Item
5.06
|
Change
in Shell Company Status.
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MERGER
Merger
On
February 21, 2019, One World Pharma, Inc. (“Company,” “we” or “our”) entered into an Agreement
and Plan of Merger (“Merger Agreement”) with OWP Merger Subsidiary, Inc. (“OWP Merger Sub), our wholly-owned
subsidiary, and OWP Ventures, Inc. (“OWP Ventures”). Under the Merger Agreement, the acquisition of OWP Ventures by
the Company was effected by the merger of OWP Merger Sub with and into OWP Ventures, with OWP Ventures being the surviving entity
as our wholly-owned subsidiary (the “Merger”). The closing (the “Closing”) of the Merger occurred on February
21, 2019. As a result of the Merger (a) holders of the outstanding capital stock of OWP Ventures received an aggregate of 39,475,398
shares of our Common Stock; (b) options to purchase 825,000 shares of common stock of OWP Ventures at an exercise price of $0.50
automatically converted into options to purchase 825,000 shares of our Common Stock at an exercise price of $0.50; (c) the outstanding
principal and interest under a $300,000 convertible note issued by OWP Ventures became convertible, at the option of the holder,
into shares of our Common Stock at a conversion price equal to the lesser of $0.424 per share or 80% of the price we sell our
Common Stock in a future “Qualified Offering”; (d) 875,000 shares of our Common Stock owned by OWP Ventures prior
to the Merger were cancelled; and (e) OWP Ventures’ chief operating officer became our chief operating officer and two of
OWP Ventures’ directors became members of our board of directors.
Except
for the Merger Agreement, the transactions contemplated thereby and as otherwise described in this Current Report on Form 8-K,
neither OWP Ventures, OWP Colombia nor any of their respective directors, officers and/or shareholders, as applicable, had any
material relationship with us prior to the Merger.
We
are presently authorized under our articles of incorporation, as amended to date, to issue 75,000,000 shares of common stock,
par value $0.001 per share. Immediately following the Closing, we had 39,922,899 shares of common stock issued and outstanding.
Effective
as of the Closing, we appointed the following persons as our executive officers and directors (in addition to Craig Ellins, who
continues to serve as a director and as our Chief Executive Officer):
Name
|
|
Age
|
|
Position
|
Bruce
Raben
|
|
65
|
|
Director
|
Dr.
Kenneth Perego
|
|
49
|
|
Director
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Brian
Moore
|
|
31
|
|
Chief
Operating Officer and Secretary
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DESCRIPTION
OF THE BUSINESS
Immediately
prior to the Closing, we were a public “shell” company with nominal assets. As of the Closing, we are no longer a
public shell. As a result of the Merger, we are engaged in OWP Ventures’ business, including the business of its wholly-owned
subsidiary, One World Pharma, S.A.S., a Colombian company (“OWP Colombia”). With respect to this discussion, the terms
“we,” “us,” “our” and “our company” refers to One World Pharma, Inc. and its wholly-owned
direct and indirect subsidiaries, OWP Ventures and OWP Colombia.
We
plan to be the worldwide industry leader in the production and manufacturing of raw cannabis and hemp plant ingredients for both
medical and industrial uses. 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 first companies in Colombia
to receive licenses for seed, cultivation, extraction and export from the Colombian government (the “Licenses”).
Our
primary cultivation site is located in Popayan, Colombia. Currently, we own approximately 30 acres and have a covered greenhouse
built specifically to cultivate high-grade cannabis and hemp, with 221 acres available for expansion under an exclusive contract.
We use innovative, proprietary cannabis micropropagation techniques to cultivate stable, robust, genetically superior cannabis
and hemp derived products. We produce under GAP/GMP/EU Pharmacopoeia standards and intend for our products to be available and
accessible to all large-scale purchasers at market competitive price points. Due to our proximity to the equator, we are able
to grow year-round.
The
plants are first processed into crude cannabis oil using ethanol. We further process the crude cannabis oil into distillate using
a film wipe distillation machine which removes unwanted contaminates. We can further process the distillate into isolate resulting
in a pure isolate powder with 99% purity. We are able to sell off the product at the end of any of these processes. Our primary
products are crude cannabis oil, distillate and isolate.
History
and Background
One
World Pharma SAS, a Colombian company (“OWP Colombia”), was formed on July 14, 2017 with the goal of procuring the
Licenses.
On
December 20, 2017, OWP Colombia received its first license for the manufacture of cannabis derivatives for domestic use and export,
allowing it to extract high tetrahydrocannabinol (“THC”) compounds (“Cannabis Manufacturing License”).
On
December 26, 2017, OWP Colombia received its license to use seeds for sowing for domestic use and export, allowing for genetic
and seed bank registration (“Cannabis Seed Possession License”).
On
December 26, 2017, OWP Colombia received its license to grow non-psychoactive cannabis plants (less than 1.0% THC). Under this
license, OWP Colombia can produce seeds for planting, manufacturing of derivatives and industrial purposes (“Cannabis Non-Psychoactive
Cultivation License”).
On
January 4, 2018, OWP Colombia received its license to grow psychoactive cannabis plants (greater than 1.0% THC) (“Psychoactive
Cultivation License”).
On
March 27, 2018, OWP Ventures, Inc. was formed as a Delaware corporation for the purpose of acquiring OWP Colombia.
On
May 30, 2018, OWP Ventures entered into a Stock Purchase Agreement with the shareholders of OWP Colombia whereby the shareholders
of OWP Colombia transferred their shares in OWP Colombia to OWP Ventures in exchange for 10,200,000 shares of common stock of
OWP Ventures.
OWP
Colombia planted its first crop of cannabis in 2018, which it expects to begin harvesting in the first quarter of 2019. To date,
we have not yet generated any revenues from our activities.
Products
We
are focused on cultivating, processing and supplying crude cannabis oil, distillate and isolate to customers’ specification.
We plan to sell as a wholesaler to industrial companies making cannabis related products. We are currently in the process of cultivating
medicinal cannabis at our facility in Popayán, Colombia for a variety of medical conditions. We have registered 15 varieties
or strains of cannabis with the Colombian Ministry of Health and intend to register an additional 65 varieties by the end of 2019.
See “Operations - Strains of Cannabis”. The development of these strains enables us to select mother plants and identify
the concentrations of cannabinoids required for the formulations which we intend to distribute. The cannabis will be produced
in accordance with GMP Standards. We are committed to developing final products consistent with medicinal cannabis industry standards
and pharmaceutical procedures. Our products will include a variety of cannabinoids and terpenes designed to treat specific medical
conditions. The composition of the strains will include a wide range of THC and CBD ratios.
Industry
Medicinal
cannabis refers to the use of cannabis and its constituent cannabinoids and terpenes to treat disease or ameliorate symptoms such
as pain, muscle spasticity, nausea and other indications. Cannabinoid is a blanket term covering a family of complex chemicals,
both natural and man-made, that bind with cannabinoid receptors (protein molecules on the surface of cells) and effect a wide
number of responses. Cannabinoid receptors in the human body are part of a system called the endocannabinoid system. This system
produces chemicals called endocannabinoids, which also bind with cannabinoid receptors. Cannabinoid receptors are found in the
brain and throughout the body. Scientists have found that cannabinoid receptors in the endocannabinoid system are involved in
a vast array of functions in our bodies, including helping to modulate brain and nerve activity (including memory and pain), energy
metabolism, heart function, the immune system and even reproduction. While there are a large number of active cannabinoids found
in cannabis, the two most common currently used for medical purposes are tetrahydrocannabinol and cannabidiol. Although no clinical
trials have been completed in the United States to validate the effectiveness of tetrahydrocannabinol or cannabidiol in managing
disease and improving symptoms, scientific studies have identified that they, alone and/or in combination, have potential to provide
treatment benefits for a large number of medical conditions. For example, tetrahydrocannabinol, a psychotropic cannabinoid, has
been shown to activate pathways in the central nervous system which work to block pain signals and has shown potential to assist
patients with Post Traumatic Stress Disorder (PTSD) and stimulate appetite in patients following chemotherapy. Cannabidiol, on
the other hand, is non-psychotropic and has shown potential to relieve convulsion and inflammation. Various third-party studies
suggest that medicinal cannabis (with varying dosages of tetrahydrocannabinol and cannabidiol) has shown, or has the potential
to show, efficacy for the treatment of Alzheimer’s disease, anxiety, arthritis, brain injuries, cancer (chemotherapy), chronic
nausea, chronic pain, eating disorders, epilepsy, fibromyalgia, glaucoma, Hepatitis C, HIV/AIDS, migraines, Multiple Sclerosis,
muscle spasms, Parkinson’s disease, Chrohn’s Disease and PTSD.
Regulation
Licenses
Under
Colombian law, there are four types of cannabis licenses that authorize different activities concerning the various stages of
the production line of the medical cannabis industry: (i) the Cannabis Seeds Possession License; (ii) the Cannabis Psychoactive
Cultivation License; (iii) the Cannabis Non-Psychoactive Cultivation License; and (iv) the Cannabis Manufacturing and Distribution
License. We possess all four licenses.
The
legal framework currently in force in Colombia regarding medical cannabis is established in Law 1787 of 2016 (the “Law”)
and the Decree 613 of 2017 (the “Decree”). Cannabis licenses must be issued by the Ministry of Health or the Ministry
of Justice in an estimated time of sixty (60) days. In accordance with Colombia’s international obligations, there is a
limit in the amount of Cannabis allowed for fabrication or cultivation assigned by the Colombian Government (specific crop or
manufacturing quotas) that must be requested by licensee when applying for a Cannabis Psychoactive Cultivation License or a Cannabis
Manufacturing License. The activities of cultivation and manufacturing can only be started once the specific quotas have been
granted to the licensee.
Quotas
As
described above, regulations of cannabis in Colombia provides an additional requirement applicable to obtaining a Cannabis Psychoactive
Cultivation License and a Cannabis Manufacturing License, both of which are only granted with crop and manufacturing quotas (the
“Quotas”). According to Article 2.8.11.2.6.2 of the Decree, the assignment of Quotas is collectively made by the Ministry
of Health, the Ministry of Justice, the ICA, the National Food and Drug Surveillance Institute (INVIMA), and the National Narcotics
Fund.
According
to Article 2.8.11.2.6.5 of the Decree, there are two types of Quotas: (i) crop quotas of psychoactive cannabis (for holders of
the Cannabis Psychoactive Cultivation License) that are granted by the Ministry of Justice; and (ii) the manufacturing quotas
of psychoactive cannabis (for holders of the Cannabis Manufacturing License) that are granted by the Ministry of Health.
These
Quotas are requested by the licensees no later than the last calendar day of April of each year, and, if they are granted by the
appropriate authority, they can only be used by the licensees during the next calendar year (for instance, if a licensee requests
a specific crop Quota in March, 2018, and this Quota is granted by the Ministry of Justice, the licensee will be allowed to use
the Quota from January 1, 2019 to December 31, 2019). In extraordinary events, the licensees can request a supplementary Quota
that will apply to the calendar year requested (the issuance of these Quotas depends on the special circumstances defined by the
Colombian governmental authorities).
Duration
of Licenses
The
Cannabis Psychoactive Cultivation License, the Cannabis Non-Psychoactive License, and the Cannabis Manufacturing and Distribution
License are granted by the Colombian government when the applicant fulfills the general criteria described in the Article 2.8.11.2.1.5
of the Decree, and the specific requirements for each type of license. Each of these licenses is valid for up to five (5) years.
The Colombian government maintains the right to monitor the activities performed by the corresponding licensee.
Strains
of Cannabis
Strains
of cannabis are registered in Colombia in two manners:
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●
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Registration
of the Genetic Pool or ¨Fuente Semillera¨
: Under Article 2.8.11.11.1 of the Decree, licensed producers of cannabis
have until December 31, 2018 to register the genetics of strands of cannabis with the ICA. Under this transitory Article,
the government allowed a limited period for licensed producers of cannabis to source genetics currently available in Colombia
and register these as their “fuente semillera”. We have registered 15 varieties under this Article, and intend
to register an additional 65 varieties by the end of 2019. This registration enables us to grow our own strands of cannabis
as opposed to having to purchase registered strands from other licensed producers.
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|
|
|
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●
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Registration
Under the ¨Registro Nacional de Cultivares Comerciales
¨: Licensed producers of cannabis have to be granted a breeding/research
license to be able to develop, select and trial stabilized cannabis cultivars. This registration allows licensed producers
to register unique and stable varieties of cannabis for commercial production within Colombia. We were granted such license
in the first quarter of 2018. Licensed producers can then request from ICA a registration trial, which is a field flowering
trial with the supervision of ICA officials. The data collected in these trials can lead to registration of the cultivar in
the National Registrar. Only registered varieties will be allowed to be produced commercially. We are in the final phase of
field flowering trials and anticipate having up to 65 registrations by the end of 2019.
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Environmental
Under
Colombian law, general principles of environmental law are set out in Law 99 of 1993 and Article 9 of the National Code of Natural
Resources and Protection of the Environment. These laws establish principles governing the use of natural resources, including
that use must occur without causing harm to the interests of the community or of third parties. Parties that cause environmental
damage while acting under the authority of a permit are responsible for incurring the costs to rectify the damage. The imposition
of environmental sanctions is in addition to civil and criminal penalties that may be imposed. Environmental damage caused while
a party is acting without a license constitutes a breach of Law 99 of 1993 and may lead to the imposition of sanctions, in addition
to civil or criminal proceedings that may result. Parties that cause environmental damage, in addition to sanctions or penalties
that apply, will also be required to carry out studies to assess the characteristics of the damage. Under Colombian law, liability
for environmental damage creates a presumption of liability in case of a: (i) breach of environmental laws; (ii) environmental
damage; and (iii) breach of environmental license or any other administrative act from the environmental authorities. The Environmental
Authorities may investigate potential claims, authorize preventative measures, or impose sanctions on parties breaching environmental
law.
Competition
The
market for medicinal cannabis is characterized by unsatisfied patient demand, with few authorized producers. Although competition
in the market is growing and Colombia offers an open process to apply for the licenses, we believe we are competitively positioned
to satisfy the demand for medicinal cannabis given our early entry into the market, the management team’s expertise in medical
product branding, marketing, quality control and domestic market relationships. Our competitors are primarily focused on generating
low cost products for international export as base extractors, as opposed to our approach of creating branded product formulations
for the domestic and international markets. Cultivation in Colombia has natural cost advantages. However, management believes
the more sustainable competitive advantage is to create patient loyalty and brand preference, as opposed to the distribution of
more homogeneous products. Domestically our competition consists of PharmaCielo, CannaVida, Empresa Colombiana de Cannabis, Khiron
Life Sciences Corp., MedCan, Canopy Growth Corporation, and Clever Leaves.
Intellectual
Property
Our
success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this,
we rely on trade secrets, including know-how, employee and third-party nondisclosure agreements and other contractual rights to
establish and protect our proprietary rights in our technology.
Seasonality
Colombia
and its vertical offering of microclimates is the ideal country for year-round growing and processing of all possible varieties
of cannabis in a natural, environmentally friendly manner.
Principal
Executive Offices and Facilities
Our
principal executive offices are located at 3471 West Oquendo Rd., Suite 301, Las Vegas, Nevada 89118, Telephone No.: (800) 605-3210.
Our leased premises are 3,210 square feet and are utilized for corporate business offices. Our Nevada premises are subject to
a lease agreement expiring October 31, 2021. 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. Our anticipated future lease commitments on a calendar year
basis in US dollars, excluding common area maintenance, are as follows:
2019
|
|
$
|
84,074
|
|
2020
|
|
|
85,700
|
|
2021
|
|
|
77,553
|
|
2022
|
|
|
22,407
|
|
Total
|
|
$
|
269,734
|
|
We
believe that our current facilities are adequate for our current needs. We intend to secure new facilities or expand existing
facilities as necessary to support future growth. We believe that suitable additional space will be available on commercially
reasonable terms as needed to accommodate our operations.
Employees
As
of April 2019, we had 25 full-time employees and six part-time employees. Since inception, we have never had a work stoppage,
and our employees are not represented by labor unions. We consider our relationship with our employees to be positive.
LEGAL
PROCEEDINGS
We
are not party to any legal proceedings.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion summarizes the significant factors affecting the operating results, financial condition and liquidity and
cash flows of OWP Ventures, Inc on a consolidated basis for the period of its inception to December 31, 2018, and One World Pharma
S.A.S. for the period of its inception to December 31, 2017. The discussion and analysis that follows should be read together
with the financial statements and the notes to the financial statements included elsewhere in this Current Report on Form 8-K.
Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition
and Results of Operations are forward looking statements that involve risks and uncertainties and are based upon judgments concerning
various factors that are beyond our control.
General
Overview
We
plan to be the worldwide industry leader in the production and manufacturing of raw cannabis and hemp plant ingredients for both
medical and industrial uses. We have received licenses to cultivate, produce and distribute the raw ingredients of the cannabis
and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the only companies in Colombia to
receive seed, cultivation, extraction and export licenses from the Colombian government (the “Licenses”). Currently,
we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and hemp, with
221 acres available for expansion under an exclusive contract. We planted our first crop of cannabis in 2018, which we expect
to begin harvesting in the first quarter of 2019. To date, we have not yet generated any revenues from our activities.
From
Inception (March 27, 2018) to December 31, 2018
General
and Administrative Expense
: General and administrative expenses were $903,913 for the year ended December 31, 2018.
Professional
Fees
: Professional fees were $917,936 for the year ended December 31, 2018.
Bad
Debts Expense
: Bad debts expense of $50,000 for the year ended December 31, 2018 related to an allowance for doubtful accounts
on the uncertain collection of a note receivable.
Other
Expense
: Other expense was $88,234 for the year ended December 31, 2018. Other expense consisted of $88,234 of interest expense.
Loss
on Foreign Currency Translation
: Loss on foreign currency translation was $4,090 for the year ended December 31, 2018.
Net
Loss
: Net loss was $1,960,083 for the period of inception (March 27, 2018) to December 31, 2018.
From
Inception (July 14, 2017) to December 31, 2017
General
and Administrative Expense
: General and administrative expenses were $76,606 from inception to December 31, 2017.
Professional
Fees
: Professional fees were $16,422 from inception to December 31, 2017.
Gain
on Foreign Currency Translation
: Gain on foreign currency translation was $1,900 from inception to December 31, 2017.
Net
Loss
: Net loss was $93,028 from inception to December 31, 2017. This net loss should be viewed in light of the cash flow from
operations discussed below.
Liquidity
and Capital Resources
Net cash used in operating activities was $1,268,497 and $105,002 for the period from inception (March 27,
2018) to December 31, 2018 and from inception (July 14, 2017) to December 31, 2017, respectively. The increase in cash used for
operations was mainly due to a commencement of operations in 2018.
Net
cash used in investing activities was $753,661 for the year ended December 31, 2018.
Net
cash provided by financing activities was $2,152,094 and $58,976 for the year ended December 31, 2018 and from inception to December
31, 2017, respectively, and consisted of the proceeds from the sale of common stock, a secured convertible note payable, unsecured
advances payable on demand by shareholders, notes payable and contributed capital. The increase in cash provided by financing
activities was mainly due to funds raised for the purpose of commencing of operations in 2018.
We
have suffered recurring losses from operations and have an accumulated deficit of approximately $1,959,982 at December 31, 2018
and have not generated any revenues. Unless our operations generate significant revenues and cash flows from operating activities,
our continued operations will depend on whether we are able to raise additional funds through various sources, such as equity
and debt financing, collaborative agreements and strategic alliances. Such additional funds may not become available on acceptable
terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the
short and long term.
Subsequent
to December 31, 2018, OWP Ventures raised an additional $1,950,000 from the sale of its common stock prior to the Merger.
RISK
FACTORS
YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER INFORMATION CONTAINED IN THIS REPORT BEFORE PURCHASING SHARES
OF OUR COMMON STOCK. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IF ANY OF THE FOLLOWING EVENTS OR OUTCOMES
ACTUALLY OCCURS, OUR BUSINESS OPERATING RESULTS AND FINANCIAL CONDITION WOULD LIKELY SUFFER. AS A RESULT, THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO PURCHASE OUR COMMON STOCK.
Risks
Relating to our Business
Limited
Operating History
We
are an early stage company that has not generated any revenues and, we have a limited operating history upon which our business
and future prospects may be evaluated. To date, we have suffered recurring losses from operations and have an accumulated deficit
of approximately $1,959,982. We will be subject to all of the business risks and uncertainties associated with any new business
enterprise, including the risk that we will not achieve our operating goals. In order for us to meet future operating requirements,
we will need to successfully grow, harvest and sell our cannabis products. Until such time as we are able to fund our business
from operations, we will be required to raise funds through various sources, including the sale of equity and debt securities,
Failure to generate cash from operations and to reach profitability may adversely affect our success.
Change
of Cannabis Laws, Regulations and Guidelines
Cannabis
laws and regulations are dynamic and subject to evolving interpretations which could require us to incur substantial costs associated
with compliance or alter certain aspects of our business plan. Regulations may be enacted in the future that will be directly
applicable to certain aspects of our businesses. We cannot predict the nature of any future laws, regulations, interpretations
or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures,
when and if promulgated, could have on our business. Management expects that the legislative and regulatory environment in the
cannabis industry in Colombia and internationally will continue to be dynamic and will require innovative solutions to try to
comply with this changing legal landscape in this nascent industry for the foreseeable future. Compliance with any such legislation
may have a material adverse effect on our business, financial condition and results of operations.
Public
opinion can also exert a significant influence over the regulation of the cannabis industry. A negative shift in the public’s
perception of the cannabis industry could affect future legislation or regulation in different jurisdictions.
Reliance
on Licenses and Authorizations
Our
ability to import, grow, store and sell cannabis and hemp in Colombia or internationally is dependent on our ability to sustain
and/or obtain the necessary licenses and authorizations by certain authorities in Colombia and/or the importing jurisdiction.
The licenses and authorizations are subject to ongoing compliance and reporting requirements and our ability to obtain, sustain
or renew any such licenses and authorizations on acceptable terms is subject to changes in regulations and policies and to the
discretion of the applicable authorities or other governmental agencies in foreign jurisdictions. Failure to comply with the requirements
of the licenses or authorizations or any failure to maintain the licenses or authorizations would have a material adverse impact
on our business, financial condition and operating results.
Although
we believe that we will meet the requirements to obtain, sustain or renew the necessary licenses and authorizations, there can
be no guarantee that the applicable authorities will issue these licenses or authorizations. Should the authorities fail to issue
the necessary licenses or authorizations, we may be curtailed or prohibited from the production and/or distribution of cannabis
and hemp or from proceeding with the development of our operations as currently proposed and our business, financial condition
and results of the operation may be materially adversely affected.
Regulatory
Compliance Risks
Achievement
of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by applicable governmental
authorities and obtaining all regulatory approvals, where necessary, for the sale of our products in Colombia and other jurisdictions
where we intend to distribute and sell our products. We will incur ongoing costs and obligations related to regulatory compliance.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder,
including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective
measures requiring capital expenditures, installation of additional equipment, or remedial actions. Civil or criminal fines or
penalties may be imposed on us for violations of applicable laws or regulations. Vigorous enforcement of these laws could require
extensive changes to our operations, increase our compliance costs or give rise to material liabilities, which could have a material
adverse effect on our business, results of operations and financial condition.
Competition
There
are many companies engaged in the cannabis business who we will compete with, including larger and more established companies
with substantially greater marketing, financial, human and other resources than we have. These companies include PharmaCielo,
CannaVida, Empresa Colombiana de Cannabis, Khiron Life Sciences Corp., MedCan, Canopy Growth Corporation, and Clever Leaves. Although
we believe we are competitively positioned to be a leader in the medicinal cannabis industry given our early entry into the market,
the management team’s expertise in medical product branding, marketing, quality control, and domestic market relationships,
competition in the medical cannabis industry is growing quickly. As more competitors enter the market, prices may be reduced.
We believe our approach in creating patient brand loyalty will allow us to effectively compete in the market but there is no assurance
that will be the case, and our competitors may adopt a similar or identical approach. To date, we have obtained four licenses
in Colombia that authorize us to engage in cannabis activities, and there are currently few authorized producers there. However,
Colombia offers an open process to apply for licenses and there are no significant barriers to entry. As a result, our ability
to generate revenues and earnings may be reduced as competition intensifies, thereby causing a material adverse effect on our
business and financial condition.
Ability
to Establish and Maintain Bank Accounts
Many
banking institutions in countries where we or our prospective customers operate will not accept payments related to the cannabis
industry, whether owing to domestic laws and regulations or pressure exerted by the United States on banks with laws subject to
the laws of the United States (including, the Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (USA PATRIOT Act)). Failure to conduct our business through normal banking channels may impede our ability
to make payments for goods and services and transact business in the ordinary course. Failure to operate in normal banking channels
may also increase our cost of doing business and negatively affect our business. In the event financial service providers do not
accept accounts or transactions related to the cannabis industry, it is possible that we may be required to seek alternative payment
solutions. If the industry was to move towards alternative payment solutions we would have to adopt policies and protocols to
manage our volatility and exchange rate risk exposures. Our inability to manage such risks may adversely affect our operations
and financial performance.
Anti-money
Laundering Laws and Regulations
We
are subject to a variety of laws and regulations within Colombia and internationally that involve money laundering, financial
recordkeeping and proceeds of crime. In the event that any of our investments, or any proceeds thereof, any dividends or distributions
therefrom, or any profits or revenues accruing from such investments are found to be in violation of money laundering legislation
or otherwise, such transactions may be viewed as proceeds of crime under applicable legislation. Money laundering laws could restrict
or otherwise jeopardize our ability to declare or pay dividends, effect other distributions or subsequently cause the repatriation
of such funds back to the United States or to any shareholders’ jurisdiction of residence. Furthermore, while we have no
current intention to declare or pay dividends on our Common Stock in the foreseeable future, in the event that a determination
was made that the revenues from our cannabis operations could reasonably be shown to constitute proceeds of crime, we may decide
or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.
Expansion
of Facilities and Operations
We
are seeking regulatory approval in Colombia to expand our current covered greenhouse facility to one million square feet. There
is no guarantee that we will receive requisite regulatory approvals from the relevant authorities, in a timely fashion or at all.
Our failure to successfully execute our expansion strategy (including receiving the expected regulatory approvals in a timely
fashion) could adversely affect our business, financial condition and results of operations and may hinder our ability to scale
our business resulting in us not meeting our anticipated or future demand when it arises.
Foreign
Trade Policies
Our
prospective international operations are subject to inherent risks, including changes in the regulations governing the flow of
cannabis products between countries, fluctuations in currency values, discriminatory fiscal policies, unexpected changes in local
regulations and laws and the uncertainty of enforcement of remedies in foreign jurisdictions. In addition, foreign jurisdictions
could impose tariffs, quotas, trade barriers and other similar restrictions on our international sales and subsidize competing
cannabis products. All of these risks could result in increased costs or decreased revenues.
United
States Regulation
Laws
and regulations affecting the cannabis and marijuana industries are constantly changing, which could detrimentally affect our
business, and we cannot predict the impact that future regulations may have on us.
Local, state and federal
cannabis laws and regulations in the United States are constantly changing and they are subject to evolving interpretations, which
could require us to incur substantial costs associated with compliance or to alter one or more of our service offerings. In addition,
violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect
on our revenues, profitability, and financial condition. We cannot predict the nature of any future laws, regulations, interpretations
or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures,
when and if promulgated, could have on our business.
Liability,
Enforcement, Complaints, etc.
Our
participation in the cannabis and hemp industries may lead to litigation, formal or informal complaints, enforcement actions,
and inquiries by third parties, other companies and/or various governmental authorities against us. Litigation, complaints, and
enforcement actions involving us could consume considerable amounts of financial and other corporate resources, which could have
an adverse effect on our future cash flows, earnings, results of operations and financial condition.
Legal
Proceedings
From
time to time, we may be a party to legal and regulatory proceedings, including matters involving governmental agencies, entities
with whom we do business and other proceedings arising in the ordinary course of business. We will evaluate our exposure to these
legal and regulatory proceedings and establish reserves for the estimated liabilities in accordance with generally accepted accounting
principles. Assessing and predicting the outcome of these matters involves substantial uncertainties. Unexpected outcomes in these
legal proceedings, or changes in management’s evaluations or predictions and accompanying changes in established reserves,
could have an adverse impact on our financial results.
Environmental
Regulations
We
are subject to Colombian environmental laws governing the use of natural resources, which prohibit such use that causes harm to
the interests of the community or of third parties. Parties that cause environmental damage while acting under the authority of
a permit are responsible for incurring the costs to rectify the damage. The imposition of environmental sanctions is in addition
to civil and criminal penalties that may be imposed. Environmental damage caused while a party is acting without a license may
lead to the imposition of sanctions, in addition to civil or criminal proceedings. Parties that cause environmental damage, in
addition to sanctions or penalties that apply, are also required to carry out studies to assess the characteristics of the damage.
Colombian environmental authorities may investigate potential claims, authorize preventative measures, or impose sanctions on
parties breaching environmental law. Any such measures imposed on us could have a material adverse effect on our business.
Demand
for Cannabis and Derivate Products
The
global sale of cannabis and hemp products is a new industry as a result of recent legal and regulatory changes. Although we expect
the demand for licensed cannabis to be in excess of the supply being produced by the licensed producers, there is a risk that
such demand does not develop as anticipated. Further, there is a risk that the adoption rate by pharmacies to sell medical cannabis
is lower than expected or that such adoption rate may take longer than anticipated. There is also a risk that the international
export market for medicinal cannabis and extracts, such as CBD, CBG and CBC, will not materialize as projected or not be commercially
viable. Should any of such events materialize, they may have a material adverse effect on our business, results of operations
and financial condition.
Weather,
Climate Change and Risks Inherent in an Agricultural Business
Our
business involves growing cannabis, which is an agricultural product. Although our medical cannabis is intended to be grown in
greenhouses, hemp used as feedstock for medicinal extracts and derivatives will be grown both outdoors and in greenhouses. Further,
our prospective Colombian medicinal cannabis operations will initially focus on outdoor production. The occurrence of severe adverse
weather conditions, especially droughts, hail, floods or frost, is unpredictable and may have a potentially devastating impact
on agricultural production and may otherwise adversely affect the supply of cannabis and hemp. Adverse weather conditions may
be exacerbated by the effects of climate change and may result in the introduction and increased frequency of pests and diseases.
The effects of severe adverse weather conditions may reduce our yields or require us to increase our level of investment to maintain
yields. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of insects and pests,
which could negatively affect cannabis crops. Future droughts could reduce the yield and quality of our cannabis production, which
could materially and adversely affect our business, financial condition and results of operations.
The
occurrence and effects of plant disease, insects and pests can be unpredictable and devastating to agriculture, potentially rendering
all or a substantial portion of the affected harvests unsuitable for sale. Even when only a portion of the production is damaged,
our results of operations could be adversely affected because all or a substantial portion of the production costs may have been
incurred. Although some plant diseases are treatable, the cost of treatment can be high and such events could adversely affect
our operating results and financial condition. Furthermore, if we fail to control a given plant disease and the production is
threatened, we may be unable to supply our customers, which could adversely affect our business, financial condition and results
of operations. There can be no assurance that natural elements will not have a material adverse effect on any such production.
Product
Liability
As
a manufacturer and distributor of products designed to be ingested or inhaled by humans, we face an inherent risk of exposure
to product liability claims, regulatory action and litigation if our products are alleged to have caused damages, loss or injury.
In addition, the sale of our products involve the risk of injury to consumers due to tampering by unauthorized third parties or
product contamination. Adverse reactions resulting from human consumption of our products alone or in combination with other medications
or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused
injury or illness, include inadequate instructions for use or include inadequate warnings concerning health risks, possible side
effects or interactions with other substances. A product liability claim or regulatory action against us could result in increased
costs, could adversely affect our reputation with our clients and consumers generally, and could have a material adverse effect
on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product
liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and
may not be available in the future on acceptable terms, or at all.
Energy
Prices and Supply
We
require substantial amounts of diesel and electric energy and other resources for our harvest activities and to transport cannabis
and hemp. We rely upon third parties for our supply of energy resources used in our operations. The prices for and availability
of energy resources may be subject to change or curtailment, respectively, due to, among other things, new laws or regulations,
imposition of new taxes or tariffs, interruptions in production by suppliers, imposition of restrictions on energy supply by government,
worldwide price levels and market conditions. If our energy supply is cut for an extended period of time and we are unable to
find replacement sources at comparable prices, or at all, our business, financial condition and results of operations would be
materially and adversely affected.
Retention
and Acquisition of Skilled Personnel
We
will be required to attract and retain top quality talent to compete in the marketplace
.
We believe our future growth and
success will depend in part on our abilities to attract and retain highly skilled managerial, product development, sales and marketing,
and finance personnel. There can be no assurance of success in attracting and retaining such personnel. Shortages in qualified
personnel could limit our ability to be successful. At present and for the near future, we will depend upon a relatively small
number of employees primarily in Colombia to develop, manufacture, market, sell and distribute our products. As the size of our
business increases, we will seek to hire additional employees in other jurisdictions. Expansion of marketing and distribution
of our products will require us to find, hire and retain additional capable employees who can understand, explain, market and
sell our products and/or our ability to enter into satisfactory logistic arrangements to sell our products. There is intense competition
for capable personnel in all of these areas and we may not be successful in attracting, training, integrating, motivating, or
retaining new personnel or subcontractors for these required functions.
Emerging
Market Risks
Emerging
market investment generally poses a greater degree of risk than investment in more mature market economies because the economies
in the developing world are more susceptible to destabilization resulting from domestic and international developments.
Colombia’s
legal and regulatory requirements in connection with companies conducting agricultural activities, banking system and controls
as well as local business culture and practices are different from those in the United States. Our officers and directors must
rely, to a great extent, on our local legal counsel and local consultants retained by us in order to keep abreast of material
legal, regulatory and governmental developments as they pertain to and affect our business operations, and to assist us with our
governmental relations. We must rely, to some extent, on the members of management who have previous experience working and conducting
business in Colombia to enhance our understanding of and appreciation for the local business culture and practices in such countries.
We also rely on the advice of local experts and professionals in connection with current and new regulations that develop in respect
of banking, financing and tax matters. Any developments or changes in such legal, regulatory or governmental requirements or in
local business practices are beyond our control and may adversely affect our business.
We
also bear the risk that changes can occur to the Government in Colombia and a new government may void or change the laws and regulations
that we are relying upon. Currently, there are no restrictions on the repatriation from Colombia of earnings to foreign entities
and Colombia has never imposed such restrictions. However, there can be no assurance that restrictions on repatriation of earnings
will not be imposed in the future. Exchange control regulations for Colombia require that any proceeds in foreign currency originated
on exports of goods from Colombia be repatriated to Colombia. However, purchase of foreign currency is allowed through Colombian
authorized financial entities for purposes of payments to foreign suppliers, repayment of foreign debt, payment of dividends to
foreign stockholders and other foreign expenses.
Due
to our location in Colombia, our business, financial position and results of operations may be affected by the general conditions
of the Colombian economy, price instabilities, currency fluctuations, inflation, interest rates, regulatory changes, taxation
changes, social instabilities, political unrest and other developments in or affecting Colombia, over which we do not have control.
Risks
Related to Conducting Operations in Colombia
We
recently acquired medicinal cannabis licenses in Colombia. Over the past 10 to 15 years, the Government of Colombia has made strides
in improving the social, political, economic, legal and fiscal regimes. However, operations in Colombia will still be subject
to risk due to the potential for social, political, economic, legal and fiscal instability. The Government of Colombia faces ongoing
problems including, but not limited to, unemployment and inequitable income distribution and unstable neighboring countries. The
instability in neighboring countries could result in an influx of immigrants resulting in a humanitarian crisis and/or increased
illegal activities. Colombia is also home to a number of insurgency groups and large swaths of the countryside are under guerrilla
influence. In addition, Colombia experiences narcotics-related violence, a prevalence of kidnapping, extortion and thefts and
civil unrest in certain areas of the country. Such instability may require us to suspend operations on our properties.
Other
risks exist relating to the conduct of business in Colombia. These risks include the future imposition of special taxes or similar
charges, as well as foreign exchange fluctuations and currency convertibility and controls. Other risks of doing business in Colombia
include our ability to enforce our contractual rights or the taking or nationalization of property without fair compensation,
restrictions on the use of expatriates in our operations, renegotiation or nullification of existing concessions, licenses, permits
and contracts, changes in taxation policies, or other matters.
The
Government of Colombia recently reached a peace accord with the country’s largest guerrilla group. The Government of Colombia
also entered into and dissolved formal discussions with the country’s second largest guerrilla group due to their unwillingness
to cease criminal and violent crimes. There is no certainty that the agreements will be adhered to by all of the members of the
guerrilla groups or that a peace agreement will be ultimately reached with the country’s second largest guerrilla group.
There is a risk that any peace agreement might contain new laws or change existing laws that could have a material adverse effect
on us. Furthermore, the achievement of peace with the country’s guerrilla groups could create additional social or political
instability in the immediate aftermath, which could have a material adverse effect on our operations.
Global
Economy
Financial
and commodity markets in Colombia are influenced by the economic and market conditions in other countries, including other South
American and emerging market countries and other global markets. Although economic conditions in these countries may differ significantly
from economic conditions in Colombia, investors’ reactions to developments in these other countries, such as the recent
developments in the global financial markets, may substantially affect the capital flows into, and the market value of securities
of issuers with operations in Colombia.
Insurance
Coverage
Our
production is, in general, subject to different risks and hazards, including adverse weather conditions, fires, plant diseases
and pest infestations, other natural phenomena, industrial accidents, labor disputes, changes in the legal and regulatory framework
applicable to us, and environmental contingencies. We will endeavor to obtain appropriate insurance covering these risks in amounts
sufficient to support a downturn in the sale of our products due to these potential production risks. The cost of such insurance
may be high and we may not be able to obtain sufficient amount of insurance to cover these risks.
Operations
in Spanish
As
a result of our conducting most of our operations in Colombia, our books and records, including key documents such as material
contracts and financial documentation are principally negotiated and entered into in the Spanish language and English translations
may not exist or be readily available.
General
Business Risks
Inability
to Manage Growth
We
may not be able to effectively manage our growth. Our strategy envisions growing our business. We plan to expand our production
and manufacturing capability and create a distribution network on a global basis. Any growth in or expansion of our business is
likely to continue to place a strain on our management and administrative resources, infrastructure and systems. As with other
growing businesses, we expect that we will need to further refine and expand our business development capabilities, our systems
and processes and our access to financing sources. We also will need to hire, train, supervise and manage new employees. These
processes are time consuming and expensive, will increase management responsibilities and will divert management attention. We
cannot assure you that we will be able to:
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●
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expand
our systems effectively or efficiently or in a timely manner;
|
|
●
|
create
a distribution network
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allocate
our human resources optimally;
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●
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meet
our capital needs;
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●
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identify
and hire qualified employees or retain valued employees; or
|
|
●
|
obtain
and maintain necessary licenses in relevant jurisdictions
|
Our
inability or failure to manage our growth and expansion effectively could harm our business and materially and adversely affect
our operating results and financial condition.
Speculative
Forecasts
Our
forecasts are highly speculative in nature and we cannot predict results in a development stage company with a high degree of
accuracy. Any financial projections, especially those based on ventures with minimal operating history, are inherently subject
to a high degree of uncertainty, and their ultimate achievement depends on the timing and occurrence of a complex series of future
events, both internal and external to the enterprise. There can be no assurance that potential revenues or expenses we project
will be accurate.
Limited
Management Team
Our
limited senior management team size may hamper our ability to effectively manage a publicly traded company while operating our
business. Our management team has experience in the management of publicly traded companies and complying with federal securities
laws, including compliance with recently adopted disclosure requirements on a timely basis. They realize it will take significant
resources to meet these requirements while simultaneously working on cultivating, developing and distributing our products. Our
management will be required to design and implement appropriate programs and policies in responding to increased legal, regulatory
compliance and reporting requirements, and any failure to do so could lead to the imposition of fines and penalties and harm our
business.
Risks
Related to our Common Stock
Limited
Trading
Although
prices for shares of our Common Stock are quoted on the OTC Markets, there is little current trading and no assurance can be given
that an active public trading market will develop or, if developed, that it will be sustained. The OTC Markets is generally regarded
as a less efficient and less prestigious trading market than other national markets. There is no assurance if or when our Common
Stock will be quoted on another more prestigious exchange or market. The market price of our Common Stock is likely to be highly
volatile because for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of
stock to have a significant impact on the stock price.
Penny
Stock Risk
Because
our common stock is a “penny stock,” trading therein will be subject to regulatory restrictions. Our common stock
is currently, and in the near future will likely continue to be, considered a “penny stock.” The SEC has adopted rules
that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to transactions in such securities is provided by the
exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny
stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with
bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and
monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition,
the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure and other requirements may adversely affect the trading activity in the
secondary market for our common stock.
No
Dividend Payments
We
have not paid dividends in the past and we do not expect to pay dividends for the foreseeable future, and any return on investment
may be limited to potential future appreciation on the value of our Common Stock. Our payment of any future dividends will be
at the discretion of our board of directors after taking into account various factors, including without limitation, our financial
condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the
time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if
and to the extent the stock price appreciates, which may never occur. In addition, shareholders must generally rely on sales of
the shares they own after price appreciation as the only way to realize their investment, and if the price of our Common Stock
does not appreciate, then there will be no return on investment.
Control
of Common Stock will Influence Decision Making
Our
officers, directors and principal stockholders are able to exert significant influence over us and may make decisions that are
not in the best interests of all stockholders. Our officers, directors and principal stockholders (greater than 5% stockholders)
collectively own approximately 50.1% of our fully-diluted Common Stock. As a result of such ownership, these stockholders are
able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the
election and removal of directors and any change in control. In particular, this concentration of ownership of our Common Stock
could have the effect of delaying or preventing a change of control of our company or otherwise discouraging or preventing a potential
acquirer from attempting to obtain control of our company. This, in turn, could have a negative effect on the market price of
our Common Stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of our
Common Stock.
We
are an Emerging Growth Company Within the Meaning of the Securities Act.
We
are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may
take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are
not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports
and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access
to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances
could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700
million as of the end of any second quarter of a fiscal year, in which case we would no longer be an emerging growth company as
of the end of such fiscal year. We cannot predict whether investors will find our securities less attractive because we will rely
on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the
trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our
securities and the trading prices of our securities may be more volatile.
Further,
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial
accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared
effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised
financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and
comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have
elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different
application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at
the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another
public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended
transition period difficult or impossible because of the potential differences in accountant standards used.
Antitakeover
protections
Anti-takeover
provisions may limit the ability of another party to acquire us, which could cause our stock price to decline. Our articles of
incorporation, as amended, bylaws and Nevada law contain provisions that could discourage, delay or prevent a third party from
acquiring us, even if doing so may be beneficial to our stockholders. In addition, these provisions could limit the price investors
would be willing to pay in the future for shares of our common stock.
Increased
Compliance Costs
The
requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange Act of
1934, as amended, and the requirements of the Sarbanes-Oxley Act of 2002, may strain our resources, increase our costs and distract
management, and we may be unable to comply with these requirements in a timely or cost-effective manner. As a public company,
we need to comply with laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act of
2002, related regulations of the SEC, and requirements of the principal trading market upon which our common stock may trade,
with which we are not required to comply as a private company. As a result, the combined business will incur significant legal,
accounting and other expenses that a private company would not incur. Complying with these statutes, regulations and requirements
will occupy a significant amount of the time of our board of directors and management, will require us to have additional finance
and accounting staff, may make it more difficult to attract and retain qualified officers and members of our board of directors,
particularly to serve on the audit committee, and may make some activities more difficult, time consuming and costly. We will
need to:
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institute
a more comprehensive compliance function;
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establish
new internal policies, such as those relating to disclosure controls and procedures and insider trading;
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design,
establish, evaluate and maintain a system of internal control over financial reporting in compliance with the requirements
of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight
Board;
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prepare
and distribute periodic reports in compliance with its obligations under the federal securities laws including the Securities
Exchange Act of 1934, as amended, or Exchange Act;
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involve
and retain to a greater degree outside counsel and accountants in the above activities; and
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establish
an investor relations function.
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If
we are unable to accomplish these objectives in a timely and effective fashion for our business, our ability to comply with financial
reporting requirements and other rules that apply to reporting companies could be impaired. If our finance and accounting personnel
insufficiently support our business in fulfilling these public-company compliance obligations, or if we are unable to hire adequate
finance and accounting personnel, we could face significant legal liability, which could have a material adverse effect on our
financial condition and results of operations. Furthermore, if we identify any issues in complying with those requirements (for
example, if our company or the independent registered public accountants identified a material weakness or significant deficiency
in our company’s internal control over financial reporting), we could incur additional costs rectifying those issues, and
the existence of those issues could adversely affect, our reputation or investor perceptions of our company.
SECURITY
OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding our common stock beneficially owned on February 21, 2019, prior to giving
effect to the Closing, for (i) each stockholder known to be the beneficial owner of more than 5% of our outstanding common stock,
(ii) each of our executive officers and directors, and (iii) all executive officers and directors as a group. In general, a person
is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting
of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which the person has the right to acquire beneficial ownership within 60 days, through the exercise
of a warrant or stock option, conversion of a convertible security or otherwise. At February 21, 2019, immediately prior the Closing,
1,322,500 shares of our common stock were outstanding. Unless otherwise noted below the address of each person identified is 3471
West Oquendo Road, Suite 301, Las Vegas, NV 89118.
Name
and Address
|
|
Amount
and
Nature of
Beneficial
Ownership
|
|
|
Percentage
of Class
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
Craig
Ellins (1)
2626 South Rainbow Blvd, Suite 102
Las Vegas, NV 89146
|
|
|
875,000
|
|
|
|
66.2
|
%
|
|
|
|
|
|
|
|
|
|
All
Directors and Executive Officers as a Group (1 individual)
|
|
|
875,000
|
|
|
|
66.2
|
%
|
|
|
|
|
|
|
|
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|
5%
Stockholders
|
|
|
|
|
|
|
|
|
OWP
Ventures, Inc. (1)
c/o Craig Ellins, President
2626 South Rainbow Blvd, Suite 102
Las Vegas, NV 89146
|
|
|
875,000
|
|
|
|
66.2
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%
|
Lei
Wang
819 Cowan Road, Suite E
Burlington, CA 94010
|
|
|
125,000
|
|
|
|
9.5
|
%
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(1)
|
These
shares were held of record by OWP Ventures and were cancelled in the Merger. Craig Ellins had voting and investment control
over these securities prior their cancellation.
|
The
following table sets forth certain information regarding our common stock beneficially owned on April 25, 2019, immediately following
the Merger, for (i) each stockholder known to be the beneficial owner of more than 5% of our outstanding common stock, (ii) each
executive officer and director, and (iii) all executive officers and directors as a group. In general, a person is deemed to be
a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of such security,
or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any
securities of which the person has the right to acquire beneficial ownership within 60 days, through the exercise of a warrant
or stock option, conversion of a convertible security or otherwise. The table assumes a total of 39,922,899 shares of our common
stock outstanding as of April 25, 2019. Unless otherwise noted below the address of each person identified is Unless otherwise
noted below the address of each person identified is 3471 West Oquendo Road, Suite 301, Las Vegas, NV 89118.
Name
and Address
|
|
Amount
and
Nature of
Beneficial
Ownership
|
|
|
Percentage
of Class
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
Craig
Ellins
|
|
|
3,345,000
|
|
|
|
8.4
|
%
|
Brian
Moore
|
|
|
2,500,000
|
|
|
|
6.3
|
%
|
Dr.
Kenneth Perego
(1)
|
|
|
7,000,000
|
|
|
|
17.6
|
%
|
Bruce
Raben
(2)
|
|
|
145,832
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All
Directors and Executive Officers as a Group (4 individuals)
|
|
|
12,990,832
|
|
|
|
32.6
|
%
|
|
|
|
|
|
|
|
|
|
5%
Stockholders
|
|
|
|
|
|
|
|
|
Solid
Bridge Investments, Inc.
(3)
|
|
|
7,000,000
|
|
|
|
17.6
|
%
|
(1)
|
Consists
of shares held by CB Medical, LLC of which Dr. Perego is the controlling member.
|
(2)
|
Includes
20,832 shares of common stock that may be acquired under an option to purchase 125,000 shares of common stock at an exercise
price of $0.50 per share that vests in 12 monthly installments beginning March 8, 2019.
|
(3)
|
The
principals of Solid Bridge Investments, Inc. are Carlos Andres de Fex Gomez and Gloria Veronica Serna Diez, who founded OWP
Colombia and were its principal shareholders prior to the sale of OWP Colombia to OWP Ventures.
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DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
At
the Closing, Craig Ellins, 68, retained his positions as President, Chief Financial Officer, Secretary and Director and we appointed
the following persons as our executive officers and directors. All directors serve until the next annual meeting of stockholders
or until their successors are elected and qualified. Officers are appointed by the board of directors and their terms of office
are, except to the extent governed by an employment contract, at the discretion of the board of directors.
Name
|
|
Age
|
|
Position
|
Bruce
Raben
|
|
65
|
|
Director
|
Dr.
Kenneth Perego
|
|
49
|
|
Director
|
Brian
Moore
|
|
31
|
|
Chief
Operating Officer and Secretary
|
Craig
Ellins
has spent over 30 years developing start-ups in various industries, most recently focusing on the marijuana industry,
including indoor growing technology. Mr. Ellins has served as the Chief Executive Officer and President, of OWP Ventures since
its inception in March 2018 and as our President, Chief Executive Officer, Chief Financial Officer and director since November
30, 2018. From March 13, 2014 until April 29, 2016, Mr. Ellins served as the Chief Executive Officer of GB Sciences, Inc., a cannabis
company focused on standardized cultivation and production methods as well as biopharmaceutical research and development, and
from April 29, 2016 until May 8, 2017, he served as the Chief Innovation Officer of GB Sciences, Inc. He also served as the Chairman
of the Board of GB Sciences from March 13, 2014, until May 8, 2017. From 2013 to 2014, Mr. Ellins served as the Chairman and Chief
Executive Officer of Cognitiv, Inc., which engages in the creation, development, and maintenance of Websites and mobile applications.
From 2009 to 2013, Mr. Ellins served as Chief Executive Officer and Chairman of Phototron Holdings, Inc., now known as GrowLife,
Inc. GrowLife, Inc. manufactures and supplies branded equipment and expendables for urban gardening in the United States. We believe
that Mr. Ellins’ cannabis industry and public company experience qualify him to serve as our director.
Bruce
Raben
was a director of OWP Ventures prior to the Merger and was appointed to our Board of Directors pursuant to the Merger
Agreement. Mr. Raben is the Managing Member of Hudson Capital Advisors BD, LLC, a registered broker dealer that he founded in
2004. Mr. Raben also serves on the board of directors of Digipath, Inc., a cannabis testing laboratory. Mr. Raben has been an
investment banker, merchant banker and private investor for approximately 30 years. Starting in 1979 at Drexel Burnham Lambert,
he worked on many leveraged buyouts and recapitalizations including Mattel Toys, SFN Co.’s, Magma Copper, Warnaco, Mellon
Bank and John Fairfax. Mr. Raben then went on to co-found the Corporate Finance Department at Jeffries & Co. in 1990. Mr.
Raben opened a west coast office for CIBC’s high yield finance and merchant banking activities in 1996. Mr. Raben received
his A.B. from Vassar College in 1975 and his MBA from Colombia University in 1979. We believe that Mr. Raben’s investment
banking and financial experience qualify him to serve as our director.
Dr.
Kenneth Perego, II,
was a director of OWP Ventures prior to the Merger and was appointed to our Board of Directors pursuant
to the Merger Agreement. He has been a practicing urologic surgeon in private practice since 2001 with an emphasis in urologic
oncology and reconstructive urology. He has a strong clinical background in research and is focused on new drug discovery. We
believe that Dr. Perego’s medical experience qualifies him to serve as our director.
Brian
Moore
was employed by OWP Ventures prior to the Merger and was appointed as our Chief Operating Officer and Secretary pursuant
to the Merger Agreement. From 2016 until he joined the Company in March 2018, Mr. Moore worked in corporate development at GB
Sciences, and from 2013 until 2015 he was a Project Engineer for Austin General Contracting, Inc.
Executive
compensation
The
following table shows the compensation paid by us (including OWP Ventures and OWP Colombia prior to the Merger) to our Chief Executive
Officer during the fiscal year ended December 31, 2018. No compensation was paid to these officers in the prior fiscal year.
Summary
Compensation Table
|
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
All
Other
Compensation
($)
|
|
|
Total
($)
|
|
Craig
Ellins
|
|
|
2018
|
|
|
$
|
24,000
|
|
|
$
|
-0-
|
|
|
$
|
24,000
|
|
CEO,
President & Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
Contracts
We
are not a party to an employment agreement with any of our executive officers.
Option
Grants
Neither
our company nor any of our subsidiaries granted options to executive officers during the fiscal year ended December 31, 2018.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
Neither
our company nor any of our subsidiaries had options outstanding as of December 31, 2018.
Director
Compensation
We
did not compensate our non-employee directors for services during our fiscal year ended December 31, 2018.
We
are party to a Consulting Agreement with Bruce Raben dated February 8, 2019 under which Mr. Raben was issued an option to purchase
125,000 shares of common stock of OWP Ventures prior to the Merger and is paid a monthly fee of $5,000. The Consulting Agreement
is for an initial one-year term, continuing thereafter until terminated by either party.
Director
Independence
Our
board of directors currently consists of Craig Ellins, our President and Chief Executive Officer, Dr. Kenneth Perego, II,
and Bruce Raben. As an executive officer, Mr. Ellins does not qualify as “independent” under standards of independence
set forth by national securities exchanges. Our Board of Directors has determined that Dr. Kenneth Perego, II and Mr. Raben are
“independent” in accordance with the NASDAQ Global Market’s requirements. As our common stock is currently quoted
on the OTC Bulletin Board, we are not currently subject to corporate governance standards of listed companies.
Indemnification
of Directors and Executive Officers and Limitation of Liability
We
are a Nevada corporation. The Nevada Revised Statutes and certain provisions of our articles of incorporation, as amended, and
bylaws under certain circumstances provide for indemnification of our officers, directors and controlling persons against liabilities
which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained
herein, but this description is qualified in its entirety by reference to our bylaws and to the statutory provisions.
In
general, any officer, director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising
in connection with a legal proceeding to which such person is a party, if that person is not liable due to conduct that constituted
a breach of his or her fiduciary duties and such breach involved intentional misconduct, fraud or a knowing violation of law,
and that person’s actions were in good faith, were believed to be in our best interest, and were not unlawful. Indemnification
may not be made for any claim as to which the person seeking indemnity has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals, to be liable to our company unless the court in which the action or suit was brought or another
court of competent jurisdiction determines that in view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court deems proper. Unless such person is successful upon the merits in such an
action, indemnification may be awarded only after a determination by independent decision of our board of directors, by legal
counsel, or by a vote of our stockholders, that the applicable standard of conduct was met by the person to be indemnified. Under
our articles of incorporation, as amended, and bylaws , we will advance expenses incurred by officers, directors, employees or
agents who are parties to or are threatened to made parties to any threatened, pending or completed action by reason of the fact
that such person was serving in such capacity, prior to the disposition of such action and promptly following request therefor,
upon receipt of an undertaking by or on behalf of such person to repay such advances if it should be determined ultimately that
such person is not entitled to indemnification.
The
circumstances under which indemnification is granted in connection with an action brought on our behalf is generally the same
as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually
incurred in connection with the defense or settlement of the action. Indemnification may also be granted pursuant to the terms
of agreements which may be entered in the future or pursuant to a vote of stockholders or directors. The Nevada Revised Statutes
also grant us the power to purchase and maintain insurance which protects our officers and directors against any liabilities incurred
in connection with their service in such a position, and we have obtained such a policy.
A
stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding
involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Certain
Relationships and Related Party Transactions
Other
than the transactions described below, there has not been, nor is there currently proposed, any transaction or series of similar
transactions to which we were or will be a party:
|
●
|
in
which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for
the last two completed fiscal years;
and
|
|
●
|
in
which any director, executive officer, stockholders who beneficially owns more than 5% of our common stock or any member of
their immediate family had or will have a direct or indirect material interest.
|
Advances
by Craig Ellins
During
the year ended December 31, 2018, Craig Ellins advanced an aggregate of $207,000 to OWP Ventures. These advances are evidenced
by promissory notes payable on demand that bear interest at the rate of 6% per annum.
During
the year ended December 31, 2018, Mr. Ellins advanced OWP Ventures an additional $307,141. The additional advances bear interest
at the rate of 6% per annum and are evidenced by an amended and restated promissory note which matures on the earlier to occur
of February 13, 2022 and the date that we have raised an aggregate of $5,000,000 in financing in one or a series of transactions
following the date of the amended and restated note.
Transfer
Agent and Registrar
The
transfer agent and registrar for our Common Stock is vStock Transfer, LLC. Its mailing address is 18 Lafayette Place, Woodmere,
NY 11598, its telephone number is (212) 828-8436, and its facsimile number is (646) 536-3179.
Market
Prices
Our
Common Stock is currently quoted on the OTC Markets under the trading symbol “OWPC.” Prior to February 7, 2019, the
symbol for our Common Stock was “PNTT.” As of April 25, 2019, the closing price of our Common Stock on the OTC Markets
was $3.55.
The
following table sets forth, for the fiscal quarters indicated, the high and low bid information for our common stock, as reported
on the OTC Markets, and have not been adjusted for the one-for-four reverse stock split of our common stock effected on January
10, 2019. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
|
|
High
|
|
|
Low
|
|
Fiscal
Year Ended December 31, 2018
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Second
Quarter
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Third
Quarter
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Fourth
Quarter
|
|
$
|
4.04
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Second
Quarter
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Third
Quarter
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Fourth
Quarter
|
|
$
|
0.08
|
|
|
$
|
0.08
|
|
Holders
As
of April 25, 2019, there were approximately 87 registered holders of record of our common stock.
Dividends
We
do not anticipate paying dividends in the foreseeable future and currently intend to retain any future earnings to support the
development and expansion of our business. The declaration and payment of dividends is subject to the discretion of our board
of directors and to certain limitations imposed under Nevada statutes. The timing, amount and form of dividends, if any, will
depend upon, among other things, our results of operation, financial condition, cash requirements, and other factors deemed relevant
by our board of directors.
Description
of Our Securities
As
of April 25, 2019, our authorized capital stock consisted of:
|
●
|
75,000,000
shares of common stock, par value $0.001 per share; and
|
As
of April 25, 2019, there were outstanding:
|
●
|
39,922,899
shares of Common Stock held by approximately 87 stockholders of record.
|
Common
Stock
Dividend
Rights
Subject
to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common
stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors
may determine.
Voting
Rights
Each
holder of our common stock is entitled to one vote for each share of our common stock held on all matters submitted to a vote
of stockholders. Cumulative voting for the election of directors is not provided for in our articles of incorporation, as amended,
which means that the holders of a majority of the voting shares voted can elect all of the directors then standing for election.
No
Preemptive or Similar Rights
Holders
of our common stock do not have preemptive rights, and our common stock is not convertible or redeemable.
Right
to Receive Liquidation Distributions
Upon
our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable
ratably among the holders of our common stock, subject to the preferential rights and payment of liquidation preferences, if any,
on any outstanding shares of preferred stock.
Preferred
Stock
None.
Anti-takeover
Provisions
Certain
provisions of our articles of incorporation, as amended, and Nevada law may have the effect of delaying, deferring or discouraging
another person from acquiring control of our company.
Nevada
Law
In
addition, Nevada has enacted the following legislation that may deter or frustrate takeovers of Nevada corporations:
Authorized
but Unissued Stock
– The authorized but unissued shares of our common stock are available for future issuance without
stockholder approval. These additional shares may be used for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares
of common stock may enable our board of directors to issue shares of stock to persons friendly to existing management.
Evaluation
of Acquisition Proposals
– The Nevada Revised Statutes expressly permit our board of directors, when evaluating any
proposed tender or exchange offer, any merger, consolidation or sale of substantially all of our assets, or any similar extraordinary
transaction, to consider all relevant factors including, without limitation, the social, legal, and economic effects on our employees,
customers, suppliers, and other relevant interest holders, and on the communities and geographical areas in which they operate.
Our board of directors may also consider the amount of consideration being offered in relation to the then current market price
of our outstanding shares of capital stock and our then current value in a freely negotiated transaction.
Control
Share Acquisitions
– Nevada has adopted a control share acquisitions statute designed to afford stockholders of public
corporations in Nevada protection against acquisitions in which a person, entity or group seeks to gain voting control. With enumerated
exceptions, the statute provides that shares acquired within certain specific ranges will not possess voting rights in the election
of directors unless the voting rights are approved by a majority vote of the public corporation’s disinterested stockholders.
Disinterested shares are shares other than those owned by the acquiring person or by a member of a group with respect to a control
share acquisition, or by any officer of the corporation or any employee of the corporation who is also a director. The specific
acquisition ranges that trigger the statute are: acquisitions of shares possessing one-fifth or more but less than one-third of
all voting power; acquisitions of shares possessing one-third or more but less than a majority of all voting power; or acquisitions
of shares possessing a majority or more of all voting power. Under certain circumstances, the statute permits the acquiring person
to call a special stockholders’ meeting for the purpose of considering the grant of voting rights to the holder of the control
shares. The statute also enables a corporation to provide for the redemption of control shares with no voting rights under certain
circumstances.
Recent
Sales of Unregistered Securities
On
February 21, 2019, we issued 39,475,398 shares of our Common Stock to the shareholders of OWP Ventures, Inc., as consideration
for the Merger.
In
connection with the above security issuances, we did not pay any underwriting discounts or commissions. None of the sales of securities
described or referred to above was registered under the Securities Act. In making the sales without registration under the Securities
Act, we relied upon one or more of the exemptions from registration contained in Section 4(2) of the Securities Act, and in Regulation
D promulgated under the Securities Act. No general solicitation or advertising was used in connection with the sales.
From
its formation in September 2, 2014 through immediately prior to the Merger, Company sold or issued an aggregate of 447,500 shares
of its common stock to officers, directors, employees and other investors for cash, services rendered and services to be rendered.
In
connection with the above security issuances, Company did not pay any underwriting discounts or commissions. None of the sales
of securities described or referred to above was registered under the Securities Act. In making the sales without registration
under the Securities Act, Company relied upon one or more of the exemptions from registration contained in Section 4(2) of the
Securities Act, and in Regulation D promulgated under the Securities Act. No general solicitation or advertising was used in connection
with the sales.
Principal
Accountant Fees and Services
(a) On
February 20, 2019, we dismissed WWC, P.C. (“WWC”) as our independent registered public accounting firm. The decision
was approved by our board of directors.
The
reports of WWC regarding the Company’s consolidated financial statements for each of the two most recent fiscal years of
the Company did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles, except that such reports contained an explanatory paragraph with respect to uncertainty
as to the Company’s ability to continue as a going concern.
During
the two most recent fiscal years of the Company and through February 20, 2019, there were (i) no disagreements between the Company
and WWC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of WWC, would have caused WWC to make reference thereto in their reports on
the Company’s consolidated financial statements for such years, and (ii) no “reportable events” as that term
is defined in Item 304(a)(1)(v) of Regulation S-K.
The
Company provided WWC with a copy of the disclosure in the preceding two paragraphs and requested in writing that it furnish the
Company with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with such disclosures.
WWC provided a letter, dated February 22, 2019, stating its agreement with such statements as related to WWC.
(b)
On February 21, 2019, we engaged M&K CPAS, PLLC. (“M&K”) as our new independent registered public accounting
firm. We engaged M&K to audit our financial statements for the year ended December 31, 2018. The appointment of M&K was
approved by our board of directors.
Except
as set forth below, during the Company’s two most recent fiscal years ended December 31, 2018 and 2017 and the subsequent
interim period through February 21, 2019, neither the Company nor anyone acting on its behalf consulted with M&K regarding:
(i) the application of accounting principles to a specified transaction, either completed or proposed; (ii) the type of audit
opinion that might be rendered on the Company’s financial statements by M&K, nor did M&K provide written or oral
advice to the Company that M&K concluded was an important factor considered by the Company in reaching a decision as to any
accounting, auditing or financial reporting issues; or (iii) any other matter that was the subject of a “disagreement”
or “reportable event” (as such terms are described in Items 304(a)(1)(iv) and (v) of Regulation S-K).
M&K
audited the financial statements of One World Pharma S.A.S. for the fiscal year ended December 31, 2017, and reviewed the unaudited
condensed and consolidated financial statements of OWP Ventures, Inc. and One World Pharma S.A.S. for the year ended December
31, 2018, which financial statements have been filed as exhibits to this Current Report. M&K billed aggregate fees of approximately
$10,500 to OWP Ventures, Inc. for these services.