UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019
  
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from          to
 
Commission File Number: 333-183360
 
EXACTUS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Nevada
 
27-1085858
(State or Other Jurisdiction of Incorporation)
 
(I.R.S. Employer Identification Number)
 
 
 
 
 
 
80 NE 4th Avenue, Suite 28
 
 
Delray Beach, FL 33483
 
33483
(Address of Principal Executive Offices)
 
(Zip Code)
 
(804) 205-5036
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  
 
Indicate by checkmark whether the Registrant has submitted electronically any Interactive Data File required to be submitted pursuant to Rule 405 of regulation S-T (Section 232.405) of this chapter during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes   No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 
 
Securities registered pursuant to Section 12(b) of the Act:  
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
N/A
 
N/A
 
N/A
 
The registrant had 34,934,563 shares of Common Stock, par value $0.0001 per share, outstanding as of August 12, 2019.
 
 
 
 
 
 
Index
 
 
 
PAGE
PART I.
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
-i-
 
 
 
 
 
Exactus, Inc. and Subsidiaries
 
 
Condensed Consolidated Balance Sheets
 
 
 
 
 
 
 
 
 
 
June 30,
 
 
December 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
 
 
 
 
ASSETS
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 $664,645 
 $1,960 
Accounts receivable
  69,914 
  - 
Accounts receivable - related party
  40,519 
  - 
Inventory
  1,047,781 
  - 
Advance to supplier - related party
  820,108 
  - 
Prepaid expenses and other current assets
  301,557 
  12,330 
Total current assets
  2,944,524 
  14,290 
 
    
    
Other Assets:
    
    
   Property and equipment, net
  373,531 
  - 
   Intangible assets, net
  2,640,645 
  - 
   Operating lease right-of-use assets, net
  467,036 
  - 
Total other assets
  3,481,212 
  - 
 
    
    
TOTAL ASSETS
 $6,425,736 
 $14,290 
 
    
    
 
LIABILITIES AND EQUITY (DEFICIT)
 
 
    
    
Current Liabilities:
    
    
Accounts payable
 $1,028,828 
 $923,429 
Accrued expenses
  43,637 
  46,875 
Note payable - related parties
  27,500 
  51,400 
Subscription payable
  500,000 
  - 
Convertible notes, net of discounts
  - 
  491,788 
Derivative liability
  - 
  1,742,000 
Settlement payable
  17,000 
  17,000 
Interest payable
  10,130 
  66,300 
Due to related party
  30,000 
  - 
Operating lease liabilities, current portion
  161,617 
  - 
Total current liabilities
  1,818,712 
  3,338,792 
 
    
    
Long Term Liabilities:
    
    
Convertible notes payable
  100,000 
  100,000 
Operating lease liabilities, long-term portion
  305,419 
  - 
Total long term liabilities
  405,419 
  100,000 
 
    
    
TOTAL LIABILITIES
  2,224,131 
  3,438,792 
 
    
    
Commitment and contingencies (see Note 10)
    
    
 
    
    
Equity (Deficit):
    
    
Exactus, Inc. Stockholders's Equity (Deficit)
    
    
Preferred stock: 50,000,000 authorized; $0.0001 par value, 5,266,466 undesignated shares
    
    
issued and outstanding
  - 
  - 
Preferred stock Series A: 1,000,000 designated; $0.0001 par value,
    
    
608,009 shares issued and outstanding
  60 
  - 
Preferred stock Series B-1: 32,000,000 designated; $0.0001 par value,
    
    
2,400,000,and 2,800,000 shares issued and outstanding, respectively
  240 
  280 
Preferred stock Series B-2: 10,000,000 designated; $0.0001 par value,
    
    
7,684,000 and 8,684,000 shares issued and outstanding, respectively
  768 
  868 
Preferred stock Series C: 1,733,334 designated; $0.0001 par value,
    
    
1,733,334 shares issued and outstanding
  173 
  173 
Preferred stock Series D: 200 designated; $0.0001 par value, 41 and 45
    
    
shares issued and outstanding, respectively
  - 
  1 
Common stock: 650,000,000 shares authorized; $0.0001 par value,
    
    
34,431,265 and 6,233,524 shares issued and outstanding, respectively
  3,443 
  623 
    Common stock to be issued (3,130,256 and none shares to be issued, respectively)
  313 
  - 
Additional paid-in capital
  18,156,387 
  7,111,445 
Accumulated deficit
  (13,771,831)
  (10,537,892)
Total Exactus Inc. Stockholders' Equity (Deficit)
  4,389,553 
  (3,424,502)
 
    
    
        Non-controlling interest in subsidiary
  (187,948)
  - 
 
    
    
        Total Equity (Deficit)
  4,201,605 
  (3,424,502)
 
    
    
TOTAL LIABILITIES AND EQUITY (DEFICIT)
 $6,425,736 
 $14,290 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
- 1 -
 
 
 
 Exactus, Inc. and Subsidiaries
 
 
Condensed Consolidated Statements of Operations
 
 
 
 
 
 
Three Months Ended June 30,
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
 $99,164 
 $- 
 $115,144 
 $- 
Net revenues - related party
  40,519 
  - 
  40,519 
  - 
 
    
    
    
    
Total net revenues
  139,683 
  - 
  155,663 
  - 
 
    
    
    
    
Cost of sales - related party
  103,187 
  - 
  115,787 
  - 
 
    
    
    
    
Gross profit
  36,496 
  - 
  39,876 
  - 
 
    
    
    
    
Operating Expenses:
    
    
    
    
General and administration
  798,681 
  202,171 
  1,502,768 
  1,398,309 
Professional and consulting
  330,891 
  19,033 
  2,211,038 
  130,590 
Research and development
  11,975 
  75,000 
  26,975 
  150,000 
 
    
    
    
    
Total Operating Expenses
  1,141,547 
  296,204 
  3,740,781 
  1,678,899 
 
    
    
    
    
Loss from Operations
  (1,105,051)
  (296,204)
  (3,700,905)
  (1,678,899)
 
    
    
    
    
Other Income (expenses):
    
    
    
    
Derivative (loss) gain
  - 
  (119,000)
  (1,454,729)
  301,150 
Gain on settlement of debt, net
  - 
  - 
  3,007,629 
  - 
Interest expense
  (2,519)
  (144,506)
  (369,432)
  (255,807)
 
    
    
    
    
Total Other Expenses, net
  (2,519)
  (263,506)
  1,183,468 
  45,343 
 
    
    
    
    
Loss Before Provision for Income Taxes
  (1,107,570)
  (559,710)
  (2,517,437)
  (1,633,556)
Provision for income taxes
  - 
  - 
  - 
  - 
 
    
    
    
    
Net Loss
  (1,107,570)
  (559,710)
  (2,517,437)
  (1,633,556)
 
    
    
    
    
Net Loss attributable to non-controlling interest
  152,344 
  - 
  187,948 
  - 
 
    
    
    
    
Net Loss Attributable to Exactus, Inc.
  (955,226)
  (559,710)
  (2,329,489)
  (1,633,556)
 
    
    
    
    
Deemed dividend on Preferred Stock
  - 
  - 
  (904,450)
  - 
 
    
    
    
    
Net Loss available to Exactus, Inc. common stockholders
 $(955,226)
 $(559,710)
 $(3,233,939)
 $(1,633,556)
 
    
    
    
    
Net Loss per Common Share - Basic and Diluted
 $(0.03)
 $(0.12)
 $(0.09)
 $(0.36)
Net Loss attributable to non-controlling interest per Common Share - Basic and Diluted
 $(0.00)
 $- 
 $(0.01)
 $- 
Net Loss available to Exactus, Inc. common stockholders per Common Share - Basic and Diluted
 $(0.03)
 $(0.12)
 $(0.12)
 $(0.36)
 
    
    
    
    
Weighted Average Number of Common Shares Outstanding:
    
    
    
    
   Basic and Diluted
  35,203,356 
  4,603,813 
  27,227,822 
  4,563,346 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
- 2 -
 
 
 
  Exactus, Inc. and Subsidiaries
  Condensed Consolidated Statements of Equity (Deficit)
  For the Six Months Ended June 30, 2019 and 2018
  (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock- Series A
 
 
Preferred Stock- Series B-1
 
 
Preferred Stock- Series B-2
 
 
Preferred Stock- Series C
 
 
Preferred Stock- Series D
 
 
Common Stock
 
 
Common Stock - Unissued
 
 
Paid in
 
 
Accumulated
 
 
 Non-controlling
 
 
 
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Capital
 
 
 Deficit
 
 
 Interest
 
 
 Total
 
Balance, December 31, 2018
  - 
 $- 
  2,800,000 
 $280 
  8,684,000 
 $868 
  1,733,334 
 $173 
  45 
 $1 
  6,233,524 
 $623 
  - 
 $- 
 $7,111,445 
 $(10,537,892)
 $- 
 $(3,424,502)
 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
Preferred stock issued upon convesion of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
convertible debt
  849,360 
  84 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  849,276 
  - 
  - 
  849,360 
Preferred stock issued for private placement
  55,090 
  6 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  55,084 
  - 
  - 
  55,090 
Common stock issued for private placement
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  15,382,090 
  1,538 
  - 
  - 
  3,308,115 
  - 
  - 
  3,309,653 
Common Stock issued for Master Supply
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  8,385,691 
  839 
  - 
  - 
  (839)
  - 
  - 
  - 
Common stock issued for debt settlement
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  203,080 
  20 
  - 
  - 
  40,596 
  - 
  - 
  40,616 
Common stock issued for purchase of membership interest in subsidiary
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  937,500 
  94 
  - 
  - 
  989,906 
  - 
  - 
  990,000 
Conversion of Series A Preferred Stock to Common Stock
  (296,441)
  (30)
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  1,482,205 
  148 
  - 
  - 
  (118)
  - 
  - 
  - 
Conversion of Series B-1 Preferred Stock to Common Stock
  - 
  - 
  (400,000)
  (40)
  - 
  - 
  - 
  - 
  - 
  - 
  50,000 
  5 
  - 
  - 
  35 
  - 
  - 
  - 
Conversion of Series B-2 Preferred Stock to Common Stock
  - 
  - 
  - 
  - 
  (1,000,000)
  (100)
  - 
  - 
  - 
  - 
  125,000 
  13 
  - 
  - 
  87 
  - 
  - 
  - 
Conversion of Series D Prefered Stock to Common Stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (4)
  (1)
  100,000 
  10 
  - 
  - 
  (9)
  - 
  - 
  - 
Common stock issued upon convesion of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
convertible debt
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  250,000 
  25 
  - 
  - 
  195,975 
  - 
  - 
  196,000 
Stock warrants granted for services
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  1,114,062 
  - 
  - 
  1,114,062 
Stock options granted for services
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  891,799 
  - 
  - 
  891,799 
Deemed dividend on Preferred Stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  904,450 
  (904,450)
  - 
  - 
Net Loss for the period
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
    
  (1,374,263)
  (35,604)
  (1,409,867)
Balance, March 31, 2019
  608,009 
  60 
  2,400,000 
  240 
  7,684,000 
  768 
  1,733,334 
  173 
  41 
  - 
  33,149,090 
  3,315 
  - 
  - 
  15,459,864 # 
  (12,816,605)
  (35,604)
  2,612,211 
Common stock issued and unissued for private placement
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  1,282,175 
  128 
  2,606,958 
  261 
  2,168,796 
  - 
  - 
  2,169,185 
Common stock unissued for services
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  20,000 
  2 
  19,498 
  - 
  - 
  19,500 
Common stock unissued for purchase of membership interest in subsidiary
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  503,298 
  50 
  449,950 
  - 
  - 
  450,000 
Stock options granted for services
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  58,279 
  - 
  - 
  58,279 
Net Loss for the period
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
    
  (955,226)
  (152,344)
  (1,107,570)
Balance, June 30, 2019
  608,009 
 $60 
  2,400,000 
 $240 
  7,684,000 
 $768 
  1,733,334 
 $173 
  41 
 $- 
  34,431,265 
 $3,443 
  3,130,256 
 $313 
 $18,156,387 
 $(13,771,831)
 $(187,948)
 $4,201,605 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Stock- Series A
 
 
Preferred Stock- Series B-1
 
 
Preferred Stock- Series B-2
 
 
Preferred Stock- Series C
 
 
Preferred Stock- Series D
 
 
Common Stock
 
 
Paid in
 
 
Accumulated
 
 
 Non-controlling
 
 
 
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Capital
 
 
 Deficit
 
 
 Interest
 
 
 Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
  - 
 $- 
  2,800,000 
 $280 
  8,684,000 
 $868 
  1,733,334 
 $173 
  - 
 $- 
  4,383,983 
 $439 
 $3,983,171 
 $(6,200,573)
 $- 
 $(2,215,642)
Common stock issued for debt settlement
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  214,834 
  21 
  343,714 
  - 
  - 
  343,735 
Series D preferred stock issued for cash
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  5 
  - 
  - 
  - 
  50,000 
  - 
  - 
  50,000 
Series D preferred stock issued for debt
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  40 
  1 
  - 
  - 
  499,999 
  - 
  - 
  500,000 
Net Loss for the period
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (1,073,846)
  - 
  (1,073,846)
 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
Balance, March 31, 2018
  - 
  - 
  2,800,000 
  280 
  8,684,000 
  868 
  1,733,334 
  173 
  45 
  1 
  4,598,817 
  460 
  4,876,884 
  (7,274,419)
  - 
  (2,395,753)
Common stock issued upon convesion of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
convertible debt
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  22,727 
  2 
  19,998 
  - 
  - 
  20,000 
Series D preferred stock issued for debt
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
Net Loss for the period
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (559,710)
  - 
  (559,710)
 
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
Balance, June 30, 2018
  - 
 $- 
  2,800,000 
 $280 
  8,684,000 
 $868 
  1,733,334 
 $173 
  45 
 $1 
  4,621,544 
 $462 
 $4,896,882 
 $(7,834,129)
 $- 
 $(2,935,463)
 
 
 
- 3 -
 
 
 
Exactus, Inc. and Subsidiaries
 
 
Condensed Consolidated Statements of Cash Flows
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
 
(Unaudited)
 
Cash Flows From Operating Activities:
 
 
 
 
 
 
Net loss
 $(2,517,437)
 $(1,633,556)
Adjustments to reconcile net loss to cash used in operating activities:
    
    
        Depreciation
  11,851 
  - 
Derivative loss (gain)
  1,454,729 
  (301,150)
Stock-based compensation
  2,083,638 
  500,000 
Amortization of discount and debt issuance costs for convertible notes
  339,806 
  232,688 
Amortization of intangible assets
  299,355 
  - 
(Gain) loss on settlement of debt
  (3,007,629)
  249,002 
Changes in operating assets and liabilities:
    
    
(Increase) decrease in operating assets:
    
    
         Accounts receivable
  (69,914)
  - 
         Accounts receivable - related party
  (40,519)
  - 
             Inventory
  (1,047,781)
  - 
            Advance to supplier - related party
  (820,108)
  - 
Prepaid expenses and other current assets
  (289,227)
  (15,984)
Increase (decrease) in operating liabilities:
    
    
Accounts payable
  105,400 
  44,663 
Accrued expenses
  6,762 
  580,742 
Settlement payable
  - 
  (3,000)
Interest payable
  6,746 
  12,589 
Net Cash Used In Operating Activities
  (3,484,328)
  (334,006)
 
    
    
Cash Flows From Investing Activities:
    
    
 Purchase of membership interest in subsidiary
  (1,000,000)
  - 
 Purchase of property and equipment
  (385,382)
  - 
Net Cash Used in Investing Activities
  (1,385,382)
  - 
 
    
    
Cash Flows From Financing Activities:
    
    
Proceeds from sale of Series D preferred stock
  - 
  50,000 
Advances from related party
  30,000 
  - 
Proceeds from sale of Common Stock
  5,478,838 
  - 
Payments of principal on notes payable
  (11,129)
  - 
Proceeds from issuance of notes payable
  14,229 
  101,900 
Payments of principal on convertible notes
  (186,443)
  (25,000)
Proceeds from issuance of convertible notes, net of issuance cost
  206,900 
  99,900 
Net Cash Provided By Financing Activities
  5,532,395 
  226,800 
 
    
    
Net increase (decrease) in cash and cash equivalents
  662,685 
  (107,206)
 
    
    
Cash and cash equivalents at beginning of period
  1,960 
  161,215 
 
    
    
Cash and cash equivalents at end of period
 $664,645 
 $54,009 
 
    
    
Supplemental Cash Flow Information:
    
    
Cash paid for interest
 $22,890 
 $- 
Cash paid for taxes
 $- 
 $- 
 
    
    
Non-Cash investing and financing activities:
    
    
Increases in convertible note, principal
 $- 
 $16,500 
Proceeds from sale of Series D preferred stock paid directly to settle amounts
    
    
due to officers and directors
 $- 
 $500,000 
Proceeds from sale of Series A preferred stock paid directly to settle debts
 $55,090 
 $- 
Convertible notes and interest payable settled by Series A preferred stock issued
 $849,360 
 $- 
Note payable, accrued expense and interest payable settled by common stock issued
 $40,616 
 $- 
Convertible notes settled by common stock issued
 $196,000 
 $- 
Accounts payable settled by common stock issued
 $- 
 $95,934 
Common stock issued for purchase of membership interest in subsidiary
 $1,440,000 
 $- 
Increase in intangible assets for subscription payable
 $1,650,000 
 $- 
Initial benefical conversion feature and debt discount on convertible notes
 $206,910 
 $118,500 
Initial derivative liability on convertible notes
 $- 
 $214,000 
Preferred deemed dividend
 $904,450 
 $- 
   Operating lease right-of-use assets and operating lease liabilities
    
    
    recorded upon adoption of ASC 842
 $506,506 
 $- 
Reduction of operating lease right-of-use asset and operating lease liabillities
 $39,470 
 $- 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 
- 4 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
NOTE 1 - NATURE OF ORGANIZATION  
 
Organization and Business Description
 
Exactus, Inc. (the “Company”) was incorporated on January 18, 2008 as an alternative energy research and development company. During much of its history the Company had designed solar monitoring and charging systems which were discontinued in 2016 to focus on developing point-of-care diagnostic devices. The Company has recently added to the scope of its activities efforts to produce, market and sell products made from industrial hemp containing cannabidiol (“CBD”).
  
On January 8, 2019 the Company began pursuing hemp-derived CBD as a new business segment after passage of the Agriculture Improvement Act of 2018, also known as the 2018 Farm Bill. The 2018 Farm Bill declassified industrial hemp as a Schedule I substance, shifted regulatory authority from the Drug Enforcement Administration to the Department of Agriculture, and provided autonomy for states to regulate the industry. The 2018 Farm Bill did not change the Food and Drug Administration’s oversight authority over CBD products. The 2018 Farm Bill defined industrial hemp as a variety of cannabis containing an amount equal to or lower than 0.3% tetra-hydrocannabinol (THC) and allowed farmers to grow and sell hemp under state regulation. Industry reports indicate that 41 states have set up cultivation and production programs to regulate the production of hemp.
 
Following passage of the 2018 Farm Bill, the Company entered into a Master Product Development and Supply Agreement (the “Development Agreement”) with Ceed2Med, LLC (“C2M”). Under the Master Agreement, C2M agreed to provide to the Company up to 2,500 kilograms of products (isolate or distillate) for manufacture into consumer products such as tinctures, edibles, capsules, topical solutions and animal health products. The Company believes manufacturing, testing and quality akin to pharmaceutical products is important when distributing hemp-based products. The Company’s products originate from farms at which the Company (or C2M) oversee all stages of plant growth and are manufactured under contract arrangements with third-parties.
 
The Company identified the rapidly growing hemp-based CBD market as a valuable target for a new company focus. On January 8, 2019, the Company entered into the Master Product Development and Supply Agreement with C2M. In consideration for the Development Agreement (see Note 11), C2M was issued 8,385,691 shares of our Common Stock. Additionally, the Company granted immediately vested 10 year options to purchase 750,000 shares of Common Stock, with exercise price of $0.32 per share to three C2M founders. As a result, C2M became the Company’s largest shareholder holding (inclusive of the vested options held by its founders) approximately 51% of the Company’s outstanding Common Stock as of the date of the Development Agreement which has subsequently been reduced to approximately 22% as of June 30, 2019. Consequently, such transaction resulted in a change of control whereby, C2M obtained majority control through its Common Stock ownership (See Note 11). In connection with this agreement, the Company received access to expertise, resources, skills and experience suitable for production of CBD rich ingredients including isolates, distillates, water soluble, and proprietary formulations. Under the Development Agreement, the Company was allotted a minimum of 50 and up to 300 kilograms per month, and up to 2,500 kilograms annually, of CBD rich ingredients for resale and placed a $1 million purchase order for products. The Company currently offers products such as tinctures, edibles, capsules, topical solutions and animal health products manufactured for the Company as branded and white-label products.
 
On March 11, 2019, with the assistance of C2M and assignment of rights, the Company acquired a 50.1% limited liability membership interest in Exactus One World, LLC (“EOW”), an Oregon limited liability company formed on January 25, 2019, in order to farm industrial hemp for its own use. Prior to the acquisition, EOW had no operating activities. The Company acquired its 50.1% limited liability membership interest pursuant to a Subscription Agreement and a Membership Interest Purchase Agreement (See Note 3). Following the events described above, the Company entered into the business of production and selling of industrial hemp grown for its own use and for sale to third-parties.
 
On January 11, 2019, the Board of Directors of the Company approved a reverse stock split of the Company’s Common Stock at a ratio of 1-for-8 (the “Reverse Stock Split”) including shares issuable upon conversion of the Company’s outstanding convertible securities. All share and per share values of the Company’s Common Stock for all periods presented in this Report and in the accompanying condensed consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split.
 
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of presentation and principles of consolidation
 
The Company’s unaudited condensed consolidated financial statements include the financial statements of its 50.1% subsidiary, EOW. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
 
 
- 5 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
 
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes consolidated unaudited interim financial statements and present the consolidated unaudited interim financial statements of the Company and its majority-owned subsidiary as of June 30, 2019. All intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations, stockholders’ equity (deficit) and cash flows as of June 30, 2019 and 2018, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2018 and footnotes thereto included in the Company’s Report on Form 10K filed with the SEC on March 29, 2019. The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.
 
Going concern
 
These unaudited condensed consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of the Company’s assets and the carrying amount of its liabilities based on the going concern uncertainty. As reflected in the accompanying unaudited condensed consolidated financial statements, the Company had a net loss attributable to Exactus Inc. common shareholders of $3,233,939 and $1,633,556 for the six months ended June 30, 2019 and 2018, respectively. The net cash used in operating activities was $3,484,328 for the six months ended June 30, 2019. Additionally, the Company had an accumulated deficit of $13,771,831 at June 30, 2019. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. The Company is seeking to raise capital through additional debt and/or equity financings to fund its operations in the future. Although the Company has historically raised capital from sales of common and preferred shares and from the issuance of convertible promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail its operations. These unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Over the last several months the Company and its advisors have been evaluating numerous opportunities and relationships to increase shareholder value. The Company expects to realize revenue through its efforts, if successful, to sell wholesale and retail products to third parties. However, as the Company is in a start-up phase, in a new business venture, in a rapidly evolving industry, many of its costs and challenges are new and unknown. In order to fund the Company’s activities, the Company will need to raise additional capital either through the issuance of equity and/or the issuance of debt. During the six months ended June 30, 2019, the Company received proceeds from the sale of the Company’s Common Stock of approximately $5.5 million.
 
Use of Estimates  
 
The Company prepares its unaudited condensed consolidated financial statements in conformity with GAAP which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to the fair value of derivative liabilities, useful life of property and equipment, fair value of right of use assets, assumptions used in assessing impairment of long-term, contingent liabilities, and fair value of non-cash equity transactions.
 
Fair Value Measurements
 
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value, and expands disclosure of fair value measurements. The guidance prioritizes the inputs used in measuring fair value and establishes a three-tier value hierarchy that distinguishes among the following:
 
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
 
Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
 
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
 
 
- 6 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
 
 
The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2019 and December 31, 2018:
 
 
 
At June 30, 2019
 
 
At December 31, 2018
 
Description
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Derivative liabilities
   
   
 $- 
   
   
 $1,742,000 
 
A roll forward of the level 3 valuation financial instruments is as follows:
 
 
 
For the Six Months Ended June 30, 2019
 
Balance at beginning of period
 $1,742,000 
Initial fair value of derivative liabilities as debt discount
  206,910 
Initial fair value of derivative liabilities as derivative expense
  361,090 
Gain on extinguishment of debt
  (3,206,000)
Change in fair value included in derivative loss
  896,000 
Balance at end of period
 $- 
 
As of June 30, 2019, the Company has no assets that are re-measured at fair value.
 
Cash and Cash Equivalents
 
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. We have not experienced any losses on such accounts and we do not believe we are exposed to any significant credit risk. The Company had approximately $415,000 and $0 cash balances in excess of FDIC insured limits at June 30, 2019 and December 31, 2018, respectively. Cash and cash equivalents were $664,645 and $1,960 at June 30, 2019 and December 31, 2018, respectively.
 
Prepaid Expenses and Other Current Assets
 
Prepaid expenses and other current assets of $301,557 and $12,330 at June 30, 2019 and December 31, 2018, respectively, consist primarily of costs paid for future services which will occur within a year. Prepaid expenses may include prepayments in cash for an operating lease, consulting, and insurance fees which are being amortized over the terms of their respective agreements. Other current assets include cash paid for deposit on future construction services on a leasehold improvement.
 
Inventory
 
The Company values inventory, consisting of raw materials, growing plants and finished goods, at the lower of cost or net realizable value. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of the estimated net realizable value include (i) estimates of future demand, and (ii) competitive pricing pressures.
 
Advances to suppliers
 
Advances to a supplier represents the cash paid in advance for the purchase of inventory. The advances to a supplier are interest free and unsecured. As of June 30, 2019 and December 31, 2018, respectively, advances to the Company’s major supplier, C2M, who is also a related party, amounted to $820,108 and $0, respectively (see Note 11). Upon shipment of the purchased inventory, the Company reclassifies or records such advances to the supplier into inventory.
 
 
 
- 7 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
 
 
Property and Equipment
 
Property and equipment are carried at cost less accumulated depreciation.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 5 to 10 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired, or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the consolidated statement of operations.
 
Impairment of long-lived assets
 
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.
 
Derivatives and Hedging- Contracts in Entity’s Own Equity
 
In accordance with the provisions of ASC 815 “Derivatives and Hedging” the embedded conversion features in the convertible notes (see Note 9) are not considered to be indexed to the Company’s stock. As a result, these are required to be accounted for as derivative financial liabilities and have been recognized as liabilities on the accompanying consolidated balance sheets. The fair value of the derivative financial liabilities are determined using a binomial model with Monte Carlo simulation and is affected by changes in inputs to that model including the Company’s stock price, expected stock price volatility, the expected term, and the risk-free interest rate. The derivative financial liabilities are subject to re-measurement at each balance sheet date and any changes in fair value is recognized as a component in other income (expenses).
 
Revenue Recognition
 
On January 1, 2018, the Company adopted the Accounting Standard Codification (“ASC”) Topic 606 and the related amendments Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue by applying the following steps:
 
Step 1: Identify the contract(s) with a customer.
 
Step 2: Identify the performance obligations in the contract.
 
Step 3: Determine the transaction price.
 
Step 4: Allocate the transaction price to the performance obligations in the contract.
 
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
 
The Company’s performance obligations are satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product.
 
Cost of Sales
 
The primary components of cost of sales include the cost of the product and shipping fees.
 
Research and Development Expenses
 
The Company follow ASC 730-10, “Research and Development,” and expenses research and development costs when incurred.  Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development.   Research and development costs of $26,975 and $150,000 were incurred for the six months ended June 30, 2019 and 2018, respectively, and $11,975 and $75,000 were incurred for the three months ended June 30, 2019 and 2018, respectively, and are included in operating expenses on the accompanying unaudited condensed consolidated statements of operations.
 
 
 
 
 
- 8 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
 
 
Stock-Based Compensation
 
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
 
Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company adoption did not have any material impact on its consolidated financial statements.
 
The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
 
Related Parties
 
We follow ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.  
 
Earnings per Share
 
We compute basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings per Share”. Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if preferred stock converted to Common Stock and warrants are exercised.  Preferred stock and warrants are excluded from the diluted earnings per share calculation if their effect is anti-dilutive.  As of June 30, 2018, the Company had 4,972,859 potential shares and warrants that were excluded from our calculation of diluted earnings per share because their effect would have been anti-dilutive. For the six months ended June 30, 2019, the following potentially dilutive shares were excluded from the computation of diluted earnings per shares because their impact was anti-dilutive:
 
 
 
 June 30, 2019
 
Common Stock equivalents:
 
 
 
Stock warrants
  1,154,500 
Stock options
  5,684,375 
Convertible notes payable
  250,000 
Convertible Preferred Stock  
  5,542,212 
Total
  12,631,087 
 
Income Taxes
 
The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
 
 
 
- 9 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
 
 
The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
 
Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
 
The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.  The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
 
Non-controlling interests in consolidated financial statements
 
In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). This ASC clarifies that a non-controlling (minority) interest in subsidiaries is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated income statement of the amounts attributed to the parent and to the non-controlling interest. In accordance with ASC 810-10-45-21, those losses attributable to the parent and the non-controlling interest in subsidiaries may exceed their interests in the subsidiary’s equity. The excess and any further losses attributable to the parent and the non-controlling interest shall be attributed to those interests even if that attribution results in a deficit non-controlling interest balance. On March 11, 2019, the Company acquired a 50.1% limited liability membership interest in EOW, pursuant to a Subscription Agreement and a Membership Interest Purchase Agreement (see Note 3) and has the right to appoint a manager of the limited liability company.
 
Leases
 
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
 
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.
 
Operating lease ROU assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.
 
 
 
- 10 -
 
EXACTUS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
 
Recent Accounting Pronouncements
 
On June 20, 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Currently, share-based payment arrangements to nonemployees are accounted for under ASC 718, while nonemployee share-based payments issued for goods and services are accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but not limited to) was the determination of measurement date which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant and equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award which is the same as share-based payments for employees. The Company adopted the requirements of the new rule in the first quarter of 2019.
 
In January 2017, the FASB issued Accounting Standards Update 2017-04, “Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment” (ASU 2017-04). The standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments of ASU 2017-04, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss cannot exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for the calendar year ending December 31, 2020. The amendments require a prospective approach to adoption and early adoption is permitted for interim or annual goodwill impairment tests. The Company is currently evaluating the impact of this standard.
 
In July 2017, the FASB issued ASU No. 2017-11, which amends the FASB Accounting Standards Codification. Part I of ASU No. 2017-11, Accounting for Certain Financial Instruments with Down Round Features, changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. The guidance is effective for reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2017-11 on January 1, 2019. The adoption of this guidance had no impact on the Company’s condensed consolidated financial statements.
 
We have reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. 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.
  
NOTE 3 – ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC
 
On March 11, 2019, the Company acquired a 50.1% limited liability membership interest in Exactus One World, LLC, an Oregon limited liability company, formed on January 25, 2019 which since inception, had no operations.
 
The Company acquired 50.1% limited liability membership interest pursuant to a Subscription Agreement (the “Subscription Agreement”) and a Membership Interest Purchase Agreement (the “Purchase Agreement”). Under the terms of the Subscription Agreement, the Company acquired a 30% interest in EOW, and an additional 20.1% was acquired from existing members pursuant to the terms of the Purchase Agreement. The existing members are considered third parties. The Company has the right to appoint a Manager of the limited liability company and has appointed its President.
 
Under the term of the Subscription Agreement, the Company acquired 30% of membership interest in EOW in consideration for cash of $2,700,000 payable as follows:
 
$400,000 paid previously for purchase of Hemp Seeds;