| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of presentation and principles of consolidation The
Company’s consolidated financial statements include the financial statements of Panacea Life Sciences, Inc., a wholly owned subsidiary
acquired on June 30, 2021. The
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the
United States of America and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”)
for interim financial information, which includes consolidated unaudited interim financial statements and present the consolidated unaudited
interim financial statements of the Company and its wholly-owned subsidiary as of March 31, 2022. Accordingly, they do not include all
of the information and notes required by accounting principles generally accepted in the United States of America. All intercompany transactions
and balances have been eliminated. In the opinion of management, all adjustments necessary to present fairly our financial position,
results of operations, stockholders’ equity and cash flows as of March 31, 2022, and 2021, and for the periods then ended, have
been made. Those adjustments consist of normal and recurring adjustments. Operating results for the three ended March 31, 2022 and 2021
are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2022.
Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Going
concern These
unaudited condensed consolidated financial statements are presented on the basis that the Company will continue as a going concern. Panacea
has combined with Panacea Life Sciences Holdings, Inc. (formerly Exactus), so the below items reflect the consolidated company. The going
concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since our inception
in later 2017, we have generated losses from operations. As of March 31, 2022, our accumulated deficit was $ 19.5
million, and we had $ 2.903
million in cash and liquid stock. As of March
31, 2022 the shares of common stock we hold in 22 nd 1,227,017
shares) ( Nasdaq: XXII) (“XXII”)
was valued at approximately $ 2.847
million. The XXII stock is pledged to secure
a $ 4.063
million promissory note in favor of Quintel-MC,
Incorporated (“Quintel”) and a $ 1.624
million promissory note in favor of Leslie Buttorff,
CEO of the Company. Quintel-MC, Inc. is owned by the CEO. These items are shown on the balance sheet as related party loans. The current
plan with respect to the XXII stock is to hold this stock during the short-term pending XXII’s application for MRTP FDA approval.
These factors raise 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 or maintain 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
shareholders. In addition, adequate additional funding may not be available to us on acceptable terms, or at all. 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. In November 2021,
the Company closed a $ 1.1
million convertible note and warrants financing
and received $ 1 COVID-19 The COVID-19 pandemic has resulted in a global
slowdown of economic activity which may reduce the future demand for a broad variety of goods and services, while also disrupting sales
channels, marketing activities and supply chains. The Company’s business operations have been negatively impacted by the COVID-19
pandemic and related events. While the lockdowns and disruptions have largely ended, we cannot predict whether future variants will
cause adverse consequences. However, recent supply chain disruptions and delays may hinder our ability to continue our operations
and generate revenue. The impact to date has included a decline in CBD product and sales demand. Further, in 2020, the Company (Panacea)
invested in personal protective equipment (PPE) materials to sell hand sanitizers, testing kits and masks, and sales of PPE products,
which constituted a significant portion of our revenue during the fiscal quarter ended June 30, 2021 and prior periods. These revenues
have declined as vaccines continue to be administered and mask mandates and similar requirements have been lifted or reduced in many
places. Although the Company is unable to predict the full impact and duration of COVID-19 on its business, the Company is actively managing
its financial expenditures in response to the current uncertainty. The
impact of the COVID-19 pandemic and related events, including actions taken by various government authorities in response, have increased
market volatility and make the estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes more difficult. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance
that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may
change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements
as soon as they become known. Use
of Estimates The
Unaudited Condensed Consolidated Financial Statements have been prepared in conformity with US GAAP and required management of the Company
to make estimates and assumptions in preparation of these statements. Actual results may differ significantly from those estimates. Significant
estimates made by management include but are not limited to the useful life of property and equipment, incremental borrowing rate used
in the calculation of right of use asset and lease liability, reserves for inventory, allowance for doubtful accounts, revenue allocations,
valuation allowance on deferred tax assets, assumptions used in assessing impairment of long-term assets, assumptions used in the calculation
of net realizable value of inventory and fair value of non-cash equity transactions. Cash
and Cash Equivalents For
purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market
funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. There were no
cash equivalents. The Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the
Company’s cash accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. On March 31, 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. An allowance of $ 10,000 5,850 Inventory Inventories
are stated at low 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 consists of 1,227,017 Going Concern Fair
Value Measurements The
Company adopted the provisions of Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and
Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair
value, and expands disclosure of fair value measurements. The guidance prioritizes the inputs used in measuring fair value and establishes
a three-tier value hierarchy that distinguishes among the following:
● Level
1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the
ability to access.
● Level
2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar
assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly
or indirectly.
● Level
3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The
following table shows, by level within the fair value hierarchy, the Company’s assets and liabilities at fair value on a recurring
basis as of March 31, 2022 and December 31, 2021: FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS
March
31, 2022 December
31, 2021
Total Level
1 Level
2 Level
3 Total Level
1 Level
2 Level
3
Marketable
securities $ 2,846,679 $ 2,846,679 $ - - $ 3,719,483 $ 3,719,483 $ - $ -
Total $ 2,846,679 $ 2,846,679 $ - $ - $ 3,719,483 $ 3,719,483 $ - $ - SCHEDULE OF MARKETABLE SECURITIES
March
31, 2022
Balance
at beginning of year $ 3,791,483
Unrealized
loss on marketable securities, net 944,804
Balance
at end of period $ 2,846,679 As
of March 31, 2022, the Company has no liabilities that are re-measured at fair value. Property
and Equipment Property
and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method on the various
asset classes over their estimated useful lives, which range from 3 ten years Intangible
Assets and Goodwill The
Company has intangible assets. Goodwill is comprised of the purchase price of business combinations in excess of the fair market value
assigned at acquisition to the tangible and intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment
on an annual basis. The Company performed its most recent goodwill impairment using a discounted cash flow analysis and found that the
fair value exceeded the carrying value. It has $ 2.189 0.077 0.123 SCHEDULE OF INTANGIBLE ASSETS AND GOODWILL
Estimated
Life
Goodwill
from Phoenix Acquisition Tested
Yearly for Impairment
Intangibles
– Formulations 5
March
31, 2022 December
31, 2021
Goodwill $ 2,188,810 $ 2,188,810
Intangibles
– Formulations 307,001 307,001
Less
accumulated amortization (260,950 ) (245,600 )
Net
intangible assets $ 46,051 $ 61,401 Leases The
Company determines if an arrangement is a lease at inception. Contracts containing a lease are further evaluated for classification as
an operating or finance lease. In determining the leases classification, the Company assesses among other criteria: (i) 75% or more of
the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying asset; and (ii)
90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying asset The
Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term of
the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives. Lease terms
may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease
expenses are recognized on a straight-line basis over the lease term or the useful life of the leased asset. In
addition, the carrying amount of the ROU and lease liabilities are remeasured if there is a modification, a change in the lease term,
a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. Convertible
Notes Payable The
Company has issued convertible notes, which contain variable conversion features, whereby the outstanding principal and accrued interest
automatically convert into common shares at a fixed price which may be a discount to the common stock at the time of conversion. Some
of the conversion features of these notes are contingent upon future events, whereby, the holder agreed not to convert until the contingent
future event has occurred. Revenue
Recognition The
Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers The
Company accounts for a contract when it has been approved and committed to, each party’s rights regarding the goods or services
to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability
is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted
to governmental authorities. However, the Company’s sales are primarily through retail stores, purchase orders or ecommerce; thus,
currently contract liabilities are negligible. The Company does not have any multiple-element arrangements. Some
of the Company’s contract liabilities consist of advance customer payments. Contract liability results from transactions in which
the Company has been paid for products by customers, but for which all revenue recognition criteria have not yet been met. Once all revenue
recognition criteria have been met, the contract liabilities are recognized. The Company recorded $ 18,912
and $ 24,585
in advanced customer payments as of March 31,
2022 and December 31, 2021, respectively and these amounts are included in the balance sheet line item of accounts payable and accrued
expenses. SCHEDULE OF REVENUE FROM CONTRACT WITH CUSTOMER
March
31, 2022 December
31, 2021
Balance,
beginning of period $ 24,585 $ 121,300
Payments
received for unearned revenue 1,957 41,465
Revenue
earned 7,630 138,180
Balance,
end of period $ 18,912 $ 24,585 Revenue
is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration
that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded
reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step
model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the
promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of
the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance
obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. Revenue
related to the sale of products is recognized once goods have been sold to the customer and the performance obligation has been completed.
In both contracted purchase and retail sales, we offer consumer products through our online stores. Revenue is recognized when control
of the goods is transferred to the customer. This generally occurs upon our delivery to a third-party carrier or, to the customer directly.
Revenue from tolling services is recognized when the performance obligation, such as processing of the material, has been completed and
output material has been transferred to the customer. Revenue
is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental
authorities. A contract liability results from transactions in which the Company has been paid for products by customers, but for which
all revenue recognition criteria have not yet been met. Once all revenue recognition criteria have been met, the contract liabilities
are recognized. However, the Company’s sales are primarily through retail stores, purchase orders or ecommerce; thus, currently
contract liabilities are negligible. The Company does not have any multiple-element arrangements. The
Company also has recorded other income related to rental income it receives from leasing out space in the laboratory it occupies. Shipping
and Handling Costs The
Company accounts for shipping and handling fees in accordance with ASC 606. The amounts charged to customers for shipping products are
recognized as revenues and the related freight costs of shipping products are classified in general and administrative costs as incurred.
Shipping costs are included as a component of general and administrative and were $ 14,184 2,789 Advertising
& Marketing Advertising
costs are expensed when incurred and are included in advertising and promotional expense in the accompanying statements of operations.
Included in this category are expenses related to public relations, investor relations, new package design, website design, design of
promotional materials, cost of trade shows, cost of products given away as promotional samples, and paid advertising. The Company recorded
advertising costs included in general and administrative costs of $ 66,796 151,183 Segment
Information The
Company follows the provisions of ASC 280-10 Segment Reporting. Earnings
per Share The
Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings per Share”. Basic
earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common
shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if preferred
stock converted to common stock and warrants are exercised. Preferred stock and warrants are excluded from the diluted earnings per share
calculation if their effect is anti-dilutive. The
Business Combination on June 30, 2021 was accounted for as a recapitalization of equity structure. In October, 2021 the Company completed
1-for-28 reverse stock split The
following financial instruments were not included in the diluted loss per share calculation for the three months ended March 31, 2022
and 2021 because their effect was anti-dilutive: SCHEDULE OF ANTI-DILUTIVE DILUTED LOSS PER SHARE
2022 2021
For
the three months ended March 31,
2022 2021
Options
to purchase common stock 61,446 -
Warrants
to purchase common stock 56,377 -
Series
B-1 Convertible Preferred 6,679 -
Series
B-2 Convertible Preferred 26,786 -
Series
C Convertible Preferred 2,289,220 -
Series
C-1 Convertible Preferred 1,064,908 -
Series
D Convertible Preferred 1,628,126 -
Total 5,133,541 - Income
Taxes Income
taxes are accounted for under the asset and liability method prescribed by FASB ASC Topic 740. These standards require a company to determine
whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.
If the more likely than not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial
statements. Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis
of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which
the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred
tax asset will not be realized. Recently
Issued Accounting Standards In
August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity
(Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting
for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments
will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain
settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity
contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas. The ASU is effective for
annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December
15, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of ASU 2020-6 to have any material
impact on its consolidated financial statements. In
May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications
and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified
Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity
should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity
classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a
modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to
as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written
call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications
or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written
call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years
beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively
to modifications or exchanges occurring on or after the effective date of the amendments. The Company is currently evaluating the impact
of this standard on its consolidated financial statements. The
Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition,
results of operations, cash flows or disclosures. |
