Panacea Life Sciences Holdings, Inc 10-Q/A for FY2021 Q3
Panacea Life Sciences Holdings, Inc. (PLSH)
About this 10-Q/A
Panacea Life Sciences Holdings, Inc filed this 10-Q/A on December 20, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $588.04K
- down 56.2% from $1.34M a year earlier
- Net loss
- $3.09M
- compared with a net loss of $3.78M a year earlier
- Diluted EPS
- -$0.14
- compared with -$0.22 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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 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 ☐
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 December 13, 2021.
Explanatory Note
This Amendment No. 2 on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q (the “Q3 2021 Form 10-Q”) of Panacea Life Sciences Holdings, Inc. (F/K/A Exactus, Inc.) (the “Company”) for the quarter ended September 30, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on November 22, 2021. We are filing this Amendment to change certain disclosures in Part I. Item 1 – Financial Statements, and Part II. Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – of the Q3 2021 Form 10-Q following the completion of review by the Company’s independent registered public accounting firm. The Q3 2021 Form 10-Q was previously filed before the review was completed. The review required adjustments to be made to the revenue and costs of goods sold, lease liability section, options and warrant updates.
In addition, the Exhibit Index in Item 6 of Part II of the Q3 2021 Form 10-Q is hereby amended and restated in its entirety and currently dated certifications required under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to this Amendment.
The Q3 2021 Form 10-Q/A Amendment No. 2 continues to speak as of its date, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Q3 2021 Form 10-Q other than as expressly indicated in this Amendment. For additional details please refer to Note 10.
All share and per share numbers have been retroactively adjusted to give effect to a 1-for-28 reverse stock split effective October 25, 2021.
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TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 35 |
| Item 4. | Controls and Procedures | 35 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 36 |
| Item 1A. | Risk Factors | 36 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 36 |
| Item 3. | Defaults Upon Senior Securities | 36 |
| Item 4. | Mine Safety Disclosures | 36 |
| Item 5. | Other Information | 36 |
| Item 6. | Exhibits | 37 |
| Signatures | 38 |
| 3 |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Balance Sheets
| 1 | 2 | |||||||
| As Restated | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Other receivables, related party | ||||||||
| Inventory, net | ||||||||
| 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 | ||||||||
| 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 September 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series B-1 Preferred: $ Par Value, shares designated; and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series B-2 Preferred: $ Par Value, shares designated; and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series C Preferred: $ Par Value, shares designated; and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series C-1 Preferred: $ Par Value, shares designated and and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series D Preferred: $ Par Value, shares designated and and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | ||||||||
| Common Stock: $ Par Value, shares authorized; and shares issued and outstanding on September 30, 2021 and December 31, 2020 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.
| 4 |
Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Statements of Operations
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| As Restated | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF SALES | ||||||||||||||||
| GROSS PROFIT (LOSS) | ( | ) | ||||||||||||||
| 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 on sale of securities | - | - | ||||||||||||||
| Other income (loss) | - | - | ( | ) | ||||||||||||
| Employer retention credit | - | - | ||||||||||||||
| Rental Income | ||||||||||||||||
| Loss on sale of assets | - | ( | ) | ( | ) | |||||||||||
| Gain on extinguishment of debt | - | - | ||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ( | ) | ||||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| TAXES | - | - | - | - | ||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| BASIC NET LOSS PER SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| DILUTED NET LOSS PER SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| As restated | ||||||||||||||||||||||||||||
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||
| Series A Preferred stock conversion to common stock | ( | ) | - | ( | ) | - | ||||||||||||||||||||||
| Net Loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||
| Series A Preferred stock conversion to common stock | ( | ) | - | ( | ) | - | ||||||||||||||||||||||
| Net Loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Net Income (Loss) | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 6 |
Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Statements of Cash Flows
| As Restated | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||
| Depreciation | ||||||||
| Realized gain on sale of securities | ( | ) | - | |||||
| Fixed asset disposal loss | ||||||||
| Amortization of intangible assets | ||||||||
| Non-cash settlement of convertible note and accrued interest | ( | ) | - | |||||
| Unrealized gain/loss on marketable securities | ( | ) | ||||||
| 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 cash received in from acquisitions | - | |||||||
| Proceeds from sale of marketable securities | - | |||||||
| Proceeds from sale of fixed assets | ||||||||
| Net fixed asset acquisition | ( | ) | ( | ) | ||||
| Net Cash provided by (used in) investing activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from payroll protection loan, SBA loan | - | |||||||
| Proceeds from payroll protection loan - related party | - | |||||||
| Payments of principal on notes payable - related party | ( | ) | ( | ) | ||||
| Proceeds from notes payable - related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Net 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 | ||||||||
| Non-cash receivable - related party | $ | ( | ) | $ | ||||
| Related party loan repayment with inventory | $ | $ | ||||||
| Non-cash fixed asset disposal as part of the reverse acquisition | $ | $ | ||||||
| Capitalized assets purchased on account - related party | $ | $ | ||||||
| Liabilities from acquisition | $ | $ | ||||||
| Debt retired in merger, related party | $ | ( | ) | $ | ||||
| Preferred Series B-1 Issuance in Acquisition | $ | $ | ||||||
| Preferred Series B-2 Issuance in Acquisition | $ | $ | ||||||
| Common stock issued for the reverse merger with Exactus | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
PANACEA LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
NOTE 1 - NATURE OF ORGANIZATION
Organization and Business Description
PANACEA LIFE SCIENCES HOLDINGS, Inc. (the “Company”, “Exactus”, “we”, “us”, “our”) was incorporated on January 18, 2008 in the State of Nevada. In January 2019, the Company added to the scope of its business activities, efforts to produce, market and sell products made from industrial hemp containing cannabidiol (“CBD”). On June 30, 2021 the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Panacea Life Sciences, Inc. (“Panacea”) a CBD company, and the stockholders of Panacea. Pursuant to the Exchange Agreement, the former Panacea stockholders assumed majority control of the Exactus and all operations are now operated by Panacea, which as a result of the share exchange became a wholly-owned subsidiary of the Exactus. (See Note 10 – Exchange Agreement).
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The Company’s unaudited condensed consolidated financial statements include the financial statements of Panacea Life Sciences, Inc., a wholly owned subsidiary acquired on June 30, 2021.
The accompanying interim unaudited condensed 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 subsidiary as of September 30, 2021. 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 September 30, 2021, and 2020, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Operating results for the three and nine months ended September 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2021. 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.
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. (formerly Exactus), 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 September 30, 2021, our accumulated deficit was $
| 8 |
COVID-19
The COVID-19 pandemic has resulted in a global slowdown of economic activity which is likely to continue to reduce the future demand for a broad variety of goods and services, while also disrupting sales channels, marketing activities and supply chains for an unknown period of time until the virus is fully contained. The Company’s business operations have been negatively impacted by the COVID-19 pandemic and related events and the Company expects this impact on its revenue and results of operations, the size and duration of which is currently difficult to predict. However, adverse consequences from COVID-19 and recent supply chain disruptions and delays may hinder our ability to continue our operations and generate revenue. The impact to date has included a decline in CBD product and sales demand. Further, in 2020, the Company (Panacea) invested in personal protective equipment (PPE) materials to sell hand sanitizers, testing kits and masks, and sales of PPE products, which constituted a significant portion of our revenue during the fiscal quarter ended June 30, 2021 and prior periods during the pandemic, have declined as vaccines continue to be administered and mask mandates and similar requirements have been lifted or reduced in many places. Although the Company is unable to predict the full impact and duration of COVID-19 on its business, the Company is actively managing its financial expenditures in response to the current uncertainty.
The impact of the COVID-19 pandemic and related events, including actions taken by various government authorities in response, have increased market volatility and make the estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes more difficult. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known.
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 (see Note 2 – Going Concern). 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.
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.
| 9 |
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 September 30, 2021 and December 31, 2020:
FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| Marketable securities | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
In
August, 2021 there was one sale of marketable securities out of Level 1. There were no transfers in 2020. On August 5, 2021 shares
of XXII securities were sold at an average price of $. The net proceeds were $
SCHEDULE OF MARKETABLE SECURITIES
| September 30, 2021 | ||||
| Balance at beginning of year | $ | |||
| Sale of securities | ( | ) | ||
| Realized gain on sale of securities | ||||
| Unrealized gain on marketable securities, net | ||||
| Balance at end of period | $ | |||
As of September 30, 2021, the Company has no liabilities that are re-measured at fair value.
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.
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.
| 10 |
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
| September 30, 2021 | December 31, 2020 | |||||||
| 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.
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. Some of the Company’s contract liabilities consist of advance customer payments. 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. 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 also has recorded other income related to rental income it receives from leasing out space in the laboratory it occupies.
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. As of September 30, 2021 and December 31, 2020, we did not believe we needed to reserve for any doubtful accounts, respectively. The Company’s accounts receivable policy changed in 2020 to only provide larger, well-established companies with Net 30 payment terms. For all other sales they are paid by credit card or wires received before the product is shipped to the customer.
| 11 |
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 $
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.
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 September 30, 2021, the Company’s cash balances did not exceed the FDIC limit.
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 $
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.
The
Business Combination on June 30, 2021 was accounted for as a recapitalization of equity structure. In October, 2021 the Company completed
| 12 |
SCHEDULE OF ANTI-DILUTIVE DILUTED LOSS PER SHARE
| 2021 | 2020 | |||||||
| For the three months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Options to purchase common stock | - | |||||||
| Warrants to purchase common stock | - | |||||||
| Series A Convertible Preferred | - | |||||||
| Series B-1 Convertible Preferred | - | |||||||
| Series B-2 Convertible Preferred | - | |||||||
| Series C Convertible Preferred | - | |||||||
| Series C-1 Convertible Preferred | - | |||||||
| Series D Convertible Preferred | - | |||||||
| Total | - | |||||||
The following financial instruments were not included in the diluted loss per share calculation for the nine months ending September 30, 2021 and 2020 because their effect was anti-dilutive:
| 2021 | 2020 | |||||||
| For the nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Options to purchase common stock | - | |||||||
| Warrants to purchase common stock | - | |||||||
| Series A Convertible Preferred | - | |||||||
| Series B-1 Convertible Preferred | - | |||||||
| Series B-2 Convertible Preferred | - | |||||||
| Series C Convertible Preferred | - | |||||||
| Series C-1 Convertible Preferred | - | |||||||
| Series D Convertible Preferred | - | |||||||
| Total | - | |||||||
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.
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.
| 13 |
Intangible Assets and Goodwill
The
Company has intangible assets. 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 | ||||
| Intangibles – Formulations |
| September 30, 2021 | December 31, 2020 | |||||||
| Goodwill | $ | $ | ||||||
| Intangibles – Formulations | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Net intangible assets | $ | $ | ||||||
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
| September 30, 2021 | December 31, 2020 | |||||||
| Computers and technological assets | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Machinery and equipment | ||||||||
| Land | ||||||||
| Assets under construction | - | |||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
| 14 |
The land and equipment decreased from December 31, 2020 to September 30, 2021 due to the partial sale of the farmland and equipment. See Note 10.
Depreciation
expenses for the three- and nine-month periods ending September 30, 2021 and 2020 were $
During
the nine months ended September 30, 2021, the Company sold fixed assets of $
NOTE 4 - INVENTORY
Inventory consists of the following components:
SCHEDULE OF INVENTORY
| September 30, 2021 | December 31, 2020 | |||||||
| Raw Materials | $ | $ | ||||||
| Semi-Finished | ||||||||
| Finished Goods | ||||||||
| Packaging | ||||||||
| Trading | ||||||||
| 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.
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 December 31, 2030. At inception, the Company recognized a Right
of Use Asset and a corresponding lease liability in the amount of $
The
Company, as of January 1, 2019, 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 December 31, 2030. The lease consists of all laboratory
space including testing facilities, water treatment, extraction and production. The lease of the property is based on the fair market
rent and triple net lease (NNN) values competitive in the marketplace for a cGMP facility. The Company also subleases some of its laboratory
space to other CBD companies. This income is presented under the Other Income line items of the statements of operations. The leases
vary from short-term monthly leases to
| 15 |
Below is a summary of our right of use assets and liabilities as of September 30, 2021.
SCHEDULE OF RIGHT OF USE ASSET AND LIABILITY
| September 30, 2021 | December 31, 2020 | |||||||
| 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 | % | |||||||
| Right-of-use assets | $ | |||
| Total lease liability obligations | $ | |||
| Weighted-average remaining lease term (Ends December 31, 2030) |
During
the three and nine months ended September 30, 2021, we recognized approximately $
Approximate future minimum lease payments for our right of use assets over the remaining lease periods as of September 30, 2021, are as follows:
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total undiscounted operating lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ |
| 16 |
NOTE 6 – NOTES PAYABLE
The Company’s debt obligations are summarized as follows. The December 31, 2020, numbers reflect the pre-merger Panacea indebtedness, while the September 30, 2021, now include the Panacea indebtedness, as well as Exactus’ indebtedness.
U.S. Small Business Administration Loan
On
May 28, 2020, the Company received a secured,
Paycheck Protection Program Funding
The
Exactus Company was approved for “second draw” loan of $
Regarding
Panacea Life Sciences, Inc.’s (PLS) on January 26, 2021, PLS received approval for the PPP second draw loan in the amount of $
PLS’s accounting treatment of the PPP loans and forgiveness follows best practice from the AICPA and accounted for the loan as a financial liability in accordance with FASB ASC 470 and accrue interest in accordance with the interest method under FASB ASC 835-30. The full amount of the PPP loan and accrued interest was forgiven on September 28, 2021; whereby, the debt was extinguished including any accrued but unpaid interest. It was recorded as a forgiveness of loan in the Company’s statements of operations as other income.
Employer Retention Credit
Panacea
received an employer retention credit from the federal government of $
Notes payable – related party and other liability
On
June 30, 2021 Panacea received a loan from Quintel-MC Incorporated, an affiliate of the Company’s CEO, in exchange for a 12% demand
promissory note for $
During
October 2019, the Company issued a short-term promissory note to an officer of the previous company Exactus, for an aggregate principal
amount of $
During
February 2021, the Company entered into a short-term promissory note for principal amount of $
The SBA is a 30-year loan, but we plan to pay off this loan in 2022. The rest of the loans do not have a maturity date assigned to them and are payable upon demand.
| 17 |
The Company has recorded another liability which includes building leasehold improvements and SAP software and support fees. Refer to Note 9.
SCHEDULE OF NOTES PAYABLE
| September 30, 2021 | December 31, 2020 | |||||||
| Notes payable - related party (1) | $ | $ | ||||||
| Notes payable – related party (2) | ||||||||
| Notes payable -related party (3) | ||||||||
| Notes payable - related party (4) | ||||||||
| Total related party notes | $ | $ | ||||||
| Paycheck protection loan (5) | $ | $ | ||||||
| SBA loan (4) | ||||||||
| Total Paycheck protection and SBA loan | $ | $ | ||||||
| September 30, 2021 | December 31, 2020 | |||||||
| Other liability—related party | ||||||||
| SAP software, support and building modifications (6) | $ | $ | ||||||
| J&N Building Loan (7) | ||||||||
| Total | $ | $ | ||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) | |
| (6) | |
| (7) |
NOTE 7 - STOCKHOLDERS’ EQUITY
Common stock
The Company’s authorized common stock consists of shares with a par value of $ per share.
During the quarter ended September 30, 2021, shares of Series A Preferred Shares were converted into shares of common stock.
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 provides 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. The aggregate number of shares of common stock which may be issued pursuant to the Plan is . Unless sooner terminated, the Plan shall terminate in years.
| 18 |
As part of the merger of Exactus, Panacea assumed the Exactus 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of incentive awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards. 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 or Compensation Committee may specify. Stock options expire no later than ten years from the date of grant. The aggregate number of shares of common stock which may be issued pursuant to the Plan is unless sooner terminated, the Plan shall terminate in years. This plan had fully vested options outstanding at the time of the merger. There have been no options granted under this plan subsequent to the merger.
Stock Options
SCHEDULE OF STOCK OPTIONS
| Options Outstanding as of September 30, 2021 | ||||||||||||||||
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, 2020 | ||||||||||||||||
| Options assumed in merger | $ | |||||||||||||||
| Options granted | - | - | ||||||||||||||
| Options exercised | - | - | ||||||||||||||
| Options canceled / expired | - | - | ||||||||||||||
| Balance at September 30, 2021 | $ | $ | ||||||||||||||
| Vested and exercisable at September 30, 2021 | $ | $ | ||||||||||||||
Stock Warrants
As
a result of the Merger closing (see Note 10), as of September 30, 2021, the Company had outstanding warrants to purchase an aggregate
of
| Name | Expire | Number of Shares | Average
Exercise Price | |||||||||
| Balance on December 31, 2020 | ||||||||||||
| Assumed in Merger | $ | |||||||||||
| Total as of September 30, 2020 | $ | |||||||||||
| 19 |
As of September 30, 2021, the outstanding warrants have intrinsic value.
Restricted Stock
SUMMARY OF RESTRICTED STOCK
| Restricted Stock Common Stock | ||||
| Balance at December 31, 2020 | ||||
| Assumed in merger | ||||
| Balance at September 30, 2021 | ||||
As of September 30, 2021, there were no unamortized or unvested stock-based compensation costs related to restricted share arrangements.
Preferred Stock
The Company’s authorized preferred stock consists of shares with a par value of $.
In connection with our acquisition of Panacea on June 30, 2021, we issued convertible preferred stock to our new principal shareholder and Chief Executive Officer (and her affiliates) as follows:
shares of Series C Convertible Preferred Stock (the “Series C”) shares of Series C-1 Convertible Preferred Stock (the “Series C-1”) and shares of Series D Convertible Preferred Stock (the “Series D”), which together convert into approximately % of the Company’s common stock outstanding as of that date. The Series C has a liquidation preference of $ per share, is convertible at the rate of shares of common stock per share and through December 31, 2023 has the option to participate in the recovery by the Company of certain assets. In order to avail herself of the rights, the holder can cause the Company to use the cash generated by the assets and repurchase Series C at a price equal to the liquidation preference per share, subject to the Company maintaining an agreed upon level of net assets. The Series C-1 has a liquidation preference of $ per share and is convertible at the rate of shares of common stock for each share of Series C-1. The Series D has a liquidation preference of $ per share and is convertible into common stock at the rate of shares of common stock per share. The Series C, C-1 and D also vote on an as converted basis.
Effective October 25, 2021, we filed a Certificate of Designation for shares of Series C-2 Convertible Preferred Stock (the “Series C-2”). Following effectiveness our Chief Executive Officer exchanged shares of her common stock for shares of Series C-2.
In
addition, the Company entered into an exchange agreement on June 30, 2021 with an investor and filed with the Secretary of State of the
State of Nevada a Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred stock under which the Note
in the original principal amount of $
The
Company authorized the issuance of a total of shares of Series A Preferred for issuance. Each share of Series A Preferred is convertible
at the option of the holder, into that number of shares of our common stock (subject to certain limitations on beneficial ownership)
determined by dividing the Stated Value by $
| 20 |
On February 16, 2021 the Company offered to our prior Series A Preferred stock holder enhanced conversion inducements to voluntarily convert the preferred shares into our common stock and filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred stock, all of which has been converted to common stock, in order to issue the new 0% Series A Preferred stock described herein.
On April 7, 2021 the Company filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for the previous Series C Preferred Stock, all of which has been cancelled or converted into common stock.
On February 16, 2021, the Company offered to holders of our prior Series D Preferred Stockholder(s) enhanced inducements to voluntarily convert preferred shares into our common stock.
On April 7, 2021 the Company filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for the previous Series D Preferred Stock, all of which has been cancelled or converted into common stock.
During the quarter ended June 30, 2021 the Company withdrew its prior Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock and issued shares of newly designated Series C, Series C-1 and Series D to former Panacea stockholders pursuant to the Exchange Agreement.
PANACEA LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(unaudited)
SCHEDULE OF PREFERRED STOCK
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock Convertible - Series A Shares | Preferred Stock Series B-1 Shares | Preferred Stock Series B-2 Shares | Preferred Stock Series C Shares | Preferred Stock Series C-1 Shares | Preferred Stock Series D Shares | Total Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred stock converted to common shares | ( | ) | - | - | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| 21 |
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock Convertible - Series A Shares | Preferred Stock Series B-1 Shares | Preferred Stock Series B-2 Shares | Preferred Stock Series C Shares | Preferred Stock Series C-1 Shares | Preferred Stock Series D Shares | Total Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred stock converted to common shares | ( | ) | - | - | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock Convertible - Series A Shares | Preferred Stock Series B-1 Shares | Preferred Stock Series B-2 Shares | Preferred Stock Series C Shares | Preferred Stock Series C-1 Shares | Preferred Stock Series D Shares | Total Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | - | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock Convertible - Series A Shares | Preferred Stock Series B-1 Shares | Preferred Stock Series B-2 Shares | Preferred Stock Series C Shares | Preferred Stock Series C-1 Shares | Preferred Stock Series D Shares | Total Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | - | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
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 September 30, 2021.
| 22 |
As a result of our acquisition of Panacea, the Company is now involved in the following pending litigation:
On
February 16, 2021, Henley Group, Inc. filed with the Superior Court of the State of California, San Bernardino County, a complaint (Case
#: SIV SB 2105771) against Panacea for breach of contract and fraud related to Panacea’s non-delivery of product. While Panacea
refunded the purchase price, the plaintiff seeks damages including lost profits and costs which plaintiff alleged to have incurred in
the amount of approximately $
On October 7, 2019, CMI Mechanical (“CMI”) agreed to procure, deliver, and install a dehumidification system (the “System”) at the Company’s facility located at 16194 W. 45th Drive, Golden, Colorado 80403 (the “Property”). The Company believes the System has failed to meet the requirements of the subject contract, and CMI has not remedied that failure for the Company. The Company withheld certain payments as permitted under the contract. On December 10, 2020, CMI recorded a lien against the Property in the amount of $108,001.48. On January 27, 2021, the Panacea’s attorney notified CMI that its lien was invalid, overstated, and violated the terms of the contract. The letter also demanded that CMI remove the system at CMI’s own cost. The lien was since dropped. CMI and Panacea plan to pursue complaints regarding this issue and possible mediation in 2022.
Concentrations
The
Company has no concentration of vendors that would impact production costs in the longer term. On the revenue side, in the 3rd
Quarter we signed a large contract with a convenience store chain. The revenues from the first shipment of CBD products are
The Company has no contingencies, material commitments, or purchase obligations or sales obligations.
The
other concentration is in the accounts receivable category, where three customer accounts for
NOTE 9 - RELATED PARTY TRANSACTIONS
Notes Payable and Accrued Interest – Related Parties
On
June 30, 2021 Panacea received a loan of from Quintel-MC Incorporated, an affiliate of the Company’s CEO in exchange for the Quintel
Note. (see Note 5 – Notes Payable - Quintel Note). The principal of this loan is $
On
June 30, 2021, Panacea issued the Company’s CEO, Ms. Buttorff, a
On
July 1, 2021, the Company issued Ms. Buttorff a $
During
October 2019, the Company issued a short-term promissory notes to an officer of Exactus, for an aggregate principal amount of $
J&N Real Estate related party owned by Ms. Buttorff—See Note 5 Operating lease.
The
Services Agreement dated January 1, 2019, by and between the Company
and Quintel, with respect to IT, HR, accounting/periodic reporting, production planning, and employee reporting services. The Master
Agreement dated January 1, 2019, by and between the Company and Quintel/Canna Software, LLC for the provision of the ERPCannabis
solution. As of September 30, 2021 the outstanding obligation under these two service contracts is $
| 23 |
The accrued interest and interest expenses recorded for related party loans are shown below.
SCHEDULE OF RELATED PARTY TRANSACTIONS LOANS
| September 30, 2021 | December 31, 2020 | |||||||
| Accrued Interest | ||||||||
| Related party loan-Quintel | $ | $ | ||||||
| Related party loan-CEO loan | ||||||||
| Related party loan-XXII | - | - | ||||||
| Related party loan – Line of credit | - | |||||||
| Accrued Interest Related party loan | ||||||||
| Three
months ended September 30, 2021 | Nine
months ended September 30, 2021 | Three
months ended September 30, 2020 | Nine
months ended September 30, 2020 | |||||||||||||
| Interest Expense | ||||||||||||||||
| Related party loan-Quintel | $ | $ | $ | $ | ||||||||||||
| Related party loan-CEO loan | - | - | ||||||||||||||
| Related party loan-XXII | - | - | ||||||||||||||
| Related party loan – Line of Credit | - | - | ||||||||||||||
| Interest Expense Related party loan | ||||||||||||||||
Other
The
Company continues to hold shares of XXII stock which is available for sale. On August 25, 2021 shares were sold and
the proceeds from the sale was $
NOTE 10 – RESTATED FINANCIAL STATEMENTS AND EXPLANATIONS
This Amendment No.1 on Form 10-Q/A (the “Amendment”) amends the Quarterly Report on Form 10-Q (the “Q3 2021 Form 10-Q”) of Panacea Life Sciences Holdings, Inc. (F/K/A Exactus, Inc.) (the “Company”) for the quarter ended September 30, 2021, as filed with the Securities and Exchange Commission (the “SEC”) on November 15, 2021. We are filing this Amendment to change certain disclosures in Part I. Item 1 – Financial Statements, and Part II. Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – of the Q3 2021 Form 10-Q following the completion of review by the Company’s independent registered public accounting firm. The Q3 202Away1 Form 10-Q was previously filed before the review was completed.
The following tables’ present reconciliation from our prior periods as previously reported to the restated values for the consolidated balance sheets and the consolidated statement of operations. A description of restatements is listed below:
| 24 |
Impacts of restatement
The effects of the restatement on the line items within the Company’s condensed consolidated balance sheets as of September 30, 2021 are as follows:
SCHEDULE OF EFFECTS OF RESTATEMENT
| (a) | Amortization of right of use asset was recorded twice in initial filing. |
| (b) | Reflects reversal of depreciation that was previously posted on asset that was retired. |
| (c) | To separately report short and long-term amounts associated with right of use asset. |
Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Balance Sheets
| As Restated | Adjustment | As Reported | ||||||||||||||||||||||||
| September 30, 2021 | December 31, 2020 | September 30, 2021 | December 31, 2020 | September 30, 2021 | December 31, 2020 | |||||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Accounts receivable, net | - | - | ||||||||||||||||||||||||
| Other receivables, related party | - | - | - | - | ||||||||||||||||||||||
| Inventory, net | - | - | ||||||||||||||||||||||||
| Marketable securities related party | - | - | ||||||||||||||||||||||||
| Prepaid expenses and other current assets | - | - | ||||||||||||||||||||||||
| TOTAL CURRENT ASSETS | - | - | ||||||||||||||||||||||||
| Operating lease right-of-use asset, net, related party | (a) | - | ||||||||||||||||||||||||
| Property and equipment, net | (b) | - | ||||||||||||||||||||||||
| Intangible assets, net | - | - | ||||||||||||||||||||||||
| Goodwill | - | - | ||||||||||||||||||||||||
| TOTAL ASSETS | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||||||||||||
| Accounts payable and accrued expenses | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Operating lease liability, current portion, related party | (c) | ( | ) | ( | ) | |||||||||||||||||||||
| Note payable-current, related party | - | - | ||||||||||||||||||||||||
| Paycheck protection loan, SBA Loan | - | - | ||||||||||||||||||||||||
| TOTAL CURRENT LIABILITIES: | ( | ) | ( | ) | ||||||||||||||||||||||
| Operating lease liability, long-term portion, related party | (c) | - | - | |||||||||||||||||||||||
| Other long-term liabilities, related party | (c) | - | - | |||||||||||||||||||||||
| TOTAL LIABILITIES | ( | ) | ||||||||||||||||||||||||
| Commitments and contingencies | - | - | - | - | - | - | ||||||||||||||||||||
| STOCKHOLDERS’ EQUITY | - | |||||||||||||||||||||||||
| Series A Preferred Stock: $ Par Value, shares designated; and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | - | - | - | - | - | - | ||||||||||||||||||||
| Series B-1 Preferred: $ Par Value, shares designated; and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | - | - | - | - | ||||||||||||||||||||||
| Series B-2 Preferred: $ Par Value, shares designated; and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | - | - | - | - | ||||||||||||||||||||||
| Series C Preferred: $ Par Value, shares designated; and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | - | - | ||||||||||||||||||||||||
| Series C-1 Preferred: $ Par Value, shares designated and and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | - | - | ||||||||||||||||||||||||
| Series D Preferred: $ Par Value, shares designated and and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | - | - | ||||||||||||||||||||||||
| Common Stock: $ Par Value, shares authorized; and shares issued and outstanding on September 30, 2021 and December 31, 2020 respectively. | - | - | ||||||||||||||||||||||||
| Additional paid in capital | (b) | ( | ) | ( | ) | |||||||||||||||||||||
| Accumulated deficit | ( | ) | ( | ) | (b) | ( | ) | ( | ) | |||||||||||||||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 25 |
The effects of the restatement on the line items within the Company’s condensed consolidated statements of operations and comprehensive income for the six months ended September 30, 2021 are as follows:
| (a) | Amortization of right of use asset was recorded twice in initial filing. |
Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Statements of Operations
| As Restated | Adjustment | As Reported | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||||||||||||||
| REVENUE | $ | $ | $ | $ | $ | - | $ | - | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| COST OF SALES | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| GROSS PROFIT (LOSS) | ( | ) | - | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Production related operating expenses | (a) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| TOTAL OPERATING EXPENSES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | (a) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Unrealized gain (loss) on marketable securities, net | ( | ) | ( | ) | ( | ) | - | ( | ) | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Realized gain on sale of securities | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Other income (loss) | - | - | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Employer retention credit | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Rental Income | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on sale of assets | - | ( | ) | ( | ) | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Gain on extinguishment of debt | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ( | ) | - | ( | ) | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | (a) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| TAXES | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | (a) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| BASIC NET INCOME (LOSS) PER SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| DILUTED NET INCOME (LOSS) PER SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||
| Diluted | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 26 |
The effects of the restatement on the line items within the Company’s condensed statement of stockholders’ equity as of September 30, 2021 are as follows:
| (a) | The changes in the “Accumulated Deficit” reflects the accumulated difference of the changes reported in the Statement of Operations. | |
| (b) | The change in “Additional Paid-in Capital” reflects reclass and adjustments associated with the Company 1 to 28 reverse split of its Common Stock. | |
| (c) | The changes in “Net Income” reflects the accumulated difference of the changes reported in the Statement of Operations for the period. |
Panacea Life Sciences Holdings, Inc. and Subsidiary
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | Additional Paid-in | Accumulated | Total Stockholder’s | Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| As restated | Adjustment | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | Additional Paid-in | Accumulated | Total Stockholder’s | Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Capital | Deficit | Equity | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | (a) (b) | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition, shares | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred stock conversion to common stock | ( | ) | ( | ) | - | (b) | - | - | - | ( | ) | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | (c) | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | (a) (b) | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | (b) | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A Preferred stock conversion to common stock | ( | ) | ( | ) | - | - | - | - | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | (c) | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2020 | Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | (a) (b) | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | - | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | (a) (b) | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | (c) | - | ( | ) | ( | ) | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 27 |
The effects of the restatement on the line items within the Company’s condensed consolidated statement of cash flow as of September 30, 2021 are as follows:
| (a) | Reflects previously unrecorded expenses. | |
| (b) | Amortization of right of use asset being reported as a net amount with liability reduction. | |
| (c) | Reflects liabilities acquired in merger being reported as non-cash items. | |
| (d) | Reflects PPE sale to related party being reclassified as non-cash item. | |
| (e) | Reflects retirement of accrued interest as being reclassified to non-cash item. | |
| (f) | To separately report asset proceeds and disposals that were originally presented as a net amount. | |
| (g) | Reflects amount related to note payable that was previously reported as account payable. | |
| (h) | To separately report non-cash receivable due. | |
| (i) | To separately report asset retirement and notes payable retirement due to merger | |
| (j) | To reclassify non-cash items from merger to non-cash investing and financing activities | |
| (k) | To separately report proceeds and payments on notes payable that were originally presented as a net amount. | |
| (l) | To report changes in depreciation as a result of asset retirement. | |
| (m) | To report interest payments made that were previously not separately disclosed. | |
| (n) | To reclassify non-cash stock issuances to non-cash transactions section. | |
| (o) | To correct a footing error. |
Panacea Life Sciences Holdings, Inc. and Subsidiary
Unaudited Condensed Consolidated Statements of Cash Flows
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| As Restated | Adjustment | As Reported | ||||||||||||||||||||||
Nine Months Ended September 30, | Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Cash flows from operating activities | ||||||||||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | (a) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||||||||||||||||||||||
| Depreciation | (l) | - | ( | ) | ||||||||||||||||||||
| Realized gain on sale of securities | ( | ) | - | ( | ) | - | ||||||||||||||||||
| Fixed asset disposal loss | - | - | ||||||||||||||||||||||
| Amortization of right of use asset | - | - | (b) | ( | ) | ( | ) | |||||||||||||||||
| Amortization of intangible assets | (o) | - | ||||||||||||||||||||||
| Non cash settlement of convertible note and accrued interest | ( | ) | - | (c) | ( | ) | - | ( | ) | - | ||||||||||||||
| Unrealized gain/loss on marketable securities | ( | ) | - | - | ( | ) | ||||||||||||||||||
| Changes in operating assets and liabilities | ||||||||||||||||||||||||
| Accounts receivable | ( | ) | - | - | ( | ) | ||||||||||||||||||
| Inventory | ( | ) | ( | ) | (d) | ( | ) | - | ( | ) | ||||||||||||||
| Prepaid expense and other assets | ( | ) | - | - | ( | ) | ||||||||||||||||||
| Accounts payable and accrued expenses | (e)(g) | - | ( | ) | ||||||||||||||||||||
| Operating lease liability, net | (b) | |||||||||||||||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Cash flows from investing activities | ||||||||||||||||||||||||
| Net cash received in from acquisitions | - | - | - | - | ||||||||||||||||||||
| Proceeds from sale of marketable securities | - | - | - | - | ||||||||||||||||||||
| Proceeds from sale of fixed assets | (f) | |||||||||||||||||||||||
| Net fixed asset acquisition | ( | ) | ( | ) | (f) | ( | ) | ( | ) | |||||||||||||||
| Net Cash provided by (used in) investing activities | ( | ) | ( | ) | ||||||||||||||||||||
| Cash flows from financing activities | - | - | ||||||||||||||||||||||
| Proceeds from payroll protection loan, SBA loan | - | - | - | - | ||||||||||||||||||||
| Proceeds from payroll protection loan - related party | - | - | - | - | ||||||||||||||||||||
| Payments of principal on notes payable - related party | ( | ) | ( | ) | (k) | - | ( | ) | ( | ) | - | |||||||||||||
| Proceeds from notes payable - related party | (g) | |||||||||||||||||||||||
| Net cash provided by financing activities | ||||||||||||||||||||||||
| Net increase (decrease) in Cash and Cash Equivalents | ( | ) | ( | ) | (o) | ( | ) | ( | ) | |||||||||||||||
| 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 | $ | $ | (m) | $ | $ | $ | $ | |||||||||||||||||
| - | ||||||||||||||||||||||||
| Noncash investing and financing activity | ||||||||||||||||||||||||
| Non-Cash Receivable - related party | $ | ( | ) | $ | (h) | $ | ( | ) | $ | $ | $ | |||||||||||||
| Related party loan repayment with inventory | $ | $ | (i) | $ | $ | $ | ( | ) | $ | |||||||||||||||
| Noncash fixed asset disposal as part of the reverse acquisition | $ | $ | (i) | $ | $ | $ | $ | |||||||||||||||||
| Capitalized assets purchased on account - related party | $ | $ | (d) | $ | ( | ) | $ | $ | $ | |||||||||||||||
| Liabilities from acquisition | $ | $ | (c) | $ | $ | $ | $ | |||||||||||||||||
| Debt retired in merger, related party | $ | ( | ) | $ | (j) | $ | ( | ) | $ | $ | $ | |||||||||||||
| Preferred Series B-1 Issuance in Acquisition | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Preferred Series B-2 Issuance in Acquisition | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Common stock issued for the reverse merger with Exactus | $ | $ | (n) | $ | $ | $ | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NOTE 11– SUBSEQUENT EVENTS
Effective
October 25, 2021 the Company completed the
On October 25, 2021, of the shares of EXDI Common Stock issued to Quintel under the Agreement shares were exchanged for shares of Series C-2 Convertible Preferred Stock (the “Parent C-2 Stock”) which are convertible into shares of Parent Common Stock and are entitled to vote on an as-converted basis. Other than the conversion and voting rights, there are no other preferences for the Parent C-2 Stock.
On
November 18, 2021, the Company and an institutional investor signed an agreement for a $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Business Overview
The Company is a Nevada corporation organized in 2008. The Company has pursued opportunities in Cannabidiol, which we refer to as “CBD”, since December 2018 when we expanded our focus to pursue opportunities in hemp-derived CBD. We expect to change our name to Panacea Life Sciences Holdings, Inc. subject to regulatory compliance. To that end, on September 30, 2021 we entered into the Exchange Agreement with Panacea and the Panacea stockholders and as a result became a seed-to-sale CBD company. The former Panacea stockholders have assumed majority control of the Company, and all our operations are now operated through Panacea which because of the share exchange became a wholly owned subsidiary of the Company. Leslie Buttorff, who became the Company’s 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, which was founded by Leslie Buttorff in 2017 as a woman-owned business, attracted a $14 million investment from 22nd Century Group, Inc., or XXII, a plant biotechnology company which also has a focus on CBD products and technology, during 2019. XXII has retained a 15% stake in the Company following the share exchange. 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 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 Health®, PANA Beauty®, PANA Sport™, PANA Pet®, PANA Pure® and PANA Life™.
In the third quarter of fiscal year 2021 we obtained additional registration on two more of our six brands and our mark. Panacea engaged Karsh Hagan, an independent, multi-disciplined marketing, design and technology company in Denver, Colorado to assist with brand development and roll out strategies.
Currently Panacea sells over 60 different product SKUs of CBD and CBG products. In addition, we offer “white label” licensing to retail businesses and contract manufacturing services to smaller CBD companies. In the sales area we were able to close a significant transaction with a national convenience store and we shipped out our first purchase order of products in August, 2021.
We were also engaged by a third-party company to develop various formulations for pet products and human products.
Our Industrial Hemp Supply
Panacea’s 2021 crop is being grown in NeedleRock Farms in Crawford CO. XXII is the grower and is using organic practices for the crop. XXII will provide Panacea $500,000 of hemp. Panacea will also be engaged by XXII to assist with XXII’s ingredient extraction and purification processes. Working with Panacea and other companies in the industry, XXII has secured strategic partnerships to maximize and support each of the key segments of its cannabinoid value chain: plant profiling (CannaMetrix), plant biotechnology (KeyGene), plant breeding, commercial-scale plant cultivation, and ingredient extraction/purification (Sawatch Agriculture, Folium Botanical, Aurora Cannabis, Needle Rock Farms, and Panacea. We also continue to complete tolling deals with various farmer which include both CBD and CBG strains.
Partnership with Universities
The grand opening of the Panacea Life Sciences Cannabinoid Research Center at CSU 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), as well as supporting research into dementia and chronic pelvic pain. We have also 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 September 30, 2021 compared to the three months ended September 30, 2020. The information which follows relates to the operations of Panacea which under applicable accounting rules are treated as the operation of the Company.
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Three Months Ended September 30, 2021 and 2020
Net Revenues
The Company is principally engaged in the business of producing and selling products made from industrial hemp. Revenue consists of sales of our six category of brand products, white label and contract manufacturing sales to other CBD companies, raw material sales (distillate and isolate), tolling products, and leasing space. During the three months ended September 30, 2021, the Company generated $0.588 million in revenue compared to $1.344 million in the three months ended September 30, 2020. The decrease in sales is attributed to less PPE items being sold in 2021. A large proportion of our revenue for the 2020 period was attributable to sales of PPE products that we procured and produced during the COVID-19 pandemic. The Company does not intend to continue with these PPE products once they are all sold.
Cost of Sales
The primary components of cost of sales include the cost of manufacturing the CBD products. For the three months ended September 30, 2021, the Company’s cost of sales amounted to $0.305 million and $2.906 million in 2020. The decrease in costs from 2020 to 2021 are attributed to the PPE materials. Due to COVID-19 the Company did and continues to experience delays from raw materials purchased from Asia and China. There also continues to be lack of port space in the Long Beach, CA area.
Operating Expenses
Production related operating expenses were $1.250 million during the three months ended September 30, 2021 compared to $1.307 million during the three months ended September 30, 2020.
General and administrative expenses (G&A) were $0.291 million for the three months ended September 30, 2021 compared to $0.483 million during the three months ended September 30, 2020.
Nine Months Ended September 30, 2021 and 2020
Net Revenues
During the nine months ended September 30, 2021, the Company generated $1.414 million in revenue. In the nine months ended September 30, 2020, the revenue totaled $8.306 million. The decrease in revenues is due to PPE sales that occurred in 2020, but in 2021 the PPE inventory was used to offset loans made from Quintel. A transfer of PPE was made to Quintel, a related party, for $4.6 millions of inventory, however, this transaction was not treated as revenue, but was treated as a reduction in inventory and a reduction in the Quintel loan. Also, COVID and the conflicting messages from the FDA concerning CBD continue to hamper retail expansion activities.
Rental income of $0.221 million and $0.213 million for 2021 and 2020 was treated as Other Income.
Cost of Sales
The primary components of cost of sales include the cost of the CBD product. For the nine months ended September 30, 2021, the Company’s cost of sales amounted to $0.884 million and $6.286 million in 2020. The decrease in costs from 2020 to 2021 are attributed to the PPE materials and the decrease in CBD related revenues.
Operating Expenses
Production related expenses were $3.407 million during the nine months ended September 30, 2021 compared to $3.012 million during the nine months ended September 30, 2020. Currently, salaries are included in production related expenses.
General and administrative expenses were $0.912 million for the nine months ended September 30, 2021 compared to $2.552 million during the nine months ended September 30, 2020.
Summary of Cash Flows
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 ($2,692,203) and ($6,529,997) for nine months ended September 30, for 2021 and 2020, respectively.
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Cash flows from investing activities
Cash received from Exactus via the share exchange, proceeds from the sales of XXII stock and cash received from disposal of assets comprised this category and were $0.513 million for the nine months ended September 30, 2021 and $0.035 million for September 30, 2020.
Cash flows from financing activities
Net cash provided by financing activities for the nine months ended September 30, 2021 was $2.109 million. For the same period in 2020 the financing was $1.904 million. In both years the primary financing was cash provided by Company’s CEO. In 2021, there was a cash payment received of $0.243 from the paycheck loan program.
Liquidity and Capital Resources
On September 30, 2021, we had $3,646,470 in cash and liquid stock of XXII. The Chief Executive Officer of the Company holds the XXII shares pursuant to the pledge agreement and has the power at any time to permit the Company to sell the shares to provide working capital. In August 70,000 shares were sold for working capital. Panacea has borrowed substantial sums from Leslie Buttorff, our Chief Executive Officer, to meet its working capital obligations. On September 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, the Company has a line of credit with Ms. Buttorff through which it may borrow up to $1 million at a 10% annual interest rate. To date $392,201 of the line of credit has been consumed.
We may 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. On November 18, 2021, the Company and an institutional investor closed in escrow a $1.1 million original issue discount convertible note (the “Note”) financing in which the investor is paying $1 million in gross proceeds of which $900,000 will go to the Company.
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 September 30, 2021, we had no material off-balance sheet arrangements.
Potential Impacts of the COVID-19 Pandemic on Our Business Operations
As disclosed in Note 2, the COVID-19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced business and consumer spending due to both job losses and reduced investing activity, among many other effects attributable to the COVID-19 pandemic, and there continue to be many unknowns. During 2020, COVID-19 had a significant impact on Panacea’s CBD operations. Recognizing the sudden need for personal protective equipment, Panacea shifted its business to importing and selling PPE hand sanitizers and masks.
The Delta variant which is having a significant impact in August 2021 may extend the period of recovery into 2022.
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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.
Cautionary Statement Regarding Forward-Looking Statements
This amendment No. 1 to the 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 future plans and developments with respect to PPE products and the COVID-19 pandemic, our human resources following our recent acquisition of Panacea, proposed federal legislation and its potential impact on the CBD industry, our business relationship with XXII, 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. Consequently, forward-looking statements are inherently subject to risks and uncertainties discussed under the heading “Risk Factors” within Part I, Item 1A of the Report for the three and nine months ended September 30, 2021, and other documents we file from time-to-time with the SEC. 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.
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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 |
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.
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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.
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
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer who is presently also serving as our principal financial officer, has conducted an evaluation of the design and effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on her evaluation as of the end of the period covered by this amendment No. 1 to the quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer has concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.
Changes in Internal Controls over Financial Reporting
As a result of the recent acquisition of Panacea, management believes that the Company’s internal controls over financial reporting have improved because Panacea uses SAP ERP system for its financial, inventory, product and human resources areas. SAP requires strict internal controls. Other than the foregoing, there have been no changes in the internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2021 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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 range of loss and accordingly have not accrued a related liability.
On February 16, 2021, Henley Group, Inc. filed with the Superior Court of the State of California, San Bernardino County, a complaint (Case #: SIV SB 2105771) against Panacea for breach of contract and fraud related to Panacea’s non-delivery of product. While Panacea refunded the purchase price, the plaintiff seeks damages including lost profits and costs which plaintiff alleged to have incurred in the amount of approximately $45,000. The plaintiff also seeks attorney’s fees and costs, consequential damages and punitive damages. Panacea’s attorney has submitted counterclaims and believes this complaint is frivolous.
On October 7, 2019, CMI Mechanical (“CMI”) agreed to procure, deliver, and install a dehumidification system (the “System”) at the Company’s facility located at 16194 W. 45th Drive, Golden, Colorado 80403 (the “Property”). The Company believes the System has failed to meet the requirements of the subject contract, and CMI has not remedied that failure for the Company. The Company withheld certain payments as permitted under the contract. On December 10, 2020, CMI recorded a lien against the Property in the amount of $108,001.48. On January 27, 2021, the Panacea’s attorney notified CMI that its lien was invalid, overstated, and violated the terms of the contract. The letter also demanded that CMI remove the system at CMI’s own cost. The lien was since dropped. CMI and Panacea plan to pursue complaints regarding this issue and possible mediation in 2022.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES OR USE OF PROCEEDS.
During the three months ended September 30, 2021, the Company did not issue any stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
| Incorporated by Reference | Filed or Furnished | |||||||||
| Exhibit # | Exhibit Description | Form | Date | Number | Herewith | |||||
| 3.1 | Amended Articles of Incorporation | 8-K | 7/7/21 | 3.1 | ||||||
| 3.1(a) | Certificate of Amendment to its Amended and Restated Articles of Incorporation – name change and reverse stock split | 8-K | 10/29/21 | 3.1 | ||||||
| 3.2 | Amended Bylaws | 8-K | 7/7/21 | 3.2 | ||||||
| 3.3 | Certificate of Designation for Series A Preferred Stock | 8-K | 2/18/21 | 4.1 | ||||||
| 3.4 | Certificate of Designation for Series B-1 Preferred Stock | 8-K | 3/4/16 | 3.1 | ||||||
| 3.5 | Certificate of Designation for Series B-2 Preferred Stock | 8-K/A | 2/17/16 | 3.2 | ||||||
| 3.6 | Certificate of Designation for Series C Preferred Stock | 10-Q | 8/23/21 | 3.7 | ||||||
| 3.7 | Certificate of Designation for Series C-1 Preferred Stock | 10-Q | 8/23/21 | 3.8 | ||||||
| 3.8 | Certificate of Designation for Series C-2 Preferred Stock | 8-K | 10/29/21 | 3.2 | ||||||
| 3.9 | Certificate of Designation for Series D Preferred Stock | 10-Q | 8/23/21 | 3.9 | ||||||
| 10.1 | 2021 Equity Incentive Plan* | 10-Q | 8/23/21 | 10.1 | ||||||
| 10.2 | Employment Agreement dated June 30, 2021 – Leslie Buttorff* | 10-Q | 8/23/21 | 10.2 | ||||||
| 10.3 | Form of Securities Exchange Agreement | 8-K | 7/7/21 | 10.1 | ||||||
| 10.4 | Form of Indemnification Agreement* | 8-K | 7/7/21 | 10.2 | ||||||
| 10.5 | Form of Promissory Note issued to Quintel-MC Incorporated (Panacea) | 10-Q | 8/23/21 | 10.5 | ||||||
| 10.6 | Form of Promissory Note issued to Leslie Buttorff (Panacea) | 10-Q | 8/23/21 | 10.6 | ||||||
| 10.7 | Form of Promissory Note issued to Leslie Buttorff (Exactus) | 10-Q | 8/23/21 | 10.7 | ||||||
| 10.8 | Note Exchange Agreement+** | 10-Q | 8/23/21 | 10.8 | ||||||
| 10.9 | Assignment of lease | 10-Q | 8/23/21 | 10.9 | ||||||
| 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 | |||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||||
| 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) would be competitively harmful if publicly disclosed. 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 Exactus, 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. | |
| December 20, 2021 | /s/ Leslie Buttorff |
| Leslie Buttorff | |
| Chief Executive Officer |
| 38 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
I, Leslie Buttorff, certify that:
1. I have reviewed this amendment No. 2 to the quarterly report on 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: December 20, 2021 | |
| /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”) on amendment No. 2 to the Form 10-Q for the quarter ended September 30, 2021, 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: December 20, 2021 | |
| /s/ Leslie Buttorff | |
| Leslie Buttorff | |
| Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) |