exdi10q_june302020

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, 2020

☐ 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: 001-38190

Exactus, Inc.

(Exact name of registrant as specified in its charter)

Nevada	27-1085858
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

80 NE 4th Avenue, Suite 28, Delray Beach, FL 33483

(Address of principal executive offices, Zip Code)

(800) 881-9352

(Registrant's telephone number, including area code)

________________________________________________________

(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 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, a smaller reporting company or an emerging growth company. See the 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 ☐ Non-Accelerated Filer ☐	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 ☑

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 51,912,604 shares of common stock, par value $0.0001 per share, outstanding as of August 17, 2020.

TABLE OF CONTENTS

		Page

	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits

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Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Our financial statements included in this Form 10-Q are as follows:

	Condensed Consolidated Balance Sheets as June 30, 2020 (unaudited) and December 31, 2019;
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited);
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and six months ended June 30, 2020 and 2019 (unaudited);
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited);
	Notes to Unaudited Condensed Consolidated Financial Statements.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2020 are not necessarily indicative of the results that can be expected for the full year.

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Table of Contents

Exactus, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

	June 30,	December 31,
	2020	2019
	(Unaudited)	(As Restated - see Note 14)
ASSETS
Current Assets:
Cash and cash equivalents	$298,754	$18,405
Accounts receivable, net	42,895	55,725
Accounts receivable - related party	107,660	18,860
Inventory, net	340,528	1,337,809
Prepaid expenses and other current assets - current	60,114	248,776
Prepaid expenses and other current assets - related party - current	622,159	622,160
Due from related parties	-	127,500
Total current assets	1,472,110	2,429,235

Other Assets:
Deposits	-	80,000
Prepaid expenses and other current assets - long-term	9,589	-
Prepaid expenses and other current assets - related party - long-term	2,175,000	2,492,045
Property and equipment, net	405,775	477,433
Intangible assets, net	1,656,894	2,147,311
Operating lease right-of-use assets, net (see Note 7)	310,694	390,810
Total other assets	4,557,952	5,587,599

TOTAL ASSETS	$6,030,062	$8,016,834

LIABILITIES AND EQUITY

Current Liabilities:
Accounts payable	$2,026,841	$1,442,409
Accounts payable - related parties	454,511	454,511
Accrued expenses	589,148	238,010
Unearned revenue - related party	-	215,000
Notes payable - current portion	90,755	-
Note payable - related parties	78,017	55,556
Subscription payable	250,000	250,000
Convertible notes, net of discounts	575,979	85,906
Derivative liability	468,387	880,410
Interest payable	39,332	16,677
Due to related party	84,500	-
Operating lease liabilities, current portion (see Note 7)	178,541	169,869
Total current liabilities	4,836,011	3,808,348

Long Term Liabilities:
Convertible notes payable	-	100,000
Notes payable - long-term portion	244,755	-
Operating lease liabilities, long-term portion (see Note 7)	132,154	220,942
Total long term liabilities	376,909	320,942

TOTAL LIABILITIES	5,212,920	4,129,290

Commitment and contingencies (see Note 11)

Equity:
Exactus, Inc. Stockholders' Equity
Preferred stock: 50,000,000 shares authorized; $0.0001 par value, 5,266,466 undesignated shares
Preferred stock Series A: 1,000,000 shares designated; $0.0001 par value,
323,019 and 353,109 shares issued and outstanding, respectively	32	35
Preferred stock Series B-1: 32,000,000 shares designated; $0.0001 par value,
1,650,000 shares issued and outstanding	165	165
Preferred stock Series B-2: 10,000,000 shares designated; $0.0001 par value,
7,516,000 shares issued and outstanding	752	752
Preferred stock Series C: 1,733,334 shares designated; $0.0001 par value,
none shares issued and outstanding	-	-
Preferred stock Series D: 200 shares designated; $0.0001 par value,
18 shares issued and outstanding	-	-
Preferred stock Series E: 10,000 shares designated; $0.0001 par value,
10,000 shares issued and outstanding	1	1
Common stock: 650,000,000 shares authorized; $0.0001 par value,
50,266,956 and 43,819,325 shares issued and outstanding, respectively	5,027	4,382
Common stock to be issued (287,500 and 664,580 shares to be issued, respectively)	28	66
Additional paid-in capital	26,905,565	25,343,293
Due from related parties	(127,500)	-
Accumulated deficit	(25,119,016)	(20,923,681)
Total Exactus Inc. Stockholders' Equity	1,665,054	4,425,013

Non-controlling interest in subsidiary	(847,912)	(537,469)

Total Stockholders' Equity	817,142	3,887,544

TOTAL LIABILITIES AND EQUITY	$6,030,062	$8,016,834

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Exactus, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
	(As Restated - see Note 14)
Net revenues	$531,240	$99,164	$1,051,440	$115,144
Net revenues - related party	-	40,519	315,800	40,519

Total net revenues	531,240	139,683	1,367,240	155,663

Cost of sales	562,270	-	1,604,743	-
Cost of sales - related party	60,000	103,187	417,783	115,787

Total cost of sales	622,270	103,187	2,022,526	115,787

Gross profit (loss)	(91,030)	36,496	(655,286)	39,876

Operating Expenses:
General and administration	760,306	622,079	1,820,893	1,274,288
Selling and marketing expenses	132,110	176,602	413,000	228,480
Professional and consulting	552,197	330,891	1,280,068	2,211,038
Research and development	-	11,975	-	26,975

Total Operating Expenses	1,444,613	1,141,547	3,513,961	3,740,781

Loss from Operations	(1,535,643)	(1,105,051)	(4,169,247)	(3,700,905)

Other Income (expenses):
Derivative gain (loss)	249,982	-	356,468	(1,454,729)
Gain on extinguishment of debt, net	39,142	-	39,142	-
(Loss) gain on settlement of debt, net	(16,500)	-	(23,000)	3,007,629
Interest expense	(420,675)	(2,519)	(709,141)	(369,432)

Total Other Income (Expenses), net	(148,051)	(2,519)	(336,531)	1,183,468

Loss Before Provision for Income Taxes	(1,683,694)	(1,107,570)	(4,505,778)	(2,517,437)
Provision for income taxes	-	-	-	-

Net Loss	(1,683,694)	(1,107,570)	(4,505,778)	(2,517,437)

Net Loss attributable to non-controlling interest	154,624	152,344	310,443	187,948

Net Loss Attributable to Exactus, Inc.	(1,529,070)	(955,226)	(4,195,335)	(2,329,489)

Deemed dividend on Preferred Stock	-	-	-	(904,450)

Net Loss available to Exactus, Inc. common stockholders	$(1,529,070)	$(955,226)	$(4,195,335)	$(3,233,939)

Net Loss per Common Share - Basic and Diluted	$(0.03)	$(0.03)	$(0.10)	$(0.09)
Net Loss attributable to non-controlling interest per Common Share - Basic and Diluted	$(0.00)	$(0.00)	$(0.01)	$(0.01)
Net Loss available to Exactus, Inc. common stockholders per Common Share - Basic and Diluted	$(0.03)	$(0.03)	$(0.09)	$(0.12)

Weighted Average Number of Common Shares Outstanding:
Basic and Diluted	48,203,183	35,203,356	46,757,076	27,227,822

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Exactus, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

For the Three and Six Months Ended June 30, 2020 and 2019

(Unaudited)

Preferred

Stock-

Series A

Preferred

Stock-

Series B-1

Preferred

Stock-

Series B-2

Preferred

Stock-

Series C

Preferred

Stock-

Series D

Preferred

Stock-

Series E

Common

Stock

Common

Stock -

Unissued

Paid in

Due from Related

Accumulated

Non-controlling

Amount

Capital

Parties

Deficit

Interest

Total

(As Restated - see Note 14)

Balance, December 31, 2019	353,109	$35	1,650,000	$165	7,516,000	$752	-	$-	18	$-	10,000	$1	43,819,325	$4,382	664,580	$66	$25,343,293	$-	$(20,923,681)	$(537,469)	$3,887,544

Common stock issued for private placement	-	-	-	-	-	-	-	-	-	-	-	-	500,000	50	-	-	99,950	-	-	-	100,000
Common stock issued for unissued common stock	-	-	-	-	-	-	-	-	-	-	-	-	287,500	29	(287,500)	(29)	-	-	-	-	-
Conversion of Series A Preferred Stock to Common Stock	(30,090)	(3)	-	-	-	-	-	-	-	-	-	-	150,450	15	-	-	(12)	-	-	-	-
Common stock issued for services	-	-	-	-	-	-	-	-	-	-	-	-	765,000	77	-	-	378,446	-	-	-	378,523
Stock-based compensation in connection with restricted common stock award grants	-	-	-	-	-	-	-	-	-	-	-	-	209,727	21	(68,750)	(7)	117,889	-	-	-	117,903
Stock options granted for services	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	140,866	-	-	-	140,866
Net Loss for the period	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-		-	(2,666,265)	(155,819)	(2,822,084)
Balance, March 31, 2020	323,019	32	1,650,000	165	7,516,000	752	-	-	18	-	10,000	1	45,732,002	4,574	308,330	30	26,080,432	-	(23,589,946)	(693,288)	1,802,752

Common stock issued for private placement	-	-	-	-	-	-	-	-	-	-	-	-	2,500,000	250	-	-	249,750	-	-	-	250,000
Common stock issued upon convesion of convertible debt and accrued interest	-	-	-	-	-	-	-	-	-	-	-	-	811,588	81	-	-	99,492	-	-	-	99,573
Common stock issued in connection with forbearance agreement	-	-	-	-	-	-	-	-	-	-	-	-	500,000	50	-	-	89,950	-	-	-	90,000
Stock-based compensation in connection with restricted common stock award grants	-	-	-	-	-	-	-	-	-	-	-	-	723,366	72	(20,830)	(2)	279,263	-	-	-	279,333
Stock options granted for services	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	106,678	-	-	-	106,678
Due from related parties reclassified to equity	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	(127,500)	-	-	(127,500)
Net Loss for the period	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	-	(1,529,070)	(154,624)	(1,683,694)
Balance, June 30, 2020	323,019	$32	1,650,000	$165	7,516,000	$752	-	$-	18	$-	10,000	$1	50,266,956	$5,027	287,500	$28	$26,905,565	$(127,500)	$(25,119,016)	$(847,912)	$817,142

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Table of Contents

Preferred

Stock-

Series A

Preferred

Stock-

Series B-1

Preferred

Stock-

Series B-2

Preferred

Stock-

Series C

Preferred

Stock-

Series D

Preferred

Stock-

Series E

Common

Stock

Common

Stock -

Unissued

Paid in

Due from Related

Accumulated

Non-controlling

Amount

Capital

Parties

Deficit

Interest

Total

(As Restated - see Note 14)

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	-	-	-	-	-	-	-	-