Notes
to Condensed Consolidated Financial Statements
(unaudited)
MyDx,
Inc. (the “Company”, “we”, “us” or “our”) (formally known as Brista Corp. ) was
incorporated under the laws of the State of Nevada on December 20, 2012 (date of inception) with a business plan to produce crumb
rubber tile from recycled truck and automotive tires.
Effective
October 30, 2014, Mr. Andrejs Levaskovics resigned as our sole director and officer, and Mr. Joseph Abrams was appointed as President,
Treasurer, Secretary and sole director of the Company. Following this change of management, the Company indicated that it intended
to abandon its previous business plan to produce crumb rubber tile from recycled truck and automotive tires and intended to commence
operations as a developer of mobile device applications.
On
April 9, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger
Agreement
”) with CDx Merger
Inc., a Nevada corporation and wholly owned subsidiary of the Company (“Merger
Sub
”), and CDx, Inc. (“CDx”),
a Delaware corporation. Pursuant to the Merger Agreement, Merger Sub merged with and into CDx with CDx surviving the merger as
the Company’s wholly owned subsidiary (the “
Merger
”).
Pursuant
to the Merger Agreement, upon consummation of the Merger, each share of CDx’s capital stock issued and outstanding immediately
prior to the Merger was converted into the right to receive one (1) share of Company common stock, par value $0.001 per share
(the “Common Stock”). Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, the Company
assumed all of CDx’s options and warrants issued and outstanding immediately prior to the Merger, 6,191,000 and 7,571,395
shares of common stock, respectively. Prior to and as a condition to the closing of the Merger, each then-current Company stockholder
agreed to sell certain shares of common stock held by such holder to the Company and the then-current Company stockholders retained
an aggregate of 1,990,637 shares of common stock. Therefore, following the Merger, CDx’s former stockholders now hold 19,855,295
shares of Company common stock which is approximately 91% of the Company common stock outstanding.
Pursuant
to the Merger Agreement, each party has made certain customary representations and warranties to the other parties thereto. The
Merger was conditioned upon approval by CDx’s stockholders and certain other customary closing conditions.
On
April 24, 2015, in anticipation of closing the Merger, the Company changed its name to MyDx, Inc. On April 30, 2015, the Merger
was consummated. Upon consummation of the Merger, the Company expanded its board of directors (the “Board”) from one
to seven directors, each of whom will be directors designated by CDx.
The
Merger is being treated as a reverse acquisition of the Company, a public shell company, for financial accounting and reporting
purposes. As such, CDx is treated as the acquirer for accounting and financial reporting purposes while the Company is treated
as the acquired entity for accounting and financial reporting purposes. Further, as a result, the historical financial statements
that will be reflected in the Company’s future financial statements filed with the United States Securities and Exchange
Commission (“SEC”) will be those of CDx, and the Company’s assets, liabilities and results of operations will
be consolidated with the assets, liabilities and results of operations of CDx.
The
Company’s wholly-owned subsidiary, CDx, Inc., was incorporated under the laws of the State of Delaware on September 16,
2013. We are a chemical detection and science and technology company. We have commercialized technology and devices which are
intended to accurately measure chemicals of interest in solid, liquid, or gas samples. Our mission is to enable people to live
a healthier life by revealing the purity of certain compounds they eat, drink and inhale in real time through a device they can
hold in the palm of their hand. We believe that the broad application and ease of use of our technology puts us in an ideal position
to provide consumers with a practical and affordable way to trust and verify what they are putting into their bodies without leaving
the comfort of their homes.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Our
initial product utilizes the CannaDx sensor to allow consumers to analyze cannabis. Our product roadmap includes the future development
and commercialization of sensors to allow consumers to analyze food (“OrganaDx”); water (“AquaDx”) and
air (“AeroDx”). As of the date of this Quarterly Report we have not commercialized the OrganaDx, AquaDx or AeroDx
sensors. We will require substantial additional capital to finalize development and commercialize OrganaDx, AquaDx or AeroDx.
Our
foundational proprietary technology derives from research developed at the California Institute of Technology, Pasadena, California,
for the Jet Propulsion Laboratory, used by NASA as well as an additional project funded by the Bill & Melinda Gates Foundation
for other exploratory research and medical applications. We have a portfolio of intellectual property rights covering principles
and enabling instrumentation of chemical sensing technology across solid, liquid, and gas samples, including certain patented
and patent pending technologies from a third party pursuant to a joint development agreement. See “Intellectual Property.”
The
Company had limited revenues during the six months ended June 30, 2016. The Company currently has limited working capital, and
has not completed its efforts to establish a source of revenues sufficient to cover operating costs. The Company has a limited
operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by early-stage companies.
These risks include, but are not limited to, the uncertainty of availability of financing and the uncertainty of achieving future
profitability. Management anticipates that the Company will be dependent, for the near future, on investment capital to fund operating
expenses. The Company intends to position itself so that it may be able to raise funds through the capital markets. There can
be no assurance that such financing will be available at terms acceptable to the Company, if at all. Failure to generate sufficient
cash flows from operations, raise capital or reduce certain discretionary spending could have a material adverse effect on the
Company’s ability to achieve its intended business objectives.
We
reported negative cash flow from operations for the year ended December 31, 2015 and for the six months ended June 30, 2016. It
is anticipated that we will continue to report negative operating cash flow in future periods, likely until one or more of our
products generates sufficient revenue to cover our operating expenses. If any of the warrants are exercised, all net proceeds
of the warrant exercise will be used for working capital to fund negative operating cash flow.
Our
cash balance of $190,369 will not be sufficient to fund our operations for the next 12 months. Additionally, if we are unable
to generate sufficient revenues to pay our expenses, we will need to raise additional funds to continue our operations. We have
historically financed our operations through private equity and debt financings. The delays in our ability to ship products and
generate revenues may have adversely affected our capital raising opportunities. We do not have any commitments for financing
at this time, and financing may not be available to us on favorable terms, if at all. If we are unable to obtain debt or equity
financing in amounts sufficient to fund our operations, if necessary, we will be forced to suspend or curtail our operations.
In that event, current stockholders would likely experience a loss of most or all of their investment. Additional funding that
we do obtain may be dilutive to the interests of existing stockholders.
4.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
These
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”)
regarding interim financial reporting and include the accounts of the Company and its wholly owned subsidiary. Certain information
and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed
or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K
filed with the SEC on April 27, 2016 and Form 10-Q filed with the SEC on May 27, 2016.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
The
unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation
of the Company’s statement of financial position as of June 30, 2016 and the Company’s results of operations for the
three and six months ended June 30, 2016 and 2015 and its cash flows for the six months ended June 30, 2016 and 2015. The results
for the six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December
31, 2016. All references to June 30, 2016 or to the three and six months ended June 30, 2016 and 2015 in the notes to condensed
consolidated financial statements are unaudited.
Reclassifications
Certain
prior year amounts in the consolidated financial statements and the notes thereto have been reclassified where necessary to conform
to the current year presentation. These reclassifications did not affect the prior period total assets, total liabilities, stockholders'
deficit, net loss or net cash used in operating activities.
Use
of Estimates
The
preparation of the consolidated finance statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at
the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Such management estimates include allowance for doubtful accounts, estimates of product returns, warranty expense, inventory
valuation, valuation allowances of deferred taxes, stock-based compensation expenses and fair value of warrants. The Company bases
its estimates on historical experience and also on assumptions that it believes are reasonable. The Company assesses these estimates
on a regular basis; however, actual results could materially differ from those estimates.
Concentration
of Credit Risk
The
Company’s policy is to place its cash with high credit quality financial instruments and institutions and limit the amounts
invested with any one financial institution or in any type of instrument. Deposits held with banks may exceed the amount of insurance
provided on such deposits. The Company has not experienced any losses on its deposits of cash.
Concentration
of Risk Related to Third-party Suppliers
We
depend on a limited number of third-party suppliers for the materials and components required to manufacture our products. A delay
or interruption by our suppliers may harm our business, results of operations, and financial condition, and could also adversely
affect our future profit margins. In addition, the lead time needed to establish a relationship with a new supplier can be lengthy,
and we may experience delays in meeting demand in the event we must change or add new suppliers. Our dependence on our suppliers
exposes us to numerous risks, including but not limited to the following: our suppliers may cease or reduce production or deliveries,
raise prices, or renegotiate terms; we may be unable to locate a suitable replacement supplier on acceptable terms or on a timely
basis, or at all; and delays caused by supply issues may harm our reputation, frustrate our customers, and cause them to turn
to our competitors for future needs.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of
June 30, 2016 and December 31, 2015, the Company held no cash equivalents.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts
for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions
relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining
the amount of the allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations
and assesses current economic trends affecting its customers that might impact the level of credit losses in the future and result
in different rates of bad debts than previously seen. The Company also considers its historical level of credit losses. As of
June 30, 2016, there was no allowance for doubtful accounts.
Inventory
Inventory
is stated at the lower of cost or market value. Inventory is determined to be salable based on demand forecast within a specific
time horizon, generally eighteen months or less. Inventory in excess of salable amounts and inventory which is considered obsolete
based upon changes in existing technology is written off. At the point of recognition, a new lower cost basis for that inventory
is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost
basis.
Property
and Equipment
Property
and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided
using the straight-line method over the useful life as follows:
Internal-use software
|
|
3 years
|
Equipment
|
|
3 to 5 years
|
Computer equipment
|
|
3 to 7 years
|
Furniture and fixtures
|
|
5 to 7 years
|
Leasehold improvements
|
|
Shorter of life of asset or lease
|
Accounting
for Website Development Costs
The
Company capitalizes certain external and internal costs, including internal payroll costs, incurred in connection with the development
of its website. These costs are capitalized beginning when the Company has entered the application development stage and cease
when the project is substantially complete and is ready for its intended use. The website development costs are amortized using
the straight-line method over the estimated useful life of three years.
Impairment
of Long-Lived Assets
Long-lived
assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the condensed
balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and no longer depreciated. The
assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset
and liability sections of the condensed balance sheets.
Convertible
Debt
The
Company records a discount to convertible notes for the intrinsic value of conversion options embedded in debt instruments based
upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and
the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized to noncash interest
expense using the effective interest rate method over the term of the related debt through their date of maturity. If a security
or instrument becomes convertible only upon the occurrence of a future event outside the control of the Company, or, is convertible
from inception, but contains conversion terms that change upon the occurrence of a future event, then any contingent beneficial
conversion feature is measured and recognized when the triggering event occurs and the contingency has been resolved.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Fair
Value of Financial Instruments
The
Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations
based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different
levels of subjectivity and difficulty involved in determining fair value.
|
Level
1
|
Inputs
are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurable date.
|
|
|
|
|
Level
2
|
Inputs,
other than quoted prices included in Level 1, that are observable for the asset or liability through corroboration with market
data at the measurement date.
|
|
|
|
|
Level
3
|
Unobservable
inputs that reflect management’s best estimate of what participants would use in pricing the asset or liability at the
measurement date.
|
The
carrying amounts of the Company’s financial assets and liabilities, including cash, accounts receivable, accounts payable,
and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying value of the Company’s
loan payable and convertible notes payable approximates fair value based upon borrowing rates currently available to the Company
for loans with similar terms.
Research
and Development Costs
Research
and development costs are charged to expense as incurred. These costs consist primarily of salaries and direct payroll-related
costs. It also includes purchased materials and services provided by independent contractors, software developed by other companies
and incorporated into or used in the development of our final products.
Income
Taxes
Deferred
tax assets and liabilities are recognized for expected future consequences of events that have been included in the financial
statements or tax returns. Under the asset and liability method, deferred income tax assets and liabilities are determined based
on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence,
are not expected to be realized. The provision for income taxes represents the tax payable for the period and the change during
the period in deferred tax assets and liabilities.
Revenue
Recognition
The
Company recognizes revenue from product sales upon shipment as long as evidence of an arrangement exists, the fee is fixed or
determinable, collection of the resulting receivable is reasonably assured and title and risk of loss have passed. If those criteria
are not met, then revenue will not be recognized until all of the criteria are satisfied.
Product
Returns
For
any product in its original, undamaged and unmarked condition, with its included accessories and packaging along with the original
receipt (or gift receipt) within 30 days of the date the customer receives the product, the Company will exchange it or offer
a refund based upon the original payment method.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Customer
Deposits
The
Company accounts for funds received from crowdfunding campaigns and pre-sales as a liability on the condensed consolidated balance
sheets as the investments made entitle the investor to apply these funds towards future shipments once the product has been developed
and available for commercial use.
Stock-Based
Compensation
The
Company accounts for stock-based awards granted to employees based on the fair value of the award measured at the grant date.
Accordingly, stock-based compensation is recognized in the condensed consolidated statements of operations as an operating expense
over the requisite service period. The Company uses the Black-Scholes option pricing model adjusted for the estimated forfeiture
rate for the respective grant to determine the estimated fair value of stock-based compensation arrangements on the date of grant
and expenses this value ratably over the requisite service period of the stock option. The Black-Scholes option pricing model
requires the input of highly subjective assumptions. Because the Company’s stock options have characteristics significantly
different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair
value estimate, in management’s opinion, the existing models may not provide a reliable single measure of the fair value
of the Company’s stock options. In addition, management will continue to assess the assumptions and methodologies used to
calculate estimated fair value of stock-based compensation. Circumstances may change and additional data may become available
over time, which could result in changes to these assumptions and methodologies for future grants, and which could materially
impact the Company’s fair value determination.
For
equity instruments granted to non-employees, excluding non-employee directors, the Company records the expense of such services
based on the estimated fair value of the equity instrument. If the equity instrument is a stock option, the Company uses the Black-Scholes
option pricing model to determine the fair value. Assumptions used to value the equity instruments are consistent with equity
instruments issued to employees as the terms of the awards are similar. The Company recognizes the fair value of the equity instruments
as expense over the term of the service agreement and revalues that fair value at each reporting period over the vesting periods
of the equity instruments.
Warranty
The
Company provides a limited warranty for its analyzers and sensors for a period of 1 year from the date of shipment that such goods
will be free from material defects in material and workmanship. The Company has assessed the historical claims and, to date, warranty
claims have not been significant. The Company will continue to assess the need to record a warranty accrual at the time of sale
going forward.
Warrant
Liability
The
Company accounted for its freestanding warrant for shares of the Company’s convertible preferred stock as a liability at
fair value on the condensed consolidated balance sheets because the warrants are potentially redeemable. The warrants are remeasured
at each balance sheet date with any changes in fair value being recognized as a component of interest expense, net on the consolidated
statements of operations. During the year ended December 31, 2015, the contingency was resolved and the warrant liability was
reclassified into addition paid-in capital upon their extinguishment.
Comprehensive
Loss
Comprehensive
loss is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding
transactions resulting from investment owners and distributions to owners. For the periods presented, comprehensive loss did not
differ from net loss.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Collaborative
Arrangements
The
Company and its collaborative partners are active participants in the collaborative arrangements and both parties are exposed
to significant risks and rewards depending on the commercial success of the activity. The Company records all expenses related
to collaborative arrangements as research and development expense in the consolidated statements of operations as incurred.
Advertising
Costs
Advertising
costs are charged to sales and marketing expenses and general and administrative expenses as incurred. Advertising expenses, which
are recorded in sales and marketing and general and administrative expenses, were $35,978 and $186 for the six months ended June
30, 2016 and 2015, respectively.
Net
Loss per Share
Basic
net loss per share is computed using the weighted-average number of common shares outstanding. The number of shares used in the
computation of diluted net loss per share is the same as those used for the computation of basic net loss per share as the inclusion
of dilutive securities would be anti-dilutive because the Company is in a loss position for the periods presented. Potentially
dilutive securities are composed of the incremental common shares issuable upon the exercise of stock options and the conversion
of convertible preferred stock.
For
the three and six months ended June 30, 2016, options to purchase 4,173,186 shares of common stock and warrants to purchase 7,571,395
shares of common stock have been excluded from the calculation of net loss per share because the inclusion would be anti-dilutive.
For the six months ended June 30, 2015, options to purchase 5,967,186 shares of common stock, 7,904,171 shares of convertible
preferred stock, warrants to purchase 5,031,804 shares of Series B convertible preferred stock, and warrants to purchase 760,000
shares of common stock have been excluded from the calculation of net loss per share because the inclusion would be anti-dilutive.
Recent
Accounting Pronouncements
In
March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-09, (“ASU 2016-09”), Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. The amendments in this update simplify several aspects of the accounting for share-based payment award transactions
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. For public entities, ASU 2016-09 is effective for financial statements issued for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. We do not expect the adoption of this standard
will have a material effect on our consolidated financial statements.
In
February 2016, FASB issued ASU No. 2016-02, (“ASU 2016-02”), Leases (Topic 842). The amendments in this update require
lessees to recognize a lease liability measured on a discounted basis and a right-of-use asset for all leases at the commencement
date. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within
those fiscal years,and is to be applied using a modified retrospective transition approach for leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements. We are evaluating the new
guidelines to see if they will have a significant impact on our consolidated results of operation, financial condition or cash
flows.
In
August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers
. The amendments in this ASU defer the effective
date of ASU 2014-09 for all entities by one year. Public business entities should apply the guidance in Update 2014-09 to annual
reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier
application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods
within that reporting period. All other entities may apply the guidance in Update 2014-09 earlier as of an annual reporting period
beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may
apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting
periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies
the guidance in Update 2014-09.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
In
July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement of Inventory
. Under this ASU, inventory will be measured
at the “lower of cost and net realizable value,” and options that currently exist for “market value” will
be eliminated. The ASU defines net realizable value as “estimated selling prices in the ordinary course of business, less
reasonably predictable costs of completion, disposal, and transportation.” No other changes were made to the current guidance
on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016. Early application
is permitted and should be applied prospectively. Management is evaluating the provisions of this statement, including which period
to adopt, and has not determined what impact the adoption of ASU 2015-11 will have on the Company's financial position or results
of operations.
In
April 2015, the FASB ASU 2015-03,
Interest-Imputation of Interest
(“ASU 2015-03”). This updated guidance intended
to simplify, and provide consistency to, the presentation of debt issuance costs. The new standard requires that debt issuance
costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with
debt discounts. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2015,
with early adoption permitted. The Company is currently evaluating the impact that this standard will have on its condensed consolidated
financial statements and related disclosures.
In
August 2014, the FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern
(“ASU 2014-15”), which requires management to determine whether there is substantial doubt about a company’s
ability to continue as a going concern. ASU 2014-15 differs from the current application requirements in auditing standards by
defining “substantial doubt;” requiring the management going concern assessment every interim and annual period; providing
guidance for considering management’s plans to alleviate the doubt; requiring certain disclosures when those plans do alleviate
the going concern doubt; requiring an express statement about the substantial doubt and certain disclosures when the plans do
not alleviate the going concern doubt; and requiring an assessment of substantial doubt for one year after the date that the financial
statements are issued. ASU 2014-15 will be effective for fiscal years ending after December 15, 2016, with early application permitted.
The Company is currently evaluating the impact that this standard will have on its financial statements and related disclosures.
Inventory
as of June 30, 2016 and December 31, 2015 is as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Finished goods
|
|
$
|
110,511
|
|
|
$
|
270,230
|
|
Raw materials
|
|
|
270,395
|
|
|
|
181,743
|
|
|
|
$
|
380,906
|
|
|
$
|
451,973
|
|
6.
|
Fair
Value Measurements
|
The
Company had no financial assets measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015. The Company
had no financial liabilities measured at fair value on a recurring basis as of June 30, 2016.
7.
|
Property
and Equipment, net
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Computer and test equipment
|
|
$
|
206,499
|
|
|
$
|
206,499
|
|
Website development costs
|
|
|
39,870
|
|
|
|
39,870
|
|
Furniture and fixtures
|
|
|
32,845
|
|
|
|
32,845
|
|
Software
|
|
|
10,791
|
|
|
|
10,791
|
|
Leasehold improvements
|
|
|
18,288
|
|
|
|
18,288
|
|
|
|
|
308,293
|
|
|
|
308,293
|
|
|
|
|
(117,921
|
)
|
|
|
(75,229
|
)
|
|
|
$
|
190,372
|
|
|
$
|
233,064
|
|
Depreciation
expense was $42,692 and $19,090 for the six months ended June 30, 2016 and 2015, respectively.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Accrued
liabilities consisted of the following as of June 30, 2016 and December 31, 2015.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred compensation to non-employees
|
|
$
|
17,282
|
|
|
$
|
146,327
|
|
Deferred compensation to an employee
|
|
|
117,262
|
|
|
|
51,210
|
|
Other
|
|
|
149,097
|
|
|
|
84,224
|
|
|
|
$
|
283,641
|
|
|
$
|
281,761
|
|
Asset
Based Loans
On
June 16, 2016, CDx, Inc. (the Company’s wholly owned subsidiary) entered into a Business Loan Agreement (the “Agreement”)
with WebBank providing for the granting of a security interest in properties, assets and rights (the “Collateral”)
as defined in the agreement. CDx, Inc. received net proceeds of $150,000. There were no loan origination or administrative fees
related to the funding. The agreement has a maturity date that is 432 days after the effective date of the Agreement and requires
equal weekly payments of $599.03 which includes a total finance fee of $34,500 over the life of the Agreement. The Agreement is
personally guaranteed by an officer and majority shareholder of the Company.
On
May 31, 2016, CDx, Inc. (the Company’s wholly owned subsidiary) entered into a Promissory Note and Security Agreement (the
“Note”) with Windset Capital Corporation, whereby CDx, Inc. gives, grants and assigns a continuing security interest
in all of CDx, Inc.’s business equipment, accounts receivable, intellectual property, rights, licenses, claims, assets and
properties of any kind whatsoever, whether now owned or hereafter acquired, real, personal, tangible, intangible or of any nature
or value, wherever located, together with all proceeds including insurance proceeds as defined in the Note. There was an origination
fee of $200 related to the financing. CDx, Inc. received net proceeds of $74,800 from the funding. The Note has a maturity date
that is 252 business days from the date of the Note and requires payments of $360.12 each business day, as defined in the Note,
which includes a total finance fee of $15,750 over the life of the Note. The Note is personally guaranteed by an officer and majority
shareholder of the Company.
On
May 31, 2016, CDx, Inc. (the Company’s wholly owned subsidiary) entered into a Future Receivables Sale Agreement (the “Agreement”)
with Swift Financial Corporation granting a security interest, as defined in the Agreement, in CDx, Inc.’s present and future
accounts, receivables, chattel paper, deposit accounts, personal property, goods, assets and fixtures, general intangibles, instruments,
equipment and inventory. There was an origination fee of $1,875 related to the financing. CDx, Inc. received net proceeds of $73,125
from the funding. The Agreement requires 48 equal weekly payments of $1,842.19 resulting in total repayment of $88,425 which includes
a finance fee of $13,425. The total repayment amount can be reduced to $85,425 solely in the event CDx, Inc. pays this amount
on or before October 3, 2016. The Agreement is personally guaranteed by an officer and majority shareholder of the Company.
Convertible
Notes
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Convertible Notes - December 22, 2015
|
|
$
|
209,000
|
|
|
$
|
190,000
|
|
Convertible Note - December 10, 2015
|
|
|
-
|
|
|
|
90,000
|
|
Convertible Notes - February 8, 2016
|
|
|
60,000
|
|
|
|
-
|
|
Convertible Note - March 15, 2016
|
|
|
55,750
|
|
|
|
-
|
|
Convertible Note -May 6, 2016
|
|
|
55,750
|
|
|
|
|
|
Convertible Note -May 10, 2016
|
|
|
50,000
|
|
|
|
|
|
Convertible Note -May 24, 2016
|
|
|
55,000
|
|
|
|
|
|
Less debt discount and debt issuance costs
|
|
|
(30,199
|
)
|
|
|
(29,152
|
)
|
Total
|
|
$
|
455,301
|
|
|
$
|
250,848
|
|
Less current portion of convertible notes payable
|
|
$
|
210,795
|
|
|
$
|
50,574
|
|
Long-term convertible notes payable
|
|
$
|
244,506
|
|
|
$
|
200,274
|
|
The
Company amortized debt discount and debt issuance costs of $7,939 and $13,844 for the three and six month periods ended June 30,
2016, respectively.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
On May 24, 2016, MyDx, Inc. (the “Company”)
entered into a Convertible Note (the “Note”) with Vista Capital Investments, LLC (“Vista”) in the Original
Principal Amount of $275,000 (including a 10% Original Issue Discount (“OID”)). The Company and Vista agreed to an
initial funding under the Note of $55,000, including an OID of $5,000 (“Initial Funding”). Future advances under the
Note are at the sole discretion of Vista. The Company is only required to repay the amount funded, including the prorated portion
of the OID. The note bears interest at the rate of 10% and must be repaid on or before May 24, 2018. The Note may be prepaid by
the Company at any time prior to the date, which is 180 days after issuance of the Note at a premium to the amount outstanding
at the time of prepayment (as determined in the Note). The Note may be converted by Vista at any time after the six (6) month
anniversary of the Note into shares of Company common stock at a conversion price equal to 50 % of the market price (as determined
in the Note). The Note also contains certain representations, warranties, covenants and events of default, and increases in the
amount of the principal and interest rates under the Note in the event of such defaults. The foregoing is only a brief description
of the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder, and such
descriptions are qualified in their entirety by reference to the agreements and their exhibits, which are filed as an exhibit
to this Current report.
The issuance of the Note was made in reliance
on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering,
and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in
issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction
by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous
public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the
negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient
of the Note was an accredited investor.
The Note might be accelerated if an event
of default occurs under the terms of the Note, including the Company’s failure to pay principal and interest when due, certain
bankruptcy events or if the Company is delinquent in its SEC filings. The Note also contains certain representations, warranties,
covenants and events of default, and increases in the amount of the principal and interest rate under the Note in the event of
such defaults. For the three months ended June, 2016, the Company amortized a total of $253, of the debt issuance cost. As of
June 30, 2016, the Note had an outstanding balance of $50,253 and a remaining unamortized debt discount of $4,747.
On May 10, 2016, MyDx, Inc. (the “Company”)
entered into Securities Purchase Agreement (the “SPA”) and Convertible Promissory Note in the original principal amount
of $50,000 (the “Note”) with Crown Bridge Partners, LLC (“Crown”) pursuant to which Crown funded $43,000
to the Company after the deduction of a $5,000 OID and $2,000 for legal fees. The Note bears interest at the rate of 8% and must
be repaid on or before May 10, 2017. The Note may be prepaid by the Company at any time prior to the date which is 180 days after
the date of issuance of the Note at a premium to the amount outstanding at the time of prepayment (as determined in the Note).
The Note may be converted by Crown at any time after the six (6) month anniversary of the Note into shares of Company common stock
at a conversion price equal to 50% of the market price (as determined in the Note). The SPA and Note also contain certain representations,
warranties, covenants and events of default, and increases in the amount of the principal and interest rates under the Note in
the event of such defaults. The foregoing is only a brief description of the material terms of the SPA and Note, and does not
purport to be a complete description of the rights and obligations of the parties thereunder, and such descriptions are qualified
in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Current Report.
The issuance of the Note was made in reliance
on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering,
and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in
issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction
by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous
public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the
negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient
of the Note was an accredited investor. For the three months ended June, 2016, the Company amortized a total of $685, of the debt
issuance cost. As of June 30, 2016, the Note had an outstanding balance of $45,685 and a remaining unamortized debt discount of
$4,315.
On May 6, 2016, the Company entered into Securities
Purchase Agreement (the “SPA”) and Convertible Promissory Note in the original principal amount of $55,750 (the “Note”)
with Auctus Fund, LLC (“Auctus”) pursuant to which Auctus funded $50,000 to the Company after the deduction of $5,750
of diligence and legal fees. The Note bears interest at the rate of 10% and must be repaid on or before February 6, 2017. The
Note may be prepaid by the Company at any time prior to the date which is 180 days after the date of issuance of the Note in an
amount equal to 110% of the amount outstanding. The Note may be converted by Auctus at any time into shares of Company common
stock at a conversion price equal to 50% of the market price (as determined in the Note). The SPA and Note also contain certain
representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rates
under the Note in the event of such defaults. The foregoing is only a brief description of the material terms of the SPA and Note,
and does not purport to be a complete description of the rights and obligations of the parties thereunder, and such descriptions
are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to the Company’s
Current Report on Form 8-K filed with the SEC on May 10, 2016. The Company recorded the cost of the due diligence and legal fees
of $5,750 as financing fees.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
The issuance of the Note was made in reliance
on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering,
and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in
issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction
by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous
public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the
negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient
of the Note was an accredited investor.
On December 22, 2015, the Company completed
a financing pursuant to a Securities Purchase Agreement with Adar Bays, LLC ("Adar Bays") providing for the issuance
of two convertible promissory notes in the aggregate principal amount of $220,000, with the first note being in the amount of
$110,000, and the second note being in the amount of $110,000 (the "Note" or "Notes"). The Notes contain a
10% original issue discount such that the purchase price of each Note is $100,000. The first Note was funded on December 22, 2015
and is due and payable on December 21, 2017. The second Note shall initially be paid for by the issuance of an offsetting $100,000
collateralized secured note issued by Adar Bays to the Company due and payable no later than August 21, 2016. The funding of the
second Note is subject to certain conditions, and the Company may reject the closing of the second Note in its discretion. The
Notes bear interest at the rate of 8% per annum and may be converted by Adar Bays at any time after the date which is six months
of the date of issuance into shares of Company common stock at a conversion price equal to 60% of the market price (as determined
in the Notes) calculated at the time of conversion. The Company did not book a beneficial conversion feature in connection with
the issuance of the Notes, as terms of the conversion are variable and the ultimate number of shares to be issued upon conversion
could not be determined at the date the Notes were issued. As such, upon conversion of the Notes the number of shares will be
determined and the Company will evaluate whether or not a beneficial conversion feature exists based on the conversion price compared
to the price of the Company’s common stock at the date of issuance of the Notes. The Notes also contain certain representations,
warranties, covenants and events of default, and increases in the amount of the principal and interest rates under the Notes in
the event of such defaults. The Notes may be prepaid by the Company at any time prior to 180 days after the date of issuance of
the Notes subject to the payment of prepayment penalties as described in the Notes. The foregoing is only a brief description
of the material terms of the Securities Purchase Agreement and Notes, and does not purport to be a complete description of the
rights and obligations of the parties thereunder, and such descriptions are qualified in their entirety by reference to the agreements
which are filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 24, 2015. The issuance
of the Notes was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities
not involving a public offering, and Regulation D promulgated under the Securities Act. The Company's reliance upon Section 4(2)
of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an
isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no
subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into
smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and
the Company; and (f) the recipient of the Notes was an accredited investor. The Company recorded the original issue discount of
$10,000 as debt issuance cost on its balance sheet which is netted against the face value of the Note and is being accreted
over the term of the Note. For the three and six months ended June, 2016, the Company amortized a total of $1,245 and $2,490,
respectively, of the debt issuance cost. As of June 30, 2016 and December 31, 2015, the Note had outstanding balances of $102,627
and $101,137, respectively, and remaining unamortized debt discount of $7,373 and $9,863, respectively. As of June 30, 2016
the remaining unamortized note extension premium is $44,000.
On June 23, 2016, MyDx, Inc. (the “Company”)
and Adar Bays, LLC (“Adar Bays”) agreed to amend the Company’s 8% Convertible Promissory Note in the principal
amount of $110,000 (the “Adar Bays Amendment”), issued pursuant to that certain Securities Purchase Agreement, dated
December 21, 2015, entered into by and between the Company and Adar Bays, as previously disclosed in a Current Report on Form
8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 24, 2015.
Pursuant to the Adar Bays Amendment, the Company
agreed to redeem the note by paying 140% of the principal amount plus accrued but unpaid interests to Adar Bays, for a total redemption
amount of $158,424.44, pursuant to the payment schedule set forth in the Adar Bays Amendment. In addition, the Company paid 5%
of the original principal amount to Adar Bays as consideration for entering into the amendment.
Adar Bays agrees not to convert the note unless
the Company defaults on the payment of the redemption amount and such default is not cured within fifteen (15) business days.
If the Company defaults on the redemption payment and such default is not cured as mentioned above, then the amendment shall be
deemed null and void and of no further force or effect. In such event, the allocated payment made by the Company shall be applied
pursuant to the payment schedule set forth in the Adar Bays Amendment.
On July 29, 2016, the Company and Adar Bays
agreed to terminate the standstill portion of the Adar Bays Amendment pertaining to the standstill conversion rights and Adar
Bays shall be free to convert the Note without any limitations, except as required by law. All other terms and conditions of the
Note and the Adar Bays Amendment shall remain in full force and effect.
On August 3, 2016 Adar Bays sent a Notice
of Conversion to the Company electing to convert $7,000 of the Note into shares of the Company’s commons stock. The conversion
price was based on a 40% discount on the 2 day average bid price of the Company’s common stock as quoted on the OTCQB. The
Company authorized the issuance of 88,923 shares of its common stock in satisfaction of the notice of conversion.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
On December 22, 2015, the Company completed
a financing pursuant to a Securities Purchase Agreement with Union Capital, LLC ("Union Capital") providing for the
purchase of two convertible promissory notes in the aggregate principal amount of $220,000, with the first note being in the amount
of $110,000, and the second note being in the amount of $110,000 (the "Note" or "Notes"). The Notes contain
a 10% original issue discount such that the purchase price of each Note is $100,000. The first Note was funded on December 22,
2015 and is due and payable on December 21, 2017. The second Note shall initially be paid for by the issuance of an offsetting
$100,000 collateralized secured note issued by Union Capital to the Company due and payable no later than August 21, 2016. The
funding of the second Note is subject to certain conditions and the Company may reject the closing of the second Note in its discretion.
The Notes bear interest at the rate of 8% per annum; are due and payable on December 21, 2017; and may be converted by Union Capital
at any time after the date which is six months of the date of issuance into shares of Company common stock at a conversion price
equal to 60% of the market price (as determined in the Notes) calculated at the time of conversion. The Company did not book a
beneficial conversion feature in connection with the issuance of the Notes, as terms of the conversion are variable and the ultimate
number of shares to be issued upon conversion could not be determined at the date the Notes were issued. As such, upon conversion
of the Notes the number of shares will be determined and the Company will evaluate whether or not a beneficial conversion feature
exists based on the conversion price compared to the price of the Company’s common stock at the date of issuance of the
Notes. The Notes also contain certain representations, warranties, covenants and events of default, and increases in the amount
of the principal and interest rates under the Notes in the event of such defaults. The Notes may be prepaid by the Company at
any time prior to 180 days after the date of issuance of the Notes subject to the payment of prepayment penalties as described
in the Notes. The foregoing is only a brief description of the material terms of the Securities Purchase Agreement and Notes,
and does not purport to be a complete description of the rights and obligations of the parties thereunder, and such descriptions
are qualified in their entirety by reference to the agreements which are filed as an exhibit to the Company’s Current Report
on Form 8-K filed with the SEC on December 24, 2015. The issuance of the Notes was made in reliance on the exemption provided
by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering, and Regulation D promulgated
under the Securities Act. The Company's reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon
the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public
offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities
by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the
securities took place directly between the individual and the Company; and (f) the recipient of the Notes was an accredited investor.
The Company recorded the original issue discount of $10,000 as debt issuance cost on its balance sheet which is netted against
the face value of the Note and will be accreted over the term of the Note. For the three and six months ended June 30, 2016,
the Company amortized a total of $1,245 and $2,490, respectively of the debt issuance cost. As of June 30, 2016 and December 31,
2015, the Note had outstanding balances of $102,627 and $101,137, respectively, and remaining unamortized debt discount of $7,373
and $9,863, respectively. As of June 30, 2016 the remaining unamortized note extension premium is $44,000.
On June 27, 2016, the Company and Union Capital,
LLC (“Union Capital”) agreed to amend the Company’s 8% Convertible Promissory Note in the principal amount of
$110,000 (the “Union Capital Amendment”), issued pursuant to that certain Securities Purchase Agreement, dated December
21, 2015, entered into by and between the Company and Union Capital, as previously disclosed in a Current Report on Form 8-K filed
with the SEC on December 24, 2015.
On July 29, 2016, the Company and Union Capital
agreed to terminate the standstill portion of the Union Capital Amendment pertaining to the standstill conversion rights and Union
capital shall be free to convert the Note without any limitations, except as required by law. All other terms and conditions of
the Note and the Union Capital Amendment shall remain in full force and effect.
Pursuant to the Union Capital Amendment, the
Company agreed to redeem the note by paying 140% of the principal amount plus accrued but unpaid interests to Union Capital, for
a total redemption amount of $158,363.84, pursuant to the payment schedule set forth in the Union Capital Amendment. In addition,
the Company paid 5% of the original principal amount to Union Capital as consideration for entering into the amendment.
Union Capital agrees not to convert the note
unless the Company defaults on the payment of the redemption amount and such default is not cured within fifteen (15) business
days. If the Company defaults on the redemption payment and such default is not cured as mentioned above, then the amendment shall
be deemed null and void and of no further force or effect. In such event, the allocated payment made by the Company shall be applied
pursuant to the payment schedule set forth in the Union Capital Amendment.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
On December 10, 2015, the Company entered
into a Securities Purchase Agreement (the "SPA") and Convertible Promissory Note in the original principal amount of
$60,000 (the "Note") with Kodiak Capital Group, LLC ("Kodiak") pursuant to which Kodiak funded $50,000 to
the Company after the deduction of a $10,000 original issue discount. The Note bears interest at the rate of 12% and must be repaid
on or before December 20, 2016. The Note may be prepaid by the Company at any time without penalty prior to the date which is
180 days after the date of issuance of the Note. The Note may be converted by Kodiak at any time after 180 days of the date of
issuance into shares of Company common stock at a conversion price equal to 50% of the market price (as determined in the Note).
The Company did not book a beneficial conversion feature in connection with the issuance of the Notes, as terms of the conversion
are variable and the ultimate number of shares to be issued upon conversion could not be determined at the date the Notes were
issued. As such, upon conversion of the Notes the number of shares will be determined and the Company will evaluate whether or
not a beneficial conversion feature exists based on the conversion price compared to the price of the Company’s common stock
at the date of issuance of the Notes. The SPA and Note also contain certain representations, warranties, covenants and events
of default, and increases in the amount of the principal and interest rates under the Note in the event of such defaults. The
foregoing is only a brief description of the material terms of the SPA and Note, and does not purport to be a complete description
of the rights and obligations of the parties thereunder, and such descriptions are qualified in their entirety by reference to
the agreements and their exhibits which are filed as an exhibit to the Company’s Current Report on Form 8-K filed with the
SEC on December 16, 2015. The Company recorded the original issue discount of $10,000 as debt issuance cost on its balance sheet
which is netted against the face value of the Note and will be accreted over the term of the Note. For the three and six
months ended June 30, 2016, the Company amortized a total of $2,486 and $4,973 of the debt issuance cost. The Note was redeemed
on June 9, 2016. As of December 31, 2015, the Note had an outstanding balance of $50,574 and a remaining unamortized debt discount
of $9,426.
The issuance of the Note was made in reliance
on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering,
and Regulation D promulgated under the Securities Act. The Company's reliance upon Section 4(2) of the Securities Act in issuing
the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by
us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous
public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the
negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient
of the Note was an accredited investor.
On June 9, 2016, the Company redeemed the
Note for $63,000. The amount was paid in full to Kodiak on June 9, 2016. As a result of the redemption of the Note, the Company
shall have no further obligations under the SPA and the Note.
On February 8, 2016, the Company entered into
an Equity Purchase Agreement (the "EPA"), Registration Rights Agreement ("RRA") and Convertible Promissory
Note in the original principal amount of $50,000 (the "Note") with Kodiak Capital Group, LLC ("Kodiak").
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
The EPA provides that the Company may, in
its discretion, sell up to $1,000,000 of shares of Company common stock to Kodiak. The sale of shares of Company common stock
is subject to the conditions set forth in the EPA, which include, but are not limited to, the Company filing a Registration Statement
on Form S-1 to register the shares to be sold to Kodiak and the Registration Statement becoming effective. The purchase price
to be paid for the shares will be 70% of the market price for such shares as determined pursuant to the terms set forth in the
EPA. The RRA provides that the Company will file a Registration Statement to register up to 4,000,000 shares to be sold to Kodiak
pursuant to the EPA, or issued to Kodiak upon conversion of the Note, and that the Company shall use commercially reasonable efforts
to file the Registration Statement before March 31, 2016. Pursuant to the terms of the EPA, the Company agreed to issue Kodiak
the Note as a commitment fee. The Note must be repaid on or before February 2, 2017. The Note may be prepaid by the Company at
any time without penalty. The Note may be converted by Kodiak at any time after August 2, 2016 into shares of Company common stock
at a conversion price equal to 50% of the market price (as determined in the Note). Any financing pursuant to the EPA is subject
to the Company's fulfilling the conditions to sell shares to Kodiak, including the effectiveness of the Registration Statement.
The Company cannot provide any assurances that any shares will be sold under the EPA or the prices at which such shares may be
sold.
The EPA, RRA and Note also contain certain
representations, warranties, covenants and events of default, and increases in the amount of the principal under the Note in the
event of such defaults. The foregoing is only a brief description of the material terms of the EPA, RRA and Note, and does not
purport to be a complete description of the rights and obligations of the parties thereunder, and such descriptions are qualified
in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to the Company’s Current
Report on Form 8-K filed with the SEC on February 9, 2016. The Company recorded the original issue discount of $10,000 as debt
issuance cost on its balance sheet which is netted against the face value of the Note and will be accreted over the term
of the Note. For the three and six months ended June 30, 2016, the Company amortized a total of $2,680 and $3,609, respectively,
of the debt issuance cost. As of June 30, 2016 the Note had an outstanding balance of $53,609. As of June 30, 2016 the Note had
a remaining unamortized debt discount of $6,391.
The issuance of the Note was made in reliance
on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering,
and Regulation D promulgated under the Securities Act. The Company's reliance upon Section 4(2) of the Securities Act in issuing
the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by
us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous
public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the
negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient
of the Note was an accredited investor.
On June 30, 2016, the Company elected to terminate
the EPA and RRA by delivering a termination notice to Kodiak. The Company shall have no further liabilities or obligations under
the EPA and the RRA. The rights and obligations of the Note hereunder shall continue and remain in full force and effect
until all obligations are satisfied in full.
On March 15, 2016, the Company entered into
Securities Purchase Agreement (the “SPA”) and Convertible Promissory Note in the original principal amount of $55,750
(the “Note”) with Auctus Fund, LLC (“Auctus”) pursuant to which Auctus funded $50,000 to the Company after
the deduction of $5,750 of diligence and legal fees. The Note bears interest at the rate of 10% and must be repaid on or before
December 15, 2016. The Note may be prepaid by the Company at any time prior to the date which is 180 days after the date of issuance
of the Note in an amount equal to 110% of the amount outstanding. The Note may be converted by Auctus at any time into shares
of Company common stock at a conversion price equal to 50% of the market price (as determined in the Note). The SPA and Note also
contain certain representations, warranties, covenants and events of default, and increases in the amount of the principal and
interest rates under the Note in the event of such defaults. The foregoing is only a brief description of the material terms of
the SPA and Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder, and
such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit
to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2016. The Company recorded the cost of the due
diligence and legal fees of $5,750 as financing fees.
The issuance of the Note was made in reliance
on the exemption provided by Section 4(2) of the Securities Act for the offer and sale of securities not involving a public offering,
and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in
issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction
by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous
public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the
negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient
of the Note was an accredited investor.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Note Payable – Related Party
On December 10, 2015, YCIG, Inc. ("YCIG"),
an entity owned and controlled by Daniel Yazbeck, who is an officer, director and major shareholder of the Company, entered into
a Loan Agreement (the "Loan Agreement") with the Company. The Loan Agreement provides that the amounts loaned accrue
interest at a rate of 12% per annum and all amounts loaned are due and payable on or before September 29, 2018. The amounts loaned
may be prepaid by the Company at any time without penalty. The Loan Agreement provides that in the event of a default, the loan
amount becomes immediately due and payable, which may be repaid by the Company in its election in cash or a number of shares of
Company common stock equal to four times the amount outstanding at the date of default.
YCIG advanced the Company funds under the
loan agreement as follows:
November 13, 2015
|
|
$
|
15,000
|
|
November 20, 2015
|
|
$
|
25,000
|
|
December 1, 2015
|
|
$
|
25,000
|
|
December 2, 2015
|
|
$
|
25,000
|
|
April 6, 2016
|
|
$
|
10,000
|
|
April 27, 2016
|
|
$
|
25,000
|
|
Debt Settlement
On April 1, 2016, the Company entered into
an agreement with Investor Relations Partners (“IRP’), to render certain investor relations and financial communications
services to the Company. IRP agreed to perform investor relations, public relations, stock surveillance and other ancillary services
as requested by the Company (the “Agreement”). For the requested services, the Company was to pay IRP a one-time payment
of Two Hundred Fifty Thousand Dollar ($250,000) (the “Claim”) upon the signing of the Agreement.
On May 24, 2016, the Company and Phoenix
Fund Management, LLC (“Phoenix Fund”) entered into a Claim Purchase Agreement with IRP to purchase the Claim held
by IRP. Phoenix Fund executed a Settlement Agreement (the “Settlement Agreement”) whereas the Company and Phoenix
Fund agreed to resolve, settle and compromise the Claim. In settlement of the Claim, the Company shall issue and deliver to Phoenix
Fund shares of its common stock as requested by Phoenix Fund, periodically, at a fifty percent (50%) discount from the average
closing price of the Company’s common stock for the three trading days prior to the date of issuance.
On June 13, 2016, Phoenix Fund elected to
have the Company issue 1,041,348 free trading shares of the Company’s common stock in exchange for retirement of $72,895
of the initial Claim. As a result, the Company recorded a loss on debt settlement of $73,935 reflecting the difference in
the discounted conversion price and the market price.
10.
|
Stockholders’ Deficit
|
Reverse Capitalization
Pursuant to the Merger Agreement, upon consummation
of the Merger, each share of CDx’s capital stock issued and outstanding immediately prior to the Merger was converted into
the right to receive one (1) share of Company common stock, par value $0.001 per share. Additionally, pursuant to the Merger Agreement,
upon consummation of the Merger, the Company assumed all of CDx’s options and warrants issued and outstanding immediately
prior to the Merger, 6,069,960 and 7,571,395 shares of common stock, respectively.
Prior to and as a condition to the closing
of the Merger, each then-current Company stockholder agreed to sell certain shares of common stock held by such holder to the
Company and the then-current Company stockholders retained an aggregate of 1,990,637 shares of common stock.
Common Stock
On February 23, 2015, the Company effected
a 5-for-1 forward stock split of its issued and outstanding shares of common stock. All share and per share amounts for all periods
that have been presented in the consolidated financial statements and notes thereto have been adjusted retrospectively, where
applicable, to reflect the forward stock split. The Company filed a Certificate of Amendment to its Certificate of Incorporation
which made the forward stock split effective and increased the authorized common shares to 375,000,000 shares with a par value
$0.001 per share.
In April, and May 2014, the Company issued
4,525,000 shares of its common stock at $0.06 per share for total proceeds of $27,150.
Each share of common stock has the right to
one vote. The holders of common stock are entitled to dividends when funds are legally available and when declared by the board
of directors.
As a result of the Merger, the Company issued
a total of 19,855,295 share of common stock to the shareholders of CDx.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
During the six months ended June 30, 2016,
the Company issued 1,461,906 shares of common stock in exchange for services at a fair value of $253,060. During the six months
ended June 30, 2015, the Company issued 1,863,241 shares of common stock in exchange for services at a fair value of $1,192,893.
Common Stock Warrants
During the six months ended June 30, 2016,
the Company did not issue any warrants to purchase shares of common stock. During the six months ended June 30, 2015, the Company
converted warrants to purchase 4,974,567 shares of Series B preferred stock into warrants to common stock. No common stock warrants
have been exercised or have expired and warrants to purchase 7,571,395 shares of common stock were outstanding as of June 30,
2016.
Preferred Stock
As part of the Merger Agreement, all shares
of the Series A and Series B convertible preferred stock converted to common stock, pursuant to the conversion rights.
2015 Equity Incentive Plan
In connection with the Merger on April 30,
2015, the Company adopted the MyDx, Inc. 2015 Equity Incentive Plan (the “2015 Plan”), and to date, has reserved 6,200,000
shares of common stock for issuance under the 2015 Plan. Under the 2015 Plan, employees, directors or consultants may be granted
nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units to purchase shares of MyDx’s
common stock. Only employees are eligible to receive incentive stock options (“ISO”) to purchase common stock. Vesting
and exercise provisions are determined by the Board of Directors at the time of grant. The options generally expire ten years
from the date of grant. ISOs granted to a participant who, at the time the ISO is granted, has more than 10% of the voting power
between all classes of stock, will expire five years from the date of grant. Options vest at various rates ranging from immediately
to three years. As of June 30, 2016, options to purchase 1,573,755 shares were available under the 2015 Plan for issuance.
A summary of the Company’s stock option
plan for the three months ended June 30, 2016 was as follows:
|
|
Shares
|
|
|
Weighted Averaged Exercise
Price
|
|
Outstanding as of January 1, 2016
|
|
|
4,626,245
|
|
|
$
|
0.39
|
|
Granted
|
|
|
125,000
|
|
|
$
|
0.57
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited or cancelled
|
|
|
578,059
|
|
|
$
|
0.55
|
|
Outstanding as of June 30, 2016
|
|
|
4,173,186
|
|
|
$
|
0.38
|
|
Options vested and exercisable as of June 30, 2016
|
|
|
3,388,742
|
|
|
$
|
0.26
|
|
Options vested and expected to vest
|
|
|
4,173,186
|
|
|
$
|
0.38
|
|
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Information regarding options outstanding
and vested and exercisable as of June 30, 2016 is as follows:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise Price
|
|
|
Number Outstanding
|
|
|
Average
Remaining
Contractual Life (Years)
|
|
|
Weighted
-Average
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
-Average
Exercise
Price
|
|
$
|
0.08
|
|
|
|
1,772,251
|
|
|
|
7.9
|
|
|
$
|
0.08
|
|
|
|
1,756,278
|
|
|
$
|
0.08
|
|
$
|
0.55
|
|
|
|
2,000,935
|
|
|
|
8.6
|
|
|
$
|
0.55
|
|
|
|
1,511,630
|
|
|
$
|
0.55
|
|
$
|
0.71
|
|
|
|
250,000
|
|
|
|
9.3
|
|
|
$
|
0.71
|
|
|
|
72,917
|
|
|
$
|
0.71
|
|
$
|
0.57
|
|
|
|
125,000
|
|
|
|
8.4
|
|
|
$
|
0.57
|
|
|
|
35,417
|
|
|
$
|
0.57
|
|
$
|
2.36
|
|
|
|
25,000
|
|
|
|
8.8
|
|
|
$
|
2.36
|
|
|
|
12,500
|
|
|
$
|
2.36
|
|
|
|
|
|
|
4,173,186
|
|
|
|
8.3
|
|
|
$
|
0.37
|
|
|
|
3,388,742
|
|
|
$
|
0.37
|
|
Total employee stock-based compensation expense
recognized by the Company for the six months ended June 30, 2016 and 2015 was $208,301 and $271,003, respectively. No tax benefits
were recognized in the six months ended June 30, 2015 and 2016.
Total unrecognized compensation expense from
employee stock options as of June 30, 2016 was $455,318 and will be recognized over a weighted average recognition period of 1.9
years.
For the six months ended June 30, 2016, the
Company granted options to non-employees to purchase 125,000 shares of common stock at an exercise price of $0.57 per share as
compared to 415,000 shares of common stock at an exercise price of $0.55 per share for the six months ended June 30, 2015. Stock-based
compensation expense related to stock options granted to non-employees was $37,607 and $164,165, respectively, for the three and
six months ended June 30, 2016 and $82,272 and $116,332 for the three and six months ended June 30, 2015. The Company believes
the fair value of the stock options is more reliably measurable than the fair value of the consulting services received. The fair
value of the stock options granted is calculated at each reporting date.
Additional Stock Plan Information
The Company’s fair value calculations for stock-based awards
under the 2015 Plan were made using the Black-Scholes option pricing model with the weighted-average assumptions set forth in
the following table. Volatility is based on historical volatility rates obtained for certain public companies that operate in
the same or related businesses as that of the Company since there is no market for or historical volatility data for the Company’s
common stock. The risk-free interest rate is determined by using a U.S. Treasury rate for them any uses a simplified method for
“plain vanilla” share options in determining the expected term of an employee share option as its equity shares are
not publicly traded.
The following assumptions were used in the estimated grant date
fair value calculations for options granted to employees and consultants during the three and six months ended June 30, 2016 and
2015:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Volatility
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
|
|
50.0
|
%
|
Average risk-free rate
|
|
|
1.70% - 2.50
|
%
|
|
|
1.75% - 1.91
|
%
|
|
|
1.04% - 2.50
|
%
|
|
|
1.46% - 1.91
|
%
|
Expected term, in years
|
|
|
5.10 - 10.00
|
|
|
|
5.00 - 5.77
|
|
|
|
5.10 - 10.00
|
|
|
|
5.00 - 5.77
|
|
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
The
weighted-average grant date fair value for stock options granted during the three and six months ended June 30, 2016 and 2015
was zero and $0.57 per share, and $1.20 and $0.38 per share for the three months ended June 30, 2016 and 2015, respectively.
11.
|
Commitments
and Contingencies
|
On
April 1, 2015, the Company signed a 31 month lease for approximately 6,200 square feet of office and laboratory space at 6335
Ferris Square, Suite B, San Diego, California. The facility includes approximately 1,500 square feet of laboratory space. Commencement
date of the lease is May 1, 2015. Total net rent under this lease is $247,000 and expires on November 30, 2017.
The
annual minimum lease payments under non-cancellable operating leases, including common area maintenance and amortization of leasehold
improvements that have an initial or remaining term in excess of one year at June 30, 2016 are due as follows:
2016
|
|
$
|
65,159
|
|
2017
|
|
|
121,197
|
|
Total minimum lease payments
|
|
$
|
186,356
|
|
Rent
expense for the three and six months ended June 30, 2016 was $23,409 and $55,482, respectively, and was $42,196 and $67,725, respectively,
for the three and six months ended June 30, 2015.
On
April 21, 2016, the Company subleased a portion of the facility to an unrelated third party on a month-to-month basis commencing
May 1, 2016. Monthly gross rent from the subtenant is $5,000 per month. Subtenant must provide the Company with sixty days prior
written notice of its intent to terminate the sublease.
Distribution
and License Agreement and Joint Development Agreements
The
Company entered into a Distribution and License Agreement with a third-party for the purpose of developing a sensor array to be
used in the Company’s product. The Distribution and License Agreement has an initial term of ten years, but can be terminated
earlier if the project does not meet the specifications of the Company. The Company will obtain exclusive rights to sell and distribute
once a successful sensor prototype is developed. In exchange for a functional prototype, the Company will pay the third-party
a 7% royalty on net sales. During the three and six months ended June 30, 2016 and 2015, the Company incurred did not incur any
development costs related to the Distribution and License Agreement.
On
November 1, 2013, the Company entered into a two-year Joint Development Agreement (the “Agreement”) with an unrelated
third-party to develop chemical sensors and peripheral sensing equipment and software for the detection and characterization of
cannabis and compounds associated with cannabis.
The
Agreement provides for, among other things, any arising intellectual property rights (as defined) outside of the field (as defined),
and any arising intellectual property rights relating to improvements to detection materials shall belong to the Joint Venture
Developer.
The
Agreement also provides that any arising intellectual property rights other than those covered above shall belong to the Company.
To the extent that it is necessary to do so to enable the Company to use and exploit its respective arising intellectual property
rights, the Joint Developer grants the Company a perpetual, irrevocable, exclusive, and royalty free license (including the right
to assign the license and to grant sub-licenses) to use and exploit the Joint Developer’s arising intellectual property
rights in the field. Under the terms of the Agreement, either party may cancel the Agreement as the specific tasks provided for
in the Agreement have been completed or for causes specifically provided for in the Agreement. During the years ended December
31, 2015 and 2014, the Company paid the Joint Developer $200,000 and $227,500 for development costs, respectively.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
On
May 19, 2015, the Company entered into an Exclusive Patent Sublicense Agreement (the “License Agreement”) with Next
Dimension Technologies, Inc. (“NDT”). The License Agreement grants the Company a worldwide right to the patents licensed
by NDT from the California Institute of Technology. The License Agreement grants both exclusive and non-exclusive patent rights.
The license granted in the License Agreement permits the Company to make, have made, use, sell and offer for sale sublicensed
products in the field of use. The License Agreement continues until the expiration, revocation, invalidation or enforceability
of the rights licensed. The License Agreement provides for the payment of a license fee and royalty payments by CDx to NDT. The
License Agreement also contains minimum royalty payments and milestone payments by CDx to NDT. NDT has a right to terminate the
License Agreement in the event of an uncured breach by CDx; the insolvency or bankruptcy of CDx; or if CDx does not meet certain
productivity milestones. The License Agreement also contains representations, warranties and indemnity obligations for each of
CDx and NDT. In connection with the License Agreement, on May 19, 2015, CDx and NDT also executed an Amended Amendment No. 4 (the
“Amended Amendment No. 4”) to the Joint Development Agreement, dated as of November 1, 2013, between CDx and NDT,
which extended the date of negotiation for the License Agreement through May 19, 2015.
Litigation
In
the normal course of business, the Company may be subject to other legal proceedings, lawsuits and other claims. Although the
ultimate aggregate amount of probable monetary liability or financial impact with respect to these matters is subject to many
uncertainties and is therefore not predictable with assurance, the Company’s management believes that any monetary liability
or financial impact to the Company from these other matters, individually and in the aggregate, would not be material to the Company’s
financial condition, results of operations or cash flows. However, there can be no assurance with respect to such result, and
monetary liability or financial impact to the Company from these other matters could differ materially from those projected.
On August 11, 2016, Phoenix Fund Management,
LLC elected to have the Company issue 250,000 free trading shares of the Company’s common stock in exchange for retirement
of $16,250 of their debt.
On August 11, 2016 Adar Bays sent a Notice of Conversion to the Company electing to convert $8,400 of their
convertible note into shares of the Company’s common stock. The conversion price was based on a 40% discount on the 2 day
average bid price of the Company’s common stock as quoted on the OTCQB. The Company authorized the issuance of 97,924 shares
of its common stock in satisfaction of the Notice of Conversion.
On August 9, 2016, MyDx, Inc. (the “Company”)
entered into Securities Purchase Agreement (the “SPA”) and Convertible Promissory Note in the original principal amount
of $35,000 with Crown Bridge Partners, LLC (“Crown”) pursuant to which Crown funded $31,500 to the Company after the
deduction of a $3,500. The Convertible Promissory Note bears interest at the rate of 8% and must be repaid on or before August
9, 2017.
On August 3, 2016 Adar Bays sent a Notice of Conversion to the Company electing to convert $7,000 of their
convertible note into shares of the Company’s commons stock. The conversion price was based on a 40% discount on the 2 day
average bid price of the Company’s common stock as quoted on the OTCQB. The Company authorized the issuance of 88,923 shares
of its common stock in satisfaction of the notice of conversion.
On July 29, 2016, the Company and Adar Bays agreed to terminate the standstill portion of the Adar Bays Amendment
pertaining to the standstill conversion rights and Adar Bays shall be free to convert their convertible note without any limitations,
except as required by law. All other terms and conditions of their convertible note and the Adar Bays Amendment shall remain in
full force and effect.
On July 29, 2016, the Company and Union Capital agreed to terminate the standstill portion of the Union Capital
Amendment pertaining to the standstill conversion rights and Union capital shall be free to convert their convertible note without
any limitations, except as required by law. All other terms and conditions of their convertible note and the Union Capital Amendment
shall remain in full force and effect.
Management has considered subsequent events through August 12, 2016, the date these financial statements
were issued, and with the exception of the events described above, no other events have occurred subsequent to June 30, 2016 which
would have a material effect on the financial statements of the Company.