Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1 – Nature of Business and Significant Accounting Policies
Nature
of Business
One
World Pharma, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in Nevada on
September 2, 2014. On February 21, 2019, One World Pharma, Inc. (“One World Pharma”) entered into an Agreement and Plan of
Merger with OWP Merger Subsidiary, Inc., our wholly-owned subsidiary, and OWP Ventures, Inc. (“OWP Ventures”), which is the
parent company of One World Pharma SAS, a Colombian company (“OWP Colombia”). Pursuant to the Merger Agreement, we acquired
OWP Ventures (and indirectly, OWP Colombia) by the merger of OWP Merger Subsidiary with and into OWP Ventures, with OWP Ventures being
the surviving entity as our wholly-owned subsidiary (the “Merger”). As a result of the Merger (a) holders of the outstanding
capital stock of OWP Ventures received an aggregate of 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 few companies in Colombia to receive all four licenses,
including seed use, cultivation of non-psychoactive cannabis, cultivation of psychoactive cannabis, and manufacturing allowing for extraction
and export. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis
and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe
members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques,
and sell their harvested products to us on an exclusive basis. We began harvesting cannabis in the first quarter of 2019
for the purpose of further research and development activities, quality control testing and extraction. We have been
generating revenue from the sale of our seeds since the second quarter of 2020. In August 2021, the Company initiated
the construction of a vertically integrated extraction facility designed to process the cannabis flower, making the Company one of the
first companies in Colombia to, both, hold licenses and the capability to extract high-quality CBD and THC oils.
The
Merger was accounted for as a reverse merger (recapitalization) with OWP Ventures deemed to be the accounting acquirer. Accordingly,
the financial statements included in this Quarterly Report on Form 10-Q reflect the historical operations of OWP Ventures and its wholly-owned
subsidiary OWP SAS prior to the Merger, and that of the combined company following the Merger. The historical financial information for
One World Pharma, Inc. (formerly Punto Group Corp.) prior to the Merger has been omitted.
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP) and the rules of the Securities and Exchange Commission (SEC). Intercompany accounts and transactions
have been eliminated.
The
unaudited condensed consolidated financial statements of the Company and the accompanying notes included in this Quarterly Report on
Form 10-Q are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the Condensed Consolidated
Financial Statements have been included. Such adjustments are of a normal, recurring nature. The Condensed Consolidated Financial Statements,
and the accompanying notes, are prepared in accordance with GAAP and do not contain certain information included in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The interim Condensed Consolidated Financial Statements should
be read in conjunction with that Annual Report on Form 10-K. Results for the interim periods presented are not necessarily indicative
of the results that might be expected for the entire fiscal year.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control
and ownership at June 30, 2021:
Schedule of Common Control and Ownership Interest
|
|
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.
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to conform to current year presentation. These reclassifications
had no effect on previously reported results of operations or retained earnings.
Foreign
Currency Translation
The
functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional
currency, and translated those financial statements to the US Dollar (USD) throughout this report. Monetary assets and liabilities denominated
in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance
sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at
the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are
included in the determination of net income (loss) for the respective periods.
Comprehensive
Income
The
Company has adopted the Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”)
220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income, its components, and
accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive income represents the accumulated
balance of foreign currency translation adjustments.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Segment
Reporting
ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management
approach model is based on the way a company’s management organizes segments within the company for making operating decisions
and assessing performance. The Company operates as a single segment and will evaluate additional segment disclosure requirements as it
expands its operations.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Fair
Value of Financial Instruments
The
Company discloses the fair value of certain assets and liabilities in accordance with ASC 820 – Fair Value Measurement and Disclosures
(ASC 820). Under ASC 820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute.
The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying
amounts of cash, accounts receivable, accounts payable and accrued expenses reported on the balance sheets are estimated by management
to approximate fair value primarily due to the short-term nature of the instruments.
Cash
in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. The Company had $1,093,935 of cash in excess
of FDIC insured limits at June 30, 2021, and has not experienced any losses in such accounts.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers (ASC 606). Under ASC 606, the Company
recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the
following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when
each performance obligation is satisfied.
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO)
method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration,
and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced
extracts.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718)
and Equity-Based Payments to Non-employees pursuant to ASC 505-50 (ASC 505-50). All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value
of the equity instrument issued, whichever is more reliably measurable. The measurement date of the fair value of the equity instrument
issued is the earlier of the date on which the counterparty’s performance is complete or the date at which a commitment for performance
by the counterparty to earn the equity instruments is reached because of sufficiently large disincentives for nonperformance.
Basic
and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted
net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average
number of common shares outstanding plus potential dilutive securities. For the periods presented, potential dilutive securities had
an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the FASB that are adopted by the Company as of the specified effective date.
If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material
impact on the Company’s financial statements upon adoption.
In
August 2020, the FASB issued ASU No. 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging–Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity (ASU 2020-06), which simplifies the accounting for convertible instruments by reducing the number of accounting models available
for convertible debt instruments. This guidance also eliminates the treasury stock method to calculate diluted earnings per share for
convertible instruments and requires the use of the if converted method. The new guidance is effective for all entities for annual periods,
and interim periods within those annual periods, beginning after December 15, 2021, with early adoption permitted. The adoption of ASU
2020-06 is not expected to have a material impact on the Company’s financial statements or related disclosures.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
In
May 2020, the SEC adopted final rules that amend the financial statement requirements for significant business acquisitions and dispositions.
Among other changes, the final rules modify the significance tests and improve the disclosure requirements for acquired or to be acquired
businesses and related pro forma financial information, the periods those financial statements must cover, and the form and content of
the pro forma financial information. The final rules do not modify requirements for the acquisition and disposition of significant amounts
of assets that do not constitute a business. The final rules were effective January 1, 2021. The Company has considered these final rules
and updated its disclosures, as applicable.
In
November 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments
in ASU 2019-12 are part of an initiative to reduce complexity in accounting standards and simplify the accounting for income taxes by
removing certain exceptions from Topic 740 and making minor improvements to the codification. ASU 2019-12 and its related amendments
are effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.
The provisions of this update did not have a material impact on the Company’s financial position or results of operations.
No
other new accounting pronouncements, issued or effective during the period ended June 30, 2021, have had or are expected to have a significant
impact on the Company’s financial statements.
Note
2 –Going Concern
As
shown in the accompanying condensed consolidated financial statements as of June 30, 2021, our balance of cash on hand was $1,811,897,
and we had working capital of $587,583 and an accumulated deficit of $17,925,737. We are too early in our development stage to project
revenue with a necessary level of certainty; therefore, we may not have sufficient funds to sustain our operations for the next twelve
months and we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s
ability to continue as a going concern. The Company has commenced sales and continues to develop its operations, and raised an additional
$499,995 from sale of series B preferred stock in July, as noted in our subsequent events footnote.
In
the event sales do not materialize at the expected rates, management would seek additional financing or would attempt to conserve cash
by further reducing expenses. There can be no assurance that we will be successful in achieving these objectives; therefore, without
sufficient financing it would be unlikely for the Company to continue as a going concern.
The
condensed consolidated financial statements do not include any adjustments that might result from the outcome of any uncertainty as to
the Company’s ability to continue as a going concern. The condensed consolidated financial statements also do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might
be necessary should the Company be unable to continue as a going concern. Our ability to scale production and distribution capabilities
and further increase the value of our brands, is largely dependent on our success in raising additional capital.
Note
3 – Related Parties
Debt
Repayment, Related Party
On
March 29, 2021, the Company repaid a total of $27,201 of indebtedness owed to the Company’s Chairman of the Board, Dr. Kenneth
Perego, II, M.D., consisting of $26,000 of principal and $1,201 of interest.
Series
A Preferred Stock Sales
On
September 1, 2020, the Company received proceeds of $26,000 from the sale of 2,600 units to the Company’s Chairman of the Board,
Dr. Ken Perego. Each unit consisted of one share of Series A Preferred Stock and five-year warrants to purchase 50 shares of common stock
at an exercise price of $0.25 per share. The proceeds received were allocated between the preferred stock and warrants on a relative
fair value basis.
On
July 10, 2020, the Company received proceeds of $110,000 from the sale of 11,000 units to the Company’s Chairman of the Board,
Dr. Ken Perego. Each unit consisted of one share of Series A Preferred Stock and five-year warrants to purchase 50 shares of common stock
at an exercise price of $0.25 per share. The proceeds received were allocated between the preferred stock and warrants on a relative
fair value basis.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Series
B Preferred Stock Sales
On
February 7, 2021, the Company and ISIAH International, LLC (“ISIAH International”), entered into a Securities Purchase Agreement
(the “Purchase Agreement”) under which ISIAH International agreed to purchase from the Company, on the dates provided for
in the Purchase Agreement, an aggregate of 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, 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:
Schedule of Agreement to Purchase Shares of Preferred Stock
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
|
|
As
of June 30, 2021, a total of 166,667 shares Series B Preferred Stock have been purchased in accordance with the above schedule, for total
proceeds of $2,500,005.
On
various dates in May, 2021, the Company received total proceeds of $50,010 from the sale of an aggregate of 3,334 shares of Series B
Preferred Stock at a price of $15.00 per share to trusts whose beneficiaries are adult children of Isiah L. Thomas III. Mr. Thomas disclaims
beneficial ownership of the shares held by these trusts.
Common
Stock Options Issued for Services, Officers and Directors
On
May 25, 2021, the Company awarded options to purchase 1,000,000 shares of common stock under the Company’s 2019 Stock Incentive
Plan (the “2019 Plan”) at an exercise price equal to $0.1782 per share, exercisable over a ten year period to the Company’s
CFO and COO, Vahé Gabriel. The options vested immediately as to 500,000 shares, and vest as to the remaining 500,000 shares quarterly
in 250,000 increments over the following two quarters. The estimated value using the Black-Scholes Pricing Model, based on a volatility
rate of 183% and a call option value of $0.1719, was $171,949. The options are being expensed over the vesting period, resulting in $85,975
of stock-based compensation expense during the six months ended June 30, 2021. As of June 30, 2021, a total of $85,974 of unamortized
expenses are expected to be expensed over the vesting period.
On
January 1, 2021, the Company awarded options to purchase 5,500,000 shares of 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 2019 Plan
and are exercisable over a ten year period. The options vested immediately as to 2,750,000 shares, and vest as to the remaining 2,750,000
shares quarterly in 250,000 increments over the following eleven quarters. The estimated value using the Black-Scholes Pricing Model,
based on a volatility rate of 192% and a call option value of $0.1174, was $645,624. The options are being expensed over the vesting
period, resulting in $352,159 of stock-based compensation expense during the six months ended June 30, 2021. As of June 30, 2021, a total
of $293,465 of unamortized expenses are expected to be expensed over the vesting period.
On
January 1, 2021, the Company awarded options to purchase 350,000 shares of common stock under the 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. 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 $40,943. The options are being expensed over the vesting period, resulting in $20,471
of stock-based compensation expense during the six months ended June 30, 2021. As of June 30, 2021, a total of $20,472 of unamortized
expenses are expected to be expensed over the vesting period.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
On
January 1, 2021, the Company awarded options to purchase 475,000
shares of common stock under the 2019 Plan at
an exercise price equal to $0.13
per share, exercisable over a ten
year period to Bruce Raben, the Company’s
former Interim Chief Financial Officer and a Director of the Company. The options vest in equal quarterly installments over one
year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192%
and a call option value of $0.1170,
was $55,565.
The options are being expensed over the vesting period, resulting in $27,783
of stock-based compensation expense during the
six months ended June 30, 2021. As of June 30, 2021, a total of $27,782
of unamortized expenses are expected to be expensed
over the vesting period.
Note
4 – Fair Value of Financial Instruments
Under
FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates
a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures.
Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required
for items measured at fair value.
The
Company has certain financial instruments that must be measured under the new fair value standard. The Company’s financial assets
and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
at the measurement date.
Level
2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g.,
interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation
or other means (market corroborated inputs).
Level
3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or
liability.
The
following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheet as of June
30, 2021 and December 31, 2020, respectively:
Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at June 30, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,811,897
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Right-of-use asset
|
|
|
-
|
|
|
|
-
|
|
|
|
172,393
|
|
Total assets
|
|
|
1,811,897
|
|
|
|
-
|
|
|
|
172,393
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
179,411
|
|
Notes payable
|
|
|
-
|
|
|
|
478,093
|
|
|
|
-
|
|
Total liabilities
|
|
|
-
|
|
|
|
(478,093
|
)
|
|
|
(7,018
|
)
|
Total assets and liabilities
|
|
$
|
1,811,897
|
|
|
$
|
(478,093
|
)
|
|
$
|
(7,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
201,520
|
|
Notes payable
|
|
|
-
|
|
|
|
334,841
|
|
|
|
-
|
|
Total liabilities
|
|
|
-
|
|
|
|
334,841
|
|
|
|
201,525
|
|
Total assets and liabilities
|
|
$
|
28,920
|
|
|
$
|
(334,841
|
)
|
|
$
|
(6,496
|
)
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
There
were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the six months ended June 30, 2021
or the year ended December 31, 2020.
Note
5 – Inventory
Inventories
are stated at the lower of cost or market. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO)
method. Market is determined based on net realizable value. Appropriate consideration is given to obsolescence, excessive levels, deterioration,
and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house, along with produced
extracts. Inventory consisted of the following at June 30, 2021 and December 31, 2020, respectively.
Schedule of Inventory
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Raw materials
|
|
$
|
32,215
|
|
|
$
|
27,514
|
|
Work in progress
|
|
|
333,568
|
|
|
|
181,272
|
|
Finished goods
|
|
|
92,539
|
|
|
|
104,673
|
|
Inventory gross
|
|
|
458,322
|
|
|
|
313,459
|
|
Less obsolescence
|
|
|
(44,456
|
)
|
|
|
(46,307
|
)
|
Total inventory
|
|
$
|
413,866
|
|
|
$
|
267,152
|
|
Note
6 – Other Current Assets
Other
current assets included the following as of June 30, 2021 and December 31, 2020, respectively:
Schedule of Other Current Assets
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
VAT tax receivable
|
|
$
|
116,840
|
|
|
$
|
99,199
|
|
Prepaid expenses
|
|
|
22,605
|
|
|
|
19,226
|
|
Other receivables
|
|
|
1,106
|
|
|
|
486
|
|
Total
|
|
$
|
140,551
|
|
|
$
|
118,911
|
|
Note
7 – Security Deposits
Security
deposits included the following as of June 30, 2021 and December 31, 2020, respectively:
Schedule of Security Deposits
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Utility deposits
|
|
$
|
1,090
|
|
|
$
|
660
|
|
Refundable deposit on equipment purchase
|
|
|
50,000
|
|
|
|
50,000
|
|
Security deposits on leases held in Colombia
|
|
|
2,234
|
|
|
|
9,960
|
|
Security deposit on office lease
|
|
|
14,029
|
|
|
|
4,494
|
|
|
|
$
|
67,353
|
|
|
$
|
65,114
|
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
8 – Fixed Assets
Fixed
assets consist of the following at June 30, 2021 and December 31, 2020, respectively:
Schedule of Fixed Assets
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Land
|
|
$
|
138,248
|
|
|
$
|
138,248
|
|
Buildings
|
|
|
41,665
|
|
|
|
41,665
|
|
Office equipment
|
|
|
51,976
|
|
|
|
44,027
|
|
Furniture and fixtures
|
|
|
27,914
|
|
|
|
27,914
|
|
Equipment and machinery
|
|
|
387,555
|
|
|
|
185,169
|
|
Construction in progress
|
|
|
358,623
|
|
|
|
345,036
|
|
Fixed assets, gross
|
|
|
1,005,981
|
|
|
|
782,059
|
|
Less: accumulated depreciation
|
|
|
(78,237
|
)
|
|
|
(55,239
|
)
|
Total
|
|
$
|
927,744
|
|
|
$
|
726,820
|
|
Construction
in progress consists of equipment and capital improvements on the Popayán farm have not yet been placed in service.
Depreciation
and amortization expense totaled $22,998 and $14,210 for the six months ended June 30, 2021 and 2020, respectively.
Note
9 – Accrued Expenses
Accrued
expenses consisted of the following at June 30, 2021 and December 31, 2020, respectively:
Schedule of Accrued Expenses
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Accrued payroll
|
|
$
|
252,673
|
|
|
$
|
266,230
|
|
Accrued withholding taxes and employee benefits
|
|
|
12,376
|
|
|
|
18,889
|
|
Accrued ICA fees and contributions
|
|
|
129,001
|
|
|
|
200,335
|
|
Accrued interest
|
|
|
56,322
|
|
|
|
65,081
|
|
Accrued expenses
|
|
$
|
450,372
|
|
|
$
|
550,535
|
|
Note
10 – Leases
The
Company’s corporate offices and operational facility in Colombia under short-term non-cancelable real property lease agreements
that expire within a year. The Company doesn’t have any other office or equipment leases subject to the recently adopted ASU 2016-02.
In the locations in which it is economically feasible to continue to operate, management expects that lease options will be exercised.
The Company’s corporate office is under a real property lease that contains a one-time renewal option for an additional 36 months
that we determined would be reasonably certain to be extended. The office lease contains provisions requiring payment of property taxes,
utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s leases do not provide
an implicit discount rate, the Company uses an incremental borrowing rate based on the information available at the commencement date
in determining the present value of lease payments.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The
components of lease expense were as follows:
Schedule of Components of Lease Expense
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
|
2021
|
|
Operating lease cost:
|
|
|
|
|
Amortization of assets
|
|
$
|
22,637
|
|
Interest on lease liabilities
|
|
|
6,493
|
|
Lease payments on short term leases
|
|
|
21,193
|
|
Total lease cost
|
|
$
|
50,323
|
|
Supplemental
balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information Related to Leases
|
|
June 30,
|
|
|
|
2021
|
|
Operating leases:
|
|
|
|
|
Operating lease assets
|
|
$
|
172,393
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
$
|
47,691
|
|
Noncurrent operating lease liabilities
|
|
|
131,720
|
|
Total operating lease liabilities
|
|
$
|
179,411
|
|
|
|
|
|
|
Weighted average remaining lease term:
|
|
|
|
|
Operating leases
|
|
|
3.33 years
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
Operating leases
|
|
|
6.75
|
%
|
Supplemental
cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow Related to Leases
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
|
2021
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows used for operating leases
|
|
$
|
22,114
|
|
Future
minimum annual lease commitments under non-cancelable operating leases are as follows at June 30, 2021:
Schedule of Operating Lease Liability Maturity
|
|
Operating
|
|
|
|
Leases
|
|
|
|
|
|
2021 (for the six months remaining)
|
|
$
|
28,892
|
|
2022
|
|
|
59,223
|
|
2023
|
|
|
61,000
|
|
2024
|
|
|
52,098
|
|
Total minimum lease payments
|
|
|
201,213
|
|
Less interest
|
|
|
21,802
|
|
Present value of lease liabilities
|
|
|
179,411
|
|
Less current portion
|
|
|
47,691
|
|
Long-term lease liabilities
|
|
$
|
131,720
|
|
ONE
WORLD PHARMA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note
11 – Notes Payable
Notes
payable consists of the following at June 30, 2021 and December 31, 2020, respectively:
Schedule of Notes Payable
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
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 Company received net proceeds of $268,250 after deductions of debt discounts, consisting of $8,700 pursuant to an original issue discount, $7,250 of legal fees and $5,800 of brokerage fees.
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 Commitment Fee Shares resulted in a debt discount of $268,250 that is being amortized over the life of the loan.
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.
|
|
$
|
290,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
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, and repaid the remaining 50,000,000 COP, or $14,567 USD, during the quarter ending June 30, 2021.
|
|
|
-
|
|
|
|
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
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
On October 28, 2020, the Company received an advance of $50,000 from its CEO, Isiah Thomas, III pursuant to an unsecured promissory note due on demand that carries a 6% interest rate.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
On September 14, 2020, the Company received an advance of $26,000 from its 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 29, 2021.
|
|
|
-
|
|
|
|
26,000
|
|
|
|
|
|
|
|
|
|
|
On May 4, 2020, the Company, through its wholly-owned subsidiary OWP Ventures, Inc., borrowed $119,274 from Customers Bank (“Lender”), pursuant to a Promissory Note issued by OWP Ventures to Lender (the “PPP Note”). The loan was made pursuant to the Payroll Protection Program established as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Note 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
|
|
|
|
119,274
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
584,274
|
|
|
|
334,841
|
|
Less unamortized debt discounts
|
|
|
106,181
|
|
|
|
-
|
|
Notes payable, net of discounts
|
|
$
|
478,093
|
|
|
$
|
334,841
|
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The
Company recognized interest expense for the six months ended June 30, 2021 and 2020, as follows:
Schedule of Interest Expenses
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Interest on convertible notes
|
|
$
|
-
|
|
|
$
|
15,178
|
|
Interest on notes payable
|
|
|
18,987
|
|
|
|
2,876
|
|
Amortization of debt discounts, including $170,033 of stock-based discounts
|
|
|
183,819
|
|
|
|
-
|
|
Interest on accounts payable
|
|
|
7,289
|
|
|
|
-
|
|
Total interest expense
|
|
$
|
210,095
|
|
|
$
|
21,054
|
|
Note
12 – Convertible Preferred Stock
Preferred
Stock
The
Company has 10,000,000 authorized shares of $0.001 par value “blank check” preferred stock, of which 500,000 shares have
been designated Series A Preferred Stock and 300,000 shares have been designated Series B Preferred Stock. The shares of Series A Preferred
Stock and Series B Preferred Stock are each currently convertible into one hundred (100) shares of the Company’s common stock.
The Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable in cash as and when declared by the Board or upon
a liquidation. The shares of Series B Preferred Stock are not entitled to dividends, other than the right to participate in dividends
payable to holders of common stock on an as-converted basis. As of June 30, 2021, there were 95,233 and 205,169 shares of Series A Preferred
Stock and Series B Preferred Stock, respectively, issued and outstanding. The Series A and B Preferred Stock are presented as mezzanine
equity on the balance sheet due because they carry a stated value of $10 and $15 per share, respectively, and a deemed liquidation clause,
which entitles the holders thereof to receive proceeds thereof in an amount equal to the stated value per share, plus any accrued and
unpaid dividends, before any payment may be made to holders of common stock. Each share of Preferred Stock carries a number of votes
equal to the number of shares of common stock into which such Preferred Stock may then be converted. The Preferred Stock generally will
vote together with the common stock and not as a separate class.
The
Series A and B Preferred Stock have been classified outside of permanent equity and liabilities. the Series A Preferred Stock embodies
conditional obligations that the Company may settle by issuing a variable number of equity shares, and in both the Series A and B Preferred
Stock, monetary value of the obligation is based on a fixed monetary amount known at inception.
Series
A Preferred Stock Sales
No
shares of Series A Preferred Stock were sold during the six months ending June 30, 2021.
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. The shares of
common stock were subsequently issued on April 7, 2021.
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.
Preferred
Stock Dividends
The
Series A Preferred Stock accrues dividends at the rate of 6% per annum, payable in cash as and when declared by the Board or upon a liquidation.
A total of $72,079 of dividends had accrued as of June 30, 2021.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Series
B Preferred Stock Sales
On
February 7, 2021, the Company and ISIAH International entered into a Securities Purchase Agreement under which ISIAH International agreed
to purchase from the Company, on the dates provided for in the Purchase Agreement, an aggregate of 200,000 shares of the Company’s
newly designated Series B Preferred Stock, convertible into an aggregate of 20,000,000 shares of 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:
Schedule to Purchase Shares of Preferred Stock
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
|
|
As
of June 30, 2021, a total of 166,667 shares Series B Preferred Stock have been purchased in accordance with the above schedule, for total
proceeds of $2,500,005.
In
addition to the shares sold to ISIAH International, the Company received total proceeds of $527,520 on various dates between March 9,
2021 and April 22, 2021 from the sale of an additional 35,168 shares of Series B Preferred Stock at a price of $15.00 per share to seven
accredited investors, including proceeds of $50,010 from the sale of an aggregate of 3,334 shares of Series B Preferred Stock at a price
of $15.00 per share to trusts whose beneficiaries are adult children of Isiah L. Thomas III. Mr. Thomas disclaims beneficial ownership
of the shares held by these trusts.
Note
13 – Changes in Stockholders’ Equity
Common
Stock
The
Company is authorized to issue an aggregate of 300,000,000 shares of common stock with a par value of $0.001. As of June 30, 2021, there
were 61,915,983 shares of common stock issued and outstanding.
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.
Common
Stock Issued as a Promissory Note Commitment
As
disclosed in Note 11, above, pursuant to the Purchase Agreement with AJB Capital, the Company paid a commitment fee to the Investor in
the form of 2,000,000 shares of the Company’s common stock. 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 $200,000 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 Commitment Fee Shares resulted in a debt discount of $268,250 that
is being amortized over the life of the loan, resulting in $170,033 of finance expense during the six months ended June 30, 2021.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Common
Stock Issued for Services
On
May 25, 2021, the Company awarded a total of 300,000 shares of common stock for Advisory Board services to two individuals. The aggregate
fair value of the shares was $51,000, based on the closing price of the Company’s common stock on the date of grant.
On
May 25, 2021, the Company awarded a total of 50,000 shares of common stock pursuant for consulting services to two individuals. The aggregate
fair value of the shares was $8,500, based on the closing price of the Company’s common stock on the date of grant.
On
May 12, 2021, the Company entered into a Settlement Agreement with COR Prominence, LLC. Pursuant to the Settlement Agreement, the Company
issued 118,150 shares of common stock. The fair value of the shares was $29,537, based on the closing price of the Company’s common
stock on the date of grant.
In
addition, the Company engaged COR Prominence, LLC to provide investor relation services to the Company, in consideration for the payment
of $7,500 per month in cash, and $5,000 per month with shares of common stock valued at 125% of the closing price of the common stock
of the Company on the date of issuance. On June 1, 2021, the Company issued another 112,528 shares of common stock to COR Prominence,
LLC. The fair value of the shares was $18,758, based on the closing price of the Company’s common stock on the date of grant.
Amortization
of Stock-Based Compensation
A
total of $654,579 of stock-based compensation expense was recognized from the amortization of options to purchase common stock over their
vesting period during the six months ended June 30, 2021.
Note
14 – Common Stock Options
Stock
Incentive Plan
On
February 12, 2020, the Company’s stockholders approved our 2019 Stock Incentive Plan (the “2019 Plan”), which had been
adopted by the Company’s Board of Directors (the “Board”) as of December 10, 2019. The 2019 Plan provides for the issuance
of up to 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
On
May 25, 2021, the Company awarded options to purchase 1,000,000 shares of the common atock under the 2019 Plan at an exercise price equal
to $0.1782 per share, exercisable over a ten year period to the Company’s CFO and COO, Vahé Gabriel. The options vested
immediately as to 500,000 shares, and vest as to the remaining 500,000 shares quarterly in 250,000 increments over the following two
quarters. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 183% and a call option value of $0.1719,
was $171,949. The options are being expensed over the vesting period, resulting in $85,975 of stock-based compensation expense during
the six months ended June 30, 2021. As of June 30, 2021, a total of $85,974 of unamortized expenses are expected to be expensed over
the vesting period.
On
May 25, 2021, the Company awarded options to purchase an aggregate 425,000 shares of common stock under the 2019 Plan at an exercise
price equal to $0.17 per share, exercisable over a ten year period to three advisory board members. The options vest in equal quarterly
installments over two years. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 183%
and a call option value of $0.1653, was $70,269. The options are being expensed over the vesting period, resulting in $5,856 of stock-based
compensation expense during the six months ended June 30, 2021. As of June 30, 2021, a total of $64,413 of unamortized expenses are expected
to be expensed over the vesting period.
On
January 1, 2021, the Company awarded options to purchase 5,500,000 shares of 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 2019 Plan
and are exercisable over a ten year period. The options vested immediately as to 2,750,000 shares, and vest as to the remaining 2,750,000
shares quarterly in 250,000 increments over the following eleven quarters. The estimated value using the Black-Scholes Pricing Model,
based on a volatility rate of 192% and a call option value of $0.1174, was $645,624. The options are being expensed over the vesting
period, resulting in $352,159 of stock-based compensation expense during the six months ended June 30, 2021. As of June 30, 2021, a total
of $293,465 of unamortized expenses are expected to be expensed over the vesting period.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
On
January 1, 2021, the Company awarded options to purchase 350,000 shares of common stock under the 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. 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 $40,943. The options are being expensed over the vesting period, resulting in $20,471
of stock-based compensation expense during the six months ended June 30, 2021. As of June 30, 2021, a total of $20,472 of unamortized
expenses are expected to be expensed over the vesting period.
On
January 1, 2021, the Company awarded options to purchase 475,000
shares of common stock under the 2019 Plan at
an exercise price equal to $0.13
per share, exercisable over a ten
year period to Bruce Raben, the Company’s
former Interim Chief Financial Officer and a Director of the Company. The options vest in equal quarterly installments over one
year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192%
and a call option value of $0.1170,
was $55,565.
The options are being expensed over the vesting period, resulting in $27,783
of stock-based compensation expense during the
six months ended June 30, 2021. As of June 30, 2021, a total of $27,782
of unamortized expenses are expected to be expensed
over the vesting period.
On
January 1, 2021, the Company awarded options to purchase an aggregate 1,842,000 shares of common stock under the 2019 Plan at an exercise
price equal to $0.13 per share, exercisable over a ten year period to seven consultants and employees. The options vest in equal quarterly
installments over one year. The aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 192% and
a call option value of $0.1170, was $215,475. The options are being expensed over the vesting period, resulting in $107,737 of stock-based
compensation expense during the six months ended June 30, 2021. As of June 30, 2021, a total of $107,738 of unamortized expenses are
expected to be expensed over the vesting period.
The
Company also recognized a total of $54,598, and $1,549,199 of compensation expense during the six months ended June 30, 2021 and 2020,
respectively, related to common stock options issued in the prior year to Officers, Directors, and Employees that are being amortized
over the implied service term, or vesting period, of the options. The remaining unamortized balance of these options is $49,092 as of
June 30, 2021.
Note
15 – Income Taxes
The
Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that
deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes, referred to as temporary differences.
For
the six months ended June 30, 2021, and the year ended December 31, 2020, the Company incurred a net operating loss and, accordingly,
no provision for income taxes has been recorded. In addition, no benefit for income taxes has been recorded due to the uncertainty of
the realization of any tax assets. At June 30, 2021, the Company had approximately $6,623,900 of federal net operating losses. The net
operating loss carry forwards, if not utilized, will begin to expire in 2025.
Based
on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not
that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against
its net deferred tax assets at June 30, 2021 and December 31, 2020, respectively.
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note
16 – Subsequent Events
Common
Stock Options Exercised
On
July 26, 2021, a total of 60,000 shares of common stock were issued upon exercise on a cashless basis of options to purchase 125,000
shares of common stock at a price $0.13 per share.
Preferred
Stock Sales
On
July 12, 2021, the Company received proceeds of $499,995 from ISIAH International pursuant to the sale of 33,333 shares of Series B Preferred
Stock at a price of $15.00 per share pursuant to the February 7, 2021 Purchase Agreement.
Equipment Purchase
In August 2021, the Company initiated the construction of a vertically
integrated extraction facility designed to process the cannabis flower, and paid a $750,000 down payment on the $ extraction
facility.