Quarterly Report (10-q)

Date : 08/14/2019 @ 7:58PM
Source : Edgar (US Regulatory)
Stock : Exactus, Inc. (EXDI)
Quote : 0.65  0.02 (3.17%) @ 7:10PM

Quarterly Report (10-q)

 

       UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019
  
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from          to
 
Commission File Number: 333-183360
 
EXACTUS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Nevada
 
27-1085858
(State or Other Jurisdiction of Incorporation)
 
(I.R.S. Employer Identification Number)
 
 
 
 
 
 
80 NE 4th Avenue, Suite 28
 
 
Delray Beach, FL 33483
 
33483
(Address of Principal Executive Offices)
 
(Zip Code)
 
(804) 205-5036
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 checkmark whether the Registrant has submitted electronically any Interactive Data File required to be submitted pursuant to Rule 405 of regulation S-T (Section 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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 
 
Securities registered pursuant to Section 12(b) of the Act:  
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
N/A
 
N/A
 
N/A
 
The registrant had 34,934,563 shares of Common Stock, par value $0.0001 per share, outstanding as of August 12, 2019.
 
 
 
 
I ndex
 
 
 
PAGE
PART I.
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-i-
 
 
 
E xactus, Inc. and Subsidiaries
 
 
Condensed Consolidated Balance Sheets
 
 
 
 
 
 
 
 
 
 
June 30,
 
 
December 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
 
 
 
 
ASSETS
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
  $ 664,645  
  $ 1,960  
Accounts receivable
    69,914  
    -  
Accounts receivable - related party
    40,519  
    -  
Inventory
    1,047,781  
    -  
Advance to supplier - related party
    820,108  
    -  
Prepaid expenses and other current assets
    301,557  
    12,330  
Total current assets
    2,944,524  
    14,290  
 
       
       
Other Assets:
       
       
   Property and equipment, net
    373,531  
    -  
   Intangible assets, net
    2,640,645  
    -  
   Operating lease right-of-use assets, net
    467,036  
    -  
Total other assets
    3,481,212  
    -  
 
       
       
TOTAL ASSETS
  $ 6,425,736  
  $ 14,290  
 
       
       
 
LIABILITIES AND EQUITY (DEFICIT)
 
 
       
       
Current Liabilities:
       
       
Accounts payable
  $ 1,028,828  
  $ 923,429  
Accrued expenses
    43,637  
    46,875  
Note payable - related parties
    27,500  
    51,400  
Subscription payable
    500,000  
    -  
Convertible notes, net of discounts
    -  
    491,788  
Derivative liability
    -  
    1,742,000  
Settlement payable
    17,000  
    17,000  
Interest payable
    10,130  
    66,300  
Due to related party
    30,000  
    -  
Operating lease liabilities, current portion
    161,617  
    -  
Total current liabilities
    1,818,712  
    3,338,792  
 
       
       
Long Term Liabilities:
       
       
Convertible notes payable
    100,000  
    100,000  
Operating lease liabilities, long-term portion
    305,419  
    -  
Total long term liabilities
    405,419  
    100,000  
 
       
       
TOTAL LIABILITIES
    2,224,131  
    3,438,792  
 
       
       
Commitment and contingencies (see Note 10)
       
       
 
       
       
Equity (Deficit):
       
       
Exactus, Inc. Stockholders's Equity (Deficit)
       
       
Preferred stock: 50,000,000 authorized; $0.0001 par value, 5,266,466 undesignated shares
       
       
issued and outstanding
    -  
    -  
Preferred stock Series A: 1,000,000 designated; $0.0001 par value,
       
       
608,009 shares issued and outstanding
    60  
    -  
Preferred stock Series B-1: 32,000,000 designated; $0.0001 par value,
       
       
2,400,000,and 2,800,000 shares issued and outstanding, respectively
    240  
    280  
Preferred stock Series B-2: 10,000,000 designated; $0.0001 par value,
       
       
7,684,000 and 8,684,000 shares issued and outstanding, respectively
    768  
    868  
Preferred stock Series C: 1,733,334 designated; $0.0001 par value,
       
       
1,733,334 shares issued and outstanding
    173  
    173  
Preferred stock Series D: 200 designated; $0.0001 par value, 41 and 45
       
       
shares issued and outstanding, respectively
    -  
    1  
Common stock: 650,000,000 shares authorized; $0.0001 par value,
       
       
34,431,265 and 6,233,524 shares issued and outstanding, respectively
    3,443  
    623  
    Common stock to be issued (3,130,256 and none shares to be issued, respectively)
    313  
    -  
Additional paid-in capital
    18,156,387  
    7,111,445  
Accumulated deficit
    (13,771,831 )
    (10,537,892 )
Total Exactus Inc. Stockholders' Equity (Deficit)
    4,389,553  
    (3,424,502 )
 
       
       
        Non-controlling interest in subsidiary
    (187,948 )
    -  
 
       
       
        Total Equity (Deficit)
    4,201,605  
    (3,424,502 )
 
       
       
TOTAL LIABILITIES AND EQUITY (DEFICIT)
  $ 6,425,736  
  $ 14,290  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
  E xactus, Inc. and Subsidiaries
 
 
Condensed Consolidated Statements of Operations
 
 
 
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
  $ 99,164  
  $ -  
  $ 115,144  
  $ -  
Net revenues - related party
    40,519  
    -  
    40,519  
    -  
 
       
       
       
       
Total net revenues
    139,683  
    -  
    155,663  
    -  
 
       
       
       
       
Cost of sales - related party
    103,187  
    -  
    115,787  
    -  
 
       
       
       
       
Gross profit
    36,496  
    -  
    39,876  
    -  
 
       
       
       
       
Operating Expenses:
       
       
       
       
General and administration
    798,681  
    202,171  
    1,502,768  
    1,398,309  
Professional and consulting
    330,891  
    19,033  
    2,211,038  
    130,590  
Research and development
    11,975  
    75,000  
    26,975  
    150,000  
 
       
       
       
       
Total Operating Expenses
    1,141,547  
    296,204  
    3,740,781  
    1,678,899  
 
       
       
       
       
Loss from Operations
    (1,105,051 )
    (296,204 )
    (3,700,905 )
    (1,678,899 )
 
       
       
       
       
Other Income (expenses):
       
       
       
       
Derivative (loss) gain
    -  
    (119,000 )
    (1,454,729 )
    301,150  
Gain on settlement of debt, net
    -  
    -  
    3,007,629  
    -  
Interest expense
    (2,519 )
    (144,506 )
    (369,432 )
    (255,807 )
 
       
       
       
       
Total Other Expenses, net
    (2,519 )
    (263,506 )
    1,183,468  
    45,343  
 
       
       
       
       
Loss Before Provision for Income Taxes
    (1,107,570 )
    (559,710 )
    (2,517,437 )
    (1,633,556 )
Provision for income taxes
    -  
    -  
    -  
    -  
 
       
       
       
       
Net Loss
    (1,107,570 )
    (559,710 )
    (2,517,437 )
    (1,633,556 )
 
       
       
       
       
Net Loss attributable to non-controlling interest
    152,344  
    -  
    187,948  
    -  
 
       
       
       
       
Net Loss Attributable to Exactus, Inc.
    (955,226 )
    (559,710 )
    (2,329,489 )
    (1,633,556 )
 
       
       
       
       
Deemed dividend on Preferred Stock
    -  
    -  
    (904,450 )
    -  
 
       
       
       
       
Net Loss available to Exactus, Inc. common stockholders
  $ (955,226 )
  $ (559,710 )
  $ (3,233,939 )
  $ (1,633,556 )
 
       
       
       
       
Net Loss per Common Share - Basic and Diluted
  $ (0.03 )
  $ (0.12 )
  $ (0.09 )
  $ (0.36 )
Net Loss attributable to non-controlling interest per Common Share - Basic and Diluted
  $ (0.00 )
  $ -  
  $ (0.01 )
  $ -  
Net Loss available to Exactus, Inc. common stockholders per Common Share - Basic and Diluted
  $ (0.03 )
  $ (0.12 )
  $ (0.12 )
  $ (0.36 )
 
       
       
       
       
Weighted Average Number of Common Shares Outstanding:
       
       
       
       
   Basic and Diluted
    35,203,356  
    4,603,813  
    27,227,822  
    4,563,346  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
 
  Exactus, Inc. and Subsidiaries
  C o ndensed Consolidated Statements of Equity (Deficit)
  For the Six Months Ended June 30, 2019 and 2018
  (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock- Series A
 
 
Preferred Stock- Series B-1
 
 
Preferred Stock- Series B-2
 
 
Preferred Stock- Series C
 
 
Preferred Stock- Series D
 
 
Common Stock
 
 
Common Stock - Unissued
 
 
Paid in
 
 
Accumulated
 
 
 Non-controlling
 
 
 
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Capital
 
 
 Deficit
 
 
 Interest
 
 
 Total
 
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 convesion of
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
convertible debt
    849,360  
    84  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    849,276  
    -  
    -  
    849,360  
Preferred stock issued for private placement
    55,090  
    6  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    55,084  
    -  
    -  
    55,090  
Common stock issued for private placement
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    15,382,090  
    1,538  
    -  
    -  
    3,308,115  
    -  
    -  
    3,309,653  
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  
Conversion of Series A Preferred Stock to Common Stock
    (296,441 )
    (30 )
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    1,482,205  
    148  
    -  
    -  
    (118 )
    -  
    -  
    -  
Conversion of Series B-1 Preferred Stock to Common Stock
    -  
    -  
    (400,000 )
    (40 )
    -  
    -  
    -  
    -  
    -  
    -  
    50,000  
    5  
    -  
    -  
    35  
    -  
    -  
    -  
Conversion of Series B-2 Preferred Stock to Common Stock
    -  
    -  
    -  
    -  
    (1,000,000 )
    (100 )
    -  
    -  
    -  
    -  
    125,000  
    13  
    -  
    -  
    87  
    -  
    -  
    -  
Conversion of Series D Prefered Stock to Common Stock
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    (4 )
    (1 )
    100,000  
    10  
    -  
    -  
    (9 )
    -  
    -  
    -  
Common stock issued upon convesion of
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
convertible debt
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    250,000  
    25  
    -  
    -  
    195,975  
    -  
    -  
    196,000  
Stock warrants granted for services
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    1,114,062  
    -  
    -  
    1,114,062  
Stock options granted for services
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    891,799  
    -  
    -  
    891,799  
Deemed dividend on Preferred Stock
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    904,450  
    (904,450 )
    -  
    -  
Net Loss for the period
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
       
    (1,374,263 )
    (35,604 )
    (1,409,867 )
Balance, March 31, 2019
    608,009  
    60  
    2,400,000  
    240  
    7,684,000  
    768  
    1,733,334  
    173  
    41  
    -  
    33,149,090  
    3,315  
    -  
    -  
    15,459,864 #  
    (12,816,605 )
    (35,604 )
    2,612,211  
Common stock issued and unissued for private placement
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    1,282,175  
    128  
    2,606,958  
    261  
    2,168,796  
    -  
    -  
    2,169,185  
Common stock unissued for services
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    20,000  
    2  
    19,498  
    -  
    -  
    19,500  
Common stock unissued for purchase of membership interest in subsidiary
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    503,298  
    50  
    449,950  
    -  
    -  
    450,000  
Stock options granted for services
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    58,279  
    -  
    -  
    58,279  
Net Loss for the period
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
       
    (955,226 )
    (152,344 )
    (1,107,570 )
Balance, June 30, 2019
    608,009  
  $ 60  
    2,400,000  
  $ 240  
    7,684,000  
  $ 768  
    1,733,334  
  $ 173  
    41  
  $ -  
    34,431,265  
  $ 3,443  
    3,130,256  
  $ 313  
  $ 18,156,387  
  $ (13,771,831 )
  $ (187,948 )
  $ 4,201,605  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock- Series A
 
 
Preferred Stock- Series B-1
 
 
Preferred Stock- Series B-2
 
 
Preferred Stock- Series C
 
 
Preferred Stock- Series D
 
 
Common Stock
 
 
Paid in
 
 
Accumulated
 
 
 Non-controlling
 
 
 
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Capital
 
 
 Deficit
 
 
 Interest
 
 
 Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
    -  
  $ -  
    2,800,000  
  $ 280  
    8,684,000  
  $ 868  
    1,733,334  
  $ 173  
    -  
  $ -  
    4,383,983  
  $ 439  
  $ 3,983,171  
  $ (6,200,573 )
  $ -  
  $ (2,215,642 )
Common stock issued for debt settlement
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    214,834  
    21  
    343,714  
    -  
    -  
    343,735  
Series D preferred stock issued for cash
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    5  
    -  
    -  
    -  
    50,000  
    -  
    -  
    50,000  
Series D preferred stock issued for debt
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    40  
    1  
    -  
    -  
    499,999  
    -  
    -  
    500,000  
Net Loss for the period
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    (1,073,846 )
    -  
    (1,073,846 )
 
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
Balance, March 31, 2018
    -  
    -  
    2,800,000  
    280  
    8,684,000  
    868  
    1,733,334  
    173  
    45  
    1  
    4,598,817  
    460  
    4,876,884  
    (7,274,419 )
    -  
    (2,395,753 )
Common stock issued upon convesion of
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
convertible debt
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    22,727  
    2  
    19,998  
    -  
    -  
    20,000  
Series D preferred stock issued for debt
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
Net Loss for the period
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    -  
    (559,710 )
    -  
    (559,710 )
 
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
       
Balance, June 30, 2018
    -  
  $ -  
    2,800,000  
  $ 280  
    8,684,000  
  $ 868  
    1,733,334  
  $ 173  
    45  
  $ 1  
    4,621,544  
  $ 462  
  $ 4,896,882  
  $ (7,834,129 )
  $ -  
  $ (2,935,463 )
 
 
 
 
Exactus, Inc. and Subsidiaries
 
 
C ondensed Consolidated Statements of Cash Flows
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flows From Operating Activities:
 
 
 
 
 
 
Net loss
  $ (2,517,437 )
  $ (1,633,556 )
Adjustments to reconcile net loss to cash used in operating activities:
       
       
        Depreciation
    11,851  
    -  
Derivative loss (gain)
    1,454,729  
    (301,150 )
Stock-based compensation
    2,083,638  
    500,000  
Amortization of discount and debt issuance costs for convertible notes
    339,806  
    232,688  
Amortization of intangible assets
    299,355  
    -  
(Gain) loss on settlement of debt
    (3,007,629 )
    249,002  
Changes in operating assets and liabilities:
       
       
(Increase) decrease in operating assets:
       
       
         Accounts receivable
    (69,914 )
    -  
         Accounts receivable - related party
    (40,519 )
    -  
             Inventory
    (1,047,781 )
    -  
            Advance to supplier - related party
    (820,108 )
    -  
Prepaid expenses and other current assets
    (289,227 )
    (15,984 )
Increase (decrease) in operating liabilities:
       
       
Accounts payable
    105,400  
    44,663  
Accrued expenses
    6,762  
    580,742  
Settlement payable
    -  
    (3,000 )
Interest payable
    6,746  
    12,589  
Net Cash Used In Operating Activities
    (3,484,328 )
    (334,006 )
 
       
       
Cash Flows From Investing Activities:
       
       
 Purchase of membership interest in subsidiary
    (1,000,000 )
    -  
 Purchase of property and equipment
    (385,382 )
    -  
Net Cash Used in Investing Activities
    (1,385,382 )
    -  
 
       
       
Cash Flows From Financing Activities:
       
       
Proceeds from sale of Series D preferred stock
    -  
    50,000  
Advances from related party
    30,000  
    -  
Proceeds from sale of Common Stock
    5,478,838  
    -  
Payments of principal on notes payable
    (11,129 )
    -  
Proceeds from issuance of notes payable
    14,229  
    101,900  
Payments of principal on convertible notes
    (186,443 )
    (25,000 )
Proceeds from issuance of convertible notes, net of issuance cost
    206,900  
    99,900  
Net Cash Provided By Financing Activities
    5,532,395  
    226,800  
 
       
       
Net increase (decrease) in cash and cash equivalents
    662,685  
    (107,206 )
 
       
       
Cash and cash equivalents at beginning of period
    1,960  
    161,215  
 
       
       
Cash and cash equivalents at end of period
  $ 664,645  
  $ 54,009  
 
       
       
Supplemental Cash Flow Information:
       
       
Cash paid for interest
  $ 22,890  
  $ -  
Cash paid for taxes
  $ -  
  $ -  
 
       
       
Non-Cash investing and financing activities:
       
       
Increases in convertible note, principal
  $ -  
  $ 16,500  
Proceeds from sale of Series D preferred stock paid directly to settle amounts
       
       
due to officers and directors
  $ -  
  $ 500,000  
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
  $ 196,000  
  $ -  
Accounts payable settled by common stock issued
  $ -  
  $ 95,934  
Common stock issued for purchase of membership interest in subsidiary
  $ 1,440,000  
  $ -  
Increase in intangible assets for subscription payable
  $ 1,650,000  
  $ -  
Initial benefical conversion feature and debt discount on convertible notes
  $ 206,910  
  $ 118,500  
Initial derivative liability on convertible notes
  $ -  
  $ 214,000  
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 liabillities
  $ 39,470  
  $ -  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
- 4 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
N OTE 1 - NATURE OF ORGANIZATION  
 
Organization and Business Description
 
Exactus, Inc. (the “Company”) was incorporated on January 18, 2008 as an alternative energy research and development company. During much 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. The Company has recently added to the scope of its activities efforts to produce, market and sell products made from industrial hemp containing cannabidiol (“CBD”).
   
On January 8, 2019 the Company began pursuing hemp-derived CBD as a new business segment after passage of the Agriculture Improvement Act of 2018, also known as the 2018 Farm Bill. The 2018 Farm Bill declassified industrial hemp as a Schedule I substance, shifted regulatory authority from the Drug Enforcement Administration to the Department of Agriculture, and provided autonomy for states to regulate the industry. The 2018 Farm Bill did not change the Food and Drug Administration’s oversight authority over CBD products. The 2018 Farm Bill defined industrial hemp as a variety of cannabis containing an amount equal to or lower than 0.3% tetra-hydrocannabinol (THC) and allowed farmers to grow and sell hemp under state regulation. Industry reports indicate that 41 states have set up cultivation and production programs to regulate the production of hemp.
 
Following passage of the 2018 Farm Bill, the Company entered into a Master Product Development and Supply Agreement (the “Development Agreement”) with Ceed2Med, LLC (“C2M”). Under the Master Agreement, C2M agreed to provide to the Company up to 2,500 kilograms of products (isolate or distillate) for manufacture into consumer products such as tinctures, edibles, capsules, topical solutions and animal health products. The Company believes manufacturing, testing and quality akin to pharmaceutical products is important when distributing hemp-based products. The Company’s products originate from farms at which the Company (or C2M) oversee all stages of plant growth and are manufactured under contract arrangements with third-parties.
 
The Company identified the rapidly growing hemp-based CBD market as a valuable target for a new company focus. On January 8, 2019, the Company entered into the Master Product Development and Supply Agreement with C2M. In consideration for the Development Agreement (see Note 11), C2M was issued 8,385,691 shares of our Common Stock. Additionally, the Company granted immediately 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 which has subsequently been reduced to approximately 22% as of June 30, 2019. Consequently, such transaction resulted in a change of control whereby, C2M obtained majority control through its Common Stock ownership (See Note 11). In connection with this agreement, the Company received access to expertise, resources, skills 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 currently offers products such as tinctures, edibles, capsules, topical solutions and animal health products manufactured for the Company as branded and white-label products.
 
On March 11, 2019, with the assistance of C2M and assignment of rights, the Company acquired a 50.1% limited liability membership interest in Exactus One World, LLC (“EOW”), an Oregon limited liability company formed on January 25, 2019, in order to farm industrial hemp for its own use. Prior to the acquisition, EOW had no operating activities. The Company acquired its 50.1% limited liability membership interest pursuant to a Subscription Agreement and a Membership Interest Purchase Agreement (See Note 3). Following the events described above, the Company entered into the business of production and selling of industrial hemp grown for its own use and for sale to third-parties.
 
On January 11, 2019, the Board of Directors of the Company approved a reverse stock split of 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 this Report and in the accompanying condensed consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of presentation and principles of consolidation
 
The Company’s unaudited condensed consolidated financial statements include the financial statements of its 50.1% subsidiary, EOW. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
 
 
- 5 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
 
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes consolidated unaudited interim financial statements and present the consolidated unaudited interim financial statements of the Company and its majority-owned subsidiary as of June 30, 2019. 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 (deficit) and cash flows as of June 30, 2019 and 2018, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. 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. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2018 and footnotes thereto included in the Company’s Report on Form 10K filed with the SEC on March 29, 2019. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.
 
Going concern
 
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. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a net loss attributable to Exactus Inc. common shareholders of $3,233,939 and $1,633,556 for the six months ended June 30, 2019 and 2018, respectively. The net cash used in operating activities was $3,484,328 for the six months ended June 30, 2019. Additionally, the Company had an accumulated deficit of $13,771,831 at June 30, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve 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. 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 sales of common and preferred shares and from the issuance of convertible promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail its 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.
 
Over the last several months the Company and its advisors have been evaluating numerous opportunities and relationships to increase shareholder value. 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 six months ended June 30, 2019, the Company received proceeds from the sale of the Company’s Common Stock of approximately $5.5 million.
 
Use of Estimates  
 
The Company prepares its unaudited condensed consolidated financial statements in conformity with GAAP which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to the fair value of derivative liabilities, useful life of property and equipment, fair value of right of use assets, assumptions used in assessing impairment of long-term, contingent liabilities, and fair value of non-cash equity transactions.
 
Fair Value Measurements
 
The Company adopted the provisions of 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.
 
 
- 6 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019