We
have audited the accompanying consolidated balance sheets of MyDx, Inc. (“the Company”) as of December 31, 2017, the
related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2017
and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 3 to the financial statements, the Company has suffered recurring losses from operations, has a net capital deficiency
and negative cash flows from operations, which raise substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect
to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audit provides a reasonable basis for our opinion.
We
also have audited the re-classification to the 2016 consolidated financial statements of Series B preferred shares to temporary
equity, as described in Note 4. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged
to audit, review, or apply any procedures to the 2016 consolidated financial statements of the Company other than with respect
to this re-classification and, accordingly, we do not express an opinion or any other form of assurance on the 2016 consolidated
financial statements taken as a whole.
We
have served as the Company’s auditor since 2018. Salt Lake
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.
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 has adopted 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, 2017, and a net loss
for the year ended December 31, 2017. 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 year ended December 31, 2017 and 2016. It is anticipated
that we will continue to report negative operating cash flow in future periods, likely until one or more of our products generates
sufficient revenue to cover our operating expenses. If any of the warrants are exercised, all net proceeds of the warrant exercise
will be used for working capital to fund negative operating cash flow.
Our
cash balance of $119,028 at December 31, 2017 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
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
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 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
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
December 31, 2017 and 2016, 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, 2017 and 2016, there was an allowance for doubtful accounts of $27,851 and $0 respectively.
During the year ended December 31, 2017
the company recorded a bad debt expense of $27,851.
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.
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.
Product
revenue
The Company recognizes revenue when four revenue
recognition criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred, or services have been
rendered; the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured. In accordance
with ASC 605-20 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
Revenue is generally recognized when:
●
|
Evidence of an arrangement exists;
|
|
|
●
|
Delivery has occurred;
|
|
|
●
|
Fees are fixed or determinable; and
|
|
|
●
|
Collection is considered probable.
|
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.
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 year ended December
31, 2017 and 2016 were $170,385 and $686,095, 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 $968,687 and $98,219 for the year ended
December 31, 2017 and 2016, 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, 2017 and 2016 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, 2017 and 2016:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Series A Preferred stock
|
|
|
51
|
|
|
|
51
|
|
Series B Preferred stock
|
|
|
2,967,000,000
|
|
|
|
3,000,000,000
|
|
Convertible notes payable
|
|
|
66,584,538
|
|
|
|
357,384,725
|
|
Convertible accounts payable
|
|
|
312,821,828
|
|
|
|
284,210,526
|
|
Options
|
|
|
1,496,250
|
|
|
|
1,490,026
|
|
Warrants
|
|
|
261,837,676
|
|
|
|
7,571,395
|
|
Totals
|
|
|
3,609,740,343
|
|
|
|
3,650,656,723
|
|
Subsequent
events
The
Company has evaluated events that occurred subsequent to December 31, 2017 and through the date the financial statements were
issued.
Revised Prior Period Amounts
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.
The Company identified and recorded an out-of-period adjustment related to redeemable series B preferred stock that should have
been recorded in temporary equity during year ended December 31, 2016. The adjustment was reflected as a $5,699,700 increase in
redeemable series B preferred stock and corresponding decrease in Additional paid-in capital. See Note 10.
Recently
Adopted Accounting Guidance
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, 2016. The standard
permits the use of either the retrospective or cumulative effect transition method. The adoption of ASU 2014-15 will not materially
impact our consolidated financial position, results of operations or cash flows.
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. The adoption of ASU 2015-03 had no material effect on its financial position or results of operations or cash flows.
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 adoption of ASU 2015-11 will not have a material effect on its financial position or results of operations or cash flows.
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 adoption of ASU 2016-09 will not have a material effect on its
financial position or results of operations or cash flows.
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 adoption of ASU 2016-10 will not have a material effect on its financial position
or results of operations or cash flows.
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 adoption of ASU 2016-12 won’t have a material effect on its
financial position or results of operations or cash flows.
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 adoption of ASU 2016-15 won’t have a material effect
on its financial position or results of operations or cash flows.
Recent
Accounting Guidance Not Yet Adopted
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
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.
In
May 2017, the FASB issued ASU 2017-09, “
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
,”
which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. This standard is required to be adopted in the first quarter of 2018. The Company is currently
evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.
In
July 2017, the FASB issued ASU 2017-11, “
Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception
”. Part I of this update addresses the complexity of accounting
for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments
(or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current
accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible
instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part
II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence
of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite
deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain
mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This
ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently
evaluating the impact this guidance will have on its consolidated financial statements and related disclosures.
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, 2017 and 2016 is as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Finished goods
|
|
$
|
49,889
|
|
|
$
|
3,033
|
|
Raw materials
|
|
|
130,614
|
|
|
|
152,200
|
|
|
|
$
|
180,503
|
|
|
$
|
155,233
|
|
6.
|
Property and
Equipment, net
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Computer and test equipment
|
|
$
|
198,684
|
|
|
$
|
198,684
|
|
Website development costs
|
|
|
39,870
|
|
|
|
39,870
|
|
Furniture and fixtures
|
|
|
26,948
|
|
|
|
26,948
|
|
Software
|
|
|
10,791
|
|
|
|
10,791
|
|
Leasehold improvements
|
|
|
18,288
|
|
|
|
18,288
|
|
|
|
|
294,581
|
|
|
|
294,581
|
|
Accumulated depreciation and amortization
|
|
|
(227,749
|
)
|
|
|
(155,698
|
)
|
|
|
$
|
66,832
|
|
|
$
|
138,883
|
|
Depreciation
expense was $72,051 and $80,469 for the year ended December 31, 2017 and 2016, respectively.
For
the year ended December 31, 2016 the Company recorded an impairment of assets totaling $13,127 for assets that the Company no
longer uses.
Accrued
liabilities consisted of the following as of December 31, 2017 and 2016.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Accrued compensation for employees
|
|
$
|
333,048
|
|
|
$
|
71,351
|
|
Deferred compensation to non-employee
|
|
|
11,673
|
|
|
|
45,086
|
|
Accrued interest on notes payable
|
|
|
50,853
|
|
|
|
9,727
|
|
Other payables
|
|
|
58,839
|
|
|
|
5,399
|
|
|
|
$
|
454,410
|
|
|
$
|
131,563
|
|
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, 2017 and 2016 was $0 and $89,304 respectively.
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, 2017 and 2016 was $0 and $0 respectively.
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, 2017 and 2016 was $0 and $31,156 respectively.
Convertible
Notes
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
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 29, 2016
|
|
|
-
|
|
|
|
63,260
|
|
Convertible Note - February 6, 2017
|
|
|
295,750
|
|
|
|
|
|
Less debt discount and debt issuance costs
|
|
|
(13,950
|
)
|
|
|
(285,781
|
)
|
Total
|
|
$
|
281,800
|
|
|
$
|
233,147
|
|
The Company amortized debt discount and debt
issuance costs of $280,841 and $1,602,635 for the year ended December 31, 2017 and 2016 respectively.
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, the Note had outstanding
balances of $0, and remaining unamortized debt discount of $0.
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
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.
On
June 30, 2016, the Company elected to terminate the EPA and RRA by delivering a termination notice to Kodiak. The Company shall
have no further liabilities or obligations under the EPA and the RRA. The rights and obligations of the Note hereunder shall continue
and remain in full force and effect until all obligations are satisfied in full.
On
March 15, 2016, the Company entered into Securities Purchase Agreement (the “SPA”) and Convertible Promissory Note
in the original principal amount of $55,750 (the “Note”) with Auctus Fund, LLC (“Auctus”) pursuant to
which Auctus funded $50,000 to the Company after the deduction of $5,750 of diligence and legal fees. The Note bears interest
at the rate of 10% and must be repaid on or before December 15, 2016. The Note may be prepaid by the Company at any time prior
to the date which is 180 days after the date of issuance of the Note in an amount equal to 110% of the amount outstanding. The
Note may be converted by Auctus at any time into shares of Company common stock at a conversion price equal to 50% of the market
price (as determined in the Note). The SPA and Note also contain certain representations, warranties, covenants and events of
default, and increases in the amount of the principal and interest rates under the Note in the event of such defaults. The foregoing
is only a brief description of the material terms of the SPA and Note, and does not purport to be a complete description of the
rights and obligations of the parties thereunder, and such descriptions are qualified in their entirety by reference to the agreements
and their exhibits which are filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on March
8, 2016. The Company recorded the cost of the due diligence and legal fees of $5,750 as financing fees.
The
issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act for the offer and sale
of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance
upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the
securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient;
(c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not
broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the
individual and the Company; and (f) the recipient of the Note was an accredited investor.
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 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 were
filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May 27, 2016.
The
issuance of the Note was made in reliance on the exemption provided by Section 4(a)(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(a)(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, 2017
the, the Company amortized a total of $13,148 of the debt issuance cost. As of December 31, 2017 and 2016, the Note had an outstanding
balance of $0 and $21,900 respectively, and a remaining unamortized debt discount of $0 and $13,148 respectively.
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. During the year ended December 31, 2017 the, the Company amortized a total of $9,084 of the debt issuance cost.
As of December 31, 2017 and 2016, the Note had an outstanding balance of $0 and $0 respectively, and a remaining unamortized debt
discount of $0 and $0 respectively.
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
issuance of the Note was made in reliance on the exemption provided by Section 4(a)(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(a)(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, 2017,
the Company amortized a total of $21,250 of the debt issuance cost. During the year ended December 31, 2016, the Company amortized
a total of $13,750 of the debt issuance cost. As of December 31, 2017 and 2016, the Note had an outstanding balance of $0 and
$35,000 respectively, and a remaining unamortized debt discount of $0 and $21,250 respectively.
During
the year ended December 31, 2017, the Note holder elected to convert the Note and accrued interest of $36,522 into 86,654,550
share 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 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
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
issuance of the Note was made in reliance on the exemption provided by Section 4(a)(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(a)(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, 2017,
the Company amortized a total of $30,577, of the debt issuance cost. As of December 31, 2017 and 2016, the Note had an outstanding
balance of $0 and $35,000 respectively, and a remaining unamortized debt discount of $0 and $30,577 respectively.
During
the year ended December 31, 2017, the Note holder elected to convert the Note and accrued interest of $36,749 into 14,699,616
share of the Company’s common stock.
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 as Exhibit 10.1 to the Current Report
on Form 8-K filed with the SEC on January 11, 2017. As of December 31, 2017 and 2016, the Note had an outstanding balance of $239,182
and $0 respectively.
During
the year ended December 31, 2017, the Note holder elected to convert the principal of $137,103 into 140,000,000 share of the Company’s
common stock.
On
February 6, 2017, YCIG, Inc. (“Seller”) entered into a purchase and sale agreement where it sold the rights to
its loan agreement with the Company to Hasper, Inc. in exchange for the assumption of liabilities under the note and a
commitment to fund additional advances to the company. The loans accrue interest at a rate of 12% per annum and all amounts
loaned are due and payable on or before September 28, 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 common stock at a conversion price of $0.0023 the trading price on January
4, 2017 or at the close of business on the date of conversion. Interest is due on June 1, 2017 and the first of every month thereafter.
Amendment
1
On August 22, 2017 the Company and Hasfer,
Inc. entered into an amendment to the note. The note was modified as follows:
●
|
The facility limit
was increased to $850,000.
|
●
|
The
company received proceeds of $263,500.
|
●
|
Fees
related to the amendment totaled $18,500. The fees were recorded as a loss on extinguishment of debt.
|
●
|
The maturity date of the principal is September 28, 2018
|
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 $384,903.
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.
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 28, 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.
On
January 4, 2017 the Company and YCIG. entered into an amendment to the note. The note was modified as follows:
●
|
The
note may be repaid by the Company common stock at a conversion price of $0.0023 or at the close of business on the date
of conversion upon default
|
●
|
Interest shall be
due in a single lump sum payment on June 1, 2017.
|
●
|
Subsequent to June
1, 2017, all monthly interest payments that accrue shall be payable on the first (1st) day of next month during the remainder
life of the Note.
|
YCIG
advanced the Company funds under the loan agreement as follows:
|
|
Outstanding Balances as of
|
|
|
|
December 31, 2017
|
|
|
December 31,
2016
|
|
November 20, 2015
|
|
|
-
|
|
|
|
15,000
|
|
December 1, 2015
|
|
|
-
|
|
|
|
25,000
|
|
December 2, 2015
|
|
|
-
|
|
|
|
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
|
|
February 7, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
200,000
|
|
Due
to related party
On
February 7, 2017, the Company’s officer made non-interest bearing loans of $25,000 to the Company in the form of cash. The
loan is due on demand and unsecure. During the year ended December 31, 2017 the note was repaid.
On
April 20, 2017, the Company’s officer made non-interest bearing loans of $20,000 to the Company in the form of cash. The
loan is due on demand and unsecure. During the year ended December 31, 2017 the note was repaid.
On
May 8, 2017, the Company’s officer made non-interest bearing loans of $10,000 to the Company in the form of cash. The loan
is due on demand and unsecure. During the year ended December 31, 2017 the note was repaid.
On
June 19, 2017, the Company’s officer made non-interest bearing loans of $35,000 to the Company in the form of cash. The
loan is due on demand and unsecure. During the year ended December 31, 2017 the note was repaid.
On
July 17, 2017, the Company’s officer made non-interest bearing loans of $10,000 to the Company in the form of cash. The
loan is due on demand and unsecure. During the year ended December 31, 2017 the note was repaid.
On
July 20, 2017, the Company’s officer made non-interest bearing loans of $20,000 to the Company in the form of cash. The
loan is due on demand and unsecure. During the year ended December 31, 2017 the note was repaid.
On August 22, 2017, the Company’s officer
made non-interest bearing loans of $45,000 to the Company in the form of cash. The loan is due on demand and unsecure. This was
the result of the officer selling 100,000 personal owned shares of Series B Preferred for net proceeds of $45,000.
During
the year ended December 31, 2017, the Company has repaid $120,000. As of December 31, 2017, and 2016 the Company is reflecting
a liability of $46,075, and $1,075, respectively.
Settlement
of Liabilities
In
March 2017, 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 shares 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. The Company recorded a gain on settlement of debt
of $80,315
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
April 25, 2017, the Company and its previous auditor, BPM LLP (“BPM”), entered into a Settlement Agreement pursuant
to which the Company agreed to pay BPM $80,000 by May 31, 2018. The Company and BPM agreed that, following the Company’s
receipt of each new debt or equity investment (including investments paid in tranches over time) by a party who was not, as of
April 25, an officer, director, shareholder, or creditor of the Company, the Company shall pay fifteen percent (15%) of the net
proceeds to BPM on the first day of the month following receipt of the investment until the $80,000 has been paid. The Company
recorded a gain on settlement of debt of $70,781. During the year ended December 31, 2017 the Company repaid $0.
On
June 16, 2017, the Company issued 500,000 shares valued at $3,950 for the settlement of an outstanding accounts payable balance
of $4,870. The company recorded a gain on settlement of debt of $920.
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 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
support to recruitment services. 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
October 19, 2016, the Company, Talent Cloud, Meyers Associates, and Rockwell Capital entered into an Assignment and Modification
Agreement. Rockwell purchased the debt claim held by Talent Cloudand Meyers Associates 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 and Meyers Associates released MyDx, Inc. from all liabilities under
the original claims.
On
November 11, 2016, the Company, Talent Cloud, Meyers Associates, and Rockwell Capital entered into an Assignment and Modification
Agreement. Rockwell purchased the debt claim held by Talent Cloud and Meyers Associates 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 and Meyers Associates released MyDx, Inc. from all liabilities under
the original claims.
On
November 29, 2016, the Company, Talent Cloud, Good Project, Windset Capital, Next Dimension Technologies, Meyers Associates and
Rockwell Capital entered into an Assignment and Modification Agreement. Rockwell purchased the debt claim held by Talent Cloud
and Meyers Associates 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, Good Project,
Windset Capital, Next Dimension Technologies, and Meyers Associates released MyDx, Inc. from all liabilities under the original
claims.
During
the year ended December 31, 2016 the Company issued 3,500,000 shares of the Company’s common stock to retire $40,895 of
the total claims and recorded a gain on debt settlement of $198,261.
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, 2017.
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, 2017 and 2016.
|
|
Low
|
|
|
High
|
|
Annual dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life
|
|
|
0.74
|
|
|
|
1.40
|
|
Risk-free interest rate
|
|
|
1.20
|
%
|
|
|
1.76
|
%
|
Expected volatility
|
|
|
121.60
|
%
|
|
|
266.00
|
%
|
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 year ended December 31, 2017.
|
|
Year Ended December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities as January 1, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,812,441
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
|
|
3,519,922
|
|
Conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,845,677
|
)
|
Settlement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,087,226
|
)
|
Loss on changes in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
196,545
|
|
Derivative liabilities as December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,596,005
|
|
The
following are the changes in the warrant liability during the year ended December 31, 2017.
|
|
Year Ended December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Fair value as January 1, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
247,203
|
|
Warrants issued
|
|
|
-
|
|
|
|
-
|
|
|
|
(222,184
|
)
|
Gain on changes in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,019
|
)
|
Fair value as December 31, 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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.
Series A Preferred Stock
As of December 31, 2017, and 2016, 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, 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.
During the year ended December 31, 2017
an investor converted 3,300 Series B Preferred stock in to 33,000,000 shares of common 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.
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.
During
the year ended December 31, 2017, the Company issued 143,977,273 shares of common stock in exchange for services at a fair value
of $668,695. 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.
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. On May 1, 2017, the Company entered into an amendment to the TLG, Inc SPA. The modification allowed TLG,
Inc to purchase a total of 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. TLG exercised all of these options on May 2, 2017.
Common
Stock Warrants
During the year ended December 31, 2017,
the Company agreed to issue warrants to purchase 252,773,754 shares of common stock. During the year ended December 31, 2016, the
Company did not issue any warrants to purchase shares of common stock. No common stock warrants have been exercised or have expired
and warrants to purchase 260,345,149 shares of common stock were outstanding as of December 31, 2017.
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, 2017, options to purchase 1,496,250 shares were available under the 2015 Plan for issuance.
2017 Equity Incentive Plan
The Company adopted the MyDx, Inc. 2017
Equity Incentive Plan (the “2017 Plan”), and to date, has reserved 150,000,000 shares of common stock for issuance
under the 2017 Plan. Under the 2017 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. Employees, non-employee
directors and consultants are eligible to receive incentive stock options to purchase common stock. Vesting and exercise provisions
are determined by the Board of Directors at the time of grant.
A summary of the Company’s stock option plan for
the year ended December 31, 2017 was as follows:
|
|
Shares
|
|
|
Weighted- Average Exercise Price
|
|
Outstanding as of December 31, 2015
|
|
|
4,626,245
|
|
|
$
|
0.39
|
|
Granted
|
|
|
125,000
|
|
|
$
|
0.57
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited or cancelled
|
|
|
(3,254,995
|
)
|
|
$
|
0.36
|
|
Outstanding as of December 31, 2016
|
|
|
1,496,250
|
|
|
$
|
0.48
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding as of December 31, 2017
|
|
|
1,496,250
|
|
|
$
|
0.27
|
|
Options exercisable as of December 31, 2017
|
|
|
1,457,500
|
|
|
$
|
0.25
|
|
The
aggregate intrinsic value of options exercised was $0 and $0 for the year ended December 31, 2017 and 2016, respectively.
Information
regarding options outstanding and exercisable as of December 31, 2017, 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
|
|
|
|
3.86
|
|
|
$
|
0.08
|
|
|
|
900,000
|
|
|
$
|
0.08
|
|
$
|
0.55
|
|
|
|
515,000
|
|
|
|
3.41
|
|
|
$
|
0.55
|
|
|
|
482,500
|
|
|
$
|
0.55
|
|
$
|
0.57
|
|
|
|
81,250
|
|
|
|
3.99
|
|
|
$
|
0.57
|
|
|
|
75,000
|
|
|
$
|
0.57
|
|
|
|
|
|
|
1,496,250
|
|
|
|
3.8
|
|
|
$
|
0.27
|
|
|
|
1,457,500
|
|
|
$
|
0.27
|
|
Total
unrecognized compensation expense from employee stock options as of December 31, 2017 was $1,525 and will be recognized over a
weighted average recognition period of 0.70 years.
Total stock-based compensation expense,
both employee and non-employee, recognized by the Company for the year ended December 31, 2017 and 2016 was $11,909 and $378,597
respectively. No tax benefits were recognized in the year ended December 31, 2017 and 2016.
11.
|
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
years ended December 31, 2017 and 2016, 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.
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
its 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 its
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. MyDx is currently in default
on its payment obligations to Torque.
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.
Effective as of April 21, 2017, the Company
terminated its Distribution and License Agreement (the “License Agreement”) with China Science and Technology (“Licensee”)
entered into in September 2016. The Company terminated the License Agreement due to the Company not receiving confirmation of proof
of concept from the Licensee for deployment of the Company’s products in China. The Company recognized $135,000 as a gain
on forfeiture of technology transfer deposit.
On
June 12, 2017, MyDx, Inc. (the “Company” or “Licensor”) entered into a license and services agreement
(the “License Agreement”) with Black Swan, LLC (the “Licensee”). The Licensor agrees to grant to the Licensee
the Access License which shall consist of:
|
(a)
|
access to the Database
to enable Licensee to engage in formulation queries regarding the effects of having different amounts of terpene or other
chemicals in cannabis strains;
|
|
(b)
|
access to the Database’s
chemical profile library and related definitions;
|
|
(c)
|
access to a list
with the contact information and fee schedule of cannabis extractors with state licenses so that Licensee can submit the formulation
query results to such licensed cannabis extractors. Such licensed extractor list may change and Licensor shall have no obligation
to provide Licensee with an updated list; and
|
|
(d)
|
access to the CannaDxTM
mobile application to track feedback and reviews by up to 20,000 users of Licensee’s products.
|
The
Licensor will provide the Product Services which shall consist of:
|
(1)
|
Licensor providing
annual MyDx360 SAAS Premium Subscription at a cost of $15,000 per annum
|
|
(2)
|
Licensor providing
6,000 Cartridges every six months to the Licensee at a cost of $2.49 per Cartridge ($14,940 in total every six months). It
shall be a requirement of this Agreement that Licensee order 6,000 Cartridges from Licensor every six months;
|
|
(3)
|
Licensor providing
1,000 Eco Smart Pens to the Licensee, when available, over the three-year term of this Agreement at a cost of $25 per Eco
Smart Pen ($25,000 in total); and
|
|
(4)
|
Licensor providing
6,000 batteries to the Licensee over the three-year term of this Agreement at a cost of $3.99 per battery ($23,940 in total).
|
The
term of this Agreement shall be three (3) years. Licensor shall have the right, in its sole discretion, to terminate this Agreement
if Licensee does not order and pay for at least 6,000 Cartridges every six months at a cost of $2.49 per Cartridge ($14,940 in
total every six months).
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.
On
May 16, 2017, the Company terminated its Marketing and Advertising Advisory Services Agreement with Growth Point Advisors, Ltd.
(“Growth Point”) entered into in April 2016. Growth Point had been expected to provide a comprehensive marketing,
advertising and branding campaign for the Greater China Region on behalf of the Company’s MyDx AquaDx sensor. Growth Point
failed to satisfy the agreed upon deliverables as stated in the agreement. As of the date of this filing the Company has not received
communication from Growth Point.
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 $0.0011.
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.
On
November 3, 2017 the Company and Phylos Bioscience, Inc. (“Phylos”) entered into a License, Co-Marketing, and Data
Sharing Agreement (the “Phylos Agreement”). Pursuant to the Phylos Agreement, the Company and Phylos each granted
a non-exclusive license to the other party to access their data and use their trademarks and logo on marketing materials. Neither
party paid cash or issued shares in connection with the Phylos Agreement. The license was the consideration given by each party.
The term of the agreement is five (5) years.
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. On June 9,
2017, the Company and ANP terminated the Resale Licensing Agreement.
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,
|
|
|
|
2017
|
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
800
|
|
|
|
800
|
|
|
|
|
800
|
|
|
|
800
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total provision for (benefit from) income taxes
|
|
$
|
800
|
|
|
$
|
800
|
|
Deferred tax assets (liabilities) consist of the following:
|
|
For the years ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
3,551,327
|
|
|
$
|
4,824,505
|
|
Research and development credits
|
|
|
144,305
|
|
|
|
151,303
|
|
Accruals, reserves and other
|
|
|
59,006
|
|
|
|
14,037
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
628,289
|
|
|
|
460,201
|
|
Total deferred tax asset
|
|
|
4,382,538
|
|
|
|
5,450,046
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(4,376,733
|
)
|
|
|
(5,445,149
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(6,194
|
)
|
|
|
(4,897
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Reconciliation of the statutory federal income tax to the Company's
effective tax:
|
|
For the year ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
%
|
|
|
%
|
|
Statutory federal tax rate
|
|
|
21.00
|
%
|
|
|
34.00
|
%
|
State taxes, net of federal benefit
|
|
|
6.32
|
%
|
|
|
-0.00
|
%
|
Valuation allowance
|
|
|
-21.99
|
%
|
|
|
-25.11
|
%
|
Other
|
|
|
-5.33
|
%
|
|
|
8.89
|
%
|
Provision for income taxes
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
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, 2017 and 2016. Accordingly, management had applied a full valuation allowance against net deferred
tax assets as of December 31, 2017 and 2016.
The valuation allowance increased by approximately
$1.1 million and $1.6 million during the years ended December 31, 2017 and 2016.
As of December 31, 2017, the Company had
approximately $13.0 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, 2017, the Company had
research & development (“R&D”) credits carryforward of approximately $89,700 and $96,400 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 is filing income tax returns
with the United States federal government, and the state of California. The Company’s tax years 2014 through 2017 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.
On December 22, 2017, the Tax Cuts and
Jobs Act pf 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code of 1986, as
amended (the “Code”). The Act reduces the federal corporate income tax rate from 35% to 21% effective for tax years
beginning after December 31, 2017. ASC 470 requires the Company to remeasure the existing net deferred tax asset in the period
of enactment. The Act also provides for immediate expensing of 100% or the costs of qualified property that is incurred and placed
in service during the period from September 27, 2017 to December 31, 2022. Beginning January 1, 2023, the immediate expensing provision
is phased down by 20% per year until it is completely phased out as of January 1, 2027. Additionally, effective January 1, 2018,
the Act imposes possible limitations on the deductibility of interest expense. As a result of the provisions of the Act, the Company’s
deduction for interest expense could be limited in future years. The effects of other provisions of the Act are not expected to
have a material impact on the Company’s financial statements.
On December 22, 2017, the SEC staff issued
Staff Accounting Bulletin No. 118 (“SAB 118”) to provide guidance on accounting for the tax effects of the Act. SAB
118 provides a measurement period that begins in the reporting period that includes the Act’s enactment date and ends when
an entity has obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements
under ASC 720. However, in no circumstance should the measurement period extend beyond one year from the enactment date. In accordance
with SAB 118, a company must reflect in its financial statements the income tax effects of those aspects of the Act for which the
accounting under ASC 740 is complete. SAB 118 provides that to the extent that a company’s accounting for certain income
tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate
in the financial statements.
The Company does not reflect a deferred
tax asset in its financial statements but includes that calculation and valuation in its footnotes. We are still analyzing the
impact of certain provisions of the Act and refining our calculations. The Company will disclose any change in the estimates as
it refines the accounting for the impact of the Act.
On
January 26, 2018 the company entered into a joint venture with Ganja Gold to form “NewCo”. With the formation of NewCo,
the intent is for the Parties to manufacture and distribute a new premium line of physiological based Vape formulations. under
Ganja Gold Vape Brand (“GGV”). The GGV Brand will be powered by MYDX data and formulations utilizing the Eco Smart
Pen Device under an exclusive license of MYDX Power Formulations. MyDx will have the option to acquire 50% of NewCo.