Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | May 22, 2020 | Jun. 30, 2019 | |
Document And Entity Information | |||
Entity Registrant Name | Exactus, Inc. | ||
Entity Central Index Key | 0001552189 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2019 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Is Entity a Voluntary Filer? | No | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Public Float | $ 26,922,402 | ||
Entity Common Stock, Shares Outstanding | 45,522,275 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2019 | ||
Entity Interactive Data Current | Yes | ||
Entity Incorporation State Country Code | NV | ||
Entity File Number | 001-38190 |
Condensed Balance Sheets (Unaud
Condensed Balance Sheets (Unaudited) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Current Assets: | ||
Cash and cash equivalents | $ 18,405 | $ 1,960 |
Accounts receivable, net | 55,725 | 0 |
Accounts receivable - related party | 18,860 | 0 |
Inventory | 1,337,809 | 0 |
Prepaid expenses and other current assets | 248,776 | 12,330 |
Prepaid expenses and other current assets - related party | 622,160 | 0 |
Due from related parties | 127,500 | 0 |
Total current assets | 2,429,235 | 14,290 |
Other Assets: | ||
Deposits | 80,000 | 0 |
Prepaid expenses and other current assets - related party - long-term | 2,492,045 | 0 |
Property and equipment, net | 477,433 | 0 |
Intangible assets, net | 2,147,311 | 0 |
Operating lease right-of-use assets, net | 2,173,253 | 0 |
Total other assets | 7,370,042 | 0 |
TOTAL ASSETS | 9,799,277 | 14,290 |
Current Liabilities: | ||
Accounts payable | 1,442,409 | 923,429 |
Accounts payable - related party | 454,511 | 0 |
Accrued expenses | 358,010 | 46,875 |
Unearned revenue - related party | 215,000 | 0 |
Note payable - related parties | 55,556 | 51,400 |
Subscription payable | 250,000 | 0 |
Convertible notes, net of discounts | 85,906 | 491,788 |
Derivative liability | 880,410 | 1,742,000 |
Settlement payable | 0 | 17,000 |
Interest payable | 16,677 | 66,300 |
Operating lease liabilities, current portion | 432,065 | 0 |
Total current liabilities | 4,190,544 | 3,338,792 |
Long Term Liabilities: | ||
Convertible notes payable | 100,000 | 100,000 |
Operating lease liabilities, long-term portion | 1,826,887 | 0 |
Total long-term liabilities | 1,926,887 | 100,000 |
TOTAL LIABILITIES | 6,117,431 | 3,438,792 |
Commitments and contingencies | ||
Stockholders' Equity (Deficit): | ||
Preferred stock | 0 | 0 |
Common stock: 650,000,000 shares authorized; $0.0001 par value, 3,819,325 and 6,233,524 shares issued and outstanding, respectively | 4,382 | 623 |
Common stock to be issued (664,580 and none shares to be issued, respectively) | 66 | 0 |
Additional paid-in capital | 25,343,293 | 7,111,445 |
Accumulated deficit | (21,129,379) | (10,537,892) |
Total Exactus Inc. Stockholders' Equity (Deficit) | 4,219,315 | (3,424,502) |
Non-controlling interest in subsidiary | (537,469) | 0 |
Total Stockholders' Equity (Deficit) | 3,681,846 | (3,424,502) |
TOTAL LIABILITIES AND EQUITY (DEFICIT) | 9,799,277 | 14,290 |
Series A Preferred Stock | ||
Stockholders' Equity (Deficit): | ||
Preferred stock | 35 | 0 |
Series B-1 Preferred Stock | ||
Stockholders' Equity (Deficit): | ||
Preferred stock | 165 | 280 |
Series B-2 Preferred Stock | ||
Stockholders' Equity (Deficit): | ||
Preferred stock | 752 | 868 |
Series C Preferred Stock | ||
Stockholders' Equity (Deficit): | ||
Preferred stock | 0 | 173 |
Series D Preferred Stock | ||
Stockholders' Equity (Deficit): | ||
Preferred stock | 0 | 1 |
Series E Preferred Stock | ||
Stockholders' Equity (Deficit): | ||
Preferred stock | $ 1 | $ 0 |
Condensed Balance Sheets (Paren
Condensed Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2019 | Dec. 31, 2018 |
Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, shares authorized | 650,000,000 | 650,000,000 |
Common stock, par value per share | $ .0001 | $ 0.0001 |
Common stock, shares issued | 43,819,325 | 6,233,524 |
Common stock, shares outstanding | 43,819,325 | 6,233,524 |
Common stock to be issued | 664,580 | 0 |
Series A Preferred Stock | ||
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 353,109 | 0 |
Preferred stock, shares outstanding | 353,109 | 0 |
Series B-1 Preferred Stock | ||
Preferred stock, shares authorized | 32,000,000 | 32,000,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 1,650,000 | 2,800,000 |
Preferred stock, shares outstanding | 1,650,000 | 2,800,000 |
Series B-2 Preferred Stock | ||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 7,516,000 | 8,684,000 |
Preferred stock, shares outstanding | 7,516,000 | 8,684,000 |
Series C Preferred Stock | ||
Preferred stock, shares authorized | 1,733,334 | 1,733,334 |
Preferred stock, par value per share | $ 0.0001 | $ 0.0001 |
Preferred stock, shares issued | 1,733,334 | 1,733,334 |
Preferred stock, shares outstanding | 1,733,334 | 1,733,334 |
Series D Preferred Stock | ||
Preferred stock, shares authorized | 200 | 200 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 18 | 45 |
Preferred stock, shares outstanding | 18 | 45 |
Series E Preferred Stock | ||
Preferred stock, shares authorized | 10,000 | 10,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 10,000 | 0 |
Preferred stock, shares outstanding | 10,000 | 0 |
Condensed Statements of Operati
Condensed Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Statement [Abstract] | ||
Net revenues | $ 183,234 | $ 0 |
Net revenues - related party | 162,446 | 0 |
Net revenues | 345,680 | 0 |
Cost of sales | 1,939,382 | 0 |
Cost of sales - related party | 106,752 | 0 |
Total cost of sales | 2,046,134 | 0 |
Gross profit | (1,700,454) | 0 |
Operating Expenses: | ||
General and administration | 3,272,198 | 1,914,571 |
Selling and marketing expenses | 948,296 | 18,036 |
Professional and consulting | 4,935,394 | 203,619 |
Research and development | 22,100 | 300,000 |
Total operating expenses | 9,177,988 | 2,436,226 |
Loss from Operations | (10,878,442) | (2,436,226) |
Other Income (Expenses): | ||
Derivative loss | (1,871,583) | (828,694) |
Loss on stock settlement | 0 | (607,929) |
Gain on settlement of debt | 3,004,630 | 0 |
Interest expense | (479,111) | (464,470) |
Total Other Income (expenses), net | 653,936 | (1,901,093) |
Loss Before Provision for Income Taxes | (10,224,506) | (4,337,319) |
Provision for income tax | 0 | 0 |
Net Loss | (10,224,506) | (4,337,319) |
Net Loss attributable to non-controlling interest | 537,469 | 0 |
Net Loss Attributable to Exactus, Inc. | (9,687,037) | (4,337,319) |
Deemed dividend on Preferred Stock | (904,450) | 0 |
Net Loss available to Exactus, Inc. common stockholders | $ (10,591,487) | $ (4,337,319) |
Net Loss per Common Share - Basic and Diluted | $ (.30) | $ (.91) |
Net Loss attributable to non-controlling interest per Common Share - Basic and Diluted | .02 | .00 |
Net Loss available to Exactus, Inc. common stockholders per Common Share - Basic and Diluted | $ (.31) | $ (.91) |
Weighted Average Number of Common Shares Outstanding: Basic and Diluted | 33,899,585 | 4,764,056 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Stockholders' Equity (Deficit) - USD ($) | Series A Preferred Stock | Series B-1 Preferred Stock | Series B-2 Preferred Stock | Series C Preferred Stock | Series D Preferred Stock | Series E Preferred Stock | Common Stock | Common Stock - Unissued | Additional Paid in Capital | Accumulated Deficit | Non-controlling Interest | Total |
Beginning balance, shares at Dec. 31, 2017 | 0 | 2,800,000 | 8,684,000 | 1,733,334 | 0 | 0 | 4,383,983 | 0 | ||||
Beginning balance, amount at Dec. 31, 2017 | $ 0 | $ 280 | $ 868 | $ 173 | $ 0 | $ 0 | $ 439 | $ 0 | $ 3,983,171 | $ (6,200,573) | $ 0 | $ (2,215,642) |
Preferred stock issued upon convesion of convertible debt, amount | 0 | |||||||||||
Preferred stock issued for private placement, amount | 0 | |||||||||||
Common stock issued for debt settlement, shares | 214,834 | |||||||||||
Common stock issued for debt settlement, amount | $ 21 | 343,714 | 343,735 | |||||||||
Series D preferred stock issued for cash, shares | 45 | |||||||||||
Series D preferred stock issued for cash, amount | $ 1 | 549,999 | 550,000 | |||||||||
Series D preferred stock issued for debt, amount | 500,000 | |||||||||||
Common stock issued for services, shares | 375,000 | |||||||||||
Common stock issued for services, amount | $ 37 | 25,963 | 26,000 | |||||||||
Common stock issued for settlement, shares | 574,063 | |||||||||||
Common stock issued for settlement, amount | $ 57 | 86,742 | 86,799 | |||||||||
Warrants issued to Series B-2 holder | 138,679 | 138,679 | ||||||||||
Related party debt forgiveness | 1,355,372 | 1,355,372 | ||||||||||
Stock-based compensation | 227,394 | 892,073 | ||||||||||
Common stock issued upon convesion of convertible debt, shares | 685,644 | |||||||||||
Common stock issued upon convesion of convertible debt, amount | $ 69 | 40,411 | 400,480 | |||||||||
Stock warrants granted as debt discount | 0 | |||||||||||
Net loss for the period | (4,337,319) | (4,337,319) | ||||||||||
Ending balance, shares at Dec. 31, 2018 | 0 | 2,800,000 | 864,800 | 1,733,334 | 45 | 0 | 6,233,524 | 0 | ||||
Ending balance, amount at Dec. 31, 2018 | $ 0 | $ 280 | $ 868 | $ 173 | $ 1 | $ 0 | $ 623 | $ 0 | 7,111,445 | (10,537,892) | 0 | (3,424,502) |
Preferred stock issued upon convesion of convertible debt, shares | 849,360 | |||||||||||
Preferred stock issued upon convesion of convertible debt, amount | $ 84 | 849,276 | 849,360 | |||||||||
Preferred stock issued for private placement, shares | 55,090 | |||||||||||
Preferred stock issued for private placement, amount | $ 6 | 55,084 | 55,090 | |||||||||
Common stock issued and unissued for private placement, shares | 22,187,007 | |||||||||||
Common stock issued and unissued for private placement, amount | $ 2,219 | 7,213,161 | 7,215,380 | |||||||||
Common Stock issued for Master Supply, shares | 8,385,691 | |||||||||||
Common Stock issued for Master Supply, amount | $ 839 | (839) | 0 | |||||||||
Common stock issued for debt settlement, shares | 203,800 | |||||||||||
Common stock issued for debt settlement, amount | $ 20 | 40,596 | 40,616 | |||||||||
Series D preferred stock issued for debt, amount | 0 | |||||||||||
Common stock issued and unissued for prepaid services, shares | 150,000 | 100,000 | ||||||||||
Common stock issued and unissued for prepaid services, amount | $ 15 | $ 10 | 120,355 | 120,380 | ||||||||
Common stock issued for purchase of membership interest in subsidiary, shares | 937,500 | |||||||||||
Common stock issued for purchase of membership interest in subsidiary, amount | $ 94 | 989,906 | 990,000 | |||||||||
Common stock unissued for purchase of membership interest in subsidiary, shares | 503,298 | |||||||||||
Common stock unissued for purchase of membership interest in subsidiary, amount | $ 50 | 449,950 | 450,000 | |||||||||
Common stock and preferred stock cancelled per Surrender and Release Agreement, shares | (17,733,334) | (180,000) | ||||||||||
Common stock and preferred stock cancelled per Surrender and Release Agreement, amount | $ (173) | $ (18) | 191 | 0 | ||||||||
Preferred stock issued pursuant to Management and Services Agreement, shares | 10,000 | |||||||||||
Preferred stock issued pursuant to Management and Services Agreement, amount | $ 1 | 3,374,999 | 3,375,000 | |||||||||
Conversion of Series A Preferred Stock to Common Stock, shares | (551,341) | 2,756,705 | ||||||||||
Conversion of Series A Preferred Stock to Common Stock, amount | $ (55) | $ 276 | (221) | 0 | ||||||||
Conversion of Series B-1 Preferred Stock to Common Stock, shares | (1,150,000) | 143,750 | ||||||||||
Conversion of Series B-1 Preferred Stock to Common Stock, amount | $ (115) | $ 14 | 101 | 0 | ||||||||
Conversion of Series B-2 Preferred Stock to Common Stock, shares | (1,168,000) | 146,000 | ||||||||||
Conversion of Series B-2 Preferred Stock to Common Stock, amount | $ (116) | $ 15 | 101 | 0 | ||||||||
Conversion of Series D Preferred Stock to Common Stock, shares | (27) | 675,000 | ||||||||||
Conversion of Series D Preferred Stock to Common Stock, amount | $ (1) | $ 68 | (67) | 0 | ||||||||
Stock based compensation in connection with restricted common stock award grants, shares | 115,280 | 68,750 | ||||||||||
Stock based compensation in connection with restricted common stock award grants, amount | $ 11 | $ 7 | 143,896 | 143,914 | ||||||||
Stock-based compensation | 3,774,640 | |||||||||||
Common stock issued upon convesion of convertible debt, shares | 250,000 | |||||||||||
Common stock issued upon convesion of convertible debt, amount | $ 25 | 195,975 | 196,000 | |||||||||
Common stock unissued for pursuant to Asset Purchase Agreement, shares | 100,000 | |||||||||||
Common stock unissued for pursuant to Asset Purchase Agreement, amount | $ 10 | 69,990 | 70,000 | |||||||||
Stock warrants granted for services | 1,428,243 | 1,428,243 | ||||||||||
Stock options granted for services | 1,276,636 | 1,276,636 | ||||||||||
Stock warrants granted as debt discount | 194,388 | 194,388 | ||||||||||
Common stock issued for exercise of stock options, shares | 375,000 | |||||||||||
Common stock issued for exercise of stock options, amount | $ 37 | (37) | 0 | |||||||||
Common stock issued for unissued common stock, shares | 1,312,490 | 20,830 | ||||||||||
Common stock issued for unissued common stock, amount | $ 131 | $ 2 | 925,714 | 925,847 | ||||||||
Deemed dividend on Preferred Stock | 904,450 | (904,450) | 0 | |||||||||
Net loss for the period | (9,687,037) | (537,469) | (10,224,506) | |||||||||
Ending balance, shares at Dec. 31, 2019 | 353,109 | 1,650,000 | 7,516,000 | 0 | 18 | 10,000 | 43,819,325 | 664,580 | ||||
Ending balance, amount at Dec. 31, 2019 | $ 35 | $ 165 | $ 752 | $ 0 | $ 0 | $ 1 | $ 4,382 | $ 66 | $ 25,343,293 | $ (21,129,379) | $ (537,469) | $ 3,681,846 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Cash Flows From Operating Activities: | ||
Net loss | $ (10,224,506) | $ (4,337,319) |
Adjustments to reconcile net loss to cash used in operations: | ||
Depreciation | 63,770 | 0 |
Derivative loss | 1,871,583 | 828,694 |
Stock-based compensation | 3,774,640 | 892,073 |
Bad debt expense | 32,577 | 0 |
Impairment expense | 1,087,346 | 0 |
Inventory reserve | 723,391 | 0 |
Amortization of prepaid stock-based expenses | 285,494 | 0 |
Amortization of discount and debt issuance costs for convertible notes | 425,712 | 405,173 |
Amortization of intangible assets | 828,526 | 0 |
Deferred rent | 85,699 | 0 |
Loss on stock settelement | 0 | 607,929 |
Gain on settlement of debt | (3,004,630) | 0 |
(Increase) decrease in operating assets: | ||
Accounts receivable | (88,302) | 0 |
Accounts receivable - related party | (18,860) | 0 |
Inventory | (2,864,383) | 0 |
Prepaid expenses and other current assets | (140,765) | (872) |
Deposit | (80,000) | 0 |
Increase (decrease) in operating liabilities: | ||
Accounts payable | 518,979 | 188,378 |
Accounts payable - related party | 454,511 | 0 |
Accrued expenses | 321,135 | 905,946 |
Unearned revenues | 215,000 | 0 |
Settlement payable | (20,000) | (3,000) |
Interest payable | 6,793 | 47,243 |
Net Cash Used In Operating Activities | (5,746,290) | (465,755) |
Cash Flows From Investing Activities: | ||
Purchase of membership interest in subsidiary | (1,500,000) | 0 |
Purchase of property and equipment | (541,203) | 0 |
Net Cash Used In Investing Activities | (2,041,203) | 0 |
Cash Flows From Financing Activities: | ||
Proceeds from sale of Series D preferred stock | 0 | 50,000 |
Advances from related party | 242,500 | 0 |
Repayments on related party advances | (370,000) | 0 |
Proceeds from sale of common stock | 7,215,380 | 0 |
Payments of principal on notes payable | (59,500) | 0 |
Proceeds from issuance of notes payable | 97,156 | 103,400 |
Payments of principal on convertible notes | (186,443) | (25,000) |
Proceeds from issuance of convertible notes, net of issuance cost | 864,845 | 178,100 |
Net Cash Provided By Financing Activities | 7,803,938 | 306,500 |
Net increase (decrease) in cash and cash equivalents | 16,445 | (159,255) |
Cash and cash equivalents at beginning of period | 1,960 | 161,215 |
Cash and cash equivalents at end of period | 18,405 | 1,960 |
Supplemental Cash Flow Information: | ||
Cash paid for interest | 40,116 | 0 |
Cash paid for taxes | 0 | 0 |
Non-Cash transactions investing and financing activity: | ||
Forgiveness of debt by officers and directors | 0 | 1,355,372 |
Proceeds from sale of Series D preferred stock paid directly to settle amounts due to officers and directors | 0 | 500,000 |
Proceeds from sale of Series A preferred stock paid directly to settle debts | 55,090 | 0 |
Convertible notes and interest payable settled by Series A preferred stock issued | 849,360 | 0 |
Note payable, accrued expense and interest payable settled by common stock issued | 40,616 | 0 |
Convertible notes settled by common stock issued | 196,000 | 46,295 |
Accounts payable settled by common stock issued | 0 | 85,934 |
Common stock issued for purchase of membership interest in subsidiary | 1,440,000 | 0 |
Common stock and preferred stock issued for prepaid services | 3,495,380 | 0 |
Common stock issued pursuant to asset purchase agreement | 70,000 | 0 |
Increase in intangible assets for subscription payable | 250,000 | 0 |
Initial beneficial conversion feature and debt discount on convertible notes | 670,467 | 236,500 |
Stock warrants granted as debt discount | 194,388 | 0 |
Initial derivative liability on convertible notes | 0 | 469,000 |
Fair value of common stock issued on conversion of notes | 0 | 400,480 |
Fair value of common stock issued for settlement of accounts payable | 0 | 343,735 |
Preferred deemed dividend | 904,450 | 0 |
Operating lease right-of-use assets and operating lease liabilities recorded upon adoption of ASC 842 | 2,431,362 | 0 |
Reduction of operating lease right-of-use asset and operating lease liabilities | 258,109 | 0 |
Prepaid expenses directly paid by a related party | $ 35,000 | $ 0 |
NATURE OF ORGANIZATION
NATURE OF ORGANIZATION | 12 Months Ended |
Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
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 19% as of December 31, 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 consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of presentation and principles of consolidation The Company’s consolidated financial statements include the financial statements of its 50.1% subsidiary, EOW and 51% subsidiary, Paradise Medlife. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission, which present the consolidated financial statements of the Company and its majority-owned subsidiaries as of December 31, 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 December 31, 2019 and 2018, and for the years then ended, have been made. Those adjustments consist of normal and recurring adjustments. Going concern These consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of the Company’s assets and the carrying amount of its liabilities based on the going concern uncertainty. As reflected in the accompanying consolidated financial statements, the Company had a net loss attributable to Exactus Inc. common stockholders of $10,591,487 for the year ended December 31, 2019. The net cash used in operating activities was $5,746,290 for the year ended December 31, 2019. Additionally, the Company had an accumulated deficit of $21,129,379 and working capital deficit of $1,761,309 at December 31, 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 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 year ended December 31, 2019, the Company received proceeds from the sale of the Company’s Common Stock of approximately $7.2 million. In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including in each of the areas in which the Company operates. The COVID-19 (coronavirus) outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced business and consumer spending due to both job losses and reduced investing activity, among many other effects attributable to the COVID-19 (coronavirus), and there continue to be many unknowns. While to date the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. The Company continues to monitor the impact of the COVID-19 (coronavirus) outbreak closely. The extent to which the COVID-19 (coronavirus) outbreak will impact the Company’s operations, ability to obtain financing or future financial results is uncertain. Use of Estimates The Company prepares its consolidated financial statements in conformity with GAAP which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to the fair value of derivative liabilities, useful life of property and equipment, fair value of right of use assets, assumptions used in assessing impairment of long-term assets, contingent liabilities, and fair value of non-cash equity transactions. Fair Value Measurements The Company adopted the provisions of Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value, and expands disclosure of fair value measurements. The guidance prioritizes the inputs used in measuring fair value and establishes a three-tier value hierarchy that distinguishes among the following: ● 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. The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2019 and 2018: At December 31, 2019 At December 31, 2018 Description Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Derivative liabilities — — $ 880,410 — — $ 1,742,000 A roll forward of the level 3 valuation financial instruments is as follows: December 31, 2019 Balance at beginning of year $ 1,742,000 Initial fair value of derivative liabilities as debt discount 670,467 Initial fair value of derivative liabilities as derivative expense 786,823 Reduction through conversion of debt (3,403,640 ) Change in fair value included in derivative loss 1,084,760 Balance at end of year $ 880,410 Balance at beginning of year $ 930,000 Initial fair value of derivative liabilities as debt discount 236,500 Initial fair value of derivative liabilities as derivative expense 232,500 Reduction through conversion of debt (90,855 ) Change in fair value included in derivative loss 433,855 Balance at end of year $ 1,742,000 As of December 31, 2019 and 2018, the Company has no assets that are re-measured at fair value. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and do not believe the Company is exposed to any significant credit risk. The Company had $0 cash balances in excess of FDIC insured limits at December 31, 2019 and 2018, respectively. Cash and cash equivalents were $18,405 and $1,960 at December 31, 2019 and 2018, respectively. Accounts receivable and allowance for doubtful accounts The Company has a policy of providing an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2019, and 2018, allowance for doubtful accounts amounted to $13,991 and $0, respectively. Bad debt expense amounted $32,577 and $0 during the year ended December 31, 2019 and 2018, respectively. Prepaid Expenses and Other Current Assets Total prepaid expenses and other current assets amounted to $248,776 and $12,330 at December 31, 2019 and 2018, respectively. Prepaid expenses to C2M who is a related party, amounted to $622,160 – current portion and $2,492,045 – long-term portion at December 31, 2019 (see Note 10). Prepaid expenses consist primarily of costs paid for future services which will occur within a year. Prepaid expenses may include prepayments in cash and equity instruments for an operating lease, consulting, and insurance fees which are being amortized over the terms of their respective agreements. Inventory The Company values inventory, consisting of raw materials, growing plants and finished goods, at the lower of cost or net realizable value. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of the estimated net realizable value include (i) estimates of future demand, and (ii) competitive pricing pressures. In accordance with ASC 905, “Agriculture”, all direct and indirect costs of growing hemp are accumulated until the time of harvest and are reported at the lower of cost or net realizable value. Included in inventory is the Company’s hemp crop under cultivation on farm acreage leased by the Company. The cost of the hemp crop under cultivation is determined based upon costs to purchase industrial hemp seed and industrial hemp cuttings, plus farm labor, fertilizer, water and power, the cost to harvest and cost for drying services. The costs of planting, cultivating and harvesting the Company’s hemp crop are capitalized to hemp crop inventory under cultivation, when incurred. Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 10 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired, or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the consolidated statement of operations. Impairment of long-lived assets In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment expense of $250,192 and $0 related to its intangible assets (see Note 6) and impairment expense on inventory of its CBD products of $837,153 (see Note 3) during the year ended December 31, 2019 and 2018, respectively and was included in cost of sales as reflected in the accompanying consolidated statements of operations. Derivatives and Hedging- Contracts in Entity’s Own Equity In accordance with the provisions of ASC 815 “ Derivatives and Hedging Revenue Recognition On January 1, 2018, the Company adopted ASC Topic 606 and the related amendments Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue by applying the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. The Company’s performance obligations are satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product. Payments received from customers that are related to unshipped or undelivered products are recorded as unearned revenue until the shipment of product. As of December 31, 2019 and 2018, the Company had $215,000 and $0, respectively, of unearned revenue recorded from the Company’s related party customer, C2M (see Note 12). Cost of Sales The primary components of cost of sales include the cost of the product, and, indirect cost such as utilities, farm lease expenses, and depreciation expenses on farming equipment related to production and harvesting period. Research and Development Expenses The Company follow ASC 730-10, “ Research and Development, Advertising Costs The Company applies ASC 720 “Other Expenses” to account for advertising related costs. Pursuant to ASC 720-35-25-1, the Company expenses the advertising costs when the first time the advertising takes place. Advertising costs were $496,908 and $18,036 for the year ended December 31, 2019 and 2018, respectively, and are included in selling and marketing expenses on the accompanying consolidated statement of operations. Shipping and Handling Costs The Company accounts for shipping and handling fees in accordance with ASC 606. The amounts charged to customers for shipping products are recognized as revenues and the related costs of shipping products are classified in selling and marketing expenses as incurred. Shipping costs included in selling and marketing expenses were $11,835 and $0 for the year ended December 31, 2019 and 2018, respectively. Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations. Stock-Based Compensation Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company adoption did not have any material impact on its consolidated financial statements. The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date. Related Parties We follow ASC 850, “ Related Party Disclosures Earnings per Share We compute basic and diluted earnings per share amounts in accordance with ASC Topic 260, “ Earnings per Share For the year ended December 31, 2019 and 2018, the following potentially dilutive shares were excluded from the computation of diluted earnings per shares because their impact was anti-dilutive: 2019 2018 Stock Options 4,671,280 959,375 Stock Warrants 2,014,299 644,083 Restricted stock to be issued upon vesting 3,583,328 - Convertible Preferred Stock 9,611,295 2,602,167 Convertible Debt 3,027,778 22,134,849 Total 22,907,980 26,340,474 Income Taxes The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits. The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed. Non-controlling interests in consolidated financial statements In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). This ASC clarifies that a non-controlling (minority) interest in subsidiaries is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated 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. Additionally, on July 5, 2019, the Company acquired a 51% limited liability membership interest in Paradise Medlife (see Note 3). Gain (Loss) on Modification/Extinguishment of Debt In accordance with ASC 470, “Gain (Loss) on Modification/Extinguishment of Debt”, a modification or an exchange of debt instruments that adds or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and is measured and accounted for as extinguishment of the original instrument along with the recognition of a gain or loss. Additionally, under ASC 470, a substantive modification of a debt instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. A substantive modification is accounted for as an extinguishment of the original instrument along with the recognition of a gain/loss. Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases 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 consolidated statements of operations. Recent Accounting Pronouncements 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. The Company has 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. Recent Accounting Updates Not Yet Effective In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this guidance. |
ACQUISITION OF ASSETS AND OWNER
ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC | 12 Months Ended |
Dec. 31, 2019 | |
Business Combinations [Abstract] | |
ACQUISITION OF ASSETS AND OWNERSHIP | Exactus One World On March 11, 2019, the Company acquired a 50.1% limited liability membership interest in Exactus One World, LLC, an Oregon limited liability company, formed on January 25, 2019 which since inception, had no operations. The Company acquired 50.1% limited liability membership interest pursuant to a Subscription Agreement (the “Subscription Agreement”) and a Membership Interest Purchase Agreement (the “Purchase Agreement”). Under the terms of the Subscription Agreement, the Company acquired a 30% interest in EOW, and an additional 20.1% was acquired from existing members pursuant to the terms of the Purchase Agreement. The existing members are considered third parties. The Company has the right to appoint a Manager of the limited liability company and has appointed its President. Under the Operating Agreement for EOW, as amended, the Company has the right to appoint, and remove and replace, if desired, one of three managers of EOW, with each manager having the full rights to control the business and affairs of EOW. The Company appointed its President, Emiliano Aloi, as its Manager of EOW. Under the term of the Subscription Agreement, the Company acquired 30% of membership interest in EOW in consideration for cash of $2,700,000 payable as follows: ● $400,000 paid previously for purchase of Hemp Seeds; ● $100,000 upon execution of the LLC Operating Agreement; ● $500,000 on or before April 1, 2019; ● $500,000 on or before May 1, 2019; ● $300,000 on or before August 1, 2019; ● $450,000 on or before September 1, 2019 and, ● $450,000 on or before October 1, 2019 The acquisition of the 30% membership interest is deemed to be an investment in and capital contribution to EOW and shall be eliminated upon consolidation. The Company paid a total of approximately $2,344,000 between April 2019 and September 2019fully paid the $2,700,000 purchase price as of December 31, 2019. Under the term of the Purchase Agreement, the Company acquired 20.1% of EOW from existing members for aggregate consideration of $2,940,000 consisting of total cash payments of $1,500,000, 937,500 shares of the Company’s Common Stock, and $450,000 worth of shares of Common Stock on June 14, 2019. Pursuant to the terms of the Purchase Agreement, the Company issued 937,500 shares of its Common Stock valued at $990,000, or $1.056 per share, the fair value of the Company’s Common Stock based on the quoted trading price on the date of the Purchase Agreement. No goodwill was recorded since the Purchase Agreement was accounted for as an asset purchase. The consideration shall be paid to the sellers as follows: ● $300,000 cash and 937,500 shares of the Company’s Common Stock to the sellers upon execution, which was paid during the year ended December 31, 2019; ● $700,000 on April 20, 2019 which was paid on April 18, 2019; ● On June 10, 2019, the Company was required to issue and issued the sellers an additional $450,000 of shares of Common Stock of the Company based upon the 20 day volume weighted average price per share on the date of issue which was equivalent to $0.89 per share or 503,298 shares of the Company’s Common Stock and was issued in August 2019; and ● $500,000 on September 1, 2019 which was fully paid by November 2019. At December 31, 2019, the Company has an outstanding balance of $0 to the existing members which was included in subscription payable in the consolidated balance sheets. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the operations of EOW and the related agreements to determine if the Company acquired a business or acquired assets. Based on this analysis, it was determined that the Company acquired assets, primarily consisting of the value of two farm leases for approximately 200 acres of farmland in southwest Oregon for growing and processing industrial hemp, with lease terms of one year, and a license to operate such farms. The leases are renewable on a year-to-year basis at the option of the Company. Accordingly, the transaction was not considered a business. The relative fair value of the assets acquired were based on management’s estimates of the fair values on March 11, 2019. Based upon the purchase price allocation, the following table summarizes the estimated relative fair value of the assets acquired at the date of acquisition: Intangible asset – Hemp farming license $ 10,000 Intangible assets – farm leases 2,930,000 Total assets acquired at fair value 2,940,000 Total purchase consideration $ 2,940,000 Additionally, the Company recorded the acquisition of 50.1% of membership interest in EOW under the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). As of December 31, 2019, the Company recorded a non-controlling interest balance of $537,469 in connection with the majority-owned subsidiary, EOW as reflected in the accompanying consolidated balance sheet and losses attributable to non-controlling interest of $537,469 during the year ended December 31, 2019, as reflected in the accompanying consolidated statements of operations. Paradise Medlife, LLC On July 5, 2019, the Company entered into an Operating Agreement (the “Operating Agreement”) with Paradise Medlife, LLC and Paradise CBD, LLC. Paradise Medlife is a Florida Limited Liability Company, organized on April 12, 2019 with no operations since inception. The Company shall contribute capital of $50,000 in the form of CBD products in exchange for 51% ownership of Paradise Medlife. Consequently, Paradise Medlife became a majority owned subsidiary of the Company. To date, Paradise Medlife has no operations. At December 31, 2019, the Company has not yet contributed the capital of $50,000. The Company anticipates to contribute the capital in the form of CBD products during fiscal 2020. Green Goddess Extracts, LLC On July 31, 2019 the Company entered into an Asset Purchase Agreement (the “Green Goddess Purchase Agreement”) with Green Goddess Extracts, LLC (“Green Goddess”), a Florida contract manufacturer and formulator of hemp and vape products. Under the Green Goddess Purchase Agreement, the Company acquired the assets of Green Goddess consisting principally of its right and interest in the Green Goddess brand, inventory, customer list, intellectual property including IP addresses and trademarks entered into an option to acquire the seller’s vape assets, and entered into an employment agreement with the founder (the “Founder”) of Green Goddess. Green Goddess manufactures and distributes a premium line of hemp-derived products sold through distributors and online. Green Goddess has been a contract manufacturer for C2M and the Company. Under the terms of the Green Goddess Purchase Agreement the Company agreed to issue 250,000 shares of the Company’s Common Stock and pay $250,000 cash for the acquisition to be paid in six installments. The first installment of $41,667 shall be due within 90 days of the closing and the five additional installments shall be paid starting on October 12, 2019 and continuing on the first day of each following month. At December 31, 2019, the Company has an outstanding balance of $250,000 to the seller which is included in subscription payable in the consolidated balance sheets. The Company is currently in default under the Asset Purchase Agreement. However, there are no penalty interest or charges from the default pursuant to the Asset Purchase Agreement. The shares vest 1/24 on the closing date and an additional 1/24 vests on the first day of each month thereafter provided that the Company and the Executive under the Employment Agreement discussed below are neither in breach of this Green Goddess Purchase Agreement or the Employment Agreement. In addition, the Company entered into an agreement under which the Company may become obligated to issue up to an additional $250,000 of Common Stock (the “Additional Stock Consideration”) based upon the volume weighted average price per share (“VWAP”) for the 20 days prior to issuance, in the event that sales of products utilizing seller’s flavored products exceed $500,000 monthly for a three month average period. The Additional Stock Consideration shall vest 1/24 on the signature or execution date of this Green Goddess Purchase Agreement and an additional 1/24 vests on the first day of each month thereafter provided that the Company and the Executive under the Employment Agreement discussed below are neither in breach of this Green Goddess Purchase Agreement or the Employment Agreement. Additionally, on July 1, 2019, the Company entered into an Executive Employment Agreement (the “Employment Agreement”) with Alejandro De La Espriella (the “Executive”) who is the managing member of Green Goddess Extracts, LLC. The term of the Employment Agreement shall be for two years and shall be automatically renewed for successive one-year periods unless either party provides a written notice of non-renewal. The Company agrees to pay the Executive an initial base salary of $120,000 per year subject to annual adjustments determined by the board of directors of the Company and such Executive shall also be eligible for annual bonus, performance bonus and equity awards as defined in the Employment Agreement. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the operations of Green Goddess and the related agreements to determine if the Company acquired a business or acquired assets. The gross assets include the intellectual property (the related trademark, brand, and IP addresses are determined to be a single intangible asset), the inventory, customer list, non-compete/non-solicitation and the excess of the consideration transferred over the fair value of the net assets acquired. The Company concluded that substantially all of the fair values of the gross assets acquired is not concentrated in a single identifiable asset or group of similar identifiable assets. The set has outputs through the continuation of revenues, and the Company considered the criteria in paragraph 805-10-55-5E to determine whether the set includes both inputs and a substantive process that together significantly contribute to the ability to create outputs. The set is not a business because: 1) It does not include an organized workforce that could meet the criteria in paragraph 805-10-55-5E (a) through (b), 2) There are no acquired processes that could meet the criteria in paragraph 805-10-55-5E(c) through (d), and 3) It does not include both an input and a substantive process. Accordingly, the transaction was not considered a business. Additionally, in accordance with ASC 805-10, the 250,000 shares of common stock and the Additional Stock Consideration are tied to continued employment of the Company and as such are recognized as compensation expenses in the post combination period under Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and services received in exchange for an award based on the grant-date fair value of the award (see Note 10). The relative fair value of the assets acquired were based on management’s estimates of the fair values on July 31, 2019. Based upon the purchase price allocation, the following table summarizes the estimated relative fair value of the assets acquired at the date of acquisition: Intangible asset – trademark $ 3,500 Intangible assets – customer list 212,529 Inventory 33,971 Total assets acquired at fair value 250,000 Total purchase consideration $ 250,000 During the year ended December 31, 2019 the Company fully impaired the assets and resulted in an impairment loss of $186,025 related to the Green Goddess intangible asset (see Note 6). The Company, Green Goddess and the founder of Green Goddess have each asserted various claims against the other for breach of contract although no proceedings have been commenced. Currently, the Company has suspended efforts to market and sell CBD products under the Green Goddess brand and Green Goddess has suspended delivery of the Company’s inventory due to the disputes which involve, among other things, the amounts that were due and owing Green Goddess from C2M for orders placed prior to the asset purchase, the nature and going concern value of the assets purchased by the Company and representations concerning the operation of the business and performance by the founder under the employment agreement. There can be no assurance the parties will resolve their differences or that the prior agreements will not be terminated. The CBD products with a cost of $837,153 currently held inventory has been written down to a value of $0 due to the age and questionable salability of the product. During the year ended December 31, 2019, the Company fully impaired the finished goods related to CBD products and resulted in an impairment loss of $837,153 which is included in cost of sales on the consolidated statements of operations. Levor, LLC On September 30, 2019 the Company entered into an Asset Purchase Agreement (the “Levor Purchase Agreement”) with Levor, LLC (“Levor”) and the sole owner and manager of Levor (the “Seller”). Under the Levor Purchase Agreement, the Company acquired the asset of Levor consisting principally of its rights and interest in the cosmetic brand collection, “Levor Collection”, which is an all-virtual brand that offers cannabinoid-infused cosmetic products. Under the terms of the Levor Purchase Agreement, the Company agreed to issue 100,000 shares of the Company’s Common Stock at closing. In addition, the Company entered into an agreement under which the Company may become obligated to issue additional shares of the Company’s common stock to be earned and payable to the Seller on the 12-month anniversary of the closing date which value is equivalent to 35% of the total annual net revenue of the Levor brand divided by the then closing bid price of the common stock on the 12-month anniversary (the Earn-out Consideration”). The Seller of Levor has been an employee of the Company since July 24, 2019. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the operations of Levor and the related agreements to determine if the Company acquired a business or acquired assets. Based on this analysis, it was determined that the Company acquired assets, primarily consisting of the its rights and interest in the cosmetic brand collection, “Levor Collection”. The Company concluded that substantially all of the fair values of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. Accordingly, the transaction was not considered a business. Pursuant to the terms of the Levor Purchase Agreement, the Company granted 100,000 shares of its Common Stock valued at $70,000, or $0.70 per share, the fair value of the Company’s Common Stock based on the sale of common stock in the recent private placement. Additionally, in accordance with ASC 805-10, the Earn-out Consideration is deemed as contingent payment to an employee and the Company determined that the arrangement is compensatory in nature and as such are recognized as compensation expenses in the post combination period under Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and services received in exchange for an award based on the grant-date fair value of the award. The relative fair value of the assets acquired were based on management’s estimates of the fair values on September 30, 2019. Based upon the purchase price allocation, the following table summarizes the estimated relative fair value of the assets acquired at the date of acquisition: Intangible asset – Brand $ 70,000 Total assets acquired at fair value 70,000 Total purchase consideration $ 70,000 During the year ended December 31, 2019 the Company recorded an impairment expense of $64,167 related to the Levor intangible asset (see Note 6). |
INVENTORY
INVENTORY | 12 Months Ended |
Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | |
INVENTORY | Inventory, net consisted of the following: December 31,2019 December 31,2018 Finished goods – hemp flowers and hemp cuttings $ 1,337,809 $ - During the year ended December 31, 2019, the Company recorded a reserve or inventory write-off related to inventory of $723,391 which is equal to the difference between the cost of the inventory and its estimated net realizable value and is included in cost of sales as reflected in the accompanying consolidated statements of operations. Additionally, during the year ended December 31, 2019, the Company fully impaired the finished goods related to purchased CBD products from C2M and resulted in an impairment loss of $837,153 which is included in cost of sales on the consolidated statements of operations (see Note 3). |
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | Property and equipment consisted of the following: Estimated life As of December 31,2019 As of December 31,2018 Greenhouse 10 years $ 34,465 $ - Fencing and storage 5 years 44,543 - Irrigation 5 years 387,975 - Office and computer equipment 3 years 40,834 - Farming Equipment 5 years 11,500 - Leasehold improvement 5 years 21,886 - Less: Accumulated depreciation (63,770 ) - $ 477,433 $ - Depreciation expense amounted to $63,770 and $0 for the year ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, depreciation expense of $26,069 was included in cost of sale and $37,701 was included in general and administrative expenses as reflected in the accompanying consolidated statements of operations. |
INTANGIBLE ASSET
INTANGIBLE ASSET | 12 Months Ended |
Dec. 31, 2019 | |
Finite-Lived Intangible Assets, Net [Abstract] | |
INTANGIBLE ASSET | At December 31, 2019 and 2018, intangible asset consisted of the following: Useful life December 31, 2019 December 31, 2018 Participation rights - EOW 3 year $ 2,930,000 $ - Hemp operating license - EOW 1 year 10,000 - Trademark – Green Goddess 3 year 3,500 - Customer list – Green Goddess 3 year 212,529 - Brand - Levor 3 year 70,000 - 3,226,029 - Less: accumulated amortization (828,526 ) - Less: Impairment expenses (250,192 ) - $ 2,147,311 $ - For the year ended December 31, 2019 and 2018, amortization of intangible assets amounted to $828,526 and $0, respectively. Amortization of intangible assets attributable to future periods is as follows: Year ending December 31: Amount 2020 $ 978,750 2021 976,667 2022 191,894 $ 2,147,311 |
OPERATING LEASE RIGHT-OF-USE AS
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES | 12 Months Ended |
Dec. 31, 2019 | |
Leases [Abstract] | |
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES | On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consists of approximately 100 acres. The lease requires the Company to pay 5% of the net income realized by the Company from the operation of the lease farm. Accordingly, the Company recognized $0 Right-of-use asset (“ROU”) and lease liabilities on this farm lease as the Company has not determined when it will generate net income from this lease. The lease shall continue in effect from year to year except for at least a 30-day written notice of termination. The Company has not paid any lease under this agreement for the year ended December 31, 2019. On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Glendale, Oregon and consists of approximately 100 acres. The lease requires the Company to pay $120,000 per year, whereby $50,000 was payable upon execution and $70,000 shall be payable prior to planting for agricultural use or related purposes. The lease shall continue in effect from year to year except for at least a 30-day written notice of termination. The Company has recognized lease expense of $100,000 for the year ended December 31, 2019 and was included in cost of sales on the consolidated statements of operations. On April 30, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consists of approximately 38 acres. The lease requires the Company to pay $76,000 per year, whereby $38,000 was payable upon execution and $38,000 shall be payable on September 15, 2019 and 2% of the net income realized by the Company from the operation of the leased farm. The lease shall continue in effect from year to year for five years except for at least a 30-day written notice of termination. The Company has paid the initial payment of $26,000 and the remaining $12,000 was paid directly to the landlord by an affiliated company who is renting the portion of the lease property from the Company. The affiliated company is owned by two managing members of EOW. EOW is in the process of arranging a sub-lease agreement with the affiliated company. The Company recognized lease expense of $134,667 included in cost of sales for the year ended December 31, 2019 and recorded $17,333 as prepaid expense to be amortized over the term of this lease. On July 9, 2019, the Company entered into a Commercial Lease Agreement (the “Lease”) with Skybar Holdings, LLC, a Florida limited liability company. Pursuant to the Lease, the Company will rent the entire first floor (consisting of approximately 4,000 square feet) of a property located in Delray Beach, Florida (the “Premises”). The Company plans to develop the Premises to create a hemp-oriented health and wellness retail venue, including education, clothing and cosmetics, and explore franchise opportunities. The initial term of the Lease is 5 years commencing August 1, 2019, with two 5-year extension options. The Lease includes a right of first refusal in favor of the Company to lease any space that becomes available on the 2nd and 3rd floor of the Premises and a right of first refusal to purchase the Premises. Pursuant to the Lease, the Company will pay rent equal to $40,000 per month in advance in addition to all applicable Florida sales and/or federal taxes and security deposit of $40,000. Effective one year from the lease commencement date and each year thereafter, the rent shall increase at least three percent (3%) per year. The lessor of the Premises is a limited liability company owned or controlled by Vladislav (Bobby) Yampolsky, a member of the Board and the founder, manager and controlling member of C2M, the Company’s largest stockholder. In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. The Company is reasonably certain that it will exercise its option to extend the three farm leases for a period of three years and the Company used 5 years lease term for the commercial lease. The Company adopted ASC Topic 842 on January 1, 2019. Between March 2019 and August 2019 which are the execution dates of various lease agreements, the Company recorded right-of-use assets totaling $2,431,362 and total lease liabilities of $2,431,362 based on an incremental borrowing rate of 10%. The Company recorded lease expense of $340,365 and $0 for the year ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, lease expenses of $134,667 was included in cost of sale and $205,698 was included in general and administrative expenses as reflected in the accompanying consolidated statements of operations. The cash outflows from operating leases for the year ended December 31, 2019 was $172,410. The weighted average remaining lease term and the incremental borrowing rate for operating leases at December 31, 2019 were 2.81 years and 10%, respectively. ROU is summarized below: December 31, 2019 Farm lease ROU $ 506,506 Commercial lease ROU 1,924,856 Less accumulated amortization (258,109 ) Balance of ROU asset as of December 31, 2019 $ 2,173,253 Operating lease liability related to the ROU asset is summarized below: December 31, 2019 Farm lease $ 506,506 Commercial lease ROU 1,924,856 Total lease liability 2,431,362 Reduction of lease liability (172,410 ) Total 2,258,952 Less: current portion (432,065 ) Long term portion of lease liability as of December 31, 2019 $ 1,826,887 Minimum lease payments under non-cancelable operating lease at December 31, 2019 are as follows: Year ended December 31, 2019 $ 270,672 Year ended December 31, 2020 682,000 Year ended December 31, 2021 696,580 Year ended December 31, 2022 560,933 Year ended December 31, 2023 531,063 Year ended December 31, 2024 315,140 Total 3,056,388 Less: undiscounted payments during the year ended December 31, 2019 (270,672 ) Total undiscounted future minimum lease payments due as of December 31, 2019 2,785,716 Imputed interest (526,764 ) Total operating lease liability $ 2,258,952 |
NOTES PAYABLE - RELATED PARTIES
NOTES PAYABLE - RELATED PARTIES | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
NOTES PAYABLE - RELATED PARTIES | On June 28, 2017, the Company issued promissory notes to two of the Company’s then executive officers. The promissory notes accrue interest at a rate of 8.0% per annum and matures on the earlier of (i) one (1) year from the date of the promissory note, and (ii) the closing the sale of the Company’s securities in a single transaction or a series of related transactions from which at least $500,000 of gross proceeds are raised. During the year ended December 31, 2019, the Company had borrowed $14,229 under the promissory notes. Between February 2019 and March 2019, the Company paid $11,129 under the promissory notes. Additionally, in March 2019, the Company issued 153,080 shares of its Common Stock to a former executive officer upon the conversion of $27,000 of principal amount and accrued interest of $3,267 under a promissory note. In August 2019, the Company repaid principal amount of $21,000 and accrued interest of $1,769. The remaining principal balance of $6,500 and accrued interest of $2,107 were deemed paid pursuant to their severance arrangements. During the year ended December 31, 2019 and 2018, the Company recognized $1,214 and $3,981, respectively, of interest expense. As of December 31, 2019 and 2018, the notes had accrued interest balances of $0 and $5,928, respectively. As of December 31, 2019 and 2018, the principal balance under the notes was $0 and $51,400, respectively. During October 2019, the Company entered into two short-term promissory notes (the “Notes”) for an aggregate principal amount of $94,056 and gross cash proceeds of $85,000 (original issue discount of $9,056). A note with principal amount of $55,556 was subscribed by Andrew Johnson, an officer of the Company. The Notes became due and payable between October 18, 2019 and December 16, 2019 and bear interest at a rate of twelve (12%) percent per annum prior to the maturity date, and eighteen (18%) per annum if unpaid following the maturity date. The Notes are unsecured obligations of the Company. In addition, the Notes carry a 10% original issue discount of $9,056 which have been amortized and recorded in interest expense on the accompanying consolidated statements of operations. In December 2019, the Company repaid one of the notes with principal amount of $38,500 and accrued interest of $770. During the year ended December 31, 2019 and 2018, the Company recognized $2,048 and $0, respectively, of interest expense. As of December 31, 2019 and 2018, the notes had accrued interest balances of $1,278 and $0, respectively. As of December 31, 2019 and 2018, the principal balance under the notes was $55,556 and $0, respectively. The Company is currently negotiating on extending the maturity date of the related party note with principal amount of $55,556. |
CONVERTIBLE NOTES PAYABLE
CONVERTIBLE NOTES PAYABLE | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
CONVERTIBLE NOTES PAYABLE | The Company’s convertible notes consist of the following as of December 31, 2019 and 2018: 2019 2018 Convertible note in the amount of $110,000 dated, August 14, 2017, accruing interest at an annual rate of 8%, matured on August 14, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) $2.00 and (ii) 60% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $87,000 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On December 18, 2017, the Company further amended the Note to (i) increase the aggregate principal amount of the Note to $115,000 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to January 4, 2018. On January 4, 2018, the Company further amended the Note to (i) increase the aggregate principal amount of the Note to $125,000 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to February 1, 2018. In March 2018, the Company paid $25,000 towards principal of the Note. On May 7, 2018, the Company further amended the Note to (i) increase the aggregate principal amount of the Note to $121,481 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to May 31, 2018. On June 11, 2018, the holder of the Note converted $10,000 of the principal of the Note into 22,727 shares of Common Stock. On July 13, 2018, the holder of the note converted $10,500 of the principal of the Note to 116,667 shares of Common Stock. On August 30, 2018, the holder of the Note converted $10,500 of the principal of the Note to 218,750 shares of Common Stock. On November 13, 2018, the Company further amended the Note to (i) increase the aggregate principal amount of the Note by $10,000 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to December 13, 2018. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. $ - $ 101,481 Convertible note in the amount of $27,500 dated, September 27, 2017, accruing interest at an annual rate of 8%, matured on September 27, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) $2.00 and (ii) 60% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $21,750 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On May 7, 2018, the Company further amended the Note to increase the aggregate principal amount of the Note to $4,125. On November 13, 2018, the Company amended the Note to (i) increase the aggregate principal amount of the Note by $5,000 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to December 13, 2018. - 36,625 Convertible note in the amount of $65,000 dated, December 21, 2017, accruing interest at an annual rate of 12%, matured on December 21, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) closing sale price of the Common Stock on the principal market on the trading day immediately preceding the closing date and (ii) 60% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $62,400 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On March 28, 2018, the Company amended the Note to (i) increase the aggregate principal amount of the Note to $71,500 and (ii) adjust the conversion price to the lesser of (i) closing sale price of the Common Stock on the principal market on the trading day immediately preceding the closing date and (ii) 51% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-five day trading period prior to the conversion. On November 11, 2018, the holder of the note converted $5,325 of the principal of the Note to 187,500 shares of Common Stock. On December 18, 2018, the holder of the Note converted $4,850 of the principal of the Note to 100,000 shares of Common Stock. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability.- 89,588 Convertible note in the amount of $125,000 dated, December 26, 2017, accruing interest at an annual rate of 12%, matured on September 26, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) the lowest trading price of the Company's Common Stock during the twenty-five-day trading period prior to the issue date of the Note and (ii) 50% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-five day trading period prior to the conversion (the “Note”). The Company received net proceeds of $112,250 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On July 11, 2018, the holder of the note elected to convert interest of $3,120 into 15,000 shares of Common Stock. On November 28, 2018, the holder of the Note converted $2,000 of the interest of the Note to 25,000 shares of Common Stock. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. - Convertible note in the amount of $58,500 dated, March 16, 2018, accruing interest at an annual rate of 9%, matures on December 16, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) $2.00 and (ii) 51% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-five day trading period prior to the conversion (the “Note”). The Company received net proceeds of $41,050 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. - Convertible note in the amount of $60,000 dated, June 29, 2018, accruing interest at an annual rate of 12%, maturing on June 29, 2019, and convertible into Common Stock of the Company at a conversion price equal to 50% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $51,900 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. In December 2018, the Company agreed to increase the principal balance of note by $30,000 in relation to the assignment of the Note by the holder to another third party. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. - Convertible note in the aggregate amount of $30,000 dated, July 3, 2018, accruing interest at an annual rate of 12%, maturing on July 3, 2019, and convertible into Common Stock of the Company at a conversion price equal to 50% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Notes”). The Company received net proceeds of $28,000 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. During the year ended December 31, 2018, the Company recorded an initial derivative liability of $68,000, resulting in initial derivative expense of $40,000, and an initial debt discount of $28,000 to be amortized into interest expense through the maturity of the Note. - 14,120 Convertible notes in the aggregate amount of $70,500 dated October 23, 2018 ($35,250) and October 26, 2018 ($35,250), accruing interest at an annual rate of 12%, maturing in one year, and convertible into Common Stock of the Company at a conversion price equal to the lesser of i) the closing sale price of the Company's Common Stock on closing date and ii) 60% of the lowest trading price of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $57,000 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. The Company determined that the conversion features embedded in the Notes required bifurcation and presentation as liabilities. During the year ended December 31, 2018, the Company recorded initial derivative liabilities of $187,000, resulting in initial derivative expense of $127,000, and initial debt discounts of $60,000 to be amortized into interest expense through the maturity of the Note. - 10,593 Convertible Notes in the aggregate amount of $100,000, issued on March 22, 2018. The Notes bear interest at a rate of 5% per annum and will mature on February 1, 2023. If a qualified financing from which at least $5 million of gross proceeds are raised occurs prior to the maturity date, then the outstanding principal balance of the notes, together with all accrued and unpaid interest thereon, shall be automatically converted into a number of shares of the Company’s Common Stock at $0.40 per Share. The Notes offers registration rights wherein the Company agrees that within 45 days of a Qualified Offering, prior to the Maturity Date, the Company shall file a registration statement with the SEC registering for resale of the shares of Company’s Common Stock into which the Notes are convertible. The Company shall send a written conversion notice to the lender pursuant to the note agreement during the second quarter of fiscal 2020 and as such the principal balance of the convertible note remains outstanding as of December 31, 2019. 100,000 100,000 Convertible Notes in the amount of $229,890, issued on January 11, 2019 which features an original issue discount of 10%. The Note bears interest at a rate of 8% per year, and is due 12 months from the date of issue. Beginning on the 170th day after issue, the Note is convertible to our Common Stock at price equal to the lesser of $2.00 ($0.25 pre-split) per share, or the variable conversion price. The variable conversion price is defined as 60% of the average of our 3 lowest trading prices in the 20 trading days prior to the conversion. - - Convertible Note in the amount of $833,333, issued on November 27, 2019. The Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single institutional investor (the “Purchaser”), pursuant to which the Company agreed to sell to Purchaser in a series of 3 closings up to $1,944,444 in aggregate principal amount of the Company’s senior secured convertible promissory notes (the “Notes”) and warrants to purchase shares of the Company’s Common Stock (the “Warrants”). On November 27, 2019 (the “Initial Closing Date”), the Company issued a Note in the principal amount of $833,333, and a two-year Warrant to purchase 275,612 shares of Common Stock at an exercise price of $0.756 per share (see Note 10). The Notes will be issued at a 10% original issue discount and bear an interest rate of 8%. The Notes mature one year after their issuance unless accelerated due to an event of default. The Notes are redeemable, in whole or in part, at any time at the discretion of the Company. At the Initial Closing Date, the Company received net proceeds, after the original issue discount and the Purchaser’s counsel fees, of $730,000. Each note is convertible at the option of the note holder at any time into shares of our common stock at the fixed conversion rate of $0.50 per share. However, the conversion rate is subject to adjustment in the event of default, redemption and upon the occurrence of certain events affecting stockholders generally, such as stock splits and recapitalizations. The Company must pay amortization redemption payments equaling one-ninth of the original principal amount due on each note commencing 90 days after issuance and continuing during the following eight months (each an “Amortization Redemption”). The note holder may at its option accelerate up to six future amortization redemption payments, in which case the note holder may demand the accelerated amortization amounts be paid in shares of the Company’s common stock at the lesser of i) the fixed conversion rate of $0.50 per share of common stock, or (ii) the rate equal to 80% of the lowest volume weighted average price, or VWAP, during the 10 trading days immediately before the applicable date of the amortization redemption payment (“Amortization Conversion Rate”). Amortization redemption payment amount is equivalent to 110% of the sum of (i) one-ninth (1/9th) of the Original Principal Amount of this Note, (ii) 100% of all accrued and unpaid interest on the principal amount of this Note that is subject to such Amortization Redemption, (iii) 100% of the Make-Whole Amount payable in respect of the principal amount of this Note that is subject to such Amortization Redemption (as applicable), and (iv) all liquidated damages, costs of collection and other amounts payable in respect of this Note as of the applicable amortization redemption payment Date for such Amortization Redemption. If the Company fails to make a redemption payment, the note holder may demand the amortization amounts be paid in shares of the Company’s common stock at the lesser of fixed conversion rate of $0.50 per share of common stock or the Amortization Conversion Rate. In addition, in the event of a subsequent issuance of the Company’s common stock or debt, the Company is subject to mandatory redemption provisions as defined in the note agreement. The Company may not issue shares of the Company’s common stock to third parties at a price lower than the fixed conversion rate of $0.50 per share of common stock without the consent of the note holder. At this time, the Company is delinquent in its payments under the initial convertible note, with the May 1, 2020, April 1, 2020, and a portion of the February 25, 2020 payments currently in arrears. The Company intends to make these payments and the upcoming monthly payments with receipts from product sales and/or the proceeds of additional equity funding The Company paid original issuance cost of $83,333, cash commission and loan fees of $92,055, and recorded redemption premium of $88,889 related to the amortization redemption payment in connection with this note payable and are being amortized over the term of the note. On the Initial Closing Date, certain FINRA broker-dealers who acted on behalf of the Company were paid aggregate cash commissions of approximately $72,055 and were granted a four-year warrant to acquire an aggregate of 84,187 shares of Common Stock at an exercise price of $0.792 per share of common stock at any time before the close of business four years after their issuance, subject to adjustment in the event of stock dividends, splits, fundamental transactions, or other changes in our capital structure (see Note 10). 85,906 - Carrying Amount of Convertible Debt $ 185,906 $ 591,788 Less: Current Portion (85,906 ) (491,788 ) Convertible Notes, Long Term $ 100,000 $ 100,000 The following is a summary of the carrying amounts of convertible notes as of December 31, 2019 and 2018: 2019 2018 Principal Amount $ 933,333 $ 701,694 Add: amortization of redemption premium 8,280 - Less: unamortized debt discount and debt issuance costs (755,707 ) (109,906 ) Total convertible debt less unamortized debt discount and debt issuance costs $ 185,906 $ 591,788 In connection with the issuance of notes during the year ended December 31, 2019, on the initial measurement date of the notes, the fair values of the embedded conversion option of $1,457,290 was recorded as derivative liabilities of which $786,823 was charged to current period operations as initial derivative expense and $670,467 was recorded as a debt discount which was amortized into interest expense over the term of the note. The Company recognized gain on extinguishment of debt due to repayment and conversions of notes into shares of common and preferred stock of $3,004,630 and change in fair value of derivative liabilities of $1,084,760 during the year ended December 31, 2019. The Company determined that the conversion options embedded in the Notes require liability presentation at fair value. Each of these instruments provide the holder with the right to convert into Common Stock at a fixed discount market, with certain notes subject to a cap on the conversion price. These clauses cause uncertainty as to the number of shares issuable upon conversion of convertible debt and accordingly require liability presentation on the balance sheet in accordance with US GAAP. For the year ended December 31, 2019 and 2018, the Company measured the fair value of the embedded derivatives using a binomial model and Monte Carlo simulations, and the following assumptions: 2019 2018 Expected Volatility 239.97% to 567.11% 85.80% to 455.80% Expected Term 0.25 to 1.0 Years 0.25 to 1.0 Years Risk Free Rate 1.59% to 2.54% 1.60% to 2.60% Dividend Rate 0.00% 0.00% During the year ended December 31, 2019, the Company issued an aggregate of 849,360 Series A preferred stock to various note holders and also sold an aggregate of 55,090 shares of preferred stock for $55,090 which were used to repay and convert a total of $842,791 of principal amount (includes penalty fees of $149,313, included in derivative expenses) during the year ended December 31, 2019 and accrued interest of $61,569 pursuant to the Exchange Agreements (the “Exchange Agreements”) (see Note 10). During the year ended December 31, 2019, the Company issued 250,000 shares of Common Stock to a note holder upon the conversion of $4,000 of accrued interest. In March 2019, the Company paid off the principal notes of $186,443 (includes penalty fees of $48,337, included in derivative expenses) during the year ended December 31, 2019 and accrued interest of $20,467. During the year ended December 31, 2019, the Company recorded a gain on settlement of debt of $3,004,630 in connection with the exchange and repayments of various convertible notes. During the years ended December 31, 2019 and 2018, the Company recognized $11,481 and $55,877, respectively, of interest expense. During the years ended December 31, 2019 and 2018, the Company amortized debt discount of $425,712 and $405,173, respectively, of interest expense. As of December 31, 2019 and 2018, the notes had accrued interest balances of $15,399 and $60,372, respectively. |
STOCKHOLDERS' EQUITY (DEFICIT)
STOCKHOLDERS' EQUITY (DEFICIT) | 12 Months Ended |
Dec. 31, 2019 | |
Stockholders' Equity (Deficit): | |
STOCKHOLDERS' EQUITY (DEFICIT) | On January 11, 2019, the Board of Directors of the Company approved a reverse stock split of the Company’s Common Stock at a ratio of 1-for-8 (the “Reverse Stock Split”) including shares issuable upon conversion of the Company’s outstanding convertible securities. All share and per share values of the Company’s Common Stock for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split. In January 2019, the Company approved the 2019 Equity Incentive Plan (the “2019 Plan”) which provides for the issuance of incentive awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards. The 2019 Plan provides for a share limit equal to 15% of the total of the number of the issued and outstanding shares of the Company’s Common Stock and all shares of Common Stock issuable upon conversion or exercise of any outstanding securities of the Company. Preferred Stock The Company’s authorized preferred stock consists of 50,000,000 shares with a par value of $0.0001. Series A On December 21, 2018, we filed a Certificate of Cancellation of our previously filed Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock in order to designate 1,000,000 shares as a new Series of Preferred Stock for issuance to former Holders of our Notes under the Exchange Agreements (see Note 9), and filed a new Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Series A Preferred Certificate of Designation”). Pursuant to the Series A Preferred Certificate of Designation, the Company issued shares of Series A Preferred. Each share of Series A Preferred has a stated value of $1.00 per share. In the event of a liquidation, dissolution or winding up of the Company, each share of Series A Preferred Stock will be entitled to a payment as set forth in the Certificate of Designation. The Series A Preferred is convertible into such number of shares of the Company’s Common Stock, par value $0.0001 per share equal to the Stated Value of $1.00, divided by $0.20, subject to adjustment in the event of stock split, stock dividends, and recapitalization or otherwise. Pursuant to the Exchange Agreements each holder of Notes shall be issued Series A Preferred in the amount of the purchase price paid for such Notes by the buyer under the Exchange Agreement, including any penalty, interest and premium payments. Each share of Series A Preferred entitles the holder to vote on all matters voted on by holders of Common Stock as a single class. With respect to any such vote, each share of Series A Preferred entitles the holder to cast such number of votes equal to the number of shares of Common Stock such share of Series A Preferred is convertible into at such time, but not in excess of the conversion limitations set forth in the Series A Preferred Certificate of Designation. The Series A Preferred will be entitled to dividends to the extent declared by the Company. During the year ended December 31, 2019, the Company issued an aggregate of 849,360 shares of Series A Preferred Stock to various note holders and also sold an aggregate of 55,090 shares of Series A preferred stock for $55,090 in a private placement, which was used to repay and convert a total of $842,791 of principal amount (includes penalty fees of $149,313 during the year ended December 31, 2019) and accrued interest of $61,569 pursuant to Exchange Agreements. Accordingly, the Company recognized a deemed dividend of $904,450 during the year ended December 31, 2019 in connection with the issuance of these Series A Preferred Stock. During the year ended December 31, 2019, the Company converted 551,341 Series A Preferred Stock into 2,756,705 shares of Common Stock. There are 353,109 and 0 shares of Series A Preferred Stock outstanding as of December 31, 2019 and 2018, respectively. Series B-1 During the year ended December 31, 2019, the Company converted 1,150,000 Series B-1 Preferred Stock into 143,750 shares of Common Stock. There are 1,650,000 and 2,800,000 shares of Series B-1 preferred stock outstanding, which are convertible into 206,250 and 350,000 shares of common stock, as of December 31, 2019 and 2018, respectively. Series B-2 During the year ended December 31, 2019, the Company converted 1,168,000 Series B-2 Preferred Stock into 146,000 shares of Common Stock. There are 7,516,000 and 8,684,000 shares of Series B-1 preferred stock outstanding, which were convertible into 939,500 and 1,085,500 shares of common stock as of December 31, 2019 and 2018, respectively. Series C Due to the Company had been unable to proceed with the clinical trials and research, on July 31, 2019, the Company entered into a Surrender and Mutual Release Agreement (the “Cancellation Agreement”) to terminate the agreements and to cancel all issued and outstanding shares of Series C Preferred. Accordingly, the Company cancelled 1,733,334 shares of Series C Preferred Stock which was recorded at par value. As of December 31, 2019 and 2018, there were 0 and 1,733,334 shares of Series C Preferred Stock issued and outstanding which were convertible into 0 and 216,667 shares of common stock, respectively. Series D On March 28, 2018, the Company issued 45 shares of Series D Preferred Stock. The Company received $550,000 in connection with the Offering including $50,000 in cash for 5 shares of Series D Preferred Stock and $500,000 in debt re-payment to officers and directors for 2016 and 2017 bonuses for 40 shares of Series D Preferred Stock. During the year ended December 31, 2019, the Company converted 27 shares of Series D Preferred Stock into 675,000 shares of Common Stock. There are 18 and 45 shares of Series D preferred stock outstanding which were convertible into 450,000 and 1,125,000 shares of common stock as of December 31, 2019 and 2018, respectively. Series E Each share of Series E Preferred is convertible into 625 shares of the Company’s Common Stock and have a stated value of $1,000 per share. The conversion ratio is subject to adjustment in the event of stock splits, stock dividends, combination of shares and similar recapitalization transactions. The Company is prohibited from effecting conversions of the Series E Preferred to the extent that, as a result of such conversion, the holder beneficially owns more than 4.99% (which may be increased to 9.99% upon 61 days’ written notice), in the aggregate, of the issued and outstanding shares of Common Stock calculated immediately after giving effect to the issuance of shares of Common Stock upon the conversion of the Series E Preferred. Holders of the Series E Preferred shall be entitled to vote on all matters submitted to shareholders and shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Series E Preferred Stock are convertible, subject to applicable beneficial ownership limitations. The Series E Preferred Stock provides a liquidation preference equal to par value. The Series E Preferred has a no mandatory redemption rights however, in the event that we raise $5,000,000 from a capital raising transaction involving any equity or equity-linked financing during any fiscal quarter in an amount which would cause the Company’s cash or cash equivalents to exceed $5,000,000 (a “Fundamental Transaction”), the Company is required from the proceeds of such offering, to offer C2M a right to redeem Series E Preferred then outstanding as follows: (A) 0% percent of the net proceeds of the Fundamental Transaction, after deduction of the amount of net proceeds required to leave the Company (together with our existing cash on hand immediately prior to the completion of the Fundamental Transaction) with cash on hand of $5,000,000; plus (B) 10% percent of the next $5,000,000 of net proceeds of the Fundamental Transaction; plus (C) 100% of the net proceeds of the Fundamental Transaction thereafter (until the Series E Preferred is redeemed in full). The shares of Series E Preferred are convertible into Common Stock, once vested, at a price of $1.60 per share. The Company is not obligated to file a registration statement with respect to the shares of Common Stock into which Series E Preferred shares may be converted. The Company believes that the occurrence of the Fundamental Transaction is considered a conditional event and as a result the instrument does not meet the definition of mandatorily redeemable financial instrument based from ASC 480-10-25, “Distinguishing Liabilities from Equity”. This financial instrument was assessed at each reporting period to determine whether circumstances have changed such that the instrument met the definition of a mandatorily redeemable instrument (that is, the event is no longer conditional). If the event has occurred, the condition is resolved, or the event has become certain to occur, the financial instrument will be reclassified as a liability. On July 31, 2019, the Company granted 10,000 Series E Preferred in connection with a Management and Services Agreement (the “MSA”) with C2M, the Company’s largest shareholder (see Note 11). The Company valued the 10,000 Series E Preferred shares which is equivalent into 6,250,000 common shares at a fair value of $0.54 per common share or $3,375,000 based on the sales of common stock on recent private placements on the dates of grant. During the year ended December 31, 2019, the Company recorded stock-based compensation of $260,795 and prepaid expense – related party of $3,114,204 to be amortized over the term of the MSA. As of December 31, 2019 and 2018, there were 10,000 and 0 shares of Series E Preferred Stock issued and outstanding which were convertible into 6,250,000 and 0 shares of common stock, respectively. Common Stock The Company’s authorized Common Stock consists of 650,000,000 shares with a par value of $0.0001 per share. The following were transaction during the year ended December 31, 2018: Common stock issued for the settlement of accounts payable During the year ended December 31, 2018, the Company issued 214,834 post-split shares (1,718,675 pre-split shares) of its common stock with a fair value of $343,735 to settle $85,934 of accounts payable and the balance of $257,801 recorded as loss on stock settlement. Common stock issued for the service During the year ended December 31, 2018, the Company issued 250,000 post-split shares (2,000,000 pre-split shares) of its common stock with a fair value of $18,000 recorded as expenses. Common stock upon conversion of convertible debt During the year ended December 31, 2018, the Company issued 685,644 post-split shares (5,485,152 pre-split shares) of common stock upon the conversion of convertible notes and interest of $46,295. The fair value of shares on conversion was $400,480 having a derivative value on date of conversion of $90,855 and balance $263,330 was recorded as loss on stock settlement. Common stock issued for services During the year ended December 31, 2018, the Company issued 125,000 post-split shares (1,000,000 pre-split shares) of common stock, with a fair value of $8,000 for services rendered. Common stock issued for settlement of Preferred B-2 During the year ended December 31, 2018, the Company issued 574,063 post-split shares (4,592,500 pre-split shares) of common stock, with a fair value of $86,798 in settlement with two holders of our Series B-2 Preferred Stock in exchange for their agreement to convert their shares of Series B-2 Preferred Stock into Common Stock, an additional further investment or agreement to purchase and thereafter restructure certain outstanding notes of the Company by cancelling such notes in exchange for shares of newly-designated Series A Preferred Stock of the Company, and release of any and all claims in connection with their prior investments. The following were transaction during the year ended December 31, 2019: Sale of Common Stock for private placement During the year ended December 31, 2019, the Company sold an aggregate of 22,187,007 shares of Common Stock for total proceeds of $7,215,380. Common Stock issued for Development Agreement In consideration for the Development Agreement (see Note 11), C2M was issued 8,385,691 shares of our Common Stock on January 8, 2019. Additionally, the Company granted immediately vested 10-year options to purchase 750,000 shares of Common Stock, with exercise price of $0.32 per share to certain C2M founders. As a result, C2M became the Company’s largest shareholder holding (inclusive of the vested options held by its founders) approximately 51% of the Company’s outstanding Common Stock as of the date of the Development Agreement. Consequently, such transaction resulted in a change of control whereby, C2M obtained majority control through its Common Stock ownership (See Note 11). Therefore, the Company accounted for the 8,385,691 shares of Common Stock under ASC 845-10-S99 “Transfer of Nonmonetary Assets by Promoters or Shareholders” whereby the transfer of nonmonetary assets to a company by its promoters or shareholders in exchange for stock prior to or at the time of the company's initial public offering normally should be recorded at the transferors' historical cost basis determined under GAAP. The Company determined that the value of the Development Agreement is $0 and recording it in a step-up basis would not be appropriate since C2M is considered a promoter, majority shareholder and also a related party having an ownership interest of 51% in the Company on the execution date of the Development Agreement. Accordingly, the Company recorded the issuance of 8,385,691 shares of Common Stock at par value. The 750,000 options were valued on the grant date at approximately $0.13 per option for a total of $96,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.13 per share (based on the quoted trading price on the dates of grants), volatility of 296%, expected term of 10 year, and a risk free interest rate of 2.74%. During the year ended December 31, 2019, the Company recorded stock-based compensation of $96,000. Common Stock issued for settlement of debt During the year ended December 31, 2019, the Company issued 250,000 shares of Common Stock to note holders upon the conversion of $4,000 of accrued interest. The fair value of shares on conversion was $196,000 having a derivative value on date of conversion of $18,000 and the balance of $178,000 was recorded as loss on settlement of debt. Additionally, in March 2019, the Company issued an aggregate of 203,080 shares of Common Stock to a noteholder upon the conversion of $27,000 of principal amount, accrued interest of $3,267 and $10,349 of accrued expenses. Common Stock for membership interest in subsidiary On March 11, 2019, with the assistance of C2M and assignment of rights, under the term of the Purchase Agreement, the Company acquired additional 20.1% from existing members in consideration for payment of 937,500 shares of Common Stock (see Note 3). The 937,500 shares of Common Stock were valued at the fair value of $1.056 per common share or $990,000 based on the quoted trading price on the date of grant. Additionally, on June 10, 2019, the Company was required to issue the existing members an additional $450,000 of shares of Common Stock of the Company based upon the 20 day volume weighted average price per share on the date of issue which was equivalent to $0.89 per share or 503,298 shares of the Company’s Common Stock and was issued in August 2019. Common Stock for services In April 2019, the Company entered into a consulting agreement for investor relations services. The consultant shall receive compensation of 50,000 shares of the Company’s Common Stock and shall vest over one year with 4,174 common stock to vest on the date of this agreement and 4,166 common shares on the first day of each month thereafter. During the year ended December 31, 2019, the Company granted 50,000 shares of Common Stock and valued the shares of Common Stock at the fair value of $1.55 per common share or $77,500 based on the quoted trading price on the date of grant. The Company recorded stock-based compensation of $58,128 during the year ended December 31, 2019. In connection with this transaction, there were 20,830 shares of Common Stock to be issued as of December 31, 2019. In May 2019, the Company entered into a 6-month consulting agreement for investor relations services. The consultant shall receive compensation of 10,000 shares of the Company’s Common Stock per month or a total of 60,000 shares of Common Stock. During the year ended December 31, 2019, the Company issued an aggregate of 60,000 shares of Common Stock and valued the shares of Common Stock at the average fair value of $0.72 per common share or $43,000 based on the sales of common stock on recent private placements on the dates of grants at the end of each month. The Company recorded stock-based compensation of $43,000 during the year ended December 31, 2019. Between August 2019 and November 2019, the Company entered into various consulting agreements with terms from 6 months to 2 years. The Consultants shall receive compensation in aggregate of 150,000 shares of the Company’s Common Stock. During the year ended December 31, 2019, the Company issued 50,000 shares of Common Stock and 100,000 shares remains to be unissued as of December 31, 2019 and valued the shares of Common Stock at the fair value ranging from approximately $0.50 to $0.61 per common share or $80,500 based on the sales of common stock on recent private placements on the dates of grants. During the year ended December 31, 2019, the Company recorded stock-based compensation of $24,699 and prepaid expense of $55,801 to be amortized over the term of this agreement. In December 2019, the Company issued 100,000 shares of Common Stock for legal services to be rendered and valued the shares of Common Stock at the fair value of approximately $0.40 per common share or $39,880 based on the based on the quoted trading price on the date of grant. During the year ended December 31, 2019, the Company recorded prepaid expense of $39,880 to be amortized over the term of this agreement. On October 23, 2019, the Amended and Restated Operating Agreement (the “Amended Operating Agreement”) of EOW was amended. Under the terms of the Amended Operating Agreement, the minority members of EOW conveyed their rights to distributions related to the current 2019 hemp crop. As a result, the Company shall receive 100% of the distributions of net profit from the 2019 hemp crop on approximately 226 acres of farmland currently growing in Oregon. The minority EOW members acknowledge and agree that each is waiving their right to participate, to the extent of their respective percentage interest, in distributions arising from the profits generated from the harvest of the 2019 hemp crop. Thereafter, the distributions shall continue as set forth in Section 5.02(a) of the Operating Agreement. Since March 2019, the Company has owned 50.1% of the limited liability membership interests in EOW. In addition, the members amended the payment schedule under which farm costs are required to be made by the Company. As consideration for the amendment, the Company agreed to issue 1,223,320 shares of its common stock, par value $0.0001 per share, to the minority members of EOW (“EOW Members”). The Company determined that the 1,223,320 shares of common stock is deemed compensation to the EOW Members in exchange for their right to receive their respective membership distribution which is considered income to them. As such the Company valued the shares of Common Stock at the fair value of $0.69 per common share or $844,091 based on the quoted trading price on the date of grant. The Company recorded stock-based compensation of $844,091 during the year ended December 31, 2019. Common Stock in connection with Asset Purchase Agreements On July 31, 2019, under the terms of the Green Goddess Purchase Agreement the Company agreed to issue 250,000 shares of the Company’s Common Stock to the Founder (see Note 3). In accordance with ASC 805-10, the 250,000 shares of common stock and the Additional Stock Consideration are tied to continued employment of the Company and as such are recognized as compensation expenses in the post combination period under Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively, the vesting period). During the year ended December 31, 2019, the Company recorded stock-based compensation of $33,750 in connection with this agreement. In connection with this transaction, the Company issued 62,500 shares of commons stock which represents the vested shares and there remains 187,500 unvested shares as of December 31, 2019. On September 30, 2019, pursuant to the terms of an asset purchase agreement with Levor, LLC, the Company granted 100,000 shares of its Common Stock valued at $70,000, or $0.70 per share, the fair value of the Company’s Common Stock based on the sale of common stock in the recent private placement (see Note 3). In connection with this transaction, there were 100,000 shares of Common Stock to be issued as of December 31, 2019. Common Stock grants under the 2019 Plan On September 13, 2019, the board of directors (the “Board”) of the Company appointed Vladislav “Bobby” Yampolsky to serve as its Interim Executive Chairman. Prior to his appointment, Mr. Yampolsky served as a member of the Board. In addition, the Board also appointed the Company’s current President, Emiliano Aloi, to serve as the Company’s Interim Chief Executive Officer. The appointments were made following the departure of the Company’s Chairman and CEO in August 2019. Vladislav (Bobby) Yampolsky is the founder, manager and controlling member of C2M, the Company’s largest stockholder. On September 13, 2019, the Board delegated authority to the Chairman of the Board and/or the CEO to issue restricted stock and options under the 2019 Equity Incentive Plan (the “2019 Plan”) to non-executive employees and consultants. The aggregate number of shares of common stock of the Company, par value $0.0001 (“Common Stock”), issuable under delegated authority may not exceed 500,000 shares, and no individual award may exceed 100,000 shares, provided, further, that the minimum exercise price of awards made shall be the fair market value of the Common Stock determined in accordance with the 2019 Plan. On September 13, 2019, the Board approved additional awards to officers, directors and consultants under the 2019 Plan as follows: Name Amount of Grant Vesting Period Vesting Commencement Date Bobby Yampolsky - Director 1,000,000 shares of restricted Common Stock. 1/48th per month. Vests October 1, 2019. Emiliano Aloi - CEO 1,000,000 shares of restricted Common Stock. 1/48th per month. Vests on the first day of calendar month following: (A) the date that the 2019 Exactus One World agriculture total yield is at least 400,000 pounds of total biomass for production and held for sale or processing (including top flower harvest) and (B) the date that the Company has reported at least $5 million of revenue on a consolidated basis. Consultant – Legal and consulting services 100,000 shares of restricted Common Stock. 1/48th per month. Vests October 1, 2019. Consultant – consulting services 1,000,000 shares of restricted Common Stock. 1/48th per month. Vests on the first day of calendar month following: (A) the date that the 2019 Exactus One World agriculture total yield is at least 400,000 pounds of total biomass for production and held for sale or processing (including top flower harvest) and (B) the date that the Company has reported at least $5 million of revenue on a consolidated basis. The Company valued the shares of Common Stock at the average fair value of $0.70 per common share or $2,170,000 based on the sales of common stock on recent private placements on the dates of grants. During the year ended December 31, 2019, the Company recorded stock-based compensation of $48,125 in connection with these restricted common stock grants. In connection with this transaction, there were an aggregate of 68,750 shares of Common Stock to be issued as of December 31, 2019 which represents the vested shares and there remains 3,031,250 unvested shares as of December 31, 2019. Approval of Director Compensation Plan On September 13, 2019, the Board established a new Director Compensation Plan (the “Director Plan”) to be administered under the 2019 Plan applicable to each non-employee/non-executive director, which Director Plan replaces the prior compensation arrangements previously applicable to non-employee/non-executive directors. The material terms of the Director Plan are set forth below: Timing Amount Vesting Initial appointment (non-employee/non-executive directors) $100,000 of the Company’s Common Stock issued on and priced at fair market value of the Common Stock on the last calendar date prior to appointment. 1/24th vests upon date of grant and 1/24th vests on the first calendar date of each calendar month following appointment until fully vested as long as continuing as a director. Directors continuing after initial appointment (non-employee/non-executive directors) $25,000 of Common Stock issued annually on the first day of September and priced at fair market value of the Common Stock as of the calendar date prior to the issuance for each continuing director that has served a minimum of 9 consecutive months as of the first day of September each year. 1/24th vests upon date of grant and 1/24th vests on the first calendar date of each calendar month following appointment until fully vested as long as continuing as a director. In June 2019, the Company granted 100,000 shares of restricted common stock to a former director who resigned in December 2019. The vesting period was 1/24th vests upon date of grant and 1/24th vests on the first calendar date of each calendar month following appointment until fully vested as long as continuing as a director. In December 2019, the Company issued the 27,778 vested shares of Common Stock and was valued at the fair value of $1.05 per common share or $29,167 based on the quoted trading price on the date of grant. During the year ended December 31, 2019, the Company recorded stock-based compensation of $29,167 in connection with these restricted common stock grants. In December 2019, the Company granted an aggregate of 300,000 shares of restricted common stock to three directors of the Company. The vesting periods are 1/24th vests upon date of grant and 1/24th vests on the first calendar date of each calendar month following appointment until fully vested as long as continuing as a director. The Company valued the shares of Common Stock at the fair value of $0.54 per common share or $162,000 based on the quoted trading price on the date of grant. During the year ended December 31, 2019, the Company recorded stock-based compensation of $13,500 in connection with these restricted common stock grants. In connection with this transaction, there were an aggregate of 25,002 shares of Common Stock issued as of December 31, 2019 which represents the vested shares and there remains 274,998 unvested shares as of December 31, 2019. Cancellation of Common Stock On July 31, 2019, the Company entered into a Surrender and Mutual Release Agreement (the “Cancellation Agreement”) to terminate the agreements and to cancel all issued and outstanding shares of Series C Preferred and 180,000 shares of Common Stock, and all warrants issued under these arrangements. Accordingly, the Company cancelled 180,000 shares of Common Stock which was recorded at par value. Common Stock Warrants A summary of the Company’s outstanding stock warrants as of December 31, 2019 and 2018 and changes during the period ended are presented below: Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Balance at December 31, 2017 208,333 $ 4.80 1.50 Granted 435,750 0.32 1.79 Balance at December 31, 2018 644,083 1.77 1.38 Granted 1,578,549 0.45 5.00 Cancelled — — — Exercised — — — Forfeited (208,333 ) 4.80 — Balance at December 31, 2019 2,014,299 $ 0.45 3.31 Warrants exercisable at December 31, 2019 $ 0.45 3.31 Weighted average fair value of warrants granted during the period $ 1.05 As of December 31, 2019, aggregate intrinsic value in connection with exercisable warrants amounted to $178,610. On October 15, 2018, the Company issued 435,750 warrants with an exercise price of $0.32 per share and exercisable for two years to a Series B-2 Holder. These warrants have a grant date fair value of $0.32 per warrant, determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 2.54%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 396.30%; and (4) an expected life of the warrants of 2 years. The Company recorded an expense on these warrants of $138,679. On March 21, 2019, the Company issued 718,750 warrants to purchase shares of the Company’s Common Stock in connection with a consulting agreement in exchange for corporate development and advisory services. The warrants have a term of 5 years from the date of grant and are exercisable at an exercise price of $0.20. The 718,750 warrants were valued on the grant date at approximately $1.55 per warrant for a total of $1,114,062 using a Black-Scholes option pricing model with the following assumptions: stock price of $1.55 per share (based on the quoted trading price on the dates of grants), volatility of 602%, expected term of 5 year, and a risk free interest rate of 2.35%. During the year ended December 31, 2019, the Company recorded stock-based compensation of $1,114,062. On November 13, 2019, the Company issued 500,000 warrants to purchase shares of the Company’s Common Stock in connection with a consulting agreement in exchange for corporate development and advisory services. The warrants have a term of 5 years from the date of grant and are exercisable at an exercise price of $0.70. The 500,000 warrants were valued on the grant date at approximately $0.63 per warrant for a total of $314,181 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.63 per share (based on the quoted trading price on the dates of grants), volatility of 270%, expected term of 5 year, and a risk free interest rate of 1.69%. During the year ended December 31, 2019, the Company recorded stock-based compensation of $314,181. On November 27, 2019, the Company issued a convertible note in the principal amount of $833,333, and a warrant to purchase 275,612 shares of Common Stock (see Note 9). The warrants are exercisable at an exercise price of $0.756 per share of Common Stock at any time before the close of business on the day two years after their issuance . Common Stock Options Stock Option Plan In September 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of incentive awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. The incentive awards shall either be fully vested and exercisable from the date of grant or shall vest and become exercisable in such installments as the Board or Compensation Committee may specify. Stock options expire no later than ten years from the date of grant. The aggregate number of shares of Common Stock which may be issued pursuant to the Plan is 9,500,000. Unless sooner terminated, the Plan shall terminate in 10 years. Stock option activity for the year ended December 31, 2019 and 2018 is summarized as follows: Number of Options Weighted Average ExercisePrice Weighted Average Remaining Contractual Life(Years) Balance at December 31, 2017 - $ - - Granted 959,375 0.41 9.00 |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Legal Matters In the ordinary course of business, the Company enters into agreements with third parties that include indemnification provisions which, in its judgment, are normal and customary for companies in the Company’s industry sector. These agreements are typically with business partners, clinical sites, and suppliers. Pursuant to these agreements, the Company generally agrees to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to the Company’s product candidates, use of such product candidates, or other actions taken or omitted by us. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, the Company has no liabilities recorded for these provisions as of December 31, 2019 and 2018. 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 (the “Court”), 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 parties reached an agreement on settlement which requires co-defendant Ezra Green to make an initial payment with subsequent, additional payments over time. The Company has agreed, in exchange for the dismissal of all claims with prejudice, to pay up to $20,000, at $1,000 per month beginning in January 2018 at the earliest, if co-defendant Ezra Green defaults on his subsequent payment obligations under the terms of the settlement agreement. During the year ended December 31, 2018, the Company paid $3,000 towards the settlement with a remaining balance due of $17,000. During the year ended December 31, 2019, the Company paid an aggregate of $20,000 towards the settlement and recorded a loss on settlement of $3,000 on the consolidated statements of operations. Accordingly, the Company has $0 balance as of December 31, 2019. In July 2018 the Company received notice of the expiration and termination of a license agreement dated January 19, 2016 acquired through the Share Exchange by our subsidiary Exactus BioSolutions, Inc that the Company recognized as an intangible asset from Digital Diagnostics, Inc. (“Digital Diagnostics”) related to our FibriLyzer and MatriLyzer technologies. In addition, on December 14, 2018 we received a letter from KD Innovation, Ltd. (“KDI”) and Dr. Krassen Dimitrov, our former director seeking payment for alleged past due consulting fees from June 2017 through November 2018 pursuant to a Consulting Agreement dated January 20, 2016. On January 23, 2019, Digital Diagnostics, made a demand for compensation against the Company in connection with an alleged breach of a License Agreement. Under the terms of these agreements, the parties are required to arbitrate claims. Although we dispute the material allegations made by Digital Diagnostics and KDI, if such actions were successful damages could be awarded against us. On December 14, 2018, the Company received a termination and demand notice from KD Innovation, Ltd, an entity 100% owned by a former Board member, in connection with a consulting agreement KDI entered into with the Company’s subsidiary, Exactus Biosolutions, Inc., on or about January 20, 2016. No lawsuit has been filed; however, in the event a lawsuit is filed, the Company intends to vigorously contest the matter. On September 9, 2019, Dr. Krassen Dimitrov, a former director, commenced an arbitration proceeding against the Company and its wholly-owned subsidiary Exactus Biosolutions, Inc. before the American Arbitration Association. The complaint alleges breach of a consulting agreement for services by Dr. Dimitrov during 2017-2019, among other claims, and seeks $750,000 in damages. The Company has filed an answer denying the claims and asserting numerous counterclaims against Dr. Dimitrov and his affiliated entities, KD Innovation Ltd., and Digital Diagnostics, Inc. An arbitrator has been appointed in the matter and on May 1, 2020 issued a procedural order suspending further proceedings. On September 25, 2019, Jonathan Gilbert, a former director, filed and served a complaint against the Company in the courts of Nassau County, New York. The complaint alleges that Mr. Gilbert is entitled to retain certain cancelled equity awards and seeks specific performance and damages. In February 2019, the Company granted 1,000,000 options to purchase shares of the Company’s Common Stock to a former director of the Company, Jonathan Gilbert, with vesting terms pursuant to the respective stock option agreement. The former director resigned as a director of the Company in August 2019. The options have a term of 10 years from the date of grant and was exercisable at an exercise price at $0.01. The Company already recognized $320,000 of compensation expense which relates to the vesting of 500,000 stock options prior to his resignation. After Jonathan Gilbert’s resignation, he filed a complaint against the Company disputing his rights to receive the Company’s common stock through the exercise of his stock options. In January 10, 2020, Mr. Gilbert and the Company entered into a Settlement and General Release Agreement and both parties agreed to such consideration. The Company will issue to Mr. Gilbert 375,000 shares of the Company’s common stock whereby 187,500 shares of common stock shall be issued immediately (“First Tranche”) and another 187,500 shares of common stock shall be issued immediately and held by the transfer agent and delivered on the six month anniversary of this agreement (“Second Tranche”) (collectively the First and Second Tranche shall be called “Settlement Stock”). The Settlement Stock is by virtue of the exercise of Mr. Gilbert’s stock options and any required payments from the exercise of the stock options have been credited or forgiven. The Settlement Stock which is issued under the Stock Option Plan based upon the exercise of the stock options registered pursuant to the Company’s registration statement on form S-8 (File no. 333-229025). The Company and Mr. Gilbert have released and discharged each other from all claims and demands. In January 2020, Mr. Gilbert dismissed the lawsuit against the Company. Pursuant to the Settlement and General Release Agreement dated in January 2020, the Company recorded the issuance of 375,000 shares at par value upon the exercise of the 375,000 stock options and shall cancel the remaining 625,000 stock options as of December 31, 2019. Leases On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consist of approximately 100 acres. The lease requires the Company to pay 5% of the net income realized by the Company from the operation of the lease farm. The lease shall continue in effect from year to year except for at least a 30-day written notice of termination (see Note 7). On March 1, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Glendale, Oregon and consist of approximately 100 acres. The lease requires the Company to pay $120,000 per year, whereby $50,000 was payable upon execution and $70,000 shall be payable prior to planting for agricultural use or related purposes. The lease shall continue in effect from year to year except for at least a 30-day written notice of termination (see Note 7). On April 30, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consists of approximately 38 acres. The lease requires the Company to pay $76,000 per year, whereby $38,000 was payable upon execution and $38,000 shall be payable on September 15, 2019 and 2% of the net income realized by the Company from the operation of the lease farm. The Company has paid the initial payment of $26,000 and the remaining $12,000 was paid directly to the landlord by an affiliated company who is renting the portion of the lease property from the Company. The affiliated company is owned by two managing members of EOW. EOW is in the process of arranging a sub-lease agreement with the affiliated company. The lease shall continue in effect from year to year for five years except for at least a 30-day written notice of termination (see Note 7). On July 9, 2019, the Company entered into a Commercial Lease Agreement (the “Lease”) with Skybar Holdings, LLC, a Florida limited liability company. Pursuant to the Lease, the Company will rent the entire first floor (consisting of approximately 4,000 square feet) of a property located in Delray Beach, Florida (the “Premises”). The Company plans to develop the Premises to create a hemp-oriented health and wellness retail venue, including education, clothing and cosmetics, and explore franchise opportunities. The initial term of the Lease is 5 years commencing August 1, 2019, with two 5-year extension options. The Lease includes a right of first refusal in favor of the Company to lease any space that becomes available on the 2nd and 3rd floor of the Premises and a right of first refusal to purchase the Premises. Pursuant to the Lease, the Company will pay rent equal to forty thousand dollars per month in advance in addition to all applicable Florida sales and/or federal taxes. Effective one year from the lease commencement date and each year thereafter, the rent shall increase at least three percent (3%) per year. The lessor of the Premises is a limited liability company owned or controlled by Vladislav (Bobby) Yampolsky, a member of the Board and the founder, manager and controlling member of C2M, the Company’s largest stockholder. On July 1, 2019, the Company entered into an office lease agreement for a lease term of six months beginning July 1, 2019 ending December 31, 2019 for a total rental of $6,052 for six months. The lease premise is located in Delray Beach, Florida. In December 2019, the Company and landlord agreed to extend the lease for another 6-month term from January 2020 to June 2020 with the same terms in the original lease agreement. Master Product Development and Supply Agreement On January 8, 2019, the Company entered into a Master Product Development and Supply Agreement (the “Development Agreement”) with Ceed2Med, LLC (“C2M”). C2M has provided the Company access to expertise, resources, skills and experience suitable for producing products with active phyto-cannabinoid (CBD) rich ingredients including isolates, distillates, water soluble, and proprietary formulations. Under the Development Agreement, the Company has been allotted a minimum of 50 and up to 300 kilograms per month, and up to 2,500 kilograms annually, of active phyto-cannabinoid (CBD) rich ingredients for resale. The Company expects to be able to offer tinctures, edibles, capsules, topical solutions and animal health products manufactured for us by C2M to satisfy demand for branded and white-label products that the Company intends to offer to sell in the future. The founders of C2M established their first CBD business in 2014. C2M will also be responsible for overseeing all farming and manufacturing activities of the Company. Whereas, in consideration for the Development Agreement, C2M was issued 8,385,691 shares of our Common Stock on January 8, 2019. Additionally, the Company granted immediately vested 10-year options to purchase 750,000 shares of Common Stock to founders of C2M, with exercise price of $0.32 per share (see Note 10). As a result, C2M was our largest shareholder holding (inclusive of the vested options) approximately 51% of our outstanding Common Stock on the date of the Development Agreement. C2M will provide personnel necessary for the Company's growth. Utilizing C2M employees and facilities, the Company has been able to rapidly access resources and opportunities in the hemp-derived CBD industry. Emiliano Aloi of C2M became a member of our Advisory Board in January 2019 and was appointed President of the Company on March 11, 2019. Management and Services Agreement As previously disclosed, on March 11, 2019, the Company acquired, through our majority-owned subsidiary, EOW, from the Company’s largest shareholder, C2M, certain rights to a 50.1% limited liability membership interest in certain farm leases and operations in Oregon in order to enter into the business of hemp farming for the 2019 grow season. During May 2019, the Company appointed Emiliano Aloi, the President of the Company, to the additional position of co-manager of EOW. The Company currently is farming approximately 200 acres of hemp for harvest and production during 2019. On July 31, 2019, the Company finalized and entered into a Management and Services Agreement in order to provide the Company project management and various other benefits associated with the farming rights, operations and opportunities with C2M, including assignment by C2M of C2M’s agreements and rights to acquire approximately 200 acres of hemp farming. Under the terms of the MSA, C2M agreed to provide further access to the opportunities and know-how of C2M, consented to the appointment of Emiliano Aloi, a seasoned hemp veteran previously an advisor and currently the Company’s President, and to provide the Company and EOW additional services consisting of, among other things: ● right of participation for further investment and business opportunities in order to rapidly expand our business and operations in hemp-derived CBD; ● executive, sourcing, vendor, product, production and other expertise and resources; ● appointment of Aloi to the position of President; ● introductions to farming and other financing; ● designs for international “Hemp-Café” store design and franchise opportunities including plans, drawings, approvals and authorizations, leads and contacts; ● access to leasing of prime real estate in Delray Beach Florida with an option to purchase, and the continuing assistance of the founder of C2M in connection with management, design, and promotion of the project; ● drawings, designs and specifications for extraction, production and manufacturing facilities and resources; ● brand development and support services. The Company finalized the compensation arrangements for C2M as contemplated in connection with the March 2019 transactions and the additional agreements with C2M under the MSA following tax, accounting and legal review including the treatment of the issuance of preferred stock in connection with the transactions. While the assignment initially contemplated a $9 million payment from the Company to C2M, the parties agreed to payment in a new class of preferred stock, convertible above market. As a further condition to payment of the consideration, the value of the 50.1% interest in EOW was required to be not less than $25 million, with a third-party valuation and fairness opinion from a third-party prior to payment. The term of the MSA commenced on the date of this agreement. In October 2019, the Company entered into an amendment to the MSA (the “MSA Amendment”). The MSA Amendment extended the termination date of the MSA to December 31, 2024 and expanded the scope of services to be provided by C2M to the Company. Included in the scope of services was to negotiate with the minority owners of EOW, an amendment to the Operating Agreement of EOW for the distribution and allocation to provide for up to 100% (from 50.1%) of the results of operations of the 2019 harvest or yield resulting from all plants germinated during the calendar year December 31, 2019 (see Note 14). Distribution and Profit-Sharing Agreement On November 20, 2019, the Company entered into the Non-Exclusive Distribution and Profit-Sharing Agreement with Canntab Therapeutics USA (Florida), Inc. Pursuant to the agreement, which has a term of 2 years and is subject to automatic renewal. The Company is a non-exclusive distributor of certain Canntab products throughout the U.S. Canntab will not grant a third-party the right to promote, sell or deliver the products within the U.S. during the term of the agreement, subject to certain exceptions. In addition, the Company agreed to share equally with Canntab in the gross profits received from the sale of their products by the Company. With respect to Canntab’s sales of products, the Company will receive 10% of the gross profits. In connection with the Canntab Agreement, the Company also entered into a Supply Agreement with Canntab, which has a term of 2 years and is subject to automatic renewal, pursuant to which the Company agreed to sell hemp extracts to Canntab. Due to a need for additional warehouse space and disruptions caused by the Covid-19 pandemic, the Company has not distributed Canntab products to date. Employment Agreement Andrew Johnson, the Company’s Chief Strategy Officer, is serving under a two-year employment agreement adopted on March 11, 2019 at an annual salary of $110,000, which was increased to $150,000 on January 23, 2020. In addition, he will be entitled to an annual cash bonus, in an amount as determined by the board of directors, if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. He shall also be eligible for grants of awards under stock option or other equity incentive plans of the Company as the Company’s Compensation Committee. For the 2019 year, he received a cash bonus of $100,000 to be paid in equal installments over the next 12 months which have been recorded in accrued expenses on the consolidated balance sheet as of December 31, 2019. |
RELATED PARTY CONSIDERATIONS
RELATED PARTY CONSIDERATIONS | 12 Months Ended |
Dec. 31, 2019 | |
Related Party Transactions [Abstract] | |
RELATED PARTY CONSIDERATIONS | Some of the officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available. They may face a conflict in selecting between the Company and other business interests. We have not formulated a policy for the resolution of such conflicts. On November 20, 2017, Dr. Dimitrov provided a notice dated November 21, 2017 to the Company stating that he was resigning from the Board, effective immediately. Dr. Dimitrov indicated that his resignation from the Board was based on the deteriorating relationship between the Company and Digital Diagnostics over the non-payment of fees owed by the Company pursuant to the licensing agreement between the Company and Digital Diagnostics (see Note 11). Dr. Dimitrov currently serves as the President of Digital Diagnostics, and the Company has licensed the right to develop, produce and commercialize certain diagnostic products, including the FibriLyzer and MatriLyzer, utilizing certain intellectual property rights owned or licensed by Digital Diagnostics. Dr. Dimitrov believes that, in light of these concerns, his role as both a Director of the Company and the President of Digital Diagnostics creates a conflict of interest and has decided to focus his time and energy on doing what is best for the shareholders of Digital Diagnostics. For the year ended December 31, 2017, the Company accrued $30,000 in licensing fees expenses to Digital Diagnostics. As of December 31, 2017, $126,032 was included in accounts payable. The Company has also accrued interest at 3% over the prime rate, per the Licensing Agreement, of $9,802 for the remaining balance due as of December 31, 2017. The Company paid $0 and $126,032 during the years ended December 31, 2019 and 2018. There was no change during the year ended December 31, 2019. For the years ended December 31, 2019 and 2018, $22,100 and $300,000, respectively, was recognized in Research and Development expenses for consulting provided by Dr. Dimitrov. As of December 31, 2019 and 2018, $575,000 was included in accounts payable for both periods to KD Innovation Ltd., an affiliated entity of Dr. Dimitrov. There was no change during the year ended December 31, 2019. On June 28, 2017, the Company issued promissory notes to two of the Company’s then executive officers and directors. The promissory note bore interest at a rate of 8.0% per annum and matured on the earlier of (i) one (1) year from the date of the promissory note, and (ii) the closing the sale of the Company’s securities in a single transaction or a series of related transactions from which at least $500,000 of gross proceeds are raised (See Note 8). As of December 31, 2019 and 2018, the principal balance under the notes was $0 and $51,400, respectively. On January 8, 2019, the Company entered into a Master Product Development and Supply Agreement with C2M (see Note 11). At December 31, 2019, accounts payable to C2M related to purchase of finish products amounted to $8,342. During the year ended December 31, 2019, the Company purchased finished products from C2M totaling approximately $1,033,213. During the year ended December 31, 2019, cost of sales of $217,156 represents the purchase of CBD products from C2M. C2M is a majority stockholder of the Company. During the year ended December 31, 2019, the Company recognized revenues from C2M of $125,000 from sales of flowers and recorded related cost of sales of $96,647. Additionally, the Company recorded unearned revenues of $215,000 related to advance payments for unshipped products as of December 31, 2019. On April 30, 2019, the Company, through its majority-owned subsidiary, EOW, entered into a farm lease agreement for a lease term of one year. The lease premise is located in Cave Junction, Oregon and consists of approximately 38 acres. The lease requires the Company to pay $76,000 per year, whereby $38,000 was payable upon execution and $38,000 shall be payable on September 15, 2019 and 2% of the net income realized by the Company from the operation of the lease farm. The lease shall continue in effect from year to year for five years except for at least a 30-day written notice of termination. The Company has paid the initial payment of $26,000 and the remaining $12,000 was paid directly to the landlord by an affiliated company who is renting the portion of the lease property from the Company. The affiliated company is owned by two managing members of EOW. On July 31, 2019, the Company granted 10,000 Series E Preferred in connection with a Management and Services Agreement (the “MSA”) with C2M, the Company’s largest shareholder (see Note 11). The Company valued the 10,000 Series E Preferred shares which is equivalent into 6,250,000 common shares at a fair value of $0.54 per common share or $3,375,000 based on the sales of common stock on recent private placements on the dates of grant. During the year ended December 31, 2019, the Company recorded stock-based compensation of $260,795 and prepaid expense – related party of $3,114,205 to be amortize over the term of the MSA. During the year ended December 31, 2019, the Company reimbursed a managing member of EOW and an affiliated company which is owned by two managing members of EOW, for operating expenses paid on behalf of EOW for the following: ● $400,000 worth of hemp seeds ● $50,000 lease payment related to a lease agreement (see Note 11) ● $100,000 for irrigation cost During the year ended December 31, 2019, the Company paid a total of $1,005,825 to affiliated companies which are owned by three members of EOW, for farm labor, farming supplies and other cost related to planting, harvesting and drying the hemp which was recorded in inventory. From time to time, the Company’s subsidiary, EOW, receives advances from an affiliated company which is owned by three members of EOW for working capital purposes. The advances are non-interest bearing and are payable on demand. The affiliated company provided advances to the Company for working capital purposes for a total of $242,500 and the Company paid back these advances. The Company also advanced $127,500 to these related parties which resulted to a receivable or due from related parties of $127,500 as of December 31, 2019. These advances are short-term in nature, non-interest bearing and due on demand. The Company recognized revenues from a related party customer of $37,446 during the year ended December 31, 2019. As of December 31, 2019, accounts receivable from a related party customer amounted to $18,860. Additionally, the Company wrote-off $18,586 of accounts receivable from this related party customer into bad debt expense during the year ended December 31, 2019. The customer is an affiliated company which is substantially owned by a managing member of EOW. On July 9, 2019, the Company entered into a Commercial Lease Agreement (the “Lease”) with Skybar Holdings, LLC, a Florida limited liability company. Pursuant to the Lease, the Company will rent the entire first floor (consisting of approximately 4,000 square feet) of a property located in Delray Beach, Florida (the “Premises”). The Company plans to develop the Premises to create a hemp-oriented health and wellness retail venue, including education, clothing and cosmetics, and explore franchise opportunities. The initial term of the Lease is 5 years commencing August 1, 2019, with two 5-year extension options. The Lease includes a right of first refusal in favor of the Company to lease any space that becomes available on the 2nd and 3rd floor of the Premises and a right of first refusal to purchase the Premises. Pursuant to the Lease, the Company will pay rent equal to $40,000 per month in advance in addition to all applicable Florida sales and/or federal taxes and security deposit of $40,000. Effective one year from the lease commencement date and each year thereafter, the rent shall increase at least three percent (3%) per year. The lessor of the Premises is a limited liability company owned or controlled by Vladislav (Bobby) Yampolsky, a member of the Board and the founder, manager and controlling member of C2M, the Company’s largest stockholder. On October 23, 2019, the Amended and Restated Operating Agreement (the “Operating Agreement”) of EOW was amended (the “First Amendment”). Under the terms of the First Amendment, the minority members of EOW conveyed their 49.9% membership interest and rights to distributions related to the current 2019 hemp crop underway to the Company. As a result, the Company acquired the right to receive 100% of the distributions of net profit from the 2019 hemp crop on approximately 226 acres of farmland currently growing in Oregon. Since March 2019, the Company has owned 50.1% of the limited liability membership interests in EOW. In addition, the members amended the payment schedule under which farm costs are required to be made by the Company. As consideration for the amendment, the Company issued 1,223,320 shares of its common stock, par value $0.0001 per share, to the minority members of EOW. During October 2019, the Company entered into a short-term promissory note for an aggregate principal amount of $55,556 and gross cash proceeds of $50,000 (original issue discount of $5,556). The note with principal amount of $55,556 was subscribed by Andrew Johnson, an officer of the Company. The note became due and payable on December 16, 2019 and bears interest at a rate of twelve (12%) percent per annum prior to the maturity date, and eighteen (18%) per annum if unpaid following the maturity date. The Notes are unsecured obligations of the Company. In addition, the note carries a 10% original issue discount. The Company is currently negotiating on extending the maturity date of the related party note. On December 20, 2019, the CFO of the Company provided advances of $5,000 to the Company for working capital purposes. The short-term advance was paid back on December 23, 2019 and was non-interest bearing. As of December 31, 2019, accounts payable from two affiliated companies and C2M totaled to $454,511 ($350,000, $96,169 and $8,342, respectively). |
CONCENTRATION OF REVENUE AND SU
CONCENTRATION OF REVENUE AND SUPPLIER | 12 Months Ended |
Dec. 31, 2019 | |
Risks and Uncertainties [Abstract] | |
CONCENTRATION OF REVENUE AND SUPPLIER | During the year ended December 31, 2019, total sale of CBD products to one customer and two related party customers represented approximately 58% (11%, 36% - related party, and 11% - related party) of the Company’s net sales. There were no revenues generated during the year ended December 31, 2018. As of December 31, 2019, total accounts receivable, net from two customers and one related party customer represented approximately 82% (18%, 38%, 25% - related party, and 27%) of total accounts receivable as compared to none as of December 31, 2018. During the year ended December 31, 2019, the Company purchased finished products from C2M (see Note 11) totaling approximately $1,033,213 (98% of the purchases). During the year ended December 31, 2019, the Company fully impaired finished goods related to purchased CBD products from C2M and resulted in an impairment loss of $837,153 which is included in cost of sales on the consolidated statements of operations (see Note 3). As of December 31, 2019, total accounts payable from two vendors and one affiliated company represented approximately 60% (12%, 30% and 18% -related party) of total accounts payable. The affiliated company is owned by three members of EOW. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act decreased the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The Act also includes a number of other provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions are not expected to have a material effect on the Corporation. Given the significant complexity of the Act and anticipated additional implementation guidance from the Internal Revenue Service, further implications of the Act may be identified in future periods. The Company has incurred aggregate net operating losses of approximately $16,509,160 for income tax purposes as of December 31, 2019. The net operating losses carry forward for United States income taxes, which may be available to reduce future years’ taxable income. Management believes that the realization of the benefits from these losses appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as necessary. The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended December 31, 2019 and 2018: December 31, 2019 December 31, 2018 US Federal Statutory Tax Rate 21.00 % 21.00 % State taxes 4.60 % 4.35 % Change in valuation allowance (25.60 %) (25.35 %) 0.00 % 0.00 % The tax effects of temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2019 and 2018 are summarized as follows: Deferred Tax Asset: December 31, 2019 December 31, 2018 Net operating loss carryforward $ 4,226,345 $ 2,668,829 Valuation allowance (4,226,345 ) (2,668,829 ) Net deferred tax asset $ - $ - Of the $16,509,160 of available net operating losses, $2,257,487 begin to expire in 2034 and $14,251,673 which were generated after the Act’s effective date can be utilized indefinitely subject to annual usage limitations. The Company provided a valuation allowance equal to the deferred income tax asset for the year ended December 31, 2019 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the allowance was $1,5577,516 in fiscal 2019. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation, based upon IRC Section 382/383 Ownership change rules that may have or could occur in the future. The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2017, 2018 and 2019 Corporate Income Tax Returns are subject to Internal Revenue Service examination. IRC Section 280E of the Internal Revenue Code forbids businesses from deducting otherwise ordinary business expenses from gross income associated with the “trafficking” of Schedule I or II substances, as defined by the Controlled Substances Act. The IRS has subsequently applied Section 280E to state-legal cannabis businesses, since cannabis is still a Schedule I substance. Management is in the process of evaluating IRC Section 280E, as it relates to the Companies business and the amount of net operating losses above that the Companies Management has provided a Full Valuation Reserve on. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | In accordance with authoritative guidance, the Company has evaluated any events or transactions occurring after December 31, 2019, the balance sheet date, through the date of filing of this report and note that there have been no such events or transactions that would require recognition or disclosure in the consolidated financial statements as of and for the year ended December 31, 2019, except as disclosed below. Sale of Common Stock Subsequent to the reporting period, and up through May 13, 2020, the Company accepted shareholder subscriptions in the total amount of $100,000 in exchange for issuance of 500,000 shares of Common Stock in an offering exempt under Rule 506 of Regulation D. Common Stock for Services On January 23, 2020, the Company issued 250,000 shares of Common Stock for legal services to be rendered in fiscal 2020 and valued the shares of Common Stock at the fair value of approximately $0.49 per common share or $122,500 based on the based on the quoted trading price on the date of grant. On January 23, 2020, the Company issued an aggregate of 515,000 shares of Common Stock to two officers and three employees of the Company for services in fiscal 2020 and as an incentive to retain such employees and valued the shares of Common Stock at the fair value of approximately $0.49 per common share or $225,350 based on the based on the quoted trading price on the date of grant. Conversion of Series A Preferred stock into Common Stock On January 20, 2020, the Company converted 30,090 Series A Preferred Stock into 150,450 shares of Common Stock. Legal Matters On February 26, 2020 a complaint was filed against the Company in the Circuit Court, Palm Beach County, Florida on behalf of two former employees of the Company. The case is entitled Ryan Borcherds and Miriam Martinez vs. Exactus, Inc. (Case No. 103978709). These former employees were hired in January 2020. The complaint alleges the Company failed to pay wages and compensation to 2 employees under the Fair Labor Standards Act, breach of contract and violation of various Florida statutes, including allegations on behalf of other similarly situated persons. On May 8, 2020, an amended complaint was filed against the Company in the Circuit Court, Palm Beach County, Florida on behalf of six former employees, The amended case is entitled Ryan Bocherds, Marc Reiss, Jeannine Boffa, Benjamin Blair, Miriam Martinez and Michael Amoroso vs. Exactus, Inc, (Case No. 50-2020-CA-002274-MB). The other four former employees were hired between April 2019 and December 2019. As of December 31, 2019, the Company has recorded total accrued salaries of $26,494 from these four former employees who were hired in fiscal 2019. The complaint seeks approximately $82,000 in unpaid wages plus special damages, liquidated damages, interest and attorney’s fees. The Company intends to vigorously contest the matter. Employment Agreement Derek Du Chesne, the Company’s current President, Chief Growth Officer, and a Director, is serving under a two-year employment agreement dated February 18, 2020 and entered into in connection with his service as Chief Growth Officer. Du Chesne’s base salary for the initial year of service will be $150,000, increasing to not less than $250,000 for the second year of service, subject to annual review by the Board of Directors. He will be entitled to quarterly cash bonuses based on a percentage of our net sales to be determined. In addition, Mr. Du Chesne will be entitled to annual cash bonuses as follows: (1) up to 250% of base salary for the 2020 calendar year, if: (A) Company’s net income on a consolidated basis for the 2020 fiscal year is equal to or in excess of $5,000,000; or (B) Company’s net sales on a consolidated basis is equal to or in excess of $40,000,000 during the 2020 fiscal year; and (2) 200% of base salary for the 2021 calendar year, subject to the satisfaction of performance criteria set by the Board in consultation with a third-party compensation expert and Mr. Du Chesne. He will be eligible to participate in the Company’s Equity Incentive Plan during his employment. Upon execution of the Agreement, he was granted options to purchase up to 1,000,000 shares of the Company’s common stock at a price of $0.50 per share. 250,000 of these options were vested immediately, with the remaining 750,000 options to vest in equal installments over the next twenty-four months. The employment agreement with Mr. Du Chesne is intended to provide direct incentives to increase company sales, while providing a reasonable base compensation for his service. Following his appointment as President, he is to receive 1,000,000 shares of common stock as additional compensation, with vesting and other terms to be decided by our Compensation Committee. On March 5, 2020, the Board of directors of the Company approved the repricing of Mr. Du Chesne’s stock options to 90% of the market price on the original date of grant or exercise price of $0.30 per share. Loans – Related party From January 31, 2020 through April 10, 2020, the Company’s Interim Executive Chairman, Bobby Yampolsky, made a series of advances to the Company in the approximate total amount of $97,000. There are currently no specific terms of repayment. Supply and Distribution Agreement On February 4, 2020, the Company entered into a Supply and Distribution Agreement with HTO Holdings Inc (dba “Hemptown, USA”), enabling the Company to purchase and sell Hemptown’s Cannabigerol (CBG) and Cannabidiol (CBD) products, including top flower, biomass and extracts (crude, isolates, distillates, and water soluble). Ceed2Med, LLC, the Company’s largest shareholder, is also a significant investor in Hemptown USA and is party to a distribution agreement with the Company. The Interim Chief Executive Officer and C2M, LLC will cooperate in developing plans to coordinate the Company’s efforts to introduce CBG and expand its efforts to sell CBD products. This agreement shall remain in force for a period of one year from effective date and shall renew automatically in one-year increments for three years unless either party gives written notice of its intention not to renew at least 60 days prior to expiration. On March 28, 2020, the Company amended the Supply and Distribution Agreement Pursuant to the amendment whereby the Company agreed to also (i) aid Hemptown’s management with product compliance requirements, (ii) participate in discussions related to Hemptown’s 2020 farming, harvesting and processing plans as well as joint supply scenarios, (iii) interact with Hemptown’s ingredient and manufacturing divisions to facilitate development of documents for selected SKUs to service the white label market, and (iv) aid Hemptown’s CEO in overseeing the entire supply chain to establish best practices in quality and compliance and lower costs. In addition, Hemptown agrees to pay the Company $3,500 a month in consulting fees. Restricted Common Stock Grants On January 14, 2020, in connection with his appointment to the Board of Directors, Alvaro Daniel Alberttis was awarded $100,000 worth of restricted common stock, valued at the closing market price of the Company’s common stock on the date of the appointment. These shares vest at a rate of 1/24th on the date of grant, and 1/24th per month thereafter, contingent upon continued service to the company. On April 29, 2020, the Company appointed two new board members and shall each be granted $100,000 worth of restricted common stock under the 2019 Equity Incentive Plan with vesting period of 1/24th upon date of grant and 1/24th per month on the first day of each calendar months thereafter until fully vested so long as they continue in their service as board of directors of the Company. On April 29, 2020, the Company appointed a new advisory board member of the Company and shall be granted $50,000 worth of restricted common stock under the 2019 Equity Incentive Plan with vesting period of 1/24th upon date of grant and 1/24th per month on the first day of each calendar months thereafter until fully vested so long as they continue in their service as member of the Advisory Board of the Company. Notice of Delinquent Payment At this time, the Company is delinquent in its payments under the initial convertible note executed on November 27, 2019 (see Note 9), with the May 1, 2020, April 1, 2020, and a portion of the February 25, 2020 payments currently in arrears. The Company intends to make these payments and the upcoming monthly payments with receipts from product sales and/or the proceeds of additional equity funding. On May 20, 2020, the Company entered into a Forbearance Agreement with the investor (the “Holder”) regarding the initial convertible note. Under the Forbearance Agreement, the investor has agreed to forebear from exercising any default-related rights and remedies subject to the following conditions and material terms: · The Company must pay the Holder $60,000 in cash on or before July 1, 2020. Additional monthly payments required under the Amortization Schedule for the note shall continue to be due on or before the first day of each calendar month thereafter, commencing with the $110,000 payment originally due April 1, 2020 now being due on or before August 1, 2020, and the subsequent monthly payments listed on the Amortization Schedule to be paid monthly in the sequence listed. Interest shall continue to accrue on the principal balance of the Note at the rate(s) stated therein, with all additional accrued interest resulting from this extension of payment deadlines to be paid as part of the last monthly payment. · The payments that are in arrears from February, April and May can be paid in whole or in part at any time at the sole election of the Holder in shares of common stock at the Amortization Conversion Price (defined as 80% of the lowest volume weighted average price, or VWAP, during the 10 trading days immediately before the applicable date of the amortization redemption payment). · Unless or until a default under the Forbearance Agreement occurs, the fixed conversion price under the note will remain $0.50 per share, and the note shall continue to bear interest at the non-default rate of 8% per annum. · Unless or until a default under the Forbearance Agreement occurs, the contractual limit on issuances of shares to issue shares of common stock or options to employees, officers, directors. consultants, advisors or contractors will be increased from 5% to 10% or our issued an outstanding common stock. · The Company has issued the Holder 500,000 shares of our common stock in consideration for the forbearance. Covid-19 In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including in each of the areas in which the Company operates. While to date the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. The Company continues to monitor the impact of the COVID-19 (coronavirus) outbreak closely. Since the Company closed its office and travel is limited, the Company’s sales operations were impacted substantially. The extent to which the COVID-19 (coronavirus) outbreak will impact our operations, ability to obtain financing or future financial results is uncertain. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of presentation and principles of consolidation | The Company’s consolidated financial statements include the financial statements of its 50.1% subsidiary, EOW and 51% subsidiary, Paradise Medlife. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission, which present the consolidated financial statements of the Company and its majority-owned subsidiaries as of December 31, 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 December 31, 2019 and 2018, and for the years then ended, have been made. Those adjustments consist of normal and recurring adjustments. |
Going concern | These consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of the Company’s assets and the carrying amount of its liabilities based on the going concern uncertainty. As reflected in the accompanying consolidated financial statements, the Company had a net loss attributable to Exactus Inc. common stockholders of $10,591,487 for the year ended December 31, 2019. The net cash used in operating activities was $5,746,290 for the year ended December 31, 2019. Additionally, the Company had an accumulated deficit of $21,129,379 and working capital deficit of $1,761,309 at December 31, 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 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 year ended December 31, 2019, the Company received proceeds from the sale of the Company’s Common Stock of approximately $7.2 million. In March 2020, the outbreak of COVID-19 (coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including in each of the areas in which the Company operates. The COVID-19 (coronavirus) outbreak has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced business and consumer spending due to both job losses and reduced investing activity, among many other effects attributable to the COVID-19 (coronavirus), and there continue to be many unknowns. While to date the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. The Company continues to monitor the impact of the COVID-19 (coronavirus) outbreak closely. The extent to which the COVID-19 (coronavirus) outbreak will impact the Company’s operations, ability to obtain financing or future financial results is uncertain. |
Use of Estimates | The Company prepares its consolidated financial statements in conformity with GAAP which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to the fair value of derivative liabilities, useful life of property and equipment, fair value of right of use assets, assumptions used in assessing impairment of long-term assets, contingent liabilities, and fair value of non-cash equity transactions. |
Fair Value Measurements | The Company adopted the provisions of Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value, and expands disclosure of fair value measurements. The guidance prioritizes the inputs used in measuring fair value and establishes a three-tier value hierarchy that distinguishes among the following: ● 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. The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2019 and 2018: At December 31, 2019 At December 31, 2018 Description Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Derivative liabilities — — $ 880,410 — — $ 1,742,000 A roll forward of the level 3 valuation financial instruments is as follows: December 31, 2019 Balance at beginning of year $ 1,742,000 Initial fair value of derivative liabilities as debt discount 670,467 Initial fair value of derivative liabilities as derivative expense 786,823 Reduction through conversion of debt (3,403,640 ) Change in fair value included in derivative loss 1,084,760 Balance at end of year $ 880,410 Balance at beginning of year $ 930,000 Initial fair value of derivative liabilities as debt discount 236,500 Initial fair value of derivative liabilities as derivative expense 232,500 Reduction through conversion of debt (90,855 ) Change in fair value included in derivative loss 433,855 Balance at end of year $ 1,742,000 As of December 31, 2019 and 2018, the Company has no assets that are re-measured at fair value. |
Cash and Cash Equivalents | The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The carrying value of those investments approximates their fair market value due to their short maturity and liquidity. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions, which amounts may at times exceed federally insured limits. The Company has not experienced any losses on such accounts and do not believe the Company is exposed to any significant credit risk. The Company had $0 cash balances in excess of FDIC insured limits at December 31, 2019 and 2018, respectively. Cash and cash equivalents were $18,405 and $1,960 at December 31, 2019 and 2018, respectively. |
Accounts receivable and allowance for doubtful accounts | The Company has a policy of providing an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2019, and 2018, allowance for doubtful accounts amounted to $13,991 and $0, respectively. Bad debt expense amounted $32,577 and $0 during the year ended December 31, 2019 and 2018, respectively. |
Prepaid Expenses and Other Current Assets | Total prepaid expenses and other current assets amounted to $248,776 and $12,330 at December 31, 2019 and 2018, respectively. Prepaid expenses to C2M who is a related party, amounted to $622,160 – current portion and $2,492,045 – long-term portion at December 31, 2019 (see Note 10). Prepaid expenses consist primarily of costs paid for future services which will occur within a year. Prepaid expenses may include prepayments in cash and equity instruments for an operating lease, consulting, and insurance fees which are being amortized over the terms of their respective agreements. |
Inventory | The Company values inventory, consisting of raw materials, growing plants and finished goods, at the lower of cost or net realizable value. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of the estimated net realizable value include (i) estimates of future demand, and (ii) competitive pricing pressures. In accordance with ASC 905, “Agriculture”, all direct and indirect costs of growing hemp are accumulated until the time of harvest and are reported at the lower of cost or net realizable value. Included in inventory is the Company’s hemp crop under cultivation on farm acreage leased by the Company. The cost of the hemp crop under cultivation is determined based upon costs to purchase industrial hemp seed and industrial hemp cuttings, plus farm labor, fertilizer, water and power, the cost to harvest and cost for drying services. The costs of planting, cultivating and harvesting the Company’s hemp crop are capitalized to hemp crop inventory under cultivation, when incurred. |
Property and Equipment | Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 3 to 10 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired, or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the consolidated statement of operations. |
Impairment of long-lived assets | In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment expense of $250,192 and $0 related to its intangible assets (see Note 6) and impairment expense on inventory of its CBD products of $837,153 (see Note 3) during the year ended December 31, 2019 and 2018, respectively and was included in cots of sales as reflected in the accompanying consolidated statements of operations. |
Derivatives and Hedging- Contracts in Entity's Own Equity | In accordance with the provisions of ASC 815 “ Derivatives and Hedging |
Revenue Recognition | On January 1, 2018, the Company adopted ASC Topic 606 and the related amendments Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue by applying the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. The Company’s performance obligations are satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product. Payments received from customers that are related to unshipped or undelivered products are recorded as unearned revenue until the shipment of product. As of December 31, 2019 and 2018, the Company had $215,000 and $0, respectively, of unearned revenue recorded from the Company’s related party customer, C2M (see Note 12). |
Cost of Sales | The primary components of cost of sales include the cost of the product, and, indirect cost such as utilities, farm lease expenses, and depreciation expenses on farming equipment related to production and harvesting period. |
Research and Development Expenses | The Company follow ASC 730-10, “ Research and Development, |
Advertising Costs | The Company applies ASC 720 “Other Expenses” to account for advertising related costs. Pursuant to ASC 720-35-25-1, the Company expenses the advertising costs when the first time the advertising takes place. Advertising costs were $496,908 and $18,036 for the year ended December 31, 2019 and 2018, respectively, and are included in selling and marketing expenses on the accompanying consolidated statement of operations. |
Shipping and Handling Costs | The Company accounts for shipping and handling fees in accordance with ASC 606. The amounts charged to customers for shipping products are recognized as revenues and the related costs of shipping products are classified in selling and marketing expenses as incurred. Shipping costs included in selling and marketing expenses were $11,835 and $0 for the year ended December 31, 2019 and 2018, respectively. |
Reclassifications | Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations. |
Stock-Based Compensation | Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company adoption did not have any material impact on its consolidated financial statements. The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date. |
Related Parties | We follow ASC 850, “ Related Party Disclosures |
Earnings per Share | We compute basic and diluted earnings per share amounts in accordance with ASC Topic 260, “ Earnings per Share For the year ended December 31, 2019 and 2018, the following potentially dilutive shares were excluded from the computation of diluted earnings per shares because their impact was anti-dilutive: 2019 2018 Stock Options 4,671,280 959,375 Stock Warrants 2,014,299 644,083 Restricted stock to be issued upon vesting 3,583,328 - Convertible Preferred Stock 9,611,295 2,602,167 Convertible Debt 3,027,778 22,134,849 Total 22,907,980 26,340,474 |
Income Taxes | The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits. The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed. |
Non-controlling interests in consolidated financial statements | In December 2007, the FASB issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”). This ASC clarifies that a non-controlling (minority) interest in subsidiaries is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. It also requires consolidated net income to include the amounts attributable to both the parent and non-controlling interest, with disclosure on the face of the consolidated 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. Additionally, on July 5, 2019, the Company acquired a 51% limited liability membership interest in Paradise Medlife (see Note 3). |
Gain (Loss) on Modification/Extinguishment of Debt | In accordance with ASC 470, “Gain (Loss) on Modification/Extinguishment of Debt”, a modification or an exchange of debt instruments that adds or eliminates a conversion option that was substantive at the date of the modification or exchange is considered a substantive change and is measured and accounted for as extinguishment of the original instrument along with the recognition of a gain or loss. Additionally, under ASC 470, a substantive modification of a debt instrument is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of the original instrument. A substantive modification is accounted for as an extinguishment of the original instrument along with the recognition of a gain/loss. |
Leases | In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases 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 consolidated statements of operations. |
Recent Accounting Pronouncements | 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. The Company has 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. Recent Accounting Updates Not Yet Effective In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance, among other provisions, eliminates certain exceptions to existing guidance related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. This guidance also requires an entity to reflect the effect of an enacted change in tax laws or rates in its effective income tax rate in the first interim period that includes the enactment date of the new legislation, aligning the timing of recognition of the effects from enacted tax law changes on the effective income tax rate with the effects on deferred income tax assets and liabilities. Under existing guidance, an entity recognizes the effects of the enacted tax law change on the effective income tax rate in the period that includes the effective date of the tax law. ASU 2019-12 is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this guidance. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Financial instruments at fair value on a recurring basis | At December 31, 2019 At December 31, 2018 Description Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Derivative liabilities — — $ 880,410 — — $ 1,742,000 |
Roll forward of the level 3 valuation financial instruments | A roll forward of the level 3 valuation financial instruments is as follows: December 31, 2019 Balance at beginning of year $ 1,742,000 Initial fair value of derivative liabilities as debt discount 670,467 Initial fair value of derivative liabilities as derivative expense 786,823 Reduction through conversion of debt (3,403,640 ) Change in fair value included in derivative loss 1,084,760 Balance at end of year $ 880,410 Balance at beginning of year $ 930,000 Initial fair value of derivative liabilities as debt discount 236,500 Initial fair value of derivative liabilities as derivative expense 232,500 Reduction through conversion of debt (90,855 ) Change in fair value included in derivative loss 433,855 Balance at end of year $ 1,742,000 |
Anti-dilutive securities | 2019 2018 Stock Options 4,671,280 959,375 Stock Warrants 2,014,299 644,083 Restricted stock to be issued upon vesting 3,583,328 - Convertible Preferred Stock 9,611,295 2,602,167 Convertible Debt 3,027,778 22,134,849 Total 22,907,980 26,340,474 |
ACQUISITION OF ASSETS AND OWN_2
ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Exactus One World | |
Purchase consideration | Intangible asset – Hemp farming license $ 10,000 Intangible assets – farm leases 2,930,000 Total assets acquired at fair value 2,940,000 Total purchase consideration $ 2,940,000 |
Green Goddess Extracts, LLC | |
Purchase consideration | Intangible asset – trademark $ 3,500 Intangible assets – customer list 212,529 Inventory 33,971 Total assets acquired at fair value 250,000 Total purchase consideration $ 250,000 |
Levor, LLC | |
Purchase consideration | Intangible asset – Brand $ 70,000 Total assets acquired at fair value 70,000 Total purchase consideration $ 70,000 |
INVENTORY (Tables)
INVENTORY (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Inventory | December 31,2019 December 31,2018 Finished goods – hemp flowers and hemp cuttings $ 1,337,809 $ - |
PROPERTY AND EQUIPMENT (Tables)
PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | Estimated life As of December 31,2019 As of December 31,2018 Greenhouse 10 years $ 34,465 $ - Fencing and storage 5 years 44,543 - Irrigation 5 years 387,975 - Office and computer equipment 3 years 40,834 - Farming Equipment 5 years 11,500 - Leasehold improvement 5 years 21,886 - Less: Accumulated depreciation (63,770 ) - $ 477,433 $ - |
INTANGIBLE ASSET (Tables)
INTANGIBLE ASSET (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Finite-Lived Intangible Assets, Net [Abstract] | |
Intangible assets | Useful life December 31, 2019 December 31, 2018 Participation rights - EOW 3 year $ 2,930,000 $ - Hemp operating license - EOW 1 year 10,000 - Trademark – Green Goddess 3 year 3,500 - Customer list – Green Goddess 3 year 212,529 - Brand - Levor 3 year 70,000 - 3,226,029 - Less: accumulated amortization (828,526 ) - Less: Impairment expenses (250,192 ) - $ 2,147,311 $ - |
Intangible assets amortization | Year ending December 31: Amount 2020 $ 978,750 2021 976,667 2022 191,894 $ 2,147,311 |
OPERATING LEASE RIGHT-OF-USE _2
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Leases [Abstract] | |
Right-of-use asset | December 31, 2019 Farm lease ROU $ 506,506 Commercial lease ROU 1,924,856 Less accumulated amortization (258,109 ) Balance of ROU asset as of December 31, 2019 $ 2,173,253 |
Operating lease liability | December 31, 2019 Farm lease $ 506,506 Commercial lease ROU 1,924,856 Total lease liability 2,431,362 Reduction of lease liability (172,410 ) Total 2,258,952 Less: current portion (432,065 ) Long term portion of lease liability as of December 31, 2019 $ 1,826,887 |
Minimum lease payments under non-cancelable operating lease | Year ended December 31, 2019 $ 270,672 Year ended December 31, 2020 682,000 Year ended December 31, 2021 696,580 Year ended December 31, 2022 560,933 Year ended December 31, 2023 531,063 Year ended December 31, 2024 315,140 Total 3,056,388 Less: undiscounted payments during the year ended December 31, 2019 (270,672 ) Total undiscounted future minimum lease payments due as of December 31, 2019 2,785,716 Imputed interest (526,764 ) Total operating lease liability $ 2,258,952 |
CONVERTIBLE NOTES PAYABLE (Tabl
CONVERTIBLE NOTES PAYABLE (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
Convertible notes payable | The Company’s convertible notes consist of the following as of December 31, 2019 and 2018: 2019 2018 Convertible note in the amount of $110,000 dated, August 14, 2017, accruing interest at an annual rate of 8%, matured on August 14, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) $2.00 and (ii) 60% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $87,000 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On December 18, 2017, the Company further amended the Note to (i) increase the aggregate principal amount of the Note to $115,000 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to January 4, 2018. On January 4, 2018, the Company further amended the Note to (i) increase the aggregate principal amount of the Note to $125,000 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to February 1, 2018. In March 2018, the Company paid $25,000 towards principal of the Note. On May 7, 2018, the Company further amended the Note to (i) increase the aggregate principal amount of the Note to $121,481 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to May 31, 2018. On June 11, 2018, the holder of the Note converted $10,000 of the principal of the Note into 22,727 shares of Common Stock. On July 13, 2018, the holder of the note converted $10,500 of the principal of the Note to 116,667 shares of Common Stock. On August 30, 2018, the holder of the Note converted $10,500 of the principal of the Note to 218,750 shares of Common Stock. On November 13, 2018, the Company further amended the Note to (i) increase the aggregate principal amount of the Note by $10,000 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to December 13, 2018. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. $ - $ 101,481 Convertible note in the amount of $27,500 dated, September 27, 2017, accruing interest at an annual rate of 8%, matured on September 27, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) $2.00 and (ii) 60% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $21,750 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On May 7, 2018, the Company further amended the Note to increase the aggregate principal amount of the Note to $4,125. On November 13, 2018, the Company amended the Note to (i) increase the aggregate principal amount of the Note by $5,000 and (ii) extend the date by which the Company is required to cause the Registration Statement to become effective to December 13, 2018. - 36,625 Convertible note in the amount of $65,000 dated, December 21, 2017, accruing interest at an annual rate of 12%, matured on December 21, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) closing sale price of the Common Stock on the principal market on the trading day immediately preceding the closing date and (ii) 60% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $62,400 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On March 28, 2018, the Company amended the Note to (i) increase the aggregate principal amount of the Note to $71,500 and (ii) adjust the conversion price to the lesser of (i) closing sale price of the Common Stock on the principal market on the trading day immediately preceding the closing date and (ii) 51% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-five day trading period prior to the conversion. On November 11, 2018, the holder of the note converted $5,325 of the principal of the Note to 187,500 shares of Common Stock. On December 18, 2018, the holder of the Note converted $4,850 of the principal of the Note to 100,000 shares of Common Stock. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability.- 89,588 Convertible note in the amount of $125,000 dated, December 26, 2017, accruing interest at an annual rate of 12%, matured on September 26, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) the lowest trading price of the Company's Common Stock during the twenty-five-day trading period prior to the issue date of the Note and (ii) 50% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-five day trading period prior to the conversion (the “Note”). The Company received net proceeds of $112,250 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. On July 11, 2018, the holder of the note elected to convert interest of $3,120 into 15,000 shares of Common Stock. On November 28, 2018, the holder of the Note converted $2,000 of the interest of the Note to 25,000 shares of Common Stock. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. - Convertible note in the amount of $58,500 dated, March 16, 2018, accruing interest at an annual rate of 9%, matures on December 16, 2018, and convertible into Common Stock of the Company at a conversion price equal to the lesser of (i) $2.00 and (ii) 51% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-five day trading period prior to the conversion (the “Note”). The Company received net proceeds of $41,050 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. - Convertible note in the amount of $60,000 dated, June 29, 2018, accruing interest at an annual rate of 12%, maturing on June 29, 2019, and convertible into Common Stock of the Company at a conversion price equal to 50% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $51,900 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. In December 2018, the Company agreed to increase the principal balance of note by $30,000 in relation to the assignment of the Note by the holder to another third party. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. - Convertible note in the aggregate amount of $30,000 dated, July 3, 2018, accruing interest at an annual rate of 12%, maturing on July 3, 2019, and convertible into Common Stock of the Company at a conversion price equal to 50% of the average of the three lowest trading prices of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Notes”). The Company received net proceeds of $28,000 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. The Company determined that the conversion feature embedded in the Note required bifurcation and presentation as a liability. During the year ended December 31, 2018, the Company recorded an initial derivative liability of $68,000, resulting in initial derivative expense of $40,000, and an initial debt discount of $28,000 to be amortized into interest expense through the maturity of the Note. - 14,120 Convertible notes in the aggregate amount of $70,500 dated October 23, 2018 ($35,250) and October 26, 2018 ($35,250), accruing interest at an annual rate of 12%, maturing in one year, and convertible into Common Stock of the Company at a conversion price equal to the lesser of i) the closing sale price of the Company's Common Stock on closing date and ii) 60% of the lowest trading price of the Company’s Common Stock during the twenty-day trading period prior to the conversion (the “Note”). The Company received net proceeds of $57,000 from the issuance of the Note, after deducting an original issue discount and debt issuance costs. The Company determined that the conversion features embedded in the Notes required bifurcation and presentation as liabilities. During the year ended December 31, 2018, the Company recorded initial derivative liabilities of $187,000, resulting in initial derivative expense of $127,000, and initial debt discounts of $60,000 to be amortized into interest expense through the maturity of the Note. - 10,593 Convertible Notes in the aggregate amount of $100,000, issued on March 22, 2018. The Notes bear interest at a rate of 5% per annum and will mature on February 1, 2023. If a qualified financing from which at least $5 million of gross proceeds are raised occurs prior to the maturity date, then the outstanding principal balance of the notes, together with all accrued and unpaid interest thereon, shall be automatically converted into a number of shares of the Company’s Common Stock at $0.40 per Share. The Notes offers registration rights wherein the Company agrees that within 45 days of a Qualified Offering, prior to the Maturity Date, the Company shall file a registration statement with the SEC registering for resale of the shares of Company’s Common Stock into which the Notes are convertible. The Company shall send a written conversion notice to the lender pursuant to the note agreement during the second quarter of fiscal 2020 and as such the principal balance of the convertible note remains outstanding as of December 31, 2019. 100,000 100,000 Convertible Notes in the amount of $229,890, issued on January 11, 2019 which features an original issue discount of 10%. The Note bears interest at a rate of 8% per year, and is due 12 months from the date of issue. Beginning on the 170th day after issue, the Note is convertible to our Common Stock at price equal to the lesser of $2.00 ($0.25 pre-split) per share, or the variable conversion price. The variable conversion price is defined as 60% of the average of our 3 lowest trading prices in the 20 trading days prior to the conversion. - - Convertible Note in the amount of $833,333, issued on November 27, 2019. The Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single institutional investor (the “Purchaser”), pursuant to which the Company agreed to sell to Purchaser in a series of 3 closings up to $1,944,444 in aggregate principal amount of the Company’s senior secured convertible promissory notes (the “Notes”) and warrants to purchase shares of the Company’s Common Stock (the “Warrants”). On November 27, 2019 (the “Initial Closing Date”), the Company issued a Note in the principal amount of $833,333, and a two-year Warrant to purchase 275,612 shares of Common Stock at an exercise price of $0.756 per share (see Note 10). The Notes will be issued at a 10% original issue discount and bear an interest rate of 8%. The Notes mature one year after their issuance unless accelerated due to an event of default. The Notes are redeemable, in whole or in part, at any time at the discretion of the Company. At the Initial Closing Date, the Company received net proceeds, after the original issue discount and the Purchaser’s counsel fees, of $730,000. Each note is convertible at the option of the note holder at any time into shares of our common stock at the fixed conversion rate of $0.50 per share. However, the conversion rate is subject to adjustment in the event of default, redemption and upon the occurrence of certain events affecting stockholders generally, such as stock splits and recapitalizations. The Company must pay amortization redemption payments equaling one-ninth of the original principal amount due on each note commencing 90 days after issuance and continuing during the following eight months (each an “Amortization Redemption”). The note holder may at its option accelerate up to six future amortization redemption payments, in which case the note holder may demand the accelerated amortization amounts be paid in shares of the Company’s common stock at the lesser of i) the fixed conversion rate of $0.50 per share of common stock, or (ii) the rate equal to 80% of the lowest volume weighted average price, or VWAP, during the 10 trading days immediately before the applicable date of the amortization redemption payment (“Amortization Conversion Rate”). Amortization redemption payment amount is equivalent to 110% of the sum of (i) one-ninth (1/9th) of the Original Principal Amount of this Note, (ii) 100% of all accrued and unpaid interest on the principal amount of this Note that is subject to such Amortization Redemption, (iii) 100% of the Make-Whole Amount payable in respect of the principal amount of this Note that is subject to such Amortization Redemption (as applicable), and (iv) all liquidated damages, costs of collection and other amounts payable in respect of this Note as of the applicable amortization redemption payment Date for such Amortization Redemption. If the Company fails to make a redemption payment, the note holder may demand the amortization amounts be paid in shares of the Company’s common stock at the lesser of fixed conversion rate of $0.50 per share of common stock or the Amortization Conversion Rate. In addition, in the event of a subsequent issuance of the Company’s common stock or debt, the Company is subject to mandatory redemption provisions as defined in the note agreement. The Company may not issue shares of the Company’s common stock to third parties at a price lower than the fixed conversion rate of $0.50 per share of common stock without the consent of the note holder. At this time, the Company is delinquent in its payments under the initial convertible note, with the May 1, 2020, April 1, 2020, and a portion of the February 25, 2020 payments currently in arrears. The Company intends to make these payments and the upcoming monthly payments with receipts from product sales and/or the proceeds of additional equity funding The Company paid original issuance cost of $83,333, cash commission and loan fees of $92,055, and recorded redemption premium of $88,889 related to the amortization redemption payment in connection with this note payable and are being amortized over the term of the note. On the Initial Closing Date, certain FINRA broker-dealers who acted on behalf of the Company were paid aggregate cash commissions of approximately $72,055 and were granted a four-year warrant to acquire an aggregate of 84,187 shares of Common Stock at an exercise price of $0.792 per share of common stock at any time before the close of business four years after their issuance, subject to adjustment in the event of stock dividends, splits, fundamental transactions, or other changes in our capital structure (see Note 10). 85,906 - Carrying Amount of Convertible Debt $ 185,906 $ 591,788 Less: Current Portion (85,906 ) (491,788 ) Convertible Notes, Long Term $ 100,000 $ 100,000 The following is a summary of the carrying amounts of convertible notes as of December 31, 2019 and 2018: 2019 2018 Principal Amount $ 933,333 $ 701,694 Add: amortization of redemption premium 8,280 - Less: unamortized debt discount and debt issuance costs (755,707 ) (109,906 ) Total convertible debt less unamortized debt discount and debt issuance costs $ 185,906 $ 591,788 |
Assumptions | 2019 2018 Expected Volatility 239.97% to 567.11% 85.80% to 455.80% Expected Term 0.25 to 1.0 Years 0.25 to 1.0 Years Risk Free Rate 1.59% to 2.54% 1.60% to 2.60% Dividend Rate 0.00% 0.00% |
STOCKHOLDERS' EQUITY (DEFICIT)
STOCKHOLDERS' EQUITY (DEFICIT) (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Stockholders' Equity (Deficit): | |
Warrant activity | Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Balance at December 31, 2017 208,333 $ 4.80 1.50 Granted 435,750 0.32 1.79 Balance at December 31, 2018 644,083 1.77 1.38 Granted 1,578,549 0.45 5.00 Cancelled — — — Exercised — — — Forfeited (208,333 ) 4.80 — Balance at December 31, 2019 2,014,299 $ 0.45 3.31 Warrants exercisable at December 31, 2019 $ 0.45 3.31 Weighted average fair value of warrants granted during the period $ 1.05 |
Stock option activity | Number of Options Weighted Average ExercisePrice Weighted Average Remaining Contractual Life(Years) Balance at December 31, 2017 - $ - - Granted 959,375 0.41 9.00 Balance at December 31, 2018 959,375 0.41 8.79 Granted 4,753,572 0.21 8.54 Exercise (375,000 ) 0.01 9.12 Forfeited (666,667 ) 0.05 8.56 Balance at December 31, 2019 4,671,280 0.29 7.29 Options exercisable at December 31, 2019 3,798,888 $ 0.31 6.88 |
Fair value assumptions | Risk-free interest rate 2.72 – 3.20 % Expected volatility 343.72 – 412.31 % Expected term (in years) 5-10 Expected dividend yield 0 % |
Restricted common stock activity | Restricted Stock Common Stock Weighted Average Grant-Date Fair Value Per Share Balance at December 31, 2018 - $ - Granted 3,727,778 0.69 Vested and issued (144,450 ) (0.84 ) Forfeited - - Balance at December 31, 2019 3,583,328 $ 0.68 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Effective tax rate | December 31, 2019 December 31, 2018 US Federal Statutory Tax Rate 21.00 % 21.00 % State taxes 4.60 % 4.35 % Change in valuation allowance (25.60 %) (25.35 %) 0.00 % 0.00 % |
Deferred tax assets | Deferred Tax Asset: December 31, 2019 December 31, 2018 Net operating loss carryforward $ 4,226,345 $ 2,668,829 Valuation allowance (4,226,345 ) (2,668,829 ) Net deferred tax asset $ - $ - |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Derivative liabilities | $ 880,410 | $ 1,742,000 | $ 930,000 |
Level 1 | |||
Derivative liabilities | 0 | 0 | |
Level 2 | |||
Derivative liabilities | 0 | 0 | |
Level 3 | |||
Derivative liabilities | $ 880,410 | $ 1,742,000 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Accounting Policies [Abstract] | ||
Balance, beginning | $ 1,742,000 | $ 930,000 |
Initial fair value of derivative liabilities as debt discount | 670,467 | 236,500 |
Initial fair value of derivative liabilities as derivative expense | 786,823 | 232,500 |
Reduction through conversion t of debt | (3,403,640) | (90,855) |
Change in fair value included in derivative loss | 1,084,760 | 433,855 |
Balance, ending | $ 880,410 | $ 1,742,000 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Anti-dilutive securities | 22,907,980 | 26,340,474 |
Stock options | ||
Anti-dilutive securities | 5,671,280 | 959,375 |
Stock warrants | ||
Anti-dilutive securities | 2,014,299 | 644,083 |
Restricted Stock | ||
Anti-dilutive securities | 3,583,328 | 0 |
Convertible notes payable | ||
Anti-dilutive securities | 9,611,295 | 22,134,849 |
Convertible Preferred Stock | ||
Anti-dilutive securities | 3,027,778 | 2,602,167 |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Accounting Policies [Abstract] | ||
Net loss | $ (10,591,487) | $ (4,337,319) |
Net cash used in operations | (5,746,290) | (465,755) |
Accumulated deficit | (21,129,379) | (10,537,892) |
Cash and cash equivalents | 18,405 | 1,960 |
Bad debt expense | 32,577 | 0 |
Prepaid expenses and other current assets | 248,776 | 12,330 |
Inventory | 1,337,809 | 0 |
Research and development | $ 22,100 | $ 300,000 |
ACQUISITION OF ASSETS AND OWN_3
ACQUISITION OF ASSETS AND OWNERSHIP IN EXACTUS ONE WORLD, LLC (Details) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Exactus One World | |
Total assets acquired at fair value | $ 2,940,000 |
Total purchase consideration | 2,940,000 |
Exactus One World | Hemp farming license | |
Intangible assets | 10,000 |
Exactus One World | Farm leases | |
Intangible assets | 2,930,000 |
Green Goddess Extracts, LLC | |
Inventory | 33,971 |
Total assets acquired at fair value | 250,000 |
Total purchase consideration | 250,000 |
Green Goddess Extracts, LLC | Trademark | |
Intangible assets | 3,500 |
Green Goddess Extracts, LLC | Customer List | |
Intangible assets | 212,529 |
Levor, LLC | |
Total assets acquired at fair value | 70,000 |
Total purchase consideration | 70,000 |
Levor, LLC | Brand | |
Intangible assets | $ 70,000 |
INVENTORY (Details)
INVENTORY (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Inventory Disclosure [Abstract] | ||
Finished goods - hemp flowers and hemp cuttings | $ 1,337,809 | $ 0 |
Inventory | $ 1,337,809 | $ 0 |
PROPERTY AND EQUIPMENT (Details
PROPERTY AND EQUIPMENT (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Property and equipment, gross | $ 0 | |
Less: accumulated depreciation | $ (63,770) | 0 |
Property and equipment, net | 477,433 | 0 |
Greenhouse | ||
Property and equipment, gross | $ 34,465 | 0 |
Estimated life | 10 years | |
Fencing and Storage | ||
Property and equipment, gross | $ 44,543 | 0 |
Estimated life | 5 years | |
Irrigation | ||
Property and equipment, gross | $ 387,975 | 0 |
Estimated life | 5 years | |
Office and Computer Equipment | ||
Property and equipment, gross | $ 40,834 | 0 |
Estimated life | 5 years | |
Farming Equipment | ||
Property and equipment, gross | $ 11,500 | 0 |
Estimated life | 5 years | |
Leasehold Improvement | ||
Property and equipment, gross | $ 21,886 | $ 0 |
Estimated life | 5 years |
PROPERTY AND EQUIPMENT (Detai_2
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 63,770 | $ 0 |
INTANGIBLE ASSET (Details)
INTANGIBLE ASSET (Details) - USD ($) | 3 Months Ended | 12 Months Ended | |
Jun. 30, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Intangible assets, gross | $ 3,226,029 | $ 0 | |
Less: accumulated amortization | (828,526) | 0 | |
Less: impairment expenses | (250,192) | 0 | |
Intangible assets, net | 2,147,311 | 0 | |
Participation Rights | |||
Intangible assets, gross | $ 2,930,000 | 0 | |
Useful life | 3 years | ||
Hemp farming license | |||
Intangible assets, gross | $ 10,000 | 0 | |
Useful life | 1 year | ||
Trademark | |||
Intangible assets, gross | $ 3,500 | 0 | |
Useful life | 1 year | ||
Customer List | |||
Intangible assets, gross | $ 212,529 | 0 | |
Useful life | 1 year | ||
Brand | Levor, LLC | |||
Intangible assets, gross | $ 70,000 | $ 0 | |
Useful life | 1 year |
INTANGIBLE ASSET (Details 1)
INTANGIBLE ASSET (Details 1) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Finite-Lived Intangible Assets, Net [Abstract] | ||
2020 | $ 978,750 | |
2021 | 976,667 | |
2022 | 191,894 | |
Total | $ 2,147,311 | $ 0 |
INTANGIBLE ASSET (Details Narra
INTANGIBLE ASSET (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | |
Finite-Lived Intangible Assets, Net [Abstract] | |||
Amortization | $ 0 | $ 828,526 | $ 0 |
OPERATING LEASE RIGHT-OF-USE _3
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Leases [Abstract] | ||
Farm lease ROU | $ 506,506 | |
Commercial lease ROU | 1,924,856 | |
Less accumulated amortization | (258,109) | |
Right-of-use asset | $ 2,173,253 | $ 0 |
OPERATING LEASE RIGHT-OF-USE _4
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Details 1) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Leases [Abstract] | ||
Farm lease ROU | $ 506,506 | |
Commercial lease ROU | 1,924,856 | |
Total lease liability | 2,431,362 | |
Reduction of lease liability | (172,410) | |
Total | 2,258,952 | |
Less: current portion | (432,065) | $ 0 |
Long term portion of lease liability | $ 1,826,887 | $ 0 |
OPERATING LEASE RIGHT-OF-USE _5
OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES (Details 2) | Dec. 31, 2019USD ($) |
Leases [Abstract] | |
Year ended December 31, 2019 | $ 270,672 |
Year ended December 31, 2020 | 682,000 |
Year ended December 31, 2021 | 696,580 |
Year ended December 31, 2022 | 560,933 |
Year ended December 31, 2023 | 531,063 |
Year ended December 31, 2024 | 315,140 |
Total | 3,056,388 |
Less: undiscounted payments during the nine months ended September 30, 2019 | (270,672) |
Total undiscounted future minimum lease payments due as of September 30, 2019 | 2,785,716 |
Imputed interest | (526,764) |
Total operating lease liability | $ 2,258,952 |
NOTES PAYABLE - RELATED PARTI_2
NOTES PAYABLE - RELATED PARTIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Debt Disclosure [Abstract] | ||
Interest expense | $ 1,214 | $ 3,981 |
Accrued interest | 0 | 5,928 |
Note payable - related parties | $ 55,556 | $ 0 |
CONVERTIBLE NOTES PAYABLE (Deta
CONVERTIBLE NOTES PAYABLE (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Carrying amount of convertible debt | $ 185,906 | $ 591,788 |
Less: current portion | (85,906) | (491,788) |
Convertible notes, long term | 100,000 | 100,000 |
Principal amount | 933,333 | 701,694 |
Add: amortization of redemption premium | 8,280 | 0 |
Less unamortized debt discount and debt issuance costs | (755,707) | (109,906) |
Current debt less unamortized debt discount and debt issuance costs | 185,906 | 591,788 |
Convertible Note 1 | ||
Carrying amount of convertible debt | 0 | 101,481 |
Convertible Note 2 | ||
Carrying amount of convertible debt | 0 | 36,625 |
Convertible Note 3 | ||
Carrying amount of convertible debt | 89,588 | 0 |
Convertible Note 4 | ||
Carrying amount of convertible debt | 0 | 0 |
Convertible Note 5 | ||
Carrying amount of convertible debt | 0 | 0 |
Convertible Note 6 | ||
Carrying amount of convertible debt | 0 | 0 |
Convertible Note 7 | ||
Carrying amount of convertible debt | 0 | 14,120 |
Convertible Note 8 | ||
Carrying amount of convertible debt | 0 | 10,593 |
Convertible Note 9 | ||
Carrying amount of convertible debt | 100,000 | 100,000 |
Convertible Note 10 | ||
Carrying amount of convertible debt | 0 | 0 |
Convertible Note 11 | ||
Carrying amount of convertible debt | $ 85,906 | $ 0 |
CONVERTIBLE NOTES PAYABLE (De_2
CONVERTIBLE NOTES PAYABLE (Details 1) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Dividend rate | 0.00% | 0.00% |
Minimum | ||
Expected volatility | 239.97% | 85.80% |
Expected term | 4 months | 4 months |
Risk free rate | 1.59% | 1.60% |
Maximum | ||
Expected volatility | 567.11% | 455.80% |
Expected term | 1 year | 1 year |
Risk free rate | 2.54% | 2.60% |
CONVERTIBLE NOTES PAYABLE (De_3
CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Debt Disclosure [Abstract] | ||
Interest expense | $ 11,481 | $ 55,877 |
Debt discount amortization | 425,712 | 405,173 |
Accrued interest | 15,399 | 60,372 |
Gain on settlement of debt | $ 3,004,630 | $ 0 |
STOCKHOLDERS' EQUITY (DEFICIT_2
STOCKHOLDERS' EQUITY (DEFICIT) (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Stockholders' Equity (Deficit): | ||
Number of warrants outstanding, beginning | 644,083 | 208,333 |
Number of warrants granted | 1,578,549 | 435,750 |
Number of warrants cancelled | 0 | 0 |
Number of warrants exercised | 0 | 0 |
Number of warrants forfeited | (208,333) | 0 |
Number of warrants outstanding, ending | 2,014,299 | 644,083 |
Weighted average exercise price outstanding, beginning | $ 177 | $ 4.80 |
Weighted average exercise price granted | .45 | .32 |
Weighted average exercise price cancelled | .00 | .00 |
Weighted average exercise price exercised | .00 | .00 |
Weighted average exercise price forfeited | 4.80 | .00 |
Weighted average exercise price outstanding, ending | .45 | $ 177 |
Weighted average exercise price exercisable | .45 | |
Weighted average fair value of warrants granted during the period | $ 1.05 | |
Weighted average remaining contractual life outstanding, beginning | 1 year 4 months 17 days | 1 year 6 months |
Weighted average remaining contractual life granted | 5 years | 1 year 9 months 15 days |
Weighted average remaining contractual life outstanding, ending | 3 years 3 months 22 days | 1 year 4 months 17 days |
STOCKHOLDERS' EQUITY (DEFICIT_3
STOCKHOLDERS' EQUITY (DEFICIT) (Details 1) - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Stockholders' Equity (Deficit): | ||
Number of options outstanding, beginning | 959,375 | 0 |
Number of options granted | 4,753,572 | 959,375 |
Number of options exercised | (375,000) | |
Number of options forfeited | (666,667) | 0 |
Number of options outstanding, ending | 4,671,280 | 959,375 |
Number of options exercisable | 3,798,888 | |
Weighted average exercise price outstanding, beginning | $ .41 | $ .00 |
Weighted average exercise price granted | .21 | .41 |
Weighted average exercise price exercised | .01 | |
Weighted average exercise price forfeited | .05 | .00 |
Weighted average exercise price outstanding, ending | .29 | $ .41 |
Weighted average exercise price, exercisable | $ .31 | |
Weighted average remaining contractual life outstanding, beginning | 8 years 9 months 15 days | 0 years |
Weighted average remaining contractual life granted | 9 years 6 months 14 days | 9 years |
Weighted average remaining contractual life exercised | 9 years 1 month 13 days | |
Weighted average remaining contractual life forfeited | 8 years 6 months 22 days | 0 years |
Weighted average remaining contractual life outstanding, ending | 7 years 3 months 15 days | 8 years 9 months 15 days |
Weighted average remaining contractual life exercisable | 6 years 10 months 17 days |
STOCKHOLDERS' EQUITY (DEFICIT_4
STOCKHOLDERS' EQUITY (DEFICIT) (Details 2) | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 30, 2018 | |
Expected term (in years) | 10 years | ||
Expected dividend yield | 0.00% | 0.00% | |
Minimum | |||
Risk-free interest rate | 2.43% | 2.72% | |
Expected volatility | 293.00% | 343.72% | |
Expected term (in years) | 5 years | ||
Maximum | |||
Risk-free interest rate | 2.7495% | 3.20% | |
Expected volatility | 296.00% | 412.31% | |
Expected term (in years) | 10 years |
STOCKHOLDERS' EQUITY (DEFICIT_5
STOCKHOLDERS' EQUITY (DEFICIT) (Details 3) - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Number of options outstanding, beginning | 959,375 | 0 |
Number of options granted | 4,753,572 | 959,375 |
Number of options forfeited | (666,667) | 0 |
Number of options outstanding, ending | 4,671,280 | 959,375 |
Number of options exercisable | 3,798,888 | |
Weighted average exercise price outstanding, beginning | $ .41 | $ .00 |
Weighted average exercise price granted | .21 | .41 |
Weighted average exercise price forfeited | .05 | .00 |
Weighted average exercise price outstanding, ending | .29 | $ .41 |
Weighted average exercise price, exercisable | $ .31 | |
Restricted Stock [Member] | ||
Number of options outstanding, beginning | 0 | |
Number of options granted | 3,727,778 | |
Number of restricted options vested and issued | 144,450 | |
Number of options forfeited | 0 | |
Number of options outstanding, ending | 3,583,328 | 0 |
Weighted average exercise price outstanding, beginning | $ 0 | |
Weighted average exercise price granted | .69 | |
Number of restricted options vested and issued | .84 | |
Weighted average exercise price forfeited | 0 | |
Weighted average exercise price outstanding, ending | $ 0.68 | $ 0 |
STOCKHOLDERS' EQUITY (DEFICIT_6
STOCKHOLDERS' EQUITY (DEFICIT) (Details Narrative) - $ / shares | Dec. 31, 2019 | Dec. 31, 2018 |
Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, shares authorized | 650,000,000 | 650,000,000 |
Common stock, par value per share | $ .0001 | $ 0.0001 |
Common stock, shares issued | 43,819,325 | 6,233,524 |
Common stock, shares outstanding | 43,819,325 | 6,233,524 |
Series A Preferred Stock | ||
Preferred stock, shares authorized | 1,000,000 | 1,000,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 353,109 | 0 |
Preferred stock, shares outstanding | 353,109 | 0 |
Series B-1 Preferred Stock | ||
Preferred stock, shares authorized | 32,000,000 | 32,000,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 1,650,000 | 2,800,000 |
Preferred stock, shares outstanding | 1,650,000 | 2,800,000 |
Series B-2 Preferred Stock | ||
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 7,516,000 | 8,684,000 |
Preferred stock, shares outstanding | 7,516,000 | 8,684,000 |
Series C Preferred Stock | ||
Preferred stock, shares authorized | 1,733,334 | 1,733,334 |
Preferred stock, par value per share | $ 0.0001 | $ 0.0001 |
Preferred stock, shares issued | 1,733,334 | 1,733,334 |
Preferred stock, shares outstanding | 1,733,334 | 1,733,334 |
Series D Preferred Stock | ||
Preferred stock, shares authorized | 200 | 200 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 18 | 45 |
Preferred stock, shares outstanding | 18 | 45 |
Series E Preferred Stock | ||
Preferred stock, shares authorized | 10,000 | 10,000 |
Preferred stock, par value per share | $ .0001 | $ 0.0001 |
Preferred stock, shares issued | 10,000 | 0 |
Preferred stock, shares outstanding | 10,000 | 0 |
CONCENTRATION OF REVENUE AND _2
CONCENTRATION OF REVENUE AND SUPPLIES (Details Narrative) | 12 Months Ended |
Dec. 31, 2019 | |
Customer One | Account Receivable | |
Risk percentage | 18.00% |
Customer One | Sales | |
Risk percentage | 11.00% |
Related Party One | Account Receivable | |
Risk percentage | 25.00% |
Related Party One | Sales | |
Risk percentage | 36.00% |
Related Party Two | Sales | |
Risk percentage | 11.00% |
Customer Two | Account Receivable | |
Risk percentage | 38.00% |
Vendor One | Accounts Payable | |
Risk percentage | 12.00% |
Vendor Two | Accounts Payable | |
Risk percentage | 30.00% |
Affiliate | Accounts Payable | |
Risk percentage | 18.00% |
INCOME TAXES (Details)
INCOME TAXES (Details) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
US Federal statutory tax rate | 21.00% | 21.00% |
State taxes | 4.60% | 4.35% |
Change in valuation allowance | (25.60%) | (25.35%) |
Effective tax rate | 0.00% | 0.00% |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Net operating loss | $ 4,226,345 | $ 2,195,000 |
Valuation allowance | (4,226,345) | (2,668,829) |
Total tax expense | $ 0 | $ 0 |