UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission
file number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (zip code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| No ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes ☐ |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
The number of shares of registrant’s common stock outstanding as of November 12, 2021 was .
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ONE WORLD PHARMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Right-of-use assets | ||||||||
| Security deposits | ||||||||
| Fixed assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Dividends payable | ||||||||
| Current portion of lease liabilities | ||||||||
| Notes
payable, net of discounts of $ | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liability | ||||||||
| Total Liabilities | ||||||||
| Series A convertible preferred stock, $ par value, shares authorized; and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Series B convertible preferred stock, $ par value, shares authorized; and -- shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | - | |||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, $ par value, shares authorized; shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | - | - | ||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Subscriptions payable, consisting of and at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated (deficit) | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
See accompanying notes to financial statements.
| 1 |
ONE WORLD PHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Depreciation expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Sublease income | - | - | ||||||||||||||
| Interest income | - | - | ||||||||||||||
| Loss on disposal of fixed assets | ( | ) | - | ( | ) | - | ||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Loss on foreign currency translation | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net other comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Series A convertible preferred stock declared ($ per share) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and fully diluted | ||||||||||||||||
| Net loss per share - basic and fully diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Dividends declared per share of common stock | $ | $ | $ | $ | ||||||||||||
See accompanying notes to financial statements.
| 2 |
ONE WORLD PHARMA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| For the Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated |
Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | - | $ | - | $ | | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Series A Convertible Preferred Stock units sold for cash | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock payable for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | | $ | | $ | | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Adjustment of common stock issued for services | - | - | - | - | ( | ) | ( | ) | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Exercise of cashless options | - | - | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Warrants issued as a debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | - | $ | - | $ | | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Series A convertible preferred stock units sold for cash | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | - | - | - | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Common stock payable for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | $ | | $ | $ | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | | $ | $ | | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash to our CEO | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series B convertible preferred stock sold for cash | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||
| Common stock sold for cash | - | - | - | - | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||
| Conversion of series A convertible preferred stock | ( | ) | ( | ) | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Common stock issued for services | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Commitment shares issued pursuant to promissory note | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Exercise of cashless options | - | - | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Warrants issued as a debt discount | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Amortization of common stock options issued for services | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Series A convertible preferred stock dividend declared ($ per share) | - | - | - | - | - | - | ( | ) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||
| Loss on foreign currency translation | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
See accompanying notes to financial statements.
| 3 |
ONE WORLD PHARMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Bad debts expense | - | |||||||
| Depreciation and amortization expense | ||||||||
| Loss on disposal of fixed assets | - | |||||||
| Amortization of debt discounts | - | |||||||
| Stock-based compensation | ||||||||
| Amortization of options issued for services | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | - | |||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ||||||
| Right-of-use assets | ||||||||
| Security deposits | ( | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Proceeds received on disposal of fixed assets | - | |||||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of convertible note payable | - | ( | ) | |||||
| Proceeds from notes payable | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Proceeds from sale of preferred and common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash - beginning | ||||||||
| Cash - ending | $ | $ | ||||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash investing and financing transactions: | ||||||||
| Fair value of common shares issued for conversion of debt | $ | $ | ||||||
| Value of commitment shares issued as a debt discount | $ | $ | ||||||
| Value of warrants issued as a debt discount | $ | $ | ||||||
| Dividends payable | $ | $ | ||||||
See accompanying notes to financial statements.
| 4 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 shares of our common stock; (b) options to purchase shares
of common stock of OWP Ventures at an exercise price of $ automatically converted into options to purchase shares of our
common stock at an exercise price of $; (c) the outstanding principal and interest under a $
OWP
Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30, 2018, it
acquired OWP Colombia. OWP Colombia is a licensed cannabis cultivation, production and distribution (export) company located in Popayán,
Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial
uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant
for medicinal, scientific and industrial purposes. Specifically, we are one of the few companies in Colombia to receive all four licenses,
including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction
and export. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis
and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe
members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques,
and sell their harvested products to us on an exclusive basis. We began harvesting cannabis in the first quarter of 2019 for the purpose
of further research and development activities, quality control testing and extraction. We have been generating revenue from the sale
of our seeds since the second quarter of 2020. In August 2021, we paid total deposits of $
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 Quarterly Report on Form 10-Q 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 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, 2020. 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.
| 5 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control and ownership at September 30, 2021:
| State of | ||||
| Name of Entity | Incorporation | Relationship | ||
| (1) |
| (2) |
| (3) |
| (4) |
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 (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.
| 6 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair Value of Financial Instruments
The Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement and Disclosures (ASC 820). Under ASC 820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management to approximate fair value primarily due to the short-term nature of the instruments.
Cash in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers (ASC 606). 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.
There was no impact on the Company’s financial statements from ASC 606 for the nine months ended September 30, 2021, or the year ended December 31, 2020.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees 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.
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 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.
| 7 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In May 2020, the SEC adopted final rules that amend the financial statement requirements for significant business acquisitions and dispositions. Among other changes, the final rules modify the significance tests and improve the disclosure requirements for acquired or to be acquired businesses and related pro forma financial information, the periods those financial statements must cover, and the form and content of the pro forma financial information. The final rules do not modify requirements for the acquisition and disposition of significant amounts of assets that do not constitute a business. The final rules were effective January 1, 2021. The Company has considered these final rules and updated its disclosures, as applicable.
In November 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in ASU 2019-12 are part of an initiative to reduce complexity in accounting standards and simplify the accounting for income taxes by removing certain exceptions from Topic 740 and making minor improvements to the codification. ASU 2019-12 and its related amendments are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The provisions of this update did not have a material impact on the Company’s financial position or results of operations.
No other new accounting pronouncements, issued or effective during the period ended September 30, 2021, have had or are expected to have a significant impact on the Company’s financial statements.
Note 2 –Going Concern
As
shown in the accompanying condensed consolidated financial statements as of September 30, 2021, our balance of cash on hand was $
In the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives; therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The condensed consolidated financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities and further increase the value of our brands, is largely dependent on our success in raising additional capital.
Note 3 – Related Parties
Debt Repayments, Related Party
On
September 15, 2021, the Company repaid a total of $
On
March 29, 2021, the Company repaid a total of $
Series A Preferred Stock Sales
On
September 1, 2020, the Company received proceeds of $
On
July 10, 2020, the Company received proceeds of $
| 8 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Series B Preferred Stock Sales
On February 7, 2021, the Company and ISIAH International, LLC (“ISIAH International”), entered into a Securities Purchase Agreement (the “Purchase Agreement”) under which ISIAH International agreed to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of shares of the Company’s newly designated Series B Preferred Stock (“Series B Preferred Stock”), convertible into an aggregate of shares of the Company’s common stock, for a purchase price of $ per share of Preferred Stock, and an aggregate purchase price of $ million. Each share of Series B Preferred Stock has a Stated Value of $ and is convertible into common stock at a conversion price equal to $. Isiah Thomas, the Company’s Chief Executive Officer, is the sole member and Chief Executive Officer of ISIAH International. Pursuant to the Purchase Agreement, ISIAH International purchased the shares of Series B Preferred Stock from the Company according to the following schedule:
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | $ | |||||||
| February 22, 2021 | ||||||||
| March 8, 2021 | ||||||||
| March 22, 2021 | ||||||||
| April 5, 2021 | ||||||||
| April 19, 2021 | ||||||||
| May 17, 2021 | ||||||||
| June 14, 2021 | ||||||||
| July 12, 2021 | ||||||||
| Total | $ | |||||||
On
various dates in May, 2021, the Company also received total proceeds of $
Common Stock Options Issued for Services, Officers and Directors
On
May 25, 2021, the Company awarded options to purchase shares of common stock under the Company’s 2019 Stock Incentive
Plan (the “2019 Plan”) at an exercise price equal to $ per share, exercisable over a period to the Company’s
CFO and COO, Vahé Gabriel. The options vested immediately as to shares, and vest as to the remaining shares quarterly
in increments over the following two quarters. The estimated value using the Black-Scholes Pricing Model, based on a volatility
rate of % and a call option value of $, was $. The options are being expensed over the vesting period, resulting in $
of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $
On
January 1, 2021, the Company awarded options to purchase shares of common stock at an exercise price equal to $ per share
to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the 2019 Plan
and are exercisable over a period. The options vested immediately as to shares, and vest as to the remaining
shares quarterly in increments over the following eleven quarters. The estimated value using the Black-Scholes Pricing Model,
based on a volatility rate of % and a call option value of $, was $. The options are being expensed over the vesting
period, resulting in $ of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30,
2021, a total of $
On
January 1, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal
to $ per share, exercisable over a period to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest
in equal quarterly installments over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate
of % and a call option value of $, was $. The options are being expensed over the vesting period, resulting in $
of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $
| 9 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On
January 1, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal
to $ per share, exercisable over a period to Bruce Raben, the Company’s former Interim Chief Financial Officer and
a Director of the Company. The options vest in equal quarterly installments over one year. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options are being expensed over
the vesting period, resulting in $ of stock-based compensation expense during the nine months ended September 30, 2021. As of September
30, 2021, a total of $
Note 4 – Fair Value of Financial Instruments
Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheet as of September 30, 2021 and December 31, 2020, respectively:
| Fair Value Measurements at September 30, 2021 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use asset | - | - | ||||||||||
| Total assets | - | |||||||||||
| Liabilities | ||||||||||||
| Lease liabilities | - | - | ||||||||||
| Notes payable | - | - | ||||||||||
| Total liabilities | - | ( | ) | ( | ) | |||||||
| $ | $ | ( | ) | $ | ( | ) | ||||||
| Fair Value Measurements at December 31, 2020 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | $ | $ | |||||||||
| Right-of-use asset | - | - | ||||||||||
| Total assets | - | |||||||||||
| Liabilities | ||||||||||||
| Lease liabilities | - | - | ||||||||||
| Notes payable | - | - | ||||||||||
| Total liabilities | - | |||||||||||
| $ | $ | ( | ) | $ | ( | ) | ||||||
There were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the nine months ended September 30, 2021 or the year ended December 31, 2020.
| 10 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 – 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 the following at September 30, 2021 and December 31, 2020, respectively.
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| Less obsolescence | ( | ) | ( | ) | ||||
| Total inventory | $ | $ | ||||||
Note 6 – Other Current Assets
Other current assets included the following as of September 30, 2021 and December 31, 2020, respectively:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| VAT tax receivable | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Other receivables | ||||||||
| Total | $ | $ | ||||||
Note 7 – Security Deposits
Security deposits included the following as of September 30, 2021 and December 31, 2020, respectively:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Utility deposits | $ | $ | ||||||
| Refundable deposit on equipment purchase | ||||||||
| Security deposits on leases held in Colombia | ||||||||
| Security deposit on office lease | ||||||||
| Down payment on distillation equipment | - | |||||||
| $ | $ | |||||||
| 11 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 – Fixed Assets
Fixed assets consist of the following at September 30, 2021 and December 31, 2020, respectively:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Land | $ | $ | ||||||
| Buildings | ||||||||
| Office equipment | ||||||||
| Furniture and fixtures | ||||||||
| Equipment and machinery | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Construction in progress consists of equipment and capital improvements on the Popayán farm have not yet been placed in service.
Depreciation
and amortization expense totaled $
Note 9 – Accrued Expenses
Accrued expenses consisted of the following at September 30, 2021 and December 31, 2020, respectively:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued payroll | $ | $ | ||||||
| Accrued withholding taxes and employee benefits | ||||||||
| Accrued ICA fees and contributions | ||||||||
| Accrued interest | ||||||||
| $ | $ | |||||||
Note 10 – Leases
The Company’s corporate offices and operational facility in Colombia under short-term non-cancelable real property lease agreements that expire within a year. The Company doesn’t have any other office or equipment leases subject to the recently adopted ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects that lease options will be exercised. The Company’s corporate office is under a real property lease that contains a one-time renewal option for an additional 36 months that we determined would 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.
| 12 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The components of lease expense were as follows:
| For the Nine | ||||
| Months Ended | ||||
| September 30, | ||||
| 2021 | ||||
| Operating lease cost: | ||||
| Amortization of assets | $ | |||
| Interest on lease liabilities | ||||
| Lease payments on short term leases | ||||
| Total lease cost | $ | |||
Supplemental balance sheet information related to leases was as follows:
| September 30, | ||||
| 2021 | ||||
| Operating leases: | ||||
| Operating lease assets | $ | |||
| Current portion of operating lease liabilities | $ | |||
| Noncurrent operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
| Weighted average remaining lease term: | ||||
| Operating leases | ||||
| Weighted average discount rate: | ||||
| Operating leases | % | |||
Supplemental cash flow and other information related to leases was as follows:
| For the Nine | ||||
| Months Ended | ||||
| September 30, | ||||
| 2021 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows used for operating leases | $ | |||
Future minimum annual lease commitments under non-cancelable operating leases are as follows at September 30, 2021:
| Operating | ||||
| Leases | ||||
| 2021 (for the three months remaining) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total minimum lease payments | ||||
| Less interest | ||||
| Present value of lease liabilities | ||||
| Less current portion | ||||
| Long-term lease liabilities | $ | |||
| 13 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11 – Notes Payable
Notes payable consists of the following at September 30, 2021 and December 31, 2020, respectively:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| On
September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $
The Note matures on 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. | $ | $ | ||||||
| On
January 20, 2021, the Company completed the sale of a Promissory Note in the principal amount of $
The First AJB Note carried interest at a rate of Pursuant to the Purchase Agreement, the Company paid a commitment fee to AJB Capital in the amount of $ | ||||||||
| On
February 3, 2020, the Company, through its wholly-owned subsidiary, One World Pharma SAS, received an advance of | ||||||||
| On
December 16, 2020, the Company received an advance of $ | ||||||||
| On
October 28, 2020, the Company received an advance of $ | ||||||||
| On
September 14, 2020, the Company received an advance of $ | ||||||||
| On
May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $
Under the Payroll Protection Program, the Company 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 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 is 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. | ||||||||
| Total notes payable | ||||||||
| Less unamortized debt discounts | ||||||||
| Notes payable, net of discounts | $ | $ | ||||||
| 14 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recognized interest expense for the nine months ended September 30, 2021 and 2020, as follows:
| September 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| Interest on convertible notes | $ | $ | ||||||
| Interest on notes payable | ||||||||
| Amortization
of debt discounts, including $ | - | |||||||
| Interest on accounts payable | - | |||||||
| Total interest expense | $ | $ | ||||||
Note 12 – Convertible Preferred Stock
Preferred Stock
The
Company has authorized shares of $ par value “blank check” preferred stock, of which shares have
been designated Series A Preferred Stock and shares have been designated Series B Preferred Stock.
The Series A and B Preferred Stock have been classified outside of permanent equity and liabilities. the Series A Preferred Stock embodies conditional obligations that the Company may settle by issuing a variable number of equity shares, and in both the Series A and B Preferred Stock, monetary value of the obligation is based on a fixed monetary amount known at inception.
Series A Preferred Stock Sales
shares of Series A Preferred Stock were sold during the nine months ending September 30, 2021.
Series A Preferred Stock Conversions
On April 6, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
On March 24, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock. The shares of common stock were subsequently issued on April 7, 2021.
On January 26, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
On January 12, 2021, a shareholder converted shares of Series A Preferred Stock into shares of common stock.
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 $
| 15 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Series B Preferred Stock Sales
On February 7, 2021, the Company and ISIAH International entered into a Securities Purchase Agreement under which ISIAH International agreed to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of shares of the Company’s newly designated Series B Preferred Stock, convertible into an aggregate of shares of common stock, for a purchase price of $ per share of Preferred Stock, and an aggregate purchase price of $ million. Each share of Series B Preferred Stock has a Stated Value of $ and is convertible into common stock at a conversion price equal to $. Isiah Thomas, the Company’s Chief Executive Officer, is the sole member and Chief Executive Officer of ISIAH International. Pursuant to the Purchase Agreement, ISIAH International purchased the shares of Series B Preferred Stock from the Company according to the following schedule:
| Date | Shares | Purchase Price | ||||||
| Initial Closing Date | $ | |||||||
| February 22, 2021 | ||||||||
| March 8, 2021 | ||||||||
| March 22, 2021 | ||||||||
| April 5, 2021 | ||||||||
| April 19, 2021 | ||||||||
| May 17, 2021 | ||||||||
| June 14, 2021 | ||||||||
| July 12, 2021 | ||||||||
| Total | $ | |||||||
In
addition to the shares sold to ISIAH International, the Company received total proceeds of $
Note 13 – Changes in Stockholders’ Equity
Common Stock
The Company is authorized to issue an aggregate of shares of common stock with a par value of $. As of September 30, 2021, there were shares of common stock issued and outstanding.
Common Stock Issued on Subscriptions Payable
On
March 1, 2021, the Company issued shares of common stock on a Subscriptions Payable for the November 27, 2020 sale of common
stock at $ per share for proceeds of $
Common Stock Options Exercised
On July 26, 2021, a total of shares of common stock were issued upon exercise on a cashless basis of options to purchase shares of common stock at a price $ per share.
Common Stock Issued as a Promissory Note Commitment
As
disclosed in Note 11 above, the Company paid a commitment fee to AJB Capital of $
Also, as disclosed in Note 11, above, the Company
paid a commitment fee to AJB Capital in the form of
| 16 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Common Stock Issued for Services
On
May 25, 2021, the Company awarded a total of shares of common stock pursuant for consulting services to two individuals. The
aggregate fair value of the shares was $
On
May 12, 2021, the Company entered into a Settlement Agreement with COR Prominence, LLC. Pursuant to the Settlement Agreement, the Company
issued shares of common stock. The
fair value of the shares was $
Amortization of Stock-Based Compensation
A total of $ of stock-based compensation expense was recognized from the amortization of options to purchase common stock over their vesting period during the nine months ended September 30, 2021.
Note 14 – Common Stock Options
Stock Incentive Plan
On February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which had been adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides for the issuance of up to shares of common stock to the Company and its subsidiaries’ employees, officers, directors, consultants and advisors, stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and other performance stock awards. Options granted under the 2019 Plan may either be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and are exercisable over periods not exceeding ten years from date of grant. Unless sooner terminated in accordance with its terms, the Stock Plan will terminate on December 10, 2029.
Common Stock Options Issued for Services
On
May 28, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal
to $ per share, exercisable over a period to the Company’s CFO and COO, Vahé Gabriel. The options vested
immediately as to shares, and vest as to the remaining shares quarterly in increments over the following two
quarters. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $,
was $. The options are being expensed over the vesting period, resulting in $ of stock-based compensation expense during
the nine months ended September 30, 2021. As of September 30, 2021, a total of $
On
May 25, 2021, the Company awarded options to purchase an aggregate shares of common stock under the 2019 Plan at an exercise
price equal to $ per share, exercisable over a period to three advisory board members. The options vest in equal quarterly
installments over two years. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of %
and a call option value of $, was $. The options are being expensed over the vesting period, resulting in $ of stock-based
compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $
On
January 1, 2021, the Company awarded options to purchase shares of common stock at an exercise price equal to $ per share
to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside of the 2019 Plan
and are exercisable over a period. The options vested immediately as to shares, and vest as to the remaining
shares quarterly in increments over the following eleven quarters. The estimated value using the Black-Scholes Pricing Model,
based on a volatility rate of % and a call option value of $, was $. The options are being expensed over the vesting
period, resulting in $ of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30,
2021, a total of $
| 17 |
ONE WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On
January 1, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal
to $ per share, exercisable over a period to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest
in equal quarterly installments over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate
of % and a call option value of $, was $. The options are being expensed over the vesting period, resulting in $
of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $
On
January 1, 2021, the Company awarded options to purchase shares of common stock under the 2019 Plan at an exercise price equal
to $ per share, exercisable over a period to Bruce Raben, the Company’s former Interim Chief Financial Officer and
a Director of the Company. The options vest in equal quarterly installments over one year. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of % and a call option value of $, was $. The options are being expensed over
the vesting period, resulting in $ of stock-based compensation expense during the nine months ended September 30, 2021. As of September
30, 2021, a total of $
On
January 1, 2021, the Company awarded options to purchase an aggregate shares of common stock under the 2019 Plan at an exercise
price equal to $ per share, exercisable over a period to seven consultants and employees. The options vest in equal quarterly
installments over one year. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and
a call option value of $, was $. The options are being expensed over the vesting period, resulting in $ of stock-based
compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $
The
Company also recognized a total of $, and $ of compensation expense during the nine months ended September 30, 2021 and
2020, respectively, related to common stock options issued in the prior year to Officers, Directors, and Employees that are being amortized
over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $
Note 15 – Income Taxes
The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For
the nine months ended September 30, 2021, and the year ended December 31, 2020, the Company incurred a net operating loss and, accordingly,
no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of
the realization of any tax assets. At September 30, 2021, the Company had approximately $
Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at September 30, 2021 and December 31, 2020, respectively.
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note 16 – Subsequent Events
Debt Repayment, Related Party
On
October 18, 2021, the Company repaid a total of $
Commitment Shares
As
disclosed in Note 11, above, the Company paid a commitment fee to AJB Capital in the form of
On
October 15, 2021, the Company redeemed and cancelled
| 18 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2020 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.
The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in the Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.
Overview
Through our wholly-owned subsidiary, One World Pharma S.A.S, a licensed cannabis cultivation, production and distribution (export) company located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the only companies in Colombia to receive 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 $1,542,103 on 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.
Results of Operations for the Three Months Ended September 30, 2021 and 2020:
The following table summarizes selected items from the statement of operations for the three months ended September 30, 2021 and 2020.
| Three Months Ended September 30, | Increase / | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Revenues | $ | 7,845 | $ | 42,598 | $ | (34,753 | ) | |||||
| Cost of goods sold | 7,058 | 7,682 | (624 | ) | ||||||||
| Gross profit | 787 | 34,916 | (34,129 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 358,382 | 793,846 | (435,464 | ) | ||||||||
| Professional fees | 153,484 | 364,111 | (210,627 | ) | ||||||||
| Depreciation expense | 6,939 | 9,496 | (2,557 | ) | ||||||||
| Total operating expenses: | 518,805 | 1,167,453 | (648,648 | ) | ||||||||
| Operating loss | (518,018 | ) | (1,132,537 | ) | (614,519 | ) | ||||||
| Total other income (expense) | (149,661 | ) | (7,517 | ) | 142,144 | |||||||
| Net loss | $ | (667,679 | ) | $ | (1,140,054 | ) | $ | (472,375 | ) | |||
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Revenues
Revenues during the three months ended September 30, 2021 were $7,845, compared to $42,598 during the three months ended September 30, 2020, a decrease of $34,753, or 82%.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2021 were $7,058, compared to $7,682 for the three months ended September 30, 2020, a decrease of $624, or 8%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2021 were $358,382, compared to $793,846 during the three months ended September 30, 2020, a decrease of $435,464, or 55%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses decreased primarily due to decreased stock-based compensation related to the amortization of stock options and shares issued to officers that were incurred in the prior year, and not awarded in the current year at similar levels. General and administrative expenses included non-cash, stock-based compensation of $72,334 and $441,567 during the three months ended September 30, 2021 and 2020, respectively.
Professional Fees
Professional fees for the three months ended September 30, 2021 were $153,484, compared to $364,111 during the three months ended September 30, 2020, a decrease of $210,627, or 58%. Professional fees included non-cash, stock-based compensation of $60,042 and $2,021,122 during the three months ended September 30, 2021 and 2020, respectively. Professional fees decreased primarily due to decreased stock-based compensation efforts during the current period.
Depreciation Expense
Depreciation expense for the three months ended September 30, 2021 was $6,939, compared to $9,496 during the three months ended September 30, 2020, a decrease of $2,557, or 27%. Depreciation expense decreased as equipment was disposed of in the current period.
Other Income (Expense)
Other expenses, on a net basis, for the three months ended September 30, 2021 were $149,661, compared to other expenses, on a net basis, of $7,517 during the three months ended September 30, 2020, an increase in net expenses of $142,144, or 1,891%. Other expenses consisted of $137,863 of interest expense, including $116,312 of stock-based finance costs on the amortization of debt discounts, and a loss on disposal of fixed assets of $17,563, as offset by $5,000 of sublease income on sublet office space and $765 of interest income, for the three months ended September 30, 2021, compared to $7,517 of interest expense during the three months ended September 30, 2020.
Net Loss
Net loss for the three months ended September 30, 2021 was $667,679, or $0.01 per share, compared to $1,140,054, or $0.02 per share, during the three months ended September 30, 2020, a decrease of $472,375, or 41%. The net loss decreased primarily due to decreased stock-based compensation during the current period.
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Results of Operations for the Nine Months Ended September 30, 2021 and 2020:
The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2021 and 2020.
| Nine Months Ended September 30, | Increase / | |||||||||||
| 2021 | 2020 | (Decrease) | ||||||||||
| Revenues | $ | 73,450 | $ | 103,384 | $ | (29,934 | ) | |||||
| Cost of goods sold | 14,810 | 24,433 | (9,623 | ) | ||||||||
| Gross profit | 58,640 | 78,951 | (20,311 | ) | ||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 1,466,954 | 3,293,009 | (1,826,055 | ) | ||||||||
| Professional fees | 679,141 | 3,454,966 | (2,775,825 | ) | ||||||||
| Depreciation expense | 29,937 | 23,706 | 6,231 | |||||||||
| Total operating expenses: | 2,176,032 | 6,71,681 | (4,595,649 | ) | ||||||||
| Operating loss | (2,117,392 | ) | (6,692,30 | ) | (4,575,338 | ) | ||||||
| Total other income (expense) | (343,698 | ) | (28,571 | ) | 315,127 | |||||||
| Net loss | $ | (2,461,090 | ) | $ | (6,721,301 | ) | $ | (4,260,211 | ) | |||
Revenues
Revenues during the nine months ended September 30, 2021 were $73,450, compared to $103,384 during the nine months ended September 30, 2020, a decrease of $29,934, or 29%.
Cost of Goods Sold
Cost of goods sold for the nine months ended September 30, 2021 were $14,810, compared to $24,433 for the nine months ended September 30, 2020, a decrease of $9,623, or 39%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2021 were $1,466,954, compared to $3,293,009 during the nine months ended September 30, 2020, a decrease of $1,826,055, or 55%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses decreased primarily due to decreased stock-based compensation related to the amortization of stock options and shares issued to officers that were incurred in the prior year, and not awarded in the current year at similar levels. General and administrative expenses included non-cash, stock-based compensation of $510,468 and $2,415,366 during the nine months ended September 30, 2021 and 2020, respectively.
Professional Fees
Professional fees for the nine months ended September 30, 2021 were $679,141, compared to $3,454,855 during the nine months ended September 30, 2020, a decrease of $2,775,825, or 80%. Professional fees included non-cash, stock-based compensation of $384,283 and $2,839,132 during the nine months ended September 30, 2021 and 2020, respectively. Professional fees decreased primarily due to decreased stock-based compensation efforts during the current period.
Depreciation Expense
Depreciation expense for the nine months ended September 30, 2021 was $29,937, compared to $23,706 during the nine months ended September 30, 2020, an increase of $6,231, or 26%. Depreciation expense increased as we placed more equipment in service in the past year.
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Other Income (Expense)
Other expenses, on a net basis, for the nine months ended September 30, 2021 were $343,698, compared to other expenses, on a net basis, of $28,571 during the nine months ended September 30, 2020, an increase in net expenses of $315,127, or 1,103%. Other expenses consisted of $347,958 of interest expense, including $286,345 of stock-based finance costs on the amortization of debt discounts, and a loss on disposal of fixed assets of $17,563, as offset by $19,500 of sublease income on sublet office space and $2,323 of interest income, for the nine months ended September 30, 2021, compared to $28,571 of interest expense during the nine months ended September 30, 2020.
Net Loss
Net loss for the nine months ended September 30, 2021 was $2,461,090, or $0.04 per share, compared to $6,721,301, or $0.14 per share, during the nine months ended September 30, 2020, a decrease of $4,260,211, or 63%. The net loss decreased primarily due to decreased stock-based compensation during the current period.
Liquidity and Capital Resources
The following is a summary of the Company’s cash flows provided by (used in) operating, investing, financing activities and effect of exchange rate changes on cash for the nine months ended September 30, 2021 and 2020:
| 2021 | 2020 | |||||||
| Operating Activities | $ | (3,120,049 | ) | $ | (1,155,282 | ) | ||
| Investing Activities | (268,223 | ) | (37,793 | ) | ||||
| Financing Activities | 4,068,938 | 960,274 | ||||||
| Effect of Exchange Rate Changes on Cash | (10,919 | ) | (28,700 | ) | ||||
| Net Increase (Decrease) in Cash | $ | 669,747 | $ | (261,501 | ) | |||
Net Cash Used in Operating Activities
During the nine months ended September 30, 2021, net cash used in operating activities was $3,120,049, compared to net cash used in operating activities of $1,155,282 for the nine months ended September 30, 2020. The cash used in operating activities was primarily attributable to our net loss.
Net Cash Used in Investing Activities
During the nine months ended September 30, 2021, net cash used in investing activities was $268,223, compared to net cash used in investing activities of $37,793 for the nine months ended September 30, 2020. The cash used in investing activities consisted of purchases of fixed assets, net of proceeds received on the disposal of fixed assets.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2021, net cash provided by financing activities was $4,068,938, compared to net cash provided by financing activities of $960,274 for the nine months ended September 30, 2020. The current period consisted of $947,000 of proceeds received on debt financing and $3,577,505 received on the sale of preferred and common stock, less debt repayments of $455,567, compared to $1,478,332 received on the sale of preferred stock and $261,274 of net proceeds received on debt financing, less debt repayments of $779,332, during the nine months ended September 30, 2020.
Ability to Continue as a Going Concern
As of September 30, 2021, our balance of cash on hand was $698,667, and we had working capital of $62,465 and an accumulated deficit of $18,593,416. 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 or 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.
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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.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
There was no impact on the Company’s financial statements from ASC 606 for the nine months ended September 30, 2021, or the year ended December 31, 2020.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced extracts.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Interim Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the period of our evaluation or subsequent to the date we carried out our evaluation which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system of controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.
ITEM 1A. RISK FACTORS
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following issuances of equity securities by the Company during the three month period ended September 30, 2021 were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder:
Preferred Stock Sales
On July 12, 2021, the Company received proceeds of $499,995 from the sale of 33,333 shares of Series B Preferred Stock to ISIAH International. Each share of Preferred Stock is currently convertible into 100 shares of the Company’s common stock.
Common Stock Options Exercised
On July 26, 2021, a total of 60,000 shares of common stock were issued upon exercise on a cashless basis of options to purchase 125,000 shares of common stock at a price $0.13 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. Exhibits
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: November 15, 2021 | |
| One World Pharma, Inc. | |
| /s/ Isiah L. Thomas III | |
| Isiah L. Thomas III | |
| Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Vahé Gabriel | |
| Vahé Gabriel | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
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