Nevada
(State or other
jurisdiction
of incorporation or
organization)
|
|
27-1085858
(I.R.S.
Employer
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)
|
Large accelerated filer
|
☐
|
Accelerated filer
|
☐
|
Non-accelerated
filer
|
☐
|
Smaller reporting company
|
☑
|
|
|
Emerging
growth company
|
☐
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Page
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45
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46
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47
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CONTENTS
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December
31,
|
|
|
2020
|
2019
|
|
|
Restated
|
ASSETS
|
|
|
Current
Assets:
|
|
|
Cash
and cash equivalents
|
$25,139
|
$18,405
|
Accounts
receivable, net
|
-
|
55,725
|
Accounts
receivable - related party
|
-
|
18,860
|
Inventory,
net
|
10,712
|
1,337,809
|
Prepaid
expenses and other current assets
|
15,258
|
248,776
|
Prepaid
expenses and other current assets - related party
|
-
|
622,160
|
Due
from related parties
|
-
|
127,500
|
Total
current assets
|
51,109
|
2,429,235
|
Deposits
|
-
|
80,000
|
Prepaid
expenses and other assets - related party
|
-
|
2,492,045
|
Property
and equipment, net
|
20,159
|
477,433
|
Intangible
assets, net
|
-
|
2,147,311
|
Operating
lease right-of-use assets, net
|
-
|
390,810
|
Total
Assets
|
$71,268
|
$8,016,834
|
|
|
|
LIABILITIES AND (DEFICIT) EQUITY
|
|
|
|
|
|
Current
Liabilities:
|
|
|
Accounts
payable
|
$2,027,507
|
$1,442,409
|
Accounts
payable - related parties
|
506,585
|
454,511
|
Accrued
expenses
|
620,391
|
238,010
|
Unearned
revenue - related party
|
-
|
215,000
|
Notes
payable - current portion
|
130,344
|
-
|
Note
payable - related parties
|
115,517
|
55,556
|
Subscription
payable
|
250,000
|
250,000
|
Convertible
notes, net of discounts
|
646,036
|
85,906
|
Convertible
notes – related party
|
50,250
|
-
|
Derivative
liability
|
237,022
|
880,410
|
Interest
payable
|
52,051
|
16,677
|
Operating
lease liabilities, current portion
|
269,115
|
169,869
|
Total
current liabilities
|
4,904,818
|
3,808,348
|
|
|
|
Notes
payable - long term
|
205,166
|
-
|
Convertible
notes payable - long-term portion
|
-
|
100,000
|
Operating
lease liabilities - long-term portion
|
-
|
220,942
|
Total
long-term liabilities
|
205,166
|
320,942
|
Total
Liabilities
|
5,109,984
|
4,129,290
|
Commitment and contingencies (see Note 11)
|
|
|
|
|
|
(Deficit) Equity:
|
|
|
Exactus, Inc. Stockholders' (Deficit) 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, 56,356,431 and 43,819,325 shares
issued and outstanding, respectively
|
5,636
|
4,382
|
Common
stock to be issued (100,000 and 664,580 shares to be issued,
respectively)
|
10
|
66
|
Additional
paid-in capital
|
27,485,796
|
25,343,293
|
Due
from related party
|
(128,489)
|
-
|
Accumulated
deficit
|
(30,384,380)
|
(20,923,681)
|
Total
Exactus Inc. Stockholders' (Deficit) Equity
|
(3,020,477)
|
4,425,013
|
|
|
|
Non-controlling
interest in subsidiary
|
(2,018,239)
|
(537,469)
|
|
|
|
Total (Deficit) Equity
|
(5,038,716)
|
3,887,544
|
|
|
|
Total Liabilities and (Deficit) Equity
|
$71,268
|
$8,016,834
|
|
Years Ended December 31,
|
|
|
2020
|
2019
|
|
|
(Restated)
|
|
|
|
Net
revenues
|
$1,755,210
|
$183,234
|
Net
revenues - related party
|
315,800
|
162,446
|
Total
net revenues
|
2,071,010
|
345,680
|
Cost
of sales
|
2,301,843
|
1,939,382
|
Cost
of sales - related party
|
417,783
|
106,752
|
Total
cost of sales
|
2,719,626
|
2,046,134
|
Gross
loss
|
(648,616)
|
(1,700,454)
|
Operating
Expenses:
|
|
|
General
and administration
|
2,679,337
|
2,816,308
|
Impairment
|
4,577,406
|
250,192
|
Selling
and marketing expenses
|
638,632
|
948,296
|
Professional
and consulting
|
2,010,935
|
4,935,394
|
Research
and development
|
-
|
22,100
|
Total
operating expenses
|
9,906,310
|
8,972,290
|
Loss
from operations
|
(10,554,926)
|
(10,672,744)
|
Other
(expenses) income
|
|
|
Derivative
gain (loss)
|
513,674
|
(1,871,583)
|
Loss
on stock settlement
|
(23,000)
|
-
|
Gain
on settlement of debt, net
|
126,222
|
3,004,630
|
Interest
expense
|
(1,003,439)
|
(479,111)
|
Total
other (expense) income, net
|
(386,543)
|
653,936
|
Loss
before provision for income taxes
|
(10,941,469)
|
(10,018,808)
|
Provision
for income taxes
|
-
|
-
|
Net
loss
|
(10,941,469)
|
(10,018,808)
|
Net
loss attributable to non-controlling interest
|
1,480,770
|
537,469
|
Net
loss attributable to Exactus, Inc.
|
(9,460,699)
|
(9,481,339)
|
Deemed
dividend on preferred stock
|
-
|
(904,450)
|
Net
loss available to Exactus, Inc. common stockholders
|
$(9,460,699)
|
$(10,385,789)
|
|
|
|
Net
loss per common share - basic and diluted
|
$(0.22)
|
$(0.30)
|
Net
loss attributable to non-controlling interest per common share
– basic and diluted
|
$(0.03)
|
$(0.02)
|
Net
loss available to Exactus, Inc. common stockholders per common
share - basic and diluted
|
$(0.19)
|
$(0.31)
|
Weighted
average number of common shares outstanding:
|
|
|
basic
and diluted
|
49,688,543
|
33,899,585
|
|
Preferred
Stock
|
Common
Stock
|
|
|
|
|
|
||||||||||||||
|
Series
A
|
Series
B-1
|
Series
B-2
|
Series
C
|
Series
D
|
Series
E
|
Issued
|
Unissued
|
Paid
in
|
Due from
related
|
Accumulated
Deficit
(As
|
Non-controlling
|
Total
(As
|
||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
party
|
restated)
|
Interest
|
restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 conversion of convertible debt
|
-
|
84
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
849,276
|
|
-
|
-
|
849,360
|
Preferred stock issued
for private placement
|
-
|
6
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
55,084
|
|
-
|
-
|
55,090
|
Preferred stock issued
pursuant to Management and Services Agreement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
10,000
|
1
|
-
|
-
|
-
|
-
|
3,374,999
|
|
-
|
-
|
3,375,000
|
Conversion of Series A
Preferred Stock to Common Stock
|
(551,341)
|
(55)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,756,705
|
276
|
-
|
-
|
(221)
|
|
-
|
-
|
-
|
Conversion of Series
B-1 Preferred Stock to Common Stock
|
-
|
-
|
(1,150,000)
|
(115)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
143,750
|
14
|
-
|
-
|
101
|
|
-
|
-
|
-
|
Conversion of Series
B-2 Preferred Stock to Common Stock
|
-
|
-
|
-
|
-
|
(1,168,000)
|
(116)
|
-
|
-
|
-
|
-
|
-
|
-
|
146,000
|
15
|
-
|
-
|
101
|
|
-
|
-
|
-
|
Conversion of Series D
Preferred Stock to Common Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(27)
|
(1)
|
-
|
-
|
675,000
|
68
|
-
|
-
|
(67)
|
|
-
|
-
|
-
|
Deemed dividend on
Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
904,450
|
|
(904,450)
|
-
|
-
|
Common
stock issued for private
placement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
22,187,007
|
2,219
|
-
|
-
|
7,213,161
|
|
-
|
-
|
7,215,380
|
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
|
Common
stock issued for purchase of
membership interest in subsidiary
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
503,298
|
50
|
-
|
-
|
449,950
|
|
-
|
-
|
450,000
|
Common stock unissued
for pursuant to Asset Purchase Agreement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
100,000
|
10
|
69,990
|
|
-
|
-
|
70,000
|
Common stock issued
upon conversion of convertible debt
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
250,000
|
25
|
-
|
-
|
195,975
|
|
-
|
-
|
196,000
|
Common stock issued and
unissued for prepaid services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
150,000
|
15
|
100,000
|
10
|
120,355
|
|
-
|
-
|
120,380
|
Common stock issued and
unissued for services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,312,490
|
131
|
20,830
|
2
|
925,714
|
|
-
|
-
|
925,847
|
Stock-based
compensation in connection with restricted common stock award
grants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
115,280
|
11
|
68,750
|
7
|
143,896
|
|
-
|
-
|
143,914
|
Common stock and
preferred stock cancelled per Surrender and Release
Agreement
|
|
|
|
-
|
-
|
-
|
(1,733,334)
|
(173)
|
-
|
-
|
-
|
-
|
(180,000)
|
(18)
|
-
|
-
|
191
|
|
-
|
-
|
-
|
Common stock issued for
exercise of stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
375,000
|
37
|
(37)
|
|
-
|
-
|
-
|
Stock options granted
for services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,276,636
|
|
-
|
-
|
1,276,636
|
Stock warrants granted
for services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,428,243
|
|
-
|
-
|
1,428,243
|
Stock warrants granted
as debt discount
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
194,388
|
|
-
|
-
|
194,388
|
Net
Loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
(9,481,339)
|
(537,469)
|
(10,224,506)
|
Balance,
December 31, 2019
|
353,109
|
$35
|
1,650,000
|
$165
|
7,516,000
|
$752
|
-
|
$-
|
18
|
$-
|
10,000
|
|
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
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,700,000
|
370
|
-
|
-
|
384,630
|
-
|
-
|
-
|
385,000
|
Common stock issued for
unissued common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
475,000
|
47
|
(475,000)
|
(47)
|
-
|
-
|
-
|
-
|
-
|
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
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,766,635
|
377
|
(89,580)
|
(9)
|
664,418
|
-
|
-
|
-
|
696,786
|
Stock options granted
for services
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
276,736
|
-
|
-
|
-
|
276,736
|
Common stock issued
upon conversion of convertible debt and accrued
interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,397,937
|
240
|
-
|
-
|
239,838
|
-
|
-
|
-
|
240,078
|
Common stock issued in
connection with forbearance agreement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
500,000
|
50
|
-
|
-
|
89,950
|
-
|
-
|
-
|
90,000
|
Due from related
parties reclassified to equity
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(128,489)
|
-
|
-
|
(128,489)
|
Common stock issued for
private placement in fiscal 2019
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
12,084
|
1
|
-
|
-
|
(1)
|
-
|
-
|
-
|
-
|
Common stock issued for
services and accounts payable
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
750,000
|
75
|
-
|
-
|
70,500
|
-
|
-
|
-
|
70,575
|
Common stock issued for
exercise of stock options
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
20,000
|
2
|
-
|
-
|
5,998
|
-
|
-
|
-
|
6,000
|
Net Loss for the
period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(9,460,699)
|
(1,480,770)
|
(10,941,469)
|
Balance,
December 31, 2020
|
323,019
|
$ 32
|
1,650,000
|
$ 165
|
7,516,000
|
$ 752
|
-
|
$ -
|
18
|
$ -
|
10,000
|
|
56,356,431
|
$ 5,636
|
100,000
|
$ 10
|
$ 27,485,796
|
$ (128,489)
|
$(30,384,380)
|
$(2,018,239)
|
$(5,038,716)
|
|
Years Ended December 31,
|
|
|
2020
|
2019
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
Net
loss
|
$(10,941,469)
|
$(10,018,808)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
Depreciation
|
85,233
|
63,770
|
Derivative
(gain) loss
|
(513,674)
|
1,871,583
|
Gain
on extinguishment of debt
|
(126,222)
|
-
|
Stock-based
compensation
|
1,352,045
|
3,774,640
|
Bad
debt expense
|
149,907
|
32,577
|
Impairment
expense
|
4,577,406
|
250,192
|
Inventory
reserve
|
678,870
|
1,560,545
|
Amortization
of prepaid stock-based expenses
|
771,405
|
285,494
|
Amortization
of discount and debt issuance costs for convertible
notes
|
836,316
|
425,712
|
Amortization
of intangible assets
|
734,584
|
828,526
|
Non-cash
interest expense
|
92,042
|
-
|
Amortization
of operating lease right-of-use assets
|
121,695
|
-
|
Loss
(gain) on settlement of debt
|
23,000
|
(3,004,630)
|
Changes
in operating assets and liabilities:
|
|
|
(Increase)
decrease in operating assets:
|
|
|
Accounts
receivable
|
(94,182)
|
(88,302)
|
Accounts
receivable - related party
|
18,860
|
(18,860)
|
Inventory
|
648,227
|
(2,864,383)
|
Prepaid
expenses and other assets
|
163,370
|
(140,765)
|
Deposit
|
40,000
|
(80,000)
|
Accounts
payable
|
614,004
|
518,979
|
Accounts
payable - related party
|
(25,842)
|
454,511
|
Accrued
expenses
|
382,381
|
201,136
|
Unearned
revenues
|
(215,000)
|
215,000
|
Settlement
payable
|
-
|
(20,000)
|
Interest
payable
|
49,054
|
6,793
|
Operating
lease liabilities
|
(121,696)
|
-
|
Net Cash Used In Operating Activities
|
(699,686)
|
(5,746,290)
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
Purchase
of membership interest in subsidiary
|
-
|
(1,500,000)
|
Purchase
of property and equipment
|
-
|
(541,203)
|
Net Cash Used in Investing Activities
|
-
|
(2,041,203)
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
Increase
in due to related party classified as equity
|
(989)
|
-
|
Proceeds
from exercise of stock options
|
6,000
|
-
|
Advances
from related party
|
97,000
|
242,500
|
Repayments
on related party advances
|
(19,084)
|
(370,000)
|
Proceeds
from sale of common stock
|
385,000
|
7,215,380
|
Payments
of principal on notes payable
|
-
|
(59,500)
|
Proceeds
from issuance of notes payable
|
335,510
|
97,156
|
Proceeds
from issuance of notes payable - related party
|
57,919
|
-
|
Payments
of principal on convertible notes
|
(205,186)
|
(186,443)
|
Proceeds
from issuance of convertible notes, net of issuance
cost
|
50,250
|
864,845
|
Net Cash Provided By Financing Activities
|
706,420
|
7,803,938
|
|
|
|
Net increase in cash and cash equivalents
|
6,734
|
16,445
|
|
|
|
Cash and cash equivalents at beginning of year
|
18,405
|
1,960
|
|
|
|
Cash and cash equivalents at end of year
|
$25,139
|
$18,405
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
Cash
paid for interest and finance charges
|
$46,025
|
$40,116
|
Cash
paid for taxes
|
$-
|
$-
|
|
|
|
Non-Cash investing and financing activities:
|
|
|
Forgiveness
of debt by officers and directors
|
$-
|
$-
|
Proceeds
from sale of Series D preferred stock paid directly to settle
amounts
|
|
|
due
to officers and directors
|
$-
|
$-
|
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
|
$184,680
|
$196,000
|
Accounts
payable and accrued liabilities settled by common stock
issued
|
$70,575
|
$-
|
Common
stock issued for purchase of membership interest in
subsidiary
|
$-
|
$1,440,000
|
Common
stock and preferred stock issued for prepaid services
|
$-
|
$3,495,380
|
Common
stock issued pursuant to asset purchase agreement
|
$-
|
$70,000
|
Increase
in intangible assets for subscription payable
|
$-
|
$250,000
|
Initial
beneficial conversion feature and debt discount on convertible
notes
|
$-
|
$670,467
|
Stock
warrants granted as debt discount
|
$-
|
$194,388
|
Initial
derivative liability on convertible notes
|
$-
|
$-
|
Fair
value of common stock issued on conversion of notes
|
$-
|
$-
|
Fair
value of common stock issued for settlement of accounts
payable
|
$-
|
$-
|
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
liabilities
|
$-
|
$115,694
|
Prepaid
expenses directly paid by a related party
|
$-
|
$35,000
|
●
|
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.
|
|
At
December 31, 2020
|
At
December 31, 2019
|
||||
Description
|
Level 1
|
Level 2
|
Level 3
|
Level 1
|
Level 2
|
Level 3
|
Derivative
liabilities
|
—
|
—
|
$237,022
|
—
|
—
|
$880,410
|
|
December 31,
2020
|
Balance at
beginning of year
|
$880,410
|
Transfers out due
to conversions of convertible notes
|
(129,714)
|
Change in fair
value included in derivative gain
|
(513,674)
|
Balance at end of
year
|
$237,022
|
|
December 31, 2019
|
Balance at
beginning of year
|
$1,742,000
|
Initial fair value
of derivative liabilities as debt discount
|
670,467
|
Initial fair value
of derivative liabilities as derivative expense
|
786,823
|
Reduction through
conversion of debt
|
(3,403,640)
|
Change in fair
value included in derivative loss
|
1,084,760
|
Balance at end of
year
|
$880,410
|
|
December
31,
2020
|
December
31,
2019
|
Prepaid
services
|
$-
|
$248,767
|
Prepaid
insurance
|
9,288
|
-
|
Other
assets
|
6,000
|
-
|
|
$15,258
|
$248,776
|
|
December
31,
2020
|
December
31,
2019
|
Prepaid expense:
C2M - current
|
$-
|
$622,160
|
Prepaid expense:
C2M - noncurrent
|
-
|
2,492,045
|
|
$-
|
$3,114,205
|
|
December
31, 2020
|
December 31,
2019
|
Prepaid
expenses and other assets – related party
|
$2,483,523
|
$
|
Deposit
|
40,000
|
|
Property
and equipment
|
372,041
|
|
Intangible
assets
|
1,412,727
|
250,192
|
Operating
lease – right of use asset
|
269,115
|
|
Total
|
$4,577,406
|
$250,192
|
|
December
31,
|
|
|
2020
|
2019
|
Stock
options
|
3,751,749
|
4,671,280
|
Stock
warrants
|
1,578,549
|
2,014,299
|
Restricted
stock to be issued upon vesting
|
2,960,810
|
3,583,328
|
Convertible
preferred stock
|
9,460,845
|
9,611,295
|
Convertible
debt
|
14,145,825
|
3,027,778
|
Total
|
31,897,778
|
22,907,980
|
●
|
$400,000
paid previously for purchase of Hemp Seeds;
|
●
|
$100,000
upon execution of the LLC Operating Agreement;
|
●
|
$500,000
on or before April 1, 2019;
|
●
|
$500,000
on or before May 1, 2019;
|
●
|
$300,000
on or before August 1, 2019;
|
●
|
$450,000
on or before September 1, 2019 and,
|
●
|
$450,000
on or before October 1, 2019
|
●
|
$300,000
cash and 937,500 shares of the Company’s Common Stock to the
sellers upon execution, which was paid during the year ended
December 31, 2019;
|
●
|
$700,000
paid on April 18, 2019;
|
●
|
On June
10, 2019, the Company was required to issue and issued the sellers
an additional $450,000 of shares of common stock of the
Company based upon the 20 day volume weighted average price per
share on the date of issue which was equivalent to $0.89 per share
or 503,298 shares of the Company’s common stock and was
issued in August 2019; and
|
●
|
$500,000
paid by November 2019.
|
Intangible asset
– Hemp farming license
|
$10,000
|
Intangible assets
– farm leases
|
2,930,000
|
Total assets
acquired at fair value
|
2,940,000
|
Total purchase
consideration
|
$2,940,000
|
Intangible asset
– trademark
|
$3,500
|
Intangible assets
– customer list
|
212,529
|
Inventory
|
33,971
|
Total assets
acquired at fair value
|
250,000
|
Total purchase
consideration
|
$250,000
|
Intangible asset
– Brand
|
$70,000
|
Total assets
acquired at fair value
|
70,000
|
Total purchase
consideration
|
$70,000
|
|
December
31,
|
|
|
2020
|
2019
|
|
|
|
Finished goods
– CBD
|
$10,712
|
$-
|
Finished goods
– hemp flowers and hemp cuttings
|
-
|
1,337,809
|
|
$10,712
|
$1,337,809
|
|
|
As
of December 31,
|
|
|
Estimated
life
|
2020
|
2019
|
|
|
|
|
Greenhouse
|
10
years
|
$34,465
|
$34,465
|
Fencing and
storage
|
5
years
|
44,543
|
44,543
|
Irrigation
|
5
years
|
387,975
|
387,975
|
Office and computer
equipment
|
3
years
|
40,834
|
40,834
|
Farming
Equipment
|
5
years
|
11,500
|
11,500
|
Leasehold
improvement
|
5
years
|
21,886
|
21,886
|
Total
|
|
541,203
|
541,203
|
Less: Accumulated
depreciation
|
|
(149,003)
|
(63,770)
|
Less: Impairment
expense
|
|
(372,041)
|
-
|
|
$20,159
|
$477,433
|
|
Useful
life
|
December
31,
2020
|
December
31,
2019
|
Participation
rights - EOW
|
3 year
|
$2,930,000
|
$2,930,000
|
Hemp operating
license - EOW
|
1 year
|
10,000
|
10,000
|
Trademark –
Green Goddess
|
3 year
|
-
|
3,500
|
Customer list
– Green Goddess
|
3 year
|
-
|
212,529
|
Brand -
Levor
|
3 year
|
-
|
70,000
|
Total
|
2,940,000
|
3,226,029
|
|
Less: accumulated
amortization
|
(1,527,273)
|
(828,526)
|
|
Less: Impairment
expenses
|
(1,412,727)
|
(250,192)
|
|
Intangible assets,
net
|
$-
|
$2,147,311
|
|
December 31,
|
|
|
2020
|
2019
|
|
|
Restated
|
Farm
lease ROU
|
$506,506
|
$506,506
|
Less
accumulated amortization
|
(237,391)
|
(115,695)
|
Less
impairment expense
|
(269,115)
|
-
|
Balance
of ROU asset
|
$-
|
$390,811
|
|
December 31,
|
|
|
2020
|
2019
|
|
|
Restated
|
Farm
lease ROU
|
$506,506
|
$506,506
|
Reduction
of lease liability
|
(237,391)
|
(115,695)
|
Total
|
$269,115
|
390,811
|
Less: current
portion
|
(269,115)
|
(168,869)
|
Long term portion
of lease liability
|
-
|
$220,942
|
|
As
of December 31,
|
|
|
2020
|
2019
|
|
|
|
Principal
amount
|
$335,510
|
$-
|
Less: current
portion
|
(130,344)
|
-
|
Notes payable -
long term portion
|
$205,166
|
$-
|
Year ended December
31, 2020
|
$11,859
|
Year ended December
31, 2021
|
155,501
|
Year ended December
31, 2022
|
68,392
|
Year ended December
31, 2023
|
2,091
|
Year ended December
31, 2024 and thereafter
|
97,667
|
Total principal
payments
|
$335,510
|
The Company’s
convertible notes consist of the following as of December 31, 2020
and 2019:
|
2020
|
2019
|
|
|
|
Convertible Notes
in the aggregate amount of $100,000, issued on March 22, 2018. The
Notes bear interest at a rate of 5% per annum and mature on
February 1, 2023. If a qualified financing from which at least $5
million of gross proceeds are raised occurs prior to the maturity
date, then the outstanding principal balance of the notes, together
with all accrued and unpaid interest thereon, shall be
automatically converted into a number of shares of the
Company’s Common Stock at $0.40 per Share. The Notes offers
registration rights wherein the Company agrees that within 45 days
of a Qualified Offering, prior to the Maturity Date, the Company
shall file a registration statement with the SEC registering for
resale of the shares of Company’s Common Stock into which the
Notes are convertible. The Company shall send a written conversion
notice to the lender pursuant to the note agreement and as such the
principal balance of the convertible note remains outstanding as of
December 31, 2020 and 2019. The Company
reclassed the principal balance to current portion as of December
31, 2020.
|
$100,000
|
$100,000
|
|
|
|
Convertible Note in
the amount of $833,333, issued on November 27, 2019. The Company
entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with a single institutional investor (the
“Purchaser”), pursuant to which the Company agreed to
sell to Purchaser in a series of 3 closings up to $1,944,444 in
aggregate principal amount of the Company’s senior secured
convertible promissory notes (the “Notes”) and warrants
to purchase shares of the Company’s Common Stock (the
“Warrants”). On November 27, 2019 (the “Initial
Closing Date”), the Company issued a Note in the principal
amount of $833,333, and a two-year Warrant to purchase 275,612
shares of Common Stock at an exercise price of $0.756 per share
(see Note 10). The Notes will be issued at a 10% original issue
discount and bear an interest rate of 8%. The Notes mature one year
after their issuance unless accelerated due to an event of default.
The Notes are redeemable, in whole or in part, at any time at the
discretion of the Company. At the Initial Closing Date, the Company
received net proceeds, after the original issue discount and the
Purchaser’s counsel fees, of $730,000. Each note is
convertible at the option of the note holder at any time into
shares of our common stock at the fixed conversion rate of $0.50
per share. However, the conversion rate is subject to adjustment in
the event of default, redemption and upon the occurrence of certain
events affecting stockholders generally, such as stock splits and
recapitalizations. The Company must pay amortization redemption
payments equaling one-ninth of the original principal amount due on
each note commencing 90 days after issuance and continuing during
the following eight months (each an “Amortization
Redemption”). The note holder may at its option accelerate up
to six future amortization redemption payments, in which case the
note holder may demand the accelerated amortization amounts be paid
in shares of the Company’s common stock at the lesser of i)
the fixed conversion rate of $0.50 per share of common stock, or
(ii) the rate equal to 80% of the lowest volume weighted average
price, or VWAP, during the 10 trading days immediately before the
applicable date of the amortization redemption payment
(“Amortization Conversion Rate”). Amortization
redemption payment amount is equivalent to 110% of the sum of (i)
one-ninth (1/9th) of the Original Principal Amount of this Note,
(ii) 100% of all accrued and unpaid interest on the principal
amount of this Note that is subject to such Amortization
Redemption, (iii) 100% of the Make-Whole Amount payable in respect
of the principal amount of this Note that is subject to such
Amortization Redemption (as applicable), and (iv) all liquidated
damages, costs of collection and other amounts payable in respect
of this Note as of the applicable amortization redemption payment
Date for such Amortization Redemption. If the Company fails to make
a redemption payment, the note holder may demand the amortization
amounts be paid in shares of the Company’s common stock at
the lesser of fixed conversion rate of $0.50 per share of common
stock or the Amortization Conversion Rate. In addition, in the
event of a subsequent issuance of the Company’s common stock
or debt, the Company is subject to mandatory redemption provisions
as defined in the note agreement. The Company may not issue shares
of the Company’s common stock to third parties at a price
lower than the fixed conversion rate of $0.50 per share of common
stock without the consent of the note holder. At this time, the
Company is delinquent in its payments under the initial convertible
note, with the May 1, 2020, April 1, 2020, and a portion of the
February 25, 2020 payments currently in arrears. The Company
intends to make these payments and the upcoming monthly payments
with receipts from product sales and/or the proceeds of additional
equity funding. The Company paid original issuance cost of $83,333,
cash commission and loan fees of $92,055, and recorded redemption
premium of $88,889 related to the amortization redemption payment
in connection with this note payable and are being amortized over
the term of the note. On the Initial Closing Date, certain FINRA
broker-dealers who acted on behalf of the Company were paid
aggregate cash commissions of approximately $72,055 and were
granted a four-year warrant to acquire an aggregate of 84,187
shares of Common Stock at an exercise price of $0.792 per share of
common stock at any time before the close of business four years
after their issuance, subject to adjustment in the event of stock
dividends, splits, fundamental transactions, or other changes in
our capital structure.
|
546,036
|
85,906
|
|
|
|
Carrying Amount of
Convertible Debt
|
$646,036
|
$185,906
|
Less: Current
Portion
|
(646,036)
|
(85,906)
|
Convertible Notes,
Long Term
|
$-
|
$100,000
|
|
2020
|
2019
|
Principal
Amount
|
$933,333
|
$933,333
|
Add: additional
principal
|
50,250
|
-
|
Add: amortization
of redemption premium
|
88,889
|
8,280
|
Less: redemption
premium payments
|
(20,800)
|
-
|
Less: principle
payments and conversions
|
(356,186)
|
-
|
Less: unamortized
debt discount and debt issuance costs
|
-
|
(755,707)
|
Total convertible
debt less unamortized debt discount and debt issuance
costs
|
$696,286
|
$185,906
|
●
|
The
Company has paid the Holder $60,000 in cash before July 1, 2020.
Additional monthly payments required under the Amortization
Schedule for the note shall continue to be due on or before the
first day of each calendar month thereafter, commencing with the
$110,000 payment originally due April 1, 2020 now due on or before
August 1, 2020, and the subsequent monthly payments listed on the
Amortization Schedule to be paid monthly in the sequence listed.
Interest shall continue to accrue on the principal balance of the
Note at the rate(s) stated therein, with all additional accrued
interest resulting from this extension of payment deadlines to be
paid as part of the last monthly payment. The Company paid the
$110,000 on August 1, 2020.
|
|
|
|
|
●
|
The
payments that were in arrears from February, April and May can be
paid in whole or in part at any time at the sole election of the
Holder in shares of common stock at the Amortization Conversion
Price (defined as 80% of the lowest volume weighted average price,
or VWAP, during the 10 trading days immediately before the
applicable date of the amortization redemption
payment).
|
●
|
Unless
or until a default under the Forbearance Agreement occurs, the
fixed conversion price under the note will remain $0.50 per share,
and the note shall continue to bear interest at the non-default
rate of 8% per annum.
|
●
|
Unless
or until a default under the Forbearance Agreement occurs, the
contractual limit on issuances of shares to issue shares of common
stock or options to employees, officers, directors, consultants,
advisors or contractors will be increased from 5% to 10% or our
issued an outstanding common stock.
|
●
|
The
Company has issued the Holder 500,000 shares of the Company’s
common stock in consideration for the forbearance.
|
|
2020
|
2019
|
Expected
Volatility
|
213.48% to
216.44%
|
239.97% to
567.11%
|
Expected
Term
|
0.16
to 0.66 Years
|
0.25
to 1.0 Years
|
Risk Free
Rate
|
0.08% to
0.18%
|
1.59% to
2.54%
|
Dividend
Rate
|
0.00%
|
0.00%
|
Name
|
Amount of Grant
|
Vesting Period
|
Vesting Commencement Date
|
Bobby
Yampolsky – former Director
|
1,000,000
shares of restricted Common Stock.
|
1/48th
per month.
|
Cancelled.
|
Emiliano
Aloi – former CEO
|
1,000,000
shares of restricted Common Stock.
|
1/48th
per month.
|
Cancelled.
|
Consultant
– Legal and consulting services
|
100,000
shares of restricted Common Stock.
|
1/48th
per month.
|
Vests
October 1, 2019.
|
Consultant
– consulting services
|
1,000,000
shares of restricted Common Stock.
|
1/48th
per month.
|
Vests
on the first day of calendar month following:
(A) the
date that the 2019 Exactus One World agriculture total yield is at
least 400,000 pounds of total biomass for production and held for
sale or processing (including top flower harvest) and (B) the date
that the Company has reported at least $5 million of revenue on a
consolidated basis.
|
Timing
|
Amount
|
Vesting
|
Initial
appointment
(non-employee/non-executive
directors)
|
$100,000
of the Company’s Common Stock issued on and priced at fair
market value of the Common Stock on the last calendar date prior to
appointment.
|
1/24th vests
upon date of grant and 1/24th vests on the first calendar date of
each calendar month following appointment until fully vested as
long as continuing as a director.
|
Directors
continuing after initial appointment
(non-employee/non-executive
directors)
|
$25,000
of Common Stock issued annually on the first day of September and
priced at fair market value of the Common Stock as of the calendar
date prior to the issuance for each continuing director that has
served a minimum of 9 consecutive months as of the first day of
September each year.
|
1/24th
vests upon date of grant and 1/24th vests on the first
calendar date of each calendar month following appointment until
fully vested as long as continuing as a director.
|
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Balance at December
31, 2018
|
644,083
|
$ 1.77
|
1.38
|
Granted
|
1,578,549
|
0.45
|
5.00
|
Cancelled
|
—
|
—
|
—
|
Exercised
|
—
|
—
|
—
|
Forfeited
|
(208,333)
|
4.80
|
—
|
Balance at December
31, 2019
|
2,014,299
|
0.45
|
3.31
|
Granted
|
50,000
|
0.50
|
0.17
|
Cancelled
|
(485,750)
|
0.49
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Balance at December
31, 2020
|
1,578,549
|
0.49
|
3.01
|
|
|
|
|
Warrants
exercisable at December 31, 2020
|
1,578,549
|
$0.49
|
2.50
|
Weighted average
fair value of warrants granted during the period
|
|
$0.50
|
|
|
Number of
Options
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual Life(Years)
|
Balance at December
31, 2018
|
959,375
|
$0.41
|
8.79
|
Granted
|
4,753,572
|
0.21
|
8.54
|
Exercise
|
(375,000)
|
0.01
|
9.12
|
Forfeited
|
(666,667)
|
0.05
|
8.56
|
Balance at December
31, 2019
|
4,671,280
|
0.29
|
7.29
|
Granted
|
1,000,000
|
0.30
|
9.75
|
Exercise
|
(20,000)
|
0.30
|
9.18
|
Forfeited
|
(1,899,531)
|
0.41
|
-
|
Balance at December
31, 2020
|
3,751,749
|
$0.23
|
8.0
|
Options exercisable
at December 31, 2020
|
3,470,499
|
$0.24
|
8.0
|
Risk-free interest
rate
|
1.55%
|
Expected
volatility
|
263%
|
Expected term (in
years)
|
10
|
Expected dividend
yield
|
0%
|
Risk-free interest
rate
|
2.43 –
2.7495%
|
Expected
volatility
|
293 – 296%
|
Expected term (in
years)
|
10
|
Expected dividend
yield
|
0%
|
|
Restricted Stock Common Stock
|
Weighted Average Grant-Date Fair Value Per Share
|
Balance
at December 31, 2018
|
-
|
$-
|
Granted
|
3,727,778
|
0.69
|
Vested
and issued
|
(144,450)
|
(0.84)
|
Forfeited
|
-
|
-
|
Balance
at December 31, 2019
|
3,583,328
|
$0.68
|
Granted
|
4,871,022
|
0.08
|
Vested
and issued
|
(1,727,394)
|
0.39
|
Forfeited
|
(3,766,153)
|
0.36
|
Balance
at December 31, 2020
|
2,960,803
|
$0.41
|
|
December
31,
2020
|
December
31,
2019
|
US Federal
Statutory Tax Rate
|
21.0%
|
21.6%
|
State
taxes
|
4.35%
|
4.6%
|
Bad
debt
|
(1.62%)
|
-
|
Derivative
loss
|
1.02
|
-
|
Stock-based
compensation
|
(3.17%)
|
-
|
Depreciation
|
0.19%
|
-
|
Amortization
|
2.17%
|
-
|
Impairment
|
(12.00%)
|
-
|
Change in valuation
allowance
|
(11.92%)
|
(25.6%)
|
|
0.00%
|
0.00%
|
Deferred Tax
Asset:
|
December
31,
2020
|
December
31,
2019
|
Net operating loss
carryforward
|
$8,337,000
|
$4,226,345
|
Valuation
allowance
|
(8,337,000)
|
(4,226,345)
|
Net deferred tax
asset
|
$-
|
$-
|
|
As
of March 31, 2020
|
||
|
Previously
Reported
|
Adjustments
|
As
Corrected
|
Consolidated
Balance Sheet
|
|
|
|
Current
assets
|
$1,661,211
|
$-
|
$1,661,211
|
Current
liabilities
|
$5,338,486
|
$(564,628)
|
$4,773,858
|
Working capital
(deficit)
|
$(3,677,275)
|
$564,628
|
$(3,112,647)
|
Total
assets
|
$8,458,826
|
$(1,705,115)
|
$6,753,711
|
Total
liabilities
|
$6,985,191
|
$(2,034,232)
|
$4,950,959
|
Total stockholders'
equity
|
$1,473,635
|
$329,117
|
$1,802,752
|
|
As
of December 31, 2019
|
||
|
Previously
Reported
|
Adjustments
|
As
Corrected
|
Consolidated
Balance Sheet
|
|
|
|
Current
assets
|
$2,429,235
|
$-
|
$2,429,235
|
Current
liabilities
|
$4,190,544
|
$(382,196)
|
$3,808,348
|
Working capital
(deficit)
|
$(1,761,309)
|
$382,196
|
$(1,379,113)
|
Total
assets
|
$9,799,277
|
$(1,782,443)
|
$8,016,834
|
Total
liabilities
|
$6,117,431
|
$(1,988,141)
|
$4,129,290
|
Total stockholders'
equity
|
$3,681,846
|
$205,698
|
$3,887,544
|
|
As
of September 30, 2019
|
||
|
Previously
Reported
|
Adjustments
|
As
Corrected
|
Consolidated
Balance Sheet
|
|
|
|
Current
assets
|
$3,255,169
|
$-
|
$3,255,169
|
Current
liabilities
|
$2,052,454
|
$(302,196)
|
$1,750,258
|
Working capital
(deficit)
|
$1,202,715
|
$302,196
|
$1,504,911
|
Total
assets
|
$11,449,203
|
$(1,858,284)
|
$9,590,919
|
Total
liabilities
|
$4,054,527
|
$(1,940,563)
|
$2,113,964
|
Total stockholders'
equity
|
$7,394,676
|
$82,279
|
$7,476,955
|
|
For
the Three Months Ended
|
||
|
March 31,
2020
|
||
|
Previously
Reported
|
Adjustments
|
As
Corrected
|
Consolidated
Statements of Operations
|
|
|
|
Revenues
|
$836,000
|
$-
|
$836,000
|
Operating
expenses
|
$2,192,767
|
$(123,419)
|
$2,069,348
|
Loss from
operations
|
$(2,757,023)
|
$123,419
|
$(2,633,604)
|
Other income
(expenses)
|
$(188,480)
|
$-
|
$(188,480)
|
Net
loss
|
$(2,945,503)
|
$123,419
|
$(2,822,084)
|
Net Loss available
to Exactus, Inc. common stockholders
|
$(2,789,684)
|
$123,419
|
$(2,666,265)
|
Basic & diluted
EPS
|
$(0.06)
|
$0
|
$(0.06)
|
|
For
the Year Ended
|
||
|
December 31,
2019
|
||
|
Previously
Reported
|
Adjustments
|
As
Corrected
|
Consolidated
Statements of Operations
|
|
|
|
Revenues
|
$345,680
|
$-
|
$345,680
|
Operating
expenses
|
$9,177,988
|
$(205,698)
|
$8,972,290
|
Loss from
operations
|
$(10,878,442)
|
$205,698
|
$(10,672,744)
|
Other income
(expenses)
|
$653,936
|
$-
|
$653,936
|
Net
loss
|
$(10,224,506)
|
$205,698
|
$(10,018,808)
|
Net Loss available
to Exactus, Inc. common stockholders
|
$(10,591,487)
|
$205,698
|
$(10,385,789)
|
Basic & diluted
EPS
|
$(0.31)
|
$0
|
$(0.31)
|
|
For
the Nine Months Ended
|
||
|
September 30,
2019
|
||
|
Previously
Reported
|
Adjustments
|
As
Corrected
|
Consolidated
Statements of Operations
|
|
|
|
Revenues
|
$215,816
|
$-
|
$215,816
|
Operating
expenses
|
$5,803,458
|
$(82,279)
|
$5,721,179
|
Loss from
operations
|
$(5,803,847)
|
$82,279
|
$(5,721,568)
|
Other income
(expenses)
|
$1,178,363
|
$-
|
$1,178,363
|
Net
loss
|
$(4,625,484)
|
$82,279
|
$(4,543,205)
|
Net Loss available
to Exactus, Inc. common stockholders
|
$(5,168,306)
|
$82,279
|
$(5,086,027)
|
Basic & diluted
EPS
|
$(0.16)
|
$0
|
$(0.15)
|
|
For
the Three Months Ended
|
||
|
September 30,
2019
|
||
|
Previously
Reported
|
Adjustments
|
As
Corrected
|
Consolidated
Statements of Operations
|
|
|
|
Revenues
|
$60,153
|
$-
|
$60,153
|
Operating
expenses
|
$2,062,677
|
$(82,279)
|
$1,980,398
|
Loss from
operations
|
$(2,102,942)
|
$82,279
|
$(2,020,663)
|
Other income
(expenses)
|
$(5,105)
|
$-
|
$(5,105)
|
Net
loss
|
$(2,108,047)
|
$82,279
|
$(2,025,768)
|
Net Loss available
to Exactus, Inc. common stockholders
|
$(1,934,367)
|
$82,279
|
$(1,852,088)
|
Basic & diluted
EPS
|
$(0.05)
|
$0
|
$(0.05)
|
Name
|
Age
|
Present Positions
|
Andrew L. Johnson
|
36
|
Chief
Strategy Officer
|
Alvaro Daniel Alberttis
|
44
|
Chief
Operating Officer & Director
|
Julian Pittam
|
51
|
Director
|
John Price
|
51
|
Director
|
Larry Wert
|
64
|
Director
|
|
Year
|
Salary
|
Option
Award(s)(1)
|
Total
|
Emiliano
Aloi(2)
|
2020
|
$62,308
|
$—
|
$62,308
|
Former Interim CEO
|
2019
|
$108,036
|
$32,000
|
$140,036
|
Alvaro
Alberttis(3)
|
2020
|
$—
|
$50,980
|
$50,980
|
Chief Operating Officer
|
2019
|
$—
|
$—
|
$—
|
Kenneth E.
Puzder(4)
|
2020
|
$76,731
|
$122,500
|
$199,231
|
Former Chief Financial Officer
|
2019
|
$81,428
|
$70,000
|
$151,428
|
Andrew
Johnson(5)
|
2020
|
$75,962
|
$122,500
|
$198,462
|
Chief Strategy Officer
|
2019
|
$92,977
|
$174,500
|
$267,477
|
Derek du
Chesne(6)
|
2020
|
$76,730
|
$500,000
|
$575,000
|
Former
President
|
2019
|
$—
|
$—
|
$—
|
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
|
Equity
Incentive Plan Award: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
Emiliano Aloi
*
|
250,000
|
(1)
|
—
|
$0.320
|
01/09/2029
|
Former Interim
Chief Executive Officer
|
|
|
|
|
|
Kenneth E. Puzder
*
|
250,000
|
(2)
|
149,739
|
$0.200
|
01/11/2029
|
Former Chief
Financial Officer
|
|
|
|
|
|
Andrew
Johnson
|
12,500
|
(3)
|
—
|
$0.320
|
01/15/2029
|
Chief Strategy Officer
|
31,250
|
(4)
|
15,625
|
$0.960
|
01/15/2029
|
|
125,000
|
(5)
|
20,832
|
$0.560
|
03/12/2029
|
|
Shared
Reserved
|
Stock options
outstanding
|
959,375
|
Available for
future grants under the 2018 Plan
|
228,125
|
Warrants
outstanding
|
644,083
|
Total shares
reserved
|
1,861,583
|
|
DIRECTOR
COMPENSATION
|
|||||||
Name
|
|
Fees
Earned or Paid in Cash ($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity Incentive
Plan Compensation ($)
|
Non-Qualified
Deferred Compensation Earnings ($)
|
All
Other Compensation ($)
|
Total
($)
|
Lawrence J.
Wert
Executive Chairman
|
(a)
|
-
|
100,000
|
-
|
-
|
-
|
-
|
100,000
|
John
Price
Board Member
|
(b)
|
-
|
25,000
|
-
|
-
|
-
|
-
|
-
|
Alvaro Daniel
Alberttis
Board Member
|
(c)
|
-
|
100,000
|
-
|
-
|
-
|
-
|
100,000
|
Julian
Pittam
Board Member
|
(d)
|
-
|
100,000
|
-
|
-
|
-
|
-
|
100,000
|
Emiliano
Aloi
Former Board Member
|
(e)
|
-
|
29,167
|
-
|
-
|
-
|
-
|
29,167
|
Justin A.
Viles
Former Board Member
|
(f)
|
-
|
24,500
|
-
|
-
|
-
|
-
|
24,500
|
Title of class
|
Name and address of beneficial owner
|
Amount and Nature of Beneficial Ownership
|
|
Percent of Class(1)
|
Current Named Executive Officers & Directors:
|
|
|
||
Common
Stock
|
Julian
Pittam
80 NE 4th Avenue,
Suite 28
Delray Beach, FL
33483
|
3,914,791
|
(2)
|
13.75%
|
Common
Stock
|
John
Price
80
NE 4th Avenue, Suite 28
Delray
Beach, FL 33483
|
2,672,111
|
(3)
|
2.70%
|
Common
Stock
|
Andrew
Johnson
80
NE 4th Avenue, Suite 28
Delray
Beach, FL 33483
|
8,486,240
|
(4)
|
8.58%
|
Common
Stock
|
Alvaro
Alberttis
80 NE 4th Avenue,
Suite 28
Delray Beach, FL
33483
|
4,770,726
|
(5)
|
4.81%
|
Common
Stock
|
Lawrence J.
Wert
80 NE 4th Avenue,
Suite 28
Delray Beach, FL
33483
|
8,620,297
|
(6)
|
8.70%
|
Common Stock Total of All Current Directors and Executive
Officers:
|
28,464,147
|
|
38.54%
|
Title of class
|
Name and address of beneficial owner
|
Amount and Nature of Beneficial Ownership
|
|
Percent of Class(1)
|
Former Named Executive Officers & Directors:
|
|
|
||
Common
Stock
|
Kevin
Esval
80 NE 4th Avenue,
Suite 28
Delray Beach, FL
33483
|
817,000
|
(2)
|
0.82%*
|
Common
Stock
|
Jeffrey
Thompson
80
NE 4th Avenue, Suite 28
Delray
Beach, FL 33483
|
350,000
|
(3)
|
0.35%*
|
Common
Stock
|
Vladislav
Yampolsky
80
NE 4th Avenue, Suite 28
Delray
Beach, FL 33483
|
8,723,192
|
(4)
|
8.76%
|
Common
Stock
|
Justin
Viles
80 NE 4th Avenue,
Suite 28
Delray Beach, FL
33483
|
631,577
|
(5)
|
0.63%*
|
Common
Stock
|
Emiliano
Aloi
80 NE 4th Avenue,
Suite 28
Delray Beach, FL
33483
|
271,317
|
(6)
|
0.27%*
|
Common
Stock
|
Derek
DuChesne
80 NE 4th Avenue,
Suite 28
Delray Beach, FL
33483
|
20,000
|
(7)
|
0.02%*
|
Common
Stock
|
Ken
Puzder
80 NE 4th Avenue,
Suite 28
Delray Beach, FL
33483
|
250,000
|
(8)
|
0.25%*
|
Common Stock Total of All Former Directors and Former Executive
Officers:
|
11,043,106
|
|
11.08%
|
Year
Ended:
|
Audit
Services
|
Audit Related
Fees
|
Tax
Fees
|
Other
Fees
|
December 31,
2020
|
$45,000
|
n/a
|
n/a
|
n/a
|
December 31,
2019
|
$100,700
|
n/a
|
n/a
|
n/a
|
(b)
|
Exhibits
|
Exhibit Number
|
Description
|
Amended and Restated Articles of Incorporation (attached as Exhibit
3.2 to the Company’s Registration Statement on Form S-1
(Registration No. 333-183360), filed August 16, 2012 and
incorporated herein by reference).
|
|
Certificate of Amendment to Amended and Restated Articles of
Incorporation (attached as Exhibit 3.1 to Amendment No. 2 to the
Registration Statement on Form S-1 (Registration No. 333-183360,
filed December 19, 2013 and incorporated herein by
reference).
|
|
Certificate of Amendment to Articles of Incorporation (attached as
Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
October 12, 2018 and incorporated herein by reference)
|
|
Bylaws (attached as Exhibit 3.3 to the Company’s Registration
Statement on Form S-1 (Registration No. 333-183360), filed August
16, 2012 and incorporated herein by reference).
|
|
Certificate of Designation for Series A Preferred Stock (attached
as Exhibit 4.1 to the Company’s Current Report on Form 8-K
filed February 18, 2021 and incorporated herein by
reference)
|
|
Certificate of Designation for Series B-1 Preferred Stock (attached
as Exhibit 3.1 to the Company’s Current Report on Form 8-K
filed March 4, 2016 and incorporated herein by
reference)
|
|
Certificate of Designation for Series B-2 Preferred Stock (attached
as Exhibit 3.2 to the Company’s Amendment to the Current
Report on Form 8-K/A filed February 17, 2016 and incorporated
herein by reference)
|
|
Amendment to Certificate of Designation After Issuance of Class or
Series (attached as Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed November 1, 2016 and incorporated herein
by reference).
|
|
2018 Equity Incentive Plan (attached as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed September 5, 2018
and incorporated herein by reference)
|
|
2019 Equity Incentive Plan (attached as Exhibit 10.7 to the
Company’s Amended Current Report on Form 8-K/A filed January
22, 2019 and incorporated herein by reference)
|
|
Supply and Distribution Agreement with HTO Holdings, Inc.
(Hemptown, USA) (attached as
Exhibit 10.36 to Annual Report on Form 10-K filed May 22, 2020 and
incorporated herein by reference)
|
|
Amendment to Supply and Distribution Agreement with HTO Holdings,
Inc. (Hemptown, USA) (attached as
Exhibit 10.37 to Annual Report on Form 10-K filed May 22, 2020 and
incorporated herein by reference)
|
|
Securities Purchase Agreement (redacted) (attached as Exhibit 10.1
to the Company’s Current Report on Form 8-K filed February
18, 2021 and incorporated herein by reference).
|
|
Exchange Agreement (attached as Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed February 18, 2021 and incorporated
herein by reference).
|
|
Settlement and Release Agreement with Ceed2Med, LLC
|
|
Agreement (redacted) with Dr. Krassen Dimitrov, Digital
Diagnostics, Inc. and KD Innovation, Ltd. (attached as Exhibit 10.2
to the Company’s Current Report on Form 8-K filed January 27,
2021 and incorporated herein by reference).
|
|
Separation and Release Agreement with Derek Du Chesne (attached as
Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed September 21, 2020 and incorporated herein by
reference).
|
|
Loan Agreement and Note with the U.S. Small Business Administration
(attached as Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q filed June 29, 2020 and incorporated herein by
reference).
|
|
Subsidiary List (attached as
Exhibit 21.1 to Quarterly Report on Form 10-Q filed August 22, 2016
and incorporated herein by reference)
|
|
Certification of Principal Executive Officer pursuant to Securities
Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Certification of Principal Financial Officer pursuant to Securities
Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
101**
|
The
following materials from the Company’s Annual Report on Form
10-K for the year ended December 31, 2019 formatted in Extensible
Business Reporting Language (XBRL).
|
|
|
101.INS
|
XBRL
Instance Document
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema
|
Dated:
1/21/2021
|
EXACTUS,
INC.
By:
_____________________________
Name: Title:
|
Dated:
1/21/2021
|
CEED2MED,
LLC
By:
_____________________________
Name: Title:
|
Dated:
1/21/2021
|
VLADISLAV
(BOBBY) YAMPOLSKY
|
Dated:
1/21/2021
|
JAMIE
GOLDSTEIN
|
1.
|
|
I have
reviewed this quarterly report on Form 10-K for the year ended
December 31, 2020 of Exactus, Inc. (the
“registrant”);
|
2.
|
|
Based
on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by this report;
|
3.
|
|
Based
on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
|
4.
|
|
The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a.
|
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
|
b.
|
|
Designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
|
c.
|
|
Evaluated
the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
|
d.
|
|
Disclosed
in this report any change in the registrant’s internal
control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting;
and
|
5.
|
|
The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
|
a.
|
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
|
b.
|
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
|
EXHIBIT
31.2
|
|
CERTIFICATIONS
|
1.
|
|
I have
reviewed this annual report on Form 10-K for the year ended
December 31, 2020 of Exactus, Inc. (the
“registrant”);
|
2.
|
|
Based
on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the
period covered by this report;
|
3.
|
|
Based
on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
|
4.
|
|
The
registrant’s other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a.
|
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this report is being prepared;
|
b.
|
|
Designed
such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
|
c.
|
|
Evaluated
the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation;
and
|
d.
|
|
Disclosed
in this report any change in the registrant’s internal
control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting;
and
|
5.
|
|
The
registrant’s other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
|
a.
|
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial
information; and
|
b.
|
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s
internal control over financial reporting.
|
By:
|
/s/
Daniel Alberttis
|
Name:
|
Daniel
Alberttis
|
Title:
|
Principal
Executive Officer
|
Date:
|
April
23, 2021
|
By:
|
/s/
John Price
|
Name:
|
John
Price
|
Title:
|
Principal
Financial and Accounting Officer
|
Date:
|
April
23, 2021
|
Document and Entity Information - USD ($) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2020 |
Mar. 31, 2021 |
Jun. 30, 2020 |
|
Document And Entity Information | |||
Entity Registrant Name | Exactus, Inc. | ||
Entity Central Index Key | 0001552189 | ||
Document Type | 10-K/A | ||
Document Period End Date | Dec. 31, 2020 | ||
Amendment Flag | true | ||
Amendment description | This Amendment No. 1 to our Annual Report on Form 10-K, previously filed with the United States Securities and Exchange Commission on April 15, 2021, is to include the opinion of our independent accounting firm, include certain exhibits omitted from the original filing, and to make other minor corrections. | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Is Entity a Voluntary Filer? | No | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Interactive Data Current | Yes | ||
Entity Incorporation State Country Code | NV | ||
Entity File Number | 001-38190 | ||
Entity Public Float | $ 3,500,000 | ||
Entity Common Stock, Shares Outstanding | 99,632,710 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2020 |
NATURE OF ORGANIZATION |
12 Months Ended |
---|---|
Dec. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NATURE OF ORGANIZATION | Organization and Business Description
Exactus, Inc. (the “Company”, “we”, “us”, “our”) 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. In January 2019, the Company added to the scope of its business activities, efforts to produce, market and sell products made from industrial hemp containing cannabidiol (“CBD”).
On January 8, 2019, the Company entered into the Master Product Development and Supply Agreement with C2M. In consideration for the Development Agreement, C2M was issued 8,385,691 shares of Common Stock. Additionally, the Company granted 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. Consequently, such transaction resulted in a change of control whereby, C2M obtained majority control through its Common Stock ownership. 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.
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 Development 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 products. The Company believes manufacturing, testing and quality akin to pharmaceutical products is important when distributing hemp-based products. The Company’s products originated from farms at which the Company or C2M oversaw all stages of plant growth and are manufactured under contract arrangements with third-parties.
In consideration for the Development Agreement, C2M was issued 8,385,691 shares of Common Stock. Additionally, the Company granted 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. Consequently, such transaction resulted in a change of control whereby, C2M obtained majority control through its Common Stock ownership. 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.
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. Following the events with C2M, 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 21, 2021 we entered into a Settlement Agreement with Ceed2Med, LLC and its principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons. The Company no longer plans to farm industrial hemp for its own commercial purposes.
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 consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of presentation and principles of consolidation
The Company’s consolidated financial statements include the financial statements of its 50.1% subsidiary, EOW and 51% subsidiary, Paradise Medlife.
The accompanying 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, which present the consolidated financial statements of the Company and its majority-owned subsidiaries as of December 31, 2020. All significant 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’ (deficit) equity and cash flows as of December 31, 2020 and 2019, and for the years then ended, have been made. Those adjustments consist of normal and recurring adjustments.
Reclassification
Certain reclassifications of prior period amounts have been made to improve comparability and conform to the current period presentation. Presentation changes were made to the Consolidated Statements of Operations and Consolidated Statement of Cash Flows and the Notes to Consolidated Financial Statements to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.
Going concern
The accompanying 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 consolidated financial statements, the Company had a net loss attributable to Exactus Inc. common stockholders of $9.5 million for the year ended December 31, 2020. The net cash used in operating activities was $0.7 million for the year ended December 31, 2020. Additionally, the Company had an accumulated deficit of $30.4 million and working capital deficit of $4.8 million as of December 31, 2020. 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. The accompanying 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.
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 year ended December 31, 2020, the Company received proceeds from the sale of the Company’s Common Stock of approximately $385,000.
The COVID-19 pandemic has resulted in a global slowdown of economic activity which is likely to continue to reduce the future demand for a broad variety of goods and services, while also disrupting sales channels, marketing activities and supply chains for an unknown period of time until the virus is fully contained. The Company’s business operations have been negatively impacted by the COVID-19 pandemic and related events and the Company expects this disruption to continue to have a negative impact on its revenue and results of operations, the size and duration of which is currently difficult to predict. The impact to date has included a decline in product and sales demand. 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 consolidated financial statements as soon as they become known.
Use of Estimates
The Company prepares its 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 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 assets, income taxes, contingent liabilities, and fair value of non-cash equity transactions.
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:
The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2020 and 2019:
A roll forward of the level 3 valuation financial instruments is as follows:
As of December 31, 2020 and 2019, the Company has no assets that are re-measured at fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and do not believe the Company is exposed to any significant credit risk. The Company had $0 cash balances in excess of FDIC insured limits at December 31, 2020 and 2019, respectively. Cash and cash equivalents were $25,139 and $18,405 at December 31, 2020 and 2019, respectively.
The Company has a policy of providing an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2020 and 2019, allowance for doubtful accounts amounted to $0 and $13,991, respectively. The allowance for doubtful accounts balance at December 31, 2020 is $0 as the Company wrote off the uncollectible receivables and corresponding reserve. Bad debt expense amounted to $149,907 and $32,577 during the year ended December 31, 2020 and 2019, respectively.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other assets consisted of the following:
Prepaid expenses and other assets – related party consisted of the following:
Prepaid expenses with C2M consisted primarily of costs paid for future services. Prepaid expenses included prepayments in cash and equity instruments for an operating lease, consulting, and insurance fees which were being amortized over the terms of their respective agreements. During the year ended December 31, 2020, the Company impaired the prepaid assets – related party as the Company no longer plans to farm industrial hemp for its own commercial purposes. Furthermore, on January 21, 2021 the Company entered into a Settlement Agreement with Ceed2Med, LLC, Skybar Holding, LLC, and their principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons.
Inventory
The Company values inventory, consisting of raw materials, growing plants and finished goods, at the lower of cost or net realizable value. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of the estimated net realizable value include (i) estimates of future demand, and (ii) competitive pricing pressures. In accordance with ASC 905, “Agriculture”, all direct and indirect costs of growing hemp are accumulated until the time of harvest and are reported at the lower of cost or net realizable value. Included in inventory is the Company’s hemp crop under cultivation on farm acreage leased by the Company. The cost of the hemp crop under cultivation is determined based upon costs to purchase industrial hemp seed and industrial hemp cuttings, plus farm labor, fertilizer, water and power, the cost to harvest and cost for drying services. The costs of planting, cultivating and harvesting the Company’s hemp crop are capitalized to hemp crop inventory under cultivation, when incurred. The Company determined the cost allocation of the hemp crop (hemp flowers and hemp cuttings) based upon a proforma Market Value Method. However, based upon current actual sales prices and after reviewing national sales trends, the Company established an inventory reserve to write down the inventory to net realizable value which is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation or shipping.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 10 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired, or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the consolidated statement of operations.
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment expense of $4,577,406 and $250,192 as follows:
During the year ended December 31, 2020, the Company impaired $4,577,406 of assets as follows:
$2,483,523 of prepaid assets – related party with C2M, $372,041 of farm property and equipment, $1,412,727 of intangible assets related to EOW farm leases and related assets, and $269,115 of operating lease right of use assets as the Company no longer plans to farm industrial hemp for its own commercial purposes.
$40,000 related to a leasehold deposit with Skybar holdings, LLC as the Company determined the respective commercial lease was not enforceable and the leased space would not be utilized.
Furthermore, on January 21, 2021 the Company entered into a Settlement Agreement with Ceed2Med, LLC, Skybar Holding, LLC, and their principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons.
During the year ended December 31, 2019, the Company impaired $250,192 related to the write off of intangible assets.
Derivatives and Hedging- Contracts in Entity’s Own Equity
In accordance with the provisions of ASC 815 “Derivatives and Hedging” the embedded conversion features in the convertible notes are not considered to be indexed to the Company’s stock. As a result, these are required to be accounted for as derivative financial liabilities and have been recognized as liabilities on the accompanying consolidated balance sheets. The fair value of the derivative financial liabilities is determined using a binomial model with Monte Carlo simulation and is affected by changes in inputs to that model including the Company’s stock price, expected stock price volatility, the expected term, and the risk-free interest rate. The derivative financial liabilities are subject to re-measurement at each balance sheet date and any changes in fair value is recognized as a component in other income (expenses).
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606 and the related amendments Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company’s performance obligations are satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product. Payments received from customers that are related to unshipped or undelivered products are recorded as unearned revenue until the shipment of product. As of December 31, 2020 and 2019, the Company had $0 and $215,000, respectively, of unearned revenue recorded from the Company’s related party customer, C2M.
Cost of Sales
The primary components of cost of sales include the cost of the product, and, indirect cost such as utilities, farm lease expenses, and depreciation expenses on farming equipment related to production and harvesting period.
Research and Development Expenses
The Company follows ASC 730-10, “Research and Development,” and expenses research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $0 and $22,100 were incurred for the year ended December 31, 2020 and 2019, respectively and are included in operating expenses in the accompanying consolidated statements of operations.
Advertising Costs
The Company applies ASC 720 “Other Expenses” to account for advertising related costs. Pursuant to ASC 720-35-25-1, the Company expenses the advertising costs when the first time the advertising takes place. Advertising costs were $61,118 and $496,908 for the year ended December 31, 2020 and 2019, respectively, and are included as a component of selling and marketing expenses in the accompanying consolidated statement of operations.
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 costs of shipping products are classified in selling and marketing expenses as incurred. Shipping costs are included as a component of selling and marketing expenses and were $24,687 and $11,835 for the year ended December 31, 2020 and 2019, respectively.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations.
Stock-Based Compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company adoption did not have any material impact on its consolidated financial statements.
The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
Related Parties
The Company applies ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.
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 shareholders 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.
For the year ended December 31, 2020 and 2019, the following potentially dilutive shares were excluded from the computation of diluted earnings per shares because their impact was anti-dilutive:
Income Taxes
The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Non-controlling interests in consolidated financial statements
In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). This ASC clarifies that a non-controlling (minority) interest in subsidiaries is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated statement of operations of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. On March 11, 2019, the Company acquired a 50.1% limited liability membership interest in EOW, pursuant to a Subscription Agreement and a Membership Interest Purchase Agreement and has the right to appoint a manager of the limited liability company. Additionally, on July 5, 2019, the Company acquired a 51% limited liability membership interest in Paradise Medlife.
Gain (Loss) on Modification/Extinguishment of Debt
In accordance with ASC 470, “Gain (Loss) on Modification/Extinguishment of Debt”, a modification or an exchange of debt instruments that adds or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and is measured and accounted for as extinguishment of the original instrument along with the recognition of a gain or loss. Additionally, under ASC 470, a substantive modification of a debt instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. A substantive modification is accounted for as an extinguishment of the original instrument along with the recognition of a gain/loss.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance was effective for interim and annual periods beginning after December 15, 2018.
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtained the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, “Debt – 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 Contracts in an Entity’s Own Equity”, to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the impact of this guidance.
In December 2019, the FASB released ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The purpose of the update is to reduce the complexity pertaining to certain areas in accounting for income taxes. Key amendments from ASU 2019-12 include, but are not limited to, the accounting for hybrid tax regimes, step-up in tax basis for goodwill in non-business combination transactions, intraperiod tax allocation exception to the incremental approach, and interim period accounting for enacted changes in tax law. ASU 2019-12 is effective for the Company in the first quarter of the year ending December 31, 2021. The Company does not expect that the adoption of the standard will have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively through December 31, 2022. The does not expect that the adoption of the standard will have a material impact on its consolidated financial statements.
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ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC |
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ACQUISITION OF ASSETS AND OWNERSHIP | Exactus One World
On March 11, 2019, the Company acquired a 50.1% limited liability membership interest in Exactus One World, LLC, an Oregon limited liability company, formed on January 25, 2019 which since inception, had no operations.
The Company acquired 50.1% limited liability membership interest pursuant to a Subscription Agreement (the “Subscription Agreement”) and a Membership Interest Purchase Agreement (the “Purchase Agreement”). Under the terms of the Subscription Agreement, the Company acquired a 30% interest in EOW, and an additional 20.1% was acquired from existing members pursuant to the terms of the Purchase Agreement. The existing members are considered third parties. The Company has the right to appoint a manager of the limited liability company. Under the Operating Agreement for EOW, as amended, the Company has the right to appoint, and remove and replace, if desired, one of three managers of EOW, with each manager having the full rights to control the business and affairs of EOW.
Under the term of the Subscription Agreement, the Company acquired 30% of membership interest in EOW in consideration for cash of $2,700,000 initially payable as follows:
The acquisition of the 30% membership interest is deemed to be an investment in and capital contribution to EOW and is eliminated upon consolidation. The Company paid a total of $2.7 million as of December 31, 2019.
Under the term of the Purchase Agreement, the Company acquired 20.1% of EOW from existing members for aggregate consideration of $2,940,000 consisting of total cash payments of $1,500,000, 937,500 shares of the Company’s Common Stock valued at $990,000 and $450,000 worth of shares of Common Stock on June 14, 2019. Pursuant to the terms of the Purchase Agreement, the Company issued 937,500 shares of its Common Stock valued at $990,000, or $1.056 per share, the fair value of the Company’s Common Stock based on the quoted trading price on the date of the Purchase Agreement. No goodwill was recorded since the Purchase Agreement was accounted for as an asset purchase. The consideration shall be paid to the sellers as follows:
At December 31, 2020, the Company has an outstanding balance of $0 to the members.
Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the operations of EOW and the related agreements to determine if the Company acquired a business or acquired assets. Based on this analysis, it was determined that the Company acquired assets, primarily consisting of the value of two farm leases for approximately 200 acres of farmland in southwest Oregon for growing and processing industrial hemp, with lease terms of one year, and a license to operate such farms. The leases are renewable on a year-to-year basis at the option of the Company. Accordingly, the transaction was not considered a business, and goodwill was not recorded since the Purchase Agreement was accounted for as an asset purchase.
The relative fair value of the assets acquired were based on management’s estimates of the fair values on March 11, 2019. Based upon the purchase price allocation, the following table summarizes the estimated relative fair value of the assets acquired at the date of acquisition:
Additionally, the Company recorded the acquisition of 50.1% of membership interest in EOW under the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). As of December 31, 2020 and 2019, the Company recorded a non-controlling interest balance of $2,018,239 and $537,469, respectively, in connection with the majority-owned subsidiary, EOW as reflected in the accompanying consolidated balance sheet and losses attributable to non-controlling interest of $1,480,770 and $537,469, respectively, during the years ended December 31, 2020 and 2019, as reflected in the accompanying consolidated statements of operations.
Paradise Medlife, LLC
On July 5, 2019, the Company entered into an Operating Agreement (the “Operating Agreement”) with Paradise Medlife, LLC and Paradise CBD, LLC. Paradise Medlife is a Florida Limited Liability Company, organized on April 12, 2019 with no operations since inception. The Company agreed to contribute capital of $50,000 in the form of CBD products in exchange for 51% ownership of Paradise Medlife. Consequently, Paradise Medlife became a majority owned subsidiary of the Company. To date, Paradise Medlife has no operations and the Company to date has not contributed the capital of $50,000.
Green Goddess Extracts, LLC
On July 31, 2019 the Company entered into an Asset Purchase Agreement (the “Green Goddess Purchase Agreement”) with Green Goddess Extracts, LLC (“Green Goddess”), a Florida contract manufacturer and formulator of hemp and vape products. Under the Green Goddess Purchase Agreement, the Company acquired the assets of Green Goddess consisting principally of its right and interest in the Green Goddess brand, inventory, customer list, intellectual property including IP addresses and trademarks entered into an option to acquire the seller’s vape assets, and entered into an employment agreement with the founder (the “Founder”) of Green Goddess. Green Goddess manufactures and distributes a premium line of hemp-derived products sold through distributors and online. Green Goddess has been a contract manufacturer for C2M and the Company.
Under the terms of the Green Goddess Purchase Agreement the Company agreed to issue 250,000 shares of the Company’s Common Stock and pay $250,000 cash for the acquisition to be paid in six installments. The first installment of $41,667 due within 90 days of the closing and the five additional installments paid starting on October 12, 2019 and continuing on the first day of each following month. At December 31, 2020 and 2019, the Company has an outstanding balance of $250,000 to the seller which is included in subscription payable in the accompanying consolidated balance sheets. The Company is currently in default under the Asset Purchase Agreement. However, there are no penalty interest or charges from the default pursuant to the Asset Purchase Agreement.
The shares vest 1/24 on the closing date and an additional 1/24 vests on the first day of each month thereafter provided that the Company and the Executive under the Employment Agreement discussed below are neither in breach of this Green Goddess Purchase Agreement or the Employment Agreement. In addition, the Company entered into an agreement under which the Company may become obligated to issue up to an additional $250,000 of Common Stock (the “Additional Stock Consideration”) based upon the volume weighted average price per share (“VWAP”) for the 20 days prior to issuance, in the event that sales of products utilizing seller’s flavored products exceed $500,000 monthly for a three-month average period. The Additional Stock Consideration shall vest 1/24 on the signature or execution date of this Green Goddess Purchase Agreement and an additional 1/24 vests on the first day of each month thereafter provided that the Company and the Executive under the Employment Agreement discussed below are neither in breach of this Green Goddess Purchase Agreement or the Employment Agreement.
Additionally, on July 1, 2019, the Company entered into an Executive Employment Agreement (the “Employment Agreement”) with Alejandro De La Espriella (the “Executive”) who is the managing member of Green Goddess Extracts, LLC. The term of the Employment Agreement shall be for two years and shall be automatically renewed for successive one-year periods unless either party provides a written notice of non-renewal. The Company agrees to pay the Executive an initial base salary of $120,000 per year subject to annual adjustments determined by the board of directors of the Company and such Executive shall also be eligible for annual bonus, performance bonus and equity awards as defined in the Employment Agreement.
Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the operations of Green Goddess and the related agreements to determine if the Company acquired a business or acquired assets. The gross assets include the intellectual property (the related trademark, brand, and IP addresses are determined to be a single intangible asset), the inventory, customer list, non-compete/non-solicitation and the excess of the consideration transferred over the fair value of the net assets acquired. The Company concluded that substantially all of the fair values of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets.
The set has outputs through the continuation of revenues, and the Company considered the criteria in paragraph 805-10-55-5E to determine whether the set includes both inputs and a substantive process that together significantly contribute to the ability to create outputs. The set is not a business because: 1) It does not include an organized workforce that could meet the criteria in paragraph 805-10-55-5E (a) through (b), 2) There are no acquired processes that could meet the criteria in paragraph 805-10-55-5E(c) through (d), and 3) It does not include both an input and a substantive process. Accordingly, the transaction was not considered a business.
Additionally, in accordance with ASC 805-10, the 250,000 shares of common stock and the Additional Stock Consideration are tied to continued employment of the Company and as such are recognized as compensation expenses in the post combination period under Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and services received in exchange for an award based on the grant-date fair value of the award.
The relative fair value of the assets acquired were based on management’s estimates of the fair values on July 31, 2019. Based upon the purchase price allocation, the following table summarizes the estimated relative fair value of the assets acquired at the date of acquisition:
During the year ended December 31, 2019 the Company fully impaired the assets and resulted in an impairment loss of $186,025 related to the Green Goddess intangible asset.
The Company, Green Goddess and the founder of Green Goddess have each asserted various claims against the other for breach of contract although no proceedings have been commenced. Currently, the Company has suspended efforts to market and sell CBD products under the Green Goddess brand and Green Goddess has suspended delivery of the Company’s inventory due to the disputes which involve, among other things, the amounts that were due and owing Green Goddess from C2M for orders placed prior to the asset purchase, the nature and going concern value of the assets purchased by the Company and representations concerning the operation of the business and performance by the founder under the employment agreement. There can be no assurance the parties will resolve their differences or that the prior agreements will not be terminated. The CBD products with a cost of $837,153 were written down to a value of $0 during the year ended December 31, 2019, due to the age and questionable salability of the product. The cost of the inventory write off is included in cost of sales in the accompanying consolidated statements of operations.
Levor, LLC
On September 30, 2019 the Company entered into an Asset Purchase Agreement (the “Levor Purchase Agreement”) with Levor, LLC (“Levor”) and the sole owner and manager of Levor (the “Seller”). Under the Levor Purchase Agreement, the Company acquired the asset of Levor consisting principally of its rights and interest in the cosmetic brand collection, “Levor Collection”, which is an all-virtual brand that offers cannabinoid-infused cosmetic products. Under the terms of the Levor Purchase Agreement, the Company agreed to issue 100,000 shares of the Company’s Common Stock at closing. In addition, the Company entered into an agreement under which the Company may become obligated to issue additional shares of the Company’s common stock to be earned and payable to the Seller on the 12-month anniversary of the closing date which value is equivalent to 35% of the total annual net revenue of the Levor brand divided by the then closing bid price of the common stock on the 12-month anniversary (the Earn-out Consideration”). The Seller of Levor was an employee of the Company from July, 2019 through November 2020.
Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the operations of Levor and the related agreements to determine if the Company acquired a business or acquired assets. Based on this analysis, it was determined that the Company acquired assets, primarily consisting of its rights and interest in the cosmetic brand collection, “Levor Collection”. The Company concluded that substantially all of the fair values of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. Accordingly, the transaction was not considered a business.
Pursuant to the terms of the Levor Purchase Agreement, the Company granted 100,000 shares of its Common Stock valued at $70,000, or $0.70 per share, the fair value of the Company’s Common Stock based on the sale of common stock in the recent private placement.
Additionally, in accordance with ASC 805-10, the Earn-out Consideration is deemed as contingent payment to an employee and the Company determined that the arrangement is compensatory in nature and as such are recognized as compensation expenses in the post combination period under Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and services received in exchange for an award based on the grant-date fair value of the award.
The relative fair value of the assets acquired were based on management’s estimates of the fair values on September 30, 2019. Based upon the purchase price allocation, the following table summarizes the estimated relative fair value of the assets acquired at the date of acquisition:
During the year ended December 31, 2019 the Company recorded an impairment expense of $64,167 related to the Levor intangible asset.
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INVENTORY |
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INVENTORY | Inventory, net consisted of the following:
During the years ended December 31, 2020 and 2019, the Company recorded a reserve or inventory write-off related to inventory of $678,870 and $723,391 which is equal to the difference between the cost of the inventory and its estimated net realizable value and is included in cost of sales in the accompanying consolidated statements of operations. Additionally, during the year ended December 31, 2019, the Company fully impaired the finished goods related to purchased CBD products from C2M and resulted in an impairment loss of $837,153 which is included in cost of sales on the accompanying consolidated statements of operations.
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PROPERTY AND EQUIPMENT |
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PROPERTY AND EQUIPMENT | Property and equipment consisted of the following:
Depreciation expense amounted to $85,233 and $63,770 for the years ended December 31, 2020 and 2019, respectively.
During the year ended December 31, 2020, the Company recorded impairment expense of $372,041 which was equivalent to the remaining net book values of the greenhouse, fencing and storage, irrigation, farming equipment and leasehold improvement related to a commercial lease with Skybar Holding, LLC.
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INTANGIBLE ASSET |
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INTANGIBLE ASSET | At December 31, 2020 and 2019, intangible asset consisted of the following:
For the years ended December 31, 2020 and 2019, amortization of intangible assets amounted to $734,584 and $828,526, respectively.
During fiscal 2019, the Company fully impaired the intangible assets related to the Green Goddess and Lever Brands.
During the third quarter of fiscal 2020, the Company determined that intangible assets related to EOW farm leases were impaired due to management’s intent of not pursuing farm operations in Oregon and the non-renewal of the related EOW farm leases. Accordingly, the Company fully impaired the remaining carrying value of the intangible assets related to EOW farm leases and recorded an impairment expense of $1,412,727 for the year ended December 31, 2020.
Amortization of intangible assets attributable to future periods is $0 as all acquired intangible assets were written off as of September 30, 2020.
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OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES |
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Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES | On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise, located in Cave Junction, Oregon, consisted of approximately 100 acres. The lease required the Company to pay 5% of the net income realized by the Company from the operation of the lease farm. Accordingly, the Company recognized $0 Right-of-use asset (“ROU”) and lease liabilities on this farm lease as the Company had not determined when net income would be generated from this lease. The lease was to continue in effect year-to-year except for at least a 30-day written notice of termination. The Company has not paid any lease under this agreement for the years ended December 31, 2020 and 2019.
On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise, located in Glendale, Oregon, consisted of approximately 100 acres. The lease required the Company to pay $120,000 per year, whereby $50,000 was payable upon execution and $70,000 payable prior to planting for agricultural use or related purposes. The lease was to continue in effect from year-to-year except for at least a 30-day written notice of termination. The Company recognized lease expense of $100,000 for the year ended December 31, 2019 and was included in cost of sales on the accompanying consolidated statements of operations.
On April 30, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise, located in Cave Junction, Oregon, consisted of approximately 38 acres. The lease requires the Company to pay $76,000 per year, whereby $38,000 was payable upon execution and $38,000 payable on September 15, 2019 and 2% of the net income realized by the Company from the operation of the leased farm. The lease was to continue in effect from year-to-year for five years except for at least a 30-day written notice of termination. The Company paid the initial payment of $26,000 and the remaining $12,000 was paid directly to the landlord by an affiliated company who is renting the portion of the lease property from the Company. The affiliated company is owned by two managing members of EOW. The Company recognized lease expense of $134,667 included in cost of sales for the year ended December 31, 2019 and recorded $17,333 as prepaid expense amortized over the term of the lease.
On July 9, 2019, the Company entered into a Commercial Lease Agreement (the “Lease”) with Skybar Holdings, LLC, a Florida limited liability company. Pursuant to the Lease, the Company will rent the entire first floor (consisting of approximately 4,000 square feet) of a property located in Delray Beach, Florida (the “Premises”). The Company planned to develop the Premises to create a hemp-oriented health and wellness retail venue, including education, clothing and cosmetics, and explore franchise opportunities. The initial term of the Lease was 5 years commencing August 1, 2019, with two 5-year extension options. The Lease included a right of first refusal in favor of the Company to lease any space that becomes available on the 2nd and 3rd floor of the Premises and a right of first refusal to purchase the Premises. Pursuant to the Lease, the Company agreed to pay rent equal to $40,000 per month in advance in addition to all applicable Florida sales and/or federal taxes and security deposit of $40,000. Effective one year from the lease commencement date and each year thereafter, the rent was to increase at least three percent (3%) per year. The lessor of the Premises is a limited liability company owned or controlled by Vladislav (Bobby) Yampolsky, the manager and controlling member of C2M, the Company’s largest stockholder and former Board Member. During the second quarter of fiscal 2020, the Company determined that the commercial lease with Skybar Holding, LLC was not in compliance with current laws or regulations in the City of Delray Beach, did not represent an enforceable contract and was void from the moment of execution. As a result, the Company restated its prior year financial information to correct this accounting error. Additionally, on August 6, 2020, the Company submitted a written termination letter to Skybar Holdings, LLC. During the twelve months ended December 31, 2020, the Company fully impaired the security deposit of $40,000.
On January 21, 2021 the Company entered into a Settlement Agreement with Ceed2Med, LLC, Skybar Holding, LLC, and their principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons.
In adopting ASC Topic 842, Leases (Topic 842), the Company elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less.
The Company adopted ASC Topic 842 on January 1, 2019. Between March 2019 and August 2019 which are the execution dates of various lease agreements, the Company recorded right-of-use assets totaling $506,506 and total lease liabilities of $506,506 based on an incremental borrowing rate of 10%. The Company recorded lease expense of $129,200 and $340,365 for the years ended December 31, 2020 and 2019, respectively.
The cash outflows from operating leases for the year ended December 31, 2020 was approximately $100,000.
ROU is summarized below:
During the third quarter of fiscal 2020, the Company determined that ROU assets related to EOW farm leases were impaired due to management’s intent of not pursuing farm operations in Oregon in year 2021 crop season and the non-renewal of the related EOW farm leases. Accordingly, the Company fully impaired the remaining carrying value of the ROU assets related to EOW farm leases and recorded an impairment expense of $269,115 during the year ended December 31, 2020.
Operating lease liability related to the ROU asset is summarized below:
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NOTES PAYABLE |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NOTES PAYABLE | Notes payable
U.S. Small Business Administration Loan
On May 28, 2020, the Company received a Secured Disaster Loan in the amount of $99,100 from the U.S. Small Business Administration. The loan carries interest at a rate of 3.75% per year, requires monthly payments of principal and interest, and matures in thirty (30) years. Installment payments, including principal and interest, of $483 monthly, will begin twelve (12) months from the date of the promissory Note. The SBA loan is secured by a security interest in the Company's tangible and intangible assets. The loan proceeds are to be used as working capital to alleviate economic injury caused by the Covid-19 disaster occurring in the month of January 31, 2020 and continuing thereafter. As of December 31, 2020, the principal balance of this note amounted to $99,100
Paycheck Protection Program Funding
On May 22, 2020, the Company received federal funding in the amount of $236,410 through the Paycheck Protection Program (the “PPP”). PPP funds have certain restrictions on use of the funding proceeds, and generally must be repaid within two (2) years at 1% interest. The PPP loan may, under circumstances, be forgiven. There shall be no payment due by the Company during the six months period beginning on the date of this note (“Deferral Period”). Commencing one month after the expiration of the Deferral Period, the Company shall pay the lender monthly payments of principal and interest, each in equal amount required to fully amortize by the maturity date. If a payment on this note is more than ten days late, the lender shall charge a late fee of up to 5% of the unpaid portion of the regularly scheduled payment. As of December 31, 2020, the principal balance of this note amounted to $236,410. The Company has formally applied for forgiveness of this PPP loan.
Notes payable to unrelated parties is summarized below:
Minimum principal payments under notes payable to unrelated parties at December 31, 2020 are as follows:
Notes payable – related party
During the fourth quarter of 2020, the Company received $37,000 in cash proceeds from the former Chief Executive Officer and stockholder of the Company as an unsecured obligation. The Company is currently negotiating to settle the outstanding obligation with the issuance of the Company’s common stock. As of December 31, 2020, the principal balance due is $37,000 and is currently in default.
During February 2020, the Company entered a short-term promissory note for principal amount of $22,461 and gross cash proceeds of $20,419 (original issue discount of $2,042) with a stockholder of the Company. The note became due and payable on March 8, 2020 and bore interest at a rate of eighteen (18%) percent per annum prior to the maturity date, and eighteen (18%) per annum if unpaid following the maturity date. The note is unsecured obligation of the Company. In addition, the note carries a 10% original issue discount of $2,042 which have been amortized and recorded in interest expense on the accompanying statements of operations. The Company is currently negotiating to extend the maturity date of the related party note. As of December 31, 2020, the principal balance of this note amounted to $22,461 and is currently in default.
During October 2019, the Company entered into two short-term promissory notes (the “Notes”) for an aggregate principal amount of $94,056 and gross cash proceeds of $85,000 (original issue discount of $9,056). A note with principal amount of $55,556 was subscribed by Andrew Johnson, an officer of the Company. The Notes became due and payable between October 18, 2019 and December 16, 2019 and bear interest at a rate of twelve (12%) percent per annum prior to the maturity date, and eighteen (18%) per annum if unpaid following the maturity date. The Notes are unsecured obligations of the Company. In addition, the Notes carry a 10% original issue discount of $9,056 which have been amortized and recorded in interest expense on the accompanying consolidated statements of operations. In December 2019, the Company repaid one of the notes with principal amount of $38,500 and accrued interest of $770. As of December 31, 2020, and 2019, the principal balance under the notes was $55,556. The Company is currently negotiating on extending the maturity date of the related party note.
On June 28, 2017, the Company issued promissory notes to two of the Company’s then executive officers. The promissory notes accrued interest at a rate of 8.0% per annum and matures on the earlier of (i) one (1) year from the date of the promissory note, and (ii) the closing of the sale of the Company’s securities in a single transaction or a series of related transactions from which at least $500,000 of gross proceeds are raised. During the year ended December 31, 2019, the Company had borrowed $14,229 under the promissory notes. Between February 2019 and March 2019, the Company paid $11,129 under the promissory notes. Additionally, in March 2019, the Company issued 153,080 shares of its Common Stock to a former executive officer upon the conversion of $27,000 of principal amount and accrued interest of $3,267 under a promissory note. In August 2019, the Company repaid principal amount of $21,000 and accrued interest of $1,769. The remaining principal balance of $6,500 and accrued interest of $2,107 were deemed paid pursuant to the respective severance arrangements. During the year ended December 31, 2019, the Company recognized $1,214 of interest expense. As of December 31, 2019, the notes had an accrued interest balance of $0. As of December 31, 2019, the principal balance under the notes was $0.
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CONVERTIBLE NOTES PAYABLE |
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CONVERTIBLE NOTES PAYABLE | Convertible Note payable – related party
During October 2020, the Company entered a short-term convertible note for principal amount of $50,250 with a stockholder of the Company. The note became due and payable on January 27, 2021 and bear interest at a rate of twelve (12%) percent per annum prior to the maturity date, and twelve (12%) per annum if unpaid following the maturity date. The note is unsecured obligation of the Company. As of December 31, 2020, the principal balance of this note amounted to $50,250 . On January 22, 2021 the notes principal and interest were converted into 2,070,300 shares of the company’s common stock in full satisfaction of the note and accrued interest.
Convertible notes payable
The following is a summary of the carrying amounts of all convertible notes as of December 31, 2020 and 2019:
Between March 2020 and August, 2020, the Company made cash repayments towards the principal of $185,186 and accrued interest of $14,814.
Conversion of Convertible Notes into Common Stock
On May 27, 2020, the Company issued 247,588 shares of its common stock at a contractual conversion price of $0.13, as a result of the conversion of principal of $30,000 and interest of $2,400 of the convertible note.
On June 10, 2020, the Company issued 564,000 shares of its common stock at a contractual conversion price of $0.09, as a result of the conversion of principal of $47,000 and interest of $3,760 of the convertible note.
Between July 2020 and August 2020, the Company issued 1,586,349 shares of its common stock at a contractual conversion price of $0.06, as a result of the conversion of principal of $94,000 and interest of $7,520 of the convertible note.
Notice of Delinquent Payment
The Company was delinquent in its payments under the initial convertible note executed on November 27, 2019, with the May 1, 2020 and April 1, 2020 payments. On May 20, 2020, the Company entered into a Forbearance Agreement with the investor (the “Holder”) regarding the initial convertible note. Under the Forbearance Agreement, the investor has agreed to forebear from exercising any default-related rights and remedies subject to the following conditions and material terms:
Derivative Liabilities Pursuant to Securities Purchase Agreements
In connection with the issuance of notes during the year ended December 31, 2019, on the initial measurement date of the notes, the fair values of the embedded conversion option of $1,457,290 was recorded as derivative liabilities of which $786,823 was charged to current period operations as initial derivative expense and $670,467 was recorded as a debt discount which was amortized into interest expense over the term of the note. The Company recognized change in fair value of derivative liabilities of $513,675 and $1,871,583 during the years ended December 31, 2020 and 2019, respectively. Upon conversions during the years ended December 31, 2020, the derivative liability was marked to fair value at the conversion, and then a related fair value amount of $129,714 relating to the portion of debt converted was reclassified to other income as part of gain on debt extinguishment. Additionally, the Company recorded loss on debt extinguishment of $55,398, in connection with the conversions during the years ended December 31, 2020.
The Company recognized gain on extinguishment of debt due to repayment and conversions of notes into shares of common and preferred stock of $3,004,629 and change in fair value of derivative liabilities of $1,871,583 during the year ended December 31, 2019. The Company determined that the conversion options embedded in the convertible notes require liability presentation at fair value. Each of these instruments provide the holder with the right to convert into Common Stock at a fixed discount market, with certain notes subject to a cap on the conversion price. These clauses cause uncertainty as to the number of shares issuable upon conversion of convertible debt and accordingly require liability presentation on the balance sheet in accordance with US GAAP. For the years ended December 31, 2020 and 2019, the Company measured the fair value of the embedded derivatives using a binomial model and Monte Carlo simulations, and the following assumptions:
During the year ended December 31, 2019, the Company issued an aggregate of 849,360 Series A preferred stock to various note holders and also sold an aggregate of 55,090 shares of preferred stock for $55,090 which were used to repay and convert a total of $842,791 of principal amount (includes penalty fees of $149,313, included in derivative expenses) during the year ended December 31, 2019 and accrued interest of $61,569 pursuant to the Exchange Agreements (the “Exchange Agreements”). During the year ended December 31, 2019, the Company issued 250,000 shares of Common Stock to a note holder upon the conversion of $4,000 of accrued interest. In March 2019, the Company paid off the principal notes of $186,443 (includes penalty fees of $48,337, included in derivative expenses) during the year ended December 31, 2019 and accrued interest of $20,467. During the years ended December 31, 2020 and 2019, the Company recorded a gain on settlement of debt of $3,004,630 in connection with the exchange and repayments of various convertible notes.
During the year ended December 31, 2020 and 2019, the Company recognized $1,003,439 and $479,111, respectively, of interest expense, of which $92,042 represent non-cash interest and $836,316 and $425,712 of non-cash debt discount and issuance cost amortization, respectively. As of December 31, 2020, the principal balance under the notes was $165,767 and $55,556, respectively. As of December 31, 2020, total accrued interest was $52,051, of which $3,644 was related to notes payable, $ 13,592 was related to notes payable related party, $33,730 was related to convertible notes, and $1,085 was related to convertible notes payable related party. As of December 31, 2019, total accrued interest was $16,677.
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STOCKHOLDERS' EQUITY (DEFICIT) |
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STOCKHOLDERS' EQUITY (DEFICIT) | 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 the accompanying consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split.
In January 2019, the Company approved the 2019 Equity Incentive Plan (the “2019 Plan”) which provides for the issuance of incentive awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards. The 2019 Plan provides for a share limit equal to 15% of the total of the number of the issued and outstanding shares of the Company’s Common Stock and all shares of Common Stock issuable upon conversion or exercise of any outstanding securities of the Company.
Preferred Stock
The Company’s authorized preferred stock consists of 50,000,000 shares with a par value of $0.0001.
Series A - On February 17, 2016, the Board of Directors voted to designate a class of preferred stock entitled Series A Preferred Stock, consisting of up to five million (5,000,000) shares, par value $0.0001 per share.
On December 21, 2018, the Company filed a Certificate of Cancellation of our previously filed Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock in order to designate 1,000,000 shares as a new Series of Preferred Stock for issuance to former Holders of our Notes under the Exchange Agreements, and filed a new Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Series A Preferred Certificate of Designation”).
Pursuant to the Series A Preferred Certificate of Designation, the Company issued shares of Series A Preferred. Each share of Series A Preferred has a stated value of $1.00 per share. In the event of a liquidation, dissolution or winding up of the Company, each share of Series A Preferred Stock will be entitled to a payment as set forth in the Certificate of Designation. The Series A Preferred is convertible into such number of shares of the Company’s Common Stock, par value $0.0001 per share equal to the Stated Value of $1.00, divided by $0.20, subject to adjustment in the event of stock split, stock dividends, and recapitalization or otherwise. Pursuant to the Exchange Agreements each holder of Notes shall be issued Series A Preferred in the amount of the purchase price paid for such Notes by the buyer under the Exchange Agreement, including any penalty, interest and premium payments. Each share of Series A Preferred entitles the holder to vote on all matters voted on by holders of Common Stock as a single class. With respect to any such vote, each share of Series A Preferred entitles the holder to cast such number of votes equal to the number of shares of Common Stock such share of Series A Preferred is convertible into at such time, but not in excess of the conversion limitations set forth in the Series A Preferred Certificate of Designation. The Series A Preferred will be entitled to dividends to the extent declared by the Company.
During the year ended December 31, 2019, the Company issued an aggregate of 849,360 shares of Series A Preferred Stock to various note holders and also sold an aggregate of 55,090 shares of Series A Preferred Stock for $55,090 in a private placement, which was used to repay and convert a total of $842,791 of principal amount (includes penalty fees of $149,313 during the year ended December 31, 2019) and accrued interest of $61,569 pursuant to Exchange Agreements. Accordingly, the Company recognized a deemed dividend of $904,450 during the year ended December 31, 2019 in connection with the issuance of these Series A Preferred Stock.
During the year ended December 31, 2020, the Company converted 30,090 Series A Preferred Stock into 150,450 shares of common stock. During the year ended December 31, 2019, the Company converted 551,341 Series A Preferred Stock into 2,756,705 shares of Common Stock. There are 323,019 and 353,109 shares of Series A Preferred Stock outstanding as of December 31, 2020 and 2019, respectively, which were convertible into 1,615,095 and 1,765,545 shares of common stock as of December 31, 2020 and 2019, respectively.
On February 16, 2021, the Company entered into a Securities Purchase Agreement with 3i, LP (“3i”) and an institutional investor (“Investor”) under which the Investor agreed to purchase and 3i agreed to sell certain 8% senior secured convertible note dated November 27, 2019 (the “Note”) and all of our warrants previously issued to 3i and 3i agreed settle and release all claims asserted against the Company. As a result, 3i agreed to dismiss all pending litigation against the Company. Furthermore, the Subsidiary Guaranty, IP Security Agreement and Registration Rights Agreement with 3i were also terminated.
In addition, the Company entered into an Exchange Agreement with the Investor and filed with the Secretary of State of the State of Nevada a Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred Stock under which the Note in the original principal amount of $750,000 would be exchanged for $500,000 of a new series of our preferred stock designated 0% Series A Convertible Preferred Stock (the “Series A Preferred”) with a stated value of $1,000 per share (the “Stated Value”).
The Company authorized the issuance of a total of 1,000 ($1,000,000) of Series A Preferred for issuance. Each share of Series A Preferred is convertible at the option of the Holder, into that number of shares of our common stock, par value $0.0001 per share) (the “Common Stock”) (subject to certain limitations on beneficial ownership) determined by dividing the Stated Value by $0.05 per share (the “Conversion Price”), subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications or similar transactions that proportionately decrease or increase the Common Stock.
The Company is prohibited from effecting the conversion of the Series A Preferred to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99% (which may be increased to 9.99% upon 61 days’ written notice to the Company), in the aggregate, of the issued and outstanding shares of the Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series A Preferred. Holders of the Series A Preferred shall be entitled to vote on all matters submitted to the Company’s stockholders and shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Series A Preferred Stock are convertible, subject to applicable beneficial ownership limitations. The Series A Preferred Stock provides a liquidation preference equal to the Stated Value, plus any accrued and unpaid dividends, fees or liquidated damages.
The Series A Preferred can be redeemed at the Company’s option upon payment of a redemption premium between 120% to 135% of the Stated Value of the outstanding Series A Preferred redeemed. The Company is not obligated to file a registration statement under the Securities Act of 1933, as amended (the “Act”), with respect to the shares of Common Stock into which Series A Preferred may be converted however the Investor will be deemed to have held the Series A Preferred on the original issue date to 3i for the purposes of the availability of an exemption from registration provided by Rule 144 under the Act.
On February 16, 2021 the Company offered to our prior Series A preferred stock enhanced conversion inducements to voluntarily convert preferred shares into our Common Stock and filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred Stock, all of which has been converted to Common Stock, in order to issue the new Series A Preferred stock described herein.
Series B-1 - On February 29, 2016, the Company’s Board of Directors voted to designate a class of preferred stock entitled Series B-1 Convertible Preferred Stock (“Series B-1 Preferred Stock”), consisting of up to 32,000,000 shares, par value $0.0001 per share. With respect to rights on liquidation, winding up and dissolution, the Series B-1 Preferred Stock ranks pari passu to the class of Common Stock. Shares of Series B-1 Preferred Stock have no dividend rights except as may be declared by the Board in its sole and absolute discretion, out of funds legally available for that purpose. Shares of Series B-1 Preferred Stock are convertible, at the option of the holder, into shares of Common Stock at a conversion rate of 0.125 shares for 1 share basis. Holders of Series B-1 Preferred Stock have the right to vote as-if-converted to Common Stock on all matters submitted to a vote of holders of the Company’s Common Stock. On February 29, 2016, the Company issued 30,000,000 shares of Series B-1 Preferred Stock.
During the year ended December 31, 2019, the Company converted 1,150,000 Series B-1 Preferred Stock into 143,750 shares of Common Stock. There are 1,650,000 shares of Series B-1 preferred stock outstanding, which were convertible into 206,250 shares of common stock, as of December 31, 2020 and 2019, respectively.
On February 16, 2021, the Company offered to our Series B-1 preferred stock enhanced conversion inducements to voluntarily convert preferred shares into our Common Stock and expects to file a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our previous Certificate of Designation of Preferences, Rights and Limitations for Series B-1, Preferred Stock upon conversion or cancellation of Series B-1.
Series B-2 - On February 17, 2016, the Company’s Board of Directors voted to designate a class of preferred stock entitled Series B-2 Convertible Preferred Stock (“Series B-2 Preferred Stock”), consisting of up to 10,000,000 shares, par value $0.0001 per share, with a stated value of $0.25 per share. With respect to rights on liquidation, winding up and dissolution, holders of Series B-2 Preferred Stock will be paid in cash in full, before any distribution is made to any holder of common or other classes of capital stock, an amount of $0.25 per share. Shares of Series B-2 Preferred Stock have no dividend rights except as may be declared by the Board in its sole and absolute discretion, out of funds legally available for that purpose. Shares of Series B-2 Preferred Stock are convertible, at the option of the holder, into shares of Common Stock at a conversion rate of 0.125 shares for 1 share basis. Holders of Series B-2 Preferred Stock have the right to vote as-if-converted to Common Stock on all matters submitted to a vote of the holders of the Company’s Common Stock. For so long as any shares of Series B-2 Preferred Stock are issued and outstanding, the Corporation shall not issue any notes, bonds, debentures, shares of preferred stock, or any other securities that are convertible to Common Stock unless such conversion rights are at a fixed ratio or a fixed monetary price. On February 29, 2016, the Company issued 2,084,000 shares of Series B-2 Preferred Stock.
During the year ended December 31, 2019, the Company converted 1,168,000 Series B-2 Preferred Stock into 146,000 shares of Common Stock. There are 7,516,000 shares of Series B-1 preferred stock outstanding, which were convertible into 939,500 shares of common stock as of December 31, 2020 and 2019, respectively.
On February 16, 2021, the Company offered to our Series B-2 preferred stock enhanced conversion inducements to voluntarily convert preferred shares into our Common Stock and expect to file a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our previous Certificate of Designation of Preferences, Rights and Limitations for Series B-2, Preferred Stock upon conversion or cancellation of Series B-2.
Series C - On June 30, 2016, the Company’s Board of Directors approved a Certificate of Designation authorizing 1,733,334 shares of new Series C Preferred Stock, par value $0.0001 per share. The Series C Preferred Stock ranks equally with the Company’s Common Stock with respect to liquidation rights and is convertible to Common Stock at a conversion rate of 0.125 shares for 1 share basis. The conversion rights of holders of the Series C Preferred Stock are limited such that no holder may convert any shares of preferred stock to the extent that such holder, immediately following the conversion, would own in excess of 4.99% of the Company’s issued and outstanding shares of common stock. This limitation may be increased to 9.99% upon 61 days written notice by a holder of the Series C Preferred Stock to the Company.
As the Company was unable to proceed with the clinical trials and research, on July 31, 2019, the Company entered into a Surrender and Mutual Release Agreement (the “Cancellation Agreement”) to terminate the agreements and to cancel all issued and outstanding shares of Series C Preferred. Accordingly, the Company cancelled 1,733,334 shares of Series C Preferred Stock which was recorded at par value.
As of December 31, 2020 and 2019, there were no shares of Series C Preferred Stock issued and outstanding.
On April 7, 2021 the Company filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for Series C Preferred Stock, all of which has been cancelled or converted into Common Stock.
Series D - On March 1, 2018, the Company’s Board of Directors voted to designate a class of preferred stock entitled Series D Convertible Preferred Stock consisting of up to 200 shares, par value $0.0001 per share, to offer for sale to certain accredited investors, including affiliates of the Company, with a maximum offering amount of $2,200,000. Pursuant to the terms of the Series D Subscription Agreement, immediately following the consummation of an offering of the Company’s Common Stock for which the gross proceeds of the offering exceed $5,000,000, each share of Series D automatically converts into 25,000 shares of Common Stock. Upon the liquidation, dissolution or winding up of the Company, each holder of Series D Convertible Preferred Stock shall be entitled to receive, for each share of Series D Convertible Preferred Stock held, $10,000 per share payable pari passu with the Company’s Series B-2 Convertible Preferred Stock. Shares of Series D Preferred Stock have no dividend rights except as may be declared by the Board in its sole and absolute discretion, out of funds legally available for that purpose. Holders of Series D Preferred Stock have the right to vote as-if-converted to Common Stock on all matters submitted to a vote of holders of the Company’s Common Stock. At no time may shares of Series D Convertible Preferred Stock be converted if such conversion would cause the holder to hold in excess of 4.99% of our issued and outstanding Common Stock, subject to an increase in such limitation up to 9.99% of the issued and outstanding Common Stock on 61 days’ written notice to the Company.
On March 28, 2018, the Company issued 45 shares of Series D Preferred Stock. The Company received $550,000 in connection with the Offering including $50,000 in cash for 5 shares of Series D Preferred Stock and $500,000 in debt re-payment to officers and directors for 2016 and 2017 bonuses for 40 shares of Series D Preferred Stock. During the year ended December 31, 2019, the Company converted 27 shares of Series D Preferred Stock into 675,000 shares of Common Stock. There were 18 shares of Series D preferred stock outstanding which were convertible into 450,000 shares of common stock as of December 31, 2020 and 2019, respectively.
On February 16, 2021, the Company offered to our Series D preferred stock enhanced inducements to voluntarily convert preferred shares into our Common Stock and expect to file a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our previous Certificate of Designation of Preferences, Rights and Limitations for Series D, Preferred Stock upon conversion or cancellation of Series D.
On April 7, 2021 the Company filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for Series D Preferred Stock, all of which has been cancelled or converted into Common Stock.
Series E - On August 1, 2019 the Company issued 10,000 shares of newly designated Series E 0% Convertible Preferred Stock, par value $0.0001 per share (the “Series E Preferred”) to C2M pursuant to the MSA. Under the terms of the Series E Preferred, C2M may only convert such shares of Series E Preferred into shares of the Company’s Common Stock, if the closing price of Common Stock on the principal trading market, shall exceed $2.00 per share for 5 consecutive trading days. Once vested, the shares of Series E Preferred held by C2M are intended to either be converted at $1.60 per share of Common Stock or optionally redeemed out of the proceeds of future financings, at the option of C2M.
Each share of Series E Preferred is convertible into 625 shares of the Company’s Common Stock and have a stated value of $1,000 per share. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Company is prohibited from effecting conversions of the Series E Preferred to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99% (which may be increased to 9.99% upon 61 days’ written notice), in the aggregate, of the issued and outstanding shares of Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series E Preferred. Holders of the Series E Preferred shall be entitled to vote on all matters submitted to shareholders and shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Series E Preferred Stock are convertible, subject to applicable beneficial ownership limitations. The Series E Preferred Stock provides a liquidation preference equal to par value.
The Series E Preferred has a no mandatory redemption rights however, in the event the Company raises $5,000,000 from a capital raising transaction involving any equity or equity-linked financing during any fiscal quarter in an amount which would cause the Company’s cash or cash equivalents to exceed $5,000,000 (a “Fundamental Transaction”), the Company is required from the proceeds of such offering, to offer C2M a right to redeem Series E Preferred then outstanding as follows:
(A) 0% percent of the net proceeds of the Fundamental Transaction, after deduction of the amount of net proceeds required to leave the Company (together with our existing cash on hand immediately prior to the completion of the Fundamental Transaction) with cash on hand of $5,000,000; plus
(B) 10% percent of the next $5,000,000 of net proceeds of the Fundamental Transaction; plus
(C) 100% of the net proceeds of the Fundamental Transaction thereafter (until the Series E Preferred is redeemed in full).
The shares of Series E Preferred are convertible into Common Stock, once vested, at a price of $1.60 per share. The Company is not obligated to file a registration statement with respect to the shares of Common Stock into which Series E Preferred shares may be converted. The Company believes that the occurrence of the Fundamental Transaction is considered a conditional event and as a result the instrument does not meet the definition of mandatorily redeemable financial instrument based from ASC 480-10-25, “Distinguishing Liabilities from Equity”. This financial instrument was assessed at each reporting period to determine whether circumstances have changed such that the instrument met the definition of a mandatorily redeemable instrument (that is, the event is no longer conditional). If the event has occurred, the condition is resolved, or the event has become certain to occur, the financial instrument will be reclassified as a liability.
On July 31, 2019, the Company granted 10,000 Series E Preferred in connection with a Management and Services Agreement (the “MSA”) with C2M. The Company valued the 10,000 Series E Preferred shares which is equivalent into 6,250,000 common shares at a fair value of $0.54 per common share or $3,375,000 based on the sales of common stock on recent private placements on the dates of grant. During the year ended December 31, 2019, the Company recorded stock-based compensation of $260,795 and prepaid expense – related party of $3,114,204 to be amortized over the term of the MSA. During fiscal year 2020, the Company impaired the remaining unamortized prepaid balance and recognized an impairment charge of $2,483,523 as the Company no longer anticipates utilizing the services under the MSA.
As of December 31, 2020 and 2019, there were 10,000 shares of Series E Preferred Stock issued and outstanding which were convertible into 6,250,000 shares of common stock.
On February 16, 2021, the Company offered to our Series E preferred stock enhanced conversion inducements to voluntarily convert preferred shares into our Common Stock.
On April 7, 2021 the Company filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for Series E Preferred Stock, all of which has been cancelled or converted into Common Stock.
Common Stock
The Company’s authorized Common Stock consists of 650,000,000 shares with a par value of $0.0001 per share.
The following were transactions during the year ended December 31, 2020:
Conversion of Series A Preferred stock into Common Stock
On January 20, 2020, the Company converted 30,090 Series A Preferred Stock into 150,450 common shares.
Conversion of Notes into Common Stock
On May 27, 2020, the Company issued 247,588 shares of its common stock at a contractual conversion price of $0.13, as a result of the conversion of principal of $30,000 and interest of $2,400 of the convertible note.
On June 10, 2020, the Company issued 564,000 shares of its common stock at a contractual conversion price of $0.09, as a result of the conversion of principal of $47,000 and interest of $3,760 of the convertible note.
Between July 2020 and August 2020, the Company issued 1,586,349 shares of its common stock at a contractual conversion price of $0.06, as a result of the conversion of principal of $94,000 and interest of $7,520 of the convertible note.
These shares of common stock had an aggregate fair value of $240,078 and the Company recorded $55,398 of loss on debt extinguishment related to these note conversions.
Common Stock pursuant to Forbearance Agreement
On May 20, 2020, the Company entered into a Forbearance Agreement with the note holder regarding the initial convertible note executed on November 27, 2019. The Company has issued the Holder 500,000 shares of the Company’s common stock in consideration for the forbearance and valued the shares of Common Stock at the fair value of approximately $0.18 per common share or $90,000 based on the quoted trading price on the date of grant. The Company recorded interest expense of $90,000 during the year ended December 31, 2020.
Common Stock for services
On December 31, 2020, the Company issued approximately 2 million shares to an executive and board member of the Company in settlement of an accrued payroll balance of $75,000. The Company recognized $31,000 of stock-based compensation in relation to the settlement.
On January 23, 2020, the Company issued 250,000 shares of Common Stock for legal services to be rendered in fiscal 2020 and valued the shares of Common Stock at the fair value of approximately $0.4948 per common share or $123,700 based on the quoted trading price on the date of grant which the Company recorded as stock-based compensation during the year ended December 31, 2020.
On January 23, 2020, the Company issued an aggregate of 515,000 shares of Common Stock to two officers and three employees of the Company for services in fiscal 2020 and as an incentive to retain such employees and valued the shares of Common Stock at the fair value of approximately $0.4948 per common share or $254,823 based on the quoted trading price on the date of grant. The Company recorded stock-based compensation of $254,823.
On July 1, 2020, the Company entered into a consulting agreement for corporate legal advisor services. The consultant shall receive compensation of 750,000 shares of the Company’s Common Stock for services rendered and to be rendered until September 30, 2020. The Company valued the shares of Common Stock at the fair value of approximately $0.0941 per common share or $70,575 based on the quoted trading price on the date of grant. The Company recorded stock-based legal fees of $59,086 during the year ended December 31, 2020 and a reduction of $11,490 of accounts payable.
Common Stock related to exercise of Stock Options
In September 2020, the Company issued 20,000 shares of common stock for the exercise of stock options by the former President of the Company and received proceeds of $6,000.
Common Stock issued for Vested Restricted Common Stock Award
During the year ended December 31, 2020, the Company issued an aggregate of 1,727,394 of Common Stock to employees and consultants for vested restricted stock awards.
Common Stock issued for Unissued Stock
There were 564,580 shares of common stock issuable which were issued during the year ended December 31, 2020 and accordingly, there remains 100,000 shares of common stock to be issued at December 31, 2020.
Sale of Common Stock for private placement
During the year ended December 31, 2020, the Company sold an aggregate of 3,700,000 shares of Common Stock for total proceeds of $385,000.
The following were transaction during the year ended December 31, 2019:
Common Stock issued for Development Agreement
In consideration for the Development Agreement (see Note 11), 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, with exercise price of $0.32 per share to certain 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. Consequently, such transaction resulted in a change of control whereby, C2M obtained majority control through its Common Stock ownership (See Note 11). Therefore, the Company accounted for the 8,385,691 shares of Common Stock under ASC 845-10-S99 “Transfer of Nonmonetary Assets by Promoters or Shareholders” whereby the transfer of nonmonetary assets to a company by its promoters or shareholders in exchange for stock prior to or at the time of the company's initial public offering normally should be recorded at the transferors' historical cost basis determined under GAAP. The Company determined that the value of the Development Agreement is $0 and recording it in a step-up basis would not be appropriate since C2M is considered a promoter, majority shareholder and also a related party having an ownership interest of 51% in the Company on the execution date of the Development Agreement. Accordingly, the Company recorded the issuance of 8,385,691 shares of Common Stock at par value. The 750,000 options were valued on the grant date at approximately $0.13 per option for a total of $96,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.13 per share (based on the quoted trading price on the dates of grants), volatility of 296%, expected term of 10 year, and a risk-free interest rate of 2.74%. During the year ended December 31, 2019, the Company recorded stock-based compensation of $96,000.
Common Stock issued for settlement of debt
During the year ended December 31, 2019, the Company issued 250,000 shares of Common Stock to note holders upon the conversion of $4,000 of accrued interest. The fair value of shares on conversion was $196,000 having a derivative value on date of conversion of $18,000 and the balance of $178,000 was recorded as loss on settlement of debt. Additionally, in March 2019, the Company issued an aggregate of 203,080 shares of Common Stock to a noteholder upon the conversion of $27,000 of principal amount, accrued interest of $3,267 and $10,349 of accrued expenses.
Common Stock for membership interest in subsidiary
On March 11, 2019, with the assistance of C2M and assignment of rights, under the term of the Purchase Agreement, the Company acquired additional 20.1% from existing members in consideration for payment of 937,500 shares of Common Stock (see Note 3). The 937,500 shares of Common Stock were valued at the fair value of $1.056 per common share or $990,000 based on the quoted trading price on the date of grant. Additionally, on June 10, 2019, the Company was required to issue the existing members an additional $450,000 of shares of Common Stock of the Company based upon the 20 day volume weighted average price per share on the date of issue which was equivalent to $0.89 per share or 503,298 shares of the Company’s Common Stock and was issued in August 2019.
Common Stock for services
In April 2019, the Company entered into a consulting agreement for investor relations services. The consultant shall receive compensation of 50,000 shares of the Company’s Common Stock and shall vest over one year with 4,174 common stock to vest on the date of this agreement and 4,166 common shares on the first day of each month thereafter. During the year ended December 31, 2019, the Company granted 50,000 shares of Common Stock and valued the shares of Common Stock at the fair value of $1.55 per common share or $77,500 based on the quoted trading price on the date of grant. The Company recorded stock-based compensation of $58,128 during the year ended December 31, 2019. In connection with this transaction, there were 20,830 shares of Common Stock to be issued as of December 31, 2019.
In May 2019, the Company entered into a 6-month consulting agreement for investor relations services. The consultant shall receive compensation of 10,000 shares of the Company’s Common Stock per month or a total of 60,000 shares of Common Stock. During the year ended December 31, 2019, the Company issued an aggregate of 60,000 shares of Common Stock and valued the shares of Common Stock at the average fair value of $0.72 per common share or $43,000 based on the sales of common stock on recent private placements on the dates of grants at the end of each month. The Company recorded stock-based compensation of $43,000 during the year ended December 31, 2019.
Between August 2019 and November 2019, the Company entered into various consulting agreements with terms from 6 months to 2 years. The Consultants shall receive compensation in aggregate of 150,000 shares of the Company’s Common Stock. During the year ended December 31, 2019, the Company issued 50,000 shares of Common Stock and 100,000 shares remains to be unissued as of December 31, 2019 and valued the shares of Common Stock at the fair value ranging from approximately $0.50 to $0.61 per common share or $80,500 based on the sales of common stock on recent private placements on the dates of grants. During the year ended December 31, 2019, the Company recorded stock-based compensation of $24,699 and prepaid expense of $55,801 to be amortized over the term of this agreement.
In December 2019, the Company issued 100,000 shares of Common Stock for legal services to be rendered and valued the shares of Common Stock at the fair value of approximately $0.40 per common share or $39,880 based on the based on the quoted trading price on the date of grant. During the year ended December 31, 2019, the Company recorded prepaid expense of $39,880 to be amortized over the term of this agreement.
On October 23, 2019, the Amended and Restated Operating Agreement (the “Amended Operating Agreement”) of EOW was amended. Under the terms of the Amended Operating Agreement, the minority members of EOW conveyed their rights to distributions related to the current 2019 hemp crop. As a result, the Company shall receive 100% of the distributions of net profit from the 2019 hemp crop on approximately 226 acres of farmland currently growing in Oregon. The minority EOW members acknowledge and agree that each is waiving their right to participate, to the extent of their respective percentage interest, in distributions arising from the profits generated from the harvest of the 2019 hemp crop. Thereafter, the distributions shall continue as set forth in Section 5.02(a) of the Operating Agreement. Since March 2019, the Company has owned 50.1% of the limited liability membership interests in EOW. In addition, the members amended the payment schedule under which farm costs are required to be made by the Company. As consideration for the amendment, the Company agreed to issue 1,223,320 shares of its common stock, par value $0.0001 per share, to the minority members of EOW (“EOW Members”). The Company determined that the 1,223,320 shares of common stock is deemed compensation to the EOW Members in exchange for their right to receive their respective membership distribution which is considered income to them. As such the Company valued the shares of Common Stock at the fair value of $0.69 per common share or $844,091 based on the quoted trading price on the date of grant. The Company recorded stock-based compensation of $844,091 during the year ended December 31, 2019.
Common Stock in connection with Asset Purchase Agreements
On July 31, 2019, under the terms of the Green Goddess Purchase Agreement the Company agreed to issue 250,000 shares of the Company’s Common Stock to the Founder (see Note 3). In accordance with ASC 805-10, the 250,000 shares of common stock and the Additional Stock Consideration are tied to continued employment of the Company and as such are recognized as compensation expenses in the post combination period under Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively, the vesting period). During the year ended December 31, 2019, the Company recorded stock-based compensation of $33,750 in connection with this agreement. In connection with this transaction, the Company issued 62,500 shares of commons stock which represents the vested shares and there remains 187,500 unvested shares as of December 31, 2019.
On September 30, 2019, pursuant to the terms of an asset purchase agreement with Levor, LLC, the Company granted 100,000 shares of its Common Stock valued at $70,000, or $0.70 per share, the fair value of the Company’s Common Stock based on the sale of common stock in the recent private placement (see Note 3). In connection with this transaction, there were 100,000 shares of Common Stock to be issued as of December 31, 2019.
Common Stock grants under the 2019 Plan
On September 13, 2019, the board of directors (the “Board”) of the Company appointed Vladislav “Bobby” Yampolsky to serve as its Interim Executive Chairman. Prior to his appointment, Mr. Yampolsky served as a member of the Board. In addition, the Board also appointed the Company’s current President, Emiliano Aloi, to serve as the Company’s Interim Chief Executive Officer. The appointments were made following the departure of the Company’s Chairman and CEO in August 2019. Vladislav (Bobby) Yampolsky is the founder, manager and controlling member of C2M, the Company’s largest stockholder.
On September 13, 2019, the Board delegated authority to the Chairman of the Board and/or the CEO to issue restricted stock and options under the 2019 Equity Incentive Plan (the “2019 Plan”) to non-executive employees and consultants. The aggregate number of shares of common stock of the Company, par value $0.0001 (“Common Stock”), issuable under delegated authority may not exceed 500,000 shares, and no individual award may exceed 100,000 shares, provided, further, that the minimum exercise price of awards made shall be the fair market value of the Common Stock determined in accordance with the 2019 Plan.
On September 13, 2019, the Board approved additional awards to officers, directors and consultants under the 2019 Plan as follows:
The Company valued the shares of Common Stock at the average fair value of $0.70 per common share or $2,170,000 based on the sales of common stock on recent private placements on the dates of grants. During the year ended December 31, 2019, the Company recorded stock-based compensation of $48,125 in connection with these restricted common stock grants. In connection with this transaction, there were an aggregate of 68,750 shares of Common Stock to be issued as of December 31, 2019 which represents the vested shares and there remains 3,031,250 unvested shares as of December 31, 2019.
Approval of Director Compensation Plan
On September 13, 2019, the Board established a new Director Compensation Plan (the “Director Plan”) to be administered under the 2019 Plan applicable to each non-employee/non-executive director, which Director Plan replaces the prior compensation arrangements previously applicable to non-employee/non-executive directors. The material terms of the Director Plan are set forth below:
In June 2019, the Company granted 100,000 shares of restricted common stock to a former director who resigned in December 2019. The vesting period was 1/24th vests upon date of grant and 1/24th vests on the first calendar date of each calendar month following appointment until fully vested as long as continuing as a director. In December 2019, the Company issued the 27,778 vested shares of Common Stock and was valued at the fair value of $1.05 per common share or $29,167 based on the quoted trading price on the date of grant. During the year ended December 31, 2019, the Company recorded stock-based compensation of $29,167 in connection with these restricted common stock grants.
In December 2019, the Company granted an aggregate of 300,000 shares of restricted common stock to three directors of the Company. The vesting periods are 1/24th vests upon date of grant and 1/24th vests on the first calendar date of each calendar month following appointment until fully vested as long as continuing as a director. The Company valued the shares of Common Stock at the fair value of $0.54 per common share or $162,000 based on the quoted trading price on the date of grant. During the year ended December 31, 2019, the Company recorded stock-based compensation of $13,500 in connection with these restricted common stock grants. In connection with this transaction, there were an aggregate of 25,002 shares of Common Stock issued as of December 31, 2019 which represents the vested shares and there remains 274,998 unvested shares as of December 31, 2019.
Cancellation of Common Stock
On July 31, 2019, the Company entered into a Surrender and Mutual Release Agreement (the “Cancellation Agreement”) to terminate the agreements and to cancel all issued and outstanding shares of Series C Preferred and 180,000 shares of Common Stock, and all warrants issued under these arrangements. Accordingly, the Company cancelled 180,000 shares of Common Stock which was recorded at par value.
Common Stock Warrants
A summary of the Company’s outstanding stock warrants as of December 31, 2020 and 2019 and changes during the period ended are presented below:
As of December 31, 2020, aggregate intrinsic value in connection with exercisable warrants amounted to approximately $50,000.
On March 21, 2019, the Company issued 718,750 warrants to purchase shares of the Company’s Common Stock in connection with a consulting agreement in exchange for corporate development and advisory services. The warrants have a term of 5 years from the date of grant and are exercisable at an exercise price of $0.20. The 718,750 warrants were valued on the grant date at approximately $1.55 per warrant for a total of $1,114,062 using a Black-Scholes option pricing model with the following assumptions: stock price of $1.55 per share (based on the quoted trading price on the dates of grants), volatility of 602%, expected term of 5 year, and a risk free interest rate of 2.35%. During the year ended December 31, 2019, the Company recorded stock-based compensation of $1,114,062.
On November 13, 2019, the Company issued 500,000 warrants to purchase shares of the Company’s Common Stock in connection with a consulting agreement in exchange for corporate development and advisory services. The warrants have a term of 5 years from the date of grant and are exercisable at an exercise price of $0.70. The 500,000 warrants were valued on the grant date at approximately $0.63 per warrant for a total of $314,181 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.63 per share (based on the quoted trading price on the dates of grants), volatility of 270%, expected term of 5 year, and a risk free interest rate of 1.69%. During the year ended December 31, 2019, the Company recorded stock-based compensation of $314,181.
On November 27, 2019, the Company issued a convertible note in the principal amount of $833,333, and a warrant to purchase 275,612 shares of Common Stock. The Company granted the note holder warrants in connection with the issuance of this note. The warrants had a term of 2 years from the date of grant. The warrants are exercisable at an exercise price of $0.756 per share of Common Stock at any time before the close of business on the day two years after their issuance subject to adjustment in the event of stock dividends, splits, fundamental transactions, or other changes in capital structure, and contain provisions that permit cashless exercise if a registration statement covering the resale of the shares issuable pursuant to the warrants is not filed within 180 days of their issuance. The Company accounted for the warrants by using the relative fair value method and recorded debt discount from the relative fair value of the warrants of $140,243 using the Binomial Lattice method and is being amortized over the term of the note. Additionally, the Company issued 84,187 warrants to purchase shares of the Company’s common stock to a certain FINRA broker-dealer who acted on behalf of the Company in connection with the issuance of this convertible note. The warrants had a term of 4 years from the date of grant and was exercisable at an exercise price of approximately $0.08. The 84,187 warrants were valued on the grant date at approximately $0.64 per warrant for a total of $54,145 using a Binomial Lattice method with the following assumptions: stock price of $0.65 per share (based on the quoted trading price on the date of grant), volatility of 270%, expected term of 4 years, and a risk free interest rate of 1.63%. The Company recorded these warrants as debt discount which is being amortized over the term of the note. The Company assessed the classification of its common stock purchase warrants as of the date of each equity offering and determined that such instruments met the criteria for equity classification under the guidance in ASU 2017-11 “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Feature”. The Company has no warrants that contain a ‘round down’ feature under Topic 815 of ASU 2017-11.
Common Stock Options
Stock Option Plan
In September 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of incentive awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. The incentive awards shall either be fully vested and exercisable from the date of grant or shall vest and become exercisable in such installments as the Board or Compensation Committee may specify. Stock options expire no later than ten years from the date of grant. The aggregate number of shares of Common Stock which may be issued pursuant to the Plan is 9,500,000. Unless sooner terminated, the Plan shall terminate in 10 years.
Stock option activity for the year ended December 31, 2020 and 2019 is summarized as follows:
Weighted average fair value of options granted during the period $0.30.
As of December 31, 2020, aggregate intrinsic value in connection with exercisable options amounted to approximately $31,500.
On February 2020, the Company granted 1,000,000 options to purchase shares of the Company’s Common Stock to Derek Du Chesne, the Company’s former President, Chief Growth Officer and Director in connection with his employment agreement . The options have a 10-year term from the date of grant and were exercisable at an exercise price of $0.30 per share. The fair value of the options granted amounted to $0.33 per option or $332,900. In September 2020, the former President tendered his resignation and exercised 20,000 options for $6,000. The remaining 980,000 options were cancelled upon his resignation.
The Company estimates the fair value of stock options using the Black-Scholes valuation model. Compensation expense related to stock options granted is measured at the grant date based on the estimated fair value of the award and is recognized on a straight-line basis over the requisite service period. The assumptions used in the Black-Scholes model for the options granted during the nine months ended September 30, 2020 are presented below:
The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatility is based on the historical volatility of the Company’s common stock. The expected term assumption for stock options granted is the contractual term of the option award. The Company has never declared or paid dividends on its common stock and has no plans to do so in the foreseeable future. Forfeitures are recognized as a reduction of stock-based compensation expense as they occur.
The Company recognized $285,121 and $227,394 of compensation expense relate to the vesting of stock options for the year ended December 31, 2020 and 2019. These amounts are included in general and administrative expenses on the accompanying consolidated statement of operations.
The following were transactions during the year ended December 31, 2019.
Between January 2019 and March 2019, the Company granted 4,003,572 options to purchase shares of the Company’s Common Stock to various members of the Board of Directors of the company and consultants with vesting terms pursuant to their respective sock option agreements. The options have a term of 10 years from the date of grant and were exercisable at an exercise price ranging from $0.01 to $0.96. The Company recognized $1,276,637 of compensation expense related to the vesting of stock options for the year ended December 31, 2019. These amounts are included in general and administrative expenses on the accompanying consolidated statement of operations.
In February 2019 and April 2019, the Company granted an aggregate of 750,000 options to purchase shares of the Company’s Common Stock to an investor in connection with the sale of Common Stock. The options have a nine-month term from the date of grant and was exercisable at an exercise price of $0.50 per share. The fair value of the options granted amounted to $0.92 per option or $688,674.
Pursuant to the Settlement and General Release Agreement dated in January 2020, the Company recorded the issuance of 375,000 shares at par value upon the exercise of the 375,000 stock options and shall cancel the remaining 625,000 stock options as of December 31, 2019.
As of December 31, 2019, aggregate intrinsic value in connection with exercisable options amounted to $726,371. As of December 31, 2019, 872,392 outstanding options are unvested and there was $337,863 unrecognized compensation expense in connection with unvested stock options (see Note 11).
The Company estimates the fair value of stock options using the Black-Scholes valuation model. Compensation expense related to stock options granted is measured at the grant date based on the estimated fair value of the award and is recognized on a straight-line basis over the requisite service period. The assumptions used in the Black-Scholes model for the options granted during the year ended December 31, 2019 are presented below:
Restricted Common Stock
A summary of the status of the restricted common stock and changes during the years ended December 31, 2020 and 2019 is as follows.
As of December 31, 2020, unamortized or unvested stock-based compensation costs related to restricted share arrangements was approximately $935,000 and will be recognized over a weighted average period of 0.75 years.
On January 14, 2020, in connection with his appointment to the Board of Directors, Alvaro Daniel Alberttis was awarded $100,000 worth of restricted common stock, valued at the closing market price of the Company’s common stock on the date of the appointment. These shares vest at a rate of 1/24th on the date of grant, and 1/24th per month thereafter, contingent upon his continued service. The Company valued the shares of restricted common stock at the fair value of $0.36 per common share or $100,000 based on the quoted trading price on the date of grant.
On April 29, 2020, the Company appointed two new board members and shall each be granted $100,000 worth of restricted common stock under the 2019 Equity Incentive Plan with vesting period of 1/24th upon date of grant and 1/24th per month on the first day of each calendar month thereafter until fully vested so long as they continue in their service as board of directors of the Company.
On April 29, 2020, the Company appointed a new advisory board member of the Company and shall be granted $50,000 worth of restricted common stock under the 2019 Equity Incentive Plan with vesting period of 1/24th upon date of grant and 1/24th per month on the first day of each calendar month thereafter until fully vested so long as they continue in their service as member of the Advisory Board of the Company.
On April 29, 2020, Derek Du Chesne accepted his appointment to the additional positions of President and a member of our Board of Directors. Following his appointment as President, the Company granted 1,000,000 shares of restricted common stock as additional compensation, with vesting and other terms to be decided by the Company’s Compensation Committee. In September 2020, Derek Du Chesne tendered his resignation as President, Chief Growth Officer and Director and as such, the unvested 1,000,000 shares of restricted common stock have been cancelled as of September 30, 2020.
On June 11, 2020, the Company appointed Julian Pittam as Board Chairman and has granted Mr. Pittam $100,000 worth of restricted common stock under the 2019 Equity Incentive Plan with vesting period of 1/24th upon date of grant and 1/24th per month on the first day of each calendar month thereafter until fully vested so long as they continue in their service as board of directors of the Company.
On June 24, 2020, the Company appointed Emiliano Aloi as new board member and has granted Mr. Aloi $100,000 worth of restricted common stock under the 2019 Equity Incentive Plan with vesting period of 1/24th upon date of grant and 1/24th per month on the first day of each calendar month thereafter until fully vested so long as they continue in their service as board of directors of the Company.
On September 1, 2020, the Company has granted John Price as a continuing director of the Company, $25,000 worth of restricted common stock under the 2019 Equity Incentive Plan with vesting period of 1/24th upon date of grant and 1/24th per month on the first day of each calendar month thereafter until fully vested so long as they continue in their service as board of directors of the Company.
During the year ended December 31, 2020 and 2019, the Company recorded stock-based compensation of approximately $582,403 and $13,500 in connection with vested restricted common stock grants, respectively.
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COMMITMENTS AND CONTINGENCIES |
12 Months Ended |
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Dec. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Legal Matters
In the ordinary course of business, the Company enters into agreements with third parties that include indemnification provisions which, in its judgment, are normal and customary for companies in the Company’s industry sector. These agreements are typically with business partners, clinical sites, and suppliers. Pursuant to these agreements, the Company generally agrees to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to the Company’s product candidates, use of such product candidates, or other actions taken or omitted by us. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, the Company has no liabilities recorded for these provisions as of December 31, 2020 or 2019.
On January 22, 2021, we settled all outstanding claims and obligations to Dr. Krassen Dimitrov. Previously, we had recorded an obligation on our balance sheet of $575,000 for claims asserted against us. The terms of the settlement are confidential, other than no cash was paid in connection with the settlement. As a result, we expect to eliminate $575,000 of indebtedness from our financial statements during the quarter ended March 31, 2021.
On September 25, 2019, Jonathan Gilbert, a former director, filed and served a complaint against the Company in the courts of Nassau County, New York. The complaint alleges that Mr. Gilbert is entitled to retain certain cancelled equity awards and seeks specific performance and damages. In February 2019, the Company granted 1,000,000 options to purchase shares of the Company’s Common Stock to a former director of the Company, Jonathan Gilbert, with vesting terms pursuant to the respective stock option agreement. The former director resigned as a director of the Company in August 2019. The options have a term of 10 years from the date of grant and was exercisable at an exercise price at $0.01. The Company already recognized $320,000 of compensation expense which relates to the vesting of 500,000 stock options prior to his resignation. After Jonathan Gilbert’s resignation, he filed a complaint against the Company disputing his rights to receive the Company’s common stock through the exercise of his stock options. In January 10, 2020, Mr. Gilbert and the Company entered into a Settlement and General Release Agreement and both parties agreed to such consideration. The Company will issue to Mr. Gilbert 375,000 shares of the Company’s common stock whereby 187,500 shares of common stock shall be issued immediately (“First Tranche”) and another 187,500 shares of common stock shall be issued immediately and held by the transfer agent and delivered on the six month anniversary of this agreement (“Second Tranche”) (collectively the First and Second Tranche shall be called “Settlement Stock”). The Settlement Stock is by virtue of the exercise of Mr. Gilbert’s stock options and any required payments from the exercise of the stock options have been credited or forgiven. The Settlement Stock which is issued under the Stock Option Plan based upon the exercise of the stock options registered pursuant to the Company’s registration statement on form S-8 (File no. 333-229025). The Company and Mr. Gilbert have released and discharged each other from all claims and demands. In January 2020, Mr. Gilbert dismissed the lawsuit against the Company. Pursuant to the Settlement and General Release Agreement dated in January 2020, the Company recorded the issuance of 375,000 shares at par value upon the exercise of the 375,000 stock options and cancelled the remaining 625,000 stock options during fiscal 2019.
On February 26, 2020 a complaint was filed against the Company in the Circuit Court, Palm Beach County, Florida on behalf of two former employees of the Company. The case is entitled Ryan Borcherds and Miriam Martinez vs. Exactus, Inc. (Case No. 103978709). These former employees were hired in January 2020. The complaint alleged the Company failed to pay wages and compensation to 2 employees under the Fair Labor Standards Act, breach of contract and violation of various Florida statutes, including allegations on behalf of other similarly situated persons. On May 8, 2020, an amended complaint was filed against the Company in the Circuit Court, Palm Beach County, Florida on behalf of six former employees, with one additional employee added to the suit in June 2020. The amended case is entitled Ryan Bocherds, Marc Reiss, Jeannine Boffa, Benjamin Blair, Miriam Martinez and Michael Amoroso vs. Exactus, Inc, (Case No. 50-2020-CA-002274-MB). The other four former employees were hired between April 2019 and December 2019. As of December 31, 2019, the Company has recorded total accrued salaries of $26,494 related to these former employees. On September 8, 2020, the Company entered into settlement agreements and mutual releases with all plaintiffs. Under the settlement agreements, the Company is obligated to pay a total of $131,130 (including $16,000 in legal fees, and excluding any applicable payroll taxes) to the plaintiffs. Under the settlement agreements, the Company paid each plaintiff 50% of the settlement amount at the time of signing, and are obligated to pay the remaining settlement amounts in six monthly installments.
The 50% amount as well as the first monthly installment for each plaintiff was paid and we are in default for the remaining 5 monthly payments.
On November 19th, 2020 a complaint was filed in United States District Court Southern District of New York on behalf of 3i, LP, 3i, LP v. Exactus, Inc. 1:20-cv-09734. The complaint claimed that the Company had defaulted on the promissory note issued by 3i, LP in November 27, 2019 and sought a judgment of $703,268.21. On February 16, 2021, the Company entered into a Securities Purchase Agreement with 3i, LP and an institutional investor under which the Investor agreed to purchase and 3i agreed to sell that certain 8% senior secured convertible note dated November 27, 2019 and all of our warrants previously issued to 3i and 3i agreed settle and release all claims asserted against us. As a result, 3i agreed to dismissal of all pending litigation against us, with prejudice.
On October 26, 2020 two complaints were filed in the Circuit Court, Palm Beach County, Florida on behalf of a former vendors of the Company. The cases entitled SEP COMMUNICATIONS LLC V EXACTUS INC. 50-2020-CA-011680-XXXX-MB and SOUTHEASTERN PRINTING COMPANY V EXACTUS INC 50-2020-CC-009475-XXXX-SB seeks approximately $54,612.80 & $19,528.36 respectively, plus interests and court costs.
Leases
On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consist of approximately 100 acres. The lease requires the Company to pay 5% of the net income realized by the Company from the operation of the lease farm. The lease shall continue in effect from year to year except for at least a 30-day written notice of termination. The Company does not intend to renew the lease and have verbally communicated our intentions.
On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Glendale, Oregon and consist of approximately 100 acres. The lease requires the Company to pay $120,000 per year, whereby $50,000 was payable upon execution and $70,000 shall be payable prior to planting for agricultural use or related purposes. The lease shall continue in effect from year to year except for at least a 30-day written notice of termination. The Company does not intend to renew the lease and have verbally communicated our intentions.
On April 30, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consists of approximately 38 acres. The lease requires the Company to pay $76,000 per year, whereby $38,000 was payable upon execution and $38,000 shall be payable on September 15, 2019 and 2% of the net income realized by the Company from the operation of the lease farm. The Company has paid the initial payment of $26,000 and the remaining $12,000 was paid directly to the landlord by an affiliated company who is renting the portion of the lease property from the Company. The affiliated company is owned by two managing members of EOW. EOW is in the process of arranging a sub-lease agreement with the affiliated company. The lease shall continue in effect from year to year for five years except for at least a 30-day written notice of termination. The Company does not intend to renew the lease and have verbally communicated our intentions.
On July 9, 2019, the Company entered into a Commercial Lease Agreement (the “Lease”) with Skybar Holdings, LLC, a Florida limited liability company. Pursuant to the Lease, the Company will rent the entire first floor (consisting of approximately 4,000 square feet) of a property located in Delray Beach, Florida (the “Premises”). The Company plans to develop the Premises to create a hemp-oriented health and wellness retail venue, including education, clothing and cosmetics, and explore franchise opportunities. The initial term of the Lease is 5 years commencing August 1, 2019, with two 5-year extension options. The Lease includes a right of first refusal in favor of the Company to lease any space that becomes available on the 2nd and 3rd floor of the Premises and a right of first refusal to purchase the Premises. Pursuant to the Lease, the Company will pay rent equal to forty thousand dollars per month in advance in addition to all applicable Florida sales and/or federal taxes. Effective one year from the lease commencement date and each year thereafter, the rent shall increase at least three percent (3%) per year. The lessor of the Premises is a limited liability company owned or controlled by Vladislav (Bobby) Yampolsky, the manager and controlling member of C2M, the Company’s largest stockholder. During the second quarter of fiscal 2020, the Company has determined that the commercial lease with Skybar Holding, LLC is not in compliance with current laws or regulations in the City of Delray Beach and does not represent an enforceable contract and was void from the moment of execution. As a result, the Company has restated its prior year financial information to correct this accounting error (see Note 14). Additionally, on August 6, 2020, the Company submitted a written termination letter to Skybar Holdings, LLC.
On January 21, 2021 we entered into a Settlement Agreement with Ceed2Med, LLC, Skybar Holding, LLC ,and their principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons.
On July 1, 2019, the Company entered into an office lease agreement for a lease term of six months beginning July 1, 2019 ending December 31, 2019 for a total rental of $6,052 for six months. The lease premise is located in Delray Beach, Florida. In December 2019, the Company and landlord agreed to extend the lease for another 6-month term from January 2020 to June 2020 with the same terms as the original lease agreement. Since the end of the 6-month lease in June 2020, the company continued on a month-to-month.
Ceed2Med
As previously disclosed, on January 8, 2019, the Company entered into a Master Product Development and Supply Agreement (the “Development Agreement”) with Ceed2Med, LLC. Emiliano Aloi of C2M became a member of the Company’s Advisory Board in January 2019 and was appointed President of the Company on March 11, 2019. On August 13, 2019, the Company appointed Mr. Aloi as Interim Chief Executive Officer and on June 24, 2020, the Company appointed Mr. Aloi as a new member of the Board of Directors of the Company. On December 11, 2020 Mr. Aloi resigned from his positions as Interim Chief Executive Officer and Director of the company and on January 21, 2021 the Company entered into a Settlement Agreement with Ceed2Med, LLC and its principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons, although Mr Aloi was not released from any claims or obligations that could be asserted by the Company. In connection with the settlement, Ceed2Med, LLC agreed to assignment of all rights to convert its outstanding shares of Series E Preferred Stock at a price of $1.60 per share to third parties in connection with settlement and releases of third party claims, resulting in no further dilution from issuances of settlement shares other than the right for Ceed2Med to have received such shares upon conversion and thereupon the Series E Preferred Stock was simultaneously converted into shares of common stock.
On December 22, 2020, Ken Puzder, the Company’s former Chief Financial officer and member of the Board of Directors, resigned from all positions with the Company. Mr. Puzder served as Chief Financial officer of C2M during his tenure with the Company, and previously and subsequently. Mr. Puzder was not released from any claims or obligations that could be asserted by the Company under the C2M Settlement Agreement entered on January 21, 2021.
As previously disclosed, on March 11, 2019, the Company acquired, through our majority-owned subsidiary, EOW, from the Company’s largest shareholder, C2M, certain rights to a 50.1% limited liability membership interest in certain farm leases and operations in Oregon in order to enter into the business of hemp farming for the 2019 grow season.
As previously disclosed, on July 31, 2019, the Company finalized and entered into a Management and Services Agreement in order to provide the Company project management and various other benefits associated with the farming rights, operations and opportunities with C2M, including assignment by C2M of C2M’s agreements and rights to acquire approximately 200 acres of hemp farming.
Employment Agreements
Andrew Johnson, the Company’s Chief Strategy Officer, was serving under a two-year employment agreement adopted on March 11, 2019 at an annual salary of $110,000, which was increased to $150,000 on January 23, 2020. In addition, he will be entitled to an annual cash bonus, in an amount as determined by the board of directors, if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. He shall also be eligible for grants of awards under stock option or other equity incentive plans of the Company as the Company’s Compensation Committee. For the 2019 year, he received a cash bonus of $100,000 to be paid in equal installments over the next 12 months which have been recorded in accrued expenses on the consolidated balance sheet as of December 31, 2020 and 2019. On January 22, 2021 the company reached an agreement with Mr. Johnson to exchange all accrued salaries, unpaid expenses and unpaid bonus for 7,752,880 shares of the company’s common stock and to terminate his employment agreement.
Derek Du Chesne, the Company’s former President, Chief Growth Officer, and a Director, was serving under a two-year employment agreement dated February 18, 2020 and entered into in connection with his service as Chief Growth Officer. Du Chesne’s base salary for the initial year of service will be $150,000, increasing to not less than $250,000 for the second year of service, subject to annual review by the Board of Directors. He will be entitled to quarterly cash bonuses based on a percentage of our net sales to be determined. In addition, Mr. Du Chesne was entitled to annual cash bonuses as follows: (1) up to 250% of base salary for the 2020 calendar year, if: (A) Company’s net income on a consolidated basis for the 2020 fiscal year is equal to or in excess of $5,000,000; or (B) Company’s net sales on a consolidated basis is equal to or in excess of $40,000,000 during the 2020 fiscal year; and (2) 200% of base salary for the 2021 calendar year, subject to the satisfaction of performance criteria set by the Board in consultation with a third-party compensation expert and Mr. Du Chesne. He was eligible to participate in the Company’s Equity Incentive Plan during his employment. Upon execution of the Agreement, he was granted options to purchase up to 1,000,000 shares of the Company’s common stock at a price of $0.50 per share. 250,000 of these options were vested immediately, with the remaining 750,000 options to vest in equal installments over the next twenty-four months. The employment agreement with Mr. Du Chesne was intended to provide direct incentives to increase company sales, while providing a reasonable base compensation for his service. Following his appointment as President, he received 1,000,000 shares of restricted common stock as additional compensation, with vesting and other terms to be decided by the Company’s Compensation Committee. On March 5, 2020, the Board of directors of the Company approved the repricing of Mr. Du Chesne’s stock options to 90% of the market price on the original date of grant or exercise price of $0.30 per share (see Note 10). In September 2020, Mr. Du Chesne tendered his resignation as President, Chief Growth Officer and Director of the Company and the company and he entered into a Separation and Release Agreement.
Distribution Agreements
On February 4, 2020, the Company entered into a Supply and Distribution Agreement with HTO Holdings Inc (dba “Hemptown, USA”), enabling the Company to purchase and sell Hemptown’s Cannabigerol (CBG) and Cannabidiol (CBD) products, including top flower, biomass and extracts (crude, isolates, distillates, and water soluble). Ceed2Med, LLC, the Company’s largest shareholder, is also a significant investor in Hemptown USA and is party to a distribution agreement with the Company. The Interim Chief Executive Officer and C2M, LLC will cooperate in developing plans to coordinate the Company’s efforts to introduce CBG and expand its efforts to sell CBD products. This agreement shall remain in force for a period of one year from effective date and shall renew automatically in one-year increments for three years unless either party gives written notice of its intention not to renew at least 60 days prior to expiration. On March 28, 2020, the Company amended the Supply and Distribution Agreement Pursuant to the amendment whereby the Company agreed to also (i) aid Hemptown’s management with product compliance requirements, (ii) participate in discussions related to Hemptown’s 2020 farming, harvesting and processing plans as well as joint supply scenarios, (iii) interact with Hemptown’s ingredient and manufacturing divisions to facilitate development of documents for selected SKUs to service the white label market, and (iv) aid Hemptown’s CEO in overseeing the entire supply chain to establish best practices in quality and compliance and lower costs. In addition, Hemptown agrees to pay the Company $3,500 a month in consulting fees. On July 21, 2020, Hemptown discontinued the consulting arrangement entered into under the March 28, 2020 amendment.
On November 20, 2019, the Company entered into the Non-Exclusive Distribution and Profit-Sharing Agreement with Canntab Therapeutics USA (Florida), Inc. Pursuant to the agreement, which has a term of 2 years and is subject to automatic renewal. The Company is a non-exclusive distributor of certain Canntab products throughout the U.S. Canntab will not grant a third-party the right to promote, sell or deliver the products within the U.S. during the term of the agreement, subject to certain exceptions. In addition, the Company agreed to share equally with Canntab in the gross profits received from the sale of their products by us. With respect to Canntab’s sales of products, the Company will receive 10% of the gross profits. In connection with the Canntab Agreement, the Company also entered into a Supply Agreement with Canntab, which has a term of 2 years and is subject to automatic renewal, pursuant to which we agreed to sell hemp extracts to Canntab. Due to a need for additional warehouse space and disruptions caused by the Covid-19 pandemic, the Company has not distributed Canntab products to date. On November 13, 2020, the Company entered into a Termination Agreement with Canntab, under which we terminated our agreements with Canntab and exchanged mutual releases.
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RELATED PARTY CONSIDERATIONS |
12 Months Ended |
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Dec. 31, 2020 | |
Related Party Transactions [Abstract] | |
RELATED PARTY CONSIDERATIONS | Some of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. We have not formulated a policy for the resolution of such conflicts.
On November 20, 2017, Dr. Dimitrov, former director of the Company, provided a notice to the Company stating that he was resigning from the Board, effective immediately. Dr. Dimitrov indicated that his resignation from the Board was based on the deteriorating relationship between the Company and Digital Diagnostics over the non-payment of fees owed by the Company pursuant to the licensing agreement between the Company and Digital Diagnostics. The Company paid $0 during the years ended December 31, 2020 and 2019.
For the year ended December 31, 2020 and 2019, $0 and $22,100, respectively, was recognized in Research and Development expenses for consulting provided by Dr. Dimitrov, respectively. As of December 31, 2020 and 2019, $575,000 was included in accounts payable for both periods to KD Innovation Ltd., an affiliated entity of Dr. Dimitrov.
On January 8, 2019, the Company entered into a Master Product Development and Supply Agreement with C2M. As of December 31, 2020 C2M is a majority stockholder of the Company. At December 31, 2020 and December 31, 2019, accounts payable to C2M related to purchase of inventory amounted to $0 and $8,342, respectively. During the year ended December 31, 2020 and 2019, the Company recognized revenues from C2M of $3,300 and $125,000, respectively from sales of inventory and recorded related cost of sales of $1,701 and $96,647, respectively. Additionally, accounts receivable from C2M as of December 31, 2020 and 2019 amounted to $0. As of December 31, 2019, the Company had recorded unearned revenue of $215,000 with C2M. On January 21, 2021 the Company entered into a Settlement Agreement with Ceed2Med, LLC and certain of its principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons.
From time to time, the Company’s subsidiary, EOW, receives advances from an affiliated company which is owned by three members of EOW for working capital purposes. The advances are non-interest bearing and are payable on demand. The Company advanced $127,500 during fiscal 2019 to these related parties which resulted in a receivable or due from related parties of $128,489 and $127,500 as of December 31, 2020 and 2019, respectively. These advances are short-term in nature, non-interest bearing and due on demand. The Company reclassed the $128,489 related party receivable to the stockholders’ equity section as of December 31, 2020.
The Company recognized revenues from a related party customer of $37,446 during the year ended December 31, 2019. As of December 31, 2019, accounts receivable from a related party customer amounted to $18,860. Additionally, the Company wrote-off $18,586 of accounts receivable from this related party customer into bad debt expense during the year ended December 31, 2019. The customer is an affiliated company which is substantially owned by a managing member of EOW.
On July 9, 2019, the Company entered into a Commercial Lease Agreement (the “Lease”) with Skybar Holdings, LLC, a Florida limited liability company. Pursuant to the Lease, the Company will rent the entire first floor (consisting of approximately 4,000 square feet) of a property located in Delray Beach, Florida (the “Premises”). The Company plans to develop the Premises to create a hemp-oriented health and wellness retail venue, including education, clothing and cosmetics, and explore franchise opportunities. The initial term of the Lease is 5 years commencing August 1, 2019, with two 5-year extension options. The Lease includes a right of first refusal in favor of the Company to lease any space that becomes available on the 2nd and 3rd floor of the Premises and a right of first refusal to purchase the Premises. Pursuant to the Lease, the Company will pay rent equal to $40,000 per month in advance in addition to all applicable Florida sales and/or federal taxes and security deposit of $40,000. Effective one year from the lease commencement date and each year thereafter, the rent shall increase at least three percent (3%) per year. The lessor of the Premises is a limited liability company owned or controlled by Vladislav (Bobby) Yampolsky, a former member of the Board and the founder, manager and controlling member of C2M, the Company’s largest stockholder. During the second quarter of fiscal 2020, the Company has determined that the commercial lease with Skybar Holding, LLC is not in compliance with current laws or regulations in the City of Delray Beach and does not represent an enforceable contract and was void from the moment of execution. As a result, the Company has restated its prior year financial information to correct this accounting error. Additionally, on August 6, 2020, the Company submitted a written termination letter to Skybar Holdings, LLC. On January 21, 2021 we entered into a Settlement Agreement with Ceed2Med, LLC and its principals, including Mr. Yampolsky and Skybar Holdings, LLC, cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons.
From January 31, 2020 through December 31, 2020, the Company’s Former Interim Executive Chairman, Bobby Yampolsky, made a series of advances to the Company in the approximate total amount of $97,000 and has been included in due to related party as reflected in the accompanying condensed consolidated balance sheets. These advances are short-term in nature and non-interest bearing. On June 11, 2020, Mr. Yampolsky tendered his resignation as a member and interim chairman of the board of directors of the Company. Additionally, the Company agreed to pay $12,500 on June 11, 2020 and a monthly installment payment of approximately $7,084 beginning July 15, 2020 to June 15, 2021. On June 11, 2020, the Company paid $12,500 of these related party advances.. As of December 31, 2020, due to related party amounted to $77,916. On January 21, 2021 we entered into a Settlement Agreement with Ceed2Med, LLC and certain of its principals, including Mr. Yampolsky, cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons. As such as of March 31st, 2021, due to related party amounted to $0.
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CONCENTRATION OF REVENUE AND SUPPLIER |
12 Months Ended |
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Dec. 31, 2020 | |
Risks and Uncertainties [Abstract] | |
CONCENTRATION OF REVENUE AND SUPPLIER | During the year ended December 31, 2020 and 2019, total sale of CBD products to three customers of which two were related parties in 2019, represented approximately 85% (38%, 24% and 23%) during fiscal 2020 and 58% (11%, 36% - related party, and 11% - related party) during fiscal 2019, of the Company’s net sales.
As of December 31, 2019, total accounts receivable, net from two customers and one related party customer represented approximately 82% (18%, 38%, 25% - related party, and 27%) of accounts receivable.
During the year ended December 31, 2019, the Company purchased inventory from C2M totaling approximately $1,033,213 (98% of the purchases). During the year ended December 31, 2019, the Company fully reserved finished goods related to purchased CBD products from C2M and resulted in an inventory reserve loss of $837,153 which is included in cost of sales on the consolidated statements of operations.
At December 31, 2020, total accounts payable with one vendor was approximately 27% of total accounts payable.
As of December 31, 2019, total accounts payable from two vendors and one affiliated company represented approximately 60% (12%, 30% and 18% -related party) of total accounts payable. The affiliated company is owned by three members of EOW. |
INCOME TAXES |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | The Company has incurred aggregate net operating losses of approximately $21.1 million for income tax purposes as of December 31, 2020. The net operating losses carry forward for United States income taxes, which may be available to reduce future years’ taxable income. Management believes that the realization of the benefits from these losses appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as necessary.
The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended December 31, 2020 and 2019:
The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2020 and 2019 are summarized as follows:
Of the approximately $21.1 million of available net operating losses, $2.3 million begin to expire in 2034 and $1.9 million which were generated after the Act’s effective date can be utilized indefinitely subject to annual usage limitations.
The Company provided a valuation allowance equal to the deferred income tax asset for the year ended December 31, 2020 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the allowance was $4.0 million in fiscal 2020. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation, based upon IRC Section 382/383 Ownership change rules that may have or could occur in the future. The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2017, 2018, 2019 and 2020 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
IRC Section 280E of the Internal Revenue Code forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. The IRS has subsequently applied Section 280E to state-legal cannabis businesses, since cannabis is still a Schedule I substance. Management is in the process of evaluating IRC Section 280E, as it relates to the Companies business and the amount of net operating losses above that the Companies Management has provided a Full Valuation Reserve on. |
RESTATEMENT OF PRIOR FINANCIAL INFORMATION |
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Accounting Changes and Error Corrections [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RESTATEMENT OF PRIOR FINANCIAL INFORMATION | Subsequent to the Company’s external auditor’s periodic review of the Form 10-Q for the Periods Ended September 30, 2019 and March 31, 2020, annual audit for the year ended December 31, 2019 and, in the process of review, the current Form 10-Q for the Period Ended June 30, 2020, the Company conducted further reviews of the consolidated financial statements. Based on such reviews, the following determinations were made:
Error in Accounting for Operating Lease Right-of-Use Asset and Operating Lease Liabilities
During the second quarter of fiscal 2020, the Company has determined that the commercial lease with Skybar Holding, LLC is not in compliance with current laws or regulations in the City of Delray Beach and does not represent an enforceable contract and was void from the moment of execution. Therefore, the accounting treatment for the recognition of the operating lease right-of -use asset and operating lease liabilities upon adoption of ASC 842 related to this commercial lease was incorrect. As a result of a detailed review of this commercial lease, the Company has made an assessment in the second quarter of fiscal 2020 that the lease is unenforceable and should not have been accounted for under ASC 842. Additionally, the Company reversed previously recorded accrued expenses related to this commercial lease agreement.
In accordance with the guidance provided by the Accounting Standards Codification (“ASC”) 250 – “Accounting Changes and Error Corrections” (“ASC 250”), SEC’s Staff Accounting Bulletin 99, Materiality (“SAB 99”) and Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), the Company has determined that the impact of adjustments relating to the corrections of this accounting error are not material to previously issued annual audited and unaudited financial statements and as such no restatement was necessary. Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior year financial statements. Accordingly, these misstatements were corrected during the period ended September 30, 2020 and will be disclosed prospectively.
The effect on these revisions on the Company’s consolidated balance sheets is as follows:
The effect on these revisions on the Company’s consolidated statements of operations is as follows:
The revisions had no effect in the cash used in operating activities on the Company’s consolidated statements of cash flows.
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SUBSEQUENT EVENTS |
12 Months Ended |
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Dec. 31, 2020 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | In accordance with authoritative guidance, the Company has evaluated any events or transactions occurring after December 31, 2020, 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 year ended December 31, 2020, except as disclosed below.
During the first quarter 2021, the Company issued approximately 43 million shares, of which 1.4 were issued to a service provider to settle an outstanding payable balance, 19.9 million shares issued in relation to the conversion of Series A, Series B, Series D and Series E Preferred Shares, and 21.6 million shares issued to employees and board members.
On February 16, 2021, the Company entered into a Securities Purchase Agreement with 3i, LP (“3i”) and an institutional investor (“Investor”) under which the Investor agreed to purchase and 3i agreed to sell that certain 8% senior secured convertible note dated November 27, 2019 (the “Note”) and all of our warrants previously issued to 3i and 3i agreed settle and release all claims asserted against us. As a result, 3i agreed to dismissal of all pending litigation against the Company.
As a result, the Subsidiary Guaranty, IP Security Agreement and Registration Rights Agreement with 3i were also terminated.
In addition, the Company entered into an Exchange Agreement with the Investor and filed with the Secretary of State of the State of Nevada a Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred Stock under which the Note in the original principal amount of $750,000 would be exchanged for $500,000 of a new series of preferred stock designated 0% Series A Convertible Preferred Stock (the “Series A Preferred”) with a stated value of $1,000 per share (the “Stated Value”).
The Company authorized the issuance of a total of 1,000 ($1,000,000) of our Series A Preferred for issuance. Each share of Series A Preferred is convertible at the option of the Holder, into that number of shares of our common stock, par value $0.0001 per share) (the “Common Stock”) (subject to certain limitations on beneficial ownership) determined by dividing the Stated Value by $0.05 per share (the “Conversion Price”), subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications or similar transactions that proportionately decrease or increase the Common Stock.
The Company is prohibited from effecting the conversion of the Series A Preferred to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99% (which may be increased to 9.99% upon 61 days’ written notice to the Company), in the aggregate, of the issued and outstanding shares of the Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series A Preferred. Holders of the Series A Preferred shall be entitled to vote on all matters submitted to the Company’s stockholders and shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Series A Preferred Stock are convertible, subject to applicable beneficial ownership limitations. The Series A Preferred Stock provides a liquidation preference equal to the Stated Value, plus any accrued and unpaid dividends, fees or liquidated damages.
The Series A Preferred can be redeemed at the Company's option upon payment of a redemption premium between 120% to 135% of the Stated Value of the outstanding Series A Preferred redeemed. We are not obligated to file a registration statement under the Securities Act of 1933, as amended (the “Act”), with respect to the shares of Common Stock into which Series A Preferred may be converted however the Investor will be deemed to have held the Series A Preferred on the original issue date to 3i for the purposes of the availability of an exemption from registration provided by Rule 144 under the Act.
On February 16, 2021 the Company filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our previous Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred Stock, all of which has been converted to Common Stock.
The foregoing description of the Securities Purchase Agreement, Exchange Agreement and Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred Stock of is a summary of the material terms of such Agreements. The Agreements contain additional terms, covenants, and conditions and should be reviewed in their entirety for additional information
On February 16, 2021, our board of directors authorized the issuance of up to 1,000 shares of our Series A Preferred.
The Company has also offered to Series B-1 and Series B-2 preferred stock holders inducements to voluntarily convert preferred shares into Common Stock and expect to file a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling the Company's previous Certificate of Designation of Preferences, Rights and Limitations for Series B-1, B-2, C. D and E Preferred Stock upon conversion or cancellation of all such Series.
On January 22, 2021, the Board of Directors formed a Strategic Alternatives Committee, for the purpose of evaluating potential acquisitions, mergers, and other strategic business combinations. The new committee consists of Directors Larry Wert and Julian Pittam, with Mr. Wert serving as its chairman. During 2021, the Strategic Alternatives Committee reviewed various business combination proposals and entered into separate negotiations to acquire two companies with existing business and operations in the electric vehicle industry. Ongoing due diligence is continuing.
As previously reported, on January 22, 2021, the Board of Directors authorized a possible reverse split of our common stock at a ratio of between 1 share for every 40 shares held and 1 share for every 50 shares held, to be determined in the further discretion of the Board, revised to 1 share for every 25-100 shares held on March 31, 2021, and approved by a majority of the holders of common stock of the Company. The reverse split is subject to approval by our shareholders unless the number of authorized shares of the Company's capital stock is reduced proportionately in accordance with Nevada law, and may be authorized, if at all, in connection with a recapitalization required in connection with an acquisition or similar event. In connection with a potential acquisition, the Company is continuing recapitalization efforts through, among other things, cancellation and exchange of existing indebtedness for equity, cancellation of our outstanding series of preferred stock, and a reverse split.
On January 22, 2021, the Company entered into a Settlement and Release Agreement with Ceed2Med, LLC, a former affiliate of the company. Over the course of 2018-2019 the Company had entered into a series of agreements for product and funding with C2M in connection with our seed-to-sale strategy for our hemp-derived CBD business, to secure farming rights and expertise, and to secure product, distribution and funding. The Company previously issued 10,000 shares of Series E Preferred Stock convertible into 6,250,000 shares of common stock to C2M. Pursuant to the Agreement, C2M will permit the Company to transfer all outstanding shares of Series E Preferred stock to settle various third-party claims and obligations, avoiding dilution in furtherance of ongoing restructuring efforts. Under the Settlement and Release Agreement with Ceed2Med, all existing agreements, obligations and claims have been cancelled and rescinded, the parties exchanged full mutual releases. and the Company is to receive a cash payment of $200,000, a portion of which has been paid.
On January 22, 2021, the Company settled all outstanding claims and obligations to Dr. Krassen Dimitrov, a former director, Digital Diagnostics, Inc., and KD Innovation Ltd. Previously, the Company had recorded an obligation of $575,000 for claims asserted against the Company. The terms of the settlement are confidential, other than no cash was paid in connection with the settlement. As a result, the Company expects to eliminate $575,000 of indebtedness from the financial statements during the quarter ended March 31, 2021.
On January 22, 2021, our board of directors authorized the issuance of up to approximately 25,000,000 shares common stock in settlement of approximately $1,250,000 in outstanding liabilities and accounts payable owed to 11 persons. Such amount and number of shares is inclusive of a payment to C2M and under the Krassen Settlement described above.
On January 22, 2021, our board of directors approved private offers to be made through January 31, 2021, subject to extension, to holders of our Series A, Series B-1 and Series B-2 preferred stock with inducements to voluntarily convert preferred shares into our common stock with full general releases of all claims against the company. Holders of Series A Preferred Stock may exchange their shares at a conversion price of $0.025 per share. Holders of our Series B-1 and Series B-2 Preferred Stock may exchange their shares at a conversion price equal to .25 shares of common stock for each share of preferred stock exchanged. There were 323,019 shares of Series A, 1,650,000 shares of Series B-1 and 7,516,000 shares of Series B-2 preferred stock outstanding as of December 31, 2020. Outstanding shares of Series B-1 and Series B-2 convertible stock were convertible into 206,250 shares of common stock and 939,500 shares of common stock, respectively, as of December 31, 2019 at the original conversion rate of .125 shares of common stock for each share of preferred stock.
The Company agreed to permit transfer of Series E Preferred Stock and conversion into 6,250,000 shares of common stock ($1.60 per share) and purchase of 8,000,000 shares of restricted common stock for $200,000 in connection with the settlement with C2M as described above.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of presentation and principles of consolidation | The Company’s consolidated financial statements include the financial statements of its 50.1% subsidiary, EOW and 51% subsidiary, Paradise Medlife.
The accompanying 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, which present the consolidated financial statements of the Company and its majority-owned subsidiaries as of December 31, 2020. All significant 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’ (deficit) equity and cash flows as of December 31, 2020 and 2019, and for the years then ended, have been made. Those adjustments consist of normal and recurring adjustments.
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Reclassification | Certain reclassifications of prior period amounts have been made to improve comparability and conform to the current period presentation. Presentation changes were made to the Consolidated Statements of Operations and Consolidated Statement of Cash Flows and the Notes to Consolidated Financial Statements to conform to the current period presentation. These reclassifications had no effect on the reported results of operations. |
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Going concern | The accompanying 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 consolidated financial statements, the Company had a net loss attributable to Exactus Inc. common stockholders of $9.5 million for the year ended December 31, 2020. The net cash used in operating activities was $0.7 million for the year ended December 31, 2020. Additionally, the Company had an accumulated deficit of $30.4 million and working capital deficit of $4.8 million as of December 31, 2020. 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. The accompanying 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.
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 year ended December 31, 2020, the Company received proceeds from the sale of the Company’s Common Stock of approximately $385,000.
The COVID-19 pandemic has resulted in a global slowdown of economic activity which is likely to continue to reduce the future demand for a broad variety of goods and services, while also disrupting sales channels, marketing activities and supply chains for an unknown period of time until the virus is fully contained. The Company’s business operations have been negatively impacted by the COVID-19 pandemic and related events and the Company expects this disruption to continue to have a negative impact on its revenue and results of operations, the size and duration of which is currently difficult to predict. The impact to date has included a decline in product and sales demand. 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 consolidated financial statements as soon as they become known. |
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Use of Estimates | The Company prepares its 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 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 assets, income taxes, contingent liabilities, and fair value of non-cash equity transactions.
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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:
The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2020 and 2019:
A roll forward of the level 3 valuation financial instruments is as follows:
As of December 31, 2020 and 2019, the Company has no assets that are re-measured at fair value. |
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Cash and Cash Equivalents | The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and do not believe the Company is exposed to any significant credit risk. The Company had $0 cash balances in excess of FDIC insured limits at December 31, 2020 and 2019, respectively. Cash and cash equivalents were $25,139 and $18,405 at December 31, 2020 and 2019, respectively.
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Accounts receivable and allowance for doubtful accounts | The Company has a policy of providing an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2020 and 2019, allowance for doubtful accounts amounted to $0 and $13,991, respectively. The allowance for doubtful accounts balance at December 31, 2020 is $0 as the Company wrote off the uncollectible receivables and corresponding reserve. Bad debt expense amounted to $149,907 and $32,577 during the year ended December 31, 2020 and 2019, respectively.
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Prepaid Expenses and Other Current Assets | Prepaid expenses and other assets consisted of the following:
Prepaid expenses and other assets – related party consisted of the following:
Prepaid expenses with C2M consisted primarily of costs paid for future services. Prepaid expenses included prepayments in cash and equity instruments for an operating lease, consulting, and insurance fees which were being amortized over the terms of their respective agreements. During the year ended December 31, 2020, the Company impaired the prepaid assets – related party as the Company no longer plans to farm industrial hemp for its own commercial purposes. Furthermore, on January 21, 2021 the Company entered into a Settlement Agreement with Ceed2Med, LLC, Skybar Holding, LLC, and their principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons.
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Inventory | The Company values inventory, consisting of raw materials, growing plants and finished goods, at the lower of cost or net realizable value. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of the estimated net realizable value include (i) estimates of future demand, and (ii) competitive pricing pressures. In accordance with ASC 905, “Agriculture”, all direct and indirect costs of growing hemp are accumulated until the time of harvest and are reported at the lower of cost or net realizable value. Included in inventory is the Company’s hemp crop under cultivation on farm acreage leased by the Company. The cost of the hemp crop under cultivation is determined based upon costs to purchase industrial hemp seed and industrial hemp cuttings, plus farm labor, fertilizer, water and power, the cost to harvest and cost for drying services. The costs of planting, cultivating and harvesting the Company’s hemp crop are capitalized to hemp crop inventory under cultivation, when incurred. The Company determined the cost allocation of the hemp crop (hemp flowers and hemp cuttings) based upon a proforma Market Value Method. However, based upon current actual sales prices and after reviewing national sales trends, the Company established an inventory reserve to write down the inventory to net realizable value which is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation or shipping.
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Property and Equipment | Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 10 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired, or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the consolidated statement of operations.
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Impairment of long-lived assets | In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment expense of $4,577,406 as follows:
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Derivatives and Hedging- Contracts in Entity's Own Equity | In accordance with the provisions of ASC 815 “Derivatives and Hedging” the embedded conversion features in the convertible notes are not considered to be indexed to the Company’s stock. As a result, these are required to be accounted for as derivative financial liabilities and have been recognized as liabilities on the accompanying consolidated balance sheets. The fair value of the derivative financial liabilities is determined using a binomial model with Monte Carlo simulation and is affected by changes in inputs to that model including the Company’s stock price, expected stock price volatility, the expected term, and the risk-free interest rate. The derivative financial liabilities are subject to re-measurement at each balance sheet date and any changes in fair value is recognized as a component in other income (expenses).
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Revenue Recognition | On January 1, 2018, the Company adopted ASC Topic 606 and the related amendments Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company’s performance obligations are satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product. Payments received from customers that are related to unshipped or undelivered products are recorded as unearned revenue until the shipment of product. As of December 31, 2020 and 2019, the Company had $0 and $215,000, respectively, of unearned revenue recorded from the Company’s related party customer, C2M.
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Cost of Sales | The primary components of cost of sales include the cost of the product, and, indirect cost such as utilities, farm lease expenses, and depreciation expenses on farming equipment related to production and harvesting period.
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Research and Development Expenses | The Company follows ASC 730-10, “Research and Development,” and expenses research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development. Research and development costs of $0 and $22,100 were incurred for the year ended December 31, 2020 and 2019, respectively and are included in operating expenses in the accompanying consolidated statements of operations.
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Advertising Costs | The Company applies ASC 720 “Other Expenses” to account for advertising related costs. Pursuant to ASC 720-35-25-1, the Company expenses the advertising costs when the first time the advertising takes place. Advertising costs were $61,118 and $496,908 for the year ended December 31, 2020 and 2019, respectively, and are included as a component of selling and marketing expenses in the accompanying consolidated statement of operations.
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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 costs of shipping products are classified in selling and marketing expenses as incurred. Shipping costs are included as a component of selling and marketing expenses and were $24,687 and $11,835 for the year ended December 31, 2020 and 2019, respectively.
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Reclassifications | Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations.
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Stock-Based Compensation | Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company adoption did not have any material impact on its consolidated financial statements.
The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
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Related Parties | The Company applies ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.
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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 shareholders 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.
For the year ended December 31, 2020 and 2019, the following potentially dilutive shares were excluded from the computation of diluted earnings per shares because their impact was anti-dilutive:
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Income Taxes | The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
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Non-controlling interests in consolidated financial statements | In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). This ASC clarifies that a non-controlling (minority) interest in subsidiaries is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated statement of operations of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. On March 11, 2019, the Company acquired a 50.1% limited liability membership interest in EOW, pursuant to a Subscription Agreement and a Membership Interest Purchase Agreement and has the right to appoint a manager of the limited liability company. Additionally, on July 5, 2019, the Company acquired a 51% limited liability membership interest in Paradise Medlife. |
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Gain (loss) on modification/extinguishment of debt | In accordance with ASC 470, “Gain (Loss) on Modification/Extinguishment of Debt”, a modification or an exchange of debt instruments that adds or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and is measured and accounted for as extinguishment of the original instrument along with the recognition of a gain or loss. Additionally, under ASC 470, a substantive modification of a debt instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. A substantive modification is accounted for as an extinguishment of the original instrument along with the recognition of a gain/loss.
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Leases | In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance was effective for interim and annual periods beginning after December 15, 2018.
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtained the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the consolidated statements of operations.
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Recent Accounting Pronouncements | In August 2020, the FASB issued ASU 2020-06, “Debt – 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 Contracts in an Entity’s Own Equity”, to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the impact of this guidance.
In December 2019, the FASB released ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The purpose of the update is to reduce the complexity pertaining to certain areas in accounting for income taxes. Key amendments from ASU 2019-12 include, but are not limited to, the accounting for hybrid tax regimes, step-up in tax basis for goodwill in non-business combination transactions, intraperiod tax allocation exception to the incremental approach, and interim period accounting for enacted changes in tax law. ASU 2019-12 is effective for the Company in the first quarter of the year ending December 31, 2021. The Company does not expect that the adoption of the standard will have a material impact on its consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective beginning on March 12, 2020 and may be applied prospectively through December 31, 2022. The does not expect that the adoption of the standard will have a material impact on its consolidated financial statements.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Dec. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial instruments at fair value on a recurring basis |
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Roll forward of the level 3 valuation financial instruments |
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Prepaid expenses and other current assets | Prepaid expenses and other assets consisted of the following:
Prepaid expenses and other assets – related party consisted of the following:
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Impairment of long-lived assets |
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Anti-dilutive securities |
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ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC (Tables) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase consideration |
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INVENTORY (Tables) |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory |
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PROPERTY AND EQUIPMENT (Tables) |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and equipment |
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INTANGIBLE ASSET (Tables) |
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Finite-Lived Intangible Assets, Net [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets |
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OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Tables) |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Right-of-use asset |
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Operating lease liability |
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NOTES PAYABLE (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of notes payable |
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Minimum principal payments under notes payable |
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CONVERTIBLE NOTES PAYABLE (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible notes payable |
The following is a summary of the carrying amounts of convertible notes as of December 31, 2020 and 2019:
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Assumptions |
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STOCKHOLDERS' EQUITY (DEFICIT) (Tables) |
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Warrant activity |
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Stock option activity |
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Fair value assumptions |
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Restricted common stock |
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INCOME TAXES (Tables) |
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Deferred tax assets |
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RESTATEMENT OF PRIOR FINANCIAL INFORMATION (Tables) |
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Accounting Changes and Error Corrections [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of restatement of financial statements | The effect on these revisions on the Company’s consolidated balance sheets is as follows:
The effect on these revisions on the Company’s consolidated statements of operations is as follows:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 31, 2018 |
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Derivative liabilities | $ 237,022 | $ 880,410 | $ 1,742,000 |
Level 1 | |||
Derivative liabilities | 0 | 0 | |
Level 2 | |||
Derivative liabilities | 0 | 0 | |
Level 3 | |||
Derivative liabilities | $ 237,022 | $ 880,410 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Accounting Policies [Abstract] | ||
Balance, beginning | $ 880,410 | $ 1,742,000 |
Transfers out due to conversions of convertible notes | (129,714) | 0 |
Initial fair value of derivative liabilities as debt discount | 0 | 670,467 |
Initial fair value of derivative liabilities as derivative expense | 0 | 786,823 |
Gain on extinguishment of debt | 0 | (3,206,000) |
Change in fair value included in derivative loss | 513,674 | 887,120 |
Balance, ending | $ 237,022 | $ 880,410 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Prepaid expenses and other assets | $ 15,258 | $ 248,767 |
Prepaid expense: C2M - current | ||
Prepaid expenses and other assets | 0 | 622,160 |
Prepaid expense: C2M - Noncurrent | ||
Prepaid expenses and other assets | 0 | 2,492,045 |
Prepaid services | ||
Prepaid expenses and other assets | 0 | 248,776 |
Prepaid insurance | ||
Prepaid expenses and other assets | 9,288 | 0 |
Other assets | ||
Prepaid expenses and other assets | $ 6,000 | $ 0 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Impairment expense | $ 4,577,406 | $ 250,192 |
Prepaid expenses and other assets - related party | ||
Impairment expense | 2,483,523 | |
Deposit | ||
Impairment expense | 40,000 | |
Property and equipment | ||
Impairment expense | 372,041 | |
Intangible assets | ||
Impairment expense | 1,412,727 | |
Operating lease - right of use asset | ||
Impairment expense | $ 269,115 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) - shares |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Anti-dilutive securities | 27,929,852 | 23,907,980 |
Stock Options | ||
Anti-dilutive securities | 3,751,749 | 5,671,280 |
Stock Warrants | ||
Anti-dilutive securities | 1,578,549 | 2,014,299 |
Restricted Stock | ||
Anti-dilutive securities | 2,960,810 | 3,583,328 |
Convertible Preferred Stock | ||
Anti-dilutive securities | 9,460,845 | 3,027,778 |
Convertible Notes Payable | ||
Anti-dilutive securities | 11,404,548 | 9,611,295 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Mar. 31, 2020 |
Sep. 30, 2019 |
Sep. 30, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Accounting Policies [Abstract] | |||||
Net loss | $ (2,666,265) | $ (1,852,088) | $ (5,086,027) | $ (9,460,699) | $ (10,385,789) |
Net cash used in operations | (699,686) | (5,746,290) | |||
Accumulated deficit | (30,384,380) | (20,923,681) | |||
Working capital deficit | $ (3,112,647) | $ 1,504,911 | $ 1,504,911 | (5,100,000) | (1,379,113) |
Proceeds from sale of common stock | 385,000 | 7,215,380 | |||
Cash and cash equivalents | 25,139 | 18,405 | |||
Allowance for doubtful accounts | 0 | 13,991 | |||
Bad debt expense | 149,907 | 32,577 | |||
Prepaid expenses and other current assets | 15,258 | 248,776 | |||
Inventory | 10,712 | 1,337,809 | |||
Research and development | 0 | 22,100 | |||
Advertising costs | 61,118 | 496,908 | |||
Shipping and handling costs | $ 24,687 | $ 11,835 |
ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC (Details) |
12 Months Ended |
---|---|
Dec. 31, 2020
USD ($)
| |
Exactus One World | |
Total assets acquired at fair value | $ 2,940,000 |
Total purchase consideration | 2,940,000 |
Exactus One World | Hemp Farming License | |
Intangible assets | 10,000 |
Exactus One World | Farm Leases | |
Intangible assets | 2,930,000 |
Green Goddess Extracts, LLC | |
Inventory | 33,971 |
Total assets acquired at fair value | 250,000 |
Total purchase consideration | 250,000 |
Green Goddess Extracts, LLC | Trademark | |
Intangible assets | 3,500 |
Green Goddess Extracts, LLC | Customer List | |
Intangible assets | 212,529 |
Levor, LLC | |
Inventory | 0 |
Total assets acquired at fair value | 70,000 |
Total purchase consideration | 70,000 |
Levor, LLC | Brand | |
Intangible assets | $ 70,000 |
INVENTORY (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Finished goods - CBD | $ 10,712 | $ 0 |
Finished goods - hemp flowers and hemp cuttings | 0 | 1,337,809 |
Inventory | $ 10,712 | $ 1,337,809 |
PROPERTY AND EQUIPMENT (Details) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Property and equipment, gross | $ 541,203 | $ 541,203 |
Less: accumulated depreciation | (149,003) | (63,770) |
Less: Impairment expense | (372,041) | 0 |
Property and equipment, net | 20,159 | 477,433 |
Greenhouse | ||
Property and equipment, gross | $ 34,465 | 34,465 |
Estimated life | 10 years | |
Fencing and Storage | ||
Property and equipment, gross | $ 44,543 | 44,543 |
Estimated life | 5 years | |
Irrigation | ||
Property and equipment, gross | $ 387,975 | 387,975 |
Estimated life | 5 years | |
Office and Computer Equipment | ||
Property and equipment, gross | $ 40,834 | 40,834 |
Estimated life | 3 years | |
Farming Equipment | ||
Property and equipment, gross | $ 11,500 | 11,500 |
Estimated life | 5 years | |
Leasehold Improvement | ||
Property and equipment, gross | $ 21,886 | $ 21,886 |
Estimated life | 5 years |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 85,233 | $ 63,770 |
INTANGIBLE ASSET (Details) - USD ($) |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2020 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Intangible assets, gross | $ 2,940,000 | $ 3,226,029 | |
Less: accumulated amortization | (1,527,273) | (828,526) | |
Less: impairment expenses | (1,412,727) | (250,192) | |
Intangible assets, net | 0 | 2,147,311 | |
Farm Leases | |||
Intangible assets, gross | $ 2,930,000 | 2,930,000 | |
Useful life | 3 years | ||
Hemp Farming License | |||
Intangible assets, gross | $ 10,000 | 10,000 | |
Useful life | 1 year | ||
Trademark | |||
Intangible assets, gross | $ 0 | 3,500 | |
Useful life | 1 year | ||
Customer List | |||
Intangible assets, gross | $ 0 | 212,529 | |
Useful life | 1 year | ||
Brand | Levor, LLC | |||
Intangible assets, gross | $ 0 | $ 70,000 | |
Useful life | 1 year |
INTANGIBLE ASSET (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Finite-Lived Intangible Assets, Net [Abstract] | ||
Amortization | $ 734,584 | $ 828,526 |
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Leases [Abstract] | ||
Farm lease ROU | $ 506,506 | $ 506,506 |
Commercial lease ROU | (237,391) | (115,695) |
Less accumulated reduction | (269,115) | 0 |
Right-of-use asset | $ 0 | $ 390,810 |
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Details 1) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Leases [Abstract] | ||
Farm lease ROU | $ 506,506 | $ 506,506 |
Commercial lease ROU | (237,391) | (115,695) |
Total | 269,115 | 390,811 |
Less: current portion | (269,115) | (169,869) |
Long term portion of lease liability | $ 0 | $ 220,942 |
NOTES PAYABLE (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Debt Disclosure [Abstract] | ||
Principal amount | $ 335,510 | $ 0 |
Notes payable - current portion | (130,344) | 0 |
Notes payable - long-term portion | $ 205,166 | $ 0 |
NOTES PAYABLE (Details 1) |
Dec. 31, 2020
USD ($)
|
---|---|
Debt Disclosure [Abstract] | |
Year ended December 31, 2020 | $ 11,859 |
Year ended December 31, 2021 | 155,501 |
Year ended December 31, 2022 | 68,392 |
Year ended December 31, 2023 | 2,091 |
Year ended December 31, 2024 and thereafter | 97,667 |
Total principal payments | $ 335,510 |
CONVERTIBLE NOTES PAYABLE (Details) - USD ($) |
Dec. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Carrying amount of convertible debt | $ 646,036 | $ 185,906 |
Less: current portion | (646,036) | (85,906) |
Convertible notes, long term | 0 | 100,000 |
Principal amount | 933,333 | 933,333 |
Additional principal | 520,250 | 0 |
Add: amortization of redemption premium | 88,889 | 8,280 |
Less: redemption premium payments | (20,800) | 0 |
Less: principle payments and conversions | (356,186) | 0 |
Less: unamortized debt discount and debt issuance costs | 0 | (755,707) |
Current debt less unamortized debt discount and debt issuance costs | 696,286 | 185,906 |
Convertible Note 1 | ||
Carrying amount of convertible debt | 100,000 | 100,000 |
Convertible Note 2 | ||
Carrying amount of convertible debt | $ 546,036 | $ 85,906 |
CONVERTIBLE NOTES PAYABLE (Details 1) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Dividend rate | 0.00% | 0.00% |
Minimum | ||
Expected volatility | 213.48% | 239.97% |
Expected term | 1 month 28 days | 4 months |
Risk free rate | 0.008% | 1.59% |
Maximum | ||
Expected volatility | 216.44% | 567.11% |
Expected term | 7 months 28 days | 1 year |
Risk free rate | 0.18% | 2.54% |
CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Debt Disclosure [Abstract] | ||
Interest expense | $ 1,003,439 | $ 479,111 |
Debt discount amortization | 836,316 | 425,712 |
Accrued interest | 52,051 | 15,399 |
Gain on settlement of debt | $ 126,222 | $ 3,004,630 |
STOCKHOLDERS' EQUITY (DEFICIT) (Details 2) |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
Dec. 30, 2019 |
|
Risk-free interest rate | 1.55% | ||
Expected volatility | 263.00% | ||
Expected term (in years) | 10 years | 10 years | |
Expected dividend yield | 0.00% | 0.00% | |
Minimum | |||
Risk-free interest rate | 2.43% | ||
Expected volatility | 293.00% | ||
Maximum | |||
Risk-free interest rate | 2.95% | ||
Expected volatility | 296.00% |
STOCKHOLDERS' EQUITY (DEFICIT) (Details 3) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Equity (Deficit): | ||
Restricted Common Stock | 3,583,328 | 0 |
Granted | $ 4,871,022 | $ 3,727,778 |
Vested and issued | (1,727,394) | (144,450) |
Forfeited | $ (3,766,153) | $ 0 |
Restricted Common Stock | 2,960,803 | 3,583,328 |
Weighted average grant date fair value, beginning | $ 0.68 | $ 0.00 |
Granted | 0.08 | 0.69 |
Vested and issued | 0.39 | (0.84) |
Forfeited | 0.36 | 0.00 |
Weighted average grant date fair value, ending | $ 0.41 | $ 0.68 |
CONCENTRATION OF REVENUE AND SUPPLIES (Details Narrative) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Account Receivable | ||
Risk percentage | 85.00% | |
Accounts Payable | ||
Risk percentage | 60.00% | |
Sales | ||
Risk percentage | 85.00% | 58.00% |
Customer One | Account Receivable | ||
Risk percentage | 34.00% | |
Customer One | Sales | ||
Risk percentage | 38.00% | 11.00% |
Related Party One | Account Receivable | ||
Risk percentage | 23.00% | |
Related Party One | Sales | ||
Risk percentage | 24.00% | 36.00% |
Related Party Two | Sales | ||
Risk percentage | 23.00% | 11.00% |
Customer Two | Account Receivable | ||
Risk percentage | 24.00% | |
Vendor One | Accounts Payable | ||
Risk percentage | 27.00% | 12.00% |
Vendor Two | Accounts Payable | ||
Risk percentage | 30.00% | |
Affiliate | Accounts Payable | ||
Risk percentage | 18.00% |
INCOME TAXES (Details) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Income Tax Disclosure [Abstract] | ||
US Federal statutory tax rate | 21.00% | 21.00% |
State taxes | 4.35% | 4.60% |
Bad debt | (1.62%) | 0.00% |
Derivative loss | 1.02% | 0.00% |
Stock-based compensation | (3.17%) | 0.00% |
Depreciation | 0.19% | 0.00% |
Amortization | 2.17% | 0.00% |
Impairment | (12.00%) | 0.00% |
Change in valuation allowance | 11.92% | (25.60%) |
Effective tax rate | 0.00% | 0.00% |
INCOME TAXES (Details 1) - USD ($) |
12 Months Ended | |
---|---|---|
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Income Tax Disclosure [Abstract] | ||
Net operating loss | $ 8,337,000 | $ 4,226,345 |
Valuation allowance | (8,337,000) | (4,226,345) |
Total tax expense | $ 0 | $ 0 |
RESTATEMENT OF PRIOR FINANCIAL INFORMATION (Details) - USD ($) |
Dec. 31, 2020 |
Mar. 31, 2020 |
Dec. 31, 2019 |
Sep. 30, 2019 |
Dec. 31, 2018 |
---|---|---|---|---|---|
Current assets | $ 51,109 | $ 1,661,211 | $ 2,429,235 | $ 3,255,169 | |
Current liabilities | 4,904,818 | 4,773,858 | 3,808,348 | 1,750,258 | |
Working capital (deficit) | (5,100,000) | (3,112,647) | (1,379,113) | 1,504,911 | |
Total assets | 71,268 | 6,753,711 | 8,016,834 | 9,590,919 | |
Total liabilities | 5,109,984 | 4,950,959 | 4,129,290 | 2,113,964 | |
Total stockholders' equity | $ (5,038,716) | 1,802,752 | 3,887,544 | 7,476,955 | $ (3,424,502) |
Previously Reported | |||||
Current assets | 1,661,211 | 2,429,235 | 3,255,169 | ||
Current liabilities | 5,338,486 | 4,190,544 | 2,052,454 | ||
Working capital (deficit) | (3,677,275) | (1,761,309) | 1,202,715 | ||
Total assets | 8,458,826 | 9,799,277 | 11,449,203 | ||
Total liabilities | 6,985,191 | 6,117,431 | 4,054,527 | ||
Total stockholders' equity | 1,473,635 | 3,681,846 | 7,394,676 | ||
Adjustments | |||||
Current assets | 0 | 0 | 0 | ||
Current liabilities | (564,628) | (382,196) | (302,196) | ||
Working capital (deficit) | 564,628 | 382,196 | 302,196 | ||
Total assets | (1,705,115) | (1,782,443) | (1,858,284) | ||
Total liabilities | (2,034,232) | (1,988,141) | (1,940,563) | ||
Total stockholders' equity | $ 329,117 | $ 205,698 | $ 82,279 |
RESTATEMENT OF PRIOR FINANCIAL INFORMATION (Details 1) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Mar. 31, 2020 |
Sep. 30, 2019 |
Sep. 30, 2019 |
Dec. 31, 2020 |
Dec. 31, 2019 |
|
Revenues | $ 836,000 | $ 60,153 | $ 215,816 | $ 2,071,010 | $ 345,680 |
Operating expenses | 2,069,348 | 1,980,398 | 5,721,179 | 8,972,290 | |
Loss from operations | (2,633,604) | (2,020,663) | (5,721,568) | (10,554,926) | (10,672,744) |
Other income (expenses) | (188,480) | (5,105) | 1,178,363 | (386,543) | 653,936 |
Net loss | (2,822,084) | (2,025,768) | (4,543,205) | (10,941,469) | (10,018,808) |
Net Loss available to Exactus, Inc. common stockholders | $ (2,666,265) | $ (1,852,088) | $ (5,086,027) | $ (9,460,699) | $ (10,385,789) |
Basic & diluted EPS | $ (0.06) | $ (0.05) | $ (0.15) | $ (0.22) | $ (.30) |
Previously Reported | |||||
Revenues | $ 836,000 | $ 60,153 | $ 215,816 | $ 345,680 | |
Operating expenses | 2,192,767 | 2,062,677 | 5,803,458 | 9,177,988 | |
Loss from operations | (2,757,023) | (2,102,942) | (5,803,847) | (10,878,442) | |
Other income (expenses) | (188,480) | (5,105) | 1,178,363 | 653,936 | |
Net loss | (2,945,503) | (2,108,047) | (4,625,484) | (10,224,506) | |
Net Loss available to Exactus, Inc. common stockholders | $ (2,789,684) | $ (1,934,367) | $ (5,168,306) | $ (10,591,487) | |
Basic & diluted EPS | $ (0.06) | $ (0.05) | $ (0.16) | $ (0.31) | |
Adjustments | |||||
Revenues | $ 0 | $ 0 | $ 0 | $ 0 | |
Operating expenses | (123,419) | (82,279) | (82,279) | (205,698) | |
Loss from operations | 123,419 | 82,279 | 82,279 | 205,698 | |
Other income (expenses) | 0 | 0 | 0 | 0 | |
Net loss | 123,419 | 82,279 | 82,279 | 205,698 | |
Net Loss available to Exactus, Inc. common stockholders | $ 123,419 | $ 82,279 | $ 82,279 | $ 205,698 | |
Basic & diluted EPS | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 |