,186
|
|
Less
interest
|
|
|
39,834
|
|
Present
value of lease liabilities
|
|
|
508,352
|
|
Less
current portion
|
|
|
55,101
|
|
Long-term
lease liabilities
|
|
$
|
453,251
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
12 – Convertible Note Payable
Convertible
note payable consists of the following at December 31, 2019 and 2018, respectively:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
On November
30, 2018, the Company received proceeds of $300,000 on a secured convertible note that carries a 6% interest rate from CSW
Ventures, LP (“CSW”). The proceeds were used to fund the Company’s purchase of 875,000 shares of common
stock, on a 1:4 split adjusted basis, of One World Pharma, Inc. The Note is due on demand. In the event that the Company consummated
the closing of a public or private offering of its equity securities, resulting in gross proceeds of at least $500,000
(“Qualified Financing”) at any time prior to the repayment of this note, then the outstanding principal and unpaid
interest may, at the option of the holder, be converted into such equity securities at a conversion price equal to eighty
percent (80%) of the purchase price paid by the investors purchasing the equity securities in the Qualified Financing. A
Qualified Financing subsequently occurred on February 4, 2019, at which time the convertible note became convertible at a
fixed conversion price of $0.40 per share. The Company’s obligations under this Note are secured by a lien on the
assets of the Company.
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
On January 14, 2019,
the Company received proceeds of $500,000 on an unsecured convertible promissory note that carries a 6% interest rate from
The Sanguine Group LLC. The Note was due January 14, 2022. In the event that the Company consummated the closing of a public
or private offering of its equity securities, resulting in gross proceeds of at least $500,000 (“Qualified Financing”)
at any time prior to the repayment of this note, then the outstanding principal and unpaid interest would automatically be
converted into such equity securities at a conversion price equal to the lesser of (i) eighty percent (80%) of the purchase
price paid by the investors purchasing the equity securities in the Qualified Financing, or (ii) $0.424 per share. The Company’s
obligations under this Note were secured by a lien on the assets of the Company. A Qualified Financing subsequently occurred
on February 4, 2019, at which time the principal and interest were converted into 1,253,493 shares of the Company’s
common stock.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On July 22, 2019,
a total of $207,332, consisting of $200,000 of principal and $7,332 of unpaid interest, on two outstanding demand notes owed
to CSW that originated on November 26, 2018 and December 26, 2018, were exchanged for a convertible promissory note in the
principal amount of $207,332, due on demand (the “Second Convertible CSW Note”). The Second Convertible
CSW Note bears interest at 6% per annum and is convertible at the option of the holder into shares of common stock at a price
of $0.50 per share.
|
|
|
207,332
|
|
|
|
-
|
|
Less:
unamortized debt discounts
|
|
|
-
|
|
|
|
-
|
|
Convertible
note payable
|
|
$
|
507,332
|
|
|
$
|
300,000
|
|
In
addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible notes by allocating
a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the
feature was calculated on the commitment date using the effective conversion price of the convertible notes. This intrinsic value
is limited to the portion of the proceeds allocated to the convertible debt.
The
aforementioned accounting treatment resulted in a total debt discounts equal to $332,332 and $75,000 for the year ended December
31, 2019 and the period from inception (March 27, 2018) to December 31, 2018, respectively. The Company recorded finance expense
in the amount of $332,332 for the year ended December 31, 2019.
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 4.99% of the Company’s issued and outstanding shares.
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $24,751 and
$1,529 for the year ended December 31, 2019 and the period from inception (March 27, 2018) to December 31, 2018, respectively.
In addition, the Company recognized $332,332 of interest expense related to the debt discount for the year ended December 31,
2019.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
13 – Advances from Shareholders
Advances
from shareholders consist of the following at December 31, 2019 and 2018, respectively:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
On
various dates between May 3, 2018 and November 23, 2018, our CEO advanced short-term
unsecured demand loans, bearing interest at 6% per annum, of an aggregate $514,141 to
the Company, as follows:
$
10,000 – May 3, 2018
$100,000
– May 3, 2018
$
82,000 – May 14, 2018
$
15,000 – May 29, 2018
$
57,141 – October 25, 2018
$100,000
– October 30, 2018
$
50,000 – November 9, 2018
$
50,000 – November 21, 2018
$
50,000 – November 23, 2018
A
total of $207,000 was repaid over various dates from March of 2019 through May of 2019,
and $307,141 was exchanged for the note described below.
|
|
$
|
-
|
|
|
$
|
514,141
|
|
|
|
|
|
|
|
|
|
|
On
February 13, 2019, a total of $307,141 of the advances from our CEO received from October 25, 2018 to November 23, 2018, as
shown above, were exchanged for an amended and restated promissory note in the principal amount of $307,141 (the “Amended
Note”). The Amended Note bore interest at 6% and was payable upon the earlier of (i) a public or private offering of
our equity securities, resulting in gross proceeds of at least $5,000,000, or (ii) February 13, 2022. All indebtedness outstanding
under the Amended Note, consisting of $307,141 of principal and $13,791 of interest, was repaid in full during September 2019,
with $200,000 of such principal paid by the issuance of 400,000 shares of common stock as described in Note 4 above.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
advances from shareholders
|
|
$
|
-
|
|
|
$
|
514,141
|
|
The
Company recorded interest expense in the amount of $16,053 and $10,738 for the year ended December 31, 2019 and the period from
inception (March 27, 2018) to December 31, 2018, respectively.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
14 – Notes Payable
Notes
payable consists of the following at December 31, 2019 and 2018, respectively:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
On
November 14, 2019, the Company received proceeds of $50,000 from MCK Investments LLC on an unsecured promissory note due on
demand that carries a 6% interest rate.
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
On
November 14, 2019, the Company received proceeds of $80,000 from MCK Investments LLC on an unsecured promissory note due on
demand that carries a 6% interest rate.
|
|
|
80,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On
December 26, 2018, the Company received proceeds of $100,000 from CSW on an unsecured promissory note due on demand that carries
a 6% interest rate. On July 22, 2019, the principal and outstanding interest was exchanged for a convertible promissory note
(See Note 12).
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
On
November 26, 2018, the Company received proceeds of $100,000 from CSW on an unsecured promissory note due on demand that carries
a 6% interest rate. On July 22, 2019, the principal and outstanding interest was exchanged for a convertible promissory note
(See Note 12).
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
$
|
130,000
|
|
|
$
|
200,000
|
|
The
Company recorded interest expense in the amount of $7,679 and $658 for the year ended December 31, 2019 for the year ended December
31, 2019 and the period from inception (March 27, 2018) to December 31, 2018, respectively.
The
Company recognized interest expense for the year ended December 31, 2019 and the period from inception (March 27, 2018) to December
31, 2018, respectively, as follows:
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Interest
on convertible notes
|
|
$
|
24,751
|
|
|
$
|
1,529
|
|
Interest on advances
from shareholders
|
|
|
16,053
|
|
|
|
10,738
|
|
Interest on notes
payable
|
|
|
7,679
|
|
|
|
658
|
|
Amortization of
beneficial conversion features
|
|
|
332,332
|
|
|
|
75,000
|
|
Interest on accounts
payable
|
|
|
1,767
|
|
|
|
309
|
|
Total
interest expense
|
|
$
|
382,582
|
|
|
$
|
88,234
|
|
Note
15 – Stockholders’ Equity
Reverse
Stock Split
On
January 10, 2019, the Company effected a 1-for-4 reverse stock split (the “Reverse Stock Split”). No fractional shares
were issued, and no cash or other consideration was paid in connection with the Reverse Stock Split. Instead, the Company issued
one whole share of the post-Reverse Stock Split common stock to any stockholder who otherwise would have received a fractional
share as a result of the Reverse Stock Split. The Company’s authorized shares of common stock prior to the Reverse Stock
Split were unaffected. The Reverse Stock Split also did not have any effect on the stated par value of the common stock. Unless
otherwise stated, all share and per share information in this Annual Report on Form 10-K has been retroactively adjusted to reflect
the Reverse Stock Split.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Preferred
Stock
The
Company has 10,000,000 authorized shares of $0.001 par value preferred stock. No shares had been issued as of December 31, 2019.
Common
Stock
The
Company is authorized to issue an aggregate of 300,000,000 shares of common stock with a par value of $0.001. As of December 31,
2019, there were 44,804,305 shares of common stock issued and outstanding.
Common
Stock Issued for Share Exchange, 2019
On
February 21, 2019, One World Pharma acquired OWP Ventures in the Merger. As a result of the Merger (a) holders of the outstanding
capital stock of OWP Ventures received an aggregate of 39,475,398 shares of our common stock; (b) the options described above
to purchase 825,000 shares of common stock of OWP Ventures at an exercise price of $0.50 automatically converted into options
to purchase 825,000 shares of our common stock at an exercise price of $0.50; (c) the outstanding principal and interest under
a $300,000 convertible note issued by OWP Ventures became convertible, at the option of the holder, into shares of our common
stock at a conversion price equal to the lesser of $0.424 per share or 80% of the price we sell our common stock in a future “Qualified
Offering”; and (d) 875,000 shares of our common stock owned by OWP Ventures prior to the Merger were cancelled.
Common
Stock Issued for Share Exchange, 2018
On
May 30, 2018, the Company issued an aggregate 10,200,000 shares of common stock to the shareholders of One World Pharma SAS as
part of a stock purchase agreement whereby OWP Ventures, Inc. acquired 100% of the common stock of One World Pharma SAS. The net
fair value of assets and liabilities assumed has been deemed to be more representative of the fair value of the 10,200,000 shares
issued as consideration than the non-trading shares of common stock issued in consideration, resulting in the valuation of the
shares at $162,909.
Common
Stock Sales, 2019
On
various dates between July 18, 2019 and December 18, 2019, the Company sold an aggregate of 4,360,700 shares of common
stock at a price of $0.50 per share for total cash proceeds of $2,430,350, and 400,000 shares purchased by the Company’s
CEO in which the consideration for such shares was paid by the cancelation of $200,000 of outstanding indebtedness owed to the
CEO under a promissory note, in lieu of cash payment.
On
various dates between January 3, 2019 and February 19, 2019, the Company sold an aggregate 3,900,000 shares of common stock of
OWP Ventures at $0.50 per share for total proceeds of $1,950,000.
Common
Stock Sales, 2018
On
December 14, 2018, the Company sold 100,000 shares of common stock at $0.50 per share for proceeds of $50,000.
On
October 4, 2018, the Company sold 357,143 shares of common stock at $0.42 per share for proceeds of $150,000.
On
September 20, 2018, the Company sold 238,095 shares of common stock at $0.42 per share for proceeds of $100,000.
On
July 28, 2018, the Company sold 476,191 shares of common stock at $0.42 per share for proceeds of $200,000.
On
June 15, 2018, the Company sold 1,190,476 shares of common stock at $0.42 per share for proceeds of $500,000.
On
March 27, 2018, the Company sold 100 shares of common stock at $0.10 per share to its Chief Executive Officer for proceeds of
$10 as part of the formation of the entity.
On
March 27, 2018, the Company sold 4,844,900 shares of common stock at $0.0001 per share to its Chief Executive Officer on subscriptions
receivable. The proceeds of $485 were subsequently received on November 9, 2018.
On
March 27, 2018, the Company sold an aggregate 16,205,000 shares of common stock to nine of the Company’s founders at $0.0001
per share on subscriptions receivable. The total proceeds of $1,620 were subsequently received between November 5, 2018 and February
5, 2019.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Subscriptions
Payable
On
December 31, 2019 we sold 500,000 shares of common stock at a price of $0.50 per share for total cash proceeds of $250,000. The
shares were subsequently issued on January 6, 2020, and the Company recognized a subscriptions payable of $250,000 at December
31, 2019.
Common
Stock Issued for Debt Conversion
On
February 4, 2019, a total of 1,253,493 shares of common stock of OWP Ventures were issued pursuant to the conversion of $501,397
of convertible debt owed to The Sanguine Group LLC, consisting of $500,000 of principal and $1,397 of interest.
Common
Stock Options Exercised
On
August 28, 2019, a total of 51,040 shares of common stock were issued upon exercise on a cashless basis of options to purchase
58,331 shares of common stock at a price $0.50 per share.
Common
Stock Issued for Services, 2019
On
February 18, 2019, the Company issued 30,000 shares of common stock of OWP Ventures to a consultant for services. The total fair
value of the common stock was $15,000 based recent independent third-party sales at $0.50 per share.
On
various dates between September 4, 2019 and December 4, 2019, the Company awarded an investor relations firm an aggregate 69,666
shares of common stock for services provided. The aggregate fair value of the common stock was $221,560 based on the closing price
of the Company’s common stock on the date of grant, and was expensed during the current period.
Common
Stock Issued for Services, 2018
On
October 30, 2018, the Company issued 630,000 shares of common stock to a consultant for services. The total fair value of the
common stock was $264,600 based recent independent third-party sales at $0.42 per share.
On
October 24, 2018, the Company issued 50,000 shares of common stock to a consultant in settlement for services. The total fair
value of the common stock was $21,000 based recent independent third-party sales at $0.42 per share.
Adjustments
to Additional Paid-In Capital
Pursuant
to the purchase of 66.2% of the outstanding common stock of One World Pharma, Inc for $350,000 on November 30, 2018, the Company
realized goodwill of $349,420 on the consideration paid in excess of the net fair value of assets and liabilities assumed, which
has been recognized as contributed capital due to the subsequent reverse merger between the two entities on February 21, 2019.
On
various dates between April 16, 2018 and June 20, 2018, total capital contributions of $136,440 were received from the Company’s
CEO, Craig Ellins.
Note
16 – Common Stock Options
Stock
Incentive Plan
On
February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which
had been adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides
for the issuance of up to 10,000,000 shares of common stock to the Company and its subsidiaries’ employees, officers, directors,
consultants and advisors, stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights (“SARs”),
restricted stock units (“RSUs”) and other performance stock awards. Options granted under the 2019 Plan may either
be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and
are exercisable over periods not exceeding ten years from date of grant. Unless sooner terminated in accordance with its terms,
the Stock Plan will terminate on December 10, 2029.
Common
Stock Options Issued for Services
On
February 8, 2019, the Company awarded cashless options to a service provider to acquire up to 100,000 shares of common stock,
exercisable at $0.50 per share over a thirty-six (36) month period from the origination date. The options vest as to (i) 8,333
shares on the 8th day of each subsequent month for the following eleven months, and (ii) 8,337 shares on the one-year
anniversary of the effective date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 105%
and a call option value of $2.3658, was $236,582. The options are being expensed over the vesting period, resulting in $211,303
of stock-based compensation expense during the year ended December 31, 2019. As of December 31, 2019, a total of $25,279 of unamortized
expenses are expected to be expensed over the vesting period.
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
On
February 8, 2019, the Company awarded cashless options to one of our directors to acquire up to 125,000 shares of common stock,
exercisable at $0.50 per share over a thirty-six (36) month period from the origination date. The options vest as to (i) 10,416
shares on the 8th day of each subsequent month for the following eleven months, and (ii) 10,424 shares on the one-year
anniversary of the effective date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 105%
and a call option value of $2.3727, was $296,593. The options are being expensed over the vesting period, resulting in $264,903
of stock-based compensation expense during the year ended December 31, 2019. As of December 31, 2019, a total of $31,690 of unamortized
expenses are expected to be expensed over the vesting period.
On
January 28, 2019, the Company awarded cashless options to a service provider to acquire up to 500,000 shares of common stock,
exercisable at $0.50 per share over a thirty-six (36) month period from the origination date. The options vest as to (i) 41,666
shares on the 8th day of each subsequent month for the following eleven months, and (ii) 41,674 shares on the one-year
anniversary of the effective date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 105%
and a call option value of $1.8305, was $915,230. The options are being expensed over the vesting period, resulting in $845,021
of stock-based compensation expense during the year ended December 31, 2019. As of December 31, 2019, a total of $70,209 of unamortized
expenses are expected to be expensed over the vesting period.
On
January 28, 2019, the Company awarded cashless options to a service provider to acquire up to 100,000 shares of common stock,
exercisable at $0.50 per share over a thirty-six (36) month period from the origination date. The options vest as to (i) 8,333
shares on the 8th day of each subsequent month for the following eleven months, and (ii) 8,337 shares on the one-year
anniversary of the effective date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 105%
and a call option value of $1.8381, was $183,805. The options are being expensed over the vesting period, resulting in $169,705
of stock-based compensation expense during the year ended December 31, 2019. As of December 31, 2019, a total of $14,100 of unamortized
expenses are expected to be expensed over the vesting period.
Options
Exercised
On
August 28, 2019, a total of 51,040 shares of common stock were issued upon exercise on a cashless basis of options to purchase
58,331 shares of common stock at a price $0.50 per share. No options were exercised during the period from inception (March 27,
2018) to December 31, 2018.
The
following is a summary of information about the Stock Options outstanding at December 31, 2019.
|
|
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
|
|
$
|
0.50
|
|
|
|
766,669
|
|
|
|
2.09
years
|
|
|
$
|
0.50
|
|
|
679,148
|
|
|
$
|
0.50
|
|
The
following is a summary of activity of outstanding stock options:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of
Shares
|
|
|
Prices
|
|
Balance,
December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
Options
granted
|
|
|
-
|
|
|
|
-
|
|
Options
exercised
|
|
|
-
|
|
|
|
-
|
|
Balance,
December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
Options
granted
|
|
|
825,000
|
|
|
|
0.50
|
|
Options
exercised
|
|
|
(58,331
|
)
|
|
|
(0.50
|
)
|
Balance,
December 31, 2019
|
|
|
766,669
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2019
|
|
|
679,148
|
|
|
$
|
0.50
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
Note
17 – Commitments and Contingencies
Lease
Commitment
The
Company leases executive office space in Las Vegas, Nevada. In addition, OWP Colombia leases land in Popayan, Colombia at a rate
of 8,918,210 COP per month with a 4% annual escalation on a renewable lease expiring on September 30, 2029, and various offices
and homes under leases expiring in less than a year. Amounts of minimum future annual 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
|
|
2020
|
|
$
|
160,858
|
|
2021
|
|
|
80,877
|
|
2022
|
|
|
34,528
|
|
2023
|
|
|
35,909
|
|
2024
|
|
|
37,345
|
|
Thereafter
|
|
|
198,669
|
|
Total
|
|
$
|
548,186
|
|
Rent
expense was $136,750 and $-0- for the year ended December 31, 2019 and the period from inception (March 27, 2018) to December
31, 2018, respectively.
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
18 - 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 year ended December 31, 2019 and the period from inception (March 27, 2018) to December 31, 2018, 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, 2019, the Company had approximately
$4,325,459 of federal net operating losses. The net operating loss carry forwards, if not utilized, will begin to expire in 2025.
The
provision (benefit) for income taxes for the year ended December 31, 2019 and the period from inception (March 27, 2018) to December
31, 2018 were assuming a 21% effective tax rate. The effective income tax rate for the year ended December 31, 2019 and the period
from inception (March 27, 2018) to December 31, 2018 consisted of the following:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Federal
statutory income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
State income taxes
|
|
|
-
|
%
|
|
|
-
|
%
|
Change
in valuation allowance
|
|
|
(21
|
)%
|
|
|
(21
|
)%
|
Net
effective income tax rate
|
|
|
-
|
|
|
|
-
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS
The
components of the Company’s deferred tax asset are as follows:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$
|
908,350
|
|
|
$
|
316,260
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
before valuation allowance
|
|
$
|
908,350
|
|
|
$
|
316,260
|
|
Less:
Valuation allowance
|
|
|
(908,350
|
)
|
|
|
(316,260
|
)
|
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, 2019 and 2018, respectively.
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note
19 – Subsequent Events
Debt
Financing
On
May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $119,274 from Customers Bank (“Lender”),
pursuant to a Promissory Note issued by OWP Ventures to Lender (the “PPP Note”). The loan was made pursuant to the
Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The PPP Note bears interest at 1.00% per annum, payable monthly beginning December 4, 2020, and is due on May 4, 2022. The PPP
Note may be repaid at any time without penalty.
Under
the Payroll Protection Program, the Company will be eligible for loan forgiveness up to the full amount of the PPP Note and any
accrued interest. The forgiveness amount will be equal to the amount that the Company spends during the 8-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 is 25% of the amount
of the PPP Note. No assurance is provided that the Company will obtain forgiveness under the PPP Note in whole or in part.
The
PPP Note contains customary events of default relating to, among other things, payment defaults, breach of representations and
warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate
repayment of all amounts outstanding under the PPP Note.
On
various dates between January 29, 2020 and May 4, 2020, the Company received total proceeds of $112,000 on seven aggregate demand
notes, bearing 6% interest per annum.
Preferred
Stock Sales on Subscriptions Payable
On
various dates between April 14, 2020 and May 7, 2020, the Company received total proceeds of $155,000 on the anticipated sale
of 15,500 units, consisting of 15,500 shares of Series A Preferred Stock and warrants to acquire an aggregate 775,000 shares of
common stock at an exercise price of $0.25 per share over five years from the origination dates, to six accredited investors.
Each share of Preferred Stock is expected to be convertible into 50 shares of the Company’s common stock once the preferred
stock is designated.
Common
Stock Issued on Subscriptions Payable
On
January 6, 2020, the Company issued 500,000 shares of common stock on a Subscriptions Payable for the December 31, 2019 sale of
common stock at $0.50 per share for proceeds of $25,000.
Common
Stock Issued for Services
On
various dates between January 4, 2020 and January 30, 2020, the Company awarded an aggregate 406,000 shares of common stock to
four consultants for services provided. The aggregate fair value of the common stock was $398,000 based on the closing price of
the Company’s common stock on the date of grant.