EXACTUS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada		27-1085858
(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification Number)
4870 Sadler Road, Suite 300
Glen Allen, VA		23060
(Address of Principal Executive Offices)		(Zip Code)

Large accelerated filer		☐	Accelerated filer		☐
Non-accelerated filer		☐   (Do not check if a smaller reporting company)	Smaller reporting company		☑
			Emerging growth company		☐

	March 31, 2018	December 31, 2017
Volatility	85.79 %	333.89 %
Risk-free interest rate	1.73 %	1.31 %
Common stock closing price	$ 0.12	$ 0.20

	March 31, 2018	December 31, 2017
Volatility	124.11 %	326.65 %
Risk-free interest rate	1.73 %	1.31 %
Common stock closing price	$ 0.12	$ 0.20

	March 31, 2018	December 31, 2017
Volatility	204.8 %	303.97 %
Risk-free interest rate	1.93 %	1.76 %
Common stock closing price	$ 0.12	$ 0.20

	March 31, 2018	December 31, 2017
Volatility	126.56 %	326.65 %
Risk-free interest rate	1.93 %	1.53 %
Common stock closing price	$ 0.12	$ 0.20

	March 31, 2018	March 16, 2018
Volatility	180.53 %	286.66 %
Risk-free interest rate	1.93 %	2.08 %
Common stock closing price	$ 0.12	$ 0.12

	Derivative
	Liability (convertible
	notes)
Balance, December 31, 2017	$ 930,000
Initial fair value at note issuances	94,000
Extinguishment of derivative liability	-
Mark-to-market at March 31, 2018	(480,000 )
Balance, March 31, 2018	$ 544,000
Net gain for the year included in earnings relating to the liabilities held at March 31, 2018	$ 420,150

ITEM 2. MAN A GEMENTS’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations contains information that management believes is relevant to an assessment and understanding of our results of operations. You should read this discussion in conjunction with the Financial Statements and Notes included elsewhere in this report and with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on April 2, 2018.

 

Cautionary Language Regarding Forward-Looking Statements

 

Certain statements set forth in this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements regarding future events and financial results, including our ability to complete development of the FibriLyzer, future clinical trials and regulatory approvals, and liquidity, as well as other statements that are not historical facts, are forward-looking statements. These forward-looking statements are generally identified by such words or phrases as “we expect,” “we believe,” “would be,” “will allow,” “expects to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions. While we provide forward-looking statements to assist in the understanding of our anticipated future financial performance, we caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date that we make them. Forward-looking statements are based on current expectations and assumptions that are subject to significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Except as otherwise required by law, we undertake no obligation to publicly release any updates to forward-looking statements to reflect events after the date of this quarterly report on Form 10-Q, including unforeseen events.

 

 

 

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Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse effect on our operations and results of our business include, but are not limited to:

 

●

our history of operating losses and lack of revenues to date;

●

our limited cash resources and our ability to obtain additional funding necessary to develop our products and maintain liquidity;

●

the success of our clinical trials through all phases of clinical development;

●

the need to obtain regulatory approval of our products and any delays in regulatory reviews or product testing;

●

market acceptance of, and our ability to commercialize, our products;

●

competition from existing products or new products that may emerge;

●

changes in technology;

●

our dependence on the development and commercialization of our primary product, the FibriLyzer, to generate revenues in the future;

●

our dependence on and our ability to maintain our licensing agreement;

●

our ability and third parties’ abilities to protect intellectual property rights;

●

potential product liability claims;

●

our ability to maintain liquidity and adequately support future growth;

●

changes in, and our ability to comply with, laws or regulations applicable to the life sciences or healthcare industries;

●

our ability to attract and retain key personnel to manage our business effectively; and

●

other risks and uncertainties described from time to time, in our filings made with the SEC.

 

  General

 

On February 29, 2016, the Company consummated a share exchange, which resulted in a change in control of the Company. As part of this transaction, the Company acquired Exactus BioSolutions and its exclusive Licensing Agreement with Digital Diagnostics to develop, produce and commercialize blood diagnostic products that utilize certain intellectual property rights owned or licensed by Digital Diagnostics. The Licensing Agreement provides for Exactus BioSolutions and Digital Diagnostics to collaborate through the various steps of the product and device development process, including the development, regulatory approval and commercialization stages.

 

As a result of this transaction, Exactus became a life science company that plans to develop and commercialize pursuant to the Licensing Agreement POC diagnostics for measuring proteolytic enzymes in the blood based on a proprietary detection platform (the “New Business”). Our primary product, the FibriLyzer, will employ a disposable test “biosensor” strip combined with a portable and easy to use hand held detection unit that provides a result in less than 30 seconds. The initial markets we intend to pursue for the FibriLyzer are (i) the management of hyperfibrinolytic states associate with surgery and trauma, (ii) obstetrics, (iii) diagnosis of acute events such as myocardial infarction and ischemic stroke, (iv) diagnosis of pulmonary embolism and deep vein thrombosis, (v) chronic coronary disease management and (vi) as a monitoring device to evaluate the effectiveness of coagulation therapy. We expect to follow up the FibriLyzer with similar technology, the MatriLyzer to detect collagenase levels in the blood for the detection of the recurrence of cancer. We intend to file to gain regulatory approval to sell our products in the United States, Canada and Europe.  Management intends to primarily focus on the development and commercialization of the FibriLyzer and related technology exclusively licensed pursuant to the Licensing Agreement.

 

During the first quarter of 2017, we received feedback   from the FDA review of our PreSubmission Package which describes our plans for developing our lead program, the FibriLyzer.  Through this process, we received confirmation that we are able to proceed with the development of the FibriLyzer via the 510(k) pathway. Additionally, we plan to seek a CLIA waiver.

 

 

 

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Results of Operations

 

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017:

 

	Three Months Ended
	March 31,
	2018	2017	change
Revenue	$ -	$ -	$ -
Operating expenses	1,382,695	601,012	781,683
Net loss from operations	(1,382,695 )	(601,012 )	(781,683 )
Other gain	308,849	-	308,849
Net loss	$ (1,073,846 )	$ (601,012 )	$ (472,834 )

 

 

Operating expenses increased by $781,683, from $601,012 for the three months ended March 31, 2018 to $1,382,695 for the comparable period ended March 31, 2017. The difference primarily is attributable to an increase in general and administration expenses of $903,325 resulting largely from contractual bonuses given to management to retain executive staff offset by a decrease in professional expense of $108,432 due to decreased legal services and a decrease in R&D expense of $13,210 as the Company delays projects until additional funds are raised. We expect operating expenses to decrease the remainder of 2018 until we raise additional funds.

 

 The Company had other gain of $308,849 for the three month period ended March 31, 2018 largely due to adjusting convertible loan notes to fair market value as of March 31, 2018.

 

As a result of the foregoing, we generated a net loss of $1,073,846 for the three month period ended March 31, 2018 as compared to a net loss of $601,012 for the three month period ended March 31, 2018, a change of $472,834.

 

Liquidity and Capital Resources

 

Since our inception in 2008, we have generated losses from operations. As of March 31, 2018 our accumulated deficit was $7,274,419 of which $736,959 was related to the Former Business.  Our net loss for the three months ended March 31, 2018 and 2017 was $1,073,846 and $601,012, respectively.

 

Net cash used in operating activities for the three months ended March 31, 2018 was $295,280. We recorded a net loss for the three month period of $1,073,846. Increases in accounts payable and accrued expenses increased cash by $882,546. Other items in uses of funds from operations included non-cash charges of derivative gain, amortization of debt discount and debt issuance costs, loss on debt settlement in stock, and interest expense which collectively totaled $67,548.

 

Net cash used in operating activities for the three months ended March 31, 2017 was $783,429. We recorded a net loss of $601,012 for the period. Net changes in accounts payable, accrued liabilities, and prepaid assets decreased cash by $182,417.

 

Net cash provided by investing activity for the nine months ended September 30, 2017 was $0. Net cash provided by investing activities for the nine months ended September 30, 2016 was $1,292 due to the acquisition of Exactus BioSolutions.

 

 

 

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Net cash provided by financing activities for the three months ended March 31, 2018 was $173,000 due to proceeds from our issuance of shares of Series D Preferred Stock, the promissory notes, and convertible loan notes offset by convertible loan payments.  Net cash provided by financing activities for the three months ended March 31, 2017 was $25,000 due to proceeds from our issuance of shares of Series B-2 Preferred Stock.

 

As of March 31, 2018, we had $38,935 of cash. These funds will not be sufficient to enable us to complete the development of any potential products, including the FibriLyzer, or to pay our debts as they become due. Accordingly, we will need to obtain further funding through public or private equity offerings, debt financing, collaboration arrangements or other sources. The issuance of any additional shares of common stock, preferred stock or convertible securities could be substantially dilutive to our shareholders. In addition, adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital, we will be forced to delay, reduce or eliminate our research and development programs and may not be able to continue as a going concern.

  

Going Concern

  

The audit report prepared by our independent registered public accounting firm relating to our financial statements for the year ended December 31, 2017 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. We have concluded that the circumstances described above continue to raise substantial doubt about our ability to continue as a going concern as of March 31, 2018.

 

Off-Balance Sheet Arrangements

 

As of March 31, 2018, we had no material off-balance sheet arrangements.

 

In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims or the actions of various regulatory agencies. We consult with counsel and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth by accounting principles generally accepted in the United States, an estimate is made of the loss and the appropriate accounting entries are reflected in our financial statements. After consultation with legal counsel, we do not anticipate that liabilities arising out of currently pending or threatened lawsuits and claims will have a material adverse effect on our financial position, results of operations or cash flows.

 

Critical Accounting Estimates and New Accounting Pronouncements

 

Critical Accounting Estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, and changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.

 

Application of Significant Accounting Policies

 

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may, therefore, not be comparable to those of companies that comply with such new or revised accounting standards.

 

Recent Accounting Pronouncements

 

We have reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

 

 

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IT EM 3. QU A NTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

IT EM 4. CO N TROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), the Company’s principal executive and financial officers, have conducted an evaluation of the design and effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Our CEO and CFO believe that as of March 31, 2018, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The conclusion was due to the presence of the following material weaknesses in disclosure controls and procedures due to our small size and limited resources: (i) inadequate segregation of duties and effective risk assessment; (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC Guidelines; (iii) inadequate security and restricted access to computer systems including insufficient disaster recovery plans; and (iv) no written whistleblower policy.

 

Our CEO and CFO plan to review and implement appropriate disclosure controls and procedures to remediate these material weaknesses, including (i) appointing additional qualified personnel to address inadequate segregation of duties and ineffective risk management; (ii) adopting sufficient written policies and procedures for accounting and financial reporting and a whistle blower policy; and (iii) implementing sufficient security and restricted access measures regarding our computer systems and implement a disaster recovery plan.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in the internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal over financial reporting.

 

 

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PART II – OTHER INFORMATION

 

ITE M 1. Legal Proceedings.

 

None

 

ITEM 1A. Ri s k Factors.

 

There have been no material changes in our risk factors from those disclosed in our annual report on Form 10-K for the year ended December 31, 2017.

 

IT EM 2. Unregis t ered Sales of Equity Securities and Use of Proceeds

 

None .

 

ITEM 3. Defau l ts upon Senior Securities.

 

None.

 

ITEM 4. M ine Safety Disclosures.

 

Not applicable.

 

ITEM 5. O t her Information.

 

None

 

ITEM 6. E X HIBITS

 

31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1*	Certification of Principal Executive Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2*	Certification of Chief Financial Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS***	XBRL Instance Document
101.SCH***	XBRL Taxonomy Extension Schema
101.CAL***	XBRL Taxonomy Extension Calculation Linkbase
101.DEF***	XBRL Taxonomy Extension Definition Linkbase
101.LAB***	XBRL Taxonomy Extension Label Linkbase
101.PRE***	XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith

*** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

 

 

 

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SI G N ATURES

 

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

	Exactus, Inc.
May 21, 2018	/s/ Philip J. Young
	Philip J. Young
	Chief Executive Officer

 

	/s/ Kelley A. Wendt
	Kelley A. Wendt
	Chief Financial Officer

 

 

 

 

 

 

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EXHIBIT INDEX

31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1*	Certification of Principal Executive Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.2*	Certification of Chief Financial Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS***	XBRL Instance Document
101.SCH***	XBRL Taxonomy Extension Schema
101.CAL***	XBRL Taxonomy Extension Calculation Linkbase
101.DEF***	XBRL Taxonomy Extension Definition Linkbase
101.LAB***	XBRL Taxonomy Extension Label Linkbase
101.PRE***	XBRL Taxonomy Extension Presentation Linkbase

 

 * Filed herewith

*** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

 

 

 

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