PANACEA LIFE SCIENCES HOLDINGS, INC. Business Overview
The Company is a
Panacea, the Company's subsidiary after the share exchange, which was founded by
As of
In July, 2022 we shifted some of our focus to obtaining more contract manufacturing contracts in the nutraceutical industry. To date we have secured ten new contracts that should start yielding revenues in the 4th quarter.
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 hemp products, 2) Developing both full spectrum and THC-free products, 3) Hemp supply, and 4) utilize Good Manufacturing Practice to produce goods that are 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 to optimize dosage and delivery to various human conditions. Removal of the THC from products is a difficult and expensive process, but we believe this is essential for specific patient populations; such as, athletes where testing positive for THC would lead to disqualification, first responders who would be terminated for testing positive for THC, and in animal products where even a small amount of THC can lead to toxicity and potential lethality. Industrial hemp extracts are found to have particular application as neuroprotectants, for example in limiting neurological damage and increasing speed of recovery with traumatic brain injury. The cannabinoids have also been reported to treat human disease conditions where currently multiple pharmacologicals are needed to address, e.g., Post Traumatic Stress Disorder (PTSD), or where there is no current cure such as Alzheimer's, Parkinson's Disease, and age-related dementia, to name a few.
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. Our products are
formulated with delivery methods for health benefits including an intellectual
property portfolio enabling development of topical creams, sublinguals, oral
soft gel capsules, patches, and sprays. Our products are derived from organic
practices industrial hemp grown in
We believe a multitude (hundreds) of companies, large and small, have launched or intend to launch retail brands and white label products containing cannabinoids like CBD, including retail and seed-to-sale companies that are larger and better capitalized than we are and/or which offer products similar to ours with a larger geographic scope of operations and a market presence. Many of these are dependent upon third parties to provide raw material inventory 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 an efficient supply chain that will put us among the few companies that maintain a competitive pricing and supply advantage. The CBD-based consumer product industry is highly fragmented with numerous companies. There are also large, well-funded companies that currently do not offer hemp-based consumer products including large agribusiness companies but may do so in the future and become significant competitors. Our goal is to be a leader in wholesale and retail sales channels for end-products, such as nutraceuticals, supplements and pet and farm products. As government regulation of CBD and related products becomes more lenient in certain jurisdictions, and other barriers to entry decline, we anticipate experiencing an increase in competition and an intensifying competitive environment, including potentially the introduction of new seed-to-sale companies and/or the expansion of operations by current competitors. Further, numerous other factors are expected to be critical to our ability to be and remain competitive in our business and goals, including product quality and prices, brand strength, production and distribution capabilities and geographic scope of operations and market presence. Additionally, market conditions can shift demand for CBD products, such as competitive pricing, the effects of inflation, regulatory changes and economic or geopolitical turmoil.
22 Our Industrial Hemp Supply
In 2019, Panacea acquired
Partnership with Universities
The grand opening of the
? Solving Industry Issues
? Problem: The hemp plant is a hyperaccumulator, meaning trace elements in the
soil in which the plant is grown, such as heavy metals, pesticides, and others,
are readily absorbed in the plant, potentially contaminating hemp oil and
rendering the material unusable.
? Solution: Using analytical techniques, we have developed a method for complete
removal of commonly used pesticides to remediate contaminated hemp oil to
produce a safe and usable hemp product. This work has been submitted for
publication to the
? Sustainability and Access to Minor Cannabinoids
? Problem: In addition to CBD and THC, each of the other 118 cannabinoids are
anticipated to have unique and beneficial health benefits. However, because
they are present at less than 1% in hemp extracts, there are issues in both
obtaining sufficient quantities and determining the purity of each of the minor
cannabinoids.
? Solution: The byproduct created during the distillation process of crude hemp
oil is typically thrown away to enter the waste stream. In closer examination
of the byproduct, the CRC determined that there are substantial minor
cannabinoids present, such as cannabidivarin (CBDV), Cannabichromene (CBC),
Cannabicyclol (CBL), and Cannabielsoin (CBE). Using the advanced technology in
the CRC, the team can now access these low abundance cannabinoids while also
assisting Panacea (as a member of
in attaining its sustainability goals by decreasing waste streams.
? Supporting Clinical Trials
? To gain further insight on cannabinoid activity, Panacea and the CRC are
collaborating to launch specific clinical trials in several areas. The first
two studies have launched this year (2022):
1. In collaboration with Dr.
CBD effects in a translational model of Alzheimer's disease. In this study,
performed in aged dogs that have cognitive impairment very similar to human
AD, not only will CBD be evaluated for ability to slow disease progression,
but will be one of the first studies to correlate how much consumed CBD enters
the brain.
2. In collaboration with Dr.
York, Panacea and the CRC have launched an open label study evaluating CBD and
CBG for effects on irritable bowel syndrome, a condition affecting over 30
million American with no proven treatment.
We have also signed an agreement with the
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Company Information Technology Infrastructure
The ERPCannabis system is based on an SAP architecture and was used to develop the base installation. All financial, human resource, payroll, procurement, production planning and materials management business processes are represented in this system. In addition, the system is linked to our e-Commerce website www.panacealife.com. This system allows us to update product costing and determine inventory levels which will be critical as the company expands. In addition, sophisticated financial and payroll processing are inherent in the solution; thus, offering investors detailed accounting results related to company investments. We plan to expand on the use of this infrastructure for acquisitions and service offerings.
Results of Operations
Set forth below is the discussion of the results of operations of the Company
for the three months ended
Three Months Ended
Net Revenues
We are principally engaged in the business of producing and selling products made from industrial hemp. Revenue consists of sales of our six category of brand products, white label and contract manufacturing sales to other CBD companies, raw material sales (distillate and isolate), tolling products, and leasing space. We also have revenue from the sale of our Personal Protection Equipment (PPE) inventory and non-CBD nutraceutical companies.
Our revenues for the three months ended
Cost of Sales
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Operating Expenses
Operating expenses for the three months ended
Production related operating expenses for the three months ended
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24 Other income (expense)
Other income for the three months ended
Nine Months Ended
Net Revenues
We are principally engaged in the business of producing and selling products made from industrial hemp. Revenue consists of sales of our six category of brand products, white label and contract manufacturing sales to other CBD companies, raw material sales (distillate and isolate), tolling products, and leasing space. We also have revenue from the sale of our Personal Protection Equipment (PPE) inventory and non-CBD nutraceutical companies but these are insignificant at this time.
Our revenues for the nine months ended
Cost of Sales
Cost of sales for the nine months ended
Operating Expenses
Operating expenses for the nine months ended
Production related operating expenses for the nine months ended
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Other income (expense)
Other income for the nine months ended
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Liquidity and Capital Resources
Cash flows from operating activities
The largest source of operating cash is from our customers. A large majority of
our customers purchase CBD on-line, so credit card payments are collected and
paid within 1-2 business days. Other white label and contract manufacturing
customers pay before the products are released. Some larger customers have
either net 10-, 2%- or 30-day net terms. Net cash used in operating activities
was
Cash flows from investing activities
Cash outlay for the acquisition of fixed assets comprised the majority of this
category and were
Cash flows from financing activities
Net cash provided by financing activities for the nine months ended
As of
We do not have sufficient cash resources to sustain our operations for the next
12 months, particularly if the large sales agreements and purchase orders we
have do not result in the revenue anticipated. We may be dependent on obtaining
financing from one or more debt or equity offerings or further loans from
These unaudited condensed consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of the Company's assets and the carrying amount of its liabilities based on the going concern uncertainty. These factors raise substantial doubt about the Company's ability to continue as a going concern for a period of 12 months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. In addition, due to insufficient revenue, we will need to obtain further funding through public or private equity offerings, debt financing, collaboration arrangements or other sources in order to maintain active business operations. We currently do not have sufficient cash flow to pay our ongoing financial obligations on a consistent basis. The issuance of any additional shares of common stock, preferred stock or convertible securities could be substantially dilutive to our stockholders. In addition, adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital, we will be forced to borrow additional sums from our Chief Executive Officer or delay, reduce or eliminate our research and development programs, we may not be able to continue as a going concern, and we may be forced to discontinue operations. These unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Off Balance Sheet Arrangements
As of
Potential Impacts of Certain Current and Proposed Regulations on Our Business and Operations
Recently, a bill titled the
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Many people are increasingly turning to CBD products for several reasons: CBD is non-psychoactive, so it does not produce a "high" like THC, there are few known contraindications, the properties of different cannabinoids can positively affect a wide range of ailments, and cannabinoids work directly and indirectly with the body's endocannabinoid system to create balance known as homeostasis. As demand increases, we believe the FDA must provide more clarity about CBD's legalization, and this bill is a promising first step.
For now, many companies that produce hemp-derived CBD products including Panacea undertake to abide by the same regulations as any other dietary supplements like ingredient filings, good manufacturing practices (GMP), and labeling and marketing provisions. Panacea will continue to sell CBD and other hemp-derived products while still awaiting a clear path from the FDA about how CBD products can be marketed and used.
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q (this "Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the effectiveness of our products, studies regarding the long term effects of COVID-19, future studies that we may conduct , our operations in the hemp industry through Panacea, our expected revenue growth, proposed federal legislation and its potential impact on the CBD industry, our business relationship with XXII, our plans to raise capital, and our liquidity. Words such as "expects," "anticipates," "plans," "believes," "seeks," "estimates," "could," "would," "may," "intends," "targets" and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements in this Report. The identification of certain statements as "forward-looking" is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, customer demand, market acceptance, growth rate, competitiveness, gross margins, and expenditures.
Although forward-looking statements in this Report reflect the good faith
judgment of our management, such statements can only be based on facts and
factors currently known by us. Further information on the risks and
uncertainties affecting our business is contained in our filings with the
Critical Accounting Estimates and New Accounting Pronouncements
New Accounting Pronouncements
See Note 2, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this amendment No. 1 to the Quarterly Report on Form 10-Q.
Critical Accounting Estimates
The discussion and analysis of the Company's financial condition and results of operations is based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of the Company's condensed consolidated financial statements requires its management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures. The Company's management bases its estimates, assumptions and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Different assumptions and judgments would change the estimates used in the preparation of the Company's condensed consolidated financial statements which, in turn, could change the results from those reported. In addition, actual results may differ from these estimates and such differences could be material to the Company's financial position and results of operations.
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Critical accounting estimates are those that the Company's management considers the most important to the portrayal of the Company's financial condition and results of operations because they require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company's critical accounting estimates in relation to its condensed consolidated financial statements include those related to:
?Goodwill and intangible assets ? Fair value of marketable securities ? Incremental Borrowing Rate used Right of Use Asset Calculations ? Business combinations
We allocate the cost of acquired companies to the identifiable tangible and intangible assets acquired and liabilities assumed, with the remaining amount classified as goodwill. The identification and valuation of these intangible assets and the determination of the estimated useful lives at the time of acquisition, as well as the completion of impairment tests, require significant management judgments and estimates. These estimates are made based on, among other factors, review of projected future operating results and business plans, economic projections, anticipated highest and best use of future cash flows and the cost of capital. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of goodwill and other intangible assets, and potentially result in a different impact to our results of operations. Further, changes in business strategy and/or market conditions may significantly impact these judgments and thereby impact the fair value of these assets, which could result in an impairment of the goodwill or intangible assets.
Fair value of marketable securities
Marketable securities are recorded at fair value using the quoted market prices and changes in fair value are recorded as net realized gains or losses in comprehensive income. We monitor these investments for impairment and make appropriate reductions in carrying values as necessary.
Incremental Borrowing Rate used Right of Use Asset Calculations
We determine if a contract is a lease or contains a lease at the inception of the contract and reassess that conclusion if the contract is modified. All leases are assessed for classification as an operating lease or a finance lease. Operating lease right-of-use, or ROU, assets are included in non-current other assets on our consolidated balance sheet. Operating lease liabilities are separated into a current portion, included within other accrued liabilities on our consolidated balance sheet, and a non-current portion, included within other long-term liabilities on our consolidated balance sheet. We do not have any finance lease ROU assets or liabilities. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We do not obtain and control the right to use the identified asset until the lease commencement date.
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Our lease liabilities are recognized at the applicable lease commencement date based on the present value of the lease payments required to be paid over the lease term. Because the interest rate implicit in the lease is not readily determinable, we generally use our incremental borrowing rate to discount the lease payments to present value. The estimated incremental borrowing rate is derived from information available at the lease commencement date. We factor in publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. Our ROU assets are also recognized at the applicable lease commencement date. The ROU asset equals the carrying amount of the related lease liability, adjusted for any lease payments made prior to lease commencement and lease incentives provided by the lessor. Variable lease payments are expensed as incurred and do not factor into the measurement of the applicable ROU asset or lease liability.
Business Combinations
We have applied significant estimates and judgments in order to determine the fair value of the identified assets acquired, liabilities assumed and goodwill recognized in connection with our business combinations to ensure the value of the assets and liabilities acquired are recognized at fair value as of the acquisition date. In measuring the fair value, we utilize valuation techniques consistent with the market approach, income approach, or cost approach.
The valuation of the identifiable assets and liabilities includes assumptions made in performing the valuation, such as projected revenue, weighted average cost of capital, discount rates, estimated useful lives, and other relevant assessments. These assessments can be significantly affected by our estimates, judgments, and assumptions. If actual results are not consistent with our estimates, judgments, or assumptions, or if additional or new information arises in the future that affects our fair value estimates, then adjustments to our initial fair value estimates may have a material impact to our purchase accounting or our results of operations. If actual results are not consistent with our estimates, judgments, or assumptions, or if additional or new information arises in the future, beyond our one-year measurement period, that affects our fair value estimates, then adjustments to our initial fair value estimates may have a material impact to our results of operations.
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