The accompanying notes are an
integral part of these financial statements.
The accompanying notes are an
integral part of these financial statements.
The accompanying notes are an
integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
Note
1 – Nature of Business and Significant Accounting Policies
Nature
of Business
One
World Pharma, Inc. (formerly Punto Group, Corp.) was incorporated in Nevada on September 2, 2014. On February 21, 2019, subsequent
to period covered by these financial statements, One World Pharma, Inc. (“One World Pharma,” the “Company,”
“we,” “our” or “us”) 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’s chief
operating officer became our chief operating officer and two of OWP Ventures’s directors became members of our board of
directors. OWP Colombia is currently in the process of cultivating medicinal cannabis at a facility in Popayán, Colombia
for a variety of medical conditions. OWP Colombia has registered 15 varieties or strains of cannabis with the Colombian Ministry
of Health and intends to register an additional 65 varieties by the end of 2019. The Company’s headquarters are located in Las
Vegas, Nevada and substantially all of its customers are expected to be outside of the United States.
Basis
of Accounting
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission (SEC). All references to Generally Accepted Accounting
Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”) and the
Hierarchy of Generally Accepted Accounting Principles.
These
statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary
for fair presentation of the information contained therein.
Reclassifications
Prior
period accrued expenses of $8,000 have been reclassified from accounts payable and accrued liabilities, and $38,733 of professional
fees have been reclassified from general and administrative expenses, to conform to the current period presentation. These reclassifications
had no impact on net earnings, financial position or cash flows.
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 adopted ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The
three levels are defined as follows:
|
-
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
-
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
|
|
|
|
|
-
|
Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement.
|
ONE WORLD PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
The carrying value of cash, accounts receivable,
accounts payables and accrued expenses are estimated by management to approximate fair value primarily due to the short-term nature
of the instruments.
Revenue Recognition
Effective January 1, 2018, the Company adopted
ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales
of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract
with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the
transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is
satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue
Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement
exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid
by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
There
was no impact on the Company’s financial statements from ASC 606 for the years ended December 31, 2018 or 2017.
Advertising
Costs
The
Company expenses the cost of advertising and promotions as incurred. No advertising and promotions expense was incurred for the
years ended December 31, 2018 and 2017.
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 years ended December 31, 2018
and 2017, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC
718) and Equity-Based Payments to Non-employees pursuant to ASC 505-50 (ASC 505-50). All transactions in which goods or services
are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date of the
fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance is complete or the
date at which a commitment for performance by the counterparty to earn the equity instruments is reached because of sufficiently
large disincentives for nonperformance.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets
and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be
recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such
assets to be more likely than not.
Uncertain
Tax Positions
In
accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing
authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These
standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
ONE WORLD PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
The
assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with
the Company’s various filing positions.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
Recent
Accounting Pronouncements
In
June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-07,
Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
, which
expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option
pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern
of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods
within those annual periods, beginning after December 15, 2017, with early adoption permitted. The Company does not expect the
adoption of this ASU to have a material impact on its financial statements.
In
February 2018, the FASB issued ASU No. 2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income
. The guidance permits entities to reclassify tax effects stranded in Accumulated Other Comprehensive Income as a result
of tax reform to retained earnings. This new guidance is effective for annual and interim periods in fiscal years beginning after
December 15, 2018. Early adoption is permitted in annual and interim periods and can be applied retrospectively or in the period
of adoption. The Company is currently in the process of evaluating the impact of adoption on its financial statements.
In
May 2017, the FASB issued ASU 2017-09,
Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
, which
clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The
new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the
same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for all entities
for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted.
The Company does not expect the adoption of this ASU to have a material impact on its financial statements.
In
May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. Since ASU 2014-09 was issued, several
additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing
revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity
recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted the new standard
to be effective upon inception. We have completed an initial evaluation of the potential impact from adopting the new standard,
including a detailed review of performance obligations for all material revenue streams. Based on this initial evaluation, adoption
does not have a material impact on our financial position, results of operations, or cash flows. Related disclosures have been
expanded in line with the requirements of the standard.
There
are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material
effect on its financial position, results of operations, or cash flows.
Note
2 – Going Concern
As
shown in the accompanying financial statements, the Company has incurred recurring losses from operations resulting in an accumulated
deficit of ($155,109), and as of December 31, 2018, the Company’s cash on hand may not be sufficient to sustain
operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management
is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional sources of capital
to fund short term operations. Management believes these factors will contribute toward achieving profitability. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The
financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s
ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability
and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
ONE WORLD PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
Note
3 – Fair Value of Financial Instruments
Under
FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation
framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements
and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50
details the disclosures that are required for items measured at fair value.
The
Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the measurement date.
Level
2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability
(e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market
data by correlation or other means (market corroborated inputs).
Level
3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset
or liability.
There
were no financial instruments to present fair value on a recurring basis in the balance sheets as of December 31, 2018
and 2017.
Note
4 – Prepaid Expenses
Prepaid
expenses included the following as of December 31, 2018 and 2017, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Business license
|
|
$
|
619
|
|
|
$
|
-
|
|
Annual registered agent services
|
|
|
82
|
|
|
|
-
|
|
|
|
$
|
701
|
|
|
$
|
-
|
|
Note
5 – Accounts Payable
Accounts
payable consisted of the following as of December 31, 2018 and 2017, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Legal expense
|
|
$
|
-
|
|
|
$
|
933
|
|
Filing fee
|
|
|
123
|
|
|
|
1,296
|
|
Other
|
|
|
79
|
|
|
|
200
|
|
|
|
$
|
202
|
|
|
$
|
2,429
|
|
Note
6 – Related Party Payable
The
Company underwent a change of control on November 30, 2018, in which the majority ownership was transferred to a new majority
shareholder, OWP Ventures, Inc. The former Chief Executive Officer forgave $125,590 of advances at the date of the transfer, and
the Company recognized the forgiveness of debt as contributed capital.
As
of December 31, 2018, there were advances of $218 from the current majority shareholder for the purpose of operating the Company.
As
of December 31, 2017, there were advances of $87,916 from the majority shareholder for the purpose of operating the Company.
ONE WORLD PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
Note
7 – Stockholders’ Equity
Common
Stock
Common
stock consists of $0.001 par value, 75,000,000 shares authorized, of which 1,322,500 shares were issued and outstanding as of
December 31, 2018.
Reverse
Stock Split
On
January 10, 2019, the Company effected a 1-for-4 reverse stock split (the “Reverse Stock Split”). No fractional shares
were issued, and no cash or other consideration was paid in connection with the Reverse Stock Split. Instead, the Company issued
one whole share of the post-Reverse Stock Split common stock to any stockholder who otherwise would have received a fractional
share as a result of the Reverse Stock Split. The Company was authorized to issue 75,000,000 shares of common stock prior to the
Reverse Stock Split, which remains unaffected. The Reverse Stock Split did not have any effect on the stated par value of the
common stock. Unless otherwise stated, all share and per share information in this Annual Report on Form 10-K has been retroactively
adjusted to reflect the Reverse Stock Split.
Note
8 – Commitments and Contingencies
Lease
Commitment
Subsequent
to the merger on February 21, 2019, the Company leases executive office space in Las Vegas, Nevada. In addition, OWP Colombia
leases land in Popayan, Colombia at a rate of 8,000,000 COP per month on a renewable lease expiring on September 30, 2022. Amounts
of minimum future annual commitments on a calendar year basis in US dollars, excluding common area maintenance fees, under non-cancelable
operating leases are as follows:
2019
|
|
$
|
84,074
|
|
2020
|
|
|
85,700
|
|
2021
|
|
|
77,553
|
|
2022
|
|
|
22,407
|
|
Total
|
|
$
|
269,734
|
|
No
rent expense was incurred for the years ended December 31, 2018 and 2017.
Note
9 - Income Tax
The
Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides
that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For
the years ended December 31, 2018 and 2017, the Company incurred a net operating loss and, accordingly, no provision for income
taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization
of any tax assets. At December 31, 2018, the Company had approximately $155,000 of federal net operating losses. The net operating
loss carry forwards, if not utilized, will begin to expire in 2025.
The provision (benefit) for income taxes for
the years ended December 31, 2018 and 2017 were assuming a 21% and 35% effective tax rate, respectively. The effective income
tax rate for the years ended December 31, 2018 and 2017 consisted of the following:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Federal statutory income tax rate
|
|
|
21
|
%
|
|
|
35
|
%
|
State income taxes
|
|
|
-%
|
|
|
|
-%
|
|
Change in valuation allowance
|
|
|
(21
|
)%
|
|
|
(35
|
)%
|
Net effective income tax rate
|
|
|
-
|
|
|
|
-
|
|
ONE WORLD PHARMA, INC.
NOTES TO FINANCIAL STATEMENTS
The
components of the Company’s deferred tax asset are as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
32,550
|
|
|
$
|
44,800
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation allowance
|
|
$
|
32,550
|
|
|
$
|
44,800
|
|
Less: Valuation allowance
|
|
|
(32,550
|
)
|
|
|
(44,800
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Based
on the available objective evidence, including the Company’s history of its loss, management believes it is more likely
than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation
allowance against its net deferred tax assets at December 31, 2018 and 2017, respectively.
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note
10 – Subsequent Events
Merger
with OWP Ventures, Inc.
On
February 21, 2019, One World Pharma, Inc. entered into an Agreement and Plan of Merger with OWP Merger Subsidiary, Inc., our wholly-owned
subsidiary, and OWP Ventures, which is the parent company of OWP Colombia. Pursuant to the Merger Agreement, we acquired OWP Ventures
(and indirectly, OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being the
surviving entity as our wholly-owned subsidiary (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’s
chief operating officer became our chief operating officer and two of OWP Ventures’s directors became members of our board
of directors.
Reverse
Stock Split
On
January 10, 2019, the Company effected a 1-for-4 reverse stock split. No fractional shares were issued, and no cash or other consideration
was paid in connection with the Reverse Stock Split. Instead, the Company issued one whole share of the post-Reverse Stock Split
common stock to any stockholder who otherwise would have received a fractional share as a result of the Reverse Stock Split. The
Company was authorized to issue 75,000,000 shares of common stock prior to the Reverse Stock Split, which remains unaffected.
The Reverse Stock Split did not have any effect on the stated par value of the common stock. Unless otherwise stated, all share
and per share information in this Annual Report on Form 10-K has been retroactively adjusted to reflect the Reverse Stock Split.
Name
Change
On
January 10, 2019, the Company changed its name from Punto Group, Corp. to One World Pharma, Inc.