0001654954-21-004566.txt : 20210423 0001654954-21-004566.hdr.sgml : 20210423 20210423160644 ACCESSION NUMBER: 0001654954-21-004566 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 79 CONFORMED PERIOD OF REPORT: 20201231 FILED AS OF DATE: 20210423 DATE AS OF CHANGE: 20210423 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Exactus, Inc. CENTRAL INDEX KEY: 0001552189 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 271085858 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-38190 FILM NUMBER: 21849757 BUSINESS ADDRESS: STREET 1: 80 NE 4TH AVENUE STREET 2: SUITE 28 CITY: DELRAY BEACH STATE: FL ZIP: 33483 BUSINESS PHONE: 561-455-4822 MAIL ADDRESS: STREET 1: 80 NE 4TH AVENUE STREET 2: SUITE 28 CITY: DELRAY BEACH STATE: FL ZIP: 33483 FORMER COMPANY: FORMER CONFORMED NAME: Spiral Energy Tech., Inc. DATE OF NAME CHANGE: 20131004 FORMER COMPANY: FORMER CONFORMED NAME: Solid Solar Energy, Inc. DATE OF NAME CHANGE: 20120613 10-K/A 1 exdi_10kdec312020.htm 10-K/A exdi_10kdec312020
 

UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K/A
Amendment No.1
 
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended December 31, 2020
 
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________ to ________
 
Commission File Number: 001-38190
 
Exactus, Inc
(Exact name of registrant as specified in its charter) 
 
Nevada
(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)
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common stock, par value of $0.0001
(Title of class)

I Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes    No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes    No
 
The aggregate market value of the common stock held by non-affiliates as of June 30, 2020 was $3.5 million.
 
The outstanding number of shares of common stock as of March 31, 2021 was 99,632,710.
 
EXPLANATORY NOTE
 
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.
 

 
 
 
TABLE OF CONTENTS
 
 
 
 
 
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Cautionary Statement Regarding Forward-Looking Statements
 
This annual report on Form 10-K (this “Annual Report”) contains forward-looking statements, which are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements in this Annual Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, customer demand, market acceptance, growth rate, competitiveness, gross margins, and expenditures.
 
Although forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks, uncertainties, and changes in condition, significance, value and effect, including those discussed below under the heading “Risk Factors” within Part I, Item 1A of this Annual Report and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), such as our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Such risks, uncertainties and changes in condition, significance, value, and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this Annual Report, other than as required by law. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
 
 
-ii-
 
PART I
 
 
Item 1. Business
 
Business Overview
 
We are a Nevada corporation organized under the name Solid Solar Energy, Inc in 2008 and renamed Exactus, Inc. in 2016. We have pursued opportunities in Cannabidiol, which we refer to as CBD, since 2019.
 
In December 2018, we expanded our focus to pursue opportunities in hemp-derived CBD. This decision was based in part on the passing of the 2018 Farm Bill, known as the Agriculture Improvement Act of 2018, which will remain in force through 2023. The 2018 Farm Bill authorized the production of hemp and removed hemp and hemp seeds from the Drug Enforcement Administration’s, or the DEA’s, schedule of Controlled Substances. It also directed the U.S. Department of Agriculture, or the USDA, to issue regulations and guidance to implement a program to create a consistent regulatory framework around production of hemp throughout the United states. On October 31, 2019, the USDA, Agricultural Marketing Services, issued an interim final rule (with request for comments). The rule outlines provisions for the USDA to approve plans submitted by states and Indian tribes. The U.S. Domestic Hemp Production Program establishes federal regulatory oversight of the production of hemp in the U.S. The program authorizes the USDA to approve plans submitted by states and Indian tribes for the domestic production of hemp and establishes a federal plan for producers in states or territories that choose not to administer a state or tribe specific plan, provide the state or tribe does not ban hemp production.
  
Our principal executive offices were located at 80 NE 4th Avenue, Suite 28 Delray Beach, FL 33483 until mid-2020 when we commenced remote operations due to Covid-19, and our telephone number is (800) 881-9352.
 
Farming Operations
 
During most of 2020 we were engaged in marketing of hemp derived products sourced from our leased farming operations. Through our majority-owned subsidiary, Exactus One World, LLC (“EOW”) we held one-year leases, for approximately 200 acres of farmland in southwest Oregon for growing hemp. Our initial efforts to pursue agricultural development, including farm soil preparation, planting, harvesting, transportation and drying, were situated at farms from which we shipped hemp biomass to third parties for processing. Due to a rapid decline in commodity prices for industrial hemp experienced during 2020 we suspended all farming operations during 2020, and entered into a supply agreement with Hemptown USA, Inc. to provide us with industrial hemp.
 
Industrial Hemp
 
We seek to take advantage of an emerging worldwide trend to utilize the production of cannabinoids derived from industrial hemp, such as CBD, CBG and CBN, to produce consumer products. Hemp is being used in cosmetics, nutritional supplements, and animal feed, where we also intend to focus our efforts. The market for hemp-derived products is expected to increase substantially over the next five years.
 
The therapeutic potential of cannabinoids is attributable to the valuable overlap between phyto-cannabinoids (i.e. plant-derived cannabinoids) and the endogenous cannabinoid system in humans, termed a “therapeutic handshake”. Clinical trials demonstrate few adverse effects from oral CBD doses of up to 1,500 mg/day or up to 30 mg IV. The scientific understanding of CBD’s clinical effects is based mostly on studies in specific indications, like epilepsy. One company, GW Pharmaceuticals pls, a leading company developing pharmaceutical drugs and cannabinoid-based medicines, has sought and obtained US and foreign approvals since 2018. EPIDIOLEX®/EPIDYOLEX® (cannabidiol), the first prescription, plant-derived cannabis-based medicine approved by the U.S. Food and Drug Administration (FDA) for use in the U.S. and the European Commission (EC) for use in Europe, is an oral solution which contains highly purified cannabidiol (CBD). In the U.S., EPIDIOLEX® is indicated for the treatment of seizures associated with Lennox-Gastaut syndrome (LGS), Dravet syndrome or Tuberous Sclerosis Complex (TSC) in patients one year of age and older. EPIDIOLEX® has received approval in the European Union under the tradename EPIDYOLEX® for adjunctive use in conjunction with clobazam to treat seizures associated with LGS and Dravet syndrome in patients two years and older. In September 2020, EPIDYOLEX® was approved by the Australian Therapeutic Goods Administration (TGA) for use in Australia for the treatment of seizures associated with LGS or Dravet syndrome in patients two years of age and older. EPIDYOLEX® has received Orphan Drug Designation from the European Medicines Agency (EMA) for the treatment of seizures associated TSC.
 
 
 
 
Healthcare
 
Currently, CBD products are not a covered benefit, or an extra benefit, under managed care, insurance, Medicare, Medicaid or any state programs. This will likely continue to be the case for the intermediate term. Legal issues and confusion concerning legality, lack of FDA regulation and availability as an OTC medication will likely continue for an indefinite period impeding adoption and payor acceptance.
 
Competition
 
We believe a multitude (hundreds) of companies, large and small, have launched or intend to launch retail brands and white label products containing cannabinoids like CBD. Many of these are dependent upon third parties to provide raw material inventory for sale. We believe this makes many of the participants in the industry vulnerable to shortages, quality issues, reliability, and pricing variability. Our industry relationships may allow us to build an efficient supply chain that will put us among the few companies that maintain a competitive pricing and supply advantage.
 
The CBD-based consumer product industry is highly fragmented with numerous companies, many of which are under-capitalized. There are also large, well-funded companies that currently do not offer hemp-based consumer products including large agribusiness companies such as Cargill and Tyson Foods, but may do so in the future and become significant competitors.
 
Our goal is to rapidly establish one or more principal sources of supply and to develop wholesale and retail sales channels for end-products, such as nutraceuticals, supplements and pet and farm products.   
 
Environmental Matters
 
Compliance with federal, state and local requirements regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, have not had, nor are they expected to have, any direct material effect on our capital expenditures, earnings or competitive position, however such factors could indirectly affect us as well as participants in the supply chain for our products, and our business, operations, vendors or suppliers.
 
 
 
 
Item 1A. Risk Factors
 
Risks Related to Our Company and Our Business
 
Because we have a limited operating history to evaluate our company, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delay frequently encountered by an early-stage company.
 
Since we have a limited operating history in our current business of hemp-based CBD, it will make it difficult for investors and securities analysts to evaluate our business and prospects. You must consider our prospects in light of the risks, expenses and difficulties we face as an early-stage company with a limited operating history. Investors should evaluate an investment in our company considering the uncertainties encountered by early-stage companies in an intensely competitive industry and in which the potential hemp-based CBD competition and farming, extraction, production and manufacturing companies are large well capitalized companies with resources (financial and otherwise) significantly greater than the Company’s. There can be no assurance that our efforts will be successful or that we will be able to become profitable.
 
We have sustained losses in the past and we may sustain losses in the foreseeable future.
 
We have incurred losses from operations in prior periods, including the years ended December 31, 2020 and 2019.  Our loss from operations for the year ended December 31, 2020 was $10.6 million and our net loss was $10.9 million for the year ended December 31, 2020. Our accumulated deficit was $30.4 million at December 31, 2020, which includes significant non-cash charges. We expect to sustain losses in the foreseeable future and may never be profitable.
  
Because we expect to need additional capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.
 
We expect that as our business continues to grow, we will need additional working capital.  If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business, and we will have to modify our business plans accordingly. These factors would have a material and adverse effect on our future operating results and our financial condition.
 
If we reach a point where we are unable to raise needed additional funds to continue as a going concern, we will be forced to cease our activities and dissolve the Company.  In such an event, we will need to satisfy various creditors and other claimants, severance, lease termination and other dissolution-related obligations.
 
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
 
The audit report prepared by our independent registered public accounting firm relating to our consolidated financial statements for the year ended December 31, 2020 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Our auditor’s doubts are based on our recurring losses from operations, negative cash flows from operating activities and accumulated deficit. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to fund our operations. If we are unable to raise additional capital or secure additional lending soon, management expects that we will need to curtail our operations.
 
 
 
 
We may not be able to successfully implement our strategy on a timely basis or at all.
 
Our future success depends on our ability to implement our strategy of expanding into new markets and new distribution channels and attracting new consumers to our brand. Our ability to implement this strategy depends, among other things, on our ability to:
 
establish our reputation as a well-managed enterprise committed to delivering premium quality products;
 
enter into distribution and other strategic arrangements with retailers and other potential distributors of our products;
 
continue to effectively compete in specialty channels and respond to competitive developments;
 
identify, expand and maintain loyal customers;
 
maintain and, to the extent necessary, improve our standards for product quality, safety and integrity;
 
maintain sources from suppliers that comply with all federal, state and local laws for the required supply of quality ingredients to meet our growing demand;
 
identify and successfully enter and market our products in new geographic markets and market segments;
 
maintain compliance with all federal, state and local laws related to our products; and
 
attract, integrate, retain and motivate qualified personnel.
 
We may not be able to successfully implement our strategy and may need to change our strategy in order to maintain our growth. If we fail to implement our strategy or if we invest resources in a strategy that ultimately proves unsuccessful, our business, financial condition and results of operations may be materially adversely affected.
 
We may have difficulties managing our anticipated growth, or we may not grow at all.
 
If we succeed in growing our business, such growth could strain our management team and capital resources. Our ability to manage operations and control growth will be dependent on our ability to raise and spend capital to successfully attract, train, motivate, retain, and manage new members of senior management and other key personnel and continue to update and improve our management and operational systems, infrastructure and other resources, financial and management controls, and reporting systems and procedures. Failure to manage our growth effectively could cause us to misallocate management or financial resources, and result in additional expenditures and inefficient use of existing human and capital resources or we otherwise may be forced to grow at a slower pace that could impair or eliminate our ability to achieve and sustain profitability. Such slower than expected growth may require us to restrict or cease our operations and go out of business.
 
The focus of our business is to purchase and sell hemp-based products. We may not be able to successfully buy and sell products and, if we acquire hemp-based products from third parties, we may fail to realize all of the anticipated benefits of our business plans and efforts.
 
There is significant risk involved in connection with our activities in which we seek to pursue hemp-based businesses. We have no prior experience as an operator of hemp-based businesses. The investment in farm operations intended to produce sales and our business model failed to produce anticipated benefits, due to oversupply, rapidly declining prices and our inability to establish significant markets. Failure to successfully effectively utilize our biomass created from farming and extract ingredients to produce or sell, or scale our operations, had had and may continue to have a material adverse effect on our business, financial condition and results of operations.
 
Therefore, there is no assurance that the hemp-based business will be successful, will occur timely or in a timeframe that is capable of prediction, or will generate enough revenue to recoup our investment.
 
 
 
We may not be able to manage our manufacturing and supply chain effectively, which may adversely affect our results of operations.
 
We must accurately forecast demand for all our products in order to ensure that we have enough products available to meet the needs of our customers. Our forecasts are based on multiple assumptions that may cause our estimates to be inaccurate and affect our ability to obtain adequate third-party contract manufacturing capacity in order to meet the demand for our products, which could prevent us from meeting increased customer demand and harm our brand and our business. If we do not accurately align our purchasing capabilities with customer demand, our business, financial condition and results of operations may be materially adversely affected.
 
During 2020, we relied upon five outside suppliers for our supply of CBD and CBG. During 2021, we intend to leverage and build upon existing relationships with suppliers. We will remain, dependent on a small number of suppliers for our products. If any of our limited number of suppliers were to go out of business, we might be unable to find a replacement for such sources in a timely manner, if at all. If a supplier were to be acquired by a competitor, the competitor may elect not to sell to us at all. The loss of a supplier could cause additional difficulties in finding a substitute supplier given the strict licensing requirements in this industry and there are a limited number of suppliers that currently hold such licenses and comply with the 2014 Farm Bill. If for any reason we were to change any one of our third-party contract manufacturers, we could face difficulties that might adversely affect our ability to maintain an adequate supply of our products, and we would incur costs and expend resources while making the change. Moreover, we might not be able to obtain terms as favorable as those received from our current third-party suppliers and contract manufacturers, which in turn would increase our costs. 
 
In addition, we must continuously monitor our inventory and product mix against anticipated demand. If we underestimate demand, we risk having inadequate supplies and damaging supplier relationships. We also face the risk of having too much inventory on hand that may reach its expiration date and become unsalable, and we may be forced to rely on markdowns or promotional sales to dispose of excess or slow-moving inventory. If we are unable to manage our supply chain effectively, our operating costs could increase, and our profit margins could decrease.
  
Reliance on other Manufacturers.
 
The ability to compete and grow will be dependent on it having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, facilities, and raw materials. No assurances can be given that we will be successful in maintaining a required supply of skilled labor, equipment, facilities or raw materials.
 
We rely on third parties for extraction, processing, and manufacturing. The Company cannot provide assurance that access to other manufacturers for supply, expertise, or materials will not be limited, not be interrupted, not be restricted in certain geographic regions, or be of satisfactory quality or be delivered in a timely manner. In this regard, we will require continued access to Current Good Manufacturing Practices (“cGMP”) manufacturer facilities, testing laboratories, qualified extraction facilities, processing, manufacturing and related services. If we are unable to obtain access to a cGMP manufacturer, for example, or any of the other supply chain elements involved in our plans, we may be restricted from operations which would have a materially adverse effect on our business and operations.
 
We are heavily reliant on a small number of customers and suppliers.
 
During the year ended December 31, 2020, 3 customers represented 82% of our total net sales of CBD products, including Ceed2Med, LLC (“C2M”), a related party. The loss of any of these customers or their inability to make future payments could significantly impact our business and results of operation. In addition, we purchased most of our finished products from three suppliers. In January 2021, the Company and C2M agreed to cancel all obligations and agreements. C2M is also engaged in the business of farming and selling hemp and hemp-derived products and is a competitor. Our heavy reliance on a limited number of suppliers for our products could have significant impact on our business and results of operation in the event of any shortage of, or delay in, the supply. The loss of any supplier could significantly impact our business and results of operation.
 
 
 
 
If we fail to manage our existing assets and third-party relationships (such as, extractors, producers, distributors, shippers and retail distribution clients) effectively, our revenue and profits could decline, and should we fail to acquire additional revenues, our growth could be impeded.
 
Our success depends in part on our ability to manage our third-party relationships necessary to effectively manage our assets.  Our vendors and providers are not bound by long-term contracts that ensure us a consistent access to necessary expertise, which is crucial to our ability to generate revenues and earnings. The ability to utilize third parties and benefit from our assets will depend on various factors, some of which are beyond our control.
 
We are reliant on key inputs and changes in their costs could negatively impact our profitability.
 
Our business is dependent on several key inputs and their related costs including raw materials and supplies related to product development and manufacturing operations. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact our business, financial condition, results of operations or prospects. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a sole source supplier was to go out of business, we might be unable to find a replacement for such source in a timely manner or at all. If a sole source supplier were to be acquired by a competitor, that competitor may elect not to sell to us in the future. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on our business, financial condition, results of operations or prospects.
 
Fluctuations in the cost of ingredients, labor and other costs could adversely affect our operating results.
 
Our principal products contain hemp-derived CBD oil and isolate. Increases and unexpected decreases in the cost of ingredients in our products could have a material adverse effect on our operating results. Significant price increases, market conditions, weather, acts of God and other disasters could materially affect our operating results. An increase in our operating costs could adversely affect our profitability. Factors such as inflation, increased labor and employee benefit costs and increased energy costs may adversely affect our operating costs. Decreases in demand or excess availability of biomass may cause unexpected decreases in raw materials and corresponding decrease in the retail price of CBD products. As a result, as experienced during 2020, we may experience situations where the cost paid for inventory exceeds the current retail market. Many of the factors affecting costs are beyond our control and we may not be able to pass along increased costs to our customers.
 
If the ingredients used in our products are contaminated, alleged to be contaminated or are otherwise rumored to have adverse effects, our results of operations could be adversely affected.
 
We buy ingredients from other manufacturers. If these materials are alleged or prove to include contaminants that affect the safety or quality of our products or are otherwise rumored to have adverse effects, for any reason, we may sustain the costs of and possible litigation resulting from a product recall and need to find alternate ingredients, delay production, or discard or otherwise dispose of products, which could adversely affect our business, financial condition and results of operations. In addition, if any of our competitors experience similar events, our reputation could be damaged, including as a result of a loss of consumer confidence in the types of products we sell.
 
Although we insure on an economically reasonable basis against product recalls and product contamination, and carry a cannabis regulatory and enforcement endorsement under our Directors and Officers insurance policy, our insurance may not be adequate to cover all liabilities that we may incur in connection with product liability claims, including among others, that the products we sell caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. For example, punitive damages are generally not covered by insurance. If we are subject to substantial product liability claims in the future, we may not be able to continue to maintain our existing insurance, obtain comparable insurance at a reasonable cost, if at all, or secure additional coverage. This could result in future product liability claims being uninsured. If there is a product liability judgment against us or a settlement agreement related to a product liability claim, our business, financial condition and results of operations may be materially adversely affected. In addition, even if product liability claims against us are not successful or are not fully pursued, these claims could be costly and time-consuming and may require management to spend time defending claims rather than operating our business.
 
 
 
 
We may become the subject of litigation and, due to the nature of our business, may be the target of future legal proceedings that could have an adverse effect on our business.
 
The Company is currently subject to disputes and litigation with several vendors and former employees principally related to termination, failure to perform and unpaid wages.
 
The Company may become subject to similar actions in the future which will be costly and time consuming to defend, and the outcomes of which are uncertain.
 
We may seek to internally develop additional hemp-based products, which would take time and be costly. Moreover, the failure to successfully develop, or obtain or maintain intellectual property rights for, such products would lead to the loss of our investments in such activities.
 
Part of our business may include the internal development of products that we will seek to offer and sell. However, this aspect of our business would likely require significant capital and would take time to achieve. Such activities could also distract our management team from its present business initiatives, which could have a material and adverse effect on our business. There is also the risk that our initiatives in this regard would not yield any viable new products or developments, which would lead to a loss of our investments in time and resources in such activities.
 
In addition, even if we are able to internally develop new products, in order for those products to be viable and to compete effectively, we would need to develop and maintain, and we would heavily rely upon, a proprietary position with respect to such products. However, there are significant risks associated with any such efforts and products we may develop principally including the following:
 
efforts may not result in success, or may take longer than we expect;
 
we may be subject to litigation or other proceedings;
 
any patents or trademarks that are issued to us may not provide meaningful protection;
 
we may not be able to develop additional proprietary technologies;
 
other companies may challenge our efforts or intellectual property rights that are issued to us;
 
other companies may have independently developed and/or patented (or may in the future independently develop and patent) similar or alternative technologies, or duplicate our technologies; and
 
other companies may design around technologies we have developed.
 
If we do not successfully generate additional products and services, or if such products and services are developed but not successfully commercialized, we could lose revenue opportunities.
 
Our future success depends, in part, on our ability to expand our product and service offerings. To that end we have engaged in the process of identifying new product opportunities to provide additional products and related services to our customers. The processes of identifying and commercializing new products is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging trends, our business could be harmed. We have already and may have to continue to commit significant resources to commercializing new products before knowing whether our investments will result in products the market will accept. Furthermore, we may not execute successfully on commercializing those products because of errors in product planning or timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources. This could result in competitors providing those solutions before we do and a reduction in net sales and earnings.
 
The success of new products depends on several factors, including proper new product definition, timely completion, and introduction of these products, differentiation of new products from those of our competitors, regulatory compliance, and market acceptance of these products. There can be no assurance that we will successfully identify additional new product opportunities, develop, and bring new products to market in a timely manner, or achieve market acceptance of our products, or that products and technologies developed by others will not render our products or technologies obsolete or noncompetitive.
 
 
 
 
Our future success depends on our ability to grow and expand our customer base. Our failure to achieve such growth or expansion could materially harm our business.
 
To date, our revenue growth plans have been derived from projected sales of our products, not actual sales or historical experience. Our success depends on us achieving greater and broader acceptance of our products and expanding our customer base. There can be no assurance that customers will purchase our products or that we will continue to expand our customer base. If we are unable to effectively market or expand our product offerings, we will be unable to grow and expand our business or implement our business strategy. This could materially impair our ability to increase sales and revenue and materially and adversely affect our margins, which could harm our business and cause our stock price to decline.
 
Our suppliers could fail to fulfill our orders or provide raw materials to manufacture, package or distribute our products, which would disrupt our business, increase our costs, harm our reputation, and potentially cause us to lose our market.
 
We depend on third party suppliers for materials used for our products, such as bottles, caps, boxes, shipping materials and labels. These suppliers could fail to produce products to our specifications or in a workmanlike manner and may not deliver the material or products on a timely basis. Our suppliers may also have to obtain inventories of the necessary materials and tools for production. Any change in our suppliers’ approach to resolving production issues could disrupt our ability to fulfill orders and could also disrupt our business due to delays in finding new suppliers, providing specifications and testing initial production. Such disruptions in our business and/or delays in fulfilling orders could harm our reputation and could potentially cause us to lose our market.
 
Any damage to our reputation or our brands may materially adversely affect our business, financial condition and results of operations.
 
Maintaining, developing and expanding our reputation with our customers and our suppliers is critical to our success. Our brand may suffer if our marketing plans or product initiatives are not successful. The importance of our brand may decrease if competitors offer more products similar to the products that we manufacture. Further, our brands may be negatively impacted due to real or perceived quality issues or if consumers perceive us as being untruthful in our marketing and advertising, even if such perceptions are not accurate. Product contamination, the failure to maintain high standards for product quality, safety and integrity, including raw materials and ingredients obtained from suppliers, or allegations of product quality issues, mislabeling or contamination, even if untrue or caused by our third-party contract manufacturing partners or raw material suppliers, may reduce demand for our products or cause production and delivery disruptions. However, we may be unable to detect or prevent product and/or ingredient quality issues, mislabeling or contamination, particularly in instances of fraud or attempts to cover up or obscure deviations from our guidelines and procedures. If any of our products become unfit for consumption, cause injury or are mislabeled, we may have to engage in a product recall and/or be subject to liability. Damage to our reputation or our brands or loss of consumer confidence in our products for any of these or other reasons could result in decreased demand for our products and our business, financial condition and results of operations may be materially adversely affected. In addition, if any of our competitors experience similar events, our reputation could be damaged, including as a result of a loss of consumer confidence in the types of products we sell.
 
Further, our corporate reputation is susceptible to damage by actions or statements made by current or former employees, competitors, vendors, adversaries in legal proceedings and government regulators, as well as members of the investment community and the media. There is a risk that negative information about our company, even if based on false rumor or misunderstanding, could adversely affect our business, results of operations, and financial condition. In particular, damage to our reputation could be difficult and time-consuming to repair, could make potential or existing retail customers reluctant to select us for new engagements, resulting in a loss of business, and could adversely affect our recruitment and retention efforts.
 
 
 
 
Our business depends, in part, on the sufficiency and effectiveness of our marketing and trade promotion programs and incentives.
 
Due to the competitive nature of our industry, we must effectively and efficiently promote and market our products to sustain and improve our competitive position in our market. Marketing investments may be costly. In addition, we may, from time to time, change our marketing strategies and spending, including the timing or nature of our trade promotions and incentives. We may also change our marketing strategies and spending in response to actions by our customers, competitors and other companies that manufacture and/or distribute our products. The sufficiency and effectiveness of our marketing and trade promotions and incentives are important to our ability to retain and improve our market share and margins. If our marketing and trade promotions and incentives are not successful or if we fail to implement sufficient and effective marketing and trade promotions and incentives or adequately respond to changes in industry marketing strategies, our business, financial condition and results of operations may be adversely affected.
 
If we are unable to enter into such arrangements on favorable terms, are unable to achieve the desired results under these arrangements and programs, are unable to maintain these relationships, fail to generate sufficient traffic or generate sufficient revenue from purchases pursuant to these arrangements and programs, or properly manage the actions of these providers, our ability to generate revenue and our ability to attract and retain our customers may be impacted, negatively affecting our business and results of operations.
 
A significant product defect or product recall could materially and adversely affect our brand image, causing a decline in our sales and profitability, and could reduce or deplete our financial resources.
 
A significant product defect could materially harm our brand image and could force us to conduct a product recall. This could damage our relationships with our customers and reduce end-user loyalty. A product recall would be particularly harmful to us because we have limited financial and administrative resources to effectively manage a product recall and it would detract management’s attention from implementing our core business strategies. As a result, a significant product defect or product recall could cause a decline in our sales and profitability and could reduce or deplete our financial resources.
 
We may be subject to product liability claims or regulatory action if our products are alleged to have caused significant loss or injury.
 
We may be subject to product liability claims, regulatory action and litigation if our products are alleged to have caused loss or injury or failed to include adequate instructions for use or failed to include adequate warnings concerning possible side effects or interactions with other substances. Previously unknown adverse reactions resulting from use and consumption of CBD products alone or in combination with other medications or substances could also occur. In addition, the sale of any ingested product involves a risk of injury due to tampering by unauthorized third parties or product contamination. Our products may also be subject to product recalls, including voluntary recalls or withdrawals, if they are alleged to pose a risk of injury or illness, or if they are alleged to have been mislabeled, misbranded or adulterated or to otherwise be in violation of governmental regulations. We may in the future have to recall, certain of our products as a result of potential contamination and quality assurance concerns. A product liability claim or regulatory action against us could result in increased costs and could adversely affect our reputation and goodwill with our patients and consumers generally. We do not carry product liability insurance. As a result, a successful product liability claim brought against us would have a material adverse effect on our business and results of operations. Although we are seeking to acquire product liability insurance, there can be no assurance that we will be able to obtain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could result in us becoming subject to significant liabilities that are uninsured and could adversely affect our commercial arrangements with third parties.
 
 
 
 
If product liability lawsuits are successfully brought against us, we will incur substantial liabilities.
 
We face an inherent risk of product liability. For example, we may be sued if any product we sell allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit sales of our products. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
 
decreased demand for our products;
 
injury to our reputation;
 
costs to defend the related litigation;
 
a diversion of management's time and our resources;
 
substantial monetary awards to users of our products;
 
product recalls or withdrawals;
 
loss of revenue; and or a decline in our stock price.
 
In addition, while we continue to take what we believe are appropriate precautions, we may be unable to avoid significant liability if any product liability lawsuit is brought against us.
 
If we make acquisitions, it could divert management’s attention, cause ownership dilution to our stockholders and be difficult to integrate.
 
Acquisitions generally involve significant risks, including difficulties in the assimilation of the assets, services and technologies we acquire or industry overlay on which the assets are applicable, diversion of management's attention from other business concerns, overvaluation of the acquired assets, and the acceptance of the acquired assets and/or businesses.  To date, our previous acquisitions have been unsuccessful. Future acquisitions may have a number of adverse effects upon us including adverse financial effects and may seriously disrupt our management’s time. The integration of acquired assets may place a significant burden on management and our internal resources. The diversion of management attention and any difficulties encountered in the integration process could harm our business.
 
We face risks associated with strategic acquisitions.
 
We have strategically acquired several operations, which to date have not provided the anticipated operational or financials benefits. These acquisitions involved a number of financial, accounting, managerial, operational, legal, compliance and other risks and challenges and may continue to negatively affect our business and operations.
 
If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.
 
Our future depends, in part, on our ability to attract and retain key personnel and the continued contributions of our executive officers, each of whom may be difficult to replace. The loss of the services of any such individual and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.
 
 
 
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We depend on the knowledge and skills of our senior management and other key employees, and if we are unable to retain and motivate them or recruit additional qualified personnel, our business may suffer.
 
Our success will depend on our ability to retain our current management and key employees, and to attract and retain qualified personnel in the future, and we cannot guarantee that we will be able to retain our personnel or attract new, qualified personnel. In addition, we do not maintain any “key person” life insurance policies. The loss of the services of members of our senior management or key employees could prevent or delay the implementation and completion of our strategic objectives or divert management’s attention to seeking qualified replacements.
 
We will be required to attract and retain top quality talent to compete in the marketplace.
 
We believe our future growth and success will depend in part on our ability to attract and retain highly skilled managerial, product development, sales and marketing, and finance personnel. There can be no assurance of success in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to increase sales of existing products and services and launch new product and service offerings.
 
If we fail to retain key personnel and hire, train and retain qualified employees, we may not be able to compete effectively, which could result in reduced revenue or increased costs.
 
Our success is highly dependent on the continued services of key management and technical personnel. Our management and other employees may voluntarily terminate their employment at any time upon short notice. The loss of the services of any member of the senior management team or any of the managerial or technical staff or members of our Advisory Board on which we principally rely for expertise on our CBD segment may significantly delay or prevent the achievement of product development, our growth strategies and other business objectives. Our future success will also depend on our ability to identify, recruit and retain additional qualified technical and managerial personnel. We operate in several geographic locations where labor markets are particularly competitive, and where demand for personnel with these skills is extremely high and is likely to remain high. As a result, competition for qualified personnel is intense, particularly in the areas of general management, finance, and sales. The process of hiring suitably qualified personnel is often lengthy and expensive and may become more expensive in the future. If we are unable to hire and retain a sufficient number of qualified employees, our ability to conduct and expand our business could be seriously reduced.
 
War, terrorism, other acts of violence or natural or manmade disasters such as a global pandemic may affect the markets in which the Company operates, the Company's customers, the Company's delivery of products and customer service, and could have a material adverse impact on our business, results of operations, or financial condition.
 
Our business may be adversely affected by instability, disruption or destruction in a geographic region in which it operates, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or manmade disasters, including famine, food, fire, earthquake, storm or pandemic events and spread of disease (including the recent outbreak of the coronavirus commonly referred to as "COVID- 19") which has dramatically impacted the adoption of cannabinoid products due to store closures and restrictions on in-person sales. Such events may cause customers to suspend their decisions on using products and services, make it impossible to attend or sponsor trade shows or other conferences in which our products and services are presented to distributors, customers and potential customers, extraction facilities, manufacturing locations or other physical locations, cause restrictions, postponements and cancellations of events that attract large crowds and public gatherings such as trade shows at which we have historically presented our products, and give rise to sudden significant changes in regional and global economic conditions and cycles that could interfere with purchases of goods or services, commitments to develop new brands and white label products, or agriculture and farming. These events also pose significant risks to our personnel and to physical facilities, transportation and operations, which could materially adversely affect the Company's financial results.
 
Any significant disruption to communications, gathering and travel, including restrictions and other potential protective quarantine measures against COVID-19 by governmental agencies, may increase the difficulty and could make it impossible for the Company to deliver goods services to its customers. Restrictions and protective measures against COVID-19 could cause additional unexpected labor costs and expenses or could restrain our ability to retain the highly skilled personnel needs for its operations. The extent to which COVID-19 impacts the Company's business, sales and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.
 
 
 
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We believe the novel coronavirus (COVID-19) has negatively affected our operations necessary to prepare and maintain accurate accounting and reporting and could continue to do so in the foreseeable future. The coronavirus has resulted in restrictions, postponements and cancelations and the impact, extent and duration of the government-imposed restrictions as well as the overall effect of the COVID-19 virus is currently unknown.
 
The ongoing circumstances resulting from the COVID-19 virus outbreak magnify the challenges faced from our continuing efforts to introduce and sell our products in a challenging environment and could have an impact on our business and financial results.
  
Risks Related to Ownership of Our Common Stock.
 
The price of our common stock has been highly volatile due to several factors that will continue to affect the price of our stock.
 
Our common stock has traded as low as $0.04 and as high as $0.49 between January 1, 2020 and December 31, 2020. The reason for the volatility in our stock is not well understood and the volatility may continue. Some of the factors we believe that have contributed to our common stock volatility and which may be applicable in future periods, include:
 
entry into new business ventures;
 
asset acquisitions or dispositions;
 
commencement of litigation;
 
small amounts of our stock available for trading, expiration of any lockup agreements and terms of any leak-out rights with respect thereto;
 
filing of registration statements registering the sale of new or outstanding shares of our common stock;
 
options and derivatives availability or unavailability;
 
short selling and potential “short and distort” campaigns and other short attacks involving our stock;
 
small public float of our outstanding common stock and concentration of ownership and control of our common and preferred stock, as well as the terms and conversion rights thereof and revisions to such terms;
 
expiration of Rule 144 holding periods with respect to our outstanding common stock;
 
fluctuations in our operating results;
 
changes in the capital markets and ability for the Company to raise capital;
 
legal developments and public awareness with respect to hemp-based and/or CBD business plans, generally, and involving the Company;
 
confusion with Companies engaged in the business of marijuana, and the legal and regulatory concerns that our business is related to the marijuana business;
 
 
 
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general economic conditions;
 
and legal and regulatory environment.
 
We cannot guarantee the continued existence of an active established public trading market for our shares.
 
Our shares are currently quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our shares for reasons unrelated to operating performance. Accordingly, OTCQB may provide less liquidity for holders of our shares than a national securities exchange such as the Nasdaq Stock Market. There is no assurance that we can successfully maintain an active established trading market for our shares.
 
Market prices for our shares may also be influenced by a number of other factors, including:
 
the issuance of new equity securities pursuant to a public or private offering;
 
changes in interest rates;
 
competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
 
variations in quarterly operating results;
 
change in financial estimates by securities analysts;
 
the depth and liquidity of the market for our shares;
 
investor perceptions of Exactus and its industry generally; and
 
general economic and other national conditions.
 
Our shares of common stock are thinly traded and, as a result, stockholders may be unable to sell at or near ask prices, or at all, if they need to sell shares to raise money or otherwise desire to liquidate their shares.
 
Our common stock has been “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near ask prices at any given time may be relatively small or non-existent.  We believe this situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable.  In addition, we believe that due to the limited number of shares of our common stock outstanding, an options market has not been established for our common stock, limiting the ability of market participants to hedge or otherwise undertake trading strategies available for larger companies with broader stockholder bases which prevents institutions and others from acquiring or trading in our securities. Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.  We cannot give stockholders any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.
 
 
 
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There may not be sufficient liquidity in the market for our securities for investors to sell their shares. The market price of our common stock may be volatile.
 
The market price of our common stock will likely be highly volatile, as is the stock market in general. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as conditions or trends in the industry in which we operate or sales of our common stock. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable.
 
Consequently, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a mature issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. It is possible that a broader or more active public trading market for our common stock will not develop or be sustained, or that trading levels will not continue. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
 
We can sell additional shares of common stock without consulting stockholders and without offering shares to existing stockholders, which would result in dilution of existing stockholders’ interests in the Company and could depress our stock price.
 
Our Articles of Incorporation authorize 650,000,000 shares of common stock, of which 56.4 million were issued and outstanding as of December 31, 2020. Moreover, our Board of Directors is authorized to issue additional shares of our common stock and preferred stock and revise the terms of conversion of preferred stock outstanding and conversion of debt into equity of the Company as well as issue common stock in connection with the settlement of litigations and claims. The future issuance of additional shares of our common stock or preferred stock or debt convertible into common stock would cause immediate, and potentially substantial, dilution to our existing stockholders, which could also have a material effect on the market value of the shares. During 2020 and early 2021, we issued approximately 40 million additional shares of common stock in settlements, cancellations and conversions.
 
We do not intend to pay any cash dividends in the foreseeable future and, therefore, any return on your investment in our capital stock must come from increases in the fair market value and trading price of the capital stock.
 
We have not paid any cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Any credit agreements, which we may enter into with institutional lenders, may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that the board of directors decides is relevant. Therefore, any return on your investment in our capital stock must come from increases in the fair market value and trading price of the capital stock.
 
 
 
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We may issue additional equity shares to fund our operational requirements, which would dilute share ownership. Such sales of additional equity securities may adversely affect the market price of our common stock and your rights in the company may be reduced.
 
The company’s continued viability depends on its ability to raise capital. We expect to continue to incur product development and selling, general and administrative costs. Changes in economic, regulatory, or competitive conditions may lead to cost increases. Management may determine that it is in the best interest of the company to develop new services or products. In any such case additional financing is required for the company to meet its operational requirements. We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. The sale or the proposed sale of substantial amounts of our common stock in the public markets may adversely affect the market price of our common stock. Also, any new securities issued may have greater rights, preferences, or privileges than our existing common stock. Our stockholders may experience substantial dilution upon such issuances and a reduction in the price that they are able to obtain upon sale of their shares. There can be no assurances that the company will be able to obtain such financing on terms acceptable to the company and at times required by the company, if at all. In such event, the company may be required to materially alter its business plan or curtail all or a part of its operational plans.
 
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
 
Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events, or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might grant to holders of preferred stock could affect the value of the common stock.
 
Our common stock may be considered a “penny stock” and may be difficult to sell.
 
The Commission has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. Historically, the price of our common stock has fluctuated greatly. If, the market price of the common stock is less than $5.00 per share and the common stock does not fall within any exemption, it therefore may be designated as a “penny stock” according to SEC rules. The “penny stock” rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser’s written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell our common shares and may result in decreased liquidity for our common shares and increased transaction costs for sales and purchases of our common shares as compared to other securities.
 
Because we will be subject to “penny stock” rules, the level of trading activity in our stock may be reduced.
 
Broker-dealer practices in connection with transactions in “penny stocks” are regulated by penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges). The penny stock rules require a broker-dealer to deliver to its customers a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market prior to carrying out a transaction in a penny stock not otherwise exempt from the rules. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who sell these securities to persons other than established customers and “accredited investors” must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
 
 
 
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It may be difficult to predict our financial performance because our quarterly operating results may fluctuate.
 
Our revenues, operating results and valuations of certain assets and liabilities may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance. Our results of operations may fall below the expectations of market analysts and our own forecasts.  If this happens, the market price of our common stock may fall significantly. The factors that may affect our quarterly operating results include the following:
 
fluctuations in results of our operations and capital raising efforts;
 
the timing and amount of expenses incurred to establish a hemp-based operation;
 
the impact of our anticipated need for personnel and expected substantial increase in headcount;
 
worsening economic conditions which cause revenues or profits attributable to sales of products or services to decline;
 
changes in the regulatory environment, including regulation of hemp-based products or CBD by the FDA or comparable state regulatory agencies or agricultural authorities
 
the timing and amount of expenses associated with extraction, production, purchasing, manufacturing and selling of product;
 
Any changes we make in our Critical Accounting Estimates described in the Management’s Discussion and Analysis of Financial Condition and Results of Operations sections of our periodic reports;
 
the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures; and
 
costs related to acquisitions of technologies or businesses.
 
Our operating results, including net sales, gross margin and net income (loss), as well as our stock price have varied in the past, and our future operating results will continue to be subject to quarterly and annual fluctuations based upon numerous factors. Our stock price will continue to be subject to daily variations as well. Our future operating results and stock price may not follow any past trends or meet our guidance and expectations.
 
Our net sales and operating results, net income (loss) and operating expenses, and our stock price have varied in the past and may vary significantly from quarter to quarter and from year to year in the future. We believe a number of factors, many of which are outside of our control, could cause these variations and make them difficult to predict, including:
 
fluctuations in demand for our products or downturns in the industries that we serve;
 
the ability of our suppliers, both internal and external, to produce and deliver products including sole or limited source components, in a timely manner, in the quantity, quality and prices desired;
 
the timing of receipt of bookings and the timing of and our ability to ultimately convert bookings to net sales;
 
 
 
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rescheduling of shipments or cancellation of orders by our customers;
 
fluctuations in our product mix;
 
the ability of our customers' other suppliers to provide sufficient material to support our customers' products;
 
currency fluctuations and stability, in particular the U.S. dollar as compared to, other currencies;
 
introductions of new products and product enhancements by our competitors, entry of new competitors into our markets, pricing pressures and other competitive factors;
 
our ability to develop, introduce, manufacture and ship new and enhanced products in a timely manner without defects;
 
our ability to manage our manufacturing capacity across our diverse product lines and that of our suppliers, including our ability to successfully expand our manufacturing capacity in various locations around the world;
 
our ability to successfully and fully integrate acquisitions, into our operations and management;
  
our ability to successfully internally transfer products as part of our integration efforts;
 
our reliance on contract manufacturing;
 
our customers' ability to manage their susceptibility to adverse economic conditions;
 
the rate of market acceptance of our new products;
 
the ability of our customers to pay for our products;
 
expenses associated with acquisition-related activities;
 
access to applicable credit markets by us and our customers;
 
our ability to control expenses;
 
potential excess and/or obsolescence of our inventory;
 
impairment of goodwill, intangible assets and other long-lived assets;
 
our ability to meet our expectations and forecasts and those of public market analysts and investors;’
 
our ability and the ability of our contractual counterparts to comply with the terms of our contracts;
 
damage to our reputation as a result of coverage in social media, Internet blogs or other media outlets;
 
 
 
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managing our internal and third-party sales representatives and distributors, including compliance with all applicable laws;
 
costs, expenses and damages arising from litigation;
 
individual employees intentionally or negligently failing to comply with our internal controls; and
 
distraction of management related to acquisition, integration or divestment activities.
 
Our expenses for any given quarter are typically based on expected sales and if sales are below expectations in any given quarter, the adverse impact of the shortfall on our operating results may be magnified by our inability to adjust spending quickly enough to compensate for the shortfall. We also base our inventory levels on our forecasted product mix for the quarter. If the actual product mix varies significantly from our forecast, we may not be able to fill some orders during that quarter, which would result in delays in the shipment of our products. Accordingly, variations in timing of sales, particularly for our higher priced, higher margin products, can cause significant fluctuations in quarterly operating results.
 
Due to these and other factors, such as varying product mix, quarter-to-quarter and year-to-year comparisons of our historical operating results may not be meaningful. You should not rely on our results for any quarter or year as an indication of our future performance. Our operating results in future quarters and years may be below public market analysts' or investors' expectations, which would likely cause the price of our stock to fall. In addition, over the past several years, U.S. and global equity markets have experienced significant price and volume fluctuations that have affected the stock prices of many companies involved in the cannabis industry and are expected to affect the hemp-based industry as well, both within and outside our industry. There has not always been a direct correlation between this volatility and the performance of particular companies subject to these stock price fluctuations. These factors, as well as general economic and political conditions, may have a material adverse effect on the market price of our stock in the future.
 
Our largest outside stockholder can exert significant control over our business and affairs and may have actual or potential interests that may depart from those of our other stockholders.
 
Our largest outside stockholder through December 31, 2020, C2M, owns a substantial percentage of our outstanding voting capital. On January 21, 2021 the Company entered into a settlement agreement with C2M and their principals cancelling all agreements, obligations and claims and providing full mutual releases of the Company and such persons. The business interests of C2M may differ from the interests of other stockholders. There can be no assurance C2M or other significant stockholders will, in future matters submitted for stockholder approval, vote in favor of such matters, even if such matters are recommended for approval by management or are in the best interests of stockholders generally. As a result, such persons will have the ability to vote their significant holdings in favor (or not in favor) of proposals presented to our stockholders for approval, including proposals to:
 
elect or defeat the election of our directors;
 
amend or prevent amendment of our articles of incorporation or bylaws;
 
effect or prevent a merger, sale of assets or other corporate transaction; and
 
control the outcome of any other matter submitted to the stockholders for vote.
 
In addition, such persons’ stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price. C2M could also utilize their significant ownership interest to seek to influence management and decisions of the Company.
 
 
 
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We are subject to the periodic reporting requirements of the Exchange Act, which will require us to incur audit fees and legal fees in connection with the preparation of such reports. These additional costs will reduce or might eliminate our profitability.
 
We are required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder. To comply with these requirements, our independent registered auditors will have to review our quarterly financial statements and audit our annual financial statements. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this time, because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit. We may be exposed to potential risks resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of 2002. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, the trading price of our Common Stock, if a market ever develops, could drop significantly, or we could become subject to Commission enforcement proceedings.
  
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.
 
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls.  If we fail to maintain the adequacy of our internal controls over financial reporting, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports.  We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective.  If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed, and our stock price may decline.
 
Our assessment, testing and evaluation of the design and operating effectiveness of our internal control over financial reporting resulted in our conclusion that, as of December 31, 2020 and December 31, 2019, our internal control over financial reporting was not effective, as a result of: (1) we lacked a sufficient number of employees to properly segregate duties and provide adequate review of the preparation of the financial statements and (2) we lacked sufficient independent directors on our Board of Directors to maintain Audit and other committees consistent with proper corporate governance standards. We can provide no assurance as to conclusions of management with respect to the effectiveness of our internal control over financial reporting in the future.
 
 
 
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Because we are a “smaller reporting company,” we will not be required to comply with certain disclosure requirements that are applicable to other public companies and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
 
We are a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. As a smaller reporting company, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies, including, but not limited to:
 
Reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements.
 
Not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. and
 
Reduced disclosure obligations for our annual and quarterly reports, proxy statements and registration statements.
 
We will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
 
As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly, particularly after we are no longer a smaller reporting company. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.
 
Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
 
Short sellers of our stock may be manipulative and may drive down the market price of our common stock.
 
Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is therefore in the short seller’s interest for the price of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the stock short. Issuers whose securities have historically had limited trading volumes and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to such short seller attacks. The publication of any such commentary regarding us in the future may bring about a temporary, or possibly long term, decline in the market price of our common stock. In the past, the publication of commentary regarding us by a disclosed short seller has been associated with the selling of shares of our common stock in the market on a large scale, resulting in a precipitous decline in the market price per share of our common stock. No assurances can be made that similar declines in the market price of our common stock will not occur in the future, in connection with such commentary by short sellers or otherwise.
 
 
 
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Financial Industry Regulatory Authority (FINRA) sales practice requirements may also limit your ability to buy and sell our stock, which could depress our share price.
 
FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares, depressing our share price.
 
Transfers of our securities may be restricted by virtue of state securities “blue sky” laws, which prohibit trading absent compliance with individual state laws. These restrictions may make it difficult or impossible to sell shares in those states.
 
Transfers of our common stock may be restricted under the securities or securities regulations laws promulgated by various states and foreign jurisdictions, commonly referred to as "blue sky" laws. Absent compliance with such individual state laws, our common stock may not be traded in such jurisdictions. Because the securities held by many of our stockholders have not been registered for resale under the blue-sky laws of any state, the holders of such shares and persons who desire to purchase them should be aware that there may be significant state blue sky law restrictions upon the ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions may prohibit the secondary trading of our common stock. Investors should consider the secondary market for our securities to be a limited one.
 
“Anti-Takeover” provisions in our Articles of Incorporation and Bylaws may cause a third party to be discouraged from making a takeover offer that could be beneficial to our stockholders.
 
Certain provisions of our Articles of Incorporation, By-Laws, and the anti-takeover provisions of the Nevada Revised Statutes, could delay or prevent a third party from acquiring us or replacing members of our Board of Directors, or make more costly any attempt to acquire control of the Company, even if the acquisition or the Board designees would be beneficial to our stockholders. These factors could also reduce the price that certain investors might be willing to pay for shares of the common stock and result in the market price being lower than it would be without these provisions.
 
In addition, large stockholders may seek to influence our Board of Directors and stockholders by acquiring positions in the Company to force consideration of proposals that may be less desirable than other outcomes. The effect of such influences on our Company or our corporate governance could reduce the value of our monetization activities and have an adverse effect on the value of our assets. The effect of Anti-Takeover provisions could impact the ability of prospective stockholders to obtain influence in the Company or representation on the Board of Directors or acquire a significant ownership position and such result may have an adverse effect on the Company and the value of its securities.
 
Regulatory Risks Related to Our Business
 
FDA regulation could negatively affect the hemp industry, which would directly affect our financial condition.
 
The U.S. Food and Drug Administration ("FDA") may seek expanded regulation of hemp under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations, including certified good manufacturing practices, or cGMPs, related to the growth, cultivation, harvesting and processing of hemp. Clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where hemp is grown register with the FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations are imposed, we do not know what the impact would be on the hemp industry, including what costs, requirements and possible prohibitions may be enforced. If we or our manufacturing partners are unable to comply with the regulations or registration as prescribed by the FDA, we or our manufacturing partners may be unable to continue to operate their and our business in its current or planned form or at all.
 
Changes in the Law and Development Programs
 
The 2018 Farm Bill declassified industrial hemp as a Schedule I substance, shifted regulatory authority from the Drug Enforcement Administration to the Department of Agriculture, and provided autonomy for states to regulate the industry. The 2018 Farm Bill did not change the Food and Drug Administration’s oversight authority over CBD products. The 2018 Farm Bill defined industrial hemp as a variety of cannabis containing an amount equal to or lower than 0.3% tetra-hydrocannabinol (THC), and allowed farmers to grow and sell hemp under state regulation. According to the National Conference of State Legislatures, 41 states have set up cultivation and production programs to regulate the production of hemp.
 
 
 
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For the first time since 1937, industrial hemp had been decriminalized at the federal level and can be grown legally in the United States, but on a limited basis. A landmark provision passed in the Agricultural Act of 2014 had previously classified hemp as distinct from its genetic cousin, marijuana. Marijuana cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis will likely affect the perception of the lawfulness of our activity for a continuing period of time, which could result in our inability and the inability of our customers to execute their respective business plans.
 
Although we believe the foregoing will be applicable to business other than hemp-based CBD (other cannabinoids), there is risk that confusion or uncertainty surrounding our products with regulated cannabis could occur on the state or federal level and impact us. We may have difficulty with establishing banking relationships, working with investment banks and brokers who would be willing to offer and sell our securities or accept deposits from stockholders, and auditors willing to certify our financial statements if we are confused with businesses that are in the cannabis business. Any of these additional factors, should they occur, could also affect our business, prospects, assets or results of operation could have a material adverse effect on the business, prospects, results of operations or financial condition of the Company.
 
We and our manufacturers and suppliers are subject to extensive governmental regulation and may be subject to enforcement if we are not in compliance with applicable requirements.
 
We, our manufacturers, and suppliers are subject to a broad range of federal, state and local laws and regulations governing, among other things, the testing, development, manufacture, distribution, marketing and post-market reporting of foods, including those that contain CBD. These include laws administered by the FDA, the U.S. Federal Trade Commission (“FTC”), the U.S. Department of Agriculture (“USDA”), and other federal, state and local regulatory authorities.
 
Failure by us or our third-party contract manufacturers and suppliers to comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses and registrations relating to our or our partners’ operations could subject us to administrative and civil penalties, including fines, injunctions, recalls or seizures, warning letters, restrictions on the marketing or manufacturing of our products, or refusals to permit the import or export of products, as well as potential criminal sanctions, which could result in increased operating costs resulting in a material effect on our operating results and business.
 
The markets for businesses in the CBD and hemp extracts industries are competitive and evolving.
 
In particular, the Company will face strong competition from both existing and emerging companies that offer similar products to the Company. Some of the Company’s current and potential competitors may have longer operating histories, greater financial, marketing and other resources and larger customer bases. Given the rapid changes affecting the global, national and regional economies generally and the CBD industry, in particular, the Company may not be able to create and maintain a competitive advantage in the marketplace. The Company’s success will depend on its ability to keep pace with any changes in such markets, especially in light of legal and regulatory changes. The Company’s success will depend on its ability to respond to, among other things, changes in the economy, market conditions and competitive pressures. Any failure to anticipate or respond adequately to such changes could have a material adverse effect on the Company’s financial condition, operating results, liquidity, cash flow and operational performance.
 
We are subject to the risk of potential changes to state laws pertaining to industrial hemp.
 
As of the date hereof, approximately forty-seven states authorized industrial hemp programs pursuant to the Farm Bill. Continued development of the industrial hemp industry will be dependent upon new legislative authorization of industrial hemp at the state level, and further amendment or supplementation of legislation at the federal level. Any number of events or occurrences could slow or halt progress all together in this space. While progress within the industrial hemp industry is currently encouraging, growth is not assured. While there appears to be ample public support for favorable legislative action, numerous factors may impact or negatively affect the legislative process(es) within the various states where the Company has business interests. Any one of these factors could slow or halt use of industrial hemp, which could negatively impact the business up to possibly causing the Company to discontinue operations as a whole.
 
 
 
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Our product candidates are not approved by the FDA or other regulatory authority, and we face risks of unforeseen medical problems, and up to a complete ban on the sale of our product candidates.
 
The efficacy and safety of pharmaceutical products is established through a process of clinical testing under FDA oversight. However, if an individual were to use one of our products in an improper manner, we cannot predict the potential medical harm to that individual. If such an event were to occur, the FDA or similar regulatory agency might impose a complete ban on the sale or use of our products.
 
There are numerous costs associated with numerous laws and regulations.
 
The manufacture, labeling and distribution of the Company products will be regulated by various federal, state and local agencies. These governmental authorities may commence regulatory or legal proceedings, which could restrict the permissible scope of the Company’s product claims or the ability to sell products in the future. The FDA may regulate the Company’s products to ensure that the products are not adulterated or misbranded. The Company is subject to regulation by the federal government and other state and local agencies as a result of its CBD products. The shifting compliance environment and the need to build and maintain robust systems to comply with different compliance in multiple jurisdictions increases the possibility that the Company may violate one or more of the requirements. If the Company’s operations are found to be in violation of any of such laws or any other governmental regulations that apply to the Company, it may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of the Company’s operations, any of which could adversely affect the ability to operate the Company’s business and its financial results. Failure to comply with FDA requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. The Company’s advertising will be subject to regulation by the Federal Trade Commission (“FTC”) under the Federal Trade Commission Act. In recent years, the FTC has initiated numerous investigations of dietary and nutrition supplement products and companies. Additionally, some states also permit advertising and labeling laws to be enforced by private attorney generals, who may seek relief for consumers, seek class-action certifications, seek class-wide damages and product recalls of products sold by the Company. Any actions against the Company by governmental authorities or private litigants could have a material adverse effect on the Company’s business, financial condition and results of operations.
 
Risks Related to Information Technology and Intellectual Property
 
We are subject to cyber-security risks, including those related to customer, employee, vendor or other company data and including in connection with integration of acquired businesses and operations.
 
We currently do not utilize automated technology or software to maintain important records necessary to the successful performance of our business. We are evaluating various selling, inventory and contact management software tools, such as Shopify, in order to begin to adopt processes to track inventory, generate sales orders and invoices, promote leads and sales and support customer interaction such as customer service and warranty claims. Without these tools we operate at a significant disadvantage to our competitors who have implemented more sophisticate systems than us.
 
We use information technologies to securely manage certain operations and various business functions. We rely on various technologies, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including reporting on our business and interacting with customers, vendors and employees. In addition, we collect and store certain data, including proprietary business information, and may have access to confidential or personal information that is subject to privacy and security laws, regulations and customer-imposed controls. Our systems are subject to repeated attempts by third parties to access information or to disrupt our systems. Despite our security design and controls, and those of our third-party providers, we may become subject to system damage, disruptions or shutdowns due to any number of causes, including cyber-attacks, breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, service providers, natural disasters or other catastrophic events. It is possible for such vulnerabilities to remain undetected for an extended period. We may face other challenges and risks as we upgrade and standardize our information technology systems as part of our integration of acquired businesses and operations. We do not have contingency plans in place to prevent or mitigate the impact of these events, and these events could result in operational disruptions or the misappropriation of sensitive data, and depending on their nature and scope, could lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions and exposure to liability. Such disruptions or misappropriations and the resulting repercussions, including reputational damage and legal claims or proceedings, may adversely affect our results of operations, cash flows and financial condition, and the trading price of our common stock.
 
 
 
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Our intellectual property rights may be inadequate to protect our business.
 
Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.
 
We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. We cannot assure you that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.
 
We rely on our trademarks, trade names, and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.
 
If third parties claim that we infringe upon their intellectual property rights, our business and results of operations could be adversely affected.
 
We face the risk of claims that we have infringed third parties’ intellectual property rights. Any claims of intellectual property infringement, even those without merit, could be expensive and time consuming to defend; could require us to cease selling the products that incorporate the challenged intellectual property, could require us to redesign, reengineer, or rebrand the product, if feasible, could divert management’s attention and resources, or could require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property.
 
Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of certain products, any of which could have a negative impact on our business, financial condition, results of operations and our future prospects.
 
Our inability to effectively protect our intellectual property would adversely affect our ability to compete effectively, our revenue, our financial condition, and our results of operations.
 
We may be unable to obtain intellectual property rights to effectively protect our branding, products, and other intangible assets. Our ability to compete effectively may be affected by the nature and breadth of our intellectual property rights. While we intend to defend against any threats to our intellectual property rights, there can be no assurance that any such actions will adequately protect our interests. If we are unable to secure intellectual property rights to effectively protect our branding, products, and other intangible assets, our revenue and earnings, financial condition, or results of operations could be adversely affected.
 
 
 
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We also rely on non-disclosure and non-competition agreements to protect portions of our intellectual property portfolio. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, that third parties will not otherwise gain access to our trade secrets or proprietary knowledge, or that third parties will not independently develop competitive products with similar intellectual property.
 
A failure of one or more key information technology systems, networks or processes may materially adversely affect our ability to conduct our business.
 
The efficient operation of our business will depend on our information technology systems which presently we believe is deficient in significant respects related to our accounting for and effective control over raw materials, inventory, and supply-chain in general. We rely on our information technology systems to effectively manage our sales and marketing, accounting and financial and legal and compliance functions, engineering and product development tasks, research and development data, communications, supply chain, order entry and fulfillment and other business processes. We also rely on third parties and virtualized infrastructure to operate and support our information technology systems. The failure of our information technology systems, or those of our third-party service providers, to perform as we anticipate could disrupt our business and could result in transaction errors, processing inefficiencies and the loss of sales and customers, causing our business and results of operations to suffer.
 
In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, power outages, systems failures, security breaches, cyber-attacks and computer viruses. The failure of our information technology systems to perform as a result of any of these factors or our failure to effectively restore our systems or implement new systems could disrupt our entire operation and could result in decreased sales, increased overhead costs, excess inventory and product shortages and a loss of important information.
 
Further, it is critically important for us to maintain the confidentiality and integrity of our information technology systems. To the extent that we have information in our databases that our customers consider confidential or sensitive, any unauthorized disclosure of, or access to, such information due to human error, breach of our systems through cybercrime, a leak of confidential information due to employee misconduct or similar events could result in a violation of applicable data protection and privacy laws and regulations, legal and financial exposure, damage to our reputation, a loss of confidence of our customers, suppliers and manufacturers and lost sales. Actual or suspected cyber-attacks may cause us to incur substantial costs, including costs to investigate, deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. We have taken steps to protect the security of our systems. Despite the implementation of these security measures, our systems may still be vulnerable to physical break-ins computer viruses, programming errors, attacks by third parties or similar disruptive problems. If any of these risks materialize, our reputation and our ability to conduct our business may be materially adversely affected.
 
We rely heavily on third-party commerce platforms to conduct our businesses. If one of those platforms is compromised, our business, financial condition and results of operations could be harmed.
 
We intend to rely upon third-party commerce platforms, including Shopify and Alibaba. We also rely on e-mail service providers, bandwidth providers, Internet service providers and mobile networks to deliver e-mail and “push” communications to customers and to allow customers to access our website.
 
Any damage to, or failure of, our systems or the systems of our third-party commerce platform providers could result in interruptions to the availability or functionality of our website and mobile applications. As a result, we could lose customer data and miss order fulfillment deadlines, which could result in decreased sales, increased overhead costs, excess inventory and product shortages. If for any reason our arrangements with our third-party commerce platform providers are terminated or interrupted, such termination or interruption could adversely affect our business, financial condition, and results of operations. We exercise little control over these providers, which increases our vulnerability to problems with the services they provide. We could experience additional expense in arranging for new facilities, technology, services and support. In addition, the failure of our third-party commerce platform providers to meet our capacity requirements could result in interruption in the availability or functionality of our website and mobile applications.
 
 
 
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Failure to comply with federal, state and foreign laws and regulations relating to privacy, data protection and consumer protection, or the expansion of current or the enactment of new laws or regulations relating to privacy, data protection and consumer protection, could adversely affect our business and our financial condition.
 
We may collect, store, process, and use personal information and other customer data, and we rely in part on third parties that are not directly under our control to manage certain of these operations and to collect, store, process and use payment information. Due to the volume and sensitivity of the personal information and data we and these third parties manage and expect to manage in the future, as well as the nature of our customer base, the security features of our information systems are critical. A variety of federal, state and foreign laws and regulations govern the collection, use, retention, sharing and security of this information. Laws and regulations relating to privacy, data protection and consumer protection are evolving and subject to potentially differing interpretations. These requirements may not be harmonized, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another or may conflict with other rules or our practices. As a result, our practices may not have complied or may not comply in the future with all such laws, regulations, requirements and obligations.
 
We expect that new industry standards, laws and regulations will continue to be proposed regarding privacy, data protection and information security in many jurisdictions. We cannot yet determine the impact such future laws, regulations and standards may have on our business. Complying with these evolving obligations is costly. For instance, expanding definitions and interpretations of what constitutes “personal data” (or the equivalent) within the United States and elsewhere may increase our compliance costs and legal liability. A significant data breach or any failure, or perceived failure, by us to comply with any federal, state or foreign privacy or consumer protection-related laws, regulations or other principles or orders to which we may be subject or other legal obligations relating to privacy or consumer protection could adversely affect our reputation, brand and business, and may result in claims, investigations, proceedings or actions against us by governmental entities or others or other penalties or liabilities or require us to change our operations and/or cease using certain data sets. Depending on the nature of the information compromised, we may also have obligations to notify users, law enforcement or payment companies about the incident and may need to provide some form of remedy, such as refunds, for the individuals affected by the incident.
 
We are subject to risks related to online payment methods.
 
We accept payments using a variety of methods, including credit card and debit card. As we offer new payment options to customers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card and debit card payments from customers or facilitate other types of online payments. If any of these events were to occur, our business, financial condition and operating results could be materially adversely affected. We occasionally receive orders placed with fraudulent credit card data. We may suffer losses as a result of orders placed with fraudulent credit card data even if the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, financial condition and results of operations. Credit card processing companies have periodically declined to associate with companies engaged in hemp and cannabinoid sales.
 
 
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Significant merchandise returns or refunds could harm our business.
 
We allow our customers to return products or offer refunds, subject to our return and refunds policy. If merchandise returns or refunds are significant or higher than anticipated and forecasted, our business, financial condition, and results of operations could be adversely affected. Further, we modify our policies relating to returns or refunds from time to time, and may do so in the future, which may result in customer dissatisfaction and harm to our reputation or brand, or an increase in the number of product returns or the amount of refunds we make.
 
Item 1B. Unresolved Staff Comments.
 
None.
 
Item 2. Properties
 
During 2020, we leased offices in Delray Beach Florida which was vacated for virtual operations with the onset of Covid-19. If additional or alternative space is needed in the future, we believe such space will be available on commercially reasonable terms as necessary.
 
Item 3. Legal Proceedings
 
From time to time, we may become involved in legal proceedings arising in the ordinary course of business. We are unable to predict the outcome of any such matters or the ultimate legal and financial liability, and at this time cannot reasonably estimate the possible loss or range of loss and accordingly have not accrued a related liability.
 
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.
 
Item 4. Mine Safety Disclosures
 
Not applicable.
 
 
 
 
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
Our Common Stock is quoted on the OTCQB over-the-counter market under the symbol “EXDI.” Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. On March 31, 2021 the closing bid price on the OTC Markets for our Common Stock was $0.17.
 
Penny Stock
 
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
 
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
 
 
 
-27-
 
 
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
 
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
  
Holders of Our Common Stock
 
As of March 31, 2021, we had 99,632,710 shares of our common stock issued and outstanding, and approximately 166 shareholders of record.
 
Dividends
 
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
 
1. we would not be able to pay our debts as they become due in the usual course of business, or;
2. our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
 
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
 
Item 6. Selected Financial Data
 
A smaller reporting company is not required to provide the information required by this Item.
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements
  
General
  
Through January 2021 we conducted certain of our operations under a Master Product Development and Supply Agreement (the “Development Agreement”) and Management and Services Agreement with Ceed2Med, LLC (“C2M”) entered in 2018 in order rapidly enter into the CBD business. C2M agreed to provide the Company access to expertise, resources, skills and experience suitable for producing products with active phyto-cannabinoid (CBD) rich ingredients including isolates, distillates, water soluble, and proprietary formulations. Under the Development Agreement, we had been allotted a minimum of 50 and up to 300 kilograms per month, and up to 2,500 kilograms annually, of active phyto-cannabinoid (CBD) rich ingredients for resale, and offered tinctures, edibles, capsules, topical solutions and animal health products manufactured, directly or indirectly, under this arrangement. C2M was also responsible for overseeing our farming and manufacturing activities. 
 
Over the last several months the Company, its Board of Directors, and its advisors have been evaluating numerous opportunities and relationships to increase shareholder value. The Company expects to realize revenue through its efforts, if successful, to sell wholesale and retail products to third parties. However, as the Company is in a start-up phase, in a new business venture, in a rapidly evolving industry, many of its costs and challenges are new and unknown.
 
Results of Operations
 
Year ended December 31, 2020 and 2019:
 
Net Revenues The Company is principally engaged in the business of selling products made from industrial hemp. During the year ended December 31, 2020, we generated total revenues of $2.1 million from the sale of CBD products, including revenues of $0.3 million from a related party, C2M, for the year ended December 31, 2020.
 
Cost of Sales The primary components of cost of sales include the cost of the CBD product. For the year ended December 31, 2020, the Company’s cost of sales amounted to $2.7 million which includes cost of sales with a related party of $0.4 million. Cost of sales primarily increased related to increase in volume.
 
 
 
-28-
 
Operating Expenses
  
For the year ended December 31, 2020, we incurred $9.9 in operating expenses as compared to $9.0 million during the year ended December 31, 2019, an increase of $0.9 million. The increase in operating expenses mainly was related to a $4.6 million increase in impairment charges related to the write off of prepaids with a related party, and impairment of operating lease right to use assets and intangible assets as we no longer plan to farm commercial hemp in 2021, as well as write off of a lease deposit as we determined the lease to not be enforceable and the leased space would not be utilized, offset by a $2.9 million decrease in professional and consulting fees related to a reduction in costs related to our farming activities and $0.3 million decrease in selling and marketing expenses as more of our revenue was generated from product distribution requiring less sales and marketing efforts, and $0.4 million decrease in general and administrative costs mainly related to a reduction in head count costs ..
 
Other Expenses, net
 
Derivative gain increased by $2.4 million from ($1.9) million loss for the year ended December 31, 2019 to $0.5 million gain for the year ended December 31, 2020, due to the change in value of the underlying derivative liability and conversion of notes in 2020.
  
Gain on stock settlement of debt decreased by $3.1 million from $3.0 million loss for the year ended December 31, 2019 to $0.1 million gain for the year ended December 31, 2020 due to the conversion of notes and interest into common and preferred shares during the year ended December 31, 2019. We did not have comparable gains or losses during the year ended December 31, 2020 as there was less conversion activity in 2020 by the note holders.
 
Interest expense increased by $0.5 million from $0.5 million for the year ended December 31, 2019 to $1.0 million for the year ended December 31, 2020. The increase in interest expense is primarily related to increase in principle balance outstanding, amortization of debt discount and debt issuance cost related to our convertible note payable issued during 2019.
 
Liquidity and Capital Resources

Since our inception in 2008, we have generated losses from operations. As of December 31, 2020, our accumulated deficit was $30.4 million.  As of December 31, 2020, we had $25,139 of cash and working capital deficit of $4.9 million. Accordingly, we will need to obtain further funding through public or private equity offerings, debt financing, collaboration arrangements or other sources. The issuance of any additional shares of common stock, preferred stock or convertible securities could be substantially dilutive to our shareholders. In addition, adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital, we will be forced to reduce our operations and may not be able to continue as a going concern.
 
The Company has various principal balances outstanding as of December 31, 2020, under debt agreements with the Small Business Administration (SBA) of the federal government, related parties, convertible notes with a third party, and convertible notes with a related party. A total of $335,510 is due under a Secured Disaster Loan and Paycheck Protection Program (PPP) with the SBA, $115,517 is due to various related party shareholders of the Company, $646,036 was due under convertible notes (which subsequent to year end were converted into newly-issued shares of our Series A Preferred Stock) and $50,250 was due under convertible notes with a related party which, in January 2021, were converted into 2,070,300 shares of the company’s common stock in full satisfaction of the note and accrued interest.
 
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”).
 
 
-29-
 
Net cash used in operating activities for the year ended December 31, 2020 was $0.7 million due to our net loss of $10.9 million, non-cash charges related to convertible loan notes derivative gain of $0.5 million and $0.1 million gain on extinguishment of debt, offset by $0.1 million of depreciation, $1.4 million of stock based compensation, $0.1 million of bad debt, $4.6 million of impairment charges, $0.7 million of inventory reserves, $0.8 million of prepaid stock based compensation amortization, $0.8 million of amortization of debt discounts and debt issuance cost related to convertible notes, $.7 million of intangible amortization, $0.1 million of non-cash interest expense, and $0.1 million of right of use lease asset amortization. Net changes in operating assets and liabilities totaled of $1.5 million, which is primarily attributable to increases in total accounts receivable of $0.1 million, decrease of $0.6 million of inventory, decrease in prepaid assets of $0.2 million, $1.0 million increase in accounts payable and accruals, and $0.2 million decrease in unearned revenue with a related party.
 
Net cash used in investing activity for the year ended December 31, 2020 was $0.
  
Net cash provided by financing activities for the year ended December 31, 2020 was $0.7 million mainly from the sale of $0.4 million of common stock and $0.4 million from the issuance of notes offset by $0.2 million of payments on notes.
 
Going Concern
  
The audit report prepared by our independent registered public accounting firm relating to our financial statements for the year ended December 31, 2020 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. We have concluded that the circumstances described above continue to raise substantial doubt about our ability to continue as a going concern as of December 31, 2020. As of the date of the filing of this Form 10-K, the Company had nearly no cash.
 
Off-Balance Sheet Arrangements
 
As of December 31, 2020, we had no material off-balance sheet arrangements.
 
In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims or the actions of various regulatory agencies. We consult with counsel and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth by accounting principles generally accepted in the United States, an estimate is made of the loss and the appropriate accounting entries are reflected in our financial statements. After consultation with legal counsel, we do not anticipate that liabilities arising out of currently pending or threatened lawsuits and claims will have a material adverse effect on our financial position, results of operations or cash flows.
   
Critical Accounting Estimates and New Accounting Pronouncements
 
Critical Accounting Estimates
 
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, and changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.
 
Fair value of derivative liabilities
 
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. The fair value of the derivative financial liabilities is determined using a Monte Carlo simulation binomial model 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).
 
Stock-based compensation expense
 
Stock-based compensation is measured at the grant date based on the estimated fair value of the award and is recognized as expense on a straight-line basis, net of estimated forfeitures, over the requisite service or performance period. We use the closing trading price of our common stock on the date of grant as the fair value of equity-based awards. We use the Black-Scholes option-pricing formula to estimate the fair value of stock options. The Black-Scholes option-pricing formula uses complex and subjective inputs, including the expected life of the options, stock price volatility, dividends and the pre-vesting option forfeiture rate. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
 
Accounting for income taxes
 
We must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments are used in the calculation of tax credits, tax benefits and deductions, and in the calculation of tax assets and liabilities. Significant changes to these estimates may result in an increase or decrease to our tax provision in a subsequent period.
 
We must assess the likelihood that we will be able to recover our deferred tax assets. If recovery is not likely on a more-likely-than-not basis, we must increase our provision for income taxes by recording a valuation allowance against our deferred tax assets. Should there be a change in our ability to recover our deferred tax assets, our provision for income taxes would fluctuate in the period of the change.
 
We account for uncertain tax positions in accordance with authoritative guidance related to income taxes.  The calculation of our unrecognized tax benefits involves dealing with uncertainties in the application of complex tax regulations. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. We record unrecognized tax benefits for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional tax liabilities are more-likely-than-not assuming the tax authorities have full knowledge of all relevant information. If we ultimately determine that the tax liabilities are unnecessary, we reverse the liabilities and recognize a tax benefit during the period in which it occurs. This may occur for a variety of reasons, such as the expiration of the statute of limitations on a particular tax return or the completion of an examination by the relevant tax authority. We record an additional charge in our provision for taxes in the period in which we determine that the recorded unrecognized tax benefits are less than the expected ultimate settlement.
 
Our policy is to classify accrued interest and penalties related to the accrued liability for unrecognized tax benefits in the provision for income taxes. For the years ended December 31, 2020 and 2019, we did not recognize any significant penalties or interest related to unrecognized tax benefits.
 
 
 
-30-
  
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.
 
We have reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 
A smaller reporting company is not required to provide the information required by this Item.
 
Item 8. Financial Statements and Supplementary Data
 
Index to Financial Statements Required by Article 8 of Regulation S-X:
 
Audited Financial Statements:
 
 
 
 
-31-
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   
To the Board of Directors and Stockholders of
Exactus, Inc. and Subsidiaries
 
Opinion on the Financial Statements
 
We have audited the accompanying consolidated balance sheets of Exactus, Inc. and Subsidiaries (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
 
The Company's Ability to Continue as a Going Concern
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit, recurring losses, and expects continuing future losses that raises substantial doubt about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Basis for Opinion
 
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
 
Critical Audit Matters
 
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
 
 
We determined that there are no critical audit matters.
 
/s/ RBSM LLP
RBSM LLP
 
We have served as the Company’s auditor since 2014.
 
Henderson, NV
April 23, 2021
 
 
Exactus, Inc. and Subsidiaries
Consolidated Balance Sheets
 
 
 
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 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
Exactus, Inc. and Subsidiaries
Consolidated Statements of Operations
 
 
 
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 
 

The accompanying notes are an integral part of these consolidated financial statements.
 
 
Exactus, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2020 and 2019
 
 
 
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
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  -