E x actus, Inc. and Su b sidiaries

 

	At March 31, 2019			At December 31, 2018
Description	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
Derivative liabilities	—	—	$ —	—	—	$ 1,742,000

 

A roll forward of the level 3 valuation financial instruments is as follows:

 

	For the Three Months Ended March 31, 2019
Balance at beginning of period	1,742,000
Initial fair value of derivative liabilities as debt discount	206,910
Initial fair value of derivative liabilities as derivative expense	361,090
Extinguishment of derivative liability upon repayment/conversion of convertible debt	(3,206,000 )
Change in fair value included in derivative loss	896,000
Balance at end of period	-

NOTE 4 – INTANGIBLE ASSET

 

At March 31, 2019 and December 31, 2018, intangible asset consisted of the following:

 

	Useful life	March 31, 2019	December 31, 2018
Farm leases	3 year	$ 2,930,000	$ -
Hemp operating license	1 year	10,000	-
		2,940,000	-
Less: accumulated amortization		(52,688 )	-
		$ 2,887,312	$ -

	March 31, 2019
Farm lease ROU	$ 310,093
Less accumulated amortization	(7,416 )
Balance of ROU asset as of March 31, 2019	$ 302,677

	March 31, 2019
Farm lease	$ 310,093
Total lease liability	310,093
Reduction of lease liability	(7,416 )
Total	302,677
Less: current portion	(93,961 )
Long term portion of lease liability as of March 31, 2019	$ 208,716

Year ended December 31, 2019	$ 120,000
Year ended December 31, 2020	120,000
Year ended December 31, 2021	120,000
Year ended December 31, 2022	20,000
Total	360,000
Less: undiscounted payments during the three months ended March 31, 2019	(10,000 )
Total undiscounted future minimum lease payments due as of March 31, 2019	$ 350,000
Imputed interest	(47,323 )
Total operating lease liability	$ 302,677

Convertible note in the amount of $65,000 dated, December 21, 2017, accruing interest at an annual rate of 12%, matured on December 21, 2018, and convertible into common stock of the Company at a conversion price equal to the lesser of (i) closing sale price of the common stock on the principal market on the trading day immediately preceding the closing date and (ii) 60% of the average of the three lowest trading prices of the Company’s common stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $62,400 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On March 28, 2018, the Company amended the Note to (i) increase the aggregate principal amount of the Note to $71,500 and (ii) adjust the conversion price to the lesser of (i) closing sale price of the common stock on the principal market on the trading day immediately preceding the closing date and (ii) 51% of the average of the three lowest trading prices of the Company’s common stock during the twenty-five day trading period prior to the conversion. On November 11, 2018, the holder of the note converted $5,325 of the principal of the Note to 187,500 shares of common stock. On December 18, 2018, the holder of the Note converted $4,850 of the principal of the Note to 100,000 shares of common stock. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability.	-	89,588
Convertible note in the amount of $125,000 dated, December 26, 2017, accruing interest at an annual rate of 12%, matured on September 26, 2018, and convertible into common stock of the Company at a conversion price equal to the lesser of (i) the lowest trading price of the Company's common stock during the twenty-five-day trading period prior to the issue date of the Note and (ii) 50% of the average of the three lowest trading prices of the Company’s common stock during the twenty-five day trading period prior to the conversion (the “Note”). The Company received net proceeds of $112,250 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On July 11, 2018, the holder of the note elected to convert interest of $3,120 into 15,000 shares of common stock. On November 28, 2018, the holder of the Note converted $2,000 of the interest of the Note to 25,000 shares of common stock. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability.	-	125,000
Convertible note in the amount of $58,500 dated, March 16, 2018, accruing interest at an annual rate of 9%, matures on December 16, 2018, and convertible into common stock of the Company at a conversion price equal to the lesser of (i) $2.00 and (ii) 51% of the average of the three lowest trading prices of the Company’s common stock during the twenty-five day trading period prior to the conversion (the “Note”). The Company received net proceeds of $41,050 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability.	-	58,500

Common Stock Warrants

 

A summary of the Company’s outstanding stock warrants as of March 31, 2019 and changes during the period ended are presented below:   

 

	Number of Warrants	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Years)
Balance at December 31, 2018	644,083	$ 1.77	1.38
Issued	718,750	0.20	5.00
Cancelled	—	—	—
Exercised	—	—	—
Forfeited	—	—	—
Balance at March 31, 2019	1,362,833	$ 0.94	3.16
Warrants exercisable at March 31, 2019	1,362,833	$ 0.94	3.16
Weighted average fair value of warrants granted during the period		$ 1.55

	Number of Options	Weighted Average ExercisePrice	Weighted Average Remaining Contractual Life(Years)
Balance at December 31, 2018	959,375	$ 0.41	8.79
Granted	4,475,000	0.19	10.00
Balance at March 31, 2019	5,434,375	0.20	8.65
Options exercisable at March 31, 2019	3,528,133	$ 0.27	8.10

NOTE 11 - SUBSEQUENT EVENTS

In accordance with authoritative guidance, the Company has evaluated any events or transactions occurring after March 31, 2019, the balance sheet date, through the date of filing of this report and note that there have been no such events or transactions that would require recognition or disclosure in the consolidated financial statements as of and for the quarter ended March 31, 2019, except as disclosed below.

 

Subsequent to the reporting period, and up through April 11, 2019, the Company accepted shareholder subscriptions in the total amount of $612,040 in exchange for issuance of 1,282,175 shares of common stock in an offering exempt under Rule 506 of Regulation D.

 

On April 30, 2019, the Company’s former Chief Financial Officer, gave 30-day notice of her resignation from that position and on May 9, 2019, notified the Company that her resignation would be effective immediately. On May 9, 2019, the Company’s Board of Directors appointed our Chief Executive Officer and Chairman of the Board, Philip J. Young to serve as Interim Chief Financial Officer until such time as a replacement CFO can be retained.

 

On May 9, 2019, the Board of Directors adopted and approved the report of Scalar, LLC (“Scalar”) on the valuation of the Company’s subsidiary, Exactus One World, LLC (“EOW”), together with their opinion on the fairness of the terms of the Company’s acquisition of controlling interest in EOW.

 

On May 9, 2019, the Board of Directors approved terms for a proposed Management and Services Agreement (the “Agreement”) with Ceed2Med, LLC (“C2M”). As a condition to the Agreement terms informally agreed with C2M the Company required completion of the Scalar valuation and issuance of a fairness opinion prior to completion and issuance of any consideration to C2M, a related party, under of the Agreement. Per the Agreement, and in consideration for C2M’s assignment of the right to acquire EOW including the option to purchase 20.1% from existing holders of EOW, C2M’s and other assistance to the Company with establishing the EOW subsidiary, and the continuing services to be performed by C2M for EOW in the future, the Board of Directors approved the issuance of 0% convertible preferred stock to C2M having a stated value of $10 million. On May 9, 2019 Scalar issued its fairness opinion to the Board of Directors. The final terms of the Agreement and the preferred stock are subject to negotiation and approval by the Company’s executive officers.

 

On May 9, 2019, the Board of Directors approved an exempt private offering the Company’s common stock in a total amount of $5 million to $25 million. In addition, the Company’s Board of Directors appointed a Private Offering Committee of the Board, which has been vested with delegated authority to determine the specific terms of the private offering, including share price, warrant coverage, and other specific terms. The members of the Private Offering Committee are Jonathan Gilbert, John Price, and Philip Young.

 

 

 

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ITEM 2. M A NAGEMENTS’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Cautionary Language Regarding Forward-Looking Statements

 

Certain statements set forth in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements regarding future events and financial results, including our ability to complete development of the FibriLyzer, future clinical trials and regulatory approvals, and liquidity, as well as other statements that are not historical facts, are forward-looking statements. These forward-looking statements are generally identified by such words or phrases as “we expect,” “we believe,” “would be,” “will allow,” “expects to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions. While we provide forward-looking statements to assist in the understanding of our anticipated future financial performance, we caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date that we make them. Forward-looking statements are based on current expectations and assumptions that are subject to significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Except as otherwise required by law, we undertake no obligation to publicly release any updates to forward-looking statements to reflect events after the date of this yearly report on Form 10-K, including unforeseen events.

 

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our operations and results of our business include, but are not limited to:

 

●

our history of operating losses and lack of revenues to date;

 

●

our limited cash resources and our ability to obtain additional funding necessary to develop our products and maintain liquidity;

 

●

the success of our clinical trials through all phases of clinical development;

 

●

the need to obtain regulatory approval of our products and any delays in regulatory reviews or product testing;

 

●

market acceptance of, and our ability to commercialize, our products;

 

●

competition from existing products or new products that may emerge;

 

●

changes in technology;

 

●

our dependence on the development and commercialization of our primary product, the FibriLyzer, to generate revenues in the future;

 

●

our dependence on and our ability to maintain our licensing agreement;

 

●

our ability and third parties’ abilities to protect intellectual property rights;

 

●

potential product liability claims;

 

●

our ability to maintain liquidity and adequately support future growth;

 

●

changes in, and our ability to comply with, laws or regulations applicable to the life sciences or healthcare industries;

 

●

our ability to attract and retain key personnel to manage our business effectively; and

 

●

other risks and uncertainties described from time to time, in our filings made with the SEC.

 

General

 

On February 29, 2016, the Company consummated a share exchange, which resulted in a change in control of the Company. As part of this transaction, the Company acquired Exactus BioSolutions and its Licensing Agreement with Digital Diagnostics to develop, produce and commercialize blood diagnostic products that utilize certain intellectual property rights owned or licensed by Digital Diagnostics. The Licensing Agreement provides for Exactus BioSolutions and Digital Diagnostics to collaborate through the various steps of the product and device development process, including the development, regulatory approval and commercialization stages.

 

 

 

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Following the Share Exchange, the Company became a life science company that planned to develop and commercialize Point-of-Care (“POC”) diagnostics for measuring proteolytic enzymes in the blood based on a proprietary detection platform (the “New Business”) through its subsidiary Exactus Biosolutions. The primary product, the FibriLyzer, would employ a disposable test “biosensor” strip combined with a portable and easy to use hand held detection unit that provides a result in less than 30 seconds.  The initial markets for the FibriLyzer are (i) the management of hyperfibrinolytic states associated with surgery and trauma, (ii) obstetrics, (iii) acute events such as myocardial infarction and ischemic stroke, (iv) pulmonary embolism and deep vein thrombosis and (v) chronic coronary disease management. Exactus Biosolutions planned to follow up the FibriLyzer with similar technology, the MatriLyzer, to detect collagenase levels in the blood for the detection of the recurrence of cancer and intended to file to gain regulatory approval to sell its products in the United States, Canada and Europe prior to disputes with the licensor arising over compliance with the license and consulting agreements, and difficulty to raise capital on acceptable terms arose in order to pursue the venture. 

 

In December 2018, the Company expanded its focus to pursue opportunities in Cannabidiol (“CBD”). This decision was based in part on the passing of The Hemp Farming Act of 2018. The Act was signed into law during December 2018 and removes hemp (cannabis with less than 0.3% THC) from the Schedule I controlled substances list. Following passage, CBD derived from industrial hemp became legal in the US under federal law and in all 50 states, opening the door to develop and sell hemp-based CBD products nationwide. The Company’s goal is to rapidly establish one or more principal sources of supply and to develop wholesale and retail sales channels for CBD end-products to be sold to humans and for animal health, such as nutraceuticals, supplements and pet and farm products. The Company intends to follow regulatorily compliant pathways by adopting practices established by the FDA for CBD. 

 

On January 8, 2019 we entered into a Master Product Development and Supply Agreement (the “Development Agreement”) with Ceed2Med, LLC (“C2M”). C2M has provided the Company access to expertise, resources, skills and experience suitable for producing products with active phyto-cannabinoid (CBD) rich ingredients including isolates, distillates, water soluble, and proprietary formulations. Under the Development Agreement, we have been allotted a minimum of 50 and up to 300 kilograms per month, and up to 2,500 kilograms annually, of active phyto-cannabinoid (CBD) rich ingredients for resale. We expect to be able to offer tinctures, edibles, capsules, topical solutions and animal health products manufactured for us by C2M to satisfy demand for branded and white-label products that we intend to offer to sell in the future. The founders of C2M established their first CBD business in 2014. C2M will also be responsible for overseeing all farming and manufacturing activities of the Company.

 

Whereas, in consideration for the Development Agreement, C2M was issued 8,385,691 shares of our common stock on January 8, 2019. Additionally, the Company granted immediately vested 10 year options to purchase 750,000 shares of common stock to founders of C2M, with exercise price of $0.32 per share. As a result, C2M was our largest shareholder holding (inclusive of the vested options held by its founders) approximately 51% of our outstanding common stock on the date of the Development Agreement. These options were granted to two owners and a co-founder of C2M. C2M will provide personnel necessary for our growth. Utilizing C2M employees and facilities, the Company has been able to rapidly access resources and opportunities in the hemp-derived CBD industry. Emiliano Aloi of C2M became a member of our Advisory Board in January 2019 and was appointed President of the Company on March 11, 2019.

 

On March 11, 2019, with the assistance of C2M and assignment of rights, we acquired a 50.1% limited liability membership interest in Exactus One World, LLC, (“EOW”) an Oregon limited liability company, newly formed on January 25, 2019, in order to produce industrial hemp for our own use. EOW has leases starting on March 1, 2019 for approximately 200 acres of farm land in southwest Oregon for growing and processing industrial hemp, with a lease term of one year. The leases are renewable on a year-to-year basis. We acquired the 50.1% limited liability membership interest pursuant to a subscription agreement (the “Subscription Agreement”) and a Membership Interest Purchase Agreement (the “Purchase Agreement”). EOW will farm and process industrial hemp to be manufactured into cannabidiol (CBD) and related products.  EOW will be responsible for the Company’s initial efforts to pursue agricultural development, including farm soil preparation, planting, harvesting, transportation and drying.  We will be responsible for funding and the minority owners will be responsible for management, servicing and operating the farm properties.

 

 

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Results of Operations

 

Three Months Ended March 31, 2019 and 2018:

 

Net Revenues The Company is principally engaged in the business production and selling of products made from industrial hemp. During the three months ended March 31, 2019 and 2018, we generated minimal revenues of $15,980 and $0, respectively, from the sale of CBD products.

 

Cost of Sales The primary components of cost of sales include the cost of the CBD product and shipping fees. For the three months ended March 31, 2019 and 2018, the Company’s cost of sales amounted to $12,600 and $0, respectively which represents purchase of CBD products from C2M. C2M is a majority stockholder of the Company.

 

Operating Expenses

 

For the three months ended March 31, 2019, we incurred $2,599,234 in operating expenses as compared to $1,382,695 for the three months ended March 31, 2018, an increase of $1,216,539 or 88%. The increase in operating expenses consisted of the following:

 

General and administrative expenses decreased by $492,051, or 41%, from $1,196,138 for the three months ended March 31, 2018 to $704,087 for the three months ended March 31, 2019, primarily due to decrease in contractual bonuses and stock options given to management to retain executive staff.

 

Professional and consulting fees increased by $1,768,590, or 1,585%, from $111,557 for the three months ended March 31, 2018 to $1,880,147 for the three months ended March 31, 2019, due to increased stock based consulting fees related with the grant of stock options and warrants to consultants.

 

Research and development decreased by $60,000, or 80%, from $75,000 for the three months ended March 31, 2018 to $15,000 for the three months ended March 31, 2019, as the Company delays projects until additional funds are raised.

 

Other Expenses, net

 

Derivative gain (loss) increased by $1,874,879, or 446%, from $420,150 for the three months ended March 31, 2018 to $(1,454,729) for the three months ended March 31, 2019, due to the issuance of new convertible notes in 2019 and adjustments to fair value.

 

Gain on stock settlement of debt increased by $3,007,629, or 100%, from $0 for the three months ended March 31, 2018 to $3,007,619 for the three months ended March 31, 2019 due to the conversion of notes and interest into common and preferred shares during the three months ended March 31, 2019.

 

Interest expense increased by $255,612, or 230%, from $111,301 for the three months ended March 31, 2018 to $366,913 for the three months ended March 31, 2019, due to the issuance of new convertible notes in 2019, incurred penalty fees on convertible notes and the amortization of discounts related to convertible notes.

  

Net Loss

 

As a result of the foregoing, we generated a net loss from operations of $1,409,867 for the three months ended March 31, 2019 as compared to a net operating loss of $1,073,846 for the three months ended March 31, 2018, as a result of the discussion above.

 

As a result of the foregoing, we generated a net loss available to stockholders of $2,278,713 or $(0.12) per common share – basic and diluted, for the three months ended March 31, 2019 as compared to a net loss of $1,073,846 or $(0.24) per common share – basic and diluted, for the three months ended March 31, 2019, as a result of the discussion above.

 

 

 

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Liquidity and Capital Resources

 

Since our inception in 2008, we have generated losses from operations. As of March 31, 2019, our accumulated deficit was $12,816,605.  As of March 31, 2019, we had $1,172,915 of cash. These funds will not be sufficient to enable us to complete the development of any potential products, including the FibriLyzer and related technology and also the development of our business production and selling of products made from industrial hemp. Accordingly, we will need to obtain further funding through public or private equity offerings, debt financing, collaboration arrangements or other sources. 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. If we are unable to raise capital, we will be forced to delay, reduce or eliminate our research and development programs and may not be able to continue as a going concern.

 

Net cash used in operating activities for the three months ended March 31, 2019 was $1,833,755, due to our net loss of $1,409,867, offset by non-cash charges related to convertible loan notes derivative gain (loss) of $1,454,729, amortization of debt discounts of $339,806, amortization of intangible assets of $52,688, and stock-based compensation of $2,005,861 offset by $3,007,629 for a debt settlement gain. Net changes in assets and liabilities totaled of $1,269,344, which is primarily attributable to increases in inventory of $422,819, advance to supplier- related party of $1,017,225 and accounts payable of $233,560. Net cash used in operating activities for the three months ended March 31, 2018 was $295,280. We recorded a net loss for the three month period of $1,073,846. Increases in accounts payable and accrued expenses increased cash by $882,456. Other items in uses of funds from operations included non-cash charges of derivative gain, amortization of debt discount and debt issuance costs, loss on debt settlement in stock, and interest expense which collectively totaled $67,548.

 

Net cash used in investing activity for the three months ended March 31, 2019 was $328,500. We paid cash for the purchase of membership interest in subsidiary for $300,000 pursuant to a Purchase Agreement and purchase of equipment for $28,500.

  

Net cash provided by financing activities for the three months ended March 31, 2019 was $3,333,210, due to proceeds from sale of our common stock of $3,309,653, net proceeds the issuance of notes payable and convertible notes $221,129 offset by note repayments of $197,572.  Net cash provided by financing activities for the three months ended March 31, 2018 was $173,000 due to proceeds from our issuance of shares of Series D Preferred Stock of $50,000, the issuance of promissory notes, and convertible loan notes $148,000 offset by convertible loan payments of $25,000.

  

Going Concern

  

The audit report prepared by our independent registered public accounting firm relating to our financial statements for the year ended December 31, 2018 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. We have concluded that the circumstances described above continue to raise substantial doubt about our ability to continue as a going concern as of March 31, 2019.

 

 

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Off-Balance Sheet Arrangements

 

As of March 31, 2019, we had no material off-balance sheet arrangements.

 

In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims or the actions of various regulatory agencies. We consult with counsel and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth by accounting principles generally accepted in the United States, an estimate is made of the loss and the appropriate accounting entries are reflected in our financial statements. After consultation with legal counsel, we do not anticipate that liabilities arising out of currently pending or threatened lawsuits and claims will have a material adverse effect on our financial position, results of operations or cash flows.

  

Critical Accounting Estimates and New Accounting Pronouncements

 

Critical Accounting Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, and changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.

 

Application of Significant Accounting Policies

 

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may, therefore, not be comparable to those of companies that comply with such new or revised accounting standards.

  

Recent Accounting Pronouncements

 

On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Currently, share-based payment arrangements to nonemployees are accounted for under ASC 718 while nonemployee share-based payments issued for goods and services are accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but not limited to) was the determination of measurement date which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant and equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award which is the same as share-based payments for employees. The Company adopted the requirements of the new rule in the first quarter of 2019.

 

In January 2017, the FASB issued Accounting Standards Update 2017-04, “Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment” (ASU 2017-04). The standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments of ASU 2017-04, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss cannot exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for the calendar year ending December 31, 2020. The amendments require a prospective approach to adoption and early adoption is permitted for interim or annual goodwill impairment tests. The Company is currently evaluating the impact of this standard.

 

 

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In June 2016, the FASB issued ASU 2017-13, Financial Instruments-Credit Losses. The standard requires a financial asset (including trade receivables) measured at amortized cost basis to be presented at the net amount expected to be collected. Thus, the income statement will reflect the measurement of credit losses for newly-recognized financial assets as well as the expected increases or decreases of expected credit losses that have taken place during the period. This standard will be effective for the calendar year ending December 31, 2020. The Company is currently in the process of evaluating the impact of adoption of this ASU on its consolidated financial statements.

 

In July 2017, the FASB issued ASU No. 2017-11, which amends the FASB Accounting Standards Codification. Part I of ASU No. 2017-11, Accounting for Certain Financial Instruments with Down Round Features, changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The guidance is effective for reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance had no impact on the Company’s condensed consolidated financial statements.

 

We have reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

ITEM 3. QU A NTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PR O CEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company’s principal executive and financial officers, have conducted an evaluation of the design and effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Our CEO and CFO believe that as of March 31, 2019, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The conclusion was due to the presence of the following material weaknesses in disclosure controls and procedures due to our small size and limited resources: (i) inadequate segregation of duties and effective risk assessment; (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC Guidelines; (iii) inadequate security and restricted access to computer systems including insufficient disaster recovery plans; and (iv) no written whistleblower policy.

 

Our CEO and CFO plan to review and implement appropriate disclosure controls and procedures to remediate these material weaknesses, including (i) appointing additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopting sufficient written policies and procedures for accounting and financial reporting and a whistle blower policy; and (iii) implementing sufficient security and restricted access measures regarding our computer systems and implement a disaster recovery plan.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in the internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal over financial reporting.

 

 

 

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PAR T II – OT H ER INFORMATION

 

ITEM 1. Legal Proceedings.

 

None

 

ITEM 1A. Risk Factors.

 

There have been no material changes in our risk factors from those disclosed in our annual report on Form 10-K for the year ended December 31, 2018.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

ITEM 3. Defaults upon Senior Securities.

 

None.

 

ITEM 4. Mine Safety Disclosures.

 

Not applicable.

 

ITEM 5. Other Information.

 

None.

 

ITEM 6. EXHIBITS

 

10.1	Subscription Agreement with Exactus One World, LLC
10.2	Membership Purchase Agreement
10.3	Operating Agreement for Exactus One World, LLC
10.4	Unanimous Written Consent of the Managers of Exactus One World, LLC
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1*	Certification of Principal Executive Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2*	Certification of Chief Financial Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

101.INS***	XBRL Instance Document
101.SCH***	XBRL Taxonomy Extension Schema
101.CAL***	XBRL Taxonomy Extension Calculation Linkbase
101.DEF***	XBRL Taxonomy Extension Definition Linkbase
101.LAB***	XBRL Taxonomy Extension Label Linkbase
101.PRE***	XBRL Taxonomy Extension Presentation Linkbase

 

*	Filed herewith

 

***	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

 

 

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Table of Contents

 

S I GNATURES

 

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

	Exactus, Inc.
May 31, 2019	/s/ Philip J. Young
	Philip J. Young
	Chief Executive Officer

 

	/s/ Philip J. Young
	Philip J. Young
	Interim Chief Financial Officer

 

 

 

 

 

 

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Table of Contents

 

EXHIBIT INDEX

 

10.1	Subscription Agreement with Exactus One World, LLC
10.2	Membership Purchase Agreement
10.3	Operating Agreement for Exactus One World, LLC
10.4	Unanimous Written Consent of the Managers of Exactus One World, LLC
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1*	Certification of Principal Executive Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2*	Certification of Chief Financial Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

101.INS***	XBRL Instance Document
101.SCH***	XBRL Taxonomy Extension Schema
101.CAL***	XBRL Taxonomy Extension Calculation Linkbase
101.DEF***	XBRL Taxonomy Extension Definition Linkbase
101.LAB***	XBRL Taxonomy Extension Label Linkbase
101.PRE***	XBRL Taxonomy Extension Presentation Linkbase

 

*	Filed herewith

 

***	Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

 

 

  

   

 

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