Panacea Life Sciences Holdings, Inc 10-Q for FY2024 Q1
Panacea Life Sciences Holdings, Inc. (PLSH)
About this 10-Q
Panacea Life Sciences Holdings, Inc filed this 10-Q on May 6, 2024, covering the quarter ended March 31, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.06M
- up 55.9% from $677.48K a year earlier
- Net loss
- $1.45M
- compared with a net loss of $1.79M a year earlier
- Diluted EPS
- -$0.09
- compared with -$0.12 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
For the transition period from _____________ to _____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices, Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the past 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.
Indicate
by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | 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
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of common stock, par value $0.0001 per share, outstanding as May 1, 2024.
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 |
| Item 4. | Controls and Procedures | 24 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 24 |
| Item 1A. | Risk Factors | 24 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 24 |
| Item 3. | Defaults Upon Senior Securities | 24 |
| Item 4. | Mine Safety Disclosures | 25 |
| Item 5. | Other Information | 25 |
| Item 6. | Exhibits | 25 |
| Signatures | 27 |
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Balance Sheets
| March 31, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other receivables, related party | ||||||||
| Inventory | ||||||||
| Marketable securities related party | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Operating lease right-of-use asset, net, related party | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Operating lease liability, current portion, related party | ||||||||
| Note payable-current, related party | ||||||||
| First Bank note payable | ||||||||
| Convertible note payable, net | ||||||||
| Paycheck protection loan, SBA Loan | ||||||||
| TOTAL CURRENT LIABILITIES: | ||||||||
| Operating lease liability, long-term portion, related party | ||||||||
| Other long-term liabilities, related party | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Series A Preferred Stock: $ Par Value, shares designated; and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Series B-1 Preferred: $ Par Value, shares designated; and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Series B-2 Preferred: $ Par Value, shares designated; and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Series C Preferred: $ Par Value, shares designated; and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Series C-1 Preferred: $ Par Value, shares designated and and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Series C-2 Preferred: $ Par Value, and shares designated and and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Series D Preferred: $ Par Value, shares designated and and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Series E Preferred: $ Par Value, shares designated and and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Common Stock: $ Par Value, shares authorized; and shares issued and outstanding on March 31, 2024 and December 31, 2023 respectively. | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Statements of Operations
| 2024 | 2023 | |||||||
| Three months ended March 31 | ||||||||
| 2024 | 2023 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF SALES | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| Production related operating expenses | ||||||||
| General and administrative expenses | ||||||||
| TOTAL OPERATING EXPENSES | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSES) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Unrealized gain (loss) on marketable securities, net | ( | ) | ||||||
| Realized gain (loss) on sale of securities | ( | ) | ||||||
| Other income (loss) | ||||||||
| Employer retention credit | ||||||||
| Rental Income | ||||||||
| Gain on extinguishment of debt | ||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| TAXES | ||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ( | ) | ||
| Per-share data | ||||||||
| Basic and diluted loss per share | $ | ) | $ | ) | ||||
| Weighted average number of common shares outstanding | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
PANACEA LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(unaudited)
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares issued in respect of the merger | - | |||||||||||||||||||||||||||
| Shares issued in settlement of convertible note | - | |||||||||||||||||||||||||||
| - | - | - | - | - | ||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Shares issued in respect of the merger | - | - | ||||||||||||||||||||||||||
| Issuance of common shares for services | - | |||||||||||||||||||||||||||
| Shares issued in settlement of convertible note | - | |||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 5 |
Panacea Life Sciences, Inc.
Statements of Cash Flows
| For the months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation | ||||||||
| Realized gain on sale of securities | ||||||||
| Unrealized (gain)/loss on marketable securities | ||||||||
| Amortization of debt discount and non-cash interest expense | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expense and other assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liability, net | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Net fixed asset acquisitions | ( | ) | ( | ) | ||||
| Net Cash provided by (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayment of notes payable | ( | ) | ( | ) | ||||
| Payments of principal on notes payable – related party | ( | ) | ( | ) | ||||
| Proceeds from Notes payable - related party | ||||||||
| Cash provided by financing activities | ||||||||
| Net increase (decrease) in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents, Beginning of Period | ||||||||
| Cash and Cash Equivalents, End of Period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid for income taxes during the year | $ | $ | ||||||
| Interest payments during the year | $ | $ | ||||||
| Noncash investing and financing activity | ||||||||
| Conversion of note payable to common stock | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
PANACEA LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2024
NOTE 1 - NATURE OF ORGANIZATION
Organization and Business Description
Panacea
Life Sciences Holdings, Inc. (OTCQB: PLSH) is a holding company organized as a plant-based natural health ingredient and product company,
specializing in the development, manufacturing, research, and distribution of products within the $
Established
in 2017, the company’s first subsidiary, Panacea Life Sciences, Inc. (PLS), is dedicated to the production, distribution, research,
and manufacturing of premium-quality nutraceuticals, cannabinoids, mushrooms, kratom, and other natural, plant-based ingredients and
products. Operating from a cutting-edge
Panacea Distro, the second subsidiary of Panacea Life Sciences Holdings, Inc., manages six retail locations and a distribution center situated in the Tampa, Florida area. These establishments provide a diverse range of products, including Nitro Kava, Kratom, Hemp, VAPE products, and various beverages, with a primary focus on promoting alternative health and wellness. The Panacea Distro business is segmented into two distinct areas—the retail stores and the cash & carry distribution warehouse. The retail stores are poised to evolve into franchise stores, with the intention of eventually adopting the name “PANA KAVA JAVA.” This strategic move is part of our plan to establish a franchise model based on the success of these existing retail locations.
In the coming months, a third business entity, Pana Kava Java (PKJ), is set to emerge as the franchisor company, with a scheduled launch in Q3-Q4 2024. Pana Kava Java is committed to establishing a unique franchise model, drawing inspiration from the European-style café concept. Patrons will have the opportunity to savor infused coffees and beverages, indulge in vaping, and enjoy an array of infused baked goods in a welcoming atmosphere. Pana Kava Java, as the franchisor, will offer franchise rights to individuals interested in opening stores/cafés, enabling them to sell products or services under the PKJ brand, leveraging our expertise and intellectual property. Currently, active efforts are underway in developing the franchisor plan, encompassing aspects such as business development, flagship store establishment, legal document preparation, marketing and packaging strategies, as well as the recruitment and training of franchisees.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The Company’s consolidated financial statements include the financial statements of Panacea Life Sciences, Inc.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information, which includes consolidated unaudited interim financial statements and present the consolidated unaudited interim financial statements of the Company and its wholly-owned subsidiaries as of March 31, 2024. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America. All intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations, stockholders’ equity and cash flows as of March 31, 2024, and 2023, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Operating results for the three ended March 31, 2024 and 2023 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2024. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.
| 7 |
Going concern
These
unaudited condensed consolidated financial statements are presented on the basis that the Company will continue as a going concern. Panacea
has combined with Panacea Life Sciences Holdings, Inc. so the below items reflect the consolidated company. The going concern concept
contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since our inception in later
2017, we have generated losses from operations. As of March 31, 2024, our accumulated deficit was $
Use of Estimates
The Unaudited Condensed Consolidated Financial Statements have been prepared in conformity with US GAAP and required management of the Company to make estimates and assumptions in preparation of these statements. Actual results may differ significantly from those estimates. Significant estimates made by management include but are not limited to the useful life of property and equipment, incremental borrowing rate used in the calculation of right of use asset and lease liability, reserves for inventory, allowance for doubtful accounts, revenue allocations, valuation allowance on deferred tax assets, assumptions used in assessing impairment of long-term assets, assumptions used in the calculation of net realizable value of inventory and fair value of non-cash equity transactions.
Cash and Cash Equivalents
For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. There were no cash equivalents. The Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. On March 31, 2024, the Company’s cash balances did not exceed the FDIC limit.
Accounts Receivable
Accounts
receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding
invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been
exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for
doubtful accounts. An allowance of $
| 8 |
Inventory
Inventories are stated at lower of cost or net realizable value. Inventories of purchased materials are valued using a moving average method and managed on a first in first out basis (FIFO). Inventories of internally manufactured materials are valued using a standard costing method and are also managed on a FIFO basis. Production related costs that are capitalized as inventory as part of the standard cost valuation include the direct materials consumed, direct labor used, indirect labor used, and manufacturing overhead. Overhead is calculated based on specific manufacturing process and allocated on an order-by-order basis. Production variances that occur between standard cost valuation and actual costs are expensed as incurred in the income statement as part of cost of goods sold.
Marketable securities
The Company’s marketable securities consists of shares of XXII which are classified as available-for-sale and included in current assets as they are pledged to secure two promissory notes. Securities are valued based on market prices for identical assets using third party certified pricing sources. Available-for-sale securities are carried at fair value with unrealized and realized gains and losses reported as a component of income (loss). Realized gains and losses, if any, are calculated on the specific identification method and are included in other income in the condensed consolidated statements of operations.
Fair Value Measurements
The Company adopted the provisions of Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value, and expands disclosure of fair value measurements. The guidance prioritizes the inputs used in measuring fair value and establishes a three-tier value hierarchy that distinguishes among the following:
| ● | Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. | |
| ● | Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly. | |
| ● | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The following table shows, by level within the fair value hierarchy, the Company’s assets and liabilities at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:
SCHEDULE OF FAIR VALUE ASSETS MEASURED ON RECURRING BASIS
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| March 31, 2024 | ||||
| Balance at beginning of year | $ | |||
| Realized loss on marketable securities, net | ||||
| Unrealized loss on marketable securities, net | ||||
| Balance at end of period | $ | |||
As of March 31, 2024, the Company has no liabilities that are re-measured at fair value.
| 9 |
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method on the various
asset classes over their estimated useful lives, which range from to
Intangible Assets and Goodwill
Goodwill
is comprised of the purchase price of business combinations in excess of the fair market value assigned at acquisition to the tangible
and intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment on an annual basis. The Company
performed its most recent goodwill impairment using a discounted cash flow analysis and found that the fair value exceeded the carrying
value. It has $
SCHEDULE OF INTANGIBLE ASSETS AND GOODWILL
| Estimated Life | ||
| Goodwill from Phoenix Acquisition | ||
| Goodwill from N7 Acquisition |
| March 31, 2024 | December 31, 2023 | |||||||
| Goodwill from Phoenix Acquisition | $ | $ | ||||||
| Goodwill from N7 Acquisition | ||||||||
| Total | $ | $ | ||||||
Leases
The Company determines if an arrangement is a lease at inception. Contracts containing a lease are further evaluated for classification as an operating or finance lease. In determining the leases classification, the Company assesses among other criteria: (i) 75% or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset; and (ii) 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, other current liabilities, and long-term finance lease liabilities in the Company’s consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. For leases with terms greater than 12 months, the Company records the ROU asset and liability at commencement date based on the present value of lease payments according to their term.
The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses are recognized on a straight-line basis over the lease term or the useful life of the leased asset.
| 10 |
In addition, the carrying amount of the ROU and lease liabilities are remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Convertible Notes Payable
The Company has previously issued convertible notes, which contain variable conversion features, whereby the outstanding principal and accrued interest automatically convert into common shares at a fixed price which may be a discount to the common stock at the time of conversion. Some of the conversion features of these notes are contingent upon future events, whereby, the holder agreed not to convert until the contingent future event has occurred. The Company currently does not hold any convertible notes.
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The Company accounts for a contract when it has been approved and committed to, each party’s rights regarding the goods or services to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. However, the Company’s sales are primarily through retail stores, purchase orders or ecommerce; thus, currently contract liabilities are negligible. The Company does not have any multiple-element arrangements.
Some
of the Company’s contract liabilities consist of advance customer payments. Contract liability results from transactions in
which the Company has been paid for products by customers, but for which all revenue recognition criteria have not yet been met.
Once all revenue recognition criteria have been met, the contract liabilities are recognized. The Company recorded $
SCHEDULE OF REVENUE FROM CONTRACT WITH CUSTOMER
| March 31, 2024 | December 31, 2023 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Payments received for unearned revenue | ||||||||
| Revenue earned | ||||||||
| Balance, end of period | $ | $ | ||||||
Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
| 11 |
Revenue related to the sale of products is recognized once goods have been sold to the customer and the performance obligation has been completed. In both contracted purchase and retail sales, we offer consumer products through our online stores. Revenue is recognized when control of the goods is transferred to the customer. This generally occurs upon our delivery to a third-party carrier or, to the customer directly. Revenue from tolling services is recognized when the performance obligation, such as processing of the material, has been completed and output material has been transferred to the customer.
Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. A contract liability results from transactions in which the Company has been paid for products by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the contract liabilities are recognized. The Company does not have any multiple-element arrangements.
The Company also has recorded other income related to rental income it receives from leasing out space in the laboratory it occupies.
Shipping and Handling Costs
The
Company accounts for shipping and handling fees in accordance with ASC 606. The amounts charged to customers for shipping products are
recognized as revenues and the related freight costs of shipping products are classified in general and administrative costs as incurred.
Shipping costs are included as a component of general and administrative and were $
Advertising & Marketing
Advertising
costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations.
Included in this category are expenses related to public relations, investor relations, new package design, website design, design of
promotional materials, cost of trade shows, cost of products given away as promotional samples, and paid advertising. The Company recorded
advertising costs included in general and administrative costs of $
Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. Segment identification and selection is consistent with the management structure used by the Company’s chief operating decision maker to evaluate performance and make decisions regarding resource allocation, as well as the materiality of financial results consistent with that structure. Based on the Company’s management structure and method of internal reporting, the Company has one operating segment. The Company’s chief operating decision maker does not review operating results on a disaggregated basis; rather, the chief operating decision maker reviews operating results on an aggregate basis.
The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings per Share”. Basic earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if preferred stock converted to common stock and warrants are exercised. Preferred stock and warrants are excluded from the diluted earnings per share calculation if their effect is anti-dilutive.
| 12 |
SCHEDULE OF ANTI-DILUTIVE DILUTED LOSS PER SHARE
| 2024 | 2023 | |||||||
| For the three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Restricted stock | ||||||||
| Options to purchase common stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Series B-1 Convertible Preferred | ||||||||
| Series B-2 Convertible Preferred | ||||||||
| Series C Convertible Preferred | ||||||||
| Series C-1 Convertible Preferred | ||||||||
| Series D Convertible Preferred | ||||||||
| Series E Convertible Preferred | ||||||||
| Total | ||||||||
| Anti-dilutive securities | ||||||||
Income Taxes
Income taxes are accounted for under the asset and liability method prescribed by FASB ASC Topic 740. These standards require a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely than not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax asset will not be realized.
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, 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 Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas. The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of ASU 2020-6 to have any material impact on its consolidated financial statements.
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock 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” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
| 13 |
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 – PROPERTY, EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
Property and equipment, net including any major improvements, are recorded at historical cost. The cost of repairs and maintenance is charged against operations as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, generally as follows:
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT USEFUL LIVES
| Estimated Life | ||||
| Computers and technological assets | ||||
| Furniture and fixtures | ||||
| Machinery and equipment | ||||
| Leasehold improvement | ||||
Property and equipment, net consists of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| March 31, 2024 | December 31, 2023 | |||||||
| Computers and technological assets | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Machinery and equipment | ||||||||
| Land | ||||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expenses for the three-month period ended March 31, 2024 and 2023 were $
NOTE 4 - INVENTORY
Inventory consists of the following components:
SCHEDULE OF INVENTORY
| March 31, 2024 | December 31, 2023 | |||||||
| Raw Materials | $ | $ | ||||||
| Semi-Finished | ||||||||
| Finished Goods | ||||||||
| Packaging | ||||||||
| Total | $ | $ | ||||||
Inventories are stated at lower of cost or net realizable value using the standard costing method for its work in process and finished goods. For its raw materials, trading goods, and packaging supplies, the Company utilizes the moving average method for costing purposes and FIFO. At this time there are no inventory reserves required.
| 14 |
NOTE 5 –OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES – RELATED PARTY
Right of Use
The
Company adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”) on January
1, 2019, the start of our 2019 fiscal year. The Company has one lease arrangement with a related party entered into on December 22, 2018
for 3-year term starting with January 1, 2019 for certain laboratory facilities, with a nine-year extension option. This lease was extended
and now expires on
The
Company leases a portion of the property (formerly the Environmental Protection Agency building) in Golden, CO from J&N Real Estate,
owned by the CEO, a related party with a term expiring on
Below is a summary of our right of use assets and liabilities as of March 31, 2024.
SCHEDULE OF RIGHT OF USE ASSET AND LIABILITY
| March 31, 2024 | December 31, 2023 | |||||||
| Right-of-use assets | $ | $ | ||||||
| Present value of operating lease liabilities | $ | $ | ||||||
| Less: Long-term portion of operating lease liability | ( | ) | ( | ) | ||||
| Short-term portion of operating lease liability | ||||||||
| Unpaid balances | ||||||||
| Total short-term lease liability obligations | $ | $ | ||||||
| Weighted-average remaining lease term (Ends December 31, 2030) | ||||||||
| Weighted-average discount rate | % | |||||||
During
the three months ended March 31, 2024 and 2023, we recognized approximately $
Approximate future minimum lease payments for our right of use assets over the remaining lease periods as of March 31, 2024, are as follows:
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total undiscounted operating lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ |
| 15 |
NOTE 6 – NOTES PAYABLE
Paycheck Protection Program Funding U.S. Small Business Administration Loan
On
May 28, 2020, the Company received a secured, 30-year, Economic Injury Disaster Loan in the amount of $
Notes payable – related party and other liabilities.
As
part of the Exchange Agreement certain loan balances (“J&N Loans”) from J&N Real Estate LLC, an affiliate of the
Company’s CEO, (“J&N”) and historical interest owed of $
On
June 30, 2021, the Company issued its CEO, Ms. Buttorff, a
SCHEDULE OF NOTES PAYABLE RELATED PARTY
| March 31, 2024 | December 31, 2023 | |||||||
| J&N Note | $ | $ | ||||||
| CEO Note | ||||||||
| Total related party notes | $ | $ | ||||||
Other long-term liabilities, related party
The
Company has recorded a related party liability (“Fixed Asset Loan”) in the amounts of $
In
2020, the Company recorded an additional related party liability in the amount of $
SCHEDULE OF NOTES PAYABLE
| March 31, 2024 | December 31, 2023 | |||||||
| Other long-term liabilities, related party | ||||||||
| Fixed Asset Loan | $ | $ | ||||||
| J&N Building Loan | ||||||||
| Total | $ | $ | ||||||
NOTE 7 - STOCKHOLDERS’ EQUITY
Common stock
The Company’s authorized common stock consists of shares with a par value of $ per share.
During the three months ended March 31, 2024, the Company issued shares of common stock in respect of the settlement of the convertible note payable.
| 16 |
Common stock options
Stock Option Plan
On June 30, 2021, the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provided for the issuance of incentive awards in the form of non-qualified and incentive stock options, restricted stock awards, restricted stock unit awards, warrants and preferred stock. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. The incentive awards shall either be fully vested and exercisable from the date of grant or shall vest and become exercisable in such installments as the Board of Directors or Compensation Committee may specify. Stock options expire no later than ten years from the date of grant. Unless sooner terminated, the Plan shall terminate in years.
This plan had fully vested options outstanding at the time of the share exchange.
Stock Options
SCHEDULE OF STOCK OPTION ACTIVITY
| Options Outstanding as of March 31, 2024 | ||||||||||||||||
Number of Shares Subject to Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Balance on December 31, 2023 | $ | $ | ||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options canceled / expired | - | - | ||||||||||||||
| Balance on March 31, 2024 | $ | $ | ||||||||||||||
| Vested and exercisable at March 31, 2024 | $ | $ | ||||||||||||||
The Company’s outstanding warrants as of March 31, 2024, are summarized as follows, and all were exercisable at that date.
SCHEDULE OF WARRANTS OUTSTANDING
| Warrants Outstanding as of March 31, 2024 | ||||||||||||||||
Number of Shares Subject to Warrants | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
| Balance on December 31, 2023 | $ | |||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options canceled / expired | - | - | ||||||||||||||
| Balance at March 31, 2024 | $ | $ | ||||||||||||||
| Vested and exercisable at March 31, 2024 | $ | $ | ||||||||||||||
As of March 31, 2024, the outstanding warrants had no intrinsic value.
| 17 |
Restricted Stock
SCHEDULE OF RESTRICTED STOCK
| Restricted Stock Common Stock | ||||
| Balance at December 31, 2023 | ||||
| Balance at March 31, 2024 | ||||
As
of March 31, 2024, there were
Preferred Stock
The Company’s authorized preferred stock consists of shares with a par value of $.
On September 30, 2023, an asset purchase agreement with N7 Enterprises was closed. The original agreement was to award N7 shares of preferred E stock. Each share is convertible into shares of common stock. The agreement contained a provision permitting the total number of shares to be adjusted based on projected sales targets being achieved. Due to these sales targets not being met, subsequent to the original award, the preferred shares were reduced to .
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Legal Matters
In the ordinary course of business, the Company enters into agreements with third parties that include indemnification provisions which, in its judgment, are normal and customary for companies in the Company’s industry sector. These agreements are typically with business partners, and suppliers. Pursuant to these agreements, the Company generally agrees to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to the Company’s products, use of such products, or other actions taken or omitted by us. The maximum potential number of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, the Company has no liabilities recorded for these provisions as of March 31, 2024.
Concentrations
The Company has no contingencies, material commitments, purchase obligations, or sales obligations.
On the revenue side, in the three months ended March 31, 2024, we have a concentration of two customers.
Both
are contract manufacturing customers who represent
The
other concentration is in the accounts receivable category, where two customers account for
NOTE 9 - RELATED PARTY TRANSACTIONS
Notes Payable and Accrued Interest – Related Parties
For information on related party loans to the Company and other related party transactions, see Notes 5 and 6, Operating Lease and Notes Payable.
The accrued interest and interest expenses recorded for related party loans are shown below.
SCHEDULE OF RELATED PARTY TRANSACTIONS LOANS
| March 31, 2024 | December 31, 2023 | |||||||
| Accrued Interest | ||||||||
| Related party loan-J&N | $ | $ | ||||||
| Related party loan-CEO loan | ||||||||
| Related party loan – Line of credit | ||||||||
| Accrued Interest | ||||||||
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Interest Expense | ||||||||
| Related party loan-J&N | $ | $ | ||||||
| Related party loan-CEO loan | ||||||||
| Related party loan – Line of Credit | ||||||||
| Interest Expense | ||||||||
NOTE 10– SUBSEQUENT EVENTS
None.
| 18 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Business Overview
We are a Nevada corporation organized in 2008. Exactus, Inc. was our former name. We have pursued opportunities in hemp-based businesses, which we refer to as “cannabinoids or CBD”. On June 30, 2021 Panacea Life Sciences, Inc. “Panacea” entered into an Exchange Agreement with Exactus and as a result became a seed-to-sale Cannabinoid company. The former Panacea stockholders have assumed majority control of us and all our operations are now operated through Panacea which because of the share exchange became our wholly owned subsidiary. Leslie Buttorff, became our Chief Executive Officer and a director upon the closing of the share exchange, also became our principal stockholder through common stock and Convertible Preferred Stock issued to her and entities she controls.
Panacea Life Sciences Holdings, Inc. (PLSH) is holding company structured to support the life sciences and health and wellness industry. Panacea, which was founded by Leslie Buttorff in 2017 as a woman-owned business. Through Panacea, we are dedicated to developing and producing the highest-quality, most medically relevant, legal, hemp-derived cannabinoid products for consumers and pets. Beginning at a farm Panacea owns a parcel of located at Needle Rock, Colorado and leases laboratory space located within a 51,000 square foot, state-of-the-art, cGMP, extraction, manufacturing, testing and fulfillment center located in Golden, Colorado, Panacea operates in every segment of the CBD product value chain. From cultivation to finished goods, Panacea ensures its products with stringent testing protocols employed at every stage of the supply chain. Panacea endeavors to offer pure natural remedies within product lines for every aspect of life: PANA Life®, PANA Beauty®, PANA Sport™, PANA Pet® and PANA Health™. Currently Panacea sells over 50 different product SKUs of CBD and CBG products.
In late 2022 we shifted our focus to contract manufacturing for the nutraceutical industry. Its subsidiary, Panacea Life Sciences, Inc. (PLS) is dedicated to manufacturing, research and producing the highest-quality, hemp-derived cannabinoid, functional mushroom, Kratom and nutraceutical products for consumers and pets. From cultivation to finished goods, the company ensures its products with stringent GMP standards and testing protocols employed at every stage of the supply chain.
We are well positioned to develop novel extracts as dietary supplements and topical applications. Our biotechnology plans focus on our research at Colorado State University where we are involved in several health-related research studies.
We believe that our competitive advantages are derived from being vertically integrated that allows for extraction, enrichment and manufacturing under a cGMP quality environment: 1) Using pharmaceutical formulation methods to optimize the delivery of various products, and 2) utilize Good Manufacturing Practice to produce goods that are safe and quality products that deliver consistent dosing.
We are combining human and pet preclinical studies with Good Manufacturing Process manufacturing to generate a panel of products. Our products are formulated with delivery methods for health benefits including an intellectual property portfolio enabling development of topical creams, sublinguals, oral soft gel capsules, patches, and sprays.
Panacea Distro, the second subsidiary of Panacea Life Sciences Holdings, Inc., manages six retail locations and a distribution center situated in the Tampa, Florida area. These establishments provide a diverse range of products, including Nitro Kava, Kratom, Hemp, VAPE and mushroom products, and various beverages, with a primary focus on promoting alternative health and wellness.
Partnership with Universities
The grand opening of the Panacea Life Sciences Cannabinoid Research Center at Colorado State University was held on October 19, 2021. The first studies at the center are underway for isolation of rare cannabinoids, examining cannabidiol’s effects on Inflammatory Bowel Disease (IBS), canine and human dementia, as well as supporting research into chronic pelvic pain. These are all long-term, multi-year studies. We previously signed an agreement with the Colorado School of Mines in the area of developing hemp-based sustainability products.
Company Information Technology Infrastructure
The ERPCannabis system is based on an SAP architecture and was used to develop the base installation. All financial, human resource, payroll, procurement, production planning and materials management business processes are represented in this system. In addition, the system is linked to our e-Commerce website www.panacealife.com. This system allows us to update product costing and determine inventory levels which will be critical as the company expands. In addition, sophisticated financial and payroll processing are inherent in the solution; thus, offering investors detailed accounting results related to company investments. We plan to expand on the use of this infrastructure for acquisitions and service offerings.
Results of Operations
Set forth below is the discussion of the results of operations of the Company for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The information which follows relates to the operations of Panacea, which under applicable accounting rules are treated as the operation of the Company.
Three Months Ended March 31, 2024 and 2023
Net Revenues
In 2024 our revenues predominately came from contract manufacturing of nutraceutical products. Revenue consists of sales of our six category of brand products, white label and contract manufacturing sales to other companies, raw material sales (distillate and isolate), tolling products, and leasing space. We also have revenue from non-CBD nutraceutical companies.
| 19 |
Our revenues for the three months ended March 31, 2024, increased by $378,966, or 56%, to $1,056,447as compared to $677,481 for the three months ended March 31, 2023. The increase in sales in 2023 was due to an increase in manufacturing of non-CBD nutraceutical products.
Cost of Sales
Cost of sales for the three months ended March 31, 2024, decreased by $61,590 or 14% to 390,282 as compared to $451,872 for the three months ended March 31, 2023. The decrease in cost of sales was due primarily to lower raw material prices due to larger volume purchases for non-CBD contract manufacturing ingredients.
Operating Expenses
Operating expenses for the three months ended March 31, 2024, increased by $212,458, or 14%, to $1,728,030 as compared to $1,515,572 for the three months ended March 31, 2023. The increase in operating expenses is primarily due to increased production related operating expenses as well as increased general and administrative expenses.
Production related operating expenses for the three months ended March 31, 2024, increased by $216,316, or 17%, to 1,474,475 as compared to 1,258,159 during the three months ended March 31, 2023. The increase in production related operating expenses is primarily due to increased head count and increased labor costs.
General and administrative expenses for the three months ended March 31, 2024, decreased by $3,858, or 1%, to $ 353,555 as compared to $257,413during the three months ended March 31, 2023. This change is immaterial.
Other income (expense)
Other income (expense) for the three months ended March 31, 2024, decreased by $117,123 or 23% to ($384,209) as compared to ($501,332) for the three months ended March 31, 2023. The decrease in other income is primarily due to the unrealized loss of marketable securities held (XXII: NASDAQ).
Liquidity and Capital Resources
Cash flows from operating activities
The largest source of operating cash is from our customers. A large majority of our customers purchase CBD on-line, so credit card payments are collected and paid within 1-2 business days. Other white label and contract manufacturing customers pay before the products are released. Some larger customers have either net 10-, 2%- or 30-day net terms. Net cash used in operating activities was $357,090 and $313,851 for three months ended March 31 for 2024 and 2023, respectively. Approximately $0.854 million of our $1.446 million net loss in 2024 was non-cash.
Cash flows from investing activities
Cash outlay for the acquisition of fixed assets comprised the majority of this category and were $5,000 and $15,220 for the three months ended March 31, 2024, and 2023, respectively.
Cash flows from financing activities
Net cash provided by financing activities for the three months ended March 31, 2024 was $368,811. For the same period in 2023 the financing was $395,352. In both years the primary financing was cash provided by Company’s CEO.
Liquidity and Capital Resources
On March 31, 2024, we had $0.117 million in cash and liquid stock of XXII. Our Chief Executive Officer holds the XXII shares pursuant to the pledge agreement and has the power at any time to permit us to sell the shares to provide working capital. We have borrowed substantial sums from Leslie Buttorff, our Chief Executive Officer, to meet its working capital obligations. On June 30, 2021, Panacea issued an affiliate of Ms. Buttorff a 12% demand promissory note for $4.063 million and issued Ms. Buttorff a 10% demand promissory note for $1.624 million secured by a pledge of certain XXII common stock owned by Panacea. Additionally, we have a line of credit with Ms. Buttorff through which it may borrow up to $8 million at a 10% annual interest rate.
| 20 |
We do not have sufficient cash resources to sustain our operations for the next 12 months, particularly if the large sales agreements and purchase orders we have do not result in the revenue anticipated. We may be dependent on obtaining financing from one or more debt or equity offerings or further loans from Ms. Buttorff assuming she agrees to advance further funds.
These unaudited condensed consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of the Company’s assets and the carrying amount of its liabilities based on the going concern uncertainty. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. In addition, due to insufficient revenue, we will need to obtain further funding through public or private equity offerings, debt financing, collaboration arrangements or other sources in order to maintain active business operations. We currently do not have sufficient cash flow to pay our ongoing financial obligations on a consistent basis. The issuance of any additional shares of common stock, preferred stock or convertible securities could be substantially dilutive to our stockholders. In addition, adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital, we will be forced to borrow additional sums from our Chief Executive Officer or delay, reduce or eliminate our research and development programs, we may not be able to continue as a going concern, and we may be forced to discontinue operations. These unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Off Balance Sheet Arrangements
As of March 31, 2024, we had no material off-balance sheet arrangements.
Potential Impacts of Certain Current and Proposed Regulations on Our Business and Operations
Recently, a bill titled the Cannabis Administration and Opportunity Act, put forward by Senate Majority leader Chuck Schumer, D-NY, would amend the definition of a dietary supplement to remove the prohibition on marketing CBD as a dietary supplement. Management sees the bill, if enacted, as an opportunity for the FDA to accelerate their decision to classify CBD products as a dietary supplement. This would be a significant step for hemp/CBD companies as it would open the door to new selling opportunities, such as getting into retail stores, who have largely been hesitant to welcome CBD in their doors without a clear position from the FDA.
Many people are increasingly turning to CBD products for several reasons: CBD is non-psychoactive, so it does not produce a “high” like THC, there are few known contraindications, the properties of different cannabinoids can positively affect a wide range of ailments, and cannabinoids work directly and indirectly with the body’s endocannabinoid system to create balance known as homeostasis. As demand increases, we believe the FDA must provide more clarity about CBD’s legalization, and this bill is a promising first step.
For now, many companies that produce hemp-derived CBD products including Panacea undertake to abide by the same regulations as any other dietary supplements like ingredient filings, good manufacturing practices (GMP), and labeling and marketing provisions. Panacea will continue to sell CBD and other hemp-derived products while still awaiting a clear path from the FDA about how CBD products can be marketed and used.
| 21 |
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our new operations in the hemp industry through Panacea, our expected revenue growth, our human resources following our recent acquisition of Panacea, proposed federal legislation and its potential impact on the CBD industry, our plans to raise capital, and our liquidity. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements in this Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, customer demand, market acceptance, growth rate, competitiveness, gross margins, and expenditures.
Although forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Further information on the risks and uncertainties affecting our business is contained in our filings with the SEC, including this Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. Such risks, uncertainties and changes in condition, significance, value, and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this Report, other than as required by law. Readers are urged to carefully review and consider the various disclosures made in this Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
Critical Accounting Estimates and New Accounting Pronouncements
New Accounting Pronouncements
See Note 2, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this amendment No. 1 to the Quarterly Report on Form 10-Q.
Critical Accounting Estimates
The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of the Company’s condensed consolidated financial statements requires its management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. The Company’s management bases its estimates, assumptions and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Different assumptions and judgments would change the estimates used in the preparation of the Company’s condensed consolidated financial statements which, in turn, could change the results from those reported. In addition, actual results may differ from these estimates and such differences could be material to the Company’s financial position and results of operations.
Critical accounting estimates are those that the Company’s management considers the most important to the portrayal of the Company’s financial condition and results of operations because they require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s critical accounting estimates in relation to its condensed consolidated financial statements include those related to:
| ● | Goodwill and intangible assets | |
| ● | Fair value of marketable securities | |
| ● | Incremental Borrowing Rate used Right of Use Asset Calculations | |
| ● | Business combinations |
| 22 |
Goodwill and Indefinite-Lived Intangibles
We allocate the cost of acquired companies to the identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount classified as goodwill. The identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition, as well as the completion of impairment tests, require significant management judgments and estimates. These estimates are made based on, among other factors, review of projected future operating results and business plans, economic projections, anticipated highest and best use of future cash flows and the cost of capital. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of goodwill and other intangible assets, and potentially result in a different impact to our results of operations. Further, changes in business strategy and/or market conditions may significantly impact these judgments and thereby impact the fair value of these assets, which could result in an impairment of the goodwill or intangible assets.
Goodwill is not amortized but is tested for impairment annually and whenever events or circumstances change that indicate impairment may have occurred. We tested goodwill for impairment and determined there was no impairment and found not impairment charge based on the excess of a reporting unit’s carrying amount over our fair value.
Fair value of marketable securities
Marketable securities are recorded at fair value using the quoted market prices and changes in fair value are recorded as net realized gains or losses in comprehensive income. We monitor these investments for impairment and make appropriate reductions in carrying values as necessary.
Incremental Borrowing Rate used Right of Use Asset Calculations
We determine if a contract is a lease or contains a lease at the inception of the contract and reassess that conclusion if the contract is modified. All leases are assessed for classification as an operating lease or a finance lease. Operating lease right-of-use, or ROU, assets are included in non-current other assets on our consolidated balance sheet. Operating lease liabilities are separated into a current portion, included within other accrued liabilities on our consolidated balance sheet, and a non-current portion, included within other long-term liabilities on our consolidated balance sheet. We do not have any finance lease ROU assets or liabilities. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We do not obtain and control the right to use the identified asset until the lease commencement date.
Our lease liabilities are recognized at the applicable lease commencement date based on the present value of the lease payments required to be paid over the lease term. Because the interest rate implicit in the lease is not readily determinable, we generally use our incremental borrowing rate to discount the lease payments to present value. The estimated incremental borrowing rate is derived from information available at the lease commencement date. We factor in publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. Our ROU assets are also recognized at the applicable lease commencement date. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor. Variable lease payments are expensed as incurred and do not factor into the measurement of the applicable ROU asset or lease liability.
Business Combinations
We have applied significant estimates and judgments in order to determine the fair value of the identified assets acquired, liabilities assumed and goodwill recognized in connection with our business combinations to ensure the value of the assets and liabilities acquired are recognized at fair value as of the acquisition date. In measuring the fair value, we utilize valuation techniques consistent with the market approach, income approach, or cost approach.
The valuation of the identifiable assets and liabilities includes assumptions made in performing the valuation, such as projected revenue, weighted average cost of capital, discount rates, estimated useful lives, and other relevant assessments. These assessments can be significantly affected by our estimates, judgments, and assumptions. If actual results are not consistent with our estimates, judgments, or assumptions, or if additional or new information arises in the future that affects our fair value estimates, then adjustments to our initial fair value estimates may have a material impact to our purchase accounting or our results of operations. If actual results are not consistent with our estimates, judgments, or assumptions, or if additional or new information arises in the future, beyond our one-year measurement period, that affects our fair value estimates, then adjustments to our initial fair value estimates may have a material impact to our results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A smaller reporting company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
Except as noted above, there were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time–to-time, we may become involved in legal proceedings arising in the ordinary course of business. We are unable to predict the outcome of any such matters or the ultimate legal and financial liability, and at this time cannot reasonably estimate the possible loss or gain or range of loss/gain and accordingly have not accrued a related liability.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES OR USE OF PROCEEDS.
During the three months ended March 31, 2022, the Company Issued 123,334 shares of the Company’s common stock to the former Chief Strategy Officer of the Company in connection with the cashless exercise of stock options, as well as 447 shares the Company owed the former Chief Strategy Officer for inadvertently issuing less shares of common stock than the amount indicated on the Subscription Agreement dated January 18, 2019. The issuance of the shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933 and Rule 506(b) promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
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ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
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| 10.12 | Asset Purchase Agreement dated January 29, 2024, by and between the Issuer and PLM Holdings, Inc. | 8-K | 2/5/24 | 10.3 | Filed | |||||
| 10.13 | Ex. 10.14 to 10-K__Form of Amendment No. 1 to Promissory Note dated March 5, 2024 by and between the Issuer and FirstFire Global Opportunities Fund LLC | 10-K | 4/1/24 | 10.13 | Filed | |||||
| 10.14 | Amended and Restated 2021 Equity Incentive Plan* | 10-K | 3/30/23 | 10.20 | Filed | |||||
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer (302) | Filed | ||||||||
| 32.1 | Certification of Principal Executive and Principal Financial Officer (906) | Furnished*** | ||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Management contract or compensatory plan or arrangement.
** Exhibits and/or Schedules have been omitted. The Company hereby agrees to furnish to the Securities and Exchange Commission upon request any omitted information.
*** This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
+Portions of this exhibit have been omitted as permitted by the rules of the SEC. The information excluded is both (i) not material and (ii) the type that the Company customarily and actually treats as private or confidential. The Company undertakes to submit a marked copy of this exhibit for review by the SEC Staff, to the extent it has not been previously provided, and provide supplemental materials to the SEC Staff promptly upon request.
Copies of this Report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Panacea Life Sciences Holdings, Inc., at the address on the cover page of this Report, Attention: Corporate Secretary.
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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.
| Panacea Life Sciences Holdings, Inc. | |
| May 6, 2024 | /s/ Leslie Buttorff |
| Leslie Buttorff | |
| Chief Executive Officer |
| 27 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
I, Leslie Buttorff, certify that:
1. I have reviewed this Form 10-Q of Panacea Life Sciences Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 6, 2024 | |
| /s/ Leslie Buttorff | |
| Leslie Buttorff | |
| Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Panacea Life Sciences Holdings, Inc. (the “Company”) Form 10-Q for the quarter ended March 31, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Leslie Buttorff, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| 1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 6, 2024 | |
| /s/ Leslie Buttorff | |
| Leslie Buttorff | |
| Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) |