UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ANNUAL REPORT PURSUANT TO SECTION 13 orOR 15(d) ofOF THE SECURITIES EXCHANGE ACT OF 1934
For the Securities Exchange Act of 1934 for the Fiscal Year Ended fiscal year ended: December 31 2020
☐TRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934 for
For the transition period from ______________________ to ________
Commission File Number: 001-38190
Panacea Life Sciences Holdings, Inc.
(Exact name of registrant as specified in its charter)
Nevada | 27-1085858 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
5910 S University Blvd, C18-193, Greenwood Village, CO80121
(Address of principal executive offices, Zip Code)
800-985-0515
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(g)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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the precedingpast 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑ ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically, 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). Yes☑ ☒ No ☐
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,”filer”, “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large | 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. ☐
The text associated with those checkboxes is as follows: If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common stockequity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 20202022, was $3.5 million.
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 of March 31, 2021 was 99,632,710.
TABLE OF CONTENTS
PART I | 1 | |
Item 1. | Business | |
5 | ||
PART II | 18 | |
24 | ||
F-1 | ||
25 | ||
25 | ||
26 | ||
PART III | ||
26 | ||
27 | ||
29 | ||
29 | ||
29 | ||
PART IV | 30 | |
SIGNATURES | 32 |
i |
Cautionary Statement Regarding Forward-Looking Statements
This annual reportAnnual Report on Form 10-K (this “Annual Report”) containsand other written and oral statements made from time to time by us may contain forward-looking statements which are subject towithin the safe harbor provisions created bymeaning of the Private Securities Litigation Reform Act of 1995.1995, including statements about our new operations in the hemp industry through Panacea, our expected revenue growth, our future plans and developments, proposed federal legislation and its potential impact on the CBD industry, our plans to raise capital, and our liquidity. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements in this Annual 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 Annual 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 and changes in condition, significance, value and effect, including those discussed below under the heading “Risk Factors” within Part I, Item 1A of this Annual Report, and other documents we file from time to timetime-to-time with the Securities and Exchange Commission (the “SEC”(“SEC”), such as our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K.. 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 Annual 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 Annual Report, other than as required by law. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
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PART I
Item 1. Business
General
Panacea Life Sciences Holdings, Inc. (OTCQB: PLSH) is a holding company organized as a plant-based natural health ingredient and product company, specializing in the development, manufacturing, research, and distribution of products within the $134B and rapidly growing natural health and wellness market segment for both humans and animals.
Established in 2017, the company’s first subsidiary, Panacea Life Sciences, Inc. (PLS), is dedicated to the production, distribution, research, and manufacturing of premium-quality nutraceuticals, cannabinoids, mushrooms, kratom, and other natural, plant-based ingredients and products. Operating from a cutting-edge 51,000 square foot cGMP facility located in Golden, Colorado, PLS is committed to delivering high-quality solutions in the field of natural health and well-being. Panacea also offers the purest natural remedies within its branded product lines for every aspect of life: PANA Health™, PANA Beauty®, PANA Sport™, PANA Pet®, PANA Pure® and PANA Life™. If you would like more information, please visit www.panacealife.com.
Panacea Distro, the second subsidiary of Panacea Life Sciences Holdings, Inc., manages six retail locations and a distribution center situated in the Tampa, Florida area. These establishments provide a diverse range of products, including Nitro Kava, Kratom, Hemp, VAPE products, and various beverages, with a primary focus on promoting alternative health and wellness. The Panacea Distro business is segmented into two distinct areas—the retail stores and the cash & carry distribution warehouse. The retail stores are poised to evolve into franchise stores, with the intention of eventually adopting the name “PANA KAVA JAVA.” This strategic move is part of our plan to establish a Nevada corporation organizedfranchise model based on the success of these existing retail locations.
In the coming months, a third business entity, Pana Kava Java (PKJ), is set to emerge as the franchisor company, with a scheduled launch in Q3-Q4 2024. Pana Kava Java is committed to establishing a unique franchise model, drawing inspiration from the European-style café concept. Patrons will have the opportunity to savor infused coffees and beverages, indulge in vaping, and enjoy an array of infused baked goods in a welcoming atmosphere. Pana Kava Java, as the franchisor, will offer franchise rights to individuals interested in opening stores/cafés, enabling them to sell products or services under the name Solid Solar Energy, IncPKJ brand, leveraging our expertise and intellectual property. Currently, active efforts are underway in 2008developing the franchisor plan, encompassing aspects such as business development, flagship store establishment, legal document preparation, marketing and renamed Exactus, Inc. in 2016. We have pursued opportunities in Cannabidiol, which we referpackaging strategies, as well as the recruitment and training of franchisees.
Recent Developments
In June 2022, given the FDA’s lack of clarity regarding the CBD industry, the Company pivoted some of its resources to as CBD, since 2019.
On September 30, 2023, PLSH completed an asset purchase agreement for N7 Enterprises which was a rapidly growing corporation that operates a chain of botanical tea bars focused on promoting health and wellness. The company is dedicated to providing customers with premium quality organic teas and wellness products, fostering a culture of well-being and mindful consumption. The core of N7 Enterprises comprised eight meticulously curated botanical tea bars strategically located in the caseTampa Bay metropolitan area, serving as hubs for the intermediate term. Legal issueshealth-conscious consumers seeking natural and confusion concerning legality, lackrevitalizing beverages. These retail locations offer a diverse range of FDA regulationhandcrafted, ethically sourced herbal teas, blended to cater to various health preferences and availability as an OTC medication will likely continue for an indefinite period impeding adoption and payor acceptance.
In addition to the retail stores, N7 Enterprises operates a robust cash and carry warehouse, which serves as the central distribution center for sale. We believe this makes many of the participants in the industry vulnerable to shortages, quality issues, reliability, and pricing variability. Our industry relationships may allow us to build anall retail locations. This strategically positioned facility enables efficient supply chain management, ensuring that each store is consistently stocked with an array of premium organic teas, wellness products, and related merchandise. The warehouse plays a pivotal role in supporting the seamless operation of the retail branches, thereby facilitating the company’s mission to provide accessible and sustainable wellness solutions to its diverse customer base.
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N7 Enterprises was renamed to Panacea Distro, Inc. and is a subsidiary of PLSH. The Company plans to separate out the cash and carry/distribution business from the retail stores. The retail stores will putbe branded under the Pana Kava Java ™ name and they will form the basis for the PKJ Group Franchisor. They will be corporate owned franchises and use as promotion and templates for expanding and acquiring additional franchisees. The retail stores will be reconfigured to infused café lounges as we continue to sell kava and kratom nitro teas, coffee, hemp and Vape products along with infused bakery goods.
Our Competitive Analysis
We believe that our competitive advantages are derived from being vertically integrated that allows for extraction, enrichment and manufacturing under a cGMP quality environment: 1) Using pharmaceutical formulation methods to optimize the delivery of various nutraceutical, hemp, mushroom and kratom products, 2) Developing both full spectrum and THC-free products, 3) hemp supply, and 4) utilize Good Manufacturing Practice to produce goods that ensures safe and quality products that deliver consistent dosing. The ability to produce both full spectrum products (those that contain <0.3%) and THC-free products allows us amongto optimize dosage and delivery to various human conditions. PLSH subsidiaries control the few companies that maintain a competitive pricingcomplete value chain.
Industrial hemp extracts are found to have particular application as neuroprotectants, for example in limiting neurological damage and supply advantage.
Although numerous reports describe cannabis/hemp extract health benefits the industry lacks sufficient clinical data and quality control to provide patient benefit. We are combining human and pet clinical studies with Good Manufacturing Process manufacturing to generate a panel of products tailored and optimized for specific disease treatment. Our products are designed to optimize formulation with delivery method to maximize health benefits including an intellectual property portfolio enabling development of topical creams, sublingual products, oral soft gel capsules, patches, and sprays. Our products are derived from organic practices industrial hemp grown in the futureColorado.
Our goals are to research, produce, and become significant competitors.
Our Intellectual Property
We operate in every segment of the cannabinoid product value chain. From the hemp plant to finished goods, we ensure our 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. Our portfolio includes the following trademarks and registrations: PANA Health™, PANA Beauty®, PANA Sport™, PANA Pet®, PANA Life®. In the nutraceutical and supplement business line we are developing unique formulations that will add to our intellectual property.
Research and Development
In October 2021, Panacea Life Sciences’ investment in the Cannabinoid Lab at Colorado State University (“CSU”) was realized. The Cannabinoid Research Center is conducting numerous studies and clinical research that will extend our knowledge of how cannabis extracts affect human and animal health. We will work through the center to form multiple research collaborations as well as perform our own studies in multiple therapeutic areas. The Panacea Life Sciences Cannabinoid Research Center is housed in the Chemistry Building in the heart of the CSU campus. The center is expected to be a leader in cannabinoid research nation and world-wide as the industry continues to grow.
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Our Sales Strategy
As previously described, since our cannabinoid products contain little to no THC, we have the ability to sell our products across the United States and internationally. We have established a multi-faceted sales strategy targeting:
● | global ecommerce platform for fulfilling orders and shipping worldwide where legally permitted; | |
● | direct pharmacy placement; | |
● | direct placement in retail stores, salons, spas, athletic facilities, etc. | |
● | Intelligent vending machines | |
● | E-commerce based systems and social media |
In addition, we have established several other sales channels via sales reps, e-commerce (selling directly to customers), large bulk sales to suppliers and to dispensaries. The e-commerce sales platform also works with the commissioned based sales. All sales commissions are tracked and paid via the ERP platform.
We also manufacture nutraceutical and other cannabinoid/kratom/mushroom products for several other companies for various white label and contract manufacturing deals. We specialize in bovine and vegan soft gel manufacturing.
Marketing and Distribution
With the acquisition of N7 we now have access to not only our corporate owned stores in the Tampa Florida area but additional access to all the distribution stores in which we sell products.
We distribute our products to various businesses across the United States through channels optimized to the individual needs of customers. Our B2B as well as B2C approach allows much flexibility for healthcare providers the ability to recommend specific treatment options using cannabinoids as a replacement for conventional pharmaceuticals.
Currently we sell over 40 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. We plan to continue to build an integrated healthcare organization by creating products and programs using emerging botanical extracts. We deliver these programs through managed agriculture, pharmaceutical production, physician education, distribution and social media networks. We use our intellectual property in extraction technology, proprietary compounds, delivery systems, and distribution to produce high-quality products in terms of control, consistency, accountability, and packaging.
All our products are stored in a secure distribution area in preparation for delivery to various sales channels, healthcare providers and other retail locations. The laboratory and production facility have the capacity for domestic and international delivery fulfillment and for international export. All products are tracked and securely manifested for delivery to retail and medical offices for distribution.
We are recruiting key service providers to leverage the power of online sales and social media placement. We have placed products on various online retail sales stores and has launched product sales on Amazon.com. As product ambassadors are secured, we intend to increase its online and social media exposure to advance a business-to-consumer and business to business distribution model.
In 2018, we entered into an agreement with Quintel-MC, Inc. to research and define Panacea Life Sciences business and manufacturing processes. The ERPCannabis system based on an SAP architecture 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 web site. 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.
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Environmental Matters
Compliance with federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any direct material effect on our capital expenditures, earnings or competitive position, however such factors could indirectly affect us as well as participants in the supply chain for our products, and our business, operations, vendors or suppliers.
Government Regulations
On December 20, 2018, the President of the United States signed the Farm Bill into law. Among other things, this new law changed certain federal authorities relating to the production and marketing of hemp, defined as cannabis (Cannabis sativa L.), and hemp products containing less than 0.3 percent delta-9-tetrahydrocannabinol (THC, including removing hemp and derivatives of hemp from the Controlled Substance Act. January 15, 2021, the USDA issued its final rule regarding the Establishment of a Domestic Hemp Production Program which authorized hemp to be grown and processed legally in the United States and made it legal to transport in interstate commerce.
The Farm Bill recognizes hemp as distinct from its genetic cousin, marijuana, and specifically industrial hemp has been excluded from U.S. drug laws. The Farm Bill allows for each individual state to regulate industrial hemp and industrial hemp-based products or accept the USDA rules. Although no longer a controlled substance under federal law, cannabinoids derived from industrial hemp (other than THC) are still subject to a patchwork of state regulations. We are actively monitoring the regulations and proposed regulations in each state to ensure our operations are compliant.
We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information and the handling of customer complaints and regulations prohibiting unfair and deceptive trade practices. The growth and demand for online commerce has and may continue to result in more stringent consumer protection laws that impose additional compliance burdens on online companies. These laws may cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing, product safety, content and quality of products and services, taxation, electronic contracts and other communications and information security.
There is also great uncertainty over whether or how existing laws governing issues such as sales and other taxes, auctions, libel, and personal privacy apply to the internet and commercial online services. These issues may take years to resolve. For example, tax authorities in several states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the application of existing laws and regulations to the internet and commercial online services could result in significant additional taxes or regulatory restrictions on our business. These taxes or restrictions could have an adverse effect on our cash flows, results of operations and overall financial condition. Furthermore, there is a possibility that we may be subject to significant fines or other payments for any past failures to comply with these requirements.
Human Capital
On December 31, 2023, we had over 40 full-time employees. There are no collective bargaining agreements covering any of our employees. We believe that our success depends on our ability to attract, develop and retain key personnel. We believe that the skills, experience and industry knowledge of our key employees significantly benefit our operations and performance.
Employee health and safety in the workplace is one of our core values. Employee levels are managed to align with the pace of business and management believes it has sufficient human capital to operate its business successfully.
Additional information
We file annual, quarterly and other reports, proxy statements and other information with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers such as our company that file electronically with the SEC.
Our corporate website address is www.panacealife.com. We make available free of charge, through the Investor section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information which appears on our corporate website is not part of this report.
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Item 1A. R
RISK FACTORS
Investing in our common stock involves a high degree of risk. Investors should carefully consider the following Risk Factors before deciding whether to invest in us. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations or our financial condition. If any of the events discussed in the Risk Factors below occur, our business, financial condition, results of operations or prospects could be materially and adversely affected. In such case, the value and marketability of our common stock could decline.
Summary Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. Set forth below is a summary of the principal risks we face:
● | We intend to raise capital through the sale of our common stock or securities convertible or exercisable into our common stock soon which will have a dilutive effect on our existing stockholders; | |
● | Our ability to continue as a going concern is in doubt unless we obtain adequate new debt or equity financing and achieve sufficient sales levels; | |
● | Because we require additional capital to execute our business plan and expand our operations, our inability to generate and obtain such capital on acceptable terms, or at all, could harm our business, operating results, financial condition and prospects; | |
● | We are highly dependent on our Chief Executive Officer, and the loss of her services or a conflict of interest arising from her loans to us, and her other business endeavors would adversely affect us; | |
● | Our business and the h industry generally are subject to substantial regulation and governmental scrutiny characterized by high compliance costs and uncertainty, including the possibility that laws change in a manner adverse to us; | |
● | Panacea’s operations and our new Chief Executive Officer were not previously subject to SEC reporting obligations, which could render us difficult to evaluate and expose us to risk; | |
● | If we are unable to keep up with rapid technological change, consumer preferences and economic developments in our industry or in general, our products may become obsolete. | |
● | We could become subject to data privacy and security claims or enforcement actions, particularly due to our digital marketing efforts; | |
● | We may become subject to product liability or related claims based on our production and sale of products containing chemical compounds designed to be ingested or applied topically; |
● | Our Chief Executive Officer, directly and through entities she controls, owns a majority of our outstanding common stock and voting power on an as-converted basis, rendering other stockholders’ ability to influence matters before them limited in most cases; and | |
● | Operational risks such as material weaknesses and other deficiencies in internal control over financial reporting could result in errors, potentially requiring restatements of our historical financial data, leading investors to lose confidence in our reported results. |
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Risks Related to Our CompanyBusiness and the Hemp Industry
Because we need to raise additional capital any financing based on our common stock or common stock equivalents will dilute our existing stockholders and the terms of any such financing could impose restrictions on our operations.
We have depended upon loans from our Chief Executive Officer and principal stockholder and have primarily financed our operations by borrowing funds from her.
Because we are highly dependent on the services of Leslie Buttorff, our sole executive officer, the loss of her and our inability to expand our management team, could harm our business.
Our Business
The loss of Ms. Buttorff would have a material adverse effect on us. We do not have key man insurance on the likelihoodlife of Ms. Buttorff. Ms. Buttorff’s Employment Agreement with us (the “Employment Agreement”) permits her to resign for good reason which includes our success must be considered in lightmaterial breach of the problems, expenses, difficulties, complicationsEmployment Agreement including our failure to pay her. In the event Ms. Buttorff terminates her Employment Agreement for good reason, this would result in the us owing her approximately $760,000 in severance pay plus any deferred compensation and delay frequently encountered byearned bonuses and other benefits and would leave us without an early-stage company.
If we are unable to develop and maintain our brand and reputation for investors and securities analysts to evaluateour product offerings, our business and prospects could be materially harmed.
Our business and prospects depend, in part, on developing and then maintaining and strengthening our brand and reputation in the markets we serve. If problems with our products cause our customers to have a negative experience or failure or delay in the delivery of our products to our customers, our brand and reputation could be diminished. If we fail to develop, promote and maintain our brand and reputation successfully, our business and prospects could be materially harmed.
Because we face intense competition, we may not be able to increase our market share which would materially and adversely affect us.
Our industry is highly competitive. It is possible that future competitors could enter our market, thereby causing us to lose market share and revenues or fail to grow our operations and market presence as intended or at all. In addition, some of our current or future competitors have significantly greater financial, technical, marketing and other resources than we do or may have more experience or advantages in the markets in which we will compete that will allow them to offer lower prices or higher quality products. If we do not successfully compete with these competitors, we could fail to develop a sufficient market share to achieve our goals and our future business prospects could be materially adversely affected.
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Because the sale of our products involves the potential for product liability, we may incur significant losses and expenses in excess of our insurance coverage.
We face an inherent risk of exposure to product liability claims if the use of our products results in, or is believed to have resulted in, illness or injury. Our products are designed for ingestible or topical use and contain combinations of ingredients, and there is little experience with or knowledge of the long-term effects of these combinations. In addition, interactions of these ingredients and products with other products, prescription medications and over-the-counter treatments have not been fully explored or understood and may have unintended consequences. Future research or results may lead to the discovery of unknown adverse side effects from hemp, KAVA and Kratom, which would harm our business.
Although we believe all our products will be safe when taken as directed by us, there is little long-term research on the effects of human consumption of certain of the new product ingredients or combinations in concentrated form that we use or may in the future use in developing our hemp products. Any instance of illness or negative side effects of ingesting hemp products or applying them topically on the skin could have a material adverse effect on our business and operations by, among other things, exposing us to the risk of costly litigation and/or governmental sanctions and dramatically reducing the demand for some or all our products.
Any product liability claims or related developments from our products or hemp in general may increase our costs and adversely affect our revenue, product demand and operating results. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles and may make it more difficult to secure adequate insurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, which, if adversely determined, could subject us to substantial monetary damages.
The success of our business will depend upon our ability to create and expand our brand awareness.
The health and wellness and hemp markets we compete in are highly competitive, with many well-known brands leading the industry. Our competitors include hemp companies who have a longer history operating in these markets than we do. Our ability to compete effectively and generate revenue will be based upon our ability to create and expand awareness of our products distinct from those of our competitors. It is imperative that we are able to convey to consumers the benefits of our products both in general and as compared to competitive offerings. However, advertising, packaging and labeling of our products is limited by various regulations. Our success will be dependent upon our ability to convey to consumers that our products are superior to those of our competitors while complying with complex and varying regulations in the markets in which we attempt to market and sell them.
If we fail to develop and introduce new products it will adversely affect our future prospects. You must consider
Our industry is subject to rapid change. New products are constantly introduced to the market. Our ability to remain competitive depends in part on our ability to enhance existing products, to develop and manufacture new products in a timely and cost-effective manner, to adequately anticipate, prepare and execute strategies for market transitions, and to effectively market our products. Management believes that our future financial results will depend to a great extent on the successful expansion of our current product offerings and on the development and introduction of new products. We cannot be certain that we will be successful in selecting, developing, manufacturing and marketing new products or in improving upon or enhancing the market for existing products.
The success of new product introductions or expansions to new territories depends on various factors, including, without limitation, the following:
● | Successful sales and marketing efforts; |
● | Timely delivery of the products; |
● | Availability of raw materials and/or sufficient production facilities; |
● | Pricing of raw materials and labor; |
● | Regulatory allowance and restrictions of the products; and |
● | Market acceptance and consumer sentiment. |
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If we fail to appropriately respond to changing consumer preferences and demand for new products, it could significantly harm our customer relationships and product sales and harm our operating results and financial condition.
Our business is subject to changing consumer trends and preferences, especially with respect to targeted nutrition and natural wellness products. Our success will depend in part on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. Furthermore, the health and wellness industry are characterized by rapid and frequent changes in demand for products and new product introductions and enhancements. Our failure to accurately predict these trends could negatively impact consumer opinion of our products, which in turn could harm our customer relationships and product demands and cause the loss of sales. The success of our product offerings depends upon a number of factors, including our ability to:
● | Accurately anticipate consumer needs; |
● | Successfully commercialize new products or product enhancements in a timely manner; |
● | Price our products competitively; |
● | Arrange for the production and delivery our products in sufficient volumes and in a timely manner; |
● | Differentiate our products from those of our competitors; and |
● | Innovate and develop new products or product enhancements that meet these trends. |
If we do not meet these challenges, some of our products could be rendered obsolete, which could negatively impact our operating results and financial condition.
Adverse publicity associated with our products or ingredients, or those of our competitors or similar businesses, could adversely affect our sales and revenue.
Adverse publicity concerning any actual or purported failure by us or our competitors to comply with applicable laws and regulations or concerning any other aspect of our business or the hemp industry could have an adverse effect on the public perception of us and our products. This, in turn, could negatively affect our ability to obtain financing, endorsers and attract distributors, retailers or consumers for our products, which would have a material adverse effect.
Our distributors and customers’ perception of the safety, utility and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others. Adverse publicity, whether accurate or not, that causes a perceived connection between consumption of our products or any similar products and illness or other adverse effects, will likely diminish the public’s perception of and in turn the demand for our products. Claims that any products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could have a material adverse effect on the market demand for our products, including reducing our sales and revenue, which would have a material adverse effect on our business.
If we are unable to manufacture our products in sufficient quantities or at defined quality specifications or are unable to maintain regulatory approvals for our production facility, we may be unable to develop or meet demand for our products and lose time to market and potential revenues.
Commercialization of our products require access to, or development of, facilities to manufacture a sufficient supply of our products. In the future we may face difficulties in the development, production or distribution of our products.
We may face competition for access to any third-party supply sources, development or production partners and facilities such as hemp growers and may be subject to production delays if any of those third parties give their other business partners a higher priority than they give to us. Even if we are able to identify additional or replacement third parties, the delays and costs associated with establishing and maintaining a relationship with such third parties may have a material adverse effect on us. Further, a reduction in the control of our production efforts would be inherent in any such outsourcing, which exposes us to a greater risk of liability, including regulatory enforcement actions for alleged noncompliance with law and product liability claims. This could also result in lower product quality which could negatively impact demand for our offerings or our competitive advantage. Any of these challenges could prevent us from achieving our business objectives and harm your investment in us.
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If the market opportunities for our current and potential future products are less lucrative than anticipated, our ability to generate revenues may be adversely affected and our business may suffer.
Our understanding, expectation and estimates of the market for our current and future products may prove to be incorrect, and new test results or studies, reports, legislative or regulatory developments or other factors beyond our control may result in the market for our products being lower than anticipated on a regional, national or global scale. The number of individuals in the U.S. who are willing to purchase our products may be lower than expected, or expectations for repetitive purchases and consumption may prove to be incorrect. These occurrences could materially adversely affect our prospects in light ofand operational results.
If we are unable to establish relationships with third parties to carry out sales, marketing, and distribution functions or to create effective marketing, sales, and distribution capabilities, we will be unable to market our products successfully.
Our business strategy includes using third parties to market and sell the risks, expenses and difficulties we face as an early-stage company with a limited operating history. Investors should evaluate an investment in our company consideringproducts at the uncertainties encountered by early-stage companies in an intensely competitive industry and in which the potential hemp-based CBD competition and farming, extraction, production and manufacturing companies are large well capitalized companies with resources (financial and otherwise) significantly greater than the Company’s.retail level. There can be no assurance that we will successfully be able to establish marketing, sales, or distribution relationships with a sufficient number of third parties to meet our effortsgoals, that such relationships, if established, will be successful, or that we will be ablesuccessful in gaining market acceptance for current or future products. To the extent that we enter into any marketing, sales, or distribution arrangements with third parties, our product revenues per unit sold are expected to become profitable.
if we marketed, sold, and distributed our products directly, and any revenues we receive will depend upon the past and we may sustain losses in the foreseeable future.
If we are unable to raise additional capital or secure additional lending soon, management expectsestablish such third-party marketing and sales relationships, we would have to establish and grow in-house marketing and sales capabilities. To market any products directly, we would have to build a marketing, sales, and distribution force that has technical expertise and could support a distribution capability. Competition in the health and wellness and cannabinoid industries for technically proficient marketing, sales, and distribution personnel is intense, and attracting and retaining such personnel may significantly increase our costs. There can be no assurance that we will need to curtail our operations.
Because of the Russian Invasion of Ukraine, the effect on the capital markets and the economy is uncertain, and as a result we may have to deal with a recessionary economy and economic uncertainty, including possible adverse effects upon our ability to raise capital as and when needed.
As a result of the Russian invasion of Ukraine, certain events are beginning to affect the global and U.S. economy including increased inflation, substantial increases in the prices of oil and gas, large Western companies ceasing to do business in Russia and uncertain capital markets with declines in leading market indexes. The duration of this war and its impact are at best uncertain. Ultimately the economy may turn into a recession with uncertain and potentially severe impacts upon public companies and us, including our ability to raise capital. We cannot predict how this will affect our operations or the industries in which we operate, however any such impact may be material and adverse.
We have a limited operating history upon which investors can evaluate our future prospects.
Panacea was founded and began operations in the hemp industry in 2017 and we therefore have a limited operating history upon which an evaluation of our business plan or performance and prospects can be made. Our business and prospects must be considered in the light of the potential problems, delays, uncertainties and complications encountered in connection with a business which is still in its early stages in a relatively new industry characterized by unexpected change. The risks include, but are not limited to, the possibility that we fail to develop functional and scalable products, or that although functional and scalable, our products will not be economical to market in order to become or remain profitable; that our competitors hold proprietary rights precluding us from marketing such products; that our competitors offer a superior or equivalent product or otherwise achieve or maintain greater market acceptance than us; that we are unable to upgrade or improve our processes and products to accommodate new features and expand our offerings; or that we fail to receive or maintain necessary regulatory clearances and compliance for our products and operations. In order to grow our revenue, we must develop and improve upon our brand name recognition and competitive advantages for our products and expand into new markets. Even if we accomplish such growth, resulting expenses may be greater than estimated, which could reduce or even eliminate any revenue gains for which such endeavors were made. There are no assurances that we can successfully implementaddress these challenges. If we are unsuccessful, our strategy onbusiness, financial condition and operating results could be materially and adversely affected.
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If the market for hemp products declines, it would materially and adversely affect our business.
Following the passage of the 2018 Farm Bill described below, our industry experienced an influx of hemp farmers and producers which resulted in a timely basissaturated marketplace. As a result, the supply for hemp and related products has in the past exceeded demand. This trend could force us to reduce our prices to remain competitive or at all.
If we fail to attract new customers in a cost-effective manner, our business may be harmed.
A large part of our success depends on our ability to implementattract new customers in a cost-effective manner. We have made, and may continue to make, significant investments in attracting new customers through increased advertising spends on social media, radio, podcasts, and targeted email communications, other media and events, sponsorships, and influencer sponsorships. Marketing campaigns can be expensive and may not result in the cost-effective acquisition of customers. Further, as our strategybrand becomes more widely known, future marketing campaigns may not attract new customers at the same rate as past campaigns and the cost of expandingacquiring new customers may increase over time. Additionally, regulation, algorithms, or participants in the digital marketing ecosystem may change rules for our industry or access to available demographics which may result in significant changes in the ability to target key demographic pools, impacting our ability to target our customers effectively. If we are unable to attract new customers, or fail to do so in a cost-effective manner, our business may be harmed.
Even if we meet our growth objectives and our enter into new markets as intended, we may face difficulties evaluating our current and new distribution channelsfuture business prospects, and attracting new consumers to our brand. Our ability to implement this strategy depends, among other things, on our ability to:
Our entry into new markets and/or growth in our product offering or consumer base may place a significant strain on our resources and increase demands on our executive management, personnel and operational systems, and our human, administrative and financial resources may be inadequate to meet these demands. We may also be unable to effectively manage any expanded operations or achieve planned growth on a timely or profitable basis, particularly if the number of customers using our products significantly increases within a short period of time. If we are unable to manage expanded operations effectively, we may experience operating inefficiencies, the quality of our products could decline, and our business and results of operations could be materially adversely affected.
If we succeed in growing our business, such growth could strain our management team and capital resources. Our ability to manage operations and control growth will be dependent on our ability to raise and spend capital to successfully attract, train, motivate, retain, and manage new members of senior management and other key personnel and continue to update and improve our management and operational systems, infrastructure and other resources, financial and management controls, and reporting systems and procedures. Failure tocannot manage our growth effectively, our results of operations would be materially and adversely affected.
We expect to experience growth as we raise additional capital. Businesses which grow rapidly often have difficulty managing their growth while maintaining their compliance and quality standards. If we grow as rapidly as anticipated, we will need to expand our management by recruiting and employing additional executive and key personnel capable of providing the necessary support. There can be no assurance that management, along with staff, will be able to effectively manage our growth nor can there be any assurance that growth in our product offerings, customer base or contracts will translate to an increase in revenue or profitability. Any failure to meet the challenges associated with rapid growth could cause usmaterially and adversely affect our business and operating results.
Existing or future governmental regulations relating to misallocate managementcannabinoid products may harm or financial resources, and result in additional expenditures and inefficient use of existing human and capital resources or we otherwise may be forced to grow at a slower pace that could impair or eliminateprevent our ability to achieveproduce and/or sell our product offerings.
While a majority of state governments in the United States have legalized the growing, production, and sustain profitability. Such slower than expected growthuse of hemp in some form and subject to certain restrictions, cannabis remains illegal under federal law. In addition, in July 2017, the United States Drug Enforcement Agency issued a statement that certain hemp extractions fall within the definition of marijuana and are therefore a Schedule I controlled substance under the Controlled Substances Act of 1970, as amended. Thus, the cannabis industry, including companies which sell products containing hemp, faces significant uncertainty surrounding regulation by the federal government, which could claim supremacy over state regulatory regimes including those with a “friendlier” view toward hemp products. While the federal government has for several years chosen to not intervene in the cannabis business conducted legally within the states that have legislated such activities, there is, nonetheless, potential that the federal government may at any time choose to begin enforcing its laws against the manufacture, possession, or use of cannabis-based products such as hemp. Similarly, there is the possibility that the federal government may enact legislation or rules that authorize the manufacturing, possession or use of those products under specific guidelines. Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations. In the event the federal government was to tighten its regulation of the industry, we would likely suffer a material adverse effect on our business, including potentially substantial losses.
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Because laws and regulations affecting our industry are evolving, changes to any regulation may materially affect our hemp products.
In conjunction with the enactment of the Agriculture Improvement Act of 2018 (the “Farm Bill”), the Food and Drug Administration (the “FDA”) released a statement about the status of hemp as a nutritional supplement, and the agency’s actions in the short term with regards to hemp will guide the industry. As a company whose products contain hemp, we intend to meet all FDA guidelines as the regulations evolve. Any difficulties in compliance with future government regulation could increase our operating costs and adversely impact our results of operations in future periods.
In addition, as a result of the Farm Bill’s passage, we expect that there will be a constant evolution of laws and regulations affecting the hemp industry which could affect our operations. Local, state and federal hemp laws and regulations may be broad in scope and subject to changing interpretations. These changes may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business plan. Furthermore, violations of these laws, or alleged violations, could disrupt our business and result in a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be directly applicable to our business.
Unexpected changes in federal and state law could cause any of our current products, as well as products that we intend to develop and launch, containing hemp-derived CBD oil to be illegal, or could otherwise prohibit, limit or restrict any of our products containing CBD.
Our business is based on the production and distribution of products containing hemp-derived CBD. The Farm Bill, which amended various sections of the U.S. Code, and legalized the cultivation and sale of industrial hemp at the federal level, subject to compliance with certain federal requirements and state law. There can be no assurance that the Farm Bill will not be repealed or amended such that our products containing hemp-derived CBD would once again be deemed illegal under federal law.
The Farm Bill delegates the authority to the states to regulate and limit the production of hemp and hemp-derived products within their territories. Although many states have adopted laws and regulations that allow for the production and sale of hemp and hemp-derived products under certain circumstances, no assurance can be given that such state laws may not be repealed or amended such that our intended products containing hemp-derived CBD would once again be deemed illegal under the laws of one or more states now permitting such products, which in turn would render such intended products illegal in those states under federal law even if the federal law is unchanged. In the event of either repeal of federal or of state laws and regulations, or of amendments thereto that are averse to our intended products, we may be restricted or limited with respect to those products that we may sell or distribute, which could adversely impact our intended business plan with respect to such intended products.
Additionally, the FDA has indicated that certain products containing hemp are not permissible under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), notwithstanding the passage of the Farm Bill. On December 20, 2018, after the Farm Bill became law, then FDA Commissioner Scott Gottlieb issued a statement in which he reiterated the FDA’s position that hemp products that are marketed with a claim of therapeutic benefit must be approved by the FDA for their intended use before they may be distributed in interstate commerce and that the FDCA prohibits interstate distribution of food products containing hemp and marketing products containing hemp as a dietary supplement, regardless of whether the substances are hemp-derived. Although we believe our existing and planned hemp products comply with applicable federal and state laws and regulations, legal proceedings alleging violations of such laws could have a material adverse effect on our results of operations and financial condition. Sources of hemp-derived CBD depend upon legality of cultivation, processing, marketing and sales of products derived from those plants under state law.
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Hemp-derived CBD can only be legally produced in states that have laws and regulations that allow for such production and that comply with the Farm Bill, apart from state laws legalizing and regulating medical and recreational cannabis or marijuana, which remains illegal under federal law. This is one of the reasons why we are based in Colorado. Unexpected changes in federal and state law could cause our current hemp production methods or resulting products, as well as products that we intend to develop and launch, to be illegal or could otherwise prohibit, limit or restrict some or all of our products in the event of repeal or amendment of laws and regulations which are now comparatively favorable to the cannabis/hemp industry in certain states, we would be required to locate new suppliers in states with laws and regulations that qualify under the Farm Bill. If we were to be unsuccessful in arranging new sources of supply of our raw ingredients, or if our raw ingredients were to become legally unavailable, our intended business plan with respect to such products could be adversely impacted.
Because we and our distributors may only sell and ship our products containing hemp-derived CBD in states that have adopted laws and regulations qualifying under the Farm Bill, a reduction in the number of states having such qualifying laws and regulations could limit, restrict or ceaseotherwise preclude the sale of intended products containing hemp-derived CBD.
The interstate shipment of hemp-derived CBD from one state to another is legal only where both states have laws and regulations that allow for the production and sale of such products and that qualify under the Farm Bill. Therefore, the marketing and sale of our products is limited by such factors and is restricted to such states. Although we believe we may lawfully sell any of our finished products including those containing CBD in a majority of states, a repeal or adverse amendment of laws and regulations that are now favorable to the distribution, marketing and sale of finished products we intend to sell could significantly limit, restrict or prevent us from generating revenue related to our products that contain hemp-derived CBD. Additionally, any such adverse changes or existing legislation in new markets we target may stunt our growth and diminish our prospects. Any such repeal or adverse amendment of laws and regulations could have an adverse impact on our business plan with respect to such products.
Costs associated with compliance with numerous laws and regulations and quality standards could adversely impact our financial results.
The manufacture, labeling and distribution of hemp products is regulated by various federal, state and local government agencies. These governmental authorities regulate our products and processes to ensure that the products are not adulterated or misbranded. We are subject to regulation by the federal government and other state and local agencies as a result of our hemp products. In addition to the risks associated with the possibility of government enforcement or private litigation due to alleged noncompliance, our compliance costs associated with our day-to-day operations are high and are expected to increase as we expand into new markets and/or develop and market new products. For example, as a “seed to sale” hemp business, meaning a business which handles every step of a hemp product’s manufacture and sale in-house rather than relying on third parties for some or all the production and distribution steps, we are responsible for the quality of our product, and the means by which it is produced and marketed, at every stage. Compliance with regulations imposed on our business model means we must deploy and maintain an advanced computer monitoring system which allows us to track our production and distribution process. We must train our employees and utilize and maintain security measures to ensure our facility functions properly. Compliance with these and other government requirements for product monitoring, quality, labelling and distribution are costly which may limit our profitability.
Our products or third parties with whom we do business may not comply with health, safety and labelling standards.
We do not have control over all of the third parties involved in the sale of our products and their compliance with government health, safety and labelling standards. Even if our products meet these standards, they could otherwise become contaminated or fail, or the standards could be changed in a manner adverse to our operations and go out of business.
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If we fail to comply with U.S. laws related to privacy, data security, and data protection, it could adversely affect our operating results and financial condition.
We rely on a variety of marketing techniques, including email, radio, display advertising, and social media marketing, targeted online advertisements, and postal mailings, and we are or may become subject to various laws and regulations that govern such marketing and advertising practices. A variety of federal and state laws and regulations, including those enforced by various federal government agencies such as the Federal Trade Commission, Federal Communications Commission, and state and local agencies, govern the collection, use, retention, sharing, and security of personal data, particularly in the context of online advertising, which we utilize to attract new customers.
The legislative and regulatory bodies or self-regulatory organizations in various jurisdictions inside the United States may expand current laws or regulations, enact new laws or regulations, or issue revised rules or guidance regarding privacy, data protection, consumer protection, information security, and online advertising. California has enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which became operative on January 1, 2020, and its implementing regulations took effect in August 2020. The CCPA requires companies that process personal information on California residents to make new disclosures to consumers about such companies’ data collection, use, and sharing practices and inform consumers of their personal information rights such as deletion rights, allows consumers to opt out of certain data sharing with third parties, and provides a new cause of action for data breaches. In November 2020, California enacted the California Privacy Rights Act of 2020 (the “CPRA”), which amends and expands the scope of the CCPA, while introducing new privacy protections that extend beyond those included in the CCPA and its implementing regulations. The CCPA, as amended and expanded by the CPRA, is one of the most prescriptive general privacy laws in the United States and may lead to purchasesimilar laws being enacted in other U.S. states or at the federal level. For example, the State of Nevada also passed a law effective on October 1, 2019, that amends the state’s online privacy law to allow consumers to submit requests to prevent websites and sell hemp-based products. Weonline service providers (“Operators”) from selling personally identifiable information that Operators collect through a website or online service. Further, on March 2, 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”). The VCDPA creates consumer rights, similar to the CCPA, but also imposes security and assessment requirements for businesses. In addition, on July 7, 2021, Colorado, the state in which we are headquartered, enacted the Colorado Privacy Act (“CoCPA”), becoming the third comprehensive consumer privacy law to be passed in the United States (after the CCPA and VCDPA). Although the CoCPA closely resembles the VCDPA, both of which do not contain a private right of action and will instead be enforced by the respective states’ Attorney General and district attorneys, the two differ in many ways and once they become enforceable in 2023, we must comply with each if our operations fall within the scope of these newly enacted comprehensive mandates. Prior efforts undertaken to comply with other recent privacy-related laws have proven that these initiatives require time to carefully plan, assess gaps in current compliance mechanisms, and implement new policies, processes and remediation efforts. Additionally, the Federal Trade Commission and state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, could impose significant limitations, require changes to our business model or practices, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly or less efficient to conduct. In addition, any such changes could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively, which, in turn, could adversely affect our business, financial condition, and results of operations.
While we intend to strive to comply with applicable laws and regulations relating to privacy, data security, and data protection, given that the scope, interpretation, and application of these laws and regulations are often uncertain and may be in conflict across jurisdictions, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us or third-party service providers to comply with privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our operating results and financial condition.
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Our planned expansion into international markets will involve inherent risks that we may not be able to successfully buycontrol.
Our business plan includes the eventual marketing and sellsale of our products in international markets. Specifically, we do not currently have a set time frame for entering these markets. Accordingly, our operating results could be materially and adversely affected by a variety of uncontrollable and changing factors relating to international business operations, including:
● | Economic conditions adversely affecting geographic areas in which we intend to do business; |
● | Foreign currency exchange rates; |
● | Political or social unrest or economic instability in a specific country or region; |
● | Higher costs of doing business in foreign countries; |
● | Infringement claims on foreign patents, copyrights or trademark rights; |
● | Difficulties in staffing and managing operations across disparate geographic areas; |
● | Difficulties associated with enforcing agreements and intellectual property rights through foreign legal systems; |
● | Trade protection measures and other regulatory requirements, which may affect our ability to import or export our products from or to various countries; |
● | Adverse tax consequences; |
● | Unexpected changes in legal and regulatory requirements and challenges in complying with varying requirements across jurisdictions; and |
● | Military conflict, terrorist activities, natural disasters and medical epidemics. |
If we are unable to overcome these or other challenges in executing our planned expansion into international markets, our prospects would be materially adversely affected.
Risks Related to Intellectual Property
We may become involved in litigation or other proceedings relating to patent and other intellectual property rights.
A third party may sue us or our strategic collaborators for infringing its intellectual property rights. Likewise, we may need to resort to litigation to enforce licensed rights or to determine the scope and validity of third-party intellectual property rights. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our efforts. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we acquire hemp-basedcan because they have substantially greater resources. If we do not prevail in this type of litigation, we or our strategic collaborators may be required to pay monetary damages; stop commercial activities relating to the affected products or services; obtain a license in order to continue manufacturing or marketing the affected products or services; or attempt to compete in the market with a substantially similar product. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue some of our operations. In addition, a court may require that we pay expenses or damages, and litigation could distract management or disrupt our commercial activities.
If we become involved in intellectual property litigation, such litigation is likely to be expensive and time-consuming and could be unsuccessful.
Our commercial success will depend in part on our avoiding infringement on the patents and proprietary rights of third parties for products we license or sell. There is substantial litigation, both within and outside the United States, involving patent and other intellectual property rights in the health and wellness industry, including patent infringement lawsuits, interferences, oppositions, and reexaminations and other post-grant proceedings before the U.S. Patent and Trademark Office, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications which are owned by third parties may exist with products we may license and sell.
Parties making intellectual property claims against us may obtain injunctive or other equitable relief, which could block our ability to further develop and commercialize one or more products. Defense of these claims, regardless of their merit, involves substantial litigation expense and would be a substantial diversion of our management’s attention from our business. If a claim of infringement against us succeeds, we may have to pay substantial damages, possibly including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
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To counter infringement or unauthorized use claims against us, we may failbe required to realizefile infringement claims in response, or we may be required to defend the validity or enforceability of any such intellectual property rights. In an infringement proceeding, a court may decide that either our or one or more of our licensors’ intellectual property rights are not valid or is unenforceable or may refuse to stop the other party from using the underlying concepts or technology at issue because our intellectual property rights do not cover those elements. In any event, intellectual property litigation is expensive and time consuming and we may be unsuccessful in defending or enforcing such claims, which would materially harm our business.
Any inability to protect our intellectual property rights could reduce the value of our products and brands, which could adversely affect our financial condition, results of operations and business.
Our business is partly dependent upon our trademarks, trade secrets, copyrights and other intellectual property rights. Effective intellectual property rights protection, however, may not be available under the laws of every country in which we and our sub-licensees may operate. There is a risk of certain valuable trade secrets being exposed to potential infringers. Regardless of whether our compounds and technology are or becomes protected by patents or otherwise, there is a risk that other companies may employ such compounds or technology without authorization and without recompensing us.
The efforts we take to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time consuming. There is a risk that we may have insufficient resources to counter adequately such infringements through negotiation or the use of legal remedies. It may not be practicable or cost effective for us to fully protect our intellectual property rights in some countries or jurisdictions. If we are unable to successfully identify and stop unauthorized use of our intellectual property, we could lose potential revenue and experience increased operational and enforcement costs, which could adversely affect our financial condition, results of operations and business.
The intellectual property behind our products may include unpublished know-how, which is dependent on certain key individuals, as well as existing and pending intellectual property protection.
The commercialization of our products is partially dependent upon know-how and trade secrets held by certain individuals working with and for us. Because the expertise runs deep in these few individuals, if something were to happen to any or all of these individuals, the anticipated benefitsability to properly manufacture our products without compromising quality and performance could be diminished greatly. Further, [while our employees and contractors are subject to non-disclosure obligations,] any misappropriation of confidential information including trade secrets and know-how could allow our competitors and others to overcome any advantage we have and reduce our market share and viability.
Risks Related to Our Securities and Our Status as an SEC Reporting Company
Because our Chief Executive Officer, directly and through entities she controls, beneficially owns approximately 61% of our issued and outstanding common stock and voting power on an as-converted basis, she can exert significant control over our business and affairs which may be averse to those of our stockholders, particularly if a conflict of interest arises.
Our Chief Executive Officer and currently one of our two directors, owns approximately 61% of our issued and outstanding shares of common stock and voting power on an as-converted basis. As of December 31, 2022, Ms. Buttorff and or her companies also hold $14.796 million in demand notes which bear interest at a rate ranging from 0 to 12% per annum. The interests of Ms. Buttorff may differ from the interests of our other stockholders, including by virtue of her other businesses operated through her entities and their holdings that are not affiliated with us. As a result, Ms. Buttorff will have significant influence and control over all corporate actions including those actions requiring stockholder approval, irrespective of how our minority stockholders may vote, including the following actions:
● | the election of our directors; |
● | charter or bylaw amendments; |
● | a merger, asset sale or other fundamental corporate transaction; and |
● | any other matter submitted to our stockholders for a vote, subject only to applicable law including the Nevada Revised Statutes. |
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This concentration of ownership and the conflicts of interest may have the effect of impeding a merger, consolidation, takeover or other business combination or tender offer for our common stock which other stockholders may deem desirable or could reduce our stock price or prevent our stockholders from realizing a premium over our stock price in such a transaction. Further, to the extent our other stockholders disagree with an action Ms. Buttorff elect to take as a stockholder, their ability to prevent such action or avoid the effect on their shareholdings will range from significantly limited to non-existent due to our current capital structure, subject only to applicable law and our charter documents. Therefore, if Ms. Buttorff has an interest adverse to other stockholders, or if other stockholders otherwise disagree with Ms. Buttorff with respect to a matter before the stockholders, they will have little to no control over that matter and the direction we ultimately take.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business.
The federal securities laws require us to comply with SEC reporting requirements relating to our business and securities. Complying with these reporting and other regulatory obligations is time-consuming and will result in increased costs to us which could have a negative effect on our financial condition or business. These increased costs are not reflected in the financial statements contained in this Annual Report on Form 10-K because during the periods covered Panacea was a private company not subject to SEC reporting obligations.
As a public company, we are subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. We are required to file annual, quarterly and current reports with the SEC disclosing certain aspects and developments of our business plans and efforts.financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional executive officers and personnel and provide for additional management oversight. We intend to implement additional procedures and processes for the purpose of addressing the standards and requirements applicable to SEC reporting companies. Sustaining our growth will also require us to commit additional managerial, operational and financial resources to identifying competent professionals to join us and to maintain appropriate operational and financial systems to adequately support our intended expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our results of operations, financial condition or business.
Due to factors beyond our control, our stock price may be volatile.
Any of the following factors could affect the market price of our common stock:
● | Our failure to generate increasing material revenues from our business; |
● | Our failure to enhance our product offerings or expand into new markets; |
● | A decline in our revenue or growth rate; |
● | Our public disclosure of the terms of any financing which we consummate in the future; |
● | A decline in the economy which impacts the demand for our products and our ability to generate revenue and achieve growth metrics; |
● | Announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments; |
● | Changes in laws, regulations or government actions affecting the cannabinoid industry in general or our products in particular; |
● | Our ability to list our common stock on a national securities exchange; |
● | Our ability to attract analyst coverage; |
● | The sale of large numbers of shares of common stock by our shareholders; |
● | Short selling activities; or |
● | Changes in market valuations of similar companies. |
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In the past, following periods of volatility in connection withthe market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our activities inmanagement’s time and attention, which we seekwould otherwise be used to pursue hemp-based businesses. Webenefit our business.
These broad market and industry factors may have no prior experience as an operatora material adverse effect on the market price of hemp-based businesses. The investment in farm operations intended to produce sales and our business model failed to produce anticipated benefits, due to oversupply, rapidly declining prices andcommon stock, regardless of our inability to establish significant markets. Failure to successfully effectively utilize our biomass created from farming and extract ingredients to produce or sell, or scale our operations, had had and may continue toactual operating performance. These factors could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to manage our manufacturing and supply chain effectively, which may adversely affect our results of operations.
The reason for the volatility in our stock is not well understood and the volatility may continue. Some of the factors we believe that have contributed to our common stock volatility and which may be applicable in future periods, include:
Broker-dealers are increasingly reluctant to permit investors to buy or downturns in the industries that we serve;
Our ability to continue as a going concern is in social media, Internet blogsdoubt unless we obtain adequate new debt or other media outlets;
Operational risks such as material weaknesses and other deficiencies in internal control over financial reporting could result in delays in the shipment of our products. Accordingly, variations in timing of sales, particularly for our higher priced, higher margin products, can cause significant fluctuations in quarterly operating results.
There are a number of factors that may impede our efforts to establish and maintain effective internal controls and a sound accounting infrastructure, including our lacking a Chief Financial Officer, our pace of growth, and general uncertainty regarding the operating effectiveness and sustainability of controls. Controls and procedures, no matter how well designed and operated, provide only reasonable assurance that material errors in our financial information, the trading price of our Common Stock, ifstatements will be prevented or detected on a market ever develops, could drop significantly, or we could become subjecttimely basis. Any failure to Commission enforcement proceedings.
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Potential Impacts of Certain Current and applied in a mannerProposed Regulations on Our Business and Operations
Many companies that is inconsistent from one jurisdictionproduce hemp-derived CBD products including us undertake to another or may conflict withabide by the same regulations as any other rules or our practices. As a result, ourdietary supplements like ingredient filings, good manufacturing practices may not have complied or may not comply in the future with all such laws, regulations, requirements(GMP), and obligations.
People are increasingly turning to hemp products for several reasons: CBD is non-psychoactive, so it does not produce a “high” like THC, there are few known contraindications, the impact such future laws, regulationsproperties of different cannabinoids can positively affect a wide range of ailments, and standards may have on our business. Complyingcannabinoids work directly and indirectly with these evolving obligationsthe 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 costly. For instance, expanding definitions and interpretations of what constitutes “personal data” (or the equivalent) within the United States and elsewhere may increase our compliance costs and legal liability. A significant data breach or any failure, or perceived failure, by us to comply with any federal, state or foreign privacy or consumer protection-related laws, regulations or other principles or orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, investigations, proceedings or actions against us by governmental entities or others or other penalties or liabilities or require us to change our operations and/or cease using certain data sets. Depending on the naturea promising first step.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
XXII has allocated 10 acres of the information compromised, we mayNeedle Rock Farm in Delta County, CO to Panacea. We also have obligations to notify users, law enforcement or payment companies about the incident and may need to provide some form of remedy, such as refunds, for the individuals affectedlease our laboratory space at 16194 West 45th Drive, Golden, CO 80403 from J&N Real Estate Company, LLC which is owned by the incident.
Item 3. LegalLegal Proceedings
Not applicable.
Item 5. MarketMarket for Registrant’sRegistrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our Common Stock is quoted on the OTCQB over-the-counter market under the symbol “EXDI.“PLSH.” Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. On March 31, 202128, 2024, the closing bid price on the OTC Markets for our Common Stock was $0.17.$0.19.
18 |
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker'sbroker’s or dealer'sdealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer'scustomer’s account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser'spurchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Holders of Our Common Stock
As of March 31, 2021,28, 2024, we had 99,632,71017,645,352 shares of our common stock issued and outstanding, and approximately 166190 shareholders ofon record.
Dividends
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
1. weWe would not be able to pay our debts as they become due in the usual course of business, or;
2. ourOur total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
Item 6. SelectedSelected Financial Data
A smaller reporting company is not required to provide the information required by this Item.
Item 7. Man
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements because of several factors, including those set forth under the Part I, Item 1A, Risk Factors and Business sections in our 2021 10-K, this report, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report.
19 |
General
We are a Master Product Development and Supply Agreement (the “Development Agreement”) and Management and ServicesNevada corporation organized in 2008. Exactus, Inc. was our former name. We have pursued opportunities in hemp-based businesses, which we refer to as “cannabinoids or CBD”. On June 30, 2021, Panacea Life Sciences, Inc. “Panacea” entered into an Exchange Agreement with Ceed2Med, LLC (“C2M”) enteredExactus and as a result became a seed-to-sale Cannabinoid company. The former Panacea stockholders have assumed majority control of us, and all our operations are now operated through Panacea which because of the share exchange became our wholly owned subsidiary. Leslie Buttorff, became our Chief Executive Officer and a director upon the closing of the share exchange, also became our principal stockholder through common stock and Convertible Preferred Stock issued to her and entities she controls.
Panacea Life Sciences Holdings, Inc. (PLSH) is holding company structured to support the life sciences and health and wellness industry. Panacea, which was founded by Leslie Buttorff in 20182017 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 hemp products and technology, during 2019. XXII has retained a 15.19% stake in order rapidly enter intous following the CBD business. C2M agreedshare exchange. Through Panacea, we are dedicated to providedeveloping and producing the Company accesshighest-quality, most medically relevant, legal, hemp-derived cannabinoid products for consumers and pets. Beginning at a farm Panacea owns a parcel of located at Needle Rock, Colorado and leases laboratory space located within a 51,000 square foot, state-of-the-art, cGMP, extraction, manufacturing, testing and fulfillment center located in Golden, Colorado, Panacea operates in every segment of the hemp product value chain. From cultivation to expertise, resources, skills and experience suitable for producingfinished goods, Panacea ensures its products with active phyto-cannabinoid (CBD) rich ingredientsstringent testing protocols employed at every stage of the supply chain. Panacea endeavors to offer pure natural remedies within product lines for every aspect of life: PANA Life®, PANA Beauty®, PANA Sport™, PANA Pet®, PANA PURE™ and PANA Health™.
Its subsidiary, Panacea Life Sciences, Inc. (PLS) is dedicated to manufacturing, research and producing the highest-quality, hemp-derived cannabinoid, functional mushroom, Kratom and nutraceutical products for consumers and pets. From cultivation to finished goods, the company ensures its products with stringent GMP standards and testing protocols employed at every stage of the supply chain.
We are well positioned to develop novel hemp extracts as dietary supplements and topical applications. Our biotechnology plans focus on our research at Colorado State University where we are involved in several health-related research studies.
Panacea Distro, the second subsidiary of Panacea Life Sciences Holdings, Inc., manages six retail locations and a distribution center situated in the Tampa, Florida area. These establishments provide a diverse range of products, including isolates, distillates, water soluble,Nitro Kava, Kratom, Hemp, VAPE products, and proprietary formulations. Under various beverages, with a primary focus on promoting alternative health and wellness. The Panacea Distro business is segmented into two distinct areas—the Development Agreement, we had been allottedretail stores and the cash & carry distribution warehouse. The retail stores are poised to evolve into franchise stores, with the intention of eventually adopting the name “PANA KAVA JAVA.” This strategic move is part of our plan to establish a minimumfranchise model based on the success of 50these existing retail locations.
In 2024, a third business entity, Pana Kava Java (PKJ), is set to emerge as the franchisor company, with a scheduled launch in Q3-Q4 2024. Pana Kava Java is committed to establishing a unique franchise model, drawing inspiration from the European-style café concept. Patrons will have the opportunity to savor infused coffees and upbeverages, indulge in vaping, and enjoy an array of infused baked goods in a welcoming atmosphere. Pana Kava Java, as the franchisor, will offer franchise rights to 300 kilograms per month, and up to 2,500 kilograms annually, of active phyto-cannabinoid (CBD) rich ingredients for resale, and offered tinctures, edibles, capsules, topical solutions and animal health products manufactured, directly or indirectly, under this arrangement. C2M was also responsible for overseeing our farming and manufacturing activities.
20 |
Results of Operations
Comparison of the Years Ended December 31, 2023, and 2022.
The following table sets forth our results of operations for the years ended December 31, 20202023, and 2019:
Years Ended December 31, | Period to | |||||||||||
2023 | 2022 | Period Change | ||||||||||
Revenues from nutraceutical and CBD sales | $ | 1,762,903 | $ | 1,515,448 | $ | 247,455 | ||||||
Revenues from PPE sales | $ | - | $ | 111,530 | $ | (111,530 | ) | |||||
Revenues from Pana Distro sales | $ | 595,549 | $ | - | $ | 595,549 | ||||||
Cost of sales | $ | 1,262,979 | $ | 1,230,508 | $ | (32,471 | ) | |||||
Production related operating expenses | $ | 5,211,719 | $ | 4,955,348 | $ | 256,371 | ||||||
General and administrative | $ | 1,456,412 | $ | 1,093,364 | $ | 363,048 | ) | |||||
Interest expense | $ | (1,555,877 | ) | $ | (2,048,171 | ) | $ | (492,294 | ) | |||
Unrealized gain on marketable securities | $ | (1,092,429 | ) | $ | (2,660,105 | $ | (1,567,676 | ) | ||||
Realized gain on sale of securities | $ | - | $ | 22,816 | $ | (22,816 | ) | |||||
Other income (loss) | $ | - | $ | 27,598 | $ | (27,598 | ) | |||||
Employer retention credit | $ | - | $ | 253,791 | $ | (253,791 | ) | |||||
Rental income | $ | 178,411 | $ | 232,183 | $ | (53,772 | ) |
Year Ended December 31, 2023, and 2022
Net Revenues
We are principally engaged in the business of manufacturing, producing, and selling products for nutraceutical companies and our own products made from industrial hemp. During the year ended December 31, 2020, we generated totalRevenue consists of sales of our five categories of brand products, white label and contract manufacturing sales to other hemp companies, raw material sales (distillate and isolate), and tolling arrangements.
Our revenues of $2.1 million from the sale of CBD products, including revenues of $0.3 million from a related party, C2M, for the year ended December 31, 2020.
Cost of Sales
Cost of sales for the year ended December 31, 2023, increased by $32,471, or 3%, to $1,262,979 as compared to $1,230,508 for the year ended December 31, 2022. The increase in cost of sales was due primarily to more material procurement from increased revenues. The primary components of cost of sales include the cost of procuring raw materials and the CBD product. For the year ended December 31, 2020, the Company’s cost of sales amounted to $2.7 million which includes cost of sales with a related party of $0.4 million. Cost of sales primarily increased related to increase in volume.
Operating Expenses
Operating expenses as compared to $9.0 million during the year ended December 31, 2019, an increase of $0.9 million. The increase in operating expenses mainly was related to a $4.6 million increase in impairment charges related to the write off of prepaids with a related party, and impairment of operating lease right to use assets and intangible assets as we no longer plan to farm commercial hemp in 2021, as well as write off of a lease deposit as we determined the lease to not be enforceable and the leased space would not be utilized, offset by a $2.9 million decrease in professional and consulting fees related to a reduction in costs related to our farming activities and $0.3 million decrease in selling and marketing expenses as more of our revenue was generated from product distribution requiring less sales and marketing efforts, and $0.4 million decrease in general and administrative costs mainly related to a reduction in head count costs ..
The increase in valueproduction relating expenses of the underlying derivative liability and conversion of notes in 2020.
21 |
The increase in general and administrative expenses of notes and interest into common and preferred shares during the year ended December 31, 2019. We did not have comparable gains$363,048 or losses during the year ended December 31, 2020 as there was less conversion activity in 2020 by the note holders.
Other income (expense)
Other income for the year ended December 31, 2023, increased by $1,021,196, or 29%, to (2,469,147) as compared to (3,490,432) for the year ended December 31, 2022. This increase inis due primarily to decreased interest expense is primarilyand a smaller unrealized loss related to increasethe value of the shares of XXII held by the company. On January 3, 2022, XXII closed at $3.12 per share. On January 3, 2023, XXII closed at $0.91 and on December 29, 2023, closed at $0.20 per share. The stock and was also subject to a reverse share split of 15 to 1 that took place on July 5, 2023.
Summary of Cash Flows
Years ended December 31, | ||||||||
2023 | 2022 | |||||||
Cash (used in) / provided by | ||||||||
Operating activities | $ | (1,524,463 | ) | $ | (2,399,579 | ) | ||
Investing activities | (65,322 | ) | (196,972 | ) | ||||
Financing activities | 1,683,756 | 2,583,728 | ||||||
Net increase (decrease) in cash and cash equivalents | $ | 93,971 | $ | (12,823 | ) |
Cash flows from operating activities
Net cash used in principle balance outstanding, amortizationoperating activities was $1,524,463 for the year ended December 31, 2023, as compared to $2,399,579 for the year ended December 31, 2022. The decrease in 2023 was due primarily to decreasing operating and SG&A expenses. The largest source of debt discountoperating cash is from our customers CBD sales are processed online with payment due at checkout, and debt issuance cost relatedthe associated credit card payments are collected and paid within 1-2 business days. Other white label and contract manufacturing customers generally pay before the products are released or some larger customers are given either net 10, 2% or 30 day net terms.
Cash flows from investing activities
Net cash used in investing activities was $65,322 for the year ended December 31, 2023, as compared to our$196,972 for the year ended December 31, 2022. The decrease of cash used in 2023 was due primarily to fewer fixed asset purchases.
Cash flows from financing activities
Net cash used in financing activities was $1,683,756 for the year ended December 31, 2023, as compared to $2,583,728 for the year ending December 31, 2022.
During the year ended December 31, 2023 cash provided by financing activities totaled $1,683,756 which included repayment of $135,000 on a convertible note, repayment of related party notes in the amount of $272,075 and proceeds of $2,090,831 from related party notes.
During the year ended December 31, 2022, cash provided by financing activities totaled $2,583,728 which included proceeds of $4,090,448 from related party notes and $253,791 from a related party payroll protection loan partially offset by repayments of convertible notes of $1,100,000 and repayment of related party notes payable issued during 2019.
22 |
Liquidity and Capital Resources
On December 31, 2023, we had approximately $14,933 of liquid marketable securities and $100,922 in cash. Our Chief Executive Officer holds the XXII shares pursuant to the pledge agreement and has the power at any time to permit us to sell the shares to provide working capital. We have borrowed substantial sums from Leslie Buttorff, our inception in 2008,Chief Executive Officer, to meet its working capital obligations. On June 30, 2021, Panacea issued an affiliate of Ms. Buttorff a 12% demand promissory note for $4.063 million and issued Ms. Buttorff a 10% demand promissory note for $1.624 million secured by a pledge of certain XXII common stock owned by Panacea. Additionally, we have generated lossesa line of credit with Ms. Buttorff through which it may borrow up to $8 million at a 10% annual interest rate.
We will not have sufficient cash resources to sustain our operations for the next 12 months, particularly if the large sales contracts we have do not result in the revenue anticipated. This raises substantial doubt as a going concern as we are dependent on obtaining financing from operations. Asone or more debt or equity offerings or further loans from Ms. Buttorff assuming she agrees to advance further funds.
These consolidated financial statements are presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of December 31, 2020,assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of our accumulated deficit was $30.4 million. Asassets and the carrying amount of December 31, 2020,our liabilities based on the going concern uncertainty. These factors raise substantial doubt about our 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 we had $25,139 ofwill ultimately achieve profitable operations or become cash and working capital deficit of $4.9 million. Accordingly,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.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 shareholders.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 operationsresearch and development programs, we may not be able to continue as a going concern.
Off Balance Sheet Arrangements
As of December 31, 2020,2023, we had no material off-balance sheet arrangements.
Critical Accounting Estimates and New Accounting Pronouncements
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States requires its management to make estimates and assumptionsjudgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosuresdisclosures. Our 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 our consolidated financial statements. Managementstatements 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 our financial position and results of operations.
Critical accounting estimates are those that our management considers anthe most important to the portrayal of our 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. Our critical accounting estimateestimates in relation to be critical if it requires assumptionsits 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 |
23 |
Goodwill and Indefinite-Lived Intangibles
We allocate the cost of acquired companies to be made that were uncertainthe 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 estimate wascompletion 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 changes in the estimate or different estimates that could have been selected could have a material impact on our resultsbusiness plans, economic projections, anticipated highest and best use of operations or financial condition.
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 Black-Scholes option-pricing formulaidentified asset until the lease commencement date.
Our lease liabilities are recognized at the applicable lease commencement date based on the present value of the lease payments required to estimatebe 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 stock options. The Black-Scholes option-pricing formula uses complexthe identified assets acquired, liabilities assumed and subjective inputs, includinggoodwill recognized in connection with our business combinations to ensure the expected lifevalue of the options, stock price volatility, dividendsassets and liabilities acquired are recognized at fair value as of the pre-vesting option forfeiture rate. The assumptions used in calculatingacquisition date. In measuring the fair value, we utilize valuation techniques consistent with the market approach, income approach, or cost approach.
The valuation of stock-based awards representthe 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 best estimates, but thesejudgments, and assumptions. If actual results are not consistent with our estimates, involve inherent uncertainties and the application of management judgment. As a result,judgments, or assumptions, or if factors change and we use different assumptions, our stock-based compensation expense could be materially differentadditional or new information arises in the future.
A smaller reporting company is not required to provide the information required by this Item.item.
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Item 8. FinancialFinancial Statements and Supplementary Data
Index to Financial Statements Required by Article 8 of Regulation S-X:
Audited Financial Statements:
CONTENTS | ||
F-2 | ||
F-3 | ||
F-4 | ||
F-5 | ||
F-6 | ||
F-7 |
F-1 |
To the Board of Directors and StockholdersShareholders of
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Exactus,Panacea Life Sciences Holdings, Inc. and Subsidiaries (the Company)“Company”) as of December 31, 20202023 and 2019,2022 and the related consolidated statements of operations, stockholders’shareholders’ equity, (deficit), and cash flows for each of the two years in the two-year period ended December 31, 2020,2023, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the two years in the two-year period ended December 31, 2020,2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit,suffered recurring losses and expects continuing future lossesfrom operations that raises substantial doubt about the Company’sits ability to continue as a going concern. Management's evaluation of the events and conditions and management’sManagement’s plans regardingin regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits,audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our auditsaudit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our auditsaudit provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current periodcurrent-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
/S/ BF Borgers CPA PC (PCAOB ID 5041) | |
We have served as the Company’s auditor since 2021 | |
Lakewood, CO | |
March 29, 2024 |
F-2 |
Panacea Life Sciences Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated BalanceBalance Sheets
December 31, | ||
2020 | 2019 | |
Restated | ||
ASSETS | ||
Current Assets: | ||
Cash and cash equivalents | $25,139 | $18,405 |
Accounts receivable, net | - | 55,725 |
Accounts receivable - related party | - | 18,860 |
Inventory, net | 10,712 | 1,337,809 |
Prepaid expenses and other current assets | 15,258 | 248,776 |
Prepaid expenses and other current assets - related party | - | 622,160 |
Due from related parties | - | 127,500 |
Total current assets | 51,109 | 2,429,235 |
Deposits | - | 80,000 |
Prepaid expenses and other assets - related party | - | 2,492,045 |
Property and equipment, net | 20,159 | 477,433 |
Intangible assets, net | - | 2,147,311 |
Operating lease right-of-use assets, net | - | 390,810 |
Total Assets | $71,268 | $8,016,834 |
LIABILITIES AND (DEFICIT) EQUITY | ||
Current Liabilities: | ||
Accounts payable | $2,027,507 | $1,442,409 |
Accounts payable - related parties | 506,585 | 454,511 |
Accrued expenses | 620,391 | 238,010 |
Unearned revenue - related party | - | 215,000 |
Notes payable - current portion | 130,344 | - |
Note payable - related parties | 115,517 | 55,556 |
Subscription payable | 250,000 | 250,000 |
Convertible notes, net of discounts | 646,036 | 85,906 |
Convertible notes – related party | 50,250 | - |
Derivative liability | 237,022 | 880,410 |
Interest payable | 52,051 | 16,677 |
Operating lease liabilities, current portion | 269,115 | 169,869 |
Total current liabilities | 4,904,818 | 3,808,348 |
Notes payable - long term | 205,166 | - |
Convertible notes payable - long-term portion | - | 100,000 |
Operating lease liabilities - long-term portion | - | 220,942 |
Total long-term liabilities | 205,166 | 320,942 |
Total Liabilities | 5,109,984 | 4,129,290 |
Commitment and contingencies (see Note 11) | ||
(Deficit) Equity: | ||
Exactus, Inc. Stockholders' (Deficit) Equity | ||
Preferred stock: 50,000,000 shares authorized; $0.0001 par value, 5,266,466 undesignated shares | ||
Preferred stock Series A: 1,000,000 shares designated; $0.0001 par value, 323,019 and 353,109 shares issued and outstanding, respectively | 32 | 35 |
Preferred stock Series B-1: 32,000,000 shares designated; $0.0001 par value, 1,650,000, shares issued and outstanding | 165 | 165 |
Preferred stock Series B-2: 10,000,000 shares designated; $0.0001 par value, 7,516,000 shares issued and outstanding | 752 | 752 |
Preferred stock Series C: 1,733,334 shares designated;$0.0001 par value, none shares issued and outstanding | - | - |
Preferred stock Series D: 200 shares designated; $0.0001 par value, 18 shares issued and outstanding | - | - |
Preferred stock Series E: 10,000 shares designated; $0.0001 par value, 10,000 shares issued and outstanding | 1 | 1 |
Common stock: 650,000,000 shares authorized; $0.0001 par value, 56,356,431 and 43,819,325 shares issued and outstanding, respectively | 5,636 | 4,382 |
Common stock to be issued (100,000 and 664,580 shares to be issued, respectively) | 10 | 66 |
Additional paid-in capital | 27,485,796 | 25,343,293 |
Due from related party | (128,489) | - |
Accumulated deficit | (30,384,380) | (20,923,681) |
Total Exactus Inc. Stockholders' (Deficit) Equity | (3,020,477) | 4,425,013 |
Non-controlling interest in subsidiary | (2,018,239) | (537,469) |
Total (Deficit) Equity | (5,038,716) | 3,887,544 |
Total Liabilities and (Deficit) Equity | $71,268 | $8,016,834 |
December 31, 2023 | December 31, 2022 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 100,922 | $ | 6,951 | ||||
Accounts receivable, net | 263,970 | 206,127 | ||||||
Other receivables, related party | - | 500,000 | ||||||
Inventory | 4,013,525 | 4,448,725 | ||||||
Marketable securities related party | 14,933 | 1,107,362 | ||||||
Prepaid expenses and other current assets | 263,003 | 113,098 | ||||||
TOTAL CURRENT ASSETS | 4,656,353 | 6,382,263 | ||||||
Operating lease right-of-use asset, net, related party | 3,864,591 | 3,242,381 | ||||||
Property and equipment, net | 6,448,068 | 7,675,995 | ||||||
Intangible assets, net | - | - | ||||||
Goodwill | 3,014,450 | 2,188,810 | ||||||
TOTAL ASSETS | $ | 17,983,462 | $ | 19,489,449 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued expenses | $ | 4,629,591 | $ | 2,666,076 | ||||
Operating lease liability, current portion, related party | 2,913,781 | 2,090,271 | ||||||
Note payable-current, related party | 11,397,617 | 9,871,803 | ||||||
First Bank note payable | 292,942 | - | ||||||
Convertible note payable, net | 115,000 | 346,671 | ||||||
Paycheck protection loan, SBA Loan | 99,100 | 99,100 | ||||||
TOTAL CURRENT LIABILITIES: | 19,448,031 | 15,073,921 | ||||||
Operating lease liability, long-term portion, related party | 3,254,021 | 2,987,208 | ||||||
Other long-term liabilities, related party | 3,572,864 | 3,572,864 | ||||||
TOTAL LIABILITIES | 26,274,916 | 21,633,993 | ||||||
Commitments and contingencies | - | - | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Series A Preferred Stock: $ | Par Value, shares designated; and shares issued and outstanding on December 31, 2023 and December 31, 2022 respectively.- | - | ||||||
Series B-1 Preferred: $ | Par Value, shares designated; and shares issued and outstanding on December 31, 2023 and December 31, 2022 respectively.150 | 150 | ||||||
Series B-2 Preferred: $ | Par Value, shares designated; and shares issued and outstanding on December 31, 2023 and December 31, 2022 respectively.600 | 600 | ||||||
Series C Preferred: $ | Par Value, shares designated; and shares issued and outstanding on December 31, 2023 and December 31, 2022 respectively.100 | 100 | ||||||
Series C-1 Preferred: $ | Par Value, shares designated and and shares issued and outstanding on December 31, 2023 and December 31, 2022 respectively.1 | 1 | ||||||
Series C-2 Preferred: $ | Par Value, and shares designated and and shares issued and outstanding on December 31, 2023 and December 31, 2022 respectively.- | - | ||||||
Series D Preferred: $ | Par Value, shares designated and and shares issued and outstanding on December 31, 2023 and December 31, 2022 respectively.1 | 1 | ||||||
Series E Preferred: $ | Par Value, shares designated and issued on December 31, 2023.385 | - | ||||||
Preferred stock, value | 385 | - | ||||||
Common Stock: $ | Par Value, shares authorized; and shares issued and outstanding on December 31, 2023 and December 31, 2022 respectively.1,765 | 1,497 | ||||||
Additional paid in capital | 25,628,442 | 23,760,704 | ||||||
Accumulated deficit | (33,922,898 | ) | (25,907,597 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | (8,291,454 | ) | (2,144,544 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 17,983,462 | $ | 19,489,449 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3 |
Panacea Life Sciences Holdings, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
Years Ended December 31, | ||
2020 | 2019 | |
(Restated) | ||
Net revenues | $1,755,210 | $183,234 |
Net revenues - related party | 315,800 | 162,446 |
Total net revenues | 2,071,010 | 345,680 |
Cost of sales | 2,301,843 | 1,939,382 |
Cost of sales - related party | 417,783 | 106,752 |
Total cost of sales | 2,719,626 | 2,046,134 |
Gross loss | (648,616) | (1,700,454) |
Operating Expenses: | ||
General and administration | 2,679,337 | 2,816,308 |
Impairment | 4,577,406 | 250,192 |
Selling and marketing expenses | 638,632 | 948,296 |
Professional and consulting | 2,010,935 | 4,935,394 |
Research and development | - | 22,100 |
Total operating expenses | 9,906,310 | 8,972,290 |
Loss from operations | (10,554,926) | (10,672,744) |
Other (expenses) income | ||
Derivative gain (loss) | 513,674 | (1,871,583) |
Loss on stock settlement | (23,000) | - |
Gain on settlement of debt, net | 126,222 | 3,004,630 |
Interest expense | (1,003,439) | (479,111) |
Total other (expense) income, net | (386,543) | 653,936 |
Loss before provision for income taxes | (10,941,469) | (10,018,808) |
Provision for income taxes | - | - |
Net loss | (10,941,469) | (10,018,808) |
Net loss attributable to non-controlling interest | 1,480,770 | 537,469 |
Net loss attributable to Exactus, Inc. | (9,460,699) | (9,481,339) |
Deemed dividend on preferred stock | - | (904,450) |
Net loss available to Exactus, Inc. common stockholders | $(9,460,699) | $(10,385,789) |
Net loss per common share - basic and diluted | $(0.22) | $(0.30) |
Net loss attributable to non-controlling interest per common share – basic and diluted | $(0.03) | $(0.02) |
Net loss available to Exactus, Inc. common stockholders per common share - basic and diluted | $(0.19) | $(0.31) |
Weighted average number of common shares outstanding: | ||
basic and diluted | 49,688,543 | 33,899,585 |
2023 | 2022 | |||||||
For the year ending December 31 | ||||||||
2023 | 2022 | |||||||
REVENUE | $ | 2,384,956 | $ | 1,626,978 | ||||
COST OF SALES | 1,262,979 | 1,230,508 | ||||||
GROSS PROFIT | 1,121,977 | 396,470 | ||||||
OPERATING EXPENSES | ||||||||
Production related operating expenses | 5,211,719 | 4,955,348 | ||||||
General and administrative expenses | 1,456,412 | 1,093,364 | ||||||
TOTAL OPERATING EXPENSES | 6,668,131 | 6,048,712 | ||||||
LOSS FROM OPERATIONS | (5,546,154 | ) | (5,652,242 | ) | ||||
OTHER INCOME (EXPENSES) | ||||||||
Interest expense | (1,555,877 | ) | (2,048,171 | ) | ||||
Unrealized gain (loss) on marketable securities, net | (1,092,429 | ) | (2,660,105 | ) | ||||
Realized gain on sale of securities | - | 22,816 | ||||||
Other income (loss) | - | 27,598 | ||||||
Employer retention credit | - | 253,791 | ||||||
Rental Income | 178,411 | 232,183 | ||||||
Gain on extinguishment of debt | 748 | 681,546 | ||||||
TOTAL OTHER INCOME (EXPENSE) | (2,469,147 | ) | (3,490,342 | ) | ||||
INCOME (LOSS) BEFORE INCOME TAXES | (8,015,301 | ) | (9,142,584 | ) | ||||
TAXES | - | - | ||||||
NET INCOME (LOSS) | $ | (8,015,301 | ) | $ | (9,142,584 | ) | ||
Per-share data | ||||||||
Basic and diluted loss per share | $ | ) | $ | ) | ||||
Weighted average number of common shares outstanding |
The accompanying notes are an integral part of these consolidated financial statements.
F-4 |
Preferred Stock | Common Stock | ||||||||||||||||||||
Series A | Series B-1 | Series B-2 | Series C | Series D | Series E | Issued | Unissued | Paid in | Due from related | Accumulated Deficit (As | Non-controlling | Total (As | |||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | party | restated) | Interest | restated) | |
Balance, December 31, 2018 | - | - | 2,800,000 | $280 | 8,684,000 | $868 | 1,733,334 | $173 | 45 | $1 | - | $- | 6,233,524 | $623 | - | $- | 7,111,445 | $(10,537,892) | $- | $(3,424,502) | |
Preferred stock issued upon conversion of convertible debt | - | 84 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 849,276 | - | - | 849,360 | |
Preferred stock issued for private placement | - | 6 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 55,084 | - | - | 55,090 | |
Preferred stock issued pursuant to Management and Services Agreement | - | - | - | - | - | - | - | - | - | - | 10,000 | 1 | - | - | - | - | 3,374,999 | - | - | 3,375,000 | |
Conversion of Series A Preferred Stock to Common Stock | (551,341) | (55) | - | - | - | - | - | - | - | - | - | - | 2,756,705 | 276 | - | - | (221) | - | - | - | |
Conversion of Series B-1 Preferred Stock to Common Stock | - | - | (1,150,000) | (115) | - | - | - | - | - | - | - | - | 143,750 | 14 | - | - | 101 | - | - | - | |
Conversion of Series B-2 Preferred Stock to Common Stock | - | - | - | - | (1,168,000) | (116) | - | - | - | - | - | - | 146,000 | 15 | - | - | 101 | - | - | - | |
Conversion of Series D Preferred Stock to Common Stock | - | - | - | - | - | - | - | - | (27) | (1) | - | - | 675,000 | 68 | - | - | (67) | - | - | - | |
Deemed dividend on Preferred Stock | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 904,450 | (904,450) | - | - | |
Common stock issued for private placement | - | - | - | - | - | - | - | - | - | - | - | - | 22,187,007 | 2,219 | - | - | 7,213,161 | - | - | 7,215,380 | |
Common Stock issued for Master Supply | - | - | - | - | - | - | - | - | - | - | - | - | 8,385,691 | 839 | - | - | (839) | - | - | - | |
Common stock issued for debt settlement | - | - | - | - | - | - | - | - | - | - | - | - | 203,080 | 20 | - | - | 40,596 | - | - | 40,616 | |
Common stock issued for purchase of membership interest in subsidiary | - | - | - | - | - | - | - | - | - | - | - | - | 937,500 | 94 | - | - | 989,906 | - | - | 990,000 | |
Common stock issued for purchase of membership interest in subsidiary | - | - | - | - | - | - | - | - | - | - | - | - | 503,298 | 50 | - | - | 449,950 | - | - | 450,000 | |
Common stock unissued for pursuant to Asset Purchase Agreement | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 100,000 | 10 | 69,990 | - | - | 70,000 | |
Common stock issued upon conversion of convertible debt | - | - | - | - | - | - | - | - | - | - | - | - | 250,000 | 25 | - | - | 195,975 | - | - | 196,000 | |
Common stock issued and unissued for prepaid services | - | - | - | - | - | - | - | - | - | - | - | - | 150,000 | 15 | 100,000 | 10 | 120,355 | - | - | 120,380 | |
Common stock issued and unissued for services | - | - | - | - | - | - | - | - | - | - | - | - | 1,312,490 | 131 | 20,830 | 2 | 925,714 | - | - | 925,847 | |
Stock-based compensation in connection with restricted common stock award grants | - | - | - | - | - | - | - | - | - | - | - | - | 115,280 | 11 | 68,750 | 7 | 143,896 | - | - | 143,914 | |
Common stock and preferred stock cancelled per Surrender and Release Agreement | - | - | - | (1,733,334) | (173) | - | - | - | - | (180,000) | (18) | - | - | 191 | - | - | - | ||||
Common stock issued for exercise of stock options | - | - | - | - | - | - | - | - | - | - | - | - | 375,000 | 37 | (37) | - | - | - | |||
Stock options granted for services | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 1,276,636 | - | - | 1,276,636 | |
Stock warrants granted for services | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 1,428,243 | - | - | 1,428,243 | |
Stock warrants granted as debt discount | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 194,388 | - | - | 194,388 | |
Net Loss | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (9,481,339) | (537,469) | (10,224,506) | ||
Balance, December 31, 2019 | 353,109 | $35 | 1,650,000 | $165 | 7,516,000 | $752 | - | $- | 18 | $- | 10,000 | 43,819,325 | $4,382 | 664,580 | $66 | $25,343,293 | $(20,923,681) | $(537,469) | $3,887,544 | ||
Common stock issued for private placement | - | - | - | - | - | - | - | - | - | - | - | - | 3,700,000 | 370 | - | - | 384,630 | - | - | - | 385,000 |
Common stock issued for unissued common stock | - | - | - | - | - | - | - | - | - | - | - | - | 475,000 | 47 | (475,000) | (47) | - | - | - | - | - |
Conversion of Series A Preferred Stock to Common Stock | (30,090) | (3) | - | - | - | - | - | - | - | - | - | - | 150,450 | 15 | - | - | (12) | - | - | - | - |
Common stock issued for services | - | - | - | - | - | - | - | - | - | - | - | - | 765,000 | 77 | - | - | 378,446 | - | - | - | 378,523 |
Stock-based compensation in connection with restricted common stock award grants | - | - | - | - | - | - | - | - | - | - | - | - | 3,766,635 | 377 | (89,580) | (9) | 664,418 | - | - | - | 696,786 |
Stock options granted for services | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | 276,736 | - | - | - | 276,736 |
Common stock issued upon conversion of convertible debt and accrued interest | - | - | - | - | - | - | - | - | - | - | - | - | 2,397,937 | 240 | - | - | 239,838 | - | - | - | 240,078 |
Common stock issued in connection with forbearance agreement | - | - | - | - | - | - | - | - | - | - | - | - | 500,000 | 50 | - | - | 89,950 | - | - | - | 90,000 |
Due from related parties reclassified to equity | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (128,489) | - | - | (128,489) |
Common stock issued for private placement in fiscal 2019 | - | - | - | - | - | - | - | - | - | - | - | - | 12,084 | 1 | - | - | (1) | - | - | - | - |
Common stock issued for services and accounts payable | - | - | - | - | - | - | - | - | - | - | - | - | 750,000 | 75 | - | - | 70,500 | - | - | - | 70,575 |
Common stock issued for exercise of stock options | - | - | - | - | - | - | - | - | - | - | - | - | 20,000 | 2 | - | - | 5,998 | - | - | - | 6,000 |
Net Loss for the period | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | (9,460,699) | (1,480,770) | (10,941,469) |
Balance, December 31, 2020 | 323,019 | $ 32 | 1,650,000 | $ 165 | 7,516,000 | $ 752 | - | $ - | 18 | $ - | 10,000 | 56,356,431 | $ 5,636 | 100,000 | $ 10 | $ 27,485,796 | $ (128,489) | $(30,384,380) | $(2,018,239) | $(5,038,716) |
PANACEA LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(unaudited)
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Balance as of December 31, 2022 | 8,530,350 | $ | 853 | 14,965,317 | $ | 1,497 | $ | 23,760,704 | $ | (25,907,597 | ) | $ | (2,144,544 | ) | ||||||||||||||
Balance | 8,530,350 | $ | 853 | 14,965,317 | $ | 1,497 | $ | 23,760,704 | $ | (25,907,597 | ) | $ | (2,144,544 | ) | ||||||||||||||
Sale of shares to investors | - | - | 454,545 | 46 | 74,955 | 75,000 | ||||||||||||||||||||||
Issuance of common shares for services | 275,490 | 28 | 23,069 | 23,097 | ||||||||||||||||||||||||
Issuance of restricted shares to employees | 1,410,000 | 141 | (141 | ) | - | |||||||||||||||||||||||
Shares issued in settlement of convertible note | - | - | 540,000 | 54 | 134,946 | 135,000 | ||||||||||||||||||||||
Preferred Series E shares issued in acquisition | 3,853,000 | 385 | - | - | 1,634,909 | 1,635,295 | ||||||||||||||||||||||
Net Loss | - | - | - | - | - | (8,015,301 | ) | (8,015,301 | ) | |||||||||||||||||||
Balance as of December 31, 2023 | 12,383,350 | $ | 1,238 | 17,645,352 | $ | 1,765 | $ | 25,628,442 | $ | (33,922,898 | ) | $ | (8,291,454 | ) | ||||||||||||||
Balance | 12,383,350 | $ | 1,238 | 17,645,352 | $ | 1,765 | $ | 25,628,442 | $ | (33,922,898 | ) | $ | (8,291,454 | ) |
The accompanying notes are an integral part of these consolidated financial statements.statements
F-5 |
Panacea Life Sciences, Inc. and Subsidiaries
Statements of CashCash Flows
Years Ended December 31, | ||
2020 | 2019 | |
Cash Flows From Operating Activities: | ||
Net loss | $(10,941,469) | $(10,018,808) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Depreciation | 85,233 | 63,770 |
Derivative (gain) loss | (513,674) | 1,871,583 |
Gain on extinguishment of debt | (126,222) | - |
Stock-based compensation | 1,352,045 | 3,774,640 |
Bad debt expense | 149,907 | 32,577 |
Impairment expense | 4,577,406 | 250,192 |
Inventory reserve | 678,870 | 1,560,545 |
Amortization of prepaid stock-based expenses | 771,405 | 285,494 |
Amortization of discount and debt issuance costs for convertible notes | 836,316 | 425,712 |
Amortization of intangible assets | 734,584 | 828,526 |
Non-cash interest expense | 92,042 | - |
Amortization of operating lease right-of-use assets | 121,695 | - |
Loss (gain) on settlement of debt | 23,000 | (3,004,630) |
Changes in operating assets and liabilities: | ||
(Increase) decrease in operating assets: | ||
Accounts receivable | (94,182) | (88,302) |
Accounts receivable - related party | 18,860 | (18,860) |
Inventory | 648,227 | (2,864,383) |
Prepaid expenses and other assets | 163,370 | (140,765) |
Deposit | 40,000 | (80,000) |
Accounts payable | 614,004 | 518,979 |
Accounts payable - related party | (25,842) | 454,511 |
Accrued expenses | 382,381 | 201,136 |
Unearned revenues | (215,000) | 215,000 |
Settlement payable | - | (20,000) |
Interest payable | 49,054 | 6,793 |
Operating lease liabilities | (121,696) | - |
Net Cash Used In Operating Activities | (699,686) | (5,746,290) |
Cash Flows From Investing Activities: | ||
Purchase of membership interest in subsidiary | - | (1,500,000) |
Purchase of property and equipment | - | (541,203) |
Net Cash Used in Investing Activities | - | (2,041,203) |
Cash Flows From Financing Activities: | ||
Increase in due to related party classified as equity | (989) | - |
Proceeds from exercise of stock options | 6,000 | - |
Advances from related party | 97,000 | 242,500 |
Repayments on related party advances | (19,084) | (370,000) |
Proceeds from sale of common stock | 385,000 | 7,215,380 |
Payments of principal on notes payable | - | (59,500) |
Proceeds from issuance of notes payable | 335,510 | 97,156 |
Proceeds from issuance of notes payable - related party | 57,919 | - |
Payments of principal on convertible notes | (205,186) | (186,443) |
Proceeds from issuance of convertible notes, net of issuance cost | 50,250 | 864,845 |
Net Cash Provided By Financing Activities | 706,420 | 7,803,938 |
Net increase in cash and cash equivalents | 6,734 | 16,445 |
Cash and cash equivalents at beginning of year | 18,405 | 1,960 |
Cash and cash equivalents at end of year | $25,139 | $18,405 |
Supplemental Cash Flow Information: | ||
Cash paid for interest and finance charges | $46,025 | $40,116 |
Cash paid for taxes | $- | $- |
Non-Cash investing and financing activities: | ||
Forgiveness of debt by officers and directors | $- | $- |
Proceeds from sale of Series D preferred stock paid directly to settle amounts | ||
due to officers and directors | $- | $- |
Proceeds from sale of Series A preferred stock paid directly to settle debts | $- | $55,090 |
Convertible notes and interest payable settled by Series A preferred stock issued | $- | $849,360 |
Note payable, accrued expense and interest payable settled by common stock issued | $- | $40,616 |
Convertible notes settled by common stock issued | $184,680 | $196,000 |
Accounts payable and accrued liabilities settled by common stock issued | $70,575 | $- |
Common stock issued for purchase of membership interest in subsidiary | $- | $1,440,000 |
Common stock and preferred stock issued for prepaid services | $- | $3,495,380 |
Common stock issued pursuant to asset purchase agreement | $- | $70,000 |
Increase in intangible assets for subscription payable | $- | $250,000 |
Initial beneficial conversion feature and debt discount on convertible notes | $- | $670,467 |
Stock warrants granted as debt discount | $- | $194,388 |
Initial derivative liability on convertible notes | $- | $- |
Fair value of common stock issued on conversion of notes | $- | $- |
Fair value of common stock issued for settlement of accounts payable | $- | $- |
Preferred deemed dividend | $- | $904,450 |
Operating lease right-of-use assets and operating lease liabilities | ||
recorded upon adoption of ASC 842 | $- | $506,506 |
Reduction of operating lease right-of-use asset and operating lease liabilities | $- | $115,694 |
Prepaid expenses directly paid by a related party | $- | $35,000 |
2023 | 2022 | |||||||
For the years ended December 31 | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | (8,015,301 | ) | $ | (9,142,584 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation | 1,712,969 | 1,669,690 | ||||||
Realized gain on sale of securities | - | (22,816 | ) | |||||
Unrealized (gain)/loss on marketable securities | 1,092,429 | 2,660,105 | ||||||
Inventory Insurance Disposal | 538,583 | - | ||||||
Non cash settlement of convertible note and accrued interest | 74,999 | (253,791 | ) | |||||
Amortization of intangible assets | - | 61,401 | ||||||
Amortization of debt discount and non-cash interest expense | 38,329 | 1,067,304 | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | 431,317 | 38,369 | ||||||
Inventory | 297,391 | (184,448 | ) | |||||
Prepaid expense and other assets | (149,905 | ) | 165,230 | |||||
Accounts payable and accrued expenses | 1,986,613 | 1,083,188 | ||||||
Operating lease liability, net | 468,113 | 458,773 | ||||||
Net cash used in operating activities | (1,524,463 | ) | (2,399,579 | ) | ||||
Cash flows from investing activities | ||||||||
Proceeds from sale of marketable securities | - | 46,832 | ||||||
Net fixed asset acquisitions | (65,322 | ) | (243,804 | ) | ||||
Net Cash provided by (used in) investing activities | (65,322 | ) | (196,972 | ) | ||||
Cash flows from financing activities | ||||||||
Repayment of notes payable | (135,000 | ) | (1,100,000 | ) | ||||
Proceeds from payroll protection loan, SBA loan | - | 253,791 | ||||||
Payments of principal on notes payable | (272,075 | ) | (660,511 | ) | ||||
Proceeds from Notes payable - related party | 1,797,889 | 4,090,448 | ||||||
Proceeds from notes payable | 292,942 | - | ||||||
Cash provided by financing activities | 1,683,756 | 2,583,728 | ||||||
Net increase (decrease) in Cash and Cash Equivalents | 93,971 | (12,823 | ) | |||||
Cash and Cash Equivalents, Beginning of Period | 6,951 | 19,774 | ||||||
Cash and Cash Equivalents, End of Period | $ | 100,922 | $ | 6,951 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Cash paid for income taxes during the year | $ | - | $ | - | ||||
Interest payments during the year | $ | - | $ | - | ||||
Noncash investing and financing activity | ||||||||
Goodwill recorded in acquisition | $ | 825,640 | $ | - | ||||
Preferred shares issued in acquisition | $ | 1,646,134 | $ | - | ||||
Inventory recorded in acquisition | $ | (400,774 | ) | $ | - | |||
Assets from acquisition | $ | (419,720 | ) | $ | - | |||
Conversion of Preferred A shares to Note Payable | $ | 385,000 | ||||||
Issuance of Common Stock for services | $ | - | $ | 55,000 | ||||
Capitalized assets purchased on account - related party | $ | - | $ | 261,899 |
The accompanying notes are an integral part of these consolidated financial statements.statements.
F-6 |
PANACEA LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARIES
DECEMBER 31, 2020
NOTE 1 -
NATURE OF ORGANIZATIONOrganization and Business Description
Panacea Life Sciences Holdings, Inc. (the(the “Company”, “Panacea Holdings”, “we”, “us”, “our”) was incorporated on January 18, 2008, as an alternative energy research and development company. During muchin the State of its history the Company had designed solar monitoring and charging systems which were discontinued in 2016 to focus on developing point-of-care diagnostic devices.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”).
Panacea Life Sciences Holdings, Inc. is a holding company organized as a plant-based natural health ingredient and product company, specializing in the Company entered intodevelopment, manufacturing, research, and distribution of products within the Master Product Development$134B and Supply Agreement with C2M. In considerationrapidly growing natural health and wellness market segment for the Development Agreement, C2M was issued 8,385,691 shares of Common Stock. Additionally, the Company granted vested 10-year options to purchase 750,000 shares of Common Stock, with exercise price of $0.32 per share to three C2M founders. As a result, C2M became the Company’s largest shareholder holding (inclusive of the vested options held by its founders) approximately 51% of the Company’s outstanding Common Stock as of the date of the Development Agreement. Consequently, such transaction resulted in a change of control whereby, C2M obtained majority control through its Common Stock ownership. In connection with this agreement, the Company received access to expertise, resources, skillsboth humans and experience suitable for production of CBD rich ingredients including isolates, distillates, water soluble, and proprietary formulations. Under the Development Agreement, the Company was allotted a minimum of 50 and up to 300 kilograms per month, and up to 2,500 kilograms annually, of CBD rich ingredients for resale and placed a $1 million purchase order for products.
The company’s first subsidiary, Panacea Life Sciences, Inc. (PLS), is dedicated to the Company upproduction, distribution, research, and manufacturing of premium-quality nutraceuticals, cannabinoids, mushrooms, kratom, and other natural, plant-based ingredients and products. Operating from a cutting-edge 51,000 square foot cGMP facility located in Golden, Colorado, PLS is committed to 2,500 kilogramsdelivering high-quality solutions in the field of natural health and well-being.
Panacea Distro, the second subsidiary of Panacea Life Sciences Holdings, Inc., manages six retail locations and a distribution center situated in the Tampa, Florida area. These establishments provide a diverse range of products, (isolate or distillate) for manufacture into consumerincluding Nitro Kava, Kratom, Hemp, VAPE and mushroom products, such as tinctures, edibles, capsules, topical solutions and animal products. The Company believes manufacturing, testingvarious beverages, with a primary focus on promoting alternative health and quality akin to pharmaceutical products is important when distributing hemp-based products. The Company’s products originated from farms at which the Company or C2M oversaw all stages of plant growth and are manufactured under contract arrangements with third-parties.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
On September 30, 2023 the Company and its majority-owned subsidiaries as of December 31, 2020. All significant intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments necessary to present fairly our financial position,completed an Asset Purchase Agreement with N7 Enterprises. The results of operations, stockholders’ (deficit) equity and cash flows as of December 31, 2020 and 2019, andfor N7 for the years then ended, have been made. Those adjustments consist of normal and recurring adjustments.
Going concern
These audited 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.Since our inception in later 2017, we have generated losses from operations, except for some slight profits in a few quarters. As reflected in the accompanying consolidated financial statements, the Company had a net loss attributable to Exactus Inc. common stockholders of $9.5 million for the year ended December 31, 2020. The net cash used in operating activities was $0.7 million for the year ended December 31, 2020. Additionally, the Company had an accumulated deficit of $30.4 million and working capital deficit of $4.8 million as of December 31, 2020. 2023, our accumulated deficit was $33.9 million, and we had $0.1 million in cash and liquid stock. We also currently do not have sufficient cash flow to pay our ongoing financial obligations on a consistent basis.
These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve12 months from the issuance date of this report.these financial statements. Management plans to raise additional capital to fund operations, until the Company achieves and maintains profitable operations and cash flows. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raiseissuance of any additional debt and/or equity capital. The Company is seeking to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from salesshares of common andstock, preferred shares and from the issuance ofstock or convertible promissory notes, there is no assurance that it willsecurities could be ablesubstantially dilutive to continueour shareholders. In addition, adequate additional funding may not be available to do so. If the Company is unable to raise additional capitalus on acceptable terms, or secure additional lending in the near future, management expects that the Company will need to curtail its operations. The accompanyingat all. These audited 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.
F-7 |
Use of Estimates
The Company expects to realize revenue through its efforts, if successful, to sell wholesale and retail products to third parties. However, as the Company is in a start-up phase, in a new business venture, in a rapidly evolving industry, many of its costs and challenges are new and unknown. In order to fund the Company’s activities, the Company will need to raise additional capital either through the issuance of equity and/or the issuance of debt. During the year ended December 31, 2020, the Company received proceeds from the sale of the Company’s Common Stock of approximately $385,000.
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 December 31, 2023 and 2022, the Company’s cash balances did not exceed the FDIC limit.
Accounts Receivable
Accounts receivable are generally unsecured. The Company establishes an allowance for doubtful accounts receivable based on the age of outstanding invoices and management’s evaluation of collectability. Accounts are written off after all reasonable collection efforts have been exhausted and management concludes that likelihood of collection is remote. Any future recoveries are applied against the allowance for doubtful accounts. 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.
Inventory
Inventories are stated at lower of cost or net realizable value. Inventories of purchased materials are valuated using a moving average method and managed by first in first out basis (FIFO). Inventories of internally manufactured materials are valuated using a standard costing method and are also managed on a FIFO basis. Production related costs that are capitalized as inventory as part of the standard cost valuation include the direct materials consumed, direct labor used, indirect labor used, and manufacturing overhead. Overhead is calculated based on specific manufacturing process and allocated on an order-by-order basis. Production variances that occur between standard cost valuation and actual costs are expensed as incurred in the income statement as part of cost of goods sold.
Marketable securities
The Company’s marketable securities consist of and shares of XXII as of December 31, 2023 and 2022, respectively, which are classified as available-for-sale and included in current assets. (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 consolidated statements of operations.
F-8 |
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 Company measures certain financial instruments atfollowing table shows, by level within the fair value on a recurring basis. Assetshierarchy, the Company’s assets and liabilities measured at fair value on a recurring basis are as follows atof December 31, 20202023, and 2019:
At December 31, 2020 | At December 31, 2019 | |||||
Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 |
Derivative liabilities | — | — | $237,022 | — | — | $880,410 |
SCHEDULE OF FAIR VALUE ASSETS MEASURED ON RECURRING BASIS
December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
Marketable securities | $ | 14,933 | $ | 14,933 | $ | - | $ | - | $ | 1,107,362 | $ | 1,107,362 | $ | - | $ | - | ||||||||||||||||
Total | $ | 14,933 | $ | 14,933 | $ | - | $ | - | $ | 1,107,362 | $ | 1,107,362 | $ | - | $ | - |
There were no transfers of marketable securities into or out of Level 1 during the level 3 valuation financial instruments is as follows:
SCHEDULE OF MARKETABLE SECURITIES
December 31, 2023 | ||||
Balance at beginning of year | $ | 1,107,362 | ||
Unrealized gain (loss) on marketable securities, net | (1,092,429 | ) | ||
Balance at end of period | $ | 14,933 |
As of December 31, 2020 and 2019,2023, the Company has no assetsliabilities that are re-measured at fair value.
December 31, 2020 | December 31, 2019 | |
Prepaid services | $- | $248,767 |
Prepaid insurance | 9,288 | - |
Other assets | 6,000 | - |
$15,258 | $248,776 |
Property and Equipment
Property and equipment are carriedstated at cost less accumulated depreciation. Depreciation is computedcalculated using the straight-linestraight–line method on the various asset classes over thetheir estimated useful lives, of the assets rangingwhich range from 3three to 10 years.ten years when placed in service. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the consolidated statementyear of operations.disposition.
Intangible Assets and Goodwill
Goodwill is comprised of the purchase price of business combinations in excess of the fair market value assigned at acquisition to the tangible and intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment on an annual basis. The Company performed its most recent goodwill impairment using a discounted cash flow analysis and found that the fair value exceeded the carrying value. It has $2.189 million of goodwill from the acquisition of the assets of Phoenix Life Sciences, Inc. in October 2017 and 0.825 million from the N7 acquisition.
SCHEDULE OF INTANGIBLE ASSETS AND GOODWILL
Estimated Life | ||
Goodwill from Phoenix Acquisition | Tested Yearly for Impairment | |
Goodwill from N7 Acquisition | Tested Yearly for Impairment |
F-9 |
December 31, 2023 | December 31, 2022 | |||||||
Goodwill from Phoenix Acquisition | $ | 2,188,810 | $ | 2,188,810 | ||||
Goodwill from N7 Acquisition | 825,640 | - | ||||||
Total | $ | 3,014,450 | $ | 2,188,810 |
Leases
The Company determines if an arrangement is a lease at inception. Contracts containing a lease are further evaluated for classification as an operating or finance lease. In accordance with ASC Topic 360,determining the leases classification, the Company reviews long-livedassesses among other criteria: (i) 75% or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset; and (ii) 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities and long-term operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net, other current liabilities, and long-term finance lease liabilities in the Company’s consolidated balance sheets. ROU assets represent the right to use an underlying asset for impairment whenever eventsthe lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. For leases with terms greater than 12 months, the Company records the ROU asset and liability at commencement date based on the present value of lease payments according to their term.
The Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or changes in circumstances indicateterminate the lease when it is reasonably certain that the Company will exercise that option. Lease expenses are recognized on a straight-line basis over the lease term or the useful life of the leased asset.
In addition, the carrying amount of the assets may not be fully recoverable,ROU and lease liabilities are remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or at least annually. a change in the assessment to purchase the underlying asset.
Convertible Notes Payable
None.
Revenue Recognition
The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment expense of $4,577,406 and $250,192 as follows:
December 31, 2020 | December 31, 2019 | |
Prepaid expenses and other assets – related party | $2,483,523 | $ |
Deposit | 40,000 | |
Property and equipment | 372,041 | |
Intangible assets | 1,412,727 | 250,192 |
Operating lease – right of use asset | 269,115 | |
Total | $4,577,406 | $250,192 |
The Company accounts for a contract when it has been approved and committed to, be recognized in a manner that depictseach party’s rights regarding the transfer of goods or services to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. However, the Company’s sales are primarily through retail stores, purchase orders or ecommerce; thus, currently contract liabilities are negligible. The Company does not have any multiple-element arrangements.
Some of the Company’s contract liabilities consist of advance customer payments. Contract liability results from transactions in which the Company has been paid for products by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the contract liabilities are recognized. The Company recorded $349,705 and $368,065 in advanced customer payments as of December 31, 2023, and December 31, 2022, respectively, and these amounts are included in the balance sheet line item of accounts payable and accrued expenses. The customer payments have increased as the nutraceutical manufacturing business results in larger contracts.
F-10 |
SCHEDULE OF REVENUE FROM CONTRACT WITH CUSTOMER
December 31, 2023 | December 31, 2022 | |||||||
Balance, beginning of period | $ | 368,065 | $ | 24,585 | ||||
Payments received for unearned revenue | 156,298 | 412,891 | ||||||
Revenue earned | 174,658 | 69,411 | ||||||
Balance, end of period | $ | 349,705 | $ | 368,065 |
Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflectreflects the consideration to which thethat an entity expects to be entitledreceive 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 recognizes revenue by applyingapplies the following steps:
Revenue related to the point in time whensale of products are shipped or deliveredis recognized once goods have been sold to the customer whichand 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 customerperformance obligation, such as processing of the material, has titlebeen completed and output material has been transferred to the significant riskscustomer.
Revenue is generally recognized net of allowances for returns and rewardsany taxes collected from customers and subsequently remitted to governmental authorities. Some of ownership. Therefore, the Company’s contractscontract 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 a single performance obligation (shipment of product).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. The Company primarily receives fixed consideration for sales of product. Payments received from customers that are related to unshipped or undelivered products are recorded as unearned revenue until the shipment of product. As of December 31, 2020 and 2019, the Company had $0 and $215,000, respectively, of unearned revenue recorded from the Company’s related party customer, C2M.
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 sellinggeneral and marketing expensesadministrative costs as incurred. Shipping costs are included as a component of sellinggeneral and marketing expensesadministrative and were $24,68797,911 and $11,835$84,507 for December 31, 2023, and December 31, 2022, respectively. The increase is due to higher postage costs and larger freight shipments.
Advertising & Marketing
Advertising costs are expensed when incurred. 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 $17,947 and $209,254 for the yearyears ended December 31, 20202023, and 2019,2022, respectively.
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 conform toevaluate performance and make decisions regarding resource allocation, as well as the current period presentation. The reclassified amounts have no impactmateriality of financial results consistent with that structure. Based on the Company’s previously reported financial position or resultsmanagement structure and method of operations.
F-11 |
The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings“Earnings per Share”Share”. Basic earnings per share is computed by dividing net income (loss) available to common shareholdersstockholders 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 Stockcommon stock and warrants are exercised. Preferred stock and warrants are excluded from the diluted earnings per share calculation if their effect is anti-dilutive.
December 31, | ||
2020 | 2019 | |
Stock options | 3,751,749 | 4,671,280 |
Stock warrants | 1,578,549 | 2,014,299 |
Restricted stock to be issued upon vesting | 2,960,810 | 3,583,328 |
Convertible preferred stock | 9,460,845 | 9,611,295 |
Convertible debt | 14,145,825 | 3,027,778 |
Total | 31,897,778 | 22,907,980 |
2023 | 2022 | |||||||
Years ended December 31, | ||||||||
2023 | 2022 | |||||||
Restricted Stock | 1,793,483 | 107,993 | ||||||
Options to purchase common stock | 551,854 | 346,854 | ||||||
Warrants to purchase common stock | 1,104,243 | 1,117,094 | ||||||
Series B-1 Convertible Preferred | 6,679 | 6,679 | ||||||
Series B-2 Convertible Preferred | 26,786 | 26,786 | ||||||
Series C Convertible Preferred | 2,289,220 | 2,289,220 | ||||||
Series C-1 Convertible Preferred | 1,064,908 | 1,064,908 | ||||||
Series C-2 Convertible Preferred | 2,050,000 | 2,050,000 | ||||||
Series D Convertible Preferred | 1,628,126 | 1,628,126 | ||||||
Series E Convertible Preferred | 3,853,000 | - | ||||||
Total | 14,368,299 | 8,637,660 | ||||||
Anti-dilutive securities | 14,368,299 | 8,637,660 |
Income Taxes
The Company accounts for income taxes pursuant to the provision ofin accordance with ASC 740-10, “Accounting for Income740, “Income Taxes” (“. ASC 740-10”), which740 requires among other things, an asset and liability approach for financial accounting and reporting for income taxes and established for all the entities a minimum threshold for financial statement recognition of the benefit of tax positions and requires certain expanded disclosures. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to calculating deferred income taxes.reverse. The asset and liability approach requireCompany evaluates the recognitionrecoverability of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Aestablishes a valuation allowance is provided to offset any net deferred tax assets for which management believeswhen it is more likely than not that some portion or all the net deferred assettax assets will not be realized.
Recently Issued Accounting Standards
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
F-12 |
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):815- 40) Issuer’s Accounting for Convertible InstrumentsCertain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and Contractsreduces diversity in an Entity’s Own Equity”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”), to reduce complexityas 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 applying GAAP to certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 isthis Update are effective for interim and annual periodsall entities for fiscal years beginning after December 15, 2023, with early adoption permitted. We are2021, 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 guidance.
The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively through December 31, 2022. TheCompany does not expectdiscuss recent pronouncements that the adoption of the standard willare not anticipated to have a materialan impact on or are unrelated to its consolidated financial statements.
NOTE 3 – ACQUISITIONPROPERTY, EQUIPMENT, NET OF ASSETS AND OWNERSHIP
Property and a Membership Interest Purchase Agreement (the “Purchase Agreement”). Under the terms of the Subscription Agreement, the Company acquired a 30% interest in EOW, and an additional 20.1% was acquired from existing members pursuant to the terms of the Purchase Agreement. The existing membersequipment, net including any major improvements, are considered third parties. The Company has the right to appoint a manager of the limited liability company. Under the Operating Agreement for EOW, as amended, the Company has the right to appoint, and remove and replace, if desired, one of three managers of EOW, with each manager having the full rights to control the business and affairs of EOW.
SCHEDULE OF PROPERTY PLANT AND EQUIPMENT USEFUL LIVES
Estimated Life | ||||
3 – 5 Years | ||||
3 – 5 Years | ||||
Machinery and equipment | 5 – 10 Years | |||
Leasehold improvement | 10 Years |
December 31, | ||
2020 | 2019 | |
Finished goods – CBD | $10,712 | $- |
Finished goods – hemp flowers and hemp cuttings | - | 1,337,809 |
$10,712 | $1,337,809 |
Property and equipment, consistednet consists of the following:
As of December 31, | |||
Estimated life | 2020 | 2019 | |
Greenhouse | 10 years | $34,465 | $34,465 |
Fencing and storage | 5 years | 44,543 | 44,543 |
Irrigation | 5 years | 387,975 | 387,975 |
Office and computer equipment | 3 years | 40,834 | 40,834 |
Farming Equipment | 5 years | 11,500 | 11,500 |
Leasehold improvement | 5 years | 21,886 | 21,886 |
Total | 541,203 | 541,203 | |
Less: Accumulated depreciation | (149,003) | (63,770) | |
Less: Impairment expense | (372,041) | - | |
$20,159 | $477,433 |
SCHEDULE OF PROPERTY AND EQUIPMENT
December 31, 2023 | December 31, 2022 | |||||||
Computers and technological assets | $ | 3,776,320 | $ | 3,776,320 | ||||
Furniture and fixtures | 161,830 | 55,950 | ||||||
Machinery and equipment | 7,846,788 | 7,765,466 | ||||||
Land | 92,222 | 92,222 | ||||||
Leasehold Improvements | 1,806,755 | 1,508,915 | ||||||
Total | 13,683,915 | 13,198,873 | ||||||
Total Property and equipment, gross | 13,683,915 | 13,198,873 | ||||||
Less accumulated depreciation | (7,235,847 | ) | (5,522,878 | ) | ||||
Total Property and equipment, net | $ | 6,448,068 | $ | 7,675,995 |
Depreciation expense amounted to $85,233 and $63,770expenses for the years ended December 31, 20202023 and 2019,2022 were $1,712,969 and $1,669,690 respectively.
F-13 |
NOTE 4 – INVENTORY
Inventory consists of the greenhouse, fencing and storage, irrigation, farming equipment and leasehold improvement related to a commercial lease with Skybar Holding, LLC.
SCHEDULE OF INVENTORY
December 31, 2023 | December 31, 2022 | |||||||
Raw Materials | $ | 850,362 | $ | 870,530 | ||||
Semi-Finished | 1,870,978 | 1,863,501 | ||||||
Finished Goods | 1,262,674 | 1,694,574 | ||||||
Packaging | 29,511 | 20,120 | ||||||
Total | $ | 4,013,525 | $ | 4,448,725 |
NOTE 65 –INTANGIBLE ASSET
Useful life | December 31, 2020 | December 31, 2019 | |
Participation rights - EOW | 3 year | $2,930,000 | $2,930,000 |
Hemp operating license - EOW | 1 year | 10,000 | 10,000 |
Trademark – Green Goddess | 3 year | - | 3,500 |
Customer list – Green Goddess | 3 year | - | 212,529 |
Brand - Levor | 3 year | - | 70,000 |
Total | 2,940,000 | 3,226,029 | |
Less: accumulated amortization | (1,527,273) | (828,526) | |
Less: Impairment expenses | (1,412,727) | (250,192) | |
Intangible assets, net | $- | $2,147,311 |
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 through its majority-owned subsidiary, EOW,has one lease arrangement with a related party entered into a farm lease agreementon December 22, 2018, for a 3-year term commencing January 1, 2019, for certain laboratory facilities with a nine-year extension option. This lease term of one year. The lease premise, located in Cave Junction, Oregon, consisted of approximately 100 acres. The lease required the Company to pay 5% of the net income realized by the Company from the operation of the lease farm. Accordingly,was extended and now expires on December 31, 2030. At inception, the Company recognized $0 Right-of-use asset (“ROU”)a Right of Use Asset and a corresponding lease liabilities on this farmliability in the amount of $4,595,509. The Company’s lease as the Company had not determined when net income would be generated from this lease. Thearrangements may contain both lease was to continue in effect year-to-year except for at least a 30-day written notice of termination.and non-lease components. The Company has elected to combine and account for lease and non-lease components as a single lease component. The Company has incorporated residual value obligations in leases for which there is such occurrences. Regarding short-term leases, ASC 842-10-25-2 permits an entity to make a policy election not paidto apply the recognition requirements of ASC 842 to Short-term leases. The Company has elected not to apply the ASC 842 recognition criteria to any leases that qualify as Short-Term Leases.
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 this agreementthe Other Income line items of the income statement. The leases vary from short-term monthly leases to 3-year leases but are all month to month. The Company also has seven different leases in the Tampa, FL area for the Panacea Distro warehouse, cash and carry distribution facility, and six different retail store locations.
SCHEDULE OF RIGHT OF USE ASSET AND LIABILITY
December 31, 2023 | December 31, 2022 | |||||||
Right-of-use assets | $ | 3,864,591 | $ | 3,242,381 | ||||
Present value of operating lease liabilities | $ | 3,972,696 | $ | 3,347,331 | ||||
Less: Long-term portion of operating lease liability | (3,254,021 | ) | (2,987,208 | ) | ||||
Short-term portion of operating lease liability | 718,675 | 360,123 | ||||||
Unpaid balances | 2,195,106 | 1,730,136 | ||||||
Total short-term lease liability obligations | $ | 2,913,781 | $ | 2,090,259 | ||||
Weighted-average remaining lease term (Ends December 31, 2030) | 5.95 years | 8 years | ||||||
Weighted-average discount rate | 3.0 | % |
During years ended December 31, 20202023, and 2019.2022, we recognized approximately $560,626 and $458,772, respectively in operating lease costs. Operating lease costs are included in operating expenses in our consolidated statement of operations.
F-14 |
Approximate future minimum lease payments for our right of use assets over the Company, through its majority-owned subsidiary, EOW, entered into a farmremaining lease agreement for aperiods as of December 31, 2023, are as follows:
Maturity of operating lease term of one year. The lease premise, located in Glendale, Oregon, consisted of approximately 100 acres. The lease required the Company to pay $120,000 per year, whereby $50,000 was payable upon execution and $70,000 payable prior to planting for agricultural use or related purposes. The lease was to continue in effect from year-to-year except for at least a 30-day written notice of termination. The Company recognized lease expense of $100,000liabilities for the year ended December 31, 2019 and was included in cost of sales on the accompanying consolidated statements of operations.
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES
2024 | $ | 827,996 | ||
2025 | $ | 830,307 | ||
2026 | $ | 764,830 | ||
2027 | $ | 474,122 | ||
Thereafter | $ | 1,451,002 | ||
Total undiscounted operating lease payments | $ | 4,348,257 | ||
Less: Imputed interest | $ | (375,561 | ) | |
Present value of operating lease liabilities | $ | 3,972,696 |
NOTE 6 2020, the Company submitted a written termination letter to Skybar Holdings, LLC. During the twelve months ended December 31, 2020, the Company fully impaired the security deposit of $40,000.
December 31, | ||
2020 | 2019 | |
Restated | ||
Farm lease ROU | $506,506 | $506,506 |
Less accumulated amortization | (237,391) | (115,695) |
Less impairment expense | (269,115) | - |
Balance of ROU asset | $- | $390,811 |
December 31, | ||
2020 | 2019 | |
Restated | ||
Farm lease ROU | $506,506 | $506,506 |
Reduction of lease liability | (237,391) | (115,695) |
Total | $269,115 | 390,811 |
Less: current portion | (269,115) | (168,869) |
Long term portion of lease liability | - | $220,942 |
Paycheck Protection Program Funding U.S. Small Business Administration Loan
On May 28, 2020, the Company received a Securedsecured, 30-year, Economic Injury Disaster Loan in the amount of $99,100$99,100 from the U.S. Small Business Administration. The loan carries interest at a rate of 3.75%3.75% per year, requires monthly payments of principal and interest, and matures in thirty (30)30 years. Installment payments, including principal and interest, of $483$483 monthly, will begin twelve (12)12 months from the date of the promissory Note. The SBA loan is secured by a security interest in the Company'sCompany’s tangible and intangible assets. The loan proceeds are to be used as working capital to alleviate economic injury caused by the Covid-19 disaster occurring in the month of January 31, 2020 and continuing thereafter. As of December 31, 2020,2023, the current principal balance of this note amounted to $99,100.
First Bank Loan
On May 22, 2020,July 6, 2023, the company completed a promissory note with its bank, First Bank. The maturity on the loan is July 1, 2030, at a 6.82% annual interest rate. The loan was used for additional production manufacturing equipment totaling $298,761. Principal and interest monthly payments are $4,627.38 and commenced in October 2023.
Note payable-current, related party
As part of the agreement in the reverse merger transaction, certain loan balances (“J&N Loans”) from J&N Real Estate Company, received federal fundingLLC an affiliate of the Company’s CEO, (“J&N”) and historical interest owed of $1,932,358 were combined into a new promissory note with the principal amount of $4.062 million (“J&N Note”). The J&N Note bears annual interest at 12% and was secured by a pledge of certain XXII common stock owned by Panacea (See Note 2 Going concern).
On June 30, 2021, Panacea issued the Company’s CEO, Ms. Buttorff, a 10% promissory note in the amount of $236,410 through the Paycheck Protection Program$1,685,685 (the “PPP”“Buttorff Note”). PPP funds haveThe Buttorff Note was secured by a pledge of certain restrictionsXXII common stock owned by Panacea (See Note 2 Going concern). This demand note replaced a prior working capital note that Panacea had issued on use of the funding proceeds, and generally must be repaid within two (2) years at 1% interest. The PPP loan may, under circumstances, be forgiven. There shall be no payment due by the Company during the six months period beginning on the date of this note (“Deferral Period”). Commencing one month after the expiration of the Deferral Period, the Company shall pay the lender monthly payments of principal and interest, each in equal amount required to fully amortize by the maturity date. If a payment on this note is more than ten days late, the lender shall charge a late fee of up to 5% of the unpaid portion of the regularly scheduled payment. As of December 31, 2020, the principal balance of this note amounted to $236,410.January 1, 2021. The Company has formally applied for forgivenessan additional line of this PPP loan.
As of December 31, | ||
2020 | 2019 | |
Principal amount | $335,510 | $- |
Less: current portion | (130,344) | - |
Notes payable - long term portion | $205,166 | $- |
SCHEDULE OF NOTES PAYABLE RELATED PARTY
December 31, 2023 | December 31, 2022 | |||||||
J&N Note | $ | 4,062,713 | $ | 4,062,713 | ||||
CEO Note | 7,334,904 | 5,809,090 | ||||||
Total related party notes | $ | 11,397,617 | $ | 9,871,803 |
Other long-term liabilities, related party
The Company is currently negotiating to settlehas recorded a related party liability (“Fixed Asset Loan”) in the outstanding obligation with the issuance of the Company’s common stock. As of December 31, 2020, the principal balance due is $37,000 and is currently in default.
The Company’s convertible notes consist of the following as of December 31, 2020 and 2019: | 2020 | 2019 |
Convertible Notes in the aggregate amount of $100,000, issued on March 22, 2018. The Notes bear interest at a rate of 5% per annum and mature on February 1, 2023. If a qualified financing from which at least $5 million of gross proceeds are raised occurs prior to the maturity date, then the outstanding principal balance of the notes, together with all accrued and unpaid interest thereon, shall be automatically converted into a number of shares of the Company’s Common Stock at $0.40 per Share. The Notes offers registration rights wherein the Company agrees that within 45 days of a Qualified Offering, prior to the Maturity Date, the Company shall file a registration statement with the SEC registering for resale of the shares of Company’s Common Stock into which the Notes are convertible. The Company shall send a written conversion notice to the lender pursuant to the note agreement and as such the principal balance of the convertible note remains outstanding as of December 31, 2020 and 2019. The Company reclassed the principal balance to current portion as of December 31, 2020. | $100,000 | $100,000 |
Convertible Note in the amount of $833,333, issued on November 27, 2019. The Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single institutional investor (the “Purchaser”), pursuant to which the Company agreed to sell to Purchaser in a series of 3 closings up to $1,944,444 in aggregate principal amount of the Company’s senior secured convertible promissory notes (the “Notes”) and warrants to purchase shares of the Company’s Common Stock (the “Warrants”). On November 27, 2019 (the “Initial Closing Date”), the Company issued a Note in the principal amount of $833,333, and a two-year Warrant to purchase 275,612 shares of Common Stock at an exercise price of $0.756 per share (see Note 10). The Notes will be issued at a 10% original issue discount and bear an interest rate of 8%. The Notes mature one year after their issuance unless accelerated due to an event of default. The Notes are redeemable, in whole or in part, at any time at the discretion of the Company. At the Initial Closing Date, the Company received net proceeds, after the original issue discount and the Purchaser’s counsel fees, of $730,000. Each note is convertible at the option of the note holder at any time into shares of our common stock at the fixed conversion rate of $0.50 per share. However, the conversion rate is subject to adjustment in the event of default, redemption and upon the occurrence of certain events affecting stockholders generally, such as stock splits and recapitalizations. The Company must pay amortization redemption payments equaling one-ninth of the original principal amount due on each note commencing 90 days after issuance and continuing during the following eight months (each an “Amortization Redemption”). The note holder may at its option accelerate up to six future amortization redemption payments, in which case the note holder may demand the accelerated amortization amounts be paid in shares of the Company’s common stock at the lesser of i) the fixed conversion rate of $0.50 per share of common stock, or (ii) the rate equal to 80% of the lowest volume weighted average price, or VWAP, during the 10 trading days immediately before the applicable date of the amortization redemption payment (“Amortization Conversion Rate”). Amortization redemption payment amount is equivalent to 110% of the sum of (i) one-ninth (1/9th) of the Original Principal Amount of this Note, (ii) 100% of all accrued and unpaid interest on the principal amount of this Note that is subject to such Amortization Redemption, (iii) 100% of the Make-Whole Amount payable in respect of the principal amount of this Note that is subject to such Amortization Redemption (as applicable), and (iv) all liquidated damages, costs of collection and other amounts payable in respect of this Note as of the applicable amortization redemption payment Date for such Amortization Redemption. If the Company fails to make a redemption payment, the note holder may demand the amortization amounts be paid in shares of the Company’s common stock at the lesser of fixed conversion rate of $0.50 per share of common stock or the Amortization Conversion Rate. In addition, in the event of a subsequent issuance of the Company’s common stock or debt, the Company is subject to mandatory redemption provisions as defined in the note agreement. The Company may not issue shares of the Company’s common stock to third parties at a price lower than the fixed conversion rate of $0.50 per share of common stock without the consent of the note holder. At this time, the Company is delinquent in its payments under the initial convertible note, with the May 1, 2020, April 1, 2020, and a portion of the February 25, 2020 payments currently in arrears. The Company intends to make these payments and the upcoming monthly payments with receipts from product sales and/or the proceeds of additional equity funding. The Company paid original issuance cost of $83,333, cash commission and loan fees of $92,055, and recorded redemption premium of $88,889 related to the amortization redemption payment in connection with this note payable and are being amortized over the term of the note. On the Initial Closing Date, certain FINRA broker-dealers who acted on behalf of the Company were paid aggregate cash commissions of approximately $72,055 and were granted a four-year warrant to acquire an aggregate of 84,187 shares of Common Stock at an exercise price of $0.792 per share of common stock at any time before the close of business four years after their issuance, subject to adjustment in the event of stock dividends, splits, fundamental transactions, or other changes in our capital structure. | 546,036 | 85,906 |
Carrying Amount of Convertible Debt | $646,036 | $185,906 |
Less: Current Portion | (646,036) | (85,906) |
Convertible Notes, Long Term | $- | $100,000 |
F-15 |
2020 | 2019 | |
Principal Amount | $933,333 | $933,333 |
Add: additional principal | 50,250 | - |
Add: amortization of redemption premium | 88,889 | 8,280 |
Less: redemption premium payments | (20,800) | - |
Less: principle payments and conversions | (356,186) | - |
Less: unamortized debt discount and debt issuance costs | - | (755,707) |
Total convertible debt less unamortized debt discount and debt issuance costs | $696,286 | $185,906 |
In 2020, the Company made cash repayments towardsrecorded an additional related party liability in the principalamount of $185,186$513,390 in respect of certain building improvements, due to J&N Real Estate Company (a company owned by the CEO) (“J&N Building Loan”). The balance bears no interest, and accrued interest of $14,814.
Other long-term liabilities, related party are summarized as follows.
SCHEDULE OF NOTES PAYABLE
December 31, 2023 | December 31, 2022 | |||||||
Other long-term liabilities, related party | ||||||||
Fixed Asset Loan | $ | 3,059,474 | $ | 3,059,474 | ||||
J&N Building Loan | 513,390 | 513,390 | ||||||
Total | $ | 3,572,864 | $ | 3,572,864 |
NOTE 7 - STOCKHOLDERS’ EQUITY
Common Stock
The Company’s authorized common stock atconsists of shares with a contractual conversion price of $0.13, as a result of the conversion of principal of $30,000 and interest of $2,400 of the convertible note.
On March 3, 2022, the years ended December 31, 2020 and 2019, respectively. Upon conversions during the years ended December 31, 2020, the derivative liability was marked to fair value at the conversion, and then a related fair value amount of $129,714 relating to the portion of debt converted was reclassified to other income as part of gain on debt extinguishment. Additionally, the Company recorded loss on debt extinguishment of $55,398, in connection with the conversions during the years ended December 31, 2020.
2020 | 2019 | |
Expected Volatility | 213.48% to 216.44% | 239.97% to 567.11% |
Expected Term | 0.16 to 0.66 Years | 0.25 to 1.0 Years |
Risk Free Rate | 0.08% to 0.18% | 1.59% to 2.54% |
Dividend Rate | 0.00% | 0.00% |
Common stock options
Stock Option Plan
On January 11, 2019, the Board of Directors of the Company approved a reverse stock split ofJune 30, 2021 the Company’s Common Stock at a ratio of 1-for-8 (the “Reverse Stock Split”) including shares issuable upon conversion of the Company’s outstanding convertible securities. All share and per share values of the Company’s Common Stock for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split.
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | |
Balance at December 31, 2018 | 644,083 | $ 1.77 | 1.38 |
Granted | 1,578,549 | 0.45 | 5.00 |
Cancelled | — | — | — |
Exercised | — | — | — |
Forfeited | (208,333) | 4.80 | — |
Balance at December 31, 2019 | 2,014,299 | 0.45 | 3.31 |
Granted | 50,000 | 0.50 | 0.17 |
Cancelled | (485,750) | 0.49 | |
Exercised | - | - | |
Forfeited | - | - | |
Balance at December 31, 2020 | 1,578,549 | 0.49 | 3.01 |
Warrants exercisable at December 31, 2020 | 1,578,549 | $0.49 | 2.50 |
Weighted average fair value of warrants granted during the period | $0.50 |
As part of the warrantsmerger of $140,243 usingExactus, Panacea assumed the Binomial Lattice method and is being amortized over the term of the note. Additionally, the Company issued 84,187 warrants to purchase shares of the Company’s common stock to a certain FINRA broker-dealer who acted on behalf of the Company in connection with the issuance of this convertible note. The warrants had a term of 4 years from the date of grant and was exercisable at an exercise price of approximately $0.08. The 84,187 warrants were valued on the grant date at approximately $0.64 per warrant for a total of $54,145 using a Binomial Lattice method with the following assumptions: stock price of $0.65 per share (based on the quoted trading price on the date of grant), volatility of 270%, expected term of 4 years, and a risk free interest rate of 1.63%. The Company recorded these warrants as debt discount which is being amortized over the term of the note. The Company assessed the classification of its common stock purchase warrants as of the date of each equity offering and determined that such instruments met the criteria for equity classification under the guidance in ASU 2017-11 “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Feature”. The Company has no warrants that contain a ‘round down’ feature under Topic 815 of ASU 2017-11.
F-16 |
Stock Options
Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life(Years) | |
Balance at December 31, 2018 | 959,375 | $0.41 | 8.79 |
Granted | 4,753,572 | 0.21 | 8.54 |
Exercise | (375,000) | 0.01 | 9.12 |
Forfeited | (666,667) | 0.05 | 8.56 |
Balance at December 31, 2019 | 4,671,280 | 0.29 | 7.29 |
Granted | 1,000,000 | 0.30 | 9.75 |
Exercise | (20,000) | 0.30 | 9.18 |
Forfeited | (1,899,531) | 0.41 | - |
Balance at December 31, 2020 | 3,751,749 | $0.23 | 8.0 |
Options exercisable at December 31, 2020 | 3,470,499 | $0.24 | 8.0 |
SCHEDULE OF STOCK OPTIONS
Options Outstanding as of December 31, 2023 | ||||||||||||||||
Number of Shares Subject to Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
Balance at December 31, 2022 | 346,854 | $ | 2.80 | - | ||||||||||||
Options granted | 205,000 | 0.21 | - | |||||||||||||
Options exercised | - | - | - | - | ||||||||||||
Options canceled / expired | - | - | - | - | ||||||||||||
Balance at December 31, 2023 | 551,854 | $ | 1.841 | $ | - | |||||||||||
Vested and exercisable at December 31, 2023 | 551,854 | $ | 1.84 | $ | 2,500 |
Stock Warrants
On February 2020,November 18, 2021, the Company granted 1,000,000 optionsentered into a Securities Purchase Agreement (“SPA”) with Lincoln Park Capital Fund, LLC (the “Purchaser”) pursuant to which the Company agreed to sell a 10% original issue discount senior convertible promissory note in the principal amount of $1,100,000 (the “Convertible Note”) and five-year warrants to purchase785,715 shares of the Company’s Common Stock to Derek Du Chesne, the Company’s former President, Chief Growth Officer and Director in connection with his employment agreement. The options have a 10-year term from the date of grant and were exercisablecommon stock, par value $ per share at an exercise price of $0.30$1.40 per share. The fair valueshare (the “Warrants”) pursuant to the terms and conditions of the options granted amountedSPA for a total purchase price of $1,000,000. The Note was due November 18, 2022, which is one year from the issuance date and was paid.
On March 3, 2022, the Company entered in an Exchange Agreement with an institutional investor pursuant to $0.33 per option or $332,900. In September 2020,which the former President tendered his resignation and exercised 20,000 options for $6,000. The remaining 980,000 options were cancelled upon his resignation.
The Company’s outstanding warrants as of December 31, 2019.
A summary of the Company’s outstanding warrants is presented below:
SCHEDULE OF WARRANTS OUTSTANDING
Warrants Outstanding as of December 31, 2023 | ||||||||||||||||
Number of Shares Subject to Warrants | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value | |||||||||||||
Balance on December 31, 2022 | 1,117,092 | $ | 2.02 | - | ||||||||||||
Options granted | - | - | - | - | ||||||||||||
Options exercised | - | - | - | - | ||||||||||||
Options canceled / expired | 12,851 | - | - | - | ||||||||||||
Balance at December 31, 2023 | 1,104,243 | $ | 1.79 | $ | - | |||||||||||
Vested and exercisable at December 31, 2023 | 1,104,243 | $ | 1.79 | $ | - |
As of December 31, 2019, aggregate2023, the outstanding warrants have no intrinsic value in connection with exercisable options amounted to $726,371. value.
F-17 |
Restricted Stock
SUMMARY OF RESTRICTED STOCK
Restricted Stock Common Stock | ||||
Balance at December 31, 2022 | 107,993 | |||
Balance at December 31, 2023 | 1,793,483 |
As of December 31, 2019, 872,392 outstanding options are unvested and2023, there was $337,863 unrecognized compensation expense in connection with unvested stock options (see Note 11).
Restricted Stock Common Stock | Weighted Average Grant-Date Fair Value Per Share | |
Balance at December 31, 2018 | - | $- |
Granted | 3,727,778 | 0.69 |
Vested and issued | (144,450) | (0.84) |
Forfeited | - | - |
Balance at December 31, 2019 | 3,583,328 | $0.68 |
Granted | 4,871,022 | 0.08 |
Vested and issued | (1,727,394) | 0.39 |
Forfeited | (3,766,153) | 0.36 |
Balance at December 31, 2020 | 2,960,803 | $0.41 |
Preferred Stock
The Company’s authorized preferred stock consists of shares with a par value of $ .
On September 30, 2023, an asset purchase agreement with N7 Enterprises was approximately $935,000 and willclosed. The original agreement was to award N7 shares of preferred E stock. Each share is convertible into shares of common stock. The agreement contained a provision permitting the total number of shares to be recognized over a weighted average period of 0.75 years.
NOTE 118 - 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, clinical sites, 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 product candidates,products, use of such product candidates,products, or other actions taken or omitted by us. The maximum potential amountnumber 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 December 31, 2020 or 2019.
Concentrations
The Company has paid the initial paymentno concentration of $26,000 and the remaining $12,000 was paid directly to the landlord by an affiliated company who is renting the portion of the lease property from the Company. The affiliated company is owned by two managing members of EOW. EOW isvendors that would impact production costs in the process of arranging a sub-lease agreement withlonger term.
On the affiliated company. The lease shall continue in effect from year to year for five years except for at least a 30-day written notice of termination. The Company does not intend to renew the lease and have verbally communicated our intentions.
For the year ended December 31, 20202022, there was a concentration of two customers. Both are tolling partners who represent 16% and 2019, $010% of total revenue.
The other concentration is in the accounts receivable category, where three customer accounts for 68% of the accounts receivable in 2023. One of the three customer contracts is unique in that the company produced all the products for them to sell, and $22,100, respectively, was recognizedthey pay Panacea as the items are sold in Research and Development expensesthe ecommerce marketplace. Thus, until their inventory is depleted, we will have accounts receivable. This customer receivable is 27% of the 68%. In 2022, this same customer accounted for consulting provided by Dr. Dimitrov, respectively. As33% of December 31, 2020 and 2019, $575,000 was included in accounts payable for both periods to KD Innovation Ltd., an affiliated entity of Dr. Dimitrov.
F-18 |
The Company has no other contingencies, material commitments, or purchase obligations or sales obligations.
Executive Employment Agreement
On December 31, 2020 and December 31, 2019, accounts payable to C2M related to purchase of inventory amounted to $0 and $8,342, respectively. During the year ended December 31, 2020 and 2019, the Company recognized revenues from C2M of $3,300 and $125,000, respectively from sales of inventory and recorded related cost of sales of $1,701 and $96,647, respectively. Additionally, accounts receivable from C2M as of December 31, 2020 and 2019 amounted to $0. As of December 31, 2019, the Company had recorded unearned revenue of $215,000 with C2M. On January 21, 2021, the Company entered into a Settlementan updated Employment Agreement with Ceed2Med, LLCLeslie Buttorff pursuant to which Ms. Buttorff serves as the Company’s Chief Executive Officer for an initial term of July 1, 2021, to December 31, 2024 (the “Employment Agreement). Under her Employment Agreement, Ms. Buttorff receives an annual base salary of $380,000. Ms. Buttorff is also entitled to receive (i) a sales commission of 2% of revenue from sales generated by Ms. Buttorff after revenue exceeds $500,000 for three consecutive months, (ii) an award of $ million of shares of common stock upon approval of the Company’s common stock for listing on The Nasdaq Capital Market prior to expiration of the term of the Employment Agreement, and certain(iii) an annual cash performance bonus of its principals cancellingup to 100% of her base salary based on the achievement of performance metrics for the applicable fiscal year to be set by the Board of Directors. To date, Ms. Buttorff has not taken a salary, payments have accrued commencing in January 2021, and the amount due is included in accounts payable.
Under her Employment Agreement, she is entitled to severance payments under termination provisions which are intended to comply with Section 409A of the Internal Revenue Code of 1986, or the Code, and the Regulations thereunder.
In the event of termination by the Company without “cause” or resignation by Ms. Buttorff for “good reason,” Ms. Buttorff is entitled to receive two years’ base salary, or $780,000, all agreements, obligationsunreimbursed business expenses and claimsother accrued but unpaid compensation, and providing full mutual releasesany annual bonus earned but not yet paid for any fiscal year ending prior to the fiscal year in which the date of termination occurs. In addition, in the event of termination by the Company without “cause,” subject to execution of a general release Ms. Buttorff will be entitled to (i) a settlement amount equal to another two years’ base salary (or a total of $1,560,000) and (ii) an amount equal to the annual bonus which Ms. Buttorff would have been entitled to receive in respect of the year of termination based on the achievement of any performance objectives for the Company.
Generally, “good reason” is defined as (i) any material breach of the Employment Agreement by the Company, (ii) the Company’s assignment of Ms. Buttorff to a position that has materially less authority, status, or functional responsibility than the position with the Company as of the commencement date, or the assignment to her of duties that are not those of an executive at the management level, (iii) the reduction of Ms. Buttorff’s base salary, (iv) the requirement that Ms. Buttorff move her primary place of employment more than 30 miles from her initial place of employment, or (v) upon any change of control event as defined in Treasury Regulation Section 1.409A-3(i)(5) provided that within 12 months of the change of control event the Company terminates Ms. Buttorff or fails to obtain an agreement from any successor to perform the Employment Agreement.
Under the terms of her Employment Agreement, Ms. Buttorff is subject to non-competition and non-solicitation covenants during the term of her employment and following termination of employment with the Company. The Employment Agreement also contains customary confidentiality and non-disparagement covenants.
NOTE 9 - RELATED PARTY TRANSACTIONS
Notes Payable and Accrued Interest – Related Parties
For information on related party loans to the Company and such persons.
The Company recognized revenues from aaccrued interest and interest expenses recorded for related party customer of $37,446 during the year ended December 31, 2019. As of December 31, 2019, accounts receivable from a related party customer amounted to $18,860. Additionally, the Company wrote-off $18,586 of accounts receivable from this related party customer into bad debt expense during the year ended December 31, 2019. The customer is an affiliated company which is substantially owned by a managing member of EOW. loans are shown below.
SCHEDULE OF RELATED PARTY TRANSACTIONS LOANS
December 31, 2023 | December 31, 2022 | |||||||
Accrued Interest | ||||||||
Related party loan J&N | $ | 1,413,210 | $ | 796,891 | ||||
Related party loan-CEO loan | 476,536 | 271,585 | ||||||
Related party loan – Line of credit | 966,105 | 282,869 | ||||||
Accrued Interest | 966,105 | 282,869 |
F-19 |
Year ended December 31, 2023 | Year ended December 31, 2022 | |||||||
Interest Expense | ||||||||
Related party loan J&N | $ | 616,319 | $ | 546,952 | ||||
Related party loan-CEO loan | 204,952 | 185,525 | ||||||
Related party loan – Line of Credit | 683,237 | 253,634 | ||||||
Interest Expense | 683,237 | 253,634 |
NOTE 1310 – CONCENTRATION OF REVENUE AND SUPPLIERS
The Company has incurred aggregate net operating losses of approximately $21.1$33,922,898 million for income tax purposes as of December 31, 2020.2023. The net operating losses carry forward for United States income taxes, which may be available to reduce future years’ taxable income. Management believes that the realization of the benefits from these losses appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as necessary.
The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended December 31, 20202023 and 2019:
December 31, 2020 | December 31, 2019 | |
US Federal Statutory Tax Rate | 21.0% | 21.6% |
State taxes | 4.35% | 4.6% |
Bad debt | (1.62%) | - |
Derivative loss | 1.02 | - |
Stock-based compensation | (3.17%) | - |
Depreciation | 0.19% | - |
Amortization | 2.17% | - |
Impairment | (12.00%) | - |
Change in valuation allowance | (11.92%) | (25.6%) |
0.00% | 0.00% |
Deferred Tax Asset: | December 31, 2020 | December 31, 2019 |
Net operating loss carryforward | $8,337,000 | $4,226,345 |
Valuation allowance | (8,337,000) | (4,226,345) |
Net deferred tax asset | $- | $- |
SCHEDULE OF EFFECTIVE TAX RATE
December 31, 2023 | ||||
U.S. federal statutory rate | 21.0 | % | ||
Increase (decrease) in taxes resulting from: | ||||
Increase in valuation allowance | (21.9 | )% | ||
ROU Assets/Liabilities | (2.7 | )% | ||
State taxes | 3.6 | % | ||
Income tax (expense) benefit | - | % |
The Company provided a valuation allowance equal to the deferred income tax asset for the year ended December 31, 20202023, because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the allowance was $4.0$8.015 million in fiscal 2020. 2023. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation, based upon IRC Section 382/383 Ownership change rules that may have or could occur in the future. The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2017, 2018, 2019 and 2020 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
As of March 31, 2020 | |||
Previously Reported | Adjustments | As Corrected | |
Consolidated Balance Sheet | |||
Current assets | $1,661,211 | $- | $1,661,211 |
Current liabilities | $5,338,486 | $(564,628) | $4,773,858 |
Working capital (deficit) | $(3,677,275) | $564,628 | $(3,112,647) |
Total assets | $8,458,826 | $(1,705,115) | $6,753,711 |
Total liabilities | $6,985,191 | $(2,034,232) | $4,950,959 |
Total stockholders' equity | $1,473,635 | $329,117 | $1,802,752 |
As of December 31, 2019 | |||
Previously Reported | Adjustments | As Corrected | |
Consolidated Balance Sheet | |||
Current assets | $2,429,235 | $- | $2,429,235 |
Current liabilities | $4,190,544 | $(382,196) | $3,808,348 |
Working capital (deficit) | $(1,761,309) | $382,196 | $(1,379,113) |
Total assets | $9,799,277 | $(1,782,443) | $8,016,834 |
Total liabilities | $6,117,431 | $(1,988,141) | $4,129,290 |
Total stockholders' equity | $3,681,846 | $205,698 | $3,887,544 |
As of September 30, 2019 | |||
Previously Reported | Adjustments | As Corrected | |
Consolidated Balance Sheet | |||
Current assets | $3,255,169 | $- | $3,255,169 |
Current liabilities | $2,052,454 | $(302,196) | $1,750,258 |
Working capital (deficit) | $1,202,715 | $302,196 | $1,504,911 |
Total assets | $11,449,203 | $(1,858,284) | $9,590,919 |
Total liabilities | $4,054,527 | $(1,940,563) | $2,113,964 |
Total stockholders' equity | $7,394,676 | $82,279 | $7,476,955 |
For the Three Months Ended | |||
March 31, 2020 | |||
Previously Reported | Adjustments | As Corrected | |
Consolidated Statements of Operations | |||
Revenues | $836,000 | $- | $836,000 |
Operating expenses | $2,192,767 | $(123,419) | $2,069,348 |
Loss from operations | $(2,757,023) | $123,419 | $(2,633,604) |
Other income (expenses) | $(188,480) | $- | $(188,480) |
Net loss | $(2,945,503) | $123,419 | $(2,822,084) |
Net Loss available to Exactus, Inc. common stockholders | $(2,789,684) | $123,419 | $(2,666,265) |
Basic & diluted EPS | $(0.06) | $0 | $(0.06) |
For the Year Ended | |||
December 31, 2019 | |||
Previously Reported | Adjustments | As Corrected | |
Consolidated Statements of Operations | |||
Revenues | $345,680 | $- | $345,680 |
Operating expenses | $9,177,988 | $(205,698) | $8,972,290 |
Loss from operations | $(10,878,442) | $205,698 | $(10,672,744) |
Other income (expenses) | $653,936 | $- | $653,936 |
Net loss | $(10,224,506) | $205,698 | $(10,018,808) |
Net Loss available to Exactus, Inc. common stockholders | $(10,591,487) | $205,698 | $(10,385,789) |
Basic & diluted EPS | $(0.31) | $0 | $(0.31) |
For the Nine Months Ended | |||
September 30, 2019 | |||
Previously Reported | Adjustments | As Corrected | |
Consolidated Statements of Operations | |||
Revenues | $215,816 | $- | $215,816 |
Operating expenses | $5,803,458 | $(82,279) | $5,721,179 |
Loss from operations | $(5,803,847) | $82,279 | $(5,721,568) |
Other income (expenses) | $1,178,363 | $- | $1,178,363 |
Net loss | $(4,625,484) | $82,279 | $(4,543,205) |
Net Loss available to Exactus, Inc. common stockholders | $(5,168,306) | $82,279 | $(5,086,027) |
Basic & diluted EPS | $(0.16) | $0 | $(0.15) |
For the Three Months Ended | |||
September 30, 2019 | |||
Previously Reported | Adjustments | As Corrected | |
Consolidated Statements of Operations | |||
Revenues | $60,153 | $- | $60,153 |
Operating expenses | $2,062,677 | $(82,279) | $1,980,398 |
Loss from operations | $(2,102,942) | $82,279 | $(2,020,663) |
Other income (expenses) | $(5,105) | $- | $(5,105) |
Net loss | $(2,108,047) | $82,279 | $(2,025,768) |
Net Loss available to Exactus, Inc. common stockholders | $(1,934,367) | $82,279 | $(1,852,088) |
Basic & diluted EPS | $(0.05) | $0 | $(0.05) |
NOTE 16 - 13 – SUBSEQUENT EVENTS
On January 1, 2024 Company decided to not move forward with the Pur Life Medical deal as the deal terms could not be met. The Company was sold to a private company owned by PLSH CEO and President of which they own 35% each.
In accordance with authoritative guidance,March 5, 2024 the Company has evaluated any events or transactions occurring after December 31, 2020,came to agreement with its previous Preferred A shareholder to resolve the balance sheet date, through the date of filing of this report and note that there have been no such events or transactions that would require recognition or disclosure in the consolidated financial statements as of and for the year ended December 31, 2020, except as disclosed below.
F-20 |
Item 9. ChangesChanges In and Disagreements with Accountants on Accounting and Financial Disclosure
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, with the participation of our principal executive officer (who currently also serves as our principal financial officer) and our former principal financial officer, required by Rule 13a-15 underor 15d-15 of the Securities Exchange Act of 1934 we have carried out an evaluation(the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as of the end of the fiscal year ended December 31, 2020. This evaluation was carried outdefined in Rule 13a-15(e) or 15d-15(e) under the supervisionExchange Act. Based on their evaluation, our principal executive officer and with the participation of our management, including our Interim Chief Executive Officer and Chief Financial Officer.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange ActAct). Our management, under the supervision and with the participation of 1934). Management has assessedour principal executive officer and financial officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2020the end of the period covered by this report. Our management’s evaluation of our internal control over financial reporting was based on criteria establishedthe framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a resultIn designing and evaluating the disclosure controls and procedures, management recognizes that because of this assessment,inherent limitations, any controls and procedures, no matter how well designed and operated, may not prevent or detect misstatements and 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 concluded that, asis required to apply its judgment in evaluating the benefits of December 31, 2020, ourpossible controls and procedures relative to their costs.
Our internal control over financial reporting wasincludes those policies and procedures that:
● | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; | |
● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and | |
● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Management’s Assessment of the Effectiveness of the Company’s internal Control over Financial Reporting
Our principal executive officer and financial officer concluded that our disclosure controls and procedures were not effective. Oureffective to ensure that the information relating to us is 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 identifiedto allow timely decisions regarding required disclosure as a result of the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (1) we lacked a sufficient number of employees to properly segregate duties and provide adequate review of the preparation of the financial statements and (2) due to turnover on our Board of Directors, our Audit and other committees have not always been fully staffed.
● | The Company does not have sufficient segregation of duties within accounting functions due to only having two officers and limited resources. | |
● | The Company does not have an audit committee; and | |
● | The Company does not have written documentation of our internal control policies and procedures. |
We plan to take stepsrectify these weaknesses by establishing written policies and procedures for our internal control of financial reporting and hiring additional accounting personnel at such time as we raise sufficient capital to enhancedo so.
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Changes in Internal Controls over Financial Reporting
There have been no changes in the internal control over financial reporting (as such term is defined in Rules 13a-15(f) and improve15d-15(f) under the design ofExchange Act) during the quarter ended December 31, 2022, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we have appointed additional independent directors and we plan to appoint additional qualified personnel to address inadequate segregation of duties. Our ability to retain additional personnel is largely dependent upon our securing additional financing to cover the costs required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Item 9B. OtherOther Information
The following information sets forth the names, ages, and positions of our current directors and executive officers as of MayMarch 15, 2021.
Name | Age | Present Positions | ||
CEO and Chairman | ||||
Director | ||||
President | ||||
Directors
Our Board of Directors of the Company is currently comprised of four (4)two (2) members. The following biographical information discloses each director’s age, business experience and other directorships held during the past five years. It also includes the experiences, qualifications, attributes and skills that led to the conclusion that the individual should serve as our director.
Leslie Buttorff is our Chief Executive Officer and director since June 30, 2021. Ms. Buttorff has been the Chief Executive Officer of Panacea Life Sciences Holding s, Inc., a director forcompany which manufactures and develops pharma-grade hemp-related products since 2017. In addition, Ms. Buttorff has been the Company.
Lawrence J. Wert was appointed to our Board on April 29, 2020. Mr. Wert has over 40 years in broadcasting. HeMr. Wert served as the President of Broadcast Media for Tribune Media Company from 2013 through September of 2019. He was responsible for overseeing the strategy and day-to-day activities of Tribune Media Company’s forty-two owned or operated television stations, their related websites, digital properties and the company’s Chicago radio station WGN-AM.Mr. Wert previously served on the NAB TV Board of Directors, Fox Board and the CBS Board of Governors. In 2017, heMr. Wert was named “Broadcaster of the Year” by the Illinois Broadcaster’s Association. In 2018, under his leadership, Tribune Broadcasting was named “Station Group of the Year” by Broadcasting and Cable. Prior to his time at Tribune Media, Mr. Wert served from 1998 until 2013 as the President and General Manager of WMAQ-TV, the NBC owned and operated station in Chicago. During his tenure there, he expanded local news hours, launched the first street side studio in the city and oversaw integration of WSNS-TV/Telemundo into the station. Under his leadership, he brought key events to the station including the Chicago Marathon and Chicago Auto Show. During his time at NBC, Mr. Wert also had group responsibilities. He was named president of NBC Local’s central and western regions in 2008, overseeing NBC-owned stations in Los Angeles, San Francisco, San Diego, Dallas and Chicago. In September, 2011, he became executive vice president of station initiatives for all ten NBC-owned stations. Mr. Wert started his career at Leo Burnett Advertising in Chicago in 1978, and moved on to television sales with ABC, working in Los Angeles, New York and Chicago, where he became local sales manager at WLS-Ch. 7. In 1989, Mr. Wert shifted to radio as president and general manager of WLUP-97.9 FM and AM 1000 in Chicago, better known as “The Loop.” In 1996, he was named president of Evergreen Media. When it merged with Chancellor Broadcasting he became senior vice president of Chancellor, overseeing 13 radio properties.
26 |
Executive Officers Who Are Not Directors
The following provides certain biographical information with respect to each executive officer of the Company who is not a director.
See “Directors” above for Ms. Buttorff’s biographical information.
Nick Cavarra is our President of the Company since 2019. Mr. Cavarra brings over 25 years of management, leadership and sales experience at the local and national level in the broadcast/digital media, software and web/mobile development marketplace. His previous career positions include C-Level management experience with AYN and Zapotech Inc., age 35, was appointed Chief Strategy Officerand senior account management positions at KUSA-TV and KMGH-TV.
Nathan Berman is our Controller since June 30, 2021. Mr. Berman works as the controller for Panacea Life Sciences since December 2019. Prior to Panacea, Mr. Berman worked for Quintel-MC, Inc, and Media Audits International providing audit and management services on March 11, 2019 and has been working withbehalf of large broadcast corporations. Prior to this, Mr. Berman began his career in the company since January 2019. From November 2014 to November 2018, he served as Director of Investor Relations at ChromaDex Corp. (NASDAQ:CDXC), an integrated, global nutraceutical company devoted to improving the way people age. While at ChromaDex, the company raised over $50 million without an investment bank, transitioned from the OTC Market to the Nasdaq, significantly increased institutional ownership, and improved liquidity by over 500%. Mr. Johnson was instrumental in establishing an investor relations platform including, but not limited, to composing and disseminating corporate messaging, press releases, quarterly earnings, conference call transcripts, shareholder update letters, and marketing materials. Before joining ChromaDex, he held the role of Director of Outreach at Alliance Advisors, an investor relations consulting firm from April 2014 to July 2014. During this time, Mr. Johnson worked with various C-level management teams of small and micro-cap companies to increase investor awarenessbanking industry while pursuing his CFA designation through the facilitationCFA Institute.
Employees and attendanceContractual Arrangements
As of non-deal roadshows, investment conferences, group meetings,January 1, 2018, we employ management and one-on-one meetings with institutional investors. From September 2011support staff, chemists, extraction specialists, lab technicians order fulfillment and sales executives. We are building our culture around a performance-based system, and unlike other cannabinoid companies we offer our employees personal time off (PTO) and health and dental benefits. We believe this is important in order to January 2013, he worked at Sidoti & Company, an institutional equity research firm, where he sat onattract the sales desk. During his time in the firm, he built relationships, presented investment ideas, and provided equity research, including corporate access tobest individuals for these roles. Overall, we currently have over 750 small and mid-cap companies. Mr. Johnson has over ten years of experience communicating with investors and has held the Series 3, 7, and 63 licenses in the past. He has a Bachelor of Arts degree in Social Sciences from Washington State University.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by the Company to become directors or executive officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Audit Committee Financial Expert
Leslie Buttorff serves as the chairman of the audit committee. Our Board has determined that Leslie Buttorff is qualified as an “audit committee financial expert”, as that term is defined under the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002.
Code of Ethics
On January 9, 2019, our board of directorsBoard adopted a Code of Business Conduct and Ethics applicable to all our directors, executive officers, and employees of the Company.
Compensation Discussion and Analysis
With regard to our full-time executive officer, the goal of the salary component of our compensation policy is to provide reasonable compensation for their full-time service within the constraints faced by a rapidly developing business with significant cash needs for its planned expansion. Equity grants for our full-time executive officers are currently under review by the compensation committee. The goal of our anticipated equity grants will be to provide an appropriate mixture of short term and long-term incentives to increase shareholder value.
27 |
On December 31, 2021, we entered into an updated Employment Agreement with Leslie Buttorff pursuant to which Ms. Buttorff serves as our Chief StrategyExecutive Officer was serving under a two-year employment agreement adopted on March 11, 2019 atfor an initial term of July 1, 2021, to December 31, 2024 (the “Employment Agreement). Under her Employment Agreement, Ms. Buttorff receives an annual base salary of $110,000, which was increased to $150,000 on$380,000. To date, Ms. Buttorff has not taken a salary and payments have accrued commencing in January 23, 2020.2021. In addition, he will be2023, Ms. Buttorff received restricted stock in lieu of any employment compensation.
Ms. Buttorff is also entitled to receive (i) a sales commission of 2% of revenue from sales generated by Ms. Buttorff after revenue exceeds $500,000 for three consecutive months, (ii) an annual cash bonus, in an amount as determined by the boardaward of directors, if the Company meets or exceeds criteria adopted by the Compensation Committee$2.2 million of the Board of Directors. He shall also be eligible for grants of awards under stock option or other equity incentive plans of the Company as the Company’s Compensation Committee. For the 2019 year, he received a cash bonus of $100,000. On January 22, 2021 the company reached an agreement with Mr. Johnson to exchange all accrued salaries, unpaid expenses and unpaid bonus for 7,752,880 shares of the company’s common stock and to terminate his employment agreement.
Year | Salary | Option Award(s)(1) | Total | |
Emiliano Aloi(2) | 2020 | $62,308 | $— | $62,308 |
Former Interim CEO | 2019 | $108,036 | $32,000 | $140,036 |
Alvaro Alberttis(3) | 2020 | $— | $50,980 | $50,980 |
Chief Operating Officer | 2019 | $— | $— | $— |
Kenneth E. Puzder(4) | 2020 | $76,731 | $122,500 | $199,231 |
Former Chief Financial Officer | 2019 | $81,428 | $70,000 | $151,428 |
Andrew Johnson(5) | 2020 | $75,962 | $122,500 | $198,462 |
Chief Strategy Officer | 2019 | $92,977 | $174,500 | $267,477 |
Derek du Chesne(6) | 2020 | $76,730 | $500,000 | $575,000 |
Former President | 2019 | $— | $— | $— |
The amounts in these columns do not reflectfollowing table shows the compensation actually received by the named executive officer nor do they reflect the actual value that will be recognized by the named executive officer. Instead the amounts reflect the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions regarding the option awards, refer to Note 3 to our financial statements forpaid during the year ended December 31, 2019, which are included2023 to our non-employee director.
Name | Stock Awards (No.) | Option Awards (No.) | Fees Earned or Paid in Cash ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total Shares | |||||||||||||||||||||||
Leslie Buttorff | (a) | 760,000 | 0 | 0 | 0 | 0 | 0 | 760,000 | ||||||||||||||||||||||
Executive Chairman | ||||||||||||||||||||||||||||||
Lawrence J. Wert | (a) | 300,000 | 0 | 0 | 0 | 0 | 0 | 300,000 | ||||||||||||||||||||||
Board Member |
(a) Compensation was awarded in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC.
Equity Awards Atat Year End Table
Number of Securities Underlying Unexercised Options (#) Exercisable | Equity Incentive Plan Award: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | ||
Emiliano Aloi * | 250,000 | (1) | — | $0.320 | 01/09/2029 |
Former Interim Chief Executive Officer | |||||
Kenneth E. Puzder * | 250,000 | (2) | 149,739 | $0.200 | 01/11/2029 |
Former Chief Financial Officer | |||||
Andrew Johnson | 12,500 | (3) | — | $0.320 | 01/15/2029 |
Chief Strategy Officer | 31,250 | (4) | 15,625 | $0.960 | 01/15/2029 |
125,000 | (5) | 20,832 | $0.560 | 03/12/2029 |
None.
Option Exercises and Stock Vested
Our named executive officers did not exercise any stock option awards during the year ended December 31, 2020.
28 |
DIRECTOR COMPENSATION | ||||||||
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |
Lawrence J. Wert Executive Chairman | (a) | - | 100,000 | - | - | - | - | 100,000 |
John Price Board Member | (b) | - | 25,000 | - | - | - | - | - |
Alvaro Daniel Alberttis Board Member | (c) | - | 100,000 | - | - | - | - | 100,000 |
Julian Pittam Board Member | (d) | - | 100,000 | - | - | - | - | 100,000 |
Emiliano Aloi Former Board Member | (e) | - | 29,167 | - | - | - | - | 29,167 |
Justin A. Viles Former Board Member | (f) | - | 24,500 | - | - | - | - | 24,500 |
Item 12. Sec
The following table sets forth information as of MarchDecember 31, 2021,2023, regarding the number of shares of our common stock beneficially owned by each director, each named executive officer and by all directors and executive officers as a group. Beneficial ownership includes shares, if any, held in the name of the spouse, minor children or other relatives of the director or executive officer living in such person’s home, as well as shares, if any, held in the name of another person under an arrangement whereby the director or executive officer can vest title in himself at once or at some future time. In determining the number and percentage of shares beneficially owned by each person, shares that may be acquired by such person pursuant to options exercisable within 60 days after March 31, 2021 are deemed outstanding for purposes of determining the total number of outstanding shares for such person and are not deemed outstanding for such purpose for all other shareholders. To our knowledge, except as otherwise indicated, beneficial ownership includes sole voting and dispositive power with respect to all shares. Unless otherwise noted, each shareholder’s address is 80 NE 4th Avenue,5910 S. University Blvd, Suite 28, Delray Beach, FL 33483,C18-193, Greenwood Village, CO 80121, and each shareholder has sole voting power and investment power with respect to securities shown in the table below.
Title of class | Name and address of beneficial owner | Amount and Nature of Beneficial Ownership | Percent of Class(1) | |
Current Named Executive Officers & Directors: | ||||
Common Stock | Julian Pittam 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 3,914,791 | (2) | 13.75% |
Common Stock | John Price 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 2,672,111 | (3) | 2.70% |
Common Stock | Andrew Johnson 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 8,486,240 | (4) | 8.58% |
Common Stock | Alvaro Alberttis 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 4,770,726 | (5) | 4.81% |
Common Stock | Lawrence J. Wert 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 8,620,297 | (6) | 8.70% |
Common Stock Total of All Current Directors and Executive Officers: | 28,464,147 | 38.54% |
Title of class | Name and address of beneficial owner | Amount and Nature of Beneficial Ownership | Percent of Class(1) | |
Former Named Executive Officers & Directors: | ||||
Common Stock | Kevin Esval 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 817,000 | (2) | 0.82%* |
Common Stock | Jeffrey Thompson 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 350,000 | (3) | 0.35%* |
Common Stock | Vladislav Yampolsky 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 8,723,192 | (4) | 8.76% |
Common Stock | Justin Viles 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 631,577 | (5) | 0.63%* |
Common Stock | Emiliano Aloi 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 271,317 | (6) | 0.27%* |
Common Stock | Derek DuChesne 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 20,000 | (7) | 0.02%* |
Common Stock | Ken Puzder 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 | 250,000 | (8) | 0.25%* |
Common Stock Total of All Former Directors and Former Executive Officers: | 11,043,106 | 11.08% |
Title of class | Name of beneficial owner | Amount and Nature of Beneficial Ownership (1) | Percent of Class (1) | |||||||
Named Executive Officers: | ||||||||||
Common Stock | Leslie Buttorff (2) | 1,359,899 | 7.71 | % | ||||||
Common Stock | Nathan Berman (3) | 67,749 | 0.38 | % | ||||||
Common Stock | Nicholas J Cavarra (4) | 796,957 | 4.52 | % | ||||||
Directors: | ||||||||||
Common Stock | Lawrence J. Wert (5) | 607,868 | 3.45 | % | ||||||
Common Stock | All directors and executive officers as a group (4 persons) (6) | 2,035,516 | 16.06 | % | ||||||
5% Stockholders: | ||||||||||
Common Stock | J&N Real Estate Company LLC (7) | 7,297,627 | 41.36 | % |
(1) | Applicable percentages are based on 17,645,352 of common stock outstanding as of the March 15, 2023, excluding securities held by or for the account of the Company. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days after March 31, 2023, whether upon the exercise of options, warrants or conversion of notes. Unless otherwise indicated in the footnotes to this table, we believe that each of the stockholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them. This table does not include any unvested stock options except for those vesting within 60 days. |
(2) | Ms. Buttorff is our Chief Executive Officer, Chief Financial Officer and director. |
(3) (4) | Mr. Berman is our Controller. Mr. Cavarra is our President. |
(5) | Mr. Wert is a director. |
(6) | Directors and Executive Officers as a group. This amount includes ownership by all directors and all current executive officers including those who are not Named Executive Officers under the SEC’s disclosure rules. |
(7) | J & N Real Estate Company, LLC Ms. Buttorff is the owner. Address is 5910 South University Suite C18-193, Greenwood Village, CO 80121. |
Item 13. Cert
Our CEO is the American Arbitration Association in New York, New York. The proceeding was brought by our former director, Dr. Krassen Dimitrov. The complaint generally alleges that we and our subsidiary Exactus Biosolutions, Inc. breached an alleged consulting agreement with Dr. Dimitrov and owe unpaid consulting fees, plus interest. Dr. Dimitrov also licensed certain technology to Exactus Biosolutions, Inc. The Company is conducting an investigation into matters concerning the licenses and payments previously made, and disputes that any amounts are due and the existence of any contract. The Company intends vigorously to defend such action. The Company believes that there exist grounds to assert various counter-claims and third-party claims against Dr. Dimitrov and his affiliated companies for return of amounts previously paid. For the years ended December 31, 2020 and 2019, $0 and $300,000 was recognized in Research and Development expenses for consulting provided by Dr. Dimitrov. As of December 31, 2020 and 2019, $575,000 was included in accounts payable, respectively. During the year ended December 31, 2020 and 2019, $0 was paid.
Director Independence
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we believe that Julian Pittam and Larry Wert areis an independent directors.
The following table presents the aggregate fees billed for each of the last two fiscal years by the Company’sour independent registered public accounting firm, RBSM LLP,Borgers, in connection with the audit of the Company’sour consolidated financial statements and other professional services rendered.
Year Ended: | Audit Services | Tax Fees | Other Fees | |||||
December 31, 2023 | $ | 201,000 | n/a | n/a | ||||
December 31, 2022 | $ | 135,000 | n/a | n/a |
Pre–Approval Policy of Services Performed by Independent Registered Public Accounting Firm
The Audit Committee’sBoard policy is to pre–approve all audit and non–audit related services, tax services and other services. Pre–approval is generally provided for up to one year, and any pre–approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The Audit Committee has delegated the pre–approval authority to its chairperson when expedition of services is necessary. The independent registered public accounting firm and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre–approval and the fees for the services performed to date.
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PART IV
Item 15. Exhibits,Exhibits, Financial Statements Schedules
(a) Financial Statements and Schedules
The following financial statements and schedules listed below are included in this Form 10-K.
Financial Statements (See Item 8)
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10.12 | Asset Purchase Agreement dated January 29, 2024, by and between the Issuer and PLM Holdings, Inc. | 8-K | 2/5/24 | 10.3 | Filed | |||||
10.13 | Ex. 10.14 to 10-K__Form of Amendment No. 1 to Promissory Note dated March 5, 2024 by and between the Issuer and FirstFire Global Opportunities Fund LLC | Furnished | ||||||||
23.1 | Consent of BF Borgers CPA PC | Filed | ||||||||
31.1 | Certification of Principal Executive Officer and Principal Financial Officer (302) | Filed | ||||||||
32.1 | Certification of Principal Executive and Principal Financial Officer (906) | Furnished*** | ||||||||
101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Exhibits and/or Schedules have been omitted. The Company hereby agrees to furnish to the Securities and Exchange Commission upon request any omitted information.
*** This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
+Portions of this exhibit have been omitted as permitted by the rules of the SEC. The information excluded is both (i) not material and (ii) the type that the Company customarily and actually treats as private or confidential. The Company undertakes to submit a marked copy of this exhibit for review by the SEC Staff, to the extent it has not been previously provided, and provide supplemental materials to the SEC Staff promptly upon request.
Copies of this Report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Panacea Life Sciences Holdings, Inc., at the address on the cover page of this Report, Attention: Corporate Secretary.
Item 16. Form 10-K Summary.
Not applicable.
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Panacea Life Sciences Holdings, Inc. | ||
Date: April 1, 2024 | By: | /s/ Leslie Buttorff |
Leslie Buttorff | ||
Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
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