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. 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 science and technology company that has created the first battery operated, handheld, electronic analyzer for consumers.
Our products leverage the latest nanotechnology to accurately measure chemicals of interest in nearly any solid, liquid, or gas
sample, anywhere, anytime. 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.
Our
initial product which we introduced in the third quarter of 2015, utilizes the CannaDx sensor to allow consumers to analyze cannabis.
During the third quarter of 2016 we introduced our AquaDx (water) and OrganaDx (food) sensors. Our product roadmap includes future
development and commercialization of these sensors and our AeroDx (air) sensor in 2017. We will require substantial additional
capital to finalize development and commercialize of our existing sensors and the AeroDx.
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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
The
Company had limited revenues during the nine months ended September 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 nine months ended September 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 $183,752 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 August 15, 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 September 30, 2016 and the Company’s results of operations
for the three and nine months ended September 30, 2016 and 2015 and its cash flows for the nine months ended September 30, 2016
and 2015. The results for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected
for the year ending December 31, 2016. All references to September 30, 2016 or to the three and nine months ended September 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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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
September 30, 2016 and December 31, 2015, the Company held no cash equivalents.
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
September 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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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.
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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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.
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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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.
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, totaled $51,774 and $10,933 for the nine months ended
September 30, 2016 and 2015, respectively. The advertising costs were $51,774 and $10,186 in sales and marketing and $0 and $747
in general and administrative expenses, respectively, for the years ended September 30, 2016 and 2015.
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 nine months ended September 30, 2016, options to purchase 4,123,186 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 three and nine months ended September 30, 2015, options to purchase 4,438,867 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.
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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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.
Inventory
as of September 30, 2016 and December 31, 2015 is as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Finished
goods
|
|
$
|
26,597
|
|
|
$
|
270,230
|
|
Raw
materials
|
|
|
284,925
|
|
|
|
181,743
|
|
|
|
$
|
341,522
|
|
|
$
|
451,973
|
|
6.
|
Fair
Value Measurements
|
The
Company has identified derivative instruments arising from embedded conversion features in the Company’s Convertible Notes
Payable at September 30, 2016. The Company had no financial assets measured at fair value on a recurring basis as of December
31, 2015.
The
following summarizes the Black-Scholes assumptions used to estimate the fair value of the derivative liability at the date of
issuance and for the convertible notes converted during the three months ended September 30, 2016.
Annual
dividend rate
|
|
Low
|
|
|
High
|
|
Expected
life
|
|
|
0.25
|
|
|
|
2.00
|
|
Risk-free
interest rate
|
|
|
0.01
|
%
|
|
|
0.71
|
%
|
Expected
volatility
|
|
|
163.80
|
%
|
|
|
251.96
|
%
|
The following
are the changes in the derivative liabilities during the nine months ended September 30, 2016.
|
|
Nine
months Ended September 30, 2016
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Derivative
liabilities as January 1, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Addition
|
|
|
|
|
|
|
|
|
|
|
731,211
|
|
Conversion
|
|
|
|
|
|
|
|
|
|
|
(421,825
|
)
|
Gain
on changes in fair value
|
|
|
|
|
|
|
|
|
|
|
(
198,338
)
|
|
Derivative
liabilities as September 30, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
111,048
|
|
7.
|
Property
and Equipment, net
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Computer
and test equipment
|
|
$
|
199,270
|
|
|
$
|
206,499
|
|
Website
development costs
|
|
|
39,870
|
|
|
|
39,870
|
|
Furniture
and fixtures
|
|
|
26,948
|
|
|
|
32,845
|
|
Software
|
|
|
10,791
|
|
|
|
10,791
|
|
Leasehold
improvements
|
|
|
18,288
|
|
|
|
18,288
|
|
|
|
|
295,167
|
|
|
|
308,293
|
|
Accumulated
depreciation and amortization
|
|
|
(134,651
|
)
|
|
|
(75,229
|
)
|
|
|
$
|
160,516
|
|
|
$
|
233,064
|
|
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Depreciation
expense was $59,422 and $37,117 for the nine months ended September 30, 2016 and 2015, respectively.
For
the nine months ended September 30, 2016, the Company recorded an impairment of assets totaling $13,127 for assets that the Company
no longer uses.
Accrued
liabilities consisted of the following as of September 30, 2016 and December 31, 2015.
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued territorial development
fees
|
|
$
|
1,000,000
|
|
|
$
|
-
|
|
Accrued advertising and marketing advisory
services
|
|
|
180,000
|
|
|
|
-
|
|
Deferred compensation to employee
|
|
|
108,000
|
|
|
|
51,210
|
|
Accrued compensation for employees
|
|
|
44,705
|
|
|
|
|
|
Accrued compensation to non-employee
|
|
|
17,288
|
|
|
|
146,327
|
|
Accrued other
|
|
|
124,183
|
|
|
|
84,224
|
|
|
|
$
|
1,474,176
|
|
|
$
|
281,761
|
|
Asset
Based Loans
On
September 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 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. The outstanding balance at September 30, 2016 was $118,707.
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 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. The outstanding balance at September 30, 2016 was $53,335.
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 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. The
outstanding balance at September 30, 2016 was $51,455.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
Convertible
Notes
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Convertible
Notes - December 22, 2015
|
|
$
|
-
|
|
|
$
|
190,000
|
|
Convertible
Note - December 10, 2015
|
|
|
-
|
|
|
|
90,000
|
|
Convertible
Note - February 8, 2016
|
|
|
60,000
|
|
|
|
-
|
|
Convertible
Note -May 6, 2016
|
|
|
47,526
|
|
|
|
-
|
|
Convertible
Note -May 10, 2016
|
|
|
50,000
|
|
|
|
-
|
|
Convertible
Note -May 24, 2016
|
|
|
55,000
|
|
|
|
-
|
|
Convertible
Note -August 9, 2016
|
|
|
35,000
|
|
|
|
-
|
|
Convertible
Note -September 16, 2016
|
|
|
29,500
|
|
|
|
-
|
|
Convertible
Note -September 19, 2016
|
|
|
46,500
|
|
|
|
-
|
|
Less
debt discount and debt issuance costs
|
|
|
(13,877
|
)
|
|
|
(29,152
|
)
|
Total
|
|
$
|
309,649
|
|
|
$
|
250,848
|
|
Less
current portion of convertible notes payable
|
|
$
|
309,649
|
|
|
$
|
50,574
|
|
Long-term
convertible notes payable
|
|
$
|
-
|
|
|
$
|
200,274
|
|
The
Company amortized debt discount and debt issuance costs of $38,077 and $57,025 for the three and nine month periods ended September
30, 2016, respectively.
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 nine (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 and nine months ended September, 2016, the Company
amortized a total of $630 and $884, respectively, of the debt issuance cost. As of September 30, 2016, the Note had an outstanding
balance of $50,884 and a remaining unamortized debt discount of $4,116.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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 nine (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
were previously filed as an exhibit on Form 8-K.
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 and nine months
ended September, 2016, the Company amortized a total of $1,237 and $1,922, respectively, of the debt issuance cost. As of September
30, 2016, the Note had an outstanding balance of $46,922 and a remaining unamortized debt discount of $3,078.
On
August 9, 2016, the Company entered into Securities Purchase Agreement (the “SPA”) and Convertible Promissory Note
in the original principal amount of $35,000 (the “Note”) with Crown Bridge Partners, LLC (“Crown”) pursuant
to which Crown funded $30,000 to the Company after the deduction of a $3,500 original issue discount and $1,500 for legal fees.
The Note bears interest at the rate of 8% and must be repaid on or before August 9, 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 nine (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 September, 2016, the Company amortized a total of
$499 of the debt issuance cost. As of September 30, 2016, the Note had an outstanding balance of $31.999 and a remaining unamortized
debt discount of $3.001.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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.
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. During the three months ended September
30, 2016, the Note holder elected to convert a portion of the Note into 2,563,815 shares of the Company’s common stock.
As of September 30, 2016, the Note had an outstanding balance of $47,526.
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 nine 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 nine months ended September 30, 2016, the
Company amortized a total of $7,510 and $10,000, respectively, of the debt issuance cost. During the three months ended September
30, 2016, the Note holder converted the Note and accrued unpaid interest into 7,142,526 share of the Company’s common stock.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
On
June 22, 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 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 16, 2016, the Company executed a second note with Adar Bays in the amount of $27,500 as part of the original Securities
Purchase Agreement completed on December 22, 2015. The Note contains a 10% original issue discount and a documentation fee of
$1,000 such that the purchase price of the Note $23,750. The note matures on August 9, 2017. The Note bears 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 issuance date of the original
note dated December 22, 2015 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 Note may not be prepaid by the Company. 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 Report on Form 8-K filed with the SEC on December 24, 2015. 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 Notes was an accredited investor. The Company recorded the original issue discount of $2,750 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 months ended September 30, 2016, the Company amortized a total of $2,750, of the debt issuance cost.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
During
the three months ended September 30, 2016, the Note holder elected to convert the Note and accrued and unpaid interest into 3,107,345
shares of the Company’s common stock.
On
September 19, 2016, the Company executed a third note with Adar Bays in the amount of $80,000 as part of the original Securities
Purchase Agreement completed on December 22, 2015. The Note contains $5,000 of original issue discount and a documentation fee
of $3,750 such that the purchase price of the Note $71,250. The Note matures on September 19, 2017. The Note bears 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 issuance date
of the original note dated December 22, 2015 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 not be prepaid by the Company. 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 Report on Form 8-K filed with the SEC on December
24, 2015. 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 Notes was an accredited investor. The Company recorded the original issue
discount of $2,750 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 months ended September, 2016, the Company amortized a total of $3,250, of the
debt issuance cost.
During
the three months ended September 30, 2016, the Note holder elected to convert a portion of the Note into 6,449,615 shares of the
Company’s common stock. As of September 30, 2016, the Note had an outstanding balance of $29,500. The Company amortized
the entire balance of the debt issuance cost since the Note was converted in the three months ended September 30, 2016.
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 nine 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 nine
months ended September 30, 2016, the Company amortized a total of $7,373 and $9,863, respectively of the debt issuance cost. As
of September 30, 2016 and December 31, 2015, the Note had outstanding balances of $0 and $101,137, respectively, and remaining
unamortized debt discount of $0 and $9,863, respectively.
During
the three months ended September 30, 2016, the Note holder elected to convert the Note and accrued interest into the note holder
elected to convert the Note balance of $104,500 and accrued inter thereon into 7,107,376 share of the Company’s common stock.
On
June 22, 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 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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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 agreed 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.
During
the three months ended September 30, 2016, the Note holder elected to convert the Note and unpaid interest into 7,670,457 shares
of the Company’s common stock.
On
September 19, 2016, the Company executed a second Note in the amount of $110,000 with Union Capital LLC as part of the financing
pursuant to a Securities Purchase Agreement with Union Capital, LLC dated December 15, 2015. The Note contains a 10% original
issue discount and a $5,000 documentation fee such that the purchase price of each Note is $95,000. The Note is due and payable
not later than September 19, 2017. The Notes bear interest at the rate of 8% per annum; are due and payable on September 19, 2017;
and may be converted by Union Capital at any time after the date which is nine months of the issuance date of the original note
dated December 22, 2015 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 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 months ended September 30, 2016, the Company amortized a total of $10,000 of the debt
issuance cost.
During
the three months ended September 30, 2016, the Note holder elected to convert $63,500 of the Note into 7,513,711 shares of the
Company’s common stock. As of September 30, 2016 the Note had an outstanding balance of $46,500 and remaining unamortized
debt discount of $0.
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 nine months ended September 30, 2016, the Company amortized a total of $9,426 of the debt issuance cost.
The Note was redeemed on June 6, 2016.
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
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 nine months ended September 30, 2016, the Company amortized a total
of $2,680 and $3,609, respectively, of the debt issuance cost. As of September 30, 2016 the Note had an outstanding balance of
$53,609. As of September 30, 2016 the Note had a remaining unamortized debt discount of $6,391.
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
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
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 $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 February 7, 2017. 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. 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 nine months ended September 30, 2016, the Company amortized a total
of $2,709 and $6,319 of the debt issuance cost. The Note was redeemed on September 9, 2016. As of December 31, 2015, the Note
had an outstanding balance of $56,319 and a remaining unamortized debt discount of $6,319.
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
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.
During
the three months ended September 30, 2016, the Note holder elected to convert the Note balance of $55,750 and accrued interest
into 11,819,360 shares of the Company’s common stock.
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 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 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
During
the three months ended September 30, 2016, the Note holder elected to convert the Note and unpaid interest in to 10,247,863 shares
of the Company’s common stock.
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:
|
|
Outstanding
Balances as of
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
September 29, 2015
|
|
$
|
-
|
|
|
$
|
25,000.00
|
|
October 28, 2015
|
|
|
-
|
|
|
|
25,000.00
|
|
November 4, 2015
|
|
|
-
|
|
|
|
25,000.00
|
|
November 13, 2015
|
|
|
15,000.00
|
|
|
|
25,000.00
|
|
November 20, 2015
|
|
|
25,000.00
|
|
|
|
25,000.00
|
|
December 1, 2015
|
|
|
25,000.00
|
|
|
|
25,000.00
|
|
December 2, 2015
|
|
|
25,000.00
|
|
|
|
25,000.00
|
|
April 6, 2016
|
|
|
10,000.00
|
|
|
|
-
|
|
April 27, 2016
|
|
|
25,000.00
|
|
|
|
-
|
|
July 20, 2016
|
|
|
25,000.00
|
|
|
|
-
|
|
August 8, 2016
|
|
|
25,000.00
|
|
|
|
-
|
|
September 19, 2016
|
|
|
25,000.00
|
|
|
|
-
|
|
|
|
$
|
200,000.00
|
|
|
$
|
175,000.00
|
|
Debt
Settlement
On
April 1, 2016, the Company entered into an agreement with a number of external public relations resources (“PR Resources”)
specializing in shareholder communications and crisis communications in an effort to support the Company’s investor communications
relating to its convertible debentures, nearly all of which were being converted and sold during this time period thereby causing
severe pressure on the stock, as well as the implementation of a number of strategic public relations programs designed to introduce
the Company’s AquaDx product line by leveraging off the water crisis in Alabama, Flint and Florida. (the “Agreement”).
For the requested services, the Company was to pay 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 these PR Resources to purchase the Claim held by them. Phoenix Fund executed a 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.
During
the three months ended September 30, 2016, Phoenix Fund elected to have the Company issue 18,828,088 free trading shares of the
Company’s common stock in exchange for retirement of remaining balance of the initial Claim. As a result, the Company
recorded a loss on debt settlement of $202,933 reflecting the difference in the discounted conversion price and the market price.
On
July 22, 2016, the Company entered into an agreement with Talent Cloud Limited, Hong Kong, (“Talent Cloud”) to provide
recruitment services for a Vice President of Business Development for the Company’s Asian market development. At the date
of this report, no acceptable candidates have been presented to the Company.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
During
the three months ended September 30, 2016 the Company entered into agreements with Talent Cloud Limited, Hong Kong to provide
recruitment services for a Community Manager; an APP Manager; and, a Software Developer for the Company’s Asian markets
development. The total cost of these services was $143,900 (the “Claim”).
On
September 13, 2016, the Company entered into an agreement with Meyers Associates, L.P. (“Meyers Associates”) to provide
recruitment services for a Community Manager position for a Community Manger; an APP Manager; and, a Software Developer for the
Company’s Asian markets development. The total cost of these services was $10,000 (the “Claim”).
On
September 20, 2016, Talent Cloud and Meyers Associates entered into a Claims Purchase Agreement with Rockwell Capital Partners,
Inc. (“Rockwell Capital”) to purchase the Claims held by Talent Cloud and Meyers Associates. Rockwell Capital executed
a Settlement Agreement whereas the Company and Rockwell Capital agreed to resolve, settle and compromise among other things, the
liabilities claimed in the Claims Purchase Agreement. In settlement of the Claim, the Company shall issue freely traded shares
of the Company’s common stock as requested by Rockwell Capital, periodically, at a 45% discount from the average lowest
closing price for the 15 day trading period preceding the share request.
During
the three months ended September 30, 2016, the Company issued 17,426,800 shares of the Company’s common stock to retire
$155,557 of the total claims and recorded a loss on debt settlement of $133,019 reflecting the difference in the discounted conversion
price and the market price.
On
September 30, 2016, the Company accepted performance under the agreement with Lynx Consulting Group, Ltd. (“Lynx Consulting”)
dated April 3, 2016 (the “Agreement”) to render consulting services in connection with the creation and development
of MyDx Asia, including staffing an office to develop and expand the Company’s business in the Greater China Region. Lynx
Consulting’s performance included but was not limited to securing the Distribution License Agreement between the Company
and its China distribution partners. As consideration for execution of the Agreement, the Company will to pay Lynx Consulting
a one-time fee of $1,000,000 for its services plus an incentive fee based on an agreed percentage of the value of the base revenue
of contracts produced by Lynx Consulting during the first year of the Agreement, which, at the discretion of the Company, can
be paid in cash or shares of common stock.
On
October 5, 2016, the Company, Lynx Consulting and Phoenix Fund Management, LLC (“Phoenix Fund”) entered into
an Assignment and Modification Agreement. Phoenix Fund purchased the debt claim held by Lynx Consulting from MyDx. 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 22 trading days prior
to the date of issuance. Upon execution of the assignment, Lynx released MyDx, Inc. from all liabilities under the original
note.
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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
In
April 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.
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.
During
the nine months ended September 30, 2016, the Company issued 16,654,214 shares of common stock in exchange for services at a fair
value of $378,345. During the nine months ended September 30, 2015, the Company issued 1,863,241 shares of common stock in exchange
for services at a fair value of $1,192,893.
On
September 30 the Company amended it articles of incorporation to increase the number of authorized commons shares to 10,000,000,000
as included on Form 8-K filed with the SEC on October 4, 2016.
Common
Stock Warrants
During
the nine months ended September 30, 2016, the Company did not issue any warrants to purchase shares of common stock. During the
nine months ended September 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 September 30, 2016.
Preferred
Stock
On
September 30, 2016, the Company filed a Certificate of Amendment to Articles of Incorporation with the Secretary of State of the
State of Nevada to authorize for issuance ten million (10,000,000) shares of blank check preferred stock, par value $0.001 (“Blank
Check Preferred Stock”) as included on Form 8-K filed with the SEC on October 4, 2016.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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 September 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 September 30, 2016 was as follows:
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
Outstanding
as of January 1, 2016
|
|
|
4,626,245
|
|
|
$
|
0.39
|
|
Granted
|
|
|
125,000
|
|
|
$
|
0.57
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited
or cancelled
|
|
|
628,059
|
|
|
$
|
0.55
|
|
Outstanding
as of September 30, 2016
|
|
|
4,123,186
|
|
|
$
|
0.38
|
|
Options
vested and exercisable as of September 30, 2016
|
|
|
3,543,255
|
|
|
$
|
0.26
|
|
Options
vested and expected to vest
|
|
|
4,123,186
|
|
|
$
|
0.38
|
|
Information
regarding options outstanding and vested and exercisable as of September 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
|
|
|
|
7.6
|
|
|
$
|
0.08
|
|
|
|
1,767,528
|
|
|
$
|
0.08
|
|
$
|
0.55
|
|
|
|
2,000,935
|
|
|
|
8.3
|
|
|
$
|
0.55
|
|
|
|
1,618,436
|
|
|
$
|
0.55
|
|
$
|
2.36
|
|
|
|
25,000
|
|
|
|
8.5
|
|
|
$
|
2.36
|
|
|
|
15,625
|
|
|
$
|
2.36
|
|
$
|
0.71
|
|
|
|
250,000
|
|
|
|
9.0
|
|
|
$
|
0.71
|
|
|
|
104,167
|
|
|
$
|
0.71
|
|
$
|
0.57
|
|
|
|
75,000
|
|
|
|
8.1
|
|
|
$
|
0.57
|
|
|
|
37,500
|
|
|
$
|
0.57
|
|
|
|
|
|
|
4,123,186
|
|
|
|
7.9
|
|
|
$
|
0.40
|
|
|
|
3,543,255
|
|
|
$
|
0.33
|
|
Total
stock-based compensation expense, both employee and non-employee, recognized by the Company for the nine months ended September
30, 2016 and 2015 was $377,669 and $376,242, respectively. Stock-based compensation expense related to stock options granted to
non-employees was $37,607 and $164,165, respectively, for the three and nine months ended September 30, 2016 and $82,272 and $116,332
for the three and nine months ended September 30, 2015. No tax benefits were recognized in the nine months ended September 30,
2015 and 2016.
Total
unrecognized compensation expense from employee stock options as of September 30, 2016 was $455,318 and will be recognized over
a weighted average recognition period of 1.6 years.
For
the nine months ended September 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 nine months ended September 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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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. he 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 nine months ended September 30, 2016 and 2015:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
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
|
|
The
weighted-average grant date fair value for stock options granted during the three and nine months ended September 30, 2016 and
2015 was zero and $0.57 per share, and $1.20 and $0.38 per share for the three months ended September 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 September 30, 2016 are due as follows:
2016
|
|
$
|
24,036
|
|
2017
|
|
|
81,613
|
|
Total
minimum lease payments
|
|
$
|
105,649
|
|
Rent
expense for the three and nine months ended September 30, 2016 was $16,554 and $69,321, respectively, and was $42,196 and $67,725,
respectively, for the three and nine months ended September 30, 2015.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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 ninety 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 nine months ended September 30, 2016 and 2015, the Company 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.
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.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
License
and Distribution Agreement
On
September 1, 2016, MyDx, Inc. (the “Company” or “Licensor”) entered into a Distribution and License Agreement
(the “License Agreement”) with Powerfull Holdings, Ltd, a company operating under the charter of the People’s
Republic of China (“Assignor”) and China Science and Technology, a Powerfull Holdings affiliated Company (“Licensee”),
(together the “Parties”). The Parties intend there to be two phases of the License Agreement: Phase One and Phase
Two. During Phase One, the Licensor shall provide test samples and validation data for market validation. Subject to Phase One
producing satisfactory results, and proof of concept, the Parties will commence Phase Two.
For
Phase One, the Licensee will pay the Licensor a minimum of Forty-Five Thousand Dollars ($45,000.00) as a Licensing and Technology
Transfer Fee (the “Transfer Fee”) per application (AquaDx™, OrganaDx™, AeroDx™). These fees shall
be credited towards Phase Two’s mandatory minimum payments. The Licensee shall pay the Transfer Fee within 10 business days
of being provided with an invoice by the Licensor. The parties agreed that no disclosure of this Agreement shall be made by either
party until the completion of Phase One.
Upon
the completion of Phase One, Phase Two shall immediately, without further action by the Parties, commence and shall continue for
an initial term of five (5) years (the “Term”). At the conclusion of the Term, the License Agreement shall automatically
renew for an additional three (3) year term (the “Additional Term”), unless and until either Party gives the other
Party notice of its intent not to renew for the Additional Term(s). Notice not to renew the License Agreement must be given at
least four (4) months before the end of the Term or Additional Term(s), as the case may be.
At
the commencement of Phase Two, the Licensee will, immediately and without further action by the Parties, be appointed as an authorized
dealer of the Licensor’s products, with the exclusive right to package and distribute said products to any consumer testing
application in the territory requiring the detection of compounds of interest that may be found in food (OrganaDx), water (AquaDx)
or air (AeroDx), without limitation to type, size or location. The current territory consists of the People’s Republic of
China, and includes but is not limited to manufacturers, distributors, consumers, and regulators in that territory. The Licensee
will also receive a non-exclusive right to package and distribute the Licensor’s products to any market in which any application
may require the detection of compounds of interest by consumers, without limitation to type, size or location.
The
Licensee will pay the Licensor either a mandatory minimum payment of One Hundred Twenty-Five Thousand Dollars ($125,000) per quarter
or Twenty Percent (20%) of quarterly gross sales, whichever is higher, for all products sold by the Licensee, its sub-licensees,
subcontractors or distributors. The Licensor shall issue to the Licensee a total of Ten Million (10,000,000) shares of the Licensor’s
common stock. Licensor shall issue to the Licensee the number of additional securities necessary to maintain a fully-diluted ownership
percentage in the Company as of the date hereof. Anti-dilution provision would not apply to an equity financing at a price of
$0.50 or higher undertaken by the Company. The Licensor shall also issue to the Licensee incentive-based warrants should the Licensee
exceed the mandatory minimum royalty payments.
Pursuant
to the License Agreement, the license shall be non-exclusive until the Licensee meets first year of royalty payments of either
a mandatory minimum payment of One Hundred Twenty-Five Thousand Dollars ($125,000) per quarter or Twenty Percent (20%) of quarterly
gross sales, whichever is higher. It is understood that during the period of non-exclusivity, the Licensee may sub-license its
right to manufacture and distribute the Licensor’s products, subject to stringent oversight and responsibility by the Licensee,
and that the Licensor may also sell, authorize or permit any other party to sell, any of the Licensor’s products to an end-customer
for use in the Licensee application market.
Marketing
and Advertising Advisory Services Agreement
On
April 5, 2016, the Company entered into a Marketing and Advertising Advisory Services Agreement (the “Agreement”)
with Growth Point Advisors, Ltd. (“Growth Point”) for Growth Point to provide a comprehensive marketing, advertising
and branding campaign for the Greater China Region on behalf of the Company’s MyDx AquaDx sensor. The campaign shall include,
but not be limited to, the development of both the front and back-end of an e-commerce web site targeting the Chinese audience
as well as introductions to potential key personnel to launch and manage the campaign.
In
consideration for the services described above, the Company shall pay Growth Point a monthly service fee of $30,000. Should the
Company fail to pay the monthly service fee, Growth Point shall have the right to convert the monthly service fee into the Company’s
common stock at a 50% discount of the lowest closing price of the Company’s common stock for the 15 trading days upon send
notice of non-payment to the Company.
Resale
Licensing Agreement
On
October 4, 2016, the Company executed a Resale Licensing Agreement with ANP Technologies, Inc. (“ANP”) (the “Agreement”)
that outlines the terms and conditions for a One-Time, Non-Exclusive Resale License to MyDx, Inc. for the sale of ANP’s
ACE-III-C pesticide and toxic heavy metal Lateral Flow Assay detection test under MyDx, Inc.’s brand. The Agreement provides
for the purchase and resale of 10,000 units as part of a Phase I validation of the product’s merchantability.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
(unaudited)
continued
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.
Since
September 30, 2016, the Company has issued 112,087,172 shares of the Company’s common stock for conversion of Convertible
Notes Payable and settlement of other payable obligations.
On
October 5, 2016, the Company, Lynx Consulting and Phoenix Fund Management, LLC (“Phoenix Fund”) entered into
an Assignment and Modification Agreement. Phoenix Fund purchased the debt claim held by Lynx Consulting from MyDx. 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 22 trading days prior
to the date of issuance. Upon execution of the assignment, Lynx released MyDx, Inc. from all liabilities under the original
note.
On October 19, 2016, the Company, Talent Cloud Limited,
Meyers Associates, L.P. and Rockwell Capital Partners. Inc. (“Rockwell”) entered into an Assignment and Modification
Agreement. Rockwell purchased the debt claim held by Talent Cloud Limited and Meyers Associates, L.P. from MyDx. In settlement
of the Claim, the Company shall issue and deliver to Rockwell shares of its common stock as requested by Rockwell, periodically,
at a forty-five percent (45%) discount from the lowest price of the Company’s common stock for the seven trading days prior
to the date of issuance. Upon execution of the assignment, Talent Cloud Limited and Meyers Associates, L.P. released MyDx,
Inc. from all liabilities under the original claims.
On
November 14, 2016, the Company entered into Securities Purchase Agreement (the “SPA”) and Convertible Promissory Note
in the original principal amount of $35,000 (the “Note”) with Crown Bridge Partners, LLC (“Crown”) pursuant
to which Crown funded $31,500 to the Company after the deduction of a $3,500 original issue discount and $1,500 for legal fees.
The Note bears interest at the rate of 8% and must be repaid on or before August 9, 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 nine (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.
Management
has considered subsequent events through November 16, 2016, the date these financial statements were issued, and, other than the
items mentioned above, no other events have occurred subsequent to September 30, 2016 which would have a material effect on the
financial statements of the Company.