Notes
to Condensed 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.
MyDx
is a science and technology company that develops and deploys products and services in the following focus areas:
|
1)
|
Consumer Products
– smart devices and consumables
|
|
2)
|
Data Analytics
– pre-clinical chemical analysis and patient feedback ecosystem
|
|
3)
|
Biopharmaceuticals
– identifying ‘green Active Pharmaceutical Ingredients
TM
, (gAPI
TM
) and corresponding
formulations
|
|
4)
|
Software as a
Service (SaaS)
– Software services for prescribers, patient groups, cultivators, and regulators
|
We
are committed to addressing areas of critical national need to promote public safety, transparency and regulation in the various
markets we serve.
The
Company’s first product, MyDx
®
, also known as “My Diagnostic”, is a patented multiuse hand-held
chemical analyzer made for consumers and professional users which feeds our data analytics platform and SaaS business. MyDx is
intended to allow consumers to Trust & Verify
®
what they put into their mind and body by using our science
and technology to test for pesticides in food, chemicals in water, toxins in the air, and the safety and potency of cannabis samples,
which is our initial focus.
The
Company’s condensed 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 condensed consolidated Financial Statements, the Company had an accumulated deficit at March 31, 2019 and a net
cash used in operating activities for the three months ended March 31, 2019. 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 three months ended March 31, 2019. It is anticipated
that we will continue to report negative operating cash flow in future periods, likely until one or more of our products generate
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 $175,504 at March 31, 2019 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. 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
condensed 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.
4.
|
Summary of Significant Accounting Policies
|
Basis
of Presentation - Unaudited Interim Financial Information
The
accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial
information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”)
with respect to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished
reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results
for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the
year ended December 31, 2018.
Use
of Estimates
The
preparation of the consolidated finance statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at
the date of the condensed consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting
period. Such management estimates include allowance for doubtful accounts, estimates of product returns, warranty expense, inventory
valuation, valuation allowances of deferred taxes, stock-based compensation expenses and fair value of warrants and derivatives.
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.
|
Level
1
|
Inputs are unadjusted,
quoted prices for identical assets or liabilities in active markets at the measurable date.
|
|
|
|
|
Level 2
|
Inputs, other than
quoted prices included in Level 1, that are observable for the asset or liability through corroboration with market data at
the measurement date.
|
|
|
|
|
Level 3
|
Unobservable inputs
that reflect management’s best estimate of what participants would use in pricing the asset or liability at the measurement
date.
|
The
carrying amounts of the Company’s financial assets and liabilities, including cash, accounts receivable, accounts payable,
and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying value of the Company’s
loan payable and convertible notes payable approximates fair value based upon borrowing rates currently available to the Company
for loans with similar terms.
Business
Segments
ASC
280 defines operating segments as components of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances.
Currently, ASC 280 has no effect on the Company’s condensed consolidated financial statements as substantially all of the
Company’s operations are conducted in one industry segment.
Cash
The
Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of
March 31, 2019 and December 31, 2018, 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
March 31, 2019 and December 31, 2018, there was an allowance for doubtful accounts of $27,851 and $27,851 respectively.
During
the three months ended March 31, 2019 and 2018 the Company recorded a bad debt expense of $0 and $0, respectively.
Inventory
Inventory
is stated at the lower of cost or market value. Inventory is determined to be salable based on demand forecast within a specific
time horizon, generally eighteen months or less. Inventory in excess of salable amounts and inventory which is considered obsolete
based upon changes in existing technology is written off. At the point of recognition, a new lower cost basis for that inventory
is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that new cost
basis.
Property
and Equipment
Property
and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided
using the straight-line method over the useful life as follows:
Internal-use software
|
|
3 years
|
Equipment
|
|
3 to 5 years
|
Computer equipment
|
|
3 to 7 years
|
Furniture and fixtures
|
|
5 to 7 years
|
Leasehold improvements
|
|
Shorter of life of
asset or lease
|
Accounting
for Website Development Costs
The
Company capitalizes certain external and internal costs, including internal payroll costs, incurred in connection with the development
of its website. These costs are capitalized beginning when the Company has entered the application development stage and cease
when the project is substantially complete and is ready for its intended use. The website development costs are amortized using
the straight-line method over the estimated useful life of three years.
Impairment
of Long-Lived Assets
Long-lived
assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the 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 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 binomial 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 binomial 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.
Revenue
Recognition
The
Company adopted ASC 606 effective January 1, 2018 using the modified retrospective method which would require a cumulative effect
adjustment for initially applying the new revenue standard as an adjustment to the opening balance of retained earnings and the
comparative information would not require to be restated and continue to be reported under the accounting standards in effect
for those periods.
Based
on the Company’s analysis the Company did not identify a cumulative effect adjustment for initially applying the new revenue
standards. The Company principally generates revenue through providing product, services and licensing revenue
The
adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery
of the Company’s services and will provide financial statement readers with enhanced disclosures. In accordance with ASC
606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized reflects the
consideration to which the Company expects to be entitled to receive in exchange for these services. To achieve this core principle,
the Company applies the following five steps:
1)
|
Identify the contract with a customer
|
A
contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s
rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract
has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that
are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies
judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the
customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining
to the customer.
2)
|
Identify the performance obligations in the
contract
|
Performance
obligations promised in a contract are identified based on the services that will be transferred to the customer that are both
capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources
that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the
transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple
promised services, the Company must apply judgment to determine whether promised services are capable of being distinct and distinct
in the context of the contract. If these criteria are not met the promised services are accounted for as a combined performance
obligation.
3)
|
Determine the transaction price
|
The
transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring
services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount
of variable consideration that should be included in the transaction price utilizing either the expected value method or the most
likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction
price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract
will not occur. None of the Company’s contracts as of December 31, 2018 contained a significant financing component. Determining
the transaction price requires significant judgment, which is discussed by revenue category in further detail below.
4)
|
Allocate the transaction price to performance
obligations in the contract
|
If
the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract
with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or
to a specific part of the contract. For example, a bonus or penalty may be associated with one or more, but not all, distinct
services promised in a series of distinct services that forms part of a single performance obligation. Contracts that contain
multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative
standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance
obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling
price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable
through past transactions, the Company estimates the standalone selling price taking into account available information such as
market conditions and internally approved pricing guidelines related to the performance obligations.
5)
|
Recognize revenue when or as the Company
satisfies a performance obligation
|
The
Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised service to a customer.
|
|
Three Months ended March 31, 2019
|
|
|
Three Months ended March 31, 2018
|
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
Product Revenue
|
|
|
494
|
|
|
|
757
|
|
|
|
1,251
|
|
|
|
39,666
|
|
|
|
27,178
|
|
|
|
66,844
|
|
Product Service Revenue
|
|
|
288
|
|
|
|
-
|
|
|
|
288
|
|
|
|
3,468
|
|
|
|
1,987
|
|
|
|
5,455
|
|
Licensing Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,130
|
|
|
|
|
|
|
|
4,130
|
|
|
|
|
782
|
|
|
|
757
|
|
|
|
1,539
|
|
|
|
47,264
|
|
|
|
29,165
|
|
|
|
76,429
|
|
Product
revenue
Revenue
from multiple-element arrangements is allocated among separate elements based on their estimated sales prices, provided the elements
have value on a stand-alone basis.
Licensing
revenue
Some
of the Company’s revenues are generated from software-as-a-service (“SaaS”) subscription offerings
and related product support and maintenance. SaaS revenues stem mainly from annual subscriptions and are recorded evenly over
the term of the subscription. Any customer payments received in advance are deferred until they are earned. Consulting and training
revenues are recognized as work is performed.
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.
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 three months
ended March 31, 2019 and 2018 were $13,935 and $233,090, 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 $54,290 and $37,253 for the three months
ended March 31, 2019 and 2018, 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.
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.
Earnings
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.
The
following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income (loss)
attributable to common stockholders per common share.
|
|
For the Three Months Ended
|
|
|
|
March 31,
2019
|
|
|
March 31,
2018
|
|
Numerator:
|
|
|
|
|
|
|
Net income/(loss) attributable to common stockholders
|
|
$
|
294,370
|
|
|
$
|
879,905
|
|
Effect of dilutive securities:
|
|
|
-
|
|
|
|
-
|
|
Convertible note - Interest Expense
|
|
|
20,241
|
|
|
|
8,751
|
|
Change in Warrant liability
|
|
|
(815,970
|
)
|
|
|
-
|
|
Net Change in derivative liabilities - convertible payables
|
|
|
(135,244
|
)
|
|
|
(1,365,055
|
)
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss)
|
|
$
|
(636,603
|
)
|
|
$
|
(476,399
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
4,043,156,414
|
|
|
|
1,878,730,874
|
|
Dilutive securities (a):
|
|
|
|
|
|
|
|
|
Series A Preferred
|
|
|
51
|
|
|
|
51
|
|
Series B Preferred
|
|
|
1,070,000,000
|
|
|
|
2,967,000,000
|
|
Convertible notes payable
|
|
|
738,212,072
|
|
|
|
128,586,957
|
|
Convertible accounts payable
|
|
|
330,000,000
|
|
|
|
346,554,654
|
|
Options
|
|
|
-
|
|
|
|
-
|
|
Warrants
|
|
|
1,615,879,300
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and assumed conversion - diluted
|
|
|
7,797,250,837
|
|
|
|
5,320,872,536
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
(a) - Anti-dilutive securities excluded:
|
|
|
9,067,645
|
|
|
|
261,835,149
|
|
Recent
Accounting Guidance Adopted
In
February 2016, the FASB issued ASU 2016-02 “
Leases”
(Topic 842) which amended guidance for lease arrangements
to increase transparency and comparability by providing additional information to users of financial statements regarding an entity’s
leasing activities. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter
the collection of lease guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring
reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.
On
January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach. Results for the three months ended March
31, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with
the legacy accounting guidance under ASC Topic 840,
Leases
.
As
part of the adoption we elected the practical expedients permitted under the transition guidance within the new standard, which
among other things, allowed us to:
|
1.
|
Continue applying
our current policy for accounting for land easements that existed as of, or expired before, January 1, 2019.
|
|
|
|
|
2.
|
Not
separate non-lease components from lease components and instead to account for each separate lease component and the non-lease
components associated with that lease component as a single lease component.
|
|
|
|
|
3.
|
Not
to apply the recognition requirements in ASC 842 to short-term leases.
|
|
|
|
|
4.
|
Not
record a right of use asset or right of use liability for leases with an asset or liability balance that would be considered
immaterial.
|
Inventory
as of March 31, 2019 and December 31, 2018 is as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Finished goods
|
|
$
|
7,511
|
|
|
$
|
9,781
|
|
Raw materials
|
|
|
150,445
|
|
|
|
104,250
|
|
|
|
$
|
157,956
|
|
|
$
|
114,031
|
|
Convertible
Notes
The
following table shows the outstanding balance as of March 31, 2019 and December 31, 2018 respectively.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Convertible Note - February 6, 2017
|
|
|
265,750
|
|
|
|
265,750
|
|
Convertible Note - July 23, 2018
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible Note – October 1, 2018
|
|
|
74,800
|
|
|
|
74,800
|
|
Convertible Note – October 4, 2018
|
|
|
73,500
|
|
|
|
73,500
|
|
Convertible Note – October 11, 2018
|
|
|
283,500
|
|
|
|
283,500
|
|
Convertible Note – December 19, 2018
|
|
|
82,000
|
|
|
|
82,000
|
|
Convertible Note – March 7, 2019
|
|
|
210,000
|
|
|
|
-
|
|
|
|
|
1,014,550
|
|
|
|
804,550
|
|
Less: Debt Discount
|
|
|
(419,051
|
)
|
|
|
(368,373
|
)
|
Total
|
|
$
|
595,499
|
|
|
$
|
436,177
|
|
Amendment
2
On
December 27, 2017 the Company, Hasfer, Inc. and Legacy, entered into an amendment to the note. The note was modified as follows:
●
|
A portion of the
outstanding principal and interest was assigned to Legacy.
|
●
|
The company received
proceeds of $48,500.
|
●
|
Fees related to
the amendment totaled $1,500. The fees were recorded as a loss on extinguishment of debt.
|
All
remaining terms of the Revolving note remained the same.
In
accordance with ASC 470, since the present value of the cash flows under the new debt instrument was at least ten percent different
from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for
the amendment to SPA as a debt extinguishment. Accordingly, the Company recorded a loss on extinguishment of debt of $155,086.
During
the year ended December 31, 2017 Hasfer converted $236,250 of the outstanding principal into 99,891,304 share of the company’s
common stock.
As
of December 31, 2017 and 2016 the balance of this agreement was $295,750 and $0 respectively.
During
the year ended December 31, 2018 Hasfer, Inc and Carte Blanche, LLC entered into a note purchase agreement. Hasfer assigned $60,000
to Carte Blanche, LLC. The Company received additional proceeds of $30,000.
During
the year ended the lenders converted $60,000 of the outstanding principal into 26,086,956 shares of the Company’s common
stock.
On
July 23, 2018 the Company issued convertible notes to third party lenders totaling $25,000. These notes accrue interest at a rate
of 12% per annum and mature with interest and principal due July 23, 2019. The note and accrued interest are convertible at a
conversion price equal to a 30% discount of the Company’s common stock prior day close price.
Due
to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability
treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion
feature has been measured at fair value using a Binomial Option Pricing model at the issuance date and the period end. The conversion
feature of the convertible note gave rise to a derivative liability of $19,070 which was recorded as a debt discount. The debt
discount is charged to other expense ratably over the term of the convertible note
On
July 23, 2018 the Company issued convertible notes to third party lenders totaling $25,000. The note accrues interest at a rate
of 12% per annum and mature with interest and principal due July 23, 2019. The note and accrued interest are convertible at a
conversion price equal to a 30% discount of the Company’s common stock prior day close price.
Due
to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability
treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion
feature has been measured at fair value using a Binomial Option Pricing model at the issuance date and the period end. The conversion
feature of the convertible note gave rise to a derivative liability of $19,070 which was recorded as a debt discount. The debt
discount is charged to other expense ratably over the term of the convertible note.
Geneva
Securities Purchase Agreement
Effective
October 1, 2018, the Company entered into a securities purchase agreement (the “Geneva Purchase Agreement”) with Geneva
Roth Remark Holdings, Inc., (“Geneva”), pursuant to which Geneva purchased a 10% unsecured convertible promissory
note (the “Geneva Note”) from the Company in the aggregate principal amount of $74,800, such principal and the interest
thereon convertible into shares of the Company’s common stock at the option of Geneva.
The
purchase price of $74,800 of the Geneva Note was paid in cash by Geneva on October 2, 2018. After payment of transaction-related
expenses, net proceeds to the Company from the Geneva Note totaled $65,000.
The
maturity date of the Geneva Note is October 1, 2019 (the “Geneva Maturity Date”). The Geneva Note shall bear interest
at a rate of ten percent (10%) per annum (the “Geneva Interest Rate”), which interest shall be paid by the Company
to Geneva in shares of common stock at any time Geneva sends a notice of conversion to the Company. Geneva is entitled to, at
its option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the Geneva Note into
shares of the Company’s common stock, at any time after March 20, 2019, at a conversion price for each share of common stock
equal to 71% multiplied by the average of the lowest three (3) trading prices (as defined in the Geneva Purchase Agreement) for
the common stock during the fifteen (15) Trading Day period (as defined in the Geneva Purchase Agreement) ending on the latest
complete trading day prior to the conversion date.
The
Geneva Note may be prepaid until 170 days from the issuance date in accordance with its terms.
The
Company shall reserve 270,905,432 of its authorized and unissued common stock (the “Geneva Reserved Amount”), free
from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the Geneva Note.
GS
Capital Securities Purchase Agreement
Effective
October 4, 2018 the Company entered into a securities purchase agreement (the “GSC Purchase Agreement”) with GS Capital
Partners LLC, (“GSC”, and together with Geneva, the “Investors”), pursuant to which GSC purchased a 8%
unsecured convertible promissory note from the Company in the aggregate principal amount of $75,000 (the “GSC Note”),
such principal and the interest thereon convertible into shares of the Company’s common stock at the option of GSC.
The
purchase price of $75,000 of the GSC Note was paid in cash by GSC on October 5, 2018. After payment of transaction-related expenses,
net proceeds to the Company from the First GSC Note totaled $68,500.
The
maturity date of the GSC Note is October 4, 2019 (the “the GSC Maturity Date”). The GSC Note shall bear interest at
a rate of eight percent (8%) per annum (the “GSC Interest Rate”), which interest shall be paid by the Company to GSC
in shares of common stock at any time GSC sends a notice of conversion to the Company. GSC is entitled to, at its option, convert
all or any amount of the principal face amount and any accrued but unpaid interest of the GSC Note into shares of the Company’s
common stock, at any time, at the conversion price specified in the for each share of common stock equal to 71% of the average
of the three lowest closing bid prices of the common stock for the fifteen prior trading days including the day upon which a notice
of conversion is received by the Company or its transfer agent. In connection with this note the Company recorded a $58,855 debt
discount.
The
GSC Note may be prepaid until 180 days from the issuance date in accordance with its terms.
The
Company shall reserve 211,267,000 of its authorized and unissued common stock (the “GSC Reserved Amount”), free from
preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the GSC Note.
Eagle
and GSC Securities Purchase Agreements
Effective
October 11, 2018, the Company entered into a securities purchase agreement (the “Eagle Purchase Agreement”) with Eagle
Equities, LLC (“Eagle”), pursuant to which Eagle purchased an 8% unsecured convertible promissory note (the “Eagle
Note”) from the Company in the aggregate principal amount of $181,500, such principal and the interest thereon convertible
into shares of the Company’s common stock at the option of Eagle.
Effective
October 11, 2018 the Company entered into a securities purchase agreement (the “GSC Purchase Agreement” and together
with the Eagle Purchase Agreement, the “SPAs”) with GSC (together with Eagle, the “Investors”), pursuant
to which GSC purchased an 8% unsecured convertible promissory note (the “GSC Note” and together with the Eagle Note,
the “Notes”) from the Company in the aggregate principal amount of $102,000, such principal and the interest thereon
convertible into shares of the Company’s common stock at the option of GSC.
The
purchase price of $181,500, and of $102,000, of the Eagle Note and the GSC Note, respectively, was paid in cash by the Investors
on October 11, 2018. After payment of transaction-related expenses, net proceeds to the Company from the Eagle Note and the GSC
Note totaled $157,000 and $90,000, respectively.
The
maturity date of the Notes is October 11, 2019 (the “Maturity Date”). The Notes shall bear interest at a rate of eight
percent (8%) per annum (the “Interest Rate”), which interest shall be paid by the Company to the Investors in shares
of common stock at any time Eagle or GSC sends a notice of conversion to the Company (the “Notice of Conversion”).
The Investors are entitled to, at their option, convert all or any amount of the principal face amount and any accrued but unpaid
interest of their respective Notes into shares of the Company’s common stock, at any time, at a conversion price for each
share of common stock equal to 65% multiplied by the lowest closing bid price of the common stock as reported on the marketplace
upon which the Company’s shares are traded during the fifteen (15) trading day period ending on the day upon which a Notice
of Conversion is received by the Company. In connection with this note, the Company recorded a $149,702 and $85,085 debt discounts.
The
Notes may be prepaid until 180 days from the issuance date in accordance with its terms.
The
Company shall reserve 532,000,000, and 299,000,000, of its authorized and unissued common stock free from preemptive rights, to
provide for the issuance of Common Stock upon the full conversion of the Eagle Note (the “Eagle Reserved Amount”),
and the GSC Note (the “GSC Reserved Amount” and together with the Eagle Reserved Amount, the “Total Reserved
Amount”), respectively.
Effective
December 19, 2018 the Company entered into a securities purchase agreement (the “GSC Purchase Agreement”) with GS
Capital Partners LLC, (“GSC”, and together with Geneva, the “Investors”), pursuant to which GSC purchased
a 8% unsecured convertible promissory note from the Company in the aggregate principal amount of $82,000 (the “GSC Note”),
such principal and the interest thereon convertible into shares of the Company’s common stock at the option of GSC.
The
purchase price of $82,000 of the GSC Note was paid in cash by GSC on December 19, 2018. After payment of transaction-related expenses,
net proceeds to the Company from the First GSC Note totaled $76,000.
The
maturity date of the GSC Note is December 19, 2019 (the “the GSC Maturity Date”). The GSC Note shall bear interest
at a rate of eight percent (8%) per annum (the “GSC Interest Rate”), which interest shall be paid by the Company to
GSC in shares of common stock at any time GSC sends a notice of conversion to the Company. GSC is entitled to, at its option,
convert all or any amount of the principal face amount and any accrued but unpaid interest of the GSC Note into shares of the
Company’s common stock, at any time, at the conversion price specified in the for each share of common stock equal to 67%
of the average of the three lowest closing bid prices of the common stock for the fifteen prior trading days including the day
upon which a notice of conversion is received by the Company or its transfer agent. In connection with this note, the Company
recorded a $76,000 debt discount.
The
GSC Note may be prepaid until 180 days from the issuance date in accordance with its terms.
The
Company shall reserve 211,267,000 of its authorized and unissued common stock (the “GSC Reserved Amount”), free from
preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the GSC Note.
GS
Capital Agreement
Effective
March 7, 2019 the Company entered into a securities purchase agreement with GS Capital Partners, pursuant to which GSC purchased
a 8% unsecured convertible promissory note from the Company in aggregate principal amount of $210,000, such principal and interest
thereon convertible into shares of the Company’s common stock at the option of GSC.
The
purchase price of $210,000 of the GS Capital note was paid in cash by GS Capital on March 11, 2019. After payment of transaction-related
expenses, net proceeds to the Company from the note totaled $200,000.
The
maturity date of the GS Capital note is March 7, 2020. The GS Capital Note shall bear interest at a rate of eight percent (8%)
per annum which interest shall be paid by the Company to GS Capital in shares of common stock at any time GSC sends a notice of
conversion to the Company. GSC is entitled to, at its option, convert all or any amount of the principal face amount and any accrued
but unpaid interest of the GSC Note into shares of the Company’s common stock, at any time, at the conversion price specified
in the for each share of common stock equal to 65% of the average of the three lowest closing bid prices of the common stock for
the fifteen prior trading days including the day upon which a notice of conversion is received by the Company or its transfer
agent. In connection with this note, the Company recorded a $167,296 debt discount.
7.
|
Derivative Liabilities
|
The
Company has identified derivative instruments arising from embedded conversion features in the Company’s convertible notes
payable and accounts payable at March 31, 2019.
The
following summarizes the Binomial-lattice model 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 three months ended March 31, 2019.
|
|
Low
|
|
|
High
|
|
Annual dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life in years
|
|
|
.32
|
|
|
|
1.00
|
|
Risk-free interest rate
|
|
|
2.40
|
%
|
|
|
2.44
|
%
|
Expected volatility
|
|
|
103
|
%
|
|
|
114
|
%
|
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 convertible notes payable and accounts
payable.
The
following are the changes in the derivative liabilities during the three months ended March 31, 2019.
|
|
Three Months Ended March 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative Liability as of January 1, 2019
|
|
|
|
|
|
|
|
|
|
|
1,222,186
|
|
Initial derivative expense
|
|
|
|
|
|
|
|
|
|
|
166,790
|
|
Gain on changes in fair value
|
|
|
|
|
|
|
|
|
|
|
(135,244
|
)
|
Derivative liabilities as of March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
1,253,732
|
|
The
following are the changes in the warrant liabilities during the three months ended March 31, 2019.
|
|
Three Months Ended March 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Balance, January 1, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,267,426
|
|
Change due to exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
(845,883
|
)
|
Gain on changes in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
(815,970
|
)
|
Accretion of warrant expense
|
|
|
-
|
|
|
|
-
|
|
|
|
245,775
|
|
Warrant liabilities as March 31, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,851,348
|
|
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.
Series
A Preferred Stock
As
of March 31, 2019, and March 31, 2018, the Company has designated 51 shares of Series A Preferred Stock par value $0.001 and 51
shares are issued and outstanding. The Series A Preferred Stock can convert into common stock at a 1:1 ratio. Each one (1) share
of the Series A Preferred shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding shares
of Common Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus
(z) the Numerator. For purposes of illustration only, if the total issued and outstanding shares of Common Stock eligible to vote
at the time of the respective vote is 5,000,000, the voting rights of one share of the Series A Preferred Stock shall be equal
to 102,036 (0.019607 x 5,000,000) / 0.49) – (0.019607 x 5,000,000) = 102,036). On December 23, 2016 the 51 shares were issued
to Mr. Yazbeck, the Company’s sole officer and the sole member of the Board. Mr. Yazbeck, via his ownership of the 51 shares
of the Series A Preferred, has control of the majority of the Company’s voting stock.
Series
B Preferred Stock
The
Series B Preferred is convertible into shares of Common Stock at a conversion price of $0.0001. Holders of the Series B Preferred
are entitled to receive dividends annually equal to $0.10 for each share of Series B Preferred held. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the holders of Series B Preferred then outstanding shall
be entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment shall
be made to the holders of Common Stock. Until such time as there are fewer than 20,000 shares of Series B Preferred outstanding,
the Company needs to obtain the majority votes of the holders of Series B Preferred with regard to certain actions. Holders of
Series B Preferred shares are entitled to one vote for each share held, are entitled to elect up to two members to the Board,
and, absent such election, are provided certain voting and veto rights with regard to any vote by the Board.
On
July 31, 2018, the Company agreed to eventually issue 38,272 shares of Series B Preferred at a value of $1.00 per Series B Preferred
share to settle outstanding vendor liability. The shares of Series B Preferred will be issued upon an increase in the authorized
shares of Series B Preferred. The Company also agreed to the assignment or issuance of three warrants giving the holder the right
to purchase seven and one half percent (7.5%) of the Company’s shares of Common Stock issued and outstanding at the time
of exercise and having an exercise price of $0.001 per share. This form of warrant is referred to herein as the “7.5% Warrant.”
The Company agreed to the assignment of one previously issued 7.5% Warrant to an entity related to BCI Advisors. This 7.5% Warrant
will expire on July 31, 2020. In addition, the Company also agreed to the assignment of another previously issued 7.5% Warrant
to an entity related to BCI Advisors and agreed to extend the expiration date from March 1, 2019 to July 31, 2020. Finally, the
Company agreed to issue a new 7.5% Warrant which will expire on July 31, 2020. The Company currently does not have enough authorized
shares to issue the Series B Preferred shares and therefore, have recorded them as a liability at their fair value of $1,262,976.
On
July 30, 2018, the Company agreed to eventually issue 45,355 shares of the Company’s Series B Preferred at a value of $1.00
per Series B Preferred share to settle outstanding vendor liability. The Company also agreed to issue a 7.5% Warrant with an expiration
date of July 31, 2020. The Company currently does not have enough authorized shares to issue the Series B shares and therefore,
have recorded them as a liability at their fair value of $1,587,425.
During
the year ended December 31, 2018 investors converted 189,700 Series B Preferred stock in to 1,897,000,000 shares of common stock.
Common
Stock
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.
On
January 15, 2019, the Company issued 165,546,562 shares of common stock for a cashless exercise on warrants.
9.
|
Commitments and
Contingencies
|
Distribution
and License Agreement and Joint Development Agreements
The
Company entered into a Distribution and License Agreement with a third-party for the purpose of developing a sensor array to be
used in the Company’s product. The Distribution and License Agreement has an initial term of ten years, but can be terminated
earlier if the project does not meet the specifications of the Company. The Company will obtain exclusive rights to sell and distribute
once a successful sensor prototype is developed. In exchange for a functional prototype, the Company will pay the third-party
a 7% royalty on net sales. During the three months ended March 31, 2019, 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.
On
May 19, 2015, the Company entered into an Exclusive Patent Sublicense Agreement (the “License Agreement”) with Next
Dimension Technologies, Inc. (“NDT”). The License Agreement grants the Company a worldwide right to the patents licensed
by NDT from the California Institute of Technology. The License Agreement grants both exclusive and non-exclusive patent rights.
The license granted in the License Agreement permits the Company to make, have made, use, sell and offer for sale sublicensed
products in the field of use. The License Agreement continues until the expiration, revocation, invalidation or enforceability
of the rights licensed. The License Agreement provides for the payment of a license fee and royalty payments by CDx to NDT. The
License Agreement also contains minimum royalty payments and milestone payments by CDx to NDT. NDT has a right to terminate the
License Agreement in the event of an uncured breach by CDx; the insolvency or bankruptcy of CDx; or if CDx does not meet certain
productivity milestones. The License Agreement also contains representations, warranties and indemnity obligations for each of
CDx and NDT. In connection with the License Agreement, on May 19, 2015, CDx and NDT also executed an Amended Amendment No. 4 (the
“Amended Amendment No. 4”) to the Joint Development Agreement, dated as of November 1, 2013, between CDx and NDT,
which extended the date of negotiation for the License Agreement through May 19, 2015.
Litigation
In
the normal course of business, the Company may be subject to other legal proceedings, lawsuits and other claims. Although the
ultimate aggregate amount of probable monetary liability or financial impact with respect to these matters is subject to many
uncertainties and is therefore not predictable with assurance, the Company’s management believes that any monetary liability
or financial impact to the Company from these other matters, individually and in the aggregate, would not be material to the Company’s
financial condition, results of operations or cash flows.
However,
there can be no assurance with respect to such result, and monetary liability or financial impact to the Company from these other
matters could differ materially from those projected.
LG
Note
On
May 2, 2019, the Company entered into a securities purchase agreement with LG Capital Funding, LLC (“LG Capital”)
for the sale of two 8% convertible redeemable notes in the original principal amount of $63,945, or an aggregate principal amount
of $127,890 (the “LG Note”), which included an aggregate payment of $126,000 to the Company at an original issue discount
of $1,890.
The
LG Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on May 2, 2020. The LG Note is convertible
into common stock at any time after the six-month anniversary of the LG Note, at LG Capital’s option, at a price equal to
65% of the average of the two lowest closing trading prices of the common stock during the fifteen-day period prior to conversion.
The LG Note may not be prepaid more than 180 days prior to its maturity date. In the event the Company prepays the LG Note in
full during the 180 days prior to its maturity date, the Company must pay off all principal, interest and any other amounts owing
multiplied by a premium ranging from 5% to 30%.
LG
Capital has agreed to restrict its ability to convert the LG Note and receive shares of common stock such that the number of shares
of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of
the then issued and outstanding shares of common stock. The LG Note is a debt obligation arising other than in the ordinary course
of business which constitutes a direct financial obligation of the Company.
The
LG Note contains default events which, if triggered and not timely cured (if curable) by the Company, will result in the option
by LG Capital to consider the LG Note immediately due and payable, without presentment, demand, protest or (further) notice of
any kind (other than notice of acceleration). Upon an event of default, interest shall accrue at a default interest rate of 24%
per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law.
The
LG Note was offered and sold to LG Capital in a private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(a)(2) under the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 promulgated under
the Securities Act. LG Capital is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities
Act.
Odyssey
Note
On
May 7, 2019, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with
Odyssey Capital Funding, LLC (“Odyssey”) for the sale of an 12% convertible redeemable note in the amount of $100,000
(the “Odyssey Note”).
The
Odyssey Note bears interest at the rate of 12% per annum. All interest and principal must be repaid on May 7, 2020. The Odyssey
Note is convertible into common stock at any time after the six-month anniversary of the Odyssey Note, at Odyssey’s option,
at a price equal to 60% of the lowest closing trading price of the common stock during the twenty day period prior to conversion.
The Odyssey Note may not be prepaid more than 180 days prior to its maturity date. In the event the Company prepays the Note in
full during the 180 days prior to its maturity date, the Company must pay off all principal, interest and any other amounts owing
multiplied by a premium ranging from 25% to 45%.
Odyssey
has agreed to restrict its ability to convert the Odyssey Note and receive shares of common stock such that the number of shares
of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of
the then issued and outstanding shares of common stock. The Odyssey Note is a debt obligation arising other than in the ordinary
course of business which constitute a direct financial obligation of the Company.
The
Odyssey Note contains default events which, if triggered and not timely cured (if curable) by the Company, will result in the
option by Odyssey to consider the Odyssey Note immediately due and payable, without presentment, demand, protest or (further)
notice of any kind (other than notice of acceleration). Upon an Event of Default, interest shall accrue at a default interest
rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted
by law.
The
Odyssey Note was offered and sold to Odyssey in a private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(a)(2) under the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 promulgated under
the Securities Act. Odyssey is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities
Act.