NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Nature of Business and Significant Accounting Policies
Nature
of Business
One
World Products, 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., and on November 23,
2021, the Company changed its name to One World Products, Inc. through the merger of One World Products, Inc., a recently formed Nevada
corporation wholly-owned by the Company, with and into the Company (the “Name Change Merger”) pursuant to the applicable
provisions of the Nevada Revised Statutes (“NRS”). As permitted by the NRS, the articles of merger filed with the Secretary
of State of the state of Nevada to effect the Name Change Merger amended Article I of the Company’s Articles of Incorporation to
change the Company’s name to “One World Products, Inc.” The Name Change Merger was effected solely to effect the change
of the Company’s name, and had no effect on the Company’s officers, directors, operations, assets or liabilities.
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
$1,400,000 for 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.
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America and the rules of the Securities and Exchange Commission (“SEC”). All references to Generally Accepted Accounting
Principles (“GAAP”) are in accordance with The FASB Accounting Standards Codification (“ASC”) and the Hierarchy
of Generally Accepted Accounting Principles.
These
statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for
fair presentation of the information contained therein.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the following entities, all of which were under common control
and ownership at December 31, 2021:
Schedule of Common Control and Ownership Interest
Name of Entity | |
State of Incorporation | |
Relationship |
One World Products, 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 |
Agrobase, S.A.S.(5) | |
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 Products, 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 substantive income or expenses. |
(5) |
Wholly-owned
subsidiary of OWP Ventures, Inc., formed on September 12, 2019, located in Colombia and legally constituted as a simplified stock
company. This company has yet to incur any substantive income or expenses. |
The
consolidated financial statements herein contain the operations of the wholly-owned subsidiaries listed above. The Company’s headquarters
are located in Las Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Foreign
Currency Translation
The
functional currency of the Company is Columbian Peso (COP). The Company has maintained its financial statements using the functional
currency, and translated those financial statements to the US Dollar throughout this report. Monetary assets and liabilities denominated
in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance
sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at
the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are
included in the determination of net income (loss) for the respective periods.
Comprehensive
Income
The
Company has adopted ASC 220, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income,
its components, and accumulated balances in a full-set of general-purpose financial statements. Accumulated other comprehensive income
represents the accumulated balance of foreign currency translation adjustments.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
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 PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Fair
Value of Financial Instruments
The
Company adopted ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are
defined as follows:
- |
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
- |
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
- |
Level
3 inputs to valuation methodology are unobservable and significant to the fair measurement. |
The
carrying value of cash, accounts receivable, accounts payables and accrued expenses are estimated by management to approximate fair value
primarily due to the short-term nature of the instruments.
Cash
in Excess of FDIC Insured Limits
The
Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $250,000, under current regulations. The Company did not have any cash in excess
of FDIC insured limits at December 31, 2021, and has not experienced any losses in such accounts.
Inventory
Inventories are stated at the lower of cost or
net realizable value. Cost is determined on a standard cost basis that approximates the first-in, first-out (FIFO) method. 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.
Fixed Assets
Fixed assets are stated at the lower of cost or
estimated net recoverable amount. The cost of property, plant and equipment is depreciated using the straight-line method based on the
lesser of the estimated useful lives of the assets or the lease term based on the following life expectancy:
Schedule
of Estimated Useful Lives of Fixed Assets
Buildings | |
15 years | |
Office equipment | |
5 years | |
Furniture and fixtures | |
7 years | |
Equipment and machinery | |
7 years | |
Leasehold improvements | |
Term of lease | |
Repairs
and maintenance expenditures are charged to operations as incurred. Major improvements and replacements, which have extended the useful
life of an asset, are capitalized and depreciated over the remaining estimated useful life of the asset. When assets are retired or sold,
the cost and related accumulated depreciation and amortization are eliminated and any resulting gain or loss is reflected in operations.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction
price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance
obligation is satisfied. The Company’s sales to date have primarily consisted of the sale of seeds. These sales include multi-element
arrangements whereby the Company collects 50% of the sale upon delivery of the sales, and the remaining 50% upon the completion of the
harvest, whether the seeds result in a successful crop, or not. In addition, the Company has a right of first refusal to purchase products
resulting from the harvest. At December 31, 2021, the Company had $30,164 of deferred revenues and $19,470 of deferred cost of goods
sold, as included in other current assets on the balance sheet, that are expected to be recognized upon the customers’ completion
of their harvests in 2022.
Advertising
Costs
The
Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $137,915 and $143,341 for
the years ended December 31, 2021 and 2020, respectively.
Basic
and Diluted Loss Per Share
The
basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted
net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average
number of common shares outstanding plus potential dilutive securities. For the years ended December 31, 2021 and 2020, potential dilutive
securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.
Stock-Based
Compensation
The
Company accounts for equity instruments issued in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). 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.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Income
Taxes
The
Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and
liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered.
The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more
likely than not.
Uncertain
Tax Positions
In
accordance with ASC 740, “Income Taxes” (“ASC 740”), the Company recognizes the tax benefit from an uncertain
tax position only if it is more likely than not that the tax position will be capable of withstanding examination by the taxing authorities
based on the technical merits of the position. These standards prescribe a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These standards also provide guidance
on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
Various
taxing authorities periodically audit the Company’s income tax returns. These audits include questions regarding the Company’s
tax filing positions, including the timing and amount of deductions and the allocation of income to various tax jurisdictions. In evaluating
the exposures connected with these various tax filing positions, including state and local taxes, the Company records allowances for
probable exposures. A number of years may elapse before a particular matter, for which an allowance has been established, is audited
and fully resolved. The Company has not yet undergone an examination by any taxing authorities.
The
assessment of the Company’s tax position relies on the judgment of management to estimate the exposures associated with the Company’s
various filing positions.
Recent
Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted
by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards,
which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.
In
August 2020, the FASB issued Accounting Standards Update (“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.
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.
There
are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect
on its financial position, results of operations, or cash flows.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
2 – Going Concern
As
shown in the accompanying financial statements, the Company had $879,410 of negative working capital as of December 31, 2021, has incurred
recurring losses from operations resulting in an accumulated deficit of $19,916,888 as of December 31, 2021, and its cash on hand may
not be sufficient to sustain operations. These factors raise substantial doubt about the Company’s ability to continue as a going
concern. Management is actively pursuing new customers to increase revenues. In addition, the Company is currently seeking additional
sources of capital to fund short term operations. Management believes these factors will contribute toward achieving profitability. The
accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going
concern.
The
financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability
to continue as a going concern. These financial statements also do not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Note
3 – Related Party Transactions
Advance
from Vice Chairman of the Board
On
December 29, 2021, the Company received an advance of $200,000 from one of our Directors, Dr. Kenneth Perego, II, M.D. pursuant to an
unsecured promissory note due January 1, 2024 that carried an 8% interest rate.
Debt
Repayments, 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.
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.
Advances
and Repayment to former CEO
On
various dates between May 3, 2018 and November 23, 2018, our then CEO advanced us short-term unsecured demand loans, bearing interest
at 6% per annum, in an aggregate amount of $514,141, which was repaid on various dates from March of 2019 through May of 2019, including
$200,000 of such principal paid by the issuance of 400,000 shares of common stock. On February 13, 2019, the remaining outstanding obligations
under these advances were exchanged for an amended and restated promissory note in the principal amount of $307,141 that bore interest
at 6% and was payable upon the earlier of (i) a public or private offering of our equity securities, resulting in gross proceeds of at
least $5,000,000, or (ii) February 13, 2022. All indebtedness outstanding under this note, consisting of $307,141 of principal and $13,791
of interest, was repaid in full during the year ended December 31, 2020, with $200,000 of such principal paid by the issuance of 400,000
shares of common stock to the CEO.
Series
A Preferred Stock Sales
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 PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 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 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 Issued for Services
On
December 31, 2021, the Company issued 673,582 shares of common stock in lieu of cash compensation to its former Chief Financial Officer,
Vahé Gabriel. The aggregate fair value of the shares was $55,234, based on the closing price
of the Company’s common stock on the date of grant.
On
December 31, 2020, the Company awarded 750,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for
services provided. The aggregate fair value of the common stock was $90,000 based on the closing price of the Company’s common
stock on the date of grant.
On
December 31, 2020, the Company awarded 750,000 shares of common stock to one of the Company’s Directors, Bruce Raben, for services
provided. The aggregate fair value of the common stock was $90,000 based on the closing price of the Company’s common stock on
the date of grant.
On
June 3, 2020, the Company awarded 500,000 shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas III,
as a signing bonus. The aggregate fair value of the common stock was $275,000 based on the closing price of the Company’s common
stock on the date of grant.
On
June 3, 2020, the Company awarded 2,000,000 shares of common stock to the Company’s former Chief Executive Officer, Craig Ellins,
pursuant to a Separation Agreement. The aggregate fair value of the common stock was $1,100,000 based on the closing price of the Company’s
common stock on the date of grant.
On
May 31, 2020, the Company awarded 350,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for services
provided. The aggregate fair value of the common stock was $196,000 based on the closing price of the Company’s common stock on
the date of grant.
Common
Stock Options Issued for Services
On
May 28, 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 were expensed over the vesting period, resulting in $171,949
of stock-based compensation expense during the year ended December 31, 2021.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 $410,853 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a
total of $234,771 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 Vice 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 were expensed over the vesting period, resulting in $40,943
of stock-based compensation expense during the year ended December 31, 2021.
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 were expensed over the
vesting period, resulting in $55,565 of stock-based compensation expense during the year ended December 31, 2021.
On
June 3, 2020, the Company awarded options to purchase 5,500,000 shares of the Company’s Common Stock at an exercise price equal
to $0.55 per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside
of the Company’s 2019 Plan and are exercisable over a ten year period. The options vest as to 1,500,000 shares immediately, as
to 1,000,000 shares 120 days following the issuance of the option (the “Second Vesting Date”), and as to the remaining 3,000,000
shares vesting quarterly over the three years following the Second Vesting Date. The estimated value using the Black-Scholes Pricing
Model, based on a volatility rate of 301% and a call option value of $0.5499, was $3,024,689. The options were being expensed over the
vesting period, resulting in $1,206,933 of stock-based compensation expense during the year ended December 31, 2020. On December 31,
2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase 350,000 shares of the Company’s Common Stock at an exercise price equal to
$0.56 per share to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest as to 116,667 shares immediately, with
the remaining 233,333 shares vesting quarterly over the following two years, beginning October 1, 2020. The estimated value using the
Black-Scholes Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $195,959. The options were being
expensed over the vesting period, resulting in $102,056 of stock-based compensation expense during the year ended December 31, 2020.
On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase 350,000 shares of the Company’s Common Stock at an exercise price equal to
$0.56 per share to Bruce Raben, one of the Company’s Directors. The options vest as to 116,667 shares immediately, with the remaining
233,333 shares vesting quarterly over the following two years, beginning October 1, 2020. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $195,959. The options were being expensed over
the vesting period, resulting in $102,056 of stock-based compensation expense during the year ended December 31, 2020. On December 31,
2020, the options were voluntarily surrendered and cancelled.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 balances sheet as of December
31, 2021 and 2020:
Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
| |
Fair Value Measurements at December 31, 2021 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | |
Assets | |
| | | |
| | | |
| | |
Cash | |
$ | 119,678 | | |
$ | - | | |
$ | - | |
Right-of-use-asset | |
| | | |
| | | |
| | |
Total assets | |
| 119,678 | | |
| - | | |
| - | |
Liabilities | |
| | | |
| | | |
| | |
Convertible notes payable, net of $412,673 of debt discounts | |
| - | | |
| 337,327 | | |
| - | |
Convertible notes payable | |
| - | | |
| 319,274 | | |
| - | |
Lease liabilities | |
| | | |
| | | |
| | |
Notes payable | |
| | | |
| | | |
| | |
Total liabilities | |
| - | | |
| (656,601 | ) | |
| - | |
Total assets and liabilities | |
$ | 119,678 | | |
$ | (656,601 | ) | |
$ | - | |
| |
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 | |
| - | | |
| - | | |
| 201,525 | |
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 and Level 2 inputs for the years ended December 31, 2021 or 2020.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 – Major Customers
and Accounts Receivable
The Company had certain customers whose revenue
individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented
10% or more of the Company’s total accounts receivable, as follows:
For the year ended December 31, 2021, four customers
accounted for 60% of revenue.
At December 31, 2021, one customer accounted for
75% of accounts receivable.
Note
6 – Inventory
Inventories
are stated at the lower of cost or net realizable value. Cost is determined on a standard cost basis that approximates the first-in,
first-out (FIFO) method. Appropriate consideration is given to obsolescence, excessive
levels, deterioration, and other factors in evaluating net realizable value. Our cannabis products consist of cannabis flower grown in-house,
along with produced extracts. Inventory consisted of the following at December 31, 2021 and 2020, respectively.
Schedule of Inventory
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Raw materials | |
$ | 31,233 | | |
$ | 27,514 | |
Work in progress | |
| 81,182 | | |
| 181,272 | |
Finished goods | |
| 108,246 | | |
| 104,673 | |
Inventory gross | |
| 220,661 | | |
| 313,459 | |
Less obsolescence | |
| (22,066 | ) | |
| (46,307 | ) |
Total inventory | |
$ | 198,595 | | |
$ | 267,152 | |
Note
7 – Other Current Assets
Other
current assets included the following as of December 31, 2021 and 2020, respectively:
Schedule of Other Current Assets
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
VAT tax receivable | |
$ | 147,194 | | |
$ | 99,199 | |
Prepaid expenses | |
| 29,366 | | |
| 19,226 | |
Deferred cost of goods sold | |
| 19,470 | | |
| - | |
Other receivables | |
| 110,000 | | |
| 486 | |
Total | |
$ | 306,030 | | |
$ | 118,911 | |
Note
8 – Security Deposits
Security
deposits included the following as of December 31, 2021 and 2020, respectively:
Schedule of Security Deposits
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Utility deposits | |
$ | 1,090 | | |
$ | 660 | |
Refundable deposit on equipment purchase | |
| 50,000 | | |
| 50,000 | |
Down payment on distillation equipment | |
| 1,155,000 | | |
| - | |
Security deposits on leases held in Colombia | |
| 35,869 | | |
| 9,960 | |
Security deposit on office lease | |
| 14,029 | | |
| 4,494 | |
Security deposits | |
$ | 1,255,988 | | |
$ | 65,114 | |
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
9 – Fixed Assets
Fixed
assets consist of the following at December 31, 2021 and 2020, respectively:
Schedule of Fixed Assets
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Land | |
$ | 138,248 | | |
$ | 138,248 | |
Buildings | |
| 473,971 | | |
| 41,665 | |
Office equipment | |
| 56,502 | | |
| 44,027 | |
Furniture and fixtures | |
| 34,409 | | |
| 27,914 | |
Equipment and machinery | |
| 383,829 | | |
| 185,169 | |
Construction in progress | |
| - | | |
| 345,036 | |
Fixed assets, gross | |
| 1,086,959 | | |
| 782,059 | |
Less: accumulated depreciation | |
| (83,946 | ) | |
| (55,239 | ) |
Total | |
$ | 1,003,013 | | |
$ | 726,820 | |
Construction
in progress consisted of equipment and capital improvements on the Popayán farm that were not placed in service until the year
ended December 31, 2021.
On
November 30, 2021, the Company disposed of a building that was damaged in a storm at the Popayán farm. No proceeds were received
on the disposal, resulting in a loss on disposal of fixed assets of $53,925, which represented the net book value at the time of disposal.
On
July 27, 2021, the Company sold a truck previously used at the Popayán farm. The Company received proceeds of $5,125 on the sale,
resulting in a loss on disposal of fixed assets of $2,064, which represented the net book value at the time of disposal.
On
July 1, 2021, the Company disposed of equipment used at the Popayán farm that is no longer in service. No proceeds were received
on the disposals, resulting in a loss on disposal of fixed assets of $15,498, which represented the net book value at the time of disposal.
Depreciation
and amortization expense totaled $40,321 and $33,610 for the years ended December 31, 2021 and 2020, respectively.
Note
10 – Accrued Expenses
Accrued
expenses consisted of the following at December 31, 2021 and 2020, respectively:
Schedule of Accrued Expenses
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
Accrued payroll | |
$ | 261,044 | | |
$ | 266,230 | |
Accrued withholding taxes and employee benefits | |
| 9,162 | | |
| 18,889 | |
Accrued ICA fees and contributions | |
| 129,856 | | |
| 200,335 | |
Accrued interest | |
| 57,700 | | |
| 65,081 | |
Accrued expenses | |
$ | 457,762 | | |
$ | 550,535 | |
Note
11 – Deferred Revenues
Arrangements
with customers include multiple deliverables, consisting of an initial delivery of seeds and a contingent portion of the sale that is
dependent on the customers future harvest of the seeds. Deferred revenues associated with these multiple-element arrangements were $30,164
at December 31, 2021. Related deferred cost of goods sold were $19,470, resulting in deferred gross margins of $10,964, that is expected
to be recognized upon the customers’ completion of their harvests in 2022.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
12 – 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 was amended to enable the Company to extend the lease for 12 months instead of 36 months. The Company is reasonably certain that
it will not extend the lease beyond its extended term of October 31, 2022. The office lease contains provisions requiring payment of
property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. As the Company’s
leases do not provide an implicit discount rate, the Company uses an incremental borrowing rate based on the information available at
the commencement date in determining the present value of lease payments.
The
components of lease expense were as follows:
Schedule of Components of Lease Expense
| |
For the | |
| |
Year Ended | |
| |
December 31, | |
| |
2021 | |
Operating lease cost: | |
| | |
Amortization of assets | |
$ | 87,276 | |
Interest on lease liabilities | |
| 3,035 | |
Total lease cost | |
$ | 90,311 | |
Supplemental
cash flow and other information related to leases was as follows:
Schedule of Supplemental Cash Flow Related to Leases
| |
For the | |
| |
Year Ended | |
| |
December 31, | |
| |
2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | |
| | |
Operating cash flows used for operating leases | |
$ | 201,525 | |
Note
13 – Convertible Note Payable
Convertible
note payable consists of the following at December 31, 2021 and 2020, respectively:
Schedule
of Convertible Note Payable
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
| |
$ | 750,000 | | |
$ | - | |
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 | | |
$ | - | |
| |
| | | |
| | |
Total convertible notes payable | |
| 750,000 | | |
| - | |
Less: unamortized debt discounts | |
| 412,673 | | |
| - | |
Convertible note payable, net of discounts | |
$ | 337,327 | | |
$ | - | |
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company recognized debt discounts for the years ended December 31, 2021 and 2020, as follows:
Schedule of Convertible Debt Discounts
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Fair value of 3,250,000 commitment shares of common stock | |
$ | 418,312 | | |
$ | - | |
Fair value of warrants to purchase 3,500,000 shares of common stock | |
| 358,017 | | |
| - | |
Original issue discounts | |
| 53,700 | | |
| - | |
Legal and brokerage fees | |
| 39,300 | | |
| - | |
Total debt discounts | |
| 869,329 | | |
| - | |
Amortization of debt discounts | |
| 456,656 | | |
| - | |
Unamortized debt discounts | |
$ | 412,673 | | |
$ | - | |
The
aggregate debt discounts of $869,329, for the year ended December 31, 2021, are being amortized over the life of the loan using the straight-line
method, which approximates the effective interest method. The Company recorded finance expense in the amount of $456,656 on the amortization
of these discounts for the year ended December 31, 2021.
The
convertible note limits the maximum number of shares that can be owned by the note holder as a result of the conversions to common stock
to 4.99% of the Company’s issued and outstanding shares.
The
Company recorded interest expense pursuant to the stated interest rates on the convertible notes in the amount of $36,243 and $21,516
for the years ended December 31, 2021 and 2020, respectively. In addition, the Company recognized $456,656 of interest expense related
to the debt discounts for the year ended December 31, 2021.
Note
14 – Notes Payable
Notes
payable consists of the following at December 31, 2021 and 2020, respectively:
Schedule of Notes Payable
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
| |
$ | 200,000 | | |
$ | - | |
On December 29, 2021, the Company received an advance of $200,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due January 1, 2024 that carried an 8% interest rate. | |
$ | 200,000 | | |
$ | - | |
| |
| | | |
| | |
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 year ended December 31, 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 | |
| |
| | | |
| | |
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 carried interest at 1.00% per annum, payable monthly beginning December 4, 2020, and was due on May 4, 2022. The PPP Note could have been repaid at any time without penalty.
Under the Payroll Protection Program, the Company was eligible for loan forgiveness up to the full amount of the PPP Note and any accrued interest. The forgiveness amount was equal to the amount that the Company spent 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 was 40% of the amount of the PPP Note. A total of $121,372, consisting of $119,274 of principal and $2,098 of interest, was forgiven on February 11, 2022. | |
| 119,274 | | |
| 119,274 | |
| |
| | | |
| | |
Total notes payable | |
| 319,274 | | |
| 334,841 | |
Less: current maturities | |
| 119,274 | | |
| 334,841 | |
Notes payable, long-term potion | |
$ | 200,000 | | |
$ | - | |
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company recorded interest expense in the amount of $28,674 and $9,734 for the years ended December 31, 2021 and 2020, respectively, including
$9,729 of interest paid to officers and directors during the year ended December 31, 2021.
The
Company recognized interest expense for the year ended December 31, 2021 and 2020, respectively, as follows:
Schedule of Interest Expenses
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Interest on convertible notes | |
$ | 17,260 | | |
$ | 21,516 | |
Interest on notes payable | |
| 28,674 | | |
| 9,734 | |
Amortization of debt discounts | |
| 42,247 | | |
| - | |
Amortization of stock-based debt discounts | |
| 414,409 | | |
| - | |
Interest on accounts payable | |
| 8,541 | | |
| 16,342 | |
Total interest expense | |
$ | 511,131 | | |
$ | 47,592 | |
Note
15 – 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 December 31, 2021, there were 65,233 and 238,501 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 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 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 year ended December 31, 2021.
On
various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $1,502,330 from the sale of 150,233
units, consisting in the aggregate of 150,233 shares of Series A Preferred Stock and five-year warrants to purchase 7,511,650 shares
of common stock at an exercise price of $0.25 per share to twenty-two accredited investors. The proceeds received were allocated between
the Series A Preferred Stock and warrants on a relative fair value basis.
Series
A Preferred Stock Conversions
On
November 15, 2021, a shareholder converted 30,000 shares of Series A Preferred Stock into 3,000,000 shares of common stock.
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.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 $61,684 and $37,236 for years ended December 31, 2021 and 2020, respectively. A total of $98,920 of dividends
had accrued as of December 31, 2021.
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 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 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 35,167
shares of Series B Preferred Stock at a price of $15
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
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.
No
shares of Series B Preferred Stock were sold during the year ended December 31, 2020.
Note
16 – Stockholders’ Equity
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, See Note 15 above for a description of the features and issuances of the Series A Preferred Stock and Series B Preferred
Stock.
Common
Stock
The
Company is authorized to issue an aggregate of 300,000,000 shares of common stock with a par value of $0.001. As of December 31, 2021,
there were 65,599,565 shares of common stock issued and outstanding.
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 Sales
No
shares of common stock were sold during the year ended December 31, 2021.
On
November 27, 2020, the Company sold an aggregate of 750,000 shares of common stock at a price of $0.10 per share for total cash proceeds
of $75,000. The shares were subsequently issued on March 1, 2021. Prior to the issuance, the fair value of the shares was reflected on
the Company’s balance sheet as subscriptions payable at December 31, 2020.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Common
Stock Issued on Subscriptions Payable
On
January 6, 2020, the Company issued 500,000 shares of common stock that were purchased on December 31, 2019 at $0.50 per share for proceeds
of $25,000. Prior to the issuance, the purchase price was reflected on the Company’s balance sheet as subscriptions payable at
December 31, 2019.
Common
Stock Issued as a Promissory Note Commitment
As
disclosed in Note 14 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 year ended December
31, 2021. On October 15, 2021, pursuant to the early repayment terms of the promissory note, one million of these shares were redeemed
and cancelled for a nominal aggregate purchase price of $1.00.
Also,
as disclosed in Note 13, 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. The issuance of these commitment fee shares resulted in a debt discount of $150,062
that is being amortized over the life of the
loan, resulting in $43,168
of finance expense during the year ended December
31, 2021.
Common
Stock Issued for Services, Employees and Consultants
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
August 20, 2019, the Company engaged COR Prominence, LLC (“COR”) 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 May 12, 2021, the Company entered into a Settlement Agreement with
COR. Pursuant to the Settlement Agreement, the Company issued COR 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.
On
June 1, 2021, the Company entered into a new agreement with COR and issued another 112,528 shares of common stock to COR. 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. On
December 1, 2021, the Company owed COR another 262,066 shares of common stock, which were subsequently issued on March 29, 2022. The
fair value of the shares was $21,725, based on the closing price of the Company’s common stock on the date of grant.
On
December 31, 2020, the Company awarded 100,000 shares of common stock to a consultant for services performed. The aggregate fair value
of the common stock was $12,000 based on the closing price of the Company’s common stock on the date of grant.
On
September 21, 2020, the Company awarded 250,000 shares of common stock to a consultant for services performed. The aggregate fair value
of the common stock was $45,000 based on the closing price of the Company’s common stock on the date of grant.
On
July 1, 2020, the Company awarded an aggregate of 875,000 shares of common stock to four employees and consultants for services provided.
The aggregate fair value of the common stock was $332,500 based on the closing price of the Company’s common stock on the date
of grant.
On
June 3, 2020, the Company awarded 200,000 shares of common stock to a consultant for services performed. The aggregate fair value of
the common stock was $120,000 based on the closing price of the Company’s common stock on the date of grant.
On
various dates between January 4, 2020 and May 31, 2020, the Company awarded an aggregate of 2,006,000 shares of common stock to ten employees
and consultants for services provided. The aggregate fair value of the common stock was $1,318,000 based on the closing price of the
Company’s common stock on the date of grant.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Common
Stock Issued for Services, Officers and Directors
On
December 31, 2021, the Company issued 673,582 shares of common stock in lieu of cash compensation to its former Chief Financial Officer,
Vahé Gabriel. The aggregate fair value of the shares was $55,234, based on the closing price
of the Company’s common stock on the date of grant.
On
December 31, 2020, the Company awarded 750,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for
services provided. The aggregate fair value of the common stock was $90,000 based on the closing price of the Company’s common
stock on the date of grant.
On
December 31, 2020, the Company awarded 750,000 shares of common stock to one of the Company’s Directors, Bruce Raben, for services
provided. The aggregate fair value of the common stock was $90,000 based on the closing price of the Company’s common stock on
the date of grant.
On
June 3, 2020, the Company awarded 500,000 shares of common stock to the Company’s Chief Executive Officer, Isiah L. Thomas III,
as a signing bonus. The aggregate fair value of the common stock was $275,000 based on the closing price of the Company’s common
stock on the date of grant.
On
June 3, 2020, the Company awarded 2,000,000 shares of common stock to the Company’s former Chief Executive Officer, Craig Ellins,
pursuant to a Separation Agreement. The aggregate fair value of the common stock was $1,100,000 based on the closing price of the Company’s
common stock on the date of grant.
On
May 31, 2020, the Company awarded 350,000 shares of common stock to the Company’s Chairman of the Board, Dr. Ken Perego, for services
provided. The aggregate fair value of the common stock was $196,000 based on the closing price of the Company’s common stock on
the date of grant.
Note
17 – 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 were expensed over the vesting period, resulting in $171,949 of stock-based compensation expense during the
year ended December 31, 2021.
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 $20,493 of stock-based
compensation expense during the year ended December 31, 2021. As of December 31, 2021, a total of $49,776 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 $410,853 of stock-based compensation expense during the year ended December 31, 2021. As of December 31, 2021, a
total of $234,771 of unamortized expenses are expected to be expensed over the vesting period.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 were expensed over the vesting period, resulting in $40,943 of stock-based
compensation expense during the year ended December 31, 2021.
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, one of the Company’s Directors. 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 were expensed over the vesting period, resulting in $55,565 of stock-based compensation
expense during the year ended December 31, 2021.
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 were expensed over the vesting period, resulting in $215,475 of stock-based
compensation expense during the year ended December 31, 2021.
On
December 31, 2020, the Company awarded options to purchase 250,000 shares of the Company’s Common Stock at an exercise price equal
to $0.13 per share to a consultant. The options vest in equal quarterly installments over the following year. The estimated value using
the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170, was $29,245. The options were
expensed over the vesting period, resulting in $29,245 of stock-based compensation expense during the year ended December 31, 2021.
On
December 31, 2020, the Company awarded options to purchase 125,000 shares of the Company’s Common Stock at an exercise price equal
to $0.13 per share to a consultant. The options vest in equal quarterly installments over the following year. The estimated value using
the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170, was $14,622. The options were
expensed over the vesting period, resulting in $14,622 of stock-based compensation expense during the year ended December 31, 2021.
On
December 31, 2020, the Company awarded options to purchase 50,000 shares of the Company’s Common Stock at an exercise price equal
to $0.13 per share to a consultant. The options vest in equal quarterly installments over the following year. The estimated value using
the Black-Scholes Pricing Model, based on a volatility rate of 192% and a call option value of $0.1170, was $5,849. The options were
expensed over the vesting period, resulting in $5,849 of stock-based compensation expense during the year ended December 31, 2021.
On
July 1, 2020, the Company awarded options to purchase 125,000 shares of the Company’s Common Stock at an exercise price equal to
$0.38 per share to a consultant. The options are exercisable over a ten year period. The options vested quarterly over six months. The
estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 303% and a call option value of $0.3798, was $47,476.
The options were expensed over the vesting period, resulting in $47,476 of stock-based compensation expense during the year ended December
31, 2020.
On
July 1, 2020, the Company awarded options to purchase 1,000,000 shares of the Company’s Common Stock at an exercise price equal
to $0.38 per share to a consultant. The options were exercisable over a ten year period. The options will vest quarterly over three years.
The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 303% and a call option value of $0.38, was $379,958.
The options were being expensed over the vesting period, resulting in $63,326 of stock-based compensation expense during the year ended
December 31, 2020. On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
July 1, 2020, the Company awarded options to purchase 125,000 shares of the Company’s Common Stock at an exercise price equal to
$0.38 per share to a consultant for Advisory Board services. The options are exercisable over a ten year period. The options will vest
quarterly over one year. The estimated value using the Black-Scholes Pricing Model, based on a volatility rate of 303% and a call option
value of $0.3799, was $47,482. The options are being expensed over the vesting period, resulting in $23,742 and $23,742 of stock-based
compensation expense during the years ended December 31, 2021 and 2020, respectively.
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
On
June 3, 2020, the Company awarded options to purchase 5,500,000 shares of the Company’s Common Stock at an exercise price equal
to $0.55 per share to Isiah L. Thomas III, the Company’s Chief Executive Officer and Vice Chairman. The options were issued outside
of the Company’s 2019 Plan and are exercisable over a ten year period. The options vest as to 1,500,000 shares immediately, as
to 1,000,000 shares 120 days following the issuance of the option (the “Second Vesting Date”), and as to the remaining 3,000,000
shares vesting quarterly over the three years following the Second Vesting Date. The estimated value using the Black-Scholes Pricing
Model, based on a volatility rate of 301% and a call option value of $0.5499, was $3,024,689. The options were being expensed over the
vesting period, resulting in $1,206,933 of stock-based compensation expense during the year ended December 31, 2020. On December 31,
2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase shares of the Company’s Common Stock at an exercise price equal to
$0.56 per share to the Company’s Chairman of the Board, Dr. Ken Perego. The options vest as to 116,667 shares immediately, with
the remaining 233,333 shares vesting quarterly over the following two years, beginning October 1, 2020. The estimated value using the
Black-Scholes Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $195,959. The options were being
expensed over the vesting period, resulting in $102,056 of stock-based compensation expense during the year ended December 31, 2020.
On December 31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase 350,000 shares of the Company’s Common Stock at an exercise price equal to
$0.56 per share to Bruce Raben, one of the Company’s Directors. The options vest as to 116,667 shares immediately, with the remaining
233,333 shares vesting quarterly over the following two years, beginning October 1, 2020. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $195,959. The options were being expensed over
the vesting period, resulting in $102,056 of stock-based compensation expense during the year ended December 31, 2020. On December 31,
2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase an aggregate 1,900,000 shares of the Company’s Common Stock at an exercise
price equal to $0.56 per share to six consultants and employees. The options vest as to 633,333 shares immediately, with the remaining
1,266,667 shares vesting quarterly over the following three years, beginning October 1, 2020. The estimated value using the Black-Scholes
Pricing Model, based on a volatility rate of 302% and a call option value of $0.5599, was $1,063,879. The options were being expensed
over the vesting period, resulting in $458,058 of stock-based compensation expense during the year ended December 31, 2020. On December
31, 2020, the options were voluntarily surrendered and cancelled.
On
May 31, 2020, the Company awarded options to purchase an aggregate 100,000 shares of the Company’s Common Stock at an exercise
price equal to $0.56 per share to two consultants. The options vest as to 33,333 shares immediately, with the remaining 66,667 shares
vesting quarterly over the following three years, beginning October 1, 2020. The estimated value using the Black-Scholes Pricing Model,
based on a volatility rate of 302% and a call option value of $0.5599, was $55,994. The options are being expensed over the vesting period,
resulting in $12,100 and $25,760 of stock-based compensation expense during the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, a total of $18,134 of unamortized expenses are expected to be expensed over the vesting period.
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.
The
following is a summary of information about the Stock Options outstanding at December 31, 2021.
Schedule of Option Exercise Price Range
| | |
Shares Underlying | |
Shares Underlying Options Outstanding | | |
Options Exercisable | |
| |
| |
Weighted | |
| | |
| |
| |
| |
Shares | |
Average | |
Weighted | | |
Shares | |
Weighted | |
| |
Underlying | |
Remaining | |
Average | | |
Underlying | |
Average | |
Range of | |
Options | |
Contractual | |
Exercise | | |
Options | |
Exercise | |
Exercise Prices | |
Outstanding | |
Life | |
Price | | |
Exercisable | |
Price | |
$0.13 - $0.56 | |
10,742,000 | |
8.63 years | |
$ | 0.16 | | |
7,467,612 | |
$ | 0.17 | |
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following is a summary of activity of outstanding stock options:
Schedule of Option Activity
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Number | | |
Exercise | |
| |
of Shares | | |
Prices | |
Balance, December 31, 2019 | |
| 766,669 | | |
$ | 0.50 | |
Options granted | |
| 9,875,000 | | |
| 0.51 | |
Options exercised | |
| (9,366,669 | ) | |
| (0.53 | ) |
Balance, December 31, 2020 | |
| 1,275,000 | | |
| 0.36 | |
Options granted | |
| 9,592,000 | | |
| 0.14 | |
Options exercised | |
| (125,000 | ) | |
| (0.13 | ) |
Balance, December 31, 2021 | |
| 10,742,000 | | |
$ | 0.16 | |
| |
| | | |
| | |
Exercisable, December 31, 2021 | |
| 7,467,612 | | |
$ | 0.17 | |
Note
18 – Common Stock Warrants
Warrants
to purchase a total of 11,011,650 shares of common stock were outstanding as of December 31, 2021.
On
September 24, 2021, the Company completed the sale of a (i) Promissory Note in the principal amount of $750,000 on the Second AJB Note,
(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 proceeds received were allocated between the debt and warrants on a relative fair value basis. The aggregate estimated value
of the warrants using the Black-Scholes Pricing Model, based on a weighted average volatility rate of 197% and a weighted average call
option value of $0.1023, was $358,017, which is being amortized over the life of the loan as a debt discount. The warrants are being
expensed over the over the life of the loan, resulting in $102,991 of finance expense during the year ended December 31, 2021. As of
December 31, 2021, a total of $255,026 of unamortized expenses are expected to be expensed over the remaining life of the loan.
On
various dates between April 14, 2020 and October 28, 2020, the Company received total proceeds of $1,502,330 from the sale of 150,233
units, consisting in the aggregate of 150,233 shares of Series A Preferred Stock and five-year warrants to purchase 7,511,650 shares
of common stock at an exercise price of $0.25 per share to twenty-two accredited investors. The proceeds received were allocated between
the Series A Preferred Stock and warrants on a relative fair value basis. The aggregate estimated value of the warrants using the Black-Scholes
Pricing Model, based on a weighted average volatility rate of 305% and a weighted average call option value of $0.2882, was $2,164,995.
The
following is a summary of information about our warrants to purchase common stock outstanding at December 31, 2021.
Schedule of Warrants to Purchase Common Stock Outstanding
| |
Shares Underlying |
Shares Underlying Warrants Outstanding | |
Warrants Exercisable |
| |
| |
| |
| |
| |
|
| |
| |
Weighted | |
| |
| |
|
| |
Shares | |
Average | |
Weighted | |
Shares | |
Weighted |
Range of | |
Underlying | |
Remaining | |
Average | |
Underlying | |
Average |
Exercise | |
Warrants | |
Contractual | |
Exercise | |
Warrants | |
Exercise |
Prices | |
Outstanding | |
Life | |
Price | |
Exercisable | |
Price |
| |
| |
| |
| |
| |
|
$0.25-$0.50 | |
11,011,650 | |
3.31 years | |
$0.25-$0.50 | |
11,011,650 | |
$0.25-$0.50 |
The
fair value of each warrant grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants under the fixed option plan:
Schedule of Fair value Assumption of Warrants
| |
December 31, | | |
December 31, | |
| |
2021 | | |
2020 | |
| |
| | |
| |
Average risk-free interest rates | |
| 0.47 | % | |
| 0.30 | % |
Average expected life (in years) | |
| 3.00 | | |
| 5.00 | |
Volatility | |
| 197 | % | |
| 305 | % |
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
weighted average fair value of warrants granted with exercise prices at the current fair value of the underlying stock was approximately
$0.10 and $0.25 per warrant for the years ended December 31, 2021 and 2020, respectively.
The
following is a summary of activity of outstanding common stock warrants:
Schedule of Warrants Activity
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Number | | |
Exercise | |
| |
of Shares | | |
Prices | |
Balance, December 31, 2019 | |
| - | | |
$ | - | |
Warrants granted | |
| 7,511,650 | | |
| 0.25 | |
Balance, December 31, 2020 | |
| 7,511,650 | | |
| 0.25 | |
Warrants granted | |
| 3,500,000 | | |
| 0.39 | |
Balance, December 31, 2021 | |
| 11,011,650 | | |
$ | 0.30 | |
| |
| | | |
| | |
Exercisable, December 31, 2021 | |
| 11,011,650 | | |
$ | 0.30 | |
Note
19 – Commitments and Contingencies
Legal
Contingencies
There
are no material pending legal proceedings to which we are a party or to which any of our property is subject, nor are there any such
proceedings known to be contemplated by governmental authorities. None of our directors, officers or affiliates is involved in a proceeding
adverse to our business or has a material interest adverse to our business.
Note
20 - Income Tax
The
Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that
deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes, referred to as temporary differences.
For
the years ended December 31, 2021 and 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 December 31, 2021, the Company had approximately $7,309,000 of federal net operating losses. The net operating loss carry forwards,
if not utilized, will begin to expire in 2025.
The
provision (benefit) for income taxes for the years ended December 31, 2021 and 2020 were assuming a 21% effective tax rate. The effective
income tax rate for the years ended December 31, 2021 and 2020 consisted of the following:
Schedule of Effective Income Tax Rate
| |
2021 | | |
2020 | |
| |
December 31, | |
| |
2021 | | |
2020 | |
Federal statutory income tax rate | |
| 21 | % | |
| 21 | % |
State income taxes | |
| - | % | |
| - | % |
Change in valuation allowance | |
| (21 | )% | |
| (21 | )% |
Net effective income tax rate | |
| - | | |
| - | |
ONE
WORLD PRODUCTS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
components of the Company’s deferred tax asset are as follows:
Schedule of Deferred Tax Asset
| |
2021 | | |
2020 | |
| |
December 31, | |
| |
2021 | | |
2020 | |
Deferred tax assets: | |
| | | |
| | |
Net operating loss carry forwards | |
$ | 1,535,000 | | |
$ | 1,302,000 | |
| |
| | | |
| | |
Net deferred tax assets before valuation allowance | |
$ | 1,535,000 | | |
$ | 1,302,000 | |
Less: Valuation allowance | |
| (1,535,000 | ) | |
| (1,302,000 | ) |
Net deferred tax assets | |
$ | - | | |
$ | - | |
Based
on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not
that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against
its net deferred tax assets at December 31, 2021 and 2020, respectively.
In
accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
Note
21 – Subsequent Events
Debt
Financing
On
March 1, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $400,000 from an individual
pursuant to an unsecured promissory note, maturing on January 1, 2024, that carried an 8% interest rate.
On
February 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $200,000 from an individual
pursuant to an unsecured promissory note, maturing on January 1, 2024, that carried an 8% interest rate.
Common
Stock Issued on Subscriptions Payable
On
March 29, 2022, the Company issued 262,066 shares of common stock on a Subscriptions Payable for the December 1, 2021 award of common
stock to COR for services.
Lease Commitment
On January 1, 2022, OWP Colombia entered into
a lease for a warehouse over a ten-year term. The leased premise is 38,750 square feet and will be used for our extraction facility.
Monthly lease payments of $57,339,000 COP, plus VAT, or approximately $15,290 USD, commence January 1, 2022 for a ten-year term that
carries automatic options to extend for successive terms of five (5) years, as long as neither party has given notice of termination
at least six (6) months in advance.