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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>UNITED
STATES</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>SECURITIES
AND EXCHANGE COMMISSION</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Washington
D.C. 20549</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>FORM
10-Q</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Wingdings; font-size: 10pt">x</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">For
the quarterly period ended<B>: June 30, 2020</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">or</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Wingdings">o</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">For
the transition period from ______to______.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 34%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 1%; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 32%; border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
    SCIENCES, INC.</B></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 1%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 32%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(Exact
    name of registrant as<BR>
    specified in its<BR>
    charter)</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 34%; border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Michigan</B></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 1%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 32%; border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>333-209131</B></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 1%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 32%; border-bottom: black 1pt solid; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>20-4998896</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(State
    or other jurisdiction of<BR>
    incorporation or organization)</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(Commission
    File No.)</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(I.R.S.
    Employer Identification<BR>
    No.)</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>3101
Grand Oak Drive</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Lansing,
MI 48911</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(Address
of principal executive offices) (zip code)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>(517)
703-1110</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(Issuer
Telephone number)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes </FONT><FONT STYLE="font-family: Wingdings; font-size: 10pt">o</FONT>&nbsp;&nbsp;<FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">No </FONT><FONT STYLE="font-family: Wingdings; font-size: 10pt">x</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (&sect;232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit such files). Yes </FONT><FONT STYLE="font-family: Wingdings; font-size: 10pt">x</FONT>&nbsp;&nbsp;<FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">No </FONT><FONT STYLE="font-family: Wingdings; font-size: 10pt">o</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of &#147;large accelerated filer,&#148;
&#147;accelerated filer,&#148; &#147;smaller reporting company,&#148; and &#147;emerging growth company&#148; in Rule
12b-2 of the Exchange Act.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 25%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Large
    accelerated filer</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 49%"><FONT STYLE="font-family: Wingdings; font-size: 10pt">o</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 25%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Accelerated
    filer</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 1%; text-align: center"><FONT STYLE="font-family: Wingdings; font-size: 10pt">o</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Non-accelerated
    filer</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Wingdings; font-size: 10pt">&#254;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Smaller
    reporting company</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Wingdings; font-size: 10pt">&#254;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Emerging
    growth company</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Wingdings; font-size: 10pt">&#254;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.&nbsp;</FONT><FONT STYLE="font-family: Wingdings; font-size: 10pt">&#254;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes&nbsp;</FONT><FONT STYLE="font-family: Wingdings; font-size: 10pt">o</FONT>&nbsp;&nbsp;<FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">No
</FONT><FONT STYLE="font-family: Wingdings; font-size: 10pt">x</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Securities
registered pursuant to Section 12(b) of the Act: None</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
of April 16, 2021, there were 8,383,892 shares of the registrant&#146;s common stock outstanding.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Company was unable to timely file the reports for the quarters ending June 30, 2020 and September 30, 2020 due to the time required
by a valuation study needed to properly analyze and account for the April 23, 2020 Convertible Notes Unit Offering.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>FORM
10-Q</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>June
30, 2020</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>INDEX</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 10%"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>PART
    I</B></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 85%"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif; width: 5%"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a001_v1"><B>ITEM
    1.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a001_v1"><B>FINANCIAL
    STATEMENTS</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>4</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a002_v1"><B>ITEM
    2.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a002_v1"><B>MANAGEMENT&#146;S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>19</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a003_v1"><B>ITEM
    3.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a003_v1"><B>QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>31</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a004_v1"><B>ITEM
    4.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a004_v1"><B>CONTROLS
    AND PROCEDURES</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>31</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>PART
    II</B></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a005_v1"><B>ITEM
    1.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a005_v1"><B>LEGAL
    PROCEEDINGS</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>32</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a006_v1"><B>ITEM
    1A.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a006_v1"><B>RISK
    FACTORS</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>32</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a007_v1"><B>ITEM
    2.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a007_v1"><B>UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>32</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a008_v1"><B>ITEM
    3.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a008_v1"><B>DEFAULTS
    UPON SENIOR SECURITIES</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>32</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a009_v1"><B>ITEM
    4.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a009_v1"><B>MINE
    SAFETY DISCLOSURES</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>32</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a010_v1"><B>ITEM
    5.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a010_v1"><B>OTHER
    INFORMATION</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>32</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a011_v1"><B>ITEM
    6.</B></A></FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a011_v1"><B>EXHIBITS</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>33</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD COLSPAN="2" STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><A HREF="#a012_v1"><B>SIGNATURES</B></A></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: right; font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Arial, Helvetica, Sans-Serif; font-size: 10pt"><B>34</B></FONT></TD></TR>
</TABLE>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>FORWARD-LOOKING
STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
information in this Quarterly Report on Form 10-Q contains &#147;forward-looking statements&#148; and information within the
meaning of Section 27A of the Securities Act of 1933, as amended (the &#147;Securities Act&#148;), and Section 21E of the Securities
Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;) relating to XG Sciences, Inc., a Michigan corporation and its
subsidiary, XG Sciences IP, LLC, a Michigan limited liability company (collectively referred to as &#147;we&#148;, &#147;us&#148;,
&#147;our&#148;, &#147;XG Sciences&#148;, &#147;XGS&#148;, or the &#147;Company&#148;), which are subject to the &#147;safe
harbor&#148; created by those sections. These forward-looking statements include, but are not limited to, statements concerning
our strategy, future operations, future financial position, future revenue, projected costs, prospects and plans and objectives
of management. The words &#147;anticipates,&#148; &#147;believes,&#148; &#147;estimates,&#148; &#147;expects,&#148; &#147;intends,&#148;
&#147;may,&#148; &#147;plans,&#148; &#147;projects,&#148; &#147;will,&#148; &#147;would&#148; and similar expressions
are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not
place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties
that could cause our actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking
statements, including, without limitation, the risks set forth beginning on page 12 under the section entitled &#147;Risk Factors&#148;
in our annual report on Form 10-K as filed with the Securities and Exchange Commission (the &#147;SEC&#148;) on April 29, 2020.</FONT></P>


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    <DIV STYLE="break-before: page; margin-top: 6pt"><P STYLE="margin: 0pt">&nbsp;</P></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a001_v1"></A>ITEM
1 &ndash; FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
    SCIENCES, INC.</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>CONDENSED
    CONSOLIDATED BALANCE SHEETS</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(unaudited)</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30, 2020</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">December 31, 2019</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: center; text-indent: -10pt">ASSETS</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center">(Unaudited)</TD><TD>&nbsp;</TD>
    <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">CURRENT ASSETS</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; width: 56%; text-indent: -10pt">Cash</TD><TD STYLE="width: 8%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">667,664</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">1,129,702</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Accounts receivable, less allowance for doubtful accounts of $157,965 at June 30, 2020 and $179,600 at December 31, 2019</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">108,125</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">72,227</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">Inventories</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">866,792</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">891,587</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Other current assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">289,590</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">334,493</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Total current assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,932,171</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,428,009</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Property, Plant and Equipment, Net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,268,725</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,676,142</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Lease Deposit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">59,440</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">77,544</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Intangible Assets, Net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">763,215</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">753,862</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Right of Use Asset</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,325,549</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,606,443</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">TOTAL ASSETS</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,349,100</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">8,542,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: center">LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">CURRENT LIABILITIES</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Accounts payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">815,067</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">634,564</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Other current liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">272,323</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">238,554</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Deferred revenue</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">12,757</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Current portion of lease liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">484,430</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">520,197</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Total current liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,584,577</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,393,315</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">LONG-TERM LIABILITIES</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Long-term portion of lease liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">962,482</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,183,872</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Convertible notes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">247,104</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">SBA Loan payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">802,069</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Long term debt - Dow</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,396,644</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">8,111,610</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Total long-term liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">11,408,299</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">9,295,482</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">TOTAL LIABILITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">12,992,876</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">10,688,797</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">STOCKHOLDERS&rsquo; EQUITY</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Series A convertible preferred stock, 3,000,000 shares authorized, 1,890,354 shares issued and outstanding, liquidation value of $22,684,248 at June 30, 2020 and December 31, 2019</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22,307,480</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22,307,480</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Series B Preferred stock, 1,500,000 shares authorized, 137,043 and zero shares issued and outstanding, liquidation value of $1,096,344 at June 30, 2020 and zero at December 31, 2019</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,079,400</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Common stock, no par value, 25,000,000 shares authorized, 3,887,400 and 4,024,443 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,305,532</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32,351,876</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Additional paid-in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,421,443</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,774,975</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Accumulated deficit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(69,757,631</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(65,581,128</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Total stockholders&rsquo; equity (deficit)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(5,643,776</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,146,797</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">TOTAL LIABILITIES AND STOCKHOLDERS&rsquo; EQUITY</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,349,100</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">8,542,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  </TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">See
notes to unaudited condensed consolidated financial statements.</FONT></P>


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    <DIV STYLE="break-before: page; margin-top: 6pt"><P STYLE="margin: 0pt">&nbsp;</P></DIV>
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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
    SCIENCES, INC.</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>CONDENSED
    CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($)</B></FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center">For the Three Months Ended June 30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center">For the Six Months Ended June 30,</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2020</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2019</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2020</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2019</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-indent: -10pt">REVENUE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; width: 40%; text-align: left; text-indent: -10pt">Product Sales</TD><TD STYLE="width: 3%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">81,146</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 3%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">247,069</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 3%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">248,209</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 3%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">1,104,346</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Total Revenues</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">81,146</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">247,069</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">248,209</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,104,346</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">COST OF GOODS SOLD</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Direct costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41,828</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">196,411</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">145,398</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">877,564</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Unallocated manufacturing expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">412,802</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">599,745</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,071,715</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,093,214</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Cost of Goods Sold</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">454,630</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">796,156</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,217,113</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,970,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">GROSS LOSS</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(373,484</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(549,087</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(968,904</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(866,432</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">OPERATING EXPENSES</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Research &amp; Development Expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">184,527</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">384,767</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">470,254</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">770,013</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Sales, General &amp; Administrative Expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,076,265</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,486,380</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,368,400</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,907,301</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Total Operating Expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,260,792</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,871,147</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,838,654</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,677,314</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">OPERATING LOSS</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,634,276</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,420,234</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,807,558</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,543,746</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">OTHER EXPENSE</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Interest expense, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(190,800</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(78,277</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(368,808</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(154,941</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Noperating Expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(136</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(136</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Total Other Expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(190,936</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(78,277</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(368,944</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(154,941</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">Net Loss</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,825,212</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(2,498,511</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(4,176,502</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(4,698,687</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-indent: -10pt">WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">Basic and diluted (in shares)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,001,778</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,990,038</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,013,111</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,883,053</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">NET LOSS PER SHARE - Basic and diluted (in dollars per share)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.46</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(0.63</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1.04</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1.21</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
  </TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">See
notes to unaudited condensed consolidated financial statements.</FONT></P>


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    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
    SCIENCES, INC.</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>CONDENSED
    CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS&#146; EQUITY</B></FONT></TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

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  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="35" STYLE="border: Black 1pt solid; font-weight: bold; text-align: center">For the Six Months Ended June 30, 2019 - USD ($)</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Preferred stock A</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Preferred stock B</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Common stock</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center">Additional paid-in capital</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center">Accumulated deficit</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center"></TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Amount</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; text-align: center"><B>Total</B></TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; width: 28%; font-weight: bold; text-indent: -10pt">Balances, December 31, 2018</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">1,890,354</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">22,307,480</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 4%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 4%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">3,760,268</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">30,268,476</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">8,101,923</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">(55,687,160</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">)</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">4,990,719</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock issued for cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">51,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">410,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">410,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock issuance fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(16,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(16,000</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Transition adjustment for adoption of new lease standard</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(116,319</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(116,319</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock-based compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">88,288</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">108,288</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Net loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,200,176</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,200,176</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-indent: -10pt">Balances, March 31, 2019</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">1,890,354</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">22,307,480</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">3,811,518</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">30,682,476</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">8,190,211</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(58,003,655</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">3,176,512</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock issued for cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200,425</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,603,400</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,603,400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock issuance fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,000</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock-based compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">90,368</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">110,368</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Net loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,498,511</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,498,511</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-indent: -10pt">Balances, June 30, 2019</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">1,890,354</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">22,307,480</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">4,011,943</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">32,301,876</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">8,280,579</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">(60,502,166</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">2,387,769</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD></TR>
  </TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="35" STYLE="border: Black 1pt solid; font-weight: bold; text-align: center">For the Six Months Ended June 30, 2020 - USD ($)</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Preferred stock A</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Preferred stock B</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Common stock</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center">Additional paid-in capital</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center">Accumulated deficit</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Total</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; width: 28%; font-weight: bold; text-indent: -10pt">Balances, December 31, 2019</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">1,890,354</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">22,307,480</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">4,024,443</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">32,351,876</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">8,774,975</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">(65,581,128</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">)</TD><TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">$</TD><TD STYLE="width: 4%; font-weight: bold; text-align: right">(2,146,797</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock-based compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">85,276</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">110,276</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Warrants issued with Dow financing</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">71,276</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">71,276</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Net loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,351,291</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,351,291</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-indent: -10pt">Balances, March 31, 2020</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">1,890,354</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">22,307,480</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">4,024,443</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">32,376,876</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">8,931,527</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(67,932,419</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(4,316,536</TD><TD STYLE="font-weight: bold; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Common stock exchanged for Series B stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">137,043</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,096,344</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(137,043</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,096,344</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock issuance fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(16,944</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(16,944</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">Value of exchange rights</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">268,431</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">268,431</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock-based compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">221,485</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">246,485</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Net loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,825,212</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,825,212</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-indent: -10pt">Balances, June 30, 2020</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">1,890,354</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">22,307,480</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">137,043</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">1,079,400</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">3,887,400</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">31,305,532</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">9,421,443</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">(69,757,631</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">(5,643,776</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold; text-align: left">)</TD></TR>
  </TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">See
notes to unaudited condensed consolidated financial statements</FONT></P>


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    <DIV STYLE="break-before: page; margin-top: 6pt"><P STYLE="margin: 0pt">&nbsp;</P></DIV>
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<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
    Sciences, Inc.</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(unaudited)</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center">For the Six Months Ended June 30,</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">2020</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">2019</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">CASH FLOWS FROM OPERATING ACTIVITIES</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">Adjustments to reconcile net loss to net cash used in operating activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; width: 56%; text-align: left; text-indent: -10pt">Net loss</TD><TD STYLE="width: 8%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">(4,176,502</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 8%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">(4,698,687</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">Depreciation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">432,026</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">388,110</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Amortization of intangible assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36,093</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,716</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Provision for bad debts</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">26,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Stock-based compensation expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">356,760</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">218,656</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Non-cash interest expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">369,840</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">39,584</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Changes in current assets and liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 20pt; text-align: left; text-indent: -10pt">Accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(35,898</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">563,515</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 20pt; text-indent: -10pt">Inventory</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">24,795</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(305,361</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 20pt; text-align: left; text-indent: -10pt">Other current and non-current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">86,744</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(46,002</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 20pt; text-align: left; text-indent: -10pt">Accounts payable and other liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">227,028</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(353,563</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">NET CASH USED IN OPERATING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,679,114</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,136,032</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">CASH FLOWS FROM INVESTING ACTIVITIES</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Purchases of property and equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(24,609</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(287,746</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Purchases of intangible assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(45,445</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(74,127</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">NET CASH USED IN INVESTING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(70,054</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(361,873</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">CASH FLOWS FROM FINANCING ACTIVITIES</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Proceeds from issuance of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,013,400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Common stock issuance fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(20,000</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Proceeds from (repayment of) long term debt- Dow</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(638,220</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Proceeds from convertible notes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">550,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Convertible notes issuance fees and expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(63,801</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Proceeds from SBA Loan and EIDL Grant</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">800,795</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Repayments of capital lease obligations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(15,528</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">Exchange Rate value</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">136</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">NET CASH PROVIDED BY FINANCING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,287,130</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,339,652</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(462,038</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,158,253</TD><TD STYLE="text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: left; text-indent: -10pt">CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,129,702</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,893,974</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">667,664</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,735,721</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; font-weight: bold; text-align: left; text-indent: -10pt">SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Cash paid for interest</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">77</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">64,626</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Warrants issued with Dow financing</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">71,276</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  </TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">See
notes to unaudited condensed consolidated financial statements</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B>&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
1 &ndash; NATURE OF BUSINESS AND BASIS OF PRESENTATION</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XG
Sciences, Inc., a Michigan company located in Lansing, Michigan and its subsidiary, XG Sciences IP, LLC (collectively referred
to as &#147;we&#148;, &#147;us&#148;, &#147;our&#148;, or the &#147;Company&#148;) manufactures graphene nanoplatelets
made from graphite, using two proprietary manufacturing processes to split natural flakes of crystalline graphite into very small
and thin particles, which we sell as xGnP<SUP>&reg;</SUP> graphene nanoplatelets. We sell our nanoplatelets in the form of bulk
powders or dispersions to other companies for use as additives to make composite and other materials with specialty engineered
characteristics.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><U>Basis
of Presentation</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting
principles generally accepted in the United States of America (&#147;GAAP&#148;) for interim financial information and the instructions
to Form 10-Q and do not include all of the information and footnotes required by GAAP for complete financial statements. All intercompany
transactions have been eliminated in consolidation.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Certain
information and footnote disclosures normally included in our annual audited consolidated financial statements and accompanying
notes have been condensed or omitted in these interim condensed consolidated financial statements. Accordingly, the unaudited
condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (&#147;SEC&#148;) on Form
10-K on April 29, 2020.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
results of operations presented in this quarterly report are not necessarily indicative of the results of operations that may
be expected for any future periods. In the opinion of management, these unaudited condensed consolidated financial statements
include all adjustments and accruals, consisting only of normal recurring adjustments that are necessary for a fair statement
of the results of all interim periods reported herein.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><U>Use
of Estimates</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, together with amounts disclosed
in the related notes to the financial statements. Actual results and outcomes may differ from our estimates, judgments, and assumptions.
Significant estimates, judgments and assumptions used in these condensed consolidated financial statements include, but are not
limited to, those related to revenue, accounts receivable and related allowances, inventory valuations, contingencies, useful
lives, and recovery of long-term assets, including intangible assets, income taxes, and the fair value of stock-based compensation.
These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected
in the financial statements prospectively from the date of the change in estimate.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B>&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
2 &ndash; SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B>&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><U>Liquidity</U>&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
have historically incurred losses from operations, and we may continue to generate negative cash flows as we implement our business
plan. Our consolidated financial statements are prepared using US GAAP as applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of business.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of May 17, 2021, we had cash on hand of
$x,xxx,xxx. Due to lower-than-expected revenue in 2019 and the current COVID-19 global pandemic impacting both our operations and
that of our customers, Management has taken several steps to ensure we are able to fund our operations from existing cash on hand,
operating cash flows, additional borrowings, and restructured debt obligations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March of 2020, we restructured our organization by reducing headcount by 53%, by furloughing substantially all manufacturing employees,
and by implementing temporary salary reductions ranging from 15-20%. Although we have re-employed key employees since the reductions
and furloughs, annual payroll and related costs have been reduced by 38%. In April 2020, we furloughed additional employees in
our R&amp;D and Engineering departments. Salary reductions remained in place at the discretion of the Compensation Committee of
the Board of Directors until February 1, 2021.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
early April of 2020, we applied for relief under the Coronavirus Aid, Relief and Economic Security Act (CARES) by applying with
the Small Business Administration (SBA) for an Economic Injury Disaster Loan (&#147;EIDL&#148;) and by submitting an application
to an SBA lender bank, PNC, for a Paycheck Protection Plan (&#147;PPP&#148;) loan. On April 18, 2020, we received an approved
and fully executed PPP Term Note for $825,200 with a term of two years, a six-month repayment deferral period, and an annual rate
of interest of 1%, with a potential for some or all of the loan to be forgiven, dependent upon use of the loan proceeds. On April
20, 2020, we received the $825,200 of proceeds under the PPP loan which was subsequently reduced by $34,405 to $790,795 due to
additional SBA guidance regarding 1099 income paid. On October 6, 2020, the Paycheck Protection Flexibility Act of 2020 extended
the deferral expiration period for loan repayments to either the date that the SBA remits the borrower&#146;s loan forgiveness
or to 24 weeks after the receipt of proceeds plus 10 months or July 3, 2021. We plan to apply for loan forgiveness before the
end of the deferred expiration date. The outstanding principal that is not forgiven converts to an amortizing term loan. On May
17, 2020, the SBA issued us a decline letter for the EIDL for which reconsideration has not been granted.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
April 23, 2020, we entered into an amended and restated Draw Loan Note and Agreement and related transaction documents (collectively,
the &#147;Amended Dow Facility&#148;) with the Dow Chemical Company to amend the terms of our current loan facility to allow
us to structure a private placement of units (&#147;Units&#148;) comprised (in part) of subordinated, secured convertible notes
(&#147;Convertible Notes&#148; and such offering, the &#147;Unit Offering&#148;), to support ongoing cash needs.&nbsp; In
the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of such loan facility by two years to December 1, 2023,
2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked financings from the current
30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow Facility, which
does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date of the amendment,
3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million for two consecutive
calendar quarters, 4) increase the rate of interest to 6.5% per annum from 5% in the pre-existing Dow Facility, and 5) allow for
a subordinated security interest to be granted to new investors in the Unit Offering.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Immediately
after the execution of the transaction documents related to the Amended Dow Facility, we commenced the Unit Offering in a private
placement to accredited investors. The Unit Offering is comprised of the Convertible Notes and a right to exchange two shares
of previously issued Common Stock of the Company for two shares of Series B Convertible Preferred Stock of the Company (&#147;Series
B Preferred Stock&#148;) for every $8.00 invested in the Unit Offering (the &#147;Exchange Rights&#148;). The Convertible Notes
are secured by a junior security interest in all the assets of the Company, bear an interest rate of 7.5% per annum and mature
on December 31, 2024. Each investor&#146;s Exchange Rights are exercisable for a period of thirty (30) days after acceptance
by the Company of a fully executed subscription agreement.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">At
the option of each holder, the Convertible Notes are convertible into either i) Series B Preferred Stock at a conversion price
of $8.00/share; or ii) any other form of preferred or common stock (&#147;Subsequent Stock&#148;) issued by the Company at a
conversion price per share equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value
per share is fixed, 125% of the number of shares that might otherwise be issuable).</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B>&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
and when we raise at least $15 million of equity capital (excluding capital raised in this Unit Offering), the Convertible
Notes will be automatically converted into whichever of the following equity securities would result in the greatest number
of shares of Common Stock being issued to the holders on an &#147;as-if-converted&#148; basis at such time: (i) Series B
Preferred Stock at a note conversion price of $8.00/share; or (ii) Subsequent Stock at a note conversion price per share
equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value per share is fixed, 125%
of the number of shares that might otherwise be issuable);</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Each
share of Series B Preferred Stock has an original issue price of $8.00 per share (the &#147;Series B Original Issue Price&#148;)
and a liquidation preference of $8.00 per share, with both the Series B Original Issue Price and the liquidation preference per
share subject to adjustment for stock splits, recapitalizations, and the like. The Series B Preferred Stock will be senior to
the Company&#146;s Common Stock and pari-passu with the Series A Preferred Stock in terms of right of repayment in a liquidation.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Series B Preferred Stock has full ratchet antidilution protection that provides that each share of Series B Preferred Stock outstanding
may be converted by an Investor at any time into that number of shares of Common Stock determined by dividing the then current
Series B Original Issue Price by the applicable Conversion Price (as defined below) with the resulting fraction equal to the &#147;Series
B Conversion Rate&#148;. The total number of shares of Common Stock issuable will be equal to the number of shares of Series
B Preferred Stock being converted multiplied by the Series B Conversion Rate. The &#147;Conversion Price&#148; is, at any time,
the price per share equal to the lesser of a) the Series B Original Issue Price per share and b) the lowest price per share at
which the Company has sold equity or equity-linked securities (other than customary exclusions) at any future date while any shares
of the Series B Preferred Stock remain outstanding. The Series B Original Issue Price and Conversion Price in effect at any time
are also subject to proportional adjustment for share splits, share dividends, recapitalizations, and the like.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
April 23, 2020, certain members of our Board of Directors and their affiliates purchased $550,000 of convertible notes. In addition,
these Board members and their affiliates purchased $800,000, $1,801,504, and $515,016 of convertible notes in the quarters ended
September 30, 2020, December 31, 2020 and March 31, 2021. In total, the Board members and their affiliates purchased a total of
$3,666,520 of convertible notes through March 31, 2021 from the Company. Non-Board affiliated third parties purchased $700,160
and $2,073,600 of convertible notes in the quarters ended December 31, 2020 and March 31, 2021 from the Company for a total purchase
of $2,773,760. Total proceeds from the sale of Convertible Notes as of March 31, 2021 was $6,440.280.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Taking
into consideration our current cash on hand, we estimate that we will need to raise approximately $500,000 - $1,000,000 of additional
capital to continue our operations for the next twelve months in a minimal to no revenue growth environment. Our continuation
as a going concern is dependent upon continued financial support from our shareholders, our ability to obtain necessary equity
and/or debt financing to continue operations, and growth in revenue from operations. These factors raise substantial doubt regarding
our ability to continue as a going concern. We cannot make any assurances that additional financings will be available to us and,
if available, completed on a timely basis, on acceptable terms or at all. If we are unable to complete an equity or debt offering,
or otherwise obtain sufficient financing when and if needed, it would negatively impact our business and operations. It could
also lead to the reduction or suspension of our operations and ultimately force us to cease our operations.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">There
has been no public market for our securities and a public market may never develop, or, if any market does develop, it may not
be sustained. Our Common Stock is not currently quoted on or traded on any exchange or on any over-the-counter market. In the
event we are unable to fund our operations from existing cash on hand, operating cash flows, additional borrowings or raising
equity capital, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our condensed consolidated
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><U>Inventory</U>&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;The
following amounts were included in inventory at the end of the period:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; white-space: nowrap; font-weight: bold">June 30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center; white-space: nowrap; font-weight: bold">December 31,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt; white-space: nowrap">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; text-align: center; white-space: nowrap; font-weight: bold">2020</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; text-align: center; white-space: nowrap; font-weight: bold">2019</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 34%; text-align: left">Raw Materials</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">54,461</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">68,784</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Consumables</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">70,103</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">70,103</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-bottom: 1pt; text-align: left">Finished Goods</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">742,228</TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">752,700</TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">866,792</TD><TD STYLE="padding-bottom: 2.5pt; white-space: nowrap; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">891,587</TD><TD STYLE="padding-bottom: 2.5pt; white-space: nowrap; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><U>Recent
Accounting Pronouncements</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
December 2019, the FASB issued ASU 2019-12, &#147;Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,&#148;
which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments
also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
ASU 2019-12 is effective for us for annual periods beginning January 1, 2021. We are currently reviewing the provisions of this
new pronouncement, and the impact, if any, the adoption of this guidance has on our financial position and results of operations.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
January 2020, the FASB issued ASU 2020-01, &#147;Investments&mdash;Equity Securities (Topic 321)&#148;, &#147;Investments&mdash;Equity
Method and Joint Ventures (Topic 323)&#148;, and &#147;Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic
321, Topic 323, and Topic 815&#148;, which clarifies that an entity should consider observable transactions when either applying or discontinuing
the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321. ASU 2020-01 clarifies
that for certain forward contracts or purchased options to acquire investments, an entity should not consider whether, upon settlement
of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method
or the fair value option. ASU 2020-01 is effective for us for annual periods beginning January 1, 2021. Early adoption is permitted.
We are currently reviewing the provisions of this new pronouncement and the impact, if any, the adoption of this guidance has on our
financial position and results of operations.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><BR>
In March 2020, the FASB issued ASU 2020-04, &#147;Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting,&#148; which provides optional guidance and expedients for applying GAAP to contracts, hedging
relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are intended
to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The
amendments in this update are elective and are effective upon issuance. We are currently assessing whether and how we will elect
to apply ASU 2020-04.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Except
for the standards discussed above, we believe there have been no new accounting pronouncements effective or not yet effective
that have significance, or potential significance, to our Consolidated Financial Statements.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
3 &ndash;FINANCING AGREEMENT</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><U>Dow
Facility</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
December 2016,&nbsp;we entered into the Dow Facility which provided us with up to $10 million of secured debt financing at an
interest rate of 5% per year, drawable at our request under certain conditions. Under the original terms, the loan matured on
December 1, 2021. In addition, after we raised a cumulative amount of equity capital exceeding $15 million, we were required to
prepay an amount equal to 30% of the amount raised over $15 million, but less than $25 million. We began these prepayments on
equity raised as of September 10, 2018. Interest was payable beginning January 1, 2017 although we elected, per the loan documents,
to capitalize the interest as part of the outstanding debt through January 1, 2019. Beginning April 1, 2019, current interest
was payable in cash on the first day of following the quarter. &nbsp;&nbsp;Dow received warrant coverage of one share of common
stock for each $40 in loans received by us, equating to 20% warrant coverage, with an exercise price of $8.00 per share for the
warrants issued at closing of the initial $2 million draw. After the initial closing, the strike price of future warrants issued
is subject to adjustment if we sell shares of common stock at a lower price. As of June 30, 2020, we have issued 250,000 warrants
to Dow, which are exercisable on or before the expiration date of December 1, 2023.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
April 23, 2020, we entered into an amended and restated Draw Loan Note and Agreement and related transaction documents (collectively,
the &#147;Amended Dow Facility&#148;) whereby the Company and Dow agreed to 1) extend the term of such loan facility by two
years to December 1, 2023, 2) reduce required prepayment to Dow from the proceeds of new equity or equity-linked financings from
the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow
Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the
date of the amendment, 3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million
for two consecutive calendar quarters, 4) increase the rate of interest to 6.5% per annum from 5% in the pre-existing Dow Facility,
and 5) allow for a subordinated security interest to be granted to new investors in the Unit Offering.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
warrants meet the criteria for classification within stockholders&#146; equity. Proceeds were allocated between the debt and
the warrants at their relative fair value on the date of issue. The total debt discount on the Dow Facility was approximately
$747,000. This debt discount is being amortized to interest expense using the effective interest method over the term of the loans
using an average effective interest rate of 7.9%. During the six months ended June 30, 2020, we recognized $366,309 of amortization
expense consisting of $264,835 of interest expense accrued and $91,474 of amortization from debt discount accretion related to
the Dow Facility warrants. As of June 30, 2020, the Dow Facility has a carrying value of $9,396,645.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Dow Facility entitles Dow to appoint an observer to our Board. Dow will maintain this observation right until the amount of principal
and interest outstanding under the Dow Facility is less than $5 million.<B></B></FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
4 &ndash; STOCK WARRANTS ACCOUNTED FOR AS EQUITY INSTRUMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
following table summarizes the warrants (including the warrants previously accounted for as derivatives) outstanding on June 30,
2020, which are accounted for as equity instruments, all of which are exercisable:&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: left">Date Issued</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: center">Expiration Date</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: center">Indexed Stock</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: center">Exercise Price</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: center">Warrants</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 25%">10/8/2012</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 18%; text-align: right">10/8/2027</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 25%; text-align: center">Common</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">12.00</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">5,000</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>01/15/2014 - 12/31/2014</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1/15/2024</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Series A Convertible Preferred</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">12.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">972,720</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>04/30/2015 - 05/26/2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">4/30/2022</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">16.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">218,334</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>6/30/2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">6/30/2022</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">16.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,563</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>12/31/2015</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12/31/2020</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,625</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>3/31/2016</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">3/31/2021</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">10.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,600</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>4/30/2016</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">4/30/2021</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">10.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">895</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>12/14/2016</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12/1/2023</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,000</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>7/18/2017</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12/1/2023</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>9/22/2017</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12/1/2023</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>12/4/2017</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12/1/2023</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>7/8/2019</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12/1/2023</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,000</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>11/11/2019</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">12/1/2023</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,000</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>2/12/2020</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: right">10/1/2023</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: center">Common</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">Total</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: right">1,484,737</TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; font-weight: bold; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Each
warrant indexed to Series A Convertible Preferred Stock is currently exercisable and exchangeable into 1.875 shares of common
stock. On a common stock equivalent basis, the exercise price would equal $6.40/common share.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
5 &ndash; STOCKHOLDERS&#146; EQUITY (DEFICIT)</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B>&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Series
B Convertible Preferred Stock</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
of June 30, 2020, and December 31, 2019, the Company was authorized to issue up to 1,500,000 shares of Series B Preferred Stock,
of which 137,500 and zero were issued and outstanding as of June 30, 2020 and December 31, 2019. On March 31, 2021, the Company
was authorized to issue up to 3,750,000 shares of Series B Preferred Stock. Exchange rights received with the purchase of each
unit of the Convertible Notes Unit offering dated April 23, 2020, allow for an exchange of two shares of Common Stock for two
shares of Series B Preferred Stock. Exchange rights exercised resulted in the issuance of Series B Preferred stock as listed below.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 40%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Series B</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap; font-weight: bold; text-align: center">For the three</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Preferred</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: center">months ended</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: center">Stock Issued</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 27%">June 30, 2020</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">137,043</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>September 30, 2020</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200,457</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>December 31, 2020</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">309,540</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">March 31, 2021</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">854,354</TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-bottom: 1pt; font-weight: bold">Total</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: right">1,501,394</TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; font-weight: bold; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Each
share of the Series B Preferred, is convertible at any time, at the option of the holder, into one share of common stock. As of
March 31, 2021, conversion of the Promissory Notes into Series B Preferred Stock would result in an additional 1,501,394 shares
of Series B Preferred stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Series B Preferred also contains typical anti-dilution provisions that provide for adjustment of the conversion price to reflect
stock splits, stock dividends, or similar events. Each share of Series B Preferred is subject to mandatory conversion into common
stock at the then-effective Series B conversion rate upon the public listing by the Company of its common stock on a Qualified
National Exchange. However, the Series B Preferred is not subject to the mandatory conversion until all outstanding Convertible
Securities are also converted into common stock. The Series B Preferred ranks senior to all other equity or equity equivalent
securities of the Company other than those securities which are explicitly senior or pari passu in rights and liquidation preference
to the Series B Preferred and pari passu with the Company&#146;s Series A Preferred.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT> </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> <FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
April 27, 2020, the Company filed the Second Amended and Restated Certificate of Designations of the Series B Preferred Stock in connection
with the Unit Offering and the Amended Dow Facility, lowering the liquidation preference from $16.00 per share to $8.00 per share, and
lowering the conversion price from $16.00 per share to $8.00 per share, among other things. The Company also adjusted certain provisions
to harmonize the rights of the Series B Preferred with the rights in the Series A Certificate of Designations. On December 28, 2020,
the Board of Directors and a majority of the holders of Series A and Series B Preferred Stock consented to Amendments to the Second Amended
and Restated Certificate of Designation of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock by adapting
the Third Amended and Restated Certificate of Designations of Series A and of Series B Convertible Preferred Stock. The Third Amended
and Restated Certificate of Designations continue to allow for liquidation preference prior and in preference to any distribution of
any of the assets of the Corporation to the holders of junior securities and, as amended, after the payment of all preferential amounts
required to be paid to the holders of the Series A Preferred Stock, Series B Preferred Stock and other senior securities, the remaining
assets of the corporation available for distribution to its stockholders shall be distributed among the holders of junior securities,
including the Common Stock. On March 31, 2021, subsequent to consent by the Board of Directors and a majority of the holders of Series
B Preferred Stock, the Company filed the Fourth Amended and Restated Certificate of Designation of the Series B Convertible Preferred
Stock increasing the number of authorized shares from 1,250,000 to 3,750,000.</FONT> </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Series A Preferred and Series B Preferred are not redeemable for cash and the Company concluded that they are more akin to equity-type
instruments than debt-type instruments. Accordingly, the embedded conversion option in each agreement is clearly and closely related
to an equity-type host and the conversion option does not require classification and measurement as a derivative financial instrument.
Therefore, the securities meet the conditions for stockholders&#146; equity classification.&nbsp;</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
6 &ndash; EQUITY INCENTIVE PLAN</B>&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
September 30, 2019 and September 30, 2018, the Company granted each Board member 2,500 stock options and 2,500 shares of restricted
stock for their Board services. The options were granted at a price of $8.00 per share and vest ratably over a four-year period
beginning on the one-year anniversary. The options had an aggregate grant date fair value of $38,295 and $29,580 on September
30, 2019 and September 30, 2018, respectively. The restricted stock issued to the Board members has an aggregate fair value of
$260,000 and vests ratably in arrears over four quarters on the last day of each fiscal quarter following the grant date. As of
June 30, 2020, and 2019, 32,500 and 20,000 of the 32,500 shares of restricted stock issued had vested, resulting in compensation
expense of $25,000 and $20,000 for the three months ended June 30, 2020 and June 30, 2019, respectively.&nbsp;&nbsp;&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">During
the three months ended June 30, 2020, the Company granted 138,734 employee stock options. The options were granted at a price
of $8.00 per share and had an aggregate grant date fair value of $329,850. The options vest one-third immediately upon the grant
date and one-third on each the first and second anniversary dates. The fair value of the options granted was estimated on the
date of the grant using the Black Scholes option-pricing model using the following assumptions: Stock price $8.00, Expected Term:
4.51 years, Volatility: 35.36%, Risk free rate: .29%, Dividend rate: 0%.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
following table shows the stock options activity as of June 30, 2020&nbsp;is as follows:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Number</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Of</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Exercise</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 74%; text-align: justify">Options outstanding at March 31, 2020</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">774,625</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">8.00</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify">Changes during the period:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: justify">Expired</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(42,500</TD><TD STYLE="white-space: nowrap; text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.00</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify; padding-bottom: 1pt">New Options Granted &ndash; at market price</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">138,734</TD><TD STYLE="white-space: nowrap; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">8.00</TD><TD STYLE="white-space: nowrap; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: justify; padding-bottom: 2.5pt">Options outstanding at June 30, 2020</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">870,859</TD><TD STYLE="white-space: nowrap; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">8.00</TD><TD STYLE="white-space: nowrap; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: justify; padding-bottom: 2.5pt">Options exercisable at June 30, 2020</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">600,881</TD><TD STYLE="white-space: nowrap; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">8.00</TD><TD STYLE="white-space: nowrap; padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>




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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
7 &ndash; LEASES</B>&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Right
of Use Asset and Leased Liability:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Estimated
Lease Life &ndash; Lease term through December 2022</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 8.65pt; white-space: nowrap; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Three Months</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Three Months</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 8.65pt; white-space: nowrap; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Ended June 30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Ended June 30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 8.65pt; white-space: nowrap; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">2019</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">2020</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; width: 74%; text-align: left; text-indent: -8.65pt">Right-of-use lease assets- operating as of prior qtr-end</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">1,871,366</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">1,486,112</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Less: Accumulated amortization</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(104,097</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">)</TD><TD STYLE="border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(160,563</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-bottom: 2.5pt; padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Right-of-use lease assets- operating as of current qtr-end</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,767,269</TD><TD STYLE="border-bottom: Black 2.5pt double; white-space: nowrap; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,325,549</TD><TD STYLE="border-bottom: Black 2.5pt double; white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Lease liability-operating as of prior qtr-end</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,981,795</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,579,531</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Less: Accumulated Amortization</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(108,443</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">)</TD><TD STYLE="border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(132,619</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Lease liability operating-as of current qtr-end</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,873,352</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,446,912</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Operating lease expense for the three months ended current qtr-end date</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">150,557</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">160,072</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Actual remaining lease payments, current qtr-end date</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,289,714</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,638,479</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Present value of remaining payments, current qtr-end date</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,873,453</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,446,912</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>

<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 8.65pt; white-space: nowrap; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Leases Three</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Leases Three</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 8.65pt; white-space: nowrap; font-weight: bold; text-align: left; text-indent: -8.65pt">Supplemental cash flow information related to leases:</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Months Ended</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">Months Ended</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 8.65pt; white-space: nowrap; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">June 30, 2019</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center">June 30, 2020</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Cash paid for amounts included in the measurement of lease liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.65pt; width: 74%; text-align: left; text-indent: -8.65pt">Operating cash flows from operating leases</TD><TD STYLE="padding-bottom: 1pt; width: 3%">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; width: 8%; text-align: right">154,903</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; width: 3%">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; width: 8%; text-align: right">122,206</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Maturities of leases liabilities were as follows:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Year ending December 31, 2019</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">325,341</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Year ending December 31, 2020</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">660,387</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">226,755</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Year ending December 31, 2021</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">660,438</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">737,947</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Year ending December 31, 2022</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">643,548</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">673,777</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 25.95pt; text-align: left; text-indent: -8.65pt">Total Lease payments</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,289,714</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,638,479</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Less imputed interest</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(416,261</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">)</TD><TD STYLE="border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(191,567</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-bottom: 1pt; padding-left: 17.3pt; text-align: left; text-indent: -8.65pt">Total</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,873,453</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,446,912</TD><TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Weighted average remaining lease term- operating leases ( in months)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40.0</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">24.7</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-left: 8.65pt; text-align: left; text-indent: -8.65pt">Weighted average discount rate- operating leases (annual)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9.98</TD><TD STYLE="white-space: nowrap; text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9.98</TD><TD STYLE="white-space: nowrap; text-align: left">%</TD></TR>
</TABLE>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
8 &ndash; RELATED PARTY TRANSACTIONS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Effective
June 23, 2020, we signed a Restated and Amended Non-Exclusive License Agreement with Michigan State University (&#147;MSU&#148;),
in which we converted our exclusive rights to non-exclusive rights in exchange for changes in the financial terms while adding
additional technologies to the license. During the three and six months ended June 30, we recorded licensing expenses of zero
in 2020 and we recorded licensing expense of $12,500 per quarter in 2019.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">During
the three months ended June 30, 2020 we did not issue any Series A Preferred stock and we issued 137,043 shares of Series B Preferred
stock in exchange for 137,043 shares of Common Stock, as per the terms of the April 23, 2020 Unit Offering. The Units were purchased
by Company Directors Allemang, Jones and Pendell with proceeds of $250,000, $250,000, and $50,000, respectively. Interest accrued
on these Notes during the three months ended June 30, 2020, was $7,792.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
9 - DERIVATIVE LIABILITY </B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
April 23, 2020, the Company entered into an Amended and Restated Draw Notice and Agreement with the Dow Chemical Company (&#147;Amended
Dow Facility&#148;) to allow us to structure an offering of secured, subordinated convertible notes to support ongoing cash needs
(the &#147;Unit Offering&#148;). In the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of the loan facility
by two years to December 1, 2023, 2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked
financings from the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in
the Amended Dow Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked
capital from the date of the amendment, 3) capitalize all interest payable until such time as we have recorded GAAP revenue of
at least $2 million for two consecutive calendar quarters 4) increase the rate of interest to 6.5% per annum and 5) allow for
a subordinated security interest to be granted to new investors in the Unit Offering.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"> We evaluated the accounting for the amendment
and concluded it met the conditions to be a troubled debt restructure. The future cash flows on the restructured debt were approximately
$2.7 million greater than the carrying value of the debt which was accounted for prospectively through the effective interest rate. </P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Immediately
after executing the Amended Dow Facility, we commenced a Unit Offering in a private placement to accredited investors. The Unit
Offering consists of (i) an offering of up to $10 million in Convertible Notes (&#147;Notes&#148;) in $8 units, and (ii) an
assignable or transferrable right to exchange two shares of previously issued common stock for two shares of Series B Convertible
Preferred Stock for every $8.00 invested in the Unit Offering (&#147;Exchange Rights&#148;). As of June 30, 2020, we have raised
$550,000 in the Unit Offering through the sale of 68,750 Units and 137,043 shares of Common Stock have been exchanged for 137,043
shares of Preferred Series B stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Convertible Notes pay interest at 7.5% per year, compounded quarterly, which is payable on the maturity date unless the Company
has recorded GAAP revenue of at least $4.0 million for two consecutive quarters at which time the holder may elect to receive
all accrued interest in cash on a quarterly basis. The maturity date of the Notes is December 31, 2024. The Notes are convertible
at the holder&#146;s option into either) Series B Preferred Stock at a conversion price of $8.00/share; or ii) any other form
of preferred or common stock (&#147;Subsequent Stock&#148;) issued by the Company at a conversion price per share equal to 80%
of the purchase price per share at which such Subsequent Equity is sold, or if the value per share is fixed, 125% of the number
of shares that might otherwise be issuable, provided that if a Qualified Capital Event occurs within 120 days after the initial
funding, then the conversion price will be 90% of the purchase price per share at which the Subsequent Equity is sold, or if the
value per share is fixed, 110% of the number of shares that would otherwise be issuable. No Qualified Capital Event has occurred
within 120 days after the initial funding on April 23, 2020.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
we raise at least $15 million of equity capital, excluding equity raised in this offering, we may choose to convert the outstanding
amount due and payable under the Note into whichever form of conversion shares would result in the greatest number of shares of
Common Stock being issued to the holder in an &#147;as-if-converted&#148; into Common Stock basis at the conversion price then
in effect.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
the event the Notes are outstanding on the date our shares of Common Stock are listed on a Qualified National Exchange, then the
Notes will automatically be converted first into Series B Preferred Stock at a price of $8.00 per share and then into shares of
Common Stock at the Series B Conversion Rate in effect at the time. If there is a change in control, all principal and accrued
interest will paid in cash or can be converted according to the terms of the Note, at the holder&#146;s option.</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Notes are secured by a junior security interest in all the assets of the Company. The Notes may not be prepaid prior to the maturity
date, but they may be transferred at any time to i) any entity controlled by the holder, ii) any investors in the holder or iii)
any other accredited investor only in compliance with the Securities Act of 1933 and other state laws.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">After
the original issue date but prior to the date we raise $15 million of cumulative equity capital, excluding capital raised in this
Offering, if we consummate a financing transaction with a third-party using any other form of convertible debt security, then
the holder has the right to exchange their outstanding obligations for a new security with the same terms as the new convertible
debt security offered to the third party. This provision is viewed as a redemption option.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Embedded
features in the Notes were analyzed under ASC 815 to determine if they required bifurcation as derivative instruments. To be a
derivative, one of the criteria is that the embedded component must be&nbsp;net settleable. The Company&#146;s common stock is
not publicly traded, there is no mechanism outside the notes that would permit the holder to achieve net settlement and the underlying
shares are not readily convertible to cash. Accordingly, the embedded derivatives, including the embedded conversion feature,
do not meet the definition of a derivative, and therefore, do not require bifurcation from the host instrument. Certain default
put provisions, the change in control repayment provision and the redemption option were not considered to be clearly and closely
related to the host instrument but we concluded that the value of these provisions was&nbsp;de minim us at inception. We reconsider
the value of these provisions each reporting period to determine if the value becomes material to the financial statements.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; background-color: white"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">For every $8.00 invested in the Unit Offering, we
provided investors in the Unit Offering, the one-time right to exchange two shares of previously issued Common Stock for two shares of
Series B Preferred Stock of the Company within 30 days of the closing (the &ldquo;Exchange Right&rdquo;). The Exchange Right is fully
transferable and assignable to any other party during the 30-day period if they are an accredited investor and executed a joinder to become
bound by the terms of the Agreement. The Exchange Right is a freestanding financial instrument, and its fair value is estimated based
on the incremental fair value between the exchanged Common Stock and the issued Preferred Stock. In this instance, the Exchange Right
was included as part of the Unit Financing in conjunction with the issuance of the Notes, therefore, the proceeds from the financing were
allocated between the Notes and the Exchange Right based on their relative fair values. The difference between the fair value of the Exchange
Right and the relative fair value assigned to the Exchange Right is recognized immediately as Nonoperating expense. As of June 30, 2020,
Nonoperating expense of $136 had been recorded related to the Exchange Rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="text-align: justify; margin: 0; font: 10pt Times New Roman, Times, Serif">A convertible financial instrument includes a beneficial conversion feature
(&ldquo;BCF&rdquo;)if the effective conversion price is less than the company&rsquo;s market price of their stock on the commitment date.
The BCF for the three months ended June 30, 2021 was $122,230</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
sale of Convertible Notes through the quarter ended March 31, 2021, raised total proceeds of $6,440,280.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 40%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap; font-weight: bold; text-align: center">For the three months</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: center">ended</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-weight: bold; text-align: center">Proceeds</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 27%">June 30, 2020</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; text-align: right">550,000</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>September 30, 2020</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">800,000</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>December 31, 2020</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,501,664</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">March 31, 2021</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,588,616</TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-bottom: 2.5pt; font-weight: bold">Total</TD><TD STYLE="padding-bottom: 2.5pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; font-weight: bold; text-align: right">6,440,280</TD><TD STYLE="padding-bottom: 2.5pt; white-space: nowrap; font-weight: bold; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
proceeds received in the Unit Offering for the three months ended June 30, 2020 were allocated as follows:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 70%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD COLSPAN="3" STYLE="text-align: center">For the three</TD></TR>
<TR STYLE="vertical-align: bottom">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD COLSPAN="3" STYLE="text-align: center">months ended</TD></TR>
<TR STYLE="vertical-align: bottom">
<TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD>
<TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
<TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; text-align: center">June 30, 2020</TD></TR>
<TR STYLE="vertical-align: bottom">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; width: 37%; text-align: left; text-indent: -10pt">Convertible Notes</TD>
<TD STYLE="width: 3%">&nbsp;</TD>
<TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
<TD STYLE="width: 8%; text-align: right">403.934</TD>
<TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Additional Paid In Capital &ndash; Exchange Rights</TD>
<TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
<TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD>
<TD STYLE="border-bottom: Black 1pt solid; text-align: right">146.066</TD>
<TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
<TD STYLE="padding: 0pt 0pt 2.5pt 10pt; text-indent: -10pt">Proceeds</TD>
<TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
<TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD>
<TD STYLE="border-bottom: Black 2.5pt double; text-align: right">550,000</TD>
<TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD>
<TD>&nbsp;</TD>
<TD STYLE="text-align: left">&nbsp;</TD>
<TD STYLE="text-align: right">&nbsp;</TD>
<TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Convertible Notes</TD>
<TD>&nbsp;</TD>
<TD STYLE="text-align: left">&nbsp;</TD>
<TD STYLE="text-align: right">403,934</TD>
<TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Additional Paid In Capital &ndash; BCF</TD>
<TD>&nbsp;</TD>
<TD STYLE="text-align: left">&nbsp;</TD>
<TD STYLE="text-align: right">(122,230</TD>
<TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Convertible Notes - Accrued Interest</TD>
<TD>&nbsp;</TD>
<TD STYLE="text-align: left">&nbsp;</TD>
<TD STYLE="text-align: right">12,256</TD>
<TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
<TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Convertible Notes - Cost of Debt Offering</TD>
<TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
<TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD>
<TD STYLE="border-bottom: Black 1pt solid; text-align: right">(46,857</TD>
<TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
<TD STYLE="padding: 0pt 0pt 2.5pt 10pt; text-align: left; text-indent: -10pt">Convertible Notes Balance</TD>
<TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
<TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD>
<TD STYLE="border-bottom: Black 2.5pt double; text-align: right">247,104</TD>
<TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The value of exchange rights, the BCF and the
debt issuance costs are being amortized using the effective interest method over the term of the Note. The Company recognized interest
expense of $12,256 associated with the Note for the three months ended June 30, 2020. As of June 30, 2020, the carrying value of the
Convertible Notes was $247,104</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
SCIENCES, INC.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>NOTE
10 &ndash; SUBSEQUENT EVENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Financing</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
continued sales of the Unit Offering throughout the calendar year 2020 and the first quarter of 2021. See Derivatives Liability
write-up in this Note 9.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
February of 2021, we applied for continued relief under the Coronavirus Aid, Relief and Economic Security Act (CARES) by applying
to an SBA lender bank, PNC, for a second Paycheck Protection Plan (&#147;PPP&#148;) loan. On February 16, 2021, we received
an approved and fully executed PPP Term Note for $536,700 with a term of five years, a repayment deferral period which is 10 months
plus 24 weeks from the date that the funds were disbursed or the date any forgiven amount of the Facility is remitted by the SBA
to the Bank, and an annual rate of interest of 1%, with a potential for some or all of the loan to be forgiven, dependent upon
use of the loan proceeds. Funds were disbursed to us on February 17, 2021.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Equity
Preference Rights in the Event of Liquidation</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
December 28, 2020, the Board of Directors consented to Amendments to the Second Amended and Restated Certificate of Designation
of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock by adapting the Third Amended and Restated
Certificate of Designations of Series A and of Series B Convertible Preferred Stock. The Third Amended and Restated Certificate
of Designations continue to allow for liquidation preference prior and in preference to any distribution of any of the assets
of the Corporation to the holders of Junior Securities and, as amended, after the payment of all preferential amounts required
to be paid to the holders of the Series A Preferred Stock, Series B Preferred Stock and other Senior Securities, the remaining
assets of the corporation available for distribution to its stockholders shall be distributed among the holders of Junior Securities.
&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Related
Party Transactions</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
of March 31, 2021, the Board of Directors and their affiliates had purchased $3,666,520 of Convertible Notes.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a002_v1"></A>ITEM
2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Forward-Looking
Statements</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><I>In
this Quarterly Report on Form 10-Q, unless otherwise indicated, the words &#147;we&#148;, &#147;us&#148;, &#147;our&#148;,
&#147;XG&#148;, &#147;XGS&#148;, &#147;XG Sciences&#148; or the &#147;Company&#148; refer to XG Sciences, Inc. and its
wholly owned subsidiary, XG Sciences IP, LLC, a Michigan limited liability company.</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><U>Introduction</U></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements,
and the notes thereto included herein. The information contained below includes statements of the Company&#146;s or management&#146;s
beliefs, expectations, hopes, goals and plans that, if not historical, are forward-looking statements subject to certain risks
and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements.
For a discussion on these risk factors, please refer to the Company&#146;s Annual Report on Form 10-K as filed April 29, 2020.
For a discussion on forward-looking statements, see the information set forth in the introductory note to this quarterly report
on Form 10-Q under the caption &#147;Forward-Looking Statements&#148;, which information is incorporated herein by reference.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Overview
of our Business</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XG
Sciences was formed in May 2006 for the purpose of commercializing certain technology to produce graphene nanoplatelets and integrated,
value-added products containing graphene nanoplatelets. First isolated and characterized in 2004, graphene is a single layer of
carbon atoms configured in an atomic-scale honeycomb lattice. Among many noted properties, monolayer graphene is harder than diamonds,
lighter than steel but significantly stronger, and conducts electricity better than copper. Graphene nanoplatelets are particles
consisting of multiple layers of graphene. Graphene nanoplatelets have unique capabilities for energy storage, thermal conductivity,
electrical conductivity, barrier properties, lubricity and the ability to impart physical property improvements when incorporated
into plastics, metals or other matrices.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
believe the unique properties of graphene and graphene nanoplatelets will enable numerous new product applications and the market
for such products will quickly grow to be a significant market opportunity. Our business model is to design, manufacture and sell
advanced materials we call xGnP<SUP>&reg;</SUP> graphene nanoplatelets and value-added products incorporating xGnP<SUP>&reg;</SUP>
nanoplatelets. We currently have many customers trialing our products for numerous applications, including, but not limited to
lithium ion batteries, lead acid batteries, thermally conductive adhesives, composites, thermal management and heat transfer,
inks and coatings, printed electronics, construction materials, cement, and in a range of other industrial uses. We believe our
proprietary processes have enabled us to be a low-cost producer of high-quality, graphene nanoplatelets and value-added integrated
products containing graphene nanoplatelets and that we are well positioned to address a wide range of end-use applications.<B>&nbsp;&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Our
Customers</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
sell products to customers around the world and have sold materials to over 1,500 customers in 47 countries since 2008. Some of
these customers are research organizations and some are commercial organizations. Our customers have included well-known automotive
and OEM suppliers around the world (Ford, Johnson Controls, Magna, Honda Engineering), global-scale lithium-ion battery manufacturers
in the U.S., South Korea and China (Samsung SDI, LG Chemical, Lishen, A123) and diverse specialty material companies (3M, BASF,
Henkel, Dow Chemical, DuPont), as well as leading research centers such as Lawrence Livermore National Laboratory and Oakridge
National Laboratory. The majority of our customers are still ordering in smaller quantities consistent with their development
and engineering qualification work. We expect our average order size to increase in the second half of 2020 into early 2021 as
many of our customers have expressed their intention of beginning to order commercial quantities of product from us.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Our
Products</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XG
Sciences is a manufacturer of graphene nanoplatelets marketed under the brand xGnP<SUP>&reg;</SUP> and value-added products that
contain graphene nanoplatelets. The term &#147;graphene&#148; is used widely in the literature and the popular press to cover
a variety of specific forms of the material. We generally think about two broad classes of graphene materials:&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">1.</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">One-atom
thick films of carbon commonly referred to as monolayer graphene, manufactured typically from gases by assembling molecules to
form relatively large, transparent sheets of material. These materials have been characterized by their performance attributes
that differentiate them from other advanced materials and that may include: strength up to 200 times that of steel, flexible and
able to stretch up to 25% of its original length, optically transparent, more electrically conductive than copper, more thermally
conductive than any other known material and atomic-level barrier properties. XG Sciences does not manufacture these films and
does not participate in the markets for these films and believes that in general, the markets for these films do not compete with
those for graphene nanoplatelets.</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">2.</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Ultra-thin
particles of carbon that consist of layers of graphene sheets ranging in thickness from a few layers to many layers &ndash; that
are commonly referred to as graphene nanoplatelets (&#147;GNP&#148; or &#147;GNPs&#148;). Because GNPs are thin and can be
manufactured in a range of diameters, they are useful for a wide variety of applications. XG Sciences manufactures GNPs that range
in thickness from a few nanometers and up to 10-20 nanometers and with diameters ranging from less than 1 micron and up to 100
microns. The manufacture of these graphene particles is our main area of expertise, and their use in practical applications is
the focus of our sales, marketing and development activities.</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
well-publicized isolation and characterization of graphene in 2004 at the University of Manchester, has spawned a new class of
two-dimensional materials based on layers of carbon atoms arranged in a hexagonal array and each carbon having lone pair electrons.
The unique characterization and related performance of this new class of materials is derived from their two-dimensional nature
and their composition of sp<SUP>2 </SUP>carbon atoms arranged in a hexagonal array. The ability of any new material to be exploited
in industrial applications will depend on its fit-for-performance. In the case of graphene nanoplatelets, the fit-for-performance
is very much related to their aspect ratio (among other factors) in that the diameter is typically significantly greater than
the thickness. This is what differentiates the material from bulk graphite of high crystallinity and purity. We classify nanoplatelets
consisting of largely basel planes of carbon atoms packed in a hexagonal array (i.e., graphene) as graphene nanoplatelets so long
as their aspect ratio may be classified as two-dimension and are thus in the form of platelets. Such a definition implies that
the thickness is nanoscale &ndash; GNPs having a thickness in the range from generally 0.6 nanometers and up to many 10&#146;s
of nanometers. For context one nanometer is one billionth of a meter, and the average thickness of a human hair is about 75,000
nanometers. We have chosen to utilize the definitions as set out by the Carbon Journal editorial team (Carbon, volume 65, pp.1-6)
and Fullerex (The Graphene Report, March 2020 Edition, the Graphene Council) which provides classification for the various material
types which provide meaningful descriptions of commercially available graphene.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Graphene
Product Thickness Definitions Based on Thickness</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif">
    <TD STYLE="border: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 38%; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;&nbsp;Number
    of Layers</B></FONT></TD>
    <TD STYLE="border-top: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 62%; border-right: black 1pt solid; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;&nbsp;Product
    Description</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; background-color: #CCEEFF">
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;1</FONT></TD>
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;Graphene
    (monolayer)</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; background-color: white">
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;1-3</FONT></TD>
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;Very
    Few Layer Graphene (vFLG)</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; background-color: #CCEEFF">
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;2-5</FONT></TD>
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;Few
    Layer Graphene (FLG)</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; background-color: white">
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;2-10</FONT></TD>
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;Multilayer
    Graphene (MLG)</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; background-color: #CCEEFF">
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;&gt;10</FONT></TD>
    <TD STYLE="border-right: black 1pt solid; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; border-bottom: black 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;Graphene
    Nanoplatelets (GNPs)</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><I>Bulk
Materials. </I></B>We sell bulk materials under the trademarked brand name of xGnP<SUP>&reg; </SUP>graphene nanoplatelets. These
materials are produced in various grades, which are analogous to average particle thickness, and average particle diameters. There
are three commercial grades (Grades H, M &amp; R), each of which is offered in three standard particle sizes and a fourth, Grade
C, which is offered in three standard surface areas. We also have access to other development grades (Grade T, for example), but
which are not yet made available commercially and have been used internally for those products containing graphene nanoplatelets.
These bulk materials, which normally ship in the form of a dry powder, are especially applicable for use as additives in polymeric
or metallic composites, or in coatings or other formulations where particular electrical, thermal or barrier applications are
desired by our customers. We also offer our material in the form of dispersions of nanoplatelets in liquids such as water, alcohol,
or organic solvents, or mixed into resins or polymers such as thermoplastics or thermosets. We use two different commercial processes
to produce these bulk materials:</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0.3in; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Grade
H/M/R/T materials are produced through chemical intercalation of natural graphite followed by thermal exfoliation using a proprietary
process developed by us. The &#147;grade&#148; designates the thickness and surface characteristics of the material, and each
grade is available in various average particle diameters. Surface area, calculated by the Brunauer, Emmet, and Teller (BET) Method,
is used as a convenient proxy for thickness, so each grade of products produced through chemical intercalation is designated by
its average surface area, which ranges from 50 to 150&nbsp;m<SUP>2</SUP>/gram of material. We are able to extend the surface area
higher (250 m<SUP>2</SUP>/gram for T Grade) but are not yet producing these materials in metric-ton quantities. As the market
need emerges for this class of materials, we may scale them as needed. For example, we introduced a Grade of xGnP<SUP>&reg; </SUP>powders,
R-Grade, with improved electrical conductivity targeting use in applications for electrically and thermally conductive ink and
composites and have scaled R-Grade to metric-ton quantities.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0.3in; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Grade
C materials are produced through high-shear mechanical exfoliation using a proprietary process and equipment that we invented,
designed, constructed and patented. The Grade C materials are smaller particles than those grades produced through chemical exfoliation,
and Grade C materials are designated by their BET surface area, which ranges from 300 to 800 m<SUP>2</SUP>/gram. We are able to
produce other surface areas and may make those available commercially as needed by our customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; margin-left: 0.3in; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
following graphic depicts xGnP<SUP>&reg;</SUP> graphene nanoplatelets as a function of both layer thickness and aspect ratio (diameter
by thickness), two key parameters which will influence their performance in a range of industrial applications.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XG
Sciences&#146; Graphene Nanoplatelet Product Portfolio and Versus Graphite</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><IMG SRC="e2647-001_v1.jpg" ALT="(GRAPHIC)"></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><I>Composites.
</I></B>These consist of compositions of specially designed xGnP<SUP>&reg;</SUP> graphene nanoplatelets formulated in pre-dispersed
mixtures that can be easily incorporated in various polymers. Our integrated composites portfolio includes pre-compounded resins
derived from a range of thermoplastics as well as master batches of resins and xGnP<SUP>&reg;</SUP> nanoplatelets and their combination
with resins and fibers for use in various end-use applications that may include industrial, automotive, packaging and sporting
goods and which have demonstrated efficacy in standard injection molding, compression molding, blow molding and 3-D processes,
to name but a few. Our current product portfolio of polymer resins containing various forms of our xGnP<SUP>&reg; </SUP>graphene
nanoplatelets and in varying concentration includes polyurethane (XGPU), polypropylene (XGPP&trade;), polyethylene terephthalate
(XGPET&trade;), nylon (XGNylon) and high-density polyethylene (XGHDPE&trade;). Other polymers may be added over time depending
on the end-market and customer needs. In addition, we offer various bulk materials with demonstrated efficacy in plastic composites
to impart improved physical performance to such matrices, which may be supplied as dry powders, or as aqueous or solvent-based
dispersions or cakes as described above. We have also targeted use of our graphene nanoplatelets as an additive in cement mixtures,
which we believe results in improved barrier resistance, durability, toughness and corrosion protection. Our XGConcrete&trade;
Additive promotes the formation of more uniform and smaller grain structure in cement. This fine-grain and uniform structure gives
the concrete improvements in flexural and compressive strength. In addition, the embedded graphene nanoplatelets will stop cracks
from forming and retard crack propagation, should any cracks form &ndash; the combination of which will improve lifetime and durability
of cement.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><I>Inks
and Coatings</I></B>.&emsp;These consist of specially-formulated dispersions of xGnP<B><I><SUP>&reg; </SUP></I></B>together with
solvents, binders, and other additives to make electrically or thermally conductive products designed for printing or coating
and which are showing promise in diverse customer applications such as advanced packaging, electrostatic dissipation and thermal
management. We also offer a set of standardized ink formulations suitable for printing. These inks offer the capability to print
electrical circuits or antennas and may be suitable for other electrical or thermal applications. All of these formulations can
be customized for specific customer requirements.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><I>Energy
Storage Materials</I></B>.&emsp;These consist of specialty advanced materials that have been formulated for specific applications
in the energy storage segment. We offer various bulk materials for use as conductive additives for cathodes and anodes in lithium-ion
batteries, as an additive to anode slurries for lead-carbon batteries, as a component in coatings for current collectors in lithium-ion
batteries and we are investigating the use of our materials as part of other battery components.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><I>Thermal
Management Materials</I></B>.&emsp; These consist mainly of various thermal interface materials (&#147;TIM&#148;) in the form
of custom greases or pastes. Our custom XG TIM<SUP>&reg; </SUP>greases and pastes are also designed to be used in various high
temperature environments. Additionally, we offer various bulk materials for use as active components in adhesives, liquids, coatings
and plastic composites to impart improved thermal management performance to such matrices.&nbsp;</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Our
Focus Areas </B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We believe we are a platform play in advanced materials, because our proprietary manufacturing processes allow us to produce varying grades of graphene nanoplatelets that can be mapped to a variety of applications and in many market segments. However, we are prioritizing our efforts in specific areas and with specific customers that we believe represent opportunities for either relatively near-term revenue or especially large and attractive markets. At this time, we are focused on four key vertical markets: Automotive, Sporting Goods, Packaging and Industrial. The following graphic provides examples of target applications within each of the four key verticals where XG Sciences has either  commercial sales or is in development with one or more customers. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>XGS
Market/Application Focus Areas</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center;"><IMG SRC="e2647-002_v1.jpg" ALT="(GRAPHIC)"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Addressable
Markets</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
markets for our materials are large and growing. As one example, the 2019 North American packaging market for plastic bottles
and containers is estimated to be more than $34 billion (Mordor Intelligence). Further, Mordor estimates the 2019 global market
for PET water bottles at 543.8 billion units. XG Sciences is engaged in the supply of xGnP<SUP>&reg;</SUP> graphene nanoplatelets
for use in water bottles manufactured initially in North America and we are expanding our market activities into other geographies.
If each water bottle produced in 2019 were to incorporate just 1 milligram of xGnP<SUP>&reg;</SUP> graphene nanoplatelets, the
total revenue available to XG Sciences may range from $200 to $300 million, depending on product form. As a second example, the
2019 Global market for rubber used in tires is estimated at 30 million metric tons (European Rubber Journal, January 9, 2019 and
according to the International Rubber Study Group). Graphene nanoplatelets have been shown to provide performance improvements
when incorporated into tires. If graphene nanoplatelets were used in just 1 weight percent of all rubber used in tires and used
in only 20% of the available tire market, then there would exist a total global market for use of graphene nanoplatelets in tires
of 60,000 metric tons on a dry powder basis.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Commercialization
Process</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Because
graphene is a new material, most of our customers are still developing applications that use our products. Commercialization is
a process, the exact timing of which is often difficult to predict. It starts with our own internal R&amp;D to validate performance
for an identified market or customer-specific need. Our customers then validate the performance of our materials and determine
whether our products can be incorporated into their manufacturing processes. This is initially done at pilot production scale
levels. Our customers then have to introduce products that incorporate our materials to their own customers to validate performance.
After their customers have validated performance, our customers will then move to commercial scale production. Every customer
goes through the same process, but will do so at varying speeds, depending on the customer, the product application and the end-use
market. Thus, we are not always able to predict when our customers will begin ordering commercial volumes of our materials or
predict their expected volumes over time. However, as customers move through the process, we generally receive feedback and gain
greater insights regarding their commercialization plans. According to our respective customers, the following are examples where
our products are providing value to our customers at levels that are either in commercial production or we believe will warrant
their use on a commercial basis.</FONT></P>

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<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
2018, Callaway Golf Company introduced new dual-core Chrome Soft and Chrome Soft X golf balls incorporating our xGnP<SUP>&reg;
</SUP>graphene nanoplatelets into the outer core, resulting in a new class of golf balls that enable higher driving speeds, greater
distance and increased control, allowing Callaway to command a premium price for their golf balls in the marketplace.&nbsp;&nbsp;In
2019, Callaway expanded the use of our technology to incorporate our xGnP<SUP>&reg;</SUP> into the E&middot;R&middot;C Soft line
of golf balls.&nbsp;&nbsp;In 2020, Callaway continued to use our products in the newly launched Chrome Soft line of golf balls.&nbsp;&nbsp;The
2020 version of the Chrome Soft X is based on a solid core, which no longer benefited from use of our products;</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Ford Motor Company, after having demonstrated a 17 percent reduction in noise, a 20 percent improvement in mechanical properties
and a 30 percent improvement in heat endurance properties compared with that of polyurethane foam used without graphene, began
incorporating our graphene nanoplatelets for polyurethane based foam parts in over ten under hood components on the Ford F-150
and Mustang in 2018.&nbsp;&nbsp;In late 2019, our products were qualified for use in engine covers in all Ford and Lincoln light
truck and passenger car platforms.&nbsp;&nbsp;To meet this new demand, we began an expanded level of production in early 2020;</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">International
specialty materials company formulating our products into an adhesive used in production by a European automotive manufacturer
to improve thermal performance.&nbsp;&nbsp;In 2018 we shipped them 900 Kgs of our products.&nbsp;&nbsp;In 2019 their demand increased
by 200% to 1,800 Kilograms.&nbsp;&nbsp;In 2020, their initial forecasts were for a 166% increase in demand to 3,000 Kilograms.&nbsp;&nbsp;We
shipped just over 900 Kgs in the first half of 2020, less than their original forecast due to COVID-19;</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Lead
acid battery manufacturers incorporating our materials in the commercial supply of batteries demonstrated improvements in measured
cycle life, capacity and charge acceptance;</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
2019, we also announced the use of our products in an engine oil additive supplied by Hella, an innovative family-owned company
serving the automotive and industrial markets with annual revenue of approximately 7 billion Euros;</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">A
US-based construction company has demonstrated a 40% improvement in strength when our products are incorporated into composite
panels, and are currently used in commercial production;</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Large
plastics packaging company having demonstrated more than a 2x improvement in strength upon adoption of our xGnP graphene nanoplatelets
and while maintaining low color and optical transparency, are now targeting commercial introduction impacting recycling and light
weighting; and</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; width: 100%"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 0.3in"></TD><TD STYLE="width: 0.3in; text-align: left"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</FONT></TD><TD STYLE="text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Several
customers are currently in initial scale production using our products for applications including resistive heating, additives
for use in the oil and gas industry, coatings to improve load-bearing and thermal conductivity, chemical resistance and barrier.
We expect that demand for our products will grow as new applications gain market momentum.</FONT></TD>
</TR></TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><BR>
<BR>
The process of &#147;designing-in&#148; new materials is relatively complex and involves the use of relatively small amounts
of the new material in laboratory and engineering development for an extended period of time. Following successful development,
customers that incorporate our materials into their products will then order much larger quantities of material to support commercial
production. Although, our customers are under no obligation to report to us on the usage of our materials, some have indicated
that they have introduced or will soon introduce commercial products that use our materials. Thus, while many of our customers
are currently purchasing our materials in kilogram (one or two pound) quantities, some are now ordering at multiple ton quantities
and we believe many will require tens of tons or even hundreds of tons of material as they commercialize products that incorporate
our materials. We also believe that those customers already in production will increase their order volume as demand increases
and others will begin to move into commercial volume production as they gain more experience in working with our materials and
engage new customers.</FONT></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Manufacturing
Capacity</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
completed the first phase of expansion in our newest 64,000 square-foot facility in the first half of 2018. The expansion has
added 90 metric tons of graphene nanoplatelet production capacity, bringing the total capacity of the facility up to approximately
180 metric tons of dry powder. Phase two of the expansion was partially complete by year-end 2018 and resulted in up to ~270 metric
tons of total graphene nanoplatelet output capacity at the facility. We completed the last portion of this phase two expansion
in the second half of 2019, resulting in up to ~400 metric tons of total graphene nanoplatelet output capacity. Our total graphene
nanoplatelet output capacity across both of our manufacturing facilities, as of June 30, 2020, is an approximate 450 metric tons
per year on a dry powder basis. The expansions support our mission to continue commercializing the use of graphene in customer
products across diverse industries. XG&#146;s increasing capacity will support our expected growth in demand for our products
over the next several fiscal quarters. However, additional manufacturing capabilities for certain value-added products and certain
bulk materials remain to be developed and may require the acquisition of additional facilities. In particular, the production
processes for certain integrated products will require additional capital and may require additional facilities to meet expected
future customer demand.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Some
of the Company&#146;s products are new products that have not yet been fully developed and for which manufacturing operations
have not yet been fully scaled. Although we believe we will continue to scale our production capability, we have not yet demonstrated
the capability to produce sufficient materials to generate the ongoing revenues necessary to sustain our operations in the long-term.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;<B>Our
                                         Intellectual Property</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt; margin-left: 0pt; text-indent: 0pt; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
have acquired a non-exclusive license for certain inventions from Michigan State University. These rights are embodied in a Technology
Licensing Agreement between XGS and Michigan State University dated July 27, 2007, amended on May 24, 2010 and May 27, 2011, and
amended and restated on June 23, 2020 which provides us the non-exclusive worldwide rights to the patents as defined in the Agreement
for application in the Composite, Energy Storage, Specialty Liquids, and other fields which may be applicable. In exchange for
the rights to the technology covered by this Agreement, we paid MSU an initial fee and agreed to pay ongoing royalties on material
sold by us in future years. Under a previous version of the Licensing Agreement, we also awarded a small amount of common stock
to MSU. As of June 30, 2020, the following technologies were included in the MSU License Agreements with XGS: U.S. Patent 7,550,529,
U.S. Patent 8,501,858, U.S. Patent 8,834,959, U.S. Patent 9,080,122 and U.S. Patent 9,776,874.</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
        August 8, 2016, we signed an agreement acquiring an exclusive license with Metna Co. (Metna) to Metna&#146;s background
        IP for use of graphene nanoplatelets as additives to concrete mixtures. For purposes of the agreement, Metna&#146;s background
        IP relates to the U.S. Patent 8,951,343. Also, on August 8, 2016, we entered into a second agreement for an exclusive
        license related to all Metna&#146;s background technology and foreground technology, including any jointly-owned foreground
        technology where the end use is known to be any graphite additive dispersed in concrete mixtures.</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
        April 25, 2019 we signed an Intellectual Property License, Joint Development and Commercialization Agreement with Niagara
        Bottling acquiring exclusive license to certain of Niagara&#146;s patents and applications relating to the use of graphene
        nanoplatelets in packaging applications.&nbsp;For purposes of the agreement, Niagara&#146;s IP relates to five (5) U.S.
        patents and patent applications and two (2) international applications and future registered intellectual property directed
        at the field.</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Over
time, our scientists and engineers have made many further discoveries and inventions that are embodied in the form of (and as
of June 30, 2020): nineteen (19) additional U.S. patents, twenty-five (25) foreign patents, eleven (11) additional U.S. patent
applications and numerous trade secrets. For many of the applications filed in the U.S., additional filings are made in other
countries such as the European Union, Japan, South Korea, China, Taiwan or other applicable countries. As of June 30, 2020, we
maintained fourteen (14) international patent applications. These filings and analyses are made on a case-by-case basis. Typically,
patents that are defensive in nature are not filed abroad, while those that are protective of active XGS products or applications
are filed in relevant countries abroad. Our general IP strategy is to keep as trade secrets those manufacturing processes that
are difficult to enforce should they be disclosed and to seek patent coverage for other manufacturing processes, materials derived
from those processes, unique combinations of materials and end uses of materials containing graphene nanoplatelets. We believe
that the combination of our rights under various licenses, our patents and patent applications, and our trade secrets create a
strong intellectual property position.</FONT></P></TD>
    </TR>
</TABLE>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Operating
Segment </B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
have one reportable operating segment that manufactures xGnP<B><SUP>&reg;</SUP></B> graphene nanoplatelets and value-added products
produced therefrom, conducts research on graphene nanoplatelets and related products, and licenses our technology as appropriate.
As of June 30, 2020, we shipped products on a worldwide basis, however, all of our assets were located within the United States.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Results
of Operations for the Three and Six Months Ended June 30, 2020</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>compared
with the Three and Six Months Ended June 30, 2019</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 8pt Times New Roman, Times, Serif">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">For the Three Months Ended June 30,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Change 2020 to 2019</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">For the Six Months Ended June 30,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">Change 2020 to 2019</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: center; text-indent: -10pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">2020</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">2019</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">$</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">%</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">2020</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center">2019</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">$</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="border-bottom: Black 1pt solid; padding-bottom: 1pt; font-weight: bold; text-align: center">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; width: 28%; text-align: left; text-indent: -10pt">Total Revenues</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">81,146</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">247,069</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">(165,923</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">-67.2</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">248,209</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">1,104,346</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">(856,137</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">-77.5</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: left; text-indent: -10pt">Cost of Goods Sold</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">454,630</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">796,156</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">341,527</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">42.9</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,217,114</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,970,778</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">753,665</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">38.2</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: left; text-indent: -10pt">Gross Loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(373,484</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(549,087</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">175,603</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">32.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(968,904</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(866,432</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(102,472</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-11.8</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Research &amp; Development Expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">184,527</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">384,767</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">200,240</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">52.0</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">470,254</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">770,013</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">299,759</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">38.9</TD><TD STYLE="text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: left; text-indent: -10pt">Sales, General &amp; Administrative Expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,076,265</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,486,380</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">410,115</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">27.6</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,368,399</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,907,301</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">538,901</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">18.5</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: left; text-indent: -10pt">Total Operating Expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,260,792</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,871,147</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">610,355</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">32.6</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,838,654</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,677,314</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">838,660</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">22.8</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Operating Loss</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,634,276</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,420,234</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">785,958</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32.5</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,807,558</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,543,746</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">736,188</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16.2</TD><TD STYLE="text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: left; text-indent: -10pt">Other Expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(190,936</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(78,277</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">112,659</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-143.9</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(368,945</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(154,941</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">214,003</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-138.1</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 2.5pt 10pt; text-align: left; text-indent: -10pt">Net Loss</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,825,211</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(2,498,511</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">673,299</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">26.9</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">%</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(4,176,503</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(4,698,687</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">522,184</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">11.1</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">%</TD></TR>
  </TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Revenue</B>&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 8.65pt; padding-bottom: 1pt; white-space: nowrap; text-align: left; text-indent: -8.65pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="6" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>For the Three Months Ended
    <BR>
    June 30,</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="6" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>Change 2020 to 2019</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="6" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>For the Six Months Ended <BR>
    June 30,</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="6" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>Change 2020 to 2019</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-left: 8.65pt; padding-bottom: 1pt; white-space: nowrap; text-align: left; text-indent: -8.65pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>2020</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>2019</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>$</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt; font-style: italic"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-style: italic; text-align: center"><FONT STYLE="font-size: 8pt"><B>%</B></FONT></TD><TD STYLE="padding-bottom: 1pt; font-style: italic"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>2020</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>2019</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; text-align: center"><FONT STYLE="font-size: 8pt"><B>$</B></FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD><TD STYLE="padding-bottom: 1pt; font-style: italic"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; white-space: nowrap; font-style: italic; text-align: center"><FONT STYLE="font-size: 8pt"><B>%</B></FONT></TD><TD STYLE="padding-bottom: 1pt; font-style: italic"><FONT STYLE="font-size: 8pt"><B>&nbsp;</B></FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.65pt; width: 20%; text-align: left; text-indent: -8.65pt"><FONT STYLE="font-size: 8pt">Product Sales</FONT></TD><TD STYLE="padding-bottom: 1pt; width: 3%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; width: 5%; text-align: right"><FONT STYLE="font-size: 8pt">81,146</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt; width: 3%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; width: 5%; text-align: right"><FONT STYLE="font-size: 8pt">247,069</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt; width: 3%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; width: 5%; text-align: right"><FONT STYLE="font-size: 8pt">(165,923</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt; width: 3%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; width: 5%; text-align: right"><FONT STYLE="font-size: 8pt">(67.2</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt; width: 3%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; width: 5%; text-align: right"><FONT STYLE="font-size: 8pt">248,209</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt; width: 3%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; width: 5%; text-align: right"><FONT STYLE="font-size: 8pt">1,104,346</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt; width: 3%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; width: 5%; text-align: right"><FONT STYLE="font-size: 8pt">(856,137</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt; width: 3%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; width: 5%; text-align: right"><FONT STYLE="font-size: 8pt">(77.5</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; padding-left: 8.65pt; text-align: left; text-indent: -8.65pt"><FONT STYLE="font-size: 8pt">Total Revenues</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">81,146</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">247,069</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(165,923</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(67.2</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">248,209</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">1,104,346</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(856,138</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">(77.5</FONT></TD><TD STYLE="padding-bottom: 1pt; white-space: nowrap; text-align: left"><FONT STYLE="font-size: 8pt">)</FONT></TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">For
the three months ending June 30, 2020 we reported revenue of $81,146, a 67.2% decrease from the $247,069 reported for the three
months ending June 30, 2019. Since we are in the business of developing new materials and for use in new ways, accurately forecasting
new product adoption can be a challenge for our customers. The second quarter year-on-year decrease is due primarily to the vagaries
of unpredictable demand and inaccurate forecasts. Also, many of our customers were impacted by COVID-19 in the second quarter
and either delayed commercial adoption of our products or did not order replenishment products. For the six months ending June
30, 2020 we reported revenue of $248,209, a 77.5% decrease from the $1,104,346 reported for the six months ending June 30, 2019.
We have a strong customer pipeline and continue to establish a robust baseline of customers who are nearing commercial status.
We believe that once these customers reach commercial status with products that incorporate our products, each will begin to order
from us on a regular basis, which will help to mitigate the quarter-to-quarter revenue variability. However, until such time,
we expect to see variations in quarterly revenue resulting from variable order patterns from our customers.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Product
sales consist of two broad categories: (1) material sold to customers for research or development purposes; and (2) production
orders for customers. Typically, the order sizes for the first category are relatively small, however we expect orders in the
second category to be much larger in the future. In addition, other customers are moving through development programs towards
commercialization, requiring larger quantities of our materials for advanced testing, pilot production and commercial-scale production
activities. We believe that those customers already in production will increase their order volume as demand increases and others
will begin to move into commercial volume production as they gain more experience in working with our materials and engage their
own customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
ship our products from our Michigan manufacturing facilities to customers around the world. During the three months ended June
30, 2020, we shipped materials&nbsp;to customers in 14 countries, as compared to 13 countries during the same period in 2019.
For the three months ended June 30, 2020, sales to two countries, Switzerland and Turkey, accounted for more than 42% of revenue.
For the three months ended June 30, 2019, shipments to South Korea accounted for more than 10% of product sales.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Order
Summary</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
table below shows a comparison of domestic and international orders fulfilled (excluding orders for free samples). The table also
includes the average order size for product sales. The average order size for product revenue during the three months ended June
30, 2020 decreased by 87%, as compared to the same period in 2019. The relatively small average order size means that the majority
of our customer base remains active with research and development projects that only use limited amounts of our material. We expect
our average order size to increase significantly as more customers reach commercial status.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt; white-space: nowrap; font-weight: bold; text-align: left">Order&nbsp;Summary</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">For&nbsp;the&nbsp;Three&nbsp;Months&nbsp;Ended&nbsp;June&nbsp;30,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt; white-space: nowrap; font-weight: bold; text-align: left">(unaudited)</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2020</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2019</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="white-space: nowrap; text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 61%; text-align: left">Number of orders &ndash; domestic</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">20</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">33</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">(13</TD><TD STYLE="white-space: nowrap; width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Number of orders &ndash; international</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">21</TD><TD STYLE="white-space: nowrap; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">26</TD><TD STYLE="white-space: nowrap; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(5</TD><TD STYLE="white-space: nowrap; padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left">Number of orders &ndash; total</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">41</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">59</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(18</TD><TD STYLE="white-space: nowrap; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; text-indent: -9pt; padding-left: 9pt">Average order size for product sales recorded in our Statement of Operations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,962</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">15,018</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(13,056</TD><TD STYLE="white-space: nowrap; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD>&nbsp;% change</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="white-space: nowrap; text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(87</TD><TD STYLE="white-space: nowrap; text-align: left">%)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Cost
of Goods Sold</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
use a standard cost system to estimate the direct costs of products sold. Variances between the standard costs and the actual
costs are then properly capitalized to the inventories and expensed to cost of goods sold. Direct costs include estimates of raw
material costs, packaging, freight charges net of those billed to customers, and an allocation for direct labor and manufacturing
overhead. Because of the nature of our production processes, there is a substantial fixed manufacturing expense requirement that
represents the ongoing cost of maintaining production facilities that are not directly related to products sold, so we use a &#147;full
capacity&#148; allocation of overhead based on an estimate of what product costs would be if the manufacturing facilities were
operating on a full-time basis and producing products at the designed capacity.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
following table shows the relationship of direct costs to product sales for the three months ended June 30, 2020 and 2019:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 80%">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: left; text-indent: -10pt">Gross Loss Summary</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">For the Three Months Ended June 30,</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change 2020 to 2019</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-align: center; text-indent: -10pt"><B>&nbsp;</B></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>2020</B></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>2019</B></TD><TD STYLE="padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid"><B>$</B></TD><TD STYLE="padding-bottom: 1pt"><B>&nbsp;</B></TD>
    <TD COLSPAN="3" STYLE="text-align: center; border-bottom: Black 1pt solid"><B>%</B></TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; width: 20%; text-align: left; text-indent: -10pt">Product Sales</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 5%; text-align: right">81,146</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 5%; text-align: right">247,069</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 5%; text-align: right">(165,923</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; text-align: right">(67.2</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: left; text-indent: -10pt">Direct Costs</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">41,828</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">196,411</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(154,583</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(78.7</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 2.5pt 10pt; text-align: left; text-indent: -10pt">Direct Cost Margin</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">39,318</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">50,658</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(11,340</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(22.4</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">% of Sales</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">48.5</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20.5</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 0pt 10pt; text-indent: -10pt">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding: 0pt 0pt 1pt 10pt; text-align: left; text-indent: -10pt">Unallocated Manufacturing Expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">412,802</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">599,745</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(186,943</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(31.2</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="padding: 0pt 0pt 2.5pt 10pt; text-align: left; text-indent: -10pt">Gross Loss on Product Sales</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(373,484</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(549,088</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">175,603</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">32.0</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
  </TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT>&nbsp;<FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>



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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
believe that the fluctuations in gross loss on product sales and direct cost from period to period are not indicative of future
margins because of the relatively small size of our sales in comparison to our future expectations. Direct costs vary depending
on the size of an order, the specific products being ordered, and other factors like shipping destination (which on small orders
can represent a significant percentage of the cost).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
remaining &#147;non-direct&#148; costs of operating our manufacturing facilities are recorded as unallocated manufacturing expenses.
These expenses include personnel costs, rent, utilities, indirect supplies, depreciation, and related indirect expenses. Unallocated
manufacturing expenses are expensed as incurred. We allocate these costs to direct product costs based on the proportion of these
expenses that would be representative of direct product costs if we were operating our factory at full capacity.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">For
the three months ended June 30, 2020, unallocated manufacturing expenses decreased by 31.2% to $412,802 as compared to $599,745
for the same period in 2019. The decrease of $186,943 is largely due to furloughs and headcount reductions as well as lower variable
overhead costs due to the discontinuance of production at the Legion Drive site in late June of 2019 until sales rebound.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Sales,
General and Administrative Expenses</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">During
the three months ended June 30, 2020, we incurred selling, general and administrative expenses (SG&amp;A) of $1,076,265. This
is a decrease of $410,115 or 27.6% from the same period in 2019. This decrease in SG&amp;A expense is primarily related to decreased
personnel costs as the Company began taking measures in anticipation of slower demand and delays in customer adoption caused by
COVID-19.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Research
and Development Expenses</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">During
the three months ended June 30, 2020, we incurred research and development expenses (R&amp;D) of $184,527. This is a decrease
of $200,240 or 52% from the same period in 2019. This decrease in R&amp;D is primarily related to decreased personnel costs as
the Company began taking measures in anticipation of slower demand due to COVID-19.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Other
Expense</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Other
income and expense consist primarily of Interest expense on the Dow Facility and the Convertible Notes. Following shows a comparison
of other income and expense for the three months ended June 30, 2020 and 2019:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 80%">
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center">For the Three Months Ended</TD><TD>&nbsp;</TD>
    <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="7" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="text-align: center">&nbsp;</TD></TR>
  <TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2020</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2019</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change $</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="width: 30%; text-align: left">Interest Expense, Net</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">(190,800</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">(78,277</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">(112,523</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Nonoperating Expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(136</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(136</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
  <TR STYLE="vertical-align: bottom; background-color: rgb(204,238,255)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total Other Expense</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(190,936</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(78,277</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(112,659</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
  </TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font: 10pt Times New Roman, Times, Serif"></FONT></P>



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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Fair
Value Measurements</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">ASB
ASC 820: &#147;Fair Value Measurements and Disclosures&#148; defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to measure fair value:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><I>Level
1</I>: Quoted prices in active markets for identical assets or liabilities.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><I>Level
2</I>: Inputs other than quoted prices included within Level 1 which are either directly or indirectly observable.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><I>Level
3</I>: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">A
financial instrument&#146;s level within the fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement. Our derivative liabilities are classified as Level 3 within the fair value hierarchy because they
were valued using other unobservable inputs. The valuation technique used to measure fair value of the derivative liabilities
is based on a lattice model with significant assumptions and inputs determined by the Company. A lattice model was used to estimate
the fair value of the derivative liabilities because management believes it reflects all of the assumptions that market participants
would likely consider including early exercise of the warrants. The fair value of the derivative liabilities will be significantly
influenced by the fair value of our common stock, stock price volatility and the risk-free interest components of the lattice
technique.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Derivative
Financial Instruments</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. The terms of the Unit Offering
issued April 23, 2020 were reviewed to determine whether or not they contain embedded derivative instruments that are required
by ASC 815: &#147;Derivatives and Hedging&#148; to be accounted for separately from the host contract and recorded at fair value.
The anti-dilution provision of the Series B Preferred Stock, the redemption rights, the conversion rights and the participation
rights issued with the Unit Offering met the conditions to be accounted for separately from the host contract and are classified
as derivative instrument liabilities measured at fair value. The fair values of these derivative liabilities are revalued at each
reporting date, with the change in fair value recognized in earnings.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>Liquidity
and Capital Expenditures</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><U>Liquidity</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
have historically incurred losses from operations, and we may continue to generate negative cash flows as we implement our business
plan. Our consolidated financial statements are prepared using US GAAP as applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of business.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As of May 17, 2021, we had cash on hand of $x,xxx,xxx.&nbsp;&nbsp;
Due to lower-than-expected revenue in 2019 and the current COVID-19 global pandemic impacting both our operations and that of our customers,
Management has taken several steps to ensure we are able to fund our operations from existing cash on hand, operating cash flows, additional
borrowings, and restructured debt obligations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
March of 2020, we restructured our organization by reducing headcount by 53%, by furloughing substantially all manufacturing employees,
and by implementing temporary salary reductions ranging from 15-20%. Although we have re-employed key employees since the reductions
and furloughs, annual payroll and related costs have been reduced by 38%. In April 2020, we furloughed additional employees in
our R&amp;D and Engineering departments. Salary reductions remained in place at the discretion of the Compensation Committee of
the Board of Directors until February 1, 2021.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">In
early April of 2020, we applied for relief under the Coronavirus Aid, Relief and Economic Security Act (CARES) by applying with
the Small Business Administration (SBA) for an Economic Injury Disaster Loan (&#147;EIDL&#148;) and by submitting an application
to an SBA lender bank, PNC, for a Paycheck Protection Plan (&#147;PPP&#148;) loan. On April 18, 2020, we received an approved
and fully executed PPP Term Note for $825,200 with a term of two years, a six-month repayment deferral period, and an annual rate
of interest of 1%, with a potential for some or all of the loan to be forgiven, dependent upon use of the loan proceeds. On April
20, 2020, we received the $825,200 of proceeds under the PPP loan which was subsequently reduced by $34,405 to $790,795 due to
additional SBA guidance regarding 1099 income paid. On October 6, 2020, the Paycheck Protection Flexibility Act of 2020 extended
the deferral expiration period for loan repayments to either the date that the SBA remits the borrower&#146;s loan forgiveness
or to 24 weeks after the receipt of proceeds plus 10 months or July 3, 2021. We plan to apply for loan forgiveness before the
end of the deferred expiration date. The outstanding principal that is not forgiven converts to an amortizing term loan. On May
17, 2020, the SBA issued us a decline letter for the EIDL for which reconsideration has not been granted.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
April 23, 2020, we entered into an amended and restated Draw Loan Note and Agreement and related transaction documents (collectively,
the &#147;Amended Dow Facility&#148;) with the Dow Chemical Company to amend the terms of our current loan facility to allow
us to structure a private placement of units (&#147;Units&#148;) comprised (in part) of subordinated, secured convertible notes
(&#147;Convertible Notes&#148; and such offering, the &#147;Unit Offering&#148;), to support ongoing cash needs.&nbsp; In
the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of such loan facility by two years to December 1, 2023,
2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked financings from the current
30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow Facility, which
does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date of the amendment,
3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million for two consecutive
calendar quarters, 4) increase the rate of interest to 6.5% per annum from 5% in the pre-existing Dow Facility, and 5) allow for
a subordinated security interest to be granted to new investors in the Unit Offering.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Immediately
after the execution of the transaction documents related to the Amended Dow Facility, we commenced the Unit Offering in a private
placement to accredited investors. The Unit Offering is comprised of the Convertible Notes and a right to exchange two shares
of previously issued Common Stock of the Company for two shares of Series B Convertible Preferred Stock of the Company (&#147;Series
B Preferred Stock&#148;) for every $8.00 invested in the Unit Offering (the &#147;Exchange Rights&#148;). The Convertible Notes
are secured by a junior security interest in all the assets of the Company, bear an interest rate of 7.5% per annum and mature
on December 31, 2024. Each investor&#146;s Exchange Rights are exercisable for a period of thirty (30) days after acceptance
by the Company of a fully executed subscription agreement.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">At
the option of each holder, the Convertible Notes are convertible into either i) Series B Preferred Stock at a conversion price
of $8.00/share; or ii) any other form of preferred or common stock (&#147;Subsequent Stock&#148;) issued by the Company at a
conversion price per share equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value
per share is fixed, 125% of the number of shares that might otherwise be issuable).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">If
and when we raise at least $15 million of equity capital (excluding capital raised in this Unit Offering), the Convertible Notes
will be automatically converted into whichever of the following equity securities would result in the greatest number of shares
of Common Stock being issued to the holders on an &#147;as-if-converted&#148; basis at such time: (i) Series B Preferred Stock
at a note conversion price of $8.00/share; or (ii) Subsequent Stock at a note conversion price per share equal to 80% of the purchase
price per share at which such Subsequent Stock is sold (or if the value per share is fixed, 125% of the number of shares that
might otherwise be issuable);</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Each
share of Series B Preferred Stock has an original issue price of $8.00 per share (the &#147;Series B Original Issue Price&#148;)
and a liquidation preference of $8.00 per share, with both the Series B Original Issue Price and the liquidation preference per
share subject to adjustment for stock splits, recapitalizations, and the like. The Series B Preferred Stock will be senior to
the Company&#146;s Common Stock and pari-passu with the Series A Preferred Stock in terms of right of repayment in a liquidation.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
Series B Preferred Stock has full ratchet antidilution protection that provides that each share of Series B Preferred Stock outstanding
may be converted by an Investor at any time into that number of shares of Common Stock determined by dividing the then current
Series B Original Issue Price by the applicable Conversion Price (as defined below) with the resulting fraction equal to the &#147;Series
B Conversion Rate&#148;. The total number of shares of Common Stock issuable will be equal to the number of shares of Series
B Preferred Stock being converted multiplied by the Series B Conversion Rate. The &#147;Conversion Price&#148; is, at any time,
the price per share equal to the lesser of a) the Series B Original Issue Price per share and b) the lowest price per share at
which the Company has sold equity or equity-linked securities (other than customary exclusions) at any future date while any shares
of the Series B Preferred Stock remain outstanding. The Series B Original Issue Price and Conversion Price in effect at any time
are also subject to proportional adjustment for share splits, share dividends, recapitalizations, and the like.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
April 23, 2020, certain members of our Board of Directors and their affiliates purchased $550,000 of convertible notes. In addition,
these Board members and their affiliates purchased $800,000, $1,801,504, and $515,016 of convertible notes in the quarters ended
September 30, 2020, December 31, 2020 and March 31, 2021. In total, the Board members and their affiliates purchased a total of
$3,666,520 of convertible notes through March 31, 2021 from the Company. Non-Board affiliated third parties purchased $700,160
and $2,073,600 of convertible notes in the quarters ended December 31, 2020 and March 31, 2021 from the Company for a total purchase
of $2,773,760. Total proceeds from the sale of Convertible Notes as of March 31, 2021 was $6,440.280.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Taking
into consideration our current cash on hand, we estimate that we will need to raise approximately $500,000 - $1,000,000 of additional
capital to continue our operations for the next twelve months in a minimal to no revenue growth environment. Our continuation
as a going concern is dependent upon continued financial support from our shareholders, our ability to obtain necessary equity
and/or debt financing to continue operations, and growth in revenue from operations. These factors raise substantial doubt regarding
our ability to continue as a going concern. We cannot make any assurances that additional financings will be available to us and,
if available, completed on a timely basis, on acceptable terms or at all. If we are unable to complete an equity or debt offering,
or otherwise obtain sufficient financing when and if needed, it would negatively impact our business and operations. It could
also lead to the reduction or suspension of our operations and ultimately force us to cease our operations.</FONT></P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">There
has been no public market for our securities and a public market may never develop, or, if any market does develop, it may not
be sustained. Our Common Stock is not currently quoted on or traded on any exchange or on any over-the-counter market. In the
event we are unable to fund our operations from existing cash on hand, operating cash flows, additional borrowings or raising
equity capital, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our condensed consolidated
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a003_v1"></A>ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Smaller
reporting companies are not required to provide this information.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a004_v1"></A>ITEM
4. CONTROLS AND PROCEDURES</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(a)
<I>Evaluation of disclosure controls and procedures</I>. We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our
management, including our principal executive officer and principal&nbsp;financial officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">As
required by SEC Rule 15d-15, our management carried out an evaluation, under the supervision and with the participation of our
principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as
of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer
and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance
level as of the end of the period covered by this report.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(b)
<I>Changes in internal controls</I>. There were no changes in our internal control over financial reporting that occurred during
the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.</FONT></P>


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    <DIV STYLE="break-before: page; margin-top: 6pt"><P STYLE="margin: 0pt">&nbsp;</P></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>PART
II - OTHER INFORMATION</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a005_v1"></A>ITEM
1. LEGAL PROCEEDINGS.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">None.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a006_v1"></A>ITEM
1A. RISK FACTORS.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Smaller
reporting companies are not required to provide this information. Please refer to the risk factors as set forth beginning on page
12 under the section entitled &#147;Risk Factors&#148; in our annual report on Form 10-K as filed with the Securities and Exchange
Commission (the &#147;SEC&#148;) on April 29, 2020.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a007_v1"></A>ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
following sets forth information regarding all unregistered securities sold from July 1, 2019 through June 30, 2020:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 4%; padding-top: 6pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 4%; padding-top: 6pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(1)</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-top: 6pt; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
    granted stock options to purchase an aggregate of 12,500 shares at an exercise prices of $8.00 per share to Board members,
    consultants and directors under the 2017 Equity Plan;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 4%; padding-top: 6pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 4%; padding-top: 6pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">(2)</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-top: 6pt; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">We
    granted an aggregate of 12,500 shares of restricted stock with an aggregate fair value of $100,000 under the 2017 Incentive
    Plan.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">The
issuances of securities described in paragraphs (1) and (2) above were deemed to be exempt from registration under the Securities
Act in reliance on Rule 701 promulgated under the Securities Act as transactions by an issuer not involving a public offering
or under benefit plans and contracts relating to compensation as provided under Rule 701.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a008_v1"></A>ITEM
3. DEFAULTS UPON SENIOR SECURITIES.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">None.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a009_v1"></A>ITEM
4. MINE SAFETY DISCLOSURES.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">None.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a010_v1"></A>ITEM
5. OTHER INFORMATION.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">On
April 27, 2020, the Company amended and restated the Certificate of Designation of its Series B Preferred Stock, a copy of which
is filed as Exhibit 3.1 hereto. On December 20, 2020, the Company again amended and restated the Certificate of Designation of
its Series A and Series B Preferred Stock, a copy of which is filed as Exhibit 3.2 hereto. On March 31, 2021, the Company again
amended and restated the Certificate of Designation of its Series B Preferred Stock, a copy of which is filed as Exhibit 3.3 hereto.</FONT></P>


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    <DIV STYLE="break-before: page; margin-top: 6pt"><P STYLE="margin: 0pt">&nbsp;</P></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a011_v1"></A>ITEM
6. EXHIBITS.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid; font: 10pt Times New Roman, Times, Serif; text-align: left; white-space: nowrap; width: 8%; vertical-align: bottom"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>EXHIBIT<BR>
NUMBER</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 1%; vertical-align: bottom"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; vertical-align: bottom; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 54%; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>DESCRIPTION</B></FONT></TD>
    <TD STYLE="padding-bottom: 1pt; text-align: center; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 1%; vertical-align: bottom"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; vertical-align: bottom; font: 10pt Times New Roman, Times, Serif; white-space: nowrap; width: 36%; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B>LOCATION</B></FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 3pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; padding-left: 3pt"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">3.1</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Second
                                         Amended and restated Certificate of Designations of Series B Convertible Preferred Stock</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed
                                         herewith</FONT></A></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-2a.htm"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">3.2</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-2a.htm"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Third
        Amended and restated Certificate of Designation of Series A Convertible Preferred Stock</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-2a.htm"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Filed
        herewith</FONT></A></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-2b.htm"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">3.2</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-2b.htm"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Third
        Amended and restated Certificate of Designation of Series B Convertible Preferred Stock</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-2b.htm">Filed herewith</A></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-3.htm"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">3.3</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-3.htm"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Fourth
        Amended and restated Certificate of Designation of Series B Convertible Preferred Stock</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif">&nbsp;</TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex3-3.htm">Filed herewith</A></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex31-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">31.1</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex31-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex31-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed herewith</FONT></A></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex31-2.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">31.2</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex31-2.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex31-2.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed herewith</FONT></A></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex32-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">32.1</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex32-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002*</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex32-1.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed herewith</FONT></A></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex32-2.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">32.2</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex32-2.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*</FONT></A></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><A HREF="e2647_ex32-2.htm"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed herewith</FONT></A></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.
    INS</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XBRL
    Instance Document</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed
    herewith</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.
    CAL</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XBRL
    Taxonomy Extension Calculation Link base Document</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed
    herewith</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.
    DEF</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XBRL
    Taxonomy Extension Definition Link base Document</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed
    herewith</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.
    LAB</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XBRL
    Taxonomy Label Link base Document</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed
    herewith</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.
    PRE</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XBRL
    Extension Presentation Link base Document</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed
    herewith</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: White">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">101.
    SCH</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">XBRL
    Taxonomy Extension Scheme Document</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Filed
    herewith</FONT></TD></TR>
</TABLE>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt"><B><A NAME="a012_v1"></A>SIGNATURES</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 54%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Dated:
    &nbsp;May 19, 2021</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 5%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">By:</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 1%"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; width: 40%; border-bottom: black 1pt solid"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">/s/
    Robert M. Blinstrub</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Name:</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Robert
    M. Blinstrub</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Title:</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chief
    Executive Officer</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Dated:
    &nbsp;May 19, 2021</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">By:</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; border-bottom: black 1pt solid"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">/s/
    Jacqueline M. Lemke</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Name:</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Jacqueline
    M. Lemke</FONT></TD></TR>
<TR STYLE="font: 10pt Times New Roman, Times, Serif; vertical-align: top">
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Title:</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif"><FONT STYLE="font-family: Times New Roman, Times, Serif; font-size: 10pt">Chief
    Financial Officer</FONT></TD></TR>
</TABLE>

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[{"type": "10-Q", "sequence": "1", "filename": "e2647_10q.htm", "description": "10-Q", "secsgml_size_bytes": 478421}]
{"company-data": {"conformed-name": "XG SCIENCES INC", "cik": "0001435375", "assigned-sic": "2821", "irs-number": "000000000", "state-of-incorporation": "MI", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "333-209131", "film-number": "21954240"}, "business-address": {"street1": "3101 GRAND OAK DRIVE", "street2": "SUITE 212", "city": "LANSING", "state": "MI", "zip": "48911", "phone": "517-203-1110"}, "mail-address": {"street1": "3101 GRAND OAK DRIVE", "street2": "SUITE 212", "city": "LANSING", "state": "MI", "zip": "48911"}}
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington
D.C. 20549
FORM
10-Q
x
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended
: June 30, 2020
or
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ______to______.
XG
    SCIENCES, INC.
(Exact
    name of registrant as
specified in its
charter)
Michigan
333-209131
20-4998896
(State
    or other jurisdiction of
incorporation or organization)
(Commission
    File No.)
(I.R.S.
    Employer Identification
No.)
3101
Grand Oak Drive
Lansing,
MI 48911
(Address
of principal executive offices) (zip code)
(517)
703-1110
(Issuer
Telephone number)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
o
No
x
Indicate
by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit such files). Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of "large accelerated filer,"
"accelerated filer," "smaller reporting company," and "emerging growth company" in Rule
12b-2 of the Exchange Act.
Large
    accelerated filer
o
Accelerated
    filer
o
Non-accelerated
    filer
þ
Smaller
    reporting company
þ
Emerging
    growth company
þ
If
an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
þ
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes
o
No
x
Securities
registered pursuant to Section 12(b) of the Act: None
As
of April 16, 2021, there were 8,383,892 shares of the registrant's common stock outstanding.
The
Company was unable to timely file the reports for the quarters ending June 30, 2020 and September 30, 2020 due to the time required
by a valuation study needed to properly analyze and account for the April 23, 2020 Convertible Notes Unit Offering.
XG
SCIENCES, INC.
FORM
10-Q
June
30, 2020
INDEX
PART
    I
ITEM
    1.
FINANCIAL
    STATEMENTS
4
ITEM
    2.
MANAGEMENT'S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
19
ITEM
    3.
QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
31
ITEM
    4.
CONTROLS
    AND PROCEDURES
31
PART
    II
ITEM
    1.
LEGAL
    PROCEEDINGS
32
ITEM
    1A.
RISK
    FACTORS
32
ITEM
    2.
UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
32
ITEM
    3.
DEFAULTS
    UPON SENIOR SECURITIES
32
ITEM
    4.
MINE
    SAFETY DISCLOSURES
32
ITEM
    5.
OTHER
    INFORMATION
32
ITEM
    6.
EXHIBITS
33
SIGNATURES
34
2
FORWARD-LOOKING
STATEMENTS
The
information in this Quarterly Report on Form 10-Q contains "forward-looking statements" and information 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") relating to XG Sciences, Inc., a Michigan corporation and its
subsidiary, XG Sciences IP, LLC, a Michigan limited liability company (collectively referred to as "we", "us",
"our", "XG Sciences", "XGS", or the "Company"), which are subject to the "safe
harbor" created by those sections. These forward-looking statements include, but are not limited to, statements concerning
our strategy, future operations, future financial position, future revenue, projected costs, prospects and plans and objectives
of management. The words "anticipates," "believes," "estimates," "expects," "intends,"
"may," "plans," "projects," "will," "would" and similar expressions
are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not
place undue reliance on our forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties
that could cause our actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking
statements, including, without limitation, the risks set forth beginning on page 12 under the section entitled "Risk Factors"
in our annual report on Form 10-K as filed with the Securities and Exchange Commission (the "SEC") on April 29, 2020.
3
ITEM
1 – FINANCIAL STATEMENTS
XG
    SCIENCES, INC.
CONDENSED
    CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, 2020
December 31, 2019
ASSETS
(Unaudited)
CURRENT ASSETS
Cash
$
667,664
$
1,129,702
Accounts receivable, less allowance for doubtful accounts of $157,965 at June 30, 2020 and $179,600 at December 31, 2019
108,125
72,227
Inventories
866,792
891,587
Other current assets
289,590
334,493
Total current assets
1,932,171
2,428,009
Property, Plant and Equipment, Net
3,268,725
3,676,142
Lease Deposit
59,440
77,544
Intangible Assets, Net
763,215
753,862
Right of Use Asset
1,325,549
1,606,443
TOTAL ASSETS
7,349,100
8,542,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable
815,067
634,564
Other current liabilities
272,323
238,554
Deferred revenue
12,757
—
Current portion of lease liabilities
484,430
520,197
Total current liabilities
1,584,577
1,393,315
LONG-TERM LIABILITIES
Long-term portion of lease liabilities
962,482
1,183,872
Convertible notes
247,104
—
SBA Loan payable
802,069
—
Long term debt - Dow
9,396,644
8,111,610
Total long-term liabilities
11,408,299
9,295,482
TOTAL LIABILITIES
12,992,876
10,688,797
STOCKHOLDERS' EQUITY
Series A convertible preferred stock, 3,000,000 shares authorized, 1,890,354 shares issued and outstanding, liquidation value of $22,684,248 at June 30, 2020 and December 31, 2019
22,307,480
22,307,480
Series B Preferred stock, 1,500,000 shares authorized, 137,043 and zero shares issued and outstanding, liquidation value of $1,096,344 at June 30, 2020 and zero at December 31, 2019
1,079,400
—
Common stock, no par value, 25,000,000 shares authorized, 3,887,400 and 4,024,443 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
31,305,532
32,351,876
Additional paid-in capital
9,421,443
8,774,975
Accumulated deficit
(69,757,631
)
(65,581,128
)
Total stockholders' equity (deficit)
(5,643,776
)
(2,146,797
)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
7,349,100
8,542,000
See
notes to unaudited condensed consolidated financial statements.
4
XG
    SCIENCES, INC.
CONDENSED
    CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) - USD ($)
For the Three Months Ended June 30,
For the Six Months Ended June 30,
2020
2019
2020
2019
REVENUE
Product Sales
81,146
247,069
248,209
1,104,346
Total Revenues
$
81,146
$
247,069
$
248,209
$
1,104,346
COST OF GOODS SOLD
Direct costs
41,828
196,411
145,398
877,564
Unallocated manufacturing expenses
412,802
599,745
1,071,715
1,093,214
Cost of Goods Sold
454,630
796,156
1,217,113
1,970,778
GROSS LOSS
(373,484
)
(549,087
)
(968,904
)
(866,432
)
OPERATING EXPENSES
Research & Development Expense
184,527
384,767
470,254
770,013
Sales, General & Administrative Expense
1,076,265
1,486,380
2,368,400
2,907,301
Total Operating Expenses
1,260,792
1,871,147
2,838,654
3,677,314
OPERATING LOSS
(1,634,276
)
(2,420,234
)
(3,807,558
)
(4,543,746
)
OTHER EXPENSE
Interest expense, net
(190,800
)
(78,277
)
(368,808
)
(154,941
)
Noperating Expense
(136
)
—
(136
)
—
Total Other Expense
(190,936
)
(78,277
)
(368,944
)
(154,941
)
Net Loss
$
(1,825,212
)
$
(2,498,511
)
$
(4,176,502
)
$
(4,698,687
)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
Basic and diluted (in shares)
4,001,778
3,990,038
4,013,111
3,883,053
NET LOSS PER SHARE - Basic and diluted (in dollars per share)
$
(0.46
)
$
(0.63
)
$
(1.04
)
$
(1.21
)
See
notes to unaudited condensed consolidated financial statements.
5
XG
    SCIENCES, INC.
CONDENSED
    CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2019 - USD ($)
Preferred stock A
Preferred stock B
Common stock
Additional paid-in capital
Accumulated deficit
Shares
Amount
Shares
Amount
Shares
Amount
Amount
Amount
Total
Balances, December 31, 2018
1,890,354
$
22,307,480
3,760,268
$
30,268,476
$
8,101,923
$
(55,687,160
)
$
4,990,719
Stock issued for cash
51,250
410,000
410,000
Stock issuance fees and expenses
(16,000
)
(16,000
)
Transition adjustment for adoption of new lease standard
(116,319
)
(116,319
)
Stock-based compensation expense
20,000
88,288
108,288
Net loss
—
—
—
—
—
—
—
(2,200,176
)
(2,200,176
)
Balances, March 31, 2019
1,890,354
$
22,307,480
—
$
—
3,811,518
$
30,682,476
$
8,190,211
$
(58,003,655
)
$
3,176,512
Stock issued for cash
200,425
1,603,400
1,603,400
Stock issuance fees and expenses
(4,000
)
(4,000
)
Stock-based compensation expense
20,000
90,368
110,368
Net loss
—
—
—
—
—
—
—
(2,498,511
)
(2,498,511
)
Balances, June 30, 2019
1,890,354
$
22,307,480
—
$
—
4,011,943
$
32,301,876
$
8,280,579
$
(60,502,166
)
$
2,387,769
For the Six Months Ended June 30, 2020 - USD ($)
Preferred stock A
Preferred stock B
Common stock
Additional paid-in capital
Accumulated deficit
Shares
Amount
Shares
Amount
Shares
Amount
Amount
Amount
Total
Balances, December 31, 2019
1,890,354
$
22,307,480
$
—
$
—
4,024,443
$
32,351,876
$
8,774,975
$
(65,581,128
)
$
(2,146,797
)
Stock-based compensation expense
25,000
85,276
110,276
Warrants issued with Dow financing
71,276
71,276
Net loss
—
—
—
—
—
—
—
$
(2,351,291
)
(2,351,291
)
Balances, March 31, 2020
1,890,354
$
22,307,480
—
$
—
4,024,443
$
32,376,876
$
8,931,527
$
(67,932,419
)
$
(4,316,536
)
Common stock exchanged for Series B stock
137,043
1,096,344
(137,043
)
(1,096,344
)
—
Stock issuance fees and expenses
(16,944
)
(16,944
)
Value of exchange rights
268,431
268,431
Stock-based compensation expense
25,000
221,485
246,485
Net loss
—
—
—
—
—
—
—
(1,825,212
)
(1,825,212
)
Balances, June 30, 2020
1,890,354
$
22,307,480
137,043
$
1,079,400
3,887,400
$
31,305,532
$
9,421,443
$
(69,757,631
)
(5,643,776
)
See
notes to unaudited condensed consolidated financial statements
6
XG
    Sciences, Inc.
CONDENSED
    CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Six Months Ended June 30,
2020
2019
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss
$
(4,176,502
)
$
(4,698,687
)
Depreciation
432,026
388,110
Amortization of intangible assets
36,093
31,716
Provision for bad debts
0
26,000
Stock-based compensation expense
356,760
218,656
Non-cash interest expense
369,840
39,584
Changes in current assets and liabilities:
Accounts receivable
(35,898
)
563,515
Inventory
24,795
(305,361
)
Other current and non-current assets
86,744
(46,002
)
Accounts payable and other liabilities
227,028
(353,563
)
NET CASH USED IN OPERATING ACTIVITIES
(2,679,114
)
(4,136,032
)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment
(24,609
)
(287,746
)
Purchases of intangible assets
(45,445
)
(74,127
)
NET CASH USED IN INVESTING ACTIVITIES
(70,054
)
(361,873
)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock
—
2,013,400
Common stock issuance fees and expenses
—
(20,000
)
Proceeds from (repayment of) long term debt- Dow
1,000,000
(638,220
)
Proceeds from convertible notes
550,000
—
Convertible notes issuance fees and expenses
(63,801
)
—
Proceeds from SBA Loan and EIDL Grant
800,795
—
Repayments of capital lease obligations
—
(15,528
)
Exchange Rate value
136
NET CASH PROVIDED BY FINANCING ACTIVITIES
2,287,130
1,339,652
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(462,038
)
(3,158,253
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD
1,129,702
4,893,974
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
667,664
1,735,721
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
77
64,626
Warrants issued with Dow financing
71,276
—
See
notes to unaudited condensed consolidated financial statements
7
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
XG
Sciences, Inc., a Michigan company located in Lansing, Michigan and its subsidiary, XG Sciences IP, LLC (collectively referred
to as "we", "us", "our", or the "Company") manufactures graphene nanoplatelets
made from graphite, using two proprietary manufacturing processes to split natural flakes of crystalline graphite into very small
and thin particles, which we sell as xGnP
®
graphene nanoplatelets. We sell our nanoplatelets in the form of bulk
powders or dispersions to other companies for use as additives to make composite and other materials with specialty engineered
characteristics.
Basis
of Presentation
The
accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP") for interim financial information and the instructions
to Form 10-Q and do not include all of the information and footnotes required by GAAP for complete financial statements. All intercompany
transactions have been eliminated in consolidation.
Certain
information and footnote disclosures normally included in our annual audited consolidated financial statements and accompanying
notes have been condensed or omitted in these interim condensed consolidated financial statements. Accordingly, the unaudited
condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 2019, as filed with the Securities and Exchange Commission ("SEC") on Form
10-K on April 29, 2020.
The
results of operations presented in this quarterly report are not necessarily indicative of the results of operations that may
be expected for any future periods. In the opinion of management, these unaudited condensed consolidated financial statements
include all adjustments and accruals, consisting only of normal recurring adjustments that are necessary for a fair statement
of the results of all interim periods reported herein.
Use
of Estimates
The
preparation of our condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, together with amounts disclosed
in the related notes to the financial statements. Actual results and outcomes may differ from our estimates, judgments, and assumptions.
Significant estimates, judgments and assumptions used in these condensed consolidated financial statements include, but are not
limited to, those related to revenue, accounts receivable and related allowances, inventory valuations, contingencies, useful
lives, and recovery of long-term assets, including intangible assets, income taxes, and the fair value of stock-based compensation.
These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected
in the financial statements prospectively from the date of the change in estimate.
8
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Liquidity
We
have historically incurred losses from operations, and we may continue to generate negative cash flows as we implement our business
plan. Our consolidated financial statements are prepared using US GAAP as applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of business.
As of May 17, 2021, we had cash on hand of
$x,xxx,xxx. Due to lower-than-expected revenue in 2019 and the current COVID-19 global pandemic impacting both our operations and
that of our customers, Management has taken several steps to ensure we are able to fund our operations from existing cash on hand,
operating cash flows, additional borrowings, and restructured debt obligations.
In
March of 2020, we restructured our organization by reducing headcount by 53%, by furloughing substantially all manufacturing employees,
and by implementing temporary salary reductions ranging from 15-20%. Although we have re-employed key employees since the reductions
and furloughs, annual payroll and related costs have been reduced by 38%. In April 2020, we furloughed additional employees in
our R&D and Engineering departments. Salary reductions remained in place at the discretion of the Compensation Committee of
the Board of Directors until February 1, 2021.
In
early April of 2020, we applied for relief under the Coronavirus Aid, Relief and Economic Security Act (CARES) by applying with
the Small Business Administration (SBA) for an Economic Injury Disaster Loan ("EIDL") and by submitting an application
to an SBA lender bank, PNC, for a Paycheck Protection Plan ("PPP") loan. On April 18, 2020, we received an approved
and fully executed PPP Term Note for $825,200 with a term of two years, a six-month repayment deferral period, and an annual rate
of interest of 1%, with a potential for some or all of the loan to be forgiven, dependent upon use of the loan proceeds. On April
20, 2020, we received the $825,200 of proceeds under the PPP loan which was subsequently reduced by $34,405 to $790,795 due to
additional SBA guidance regarding 1099 income paid. On October 6, 2020, the Paycheck Protection Flexibility Act of 2020 extended
the deferral expiration period for loan repayments to either the date that the SBA remits the borrower's loan forgiveness
or to 24 weeks after the receipt of proceeds plus 10 months or July 3, 2021. We plan to apply for loan forgiveness before the
end of the deferred expiration date. The outstanding principal that is not forgiven converts to an amortizing term loan. On May
17, 2020, the SBA issued us a decline letter for the EIDL for which reconsideration has not been granted.
On
April 23, 2020, we entered into an amended and restated Draw Loan Note and Agreement and related transaction documents (collectively,
the "Amended Dow Facility") with the Dow Chemical Company to amend the terms of our current loan facility to allow
us to structure a private placement of units ("Units") comprised (in part) of subordinated, secured convertible notes
("Convertible Notes" and such offering, the "Unit Offering"), to support ongoing cash needs.  In
the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of such loan facility by two years to December 1, 2023,
2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked financings from the current
30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow Facility, which
does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date of the amendment,
3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million for two consecutive
calendar quarters, 4) increase the rate of interest to 6.5% per annum from 5% in the pre-existing Dow Facility, and 5) allow for
a subordinated security interest to be granted to new investors in the Unit Offering.
Immediately
after the execution of the transaction documents related to the Amended Dow Facility, we commenced the Unit Offering in a private
placement to accredited investors. The Unit Offering is comprised of the Convertible Notes and a right to exchange two shares
of previously issued Common Stock of the Company for two shares of Series B Convertible Preferred Stock of the Company ("Series
B Preferred Stock") for every $8.00 invested in the Unit Offering (the "Exchange Rights"). The Convertible Notes
are secured by a junior security interest in all the assets of the Company, bear an interest rate of 7.5% per annum and mature
on December 31, 2024. Each investor's Exchange Rights are exercisable for a period of thirty (30) days after acceptance
by the Company of a fully executed subscription agreement.
At
the option of each holder, the Convertible Notes are convertible into either i) Series B Preferred Stock at a conversion price
of $8.00/share; or ii) any other form of preferred or common stock ("Subsequent Stock") issued by the Company at a
conversion price per share equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value
per share is fixed, 125% of the number of shares that might otherwise be issuable).
9
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
If
and when we raise at least $15 million of equity capital (excluding capital raised in this Unit Offering), the Convertible
Notes will be automatically converted into whichever of the following equity securities would result in the greatest number
of shares of Common Stock being issued to the holders on an "as-if-converted" basis at such time: (i) Series B
Preferred Stock at a note conversion price of $8.00/share; or (ii) Subsequent Stock at a note conversion price per share
equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value per share is fixed, 125%
of the number of shares that might otherwise be issuable);
Each
share of Series B Preferred Stock has an original issue price of $8.00 per share (the "Series B Original Issue Price")
and a liquidation preference of $8.00 per share, with both the Series B Original Issue Price and the liquidation preference per
share subject to adjustment for stock splits, recapitalizations, and the like. The Series B Preferred Stock will be senior to
the Company's Common Stock and pari-passu with the Series A Preferred Stock in terms of right of repayment in a liquidation.
The
Series B Preferred Stock has full ratchet antidilution protection that provides that each share of Series B Preferred Stock outstanding
may be converted by an Investor at any time into that number of shares of Common Stock determined by dividing the then current
Series B Original Issue Price by the applicable Conversion Price (as defined below) with the resulting fraction equal to the "Series
B Conversion Rate". The total number of shares of Common Stock issuable will be equal to the number of shares of Series
B Preferred Stock being converted multiplied by the Series B Conversion Rate. The "Conversion Price" is, at any time,
the price per share equal to the lesser of a) the Series B Original Issue Price per share and b) the lowest price per share at
which the Company has sold equity or equity-linked securities (other than customary exclusions) at any future date while any shares
of the Series B Preferred Stock remain outstanding. The Series B Original Issue Price and Conversion Price in effect at any time
are also subject to proportional adjustment for share splits, share dividends, recapitalizations, and the like.
On
April 23, 2020, certain members of our Board of Directors and their affiliates purchased $550,000 of convertible notes. In addition,
these Board members and their affiliates purchased $800,000, $1,801,504, and $515,016 of convertible notes in the quarters ended
September 30, 2020, December 31, 2020 and March 31, 2021. In total, the Board members and their affiliates purchased a total of
$3,666,520 of convertible notes through March 31, 2021 from the Company. Non-Board affiliated third parties purchased $700,160
and $2,073,600 of convertible notes in the quarters ended December 31, 2020 and March 31, 2021 from the Company for a total purchase
of $2,773,760. Total proceeds from the sale of Convertible Notes as of March 31, 2021 was $6,440.280.
Taking
into consideration our current cash on hand, we estimate that we will need to raise approximately $500,000 - $1,000,000 of additional
capital to continue our operations for the next twelve months in a minimal to no revenue growth environment. Our continuation
as a going concern is dependent upon continued financial support from our shareholders, our ability to obtain necessary equity
and/or debt financing to continue operations, and growth in revenue from operations. These factors raise substantial doubt regarding
our ability to continue as a going concern. We cannot make any assurances that additional financings will be available to us and,
if available, completed on a timely basis, on acceptable terms or at all. If we are unable to complete an equity or debt offering,
or otherwise obtain sufficient financing when and if needed, it would negatively impact our business and operations. It could
also lead to the reduction or suspension of our operations and ultimately force us to cease our operations.
There
has been no public market for our securities and a public market may never develop, or, if any market does develop, it may not
be sustained. Our Common Stock is not currently quoted on or traded on any exchange or on any over-the-counter market. In the
event we are unable to fund our operations from existing cash on hand, operating cash flows, additional borrowings or raising
equity capital, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our condensed consolidated
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
10
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Inventory
The
following amounts were included in inventory at the end of the period:
June 30,
December 31,
2020
2019
Raw Materials
$
54,461
$
68,784
Consumables
70,103
70,103
Finished Goods
742,228
752,700
Total
$
866,792
$
891,587
Recent
Accounting Pronouncements
In
December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,"
which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments
also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
ASU 2019-12 is effective for us for annual periods beginning January 1, 2021. We are currently reviewing the provisions of this
new pronouncement, and the impact, if any, the adoption of this guidance has on our financial position and results of operations.
In
January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321)", "Investments—Equity
Method and Joint Ventures (Topic 323)", and "Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic
321, Topic 323, and Topic 815", which clarifies that an entity should consider observable transactions when either applying or discontinuing
the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321. ASU 2020-01 clarifies
that for certain forward contracts or purchased options to acquire investments, an entity should not consider whether, upon settlement
of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method
or the fair value option. ASU 2020-01 is effective for us for annual periods beginning January 1, 2021. Early adoption is permitted.
We are currently reviewing the provisions of this new pronouncement and the impact, if any, the adoption of this guidance has on our
financial position and results of operations.
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting," which provides optional guidance and expedients for applying GAAP to contracts, hedging
relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are intended
to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The
amendments in this update are elective and are effective upon issuance. We are currently assessing whether and how we will elect
to apply ASU 2020-04.
Except
for the standards discussed above, we believe there have been no new accounting pronouncements effective or not yet effective
that have significance, or potential significance, to our Consolidated Financial Statements.
11
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 –FINANCING AGREEMENT
Dow
Facility
In
December 2016, we entered into the Dow Facility which provided us with up to $10 million of secured debt financing at an
interest rate of 5% per year, drawable at our request under certain conditions. Under the original terms, the loan matured on
December 1, 2021. In addition, after we raised a cumulative amount of equity capital exceeding $15 million, we were required to
prepay an amount equal to 30% of the amount raised over $15 million, but less than $25 million. We began these prepayments on
equity raised as of September 10, 2018. Interest was payable beginning January 1, 2017 although we elected, per the loan documents,
to capitalize the interest as part of the outstanding debt through January 1, 2019. Beginning April 1, 2019, current interest
was payable in cash on the first day of following the quarter.   Dow received warrant coverage of one share of common
stock for each $40 in loans received by us, equating to 20% warrant coverage, with an exercise price of $8.00 per share for the
warrants issued at closing of the initial $2 million draw. After the initial closing, the strike price of future warrants issued
is subject to adjustment if we sell shares of common stock at a lower price. As of June 30, 2020, we have issued 250,000 warrants
to Dow, which are exercisable on or before the expiration date of December 1, 2023.
On
April 23, 2020, we entered into an amended and restated Draw Loan Note and Agreement and related transaction documents (collectively,
the "Amended Dow Facility") whereby the Company and Dow agreed to 1) extend the term of such loan facility by two
years to December 1, 2023, 2) reduce required prepayment to Dow from the proceeds of new equity or equity-linked financings from
the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow
Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the
date of the amendment, 3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million
for two consecutive calendar quarters, 4) increase the rate of interest to 6.5% per annum from 5% in the pre-existing Dow Facility,
and 5) allow for a subordinated security interest to be granted to new investors in the Unit Offering.
The
warrants meet the criteria for classification within stockholders' equity. Proceeds were allocated between the debt and
the warrants at their relative fair value on the date of issue. The total debt discount on the Dow Facility was approximately
$747,000. This debt discount is being amortized to interest expense using the effective interest method over the term of the loans
using an average effective interest rate of 7.9%. During the six months ended June 30, 2020, we recognized $366,309 of amortization
expense consisting of $264,835 of interest expense accrued and $91,474 of amortization from debt discount accretion related to
the Dow Facility warrants. As of June 30, 2020, the Dow Facility has a carrying value of $9,396,645.
The
Dow Facility entitles Dow to appoint an observer to our Board. Dow will maintain this observation right until the amount of principal
and interest outstanding under the Dow Facility is less than $5 million.
12
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
4 – STOCK WARRANTS ACCOUNTED FOR AS EQUITY INSTRUMENTS
The
following table summarizes the warrants (including the warrants previously accounted for as derivatives) outstanding on June 30,
2020, which are accounted for as equity instruments, all of which are exercisable:
Date Issued
Expiration Date
Indexed Stock
Exercise Price
Warrants
10/8/2012
10/8/2027
Common
$
12.00
5,000
01/15/2014 - 12/31/2014
1/15/2024
Series A Convertible Preferred
$
12.00
972,720
04/30/2015 - 05/26/2015
4/30/2022
Common
$
16.00
218,334
6/30/2015
6/30/2022
Common
$
16.00
6,563
12/31/2015
12/31/2020
Common
$
8.00
20,625
3/31/2016
3/31/2021
Common
$
10.00
10,600
4/30/2016
4/30/2021
Common
$
10.00
895
12/14/2016
12/1/2023
Common
$
8.00
50,000
7/18/2017
12/1/2023
Common
$
8.00
25,000
9/22/2017
12/1/2023
Common
$
8.00
25,000
12/4/2017
12/1/2023
Common
$
8.00
25,000
7/8/2019
12/1/2023
Common
$
8.00
50,000
11/11/2019
12/1/2023
Common
$
8.00
50,000
2/12/2020
10/1/2023
Common
$
8.00
25,000
Total
1,484,737
Each
warrant indexed to Series A Convertible Preferred Stock is currently exercisable and exchangeable into 1.875 shares of common
stock. On a common stock equivalent basis, the exercise price would equal $6.40/common share.
NOTE
5 – STOCKHOLDERS' EQUITY (DEFICIT)
Series
B Convertible Preferred Stock
As
of June 30, 2020, and December 31, 2019, the Company was authorized to issue up to 1,500,000 shares of Series B Preferred Stock,
of which 137,500 and zero were issued and outstanding as of June 30, 2020 and December 31, 2019. On March 31, 2021, the Company
was authorized to issue up to 3,750,000 shares of Series B Preferred Stock. Exchange rights received with the purchase of each
unit of the Convertible Notes Unit offering dated April 23, 2020, allow for an exchange of two shares of Common Stock for two
shares of Series B Preferred Stock. Exchange rights exercised resulted in the issuance of Series B Preferred stock as listed below.
Series B
For the three
Preferred
months ended
Stock Issued
June 30, 2020
137,043
September 30, 2020
200,457
December 31, 2020
309,540
March 31, 2021
854,354
Total
1,501,394
Each
share of the Series B Preferred, is convertible at any time, at the option of the holder, into one share of common stock. As of
March 31, 2021, conversion of the Promissory Notes into Series B Preferred Stock would result in an additional 1,501,394 shares
of Series B Preferred stock.
The
Series B Preferred also contains typical anti-dilution provisions that provide for adjustment of the conversion price to reflect
stock splits, stock dividends, or similar events. Each share of Series B Preferred is subject to mandatory conversion into common
stock at the then-effective Series B conversion rate upon the public listing by the Company of its common stock on a Qualified
National Exchange. However, the Series B Preferred is not subject to the mandatory conversion until all outstanding Convertible
Securities are also converted into common stock. The Series B Preferred ranks senior to all other equity or equity equivalent
securities of the Company other than those securities which are explicitly senior or pari passu in rights and liquidation preference
to the Series B Preferred and pari passu with the Company's Series A Preferred.
On
April 27, 2020, the Company filed the Second Amended and Restated Certificate of Designations of the Series B Preferred Stock in connection
with the Unit Offering and the Amended Dow Facility, lowering the liquidation preference from $16.00 per share to $8.00 per share, and
lowering the conversion price from $16.00 per share to $8.00 per share, among other things. The Company also adjusted certain provisions
to harmonize the rights of the Series B Preferred with the rights in the Series A Certificate of Designations. On December 28, 2020,
the Board of Directors and a majority of the holders of Series A and Series B Preferred Stock consented to Amendments to the Second Amended
and Restated Certificate of Designation of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock by adapting
the Third Amended and Restated Certificate of Designations of Series A and of Series B Convertible Preferred Stock. The Third Amended
and Restated Certificate of Designations continue to allow for liquidation preference prior and in preference to any distribution of
any of the assets of the Corporation to the holders of junior securities and, as amended, after the payment of all preferential amounts
required to be paid to the holders of the Series A Preferred Stock, Series B Preferred Stock and other senior securities, the remaining
assets of the corporation available for distribution to its stockholders shall be distributed among the holders of junior securities,
including the Common Stock. On March 31, 2021, subsequent to consent by the Board of Directors and a majority of the holders of Series
B Preferred Stock, the Company filed the Fourth Amended and Restated Certificate of Designation of the Series B Convertible Preferred
Stock increasing the number of authorized shares from 1,250,000 to 3,750,000.
The
Series A Preferred and Series B Preferred are not redeemable for cash and the Company concluded that they are more akin to equity-type
instruments than debt-type instruments. Accordingly, the embedded conversion option in each agreement is clearly and closely related
to an equity-type host and the conversion option does not require classification and measurement as a derivative financial instrument.
Therefore, the securities meet the conditions for stockholders' equity classification.
13
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – EQUITY INCENTIVE PLAN
On
September 30, 2019 and September 30, 2018, the Company granted each Board member 2,500 stock options and 2,500 shares of restricted
stock for their Board services. The options were granted at a price of $8.00 per share and vest ratably over a four-year period
beginning on the one-year anniversary. The options had an aggregate grant date fair value of $38,295 and $29,580 on September
30, 2019 and September 30, 2018, respectively. The restricted stock issued to the Board members has an aggregate fair value of
$260,000 and vests ratably in arrears over four quarters on the last day of each fiscal quarter following the grant date. As of
June 30, 2020, and 2019, 32,500 and 20,000 of the 32,500 shares of restricted stock issued had vested, resulting in compensation
expense of $25,000 and $20,000 for the three months ended June 30, 2020 and June 30, 2019, respectively.
During
the three months ended June 30, 2020, the Company granted 138,734 employee stock options. The options were granted at a price
of $8.00 per share and had an aggregate grant date fair value of $329,850. The options vest one-third immediately upon the grant
date and one-third on each the first and second anniversary dates. The fair value of the options granted was estimated on the
date of the grant using the Black Scholes option-pricing model using the following assumptions: Stock price $8.00, Expected Term:
4.51 years, Volatility: 35.36%, Risk free rate: .29%, Dividend rate: 0%.
The
following table shows the stock options activity as of June 30, 2020 is as follows:
Weighted
Number
Average
Of
Exercise
Options
Price
Options outstanding at March 31, 2020
774,625
$
8.00
Changes during the period:
Expired
(42,500
)
8.00
New Options Granted – at market price
138,734
8.00
Options outstanding at June 30, 2020
870,859
$
8.00
Options exercisable at June 30, 2020
600,881
$
8.00
14
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – LEASES
Right
of Use Asset and Leased Liability:
Estimated
Lease Life – Lease term through December 2022
Three Months
Three Months
Ended June 30,
Ended June 30,
2019
2020
Right-of-use lease assets- operating as of prior qtr-end
$
1,871,366
$
1,486,112
Less: Accumulated amortization
(104,097
)
(160,563
)
Right-of-use lease assets- operating as of current qtr-end
$
1,767,269
$
1,325,549
Lease liability-operating as of prior qtr-end
$
1,981,795
$
1,579,531
Less: Accumulated Amortization
(108,443
)
(132,619
)
Lease liability operating-as of current qtr-end
$
1,873,352
$
1,446,912
Operating lease expense for the three months ended current qtr-end date
$
150,557
$
160,072
Actual remaining lease payments, current qtr-end date
$
2,289,714
$
1,638,479
Present value of remaining payments, current qtr-end date
$
1,873,453
$
1,446,912
Leases Three
Leases Three
Supplemental cash flow information related to leases:
Months Ended
Months Ended
June 30, 2019
June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
154,903
$
122,206
Maturities of leases liabilities were as follows:
Year ending December 31, 2019
$
325,341
Year ending December 31, 2020
660,387
$
226,755
Year ending December 31, 2021
660,438
737,947
Year ending December 31, 2022
643,548
673,777
Total Lease payments
$
2,289,714
$
1,638,479
Less imputed interest
(416,261
)
(191,567
)
Total
$
1,873,453
$
1,446,912
Weighted average remaining lease term- operating leases ( in months)
40.0
24.7
Weighted average discount rate- operating leases (annual)
9.98
%
9.98
%
15
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – RELATED PARTY TRANSACTIONS
Effective
June 23, 2020, we signed a Restated and Amended Non-Exclusive License Agreement with Michigan State University ("MSU"),
in which we converted our exclusive rights to non-exclusive rights in exchange for changes in the financial terms while adding
additional technologies to the license. During the three and six months ended June 30, we recorded licensing expenses of zero
in 2020 and we recorded licensing expense of $12,500 per quarter in 2019.
During
the three months ended June 30, 2020 we did not issue any Series A Preferred stock and we issued 137,043 shares of Series B Preferred
stock in exchange for 137,043 shares of Common Stock, as per the terms of the April 23, 2020 Unit Offering. The Units were purchased
by Company Directors Allemang, Jones and Pendell with proceeds of $250,000, $250,000, and $50,000, respectively. Interest accrued
on these Notes during the three months ended June 30, 2020, was $7,792.
NOTE
9 - DERIVATIVE LIABILITY
On
April 23, 2020, the Company entered into an Amended and Restated Draw Notice and Agreement with the Dow Chemical Company ("Amended
Dow Facility") to allow us to structure an offering of secured, subordinated convertible notes to support ongoing cash needs
(the "Unit Offering"). In the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of the loan facility
by two years to December 1, 2023, 2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked
financings from the current 30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in
the Amended Dow Facility, which does not begin until after we have raised an additional $7 million in equity or equity-linked
capital from the date of the amendment, 3) capitalize all interest payable until such time as we have recorded GAAP revenue of
at least $2 million for two consecutive calendar quarters 4) increase the rate of interest to 6.5% per annum and 5) allow for
a subordinated security interest to be granted to new investors in the Unit Offering.
We evaluated the accounting for the amendment
and concluded it met the conditions to be a troubled debt restructure. The future cash flows on the restructured debt were approximately
$2.7 million greater than the carrying value of the debt which was accounted for prospectively through the effective interest rate.
Immediately
after executing the Amended Dow Facility, we commenced a Unit Offering in a private placement to accredited investors. The Unit
Offering consists of (i) an offering of up to $10 million in Convertible Notes ("Notes") in $8 units, and (ii) an
assignable or transferrable right to exchange two shares of previously issued common stock for two shares of Series B Convertible
Preferred Stock for every $8.00 invested in the Unit Offering ("Exchange Rights"). As of June 30, 2020, we have raised
$550,000 in the Unit Offering through the sale of 68,750 Units and 137,043 shares of Common Stock have been exchanged for 137,043
shares of Preferred Series B stock.
The
Convertible Notes pay interest at 7.5% per year, compounded quarterly, which is payable on the maturity date unless the Company
has recorded GAAP revenue of at least $4.0 million for two consecutive quarters at which time the holder may elect to receive
all accrued interest in cash on a quarterly basis. The maturity date of the Notes is December 31, 2024. The Notes are convertible
at the holder's option into either) Series B Preferred Stock at a conversion price of $8.00/share; or ii) any other form
of preferred or common stock ("Subsequent Stock") issued by the Company at a conversion price per share equal to 80%
of the purchase price per share at which such Subsequent Equity is sold, or if the value per share is fixed, 125% of the number
of shares that might otherwise be issuable, provided that if a Qualified Capital Event occurs within 120 days after the initial
funding, then the conversion price will be 90% of the purchase price per share at which the Subsequent Equity is sold, or if the
value per share is fixed, 110% of the number of shares that would otherwise be issuable. No Qualified Capital Event has occurred
within 120 days after the initial funding on April 23, 2020.
If
we raise at least $15 million of equity capital, excluding equity raised in this offering, we may choose to convert the outstanding
amount due and payable under the Note into whichever form of conversion shares would result in the greatest number of shares of
Common Stock being issued to the holder in an "as-if-converted" into Common Stock basis at the conversion price then
in effect.
In
the event the Notes are outstanding on the date our shares of Common Stock are listed on a Qualified National Exchange, then the
Notes will automatically be converted first into Series B Preferred Stock at a price of $8.00 per share and then into shares of
Common Stock at the Series B Conversion Rate in effect at the time. If there is a change in control, all principal and accrued
interest will paid in cash or can be converted according to the terms of the Note, at the holder's option.
16
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
Notes are secured by a junior security interest in all the assets of the Company. The Notes may not be prepaid prior to the maturity
date, but they may be transferred at any time to i) any entity controlled by the holder, ii) any investors in the holder or iii)
any other accredited investor only in compliance with the Securities Act of 1933 and other state laws.
After
the original issue date but prior to the date we raise $15 million of cumulative equity capital, excluding capital raised in this
Offering, if we consummate a financing transaction with a third-party using any other form of convertible debt security, then
the holder has the right to exchange their outstanding obligations for a new security with the same terms as the new convertible
debt security offered to the third party. This provision is viewed as a redemption option.
Embedded
features in the Notes were analyzed under ASC 815 to determine if they required bifurcation as derivative instruments. To be a
derivative, one of the criteria is that the embedded component must be net settleable. The Company's common stock is
not publicly traded, there is no mechanism outside the notes that would permit the holder to achieve net settlement and the underlying
shares are not readily convertible to cash. Accordingly, the embedded derivatives, including the embedded conversion feature,
do not meet the definition of a derivative, and therefore, do not require bifurcation from the host instrument. Certain default
put provisions, the change in control repayment provision and the redemption option were not considered to be clearly and closely
related to the host instrument but we concluded that the value of these provisions was de minim us at inception. We reconsider
the value of these provisions each reporting period to determine if the value becomes material to the financial statements.
For every $8.00 invested in the Unit Offering, we
provided investors in the Unit Offering, the one-time right to exchange two shares of previously issued Common Stock for two shares of
Series B Preferred Stock of the Company within 30 days of the closing (the "Exchange Right"). The Exchange Right is fully
transferable and assignable to any other party during the 30-day period if they are an accredited investor and executed a joinder to become
bound by the terms of the Agreement. The Exchange Right is a freestanding financial instrument, and its fair value is estimated based
on the incremental fair value between the exchanged Common Stock and the issued Preferred Stock. In this instance, the Exchange Right
was included as part of the Unit Financing in conjunction with the issuance of the Notes, therefore, the proceeds from the financing were
allocated between the Notes and the Exchange Right based on their relative fair values. The difference between the fair value of the Exchange
Right and the relative fair value assigned to the Exchange Right is recognized immediately as Nonoperating expense. As of June 30, 2020,
Nonoperating expense of $136 had been recorded related to the Exchange Rights.
A convertible financial instrument includes a beneficial conversion feature
("BCF")if the effective conversion price is less than the company's market price of their stock on the commitment date.
The BCF for the three months ended June 30, 2021 was $122,230
The
sale of Convertible Notes through the quarter ended March 31, 2021, raised total proceeds of $6,440,280.
For the three months
ended
Proceeds
June 30, 2020
$
550,000
September 30, 2020
800,000
December 31, 2020
2,501,664
March 31, 2021
2,588,616
Total
$
6,440,280
The
proceeds received in the Unit Offering for the three months ended June 30, 2020 were allocated as follows:
For the three
months ended
June 30, 2020
Convertible Notes
403.934
Additional Paid In Capital – Exchange Rights
146.066
Proceeds
550,000
Convertible Notes
403,934
Additional Paid In Capital – BCF
(122,230
)
Convertible Notes - Accrued Interest
12,256
Convertible Notes - Cost of Debt Offering
(46,857
)
Convertible Notes Balance
247,104
The value of exchange rights, the BCF and the
debt issuance costs are being amortized using the effective interest method over the term of the Note. The Company recognized interest
expense of $12,256 associated with the Note for the three months ended June 30, 2020. As of June 30, 2020, the carrying value of the
Convertible Notes was $247,104
17
XG
SCIENCES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – SUBSEQUENT EVENTS
Financing
We
continued sales of the Unit Offering throughout the calendar year 2020 and the first quarter of 2021. See Derivatives Liability
write-up in this Note 9.
In
February of 2021, we applied for continued relief under the Coronavirus Aid, Relief and Economic Security Act (CARES) by applying
to an SBA lender bank, PNC, for a second Paycheck Protection Plan ("PPP") loan. On February 16, 2021, we received
an approved and fully executed PPP Term Note for $536,700 with a term of five years, a repayment deferral period which is 10 months
plus 24 weeks from the date that the funds were disbursed or the date any forgiven amount of the Facility is remitted by the SBA
to the Bank, and an annual rate of interest of 1%, with a potential for some or all of the loan to be forgiven, dependent upon
use of the loan proceeds. Funds were disbursed to us on February 17, 2021.
Equity
Preference Rights in the Event of Liquidation
On
December 28, 2020, the Board of Directors consented to Amendments to the Second Amended and Restated Certificate of Designation
of the Series A Convertible Preferred Stock and the Series B Convertible Preferred Stock by adapting the Third Amended and Restated
Certificate of Designations of Series A and of Series B Convertible Preferred Stock. The Third Amended and Restated Certificate
of Designations continue to allow for liquidation preference prior and in preference to any distribution of any of the assets
of the Corporation to the holders of Junior Securities and, as amended, after the payment of all preferential amounts required
to be paid to the holders of the Series A Preferred Stock, Series B Preferred Stock and other Senior Securities, the remaining
assets of the corporation available for distribution to its stockholders shall be distributed among the holders of Junior Securities.
Related
Party Transactions
As
of March 31, 2021, the Board of Directors and their affiliates had purchased $3,666,520 of Convertible Notes.
18
ITEM
2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
In
this Quarterly Report on Form 10-Q, unless otherwise indicated, the words "we", "us", "our",
"XG", "XGS", "XG Sciences" or the "Company" refer to XG Sciences, Inc. and its
wholly owned subsidiary, XG Sciences IP, LLC, a Michigan limited liability company.
Introduction
The
following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements,
and the notes thereto included herein. The information contained below includes statements of the Company's or management's
beliefs, expectations, hopes, goals and plans that, if not historical, are forward-looking statements subject to certain risks
and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements.
For a discussion on these risk factors, please refer to the Company's Annual Report on Form 10-K as filed April 29, 2020.
For a discussion on forward-looking statements, see the information set forth in the introductory note to this quarterly report
on Form 10-Q under the caption "Forward-Looking Statements", which information is incorporated herein by reference.
Overview
of our Business
XG
Sciences was formed in May 2006 for the purpose of commercializing certain technology to produce graphene nanoplatelets and integrated,
value-added products containing graphene nanoplatelets. First isolated and characterized in 2004, graphene is a single layer of
carbon atoms configured in an atomic-scale honeycomb lattice. Among many noted properties, monolayer graphene is harder than diamonds,
lighter than steel but significantly stronger, and conducts electricity better than copper. Graphene nanoplatelets are particles
consisting of multiple layers of graphene. Graphene nanoplatelets have unique capabilities for energy storage, thermal conductivity,
electrical conductivity, barrier properties, lubricity and the ability to impart physical property improvements when incorporated
into plastics, metals or other matrices.
We
believe the unique properties of graphene and graphene nanoplatelets will enable numerous new product applications and the market
for such products will quickly grow to be a significant market opportunity. Our business model is to design, manufacture and sell
advanced materials we call xGnP
®
graphene nanoplatelets and value-added products incorporating xGnP
®
nanoplatelets. We currently have many customers trialing our products for numerous applications, including, but not limited to
lithium ion batteries, lead acid batteries, thermally conductive adhesives, composites, thermal management and heat transfer,
inks and coatings, printed electronics, construction materials, cement, and in a range of other industrial uses. We believe our
proprietary processes have enabled us to be a low-cost producer of high-quality, graphene nanoplatelets and value-added integrated
products containing graphene nanoplatelets and that we are well positioned to address a wide range of end-use applications.
Our
Customers
We
sell products to customers around the world and have sold materials to over 1,500 customers in 47 countries since 2008. Some of
these customers are research organizations and some are commercial organizations. Our customers have included well-known automotive
and OEM suppliers around the world (Ford, Johnson Controls, Magna, Honda Engineering), global-scale lithium-ion battery manufacturers
in the U.S., South Korea and China (Samsung SDI, LG Chemical, Lishen, A123) and diverse specialty material companies (3M, BASF,
Henkel, Dow Chemical, DuPont), as well as leading research centers such as Lawrence Livermore National Laboratory and Oakridge
National Laboratory. The majority of our customers are still ordering in smaller quantities consistent with their development
and engineering qualification work. We expect our average order size to increase in the second half of 2020 into early 2021 as
many of our customers have expressed their intention of beginning to order commercial quantities of product from us.
19
Our
Products
XG
Sciences is a manufacturer of graphene nanoplatelets marketed under the brand xGnP
®
and value-added products that
contain graphene nanoplatelets. The term "graphene" is used widely in the literature and the popular press to cover
a variety of specific forms of the material. We generally think about two broad classes of graphene materials:
1.
One-atom
thick films of carbon commonly referred to as monolayer graphene, manufactured typically from gases by assembling molecules to
form relatively large, transparent sheets of material. These materials have been characterized by their performance attributes
that differentiate them from other advanced materials and that may include: strength up to 200 times that of steel, flexible and
able to stretch up to 25% of its original length, optically transparent, more electrically conductive than copper, more thermally
conductive than any other known material and atomic-level barrier properties. XG Sciences does not manufacture these films and
does not participate in the markets for these films and believes that in general, the markets for these films do not compete with
those for graphene nanoplatelets.
2.
Ultra-thin
particles of carbon that consist of layers of graphene sheets ranging in thickness from a few layers to many layers – that
are commonly referred to as graphene nanoplatelets ("GNP" or "GNPs"). Because GNPs are thin and can be
manufactured in a range of diameters, they are useful for a wide variety of applications. XG Sciences manufactures GNPs that range
in thickness from a few nanometers and up to 10-20 nanometers and with diameters ranging from less than 1 micron and up to 100
microns. The manufacture of these graphene particles is our main area of expertise, and their use in practical applications is
the focus of our sales, marketing and development activities.
The
well-publicized isolation and characterization of graphene in 2004 at the University of Manchester, has spawned a new class of
two-dimensional materials based on layers of carbon atoms arranged in a hexagonal array and each carbon having lone pair electrons.
The unique characterization and related performance of this new class of materials is derived from their two-dimensional nature
and their composition of sp
2
carbon atoms arranged in a hexagonal array. The ability of any new material to be exploited
in industrial applications will depend on its fit-for-performance. In the case of graphene nanoplatelets, the fit-for-performance
is very much related to their aspect ratio (among other factors) in that the diameter is typically significantly greater than
the thickness. This is what differentiates the material from bulk graphite of high crystallinity and purity. We classify nanoplatelets
consisting of largely basel planes of carbon atoms packed in a hexagonal array (i.e., graphene) as graphene nanoplatelets so long
as their aspect ratio may be classified as two-dimension and are thus in the form of platelets. Such a definition implies that
the thickness is nanoscale – GNPs having a thickness in the range from generally 0.6 nanometers and up to many 10's
of nanometers. For context one nanometer is one billionth of a meter, and the average thickness of a human hair is about 75,000
nanometers. We have chosen to utilize the definitions as set out by the Carbon Journal editorial team (Carbon, volume 65, pp.1-6)
and Fullerex (The Graphene Report, March 2020 Edition, the Graphene Council) which provides classification for the various material
types which provide meaningful descriptions of commercially available graphene.
Graphene
Product Thickness Definitions Based on Thickness
Number
    of Layers
Product
    Description
1
Graphene
    (monolayer)
1-3
Very
    Few Layer Graphene (vFLG)
2-5
Few
    Layer Graphene (FLG)
2-10
Multilayer
    Graphene (MLG)
>10
Graphene
    Nanoplatelets (GNPs)
Bulk
Materials.
We sell bulk materials under the trademarked brand name of xGnP
®
graphene nanoplatelets. These
materials are produced in various grades, which are analogous to average particle thickness, and average particle diameters. There
are three commercial grades (Grades H, M & R), each of which is offered in three standard particle sizes and a fourth, Grade
C, which is offered in three standard surface areas. We also have access to other development grades (Grade T, for example), but
which are not yet made available commercially and have been used internally for those products containing graphene nanoplatelets.
These bulk materials, which normally ship in the form of a dry powder, are especially applicable for use as additives in polymeric
or metallic composites, or in coatings or other formulations where particular electrical, thermal or barrier applications are
desired by our customers. We also offer our material in the form of dispersions of nanoplatelets in liquids such as water, alcohol,
or organic solvents, or mixed into resins or polymers such as thermoplastics or thermosets. We use two different commercial processes
to produce these bulk materials:
20
Grade
H/M/R/T materials are produced through chemical intercalation of natural graphite followed by thermal exfoliation using a proprietary
process developed by us. The "grade" designates the thickness and surface characteristics of the material, and each
grade is available in various average particle diameters. Surface area, calculated by the Brunauer, Emmet, and Teller (BET) Method,
is used as a convenient proxy for thickness, so each grade of products produced through chemical intercalation is designated by
its average surface area, which ranges from 50 to 150 m
2
/gram of material. We are able to extend the surface area
higher (250 m
2
/gram for T Grade) but are not yet producing these materials in metric-ton quantities. As the market
need emerges for this class of materials, we may scale them as needed. For example, we introduced a Grade of xGnP
®
powders,
R-Grade, with improved electrical conductivity targeting use in applications for electrically and thermally conductive ink and
composites and have scaled R-Grade to metric-ton quantities.
Grade
C materials are produced through high-shear mechanical exfoliation using a proprietary process and equipment that we invented,
designed, constructed and patented. The Grade C materials are smaller particles than those grades produced through chemical exfoliation,
and Grade C materials are designated by their BET surface area, which ranges from 300 to 800 m
2
/gram. We are able to
produce other surface areas and may make those available commercially as needed by our customers.
The
following graphic depicts xGnP
®
graphene nanoplatelets as a function of both layer thickness and aspect ratio (diameter
by thickness), two key parameters which will influence their performance in a range of industrial applications.
XG
Sciences' Graphene Nanoplatelet Product Portfolio and Versus Graphite
21
Composites.
These consist of compositions of specially designed xGnP
®
graphene nanoplatelets formulated in pre-dispersed
mixtures that can be easily incorporated in various polymers. Our integrated composites portfolio includes pre-compounded resins
derived from a range of thermoplastics as well as master batches of resins and xGnP
®
nanoplatelets and their combination
with resins and fibers for use in various end-use applications that may include industrial, automotive, packaging and sporting
goods and which have demonstrated efficacy in standard injection molding, compression molding, blow molding and 3-D processes,
to name but a few. Our current product portfolio of polymer resins containing various forms of our xGnP
®
graphene
nanoplatelets and in varying concentration includes polyurethane (XGPU), polypropylene (XGPP™), polyethylene terephthalate
(XGPET™), nylon (XGNylon) and high-density polyethylene (XGHDPE™). Other polymers may be added over time depending
on the end-market and customer needs. In addition, we offer various bulk materials with demonstrated efficacy in plastic composites
to impart improved physical performance to such matrices, which may be supplied as dry powders, or as aqueous or solvent-based
dispersions or cakes as described above. We have also targeted use of our graphene nanoplatelets as an additive in cement mixtures,
which we believe results in improved barrier resistance, durability, toughness and corrosion protection. Our XGConcrete™
Additive promotes the formation of more uniform and smaller grain structure in cement. This fine-grain and uniform structure gives
the concrete improvements in flexural and compressive strength. In addition, the embedded graphene nanoplatelets will stop cracks
from forming and retard crack propagation, should any cracks form – the combination of which will improve lifetime and durability
of cement.
Inks
and Coatings
. These consist of specially-formulated dispersions of xGnP
®
together with
solvents, binders, and other additives to make electrically or thermally conductive products designed for printing or coating
and which are showing promise in diverse customer applications such as advanced packaging, electrostatic dissipation and thermal
management. We also offer a set of standardized ink formulations suitable for printing. These inks offer the capability to print
electrical circuits or antennas and may be suitable for other electrical or thermal applications. All of these formulations can
be customized for specific customer requirements.
Energy
Storage Materials
. These consist of specialty advanced materials that have been formulated for specific applications
in the energy storage segment. We offer various bulk materials for use as conductive additives for cathodes and anodes in lithium-ion
batteries, as an additive to anode slurries for lead-carbon batteries, as a component in coatings for current collectors in lithium-ion
batteries and we are investigating the use of our materials as part of other battery components.
Thermal
Management Materials
.  These consist mainly of various thermal interface materials ("TIM") in the form
of custom greases or pastes. Our custom XG TIM
®
greases and pastes are also designed to be used in various high
temperature environments. Additionally, we offer various bulk materials for use as active components in adhesives, liquids, coatings
and plastic composites to impart improved thermal management performance to such matrices.
22
Our
Focus Areas
We believe we are a platform play in advanced materials, because our proprietary manufacturing processes allow us to produce varying grades of graphene nanoplatelets that can be mapped to a variety of applications and in many market segments. However, we are prioritizing our efforts in specific areas and with specific customers that we believe represent opportunities for either relatively near-term revenue or especially large and attractive markets. At this time, we are focused on four key vertical markets: Automotive, Sporting Goods, Packaging and Industrial. The following graphic provides examples of target applications within each of the four key verticals where XG Sciences has either  commercial sales or is in development with one or more customers.
XGS
Market/Application Focus Areas
Addressable
Markets
The
markets for our materials are large and growing. As one example, the 2019 North American packaging market for plastic bottles
and containers is estimated to be more than $34 billion (Mordor Intelligence). Further, Mordor estimates the 2019 global market
for PET water bottles at 543.8 billion units. XG Sciences is engaged in the supply of xGnP
®
graphene nanoplatelets
for use in water bottles manufactured initially in North America and we are expanding our market activities into other geographies.
If each water bottle produced in 2019 were to incorporate just 1 milligram of xGnP
®
graphene nanoplatelets, the
total revenue available to XG Sciences may range from $200 to $300 million, depending on product form. As a second example, the
2019 Global market for rubber used in tires is estimated at 30 million metric tons (European Rubber Journal, January 9, 2019 and
according to the International Rubber Study Group). Graphene nanoplatelets have been shown to provide performance improvements
when incorporated into tires. If graphene nanoplatelets were used in just 1 weight percent of all rubber used in tires and used
in only 20% of the available tire market, then there would exist a total global market for use of graphene nanoplatelets in tires
of 60,000 metric tons on a dry powder basis.
Commercialization
Process
Because
graphene is a new material, most of our customers are still developing applications that use our products. Commercialization is
a process, the exact timing of which is often difficult to predict. It starts with our own internal R&D to validate performance
for an identified market or customer-specific need. Our customers then validate the performance of our materials and determine
whether our products can be incorporated into their manufacturing processes. This is initially done at pilot production scale
levels. Our customers then have to introduce products that incorporate our materials to their own customers to validate performance.
After their customers have validated performance, our customers will then move to commercial scale production. Every customer
goes through the same process, but will do so at varying speeds, depending on the customer, the product application and the end-use
market. Thus, we are not always able to predict when our customers will begin ordering commercial volumes of our materials or
predict their expected volumes over time. However, as customers move through the process, we generally receive feedback and gain
greater insights regarding their commercialization plans. According to our respective customers, the following are examples where
our products are providing value to our customers at levels that are either in commercial production or we believe will warrant
their use on a commercial basis.
23
●
In
2018, Callaway Golf Company introduced new dual-core Chrome Soft and Chrome Soft X golf balls incorporating our xGnP
®
graphene nanoplatelets into the outer core, resulting in a new class of golf balls that enable higher driving speeds, greater
distance and increased control, allowing Callaway to command a premium price for their golf balls in the marketplace.  In
2019, Callaway expanded the use of our technology to incorporate our xGnP
®
into the E·R·C Soft line
of golf balls.  In 2020, Callaway continued to use our products in the newly launched Chrome Soft line of golf balls.  The
2020 version of the Chrome Soft X is based on a solid core, which no longer benefited from use of our products;
●
The
Ford Motor Company, after having demonstrated a 17 percent reduction in noise, a 20 percent improvement in mechanical properties
and a 30 percent improvement in heat endurance properties compared with that of polyurethane foam used without graphene, began
incorporating our graphene nanoplatelets for polyurethane based foam parts in over ten under hood components on the Ford F-150
and Mustang in 2018.  In late 2019, our products were qualified for use in engine covers in all Ford and Lincoln light
truck and passenger car platforms.  To meet this new demand, we began an expanded level of production in early 2020;
●
International
specialty materials company formulating our products into an adhesive used in production by a European automotive manufacturer
to improve thermal performance.  In 2018 we shipped them 900 Kgs of our products.  In 2019 their demand increased
by 200% to 1,800 Kilograms.  In 2020, their initial forecasts were for a 166% increase in demand to 3,000 Kilograms.  We
shipped just over 900 Kgs in the first half of 2020, less than their original forecast due to COVID-19;
●
Lead
acid battery manufacturers incorporating our materials in the commercial supply of batteries demonstrated improvements in measured
cycle life, capacity and charge acceptance;
●
In
2019, we also announced the use of our products in an engine oil additive supplied by Hella, an innovative family-owned company
serving the automotive and industrial markets with annual revenue of approximately 7 billion Euros;
●
A
US-based construction company has demonstrated a 40% improvement in strength when our products are incorporated into composite
panels, and are currently used in commercial production;
●
Large
plastics packaging company having demonstrated more than a 2x improvement in strength upon adoption of our xGnP graphene nanoplatelets
and while maintaining low color and optical transparency, are now targeting commercial introduction impacting recycling and light
weighting; and
●
Several
customers are currently in initial scale production using our products for applications including resistive heating, additives
for use in the oil and gas industry, coatings to improve load-bearing and thermal conductivity, chemical resistance and barrier.
We expect that demand for our products will grow as new applications gain market momentum.
The process of "designing-in" new materials is relatively complex and involves the use of relatively small amounts
of the new material in laboratory and engineering development for an extended period of time. Following successful development,
customers that incorporate our materials into their products will then order much larger quantities of material to support commercial
production. Although, our customers are under no obligation to report to us on the usage of our materials, some have indicated
that they have introduced or will soon introduce commercial products that use our materials. Thus, while many of our customers
are currently purchasing our materials in kilogram (one or two pound) quantities, some are now ordering at multiple ton quantities
and we believe many will require tens of tons or even hundreds of tons of material as they commercialize products that incorporate
our materials. We also believe that those customers already in production will increase their order volume as demand increases
and others will begin to move into commercial volume production as they gain more experience in working with our materials and
engage new customers.
24
Manufacturing
Capacity
We
completed the first phase of expansion in our newest 64,000 square-foot facility in the first half of 2018. The expansion has
added 90 metric tons of graphene nanoplatelet production capacity, bringing the total capacity of the facility up to approximately
180 metric tons of dry powder. Phase two of the expansion was partially complete by year-end 2018 and resulted in up to ~270 metric
tons of total graphene nanoplatelet output capacity at the facility. We completed the last portion of this phase two expansion
in the second half of 2019, resulting in up to ~400 metric tons of total graphene nanoplatelet output capacity. Our total graphene
nanoplatelet output capacity across both of our manufacturing facilities, as of June 30, 2020, is an approximate 450 metric tons
per year on a dry powder basis. The expansions support our mission to continue commercializing the use of graphene in customer
products across diverse industries. XG's increasing capacity will support our expected growth in demand for our products
over the next several fiscal quarters. However, additional manufacturing capabilities for certain value-added products and certain
bulk materials remain to be developed and may require the acquisition of additional facilities. In particular, the production
processes for certain integrated products will require additional capital and may require additional facilities to meet expected
future customer demand.
Some
of the Company's products are new products that have not yet been fully developed and for which manufacturing operations
have not yet been fully scaled. Although we believe we will continue to scale our production capability, we have not yet demonstrated
the capability to produce sufficient materials to generate the ongoing revenues necessary to sustain our operations in the long-term.
Our
                                         Intellectual Property
We
have acquired a non-exclusive license for certain inventions from Michigan State University. These rights are embodied in a Technology
Licensing Agreement between XGS and Michigan State University dated July 27, 2007, amended on May 24, 2010 and May 27, 2011, and
amended and restated on June 23, 2020 which provides us the non-exclusive worldwide rights to the patents as defined in the Agreement
for application in the Composite, Energy Storage, Specialty Liquids, and other fields which may be applicable. In exchange for
the rights to the technology covered by this Agreement, we paid MSU an initial fee and agreed to pay ongoing royalties on material
sold by us in future years. Under a previous version of the Licensing Agreement, we also awarded a small amount of common stock
to MSU. As of June 30, 2020, the following technologies were included in the MSU License Agreements with XGS: U.S. Patent 7,550,529,
U.S. Patent 8,501,858, U.S. Patent 8,834,959, U.S. Patent 9,080,122 and U.S. Patent 9,776,874.
On
        August 8, 2016, we signed an agreement acquiring an exclusive license with Metna Co. (Metna) to Metna's background
        IP for use of graphene nanoplatelets as additives to concrete mixtures. For purposes of the agreement, Metna's background
        IP relates to the U.S. Patent 8,951,343. Also, on August 8, 2016, we entered into a second agreement for an exclusive
        license related to all Metna's background technology and foreground technology, including any jointly-owned foreground
        technology where the end use is known to be any graphite additive dispersed in concrete mixtures.
On
        April 25, 2019 we signed an Intellectual Property License, Joint Development and Commercialization Agreement with Niagara
        Bottling acquiring exclusive license to certain of Niagara's patents and applications relating to the use of graphene
        nanoplatelets in packaging applications. For purposes of the agreement, Niagara's IP relates to five (5) U.S.
        patents and patent applications and two (2) international applications and future registered intellectual property directed
        at the field.
Over
time, our scientists and engineers have made many further discoveries and inventions that are embodied in the form of (and as
of June 30, 2020): nineteen (19) additional U.S. patents, twenty-five (25) foreign patents, eleven (11) additional U.S. patent
applications and numerous trade secrets. For many of the applications filed in the U.S., additional filings are made in other
countries such as the European Union, Japan, South Korea, China, Taiwan or other applicable countries. As of June 30, 2020, we
maintained fourteen (14) international patent applications. These filings and analyses are made on a case-by-case basis. Typically,
patents that are defensive in nature are not filed abroad, while those that are protective of active XGS products or applications
are filed in relevant countries abroad. Our general IP strategy is to keep as trade secrets those manufacturing processes that
are difficult to enforce should they be disclosed and to seek patent coverage for other manufacturing processes, materials derived
from those processes, unique combinations of materials and end uses of materials containing graphene nanoplatelets. We believe
that the combination of our rights under various licenses, our patents and patent applications, and our trade secrets create a
strong intellectual property position.
25
Operating
Segment
We
have one reportable operating segment that manufactures xGnP
®
graphene nanoplatelets and value-added products
produced therefrom, conducts research on graphene nanoplatelets and related products, and licenses our technology as appropriate.
As of June 30, 2020, we shipped products on a worldwide basis, however, all of our assets were located within the United States.
Results
of Operations for the Three and Six Months Ended June 30, 2020
compared
with the Three and Six Months Ended June 30, 2019
For the Three Months Ended June 30,
Change 2020 to 2019
For the Six Months Ended June 30,
Change 2020 to 2019
2020
2019
$
%
2020
2019
$
%
Total Revenues
81,146
247,069
(165,923
)
-67.2
%
248,209
1,104,346
(856,137
)
-77.5
%
Cost of Goods Sold
454,630
796,156
341,527
42.9
%
1,217,114
1,970,778
753,665
38.2
%
Gross Loss
(373,484
)
(549,087
)
175,603
32.0
%
(968,904
)
(866,432
)
(102,472
)
-11.8
%
Research & Development Expense
184,527
384,767
200,240
52.0
%
470,254
770,013
299,759
38.9
%
Sales, General & Administrative Expense
1,076,265
1,486,380
410,115
27.6
%
2,368,399
2,907,301
538,901
18.5
%
Total Operating Expenses
1,260,792
1,871,147
610,355
32.6
%
2,838,654
3,677,314
838,660
22.8
%
Operating Loss
(1,634,276
)
(2,420,234
)
785,958
32.5
%
(3,807,558
)
(4,543,746
)
736,188
16.2
%
Other Expense
(190,936
)
(78,277
)
112,659
-143.9
%
(368,945
)
(154,941
)
214,003
-138.1
%
Net Loss
(1,825,211
)
(2,498,511
)
673,299
26.9
%
(4,176,503
)
(4,698,687
)
522,184
11.1
%
Revenue
For the Three Months Ended
June 30,
Change 2020 to 2019
For the Six Months Ended
June 30,
Change 2020 to 2019
2020
2019
$
%
2020
2019
$
%
Product Sales
$
81,146
$
247,069
$
(165,923
)
(67.2
)
$
248,209
$
1,104,346
$
(856,137
)
(77.5
)
Total Revenues
$
81,146
$
247,069
$
(165,923
)
(67.2
)
$
248,209
$
1,104,346
$
(856,138
)
(77.5
)
For
the three months ending June 30, 2020 we reported revenue of $81,146, a 67.2% decrease from the $247,069 reported for the three
months ending June 30, 2019. Since we are in the business of developing new materials and for use in new ways, accurately forecasting
new product adoption can be a challenge for our customers. The second quarter year-on-year decrease is due primarily to the vagaries
of unpredictable demand and inaccurate forecasts. Also, many of our customers were impacted by COVID-19 in the second quarter
and either delayed commercial adoption of our products or did not order replenishment products. For the six months ending June
30, 2020 we reported revenue of $248,209, a 77.5% decrease from the $1,104,346 reported for the six months ending June 30, 2019.
We have a strong customer pipeline and continue to establish a robust baseline of customers who are nearing commercial status.
We believe that once these customers reach commercial status with products that incorporate our products, each will begin to order
from us on a regular basis, which will help to mitigate the quarter-to-quarter revenue variability. However, until such time,
we expect to see variations in quarterly revenue resulting from variable order patterns from our customers.
26
Product
sales consist of two broad categories: (1) material sold to customers for research or development purposes; and (2) production
orders for customers. Typically, the order sizes for the first category are relatively small, however we expect orders in the
second category to be much larger in the future. In addition, other customers are moving through development programs towards
commercialization, requiring larger quantities of our materials for advanced testing, pilot production and commercial-scale production
activities. We believe that those customers already in production will increase their order volume as demand increases and others
will begin to move into commercial volume production as they gain more experience in working with our materials and engage their
own customers.
We
ship our products from our Michigan manufacturing facilities to customers around the world. During the three months ended June
30, 2020, we shipped materials to customers in 14 countries, as compared to 13 countries during the same period in 2019.
For the three months ended June 30, 2020, sales to two countries, Switzerland and Turkey, accounted for more than 42% of revenue.
For the three months ended June 30, 2019, shipments to South Korea accounted for more than 10% of product sales.
Order
Summary
The
table below shows a comparison of domestic and international orders fulfilled (excluding orders for free samples). The table also
includes the average order size for product sales. The average order size for product revenue during the three months ended June
30, 2020 decreased by 87%, as compared to the same period in 2019. The relatively small average order size means that the majority
of our customer base remains active with research and development projects that only use limited amounts of our material. We expect
our average order size to increase significantly as more customers reach commercial status.
Order Summary
For the Three Months Ended June 30,
(unaudited)
2020
2019
Change
Number of orders – domestic
20
33
(13
)
Number of orders – international
21
26
(5
)
Number of orders – total
41
59
(18
)
Average order size for product sales recorded in our Statement of Operations
$
1,962
$
15,018
$
(13,056
)
% change
(87
%)
Cost
of Goods Sold
We
use a standard cost system to estimate the direct costs of products sold. Variances between the standard costs and the actual
costs are then properly capitalized to the inventories and expensed to cost of goods sold. Direct costs include estimates of raw
material costs, packaging, freight charges net of those billed to customers, and an allocation for direct labor and manufacturing
overhead. Because of the nature of our production processes, there is a substantial fixed manufacturing expense requirement that
represents the ongoing cost of maintaining production facilities that are not directly related to products sold, so we use a "full
capacity" allocation of overhead based on an estimate of what product costs would be if the manufacturing facilities were
operating on a full-time basis and producing products at the designed capacity.
The
following table shows the relationship of direct costs to product sales for the three months ended June 30, 2020 and 2019:
Gross Loss Summary
For the Three Months Ended June 30,
Change 2020 to 2019
2020
2019
$
%
Product Sales
$
81,146
$
247,069
$
(165,923
)
(67.2
)
Direct Costs
41,828
196,411
(154,583
)
(78.7
)
Direct Cost Margin
$
39,318
$
50,658
$
(11,340
)
(22.4
)
% of Sales
48.5
%
20.5
%
Unallocated Manufacturing Expense
412,802
599,745
(186,943
)
(31.2
)
Gross Loss on Product Sales
$
(373,484
)
$
(549,088
)
$
175,603
32.0
27
We
believe that the fluctuations in gross loss on product sales and direct cost from period to period are not indicative of future
margins because of the relatively small size of our sales in comparison to our future expectations. Direct costs vary depending
on the size of an order, the specific products being ordered, and other factors like shipping destination (which on small orders
can represent a significant percentage of the cost).
The
remaining "non-direct" costs of operating our manufacturing facilities are recorded as unallocated manufacturing expenses.
These expenses include personnel costs, rent, utilities, indirect supplies, depreciation, and related indirect expenses. Unallocated
manufacturing expenses are expensed as incurred. We allocate these costs to direct product costs based on the proportion of these
expenses that would be representative of direct product costs if we were operating our factory at full capacity.
For
the three months ended June 30, 2020, unallocated manufacturing expenses decreased by 31.2% to $412,802 as compared to $599,745
for the same period in 2019. The decrease of $186,943 is largely due to furloughs and headcount reductions as well as lower variable
overhead costs due to the discontinuance of production at the Legion Drive site in late June of 2019 until sales rebound.
Sales,
General and Administrative Expenses
During
the three months ended June 30, 2020, we incurred selling, general and administrative expenses (SG&A) of $1,076,265. This
is a decrease of $410,115 or 27.6% from the same period in 2019. This decrease in SG&A expense is primarily related to decreased
personnel costs as the Company began taking measures in anticipation of slower demand and delays in customer adoption caused by
COVID-19.
Research
and Development Expenses
During
the three months ended June 30, 2020, we incurred research and development expenses (R&D) of $184,527. This is a decrease
of $200,240 or 52% from the same period in 2019. This decrease in R&D is primarily related to decreased personnel costs as
the Company began taking measures in anticipation of slower demand due to COVID-19.
Other
Expense
Other
income and expense consist primarily of Interest expense on the Dow Facility and the Convertible Notes. Following shows a comparison
of other income and expense for the three months ended June 30, 2020 and 2019:
For the Three Months Ended
June 30,
2020
2019
Change $
Interest Expense, Net
(190,800
)
(78,277
)
(112,523
)
Nonoperating Expense
(136
)
—
(136
)
Total Other Expense
(190,936
)
(78,277
)
(112,659
)
28
Fair
Value Measurements
ASB
ASC 820: "Fair Value Measurements and Disclosures" defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to measure fair value:
Level
1
: Quoted prices in active markets for identical assets or liabilities.
Level
2
: Inputs other than quoted prices included within Level 1 which are either directly or indirectly observable.
Level
3
: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A
financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement. Our derivative liabilities are classified as Level 3 within the fair value hierarchy because they
were valued using other unobservable inputs. The valuation technique used to measure fair value of the derivative liabilities
is based on a lattice model with significant assumptions and inputs determined by the Company. A lattice model was used to estimate
the fair value of the derivative liabilities because management believes it reflects all of the assumptions that market participants
would likely consider including early exercise of the warrants. The fair value of the derivative liabilities will be significantly
influenced by the fair value of our common stock, stock price volatility and the risk-free interest components of the lattice
technique.
Derivative
Financial Instruments
We
do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. The terms of the Unit Offering
issued April 23, 2020 were reviewed to determine whether or not they contain embedded derivative instruments that are required
by ASC 815: "Derivatives and Hedging" to be accounted for separately from the host contract and recorded at fair value.
The anti-dilution provision of the Series B Preferred Stock, the redemption rights, the conversion rights and the participation
rights issued with the Unit Offering met the conditions to be accounted for separately from the host contract and are classified
as derivative instrument liabilities measured at fair value. The fair values of these derivative liabilities are revalued at each
reporting date, with the change in fair value recognized in earnings.
Liquidity
and Capital Expenditures
Liquidity
We
have historically incurred losses from operations, and we may continue to generate negative cash flows as we implement our business
plan. Our consolidated financial statements are prepared using US GAAP as applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of business.
As of May 17, 2021, we had cash on hand of $x,xxx,xxx.  
Due to lower-than-expected revenue in 2019 and the current COVID-19 global pandemic impacting both our operations and that of our customers,
Management has taken several steps to ensure we are able to fund our operations from existing cash on hand, operating cash flows, additional
borrowings, and restructured debt obligations.
In
March of 2020, we restructured our organization by reducing headcount by 53%, by furloughing substantially all manufacturing employees,
and by implementing temporary salary reductions ranging from 15-20%. Although we have re-employed key employees since the reductions
and furloughs, annual payroll and related costs have been reduced by 38%. In April 2020, we furloughed additional employees in
our R&D and Engineering departments. Salary reductions remained in place at the discretion of the Compensation Committee of
the Board of Directors until February 1, 2021.
In
early April of 2020, we applied for relief under the Coronavirus Aid, Relief and Economic Security Act (CARES) by applying with
the Small Business Administration (SBA) for an Economic Injury Disaster Loan ("EIDL") and by submitting an application
to an SBA lender bank, PNC, for a Paycheck Protection Plan ("PPP") loan. On April 18, 2020, we received an approved
and fully executed PPP Term Note for $825,200 with a term of two years, a six-month repayment deferral period, and an annual rate
of interest of 1%, with a potential for some or all of the loan to be forgiven, dependent upon use of the loan proceeds. On April
20, 2020, we received the $825,200 of proceeds under the PPP loan which was subsequently reduced by $34,405 to $790,795 due to
additional SBA guidance regarding 1099 income paid. On October 6, 2020, the Paycheck Protection Flexibility Act of 2020 extended
the deferral expiration period for loan repayments to either the date that the SBA remits the borrower's loan forgiveness
or to 24 weeks after the receipt of proceeds plus 10 months or July 3, 2021. We plan to apply for loan forgiveness before the
end of the deferred expiration date. The outstanding principal that is not forgiven converts to an amortizing term loan. On May
17, 2020, the SBA issued us a decline letter for the EIDL for which reconsideration has not been granted.
29
On
April 23, 2020, we entered into an amended and restated Draw Loan Note and Agreement and related transaction documents (collectively,
the "Amended Dow Facility") with the Dow Chemical Company to amend the terms of our current loan facility to allow
us to structure a private placement of units ("Units") comprised (in part) of subordinated, secured convertible notes
("Convertible Notes" and such offering, the "Unit Offering"), to support ongoing cash needs.  In
the Amended Dow Facility, the Company and Dow agreed to 1) extend the term of such loan facility by two years to December 1, 2023,
2) significantly reduce any required prepayment to Dow from the proceeds of new equity or equity-linked financings from the current
30-50% prepayment requirement on the pre-existing Dow Facility to a 10% prepayment requirement in the Amended Dow Facility, which
does not begin until after we have raised an additional $7 million in equity or equity-linked capital from the date of the amendment,
3) capitalize all interest payable until such time as we have recorded GAAP revenue of at least $2 million for two consecutive
calendar quarters, 4) increase the rate of interest to 6.5% per annum from 5% in the pre-existing Dow Facility, and 5) allow for
a subordinated security interest to be granted to new investors in the Unit Offering.
Immediately
after the execution of the transaction documents related to the Amended Dow Facility, we commenced the Unit Offering in a private
placement to accredited investors. The Unit Offering is comprised of the Convertible Notes and a right to exchange two shares
of previously issued Common Stock of the Company for two shares of Series B Convertible Preferred Stock of the Company ("Series
B Preferred Stock") for every $8.00 invested in the Unit Offering (the "Exchange Rights"). The Convertible Notes
are secured by a junior security interest in all the assets of the Company, bear an interest rate of 7.5% per annum and mature
on December 31, 2024. Each investor's Exchange Rights are exercisable for a period of thirty (30) days after acceptance
by the Company of a fully executed subscription agreement.
At
the option of each holder, the Convertible Notes are convertible into either i) Series B Preferred Stock at a conversion price
of $8.00/share; or ii) any other form of preferred or common stock ("Subsequent Stock") issued by the Company at a
conversion price per share equal to 80% of the purchase price per share at which such Subsequent Stock is sold (or if the value
per share is fixed, 125% of the number of shares that might otherwise be issuable).
If
and when we raise at least $15 million of equity capital (excluding capital raised in this Unit Offering), the Convertible Notes
will be automatically converted into whichever of the following equity securities would result in the greatest number of shares
of Common Stock being issued to the holders on an "as-if-converted" basis at such time: (i) Series B Preferred Stock
at a note conversion price of $8.00/share; or (ii) Subsequent Stock at a note conversion price per share equal to 80% of the purchase
price per share at which such Subsequent Stock is sold (or if the value per share is fixed, 125% of the number of shares that
might otherwise be issuable);
Each
share of Series B Preferred Stock has an original issue price of $8.00 per share (the "Series B Original Issue Price")
and a liquidation preference of $8.00 per share, with both the Series B Original Issue Price and the liquidation preference per
share subject to adjustment for stock splits, recapitalizations, and the like. The Series B Preferred Stock will be senior to
the Company's Common Stock and pari-passu with the Series A Preferred Stock in terms of right of repayment in a liquidation.
The
Series B Preferred Stock has full ratchet antidilution protection that provides that each share of Series B Preferred Stock outstanding
may be converted by an Investor at any time into that number of shares of Common Stock determined by dividing the then current
Series B Original Issue Price by the applicable Conversion Price (as defined below) with the resulting fraction equal to the "Series
B Conversion Rate". The total number of shares of Common Stock issuable will be equal to the number of shares of Series
B Preferred Stock being converted multiplied by the Series B Conversion Rate. The "Conversion Price" is, at any time,
the price per share equal to the lesser of a) the Series B Original Issue Price per share and b) the lowest price per share at
which the Company has sold equity or equity-linked securities (other than customary exclusions) at any future date while any shares
of the Series B Preferred Stock remain outstanding. The Series B Original Issue Price and Conversion Price in effect at any time
are also subject to proportional adjustment for share splits, share dividends, recapitalizations, and the like.
On
April 23, 2020, certain members of our Board of Directors and their affiliates purchased $550,000 of convertible notes. In addition,
these Board members and their affiliates purchased $800,000, $1,801,504, and $515,016 of convertible notes in the quarters ended
September 30, 2020, December 31, 2020 and March 31, 2021. In total, the Board members and their affiliates purchased a total of
$3,666,520 of convertible notes through March 31, 2021 from the Company. Non-Board affiliated third parties purchased $700,160
and $2,073,600 of convertible notes in the quarters ended December 31, 2020 and March 31, 2021 from the Company for a total purchase
of $2,773,760. Total proceeds from the sale of Convertible Notes as of March 31, 2021 was $6,440.280.
Taking
into consideration our current cash on hand, we estimate that we will need to raise approximately $500,000 - $1,000,000 of additional
capital to continue our operations for the next twelve months in a minimal to no revenue growth environment. Our continuation
as a going concern is dependent upon continued financial support from our shareholders, our ability to obtain necessary equity
and/or debt financing to continue operations, and growth in revenue from operations. These factors raise substantial doubt regarding
our ability to continue as a going concern. We cannot make any assurances that additional financings will be available to us and,
if available, completed on a timely basis, on acceptable terms or at all. If we are unable to complete an equity or debt offering,
or otherwise obtain sufficient financing when and if needed, it would negatively impact our business and operations. It could
also lead to the reduction or suspension of our operations and ultimately force us to cease our operations.
30
There
has been no public market for our securities and a public market may never develop, or, if any market does develop, it may not
be sustained. Our Common Stock is not currently quoted on or traded on any exchange or on any over-the-counter market. In the
event we are unable to fund our operations from existing cash on hand, operating cash flows, additional borrowings or raising
equity capital, we may be forced to reduce our expenses, slow down our growth rate, or discontinue operations. Our condensed consolidated
financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller
reporting companies are not required to provide this information.
ITEM
4. CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures
. We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our
management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives.
As
required by SEC Rule 15d-15, our management carried out an evaluation, under the supervision and with the participation of our
principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures as
of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our principal executive officer
and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance
level as of the end of the period covered by this report.
(b)
Changes in internal controls
. There were no changes in our internal control over financial reporting that occurred during
the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
31
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
None.
ITEM
1A. RISK FACTORS.
Smaller
reporting companies are not required to provide this information. Please refer to the risk factors as set forth beginning on page
12 under the section entitled "Risk Factors" in our annual report on Form 10-K as filed with the Securities and Exchange
Commission (the "SEC") on April 29, 2020.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The
following sets forth information regarding all unregistered securities sold from July 1, 2019 through June 30, 2020:
(1)
We
    granted stock options to purchase an aggregate of 12,500 shares at an exercise prices of $8.00 per share to Board members,
    consultants and directors under the 2017 Equity Plan;
(2)
We
    granted an aggregate of 12,500 shares of restricted stock with an aggregate fair value of $100,000 under the 2017 Incentive
    Plan.
The
issuances of securities described in paragraphs (1) and (2) above were deemed to be exempt from registration under the Securities
Act in reliance on Rule 701 promulgated under the Securities Act as transactions by an issuer not involving a public offering
or under benefit plans and contracts relating to compensation as provided under Rule 701.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM
4. MINE SAFETY DISCLOSURES.
None.
ITEM
5. OTHER INFORMATION.
On
April 27, 2020, the Company amended and restated the Certificate of Designation of its Series B Preferred Stock, a copy of which
is filed as Exhibit 3.1 hereto. On December 20, 2020, the Company again amended and restated the Certificate of Designation of
its Series A and Series B Preferred Stock, a copy of which is filed as Exhibit 3.2 hereto. On March 31, 2021, the Company again
amended and restated the Certificate of Designation of its Series B Preferred Stock, a copy of which is filed as Exhibit 3.3 hereto.
32
ITEM
6. EXHIBITS.
EXHIBIT
NUMBER
DESCRIPTION
LOCATION
3.1
Second
                                         Amended and restated Certificate of Designations of Series B Convertible Preferred Stock
Filed
                                         herewith
3.2
Third
        Amended and restated Certificate of Designation of Series A Convertible Preferred Stock
Filed
        herewith
3.2
Third
        Amended and restated Certificate of Designation of Series B Convertible Preferred Stock
Filed herewith
3.3
Fourth
        Amended and restated Certificate of Designation of Series B Convertible Preferred Stock
Filed herewith
31.1
Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002*
Filed herewith
32.2
Certification Pursuant To 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
Filed
    herewith
101.
    CAL
XBRL
    Taxonomy Extension Calculation Link base Document
Filed
    herewith
101.
    DEF
XBRL
    Taxonomy Extension Definition Link base Document
Filed
    herewith
101.
    LAB
XBRL
    Taxonomy Label Link base Document
Filed
    herewith
101.
    PRE
XBRL
    Extension Presentation Link base Document
Filed
    herewith
101.
    SCH
XBRL
    Taxonomy Extension Scheme Document
Filed
    herewith
33
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Dated:
     May 19, 2021
By:
/s/
    Robert M. Blinstrub
Name:
Robert
    M. Blinstrub
Title:
Chief
    Executive Officer
Dated:
     May 19, 2021
By:
/s/
    Jacqueline M. Lemke
Name:
Jacqueline
    M. Lemke
Title:
Chief
    Financial Officer
34