UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________________ to ________.____________
Commission file number: 333-200529000-56151
PUNTO GROUP, CORP.
ONE WORLD PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Nevada | 61-1744826 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
6605 Grand Montecito Pkwy, Suite 100, Las Vegas, Nevada89149 | 89149 | |
(Address of principal executive offices) | (zip code) |
(800)605-3210
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | ||
N/A | ||
| ||
(212) 370-1300
(Registrant’s Telephone Number, Including Area Code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☐ ☒ No ☒☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitiondefinitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | Smaller reporting company | ☒ | ||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No☒ No ☐
AsIndicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
The number of shares of registrant’s common stock outstanding as of November 14, 2017, there were 5,290,000 shares of the Registrant’s common stock, par value $0.001 per share, outstanding.11, 2022 was .
TABLE OF CONTENTS
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 68,621 | $ | 119,678 | ||||
Accounts receivable | 31,096 | 19,880 | ||||||
Inventory | 319,220 | 198,595 | ||||||
Other current assets | 49,258 | 158,836 | ||||||
Total current assets | 468,195 | 496,989 | ||||||
Other assets | 180,521 | 147,194 | ||||||
Right-of-use assets | 32,357 | - | ||||||
Security deposits | 1,450,008 | 1,255,988 | ||||||
Fixed assets, net | 996,283 | 1,003,013 | ||||||
Total Assets | $ | 3,127,364 | $ | 2,903,184 | ||||
Liabilities and Stockholders’ Equity (Deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 739,195 | $ | 480,146 | ||||
Accrued expenses | 813,314 | 457,762 | ||||||
Deferred revenues | 35,340 | 30,164 | ||||||
Dividends payable | 127,891 | 98,920 | ||||||
Current portion of lease liabilities | 17,106 | - | ||||||
Convertible notes payable, net of $412,673 of debt discounts at December 31, 2021 | 750,000 | 337,327 | ||||||
Notes payable, current maturities | 154,455 | 119,274 | ||||||
Notes payable, related parties, current maturities | 99,500 | - | ||||||
Total current liabilities | 2,736,801 | 1,523,593 | ||||||
Long-term lease liability | 15,703 | - | ||||||
Notes payable, long-term portion | 700,000 | - | ||||||
Notes payable, related parties, long-term portion | 200,000 | 200,000 | ||||||
Total Liabilities | 3,652,504 | 1,723,593 | ||||||
Series A convertible preferred stock, $ | par value, shares authorized; shares issued and outstanding652,330 | 652,330 | ||||||
Series B convertible preferred stock, $ | par value, shares authorized; and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively3,932,520 | 3,577,515 | ||||||
Convertible preferred stock value | 3,932,520 | 3,577,515 | ||||||
Stockholders’ Equity (Deficit): | ||||||||
Preferred stock, $ | par value, shares authorized; shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively- | - | ||||||
Common stock, $ | par value, shares authorized; and shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively67,203 | 65,600 | ||||||
Additional paid-in capital | 17,092,375 | 16,843,656 | ||||||
Subscriptions payable, consisting of | shares at December 31, 2021- | 21,725 | ||||||
Accumulated other comprehensive loss | (57,541 | ) | (64,347 | ) | ||||
Accumulated (deficit) | (22,212,027 | ) | (19,916,888 | ) | ||||
Total Stockholders’ Equity (Deficit) | (5,109,990 | ) | (3,050,254 | ) | ||||
Total Liabilities and Stockholders’ Equity (Deficit) | $ | 3,127,364 | $ | 2,903,184 |
See accompanying notes to financial statements.
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
2022 | 2021 | 2022 | 2021 | |||||||||||||
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenues | $ | 33,373 | $ | 7,845 | $ | 76,384 | $ | 73,450 | ||||||||
Cost of goods sold | 23,969 | 7,058 | 54,765 | 14,810 | ||||||||||||
Gross profit | 9,404 | 787 | 21,619 | 58,640 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | 378,910 | 358,382 | 1,148,100 | 1,466,954 | ||||||||||||
Professional fees | 95,946 | 153,484 | 380,801 | 679,141 | ||||||||||||
Depreciation expense | 9,883 | 6,939 | 34,540 | 29,937 | ||||||||||||
Total operating expenses | 484,739 | 518,805 | 1,563,441 | 2,176,032 | ||||||||||||
Operating loss | (475,335 | ) | (518,018 | ) | (1,541,822 | ) | (2,117,392 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Sublease income | - | 5,000 | 1,000 | 19,500 | ||||||||||||
Loss on sale of fixed assets | (9,041 | ) | (17,563 | ) | (9,041 | ) | (17,563 | ) | ||||||||
Gain on early extinguishment of lease | 20,148 | - | 20,148 | - | ||||||||||||
Gain on early extinguishment of debt | - | - | 121,372 | - | ||||||||||||
Interest income | - | 765 | 41 | 2,323 | ||||||||||||
Interest expense | (529,915 | ) | (137,863 | ) | (886,837 | ) | (347,958 | ) | ||||||||
Total other expense | (518,808 | ) | (149,661 | ) | (753,317 | ) | (343,698 | ) | ||||||||
Net loss | $ | (994,143 | ) | $ | (667,679 | ) | $ | (2,295,139 | ) | $ | (2,461,090 | ) | ||||
Other comprehensive loss: | ||||||||||||||||
Gain (loss) on foreign currency translation | $ | 2,334 | $ | (5,500 | ) | $ | 6,806 | $ | (10,919 | ) | ||||||
Net other comprehensive loss | $ | (991,809 | ) | $ | (673,179 | ) | $ | (2,288,333 | ) | $ | (2,472,009 | ) | ||||
Series A convertible preferred stock dividends declared ($ | per share)(9,866 | ) | (14,403 | ) | (28,971 | ) | (49,246 | ) | ||||||||
Net loss attributable to common shareholders | $ | (1,001,675 | ) | $ | (687,582 | ) | $ | (2,317,304 | ) | $ | (2,521,255 | ) | ||||
Weighted average number of common shares outstanding - basic and diluted | 66,080,317 | 61,662,287 | 65,850,852 | 59,712,489 | ||||||||||||
Net loss per share - basic and diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.04 | ) | ||||
Dividends declared per share of common stock | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 |
Punto Group, Corp.
See accompanying notes to financial statements.
2 |
ONE WORLD PHARMA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 95,233 | $ | 952,330 | 205,169 | $ | 3,077,535 | 61,915,983 | $ | 61,916 | $ | 15,715,598 | $ | - | $ | (58,289 | ) | $ | (17,925,737 | ) | $ | (2,206,512 | ) | ||||||||||||||||||||||
Series B convertible preferred stock sold for cash to our CEO | - | - | 33,333 | 499,995 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Adjustment of common stock issued for services | - | - | - | - | (300,000 | ) | (300 | ) | (50,700 | ) | - | - | - | (51,000 | ) | |||||||||||||||||||||||||||||
Commitment shares issued pursuant to promissory note | - | - | - | - | - | - | - | 150,062 | - | - | 150,062 | |||||||||||||||||||||||||||||||||
Exercise of cashless options | - | - | - | - | 60,000 | 60 | (60 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Warrants issued as a debt discount | - | - | - | - | - | - | 358,017 | - | - | - | 358,017 | |||||||||||||||||||||||||||||||||
Amortization of common stock options issued for services | - | - | - | - | - | - | 183,376 | - | - | - | 183,376 | |||||||||||||||||||||||||||||||||
Series A convertible preferred stock dividends declared ($ | per share)- | - | - | - | - | - | (14,403 | ) | - | - | - | (14,403 | ) | |||||||||||||||||||||||||||||||
Loss on foreign currency translation | - | - | - | - | - | - | - | - | (5,500 | ) | - | (5,500 | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | (667,679 | ) | (667,679 | ) | |||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 95,233 | $ | 952,330 | 238,502 | $ | 3,577,530 | 61,675,983 | $ | 61,676 | $ | 16,191,828 | $ | 150,062 | $ | (63,789 | ) | $ | (18,593,416 | ) | $ | (2,253,639 | ) |
For the Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 65,233 | $ | 652,330 | 238,501 | $ | 3,577,515 | 65,861,631 | $ | 65,862 | $ | 16,928,274 | $ | - | $ | (59,875 | ) | $ | (21,217,884 | ) | $ | (4,283,623 | ) | ||||||||||||||||||||||
Series B convertible preferred stock sold for cash | - | - | 10,000 | 150,000 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Series B convertible preferred stock issued as commitment fee on ELOC | - | - | 13,667 | 205,005 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Common stock issued for services | - | - | - | - | 1,341,276 | 1,341 | 132,787 | - | - | - | 134,128 | |||||||||||||||||||||||||||||||||
Amortization of common stock options issued for services | - | - | - | - | - | - | 41,180 | - | - | - | 41,180 | |||||||||||||||||||||||||||||||||
Series A convertible preferred stock dividends declared ($ | per share)- | - | - | - | - | - | (9,866 | ) | - | - | - | (9,866 | ) | |||||||||||||||||||||||||||||||
Gain on foreign currency translation | - | - | - | - | - | - | - | - | 2,334 | - | 2,334 | |||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | (994,143 | ) | (994,143 | ) | |||||||||||||||||||||||||||||||
Balance, September 30, 2022 | 65,233 | $ | 652,330 | 262,168 | $ | 3,932,520 | 67,202,907 | $ | 67,203 | $ | 17,092,375 | $ | - | $ | (57,541 | ) | $ | (22,212,027 | ) | $ | (5,109,990 | ) |
3 |
For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 150,233 | $ | 1,502,330 | - | $ | - | 53,085,305 | $ | 53,085 | $ | 14,103,672 | $ | 75,000 | $ | (52,870 | ) | $ | (16,132,326 | ) | $ | (1,953,439 | ) | ||||||||||||||||||||||
Series B convertible preferred stock sold for cash to our CEO | - | - | 203,334 | 3,050,010 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Series B convertible preferred stock sold for cash | - | - | 35,168 | 527,520 | - | - | (25 | ) | - | - | - | (25 | ) | |||||||||||||||||||||||||||||||
Common stock sold for cash | - | - | - | - | 750,000 | 750 | 74,250 | (75,000 | ) | - | - | - | ||||||||||||||||||||||||||||||||
Conversion of series A convertible preferred stock | (55,000 | ) | (550,000 | ) | - | - | 5,500,000 | 5,500 | 544,500 | - | - | - | 550,000 | |||||||||||||||||||||||||||||||
Common stock issued for services | - | - | - | - | 280,678 | 281 | 56,515 | - | - | - | 56,796 | |||||||||||||||||||||||||||||||||
Commitment shares issued pursuant to promissory note | - | - | - | - | 2,000,000 | 2,000 | 266,250 | 150,062 | - | - | 418,312 | |||||||||||||||||||||||||||||||||
Exercise of cashless options | - | - | - | - | 60,000 | 60 | (60 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||
Warrants issued as a debt discount | - | - | - | - | - | - | 358,017 | - | - | - | 358,017 | |||||||||||||||||||||||||||||||||
Amortization of common stock options issued for services | - | - | - | - | - | - | 837,955 | - | - | - | 837,955 | |||||||||||||||||||||||||||||||||
Series A convertible preferred stock dividends declared ($ | per share)- | - | - | - | - | - | (49,246 | ) | - | - | - | (49,246 | ) | |||||||||||||||||||||||||||||||
Loss on foreign currency translation | - | - | - | - | - | - | - | - | (10,919 | ) | - | (10,919 | ) | |||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | (2,461,090 | ) | (2,461,090 | ) | |||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 95,233 | $ | 952,330 | 238,502 | $ | 3,577,530 | 61,675,983 | $ | 61,676 | $ | 16,191,828 | $ | 150,062 | $ | (63,789 | ) | $ | (18,593,416 | ) | $ | (2,253,639 | ) |
For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
Series A Convertible | Series B Convertible | Additional | Accumulated Other | Total Stockholders’ | ||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid-In | Subscriptions | Comprehensive | Accumulated | Equity | |||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Payable | Income (Loss) | Deficit | (Deficit) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 65,233 | $ | 652,330 | 238,501 | $ | 3,577,515 | 65,599,565 | $ | 65,600 | $ | 16,843,656 | $ | 21,725 | $ | (64,347 | ) | $ | (19,916,888 | ) | $ | (3,050,254 | ) | ||||||||||||||||||||||
Series B convertible preferred stock sold for cash | - | - | 10,000 | 150,000 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Series B convertible preferred stock issued as commitment fee on ELOC | - | - | 13,667 | 205,005 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Common stock issued for services | - | - | - | - | 1,603,342 | 1,603 | 154,250 | (21,725 | ) | - | - | 134,128 | ||||||||||||||||||||||||||||||||
Amortization of common stock options issued for services | - | - | - | - | - | - | 123,440 | - | - | - | 123,440 | |||||||||||||||||||||||||||||||||
Series A convertible preferred stock dividends declared ($ | per share)- | - | - | - | - | - | (28,971 | ) | - | - | - | (28,971 | ) | |||||||||||||||||||||||||||||||
Gain on foreign currency translation | - | - | - | - | - | - | - | - | 6,806 | - | 6,806 | |||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | - | - | (2,295,139 | ) | (2,295,139 | ) | |||||||||||||||||||||||||||||||
Balance, September 30, 2022 | 65,233 | $ | 652,330 | 262,168 | $ | 3,932,520 | 67,202,907 | $ | 67,203 | $ | 17,092,375 | $ | - | $ | (57,541 | ) | $ | (22,212,027 | ) | $ | (5,109,990 | ) |
See accompanying notes to financial statements.
4 |
ONE WORLD PRODUCTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
2022 | 2021 | |||||||
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (2,295,139 | ) | $ | (2,461,090 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Bad debts expense | - | 25,556 | ||||||
Depreciation and amortization expense | 34,540 | 29,937 | ||||||
Loss on disposal of fixed assets | 9,041 | 17,563 | ||||||
Gain on early extinguishment of lease | (20,148 | ) | - | |||||
Gain on early extinguishment of debt | (121,372 | ) | - | |||||
Amortization of debt discounts | 412,673 | 310,633 | ||||||
Stock-based compensation | 339,133 | 56,796 | ||||||
Amortization of options issued for services | 123,440 | 837,955 | ||||||
Decrease (increase) in assets: | ||||||||
Accounts receivable | (11,216 | ) | (48,843 | ) | ||||
Inventory | (120,625 | ) | (259,528 | ) | ||||
Other current assets | 109,578 | (69,479 | ) | |||||
Other assets | (33,327 | ) | (32,330 | ) | ||||
Right-of-use assets | 84,667 | 34,237 | ||||||
Security deposits | (194,020 | ) | (1,159,447 | ) | ||||
Increase (decrease) in liabilities: | ||||||||
Accounts payable | 259,049 | (271,176 | ) | |||||
Accrued expenses | 357,650 | (97,380 | ) | |||||
Deferred revenues | 5,176 | - | ||||||
Lease liability | (64,067 | ) | (33,453 | ) | ||||
Net cash used in operating activities | (1,124,967 | ) | (3,120,049 | ) | ||||
Cash flows from investing activities | ||||||||
Proceeds received on sale of fixed assets | 6,350 | 5,125 | ||||||
Purchase of fixed assets | (43,201 | ) | (273,348 | ) | ||||
Net cash used in investing activities | (36,851 | ) | (268,223 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds received on convertible note payable | 750,000 | - | ||||||
Repayment of convertible note payable | (750,000 | ) | - | |||||
Proceeds from notes payable | 868,081 | 947,000 | ||||||
Repayment of notes payable | - | (455,567 | ) | |||||
Proceeds from notes payable, related parties | 99,500 | - | ||||||
Proceeds from sale of preferred and common stock | 150,000 | 3,577,505 | ||||||
Net cash provided by financing activities | 1,117,581 | 4,068,938 | ||||||
Effect of exchange rate changes on cash | (6,820 | ) | (10,919 | ) | ||||
Net increase (decrease) in cash | (51,057 | ) | 669,747 | |||||
Cash - beginning | 119,678 | 28,920 | ||||||
Cash - ending | $ | 68,621 | $ | 698,667 | ||||
Supplemental disclosures: | ||||||||
Interest paid | $ | 79,269 | $ | 33,564 | ||||
Income taxes paid | $ | - | $ | - | ||||
Non-cash investing and financing transactions: | ||||||||
Fair value of common shares issued for conversion of debt | $ | - | $ | 1,537,750 | ||||
Value of commitment shares issued as a debt discount | $ | - | $ | 418,312 | ||||
Value of warrants issued as a debt discount | $ | - | $ | 358,017 | ||||
Dividends payable | $ | 28,971 | $ | 49,246 | ||||
Initial recognition of right-of-use assets and lease liabilities | $ | 1,535,706 | $ | - |
See accompanying notes to financial statements.
5 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
As of and for the period and year ended September 30, 2017 and December 31, 2016(Unaudited)
Note 1 – Nature of Business and Significant Accounting Policies
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Nature of Business
We have reviewed
One World Products, Inc., formerly known as One World Pharma, Inc. (the “Company,” “we,” “our” or “us”) was incorporated in Nevada on September 2, 2014. On February 21, 2019, we 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 accompanying condensed balance sheetsparent 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 shares of our common stock; (b) options to purchase shares of common stock of OWP Ventures at an exercise price of $ automatically converted into options to purchase shares of our common stock at an exercise price of $ ; (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) 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 outside of the United States. On January 10, 2019, the Company changed its name from Punto Group, Corp. as of September 30, 2017to One World Pharma, Inc., and December 31, 2016, and the related condensed statements of operations and comprehensive loss, and statements of cash flows for the nine month periods ended September 30, 2017 and 2016. These financial statements are the responsibility of the company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the balance sheet of Punto Group, Corp. as of December 31, 2016, and the related statements of operations, comprehensive loss, stockholders’ deficiency, and cash flows for the year then ended and in our report dated April 26, 2017, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.
The accompanying financial statements have been prepared assuming thaton November 23, 2021, the Company will continue aschanged its name to One World Products, Inc. through the merger of One World Products, Inc., a going concern. As discussed in Note 2 to the financial statements,recently formed Nevada corporation wholly-owned by the Company, had incurred substantial losses in previous years, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Punto Group, Corp.
Unaudited Condensed Balance Sheets
As of September 30, 2017with and December 31, 2016
(Stated in U.S. Dollars)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Audited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | - | $ | - | ||||
Total assets | $ | - | $ | - | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 7,096 | $ | 10,897 | ||||
Related party payable | 60,645 | 30,568 | ||||||
Total liabilities | 67,741 | 41,465 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ deficiency | ||||||||
Common stock, $0.001 par value, 75,000,000 shares authorized, 5,290,000 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively. | 5,290 | 5,290 | ||||||
Additional paid-in capital | 24,510 | 24,510 | ||||||
Accumulated deficit | (97,541 | ) | (71,265 | ) | ||||
Total stockholders’ deficiency | (67,741 | ) | (41,465 | ) | ||||
Total liabilities and stockholders’ deficiency | $ | - | $ | - |
The accompanying notes are an integral part of these financial statements
Punto Group, Corp.
Unaudited Condensed Statements of Operations and Comprehensive Loss
For the nine months ended September 30, 2017 and 2016
(Stated in U.S. Dollars)
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
General and administrative expenses | 6,796 | 9,097 | 26,276 | 26,929 | ||||||||||||
Loss from operation | (6,796 | ) | (9,097 | ) | (26,276 | ) | (26,929 | ) | ||||||||
Gain on change of control | - | - | - | 14,768 | ||||||||||||
Loss before income tax | (6,796 | ) | (9,097 | ) | (26,276 | ) | (12,161 | ) | ||||||||
Income tax | - | - | - | - | ||||||||||||
Net loss | $ | (6,796 | ) | $ | (9,097 | ) | $ | (26,276 | ) | $ | (12,161 | ) | ||||
Comprehensive loss | $ | (6,796 | ) | $ | (9,097 | ) | $ | (26,276 | ) | $ | (12,161 | ) | ||||
Basic and diluted income/(loss) per common share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted average number of common shares used in per share calculations – basic and diluted | 5,290,000 | 5,290,000 | 5,290,000 | 5,290,000 |
The accompanying notes are an integral part of these financial statements
Punto Group, Corp.
Unaudited Condensed Statements of Stockholders’ Deficiency
For the nine months and year ended September 30, 2017 and December 31, 2016
(Stated in U.S. Dollars)
Number of | Additional | Total | ||||||||||||||||||
Shares | Common | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||
Outstanding | Stock | Capital | Deficit | Deficiency | ||||||||||||||||
Balance, January 1, 2016 | 5,290,000 | $ | 5,290 | $ | 24,510 | $ | (49,377 | ) | $ | (19,577 | ) | |||||||||
Net loss for the year | - | - | - | (21,888 | ) | (21,888 | ) | |||||||||||||
Balance, December 31, 2016 | 5,290,000 | $ | 5,290 | $ | 24,510 | $ | (71,265 | ) | $ | (41,465 | ) | |||||||||
Balance, January 1, 2017 | 5,290,000 | $ | 5,290 | $ | 24,510 | $ | (71,265 | ) | $ | (41,465 | ) | |||||||||
Net loss for the period | - | - | - | (26,276 | ) | (26,276 | ) | |||||||||||||
Balance, September 30, 2017 | 5,290,000 | $ | 5,290 | $ | 24,510 | $ | (97,541 | ) | $ | (67,741 | ) |
The accompanying notes are an integral part of these financial statements
Punto Group, Corp.
Unaudited Condensed Statements of Cash Flows
For the nine months ended September 30, 2017 and 2016
(Stated in U.S. Dollars)
For the nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows used in operating activities | ||||||||
Net loss | $ | (26,276 | ) | $ | (12,161 | ) | ||
Adjustment to reconcile net loss to net cash provided by operations: | ||||||||
Decreased/increase accounts payable and accrued liabilities | (3,801 | ) | 8,797 | |||||
Net cash used in operating activities | (30,077 | ) | (3,364 | ) | ||||
Cash flows from financing activities | ||||||||
Advances from stockholders | 30,077 | 173 | ||||||
Net cash provided by financing activities | 30,077 | 173 | ||||||
Change in cash and cash equivalents | - | (3,191 | ) | |||||
Cash and cash equivalents – Beginning of period | - | 3,191 | ||||||
Cash and cash equivalents – End of period | $ | - | $ | - | ||||
Interest paid | $ | - | $ | - | ||||
Income tax paid | $ | - | $ | - |
The accompanying notes are an integral part of these financial statements
Punto Group, Corp.
Notes to Financial Statements
As of September 30, 2017 and December 31, 2016
(Stated in U.S. Dollars)
Punto Group, Corp. (the “Company”) is a for profit corporation established under the corporation laws in the State of Nevada, United States of America on September 2, 2014.
The financial statements ofinto the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The financial statements and related disclosures as of December 31, 2016 are audited(the “Name Change Merger”) pursuant to the rules and regulationsapplicable provisions of the United States SecuritiesNevada 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 Exchange Commission (“SEC”).had no effect on the Company’s officers, directors, operations, assets or liabilities.
UnlessOWP Ventures is a holding company formed in Delaware on March 27, 2018 to enter and support the context otherwise requires,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 referencesfour licenses, including seed use, cultivation and export of non-psychoactive cannabis, cultivation and export of psychoactive cannabis, and manufacturing allowing for extraction and export of oil. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to “Punto Group, Corp.,” “we,” “us,” “our” orcultivate 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 “company” arefirst 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 Punto Group, Corp.process the cannabis flower. Upon completion of construction, we will be one of the only companies in Colombia to both hold licenses and any subsidiaries.possess the capability to extract high-quality CBD and THC oils. We terminated our lease on September 30, 2022, and plan to install the equipment at a new extraction facility when the equipment clears Customs in the fourth quarter of 2022. We entered into a 5-year lease on the new location on October 1, 2022, where we will combine our office and extraction facilities into the same building. The new facility is approximately half the cost of the former, and already contains the necessary electrical and epoxy floors, which will significantly reduce our tenant improvement costs.
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The statements(U.S. GAAP) and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC")(SEC). Accordingly, certain informationIntercompany accounts and footnote disclosures normallytransactions have been eliminated.
The unaudited condensed consolidated financial statements of the Company and the accompanying notes included in financial statementsthis 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 generally accepted accounting principles have been omitted pursuant to such rulesGAAP and regulations. These financial statements should be read in conjunction with the financial statements and otherdo not contain certain information included in the Company'sCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 as filed2021. The interim Condensed Consolidated Financial Statements should be read in conjunction with that Annual Report on Form 10-K. Results for the SEC.interim periods presented are not necessarily indicative of the results that might be expected for the entire fiscal year.
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ONE WORLD PRODUCTS, 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, 2022:
Schedule of Common Control and Ownership Interest
State of | ||||
Name of Entity | 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 |
Going Concern
(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 accompanyingconsolidated financial statements and notes have been prepared assuming thatherein contain the Company will continue as a going concern. As of September 30, 2017, the Company had accumulated deficits of $ 97,541. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to generate sufficient revenues to operate profitably or raise additional capital through debt financing and/or through sales of common stock.
Management plans to fund operations of the Company through the proceeds from an offering pursuant to a Registration Statement on Form S-1 or private placements of restricted securities or the issuance of stockwholly-owned subsidiaries listed above. The Company’s headquarters are located in lieu of cash for payment of services until such a time as profitable operations are achieved. If we do not raiseLas Vegas, Nevada and substantially all of its production efforts are within Popayán, Colombia.
Reclassifications
Certain reclassifications have been made to the money we need from public offerings, we will haveprior years’ financial statements to find alternative sources, such as loansconform to current year presentation. These reclassifications had no effect on previously reported results of operations or advances from our officers, directors or others. Such additional financing may not become available on acceptable terms and there can be no assurance that any additional financing thatretained earnings.
Foreign Currency Translation
The functional currency of the Company does obtain will be sufficientis Columbian Peso (COP). The Company has maintained its financial statements using the functional currency, and translated those financial statements to meet its needsthe 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 long term. There are no written agreements in place for such funding or issuancedetermination of securities and there can be no assurance that such will be available in the future. Management believes that this plan provides an opportunitynet income (loss) for the respective periods.
Comprehensive Income
The Company to continue ashas 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 going concern.full-set of general-purpose financial statements. Accumulated other comprehensive income represents the accumulated balance of foreign currency translation adjustments.
The failure to achieve the necessary levels of profitability or obtain the additional funding would be detrimental to the Company.
Punto Group, Corp.
Notes to Financial Statements
As of September 30, 2017 and December 31, 2016
(Stated in U.S. Dollars)
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted accounting principlesin 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 thosethese estimates.
Due toSegment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the limited level of operations,“management approach” model for segment reporting. The management approach model is based on the Company has not had to make material assumptions or estimates other thanway a company’s management organizes segments within the assumption that the Company is a going concern.
Cashcompany for making operating decisions and Cash Equivalents
assessing performance. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Fair Value of Financial Instruments
The Company discloses the fair value of certain assets and liabilities in accordance with ASC 825, “Disclosures about820 – Fair Value of Financial Instruments”, requires disclosure of fair value information about financial instruments.Measurement and Disclosures (ASC 820). Under ASC 820, “Fair Value Measurements” defines fair value,820-10-05, the FASB establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FairThis Statement reaffirms that fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2017.
The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash, accrued liabilities and notes payable. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair value.
Revenue Recognition
The Company will recognize revenue in accordance with Accounting Standards Codification No. 605, “Revenue Recognition” ("ASC-605"). ASC-605 requires that four basic criteria must be met before revenue can be recognized:
1. Persuasive evidence of an arrangement exists
2. Delivery has occurred
3. The selling price is fixed and determinable
4. Collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, or other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
Punto Group, Corp.
Notes to Financial Statements
As of September 30, 2017 and December 31, 2016
(Stated in U.S. Dollars)
Basic and Diluted Net Loss Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income (loss) of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income (loss) per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
Income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted (loss) per common share is the same for periods in which the company reported an operating loss because all warrants and stock options outstanding are anti-dilutive.
There were no adjustments to net loss required for purposesrelevant measurement attribute. The adoption of computing diluted earnings per share.
For the nine month periods ended September 30, 2017 and 2016, there were no potential dilutive securities.
Comprehensive income (loss)
The Company follows the provisions of the Financial Accounting Standards Board (the “FASB”) ASC 220 Reporting Comprehensive Income, and establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. The Company’s comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments
Punto Group, Corp.
Notes to Financial Statements
As of September 30, 2017 and December 31, 2016
(Stated in U.S. Dollars)
Recently Issued Accounting Pronouncements
On August 26, 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)". Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. As a result, the Company has elected to early adopt this Update prospectively as of December 31, 2016 and prior periods havestandard did not been retrospectively adjusted.
As of December 31, 2016, except for the above, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.
Accountsstatements 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.
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ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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 September 30, 2022, 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. 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 followingssale 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 September 30, 2022, the Company had $35,340 of deferred revenues and $22,830 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 future harvests.
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.
The Company accounts for equity instruments issued to employees and non-employees 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.
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 October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which creates an exception to the general recognition and measurement principle for contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance will require companies to apply the definition of a performance obligation under accounting standard codification (“ASC”) Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer in a business combination is generally required to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. The new guidance will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. These amendments are effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption of ASU 2021-08 is not expected to have a material impact on the Company’s financial statements or related disclosures.
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ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity Classified Written Call Options. ASU 2021-04 addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 is effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2021-04 has not had a material impact on the Company’s financial statements or related disclosures.
In March 2020, the FASB issued ASU 2020-04 establishing Topic 848, Reference Rate Reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The adoption of ASU 2020-04 did not have a material impact on the Company’s consolidated financial statements, as we transitioned from the London Interbank Offered Rate, commonly referred to as LIBOR, to alternative references rates, as well as utilizing the aforementioned expedients and exceptions provided in ASU 2020-04.
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.
No other new accounting pronouncements, issued or effective during the period ended September 30, 2022, 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, 20172022, our balance of cash on hand was $68,621, and we had negative working capital of $2,268,606 and an accumulated deficit of $22,212,027. 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 and 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 – 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.
9 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, 2022 and December 31, 2016:2021, respectively:
9/30/2017 | 12/31/2016 | ||||||||
Audit and review expense | $ | 4,000 | $ | 8,000 | |||||
Legal expense | 1,087 | 180 | |||||||
Filing fee | 1,409 | 1,247 | |||||||
Other | 600 | 1,470 | |||||||
$ | 7,096 | $ | 10,897 |
Schedule of Valuation of Financial Instruments at Fair Value on a Recurring Basis
The Company underwent a change
Level 1 | Level 2 | Level 3 | ||||||||||
Fair Value Measurements at September 30, 2022 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Cash | $ | 68,621 | $ | - | $ | - | ||||||
Right-of-use asset | - | - | 32,357 | |||||||||
Total assets | 68,621 | - | 32,357 | |||||||||
Liabilities | ||||||||||||
Lease liabilities | - | - | 32,809 | |||||||||
Convertible notes payable, net of $412,673 of debt discounts | - | 337,327 | - | |||||||||
Convertible notes payable | - | 750,000 | - | |||||||||
Notes payable | - | 854,455 | - | |||||||||
Notes payable, related parties | - | 299,500 | - | |||||||||
Total liabilities | - | (1,903,955 | ) | (32,809 | ) | |||||||
Total assets and liabilities | $ | 68,621 | $ | (1,903,955 | ) | $ | (452 | ) |
Level 1 | Level 2 | Level 3 | ||||||||||
Fair Value Measurements at December 31, 2021 | ||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||
Assets | ||||||||||||
Cash | $ | 119,678 | $ | - | $ | - | ||||||
Total assets | 119,678 | - | - | |||||||||
Liabilities | ||||||||||||
Convertible notes payable, net of $412,673 of debt discounts | - | 337,327 | - | |||||||||
Convertible notes payable | - | 319,274 | - | |||||||||
Total liabilities | - | (656,601 | ) | - | ||||||||
Total assets and liabilities | $ | 119,678 | $ | (656,601 | ) | $ | - |
There were no transfers of control in January 2016,financial assets or liabilities between Level 1, Level 2 and the former shareholder forgave the $14,468 advances at the date of transfer. The Company recognized it as one-time gain, which reflected on the Statements of Operation and Comprehensive LossLevel 3 inputs for the nine months ended September 30, 2016.2022 or the year ended December 31, 2021.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4 – 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 September 30, 2022 and December 31, 2021, respectively.
Schedule of Inventory
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Raw materials | $ | 22,236 | $ | 31,233 | ||||
Work in progress | 115,061 | 81,182 | ||||||
Finished goods | 201,307 | 108,246 | ||||||
Inventory gross | 338,604 | 220,661 | ||||||
Less obsolescence | (19,384 | ) | (22,066 | ) | ||||
Total inventory | $ | 319,220 | $ | 198,595 |
Note 5 – Other Current Assets
Other current assets included the following as of September 30, 2022 and December 31, 2021, respectively:
Schedule of Other Current Assets
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Prepaid expenses | $ | 26,428 | $ | 29,366 | ||||
Deferred cost of goods sold | 22,830 | 19,470 | ||||||
Other receivables | - | 110,000 | ||||||
Total | $ | 49,258 | $ | 158,836 |
The director of the Company provides services free of charge. The Company's sole officer and director is involved in other business activities and may in the future, become involved in other business opportunities as they become available.Note 6 – Other Assets
The Company underwentOther assets consist entirely of a change$180,521 and $147,194 VAT receivable at September 30, 2022 and December 31, 2021, respectively, which will be returned upon the successful export of controlthe products purchased in January 2016, which the majority ownership was transferredtaxes were originally paid.
Note 7 – Security Deposits
Security deposits included the following as of September 30, 2022 and December 31, 2021, respectively:
Schedule of Security Deposits
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Utility deposits | $ | - | $ | 1,090 | ||||
Refundable deposit on equipment purchase | 50,000 | 50,000 | ||||||
Down payment on distillation equipment | 1,399,412 | 1,155,000 | ||||||
Security deposits on leases held in Colombia | 596 | 35,869 | ||||||
Security deposit on office lease | - | 14,029 | ||||||
Security deposits | $ | 1,450,008 | $ | 1,255,988 |
11 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 – Fixed Assets
Fixed assets consist of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule of Fixed Assets
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Land | $ | 138,248 | $ | 138,248 | ||||
Buildings | 473,971 | 473,971 | ||||||
Office equipment | 30,902 | 56,502 | ||||||
Furniture and fixtures | 6,494 | 34,409 | ||||||
Equipment and machinery | 423,548 | 383,829 | ||||||
Fixed assets, gross | 1,073,163 | 1,086,959 | ||||||
Less: accumulated depreciation | (76,880 | ) | (83,946 | ) | ||||
Total | $ | 996,283 | $ | 1,003,013 |
On August 15, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., sold its office furniture and equipment with a new majority shareholder. The former shareholder forgavenet book value of $15,391 for gross proceeds of $6,350, resulting in a loss on the $14,468 advancesdisposal of fixed assets of $9,041, which represented the proceeds received, less the net book value at the datetime of the transfer,disposal.
Depreciation and the Company recognized a one-time gain of $14,468 which is included as gain on change of control in the Company’s results of operations duringamortization expense totaled $34,540 and $29,937 for the nine monthmonths ended September 30, 2016.2022 and 2021, respectively.
Note 9 – Accrued Expenses
Accrued expenses consisted of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule of Accrued Expenses
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Accrued payroll | $ | 514,133 | $ | 261,044 | ||||
Accrued withholding taxes and employee benefits | 28,505 | 9,162 | ||||||
Accrued ICA fees and contributions | 172,629 | 129,856 | ||||||
Accrued interest | 98,047 | 57,700 | ||||||
Accrued expenses | $ | 813,314 | $ | 457,762 |
12 |
Punto Group, Corp.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10 – Leases
The Company leased its 12,400square foot extraction facility under a non-cancelable real property lease agreement that commenced on January 1, 2022 and was to expire on December 31, 2027, at a monthly lease rate of 57,339,000 COP, or approximately $15,290. The Company terminated the lease on September 30, 2022, resulting in lease termination fees of approximately $7,700.
The Company also leases a residential premise under a non-cancelable real property lease agreement that commenced on September 1, 2021 and expires on August 31, 2024, at a monthly lease term of 3,800,000 COP, or approximately $1,013, with approximately a 3% annual escalation of lease payments commencing September 1, 2022.
The Company leases another residential premise under a non-cancelable real property lease agreement that commenced on June 1, 2022 and expires on May 30, 2024, at a monthly lease term of 1,900,000 COP, or approximately $507, with an 8% annual escalation of lease payments commencing June 1, 2023.
In addition, the Company leases its 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 that would require capitalization. The office lease contains provisions requiring payment of property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premise. In the locations in which it is economically feasible to continue to operate, management expects to enter into a new lease upon expiration. The extraction facility lease contained 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 implicit discount rates, 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 Nine | ||||
Months Ended | ||||
September 30, | ||||
2022 | ||||
Operating lease costs: | ||||
Amortization of assets | $ | 93,011 | ||
Interest on lease liabilities | 76,251 | |||
Lease payments on short term leases | 31,999 | |||
Total lease cost | $ | 201,261 |
Supplemental balance sheet information related to leases was as follows:
Schedule of Supplemental Balance Sheet Information Related to Leases
September 30, | ||||
2022 | ||||
Operating leases: | ||||
Operating lease assets | $ | 32,357 | ||
Current portion of operating lease liabilities | $ | 17,106 | ||
Noncurrent operating lease liabilities | 15,703 | |||
Total operating lease liabilities | $ | 32,809 | ||
Weighted average remaining lease term: | ||||
Operating leases | 1.75 years | |||
Weighted average discount rate: | ||||
Operating leases | 6.75 | % |
13 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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, | ||||
2022 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows used for operating leases | $ | 64,067 | ||
Early extinguishment of lease: | ||||
Lease liability terminated | 1,438,830 | |||
Right-of use asset terminated | (1,418,682 | ) | ||
Gain on early extinguishment of lease | 20,148 | |||
Leased assets obtained in exchange for lease liabilities: | ||||
Total operating lease liabilities | $ | 1,535,706 |
Future minimum annual lease commitments under non-cancelable operating leases are as follows at September 30, 2022:
Schedule of Operating Lease Liability Maturity
Operating | ||||
Leases | ||||
2022 (for the three months remaining) | $ | 4,653 | ||
2023 | 19,016 | |||
2024 | 11,335 | |||
Total minimum lease payments | 35,004 | |||
Less interest | 2,195 | |||
Present value of lease liabilities | 32,809 | |||
Less current portion | 17,106 | |||
Long-term lease liabilities | $ | 15,703 |
14 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 11 – Convertible Notes Payable
Convertible notes payable consists of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule of Convertible Note Payable
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
On September 27, 2022, | $ | 750,000 | $ | - | ||||
On September 27, 2022, the Company completed the sale of a Convertible Promissory Note in the principal amount of $750,000 (the “Convertible McCabe Note”) to Dr. John McCabe. The unsecured note matures on 16, 2024 (the “Maturity Date”), bears interest at a rate of % per annum, and the principal and interest is convertible into shares of the Company’s convertible Series B common stock at a conversion price of $15 per share. | $ | 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 aggregate estimated value using the Black-Scholes Pricing Model, based on a volatility rate of % and a call option value of $ and $ , respectively, was $ , based on and was amortized as a debt discount over the life of the loan. 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 matured on September 24, 2022 (the “Maturity Date”), bore interest at a rate of 8% per annum, and, following an event of default only, was 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 was 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 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 was 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 was 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. The note was repaid on September 27, 2022. | - | 750,000 | ||||||
Total convertible notes payable | 750,000 | 750,000 | ||||||
Less: unamortized debt discounts | - | 412,673 | ||||||
Convertible note payable, net of discounts | $ | 750,000 | $ | 337,327 |
The Company recognized aggregate debt discounts on the convertible notes and notes payable to AJB Capital for the nine months ended September 30, 2022 and the year ended December 31, 2021, as follows:
Schedule of Convertible Debt Discounts
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
Fair value of 3,250,000 commitment shares of common stock | $ | 418,312 | $ | 418,312 | ||||
Fair value of warrants to purchase 3,500,000 shares of common stock | 358,017 | 358,017 | ||||||
Original issue discounts | 53,700 | 53,700 | ||||||
Legal and brokerage fees | 39,300 | 39,300 | ||||||
Total debt discounts | 869,329 | 869,329 | ||||||
Amortization of debt discounts | 869,329 | 456,656 | ||||||
Unamortized debt discounts | $ | - | $ | 412,673 |
The aggregate debt discounts of $869,329, for the year ended December 31, 2021, were amortized over the life of the loan using the straight-line method, which approximated the effective interest method. The Company recorded finance expense in the amount of $412,673 and $310,633 on the amortization of these discounts for the nine months ended September 30, 2022 and 2021, respectively.
The Company recorded interest expense pursuant to the stated interest rates on the convertible note in the amount of $43,899 for the nine months ended September 30, 2022.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12 – Notes Payable
Notes payable consists of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule of Notes Payable
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
On September 15, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of 55,488,000 COP, or approximately $12,243, on a loan with a face value of 70,000,000 COP, or approximately $15,445, from an individual pursuant to an unsecured promissory note, bearing interest at 4% per month, or 48% per annum, due on demand. The debt discount of $3,202 was expensed as finance costs at the time of origination. | $ | 15,445 | $ | - | ||||
On June 13, 2022, the Company, through its wholly-owned subsidiary, OWP Ventures, Inc., received an advance of $100,000 from an individual pursuant to an unsecured promissory note, maturing on January 1, 2024, that carries an 8% interest rate. | 100,000 |
| - | |||||
On June 17, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of 230,400,000 COP, or approximately $55,821, on a loan with a face value of 240,000,000 COP, or approximately $58,147, from an individual pursuant to an unsecured promissory note, bearing interest at 4% per month, or 48% per annum, due on demand. The debt discount of $2,326 was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $5,191 due to foreign currency translation adjustments. | 52,956 | - | ||||||
On May 31, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received proceeds of 314,640,000 COP, or approximately $76,231, on a loan with a face value of 360,000,000 COP, or approximately $87,220, from an individual pursuant to promissory note, security by equipment, bearing interest at 2.1% per month, or 25% per annum, maturing on November 28, 2022. The debt discount of $10,990 was expensed as finance costs at the time of origination. The face value of the note has been adjusted by $7,786 due to foreign currency translation adjustments. | 79,434 | - | ||||||
On May 30, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of 20,000,000 COP, or approximately $4,846, from an individual pursuant to an unsecured promissory note, due on demand. The face value of the note has been adjusted by $433 due to foreign currency translation adjustments. | 4,413 | - | ||||||
On April 29, 2022, the Company, through its wholly-owned subsidiary, One World Pharma, SAS, received a non-interest bearing loan of 10,000,000 COP, or approximately $2,423, from an individual pursuant to an unsecured promissory note, due on demand. The face value of the note has been adjusted by $216 due to foreign currency translation adjustments. | 2,207 | - | ||||||
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 carries an 8% interest rate. | 400,000 | - | ||||||
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 carries an 8% interest rate. | 200,000 | - | ||||||
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 | ||||||
Total notes payable | 854,455 | 119,274 | ||||||
Less: current maturities | 154,455 | 119,274 | ||||||
Notes payable, long-term portion | $ | 700,000 | $ | - |
The Company recorded interest expense pursuant to the stated interest rates on the notes payable in the amount of $51,345 and $8,434 for the nine months ended September 30, 2022 and 2021, respectively.
16 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13 – Notes Payable, Related Party
Notes payable, related party, consists of the following at September 30, 2022 and December 31, 2021, respectively:
Schedule of Notes Payable Related Party
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
On August 5, 2022, the Company received an advance of $50,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | $ | 50,000 | $ | - | ||||
On August 2, 2022, the Company received an advance of $4,500 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | 4,500 | - | ||||||
On July 7, 2022, the Company received an advance of $5,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | 5,000 | - | ||||||
On June 3, 2022, the Company received an advance of $10,000 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | 10,000 | - | ||||||
On May 5, 2022, the Company received an advance of $10,000 from Isiah Thomas, III, our Chairman of the Board and CEO, pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | 10,000 | - | ||||||
On May 5, 2022, the Company received an advance of $20,000 from Dr. Kenneth Perego, II, M.D., our Vice Chairman of the Board pursuant to an unsecured promissory note due on demand that carried a 6% interest rate. | 20,000 | - | ||||||
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 | 200,000 | ||||||
Total notes payable. related party | 299,500 | 200,000 | ||||||
Less: current maturities | 99,500 | - | ||||||
Notes payable, related party, long-term portion | $ | 200,000 | $ | 200,000 |
The Company recorded interest expense pursuant to the stated interest rates on the notes payable, related party, in the amount of $13,538 for the nine months ended September 30, 2022.
17 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recognized interest expense for the nine months ended September 30, 2022 and 2021, as follows:
Schedule of Interest Expenses
September 30, | September 30, | |||||||
2022 | 2021 | |||||||
Interest on convertible notes | $ | 43,899 | $ | 21,120 | ||||
Interest on notes payable | 51,345 | 8,434 | ||||||
Interest on notes payable, related parties | 13,538 | - | ||||||
Finance cost on equity line of credit | 15,000 | - | ||||||
Amortization of debt discounts | 50,753 | 24,288 | ||||||
Amortization of debt discounts, common stock | 106,894 | 273,594 | ||||||
Amortization of debt discounts, warrants | 255,026 | 12,751 | ||||||
Series B preferred stock issued as a commitment on an ELOC | 205,005 | - | ||||||
Common stock issued as a commitment on the 2nd AJB Note | 134,128 | - | ||||||
Interest on accounts payable | 11,249 | 7,771 | ||||||
Total interest expense | $ | 886,837 | $ | 347,958 |
Note 14 – Convertible Preferred Stock
Preferred Stock
The Company has 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, 2017 and December 31, 2016 authorized shares of $ par value “blank check” preferred stock, of which shares have been designated Series A Preferred Stock and shares have been designated Series B Preferred Stock, as amended on August 2, 2022.
(Stated in U.S. Dollars)
As of December 31, 2016,2022, there were advances and shares of $30,568Series 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 $ and $ 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 Issuances
shares of Series A Preferred Stock were issued during the nine months ending September 30, 2022.
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 $28,971 and $34,843 for the nine months ended September 30, 2022 and 2021, respectively. A total of $127,891 of dividends had accrued as of September 30, 2022.
Series B Preferred Stock Issuances
On September 1, 2022, the Company and Tysadco Partners, LLC (“Tysadco”), entered into a Securities Purchase Agreement (the “Purchase Agreement”) under which Tysadco agreed to purchase from the current shareholderCompany, shares of the Company’s Series B Preferred Stock for a purchase price of $per share of Series B Preferred Stock, and an aggregate purchase price of $. On September 12, 2022, Tysadco purchased the purposefirst shares of operatingSeries B Preferred Stock under the Company.Purchase Agreement for $150,000. The Company paid $15,000out of the proceeds of the investment to Garden State Securities, Inc. as financing costs. In addition, pursuant to the ELOC Purchase Agreement, the Company issued Tysadco The shares of the Company’s Series B Preferred Stock as commitment fee shares. fair value of the shares was $205,005, based on recent sales prices of the Company’s Series B Preferred Stock on the date of grant.
18 |
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 15 – Commitments and Contingencies
Equity Line of Credit
On September 1, 2022, the Company entered into a Purchase Agreement (the “ELOC Purchase Agreement”) with Tysadco Partners, LLC (“Tysadco”). Pursuant to the ELOC Purchase Agreement, Tysadco has agreed to purchase from the Company, from time to time upon delivery by the Company to Tysadco of “Request Notices,” and subject to the other terms and conditions set forth in the ELOC Purchase Agreement, up to an aggregate of $10,000,000 of the Company’s common stock. The purchase price of the shares of common stock to be purchased under the Purchase Agreement will be equal to 88% of the lowest daily “VWAP” during the period of 10 trading days beginning five trading days preceding the applicable Request. Each purchase under the Purchase Agreement will be in a minimum amount of $25,000 and a maximum amount equal to the lesser of (i) $1,000,000 and (ii) 500% of the average daily trading value of the common stock over the seven trading days preceding the delivery of the applicable Request Notice.
In connection with the ELOC Purchase Agreement, the Company entered into a Registration Rights Agreement with Tysadco under which the Company agreed to file a registration statement with the Securities and Exchange Commission covering the shares of common stock issuable under the ELOC Purchase Agreement and conversion of the Commitment Fee Shares (the “Registration Rights Agreement”).
Note 16 – Changes in Stockholders’ Equity
Common Stock
The Company is authorized to issue an aggregate of 2017,2022, there were advances shares of $60,645common stock issued and outstanding. shares of common stock with a par value of $ . As of September 30,
Common Stock Issued on Subscriptions Payable
On March 29, 2022, the Company issued shares of common stock on a Subscriptions Payable for the December 1, 2021 award of common stock to COR IR for services.
Common Stock Issued as a Promissory Note Commitment
As disclosed in Note 11 above, the Company paid a commitment fee to AJB Capital of $250,000 in the form of 1,250,000 shares of the Company’s common stock (“Commitment Fee Shares”) in connection with the issuance of the Second AJB Note, which was repaid on September 27, 2022. During the six month period following the six-month anniversary of the closing date, AJB Capital was 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. As a result, the Company issued an additional shares of common stock to AJB Capital on September 15, 2022. The fair value of the shares was $134,128, based on the closing price of the Company’s common stock on the date of grant.
Amortization of Stock-Based Compensation
A total of $current shareholder for the purposeamortization of operating the Company. of stock-based compensation expense was recognized from the
The Company’s registration address is free of charge as it is provided by a related party. The Company is not ableoptions to estimate fair market value for using a registered address; therefore, there is no rent expenses forpurchase common stock over their vesting period during the nine monthmonths ended September 30, 2017.2022.
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 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.
ONE WORLD PRODUCTS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company was establishedrecognized a total of $ , and $ of compensation expense during the nine months ended September 30, 2022 and 2021, respectively, related to common stock options issued in the Stateprior year to Officers, Directors, and Employees that are being amortized over the implied service term, or vesting period, of Nevada in United States andthe options. The remaining unamortized balance of these options is subject to Nevada State and US Federal tax laws. $179,241 as of September 30, 2022.
Note 18 – Income Taxes
The Company has not recognized anaccounts for income tax benefit for its operating losses based on uncertainties concerning its ability to generate taxable income in future periods. The tax benefit fortaxes under FASB ASC 740-10, which requires use of the periods presented is offset by a valuation allowance established againstliability method. FASB ASC 740-10-25 provides that deferred tax assets arising fromand 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, 2022, and the year ended December 31, 2021, the Company incurred a net operating lossesloss and, other temporary differences,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 which couldany tax assets. At September 30, 2022, the Company had approximately $9,480,000 of federal net operating losses. The net operating loss carry forwards, if not be consideredutilized, 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. Further,not that the benefit from utilization of NOL carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain. In future periods, tax benefits and relatednet deferred tax assets will not be recognized when management considers realization of such amounts to be more likely than not.
As offully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at September 30, 2017,2022 and December 31, 2021, respectively.
In accordance with FASB ASC 740, the Company has accumulated net operating losses of $97,541 which carryovers as a deferredevaluated its tax asset that begins to expire in 2025.positions and determined there are no uncertain tax positions.
The net losses before income taxes and its provision for income taxes as follows:Note 19 – Subsequent Events
9/30/2017 | 9/30/2016 | ||||||||
Net loss before income taxes | $ | (26,277 | ) | $ | (12,161 | ) | |||
Tax expenses (benefit) at the statutory tax rate | (8,671 | ) | (4,013 | ) | |||||
Tax effects of: | |||||||||
Valuation allowance | 8,671 | 4,013 | |||||||
Income tax benefit | - | - |
The Company has evaluated subsequentevaluates events from September 30, 2017that have occurred after the balance sheet date through the date thethese financial statements were availableissued.
Sale of Series B Preferred Stock
On October 12, 2022, the Company sold the second tranche of be issued. There wasTysadco for proceeds of $150,000. The Company paid $15,000 out of the proceeds of the investment to Garden State Securities, Inc. as financing costs. shares of Series B Preferred Stock to
Commitment for the Sale of Series B Preferred Stock
On October 3, 2022, the Company and ISIAH International, LLC (“ISIAH International”), an entity in which the Company’s CEO, Isiah L. Thomas, III, is the sole member, entered into a securities purchase agreement under which ISIAH International has agreed to purchase from the Company an aggregate of 499,995. To date, no subsequent event at the report date.purchases under this agreement have occurred. shares of the Company’s Series B Preferred Stock (the “Series B Shares”), initially convertible into an aggregate of three million three hundred thirty three thousand three hundred ( ) shares of the Company’s common stock, for a total purchase price of $
Extraction Facility Lease
On October 1, 2022, the Company entered into a five-year non-cancelable property lease, with an automatic five-year extension, for a new extraction facility with combined office space, at a monthly lease term of 29,000,000 COP plus VAT and administration fees, or approximately $6,300, with annual escalation of lease payments equal to the Consumer Price Index, plus 2%.
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This QuarterlyITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-Q includes10-K for the year ended December 31, 2021 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.
The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We have basedstrongly encourage investors to carefully read the factors described in the Form 10-K in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements on our current expectations and projections about future events. Thesestatements. We assume no responsibility to update the forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions.contained in this quarterly report on Form 10-Q. The following discussion should also be read in conjunction with ourthe unaudited Financial Statements and related Notesnotes thereto includedthat appear elsewhere in this report. The terms “we,” “our”
Overview
Through our wholly-owned subsidiary, One World Pharma S.A.S, a licensed cannabis cultivation, production and “the Company” used throughout this report referdistribution (export) company located in Popayán, Colombia (nearest major city is Cali). We plan to Punto Group, Corp.,be a Nevada corporation.
Overview
producer of raw cannabis and hemp plant ingredients for both medical and industrial uses across the globe. We were incorporatedhave received licenses to cultivate, produce and distribute the raw ingredients of the cannabis and hemp plant for medicinal, scientific and industrial purposes. Specifically, we are one of the only companies in Colombia to receive seed, cultivation, extraction and export licenses from the Colombian government. Currently, we own approximately 30 acres and have a covered greenhouse built specifically to cultivate high-grade cannabis and hemp. In addition, we have entered into agreements with local farming co-operatives that include small farmers and indigenous tribe members, under which they will cultivate cannabis on up to approximately 140 acres of land using our seeds and propagation techniques, and sell their harvested products to us on an exclusive basis. We planted our first crop of cannabis in 2018, which we began harvesting in the Statefirst quarter of Nevada2019 for the purpose of further research and development activities and quality control testing of the cannabis we have produced. We have been generating revenue from the sale of our seeds since the second quarter of 2020. From August 2021 through March 2022, we made payments of approximately $1,400,000 for the purchase of a state of the art distillation machine that we expect to be placed in service within our vertically integrated extraction facility during the fourth quarter of 2022. Once the equipment is placed in service, 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. We terminated our lease on September 2, 2014.30, 2022, and plan to install the equipment at a new extraction facility when the equipment clears Customs in the fourth quarter of 2022. We entered into a 5-year lease on the new location on October 1, 2022, where we will combine our office and extraction facilities into the same building. The Company intendsnew facility is approximately half the cost of the former, and already contains the necessary electrical and epoxy floors, which will significantly reduce our tenant improvement costs.
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Results of Operations for the Three Months Ended September 30, 2022 and 2021:
The following table summarizes selected items from the statement of operations for the three months ended September 30, 2022 and 2021.
Three Months Ended September 30, | Increase / | |||||||||||
2022 | 2021 | (Decrease) | ||||||||||
Revenues | $ | 33,373 | $ | 7,845 | $ | 25,528 | ||||||
Cost of goods sold | 23,969 | 7,058 | 16,911 | |||||||||
Gross profit | 9,404 | 787 | 8,617 | |||||||||
Operating expenses: | ||||||||||||
General and administrative | 378,910 | 358,382 | 20,528 | |||||||||
Professional fees | 95,946 | 153,484 | (57,538 | ) | ||||||||
Depreciation expense | 9,883 | 6,939 | 2,944 | |||||||||
Total operating expenses: | 484,739 | 518,805 | (34,066 | ) | ||||||||
Operating loss | (475,335 | ) | (518,018 | ) | (42,683 | ) | ||||||
Total other expense | (518,808 | ) | (149,661 | ) | 369,147 | |||||||
Net loss | $ | (994,143 | ) | $ | (667,679 | ) | $ | 326,464 |
Revenues
Revenues during the three months ended September 30, 2022 were $33,373, compared to investigate$7,845 during the three months ended September 30, 2021, an increase of $25,528, or 325%. Revenues increased as we continued to shift our focus toward producing and if such investigation warrants, acquireselling CBD and THC oils.
Cost of Goods Sold
Cost of goods sold for the three months ended September 30, 2022 were $23,969, compared to $7,058 for the three months ended September 30, 2021, an increase of $16,911, or 240%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2022 were $378,910, compared to $358,382 during the three months ended September 30, 2021, an increase of $20,528, or 6%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses increased primarily due to increased salaries and wages and lease expenses in Colombia over the prior year. General and administrative expenses included non-cash, stock-based compensation of $29,347 and $72,334 during the three months ended September 30, 2022 and 2021, respectively.
Professional Fees
Professional fees for the three months ended September 30, 2022 were $95,946, compared to $153,484 during the three months ended September 30, 2021, a target companydecrease of $57,538, or business seeking37%. Professional fees included non-cash, stock-based compensation of $11,833 and $60,042 during the perceived advantagesthree months ended September 30, 2022 and 2021, respectively. Professional fees decreased primarily due to decreased stock-based compensation during the current period.
Depreciation Expense
Depreciation expense for the three months ended September 30, 2022 was $9,883, compared to $6,939 during the three months ended September 30, 2021, an increase of being$2,944, or 42%. Depreciation expense increased due to additional operational assets placed in service during the current period.
Other Income (Expense)
Other expenses, on a publicly held corporation. Our principal business objective willnet basis, for the three months ended September 30, 2022 were $518,808, compared to other expenses, on a net basis, of $149,661 during the three months ended September 30, 2021, an increase in net expenses of $369,147, or 284%. Other expenses consisted of $529,915 of interest expense, including $109,969 of stock-based finance costs on the amortization of debt discounts, $339,133 of stock-based commitment fees on debt and equity financing, and a loss on the sale of fixed assets of $9,041, as partially offset by a gain of $20,148 on the early extinguishment of our extraction facility lease in Colombia, for the three months ended September 30, 2022, compared to $137,863 of interest expense, including $116,312 of stock-based finance costs on the amortization of debt discounts, and a loss on disposal of fixed assets of $17,563, as offset by $5,000 of sublease income on sublet office space and $765 of interest income during the three months ended September 30, 2021.
Net Loss
Net loss for the three months ended September 30, 2022 was $994,143, or $0.02 per share, compared to $667,679, or $0.01 per share, during the three months ended September 30, 2021, an increase of $326,464, or 49%. The net loss increased primarily due to increased stock-based compensation, primarily related to the issuance of 1,341,276 shares of common stock, valued at $134,128, and 13,667 shares of Series B Preferred stock, valued at $205,005, during the current period.
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Results of Operations for the Nine Months Ended September 30, 2022 and 2021:
The following table summarizes selected items from the statement of operations for the nine months ended September 30, 2022 and 2021.
Nine Months Ended September 30, | Increase / | |||||||||||
2022 | 2021 | (Decrease) | ||||||||||
Revenues | $ | 76,384 | $ | 73,450 | $ | 2,934 | ||||||
Cost of goods sold | 54,765 | 14,810 | 39,955 | |||||||||
Gross profit | 21,619 | 58,640 | (37,021 | ) | ||||||||
Operating expenses: | ||||||||||||
General and administrative | 1,148,100 | 1,466,954 | (318,854 | ) | ||||||||
Professional fees | 380,801 | 679,141 | (298,340 | ) | ||||||||
Depreciation expense | 34,540 | 29,937 | 4,603 | |||||||||
Total operating expenses: | 1,563,441 | 2,176,032 | (612,591 | ) | ||||||||
Operating loss | (1,541,822 | ) | (2,117,392 | ) | (575,570 | ) | ||||||
Total other expense | (753,317 | ) | (343,698 | ) | 409,619 | |||||||
Net loss | $ | (2,295,139 | ) | $ | (2,461,090 | ) | $ | (165,951 | ) |
Revenues
Revenues during the nine months ended September 30, 2022 were $76,384, compared to $73,450 during the nine months ended September 30, 2021, an increase of $2,934, or 4%. Revenues increased slightly as we continued to shift our focus toward producing and selling oils.
Cost of Goods Sold
Cost of goods sold for the nine months ended September 30, 2022 were $54,765, compared to $14,810 for the nine months ended September 30, 2021, an increase of $39,955, or 270%. Cost of goods sold consists primarily of labor, agricultural raw materials, depreciation and overhead.
General and Administrative Expenses
General and administrative expenses for the nine months ended September 30, 2022 were $1,148,100, compared to $1,466,954 during the nine months ended September 30, 2021, a decrease of $318,854, or 22%. The expenses for the current period consisted primarily of compensation expenses, office rent, and travel costs. General and administrative expenses decreased primarily due to decreased stock-based compensation over the prior year. General and administrative expenses included non-cash, stock-based compensation of $88,041 and $510,468 during the nine months ended September 30, 2022 and 2021, respectively.
Professional Fees
Professional fees for the nine months ended September 30, 2022 were $380,801, compared to $679,141 during the nine months ended September 30, 2021, a decrease of $298,340, or 44%. Professional fees included non-cash, stock-based compensation of $35,399 and $384,283 during the nine months ended September 30, 2022 and 2021, respectively. Professional fees decreased primarily due to decreased stock-based compensation during the current period.
Depreciation Expense
Depreciation expense for the nine months ended September 30, 2022 was $34,540, compared to $29,937 during the nine months ended September 30, 2021, an increase of $4,603, or 15%. Depreciation expense increased as additional equipment was placed in service.
Other Income (Expense)
Other expenses, on a net basis, for the nine months ended September 30, 2022 were $753,317, compared to other expenses, on a net basis, of $343,698 during the nine months ended September 30, 2021, an increase in net expenses of $409,619, or 119%. Other expenses consisted of $886,837 of interest expense, including $361,921 of stock-based finance costs on the amortization of debt discounts, $339,133 of stock-based commitment fees on debt and equity financing, and a loss on the sale of fixed assets of $9,041, as partially offset by a gain of $20,148 on the early extinguishment of our extraction facility lease in Colombia, $1,000 of sublet income on our office space, a gain on early extinguishment of debt of $121,372 on the forgiveness of a PPP Loan and $41 of interest income, for the nine months ended September 30, 2022, compared to $347,958 of interest expense, including $286,345 of stock-based finance costs on the amortization of debt discounts, and a loss on disposal of fixed assets of $17,563, as offset by $19,500 of sublease income on sublet office space and $2,323 of interest income during the nine months ended September 30, 2021.
Net Loss
Net loss for the nine months ended September 30, 2022 was $2,295,139, or $0.03 per share, compared to $2,461,090, or $0.04 per share, during the nine months ended September 30, 2021, a decrease of $165,951, or 7%. The net loss decreased primarily due to decreased stock-based compensation during the current period.
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Liquidity and Capital Resources
The following is a summary of the Company’s cash flows provided by (used in) operating, investing, financing activities and effect of exchange rate changes on cash for the nine months ended September 30, 2022 and 2021:
2022 | 2021 | |||||||
Operating Activities | $ | (1,124,967 | ) | $ | (3,120,049 | ) | ||
Investing Activities | (36,851 | ) | (268,223 | ) | ||||
Financing Activities | 1,117,581 | 4,068,938 | ||||||
Effect of Exchange Rate Changes on Cash | (6,820 | ) | (10,919 | ) | ||||
Net Increase (Decrease) in Cash | $ | (51,057 | ) | $ | 669,747 |
Net Cash Used in Operating Activities
During the nine months ended September 30, 2022, net cash used in operating activities was $1,124,967, compared to net cash used in operating activities of $3,120,049 for the nine months ended September 30, 2021. The cash used in operating activities was primarily attributable to our net loss.
Net Cash Used in Investing Activities
During the nine months ended September 30, 2022, net cash used in investing activities was $36,851, compared to net cash used in investing activities of $268,223 for the nine months ended September 30, 2021. The cash used in investing activities consisted of purchases of fixed assets, as partially offset by proceeds received on the sale of fixed assets.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2022, net cash provided by financing activities was $1,117,581, compared to net cash provided by financing activities of $4,068,938 for the nine months ended September 30, 2021. The current period consisted of $1,717,581 of proceeds received on debt financing and $150,000 of proceeds received on the sale of preferred stock, as partially offset by $750,000 of repayments on debt, compared to $947,000 of proceeds received on debt financing and $3,577,505 received on the sale of preferred and common stock, less debt repayments of $455,567, during the nine months ended September 30, 2021.
Ability to Continue as a Going Concern
As of September 30, 2022, our balance of cash on hand was $68,621, and we had negative working capital of $2,268,606 and an accumulated deficit of $22,212,027. We are too early in our development stage to project future revenue levels, and may not be able to achieve long-term growth potential throughgenerate 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 combination with a business rather than immediate, short-term earnings.going concern.
In the event sales do not materialize at the expected rates, management would seek additional financing and 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 will ever consummate a business combination and achieve long-term growth potential or immediate, short-term earnings from any business combination the Company enters into.
Results of Operations
We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly,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 realizationclassification of assetsrecorded asset amounts, or amounts and classificationclassifications of liabilities that might be necessary should wethe 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 operation.raising additional capital.
Our net lossOff-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the three-month period ended September 30, 2017 was $6,796 comparedpresentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
While our significant accounting policies are more fully described in notes to our consolidated financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and affect the more significant judgments and estimates that we used in the preparation of our financial statements.
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 losscustomer; (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 $ 9,097 during the three-month period ended September 30, 2016. Our general and administrative expenses represent fees paid for legal and accounting services in connection with our public company reporting obligations. We did not generate any revenue during these periods.
Our net loss for the nine-month period ended September 30, 2017 was $26,276 compared to a loss of $12,161 during the nine-month period ended September 30, 2016. Our general and administrative expenses represent fees paid for legal and accounting services in connection with our public company reporting obligations. We did not generate any revenue during these periods.
Liquidity and Capital Resources
We expect we will require additional capital to meet our long term operating requirements. We expect to finance our operations through advancements, 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 September 30, 2022, the Company had $35,340 of deferred revenues and $22,830 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 future harvests.
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.
Stock-Based Compensation
The Company accounts for equity instruments issued to employees and non-employees in accordance with the provisions of ASC 718 Stock Compensation (ASC 718). All transactions in which goods or debt securities until we consummate a business combination. We currently have a limited amount of cash, and will need additional capital in order to continue operating. Additional issuancesservices are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or convertible debt securities will result in dilutionthe 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 our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantageearn the equity instruments is reached because of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.sufficiently large disincentives for nonperformance.
The financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
As of September 30, 2017, our total assets were $0 compared to $0 in total assets at December 31, 2016. As of September 30, 2017, our total liabilities were $67, 741 compared to $41,465 in total liabilities at December 31, 2016. As of September 30, 2017, total liabilities were comprised of $7,096 in accounts payable and accrued liabilities and $60,645 in related party payables. As of December 31, 2016, total assets were $0 and total liabilities were comprised of $10,897 in accounts payable and accrued liabilities and $30,568 in related party payables.
Stockholders’ deficiency was $67, 741 as of September 30, 2017 compared to $41,465 as of December 31, 2016.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item
Not applicable.
Evaluation of ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on an evaluationOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer evaluated the Company’seffectiveness of our disclosure controls and procedures (asas of September 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) ofunder the Securities Exchange Act, means controls and other procedures of 1934,a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as amended),appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2017, the Company’s2022, our Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial and accounting officer) has concluded that, the Company’sas of such date, our disclosure controls and procedures were not effective.effective at the reasonable assurance level.
Changes in Internal Control Overover Financial Reporting
There have not been anyno significant changes in the Company’sour internal controlscontrol over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or in other factors that occurred during the Company’s fiscal quarter ended September 30, 2017 that hasperiod of our evaluation or subsequent to the date we carried out our evaluation which have materially affected, or isare reasonably likely to materially affect, the Company’sour internal control over financial reporting. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any system of controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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PART II - OTHER INFORMATION
None.ITEM 1. LEGAL PROCEEDINGS
We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.
We areITEM 1A. RISK FACTORS
As a smaller“smaller reporting company and accordinglycompany” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
None.ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following issuances of equity securities by the Company during the three month period ended September 30, 2022 were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and Regulation D thereunder:
Commitment Fee Shares
On September 15, 2022, the Company paid a commitment fee to AJB Capital in the form of 1,341,276 shares of common stock, restricted in accordance with Rule 144, in connection with the issuance of the Second AJB Note (defined above).
None.ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
None. ITEM 6. Exhibits
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* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 14, 2022 | ||
/s/ Isiah L. Thomas III | ||
| ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
/s/ Timothy Woods | ||
Timothy Woods | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
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