ITEM
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This
discussion summarizes the significant factors affecting the operating results, financial condition, liquidity and cash flows of
the Company for the fiscal years ended December 31, 2020 and 2019. The discussion and analysis that follows should be read together
with the section entitled “Forward Looking Statements” and our financial statements and the notes to the financial
statements included elsewhere in this annual report on Form 10-K.
Except
for historical information, the matters discussed in this section are forward looking statements that involve risks and uncertainties
and are based upon judgments concerning various factors that are beyond the Company’s control. Consequently, and because
forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially
from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the
various disclosures made by us in this report.
Overview
On
February 21, 2019, we entered into the Merger Agreement with OWP Merger Sub, our wholly-owned subsidiary, and OWP Ventures. Under
the Merger Agreement, the acquisition of OWP Ventures by us 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 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.
OWP
Ventures, Inc. is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May
30, 2018, it acquired One World Pharma S.A.S. One World Pharma S.A.S, is a licensed cannabis cultivation, production and distribution
(export) company located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and
hemp plant ingredients for both medical and industrial uses across the globe. We have received licenses to cultivate, produce
and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically,
we are one of the only companies in Colombia to receive seed, cultivation, extraction and export licenses from the Colombian government.
Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and
hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous
tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation
techniques, and sell their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which
we began harvesting in the first quarter of 2019 for the purpose of further research and development activities and quality control
testing of the cannabis we have produced. We consummated our first sales and revenue beginning in the second quarter of 2020 with
initial sales of fully registered non-psychoactive seeds.
The
Merger was accounted for as a reverse merger (recapitalization) with OWP Ventures deemed to be the accounting acquirer. Accordingly,
the financial statements included in this 10-K and the following discussion reflect the historical operations of OWP Ventures
and its wholly-owned subsidiary One World Pharma S.A.S prior to the Merger, and that of the combined company following the Merger.
The historical financial information for One World Pharma, Inc. (formerly Punto Group Corp.) prior to the Merger has been omitted.
Critical
Accounting Policies
The
establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our financial
statements in accordance with generally accepted accounting principles in the United States (“GAAP”), as well as ensuring
compliance with applicable laws and regulations governing financial reporting. While there are rarely alternative methods or rules
from which to select in establishing accounting and financial reporting policies, proper application often involves significant
judgment regarding a given set of facts and circumstances and a complex series of decisions.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission (“SEC”). All references to Generally Accepted
Accounting Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”)
and the Hierarchy of Generally Accepted Accounting Principles.
These
statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary
for fair presentation of the information contained therein.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which were under common
control and ownership at December 31, 2020:
|
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|
State
of
|
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|
|
|
Name
of Entity
|
|
|
Incorporation
|
|
|
|
Relationship
|
|
One World Pharma,
Inc.(1)
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|
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Nevada
|
|
|
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Parent
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OWP Ventures, Inc.(2)
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Delaware
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|
Subsidiary
|
|
One World Pharma
S.A.S.(3)
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|
|
Colombia
|
|
|
|
Subsidiary
|
|
Colombian Hope,
S.A.S.(4)
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|
|
Colombia
|
|
|
|
Subsidiary
|
|
(1)
|
Holding company
in the form of a corporation.
|
(2)
|
Holding company
in the form of a corporation and wholly-owned subsidiary of One World Pharma, Inc.
|
(3)
|
Wholly-owned subsidiary
of OWP Ventures, Inc. since May 30, 2018, located in Colombia and legally constituted as a simplified stock company registered
in the Chamber of Commerce of Bogotá on July 18, 2017. Its headquarters are located in Bogotá.
|
(4)
|
Wholly-owned subsidiary
of OWP Ventures, Inc., acquired on November 19, 2019, located in Colombia and legally constituted as a simplified stock company.
This company has yet to incur any income or expenses.
|
The
consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s
headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign
Currency Translation
The
functional currency of the Company is Columbian Peso (“COP”). The Company has maintained its financial statements
using the functional currency, and translated those financial statements to the US Dollar throughout this report. Monetary assets
and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates
of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are
translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses
arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods.
Comprehensive
Income
The
Company has adopted ASC 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive
income, its components, and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive
income represents the accumulated balance of foreign currency translation adjustments.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These
reclassifications had no effect on previously reported results of operations or retained earnings.
Segment
Reporting
ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.
The management approach model is based on the way a company’s management organizes segments within the company for making
operating decisions and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
Fair
Value of Financial Instruments
The
Company adopted ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The
three levels are defined as follows:
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-
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
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-
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
|
|
-
|
Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement.
|
The
carrying value of cash, accounts receivable, accounts payables and accrued expenses are estimated by management to approximate
fair value primarily due to the short-term nature of the instruments.
Cash
in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed
by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. The Company did not have any cash
in excess of FDIC insured limits at December 31, 2020, and has not experienced any losses in such accounts.
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue
when each performance obligation is satisfied.
There
was no impact on the Company’s financial statements from ASC 606 for the years ended December 31, 2020 or 2019.
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out
(FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive
levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower
grown in-house, along with produced extracts.
Advertising
Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $143,341 and $114,244
for the years ended December 31, 2020 and 2019, respectively.
Basic
and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by
the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31,
2020 and 2019, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC
718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which goods
or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of
the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement
date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance
is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because
of sufficiently large disincentives for non-performance.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets
and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be
recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such
assets to be more likely than not.
Uncertain
Tax Positions
In
accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing
authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These
standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The
assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with
the Company’s various filing positions.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
Results
of Operations for the Years ended December 31, 2020 and 2019
The
following table summarizes selected items from the statement of operations for the years ended December 31, 2020 and 2019.
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|
For the
Years Ended
|
|
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|
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December
31,
|
|
Increase
/
|
|
|
2020
|
|
2019
|
|
(Decrease)
|
|
|
|
|
|
|
|
Revenues
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|
$
|
59,568
|
|
|
$
|
-
|
|
|
$
|
59,568
|
|
Cost of goods
sold
|
|
|
104,729
|
|
|
|
-
|
|
|
|
104,729
|
|
Gross
profit (loss)
|
|
|
(45,161
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)
|
|
|
-
|
|
|
|
(45,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
3,960,791
|
|
|
|
2,225,551
|
|
|
|
1,735,240
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
102,000
|
|
|
|
(102,000
|
)
|
Professional fees
|
|
|
3,878,006
|
|
|
|
3,473,300
|
|
|
|
404,706
|
|
Depreciation expense
|
|
|
33,610
|
|
|
|
19,668
|
|
|
|
13,942
|
|
Total
operating expenses:
|
|
|
7,872,407
|
|
|
|
5,820,519
|
|
|
|
2,051,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(7,917,568
|
)
|
|
|
(5,820,519
|
)
|
|
|
2,097,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(47,592
|
)
|
|
|
(386,665
|
)
|
|
|
(339,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,965,160
|
)
|
|
$
|
(6,207,184
|
)
|
|
$
|
1,757,976
|
|
Revenues
Revenues
for the year ended December 31, 2020 were $59,568, compared to no revenues during the year ended December 31, 2019, as
sales commenced in 2020.
Cost
of Goods Sold
Cost
of goods sold for the year ended December 31, 2020 were $104,729, compared to $-0- during the year ended December 31, 2019. Cost
of goods sold consists primarily of labor, depreciation and maintenance on cultivation and production equipment, and supplies
consumed in our operations.
General
and Administrative Expenses
General
and administrative expenses for the year ended December 31, 2020 were $3,960,791, compared to $2,225,551 for the year ended December
31, 2019, an increase of $1,735,240, or 78%. The expenses for the current period consisted primarily of compensation expenses,
office rent, and travel costs, including $2,581,933 of stock-based compensation, of which $1,100,000, consisting of 2,000,000
shares, were issued as severance pay to our former CEO, and $275,000, consisting of 500,000 shares of common stock, along with
$1,206,933 of expense related to stock options that were voluntarily surrendered and cancelled at year-end was incurred in connection
with the employment of Isiah Thomas as our new Chief Executive Officer in June 2020.
Goodwill
Impairment
Goodwill
impairment, for the year ended December 31, 2020 was $-0-, compared to $102,000 during the year ended December 31, 2019, a decreased
expense of $102,000.
Professional
Fees
Professional
fees for the year ended December 31, 2020 were $3,878,006, compared to $3,473,300 during the year ended 2019, an increase of $404,706,
or 12%. Professional fees included non-cash stock-based compensation of $3,167,252 during the year ended December 31, 2020, compared
to $1,727,492 during the year ended December 31, 2019, an increase of $1,439,760, or 83%. Professional fees increased primarily
due to increased stock-based compensation during the current period.
Depreciation
Expense
We
had $33,610 of depreciation expense for the year ended December 31, 2020, compared to $19,668 of depreciation expense for the
year ended December 31, 2019, an increase of $13,942, or 71%. Depreciation expense increased during the current period as additional
assets have been placed in service.
Other
Income (Expense)
Other
expenses, on a net basis, for the year ended December 31, 2020 were $47,592, compared to other expenses, on a net basis, of $386,665
for the year ended December 31, 2019. Other expense during the year ended December 31, 2020 consisted of $47,592 of interest expense.
Other expenses consisted of a $4,087 loss on disposal of assets and $382,582 of interest expense, as offset by $4 of interest
income for the year ended December 31, 2019.
Net
Loss
Net
loss for the year ended December 31, 2020 was $7,965,160, or $0.16 per share, compared to $6,207,184, or $0.15 per share,
during the year ended December 31, 2019, an increase of $1,757,976, or 28%. The net loss for the year ended December 31,
2020 included non-cash expenses consisting of $33,610 of depreciation, $5,749,185 of stock-based compensation, and $47,592 of
interest for the year ended December 31, 2020. The net loss for the year ended December 31, 2019 included non-cash expenses consisting
of $19,668 of depreciation, $1,727,492 of stock-based compensation, and $382,582 of interest, including $132,332 of amortization
on debt discounts for the year ended December 31, 2019.
Liquidity
and Capital Resources
As
of December 31, 2020, the Company had current assets of $420,619, consisting of cash of $28,920, accounts receivable of
$5,636, inventory of $267,152 and other current assets of $118,911. The Company’s current liabilities as of December
31, 2020 were $1,702,437, consisting of $734,554 of accounts payable, $550,535 of accrued expenses, $37,236 of dividends payable,
$45,271 of current lease liabilities, and $334,841 of debts.
The
following table summarizes our total current assets, liabilities and working capital at December 31, 2020 and 2019.
|
|
December
31,
|
|
|
2020
|
|
2019
|
Current
Assets
|
|
$
|
420,619
|
|
|
$
|
574,168
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
$
|
1,702,437
|
|
|
$
|
1,132,619
|
|
|
|
|
|
|
|
|
|
|
Working Capital
|
|
$
|
(1,281,818
|
)
|
|
$
|
(558,451
|
)
|
The
following table summarizes our cash flows during the years ended December 31, 2020 and 2019, respectively.
|
|
For the Year Ended
|
|
|
December
31,
|
|
|
2020
|
|
2019
|
Net cash used in operating
activities
|
|
$
|
(1,429,112
|
)
|
|
$
|
(4,060,940
|
)
|
Net cash used in investing activities
|
|
|
(62,567
|
)
|
|
|
(467,179
|
)
|
Net cash provided by financing activities
|
|
|
1,274,841
|
|
|
|
4,696,811
|
|
Effect of exchange rate changes on cash
|
|
|
(36,622
|
)
|
|
|
(12,158
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
$
|
(253,460
|
)
|
|
$
|
156,534
|
|
The
decrease in funds used in operating activities for the year ended December 31, 2020, compared to the year ended December 31, 2019,
was primarily due to diminished operations in the current year due to the global effects of the Covid-19 pandemic.
The
decrease in funds used in investing activities for the year ended December 31, 2020, compared to the year ended December 31, 2019,
was due primarily to decreased purchases of fixed assets in the year ended December 31, 2020.
The
decrease in funds provided by financing activities for the year ended December 31, 2020, compared to the year ended December 31,
2019, was due primarily to decreased proceeds from the sale of our securities during the year ended December 31, 2020.
Satisfaction
of our Cash Obligations for the Next 12 Months
As
of December 31, 2020, we had $28,920 of cash on hand and negative working capital of $1,281,818. We do not currently have
sufficient funds to fund our operations at their current levels for the next twelve months, however, we have received a commitment
from ISIAH International, LLC, a company under the control of our CEO, Isiah L. Thomas, III, to fund us with $3,000,000 by July
12, 2021. As of April 14, 2021, we have received approximately, $1,250,000. As we implement our cannabis cultivation business
and attempt to expand operational activities, we expect to continue to experience net negative cash flows from operations in amounts
not now determinable, and will be required to obtain additional financing to fund operations. Our ability to continue as a going
concern is dependent upon our ability to raise additional capital and to achieve sustainable revenues and profitable operations.
Since inception, we have raised funds primarily through the sale of equity securities. We will need, and are currently seeking,
additional funds to operate our business. No assurance can be given that any future financing will be available or, if available,
that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue
restrictions on our operations or cause substantial dilution for our stockholders. If we are unable to obtain additional funds,
our ability to carry out and implement our planned business objectives and strategies will be significantly delayed, limited or
may not occur. We cannot guarantee that we will become profitable. Even if we achieve profitability, given the competitive and
evolving nature of the industry in which we operate, we may not be able to sustain or increase profitability and our failure to
do so would adversely affect our business, including our ability to raise additional funds.
The
accompanying consolidated financial statements appearing in this 10-K have been prepared assuming that we will continue as a going
concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course
of business. The consolidated financial statements do not include any adjustments related to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue
as a going concern.
Off-Balance
Sheet Arrangements
We
have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage
in trading activities involving non-exchange traded contracts.
ITEM
7A. Quantitative and Qualitative Disclosures About Market Risk
We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
the information under this item.
ITEM
8. Financial Statements and Supplementary Data
ONE
WORLD PHARMA, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
TABLE
OF CONTENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Stockholders
of One World Pharma, Inc.,
Opinion
on the Financial Statements
We have audited the accompanying consolidated
balance sheets of One World Pharma, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, and the related
consolidated statements of operations and comprehensive loss, consolidated stockholders’ equity (deficit) and consolidated
cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred
to as the consolidated financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash
flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally
accepted in the United States of America.
Going Concern
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial
doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in
Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis
for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated
below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in
any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As
discussed in Note 1, the Company recognizes revenue upon transfer of control of promised services to customers in an amount that
reflects the consideration the Company expects to receive in exchange for those products or services. The Company offers customers
the ability to acquire multiple services. Significant judgment is exercised by the Company in determining revenue recognition
for these customer agreements. Given these factors and due to the volume of transactions, the related audit effort in evaluating
management's judgments in determining revenue recognition for these customer agreements was extensive and required a high degree
of auditor judgment.
We
tested the Company’s calculation of purchase price allocation and other variables that impact revenue recognition.
/s/
M&K CPAS, PLLC
We
have served as the Company’s auditor since 2018.
Houston,
TX
April
15, 2021
ONE
WORLD PHARMA, INC.
Consolidated
Balance Sheets
|
|
December
31,
|
|
December
31,
|
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
28,920
|
|
|
$
|
282,380
|
|
Accounts receivable
|
|
|
5,636
|
|
|
|
-
|
|
Inventory
|
|
|
267,152
|
|
|
|
24,682
|
|
Other
current assets
|
|
|
118,911
|
|
|
|
267,106
|
|
Total current assets
|
|
|
420,619
|
|
|
|
574,168
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets
|
|
|
195,029
|
|
|
|
502,706
|
|
Security deposits
|
|
|
65,114
|
|
|
|
72,527
|
|
Fixed assets,
net
|
|
|
726,820
|
|
|
|
697,863
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,407,582
|
|
|
$
|
1,847,264
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders’ Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
734,554
|
|
|
$
|
330,521
|
|
Accrued expenses
|
|
|
550,535
|
|
|
|
109,665
|
|
Dividends payable
|
|
|
37,236
|
|
|
|
-
|
|
Current portion
of lease liabilities
|
|
|
45,271
|
|
|
|
55,101
|
|
Convertible notes
payable
|
|
|
-
|
|
|
|
507,332
|
|
Notes
payable, including $201,000 and $130,000 due to related parties for the years ended December 31, 2020 and 2019, respectively
|
|
|
334,841
|
|
|
|
130,000
|
|
Total current liabilities
|
|
|
1,702,437
|
|
|
|
1,132,619
|
|
|
|
|
|
|
|
|
|
|
Long-term lease
liability
|
|
|
156,254
|
|
|
|
453,251
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,858,691
|
|
|
|
1,585,870
|
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock,
$0.001 par value, 500,000 shares authorized; 150,233 and -0-
issued and outstanding at December 31, 2020 and 2019, respectively
|
|
|
1,502,330
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit):
|
|
|
|
|
|
|
|
|
Preferred stock,
$0.001 par value, 9,500,000 shares authorized; no shares issued and outstanding at December 31, 2020 and 2019, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001
par value, 300,000,000 shares authorized; 53,085,305 and 44,804,305 shares issued and outstanding at December 31, 2020 and
2019, respectively
|
|
|
53,085
|
|
|
|
44,804
|
|
Additional paid-in
capital
|
|
|
14,103,672
|
|
|
|
8,150,004
|
|
Subscriptions payable,
consisting of 750,000 and 500,000 shares at December 31, 2020 and 2019, respectively
|
|
|
75,000
|
|
|
|
250,000
|
|
Accumulated other
comprehensive loss
|
|
|
(52,870
|
)
|
|
|
(16,248
|
)
|
Accumulated
(deficit)
|
|
|
(16,132,326
|
)
|
|
|
(8,167,166
|
)
|
Total Stockholders’
Equity (Deficit)
|
|
|
(1,953,439
|
)
|
|
|
261,394
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Stockholders’ Equity (Deficit)
|
|
$
|
1,407,582
|
|
|
$
|
1,847,264
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ONE
WORLD PHARMA, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
59,568
|
|
|
$
|
-
|
|
Cost of goods
sold
|
|
|
104,729
|
|
|
|
-
|
|
Gross
profit (loss)
|
|
|
(45,161
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
3,960,791
|
|
|
|
2,225,551
|
|
Goodwill impairment
|
|
|
-
|
|
|
|
102,000
|
|
Professional fees
|
|
|
3,878,006
|
|
|
|
3,473,300
|
|
Depreciation
expense
|
|
|
33,610
|
|
|
|
19,668
|
|
Total
operating expenses
|
|
|
7,872,407
|
|
|
|
5,820,519
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(7,917,568
|
)
|
|
|
(5,820,519
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Loss on disposal
of fixed assets
|
|
|
-
|
|
|
|
(4,087
|
)
|
Interest income
|
|
|
-
|
|
|
|
4
|
|
Interest
expense
|
|
|
(47,592
|
)
|
|
|
(382,582
|
)
|
Total
other expense
|
|
|
(47,592
|
)
|
|
|
(386,665
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,965,160
|
)
|
|
$
|
(6,207,184
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
Loss
on foreign currency translation
|
|
$
|
(36,622
|
)
|
|
$
|
(12,158
|
)
|
|
|
|
|
|
|
|
|
|
Net other comprehensive
loss
|
|
$
|
(8,001,782
|
)
|
|
$
|
(6,219,342
|
)
|
Series A convertible preferred stock declared ($0.60
per share)
|
|
|
(37,236
|
)
|
|
|
-
|
|
Deemed dividend on common stock warrants, series
A preferred stock
|
|
|
(1,502,330
|
)
|
|
|
-
|
|
Net loss attributable to common shareholders
|
|
$
|
(9,541,348
|
)
|
|
$
|
(6,219,342
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
and fully diluted
|
|
|
48,829,160
|
|
|
|
41,089,784
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and fully diluted
|
|
$
|
(0.20
|
)
|
|
$
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share of common stock
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ONE
WORLD PHARMA, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A Convertible
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Subscriptions
|
|
|
Subscriptions
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Noncontrolling
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Receivable
|
|
|
Payable
|
|
|
Income
(Loss)
|
|
|
Deficit
|
|
|
Interest
|
|
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
34,291,905
|
|
|
$
|
34,292
|
|
|
$
|
1,278,352
|
|
|
$
|
(602
|
)
|
|
$
|
-
|
|
|
$
|
(4,090
|
)
|
|
$
|
(1,959,982
|
)
|
|
$
|
(101
|
)
|
|
$
|
(652,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received on subscriptions
receivable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock sold for
cash
|
|
|
-
|
|
|
|
-
|
|
|
|
8,260,700
|
|
|
|
8,260
|
|
|
|
4,122,090
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,380,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock sold to
CEO, debt cancelled in lieu of cash payment
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
|
|
400
|
|
|
|
199,600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise of
common stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
51,040
|
|
|
|
51
|
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
on debt conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
1,253,493
|
|
|
|
1,253
|
|
|
|
500,144
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
501,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for services
|
|
|
-
|
|
|
|
-
|
|
|
|
99,666
|
|
|
|
100
|
|
|
|
236,460
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
236,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of common
stock options issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,402,635
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,402,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of common
stock options issued for services, OWP Ventures, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,297
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
88,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange of OWP Ventures,
Inc. shares for One World Pharma, Inc. shares (1:1)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,322,501
|
|
|
|
1,323
|
|
|
|
(10,730
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
(9,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cancelled
pursuant to merger with OWP Ventures, Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
(875,000
|
)
|
|
|
(875
|
)
|
|
|
875
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion
feature on convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332,332
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign currency
translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,158
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,207,184
|
)
|
|
|
-
|
|
|
|
(6,207,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
|
44,804,305
|
|
|
$
|
44,804
|
|
|
$
|
8,150,004
|
|
|
$
|
-
|
|
|
$
|
250,000
|
|
|
$
|
(16,248
|
)
|
|
$
|
(8,167,166
|
)
|
|
$
|
-
|
|
|
$
|
261,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock units
sold for cash
|
|
|
150,233
|
|
|
|
1,502,330
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock sold for
cash
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
500
|
|
|
|
249,500
|
|
|
|
-
|
|
|
|
(175,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for services
|
|
|
-
|
|
|
|
-
|
|
|
|
7,781,000
|
|
|
|
7,781
|
|
|
|
3,570,719
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,578,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of common
stock options issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,170,685
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,170,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible
preferred stock declared ($0.60 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,236
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on foreign currency
translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,622
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,965,160
|
)
|
|
|
-
|
|
|
|
(7,965,160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2020
|
|
|
150,233
|
|
|
$
|
1,502,330
|
|
|
|
53,085,305
|
|
|
$
|
53,085
|
|
|
$
|
14,103,672
|
|
|
$
|
-
|
|
|
$
|
75,000
|
|
|
$
|
(52,870
|
)
|
|
$
|
(16,132,326
|
)
|
|
$
|
-
|
|
|
$
|
(1,953,439
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
ONE
WORLD PHARMA, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For
the Year Ended
|
|
|
|
December
31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,965,160
|
)
|
|
$
|
(6,207,184
|
)
|
Adjustments to reconcile
net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization expense
|
|
|
33,610
|
|
|
|
19,668
|
|
Loss on disposal
of fixed assets
|
|
|
-
|
|
|
|
4,087
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
102,000
|
|
Amortization of
debt discounts
|
|
|
-
|
|
|
|
332,332
|
|
Stock-based compensation
|
|
|
3,578,500
|
|
|
|
236,560
|
|
Amortization of
options issued for services
|
|
|
2,170,685
|
|
|
|
1,490,932
|
|
Decrease (increase)
in assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5,636
|
)
|
|
|
-
|
|
Inventory
|
|
|
(242,470
|
)
|
|
|
(24,682
|
)
|
Other current assets
|
|
|
148,195
|
|
|
|
(245,562
|
)
|
Right-of-use assets
|
|
|
307,677
|
|
|
|
45,510
|
|
Security deposits
|
|
|
7,413
|
|
|
|
(68,033
|
)
|
Increase (decrease)
in liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
404,031
|
|
|
|
209,327
|
|
Accrued expenses
|
|
|
440,870
|
|
|
|
83,969
|
|
Lease
liability
|
|
|
(306,827
|
)
|
|
|
(39,864
|
)
|
Net cash used
in operating activities
|
|
|
(1,429,112
|
)
|
|
|
(4,060,940
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
Investment in Colombian
Hope, S.A.S.
|
|
|
-
|
|
|
|
(102,000
|
)
|
Purchase
of fixed assets
|
|
|
(62,567
|
)
|
|
|
(365,179
|
)
|
Net
cash used in investing activities
|
|
|
(62,567
|
)
|
|
|
(467,179
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
Proceeds from convertible
note payable
|
|
|
-
|
|
|
|
500,000
|
|
Repayment of convertible
note payable
|
|
|
(507,332
|
)
|
|
|
-
|
|
Repayment of advances
from shareholders
|
|
|
-
|
|
|
|
(314,141
|
)
|
Proceeds from notes
payable
|
|
|
476,841
|
|
|
|
130,000
|
|
Repayment of notes
payable
|
|
|
(272,000
|
)
|
|
|
-
|
|
Proceeds from subscriptions
receivable
|
|
|
-
|
|
|
|
602
|
|
Proceeds
from sale of preferred and common stock
|
|
|
1,577,332
|
|
|
|
4,380,350
|
|
Net cash provided
by financing activities
|
|
|
1,274,841
|
|
|
|
4,696,811
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
(36,622
|
)
|
|
|
(12,158
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(253,460
|
)
|
|
|
156,534
|
|
Cash
- beginning
|
|
|
282,380
|
|
|
|
125,846
|
|
Cash - ending
|
|
$
|
28,920
|
|
|
$
|
282,380
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
22,002
|
|
|
$
|
28,558
|
|
Income
taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
|
|
|
Fair
value of net assets acquired in merger
|
|
$
|
-
|
|
|
$
|
9,306
|
|
Notes
payable exchanged for convertible note payable
|
|
$
|
-
|
|
|
$
|
207,332
|
|
Value of shares
issued for conversion of debt
|
|
$
|
-
|
|
|
$
|
701,397
|
|
Initial
recognition of right-of-use assets and lease liabilities
|
|
$
|
-
|
|
|
$
|
548,216
|
|
Par value of
cashless exercise of options
|
|
$
|
-
|
|
|
$
|
51
|
|
Beneficial
conversion feature
|
|
$
|
-
|
|
|
$
|
332,332
|
|
Dividends
payable
|
|
$
|
37,236
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Nature of Business and Significant Accounting Policies
Nature
of Business
One
World Pharma, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in Nevada
on September 2, 2014. On February 21, 2019, One World Pharma, Inc. (“One World Pharma”) entered into an Agreement
and Plan of Merger with OWP Merger Subsidiary, Inc., our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”),
which is the parent company of One World Pharma SAS, a Colombian company (“OWP Colombia”). Pursuant to the Merger
Agreement, we acquired OWP Ventures (and indirectly, OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures,
with OWP Ventures being the surviving entity as our wholly-owned subsidiary (the “Merger”). As a result of the Merger
(a) holders of the outstanding capital stock of OWP Ventures received an aggregate of 39,475,398 shares of our common stock; (b)
options to purchase 825,000 shares of common stock of OWP Ventures at an exercise price of $0.50 automatically converted into
options to purchase 825,000 shares of our common stock at an exercise price of $0.50; (c) the outstanding principal and interest
under a $300,000 convertible note issued by OWP Ventures became convertible, at the option of the holder, into shares of our common
stock at a conversion price equal to the lesser of $0.424 per share or 80% of the price we sell our common stock in a future “Qualified
Offering”; (d) 875,000 shares of our common stock owned by OWP Ventures prior to the Merger were cancelled; and (e) OWP
Ventures’ chief operating officer became our chief operating officer and two of OWP Ventures’ directors became members
of our board of directors. The Company’s headquarters are located in Las Vegas, Nevada, and all of its customers are expected
to be outside of the United States. On January 10, 2019, the Company changed its name from Punto Group, Corp. to One World Pharma,
Inc.
OWP
Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the cannabis industry, and on May 30,
2018, it acquired OWP Colombia. OWP Colombia is a licensed cannabis cultivation, production and distribution (export) company
located in Popayán, Colombia (nearest major city is Cali). We plan to be a producer of raw cannabis and hemp plant ingredients
for both medical and industrial uses across the globe. We have received licenses to cultivate, produce and distribute the raw
ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the
only companies in Colombia to receive seed, cultivation, extraction and export licenses from the Colombian government. Currently,
we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition,
we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under
which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell
their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which we began harvesting
in the first quarter of 2019 for the purpose of further research and development activities and quality control testing of the
cannabis we have produced. We began generating revenue from the sale of our seeds in the second quarter of 2020.
The
Merger was accounted for as a reverse merger (recapitalization) with OWP Ventures deemed to be the accounting acquirer. Accordingly,
the financial statements included in this Annual Report on Form 10-K reflect the historical operations of OWP Ventures and its
wholly-owned subsidiary OWP SAS prior to the Merger, and that of the combined company following the Merger. The historical financial
information for One World Pharma, Inc. (formerly Punto Group Corp.) prior to the Merger has been omitted.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America and the rules of the Securities and Exchange Commission (“SEC”). All references to Generally Accepted
Accounting Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”)
and the Hierarchy of Generally Accepted Accounting Principles.
These
statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary
for fair presentation of the information contained therein.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which were under common
control and ownership at December 31, 2020:
|
|
State of
|
|
|
Name
of Entity
|
|
Incorporation
|
|
Relationship
|
One World Pharma,
Inc.(1)
|
|
Nevada
|
|
Parent
|
OWP Ventures, Inc.(2)
|
|
Delaware
|
|
Subsidiary
|
One World Pharma
S.A.S.(3)
|
|
Colombia
|
|
Subsidiary
|
Colombian Hope,
S.A.S.(4)
|
|
Colombia
|
|
Subsidiary
|
(1)Holding
company in the form of a corporation.
(2)Holding
company in the form of a corporation and wholly-owned subsidiary of One World Pharma, Inc.
(3)Wholly-owned
subsidiary of OWP Ventures, Inc. since May 30, 2018, located in Colombia and legally constituted as a simplified stock company
registered in the Chamber of Commerce of Bogotá on July 18, 2017. Its headquarters are located in Bogotá.
(4)Wholly-owned
subsidiary of OWP Ventures, Inc., acquired on November 19, 2019, located in Colombia and legally constituted as a simplified stock
company. This company has yet to incur any income or expenses.
The
consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s
headquarters are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign
Currency Translation
The
functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional
currency, and translated those financial statements to the US Dollar throughout this report. Monetary assets and liabilities denominated
in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at
the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional
currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income (loss) for the respective periods.
Comprehensive
Income
The
Company has adopted ASC 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive
income, its components, and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive
income represents the accumulated balance of foreign currency translation adjustments.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These
reclassifications had no effect on previously reported results of operations or retained earnings.
Segment
Reporting
ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.
The management approach model is based on the way a company’s management organizes segments within the company for making
operating decisions and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure
requirements as it expands its operations.
ONE
WORLD PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Fair
Value of Financial Instruments
The
Company adopted ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The
three levels are defined as follows:
|
-
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
-
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
|
|
-
|
Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement.
|
The
carrying value of cash, accounts receivable, accounts payables and accrued expenses are estimated by management to approximate
fair value primarily due to the short-term nature of the instruments.
Cash
in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed
by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. The Company did not have any cash
in excess of FDIC insured limits at December 31, 2020, and has not experienced any losses in such accounts.
Goodwill
Goodwill
is the excess of the consideration transferred over the fair value of the acquired assets and assumed liabilities in a business
combination. Goodwill is not amortized but rather tested for impairment at least annually. We test goodwill for impairment on
the first day of the fourth quarter each fiscal year. Goodwill is also tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying
amount. When testing goodwill for impairment, we may assess qualitative factors for some or all of our reporting units to determine
whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is
less than its carrying amount, including goodwill. Alternatively, we may bypass this qualitative assessment for some or all of
our reporting units and perform step 1 of the two-step goodwill impairment test. If we perform step 1 and the carrying amount
of the reporting unit exceeds its fair value, we would perform step 2 to measure such impairment. Impairment testing for goodwill
is done at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known
as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete
financial information is available, and segment management regularly reviews the operating results of that component. During the
year ended December 31, 2019, we recognized $102,000 of goodwill impairment on the acquisition of Colombian Hope, S.A.S., as disclosed
in Note 3, below.
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue
when each performance obligation is satisfied.
There
was no impact on the Company’s financial statements from ASC 606 for the years ended December 31, 2020 or 2019.
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out
(FIFO) method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive
levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower
grown in-house, along with produced extracts.
Advertising
Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $143,341 and $114,244
for the years ended December 31, 2020 and 2019, respectively.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Basic
and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by
the weighted average number of common shares outstanding plus potential dilutive securities. For the years ended December 31,
2020 and 2019, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net
loss per common share.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC
718) and Equity-Based Payments to Non-employees pursuant to ASC 2018-07 (ASC 2018-07). All transactions in which goods
or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of
the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement
date of the fair value of the equity instrument issued is the earlier of the date on which the counterparty’s performance
is complete or the date at which a commitment for performance by the counterparty to earn the equity instruments is reached because
of sufficiently large disincentives for nonperformance.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets
and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be
recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such
assets to be more likely than not.
Uncertain
Tax Positions
In
accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing
authorities based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These
standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure,
and transition.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The
assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with
the Company’s various filing positions.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions.
In evaluating the exposures connected with these various tax filing positions, including state and local taxes, the Company records
allowances for probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established,
is audited and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are
adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued
standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In
August 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820).
The new guidance removes, modifies and adds to certain disclosure requirements on fair value measurements in Topic 820, Fair Value
Measurement. The update is effective for annual reporting periods, including interim periods, beginning after December 15, 2019.
The adoption of the new standard did not have an effect on our financial position, results of operations or cash flows.
ONE
WORLD PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill
Impairment. The update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.
An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with
its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit.
The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option
to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The
update is effective for annual reporting periods, including interim periods, beginning after December 15, 2019, on a prospective
basis. The adoption of the new standard did not have an effect on our financial position, results of operations or cash flows.
There
are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material
effect on its financial position, results of operations, or cash flows.
Note
2 – Going Concern
As
shown in the accompanying financial statements, the Company had $1,281,818 of negative working capital as of December 31,
2020, has incurred recurring losses from operations resulting in an accumulated deficit of ($16,132,326) as of December
31, 2020, and its cash on hand may not be sufficient to sustain operations, however, we have received a commitment from ISIAH
International, LLC, a company under the control of our CEO, Isiah L. Thomas, III, to fund us with $3,000,000 by July 12, 2021.
As of April 14, 2021, we have received approximately, $1,250,000. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. Management is actively pursuing new customers to increase revenues. In addition, the Company
is currently seeking additional sources of capital to fund short term operations. Management believes these factors will contribute
toward achieving profitability. The accompanying financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
The
financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s
ability to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability
and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Note
3 –Mergers and Acquisitions
Reverse
Merger
On
February 21, 2019, One World Pharma, Inc. entered into an Agreement and Plan of Merger with OWP Merger Subsidiary, Inc., our wholly-owned
subsidiary, and OWP Ventures, which is the parent company of OWP Colombia. Pursuant to the Merger Agreement, we acquired OWP Ventures
(and indirectly, OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being the
surviving entity as our wholly-owned subsidiary. 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.
ONE
WORLD PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Acquisition
On
December 6, 2019, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., acquired 51% of the outstanding shares
of capital stock (the “Shares”) of Colombian Hope, S.A.S., then known as Colcannapy S.A.S., a Colombian company (“Colombian
Hope”), for a purchase price of US$102,000, pursuant to a Share Purchase Agreement (the “Purchase Agreement”)
among OWP Ventures, Inc. and Colombian Hope’s shareholders. Colombian Hope is the holder of a Colombian seed license and
23 registered Colombian cultivars.
Concurrently,
with the Company’s acquisition of the Shares, Federación Colombiana de Consejos Regionales (“Fedecoré”)
was supposed to have purchased the remaining 49% of Colombian Hope’s outstanding shares of capital stock from Colombian
Hope’s shareholders, so that the Company and Fedecoré would be the only shareholders of Colombian Hope. However,
Fedecoré, a non-profit Colombian entity, was unable to acquire such shares, which were then acquired by OWP Ventures, Inc.,
resulting in 100% ownership. No assets or liabilities were acquired pursuant to the acquisition, resulting in $102,000 of goodwill
that was impaired and expensed on December 31, 2019 due to the lack of current operations. To date, Colombian Hope has not incurred
any income or expenses.
Note
4 – Related Party Transactions
Advances
and Repayment to former CEO
As
described further in Note 13 below, on various dates between May 3, 2018 and November 23, 2018, our then CEO advanced us short-term
unsecured demand loans, bearing interest at 6% per annum, in an aggregate amount of $514,141, which was repaid on various dates
from March of 2019 through May of 2019, including $200,000 of such principal paid by the issuance of 400,000 shares of common
stock.
On
February 13, 2019, the remaining outstanding obligations under these advances were exchanged for an amended and restated promissory
note in the principal amount of $307,141 that bore interest at 6% and was payable upon the earlier of (i) a public or private
offering of our equity securities, resulting in gross proceeds of at least $5,000,000, or (ii) February 13, 2022. All indebtedness
outstanding under this note, consisting of $307,141 of principal and $13,791 of interest, was repaid in full during the year ended
December 31, 2019, with $200,000 of such principal paid by the issuance of 400,000 shares of common stock to the CEO, as
described below.
Notes Payable, CEO
On December 16, 2020, the Company received
an advance of $125,000 from our CEO, Isiah Thomas, III pursuant to an unsecured promissory note due on demand that carried a 6%
interest rate.
On October 28, 2020, the Company received
an advance of $50,000 from our CEO, Isiah Thomas, III pursuant to an unsecured promissory note due on demand that carried a 6%
interest rate.
Notes Payable, Chairman
On September 14, 2020, the Company received
an advance of $26,000 from our Chairman, Dr. Kenneth Perego, II, M.D. pursuant to an unsecured promissory note due on demand that
carried a 6% interest rate. The advance was repaid by the Company on March 31, 2021.
On April 2, 2020, the Company received
an advance of $6,000 from MCKP Investments LLC, a Company principally owned by the Company’s Chairman of the Board, Dr.
Kenneth Perego, II, on an unsecured promissory note due on demand that carries a 6% interest rate. On July 2, 2020, the debt was
repaid in full, including $90 of interest.
On November 14, 2019, the Company received
an advance of $50,000 from MCKP Investments LLC, pursuant to an unsecured promissory note due on demand that carries a 6% interest
rate. On July 2, 2020, the debt was repaid in full, including $1,882 of interest.
On November 14, 2019, the Company received
an additional advance of $80,000 from MCKP Investments LLC, pursuant to an unsecured promissory note due on demand that carries
a 6% interest rate. On July 2, 2020, the debt was repaid in full, including $3,011 of interest.
Common
Stock Issued for Services
On
December 31, 2020, the Company awarded 750,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego,
for services provided. The aggregate fair value of the common stock was $90,000 based on the closing price of the Company’s
common stock on the date of grant.
On
December 31, 2020, the Company awarded 750,000 shares of common stock to the Company’s Interim Chief Financial Officer/Director,
Bruce Raben, for services provided. The aggregate fair value of the common stock was $90,000 based on the closing price of the
Company’s common stock on the date of grant.
On
June 3, 2020, the Company awarded 500,000 shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas
III, as a signing bonus. The aggregate fair value of the common stock was $275,000 based on the closing price of the Company’s
common stock on the date of grant.
On
June 3, 2020, the Company awarded 2,000,000 shares of common stock to the Company’s former Chief Executive Officer, Craig
Ellins, pursuant to a Separation Agreement. The aggregate fair value of the common stock was $1,100,000 based on the closing price
of the Company’s common stock on the date of grant.
On
May 31, 2020, the Company awarded 350,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego,
for services provided. The aggregate fair value of the common stock was $196,000 based on the closing price of the Company’s
common stock on the date of grant.
Common
Stock Sale
On
September 4, 2019, the Company sold 400,000 shares of common stock at a price of $0.50 per share for $200,000 to the Company’s
CEO in which the consideration for such shares was paid by the cancellation of $200,000 of outstanding indebtedness owed to the
CEO under the Amended Note, in lieu of cash payment.
ONE
WORLD PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Common
Stock Options Issued for Services
On
June 3, 2020, the Company awarded options to purchase 5,500,000 shares of the Company’s Common Stock at an exercise price
equal to $0.55 per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were
issued outside of the Company’s 2019 Plan and are exercisable over a ten year period. The options vest as to 1,500,000 shares
immediately, as to 1,000,000 shares 120 days following the issuance of the option (the “Second Vesting Date”), and
as to the remaining 3,000,000 shares vesting quarterly over the three years following the Second Vesting Date. The estimated value
using the Black-Scholes Pricing Model, based on a volatility rate of 301% and a call option value of $0.5499, was $3,024,689.
The options were being expensed over the vesting period, resulting in $1,206,933 of stock-based compensation expense during the
year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase 350,000 shares of the Company’s Common Stock at an exercise price
equal to $0.56 per share to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest as to 116,667 shares immediately,
with the remaining 233,333 shares vesting quarterly over the following two years, beginning October 1, 2020. The estimated value
using the Black-Scholes Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $195,959. The
options were being expensed over the vesting period, resulting in $102,056 of stock-based compensation expense during the year
ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase 350,000 shares of the Company’s Common Stock at an exercise price
equal to $0.56 per share to Bruce Raben, the Company’s Interim Chief Financial Officer and a Director of the Company. The
options vest as to 116,667 shares immediately, with the remaining 233,333 shares vesting quarterly over the following two years,
beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 302% and a
call option value of $0.5599, was $195,959. The options were being expensed over the vesting period, resulting in $102,056 of
stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered
and cancelled.
Note
5 – Fair Value of Financial Instruments
Under
FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation
framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements
and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50
details the disclosures that are required for items measured at fair value.
The
Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability
to access at the measurement date.
Level
2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability
(e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market
data by correlation or other means (market corroborated inputs).
Level
3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset
or liability.
ONE
WORLD PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
The
following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balances sheet
as of December 31, 2020 and 2019:
|
|
Fair
Value Measurements at December 31, 2020
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
28,920
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Right-of-use-asset
|
|
|
-
|
|
|
|
-
|
|
|
|
195,029
|
|
Total
assets
|
|
|
28,920
|
|
|
|
-
|
|
|
|
195,029
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
201,525
|
|
Notes payable
|
|
|
-
|
|
|
|
334,841
|
|
|
|
-
|
|
Total
liabilities
|
|
|
-
|
|
|
|
(334,841
|
)
|
|
|
(201,525
|
)
|
|
|
$
|
28,920
|
|
|
$
|
(334,841
|
)
|
|
$
|
(6,496
|
)
|
|
|
Fair
Value Measurements at December 31, 2019
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
282,380
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Right-of-use-asset
|
|
|
-
|
|
|
|
-
|
|
|
|
502,706
|
|
Total
assets
|
|
|
282,380
|
|
|
|
-
|
|
|
|
502,706
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
508,352
|
|
Convertible notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
507,332
|
|
Notes payable
|
|
|
-
|
|
|
|
130,000
|
|
|
|
-
|
|
Total
liabilities
|
|
|
-
|
|
|
|
(130,000
|
)
|
|
|
(1,015,684
|
)
|
|
|
$
|
282,380
|
|
|
$
|
(130,000
|
)
|
|
$
|
(512,978
|
)
|
There
were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the years ended December 31, 2020
or 2019.
Note
6 – Inventory
Inventories are stated at the lower of cost
or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. Market is determined
based on net realizable value. Work in progress includes an allocation of overhead. Appropriate consideration is given
to obsolescence, excessive levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products
consist of cannabis flower grown in-house, along with produced extracts. Inventory consisted of the following at December 31,
2020 and 2019, respectively.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Raw materials
|
|
$
|
27,514
|
|
|
$
|
24,682
|
|
Work in progress
|
|
|
181,272
|
|
|
|
-
|
|
Finished goods
|
|
|
104,673
|
|
|
|
-
|
|
|
|
|
313,459
|
|
|
|
24,682
|
|
Less obsolescence
|
|
|
(46,307
|
)
|
|
|
-
|
|
Total
inventory
|
|
$
|
267,152
|
|
|
$
|
24,682
|
|
ONE
WORLD PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note
7 – Other Current Assets
Other
current assets included the following as of December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
VAT tax receivable
|
|
$
|
99,199
|
|
|
$
|
54,814
|
|
Prepaid expenses
|
|
|
19,226
|
|
|
|
132,338
|
|
Other receivables
|
|
|
486
|
|
|
|
79,954
|
|
Total
|
|
$
|
118,911
|
|
|
$
|
267,106
|
|
Note
8 – Security Deposits
Security
deposits included the following as of December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Utility deposits
|
|
$
|
660
|
|
|
$
|
-
|
|
Refundable deposit on equipment purchase
|
|
|
50,000
|
|
|
|
50,000
|
|
Security deposits on leases held
in Colombia
|
|
|
9,960
|
|
|
|
18,033
|
|
Security deposit
on office lease
|
|
|
4,494
|
|
|
|
4,494
|
|
|
|
$
|
65,114
|
|
|
$
|
72,527
|
|
Note
9 – Fixed Assets
Fixed
assets consist of the following at December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Land
|
|
$
|
138,248
|
|
|
$
|
138,248
|
|
Buildings
|
|
|
41,665
|
|
|
|
-
|
|
Office equipment
|
|
|
44,027
|
|
|
|
44,027
|
|
Furniture and fixtures
|
|
|
27,914
|
|
|
|
27,914
|
|
Equipment and machinery
|
|
|
185,169
|
|
|
|
174,072
|
|
Construction
in progress
|
|
|
345,036
|
|
|
|
335,231
|
|
|
|
|
782,059
|
|
|
|
719,492
|
|
Less: accumulated
depreciation
|
|
|
(55,239
|
)
|
|
|
(21,629
|
)
|
Total
|
|
$
|
726,820
|
|
|
$
|
697,863
|
|
Construction
in progress consists of equipment and capital improvements on the Popayán farm that have not yet been placed in service.
Depreciation
and amortization expense totaled $33,610 and $19,668 for the years ended December 31, 2020 and 2019, respectively.
ONE
WORLD PHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note
10 – Accrued Expenses
Accrued
expenses consisted of the following at December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued payroll
|
|
$
|
266,230
|
|
|
$
|
67,479
|
|
Accrued withholding taxes and employee
benefits
|
|
|
18,889
|
|
|
|
14,386
|
|
Accrued ICA fees and contributions
|
|
|
200,335
|
|
|
|
1,912
|
|
Accrued interest
|
|
|
65,081
|
|
|
|
25,888
|
|
|
|
$
|
550,535
|
|
|
$
|
109,665
|
|
Note
11 – Leases
The
Company’s corporate offices and operational facility in Colombia under short-term non-cancelable real property lease agreements
that expire within a year. The Company doesn’t have any other office or equipment leases subject to the recently adopted
ASU 2016-02. In the locations in which it is economically feasible to continue to operate, management expects that lease options
will be exercised. The Company’s corporate office is under a real property lease that contains a one-time renewal option
for an additional 36 months that we determined would be reasonably certain to be extended. The office lease contains provisions
requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise.
As the Company’s leases do not provide an implicit discount rate, the Company uses an incremental borrowing rate based on
the information available at the commencement date in determining the present value of lease payments.
The
components of lease expense were as follows:
|
|
For the
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
Operating lease cost:
|
|
|
|
|
Amortization
of assets
|
|
$
|
43,144
|
|
Interest
on lease liabilities
|
|
|
15,114
|
|
Total lease
cost
|
|
$
|
58,258
|
|
Supplemental
balance sheet information related to leases was as follows:
|
|
December 31,
|
|
|
|
2020
|
|
Operating leases:
|
|
|
|
|
Operating
lease assets
|
|
$
|
195,029
|
|
|
|
|
|
|
Current portion
of operating lease liabilities
|
|
$
|
45,271
|
|
Noncurrent
operating lease liabilities
|
|
|
156,254
|
|
Total
operating lease liabilities
|
|
$
|
201,525
|
|
|
|
|
|
|
Weighted average remaining lease
term:
|
|
|
|
|
Operating leases
|
|
|
3.83
years
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
Operating leases
|
|
|
6.75
|
%
|
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental
cash flow and other information related to leases was as follows:
|
|
For the
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
Cash paid for amounts included in
the measurement of lease liabilities:
|
|
|
|
|
Operating
cash flows used for operating leases
|
|
$
|
306,827
|
|
Future
minimum annual lease commitments under non-cancelable operating leases are as follows at December 31, 2020:
|
|
Operating
|
|
|
|
Leases
|
|
|
|
|
|
2021
|
|
$
|
57,498
|
|
2022
|
|
|
59,223
|
|
2023
|
|
|
61,000
|
|
2024
|
|
|
52,098
|
|
Total minimum
lease payments
|
|
|
229,819
|
|
Less interest
|
|
|
28,294
|
|
Present value
of lease liabilities
|
|
|
201,525
|
|
Less current
portion
|
|
|
45,271
|
|
Long-term
lease liabilities
|
|
$
|
156,254
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
12 – Convertible Note Payable
Convertible
note payable consists of the following at December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
On November 30, 2018,
the Company received proceeds of $300,000 on a secured convertible note that carries a 6% interest rate from CSW Ventures,
LP (“CSW”). The proceeds were used to fund the Company’s purchase of 875,000 shares of common stock, on
a 1:4 split adjusted basis, of One World Pharma, Inc. The Note was due on demand. In the event that the Company consummated
the closing of a public or private offering of its equity securities, resulting in gross proceeds of at least $500,000 (“Qualified
Financing”) at any time prior to the repayment of this note, then the outstanding principal and unpaid interest could
have been, at the option of the holder, converted into such equity securities at a conversion price equal to eighty percent
(80%) of the purchase price paid by the investors purchasing the equity securities in the Qualified Financing. A Qualified
Financing subsequently occurred on February 4, 2019, at which time the convertible note became convertible at a fixed conversion
price of $0.40 per share. The Company’s obligations under this Note were secured by a lien on the assets of the Company.
On September 14, 2020, the principal was repaid by the issuance of 30,000 shares of Series A Convertible Preferred Stock to
CSW in satisfaction of obligation to repay such principal.
|
|
$
|
-
|
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
On January 14, 2019, the Company
received proceeds of $500,000 on an unsecured convertible promissory note that carries a 6% interest rate from The Sanguine
Group LLC. The Note was due January 14, 2022. In the event that the Company consummated the closing of a public or private
offering of its equity securities, resulting in gross proceeds of at least $500,000 (“Qualified Financing”) at
any time prior to the repayment of this note, then the outstanding principal and unpaid interest would automatically be converted
into such equity securities at a conversion price equal to the lesser of (i) eighty percent (80%) of the purchase price paid
by the investors purchasing the equity securities in the Qualified Financing, or (ii) $0.424 per share. The Company’s
obligations under this Note were secured by a lien on the assets of the Company. A Qualified Financing subsequently occurred
on February 4, 2019, at which time the principal and interest were converted into 1,253,493 shares of the Company’s
common stock.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On July 22, 2019, a total of $207,332,
consisting of $200,000 of principal and $7,332 of unpaid interest, on two outstanding demand notes owed to CSW that originated
on November 26, 2018 and December 26, 2018, were exchanged for a convertible promissory note in the principal amount of $207,332,
due on demand (the “Second Convertible CSW Note”). The Second Convertible CSW Note carried interest at 6% per
annum and was convertible at the option of the holder into shares of common stock at a price of $0.50 per share. On September
14, 2020, the principal was repaid with $207,332 of such principal paid by the issuance of 20,733 shares of Series A Convertible
Preferred Stock to CSW.
|
|
|
-
|
|
|
|
207,332
|
|
Less: unamortized
debt discounts
|
|
|
-
|
|
|
|
-
|
|
Convertible
note payable
|
|
$
|
-
|
|
|
$
|
507,332
|
|
In
addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible notes by allocating
a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the
feature was calculated on the commitment date using the effective conversion price of the convertible notes. This intrinsic value
is limited to the portion of the proceeds allocated to the convertible debt.
The aforementioned accounting treatment resulted
in a total debt discounts equal to $332,332, for the year ended December 31, 2019. The Company recorded finance expense
in the amount of $332,332 for the year ended December 31, 2019.
The
convertible note limits the maximum number of shares that can be owned by the note holder as a result of the conversions to common
stock to 4.99% of the Company’s issued and outstanding shares.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $21,516 and
$24,751 for the years ended December 31, 2020 and 2019, respectively. In addition, the Company recognized $332,332 of interest
expense related to the debt discount for the year ended December 31, 2019.
Note
13 – Advances from Shareholders
Advances
from shareholders consist of the following at December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
On various dates between May 3, 2018 and November 23, 2018, our former CEO advanced short-term unsecured demand loans, bearing interest at 6% per annum, of an aggregate $514,141 to the Company, as follows:
$ 10,000 – May 3, 2018
$100,000 – May 3, 2018
$ 82,000 – May 14, 2018
$ 15,000 – May 29, 2018
$ 57,141 – October 25, 2018
$100,000 – October 30, 2018
$ 50,000 – November 9, 2018
$ 50,000 – November 21, 2018
$ 50,000 – November 23, 2018
A
total of $207,000, of the $514,141 of advances, was repaid over various dates
from March of 2019 through May of 2019. On February 13, 2019, the remaining $307,141
of the advances from our former CEO received from October 25, 2018 to November 23, 2018,
as shown above, were exchanged for an amended and restated promissory note in the principal
amount of $307,141 (the “Amended Note”). The Amended Note bore interest at
6% and was payable upon the earlier of (i) a public or private offering of our equity
securities, resulting in gross proceeds of at least $5,000,000, or (ii) February 13,
2022. All indebtedness outstanding under the Amended Note, consisting of $307,141 of
principal and $13,791 of interest, was repaid in full during September 2019, with $200,000
of such principal paid by the issuance of 400,000 shares of common stock as described
in Note 4 above.
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company recorded interest expense in the amount of $-0- and $16,053 for the years ended December 31, 2020 and 2019, respectively.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
14 – Notes Payable
Notes
payable consists of the following at December 31, 2020 and 2019, respectively:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
On February 3, 2020,
the Company, through its wholly-owned subsidiary, One World Pharma SAS, received an advance of 100,000,000 COP, or $29,134
USD, from an individual pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. The Company
repaid 50,000,000 COP, or $14,567 USD, during the year ended December 31, 2020.
|
|
$
|
14,567
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
On December 16, 2020, the Company
received an advance of $125,000 from our CEO, Isiah Thomas, III pursuant to an unsecured promissory note due on demand that
carried a 6% interest rate.
|
|
|
125,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On October 28, 2020, the Company
received an advance of $50,000 from our CEO, Isiah Thomas, III pursuant to an unsecured promissory note due on demand that
carried a 6% interest rate.
|
|
|
50,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On September 14, 2020, the Company
received an advance of $26,000 from our Chairman, Dr. Kenneth Perego, II, M.D. pursuant to an unsecured promissory note due
on demand that carried a 6% interest rate. The advance was repaid by the Company on March 31, 2021.
|
|
|
26,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On May 4, 2020, the Company received
an advance of $20,000 from Woodman Management pursuant to an unsecured promissory note due on demand that carried a 6% interest
rate. The advance was repaid by the Company on May 14, 2020.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On various dates between January 29, 2020 and March 31, 2020, the Company received advances from CSW Ventures, LP aggregating of $116,000, pursuant to unsecured promissory notes due on demand that carry a 6% interest rate, as follows:
$25,000 – January 29, 2020
$25,000 – February 13, 2020
$15,000 – February 26, 2020
$15,000 – March 11, 2020
$ 6,000 – March 31, 2020
$10,000 – August 17, 2020
$20,000 – August 20, 2020
On
September 14, 2020, the principal was repaid with $116,000 of such principal paid by the issuance of 11,600 shares of Series A
Convertible Preferred Stock to CSW.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On May 4, 2020, the Company, through
its wholly-owned subsidiary OWP Ventures, Inc., borrowed $119,274 from Customers Bank (“Lender”), pursuant to
a Promissory Note issued by OWP Ventures to Lender (the “PPP Note”). The loan was made pursuant to the Payroll
Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).
The PPP Note bears interest at 1.00% per annum, payable monthly beginning December 4, 2020, and is due on May 4, 2022. The
PPP Note may be repaid at any time without penalty.
Under the Payroll Protection Program, the Company will
be eligible for loan forgiveness up to the full amount of the PPP Note and any accrued interest. The forgiveness amount will
be equal to the amount that the Company spends during the 24-week period beginning May 4, 2020 on payroll costs, payment of
rent on any leases in force prior to February 15, 2020 and payment on any utility for which service began before February
15, 2020. The maximum amount of loan forgiveness for non-payroll expenses is 40% of the amount of the PPP Note. No assurance
is provided that the Company will obtain forgiveness of the PPP Note in whole or in part.
The PPP Note contains
customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or
provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment
of all amounts outstanding under the PPP Note.
|
|
|
119,274
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On April 2, 2020, the Company received
an advance of $6,000 from MCKP Investments LLC, a Company principally owned by the Company’s Chairman of the Board,
Dr. Kenneth Perego, II, on an unsecured promissory note due on demand that carries a 6% interest rate. On July 2, 2020, the
debt was repaid in full, including $90 of interest.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On November 14, 2019, the Company
received an advance of $50,000 from MCKP Investments LLC, pursuant to an unsecured promissory note due on demand that carries
a 6% interest rate. On July 2, 2020, the debt was repaid in full, including $1,882 of interest.
|
|
|
-
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
On November 14, 2019, the Company
received an additional advance of $80,000 from MCKP Investments LLC, pursuant to an unsecured promissory note due on demand
that carries a 6% interest rate. On July 2, 2020, the debt was repaid in full, including $3,011 of interest.
|
|
|
-
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
Total notes
payable
|
|
$
|
334,841
|
|
|
$
|
130,000
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company recorded interest expense in the amount of $9,734 and $7,679 for the years ended December 31, 2020 and 2019, respectively,
including $1,296 of interest payable to officers and directors.
The
Company recognized interest expense for the year ended December 31, 2020 and 2019, respectively, as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Interest on convertible
notes
|
|
$
|
21,516
|
|
|
$
|
24,751
|
|
Interest on advances from shareholders
|
|
|
-
|
|
|
|
16,053
|
|
Interest on notes payable
|
|
|
9,734
|
|
|
|
7,679
|
|
Amortization of beneficial conversion
features
|
|
|
-
|
|
|
|
332,332
|
|
Interest on
accounts payable
|
|
|
16,342
|
|
|
|
1,767
|
|
Total
interest expense
|
|
$
|
47,592
|
|
|
$
|
382,582
|
|
Note
15 – Stockholders’ Equity
Reverse
Stock Split
On
January 10, 2019, the Company effected a 1-for-4 reverse stock split (the “Reverse Stock Split”). No fractional shares
were issued, and no cash or other consideration was paid in connection with the Reverse Stock Split. Instead, the Company issued
one whole share of the post-Reverse Stock Split common stock to any stockholder who otherwise would have received a fractional
share as a result of the Reverse Stock Split. The Company’s authorized shares of common stock prior to the Reverse Stock
Split were unaffected. The Reverse Stock Split also did not have any effect on the stated par value of the common stock. Unless
otherwise stated, all share and per share information in this Annual Report on Form 10-K has been retroactively adjusted to reflect
the Reverse Stock Split.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Preferred
Stock
The
Company has 10,000,000 authorized shares of $0.001 par value “blank check” preferred stock, of which 500,000 shares
have been designated Series A Preferred Stock and 300,000 shares have been designated Series B Preferred Stock, subject to
anti-dilution provisions. Each share of Series A Preferred Stock is currently convertible into one hundred (100) shares
of the Company’s common stock. The Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable annually
in cash or additional shares of Series A Preferred Stock, at the Company’s election. As of December 31, 2020, there were
150,233 shares of Series A Preferred Stock issued and outstanding. No Series B Preferred Stock were outstanding as of December
31, 2020. The Series A Preferred Stock is presented as mezzanine equity on the balance sheet due to it carrying a stated value
of $10 per share and a deemed liquidation clause, which entitles the holder to receive, before and in preference to any distribution
or payment of assets of the Corporation or the proceeds thereof may be made or set apart for the holders of junior securities
an amount in cash equal to the stated value per share, plus an amount equal to any accrued and unpaid dividends. Each share
of Preferred Stock carries a number of votes equal to the number of shares of common stock into which such Preferred Stock may
then be converted. The Preferred Stock generally will vote together with the common stock and not as a separate class.
The Series A Convertible
Preferred Stock has been classified outside of permanent equity and liabilities since it embodies a conditional obligation that
the Company may settle by issuing a variable number of equity shares and the monetary value of the obligation is based on a fixed
monetary amount known at inception.
Series
A Preferred Stock Sales
On
various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $1,502,330 from the sale of
150,233 units, consisting in the aggregate of 150,233 shares of Series A Preferred Stock and five-year warrants to purchase 7,511,650
shares of common stock at an exercise price of $0.25 per share to twenty-two accredited investors. The proceeds received were
allocated between the Series A Preferred Stock and warrants on a relative fair value basis.
Series
A Preferred Stock Dividends
The
Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable annually in cash or additional shares of Series
A Preferred Stock, at the Company’s election. A total of $37,236 of dividends were payable as of December 31, 2020.
Common
Stock
The
Company is authorized to issue an aggregate of 300,000,000 shares of common stock with a par value of $0.001. As of December 31,
2020, there were 53,085,305 shares of common stock issued and outstanding.
Common
Stock Sales, 2020
On
November 27, 2020, the Company sold an aggregate of 750,000 shares of common stock at a price of $0.10 per share for total cash
proceeds of $75,000. The shares were subsequently issued on March 1, 2021. Prior to the issuance, the fair value of the shares
was reflected on the Company’s balance sheet as subscriptions payable.
Common
Stock Issued on Subscriptions Payable, 2020
On
January 6, 2020, the Company issued 500,000 shares of common stock that were purchased on December 31, 2019 at $0.50 per share
for proceeds of $25,000. Prior to the issuance, the purchase price was reflected on the Company’s balance sheet as subscriptions
payable.
Common
Stock Issued for Services, Employees and Consultants, 2020
On
December 31, 2020, the Company awarded 100,000 shares of common stock to a consultant for services performed. The aggregate fair
value of the common stock was $12,000 based on the closing price of the Company’s common stock on the date of grant.
On
September 21, 2020, the Company awarded 250,000 shares of common stock to a consultant for services performed. The aggregate fair
value of the common stock was $45,000 based on the closing price of the Company’s common stock on the date of grant.
On
July 1, 2020, the Company awarded an aggregate of 875,000 shares of common stock to four employees and consultants for services
provided. The aggregate fair value of the common stock was $332,500 based on the closing price of the Company’s common stock
on the date of grant.
On
June 3, 2020, the Company awarded 200,000 shares of common stock to a consultant for services performed. The aggregate fair value
of the common stock was $120,000 based on the closing price of the Company’s common stock on the date of grant.
On
various dates between January 4, 2020 and May 31, 2020, the Company awarded an aggregate of 2,006,000 shares of common stock to
ten employees and consultants for services provided. The aggregate fair value of the common stock was $1,318,000 based on the
closing price of the Company’s common stock on the date of grant.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Common
Stock Issued for Services, Officers and Directors, 2020
On
December 31, 2020, the Company awarded 750,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego,
for services provided. The aggregate fair value of the common stock was $90,000 based on the closing price of the Company’s
common stock on the date of grant.
On
December 31, 2020, the Company awarded 750,000 shares of common stock to the Company’s Interim Chief Financial Officer/Director,
Bruce Raben, for services provided. The aggregate fair value of the common stock was $90,000 based on the closing price of the
Company’s common stock on the date of grant.
On
June 3, 2020, the Company awarded 500,000 shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas
III, as a signing bonus. The aggregate fair value of the common stock was $275,000 based on the closing price of the Company’s
common stock on the date of grant.
On
June 3, 2020, the Company awarded 2,000,000 shares of common stock to the Company’s former Chief Executive Officer, Craig
Ellins, pursuant to a Separation Agreement. The aggregate fair value of the common stock was $1,100,000 based on the closing price
of the Company’s common stock on the date of grant.
On
May 31, 2020, the Company awarded 350,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego,
for services provided. The aggregate fair value of the common stock was $196,000 based on the closing price of the Company’s
common stock on the date of grant.
Common
Stock Issued for Share Exchange, 2019
On
February 21, 2019, One World Pharma acquired OWP Ventures in the Merger. As a result of the Merger (a) holders of the outstanding
capital stock of OWP Ventures received an aggregate of 39,475,398 shares of our common stock; (b) the options described above
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”; and (d) 875,000 shares of our common stock owned by OWP Ventures prior to the Merger were cancelled.
Common
Stock Sales, 2019
On
various dates between July 18, 2019 and December 18, 2019, the Company sold an aggregate of 4,360,700 shares of common stock at
a price of $0.50 per share for total cash proceeds of $2,430,350, and 400,000 shares purchased by the Company’s CEO in which
the consideration for such shares was paid by the cancelation of $200,000 of outstanding indebtedness owed to the CEO under a
promissory note, in lieu of cash payment.
On
various dates between January 3, 2019 and February 19, 2019, the Company sold an aggregate 3,900,000 shares of common stock of
OWP Ventures at $0.50 per share for total proceeds of $1,950,000.
Common
Stock Issued on Subscriptions Payable, 2019
On
December 31, 2019 we sold 500,000 shares of common stock at a price of $0.50 per share for total cash proceeds of $250,000. The
shares were subsequently issued on January 6, 2020, and the Company recognized a subscriptions payable of $250,000 at December
31, 2019.
Common
Stock Issued for Debt Conversion, 2019
On
February 4, 2019, a total of 1,253,493 shares of common stock of OWP Ventures were issued pursuant to the conversion of $501,397
of convertible debt owed to The Sanguine Group LLC, consisting of $500,000 of principal and $1,397 of interest.
Common
Stock Options Exercised, 2019
On
August 28, 2019, a total of 51,040 shares of common stock were issued upon exercise on a cashless basis of options to purchase
58,331 shares of common stock at a price $0.50 per share.
Common
Stock Issued for Services, Consultants, 2019
On
February 18, 2019, the Company issued 30,000 shares of common stock of OWP Ventures to a consultant for services. The total fair
value of the common stock was $15,000 based recent independent third-party sales at $0.50 per share.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
various dates between September 4, 2019 and December 4, 2019, the Company awarded an investor relations firm an aggregate 69,666
shares of common stock for services provided. The aggregate fair value of the common stock was $221,560 based on the closing price
of the Company’s common stock on the date of grant, and was expensed during the current period.
Adjustments
to Additional Paid-In Capital, 2019
Pursuant
to the purchase of 66.2% of the outstanding common stock of One World Pharma, Inc for $350,000 on November 30, 2018, the Company
realized goodwill of $349,420 on the consideration paid in excess of the net fair value of assets and liabilities assumed, which
has been recognized as contributed capital due to the subsequent reverse merger between the two entities on February 21, 2019.
Note
16 – Common Stock Options
Stock
Incentive Plan
On
February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which
had been adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides
for the issuance of up to 10,000,000 shares of common stock to the Company and its subsidiaries’ employees, officers, directors,
consultants and advisors, stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights (“SARs”),
restricted stock units (“RSUs”) and other performance stock awards. Options granted under the 2019 Plan may either
be intended to qualify as incentive stock options under the Internal Revenue Code of 1986, or may be non-qualified options, and
are exercisable over periods not exceeding ten years from date of grant. Unless sooner terminated in accordance with its terms,
the Stock Plan will terminate on December 10, 2029.
Common
Stock Options Issued for Services, 2020
On
December 31, 2020, the Company awarded options to purchase 250,000 shares of the Company’s Common Stock at an exercise price
equal to $0.13 per share to a consultant. The options vest in equal quarterly installments over the following year. The
estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170,
was $29,245. The options are being expensed over the vesting period. As of December 31, 2020, a total of $29,245 of unamortized
expenses are expected to be expensed over the vesting period.
On
December 31, 2020, the Company awarded options to purchase 125,000 shares of the Company’s Common Stock at an exercise price
equal to $0.13 per share to a consultant. The options vest in equal quarterly installments over the following year. The
estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170,
was $14,622. The options are being expensed over the vesting period. As of December 31, 2020, a total of $14,622 of unamortized
expenses are expected to be expensed over the vesting period.
On
December 31, 2020, the Company awarded options to purchase 50,000 shares of the Company’s Common Stock at an exercise price
equal to $0.13 per share to a consultant. The options vest in equal quarterly installments over the following year. The
estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170,
was $5,849. The options are being expensed over the vesting period. As of December 31, 2020, a total of $5,849 of unamortized
expenses are expected to be expensed over the vesting period.
On
July 1, 2020, the Company awarded options to purchase 125,000 shares of the Company’s Common Stock at an exercise price
equal to $0.38 per share to a consultant. The options are exercisable over a ten year period. The options vested quarterly over
six months. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 303% and a call option value
of $0.3798, was $47,476. The options were expensed over the vesting period, resulting in $47,476 of stock-based compensation expense
during the year ended December 31, 2020.
On
July 1, 2020, the Company awarded options to purchase 1,000,000 shares of the Company’s Common Stock at an exercise price
equal to $0.38 per share to a consultant. The options were exercisable over a ten year period. The options will vest quarterly
over three years. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 303% and a call option
value of $0.38, was $379,958. The options were being expensed over the vesting period, resulting in $63,326 of stock-based compensation
expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
July 1, 2020, the Company awarded options to purchase 125,000 shares of the Company’s Common Stock at an exercise price
equal to $0.38 per share to a consultant for Advisory Board services. The options are exercisable over a ten year period. The
options will vest quarterly over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate
of 303% and a call option value of $0.3799, was $47,482. The options are being expensed over the vesting period, resulting in
$23,742 of stock-based compensation expense during the year ended December 31, 2020. As of December 31, 2020, a total of $23,740
of unamortized expenses are expected to be expensed over the vesting period.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
June 3, 2020, the Company awarded options to purchase 5,500,000 shares of the Company’s Common Stock at an exercise price
equal to $0.55 per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were
issued outside of the Company’s 2019 Plan and are exercisable over a ten year period. The options vest as to 1,500,000 shares
immediately, as to 1,000,000 shares 120 days following the issuance of the option (the “Second Vesting Date”), and
as to the remaining 3,000,000 shares vesting quarterly over the three years following the Second Vesting Date. The estimated value
using the Black-Scholes Pricing Model, based on a volatility rate of 301% and a call option value of $0.5499, was $3,024,689.
The options were being expensed over the vesting period, resulting in $1,206,933 of stock-based compensation expense during the
year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase 350,000 shares of the Company’s Common Stock at an exercise price
equal to $0.56 per share to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest as to 116,667 shares immediately,
with the remaining 233,333 shares vesting quarterly over the following two years, beginning October 1, 2020. The estimated value
using the Black-Scholes Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $195,959. The
options were being expensed over the vesting period, resulting in $102,056 of stock-based compensation expense during the year
ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase 350,000 shares of the Company’s Common Stock at an exercise price
equal to $0.56 per share to Bruce Raben, the Company’s Interim Chief Financial Officer and a Director of the Company. The
options vest as to 116,667 shares immediately, with the remaining 233,333 shares vesting quarterly over the following two years,
beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 302% and a
call option value of $0.5599, was $195,959. The options were being expensed over the vesting period, resulting in $102,056 of
stock-based compensation expense during the year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered
and cancelled.
On
May 31, 2020, the Company awarded options to purchase an aggregate 1,900,000 shares of the Company’s Common Stock at an
exercise price equal to $0.56 per share to six consultants and employees. The options vest as to 633,333 shares immediately, with
the remaining 1,266,667 shares vesting quarterly over the following three years, beginning October 1, 2020. The estimated value
using the Black-Scholes Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $1,063,879.
The options were being expensed over the vesting period, resulting in $458,058 of stock-based compensation expense during the
year ended December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase an aggregate 100,000 shares of the Company’s Common Stock at an exercise
price equal to $0.56 per share to two consultants. The options vest as to 33,333 shares immediately, with the remaining 66,667
shares vesting quarterly over the following three years, beginning October 1, 2020. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $55,994. The options are being expensed
over the vesting period, resulting in $25,760 of stock-based compensation expense during the year ended December 31, 2020. As
of December 31, 2020, a total of $30,234 of unamortized expenses are expected to be expensed over the vesting period. On December
31, 2020, the options were voluntarily surrendered and cancelled.
Common
Stock Options Issued for Services, 2019
On
February 8, 2019, the Company awarded cashless options to a service provider to acquire up to 100,000 shares of common stock,
exercisable at $0.50 per share over a thirty-six (36) month period from the origination date. The options vest as to (i) 8,333
shares on the 8th day of each subsequent month for the following eleven months, and (ii) 8,337 shares on the one-year
anniversary of the effective date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 105%
and a call option value of $2.3658, was $236,582. The options were expensed over the vesting period, resulting in $25,279 and
$211,303 of stock-based compensation expense during the years ended December 31, 2020 and 2019, respectively. On December 31,
2020, the options were voluntarily surrendered and cancelled.
On
February 8, 2019, the Company awarded cashless options to one of our directors to acquire up to 125,000 shares of common stock,
exercisable at $0.50 per share over a thirty-six (36) month period from the origination date. The options vest as to (i) 10,416
shares on the 8th day of each subsequent month for the following eleven months, and (ii) 10,424 shares on the one-year
anniversary of the effective date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 105%
and a call option value of $2.3727, was $296,593. The options were expensed over the vesting period, resulting in $31,690 and
$264,903 of stock-based compensation expense during the year ended December 31, 2020 and 2019, respectively. On December 31, 2020,
the options were voluntarily surrendered and cancelled.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
January 28, 2019, the Company awarded cashless options to a service provider to acquire up to 500,000 shares of common stock,
exercisable at $0.50 per share over a thirty-six (36) month period from the origination date. The options vest as to (i) 41,666
shares on the 8th day of each subsequent month for the following eleven months, and (ii) 41,674 shares on the one-year
anniversary of the effective date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 105%
and a call option value of $1.8305, was $915,230. The options were expensed over the vesting period, resulting in $70,209 and
$845,021 of stock-based compensation expense during the years ended December 31, 2020 and 2019, respectively.
On
January 28, 2019, the Company awarded cashless options to a service provider to acquire up to 100,000 shares of common stock,
exercisable at $0.50 per share over a thirty-six (36) month period from the origination date. The options vest as to (i) 8,333
shares on the 8th day of each subsequent month for the following eleven months, and (ii) 8,337 shares on the one-year
anniversary of the effective date. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 105%
and a call option value of $1.8381, was $183,805. The options were expensed over the vesting period, resulting in $14,100 and
$169,705 of stock-based compensation expense during the years ended December 31, 2020 and 2019, respectively. On December 31,
2020, the options were voluntarily surrendered and cancelled.
Options
Exercised, 2019
No
options were exercised during the year ended December 31, 2020. On August 28, 2019, a total of 51,040 shares of common stock were
issued upon exercise on a cashless basis of options to purchase 58,331 shares of common stock at a price $0.50 per share. No options
were exercised during the year ended December 31, 2020.
The
following is a summary of information about the Stock Options outstanding at December 31, 2020.
Shares
Underlying Options Outstanding
|
|
Shares
Underlying
Options
Exercisable
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Average
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
|
Weighted
|
|
|
|
|
Underlying
|
|
|
|
Remaining
|
|
|
|
Average
|
|
|
|
Underlying
|
|
|
|
Average
|
|
Range of
|
|
|
Options
|
|
|
|
Contractual
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
|
Exercise
|
|
Exercise
Prices
|
|
|
Outstanding
|
|
|
|
Life
|
|
|
|
Price
|
|
|
|
Exercisable
|
|
|
|
Price
|
|
$0.13 - $0.56
|
|
|
1,275,000
|
|
|
|
6.36
years
|
|
|
$
|
0.36
|
|
|
|
632,640
|
|
|
$
|
0.49
|
|
The
following is a summary of activity of outstanding stock options:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of
Shares
|
|
|
Prices
|
|
Balance, December 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
Options
granted
|
|
|
825,000
|
|
|
|
0.50
|
|
Options
exercised
|
|
|
(58,331
|
)
|
|
|
(0.50
|
)
|
Balance, December 31, 2019
|
|
|
766,669
|
|
|
|
0.50
|
|
Options granted
|
|
|
9,875,000
|
|
|
|
0.51
|
|
Options
exercised
|
|
|
(9,366,669
|
)
|
|
|
(0.53
|
)
|
Balance, December
31, 2020
|
|
|
1,275,000
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2020
|
|
|
632,640
|
|
|
$
|
0.49
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
17 – Common Stock Warrants
Warrants
to purchase a total of 7,511,650 shares of common stock were outstanding as of December 31, 2020.
On
various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $1,502,330 from the sale of
150,233 units, consisting in the aggregate of 150,233 shares of Series A Preferred Stock and five-year warrants to purchase 7,511,650
shares of common stock at an exercise price of $0.25 per share to twenty-two accredited investors. The proceeds received were
allocated between the Series A Preferred Stock and warrants on a relative fair value basis. The aggregate estimated value of the
warrants using the Black-Scholes Pricing Model, based on a weighted average volatility rate of 305% and a weighted average call
option value of $0.2882, was $2,164,995.
The
following is a summary of information about our warrants to purchase common stock outstanding at December 31, 2020.
Shares
Underlying Warrants Outstanding
|
|
|
Shares
Underlying Warrants Exercisable
|
|
|
|
|
|
|
Range
of
Exercise
Prices
|
|
|
Shares
Underlying
Warrants
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
Underlying
Warrants
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.25
|
|
|
|
7,511,650
|
|
|
4.59
years
|
|
$
|
0.25
|
|
|
|
7,511,650
|
|
|
$
|
0.25
|
|
The
fair value of each warrant grant is estimated on the date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants under the fixed option plan:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Average risk-free interest
rates
|
|
|
0.30
|
%
|
|
|
N/A
|
|
Average expected life (in years)
|
|
|
5.00
|
|
|
|
N/A
|
|
Volatility
|
|
|
305
|
%
|
|
|
N/A
|
|
No
warrants were issued during the year ended December 31, 2019. The weighted average fair value of warrants granted with exercise
prices at the current fair value of the underlying stock during the year ended December 31, 2020 was approximately $0.25 per warrant.
The
following is a summary of activity of outstanding common stock warrants:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of
Shares
|
|
|
Price
|
|
Balance, December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
Warrants
granted
|
|
|
7,511,650
|
|
|
|
0.25
|
|
Warrants
exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2020
|
|
|
7,511,650
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2020
|
|
|
7,511,650
|
|
|
$
|
0.25
|
|
Deemed Dividend
Adjustment, Series A Preferred Stock
Per guidance of
ASC 260, the Company recorded a deemed dividend of $1,502,330 related to the 7,511,650 warrants included with the Unit Offerings,
consisting of the sale of the Series A Preferred Stock and common stock warrants. The value of the deemed dividend was capped
at the fair value of the consideration received for the sale of the Unit Offerings.
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
18 – Commitments and Contingencies
Lease
Commitment
The
Company leases executive office space in Las Vegas, Nevada. In addition, OWP Colombia leases an office and a home in Bogota under
leases expiring in less than a year. Our anticipated future lease commitments on a calendar year basis in US dollars, excluding
common area maintenance fees, under non-cancelable operating leases are as follows. Amounts of minimum future annual commitments
on a calendar year basis in US dollars, excluding common area maintenance fees, under non-cancelable operating leases are as follows:
|
|
Minimum
|
|
Year Ending
|
|
Lease
|
|
December
31,
|
|
Commitments
|
|
2021
|
|
$
|
57,498
|
|
2022
|
|
|
59,223
|
|
2023
|
|
|
61,000
|
|
2024
|
|
|
52,098
|
|
Total minimum
lease payments
|
|
|
229,819
|
|
Less interest
|
|
|
28,294
|
|
Present value
of lease liabilities
|
|
|
201,525
|
|
Less current
portion
|
|
|
45,271
|
|
Long-term
lease liabilities
|
|
$
|
156,254
|
|
Rent
expense was $156,362 and $136,750 for the years ended December 31, 2020 and 2019, respectively.
Legal
Contingencies
There
are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any
such proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved
in a proceeding adverse to our business or has a material interest adverse to our business.
Note
19 - Income Tax
The
Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides
that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes, referred to as temporary differences.
For
the years ended December 31, 2020 and 2019, the Company incurred a net operating loss and, accordingly, no provision for income
taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of the realization
of any tax assets. At December 31, 2020, the Company had approximately $5,900,000 of federal net operating losses. The
net operating loss carry forwards, if not utilized, will begin to expire in 2025.
The
provision (benefit) for income taxes for the years ended December 31, 2020 and 2019 were assuming a 21% effective tax rate. The
effective income tax rate for the years ended December 31, 2020 and 2019 consisted of the following:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Federal statutory income
tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
State income taxes
|
|
|
-%
|
|
|
|
-%
|
|
Change in valuation
allowance
|
|
|
(21
|
)%
|
|
|
(21
|
)%
|
Net effective
income tax rate
|
|
|
-
|
|
|
|
-
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
components of the Company’s deferred tax asset are as follows:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
|
$
|
1,239,000
|
|
|
$
|
908,350
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets before valuation
allowance
|
|
$
|
1,239,000
|
|
|
$
|
908,350
|
|
Less:
Valuation allowance
|
|
|
(1,239,000
|
)
|
|
|
(908,350
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Based
on the available objective evidence, including the Company’s history of its loss, management believes it is more likely
than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation
allowance against its net deferred tax assets at December 31, 2020 and 2019, respectively.
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note
20 – Subsequent Events
Debt
Financing
On
January 20, 2021, the Company completed the sale of a Promissory Note in the principal amount of $290,000 (the “Note”)
to AJB Capital Investments LLC (the “Investor”) for a purchase price of $281,300, pursuant to a Securities Purchase
Agreement between the Company and the Investor (the “Purchase Agreement”).
The
Note matures on October 20, 2021 (the “Maturity Date”), bears interest at a rate of 10% per annum, and, following
an event of default only, is convertible into shares of the Company’s common stock at a conversion price equal to the lesser
of 90% of the lowest trading price during (i) the 20 trading day period preceding the issuance date of the note, or (ii) the 20
trading day period preceding date of conversion of the Note. The Note is also subject to covenants, events of defaults, penalties,
default interest and other terms and conditions customary in transactions of this nature.
Pursuant
to the Purchase Agreement, the Company paid a commitment fee to the Investor in the amount of $200,000 (the “Commitment
Fee”) in the form of 2,000,000 shares of the Company’s common stock (the “Commitment Fee Shares”). During
the six month period following the six month anniversary of the closing date (the “Adjustment Period”), the Investor
shall be entitled to be issued additional shares of common stock of the Company to the extent the Investor’s sale of the
Commitment Fee Shares has resulted in net proceeds in an amount less than the Commitment Fee. If the Company repays the Note on
or prior to the Maturity Date, the Company may redeem 1,000,000 of the Commitment Fee Shares for a nominal redemption price of
$1.00.
The
obligations of the Company to the Investor under the Note and the Purchase Agreement are secured by a lien on the Company’s
assets pursuant to a Security Agreement between the Company and the Investor.
Series
A Preferred Stock Conversions
On
April 6, 2021, a shareholder converted 30,000 shares of Series A Preferred Stock into 3,000,000 shares of common stock.
On
March 24, 2021, a shareholder converted 10,000 shares of Series A Preferred Stock into 1,000,000 shares of common stock.
On
January 26, 2021, a shareholder converted 5,000 shares of Series A Preferred Stock into 500,000 shares of common stock.
On
January 12, 2021, a shareholder converted 10,000 shares of Series A Preferred Stock into 1,000,000 shares of common stock.
Series
B Preferred Stock Sales
On
February 7, 2021, the Company and ISIAH International, LLC (“ISIAH International”), entered into a Securities Purchase
Agreement (the “Purchase Agreement”) under which ISIAH International agreed to purchase from the Company, on the dates
provided for in the Purchase Agreement, an aggregate of 200,000 shares of the Company’s newly designated Series B Preferred
Stock (“Series B Preferred Stock”), convertible into an aggregate of 20,000,000 shares of the Company’s common
stock, par value $0.001 per share (“Common Stock”), for a purchase price of $15.00 per share of Preferred Stock, and
an aggregate purchase price of $3 million. Each share of Series B Preferred Stock has a Stated Value of $15.00 and is convertible
into Common Stock at a conversion price equal to $0.15. Isiah Thomas, the Company’s Chief Executive Officer, is the sole
member and Chief Executive Officer of ISIAH International. Pursuant to the Purchase Agreement, ISIAH International has agreed
to purchase shares of Series B Preferred Stock from the Company according to the following schedule:
Date
|
|
Shares
|
|
|
Purchase
Price
|
|
Initial Closing Date
|
|
|
16,666
|
|
|
$
|
249,990
|
|
February 22, 2021
|
|
|
16,667
|
|
|
$
|
250,005
|
|
March 8, 2021
|
|
|
16,667
|
|
|
$
|
250,005
|
|
March 22, 2021
|
|
|
16,667
|
|
|
$
|
250,005
|
|
April 5, 2021
|
|
|
16,666
|
|
|
$
|
249,990
|
|
April 19, 2021
|
|
|
16,667
|
|
|
$
|
250,005
|
|
May 17, 2021
|
|
|
33,334
|
|
|
$
|
500,010
|
|
June 14, 2021
|
|
|
33,333
|
|
|
$
|
499,995
|
|
July 12, 2021
|
|
|
33,333
|
|
|
$
|
499,995
|
|
Total
|
|
|
200,000
|
|
|
$
|
3,000,000
|
|
ONE
WORLD PHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
As
of April 14, 2021, a total of 83,333 shares Series B Preferred Stock have been purchased in accordance with the above schedule,
for total proceeds of $1,249,995.
On
various dates between March 9, 2021 and March 15, 2021, the Company received total proceeds of $477,510 from the sale of an additional
31,834 shares of Series B Preferred Stock at a price of $15.00 per share to five accredited investors.
Common
Stock Issued on Subscriptions Payable
On
March 1, 2021, the Company issued 750,000 shares of common stock on a Subscriptions Payable for the November 27, 2020 sale of
common stock at $0.10 per share for proceeds of $75,000.
Option
Grants
On
January 1, 2021, the Company awarded options to purchase 5,500,000 shares of the Company’s Common Stock at an exercise price
equal to $0.13 per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were
issued outside of the Company’s 2019 Plan and are exercisable over a ten year period. The options vest as to 2,750,000 shares
immediately, and as to the remaining 2,750,000 shares vesting quarterly in 250,000 increments over the following eleven quarters.
On
January 1, 2021, the Company awarded options to purchase 350,000 shares of the Company’s Common Stock under the Company’s
2019 Plan at an exercise price equal to $0.13 per share, exercisable over a ten year period to the Company’s Chairman of
the Board, Dr. Ken Perego. The options vest in equal quarterly installments over one year.
On
January 1, 2021, the Company awarded options to purchase 475,000 shares of the Company’s Common Stock under the Company’s
2019 Plan at an exercise price equal to $0.13 per share, exercisable over a ten year period to Bruce Raben, the Company’s
Interim Chief Financial Officer and a Director of the Company. The options vest in equal quarterly installments over one
year.
On
January 1, 2021, the Company awarded options to purchase an aggregate 1,842,000 shares of the Company’s Common Stock under
the Company’s 2019 Plan at an exercise price equal to $0.13 per share, exercisable over a ten year period to seven consultants
and employees. in equal quarterly installments over one year.