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, we paid total deposits of $1,155,000 of the approximate total cost of
$1,542,103 on the construction of a vertically integrated extraction facility designed to process the cannabis flower. Upon completion
of construction, we will be one of the only companies in Colombia to both hold licenses and possess the capability to extract high-quality
CBD and THC oils.
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 September 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.
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 $293,888 of cash in excess
of FDIC insured limits at September 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.
There
was no impact on the Company’s financial statements from ASC 606 for the nine months ended September 30, 2021, or the year ended
December 31, 2020.
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 September 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 September 30, 2021, our balance of cash on hand was $698,667,
and we had working capital of $62,465 and an accumulated deficit of $18,593,416. We are too early in our development stage to project
future revenue levels, and may not be able to generate sufficient funds to sustain our operations for the next twelve months. Accordingly,
we may need to raise additional cash to fund our operations. These factors raise substantial doubt about the Company’s ability
to continue as a going concern.
In
the event sales do not materialize at the expected rates, management would seek additional financing 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
Repayments, Related Party
On
September 15, 2021, the Company repaid a total of $130,610, consisting of $125,000 of principal and $5,610 of interest, to Isiah Thomas,
the Company’s Chief Executive Officer.
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
purchased the 200,000 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
|
|
On
various dates in May, 2021, the Company also 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 $128,962
of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $42,987 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 $381,506 of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30,
2021, a total of $264,118 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 $30,707
of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $10,236 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 $41,674 of stock-based compensation expense during the nine months ended September 30, 2021. As of September
30, 2021, a total of $13,891 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 September
30, 2021 and December 31, 2020, respectively:
Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
Fair
Value Measurements at September 30, 2021
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
698,667
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Right-of-use
asset
|
|
|
-
|
|
|
|
-
|
|
|
|
160,792
|
|
Total
assets
|
|
|
698,667
|
|
|
|
-
|
|
|
|
160,792
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
168,072
|
|
Notes
payable
|
|
|
-
|
|
|
|
360,578
|
|
|
|
-
|
|
Total
liabilities
|
|
|
-
|
|
|
|
(360,578
|
)
|
|
|
(7,280
|
)
|
Total
assets and liabilities
|
|
$
|
698,667
|
|
|
$
|
(360,578
|
)
|
|
$
|
(7,280
|
)
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
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
|
)
|
There
were no transfers of financial assets or liabilities between Level 1, Level 2 and Level 3 inputs for the nine months ended September
30, 2021 or the year ended December 31, 2020.
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
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 September 30, 2021 and December 31, 2020, respectively.
Schedule of Inventory
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Raw
materials
|
|
$
|
48,807
|
|
|
$
|
27,514
|
|
Work
in progress
|
|
|
435,698
|
|
|
|
181,272
|
|
Finished
goods
|
|
|
92,518
|
|
|
|
104,673
|
|
Inventory
gross
|
|
|
577,023
|
|
|
|
313,459
|
|
Less
obsolescence
|
|
|
(50,343
|
)
|
|
|
(46,307
|
)
|
Total
inventory
|
|
$
|
526,680
|
|
|
$
|
267,152
|
|
Note
6 – Other Current Assets
Other
current assets included the following as of September 30, 2021 and December 31, 2020, respectively:
Schedule of Other Current Assets
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
VAT
tax receivable
|
|
$
|
131,529
|
|
|
$
|
99,199
|
|
Prepaid
expenses
|
|
|
88,107
|
|
|
|
19,226
|
|
Other
receivables
|
|
|
1,084
|
|
|
|
486
|
|
Total
|
|
$
|
220,720
|
|
|
$
|
118,911
|
|
Note
7 – Security Deposits
Security
deposits included the following as of September 30, 2021 and December 31, 2020, respectively:
Schedule of Security Deposits
|
|
September
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
|
|
|
4,442
|
|
|
|
9,960
|
|
Security
deposit on office lease
|
|
|
14,029
|
|
|
|
4,494
|
|
Down
payment on distillation equipment
|
|
|
1,155,000
|
|
|
|
-
|
|
Security deposits
|
|
$
|
1,224,561
|
|
|
$
|
65,114
|
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
8 – Fixed Assets
Fixed
assets consist of the following at September 30, 2021 and December 31, 2020, respectively:
Schedule of Fixed Assets
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Land
|
|
$
|
138,248
|
|
|
$
|
138,248
|
|
Buildings
|
|
|
41,665
|
|
|
|
41,665
|
|
Office
equipment
|
|
|
53,938
|
|
|
|
44,027
|
|
Furniture
and fixtures
|
|
|
32,259
|
|
|
|
27,914
|
|
Equipment
and machinery
|
|
|
374,981
|
|
|
|
185,169
|
|
Construction
in progress
|
|
|
388,618
|
|
|
|
345,036
|
|
Fixed
assets, gross
|
|
|
1,029,709
|
|
|
|
782,059
|
|
Less:
accumulated depreciation
|
|
|
(82,166
|
)
|
|
|
(55,239
|
)
|
Total
|
|
$
|
947,543
|
|
|
$
|
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 $29,937 and $23,706 for the nine months ended September 30, 2021 and 2020, respectively.
Note
9 – Accrued Expenses
Accrued
expenses consisted of the following at September 30, 2021 and December 31, 2020, respectively:
Schedule of Accrued Expenses
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
Accrued
payroll
|
|
$
|
248,135
|
|
|
$
|
266,230
|
|
Accrued
withholding taxes and employee benefits
|
|
|
7,649
|
|
|
|
18,889
|
|
Accrued
ICA fees and contributions
|
|
|
142,133
|
|
|
|
200,335
|
|
Accrued
interest
|
|
|
55,238
|
|
|
|
65,081
|
|
Accrued expenses
|
|
$
|
453,155
|
|
|
$
|
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 Nine
|
|
|
|
Months
Ended
|
|
|
|
September
30,
|
|
|
|
2021
|
|
Operating
lease cost:
|
|
|
|
|
Amortization
of assets
|
|
$
|
34,237
|
|
Interest
on lease liabilities
|
|
|
9,457
|
|
Lease
payments on short term leases
|
|
|
31,841
|
|
Total
lease cost
|
|
$
|
75,535
|
|
Supplemental
balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information Related to Leases
|
|
September
30,
|
|
|
|
2021
|
|
Operating
leases:
|
|
|
|
|
Operating
lease assets
|
|
$
|
160,792
|
|
|
|
|
|
|
Current
portion of operating lease liabilities
|
|
$
|
48,932
|
|
Noncurrent
operating lease liabilities
|
|
|
119,140
|
|
Total
operating lease liabilities
|
|
$
|
168,072
|
|
|
|
|
|
|
Weighted
average remaining lease term:
|
|
|
|
|
Operating
leases
|
|
|
3
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 Nine
|
|
|
|
Months
Ended
|
|
|
|
September
30,
|
|
|
|
2021
|
|
Cash
paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating
cash flows used for operating leases
|
|
$
|
33,453
|
|
Future
minimum annual lease commitments under non-cancelable operating leases are as follows at September 30, 2021:
Schedule of Operating Lease Liability Maturity
|
|
Operating
|
|
|
|
Leases
|
|
|
|
|
|
2021
(for the three months remaining)
|
|
$
|
14,589
|
|
2022
|
|
|
59,223
|
|
2023
|
|
|
61,000
|
|
2024
|
|
|
52,098
|
|
Total
minimum lease payments
|
|
|
186,910
|
|
Less
interest
|
|
|
18,838
|
|
Present
value of lease liabilities
|
|
|
168,072
|
|
Less
current portion
|
|
|
48,932
|
|
Long-term
lease liabilities
|
|
$
|
119,140
|
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
11 – Notes Payable
Notes
payable consists of the following at September 30, 2021 and December 31, 2020, respectively:
Schedule of Notes Payable
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Total
notes payable
|
|
|
919,274
|
|
|
|
334,841
|
|
On
September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $750,000
(the “Second AJB Note”) to AJB Capital Investments LLC (“AJB Capital”), (ii) a three-year
warrant to purchase 1,500,000
shares of the Company’s common stock at an initial exercise price of $0.25
per share, and (iii) a three-year
warrant to purchase 2,000,000
shares of the Company’s common stock at an initial exercise price of $0.50
per share, for an aggregate purchase price of $705,000,
pursuant to a Securities Purchase Agreement between the Company and AJB Capital (the “Purchase Agreement”). The Company
received net proceeds of $678,750
after deductions of debt discounts, consisting of $45,000
pursuant to an original issue discount, $15,000
of legal fees and $11,250
of brokerage fees.
The Note matures on September
24, 2022 (the “Maturity Date”), bears interest at a rate of 8%
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 AJB Capital in
the amount of $250,000
(the “Commitment Fee”) in the form of 1,250,000
shares of the Company’s common stock (the “Commitment Fee Shares”). During the six month period following the six
month anniversary of the closing date, AJB Capital shall be entitled to be issued additional shares of common stock of the Company
to the extent AJB Capital’s sale of the Commitment Fee Shares has resulted in net proceeds in an amount less than the
Commitment Fee. The Commitment Fee Shares resulted in a debt discount of $150,062
that is being amortized over the life of the loan.
The obligations of the Company to AJB Capital under the Note and
the Purchase Agreement are secured by a lien on the Company’s assets pursuant to a Security Agreement between the Company and
AJB Capital.
|
|
$
|
750,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
On
January 20, 2021, the Company completed the sale of a Promissory Note in the principal amount of $290,000
(the “First AJB Note”) to AJB Capital for a purchase price of $281,300,
pursuant to a Securities Purchase Agreement between the Company and AJB Capital (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 First AJB Note carried interest at a rate of 10%
per annum, was to mature on October
20, 2021, and was repaid in full on September 17, 2021.
Pursuant to the Purchase Agreement, the Company paid a
commitment fee to AJB Capital 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”). As
the Company repaid the First AJB Note prior to the Maturity Date, the Company exercised its right to redeem 1,000,000 of the
Commitment Fee Shares for a nominal redemption price of $1.00. The issuance of the Commitment Fee Shares resulted in a debt
discount of $268,250
that was amortized over the life of the loan.
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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 period ending September 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. A total of $130,610, consisting of $125,000 of principal and $5,610 of interest,
was repaid on September 15, 2021.
|
|
|
-
|
|
|
|
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. A total of $52,918, consisting of $50,000 of principal and $2,918 of interest,
was repaid on October 18, 2021.
|
|
|
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
|
|
|
919,274
|
|
|
|
334,841
|
|
Less
unamortized debt discounts
|
|
|
558,696
|
|
|
|
-
|
|
Notes
payable, net of discounts
|
|
$
|
360,578
|
|
|
$
|
334,841
|
|
ONE
WORLD PHARMA, INC.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The
Company recognized interest expense for the nine months ended September 30, 2021 and 2020, as follows:
Schedule of Interest Expenses
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Interest
on convertible notes
|
|
$
|
21,120
|
|
|
$
|
21,516
|
|
Interest
on notes payable
|
|
|
8,434
|
|
|
|
7,055
|
|
Amortization
of debt discounts, including $286,345 of stock-based discounts
|
|
|
310,633
|
|
|
|
-
|
|
Interest
on accounts payable
|
|
|
7,771
|
|
|
|
-
|
|
Total
interest expense
|
|
$
|
347,958
|
|
|
$
|
28,571
|
|
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 September 30, 2021, there were 95,233 and 238,502 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 nine months ending September 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.
The Company recognized $49,246 and $14,870 for the nine months ended September 30, 2021 and 2020, respectively. A total of
$86,482
of dividends had accrued as of September 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
purchased the 200,000 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
|
|
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 September 30, 2021,
there were 61,675,983 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 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.
Common
Stock Issued as a Promissory Note Commitment
As
disclosed in Note 11 above, the Company paid a commitment fee to AJB Capital of $200,000 in the form of 2,000,000 shares of the Company’s
common stock in connection with the issuance of the First AJB Note, which was repaid on September 17, 2021. The issuance of the Commitment
Fee Shares resulted in a debt discount of $268,250 that was amortized over the life of the loan, resulting in $268,250 of finance expense
during the nine months ended September 30, 2021. On October 15, 2021, pursuant to the early repayment terms of the promissory note, one million of these shares were redeemed and cancelled.
Also, as disclosed in Note 11, above, the Company
paid a commitment fee to AJB Capital in the form of 1,250,000 shares of the Company’s common stock in connection with the issuance
of the Second AJB Note. These shares were issued on October 26, 2021, and recognized as a Subscriptions Payable on the balance sheet
as of September 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 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 $29,538,
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 $837,955 of stock-based compensation expense was recognized from the amortization of options to purchase common stock over their
vesting period during the nine months ended September 30, 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 28, 2021, the Company awarded options to purchase 1,000,000 shares of common stock 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 $128,962 of stock-based compensation expense during
the nine months ended September 30, 2021. As of September 30, 2021, a total of $42,987 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 $23,423 of stock-based
compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $46,846 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 $381,506 of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30,
2021, a total of $264,118 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 $30,707
of stock-based compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $10,236 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 $41,674 of stock-based compensation expense during the nine months ended September 30, 2021. As of September
30, 2021, a total of $13,891 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 $161,606 of stock-based
compensation expense during the nine months ended September 30, 2021. As of September 30, 2021, a total of $53,869 of unamortized expenses
are expected to be expensed over the vesting period.
The
Company also recognized a total of $70,077, and $1,875,623 of compensation expense during the nine months ended September 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 $33,613 as of
September 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 nine months ended September 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 September 30, 2021, the Company had approximately $6,946,800 of federal net operating losses. The
net operating loss carry forwards, if not utilized, will begin to expire in 2025.
Based
on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not
that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against
its net deferred tax assets at September 30, 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
Debt
Repayment, Related Party
On
October 18, 2021, the Company repaid a total of $52,918, consisting of $50,000 of principal and $2,918 of interest, to Isiah Thomas,
the Company’s Chief Executive Officer.
Commitment
Shares
As
disclosed in Note 11, above, the Company paid a commitment fee to AJB Capital in the form of 1,250,000 shares of the Company’s
common stock in connection with the issuance of the Second AJB Note. These shares were issued on October 26, 2021.
On
October 15, 2021, the Company redeemed and cancelled 1,000,000
commitment shares issued to AJB Capital in connection
with the first AJB Note for a nominal redemption price of $1.00,
as disclosed in Note 11, above.