See accompanying notes to financial statements.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1 – Nature of Business and Significant Accounting Policies
Nature
of Business
One
World Products, Inc., formerly known as One World Pharma, Inc. (the “Company,” “we,” “our” or “us”)
was incorporated in Nevada on September 2, 2014. On February 21, 2019, we entered into an Agreement and Plan of Merger with OWP Merger
Subsidiary, Inc., our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”), which is the parent company of One
World Pharma SAS, a Colombian company (“OWP Colombia”). Pursuant to the Merger Agreement, we acquired OWP Ventures (and indirectly,
OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being the surviving entity as our
wholly-owned subsidiary (the “Merger”). As a result of the Merger (a) holders of the outstanding capital stock of OWP Ventures
received an aggregate of 39,475,398 shares of our common stock; (b) options to purchase 825,000 shares of common stock of OWP Ventures
at an exercise price of $0.50 automatically converted into options to purchase 825,000 shares of our common stock at an exercise price
of $0.50; (c) the outstanding principal and interest under a $300,000 convertible note issued by OWP Ventures became convertible, at
the option of the holder, into shares of our common stock at a conversion price equal to the lesser of $0.424 per share or 80% of the
price we sell our common stock in a future “Qualified Offering”; (d) 875,000 shares of our common stock owned by OWP Ventures
prior to the Merger were cancelled; and (e) OWP Ventures’ chief operating officer became our chief operating officer and two of
OWP Ventures’ directors became members of our board of directors. The Company’s headquarters are located in Coral Gables,
Florida, and all of its customers are outside of the United States. On January 10, 2019, the Company changed its name from Punto Group,
Corp. to One World Pharma, Inc., and on November 23, 2021, the Company changed its name to One
World Products, Inc. through the merger of One World Products, Inc., a recently formed Nevada corporation wholly-owned by the Company,
with and into the Company (the “Name Change Merger”) pursuant to the applicable provisions of the Nevada Revised Statutes
(“NRS”). As permitted by the NRS, the articles of merger filed with the Secretary of State of the state of Nevada to effect
the Name Change Merger amended Article I of the Company’s Articles of Incorporation to change the Company’s name to “One
World Products, Inc.” The Name Change Merger was effected solely to effect the change of the Company’s name, and had no effect
on the Company’s officers, directors, operations, assets or liabilities.
OWP
Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30, 2018, it
acquired OWP Colombia. OWP Colombia is a licensed cannabis cultivation, production and distribution (export) company located in Popayán,
Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial
uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant
for medicinal, scientific and industrial purposes. Specifically, we are one of the few companies in Colombia to receive all four licenses,
including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction
and export. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis
and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe
members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques,
and sell their harvested products to us on an exclusive basis. We began harvesting cannabis in the first quarter of 2019 for the purpose
of further research and development activities, quality control testing and extraction. We have been generating revenue from the sale
of our seeds since the second quarter of 2020. In August 2021, we paid total deposits of $1,155,000 of the approximate total cost of
$1,400,000 for the construction of a vertically integrated extraction facility designed to process the cannabis flower. Upon completion
of construction, we will be one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality
CBD and THC oils.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC). Intercompany accounts and transactions
have been eliminated.
The
unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on
Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Consolidated
Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements,
and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The interim Condensed Consolidated Financial Statements should
be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative
of the results that might be expected for the entire fiscal year.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control
and ownership at June 30, 2022:
Schedule of Common Control and Ownership Interest
| | |
| State of | | |
| | |
| Name of Entity | |
| Incorporation | | |
| Relationship | |
| One World Products, Inc.(1) | |
| Nevada | | |
| Parent | |
| OWP Ventures, Inc.(2) | |
| Delaware | | |
| Subsidiary | |
| One World Pharma S.A.S.(3) | |
| Colombia | | |
| Subsidiary | |
| Colombian Hope, S.A.S.(4) | |
| Colombia | | |
| Subsidiary | |
| Agrobase, S.A.S.(5) | |
| Colombia | | |
| Subsidiary | |
| (1) |
Holding
company in the form of a corporation. |
| (2) |
Holding
company in the form of a corporation and wholly-owned subsidiary of One World Products, Inc. |
| (3) |
Wholly-owned
subsidiary of OWP Ventures, Inc. since May 30, 2018, located in Colombia and legally constituted as a simplified stock company registered
in the Chamber of Commerce of Bogotá on July 18, 2017. Its headquarters are located in Bogotá. |
| (4) |
Wholly-owned
subsidiary of OWP Ventures, Inc., acquired on November 19, 2019, located in Colombia and legally constituted as a simplified stock
company. This company has yet to incur any substantive income or expenses. |
| (5) |
Wholly-owned
subsidiary of OWP Ventures, Inc., formed on September 12, 2019, located in Colombia and legally constituted as a simplified stock
company. This company has yet to incur any substantive income or expenses. |
The
consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. As of August 1, 2022,
the Company’s headquarters are located in Coral Gables, Florida and substantially all of its production efforts are within Popayán,
Colombia.
Foreign
Currency Translation
The
functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional
currency, and translated those financial statements to the US Dollar (USD) throughout this report. Monetary assets and liabilities denominated
in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance
sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at
the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are
included in the determination of net income (loss) for the respective periods.
Comprehensive
Income
The
Company has adopted the Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”)
220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income, its components, and
accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive income represents the accumulated
balance of foreign currency translation adjustments.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Segment
Reporting
ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management
approach model is based on the way a company’s management organizes segments within the company for making operating decisions
and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it
expands its operations.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair
Value of Financial Instruments
The
Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement and Disclosures
(ASC 820). Under ASC 820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute.
The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying
amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management
to approximate fair value primarily due to the short-term nature of the instruments.
Cash
in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. The Company did not have any cash in excess
of FDIC insured limits at June 30, 2022, and has not experienced any losses in such accounts.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction
price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance
obligation is satisfied. The Company’s sales to date have primarily consisted of the sale of seeds. These sales include multi-element
arrangements whereby the Company collects 50% of the sale upon delivery of the sales, and the remaining 50% upon the completion of the
harvest, whether the seeds result in a successful crop, or not. In addition, the Company has a right of first refusal to purchase products
resulting from the harvest. At June 30, 2022, the Company had $33,510 of deferred revenues and $22,132 of deferred cost of goods sold,
as included in other current assets on the balance sheet, that are expected to be recognized upon the customers’ completion of
their harvests in 2022.
Inventory
Inventories
are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO)
method. Appropriate consideration is given to obsolescence, excessive levels, deterioration,
and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced
extracts.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation
(ASC 718). All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably
measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s
performance is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached
because of sufficiently large disincentives for nonperformance.
Basic
and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted
net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average
number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had
an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date.
If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material
impact on the Company’s financial statements upon adoption.
In
October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities
from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets
and contract liabilities from contracts with customers acquired in a business combination. The new guidance will require companies to
apply the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and
measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a
business combination. Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets
it acquires and the liabilities it assumes at fair value on the acquisition date. The new guidance will result in the acquirer recording
acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under
ASC Topic 606. These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The
adoption of ASU 2021-08 is not expected to have a material impact on the Company’s financial statements or related disclosures.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In
May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments
(Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity
(Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call
Options. ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified
written call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal
years, with early adoption permitted. The adoption of ASU 2021-04 has not had a material impact on the Company’s financial statements
or related disclosures.
In
March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients
for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The pronouncement provides temporary
optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting
burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered
rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications
made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of ASU 2020-04 did not have a material
impact on the Company’s consolidated financial statements, as we transitioned from the London Interbank Offered Rate, commonly
referred to as LIBOR, to alternative references rates, as well as utilizing the aforementioned expedients and exceptions provided in
ASU 2020-04.
In
August 2020, the FASB issued ASU No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available
for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for
convertible instruments and requires the use of the if converted method. The
new guidance is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December
15, 2021, with early adoption permitted. The adoption of ASU 2020-06 is not expected to have a material impact on the Company’s
financial statements or related disclosures.
No
other new accounting pronouncements, issued or effective during the period ended June 30, 2022, have had or are expected to have a significant
impact on the Company’s financial statements.
Note
2 –Going Concern
As
shown in the accompanying condensed consolidated financial statements as of June 30, 2022, our balance of cash on hand was $54,797, and
we had negative working capital of $1,800,626 and an accumulated deficit of $21,217,884. We are too early in our development stage to
project future revenue levels, and may not be able to generate sufficient funds to sustain our operations for the next twelve months.
Accordingly, we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
In
the event sales do not materialize at the expected rates, management would seek additional financing and would attempt to conserve cash
by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives; therefore, without
sufficient financing it would be unlikely for the Company to continue as a going concern.
The
condensed consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to
the Company’s ability to continue as a going concern. The condensed consolidated financial statements also do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might
be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities
and further increase the value of our brands, is largely dependent on our success in raising additional capital.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
3 – Fair Value of Financial Instruments
Under
FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates
a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures.
Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required
for items measured at fair value.
The
Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets
and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
at the measurement date.
Level
2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g.,
interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation
or other means (market corroborated inputs).
Level
3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or
liability.
The
following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheet as of June
30, 2022 and December 31, 2021, respectively:
Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis
| | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
Fair Value Measurements at June 30, 2022 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Assets | |
| | |
| | |
| |
| Cash | |
$ | 54,797 | | |
$ | - | | |
$ | - | |
| Right-of-use asset | |
| - | | |
| - | | |
| 1,483,218 | |
| Total assets | |
| 54,797 | | |
| - | | |
| 1,483,218 | |
| Liabilities | |
| | | |
| | | |
| | |
| Lease liabilities | |
| - | | |
| - | | |
| 1,496,981 | |
| Convertible notes payable, net of $125,389 of debt discounts | |
| - | | |
| 624,611 | | |
| - | |
| Notes payable | |
| - | | |
| 852,636 | | |
| - | |
| Notes payable, related parties | |
| - | | |
| 240,000 | | |
| - | |
| Total liabilities | |
| - | | |
| (1,717,247 | ) | |
| (1,496,981 | ) |
| Total assets and liabilities | |
$ | 54,797 | | |
$ | (1,717,247 | ) | |
$ | (13,763 | ) |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| | |
Fair Value Measurements at December 31, 2021 | |
| | |
Level 1 | | |
Level 2 | | |
Level 3 | |
| Assets | |
| | | |
| | | |
| | |
| Cash | |
$ | 119,678 | | |
$ | - | | |
$ | - | |
| Total assets | |
| 119,678 | | |
| - | | |
| - | |
| Liabilities | |
| | | |
| | | |
| | |
| Convertible notes payable, net of $412,673 of debt discounts | |
| - | | |
| 337,327 | | |
| - | |
| Convertible notes payable | |
| - | | |
| 319,274 | | |
| - | |
| Total liabilities | |
| - | | |
| (656,601 | ) | |
| - | |
| Total assets and liabilities | |
$ | 119,678 | | |
$ | (656,601 | ) | |
$ | - | |
There
were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the six months ended June 30, 2022
or the year ended December 31, 2021.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
4 – Inventory
Inventories
are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO)
method. Appropriate consideration is given to obsolescence, excessive levels, deterioration,
and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced
extracts. Inventory consisted of the following at June 30, 2022 and December 31, 2021, respectively.
Schedule of Inventory
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Raw materials | |
$ | 25,105 | | |
$ | 31,233 | |
| Work in progress | |
| 105,805 | | |
| 81,182 | |
| Finished goods | |
| 206,096 | | |
| 108,246 | |
| Inventory gross | |
| 337,006 | | |
| 220,661 | |
| Less obsolescence | |
| (21,284 | ) | |
| (22,066 | ) |
| Total inventory | |
$ | 315,722 | | |
$ | 198,595 | |
Note
5 – Other Current Assets
Other
current assets included the following as of June 30, 2022 and December 31, 2021, respectively:
Schedule of Other Current Assets
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| VAT tax receivable | |
$ | 182,379 | | |
$ | 147,194 | |
| Prepaid expenses | |
| 26,683 | | |
| 29,366 | |
| Deferred cost of goods sold | |
| 22,132 | | |
| 19,470 | |
| Other receivables | |
| - | | |
| 110,000 | |
| Total | |
$ | 231,194 | | |
$ | 306,030 | |
Note
6 – Security Deposits
Security
deposits included the following as of June 30, 2022 and December 31, 2021, respectively:
Schedule of Security Deposits
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Utility deposits | |
$ | 1,090 | | |
$ | 1,090 | |
| Refundable deposit on equipment purchase | |
| 50,000 | | |
| 50,000 | |
| Down payment on distillation equipment | |
| 1,399,413 | | |
| 1,155,000 | |
| Security deposits on leases held in Colombia | |
| 67,523 | | |
| 35,869 | |
| Security deposit on office lease | |
| 14,029 | | |
| 14,029 | |
| Security
deposits | |
$ | 1,532,055 | | |
$ | 1,255,988 | |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
7 – Fixed Assets
Fixed
assets consist of the following at June 30, 2022 and December 31, 2021, respectively:
Schedule
of Fixed Assets
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Land | |
$ | 138,248 | | |
$ | 138,248 | |
| Buildings | |
| 473,971 | | |
| 473,971 | |
| Office equipment | |
| 59,984 | | |
| 56,502 | |
| Furniture and fixtures | |
| 34,409 | | |
| 34,409 | |
| Equipment and machinery | |
| 423,548 | | |
| 383,829 | |
| Fixed assets, gross | |
| 1,130,160 | | |
| 1,086,959 | |
| Less: accumulated depreciation | |
| (108,603 | ) | |
| (83,946 | ) |
| Total | |
$ | 1,021,557 | | |
$ | 1,003,013 | |
Depreciation
and amortization expense totaled $24,657 and $22,998 for the six months ended June 30, 2022 and 2021, respectively.
Note
8 – Accrued Expenses
Accrued
expenses consisted of the following at June 30, 2022 and December 31, 2021, respectively:
Schedule of Accrued Expenses
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Accrued payroll | |
$ | 410,627 | | |
$ | 261,044 | |
| Accrued withholding taxes and employee benefits | |
| 24,557 | | |
| 9,162 | |
| Accrued ICA fees and contributions | |
| 158,985 | | |
| 129,856 | |
| Accrued interest | |
| 83,992 | | |
| 57,700 | |
| Accrued expenses | |
$ | 678,161 | | |
$ | 457,762 | |
Note
9 – Leases
The
Company leases its 12,400 square foot extraction facility under a non-cancelable real property lease agreement that commenced on January
1, 2022 and expires on December 31, 2027, with successive five-year options to extend, at a monthly lease term of 57,339,000 COP, or
approximately $15,290 USD, with approximately a 3% annual escalation of lease payments commencing January 1, 2023.
The
Company also leases a residential premise under a non-cancelable real property lease agreement that commenced on September 1, 2021 and
expires on August 31, 2024, at a monthly lease term of 3,800,000 COP, or approximately $1,013 USD, with approximately a 3% annual escalation
of lease payments commencing September 1, 2022.
The
Company leases another residential premise under a non-cancelable real property lease agreement that commenced on June 1, 2022 and expires
on May 30, 2024, at a monthly lease term of 1,900,000 COP, or approximately $507 USD, with an 8% annual escalation of lease payments
commencing June 1, 2023.
In
addition, the Company leases its corporate offices and operational facility in Colombia under short-term non-cancelable real property
lease agreements that expire within a year. The Company doesn’t have any other office or equipment leases that would require capitalization.
The extraction facility and office leases contain provisions requiring payment of property taxes, utilities, insurance, maintenance and
other occupancy costs applicable to the leased premise. In the locations in which it is economically feasible to continue to operate,
management expects to enter into a new lease upon expiration. The extraction facility lease contains provisions requiring payment of
property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s
leases do not provide implicit discount rates, the Company uses an incremental borrowing rate based on the information available at the
commencement date in determining the present value of lease payments.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The
components of lease expense were as follows:
Schedule of Components of Lease Expense
| | |
For the Six | |
| | |
Months Ended | |
| | |
June 30, | |
| | |
2022 | |
| Operating lease costs: | |
| | |
| Amortization of assets | |
$ | 60,833 | |
| Interest on lease liabilities | |
| 51,131 | |
| Lease payments on short term leases | |
| 33,067 | |
| Total lease cost | |
$ | 145,031 | |
Supplemental
balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information Related to Leases
| | |
June 30, | |
| | |
2022 | |
| Operating leases: | |
| | |
| Operating lease assets | |
$ | 1,483,218 | |
| | |
| | |
| Current portion of operating lease liabilities | |
$ | 106,999 | |
| Noncurrent operating lease liabilities | |
| 1,389,982 | |
| Total operating lease liabilities | |
$ | 1,496,981 | |
| | |
| | |
| Weighted average remaining lease term: | |
| | |
| Operating leases | |
| 8.50 years | |
| | |
| | |
| Weighted average discount rate: | |
| | |
| Operating leases | |
| 6.75 | % |
Supplemental
cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow Related to Leases
| | |
For the Six | |
| | |
Months Ended | |
| | |
June 30, | |
| | |
2022 | |
| Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
| Operating cash flows used for operating leases | |
$ | 38,725 | |
| | |
| | |
| Leased assets obtained in exchange for lease liabilities: | |
| | |
| Total operating lease liabilities | |
$ | 1,535,706 | |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Future
minimum annual lease commitments under non-cancelable operating leases are as follows at June 30, 2022:
Schedule of Operating Lease Liability Maturity
| | |
Operating | |
| | |
Leases | |
| | |
| |
| 2022 (for the six months remaining) | |
$ | 100,984 | |
| 2023 | |
| 208,004 | |
| 2024 | |
| 205,999 | |
| 2025 | |
| 200,496 | |
| 2026 and thereafter | |
| 1,335,816 | |
| Total minimum lease payments | |
| 2,051,299 | |
| Less interest | |
| 554,318 | |
| Present value of lease liabilities | |
| 1,496,981 | |
| Less current portion | |
| 106,999 | |
| Long-term lease liabilities | |
$ | 1,389,982 | |
Note
10 – Convertible Note Payable
Convertible
note payable consists of the following at June 30, 2022 and December 31, 2021, respectively:
Schedule
of Convertible Note Payable
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
On September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $750,000 (the “Second AJB Note”) to AJB Capital Investments LLC (“AJB Capital”), (ii) a three-year warrant to purchase 1,500,000 shares of the Company’s common stock at an initial exercise price of $0.25 per share, and (iii) a three-year warrant to purchase 2,000,000 shares of the Company’s common stock at an initial exercise price of $0.50 per share, for an aggregate purchase price of $705,000, pursuant to a Securities Purchase Agreement between the Company and AJB Capital (the “Purchase Agreement”). The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 197% and a call option value of $0.1053 and $0.1001, respectively, was $358,017, based on and is being amortized as a debt discount over the life of the loan. The Company received net proceeds of $678,750 after deductions of debt discounts, consisting of $45,000 pursuant to an original issue discount, $15,000 of legal fees and $11,250 of brokerage fees.
The Note matures on September 24, 2022 (the “Maturity Date”), bears interest at a rate of 8% per annum, and, following an event of default only, is convertible into shares of the Company’s common stock at a conversion price equal to the lesser of 90% of the lowest trading price during (i) the 20 trading day period preceding the issuance date of the note, or (ii) the 20 trading day period preceding date of conversion of the Note. The Note is also subject to covenants, events of defaults, penalties, default interest and other terms and conditions customary in transactions of this nature.
Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $250,000 (the “Commitment Fee”) in the form of 1,250,000 shares of the Company’s common stock (the “Commitment Fee Shares”). During the six month period following the six month anniversary of the closing date, AJB Capital shall be entitled to be issued additional shares of common stock of the Company to the extent AJB Capital’s sale of the Commitment Fee Shares has resulted in net proceeds in an amount less than the Commitment Fee. The Commitment Fee Shares resulted in a debt discount of $150,062 that is being amortized over the life of the loan.
The obligations of the Company to AJB Capital under the Note and the Purchase Agreement are secured by a lien on the Company’s assets pursuant to a Security Agreement between the Company and AJB Capital. | |
$ | 750,000 | | |
$ | 750,000 | |
| | |
| | | |
| | |
| Total convertible notes payable | |
| 750,000 | | |
| 750,000 | |
| Less: unamortized debt discounts | |
| 125,389 | | |
| 412,673 | |
| Convertible note payable, net of discounts | |
$ | 624,611 | | |
$ | 337,327 | |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The
Company recognized aggregate debt discounts on the convertible notes and notes payable to AJB Capital for the six months ended June 30,
2022 and the year ended December 31, 2021, as follows:
Schedule of Convertible Debt Discounts
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Fair value of 3,250,000 commitment shares of common stock | |
$ | 418,312 | | |
$ | 418,312 | |
| Fair value of warrants to purchase 3,500,000 shares of common stock | |
| 358,017 | | |
| 358,017 | |
| Original issue discounts | |
| 53,700 | | |
| 53,700 | |
| Legal and brokerage fees | |
| 39,300 | | |
| 39,300 | |
| Total debt discounts | |
| 869,329 | | |
| 869,329 | |
| Amortization of debt discounts | |
| 743,940 | | |
| 456,656 | |
| Unamortized debt discounts | |
$ | 125,389 | | |
$ | 412,673 | |
The
aggregate debt discounts of $869,329, for the year ended December 31, 2021, are being amortized over the life of the loan using the straight-line
method, which approximates the effective interest method. The Company recorded finance expense in the amount of $300,600 and $183,819
on the amortization of these discounts for the six months ended June 30, 2022 and 2021, respectively.
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 note in the amount of $29,753 for the six
months ended June 30, 2022.
Note
11 – Notes Payable
Notes
payable consists of the following at June 30, 2022 and December 31, 2021, respectively:
Schedule of Notes Payable
| | |
|
June 30, | | |
|
December 31, | |
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| On June 13, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $100,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate. | |
$ | 100,000 | | |
$ | - | |
| | |
| | | |
| | |
| On June 17, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received
proceeds of 230,400,000
COP, or approximately $55,821
USD, on a loan with a face value of 240,000,000
COP, or approximately $58,147
USD, from an individual pursuant to an unsecured promissory note, bearing interest at 4%
per annum, due on demand. The debt discount of $2,326 USD was expensed as finance costs at the time of origination. | |
| 58,147 | | |
| - | |
| | |
| | | |
| | |
| On May 31, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received
proceeds of 314,640,000
COP, or approximately $76,231
USD, on a loan with a face value of 360,000,000
COP, or approximately $87,220
USD, from an individual pursuant to promissory note, security by equipment, bearing interest at 2.1%
per annum, maturing on November
28, 2022. The debt discount of $10,990 USD was expensed as finance costs at the time of origination. | |
| 87,220 | | |
| - | |
| | |
| | | |
| | |
| On May 30, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of 20,000,000 COP, or approximately $4,846 USD, from an individual pursuant to an unsecured promissory note, due on demand. | |
| 4,846 | | |
| - | |
| | |
| | | |
| | |
| On April 29, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of 10,000,000 COP, or approximately $2,423 USD, from an individual pursuant to an unsecured promissory note, due on demand. | |
| 2,423 | | |
| - | |
| | |
| | | |
| | |
| On March 1, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $400,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate. | |
| 400,000 | | |
| - | |
| | |
| | | |
| | |
| On February 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $200,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate. | |
| 200,000 | | |
| - | |
| | |
| | | |
| | |
On May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $119,274 from Customers Bank (“Lender”), pursuant to a Promissory Note issued by OWP Ventures to Lender (the “PPP Note”). The loan was made pursuant to the Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Note carried interest at 1.00% per annum, payable monthly beginning December 4, 2020, and was due on May 4, 2022. The PPP Note could have been repaid at any time without penalty.
Under the Payroll Protection Program, the Company was eligible for loan forgiveness up to the full amount of the PPP Note and any accrued interest. The forgiveness amount was equal to the amount that the Company spent during the 24-week period beginning May 4, 2020 on payroll costs, payment of rent on any leases in force prior to February 15, 2020 and payment on any utility for which service began before February 15, 2020. The maximum amount of loan forgiveness for non-payroll expenses was 40% of the amount of the PPP Note. A total of $121,372, consisting of $119,274 of principal and $2,098 of interest, was forgiven on February 11, 2022. | |
| - | | |
| 119,274 | |
| | |
| | | |
| | |
| Total notes payable | |
| 852,636 | | |
| 119,274 | |
| Less: current maturities | |
| 152,636 | | |
| 119,274 | |
| Notes payable, long-term portion | |
$ | 700,000 | | |
$ | - | |
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable in the amount of $20,032 and $18,987 for
the six months ended June 30, 2022 and 2021, respectively.
Note
12 – Notes Payable, Related Party
Notes
payable, related party, consists of the following at June 30, 2022 and December 31, 2021, respectively:
Schedule
of Notes Payable Related Party
| | |
|
June 30, | | |
|
December 31, | |
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| On June 3, 2022, the Company received an advance of $10,000 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | |
$ | 10,000 | | |
$ | - | |
| | |
| | | |
| | |
| On May 5, 2022, the Company received an advance of $10,000 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | |
| 10,000 | | |
| - | |
| | |
| | | |
| | |
| On May 5, 2022, the Company received an advance of $20,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | |
| 20,000 | | |
| - | |
| | |
| | | |
| | |
| On December 29, 2021, the Company received an advance of $200,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due January 1, 2024 that carried an 8% interest rate. | |
| 200,000 | | |
| 200,000 | |
| | |
| | | |
| | |
| Total notes payable. related party | |
| 240,000 | | |
| 200,000 | |
| Less: current maturities | |
| 40,000 | | |
| - | |
| Notes payable, related party, long-term portion | |
$ | 200,000 | | |
$ | 200,000 | |
The
Company recorded interest expense pursuant to the stated interest rates on the notes payable, related party, in the amount of $8,604
for the six months ended June 30, 2022.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The
Company recognized interest expense for the six months ended June 30, 2022 and 2021, as follows:
Schedule of Interest Expenses
| | |
|
June 30, | | |
|
June 30, | |
| | |
June 30, | | |
June 30, | |
| | |
2022 | | |
2021 | |
| | |
| | |
| |
| Interest on convertible notes | |
$ | 29,753 | | |
$ | - | |
| Interest on notes payable | |
| 20,032 | | |
| 18,987 | |
| Interest on notes payable, related parties | |
| 8,604 | | |
| - | |
| Amortization of debt discounts | |
| 35,333 | | |
| 13,786 | |
| Amortization of debt discounts, common stock | |
| 74,414 | | |
| 170,033 | |
| Amortization of debt discounts, warrants | |
| 177,537 | | |
| - | |
| Interest on accounts payable | |
| 11,249 | | |
| 7,289 | |
| Total interest expense | |
$ | 356,922 | | |
$ | 210,095 | |
Note
13 – Convertible Preferred Stock
Preferred
Stock
The
Company has 10,000,000 authorized shares of $0.001 par value “blank check” preferred stock, of which 500,000 shares have
been designated Series A Preferred Stock and 300,000 shares have been designated Series B Preferred Stock. The shares of Series A Preferred
Stock and Series B Preferred Stock are each currently convertible into one hundred (100) shares of the Company’s common stock.
The Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable in cash as and when declared by the Board or upon
a liquidation. The shares of Series B Preferred Stock are not entitled to dividends, other than the right to participate in dividends
payable to holders of common stock on an as-converted basis. As of June 30, 2022, there were 65,233 and 238,501 shares of Series A Preferred
Stock and Series B Preferred Stock, respectively, issued and outstanding. The Series A and B Preferred Stock are presented as mezzanine
equity on the balance sheet due because they carry a stated value of $10 and $15 per share, respectively, and a deemed liquidation clause,
which entitles the holders thereof to receive proceeds thereof in an amount equal to the stated value per share, plus any accrued and
unpaid dividends, before any payment may be made to holders of common stock. Each share of Preferred Stock carries a number of votes
equal to the number of shares of common stock into which such Preferred Stock may then be converted. The Preferred Stock generally will
vote together with the common stock and not as a separate class.
The
Series A and B Preferred Stock have been classified outside of permanent equity and liabilities. the Series A Preferred Stock embodies
conditional obligations that the Company may settle by issuing a variable number of equity shares, and in both the Series A and B Preferred
Stock, monetary value of the obligation is based on a fixed monetary amount known at inception.
Series
A Preferred Stock Issuances
No
shares of Series A Preferred Stock were issued during the six months ending June 30, 2022.
Preferred
Stock Dividends
The
Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable in cash as and when declared by the Board or upon a liquidation.
The Company recognized $19,105 and $34,843 for the six months ended June 30, 2022 and 2021, respectively. A total of $118,025 of dividends
had accrued as of June 30, 2022.
Series
B Preferred Stock Issuances
No
shares of Series B Preferred Stock were issued during the six months ending June 30, 2022.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
14 – Changes in Stockholders’ Equity
Common
Stock
The
Company is authorized to issue an aggregate of 300,000,000 shares of common stock with a par value of $0.001. As of June 30, 2022, there
were 65,861,631 shares of common stock issued and outstanding.
Common
Stock Issued on Subscriptions Payable
On
March 29, 2022, the Company issued 262,066 shares of common stock on a Subscriptions Payable for the December 1, 2021 award of common
stock to COR IR for services.
Amortization
of Stock-Based Compensation
A
total of $82,260 of stock-based compensation expense was recognized from the amortization of options to purchase common stock over their
vesting period during the six months ended June 30, 2022.
Note
15 – Common Stock Options
Stock
Incentive Plan
On
February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which had been
adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides for the issuance
of up to 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.
The
Company recognized a total of $82,260, and $654,579 of compensation expense during the six months ended June 30, 2022 and 2021, respectively,
related to common stock options issued in the prior year to Officers, Directors, and Employees that are being amortized over the implied
service term, or vesting period, of the options. The remaining unamortized balance of these options is $220,421 as of June 30, 2022.
Note
16 – Income Taxes
The
Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that
deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes, referred to as temporary differences.
For
the six months ended June 30, 2022, and the year ended December 31, 2021, the Company incurred a net operating loss and, accordingly,
no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of
the realization of any tax assets. At June 30, 2022, the Company had approximately $9,082,000 of federal net operating losses. The net
operating loss carry forwards, if not utilized, will begin to expire in 2025.
Based
on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not
that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against
its net deferred tax assets at June 30, 2022 and December 31, 2021, respectively.
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note
17 – Subsequent Events
Debt
Financing, Related Parties
On
August 5, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $50,000 from the Company’s
Vice Chairman pursuant to an unsecured demand note that carries a 6% interest rate.
On
August 2, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $4,500 from the Company’s
Chairman and CEO, pursuant to an unsecured demand note that carries a 6% interest rate.
On
July 7, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $5,000 from the Company’s
Vice Chairman pursuant to an unsecured demand note that carries a 6% interest rate.
Increase
in Authorized Shares of Series B Preferred Stock
On
August 2, 2022, the Company filed a Certificate of Amendment to the Certificate of Designation of the Company’s Series B Preferred
Stock with the Secretary of State of the State of Nevada increased the number of authorized shares of the Series B Preferred Stock from
300,000 to 600,000.
Relocation
of Headquarters
On
July 31, 2022, the Company closed its office in Las Vegas, Nevada and moved its headquarters to 2332 Galiano Street, 2nd Floor,
Coral Gables, Florida 33134.
Disposal
of Fixed Assets
On
August 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., sold its office furniture and equipment with a
net book value of $15,866 for gross proceeds of $6,350, resulting in a loss on disposal of $9,516.
