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The foregoing numbers are topic to the overview of the Firm’s auditors; after
completion of the overview, the Firm will file an amended kind 10-Q/A.
Enterprise Overview
The Firm is a
alternatives in Cannabidiol, which we discuss with as “CBD”, since
after we expanded our focus to pursue alternatives in hemp-derived CBD. We
count on to vary our identify to
regulatory compliance. To that finish, on
Alternate Settlement with Panacea and the Panacea stockholders and in consequence
turned a seed-to-sale CBD firm. The previous Panacea stockholders have assumed
majority management of the Firm, and all our operations at the moment are operated by means of
Panacea which due to the share alternate turned an entirely owned subsidiary of
the Firm.
and a director upon the closing of the share alternate, additionally turned our principal
stockholder by means of widespread inventory and Convertible Most popular Inventory issued to her
and entities she controls.
Panacea, which was based by
attracted a
plant biotechnology firm which additionally has a deal with CBD merchandise and
expertise, throughout 2019. XXII has retained a 15% stake within the Firm following
the share alternate. By way of Panacea, we’re devoted to creating and
producing the highest-quality, most medically related, authorized, hemp-derived
cannabinoid merchandise for shoppers and pets. Starting at a farm Panacea owns a
parcel of positioned at Needle Rock,
51,000 sq. foot, state-of-the-art, cGMP, extraction, manufacturing, testing
and success middle positioned in
section of the CBD product worth chain. From cultivation to completed items,
Panacea ensures its merchandise with stringent testing protocols employed at each
stage of the availability chain. Panacea endeavors to supply pure pure treatments
inside product strains for each facet of life: PANA Well being®, PANA Magnificence®, PANA
Sport™, PANA Pet®, PANA Pure® and PANA Life™.
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Within the third quarter of fiscal yr 2021 we obtained further registration on
two extra of our six manufacturers and our mark. Panacea engaged
unbiased, multi-disciplined advertising and marketing, design and expertise firm in
At the moment Panacea sells over 60 completely different product SKUs of CBD and CBG merchandise.
As well as, we provide “white label” licensing to retail companies and contract
manufacturing providers to smaller CBD corporations. Within the gross sales space we have been ready
to shut a major transaction with a nationwide comfort retailer and we
shipped out our first buy order of merchandise in August, 2021.
We have been additionally engaged by a third-party firm to develop varied formulations
for pet merchandise and human merchandise. We plan to fabricate their merchandise for
sale within the 4th quarter.
Our Industrial Hemp Provide
Panacea’s 2021 crop is being grown in
the grower and is utilizing natural practices for the crop. XXII will present
Panacea
XXII’s ingredient extraction and purification processes. Working with Panacea
and different corporations within the business, XXII has secured strategic partnerships to
maximize and help every of the important thing segments of its cannabinoid worth chain:
plant profiling (CannaMetrix), plant biotechnology (KeyGene), plant breeding,
commercial-scale plant cultivation, and ingredient extraction/purification
(Sawatch Agriculture, Folium Botanical, Aurora Hashish,
Panacea. We additionally proceed to finish tolling offers with varied farmer which
embody each CBD and CBG strains.
Partnership with Universities
The grand opening of the
CSU was held on
for isolation of uncommon cannabinoids, inspecting cannabidiol’s results on
Inflammatory Bowel Illness (IBS), in addition to supporting analysis into dementia
and continual pelvic ache. We have now additionally signed an settlement with the
College of Mines
Firm Data Know-how Infrastructure
The ERPCannabis system is predicated on an SAP structure and was used to develop
the bottom set up. All monetary, human useful resource, payroll, procurement,
manufacturing planning and supplies administration enterprise processes are represented
on this system. As well as, the system is linked to our e-Commerce web site
www.panacealife.com. This method permits us to replace product costing and
decide stock ranges which shall be crucial as the corporate expands. In
addition, subtle monetary and payroll processing are inherent within the
resolution; thus, providing traders detailed accounting outcomes associated to
firm investments. We plan to increase on using this infrastructure for
acquisitions and repair choices.
Outcomes of Operations
Set forth under is the dialogue of the outcomes of operations of the Firm
for the three months ended
Panacea which underneath relevant accounting guidelines are handled because the operation of
the Firm.
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Three Months Ended
Internet Revenues
The Firm is principally engaged within the enterprise of manufacturing and promoting
merchandise made out of industrial hemp. Income consists of gross sales of our six
class of name merchandise, white label and contract manufacturing gross sales to
different CBD corporations, uncooked materials gross sales (distillate and isolate), tolling
merchandise, and leasing house. Through the three months ended
the Firm generated
the three months ended
to much less PPE objects being bought in 2021. A big proportion of our income for the
2020 interval was attributable to gross sales of PPE merchandise that we procured and
produced throughout the COVID-19 pandemic. The Firm doesn’t intend to proceed
with these PPE merchandise as soon as they’re all bought.
Value of Gross sales
The first elements of value of gross sales embody the price of manufacturing the
CBD merchandise. For the three months ended
of gross sales amounted to
prices from 2020 to 2021 are attributed to the PPE supplies. Resulting from COVID-19 the
Firm did and continues to expertise delays from uncooked supplies bought from
CA
Working Bills
Manufacturing associated working bills have been
months ended
months ended
included in working bills.
Normal and administrative bills (G&A) have been
months ended
months ended
9 Months Ended
Internet Revenues
Through the 9 months ended
million
totaled
occurred in 2020, however in 2021 the PPE gross sales have been used to offset loans made out of
Quintel. A sale of PPE was made to Quintel, a associated social gathering, for
stock, nevertheless, on account of accounting opinions this transaction was not handled
as income, however was handled as a discount in stock and a discount within the
Quintel mortgage. Additionally, COVID and the conflicting messages from the FDA regarding
CBD proceed to hamper retail enlargement actions.
Additionally, the rental earnings obtained of
and 2020 was handled as Different Revenue.
Value of Gross sales
The first elements of value of gross sales embody the price of the CBD product. For
the 9 months ended
to
2021 are attributed to the PPE supplies and the lower in CBD associated
revenues.
Working Bills
Manufacturing associated bills have been
bills.
Normal and administrative bills have been
ended
24 Abstract of Money Flows
Money flows from working actions
The most important supply of working money is from our clients. A big majority of
our clients buy CBD on-line, so bank card funds are collected and
paid inside 1-2 enterprise days. Different white label and contract manufacturing
clients pay earlier than the merchandise are launched. Some bigger clients have
both internet 10, 2% or 30 day internet phrases. Internet money utilized in working actions was
30
Money flows from investing actions
Money obtained from
XXII inventory and money obtained from disposal of property comprised this class and
have been
Money flows from financing actions
Internet money supplied by financing actions for the 9 months ended
30, 2021
Firm’s CEO. In 2021, there was a money fee obtained of
paycheck mortgage program.
Liquidity and Capital Assets
On
liquid inventory of XXII. The Chief Government Officer of the Firm holds the XXII
shares pursuant to the pledge settlement and has the facility at any time to allow
the Firm to promote the shares to supply working capital. In August 70,000
shares have been bought for working capital. Panacea has borrowed substantial sums from
obligations. On
12% demand promissory be aware for
demand promissory be aware for
widespread inventory owned by Panacea. Moreover, the Firm has a line of credit score
with
rate of interest. So far
We might not have adequate money assets to maintain our operations for the following
12 months, notably if the big gross sales agreements and buy orders we
have don’t consequence within the income anticipated. We could also be depending on acquiring
financing from a number of debt or fairness choices or additional loans from
Buttorff
Firm and an institutional investor closed in escrow a
concern low cost convertible be aware (the “Be aware”) financing by which the investor is
paying
These unaudited condensed consolidated monetary statements are introduced on the
foundation that the Firm will proceed as a going concern. The going concern
idea contemplates the belief of property and satisfaction of liabilities
within the regular course of enterprise. No adjustment has been made to the carrying
quantity and classification of the Firm’s property and the carrying quantity of its
liabilities primarily based on the going concern uncertainty. These elements increase
substantial doubt in regards to the Firm’s capability to proceed as a going concern for
a interval of 12 months from the issuance date of this report. Administration can not
present assurance that the Firm will in the end obtain worthwhile operations
or change into money move constructive or increase further debt and/or fairness capital. In
addition, on account of inadequate income, we might want to get hold of additional funding
by means of public or non-public fairness choices, debt financing, collaboration
preparations or different sources with a purpose to preserve energetic enterprise operations.
We at the moment shouldn’t have adequate money move to pay our ongoing monetary
obligations on a constant foundation. The issuance of any further shares of
widespread inventory, most well-liked inventory or convertible securities could possibly be considerably
dilutive to our stockholders. As well as, ample further funding might not
be obtainable to us on acceptable phrases, or in any respect. If we’re unable to boost
capital, we shall be compelled to borrow further sums from our Chief Government
Officer or delay, scale back or remove our analysis and growth packages, we
might not have the ability to proceed as a going concern, and we could also be compelled to
discontinue operations. These unaudited condensed consolidated monetary
statements don’t embody any changes associated to the recoverability and
classification of property or the quantities and classification of liabilities that
may be essential ought to the Firm be unable to proceed as a going concern.
Off Steadiness Sheet Preparations
As of
25
Potential Impacts of the COVID-19 Pandemic on Our Enterprise Operations
As disclosed in Be aware 2, the COVID-19 pandemic has had a notable affect on
normal financial situations, together with however not restricted to the momentary closures
of many companies, “shelter in place” and different governmental rules,
lowered enterprise and client spending on account of each job losses and lowered
investing exercise, amongst many different results attributable to the COVID-19
pandemic, and there proceed to be many unknowns. Throughout 2020, COVID-19 had a
vital affect on Panacea’s CBD operations. Recognizing the sudden want for
private protecting gear, Panacea shifted its enterprise to importing and
promoting PPE hand sanitizers and masks.
The Delta variant which is having a major affect in
the interval of restoration into 2022.
Potential Impacts of Sure Present and Proposed Rules on Our Enterprise
and Operations
Just lately, a invoice titled the
ahead by Senate Majority chief
definition of a dietary complement to take away the prohibition on advertising and marketing CBD as
a dietary complement. Administration sees the invoice, if enacted, as a chance
for the FDA to speed up their resolution to categorise CBD merchandise as a dietary
complement. This could be a major step for hemp/CBD corporations as it will
open the door to new promoting alternatives, corresponding to moving into retail shops,
who’ve largely been hesitant to welcome CBD of their doorways and not using a clear
place from the FDA.
Many individuals are more and more turning to CBD merchandise for a number of causes: CBD is
non-psychoactive, so it doesn’t produce a “excessive” like THC, there are few identified
contraindications, the properties of various cannabinoids can positively
have an effect on a variety of illnesses, and cannabinoids work immediately and not directly
with the physique’s endocannabinoid system to create stability referred to as homeostasis.
As demand will increase, we imagine the FDA should present extra readability about CBD’s
legalization, and this invoice is a promising first step.
For now, many corporations that produce hemp-derived CBD merchandise together with Panacea
undertake to abide by the identical rules as every other dietary dietary supplements like
ingredient filings, good manufacturing practices (GMP), and labeling and
advertising and marketing provisions. Panacea will proceed to promote CBD and different hemp-derived
merchandise whereas nonetheless awaiting a transparent path from the FDA about how CBD merchandise
may be marketed and used.
Cautionary Assertion Concerning Ahead-Trying Statements
This quarterly report on Type 10-Q (this “Report”) accommodates forward-looking
statements throughout the which means of the Non-public Securities Litigation Reform Act of
1995, together with statements about our new operations within the hemp business by means of
Panacea, our anticipated income progress, our future plans and developments with
respect to PPE merchandise and the COVID-19 pandemic, our human assets following
our latest acquisition of Panacea, proposed federal laws and its
potential affect on the CBD business, our enterprise relationship with XXII, our
plans to boost capital, and our liquidity. Phrases corresponding to “expects,”
“anticipates,” “plans,” “believes,” “seeks,” “estimates,” “might,” “would,”
“might,” “intends,” “targets” and related expressions or variations of such phrases
are meant to determine forward-looking statements however will not be the unique
technique of figuring out forward-looking statements on this Report. The
identification of sure statements as “forward-looking” will not be meant to
imply that different statements not particularly recognized will not be forward-looking.
All statements apart from statements about historic info are statements that
could possibly be deemed forward-looking statements, together with, however not restricted to,
statements that relate to our future income, product growth, buyer
demand, market acceptance, progress charge, competitiveness, gross margins, and
expenditures.
Though forward-looking statements on this Report mirror the great religion
judgment of our administration, such statements can solely be primarily based on info and
elements at the moment identified by us. Consequently, forward-looking statements are
inherently topic to dangers and uncertainties mentioned underneath the heading “Threat
Elements” inside Half I, Merchandise 1A of the Report for the three and 9 months
ended
Such dangers, uncertainties and modifications in situation, significance, worth, and
impact might trigger our precise outcomes to vary materially from these expressed
herein and in methods not readily foreseeable. Readers are urged to not place undue
reliance on these forward-looking statements, which converse solely as of the date of
this Report and are primarily based on info at the moment and fairly identified to us.
We undertake no obligation to revise or replace any forward-looking statements to
mirror any occasion or circumstance which will come up after the date of this Report,
apart from as required by regulation. Readers are urged to fastidiously overview and
take into account the assorted disclosures made on this Report, which try and advise
events of the dangers and elements which will have an effect on our enterprise,
monetary situation, outcomes of operations and prospects.
26
Vital Accounting Estimates and New Accounting Pronouncements
New Accounting Pronouncements
See Be aware 2, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES to the unaudited
condensed consolidated monetary statements contained in Half I, Merchandise 1 of this
Quarterly Report on Type 10-Q.
Vital Accounting Estimates
The dialogue and evaluation of the Firm’s monetary situation and outcomes of
operations is predicated upon the Firm’s condensed consolidated monetary
statements, which have been ready in accordance with US GAAP. The preparation
of the Firm’s condensed consolidated monetary statements requires its
administration to make estimates and judgments that have an effect on the reported quantities of
property, liabilities, income and bills and associated disclosures. The Firm’s
administration bases its estimates, assumptions and judgments on historic
expertise and varied different elements which are believed to be cheap underneath
the circumstances, the outcomes of which kind the premise for making judgments
in regards to the carrying values of property and liabilities that aren’t readily
obvious from different sources. Totally different assumptions and judgments would change
the estimates used within the preparation of the Firm’s condensed consolidated
monetary statements which, in flip, might change the outcomes from these
reported. As well as, precise outcomes might differ from these estimates and such
variations could possibly be materials to the Firm’s monetary place and outcomes of
operations.
Vital accounting estimates are those who the Firm’s administration considers
crucial to the portrayal of the Firm’s monetary situation and
outcomes of operations as a result of they require administration’s most troublesome,
subjective or complicated judgments, typically because of the necessity to make estimates
in regards to the impact of issues which are inherently unsure. The Firm’s
crucial accounting estimates in relation to its condensed consolidated
monetary statements embody these associated to:
?Goodwill and intangible property ? Truthful worth of marketable securities ? Incremental Borrowing Fee used Proper of Use Asset Calculations ? Enterprise mixtures
We allocate the price of acquired corporations to the identifiable tangible and
intangible property acquired and liabilities assumed, with the remaining quantity
categorized as goodwill. The identification and valuation of those intangible
property and the dedication of the estimated helpful lives on the time of
acquisition, in addition to the completion of impairment assessments, require vital
administration judgments and estimates. These estimates are made primarily based on, amongst
different elements, overview of projected future working outcomes and enterprise plans,
financial projections, anticipated highest and finest use of future money flows and
the price of capital. The usage of different estimates and assumptions might
improve or lower the estimated truthful worth of goodwill and different intangible
property, and probably lead to a special affect to our outcomes of
operations. Additional, modifications in enterprise technique and/or market situations might
considerably affect these judgments and thereby affect the truthful worth of those
property, which might lead to an impairment of the goodwill or intangible
property.
occasions or circumstances change that point out impairment might have occurred. We
examined goodwill for impairment and decided there was no impairment and located
not impairment cost primarily based on the surplus of a reporting unit’s carrying quantity
over our truthful worth.
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Truthful worth of marketable securities
Marketable securities are recorded at truthful worth utilizing the quoted market costs
and modifications in truthful worth are recorded as internet realized positive factors or losses in
complete earnings. We monitor these investments for impairment and make
acceptable reductions in carrying values as essential.
Incremental Borrowing Fee used Proper of Use Asset Calculations
We decide if a contract is a lease or accommodates a lease on the inception of
the contract and reassess that conclusion if the contract is modified. All
leases are assessed for classification as an working lease or a finance lease.
Working lease right-of-use, or ROU, property are included in non-current different
property on our consolidated stability sheet. Working lease liabilities are
separated right into a present portion, included inside different accrued liabilities on
our consolidated stability sheet, and a non-current portion, included inside different
long-term liabilities on our consolidated stability sheet. We shouldn’t have any
finance lease ROU property or liabilities. ROU property symbolize our proper to make use of
an underlying asset for the lease time period and lease liabilities symbolize our
obligation to make lease funds arising from the lease. We don’t get hold of and
management the best to make use of the recognized asset till the lease graduation date.
Our lease liabilities are acknowledged on the relevant lease graduation date
primarily based on the current worth of the lease funds required to be paid over the
lease time period. As a result of the rate of interest implicit within the lease will not be readily
determinable, we usually use our incremental borrowing charge to low cost the
lease funds to current worth. The estimated incremental borrowing charge is
derived from info obtainable on the lease graduation date. We consider
publicly obtainable information for devices with related traits when
calculating our incremental borrowing charges. Our ROU property are additionally acknowledged
on the relevant lease graduation date. The ROU asset equals the carrying
quantity of the associated lease legal responsibility, adjusted for any lease funds made
previous to lease graduation and lease incentives supplied by the lessor.
Variable lease funds are expensed as incurred and don’t issue into the
measurement of the relevant ROU asset or lease legal responsibility.
Enterprise Combos
We have now utilized vital estimates and judgments with a purpose to decide the
truthful worth of the recognized property acquired, liabilities assumed and goodwill
acknowledged in reference to our enterprise mixtures to make sure the worth of
the property and liabilities acquired are acknowledged at truthful worth as of the
acquisition date. In measuring the truthful worth, we make the most of valuation strategies
in step with the market strategy, earnings strategy, or value strategy.
The valuation of the identifiable property and liabilities consists of assumptions
made in performing the valuation, corresponding to projected income, weighted common
value of capital, low cost charges, estimated helpful lives, and different related
assessments. These assessments may be considerably affected by our estimates,
judgments, and assumptions. If precise outcomes will not be in step with our
estimates, judgments, or assumptions, or if further or new info arises
sooner or later that impacts our truthful worth estimates, then changes to our
preliminary truthful worth estimates might have a fabric affect to our buy
accounting or our outcomes of operations. If precise outcomes will not be constant
with our estimates, judgments, or assumptions, or if further or new
info arises sooner or later, past our one-year measurement interval, that
impacts our truthful worth estimates, then changes to our preliminary truthful worth
estimates might have a fabric affect to our outcomes of operations.
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