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 Las Vegas, Nevada,
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 and export of non-psychoactive cannabis, cultivation and
export of psychoactive cannabis, and manufacturing allowing for extraction and export of oil. 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. We terminated our lease on September 30, 2022, and plan to
install the equipment at a new extraction facility when the equipment clears Customs in the fourth quarter of 2022. We entered into a 5-year lease on the new
location on October 1, 2022, where we will combine our office and extraction facilities into the same building. The new facility is approximately half the cost of the former, and already contains the necessary electrical and
epoxy floors, which will significantly reduce our tenant improvement costs.
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 September 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. The Company’s headquarters
are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Reclassifications
Certain reclassifications have been made to the prior
years’ financial statements to conform to current year presentation. These reclassifications had no effect on previously reported
results of operations or retained earnings.
Foreign
Currency Translation
The
functional currency of the Company is 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.
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.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
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 September 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 September 30, 2022, the Company had $35,340 of deferred revenues and $22,830 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 future harvests.
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 September 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 September 30, 2022, our balance of cash on hand was $68,621,
and we had negative working capital of $2,268,606 and an accumulated deficit of $22,212,027. 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.
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.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
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, 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 September 30, 2022 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
Assets | |
| | |
| | |
| |
Cash | |
$ | 68,621 | | |
$ | - | | |
$ | - | |
Right-of-use asset | |
| - | | |
| - | | |
| 32,357 | |
Total assets | |
| 68,621 | | |
| - | | |
| 32,357 | |
Liabilities | |
| | | |
| | | |
| | |
Lease liabilities | |
| - | | |
| - | | |
| 32,809 | |
Convertible notes payable, net of $412,673 of debt discounts | |
| - | | |
| 337,327 | | |
| - | |
Convertible notes payable | |
| - | | |
| 750,000 | | |
| - | |
Notes payable | |
| - | | |
| 854,455 | | |
| - | |
Notes payable, related parties | |
| - | | |
| 299,500 | | |
| - | |
Total liabilities | |
| - | | |
| (1,903,955 | ) | |
| (32,809 | ) |
Total assets and liabilities | |
$ | 68,621 | | |
$ | (1,903,955 | ) | |
$ | (452 | ) |
| |
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 nine months ended September
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 September 30, 2022 and December 31, 2021, respectively.
Schedule of Inventory
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Raw materials | |
$ | 22,236 | | |
$ | 31,233 | |
Work in progress | |
| 115,061 | | |
| 81,182 | |
Finished goods | |
| 201,307 | | |
| 108,246 | |
Inventory gross | |
| 338,604 | | |
| 220,661 | |
Less obsolescence | |
| (19,384 | ) | |
| (22,066 | ) |
Total inventory | |
$ | 319,220 | | |
$ | 198,595 | |
Note
5 – Other Current Assets
Other
current assets included the following as of September 30, 2022 and December 31, 2021, respectively:
Schedule of Other Current Assets
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Prepaid expenses | |
$ | 26,428 | | |
$ | 29,366 | |
Deferred cost of goods sold | |
| 22,830 | | |
| 19,470 | |
Other receivables | |
| - | | |
| 110,000 | |
Total | |
$ | 49,258 | | |
$ | 158,836 | |
Note 6 – Other Assets
Other assets consist entirely of a $180,521 and $147,194
VAT receivable at September 30, 2022 and December 31, 2021, respectively, which will be returned upon the successful export of the products
purchased in which the taxes were originally paid.
Note
7 – Security Deposits
Security
deposits included the following as of September 30, 2022 and December 31, 2021, respectively:
Schedule of Security Deposits
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Utility deposits | |
$ | - | | |
$ | 1,090 | |
Refundable deposit on equipment purchase | |
| 50,000 | | |
| 50,000 | |
Down payment on distillation equipment | |
| 1,399,412 | | |
| 1,155,000 | |
Security deposits on leases held in Colombia | |
| 596 | | |
| 35,869 | |
Security deposit on office lease | |
| - | | |
| 14,029 | |
Security
deposits | |
$ | 1,450,008 | | |
$ | 1,255,988 | |
ONE
WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
8 – Fixed Assets
Fixed
assets consist of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule
of Fixed Assets
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Land | |
$ | 138,248 | | |
$ | 138,248 | |
Buildings | |
| 473,971 | | |
| 473,971 | |
Office equipment | |
| 30,902 | | |
| 56,502 | |
Furniture and fixtures | |
| 6,494 | | |
| 34,409 | |
Equipment and machinery | |
| 423,548 | | |
| 383,829 | |
Fixed assets, gross | |
| 1,073,163 | | |
| 1,086,959 | |
Less: accumulated depreciation | |
| (76,880 | ) | |
| (83,946 | ) |
Total | |
$ | 996,283 | | |
$ | 1,003,013 | |
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 $15,391 for gross proceeds of $6,350, resulting in a loss on the disposal of fixed assets of $9,041, which represented
the proceeds received, less the net book value at the time of disposal.
Depreciation
and amortization expense totaled $34,540 and $29,937 for the nine months ended September 30, 2022 and 2021, respectively.
Note
9 – Accrued Expenses
Accrued
expenses consisted of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule of Accrued Expenses
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
Accrued payroll | |
$ | 514,133 | | |
$ | 261,044 | |
Accrued withholding taxes and employee benefits | |
| 28,505 | | |
| 9,162 | |
Accrued ICA fees and contributions | |
| 172,629 | | |
| 129,856 | |
Accrued interest | |
| 98,047 | | |
| 57,700 | |
Accrued expenses | |
$ | 813,314 | | |
$ | 457,762 | |
ONE
WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
10 – Leases
The
Company leased its 12,400 square
foot extraction facility under a non-cancelable real property lease agreement that commenced on January 1, 2022 and was to expire on
December 31, 2027, at a monthly lease rate of 57,339,000 COP,
or approximately $15,290. The
Company terminated the lease on September 30, 2022, resulting in lease termination fees of approximately $7,700.
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, 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, 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 office lease contains 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 contained 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.
The
components of lease expense were as follows:
Schedule of Components of Lease Expense
| |
For the Nine | |
| |
Months Ended | |
| |
September 30, | |
| |
2022 | |
Operating lease costs: | |
| | |
Amortization of assets | |
$ | 93,011 | |
Interest on lease liabilities | |
| 76,251 | |
Lease payments on short term leases | |
| 31,999 | |
Total lease cost | |
$ | 201,261 | |
Supplemental
balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information Related to Leases
| |
September 30, | |
| |
2022 | |
Operating leases: | |
| | |
Operating lease assets | |
$ | 32,357 | |
| |
| | |
Current portion of operating lease liabilities | |
$ | 17,106 | |
Noncurrent operating lease liabilities | |
| 15,703 | |
Total operating lease liabilities | |
$ | 32,809 | |
| |
| | |
Weighted average remaining lease term: | |
| | |
Operating leases | |
| 1.75 years | |
| |
| | |
Weighted average discount rate: | |
| | |
Operating leases | |
| 6.75 | % |
ONE
WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Supplemental
cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow Related to Leases
| |
For the Nine | |
| |
Months Ended | |
| |
September 30, | |
| |
2022 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
Operating cash flows used for operating leases | |
$ | 64,067 | |
| |
| | |
Early extinguishment of lease: | |
| | |
Lease liability terminated | |
| 1,438,830 | |
Right-of use asset terminated | |
| (1,418,682 | ) |
Gain on early extinguishment of lease | |
| 20,148 | |
| |
| | |
Leased assets obtained in exchange for lease liabilities: | |
| | |
Total operating lease liabilities | |
$ | 1,535,706 | |
Future
minimum annual lease commitments under non-cancelable operating leases are as follows at September 30, 2022:
Schedule of Operating Lease Liability Maturity
| |
Operating | |
| |
Leases | |
| |
| |
2022 (for the three months remaining) | |
$ | 4,653 | |
2023 | |
| 19,016 | |
2024 | |
| 11,335 | |
Total minimum lease payments | |
| 35,004 | |
Less interest | |
| 2,195 | |
Present value of lease liabilities | |
| 32,809 | |
Less current portion | |
| 17,106 | |
Long-term lease liabilities | |
$ | 15,703 | |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Note
11 – Convertible Notes Payable
Convertible
notes payable consists of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule
of Convertible Note Payable
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
On September 27, 2022, | |
$ | 750,000 | | |
$ | - | |
On September 27, 2022, the Company completed the sale of a Convertible Promissory Note in the principal amount of $750,000 (the “Convertible McCabe Note”) to Dr. John McCabe. The unsecured note matures on 16, 2024 (the “Maturity Date”), bears interest at a rate of 8% per annum, and the principal and interest is convertible into shares of the Company’s convertible Series B common stock at a conversion price of $15 per share. | |
$ | 750,000 | | |
$ | - | |
| |
| | | |
| | |
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 was 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 matured on September 24, 2022 (the “Maturity Date”), bore interest at a rate of 8% per annum, and, following an event of default only, was 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 was 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 was 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 was 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. The note was repaid on September 27, 2022. | |
| - | | |
| 750,000 | |
| |
| | | |
| | |
Total convertible notes payable | |
| 750,000 | | |
| 750,000 | |
Less: unamortized debt discounts | |
| - | | |
| 412,673 | |
Convertible note payable, net of discounts | |
$ | 750,000 | | |
$ | 337,327 | |
The
Company recognized aggregate debt discounts on the convertible notes and notes payable to AJB Capital for the nine months ended September
30, 2022 and the year ended December 31, 2021, as follows:
Schedule of Convertible Debt Discounts
| |
September 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 | |
| 869,329 | | |
| 456,656 | |
Unamortized debt discounts | |
$ | - | | |
$ | 412,673 | |
The
aggregate debt discounts of $869,329, for the year ended December 31, 2021, were amortized over the life of the loan using the straight-line
method, which approximated the effective interest method. The Company recorded finance expense in the amount of $412,673 and $310,633
on the amortization of these discounts for the nine months ended September 30, 2022 and 2021, respectively.
The
Company recorded interest expense pursuant to the stated interest rates on the convertible note in the amount of $43,899 for the nine
months ended September 30, 2022.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
Note
12 – Notes Payable
Notes
payable consists of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule of Notes Payable
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
On September 15, 2022, the Company, through its wholly-owned subsidiary, One World
Pharma, SAS, received proceeds of 55,488,000 COP,
or approximately $12,243,
on a loan with a face value of 70,000,000 COP,
or approximately $15,445,
from an individual pursuant to an unsecured promissory note, bearing interest at 4%
per month, or 48% per annum, due on demand. The debt discount of $3,202
was expensed as finance costs at the time of origination. | |
$ | 15,445 | | |
$ | - | |
| |
| | | |
| | |
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,
on a loan with a face value of 240,000,000
COP, or approximately $58,147,
from an individual pursuant to an unsecured promissory note, bearing interest at 4%
per month, or 48% per annum, due on demand. The debt discount of $2,326
was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $5,191
due to foreign currency translation adjustments. | |
| 52,956 | | |
| - | |
| |
| | | |
| | |
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,
on a loan with a face value of 360,000,000
COP, or approximately $87,220,
from an individual pursuant to promissory note, security by equipment, bearing interest at 2.1%
per month, or 25% per annum, maturing on November 28, 2022. The debt discount of $10,990
was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $7,786
due to foreign currency translation adjustments. | |
| 79,434 | | |
| - | |
| |
| | | |
| | |
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, from an individual pursuant to an unsecured promissory note, due on demand. The face value of the note has been adjusted by $433 due to foreign currency translation adjustments. | |
| 4,413 | | |
| - | |
| |
| | | |
| | |
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, from an individual pursuant to an unsecured promissory note, due on demand. The face value of the note has been adjusted by $216 due to foreign currency translation adjustments. | |
| 2,207 | | |
| - | |
| |
| | | |
| | |
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 | |
| 854,455 | | |
| 119,274 | |
Less: current maturities | |
| 154,455 | | |
| 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 $51,345 and $8,434 for
the nine months ended September 30, 2022 and 2021, respectively.
ONE
WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
13 – Notes Payable, Related Party
Notes
payable, related party, consists of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule
of Notes Payable Related Party
| |
September 30, | | |
December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
On August 5, 2022, the Company received an advance of $50,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | |
$ | 50,000 | | |
$ | - | |
| |
| | | |
| | |
On August 2, 2022, the Company received an advance of $4,500 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | |
| 4,500 | | |
| - | |
| |
| | | |
| | |
On July 7, 2022, the Company received an advance of $5,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | |
| 5,000 | | |
| - | |
| |
| | | |
| | |
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 | |
| 299,500 | | |
| 200,000 | |
Less: current maturities | |
| 99,500 | | |
| - | |
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 $13,538
for the nine months ended September 30, 2022.
ONE
WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The
Company recognized interest expense for the nine months ended September 30, 2022 and 2021, as follows:
Schedule of Interest Expenses
| |
September 30, | | |
September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Interest on convertible notes | |
$ | 43,899 | | |
$ | 21,120 | |
Interest on notes payable | |
| 51,345 | | |
| 8,434 | |
Interest on notes payable, related parties | |
| 13,538 | | |
| - | |
Finance cost on equity line of credit | |
| 15,000 | | |
| - | |
Amortization of debt discounts | |
| 50,753 | | |
| 24,288 | |
Amortization of debt discounts, common stock | |
| 106,894 | | |
| 273,594 | |
Amortization of debt discounts, warrants | |
| 255,026 | | |
| 12,751 | |
Series B preferred stock issued as a commitment on an ELOC | |
| 205,005 | | |
| - | |
Common stock issued as a commitment on the 2nd AJB Note | |
| 134,128 | | |
| - | |
Interest on accounts payable | |
| 11,249 | | |
| 7,771 | |
Total interest expense | |
$ | 886,837 | | |
$ | 347,958 | |
Note
14 – 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 600,000 shares have been designated Series B Preferred Stock, as amended on August 2, 2022.
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 September 30, 2022, there were 65,233
and 262,168 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 nine months ending September 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 $28,971 and $34,843 for the nine months ended September 30, 2022 and 2021, respectively. A total of $127,891 of
dividends had accrued as of September 30, 2022.
Series
B Preferred Stock Issuances
On
September 1, 2022, the Company and Tysadco Partners, LLC (“Tysadco”), entered into a Securities Purchase Agreement (the
“Purchase Agreement”) under which Tysadco agreed to purchase from the Company, 20,000 shares
of the Company’s Series B Preferred Stock for a purchase price of $15 per
share of Series B Preferred Stock, and an aggregate purchase price of $300,000.
On September 12, 2022, Tysadco purchased the first 10,000 shares
of Series B Preferred Stock under the Purchase Agreement for $150,000.
The Company paid $15,000 out
of the proceeds of the investment to Garden State Securities, Inc. as financing costs. In
addition, pursuant to the ELOC Purchase Agreement, the Company issued Tysadco 13,667 shares of the Company’s Series B
Preferred Stock as commitment fee shares. The fair value of the shares was $205,005,
based on recent sales prices of the Company’s Series B Preferred Stock on the date of grant.
ONE
WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
15 – Commitments and Contingencies
Equity
Line of Credit
On
September 1, 2022, the Company entered into a Purchase Agreement (the “ELOC Purchase Agreement”) with Tysadco Partners, LLC
(“Tysadco”). Pursuant to the ELOC Purchase Agreement, Tysadco has agreed to purchase from the Company, from time to time
upon delivery by the Company to Tysadco of “Request Notices,” and subject to the other terms and conditions set forth in
the ELOC Purchase Agreement, up to an aggregate of $10,000,000 of the Company’s common stock. The purchase price of the shares
of common stock to be purchased under the Purchase Agreement will be equal to 88% of the lowest daily “VWAP” during the period
of 10 trading days beginning five trading days preceding the applicable Request. Each purchase under the Purchase Agreement will be in
a minimum amount of $25,000 and a maximum amount equal to the lesser of (i) $1,000,000 and (ii) 500% of the average daily trading value
of the common stock over the seven trading days preceding the delivery of the applicable Request Notice.
In
connection with the ELOC Purchase Agreement, the Company entered into a Registration Rights Agreement with Tysadco under which the Company
agreed to file a registration statement with the Securities and Exchange Commission covering the shares of common stock issuable under
the ELOC Purchase Agreement and conversion of the Commitment Fee Shares (the “Registration Rights Agreement”).
Note
16 – 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 September 30, 2022,
there were 67,202,907 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.
Common
Stock Issued as a Promissory Note Commitment
As
disclosed in Note 11 above, the Company paid a commitment fee to AJB Capital of $250,000
in the form of 1,250,000
shares of the Company’s common stock (“Commitment Fee Shares”) in connection with the issuance of the Second AJB
Note, which was repaid on September 27, 2022. During the six month period following the six-month anniversary of the closing date,
AJB Capital was 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. As a result, the Company issued an
additional 1,341,276
shares of common stock to AJB Capital on September 15, 2022. The fair value of the shares was
$134,128,
based on the closing price of the Company’s common stock on the date of grant.
Amortization
of Stock-Based Compensation
A
total of $123,440 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, 2022.
Note
17 – Common Stock Options
Stock
Incentive Plan
On
February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which had been
adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides for the issuance
of up to 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.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated
Financial Statements
(Unaudited)
The
Company recognized a total of $123,440, and $70,077 of compensation expense during the nine months ended September 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 $179,241 as of
September 30, 2022.
Note
18 – Income Taxes
The
Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that
deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes, referred to as temporary differences.
For
the nine months ended September 30, 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 September 30, 2022, the Company had approximately $9,480,000 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 September 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
19 – Subsequent Events
The
Company evaluates events that have occurred after the balance sheet date through the date these financial statements were issued.
Sale
of Series B Preferred Stock
On
October 12, 2022, the Company sold the second tranche of 10,000
shares of Series B Preferred Stock to Tysadco for proceeds of $150,000.
The Company paid $15,000 out of the proceeds of the investment to Garden State Securities, Inc. as financing costs.
Commitment
for the Sale of Series B Preferred Stock
On
October 3, 2022, the Company and ISIAH International, LLC (“ISIAH International”), an entity in which the Company’s
CEO, Isiah L. Thomas, III, is the sole member, entered into a securities purchase agreement under which ISIAH International has agreed
to purchase from the Company an aggregate of 33,333 shares of the Company’s Series B Preferred Stock (the “Series B Shares”),
initially convertible into an aggregate of three million three hundred thirty three thousand three hundred (3,333,300) shares of the
Company’s common stock, for a total purchase price of $499,995. To date, no purchases under this agreement have occurred.
Extraction Facility Lease
On October 1, 2022, the Company entered into a five-year non-cancelable
property lease, with an automatic five-year extension, for a new extraction facility with combined office space, at a monthly lease term
of 29,000,000 COP plus VAT and administration fees, or approximately $6,300, with annual escalation of lease payments equal to the Consumer
Price Index, plus 2%.