Notes
to Consolidated Financial Statements
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 & 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.
The
Company has elected to adopt early application of ASU No. 2014-15,
“Presentation of Financial Statements—Going
Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU
2014-15”)
.
The
Company's consolidated financial statements have been prepared assuming it will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
As
reflected in the consolidated financial statements, the Company had an accumulated deficit at December 31, 2016, a net loss and
net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s
ability to continue as a going concern.
The
Company is attempting to further implement its business plan and generate sufficient revenues; however, its cash position may
not be sufficient to support its daily operations. 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 years ended December 31, 2016 and 2015. 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 $38,203 at December 31, 2016 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.
The
consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
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4.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The
consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted
in the United States of America (“US GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries.
All material intercompany balances and transactions have been eliminated in consolidation.
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 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 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 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.
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.
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Level
1
|
Inputs
are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurable date.
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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.
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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.
Cash
The
Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of
December 31, 2016, and 2015, the Company held no cash equivalents.
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.
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
December 31, 2016 and 2015, 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:
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Internal-use
software
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3
years
|
|
Equipment
|
|
3
to 5 years
|
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Computer
equipment
|
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3
to 7 years
|
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Furniture
and fixtures
|
|
5
to 7 years
|
|
Leasehold
improvements
|
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Shorter
of life of asset or lease
|
Accounting
for Website Development Costs
The
Company capitalizes certain external and internal costs, including internal payroll costs, incurred in connection with the development
of its website. These costs are capitalized beginning when the Company has entered the application development stage and cease
when the project is substantially complete and is ready for its intended use. The website development costs are amortized using
the straight-line method over the estimated useful life of three years.
Impairment
of Long-Lived Assets
Long-lived
assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the condensed
balance sheets and reported at the lower of the carrying amount or fair value less costs to sell, and no longer depreciated. The
assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset
and liability sections of the condensed balance sheets.
Debt
Discount and Debt Issuance Costs
Debt
discounts and debt issuance costs incurred in connection with the issuance of debt are capitalized and amortized to
interest expense based on the related debt agreements using the straight-line method. Unamortized discounts are netted against
long-term debt.
Derivative
Liability
In
accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Paragraph 815-15-25-1 the conversion feature and certain other features are considered embedded derivative instruments, such as
a conversion reset provision, a penalty provision and redemption option, which are to be recorded at their fair value as its fair
value can be separated from the convertible note and its conversion is independent of the underlying note value. The Company records
the resulting discount on debt related to the conversion features at initial transaction and amortizes the discount using the
effective interest rate method over the life of the debt instruments. The conversion liability is then marked to market each reporting
period with the resulting gains or losses shown in the statements of operations.
In
circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also
other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative
instruments are accounted for as a single, compound derivative instrument.
The
Company follows ASC Section 815-40-15 (“Section 815-40-15”) to determine whether an instrument (or an embedded feature)
is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions. The adoption of Section 815-40-15 has affected the accounting for (i) certain freestanding
warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike
price denominated in a foreign currency.
The
Company evaluates its convertible debt, options, warrants or other contracts, if any, to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and
Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value
of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the
event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations
as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to
fair value at the date of conversion, exercise or cancellation and then that the related fair value is reclassified to equity.
The
Company utilizes the Black-Scholes option-pricing model to compute the fair value of the derivative and to mark to market the
fair value of the derivative at each balance sheet date. The Black-Scholes option-pricing model includes subjective input assumptions
that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical
period of time equal to the remaining contractual term of the instrument granted.
Income
Taxes
Income taxes are provided in accordance with
ASC No. 740, “
Accounting for Income Taxes
”. A deferred tax asset or liability is recorded for all temporary
differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results
from the net change during the period of deferred tax assets and liabilities.
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
The
Company is no longer subject to tax examinations by tax authorities for years prior to 2013.
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 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.
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. Research and development expenses for the years ended
December 31, 2016 and 2015 were $686,095 and $1,694,521, respectively.
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 $98,219 and $40,673 for the year ended December
31, 2016 and 2015, respectively.
Stock-Based
Compensation
The
Company accounts for stock-based compensation in accordance with ASC Topic 718, “
Compensation – Stock Compensation”
(“ASC 718”) which establishes financial accounting and reporting standards for stock-based employee compensation.
It defines a fair value based method of accounting for an employee stock option or similar equity instrument. Accordingly, stock-based
compensation is recognized in the 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.
The
Company accounts for share-based payments to non-employees in accordance with ASC 505-50 “
Equity Based Payments to Non-Employees
”. If
the equity instrument is a stock option, the Company uses the Black-Scholes option pricing model to determine the fair value.
Assumptions used to value the equity instruments are consistent with equity instruments issued to employees as the terms of the
awards are similar. The Company recognizes the fair value of the equity instruments as expense over the term of the service agreement
and revalues that fair value at each reporting period over the vesting periods of the equity instruments.
Warranty
The
Company provides a limited warranty for its analyzers and sensors for a period of 1 year from the date of shipment that such goods
will be free from material defects in material and workmanship. The Company has assessed the historical claims and, to date, warranty
claims have not been significant. The Company will continue to assess the need to record a warranty accrual at the time of sale
going forward.
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.
Net
Loss per Share
Basic
net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number
of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when
losses are reported, which is the case for the year ended December 31, 2016 and 2015 presented in these consolidated financial
statements, the weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion
would be anti-dilutive.
The
Company had the following common stock equivalents at December 31, 2016 and 2015:
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
Convertible notes payable
|
|
|
641,595,251
|
|
|
|
-
|
|
|
Options
|
|
|
1,490,026
|
|
|
|
4,626,245
|
|
|
Warrants
|
|
|
7,571,395
|
|
|
|
7,571,395
|
|
|
Totals
|
|
|
650,656,672
|
|
|
|
12,196,640
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Subsequent
events
The
Company has evaluated events that occurred subsequent to December 31, 2016 and through the date the financial statements were
issued.
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.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition
guidance under U.S. GAAP. The standard’s core principle (issued as ASU 2014-09 by the FASB), is that a company will recognize
revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. These may include identifying performance obligations in the contract,
estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each
separate performance obligation. The new guidance must be adopted using either a full retrospective approach for all periods presented
in the period of adoption or a modified retrospective approach. In August 2015, the FASB issued ASU No. 2015-14, which defers
the effective date of ASU 2014-09 by one year, and would allow entities the option to early adopt the new revenue standard as
of the original effective date. This ASU is effective for public reporting companies for interim and annual periods beginning
after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The
Company has evaluated the standard and does not expect the adoption will have a material effect on its consolidated financial
statements and disclosures.
In
August 2014, the FASB issued ASU 2014-15,
“Presentation of
Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue
as a Going Concern.”
ASU 2014-15 provides guidance on management’s responsibility
to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide
related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions
or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the
date the financial statements are issued. The amendments in ASU 2014-15 are effective for annual reporting periods ending after
December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company has elected to adopt
the methodologies prescribed by ASU 2014-15. The adoption of ASU 2014-15 had no material effect on its financial position or results
of operations.
In
March 2015, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2015-03, “
Interest
- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
. The amendments in this ASU
require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for
debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued
for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments
is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective
basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects
of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in
an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition
method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on
the financial statement line items (i.e., debt issuance cost asset and the debt liability). The Company adopted ASU 2015-03 during
the year ended December 31, 2016.
In
July 2015, the FASB issued ASU No. 2015-11, “
Inventory (Topic 330): Simplifying the Measurement of Inventory”
,
which modifies existing requirements regarding measuring inventory at the lower of cost or market. Under current inventory standards,
the market value requires consideration of replacement cost, net realizable value and net realizable value less an approximately
normal profit margin. The new guidance replaces market with net realizable value defined as estimated selling prices in the ordinary
course of business, less reasonably predictable costs of completion, disposal and transportation. This eliminates the need to
determine and consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory.
The standard is required to be adopted for annual periods beginning after December 15, 2016, including interim periods within
that annual period, which is our fiscal year 2018. The amendment is to be applied prospectively with early adoption permitted.
The Company is in the process of evaluating the effect of the new guidance on its consolidated financial statements and disclosures.
In
February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842).”
Under ASU 2016-02, lessees will be required
to recognize, for all leases of 12 months or more, a liability to make lease payments and a right-of-use asset representing the
right to use the underlying asset for the lease term. Additionally, the guidance requires improved disclosures to help users of
financial statements better understand the nature of an entity’s leasing activities. This ASU is effective for public reporting
companies for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted
using a modified retrospective approach. The Company is in the process of evaluating the effect of the new guidance on its consolidated
financial statements and disclosures.
In
April 2016, the FASB issued ASU No. 2016-09, “
Compensation – Stock Compensation”
(topic 718). The FASB
issued this update to improve the accounting for employee share-based payments and affect all organizations that issue share-based
payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified,
including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on
the statement of cash flows. The updated guidance is effective for annual periods beginning after December 15, 2016, including
interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the
impact of the new standard.
In
April 2016, the FASB issued ASU No. 2016-10, “
Revenue from Contracts with Customers: Identifying Performance Obligations
and Licensing
” (topic 606). In March 2016, the FASB issued ASU No. 2016-08, “
Revenue from Contracts with Customers:
Principal versus Agent Considerations (Reporting Revenue Gross verses Net)”
(topic 606). These amendments provide additional
clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”.
The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance
obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides
a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual
property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal
versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10
and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which we intend to adopt for interim and annual
reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of the new standard.
In
May 2016, the FASB issued ASU No. 2016-12, “
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements
and Practical Expedients”
, which narrowly amended the revenue recognition guidance regarding collectability, noncash
consideration, presentation of sales tax and transition and is effective during the same period as ASU 2014-09. The Company is
currently evaluating the impact of the new standard.
In
August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments”
(“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and
cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning
after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply,
in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently
in the process of evaluating the impact of ASU 2016-15 on its consolidated financial statements.
In
October 2016, the FASB issued ASU 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than
Inventory”,
which eliminates the exception that prohibits the recognition of current and deferred income tax effects
for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance
is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early
adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.
In
November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230)”
, requiring that the statement
of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December
15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which
requires application of the guidance for all periods presented. The Company is currently evaluating the impact of the new standard.
Management
does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material
effect on the accompanying consolidated financial statements.
Inventory
as of December 31, 2016, and 2015 is as follows:
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|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Finished goods
|
|
$
|
3,033
|
|
|
$
|
270,230
|
|
|
Raw materials
|
|
|
152,200
|
|
|
|
181,743
|
|
|
|
|
$
|
155,233
|
|
|
$
|
451,973
|
|
|
6.
|
Property and Equipment, net
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Computer and test equipment
|
|
$
|
198,684
|
|
|
$
|
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
|
|
|
|
|
|
294,581
|
|
|
|
308,293
|
|
|
Accumulated depreciation and amortization
|
|
|
(155,698
|
)
|
|
|
(75,229
|
)
|
|
|
|
$
|
138,883
|
|
|
$
|
233,064
|
|
Depreciation
expense was $80,469 and $57,944 for the year ended December 31, 2016 and 2015, respectively.
For
the year ended December 31, 2016, the Company recorded an impairment charge totaling $13,127 for assets that the Company no longer
uses. The impairment charge is a component of general and administrative expenses on the consolidated statements of operations.
Accrued
liabilities consisted of the following as of December 31, 2016 and 2015.
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Deferred compensation to employee
|
|
$
|
-
|
|
|
$
|
51,210
|
|
|
Accrued compensation for employees
|
|
|
36,223
|
|
|
|
-
|
|
|
Accrued compensation to non-employee
|
|
|
37,923
|
|
|
|
146,327
|
|
|
Accrued other
|
|
|
57,417
|
|
|
|
84,224
|
|
|
|
|
$
|
131,563
|
|
|
$
|
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 December 31, 2016 was $89,304.
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 December 31, 2016 was $0.
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 December 31, 2016 was $31,156.
Convertible
Notes
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Convertible Notes - December 22, 2015
|
|
$
|
-
|
|
|
$
|
190,000
|
|
|
Convertible Note - December 10, 2015
|
|
|
-
|
|
|
|
90,000
|
|
|
Convertible Note -May 24, 2016
|
|
|
21,900
|
|
|
|
-
|
|
|
Convertible Note -August 9, 2016
|
|
|
35,000
|
|
|
|
-
|
|
|
Convertible Note – October 5, 2016
|
|
|
363,768
|
|
|
|
|
|
|
Convertible Note -November 14, 2016
|
|
|
35,000
|
|
|
|
-
|
|
|
Convertible Note -November 26, 2016
|
|
|
63,260
|
|
|
|
|
|
|
Less debt discount and debt issuance costs
|
|
|
(285,781
|
)
|
|
|
(29,152
|
)
|
|
Total
|
|
$
|
233,147
|
|
|
$
|
250,848
|
|
|
Less current portion of convertible notes payable
|
|
$
|
233,147
|
|
|
$
|
50,574
|
|
|
Long-term convertible notes payable
|
|
$
|
-
|
|
|
$
|
200,274
|
|
The
Company amortized debt discount and debt issuance costs of $1,602,635 and $419,798 for the year December 31, 2016 and 2015 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 six (6) month anniversary of the Note into shares of Company common stock at a conversion price equal to 50% of the market
price (as determined in the Note). The Note also contains certain representations, warranties, covenants and events of default,
and increases in the amount of the principal and interest rates under the Note in the event of such defaults. The foregoing is
only a brief description of the Note, and does not purport to be a complete description of the rights and obligations of the parties
thereunder, and such descriptions are qualified in their entirety by reference to the agreements and their exhibits, which are
filed as an exhibit to this Current report.
The
issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale
of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance
upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the
securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient;
(c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not
broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the
individual and the Company; and (f) the recipient of the Note was an accredited investor.
The
Note might be accelerated if an event of default occurs under the terms of the Note, including the Company’s failure to
pay principal and interest when due, certain bankruptcy events or if the Company is delinquent in its SEC filings. The Note also
contains certain representations, warranties, covenants and events of default, and increases in the amount of the principal and
interest rate under the Note in the event of such defaults. For the year ended December 31, 2016, the Company amortized a total
of $42,352 of the debt issuance cost. As of December 31, 2016, the Note had an outstanding balance of $21,900 and a remaining
unamortized debt discount of $13,148.
On
May 10, 2016, MyDx, Inc. (the “Company”) entered into Securities Purchase Agreement (the “SPA”) and Convertible
Promissory Note in the original principal amount of $50,000 (the “Note”) with Crown Bridge Partners, LLC (“Crown”)
pursuant to which Crown funded $43,000 to the Company after the deduction of a $5,000 OID and $2,000 for legal fees. The Note
bears interest at the rate of 8% and must be repaid on or before May 10, 2017. The Note may be prepaid by the Company at any time
prior to the date which is 180 days after the date of issuance of the Note at a premium to the amount outstanding at the time
of prepayment (as determined in the Note). The Note may be converted by Crown at any time after the six (6) month anniversary
of the Note into shares of Company common stock at a conversion price equal to 50% of the market price (as determined in the Note).
The SPA and Note also contain certain representations, warranties, covenants and events of default, and increases in the amount
of the principal and interest rates under the Note in the event of such defaults. The foregoing is only a brief description of
the material terms of the SPA and Note, and does not purport to be a complete description of the rights and obligations of the
parties thereunder, and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which
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 year ended December 31, 2016,
the Company amortized a total of $50,000, of the debt issuance cost. As of December 31, 2016, the Note had an outstanding balance
of $0 and a remaining unamortized debt discount of $0.
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 six (6) month
anniversary of the Note into shares of Company common stock at a conversion price equal to 50% of the market price (as determined
in the Note). The SPA and Note also contain certain representations, warranties, covenants and events of default, and increases
in the amount of the principal and interest rates under the Note in the event of such defaults. The foregoing is only a brief
description of the material terms of the SPA and Note, and does not purport to be a complete description of the rights and obligations
of the parties thereunder, and such descriptions are qualified in their entirety by reference to the agreements and their exhibits
which are filed as an exhibit to this Current Report.
The
issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale
of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance
upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the
securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient;
(c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not
broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the
individual and the Company; and (f) the recipient of the Note was an accredited investor. For the year ended December 31, 2016,
the Company amortized a total of $13,750 of the debt issuance cost. As of December 31, 2016, the Note had an outstanding balance
of $35,000 and a remaining unamortized debt discount of $21,250.
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 year ended December
31, 2016, the Note holder elected to convert a portion of the Note into 21,775,653 shares of the Company’s common stock.
As of December 31, 2016, the Note had an outstanding balance of $0.
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 year ended December 31, 2016, the Company amortized
a total of $7,510 and $10,000, respectively, of the debt issuance cost. During the year ended December 31, 2016, the Note holder
converted the Note and accrued unpaid interest into 7,142,526 share of the Company’s common stock.
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
year ended December 31, 2016, the Company amortized a total of $2,750, of the debt issuance cost.
During
the year ended December 31, 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 year ended December 31, 2016, the Company amortized a total of $3,250, of the debt
issuance cost.
During
the year ended December 31, 2016, the Note holder elected to convert a portion of the Note into 12,045,545 shares of the Company’s
common stock. As of December 31, 2016, the Note had an outstanding balance of $0. The Company amortized the entire balance of
the debt issuance cost since the Note was converted in the year ended December 31, 2016.
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 year ended December
31, 2016, the Company amortized a total of $9,863, of the debt issuance cost. As of December 31, 2016 and 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 year ended December 31, 2016, the Note holder elected to convert the Note and accrued interest of $104,500 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.
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 year ended December 31, 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 year ended December 31, 2016, the Company amortized a total of $10,000 of the debt issuance
cost.
During
the year ended December 31, 2016, the Note holder elected to convert $63,500 of the Note into 16,487,510 shares of the Company’s
common stock. As of December 31, 2016, the Note had an outstanding balance of $0 and remaining unamortized debt discount of $0.
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 December 31, 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 year months ended December 31, 2016, the Company amortized a total of $10,000,
of the debt issuance cost. As of December 31, 2016, the Note had an outstanding balance of $0. As of December 31, 2016, the Note
had a remaining unamortized debt discount of $0.
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 year ended December 31, 2016, the Company amortized a total of $ $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.
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 year ended December 31, 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.
During
the year ended December 31, 2016, the Note holder elected to convert the Note balance of $55,750 and accrued interest into 19,211,838
shares of the Company’s common stock.
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 six (6) month
anniversary of the Note into shares of Company common stock at a conversion price equal to 50% of the market price (as determined
in the Note). The SPA and Note also contain certain representations, warranties, covenants and events of default, and increases
in the amount of the principal and interest rates under the Note in the event of such defaults. The foregoing is only a brief
description of the material terms of the SPA and Note, and does not purport to be a complete description of the rights and obligations
of the parties thereunder, and such descriptions are qualified in their entirety by reference to the agreements and their exhibits
which are filed as an exhibit to this Current Report.
The
issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale
of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance
upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the
securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient;
(c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not
broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the
individual and the Company; and (f) the recipient of the Note was an accredited investor. For the year ended December 31, 2016,
the Company amortized a total of $4,423, of the debt issuance cost. As of December 31, 2016, the Note had an outstanding balance
of $35,000 and a remaining unamortized debt discount of $0.
On December 1, 2016, MyDx, Inc. (“MyDx”,
or the “Company”) entered into an advisory services agreement (the “Advisory Services Agreement”) and an
indemnification agreement (“Indemnification Agreement”) with BCI Advisors, LLC (“BCI”) pursuant to which
BCI shall, provide advice and counsel to senior management of the Company on business planning and strategy, restructuring and
recapitalization, and consultation to the Board of Directors. BCI will be paid an initial fee of $50,000 in cash or unrestricted
shares of the Company’s Common Stock, and a retainer fee of $25,000 per month for the eleven (11) months subsequent thereto.
In addition, on the 45 and 90th day anniversary of the effectiveness of this Agreement and performance of its services, BCI
shall have the right to receive a two (2) year A-1 and A-2 warrant based on a fully diluted basis, each equal to seven-and-one-half
percent (7.5%) for a total of (15%) subject to adjustment of the then issued and outstanding Company common shares. The initial
fee as well as A-1 and A-2 warrants have been completely earned, free of liens or encumbrances, and non-assessable and can be exercised
at any time at an exercise price of $0.001 per share. This summary contains only a brief description of the material terms
of the Advisory Services Agreement and does not purport to be a complete description of the rights and obligations of the parties
thereunder, and such description is qualified in its entirety by reference to the Advisory Services Agreement. A copy of the Advisory
Services Agreement was filed in a Current Report on Form 8-K.
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
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
September 29, 2015
|
|
$
|
-
|
|
|
$
|
25,000
|
|
|
October 28, 2015
|
|
|
-
|
|
|
|
25,000
|
|
|
November 4, 2015
|
|
|
-
|
|
|
|
25,000
|
|
|
November 13, 2015
|
|
|
-
|
|
|
|
25,000
|
|
|
November 20, 2015
|
|
|
15,000
|
|
|
|
25,000
|
|
|
December 1, 2015
|
|
|
25,000
|
|
|
|
25,000
|
|
|
December 2, 2015
|
|
|
25,000
|
|
|
|
25,000
|
|
|
April 6, 2016
|
|
|
10,000
|
|
|
|
-
|
|
|
April 27, 2016
|
|
|
25,000
|
|
|
|
-
|
|
|
July 20, 2016
|
|
|
25,000
|
|
|
|
-
|
|
|
August 8, 2016
|
|
|
25,000
|
|
|
|
-
|
|
|
September 19, 2016
|
|
|
25,000
|
|
|
|
-
|
|
|
December 1, 2016
|
|
|
25,000
|
|
|
|
|
|
|
|
|
$
|
200,000
|
|
|
$
|
175,000
|
|
Settlement
of Liabilities
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 year ended December 31, 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 settlement of liabilities 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.
During
the year ended December 31, 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.
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.
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 11, 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 29, 2016, the Company, Talent Cloud Limited, Good Project, Windset Capital, Next Dimension Technologies, 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, Good Project, Windset Capital, Next Dimension Technologies, Meyers Associates,
L.P. released MyDx, Inc. from all liabilities under the original claims.
During
the year December 31, 2016, the Company issued 415,997,747 shares of the Company’s common stock to retire $1,582,329 of
the total claims and recorded a loss on debt settlement of $133,019 and derivative expense of 2,285,706 reflecting the difference
in the discounted conversion price and the market price.
|
9.
|
Derivative
Liabilities
|
The
Company has identified derivative instruments arising from embedded conversion features in the Company’s Convertible Notes
Payable and Accounts Payable at December 31, 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 and warrant liability
at the date of issuance and for the convertible notes converted during the year ended December 31, 2016.
|
|
|
Low
|
|
|
High
|
|
|
Annual dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected life
|
|
|
0.25
|
|
|
|
2.00
|
|
|
Risk-free interest rate
|
|
|
0.01
|
%
|
|
|
0.92
|
%
|
|
Expected volatility
|
|
|
163.80
|
%
|
|
|
314.11
|
%
|
Risk-free
interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.
Dividend
yield: The Company uses a 0% expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring
dividends in the near future.
Volatility:
The volatility was estimated using the historical volatilities of the Company’s common stock.
Remaining
term: The Company’s remaining term is based on the remaining contractual maturity of the warrants.
The
following are the changes in the derivative liabilities during the year ended December 31, 2016.
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Derivative liabilities as January 1, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
|
|
5,119,921
|
|
|
Conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,321,381
|
)
|
|
Loss on changes in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
1,013,901
|
|
|
Derivative liabilities as December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,812,441
|
|
The
following are the changes in the warrant liability during the year ended December 31, 2016.
|
|
|
Year Ended December 31, 2016
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair value as January 1, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Warrants granted
|
|
|
-
|
|
|
|
-
|
|
|
|
132,867
|
|
|
Loss on changes in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
114,336
|
|
|
Fair value as December 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
247,203
|
|
|
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.
Settlement
Agreement
On
December 23, 2016, the Company entered into a settlement and release agreement (the “Yazbeck Settlement”) with Daniel
R. Yazbeck, the Chief Executive Officer and Director of the Company (“Yazbeck”), relating to certain bona fide, outstanding,
and past-due liabilities of the Company in the aggregate principal amount of approximately $321,000 for certain unpaid base salary
and bonus obligations that remained deferred and/or outstanding, due and owing to Yazbeck.
Under
the terms of the Yazbeck Settlement, Yazbeck agreed to forgo and release any claims against the Company under that certain Employment
Agreement, by and between Yazbeck and the Company, dated October 15, 2014 (the “Employment Agreement”) in exchange
for (1) the issuance of fifty-one (51) shares of the Company’s Series A Preferred Stock (defined below); (2) the issuance
of three hundred thousand (300,000) shares of the Company’s Series B Preferred Stock (defined below); (3) a warrant for
fifteen percent (15%) of the common shares of the Company issued and outstanding as of January 3, 2017, at an exercise price of
$0.001 per share, with an expiration date of January 3, 2019; and (4) the issuance of thirty million (30,000,000) shares of the
Company’s restricted common stock.
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.
Common
Stock
On
February 23, 2015, the Company effected a 5-for-1 forward stock split of its issued and outstanding shares of common stock. All
share and per share amounts for all periods that have been presented in the consolidated financial statements and notes thereto
have been adjusted retrospectively, where applicable, to reflect the forward stock split. The Company filed a Certificate of Amendment
to its Certificate of Incorporation which made the forward stock split effective and increased the authorized common shares to
375,000,000 shares with a par value $0.001 per share.
In
April 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, 6,069,960 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. 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.
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 year ended December 31, 2016, the Company issued 16,654,214 shares of common stock in exchange for services at a fair value
of $378,345. During the year ended December 31, 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, 2016, the Company amended 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 year ended December 31, 2016, the Company did not issue any warrants to purchase shares of common stock. During the year ended
December 31, 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 December 31, 2016.
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 December 31, 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 year ended December 31, 2016 was as follows:
|
|
|
Shares
|
|
|
Weighted-
Average Exercise
Price
|
|
|
Outstanding as of January 1, 2015
|
|
|
1,937,979
|
|
|
$
|
0.08
|
|
|
Granted
|
|
|
4,639,234
|
|
|
$
|
0.57
|
|
|
Exercised
|
|
|
(33,333
|
)
|
|
$
|
0.08
|
|
|
Forfeited or cancelled
|
|
|
(1,917,635
|
)
|
|
$
|
0.52
|
|
|
Outstanding as of December 31, 2015
|
|
|
4,626,245
|
|
|
$
|
0.39
|
|
|
Options exercisable as of December 31, 2015
|
|
|
2,916,801
|
|
|
$
|
0.31
|
|
|
Granted
|
|
|
125,000
|
|
|
$
|
0.57
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
Forfeited or cancelled
|
|
|
(3,261,245
|
)
|
|
$
|
0.36
|
|
|
Outstanding as of December 31, 2016
|
|
|
1,490,000
|
|
|
$
|
0.48
|
|
|
Options exercisable as of December 31, 2016
|
|
|
1,279,583
|
|
|
$
|
0.22
|
|
The
aggregate intrinsic value of options exercised was $0 and $15,667 for the years ended December 31, 2016 and 2015, respectively.
Information
regarding options outstanding and exercisable as of December 31, 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
|
|
|
|
900,000
|
|
|
|
7.5
|
|
|
$
|
0.08
|
|
|
|
900,000
|
|
|
$
|
0.08
|
|
|
$
|
0.55
|
|
|
|
515,000
|
|
|
|
8.2
|
|
|
$
|
0.55
|
|
|
|
323,333
|
|
|
$
|
0.55
|
|
|
$
|
0.57
|
|
|
|
75,000
|
|
|
|
8.1
|
|
|
$
|
0.57
|
|
|
|
56,250
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
1,490,000
|
|
|
|
7.9
|
|
|
$
|
0.27
|
|
|
|
1,279,583
|
|
|
$
|
0.22
|
|
Total
unrecognized compensation expense from employee stock options as of December 31, 2016 was $378,597 and will be recognized over
a weighted average recognition period of 1.35 years.
Total
stock-based compensation expense, both employee and non-employee, recognized by the Company for the year ended December 31, 2016
and 2015 was $380,587 and $378,597, respectively. Stock-based compensation expense related to stock options granted to non-employees
for the year ended December 31, 2016 and 2015 was $82,996 and $192,410, respectively. No tax benefits were recognized in the year
ended December 31, 2016 and 2015.
For
the year ended December 31, 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 579,864 shares of common stock at an exercise price of $0.60 per share for the
year ended December 31, 2015. The Company believes the fair value of the stock options is more reliably measurable than the fair
value of the consulting services received. The fair value of the stock options granted is calculated at each reporting date.
Additional
Stock Plan Information
The
Company’s fair value calculations for stock-based awards under the 2015 Plan were made using the Black-Scholes option pricing
model with the weighted-average assumptions set forth in the following table. Volatility is based on historical volatility rates
obtained for certain public companies that operate in the same or related businesses as that of the Company since there is no
market for or historical volatility data for the Company’s common stock. 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 year ended December 31, 2016 and 2015:
|
|
|
Years
Ended
|
|
|
|
|
December
31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Dividend
yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
Volatility
|
|
|
50%
- 252
|
%
|
|
|
52.5
|
%
|
|
Average
risk-free rate
|
|
|
1.04% - 2.50
|
%
|
|
|
1.65% - 1.91
|
%
|
|
Expected
term, in years
|
|
|
2.27
- 10.00
|
|
|
|
5.00
- 5.77
|
|
The
weighted-average grant date fair value for stock options granted during the year ended December 31, 2016 and 2015 was zero and
$0.27 per share.
|
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 December 31, 2016 are due as follows:
|
2017
|
|
|
81,613
|
|
|
Total minimum lease payments
|
|
$
|
81,613
|
|
Rent
expense for the year ended December 31, 2016 and 2015 was $79,031 and $150,312, respectively.
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 year ended December 31, 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.
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. However, should the Parties determine that the results of the activities of
Phase One were not satisfactory to both parties, this Agreement shall terminate pursuant to Section 7.2(b).
In
connection with the agreement referenced above, the licensor and licensee are currently still operating under Phase I and the
company has not yet received adequate information to enter Phase II. MyDx has not yet received and has requested market feasibility,
regulatory and other studies from Licensee as contemplated under the agreement and has requested the results of their Phase I
findings to be delivered to Company on or before April 21, 2017. To the extent MyDx management is unable to receive satisfactory
results and confirm proof of concept, MyDx has notified Licensee it will be difficult to continue under the current agreement
and the parties are permitted to terminate for cause and defectiveness in the event the products do not pass tests for quality,
reliability, efficacy, and marketability or if at the completion of Phase I, the results were not satisfactory and the concept
was not proven.
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.
MyDx has disputed the balance of invoice due
to Growth Point.
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.
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.
The components of the provision for income
taxes are as follows:
|
|
|
For the years ended
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
State
|
|
|
800
|
|
|
|
1,375
|
|
|
|
|
|
800
|
|
|
|
1,375
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
Total provision for (benefit from) income taxes
|
|
$
|
800
|
|
|
$
|
1,375
|
|
Deferred tax assets (liabilities) consist of the following:
|
|
|
For the years ended
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
4,824,505
|
|
|
$
|
3,306,431
|
|
|
Research and development credits
|
|
|
151,303
|
|
|
|
134,724
|
|
|
Accruals, reserves and other
|
|
|
14,037
|
|
|
|
14,597
|
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
35,322
|
|
|
Stock-based compensation
|
|
|
460,201
|
|
|
|
405,160
|
|
|
Total deferred tax asset
|
|
|
5,450,046
|
|
|
|
3,896,234
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(5,445,149
|
)
|
|
|
(3,889,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(4,897
|
)
|
|
|
(6,733
|
)
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Reconciliation of the statutory federal income tax
to the Company's effective tax:
|
|
|
For the year ended
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
%
|
|
|
%
|
|
|
Statutory federal tax rate
|
|
|
34.00
|
%
|
|
|
34.00
|
%
|
|
State taxes, net of federal benefit
|
|
|
-0.00
|
%
|
|
|
-0.02
|
%
|
|
Valuation allowance
|
|
|
-8.89
|
%
|
|
|
-32.00
|
%
|
|
Mark to market of derivative
|
|
|
0
|
%
|
|
|
-
|
%
|
|
Non deductible interest expense
|
|
|
0
|
%
|
|
|
-
|
%
|
|
Other
|
|
|
-25.11
|
%
|
|
|
-2.00
|
%
|
|
Provision for income taxes
|
|
|
0.00
|
%
|
|
|
-0.02
|
%
|
Based on the available objective
evidence, management believes it is more likely than not that the net deferred tax assets of the Company will not be fully realizable
for the year ended December 31, 2016 and 2015. Accordingly, management had applied a full valuation allowance against net deferred
tax assets as of December 31, 2016 and 2015.
The valuation allowance increased
by $1,555,647 and $2,632,553 during the years ended December 31, 2016 and 2015.
As of December 31, 2016, the Company
had approximately $12.1 million of federal and $12.1 million of state net operating loss carryforwards available to reduce future
taxable income which will begin to expire in 2033 for both federal and state purposes.
As of December 31, 2016, the Company
had research & development (“R&D”) credits carryforward of approximately $88,000 and $95,000 for federal and
California income tax purposes, respectively. If not utilized, the federal R&D credits carryforward will begin to expire in
2034. The California credits can be carried forward indefinitely.
The
Company maintain liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are
continuously monitored by management based on the best information available, including changes in tax regulations, the outcome
of relevant court cases, and other information. The Company recognizes potential accrued interest and penalties related to unrecognized
tax benefits as income tax expense. As of December 31, 2016, the Company's total amount of unrecognized tax benefit was approximately
$79,000
, of which none affects the effective tax rate. The Company
does not expect its unrecognized benefits to change materially over the next 12 months.
The Company is filing income tax
returns with the United States federal government, and the state of California. The Company’s tax years 2013 through 2016
will remain open for examination by the federal and state authorities for three and four years, respectively, from the utilization
of any net operating loss credits.
The Company accounts for income
taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a
valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are
expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established
when it is more-likely-than-not that some or all of the deferred tax assets will not be realized. Based on the Company’s
net losses in prior years, management has determined that a full valuation allowance against the Company’s net deferred tax
assets is appropriate.
Accounting
for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. The Company has elected to classify interest
and penalties as a component of its income tax provision. With respect to the liability for unrecognized tax benefits, including
related estimates of penalties and interest, the Company did not record a liability for unrecognized tax benefits as of December
31, 2016 and 201
5, respectively. The Company does not expect any
changes to its unrecognized tax benefit for the next twelve months that would materially impact its consolidated financial statements.
On
February 6, 2017, the principles of YCIG, Inc. (“Seller”) entered into a purchase and sale agreement where it sold
the rights to the Loan Agreement to Hasper, Inc. (“Purchaser”) in exchange for the assumption of liabilities under
the note and a commitment to fund additional advances to the company. Subsequently to the purchase of the note, Purchaser has
funded additional advances of $20,000 to the Company.
On
February 7, 2017, Daniel Yazbeck funded the company an additional $25,000 in cash as an interest free bridge loan.
On February 8, 2017, MyDx, Inc. entered into
an option agreement (the “Option Agreement’) with the Torque Research & Development, Inc. ("TRD").
The Option Agreement provides MyDx with the exclusive right to license two patent pending inventions (the “TRD Inventions”),
and requires MyDx to make annual payments to TRD as well as royalty payments on any products that are commercialized which are
based on the TRD Inventions. MyDx's rights under the Option Agreement require customary measures of performance on the part
of MyDx in terms of patent cost maintenance and other payments of costs associated with the TRD Inventions. With respect
to the Option Agreement, MyDx rights are broad in terms of the potential access MyDx has to use the TRD Inventions in products,
and services and many of the key economic terms of a future license, should MyDx exercise it’s rights under the Option Agreement,
are agreed to in the Option Agreement.
In addition to the Option Agreement with the
TRD, on February 8, 2017, MyDx has entered into a research and development agreement (the “RD Agreement”) with TRD
for the Project titled “Manufacturable, Medical Grade Smart Vape Devices and Related Medical Software Applications for
Prescribers, Administrators and Patient Applications.” The RD Agreement allows MyDx to fund research based on the TRD
Inventions with a three year budget of $280,371 and a deferred payment of $75,000 within ninety days of the Effective Date.
The RD Agreement provides MyDx with an exclusive right to license all technology that is discovered from the monies funded to TRD
through the RD Agreement (the “Derivative IP”). To the extent that MyDx exercises it’s rights under the
RD Agreement, MyDx will be required to make customary annual payments to TRD, who shall be the owners of any Derivative IP, as
well as royalty payments as any commercialization of such Derivative IP occurs. TRD may elect to accept payment in whole
or in part in cash or the companies restricted common stock priced at the Effective Date.
On February 10, 2017, the Company entered into
a binding term sheet to acquire certain trademarks, software, data and customer lists from Bud Genius, Inc. in exchange for 100,000,000
restricted MyDx common stock. In good faith, the parties agreed to complete all due diligence and execute transaction documents
within 45 days of the date hereof. The 45 days have expired and the parties continue to negotiate in good faith to consummate the
transaction.
On February 17, 2017 MyDx and Libre Design,
LLC ("LDL") entered into a twelve (12) month Research, Branding, Advertising and Marketing Services Agreement ("Agency
Agreement"). The Company agreed to pay deferred cash compensation as follows of three thousand dollars ($3,000) upon
execution and one thousand five hundred dollars ($1,500) per month for a subsequent eleven (11) payments thereafter on or before
the first (1st) of each month. In addition, Agency is entitled to receive sixty seven million shares of restricted common
stock at a closing market price equal to .0011.
On March 1 and 15th, 2017, MyDx, Inc. received
a payment demand for the initial and subsequent payment of $50,000 and $25,000 per month respectively, exclusive of costs and other
fees, due and owing under the BCI Advisors, LLC (“BCI”) advisory services agreement (the “Advisory Services Agreement”).
The Company elected in lieu of cash to pay in unrestricted common stock, registered in form S-8. The Company made an
initial payment of seventy five million shares in partial satisfaction of the amount due and owing that does not exceed the Company’s
obligations under the Advisory Services Agreement to restrict BCI’s beneficial ownership to 4.99%. This summary contains
only a brief description of the material terms of the Advisory Services Agreement and does not purport to be a complete description
of the rights and obligations of the parties thereunder, and such description is qualified in its entirety by reference to the
Advisory Services Agreement. A copy of the Advisory Services Agreement was filed in a Current Report on Form 8-K.
In March 2016, the Company sued Phoenix Fund
Management, LLC (“Phoenix”) to prevent further issuances and conversion notices pursuant to, respectively, a June 2016
$250,000 Section 3(a)(10) settlement and an October 2016 $1,000,000 convertible promissory note. Between February 23, 2017 and
March 8, 2017, Phoenix submitted five (5) issuance or conversion requests to the Company’s transfer agent for a total of
239,188,023 shares of the Company’s common stock. As a result of the settlement described below, none of these share were
issued.
On March 10, 2017, the Company entered into
a Settlement Agreement with Phoenix dated March 9, 2017 (the “Phoenix Settlement”). Pursuant to the Phoenix Settlement,
Phoenix has agreed it is no longer entitled to any shares pursuant to these two agreements, which are now considered paid in full.
On March 15, 2017, in connection with the Phoenix Settlement, the Company filed a motion to dismiss the pending lawsuit with the
Eleventh Judicial Circuit of Florida.
On March 13, 2017, the Company and Bright Light
Marketing, Inc. (“BLM”), in a settlement related to the Phoenix Settlement, entered into a Settlement Agreement dated
March 10, 2017 (the “BLM Settlement”). In 2016, BLM notified the Company that Phoenix was a potential lender. Pursuant
to the BLM Settlement, BLM will pay the Company a total of $217,500 over the next twelve (12) months. BLM is due to pay the first
$100,000 within thirty (30) business days of the signing of the BLM Settlement. BLM will then pay the Company $10,000 per month
on the first day of the next eleven (11) months with the final payment of $7,500 due on March 1, 2018.
On March 14, 2017, the Company and Vista Capital
Investments, LLC (“Vista”) entered into a Settlement Agreement dated March 14, 2017 (the “Vista Settlement”).
Vista claimed, and the Company disputed, that Vista was still entitled to certain payments pursuant to convertible promissory notes
the Company previously issued. On March 13, 2017, Vista submitted a conversion request of 68,437,500 shares of the Company’s
common stock. Pursuant to the Vista Settlement, the Company issued 35,000,000 shares to Vista on March 14, 2017 and all convertible
promissory notes issued by the Company to Vista are now considered paid in full.
From November 22, 2016 through March 16, 2017,
the Company has issued, in reliance upon Section 4(a)(2) of the Securities Act, 1,086,998,015 shares of common stock at a weighted
average price per share of $0.001096 pursuant to conversion notices of convertible promissory notes outstanding totaling approximately
$1,164,000. The shares were issued to a total of five lenders. The issuance of such convertible promissory notes was previously
disclosed in the Company’s periodic reports filed with the Securities and Exchange Commission.
On March 16, 2017, the Company entered into
a securities purchase agreement (“SPA”) with TLG, Inc, and TRD, Inc. (“Investors”) pursuant to which
the Company agreed to sell 25,000,000 restricted shares of the Company’s common stock, in an above market transaction at
a purchase price of $0.004 per share for a total of $100,000. As part of the SPA, the Company granted the Investors the option,
within the next 60 days, to purchase an additional 25,000,000 of restricted shares of the Company’s common stock at a purchase
price of $0.006 per share for a total of $150,000. The shares of Common Stock issued pursuant to the Subscription Agreement
have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) and are “restricted
securities" as that term is defined by Rule 144 promulgated under the Securities Act. Pursuant to the securities purchase
agreement, the Investors agreed not to sell more than three hundred and seventy-five thousand shares per day (subject to adjustment
for forward and reverse stock splits that occur after the date hereof) or more than seven million five hundred thousand shares
per month (subject to adjustment for forward and reverse stock splits that occur after the date hereof) of the securities purchased
pursuant to the SPA.