PANACEA LIFE SCIENCES HOLDINGS, INC. - Quarter Report: 2017 March (Form 10-Q)
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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31,
2017
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period
from
to
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Commission File Number: 333-183360
EXACTUS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Nevada
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27-1085858
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(State or Other Jurisdiction of Incorporation)
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(I.R.S. Employer Identification Number)
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4870 Sadler Road, Suite 300
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Glen Allen, VA
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23060
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(Address of Principal Executive Offices)
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(Zip Code)
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(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 ☑
Explanatory
Note: The registrant is a voluntary filer and is therefore not
subject to the filing requirements of the Securities Exchange Act
of 1934; however, during the preceding 12 months, the registrant
has filed all reports that it would have been required to file by
Section 15(d) of the Securities Exchange Act of 1934 if the
registrant was subject to the filing requirements of the Securities
Exchange Act of 1934 during such time frame.
Indicate by checkmark whether the Registrant has submitted
electronically and posted on its corporate website, if any, any
Interactive Data File required to be submitted and posted 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 and post 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.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☐ (Do
not check if a
smaller reporting company)
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Smaller reporting company
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Emerging growth company
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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 ☑
The registrant had 33,571,862 shares of Common Stock, par value
$0.0001 per share, outstanding as of May 1, 2017.
Index
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Exac
tus,
Inc.
(formerly known as Spiral Energy Tech, Inc.)
Condensed Consolidated Balance Sheets
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March 31,
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December 31,
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2017
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2016
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(Unaudited)
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ASSETS
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Current Assets
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Cash
and cash equivalents
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$296,907
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$1,055,336
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Prepaid
expenses
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1,024,080
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1,019,721
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Total current assets
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1,320,987
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2,075,057
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Intangible
asset- license agreement
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50,000
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50,000
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TOTAL ASSETS
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$1,370,987
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$2,125,057
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
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Accounts
payable
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391,608
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566,495
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Accrued
expenses
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55,358
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58,479
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Total Current Liabilities
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446,966
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624,974
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TOTAL LIABILITIES
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446,966
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624,974
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Commitments and contingencies (see note 6)
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Stockholders' Equity
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Preferred
stock: 50,000,000 authorized; $0.0001 par value 0 shares issued and
outstanding
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-
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-
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Preferred
stock Series A: 5,000,000 authorized; $0.0001 par value 4,558,042
shares issued and 0 shares outstanding
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-
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-
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Preferred
stock Series B-1: 32,000,000 authorized; $0.0001 par value
2,800,000 issued and outstanding
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280
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280
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Preferred
stock Series B-2: 10,000,000 authorized; $0.0001 par value
8,684,000 and 8,584,000 shares issued and outstanding,
respectively
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868
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858
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Preferred
stock Series C: 1,733,334 authorized; $0.0001 par value 1,733,334
shares issued and outstanding
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173
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173
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Common
stock: 200,000,000 shares authorized; $0.0001 par value 33,571,862
and 34,071,862 shares issued and outstanding,
respectively
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3,357
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3,407
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Additional
paid-in capital
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3,860,253
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3,835,263
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Accumulated
deficit
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(2,940,910)
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(2,339,898)
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Total
Stockholders' Equity
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924,021
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1,500,083
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$1,370,987
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$2,125,057
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The
accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Exactus,
Inc.
(formerly known as Spiral Energy Tech, Inc.)
Condensed Consolidated Statements of Operations
(Unaudited)
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Three Months Ended March 31,
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2017
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2016
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Revenues
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$-
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$-
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Operating Expenses
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General
and administration
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292,813
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104,809
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Professional
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219,989
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97,728
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Research
and development
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88,210
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26,750
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Impairment
of patent
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-
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4,080
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Total operating expenses
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601,012
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233,367
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Net loss from operations
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(601,012)
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(233,367)
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Other Income (loss)
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Loss
on disposal of equipment
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(1,453)
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Total other (loss) income
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-
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(1,453)
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Net
loss before income taxes
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(601,012)
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(234,820)
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Provision
for income tax
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-
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-
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Net Loss
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$(601,012)
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$(234,820)
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Basic and Diluted Loss per Common Share
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$(0.02)
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$(0.54)
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Weighted Average Number of Common Shares Outstanding
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33,860,762
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430,953
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The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Exactus,
Inc.
(formerly known as Spiral Energy Tech, Inc.)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended March 31,
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2017
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2016
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Cash Flows From Operating Activities:
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Net
loss
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$(601,012)
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$(234,820)
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Adjustments
to reconcile net loss to cash used in operations:
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Bad
debt
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-
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7,010
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Loss
on disposal of property and equipment
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-
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1,453
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Impairment
of patent
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4,080
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Bank
overdraft write-off
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(1,172)
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Changes
in operating assets and liabilities:
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(Increase)
decrease in operating assets:
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Prepaid
expenses
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(4,409)
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(25,000)
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Increase
(decrease) in operating liabilities:
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Accounts
payable
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(174,887)
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72,639
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Accrued
expenses
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(3,121)
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9,269
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Net Cash Used In Operating Activities
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(783,429)
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(166,541)
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Cash Flows From Investing Activities:
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Acquisition
of cash balance from Exactus BioSolutions Inc.
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-
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1,292
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Net Cash Used In Investing Activities
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-
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1,292
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Cash Flows From Financing Activities:
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Proceeds
from sale of Series B-2 Preferred Stock
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25,000
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370,000
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Payment
for Series A Preferred Stock
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-
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(50,000)
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Net Cash Provided By Financing Activities
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25,000
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320,000
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Net (decrease) increase in cash and cash equivalents
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(758,429)
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154,751
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Cash and cash equivalents at beginning of period
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1,055,336
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72,342
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Cash and cash equivalents at end of period
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$296,907
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$227,093
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Supplemental Cash Flow Information:
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Cash
paid for interest
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$-
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$-
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Cash
paid for taxes
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$-
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$-
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Non-Cash transactions investing and financing
activity:
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Acquisition
of license agreement from Exactus BioSolutions Inc
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$-
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$50,000
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Preferred
Stock Series B-2 issued as payment for Note payable
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$-
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$100,000
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Preferred
Stock Series B-2 issued as payment for Exactus shareholder
loans
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$-
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$51,000
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The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
Exactus,
Inc.
(Formerly known as Spiral Energy Tech, Inc.)
Notes to Unaudited Condensed Consolidated Financial
Statements
March 31, 2017
NOTE 1. BASIS OF PRESENTATION
The
accompanying unaudited condensed financial statements presented
herein have been prepared in accordance with the instructions to
Form 10-Q and do not include all the information and note
disclosures required by accounting principles generally accepted in
the United States (“GAAP”). The financial statements
should be read in conjunction with the audited financial statements
and notes thereto contained in the Annual Report on Form 10-K for
the fiscal year ended December 31, 2016 filed with the Securities
and Exchange Commission (the “SEC”) by Exactus, Inc.
(formerly known as Spiral Energy Tech, Inc. and Solid Solar Energy,
Inc.) (“Exactus”, “our”, “us”,
“we” or the “Company” refer to Exactus,
Inc. and its wholly-owned subsidiary, unless the context otherwise
requires) on March 31, 2017. On February 29, 2016, after acquiring
all the issued and outstanding capital stock of Exactus
BioSolutions, Inc., the Company changed its business focus from
drone technology to a life science company. In the opinion of
management, this interim information includes all material
adjustments, which are of a normal and recurring nature, necessary
for fair presentation.
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
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 the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
The
results of operations for the three months ended March 31, 2017 are
not necessarily indicative of the results to be expected for the
entire year or for any other period.
We
adopted early application of Accounting Standards Update No.
2014-10, Development Stage Entities (Topic 915): Elimination of
Certain Financial Reporting Requirements effective September 30,
2014, therefore, inception-to-date information and other remaining
disclosure requirements of Topic 915 are not presented or
disclosed.
NOTE 2. BUSINESS DESCRIPTION AND GOING CONCERN
Organization and Business Description
Exactus was incorporated on January 18, 2008 as
“Solid Solar Energy, Inc.” in the State of Nevada as a
for-profit Company. On May 16, 2013, we
filed a certificate of amendment to the Company’s amended and
restated articles of incorporation to change our name to
“Spiral Energy Tech., Inc.” from Solid Solar Energy,
Inc. On February 29, 2016, we acquired all of the issued and
outstanding capital stock of Exactus BioSolutions, Inc.
(“Exactus BioSolutions”) pursuant to a Share Exchange
Agreement, dated February 29, 2016, with Exactus BioSolutions (the
“Share Exchange”). The Company issued 30 million shares of
newly-designated Series B-1 Preferred Stock to the shareholders of
Exactus BioSolutions in the Share Exchange, representing
approximately 87% of voting control of the Company upon
consummation of the Share Exchange. As a result of the Share
Exchange, Exactus BioSolutions became a wholly-owned subsidiary of
Exactus, Inc. Effective March 22, 2016, we changed our corporate
name to “Exactus, Inc.” via a merger with our
wholly-owned subsidiary, Exactus Acquisition
Corp.
Following the Share
Exchange, we became a life science company based in Glen Allen,
Virginia that plans to develop and commercialize Point-of-Care
(POC) diagnostics for measuring proteolytic enzymes in the blood
based on a novel detection platform developed by Dr. Krassen
Dimitrov, PhD. Our products will employ a disposable assay test
strip combined with a portable and easy to use hand held detection
unit that provides a result in as little as 30
seconds.
The
first product will be used to assay fibrinolysis, which is the
process by which clots in the blood are dissolved. The rate of
fibrinolysis is carefully regulated in circulation; too little
fibrinolysis leads to the formation of clots (thrombosis) and too
much fibrinolysis prevents normal coagulation and can lead to
excessive bleeding (hemorrhage). An elevated level of fibrinolysis
is associated with many pathological conditions including
myocardial infarction, pulmonary embolisms/deep vein thrombosis
(PE/DVT) and ischemic stroke. Further, complications associated
with surgical procedures and trauma can induce a hyperfibrinolytic
state, leading to hemorrhage. In all of these medical situations,
time is of the essence, and we believe current diagnostic
technologies cannot return an actionable result in the time frame
necessary to provide timely therapeutic intervention.
The
FibriLyzer is expected to provide a simple, rapid and affordable
means to assess the fibrinolytic state of a patient in a broad
range of applications including (i) the management of
hyperfibrinolytic states associated with surgery and trauma, (ii)
obstetrics, (iii) diagnosis of acute events such as myocardial
infarction and ischemic stroke, (iv) diagnosis of pulmonary
embolism and deep vein thrombosis, (v) chronic coronary disease
management, and (vi) as a monitoring device to evaluate the
effectiveness of coagulation therapy. We anticipate that the use of
FibriLyzer will provide the basis for improving management of
patients who are at-risk of hemorrhage, expediting treatment,
potentially improving patient outcomes, and saving
money.
We plan
to follow up FibriLyzer with a similar technology to detect
collagenase levels in the blood. This product, MatriLyzer, is
intended to be used to detect the recurrence (or initial occurrence
in high risk patients) of cancer and can be used as an at-home
monitoring device or during routine office visits. The appearance
of elevated levels of collagenase, the enzyme that degrades
collagen, have been proven to be an early biomarker of recurrent
cancer. For patients that have been previously treated for cancer,
specifically, solid tumors, if and when the tumor recurs is of
paramount importance. Once a tumor has begun to grow and spread, we
believe that MatriLyzer can be used to detect this event at an
early stage. If desired, our device will be designed to communicate
directly with the attending oncologist via a smart phone
application to ensure that the tests are being used properly and,
when collagenase levels are elevated, both patient and physician
will know the patient should have a more thorough
examination.
Prior
to our acquisition of Exactus BioSolutions pursuant to the Share
Exchange, our primary business focus was on developing and
commercializing drone technology (the “Former
Business”).
As
of March 31, 2017, we had no products available for sale. There can
be no assurance that our technology will be approved for sale or,
if approved for sale, be commercially successful. In addition, we
operate in an environment of rapid change in technology and are
dependent upon the continued services of our current consultants
and subcontractors.
As
of March 31, 2017, we had $296,907 of cash. We expect that these
funds will not be sufficient to enable us to complete the
development of any potential products, including the FibriLyzer.
Accordingly, we will need to obtain further funding through public
or private equity offerings, debt financing, collaboration
arrangements or other sources in order to continue our business.
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 would be forced to delay, reduce or eliminate
our research and development programs and may not be able to
continue as a going concern.
These
financial statements are presented on the basis that we 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 our assets and the carrying
amount of our liabilities based on the going concern uncertainty.
We have considered ASU 2014-15 in consideration of reporting
requirements of the going concern financial
statements.
The
audit report prepared by our independent registered public
accounting firm relating to our financial statements for the year
ended December 31, 2016 includes an explanatory paragraph
expressing substantial doubt about our ability to continue as a
going concern. We have concluded that the circumstances described
above continue to raise substantial doubt about our ability to
continue as a going concern as of March 31, 2017.
The
Company’s headquarters are located at 4870 Sadler Road, Suite
300, Glen Allen, Virginia 23060. The Company’s
fiscal year end is December 31.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States
("GAAP") and pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”). Certain
information and note disclosures normally included in annual
consolidated financial statements prepared in accordance with GAAP
have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures
made are adequate to make the information not
misleading.
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.
Cash and cash equivalents were $296,907 and $1,055,336 at March 31,
2017 and December 31, 2016, respectively.
Long-Lived Assets Including Other Acquired Intangible
Assets
Property
and equipment is stated at cost. Depreciation is computed by
the straight-line method over estimated useful lives, which is
between 3 years for computer equipment and 5-20 years for
production equipment. The carrying amount of all long-lived
assets is evaluated periodically to determine if adjustment to the
depreciation and amortization period or the unamortized balance is
warranted. Due to a change in business focus to a life science
company in February 2016, we recognized a loss on disposal of drone
equipment of $1,453 and impairment of patents for drone technology
of $4,080 for the three months ended March 31, 2016.
Revenue Recognition
We recognize revenue when it is realized or
realizable and estimable in accordance with ASC 605,
“Revenue
Recognition”.
Research and Development Expenses
We follow ASC 730-10, “Research and
Development,” and
expense 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. Research and development costs of
$88,210 and $26,750 were incurred for the three months ended March
31, 2017 and 2016, respectively.
Related Parties
We
follow ASC 850, “Related Party
Disclosures,” for the identification of related parties
and disclosure of related party transactions. For the three
month periods ended March 31, 2017 and 2016, $75,000 and $25,000,
respectively, were recognized in Research and Development expenses
for consulting provided by a director and shareholder. In addition,
$75,000 and $50,000 was paid to an entity owned by a director and
shareholder during the three month periods ended March 31, 2017 and
2016, respectively, for the Licensing Agreement disclosed in Note
4.
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 March 31, 2017, the Company had 14,884,001 potential shares and
warrants that were excluded from our calculation of diluted
earnings per share because their effect would have been
anti-dilutive. As of December 31, 2016, the Company had 14,784,001
shares that were considered to be anti-dilutive.
Comprehensive Income (Loss)
Comprehensive
income (loss) is defined as the change in equity during a period
from transactions and other events and circumstances from non-owner
sources. The Company is required to record all components of
comprehensive income (loss) in the financial statements in the
period in which they are recognized. Net income (loss) and other
comprehensive income (loss), are reported net of their related tax
effect, to arrive at comprehensive income (loss). The
Company had no other comprehensive income or loss for the three
months ended March 31, 2017 and 2016, respectively.
Recent Accounting Pronouncements
We
have reviewed the FASB issued Accounting Standards Update
(“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 corporation’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 4. AGREEMENTS
Through the Share Exchange, the Company acquired
an exclusive license agreement (the “Licensing
Agreement”) between Exactus BioSolutions and Digital
Diagnostics Inc.(“Digital Diagnostics”) that the
Company recognized as an intangible
asset. Pursuant to the Licensing Agreement,
Digital Diagnostics granted to Exactus BioSolutions an exclusive
license to develop, produce and commercialize certain diagnostic
products, including the FibriLyzer and MatriLyzer, that utilize
certain intellectual property rights owned or licensed by Digital
Diagnostics. The Licensing Agreement provides for Exactus
BioSolutions and Digital Diagnostics to collaborate through the
various steps of the product and device development process,
including the development, regulatory approval and
commercialization stages. Exactus BioSolutions is required to pay
Digital Diagnostics, in cash and/or stock, an initial signing
payment, milestone fees triggered by the first regulatory clearance
or approval of each of the FibriLyzer and the MatriLyzer, and
various sales thresholds, and royalty payments based on the net
sales of the products, calculated on a product-by-product basis. In
2016, the Company paid $50,000 to Digital Diagnostics as part of
the initial signing payment under the Licensing Agreement and
$21,659 in legal expenses. As of December 31, 2016, the Company
accrued an additional $171,033 in licensing fees due to closing a
financing transaction in the fourth quarter of 2016, of which
$75,000 was paid during the first quarter of 2017 and $96,033
remained due to Digital Diagnostics as of March 31,
2017. The Company will be obligated to pay additional amount
of this initial signing payment upon closing future capital raise
transactions. No milestones have been
met and no milestone fees have been paid or accrued for through
March 31, 2017.
The
License Agreement is effective until such time as neither Digital
Diagnostics nor Exactus Biosolutions has any obligation to the
other under the License Agreement in any country with respect to
any product. The License Agreement may be terminated by the Company
effective upon at least six (6) months written notice if regulatory
approval has been obtained in the U.S. or in the European Union, or
upon at least three (3) months written notice if regulatory
approval has not been obtained in the U.S. or in the European
Union. Either party may terminate the License Agreement in the
event the other party materially breaches the License Agreement, or
becomes insolvent.
On
June 30, 2016, in order to conduct a clinical trial for the
FibriLyzer and other studies, the Company entered into a Master
Services Agreement (the “MSA”) with Integrium LLC
(“Integrium”) and PoC Capital, LLC (“PoC
Capital”). Under the MSA, Integrium has agreed to perform
clinical research services in support of the development of POC
diagnostics devices. Integrium is to conduct one or more
studies in compliance with FDA regulations and pursuant to the
Company’s specific service orders. PoC Capital
has agreed to fund up to the first $1,000,000 in study costs and
fees due to Integrium, with all fees in costs in excess of that
amount being the Company’s sole responsibility, in exchange
for 1,600,000 shares of the Company’s common stock, 1,733,334
shares of newly designated Series C Preferred Stock, and 1,666,667
warrants to purchase the Company’s common stock at a price of
$0.60 per share exercisable for three years. The Company has
accounted $1,000,000 as prepaid expenses on the balance sheet. See
Note 5 below for additional information regarding the
Company’s common stock, Series C Preferred Stock and
warrants.
NOTE 5. EQUITY TRANSACTIONS
Recapitalization and Change in Control
On
February 29, 2016, the Company consummated the Share Exchange,
which resulted in a change in control of the Company. As part of
this transaction, the Company acquired a $50,000 license agreement
and $1,292 in cash and assumed liabilities of $51,000. The Company
initially reported an issuance of 32 million shares of newly
designated Series B-1 Preferred Stock to the shareholders of
Exactus BioSolutions in the Share Exchange. Due to an anticipated
pre-acquisition investment in Exactus BioSolutions that was not
made, the final total issued shares of Series B-1 Preferred Stock
was 30 million.
The
Company has considered the guidance pursuant to Rule 11-01(d) of
Regulation S-X and related interpretations and has concluded the
acquisition of Exactus BioSolutions pursuant to the Share
Exchange is the acquisition of an asset and not of a
business. The license agreement and shareholder loans
have been accounted for and recorded at historical
cost.
Concurrently
with the closing of the Share Exchange, the Company closed a
private offering of Series B-2 Preferred Stock. The
Company sold a total of 2,084,000 shares of Series B-2 Preferred
Stock at an offering price of $0.25 per share, for an aggregate
subscription price of $521,000. The Company originally reported a
total of 2,884,000 shares of Series B-2 preferred stock being
issued in the offering. Due to: (i) an anticipated investment for
1,000,000 shares which was not made, and (ii) an additional
subscription for 200,000 shares for which documentation had not
been completed at that time, however, the final total issued shares
of Series B-2 Preferred Stock was 2,084,000. The shares sold in the
offering included 400,000 shares of Series B-2 preferred stock
issued to extinguish a $100,000 loan and 204,000 shares of Series
B-2 preferred stock issued to former creditors of Exactus
BioSolutions in exchange for their release of $51,000 in debt owed
by Exactus. After accounting for these issuances, net
cash proceeds from the offering were $370,000. No
underwriting discounts or commissions have been or will be paid in
connection with the sale of Series B-2 Preferred
Stock.
Also
on February 29, 2016, the Company entered into Exchange Agreements
with certain holders of common stock holding an aggregate of
393,314 post-split (11,636,170 pre-split) shares of common
stock. Under the Exchange Agreements, these shareholders
exchanged their common stock for a total of 4,558,042 shares of
Series A Preferred Stock. These exchanges consisted of: (i)
thirteen common stock holders holding 10,894,070 (pre-split) shares
of common stock who exchanged their common stock for 3,458,042
shares Series A Preferred Stock, resulting in a (pre-split)
exchange ratio of approximately 1 for 3.15, and (ii) one
shareholder who, under a separately negotiated agreement, exchanged
742,100 (pre-split) shares common stock for 1,100,000 shares of
Series A Preferred Stock, resulting at a (pre-split) exchange ratio
of approximately 1.48 for 1. Immediately following such
share exchanges, the Company repurchased 50,000 shares of Series A
Preferred Stock from a shareholder for a total price of
$50,000.
Reverse Stock Split
Effective
March 22, 2016, the Company performed a reverse split of common
stock on a 1 for 29.5849 basis, pursuant to the prior approval by
the Board of Directors and a majority of
shareholders. On March 22, 2016, the effective date of
the reverse split, the Company had approximately 3,608,715 shares
of common stock issued and outstanding, which were split into
121,978 shares of common stock. The par value of the common stock
was unchanged at $0.0001 per share, post-split. All per share
information in the condensed financial statements gives retroactive
effect to the 1 for 29.5849 reverse stock split that was effected
on March 22, 2016.
Preferred Stock
The Company’s authorized preferred stock
consists of 50,000,000 shares with a par value of
$0.0001. On February 17, 2016, the Board of Directors
voted to designate a class of preferred stock entitled Series A
Preferred Stock, consisting of up to five million (5,000,000)
shares, par value $0.0001. The shares of Series A
Preferred Stock were automatically converted to 4,508,042 shares of
common stock on March 31, 2016, thirty (30) days after the closing
of the Share Exchange and offering of Series B-2 Preferred
Stock. As a result, there are 4,558,042 Series A
preferred stock issued and zero outstanding as of as of March 31,
2017 and December 31, 2016.
Also
on February 17, 2016, the Company’s Board of Directors voted
to designate a class of preferred stock entitled Series B-2
Convertible Preferred Stock (“Series B-2 Preferred
Stock”), consisting of up to six million (6,000,000) shares,
par value $0.0001, with a stated value of $0.25 per
share. With respect to rights on liquidation, winding up
and dissolution, holders of Series B-2 Preferred Stock will be paid
in cash in full, before any distribution is made to any holder of
common or other classes of capital stock, an amount of $0.25 per
share. Shares of Series B-2 Preferred Stock have no dividend rights
except as may be declared by the Board in its sole and absolute
discretion, out of funds legally available for that purpose. Shares
of Series B-2 Preferred Stock are convertible, at the option of the
holder, into shares of common stock on a one (1) for one (1)
basis. Holders of Series B-2 Preferred Stock have the
right to vote as-if-converted to common stock on all matters
submitted to a vote of the holders of the Company’s common
stock. On February 29, 2016, the Company issued 2,084,000 shares of
Series B-2 Preferred Stock.
On August 1, 2016, the Company closed a
private offering of Series B-2 Preferred Stock. The
Company sold a total of 500,000 shares of Series B-2 Preferred
Stock to accredited investors at an offering price of $0.25 per
share, for an aggregate subscription price of
$125,000. No underwriting discounts or commissions have
been paid in connection with the sale of the Series B-2 Preferred
Stock.
Effective
October 13, 2016, the Company amended the Certificate of
Designation for its Series B-2 Preferred Stock to increase the
number of shares of the Series B-2 Preferred Stock from 6,000,000
to 10,000,000 shares. There were no other changes to the terms of
the Company’s Series B-2 Preferred Stock.
On
October 27, 2016, the Company closed a private offering of Series
B-2 Preferred Stock. The Company sold a total of
6,000,000 shares of Series B-2 Preferred Stock to accredited
investors at an offering price of $0.25 per share, for an aggregate
subscription price of $1,500,000. No underwriting
discounts or commissions have been or will be paid in connection
with the sale of the Series B-2 Preferred Stock.
On
January 26, 2017, the Company closed a private offering of Series
B-2 Preferred Stock. The Company sold a total of 100,000
shares of Series B-2 Preferred Stock to accredited investors at an
offering price of $0.25 per share, for an aggregate subscription
price of $25,000. No underwriting discounts or
commissions have been or will be paid in connection with the sale
of the Series B-2 Preferred Stock.
There
were 8,684,000 and 8,584,000 shares of Series B-2 Preferred Stock
issued and outstanding as of March 31, 2017 and December 31, 2016,
respectively.
On
February 29, 2016, the Company’s Board of Directors voted to
designate a class of preferred stock entitled Series B-1
Convertible Preferred Stock (“Series B-1 Preferred
Stock”), consisting of up to thirty-two million (32,000,000)
shares, par value $0.0001. With respect to rights on
liquidation, winding up and dissolution, the Series B-1 Preferred
Stock ranks pari passu to the class of common stock.
Shares of Series B-1 Preferred Stock have no dividend rights except
as may be declared by the Board in its sole and absolute
discretion, out of funds legally available for that purpose. Shares
of Series B-1 Preferred Stock are convertible, at the option of the
holder, into shares of common stock on a one (1) for one (1) basis.
Holders of Series B-1 Preferred Stock have the right to vote
as-if-converted to common stock on all matters submitted to a vote
of holders of the Company’s common stock. On February 29,
2016, the Company issued 30,000,000 shares of Series B-1 Preferred
Stock, of which 2,800,000 remain outstanding as of March 31, 2017
and December 31, 2016.
On
June 30, 2016, pursuant to the MSA summarized in Note 4, the
Company’s Board of Directors approved a Certificate of
Designation authorizing 1,733,334 shares of new Series C Preferred
Stock, par value $0.0001. The Series C Preferred Stock
ranks equally with our common stock with respect to liquidation
rights and is convertible to common stock on a 1 for 1
basis. The conversion rights of holders of the Series C
Preferred Stock are limited such that no holder may convert any
shares of preferred stock to the extent that such holder,
immediately following the conversion, would own in excess of 4.99%
of our issued and outstanding shares of common
stock. This limitation may be increased to 9.99% upon 61
days written notice by a holder of the Series C Preferred Stock to
the Company. On June 30, 2016, the Company issued
1,733,334 shares of Series C Preferred Stock to PoC Capital valued
at $511,334. As of March 31, 2017 and December 31, 2016, 1,733,334
shares of Series C Preferred Stock are issued and
outstanding
Common Stock
The
Company’s authorized common stock consists of 200,000,000
shares with a par value of $0.0001.
The
Company automatically converted all outstanding shares of Series A
Preferred Stock to common stock on March 31, 2016. As a
result, 4,508,042 shares of common stock were issued in exchange of
4,508,042 shares of Series A Preferred Stock.
Certain shareholders converted their shares of Series B-1 Preferred
Stock to common stock on June 15, 2016. As a result,
27,200,000 shares of common stock were issued in exchange of
27,200,000 shares of Series B-1 Preferred Stock.
On
June 30, 2016, pursuant to the MSA summarized in Note 4, the
Company issued 1,600,000 shares of common stock to PoC Capital
valued at $480,000.
Pursuant to a services
agreement with IRTH Communications, LLC (“IRTH”) in
which IRTH agreed to perform certain investor relations, financial
communications, and strategic consulting services, the Company
issued $100,000 of our common stock, or 141,844 shares, to IRTH on
November 18, 2016 in partial consideration for those services. On
December 13, 2016, the Company issued an additional 500,000 shares
of common stock to IRTH pursuant to an addendum to the services
agreement and in consideration of certain additional services,
including telemarketing and investor outreach services, to be
provided by IRTH. On
February 22, 2017, the Company and IRTH agreed that IRTH would not
provide the additional services pursuant to an addendum
to a services agreement and the
500,0000 shares of common stock issued on December 13, 2016 were
returned to the Company and retired.
There
were 33,571,862 and 34,071,862 common shares issued and outstanding
at March 31, 2017 and December 31, 2016, respectively.
Warrants and Options
On June 30, 2016, pursuant to the MSA summarized in
Note 4, the Company issued warrants to purchase 1,666,667 common
stock shares for a price of $0.60 per share exercisable for three
years to PoC Capital.
These
warrants have a grant date fair value of $0.0052 per warrant,
determined using the Black-Scholes method based on the following
assumptions: (1) risk free interest rate of 0.71%; (2) dividend
yield of 0%; (3) volatility factor of the expected market price of
our common stock of 27.2%; and (4) an expected life of the warrants
of 3 years.
The
Company has recorded a prepaid expense on these warrants of $8,667
as of June 30, 2016.
There
were 1,666,667 warrants outstanding at March 31, 2017 and December
31, 2016.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Legal Matters
On
January 20, 2017, Robert F. Parker (the “petitioner”)
filed a petition in the Supreme Court of the State of New York,
County of New York, naming, among others, the Company and Ezra
Green, a former shareholder, director and officer of the Company,
as respondents. The petition was received by the Company on
February 7, 2017. The petitioner previously had a judgment entered
in his favor and against Clear Skies Solar, Inc. and its wholly
owned subsidiary Clear Skies Group, Inc. (together, “Clear
Skies”), in the amount of $331,132.45, with interest
accruing at a rate of 9% per year from November 21, 2014 (the
“Judgment”). The Judgment remains outstanding. The
petition alleges, among other things, that through a series of
allegedly fraudulent conveyances occurring before the Judgment was
entered against Clear Skies, the major assets of Clear Skies, which
were comprised of various patents, were transferred from Clear
Skies to Carbon 612 Corporation (“Carbon”), and from
Clear Skies and Carbon to the Company. The petition further
alleges, among other things, that the transfers were without
fair consideration and rendered Clear Skies, the
judgment-debtor, insolvent. The petitioner seeks the entry of a
judgment against the Company and the other respondents in the
amount of the outstanding Judgment, with all accrued interest,
reasonable attorneys’ fees and costs and disbursements. We
believe the claims against the Company are without merit, and we
intend to contest petitioner’s claims and defend the matter
vigorously. Given the uncertainty of litigation, the preliminary
stage of the case, and the legal standards that must be met for,
among other things, success on the merits, we cannot estimate the
reasonably possible loss or range of loss that may result from this
action.
NOTE 7. RELATED PARTY CONSIDERATIONS
Some
of the officers and directors of the Company are involved in other
business activities and may, in the future, become involved in
other business opportunities that become available. They may face a
conflict in selecting between the Company and other business
interests. We have not formulated a policy for the resolution of
such conflicts.
For the three months ended March 31, 2017, $75,000
was recognized in Research and Development expenses for consulting
provided by a director and shareholder. As of March 30, 2017,
$125,000 is shown as accrual under accounts payable. In addition,
$75,000 was paid to an entity owned by a director and shareholder
during the three month period ended March 31, 2017 for the
Licensing Agreement disclosed in Note 4.
The
following discussion and analysis of our financial condition and
results of operations contains information that management believes
is relevant to an assessment and understanding of our results of
operations. You should read this discussion in conjunction with the
Financial Statements and Notes included elsewhere in this report
and with the audited financial statements and notes thereto
contained in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2016 filed with the Securities and
Exchange Commission (the “SEC”) on March 31, 2017.
References to “Exactus,” the “Company,”
“we,” “us” and “our” refer to
Exactus, Inc. and its subsidiary unless the context otherwise
requires.
Cautionary Language Regarding Forward-Looking
Statements
Certain
statements set forth in this report constitute
“forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Statements
regarding future events and financial results, including our
ability to complete development of the FibriLyzer, future clinical
trials and regulatory approvals, and liquidity, as well as other
statements that are not historical facts, are forward-looking
statements. These forward-looking statements are generally
identified by such words or phrases as “we expect,”
“we believe,” “would be,” “will
allow,” “expects to,” “will
continue,” “is anticipated,”
“estimate,” “project” or similar
expressions. While we provide forward-looking statements to assist
in the understanding of our anticipated future financial
performance, we caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date that we
make them. Forward-looking statements are based on current
expectations and assumptions that are subject to significant risks
and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Except as
otherwise required by law, we undertake no obligation to publicly
release any updates to forward-looking statements to reflect events
after the date of this quarterly report on Form 10-Q, including
unforeseen events.
Our
ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors that could have a
material adverse effect on our operations and results of our
business include, but are not limited to:
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our history of operating losses and lack of revenues to
date;
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our limited cash resources and our ability to obtain additional
funding necessary to develop our products and maintain
liquidity;
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the success of our clinical trials through all phases of clinical
development;
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the need to obtain regulatory approval of our products and any
delays in regulatory reviews or product testing;
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market acceptance of, and our ability to commercialize, our
products;
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competition from existing products or new products that may
emerge;
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changes in technology;
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our dependence on the development and commercialization of our
primary product, the FibriLyzer, to generate revenues in the
future;
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our dependence on and our ability to maintain our licensing
agreement;
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our ability and third parties’ abilities to protect
intellectual property rights;
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potential product liability claims;
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our ability to maintain liquidity and adequately support future
growth;
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changes in, and our ability to comply with, laws or regulations
applicable to the life sciences or healthcare
industries;
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our ability to attract and retain key personnel to manage our
business effectively; and
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other risks and uncertainties described from time to time, in our
filings made with the SEC.
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General
On
February 29, 2016, the Company consummated a share exchange, which
resulted in a change in control of the Company. As part of this
transaction, the Company acquired Exactus BioSolutions, Inc.
(“Exactus BioSolutions”) and its exclusive license
agreement (the “Licensing Agreement”) with Digital
Diagnostics Inc.(“Digital Diagnostics”) to develop,
produce and commercialize blood diagnostic products that utilize
certain intellectual property rights owned or licensed by Digital
Diagnostics. The Licensing Agreement provides for Exactus
BioSolutions and Digital Diagnostics to collaborate through the
various steps of the product and device development process,
including the development, regulatory approval and
commercialization stages.
As a result of this transaction, Exactus became a
life science company that plans to develop and commercialize
pursuant to the Licensing Agreement Point-of-Care
(“POC”) diagnostics for measuring proteolytic enzymes
in the blood based on a proprietary detection platform (the
“New Business”). Our primary product, the FibriLyzer,
will employ a disposable test “biosensor” strip
combined with a portable and easy to use hand held detection unit
that provides a result in less than 30 seconds. The initial
markets we intend to pursue for the FibriLyzer are (i) the
management of hyperfibrinolytic states associate with surgery and
trauma, (ii) obstetrics, (iii) diagnosis of acute events such as
myocardial infarction and ischemic stroke, (iv) diagnosis of
pulmonary embolism and deep vein thrombosis, (v) chronic coronary
disease management and (vi) as a monitoring device to evaluate the
effectiveness of coagulation therapy. We expect to follow up the
FibriLyzer with similar technology, the MatriLyzer to detect
collagenase levels in the blood for the detection of the recurrence
of cancer. We intend to file to gain
regulatory approval to sell our products in the United States,
Canada and Europe. Management intends to primarily focus
on the development and commercialization of the FibriLyzer and
related technology exclusively licensed pursuant to the Licensing
Agreement.
On June 30, 2016, we entered into a Master Services Agreement with
Integrium, LLC and PoC Capital, LLC to conduct clinical studies for
us, including a clinical trial for the FibriLyzer that is scheduled
to begin early in the third quarter of 2017.
During the first
quarter of 2017, we received feedback from
the FDA review of our PreSubmission Package which describes our
plans for developing our lead program, the FibriLyzer. Through this process,
we received confirmation that we are able to proceed with the
development of the FibriLyzer via the 510(k) pathway.
Additionally, we plan to seek a CLIA
waiver.
Results of Operations
Three Months Ended March 31, 2017 Compared to Three Months Ended
March 31, 2016:
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Three Months Ended
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March 31,
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2017
|
2016
|
change
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Revenue
|
$-
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$-
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$-
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Operating
expenses
|
601,012
|
233,367
|
367,645
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Net
loss from operations
|
(601,012)
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(233,367)
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(367,645)
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Other
loss
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-
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(1,453)
|
1,453
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Net
loss
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$(601,012)
|
$(234,820)
|
$(366,192)
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Operating
expenses increased by $367,645, from $233,367 for the three months
ended March 31, 2016 to $601,012 for the comparable period ended
March 31, 2017. The difference primarily is attributable to: an
increase in professional expense of $122,261 due to increased legal
and accounting expenses as the Company works to raise funds, an
increase in R&D expense of $61,460; and an increase in general
and administration expenses of $188,004 resulting from a rise in
management fees due to an increase in full time staff, advertising
and promotion expenses, and travel expense. We expect operating
expenses to continue to increase throughout 2017 as our need to
raise funds continues and we start conducting a clinical trial
intended to begin in the third quarter.
The
Company had other loss of $1,453 for the three month period ended
March 31, 2016 due to the loss on disposal of equipment from the
former drone business..
As
a result of the foregoing, we generated a net loss of $601,012 for
the three month period ended March 31, 2017 as compared to a net
loss of $234,820 for the three month period ended March 31, 2016, a
change of $366,192.
Liquidity and Capital Resources
Since
our inception in 2008, we have generated losses from operations. As
of March 31, 2017, our accumulated deficit was $2,940,910 of which
$736,959 was related to the Former Business. Our net
loss for the three month periods ended March 31, 2017 and 2016 was
$601,012 and $234,820, respectively.
Net
cash used in operating activities for the three month period ended
March 31, 2017 was $783,429. We recorded a net loss for the three
month period of $601,012. Decreases in accounts payable and accrued
liabilities further decreased net cash from operating activities by
$178,008.
Net
cash used in operating activities for the three month period ended
March 31, 2016 was $166,541. We recorded a net loss of $234,820 for
the period. Other items in uses of funds from operations included
non-cash charges related to bad debt, depreciation, and impairment,
which collectively totaled $12,543. Net changes in accounts
payable, accrued liabilities, and other assets increased cash
by $56,908.
Net
cash provided by investing activity for the three month period
ended March 31, 2017 was $0. Net cash provided by investing
activities for the three month period ended March 31, 2016 was
$1,292 due to the acquisition of Exactus BioSolutions.
Net
cash provided by financing activities for the three month period
ended March 31, 2017 was $25,000 due to proceeds from our issuance
of shares of Series B-2 Preferred Stock. Net cash
provided by financing activities for the three month period ended
March 31, 2016 was $320,000 due to proceeds from our issuance of
shares of Series B-2 Preferred Stock and offset by our payment for
Series A Preferred Stock Series.
As
of March 31, 2017, we had $296,907 of cash. We expect that these
funds will not be sufficient to enable us to complete the
development of any potential products, including the FibriLyzer and
related technology. Accordingly, we will need to obtain further
funding through public or private equity offerings, debt financing,
collaboration arrangements or other sources. The issuance of any
additional shares of common stock, preferred stock or convertible
securities could be substantially dilutive to our shareholders. In
addition, adequate additional funding may not be available to us on
acceptable terms, or at all. If we are unable to raise capital, we
will be forced to delay, reduce or eliminate our research and
development programs and may not be able to continue as a going
concern.
Going Concern
The
audit report prepared by our independent registered public
accounting firm relating to our financial statements for the year
ended December 31, 2016 includes an explanatory paragraph
expressing substantial doubt about our ability to continue as a
going concern. We have concluded that the circumstances described
above continue to raise substantial doubt about our ability to
continue as a going concern as of March 31, 2017.
Off-Balance Sheet Arrangements
As
of March 31, 2017, we had no material off-balance sheet
arrangements.
In
the normal course of business, we may be confronted with issues or
events that may result in a contingent liability. These generally
relate to lawsuits, claims or the actions of various regulatory
agencies. We consult with counsel and other appropriate experts to
assess the claim. If, in our opinion, we have incurred a probable
loss as set forth by accounting principles generally accepted in
the United States, an estimate is made of the loss and the
appropriate accounting entries are reflected in our financial
statements. After consultation with legal counsel, we do not
anticipate that liabilities arising out of currently pending or
threatened lawsuits and claims will have a material adverse effect
on our financial position, results of operations or cash
flows.
Critical Accounting Estimates and New Accounting
Pronouncements
Critical Accounting Estimates
The
preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect reported
amounts and related disclosures in the financial statements.
Management considers an accounting estimate to be critical if it
requires assumptions to be made that were uncertain at the time the
estimate was made, and changes in the estimate or different
estimates that could have been selected could have a material
impact on our results of operations or financial
condition.
Application of Significant Accounting Policies
Section
107 of the JOBS Act provides that an emerging growth company can
take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act for complying with new or
revised accounting standards. In other words, an emerging growth
company can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies.
We have elected to take advantage of the benefits of this extended
transition period. Our financial statements may, therefore, not be
comparable to those of companies that comply with such new or
revised accounting standards.
Recent Accounting Pronouncements
We
have reviewed the FASB issued Accounting Standards Update
(“ASU”) accounting pronouncements and interpretations
thereof that have effectiveness dates during the periods reported
and in future periods. The Company has carefully considered the new
pronouncements that alter previous generally accepted accounting
principles and does not believe that any new or modified principles
will have a material impact on the corporation’s reported
financial position or operations in the near term. The
applicability of any standard is subject to the formal review of
our financial management and certain standards are under
consideration.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Not
required for smaller reporting companies.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed by us
in the reports that we file or submit under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) are
recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission’s
rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our
management, including our principal executive and financial
officers, as appropriate to allow timely decisions regarding
required disclosure.
Our
Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”), the Company’s principal
executive and financial officers, have conducted an evaluation of
the design and effectiveness of our disclosure controls and
procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the
Exchange Act as of the end of the period covered by this report. In
designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the
fact that there are resource constraints and that management is
required to apply its judgment in evaluating the benefits of
possible controls and procedures relative to their
costs.
Our
CEO and CFO believe that as of March 31, 2017, our disclosure
controls and procedures are not designed at a reasonable assurance
level and are ineffective to provide reasonable assurance that
information we are required to disclose in reports that we file or
submit under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in SEC rules and
forms, and that such information is accumulated and communicated to
our management, including our CEO and CFO, as appropriate, to allow
timely decisions regarding required disclosure. The conclusion was
due to the presence of the following material weaknesses in
disclosure controls and procedures due to our small size and
limited resources: (i) inadequate segregation of duties and
effective risk assessment; (ii) insufficient written policies and
procedures for accounting and financial reporting with respect to
the requirements and application of both U.S. GAAP and SEC
Guidelines; (iii) inadequate security and restricted access to
computer systems including insufficient disaster recovery plans;
and (iv) no written whistleblower policy.
Our
CEO and CFO plan to review and implement appropriate disclosure
controls and procedures to remediate these material weaknesses,
including (i) appointing additional qualified personnel to address
inadequate segregation of duties and ineffective risk management;
(ii) adopting sufficient written policies and procedures for
accounting and financial reporting and a whistle blower policy; and
(iii) implementing sufficient security and restricted access
measures regarding our computer systems and implement a disaster
recovery plan.
Changes in Internal Controls over Financial Reporting
There
have been no changes in the internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the quarter ended March 31, 2017
that has materially affected, or is reasonably likely to materially
affect, our internal over financial reporting.
ITEM 1. Legal
Proceedings.
On
January 20, 2017, Robert F. Parker (the “petitioner”)
filed a petition in the Supreme Court of the State of New York,
County of New York, naming, among others, the Company and Ezra
Green, a former shareholder, director and officer of the Company,
as respondents. The petition was received by the Company on
February 7, 2017. The petitioner previously had a judgment entered
in his favor and against Clear Skies Solar, Inc. and its wholly
owned subsidiary Clear Skies Group, Inc. (together, “Clear
Skies”), in the amount of $331,132.45, with interest
accruing at a rate of 9% per year from November 21, 2014 (the
“Judgment”). The Judgment remains outstanding. The
petition alleges, among other things, that through a series of
allegedly fraudulent conveyances occurring before the Judgment was
entered against Clear Skies, the major assets of Clear Skies, which
were comprised of various patents, were transferred from Clear
Skies to Carbon 612 Corporation (“Carbon”), and from
Clear Skies and Carbon to the Company. The petition further
alleges, among other things, that the transfers were without
fair consideration and rendered Clear Skies, the
judgment-debtor, insolvent. The petitioner seeks the entry of a
judgment against the Company and the other respondents in the
amount of the outstanding Judgment, with all accrued interest,
reasonable attorneys’ fees and costs and disbursements. We
believe the claims against the Company are without merit, and we
intend to contest petitioner’s claims and defend the matter
vigorously. Given the uncertainty of litigation, the preliminary
stage of the case, and the legal standards that must be met for,
among other things, success on the merits, we cannot estimate the
reasonably possible loss or range of loss that may result from this
action.
There
have been no material changes in our risk factors from those
disclosed in our annual report on Form 10-K for the year ended
December 31, 2016.
ITEM 2. Unregistered Sales of Equity
Securities and Use of Proceeds
On
January 26, 2017, the Company closed a private offering of Series
B-2 Preferred Stock. The Company sold a total of 100,000
shares of Series B-2 Preferred Stock to accredited investors at an
offering price of $0.25 per share, for an aggregate subscription
price of $25,000. No underwriting discounts or
commissions have been or will be paid in connection with the sale
of the Series B-2 Preferred Stock.
None.
Not
applicable.
ITEM 5. Other Information.
None
ITEM 6. EXHIBITS
|
10.1
|
Executive
Employment Agreement between Exactus, Inc. and Kelley Wendt,
effective March 16, 2017 (attached as Exhibit 10.1 to the Company's
Current Report on Form 8-K filed March 22, 2017 and incorporated
herein by reference)
|
|
31.1*
|
Certification of Principal Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
31.2*
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
32.1*
|
Certification of Principal Executive Officer pursuant to Rule 18
U.S.C Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
32.2*
|
Certification of Chief Financial Officer pursuant to Rule 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
101.INS***
|
XBRL Instance Document
|
|
101.SCH***
|
XBRL Taxonomy Extension Schema
|
|
101.CAL***
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF***
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB***
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE***
|
XBRL Taxonomy Extension Presentation Linkbase
|
* Filed herewith
*** Pursuant to Rule 406T of Regulation S-T, these interactive data
files are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933 or Section 18 of the Securities Act of 1934 and otherwise
are not subject to liability.
SIGNATURES
Pursuant
to the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
Exactus, Inc.
|
|
|
|
|
May 15, 2017
|
/s/ Philip J. Young
|
|
|
Philip J. Young
|
|
|
Chief Executive Officer
|
|
|
|
|
|
|
|
|
/s/ Kelley A. Wendt
|
|
|
Kelley A. Wendt
|
|
|
Chief Financial Officer
|
EXHIBIT INDEX
|
10.1
|
Executive Employment Agreement between Exactus, Inc. and
Kelley Wendt, effective March 16, 2017 (attached as Exhibit 10.1 to
the Company's Current Report on Form 8-K filed March 22, 2017 and
incorporated herein by reference
|
|
31.1*
|
Certification of Principal Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
31.2*
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and 15d-14(a) as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
32.1*
|
Certification of Principal Executive Officer pursuant to Rule 18
U.S.C Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
32.2*
|
Certification of Chief Financial Officer pursuant to Rule 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed herewith)
|
|
101.INS***
|
XBRL Instance Document
|
|
101.SCH***
|
XBRL Taxonomy Extension Schema
|
|
101.CAL***
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
101.DEF***
|
XBRL Taxonomy Extension Definition Linkbase
|
|
101.LAB***
|
XBRL Taxonomy Extension Label Linkbase
|
|
101.PRE***
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
Filed
herewith
*** Pursuant to Rule 406T of Regulation S-T, these interactive data
files are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act
of 1933 or Section 18 of the Securities Act of 1934 and otherwise
are not subject to liability.
-16-