10-K: One World Products Faces Liquidation of Colombian Operations Amidst Deepening Losses and Strategic Pivot to Industrial Hemp

One World Products, Inc. reported significant net losses and a going concern qualification for fiscal year 2024, driven by the liquidation of its Colombian cannabis operations and a strategic shift towards U.S. CBD sales and industrial hemp solutions for the automotive market.

Summary

• One World Products, Inc. reported a net loss of $3,935,012 for the fiscal year ended December 31, 2024, compared to a net loss of $3,953,321 in the prior year.
• The company's accumulated deficit reached $30,864,698 as of December 31, 2024.
• The independent auditor issued a 'going concern' qualification, raising substantial doubt about the company's ability to continue operations without additional financing.
• The company's wholly-owned Colombian subsidiary, OWP SAS, entered liquidation proceedings effective October 1, 2024, ceasing its revenue-producing cannabis operations.
• One World Products is pivoting its business focus to selling CBD-based product 'Pro-11' in the United States and developing industrial hemp solutions for the automotive market.
• In October 2024, the company received an initial order for 1,400 hemp-based molded containers for automotive part packaging.
• The company dissolved Ptalo Pharmaceutical, S.A.S. in the fourth quarter of 2024, resulting in a $75,000 impairment expense related to forfeited licenses.
• As of December 31, 2024, the company had negative working capital of $3,100,289 and cash on hand of $42,456, which is insufficient to fund operations for the next twelve months.
• Post-period, on April 21, 2025, the company raised approximately $250,000 from a related party to partially cover outstanding debt interest.

Sentiment

Score: 2

Explanation: The company is in a precarious financial state, marked by recurring significant losses, a substantial accumulated deficit, and a critical 'going concern' warning from its auditor. Its primary international operation has entered liquidation, and while it's pivoting to new ventures, its current cash position is highly insufficient, necessitating further capital raises. The identified material weaknesses in internal controls further compound the negative outlook.

Positives

• The company initiated sales of its CBD-based product 'Pro-11' in the United States during March 2024, marking a new revenue stream.
• One World Products is actively developing industrial hemp solutions for the automotive market, securing an initial order for 1,400 reusable totes in October 2024, aligning with sustainability trends.
• Gross margin significantly improved to approximately 81% for FY2024, compared to a negative 2,181% in FY2023, reflecting the shift away from unprofitable Colombian cannabis operations.
• General and administrative expenses decreased by 49%, or $635,673, in FY2024 compared to FY2023, indicating some cost reduction efforts.

Negatives

• The company reported a net loss of $3,935,012 for FY2024 and an accumulated deficit of $30,864,698, indicating persistent financial unprofitability.
• The independent auditor issued a 'going concern' qualification, highlighting substantial doubt about the company's ability to continue operations without securing additional financing.
• The primary revenue-producing subsidiary in Colombia, OWP SAS, entered liquidation proceedings effective October 1, 2024, ceasing its operations and leading to a loss on investment of $245,272.
• Revenue decreased by 36% from $7,589 in FY2023 to $4,863 in FY2024, reflecting minimal sales activity.
• Professional fees increased by 80%, or $470,510, in FY2024, primarily due to increased non-cash stock-based compensation.
• The company incurred $160,000 in impairment expense in FY2024, including $75,000 from the dissolution of Ptalo Pharmaceutical, S.A.S.
• Significant other expenses totaled $2,063,018 in FY2024, including a $724,086 loss on early extinguishment of debts and $1,093,660 of interest expense.
• The company had negative working capital of $3,100,289 and only $42,456 in cash on hand as of December 31, 2024, indicating severe liquidity issues and insufficient funds for the next twelve months.

Risks

• The company has a limited operating history and minimal revenues, making its business and future prospects highly uncertain.
• A history of recurring operating losses and an accumulated deficit raise substantial doubt about the company's ability to achieve and sustain profitability.
• The independent auditor's 'going concern' qualification indicates that the company's ability to continue operations is dependent on securing additional financing.
• The liquidation proceedings of the Colombian subsidiary (OWP SAS) could have unforeseen impacts on the company's financial statements and reputation.
• Regulatory compliance risks exist, particularly concerning evolving U.S. federal and state laws related to cannabis and industrial hemp.
• Difficulty in establishing and maintaining bank accounts due to the cannabis industry's nature may impede normal business transactions and increase costs.
• The company is subject to anti-money laundering laws and regulations, which could restrict dividend payments or repatriation of funds.
• International operations are subject to foreign trade policies, currency fluctuations, discriminatory fiscal policies, and political instability in Colombia.
• The company faces potential litigation, formal complaints, and enforcement actions from third parties and governmental authorities.
• Ongoing legal proceedings against OWP SAS in Colombia, with an estimated potential liability of $310,000, could adversely affect financial results.
• Compliance with Colombian environmental laws may lead to sanctions, civil, or criminal penalties for environmental damage.
• Uncertainty exists regarding the continued demand for cannabis and derivative products, and the commercial viability of the international export market.
• Agricultural risks, including adverse weather conditions, plant diseases, insects, and pests, could negatively impact hemp and cannabis production.
• Product liability claims are an inherent risk for a manufacturer and seller of products designed for human ingestion or inhalation.
• Reliance on third parties for energy resources exposes the company to risks of price changes or supply curtailment.
• The company's ability to manage growth and expand its production, manufacturing, and distribution capabilities is uncertain.
• Financial forecasts are highly speculative due to the company's minimal operating history.
• The limited size of the senior management team may hinder the effective management of a publicly traded company.
• The common stock trades on the OTCQB with limited liquidity, and there is no assurance of an active public trading market.
• Future issuances of additional stock without stockholder consent could dilute existing stockholders' ownership.
• The company's common stock is considered a 'penny stock,' which may discourage broker-dealers from effecting transactions.
• The Board of Directors does not intend to pay dividends, meaning stockholders may only realize a return through stock sales.
• Concentrated ownership by officers, directors, and principal stockholders (83.9% fully-diluted common stock) allows them to exert significant influence over company decisions.
• As an 'emerging growth company,' the company may take advantage of certain exemptions, potentially making its securities less attractive to some investors.
• Anti-takeover provisions in corporate documents could limit the ability of another party to acquire the company.
• Increased compliance costs as a public company may strain resources and distract management.
• Risks associated with the Equity Line of Credit (ELOC) with Tysadco Partners, LLC, including potential dilution and sales at a discount.
• Material weaknesses in internal control over financial reporting, including lack of formal policies for related-party transactions, insufficient documentation, and inadequate segregation of duties.

Future Outlook

The company intends to focus increased efforts on research and development in industrial hemp solutions for the automotive market, aiming to leverage the industry's push for carbon-neutral manufacturing. It is actively seeking to raise additional capital to fund these initiatives and ongoing operations, as it expects to continue experiencing net negative cash flows for the foreseeable future. The company's ability to continue as a going concern is dependent on its success in raising capital and achieving sustainable revenues and profitability.

Management Comments

• "In the event sales do not materialize at expected levels, management would seek additional financing or would conserve cash by further reducing expenses."
• "Management is actively pursuing new customers to increase revenues."
• "Management believes these factors will contribute toward achieving profitability."
• "Given the nature of our current operations and our experience to date, we do not currently perceive cybersecurity as a particularly significant risk to our business."

Industry Context

One World Products, Inc. is undergoing a significant strategic pivot, moving away from its previous focus on cannabis cultivation in Colombia, which faced substantial regulatory and economic challenges, including insolvency. The company is now targeting the U.S. CBD market and, more notably, the industrial hemp solutions sector, specifically for the automotive industry. This shift aligns with broader industry trends towards sustainable materials and carbon-neutral manufacturing, offering a potential growth area. However, the company operates in nascent and evolving markets, where regulatory landscapes (especially for CBD) and market demand can be unpredictable. The challenges faced in Colombia, including banking restrictions and legal complexities in the cannabis sector, underscore the difficulties of operating in highly regulated and emerging international markets.

Management Changes

Corporate Governance

Legal Proceedings

• OWP SAS is involved in a total of 23 separate lawsuits for various civil and labor disputes in the municipal civil courts in Colombia, specifically in the Cities of Bogota, Cali, Funza, and Popayn.
• The estimated potential liability from these claims is approximately $310,000, though the actual liability could be greater.
• These legal proceedings are part of the ongoing liquidation process of OWP SAS under Colombian Law 1116 of 2006.

Related Party Transactions

• On November 8, 2024, 100 shares of Series C Special Preferred Stock were issued to Isiah L. Thomas, III (CEO and Chairman) in consideration for the forgiveness of $486,512 of accrued salary, granting him voting control.
• On July 25, 2024, Dr. Kenneth Perego, II (Vice Chairman) purchased 15,000 shares of Series A Preferred Stock for $150,000, along with five-year warrants to purchase 1,500,000 shares of common stock.
• As of December 31, 2024, the company owed $27,978 in expense reimbursements to Dr. Kenneth Perego, II.
• On July 26, 2024, the company partially repaid $150,000 of a $337,000 promissory note owed to Dr. Kenneth Perego, II.
• On April 22, 2024, the company repaid an aggregate total of $257,446 (consisting of $207,000 principal and $50,446 interest) of outstanding debts owed to Dr. Kenneth Perego, II.
• On March 15, 2024, the company issued 10,971,000 shares of common stock (aggregate fair value $724,086) to Isiah L. Thomas, III, Dr. Kenneth Perego, II, Joerg Sommer (former President), and Dr. John McCabe (>5% Shareholder) in exchange for extending maturity dates and terms of previously received debt financing.
• Common stock was issued to the Chief Financial Officer for services: 909,090 shares (fair value $15,000) on December 25, 2024; 250,000 shares (fair value $15,000) on September 25, 2024; and 250,000 shares (fair value $11,250) as a signing bonus on July 1, 2024.
• On March 15, 2024, the company issued 6,500,000 shares of common stock (aggregate fair value $429,000) to Isiah L. Thomas, III, Dr. Kenneth Perego, II, Terry Buffalo (Director), and Joerg Sommer (former President) for services provided.
• As of December 31, 2024, the company owed $63,488 in accrued compensation to Isiah L. Thomas, III.
• Subsequent to the fiscal year end, on April 21, 2025, the company received $250,000 from Dr. John McCabe (significant shareholder) in exchange for a promissory note.
• Subsequent to the fiscal year end, on April 7, 2025, the company received $50,000 from Dr. John McCabe (significant shareholder) in exchange for a promissory note.
• Subsequent to the fiscal year end, on April 2, 2025, the company received an advance of $10,000 from Isiah L. Thomas, III.
• Subsequent to the fiscal year end, on March 24, 2025, the company received an advance of $10,000 from Isiah L. Thomas, III.
• Subsequent to the fiscal year end, on March 25, 2025, the company issued 694,445 shares of common stock (fair value $15,000) to the Chief Financial Officer for services.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from ongoing stock issuances for debt and services, potential for further dilution from the Equity Line of Credit, limited trading market, and the company's 'penny stock' status. There are no anticipated dividends, meaning returns are solely dependent on stock appreciation. The issuance of Series C Special Preferred Stock to the CEO concentrates voting control, potentially limiting the influence of other shareholders.
• **Creditors**: Colombian creditors of OWP SAS are subject to liquidation proceedings, with an estimated $310,000 in potential legal liabilities, and the outcome of these proceedings will determine the extent of their recovery.
• **Employees**: The company operates with a very lean structure, having only 2 full-time employees as of December 31, 2024. While the relationship is stated as positive, the company's financial instability and ongoing need for capital could impact job security and future hiring.

Next Steps

• Complete the liquidation proceedings of OWP SAS in Colombia, which are expected to last approximately one year.
• Redesign packaging and engage sales representatives to focus greater resources on bringing the Pro-11 CBD product to market in the U.S.
• Focus increased efforts on research and development for industrial hemp solutions, particularly for the automotive market.
• Actively seek additional capital to fund short-term operations and implement planned business objectives and strategies.
• Remediate identified material weaknesses in internal controls by engaging a third-party firm to assist with documentation and evaluation, and by hiring additional employees for segregation of duties, once resources become available.

Key Dates

Recommendation

Keywords

Cannabis, Hemp, CBD, Industrial Hemp, Automotive Industry, SEC Filing, 10-K, Liquidation, Going Concern, Financial Losses, OTC Markets, Isiah Thomas, Colombia, Product Development, Supply Chain, Corporate Governance, Risk Management, Financial Reporting, Penny Stock