ITEM 5. MARKET FOR THE REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for our Common Stock
PRICE RANGE OF OUR COMMON STOCK AND DIVIDEND
INFORMATION
Our Common Stock trades publicly on the
OTC Pink Current Information marketplace of the OTC Markets Group Inc under the symbol “MYDX”.
The trading volume of our securities fluctuates
and may be limited during certain periods. As a result of these volume fluctuations, the liquidity of an investment in our securities
may be adversely affected.
Shareholders of Record
As of April 23, 2019, an aggregate of 3,905,200,946
shares of our Common Stock were issued and outstanding and owned by approximately 155 shareholders of record. Due to shares of
our Common Stock being held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially
larger than the number of stockholders of record.
On December 23, 2016, the Board designated
51 shares of Series A Preferred Stock. Among other provisions, 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 of the Company 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 of the Company 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). The 51 shares were issued to Daniel Yazbeck, the Company’s 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.
On December 23, 2016, the Company designated
300,000 shares of Preferred Stock as Series B Preferred Stock. The Series B Preferred is convertible into shares of Common Stock
at a conversion price of $0.0001. Holders of the Series B Preferred are entitled to receive dividends annually equal to $0.10 for
each share of Series B Preferred held. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of Series B Preferred then outstanding shall be entitled to be paid out of the assets of the Company available
for distribution to its stockholders, before any payment shall be made to the holders of Common Stock. Until such time as there
are fewer than 20,000 shares of Series B Preferred outstanding, the Company needs to obtain the majority votes of the holders of
Series B Preferred with regard to certain actions. Holders of Series B Preferred shares are entitled to one vote for each share
held, are entitled to elect up to two members to the Board, and, absent such election, are provided certain voting and veto rights
with regard to any vote by the Board. On January 6, the 300,000 shares of the Series B Preferred were issued to Mr. Yazbeck. On
June 30, 2017, Mr. Yazbeck sold 100,000 shares of Series B Preferred for net proceeds of $45,000. Mr. Yazbeck then lent the $45,000
to the Company.
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.
During the year ended December 31, 2017
the investor who had bought 100,000 shares of Series B Preferred from Mr. Yazbeck in June 2017 converted 3,300 shares of Series
B Preferred into 33,000,000 shares of Common Stock. Per the terms of the Series B Preferred Certificate of Designation, upon conversion,
the 3,300 shares converted were retired and cancelled and cannot be reauthorized or reissued as shares of Series B Preferred.
During the second quarter of 2018, the
investor who had bought 100,000 shares of Series B Preferred from Mr. Yazbeck in June 2017 converted 14,700 shares of Series B
Preferred into 147,000,000 shares of Common Stock. Per the terms of the Series B Preferred Certificate of Designation, upon conversion,
the 14,700 shares converted were retired and cancelled and cannot be reauthorized or reissued as shares of Series B Preferred.
During the second quarter of 2018, Mr.
Yazbeck converted 175,000 shares of Series B Preferred into 1,750,000,000 shares of Common Stock. Per the terms of the Series B
Preferred Certificate of Designation, upon conversion, the 175,000 shares converted were retired and cancelled and cannot be reauthorized
or reissued as shares of Series B Preferred.
During the second quarter of 2018, Mr.
Yazbeck sold his remaining 25,000 shares of Series B Preferred for proceeds of $29,000 to the same investor who bought 100,000
shares of Series B Preferred from him in June 2017. As of April 23, 2019, $105,000 of the $290,000 sale price has been paid by
this investor to Mr. Yazbeck. Mr. Yazbeck lent the $105,000 to the Company.
Following Mr. Yazbeck’s second sale
of shares of Series B Preferred, there were 107,000 shares of Series B Preferred outstanding all held by one third-party investor.
There were zero (0) shares of Series B Preferred available to be issued. As of April 23, 2019, there were still 107,000 shares
of Series B Preferred outstanding and held by the same investor.
On July 30, 2018, the Company agreed to
eventually issue 45,355 shares of Series B Preferred at a value of $1.00 per Series B Preferred share to settle outstanding vendor
liability. The shares of Series B Preferred will be issued upon an increase in the authorized shares of Series B Preferred. The
Company also agreed to issue a 7.5% Warrant with an expiration date of July 31, 2020. The Company currently does not have enough
authorized shares to issue the Series B shares and therefore, have recorded them as a liability at their fair value of $1,587,425.
On July 31, 2018, the Company agreed to
eventually issue 38,272 shares of Series B Preferred at a value of $1.00 per Series B Preferred share to settle outstanding vendor
liability. The shares of Series B Preferred will be issued upon an increase in the authorized shares of Series B Preferred. The
Company also agreed to the assignment or issuance of three warrants giving the holder the right to purchase seven and one half
percent (7.5%) of the Company’s shares of Common Stock issued and outstanding at the time of exercise and having an exercise
price of $0.001 per share. This form of warrant is referred to herein as the “7.5% Warrant.” The Company agreed to
the assignment of one previously issued 7.5% Warrant to an entity related to BCI Advisors. This 7.5% Warrant will expire on July
31, 2020. In addition, the Company also agreed to the assignment of another previously issued 7.5% Warrant to an entity related
to BCI Advisors and agreed to extend the expiration date from March 1, 2019 to July 31, 2020. Finally, the Company agreed to issue
a new 7.5% Warrant which will expire on July 31, 2020. The Company currently does not have enough authorized shares to issue
the Series B Preferred shares and therefore, have recorded them as a liability at their fair value of $1,262,976.
Recent Sales of Unregistered Securities
During the year ended December 31, 2018,
we issued shares of our common stock that were not registered under the Securities Act, and were not previously disclosed in a
Current Report on Form 8-K or on a Quarterly Report on Form 10-Q as follows:
On May 7, 2018, YCIG acquired 1,750,000,000
shares of the Company’s common stock through the conversion of 175,000 shares of the Company’s Series B Preferred via
a cashless conversion of the stated value of $1.00 per Series B Preferred share divided by a conversion price of $0.0001 per share.
On July 23, 2018, the Company issued a
12% Convertible Promissory Note for $25,000 (the “Beckmann Note”) to Erai Beckmann. The Note matures on July 23, 2019
and is convertible into shares of the Company’s common stock at a conversion price equal to a 30% discount to the closing
price on the day prior to the conversion date.
On July 30, 2018, the Company entered
into a Settlement Agreement and Mutual Release with Torque Research & Development, Inc. (the “TRD Settlement”).
Pursuant to the TRD Settlement, the parties agreed to terminate the February 8, 2017 Research & Development Agreement and
the February 8, 2017 Exclusive License Agreement. In return for a full release by Torque Research & Development, Inc. (“TRD”),
the Company to eventually issue 45,355 shares of Series B Preferred at a value of $1.00 per Series B Preferred share. The shares
of Series B Preferred will be issued upon an increase in the authorized shares of Series B Preferred. The Company also agreed
to issue a 7.5% Warrant with an expiration date of July 31, 2020. The Company currently does not have enough authorized shares
to issue the Series B Preferred shares and therefore, have recorded them as a liability at their fair value of $1,587,425.
On July 31, 2018, the Company entered
into a Settlement Agreement and Mutual Release with BCI Advisors (the “BCI Settlement”). Pursuant to the BCI Settlement,
the parties agreed to terminate the December 1, 2016 Advisory Services Agreement. In return for a full release by BCI, the Company
agreed to eventually issue 38,272 shares of Series B Preferred at a value of $1.00 per Series B Preferred share. The shares of
Series B Preferred will be issued upon an increase in the authorized shares of Series B Preferred. The Company also agreed to
the assignment or issuance of three 7.5% Warrants. The Company agreed to the assignment of one previously issued 7.5% Warrant
to an entity related to BCI Advisors. This 7.5% Warrant will expire on July 31, 2020. In addition, the Company also agreed to
the assignment of another previously issued 7.5% Warrant to an entity related to BCI Advisors and agreed to extend the expiration
date from March 1, 2019 to July 31, 2020. Finally, the Company agreed to issue a new 7.5% Warrant which will expire on July 31,
2020. The Company currently does not have enough authorized shares to issue the Series B Preferred shares and therefore, have
recorded them as a liability at their fair value of $1,262,976.
On October 1, 2018, the Company entered
into a securities purchase agreement (the “Geneva Purchase Agreement”) with Geneva Roth Remark Holdings, Inc., (“Geneva”),
pursuant to which Geneva purchased a 10% unsecured convertible promissory note (the “Geneva Note”) from the Company
in the aggregate principal amount of $74,800, such principal and the interest thereon convertible into shares of the Company’s
common stock at a 29% discount of the average of the lowest 3 trading days with a 15 day lookback at the option of Geneva. The
purchase price of $74,800 of the Geneva Note was paid in cash by Geneva on October 2, 2018. After payment of transaction-related
expenses, net proceeds to the Company from the Geneva Note totaled $65,000. The maturity date of the Geneva Note is October 1,
2019.
On October 4, 2018 the Company entered
into a securities purchase agreement (the “First GSC Purchase Agreement”) with GS Capital Partners LLC, (“GSC)
pursuant to which GSC purchased two 8% unsecured convertible promissory notes from the Company in the aggregate principal amount
of $125,000, comprised of the first note in the amount of $75,000 (the “First October GSC Note”), and the second note
in the amount of $50,000 (the “Second October GSC Note”, and together with the First October GSC Note, the “October
GSC Notes”), such principal and the interest thereon convertible into shares of the Company’s common stock at a 29%
discount of the average of the lowest 3 trading days with a 15 day lookback at the option of GSC. The purchase price of $75,000
of the First October GSC Note was paid in cash by GSC on October 5, 2018. After payment of transaction-related expenses, net proceeds
to the Company from the First GSC Note totaled $68,500. The maturity date of the First October GSC Note is October 4, 2019.
On October 11, 2018, the Company entered
into a securities purchase agreement (the “Eagle Purchase Agreement”) with Eagle Equities, LLC (“Eagle”),
pursuant to which Eagle purchased an 8% unsecured convertible promissory note (the “Eagle Note”) from the Company in
the aggregate principal amount of $181,500, such principal and the interest thereon convertible into shares of the Company’s
common stock at a 35% discount of the average of the lowest 3 trading days with a 15 day lookback at the option of Eagle.
On October 11, 2018 the Company entered into a securities purchase agreement (the “Second GSC Purchase
Agreement”) with GSC, pursuant to which GSC purchased an 8% unsecured convertible promissory note (the “October 11
th
GSC Note”) from the Company in the aggregate principal amount of $102,000, such principal and the interest thereon convertible
into shares of the Company’s common stock at a 35% discount of the average of the lowest 3 trading days with a 15 day lookback
at the option of GSC. The purchase price of $181,500, and of $102,000, of the Eagle Note and the October 11
th
GSC Note,
respectively, was paid in cash by the Eagle and GSC on October 11, 2018. After payment of transaction-related expenses, net proceeds
to the Company from the Eagle Note and the October 11
th
GSC Note totaled $157,000 and $90,000, respectively. The maturity
date of the Eagle Note and the October 11
th
GSC Note is October 11, 2019.
The Company and GSC completed the purchase
and sale of the First October GSC Note. The Second October GSC Note was due to be funded on or before November 4, 2018. Effective,
however, October 11, 2018, the Company and GSC agreed to amend the First GSC Purchase Agreement (the “Amendment”)
to remove all references, obligations, duties and/or rights of the Company and GSC to purchase and sell the Second October GSC
Note. All references, obligations, duties and/or rights relating to the Second October GSC Note are of no effect and neither party
is under any obligation to perform with respect to the Second October GSC Note.
On November 10, 2018, the Company entered
into the Mr. Cannabis Consulting Agreement with Mr. Cannabis, Inc., a California corporation, pursuant to which Mr. Cannabis would
perform management type services for the Company as further defined in the Mr. Cannabis Consulting Agreement. The term of the
Mr. Cannabis Consulting Agreement is from November 10, 2018 through November 9, 2021 (the “Mr. Cannabis Consulting Agreement
Term”). The Mr. Cannabis Consulting Agreement shall not be terminated within the first six months of the Mr. Cannabis Consulting
Agreement Term. The Company or Mr. Cannabis may terminate this Agreement, with or without cause, at any time after the first six
months of the Mr. Cannabis Consulting Agreement Term upon providing ninety day written notice to the other party.
Pursuant to, and in accordance with the
terms and conditions of the Mr. Cannabis Consulting Agreement, Mr. Cannabis was issued a common stock purchase warrant (the “Warrant”)
to purchase twenty two and one half percent (22.5%) of the issued and outstanding shares of the Company’s common stock, par
value $0.001 per share at the time of the first notice of exercise given by Mr. Cannabis to the Company, exercisable at a price
of $0.001 per share and for a term of three years from the date of issuance (the “Mr. Cannabis Warrant”). Separate
from the Mr. Cannabis Warrant and separate from the Mr. Cannabis Consulting Agreement Mr. Cannabis was also issued a common stock
purchase warrant to purchase fifteen (15%) of the issued and outstanding shares of the Company’s common stock, par value
$0.001 per share at the time of the first notice of exercise given by Mr. Cannabis to the Company, exercisable at a price of $0.001
per share and for a term of three years from the date of issuance.
On November 10, 2018, the Company
entered into a settlement agreement and general release (the “Settlement and Release Agreement”) with Mr. Yazbeck
whereby Mr. Yazbeck agreed to grant the Company an extension to repay certain obligations in the aggregate amount of
$410,689.99 currently due and owing to Mr. Yazbeck pursuant to his employment agreement with the Company entered into on
October 15, 2014 (the “Settled Claims”). As consideration for extending the date for the Company to repay the
Settled Claims to January 1, 2020, the Company agreed to extend the expiration date of warrant to purchase shares of Common
Stock previously issued to an entity controlled by Mr. Yazbeck (the “YCIG Warrant”) to November 10, 2022 and to
revise certain other provisions of the YCIG Warrant. As of April 23, 2019, the revised warrant had not yet been issued to Mr. Yazbeck.
On December 19, 2018 the Company entered
into a securities purchase agreement (the “Third GSC Purchase Agreement”) with GSC, pursuant to which GSC purchased
an 8% unsecured convertible promissory note (the “Third GSC Note”) from the Company in the aggregate principal amount
of $82,000, such principal and the interest thereon convertible into shares of the Company’s common stock at a 33% discount
of the average of the lowest 3 trading days with a 15 day lookback at the option of GSC. The purchase price of $80,000 of the Third
GSC Note was paid in cash by GSC on December 20, 2018. After payment of transaction-related expenses, net proceeds to the Company
from the Note totaled $76,000. The maturity date of the Third GSC Note is December 19, 2019.
The shares identified in this Part II,
Item 5 were not registered under the Securities Act. The shares qualified for exemption under Section 4(a)(2) of the Securities
Act since the issuance of the shares by us did not involve a public offering. The offering was not a “public offering”
as defined in Section 4(a)(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of
the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to
a high number of investors. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under
Section 4(a)(2) of the Securities Act.
Repurchase of Equity Securities
We have no plans, programs or other arrangements in regards
to repurchases of our common stock.
Dividends
We have not since December 12, 2012 (date
of inception) declared or paid any cash dividends on shares of our Common Stock and currently do not anticipate paying such cash
dividends on shares of our Common Stock. Any determination to pay dividends in the future on shares of our Common Stock will be
at the discretion of the Board and will depend upon our results of operations, financial condition, tax laws and other factors
as the Board, in its discretion, deems relevant.
Holders of the Series B Preferred are entitled
to receive dividends annually equal to $0.10 for each share of Series B Preferred held.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Shareholders
of MyDx, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of MyDx, Inc. (“the Company”) as of December 31, 2018 and 2017, the related consolidated statements
of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2018
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017,
and the results of its operations and its cash flows each of the years in the two-year period ended December 31, 2018, in conformity
with accounting principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
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 and negative cash flows from operations and has a net capital deficiency which raises 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.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the 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 audits 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 audits provide a
reasonable basis for our opinion.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since 2018.
Salt Lake City, UT
April 24, 2019
MyDx, Inc.
Consolidated Balance Sheets
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
102,698
|
|
|
$
|
119,028
|
|
Inventory
|
|
|
114,031
|
|
|
|
180,503
|
|
Prepaid expenses and other current assets
|
|
|
-
|
|
|
|
821
|
|
Total current assets
|
|
|
216,729
|
|
|
|
300,352
|
|
|
|
|
|
|
|
|
|
|
Tooling in process
|
|
|
173,854
|
|
|
|
-
|
|
Property and equipment, net
|
|
|
26,748
|
|
|
|
66,832
|
|
Other assets
|
|
|
18,983
|
|
|
|
32,580
|
|
Total assets
|
|
$
|
436,314
|
|
|
$
|
399,764
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,101,853
|
|
|
$
|
1,293,443
|
|
Customer deposits
|
|
|
69,330
|
|
|
|
20,107
|
|
Accrued liabilities
|
|
|
692,071
|
|
|
|
454,413
|
|
Current portion of leases payable
|
|
|
2,756
|
|
|
|
2,756
|
|
Due to related party
|
|
|
1,075
|
|
|
|
46,075
|
|
Convertible notes payable, current, net of debt discount
|
|
|
436,177
|
|
|
|
295,750
|
|
Derivative liability
|
|
|
1,222,186
|
|
|
|
2,596,005
|
|
Preferred shares liability
|
|
|
2,850,401
|
|
|
|
-
|
|
Warrant liability
|
|
|
6,267,426
|
|
|
|
-
|
|
Total current liabilities
|
|
|
12,643,275
|
|
|
|
4,708,549
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
-
|
|
|
|
8,954
|
|
Total liabilities
|
|
|
12,643,275
|
|
|
|
4,717,503
|
|
|
|
|
|
|
|
|
|
|
Redeemable Series B Preferred stock, $0.001 par value; 10,000,000 shares authorized 107,000 and 296,700 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively
|
|
|
2,033,000
|
|
|
|
5,637,300
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Series A Preferred stock, $0.001 par value; 51 shares authorized 51 and 51 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 10,000,000,000 shares authorized; 3,905,200,946 and 1,859,397,541 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively
|
|
|
3,905,201
|
|
|
|
1,859,397
|
|
Additional paid-in capital
|
|
|
21,820,069
|
|
|
|
19,818,536
|
|
Accumulated deficit
|
|
|
(39,965,231
|
)
|
|
|
(31,632,972
|
)
|
Total stockholders’ deficit
|
|
|
(14,239,961
|
)
|
|
|
(9,955,039
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
436,314
|
|
|
$
|
399,764
|
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
MYDX INC.
Consolidated Statements of Operations
|
|
For the Year Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Sales
|
|
|
|
|
|
|
Product revenue
|
|
$
|
238,090
|
|
|
$
|
398,401
|
|
Product service revenue
|
|
|
22,168
|
|
|
|
13,384
|
|
Licensing revenue
|
|
|
8,654
|
|
|
|
8,829
|
|
Total sales
|
|
|
268,912
|
|
|
|
420,614
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
Product costs
|
|
|
131,653
|
|
|
|
114,616
|
|
Total cost of sales
|
|
|
131,653
|
|
|
|
114,616
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
137,259
|
|
|
|
305,998
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
285,395
|
|
|
|
170,385
|
|
Sales and marketing
|
|
|
153,626
|
|
|
|
968,687
|
|
General and administrative
|
|
|
1,375,480
|
|
|
|
1,589,485
|
|
Total operating expenses
|
|
|
1,814,501
|
|
|
|
2,728,557
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,677,242
|
)
|
|
|
(2,422,559
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(164,485
|
)
|
|
|
(341,068
|
)
|
Change in fair value of derivative liability
|
|
|
1,504,006
|
|
|
|
(196,545
|
)
|
Change in fair value of warrant liability
|
|
|
(344,898
|
)
|
|
|
-
|
|
Derivative expense
|
|
|
(284,343
|
)
|
|
|
(1,987,888
|
)
|
Gain (loss) on settlement of debt
|
|
|
-
|
|
|
|
179,276
|
|
Gain on forfeiture of technology transfer deposit
|
|
|
-
|
|
|
|
135,000
|
|
Gain on extinguishment of debt
|
|
|
4,581
|
|
|
|
-
|
|
Loss on settlement of vendor liability
|
|
|
(7,369,504
|
)
|
|
|
(599,735
|
)
|
|
|
|
|
|
|
|
|
|
Total Other income (expense)
|
|
|
(6,654,643
|
)
|
|
|
(2,810,960
|
)
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(8,331,885
|
)
|
|
|
(5,233,519
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
374
|
|
|
|
-
|
|
Net loss
|
|
$
|
(8,332,259
|
)
|
|
$
|
(5,233,519
|
)
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
(61,770
|
)
|
|
|
(119,670
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common shareholders
|
|
|
(8,394,029
|
)
|
|
|
(5,353,189
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
|
3,170,425,601
|
|
|
|
1,539,192,898
|
|
The accompanying notes are
an integral part of these condensed consolidated financial statements.
MyDx, INC.
Statements of Stockholders’ Deficit
For the Years Ended December 31, 2018
and 2017
|
|
Convertible
Preferred Stock
Series A
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Shareholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
Balances
as of December 31, 2016
|
|
|
51
|
|
|
$
|
-
|
|
|
|
645,060,704
|
|
|
$
|
645,061
|
|
|
$
|
16,695,552
|
|
|
$
|
(26,399,453
|
)
|
|
$
|
(9,058,840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuance
of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000,000
|
|
|
|
50,000
|
|
|
|
195,500
|
|
|
|
-
|
|
|
|
245,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of series B
preferred stock into common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
33,000,000
|
|
|
|
33,000
|
|
|
|
29,700
|
|
|
|
-
|
|
|
|
62,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon
conversion of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
976,896,487
|
|
|
|
976,896
|
|
|
|
(19,873
|
)
|
|
|
-
|
|
|
|
957,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative cease to exist
upon conversion of notes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,845,677
|
|
|
|
-
|
|
|
|
1,845,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
143,977,273
|
|
|
|
143,977
|
|
|
|
524,718
|
|
|
|
-
|
|
|
|
668,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to
settle vendor liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
3,500,000
|
|
|
|
3,500
|
|
|
|
64,050
|
|
|
|
-
|
|
|
|
67,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common issued to settle
payroll liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
6,963,077
|
|
|
|
6,963
|
|
|
|
9,142
|
|
|
|
-
|
|
|
|
16,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
473,770
|
|
|
|
-
|
|
|
|
473,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for year
ended December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,233,519
|
)
|
|
|
(5,233,519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December
31, 2017
|
|
|
51
|
|
|
$
|
-
|
|
|
|
1,859,397,541
|
|
|
$
|
1,859,397
|
|
|
$
|
19,818,536
|
|
|
$
|
(31,632,972
|
)
|
|
$
|
(9,955,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of series B for
settlement of vendor liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,884,218
|
|
|
|
-
|
|
|
|
1,884,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of series B
preferred stock into common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
1,897,000,000
|
|
|
|
1,897,000
|
|
|
|
(176,918
|
)
|
|
|
-
|
|
|
|
1,720,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
for services rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
93,430,735
|
|
|
|
93,431
|
|
|
|
242,319
|
|
|
|
-
|
|
|
|
335,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to
settle vendor liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000,000
|
|
|
|
25,000
|
|
|
|
40,500
|
|
|
|
-
|
|
|
|
65,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
for prepaid services
|
|
|
-
|
|
|
|
-
|
|
|
|
4,285,714
|
|
|
|
4,286
|
|
|
|
9,000
|
|
|
|
-
|
|
|
|
13,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon
conversion of convertible notes
|
|
|
-
|
|
|
|
-
|
|
|
|
26,086,956
|
|
|
|
26,087
|
|
|
|
88,696
|
|
|
|
-
|
|
|
|
114,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of Warrants issued in prior year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,253
|
)
|
|
|
|
|
|
|
(88,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,971
|
|
|
|
-
|
|
|
|
1,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for three
months ended March 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,332,259
|
)
|
|
|
(8,332,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December
31, 2018
|
|
|
51
|
|
|
$
|
-
|
|
|
|
3,905,200,946
|
|
|
$
|
3,905,201
|
|
|
$
|
21,820,069
|
|
|
$
|
(39,965,231
|
)
|
|
$
|
(14,239,961
|
)
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
MyDx, INC.
Consolidated Statements of Cash Flows
|
|
For the Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(8,332,259
|
)
|
|
$
|
(5,233,519
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
41,322
|
|
|
|
72,051
|
|
Common stock issued in exchange for services
|
|
|
-
|
|
|
|
668,695
|
|
Change in fair value of derivative liability
|
|
|
(1,504,006
|
)
|
|
|
196,545
|
|
Change in fair value of warrant liability
|
|
|
344,898
|
|
|
|
-
|
|
Derivative expense
|
|
|
284,343
|
|
|
|
1,987,888
|
|
(Gain) / Loss on settlement of vendor liabilities
|
|
|
7,369,503
|
|
|
|
473,770
|
|
Loss on settlement of debt
|
|
|
-
|
|
|
|
(179,276
|
)
|
Stock based compensation
|
|
|
520,785
|
|
|
|
599,735
|
|
Loss on extinguishment of debt
|
|
|
(4,581
|
)
|
|
|
27,851
|
|
Interest expense related to amortization of debt issuance costs and debt discount
|
|
|
110,868
|
|
|
|
280,841
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
66,472
|
|
|
|
(25,270
|
)
|
Prepaid expenses and other assets
|
|
|
27,704
|
|
|
|
96,409
|
|
Accounts payable and accrued liabilities
|
|
|
726,943
|
|
|
|
621,496
|
|
Customer deposits
|
|
|
40,269
|
|
|
|
-
|
|
Long term obligations
|
|
|
-
|
|
|
|
12,294
|
|
Current portion leases payable
|
|
|
-
|
|
|
|
(724
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(307,739
|
)
|
|
|
(401,214
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of Tooling in process
|
|
|
(173,854
|
)
|
|
|
|
|
Purchases of property & equipment
|
|
|
(1,238
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(175,092
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock
|
|
|
-
|
|
|
|
245,500
|
|
Proceeds from note payable - related party
|
|
|
105,000
|
|
|
|
165,000
|
|
Repayment of related party loans
|
|
|
(150,000
|
)
|
|
|
(120,000
|
)
|
Proceeds from note payable, net of debt discount and issuance cost
|
|
|
-
|
|
|
|
263,500
|
|
Proceeds from the issuance of convertible notes payable, net of issuance costs
|
|
|
511,501
|
|
|
|
48,500
|
|
Repayments on asset based loans
|
|
|
-
|
|
|
|
(120,461
|
)
|
Net cash provided by financing activities
|
|
|
466,501
|
|
|
|
482,039
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(16,330
|
)
|
|
|
80,825
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
119,028
|
|
|
|
38,203
|
|
Cash, end of period
|
|
$
|
102,698
|
|
|
$
|
119,028
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
13,755
|
|
Taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Settlement of debt with convertible note
|
|
$
|
60,000
|
|
|
$
|
908,828
|
|
Stock issued for settlement of vendor liabilities
|
|
$
|
680,875
|
|
|
|
|
|
Conversion of debt
|
|
$
|
(60,000
|
)
|
|
$
|
1,836,127
|
|
Convertible notes issues through extinguishment of debt
|
|
$
|
-
|
|
|
$
|
465,295
|
|
Conversion of convertible preferred stock to common stock
|
|
$
|
3,604,300
|
|
|
$
|
465,295
|
|
Derivative cease to exist upon conversion of notes
|
|
$
|
-
|
|
|
$
|
1,845,677
|
|
The accompanying notes are
an integral part of these condensed consolidated financial statements.
MyDx,
INC.
Notes
to Condensed Consolidated Financial Statements
MyDx, Inc. (the “Company”,
“we”, “us” or “our”) (formally known as Brista Corp.) was incorporated under the laws of the
State of Nevada on December 20, 2012. The Company’s wholly owned subsidiary, CDx, Inc., was incorporated under the laws of
the State of Delaware on September 16, 2013.
MyDx is a science and technology company
that develops and deploys products and services in the following focus areas:
|
1)
|
Consumer Products
– smart devices and consumables
|
|
2)
|
Data Analytics
– pre-clinical chemical analysis and patient feedback ecosystem
|
|
3)
|
Biopharmaceuticals
– identifying ‘green Active Pharmaceutical Ingredients
TM
, (gAPI
TM
) and corresponding formulations
|
|
4)
|
Software as a Service (SaaS)
– Software services for prescribers, patient groups, cultivators, and regulators
|
We are committed to addressing areas of
critical national need to promote public safety, transparency and regulation in the various markets we serve.
The Company’s first product, MyDx
®
,
also known as “My Diagnostic”, is a patented multiuse hand-held chemical analyzer made for consumers and professional
users which feeds our data analytics platform and SaaS business. MyDx is intended to allow consumers to Trust & Verify
®
what they put into their mind and body by using our science and technology to test for pesticides in food, chemicals in water,
toxins in the air, and the safety and potency of cannabis samples, which is our initial focus.
The Company 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 condensed consolidated
financial statements have been prepared assuming it will continue as a going concern, which contemplates continuity of operations,
realization of assets, and liquidation of liabilities in the normal course of business.
As reflected in the consolidated Financial
Statements, the Company had an accumulated deficit at December 31, 2018 and a net cash used in operating activities for the year
ended December 31, 2018. 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, 2018. 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 $102,968 at December 31, 2018 will not be sufficient to fund our operations for the
next 12 months. Additionally, if we are unable to generate sufficient revenues to pay our expenses, we will need to raise additional
funds to continue our operations. We have historically financed our operations through private equity and debt financings. We do
not have any commitments for financing at this time, and financing may not be available to us on favorable terms, if at all. If
we are unable to obtain debt or equity financing in amounts sufficient to fund our operations, if necessary, we will be forced
to suspend or curtail our operations. In that event, current stockholders would likely experience a loss of most or all of their
investment. Additional funding that we do obtain may be dilutive to the interests of existing stockholders.
The condensed consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
4.
|
Summary of Significant Accounting Policies
|
Basis of Presentation/Principals of Consolidation
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 financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated
Financial Statements and the reported amounts of revenues and expenses during the reporting period. Such management estimates
include allowance for doubtful accounts, estimates of product returns, warranty expense, inventory valuation, valuation allowances
of deferred taxes, stock-based compensation expenses and fair value of warrants and derivatives. The Company bases its estimates
on historical experience and on assumptions that it believes are reasonable. The Company assesses these estimates on a regular
basis; however, actual results could materially differ from those estimates.
Concentration of Risk Related to
Third-party Suppliers
We depend on a limited number of third-party
suppliers for the materials and components required to manufacture our products. A delay or interruption by our suppliers may harm
our business, results of operations, and financial condition, and could also adversely affect our future profit margins. In addition,
the lead time needed to establish a relationship with a new supplier can be lengthy, and we may experience delays in meeting demand
in the event we must change or add new suppliers. Our dependence on our suppliers exposes us to numerous risks, including but not
limited to the following: our suppliers may cease or reduce production or deliveries, raise prices, or renegotiate terms; we may
be unable to locate a suitable replacement supplier on acceptable terms or on a timely basis, or at all; and delays caused by supply
issues may harm our reputation, frustrate our customers, and cause them to turn to our competitors for future needs.
Fair Value of Financial Instruments
The Company recognizes and discloses the
fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant
to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and difficulty involved in determining
fair value.
|
Level 1
|
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurable date.
|
|
|
|
|
Level 2
|
Inputs, other than quoted prices included in Level 1, that are observable for the asset or liability through corroboration with market data at the measurement date.
|
|
|
|
|
Level 3
|
Unobservable inputs that reflect management’s best estimate of what participants would use in pricing the asset or liability at the measurement date.
|
The carrying amounts of the Company’s
financial assets and liabilities, including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair
value because of the short maturity of these instruments. The carrying value of the Company’s loan payable and convertible
notes payable approximates fair value based upon borrowing rates currently available to the Company for loans with similar terms.
Business Segments
ASC 280 defines operating segments as components
of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and in assessing performances. Currently, ASC 280 has no effect on the Company’s
condensed consolidated financial statements as substantially all of the Company’s operations are conducted in one industry
segment.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with original maturities of three months or less to be cash equivalents. As of December 31, 2018 and December 31, 2017,
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, 2018 and December
31, 2017, there was an allowance for doubtful accounts of $27,851 and $27,851 respectively.
During the year ended December 31, 2018
the Company recorded a bad debt expense of $0.
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.
Revenue Recognition
The Company adopted ASC 606 effective January
1, 2018 using the modified retrospective method which would require a cumulative effect adjustment for initially applying the new
revenue standard as an adjustment to the opening balance of retained earnings and the comparative information would not require
to be restated and continue to be reported under the accounting standards in effect for those periods.
Based on the Company’s analysis the
Company did not identify a cumulative effect adjustment for initially applying the new revenue standards. The Company principally
generates revenue through providing product, services and licensing revenue.
The adoption of ASC 606 represents a change
in accounting principle that will more closely align revenue recognition with the delivery of the Company’s services and
will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer
obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects
to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five
steps:
1)
|
Identify the contract with a customer
|
A contract with a customer exists when
(i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services
to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and, (iii)
the Company determines that collection of substantially all consideration for services that are transferred is probable based on
the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s
ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience
or, in the case of a new customer, published credit and financial information pertaining to the customer.
2)
|
Identify the performance obligations in the contract
|
Performance obligations promised in a contract
are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby
the customer can benefit from the service either on its own or together with other resources that are readily available from third
parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately
identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must
apply judgment to determine whether promised services are capable of being distinct and distinct in the context of the contract.
If these criteria are not met the promised services are accounted for as a combined performance obligation.
3)
|
Determine the transaction price
|
The transaction price is determined based
on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent
the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be
included in the transaction price utilizing either the expected value method or the most likely amount method depending on the
nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment,
it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the Company’s
contracts as of December 31, 2018 contained a significant financing component. Determining the transaction price requires significant
judgment, which is discussed by revenue category in further detail below.
4)
|
Allocate the transaction price to performance obligations in the contract
|
If the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services
that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company
must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For
example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct
services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an
allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the
transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service
that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which
the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the
Company estimates the standalone selling price taking into account available information such as market conditions and internally
approved pricing guidelines related to the performance obligations.
5)
|
Recognize revenue when or as the Company satisfies a performance obligation
|
The Company satisfies performance obligations
either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring
a promised service to a customer.
The following table presents sales by operating
segment disaggregated based on type of product and geographic region for the years ended December 31, 2018 and 2017.
|
|
Years ended December 31, 2018
|
|
|
Years ended December 31, 2017
|
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
Product revenue
|
|
$
|
128,004
|
|
|
$
|
110,086
|
|
|
$
|
238,090
|
|
|
$
|
322,346
|
|
|
$
|
76,055
|
|
|
$
|
398,401
|
|
Product service revenue
|
|
|
16,023
|
|
|
|
6,145
|
|
|
|
22,168
|
|
|
|
9,674
|
|
|
|
3,710.00
|
|
|
|
13,384
|
|
Licensing revenue
|
|
|
8,654
|
|
|
|
-
|
|
|
|
8,654
|
|
|
|
8,829
|
|
|
|
-
|
|
|
|
8,829
|
|
|
|
$
|
152,681
|
|
|
$
|
116,231
|
|
|
$
|
268,912
|
|
|
$
|
340,849
|
|
|
$
|
79,765
|
|
|
$
|
420,614
|
|
Product revenue
Product revenue is recognized when or
as we satisfy a performance obligation. We generally satisfy performance obligations at a point in time upon delivery of goods,
in accordance with the terms of the contract customer.
Licensing revenue
Some of the Company’s revenues are
generated from software-as-a-service (“SaaS”) subscription offerings and related product support and maintenance.
SaaS revenues stem mainly from annual subscriptions and are recorded evenly over the term of the subscription. Any customer payments
received in advance are deferred until they are earned. Consulting and training revenues are recognized as work is performed.
Cost of Sales
We include product costs (i.e. material, direct labor and overhead
costs), shipping and handling expense, product royalty expense, and product license agreement expense in cost of sales.
Warranty
The Company provides a limited warranty
for its analyzers and sensors for a period of 1 year from the date of shipment that such goods will be free from material defects
in material and workmanship. The Company has assessed the historical claims and, to date, warranty claims have not been significant.
The Company will continue to assess the need to record a warranty accrual at the time of sale going forward.
Product Returns
For any product in its original, undamaged
and unmarked condition, with its included accessories and packaging along with the original receipt (or gift receipt) within 30
days of the date the customer receives the product, the Company will exchange it or offer a refund based upon the original payment
method.
Customer Deposits
The Company accounts for funds received
from crowdfunding campaigns and pre-sales as a liability on the consolidated balance sheets as the investments made entitle the
investor to apply these funds towards future shipments once the product has been developed and available for commercial use.
Research and Development Costs
Research and development costs are charged
to expense as incurred. These costs consist primarily of salaries and direct payroll-related costs. It also includes purchased
materials and services provided by independent contractors, software developed by other companies and incorporated into or used
in the development of our final products. Research and development expenses for the year ended December 31, 2018 and 2017 were
$285,395 and $170,385, 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 $153,626 and $968,687 for the years ended December 31, 2018 and 2017,
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.
Collaborative Arrangements
The Company and its collaborative partners
are active participants in the collaborative arrangements and both parties are exposed to significant risks and rewards depending
on the commercial success of the activity. The Company records all expenses related to collaborative arrangements as research and
development expense in the consolidated statements of operations as incurred.
Earnings per Share
Basic net loss
per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common
shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common
shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are
reported, which is the case for the years ended December 31, 2018 and 2017 presented in these condescend 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, 2018 and 2017:
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Series A Preferred stock
|
|
|
51
|
|
|
|
51
|
|
Series B Preferred stock
|
|
|
1,906,270,000
|
|
|
|
3,000,000,000
|
|
Convertible notes payable
|
|
|
570,915,465
|
|
|
|
26,462,823
|
|
Convertible accounts payable
|
|
|
366,666,667
|
|
|
|
273,860,683
|
|
Options
|
|
|
1,496,250
|
|
|
|
1,490,026
|
|
Warrants
|
|
|
2,651,153,428
|
|
|
|
260,345,149
|
|
Totals
|
|
|
5,496,491,053
|
|
|
|
3,562,158,732
|
|
There were approximately 5,496,491,053
potentially outstanding dilutive common shares for the period ended December 31, 2018. Since the Company incurred a net loss for
the period ended December 31, 2018, the inclusion of any common stock equivalents would have been anti-dilutive.
Recent Accounting Guidance Adopted
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 versus 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 adopted for interim and annual reporting periods beginning after December
15, 2017. The adoption of ASU 2016-10 had no 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 had no material effect on its financial position
or results of operations or cash flows.
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842).” Under ASU 2016-02, lessees will, among other things, require lessees to recognize a lease liability,
which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were
made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts
with Customers.” ASU 2016-02 will be effective for us on January 1, 2019 and initially required transition using a modified
retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented
in the financial statements. In July 2018, the FASB issued ASU 2018-11 , “Leases (Topic 842) - Targeted Improvements,”
which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU
2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to
the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases
(Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting
for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-02 and has recorded a
right-of-use asset and lease liability on the balance sheet for its operating leases. We elected to apply certain practical expedients
provided under ASU 2016-02 whereby we will not reassess(i) whether any expired or existing contracts are or contain leases, (ii)
the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do
not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance).
We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease
contracts and because we expect this election will result in a lower impact on our balance sheet.
Management does not believe that any recently
issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying condensed
consolidated financial statements.
Inventory as of December 31, 2018 and December
31, 2017 is as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Finished goods
|
|
$
|
9,781
|
|
|
$
|
49,889
|
|
Raw materials
|
|
|
104,250
|
|
|
|
130,614
|
|
|
|
$
|
114,031
|
|
|
$
|
180,503
|
|
|
6.
|
Property and Equipment, net
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Computer and test equipment
|
|
$
|
74,925
|
|
|
$
|
198,684
|
|
Website development costs
|
|
|
124,996
|
|
|
|
39,870
|
|
Furniture and fixtures
|
|
|
26,948
|
|
|
|
26,948
|
|
Software
|
|
|
10,791
|
|
|
|
10,791
|
|
Leasehold improvements
|
|
|
18,288
|
|
|
|
18,288
|
|
Website Development Costs
|
|
|
39,870
|
|
|
|
|
|
Tooling in process
|
|
|
173,854
|
|
|
|
-
|
|
|
|
|
469,672
|
|
|
|
294,581
|
|
Accumulated depreciation and amortization
|
|
|
(269,071
|
)
|
|
|
(155,698
|
)
|
|
|
$
|
200,601
|
|
|
$
|
138,883
|
|
Depreciation expenses was $41,322 and $72,051 for the year ended
December 31, 2018 and 2017, respectively.
As of December 31, 2018 Tooling in Process has not yet been
placed into service.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Accrued compensation for employees
|
|
|
398,939
|
|
|
|
333,048
|
|
Deferred compensation to non-employee
|
|
|
-
|
|
|
|
11,673
|
|
Accrued interest on notes payable
|
|
|
-
|
|
|
|
50,853
|
|
Other Payables
|
|
|
293,132
|
|
|
|
58,839
|
|
|
|
|
692,071
|
|
|
|
454,410
|
|
Convertible Notes
The following table shows the outstanding
balance as of December 31, 2018 and December 31, 2017 respectively.
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Convertible Note - February 1, 2017
|
|
|
265,750
|
|
|
|
295,750
|
|
Convertible Note - July 23, 2018
|
|
|
25,000
|
|
|
|
-
|
|
Convertible Note – October 1, 2018
|
|
|
74,800
|
|
|
|
|
|
Convertible Note – October 4, 2018
|
|
|
73,500
|
|
|
|
|
|
Convertible Note – October 11, 2018
|
|
|
283,500
|
|
|
|
|
|
Convertible Note – December 19, 2018
|
|
|
82,000
|
|
|
|
|
|
|
|
|
804,550
|
|
|
|
295,750
|
|
Less: Debt Discount
|
|
|
(368,373
|
)
|
|
|
-
|
|
Total
|
|
$
|
436,177
|
|
|
$
|
295,750
|
|
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 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.
During the year ended December 31, 2018
Hasfer, Inc and Carte Blanche, LLC entered into a note purchase agreement. Hasfer assigned $60,000 to Carte Blanche, LLC. The Company
received additional proceeds of $30,000.
During the year ended the lenders converted
$60,000 of the outstanding principal into 26,086,956 shares of the Company’s common stock.
On July 23, 2018 the Company issued convertible
notes to third party lenders totaling $25,000. These notes accrue interest at a rate of 12% per annum and mature with interest
and principal due July 23, 2019. The note and accrued interest are convertible at a conversion price equal to a 30% discount of
the Company’s common stock prior day close price.
Due to the fact that these convertible
notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied
ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature has been measured at fair
value using a Binomial Option Pricing model at the issuance date and the period end. The conversion feature of the convertible
note gave rise to a derivative liability of $19,070 which was recorded as a debt discount. The debt discount is charged to other
expense ratably over the term of the convertible note.
Geneva Securities Purchase Agreement
Effective October 1, 2018, the Company
entered into a securities purchase agreement (the “Geneva Purchase Agreement”) with Geneva Roth Remark Holdings, Inc.,
(“Geneva”), pursuant to which Geneva purchased a 10% unsecured convertible promissory note (the “Geneva Note”)
from the Company in the aggregate principal amount of $74,800, such principal and the interest thereon convertible into shares
of the Company’s common stock at the option of Geneva.
The purchase price of $74,800 of the Geneva
Note was paid in cash by Geneva on October 2, 2018. After payment of transaction-related expenses, net proceeds to the Company
from the Geneva Note totaled $65,000.
The maturity date of the Geneva Note is
October 1, 2019 (the “Geneva Maturity Date”). The Geneva Note shall bear interest at a rate of ten percent (10%) per
annum (the “Geneva Interest Rate”), which interest shall be paid by the Company to Geneva in shares of common stock
at any time Geneva sends a notice of conversion to the Company. Geneva is entitled to, at its option, convert all or any amount
of the principal face amount and any accrued but unpaid interest of the Geneva Note into shares of the Company’s common
stock, at any time after March 20, 2019, at a conversion price for each share of common stock equal to 71% multiplied by the average
of the lowest three (3) trading prices (as defined in the Geneva Purchase Agreement) for the common stock during the fifteen (15)
Trading Day period (as defined in the Geneva Purchase Agreement) ending on the latest complete trading day prior to the conversion
date. In connection with this note the Company recorded a $54,121 debt discount.
The Geneva Note may be prepaid until 170
days from the issuance date in accordance with its terms.
The Company shall reserve 270,905,432 of
its authorized and unissued common stock (the “Geneva Reserved Amount”), free from preemptive rights, to provide for
the issuance of Common Stock upon the full conversion of the Geneva Note.
GS Capital Securities Purchase Agreement
Effective October 4, 2018 the Company entered
into a securities purchase agreement (the “GSC Purchase Agreement”) with GS Capital Partners LLC, (“GSC”,
and together with Geneva, the “Investors”), pursuant to which GSC purchased a 8% unsecured convertible promissory note
from the Company in the aggregate principal amount of $75,000 (the “GSC Note”), such principal and the interest thereon
convertible into shares of the Company’s common stock at the option of GSC.
The purchase price of $75,000 of the GSC
Note was paid in cash by GSC on October 5, 2018. After payment of transaction-related expenses, net proceeds to the Company from
the First GSC Note totaled $68,500.
The maturity date of the GSC Note is October
4, 2019 (the “the GSC Maturity Date”). The GSC Note shall bear interest at a rate of eight percent (8%) per annum
(the “GSC Interest Rate”), which interest shall be paid by the Company to GSC in shares of common stock at any time
GSC sends a notice of conversion to the Company. GSC is entitled to, at its option, convert all or any amount of the principal
face amount and any accrued but unpaid interest of the GSC Note into shares of the Company’s common stock, at any time,
at the conversion price specified in the for each share of common stock equal to 71% of the average of the three lowest closing
bid prices of the common stock for the fifteen prior trading days including the day upon which a notice of conversion is received
by the Company or its transfer agent. In connection with this note the Company recorded a $58,855 debt discount.
The GSC Note may be prepaid until 180 days
from the issuance date in accordance with its terms.
The Company shall reserve 211,267,000 of
its authorized and unissued common stock (the “GSC Reserved Amount”), free from preemptive rights, to provide for the
issuance of Common Stock upon the full conversion of the GSC Note.
Eagle and GSC Securities Purchase Agreements
Effective October 11, 2018, the Company
entered into a securities purchase agreement (the “Eagle Purchase Agreement”) with Eagle Equities, LLC (“Eagle”),
pursuant to which Eagle purchased an 8% unsecured convertible promissory note (the “Eagle Note”) from the Company in
the aggregate principal amount of $181,500, such principal and the interest thereon convertible into shares of the Company’s
common stock at the option of Eagle.
Effective October 11, 2018 the Company
entered into a securities purchase agreement (the “GSC Purchase Agreement” and together with the Eagle Purchase Agreement,
the “SPAs”) with GSC (together with Eagle, the “Investors”), pursuant to which GSC purchased an 8% unsecured
convertible promissory note (the “GSC Note” and together with the Eagle Note, the “Notes”) from the Company
in the aggregate principal amount of $102,000, such principal and the interest thereon convertible into shares of the Company’s
common stock at the option of GSC.
The purchase price of $181,500, and of
$102,000, of the Eagle Note and the GSC Note, respectively, was paid in cash by the Investors on October 11, 2018. After payment
of transaction-related expenses, net proceeds to the Company from the Eagle Note and the GSC Note totaled $157,000 and $90,000,
respectively.
The maturity date of the Notes is October
11, 2019 (the “Maturity Date”). The Notes shall bear interest at a rate of eight percent (8%) per annum (the “Interest
Rate”), which interest shall be paid by the Company to the Investors in shares of common stock at any time Eagle or GSC
sends a notice of conversion to the Company (the “Notice of Conversion”). The Investors are entitled to, at their
option, convert all or any amount of the principal face amount and any accrued but unpaid interest of their respective Notes into
shares of the Company’s common stock, at any time, at a conversion price for each share of common stock equal to 65% multiplied
by the lowest closing bid price of the common stock as reported on the marketplace upon which the Company’s shares are traded
during the fifteen (15) trading day period ending on the day upon which a Notice of Conversion is received by the Company. In
connection with this note, the Company recorded a $149,702 and $85,085 debt discounts.
The Notes may be prepaid until 180 days
from the issuance date in accordance with its terms.
The Company shall reserve 532,000,000,
and 299,000,000, of its authorized and unissued common stock free from preemptive rights, to provide for the issuance of Common
Stock upon the full conversion of the Eagle Note (the “Eagle Reserved Amount”), and the GSC Note (the “GSC Reserved
Amount” and together with the Eagle Reserved Amount, the “Total Reserved Amount”), respectively.
Effective December 19, 2018 the Company
entered into a securities purchase agreement (the “GSC Purchase Agreement”) with GS Capital Partners LLC, (“GSC”,
and together with Geneva, the “Investors”), pursuant to which GSC purchased a 8% unsecured convertible promissory note
from the Company in the aggregate principal amount of $82,000 (the “GSC Note”), such principal and the interest thereon
convertible into shares of the Company’s common stock at the option of GSC.
The purchase price of $82,000 of the GSC
Note was paid in cash by GSC on December 19, 2018. After payment of transaction-related expenses, net proceeds to the Company from
the First GSC Note totaled $76,000.
The maturity date of the GSC Note is December
19, 2019 (the “the GSC Maturity Date”). The GSC Note shall bear interest at a rate of eight percent (8%) per annum
(the “GSC Interest Rate”), which interest shall be paid by the Company to GSC in shares of common stock at any time
GSC sends a notice of conversion to the Company. GSC is entitled to, at its option, convert all or any amount of the principal
face amount and any accrued but unpaid interest of the GSC Note into shares of the Company’s common stock, at any time, at
the conversion price specified in the for each share of common stock equal to 67% of the average of the three lowest closing bid
prices of the common stock for the fifteen prior trading days including the day upon which a notice of conversion is received by
the Company or its transfer agent. In connection with this note, the Company recorded a $76,000 debt discount.
The GSC Note may be prepaid until 180 days
from the issuance date in accordance with its terms.
The Company shall reserve 211,267,000 of its authorized and unissued common stock (the “GSC Reserved
Amount”), free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of the GSC Note.
Due to 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.
|
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.
On May 16, 2018, the Company’s officer
made non-interest bearing loans of $75,000 to the Company in the form of cash. The loan is due on demand and unsecured. The loan
was repaid during the year.
On May 22, 2018, the Company’s officer
made non-interest bearing loans of $30,000 to the Company in the form of cash. The loan is due on demand and unsecured. The loan
was repaid during the year.
As of December 31, 2018 and December 31,
2017, the Company is reflecting a liability of $1,075, and $46,075, 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.
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,
2018.
The following summarizes the Binomial-lattice
model assumptions used to estimate the fair value of the derivative liability and warrant liability at the date of issuance and
for the convertible notes converted during the year ended December 31, 2018.
|
|
Low
|
|
|
High
|
|
Annual dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life in years
|
|
|
0.56
|
|
|
|
1.00
|
|
Risk-free interest rate
|
|
|
2.45
|
%
|
|
|
2.63
|
%
|
Expected volatility
|
|
|
108
|
%
|
|
|
182
|
%
|
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.
10.
|
Fair Vale Measurements
|
Our financial assets and (liabilities)
carried at fair value measured on a recurring basis as of December 31, 2018 and 2017, consisted of the following:
|
|
Years Ended December 31,
2018 and 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative Liability as of 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 of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
2,596,005
|
|
Derivative liabilities as of January 1, 2018
|
|
|
|
|
|
|
|
|
|
|
2,596,005
|
|
Addition
|
|
|
|
|
|
|
|
|
|
|
727,176
|
|
Conversion
|
|
|
|
|
|
|
|
|
|
|
(79,513
|
)
|
Loss on settlement of vendor liability
|
|
|
|
|
|
|
|
|
|
|
(517,476
|
)
|
Gain on changes in fair value
|
|
|
|
|
|
|
|
|
|
|
(1,504,006
|
)
|
Derivative liabilities as of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
1,222,186
|
|
The following are the changes in the warrant liabilities during
the year ended December 31, 2018.
|
|
Year Ended December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Balance, January 1, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
|
|
5,739,466
|
|
Accretion of Warrant expense
|
|
|
-
|
|
|
|
-
|
|
|
|
183,063
|
|
Gain on changes in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
344,897
|
|
Warrant liabilities as December 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,267,426
|
|
11.
|
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.
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, 2018, and December 31,
2017, the Company has designated 51 shares of Series A Preferred Stock par value $0.001 and 51 shares are issued and outstanding.
The Series A Preferred Stock can convert into common stock at a 1:1 ratio. Each one (1) share of the Series A Preferred shall have
voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding shares of Common Stock eligible to vote at the
time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator. For purposes of illustration
only, if the total issued and outstanding shares of Common Stock eligible to vote at the time of the respective vote is 5,000,000,
the voting rights of one share of the Series A Preferred Stock shall be equal to 102,036 (0.019607 x 5,000,000) / 0.49) –
(0.019607 x 5,000,000) = 102,036). On December 23, 2016 the 51 shares were issued to Mr. Yazbeck, the Company’s sole officer
and the sole member of the Board. Mr. Yazbeck, via his ownership of the 51 shares of the Series A Preferred, has control of the
majority of the Company’s voting stock.
Series B Preferred Stock
The Series B Preferred is convertible into
shares of Common Stock at a conversion price of $0.0001. Holders of the Series B Preferred are entitled to receive dividends annually
equal to $0.10 for each share of Series B Preferred held. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, the holders of Series B Preferred then outstanding shall be entitled to be paid out of the assets
of the Company available for distribution to its stockholders, before any payment shall be made to the holders of Common Stock.
Until such time as there are fewer than 20,000 shares of Series B Preferred outstanding, the Company needs to obtain the majority
votes of the holders of Series B Preferred with regard to certain actions. Holders of Series B Preferred shares are entitled to
one vote for each share held, are entitled to elect up to two members to the Board, and, absent such election, are provided certain
voting and veto rights with regard to any vote by the Board.
During the year ended December 31, 2017 an investor converted 3,300 shares of Series B Preferred stock
in to 33,000,000 shares of common stock.
On July 30, 2018, the Company agreed to eventually issue 45,355 shares of Series B Preferred at a value
of $1.00 per Series B Preferred share to settle outstanding vendor liability. The shares of Series B Preferred Stock will be issued
upon an increase in the authorized shares of Series B Preferred. The Company also agreed to the right to purchase seven and one
half percent (7.5%) of the Company’s shares of Common Stock issued and outstanding at the time of exercise and having an
exercise price of $0.001 per share. This form of warrant is referred to herein as the “7.5% Warrant.” The 7.5% Warrant
has an expiration date of July 31, 2020. The Company currently does not have enough authorized shares to issue the Series B Preferred
shares and therefore, have recorded them as a liability at their fair value of $1,587,425.
On July 31, 2018, the Company agreed to eventually issue 38,272 shares of Series B Preferred at a value
of $1.00 per Series B Preferred share to settle outstanding vendor liability. The shares of Series B Preferred will be issued upon
an increase in the authorized shares of Series B Preferred. The Company also agreed to the assignment or issuance of three 7.5%
Warrants. The Company agreed to the assignment of one previously issued 7.5% Warrant to an entity related to BCI Advisors. This
7.5% Warrant expired on January 15, 2019. In addition, the Company also agreed to the assignment of another previously issued 7.5%
Warrant to an entity related to BCI Advisors and agreed to extend the expiration date from March 1, 2019 to July 31, 2020. Finally,
the Company agreed to issue a new 7.5% Warrant which will expire on July 31, 2020. The Company currently does not have enough authorized
shares to issue the Series B Preferred shares and therefore, have recorded them as a liability at their fair value of $1,262,976.
In connection to the agreements to issue
the 83,627 shares of Series B Preferred the Company recorded a loss on settlement of vendor liability of $5,239,627.
During the year ended December 31, 2018
investors converted 189,700 shares of Series B Preferred stock in to 1,897,000,000 shares of common stock.
Common Stock
On September 30, 2016, the Company amended
articles of incorporation to increase the number of authorized commons shares to 10,000,000,000 as included on Form 8-K filed with
the SEC on October 4, 2016.
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.
On January 24, 2018, the Company issued
5,000,000 shares common stock to settle outstanding vendor liabilities of $30,000. In connection with this transaction the Company
also recorded a gain on settlement of vendor liabilities of $4,500.
During the years ended December 31, 2018,
the Company issued 113,430,735 shares of common stock in exchange for services at a fair value of $375,750.
During the year ended December 31, 2018,
the Company issued 4,285,714 shares of its restricted common stock to consultants in exchange for services at a fair value of $13,286.
These shares were recorded as common stock issued for prepaid services and will be expensed over the life of the consulting contract
to share based payments. During the year ended December 31, 2018 the Company recorded $13,286 to share based payments.
Total stock-based compensation expense,
for both employee and non-employee options, recognized by the Company for the year ended December 31, 2018 was $1,971. No tax
benefits were recognized in the year ended December 31, 2018.
During the year ended December 31, 2018
a noteholder converted $114,783 of principal into 26,086,956 shares of the Company’s common stock. In connection with the
conversion the Company recorded a loss on extinguishment of debt of $4,581.
Common Stock Warrants
A summary of the Company’s stock
warrants for the years ended December 31, 2018 and 2017 was as follows:
|
|
Shares
|
|
|
Weighted- Average Exercise Price
|
|
|
Average
Remaining
Contractual
Life (Years)
|
|
Outstanding as of December 31, 2016
|
|
|
7,571,395
|
|
|
$
|
1.10
|
|
|
|
|
|
Granted
|
|
|
252,773,754
|
|
|
|
0.001
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
|
|
260,345,149
|
|
|
|
0.033
|
|
|
|
0.50
|
|
Granted
|
|
|
2,636,010,639
|
|
|
|
0.001
|
|
|
|
2.00
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(252,773,751
|
)
|
|
|
0.001
|
|
|
|
|
|
Outstanding and as of December 31, 2018
|
|
|
2,643,582,033
|
|
|
$
|
0.004
|
|
|
|
1.68
|
|
Exercisable as of December 31, 2018
|
|
|
1,789,319,326
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2018,
a total of 1,171,560,284 warrants were issued to settle vendor liabilities (See Note 10 above). The warrants have a grant date
fair value of $3,517,578 using a Monte Carlo option-pricing model.
During the year ended December 31, 2018,
a total of 585,780,142 warrants were issued to as part of a settlement agreement with our former Chief Executive Officer. The warrants
have a grant date fair value of $ 2,221,888 using a Monte Carlo option-pricing model.
The Company re-valued the warrants as of
December 31, 2018 and recorded a fair value adjustment of $344,897.
In accordance with the Business Valuation
Standards of the American Society of Appraisers, “fair market value,” as used herein, represents the price at which
the property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting
at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable
knowledge of the relevant facts.
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 years ended December 31, 2018 and 2017 was as follows:
|
|
Shares
|
|
|
Weighted-
Average Exercise Price
|
|
|
Average
Remaining
Contractual
Life
(Years)
|
|
Outstanding as of December 31, 2016
|
|
|
4,626,245
|
|
|
$
|
0.39
|
|
|
|
|
|
Granted
|
|
|
125,000
|
|
|
|
0.57
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited or
cancelled
|
|
|
(3,254,995
|
)
|
|
|
0.36
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
|
|
1,496,250
|
|
|
|
0.48
|
|
|
|
3.8
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited or
cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding and exercisable as of
December 31, 2018
|
|
|
1,496,250
|
|
|
$
|
0.27
|
|
|
|
5.87
|
|
The
aggregate intrinsic value of options exercised was $0 and $0 for the year ended December 31, 2018 and 2017, respectively.
Information regarding options outstanding
and exercisable as of December 31, 2018, is as follows:
|
|
|
Options Outstanding and Exercisable
|
|
Exercise Price
|
|
|
Number Outstanding
|
|
|
Average Remaining Contractual Life
(Years)
|
|
$
|
0.08
|
|
|
|
900,000
|
|
|
|
5.51
|
|
$
|
0.55
|
|
|
|
515,000
|
|
|
|
6.28
|
|
$
|
0.57
|
|
|
|
81,250
|
|
|
|
7.22
|
|
$
|
0.27
|
|
|
|
1,496,250
|
|
|
|
5.87
|
|
Total stock-based compensation expense, both employee and non-employee,
recognized by the Company for the year ended December 31, 2018 and 2017 was $1,971 and $11,909 respectively. No tax benefits were
recognized in the year ended December 31, 2018 and 2017.
12.
|
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 year ended December 31 , 2018, the Company did not incur any development costs related to the Distribution and License
Agreement.
On November 1, 2013, the Company entered
into a two-year Joint Development Agreement (the “Agreement”) with an unrelated third-party to develop chemical sensors
and peripheral sensing equipment and software for the detection and characterization of cannabis and compounds associated with
cannabis.
The Agreement provides for, among other
things, any arising intellectual property rights (as defined) outside of the field (as defined), and any arising intellectual property
rights relating to improvements to detection materials shall belong to the Joint Venture Developer.
The Agreement also provides that any arising
intellectual property rights other than those covered above shall belong to the Company. To the extent that it is necessary to
do so to enable the Company to use and exploit its respective arising intellectual property rights, the Joint Developer grants
the Company a perpetual, irrevocable, exclusive, and royalty free license (including the right to assign the license and to grant
sub-licenses) to use and exploit the Joint Developer’s arising intellectual property rights in the field. Under the terms
of the Agreement, either party may cancel the Agreement as the specific tasks provided for in the Agreement have been completed
or for causes specifically provided for in the Agreement.
On May 19, 2015, the Company entered into
an Exclusive Patent Sublicense Agreement (the “License Agreement”) with Next Dimension Technologies, Inc. (“NDT”).
The License Agreement grants the Company a worldwide right to the patents licensed by NDT from the California Institute of Technology.
The License Agreement grants both exclusive and non-exclusive patent rights. The license granted in the License Agreement permits
the Company to make, have made, use, sell and offer for sale sublicensed products in the field of use. The License Agreement continues
until the expiration, revocation, invalidation or enforceability of the rights licensed. The License Agreement provides for the
payment of a license fee and royalty payments by CDx to NDT. The License Agreement also contains minimum royalty payments and milestone
payments by CDx to NDT. NDT has a right to terminate the License Agreement in the event of an uncured breach by CDx; the insolvency
or bankruptcy of CDx; or if CDx does not meet certain productivity milestones. The License Agreement also contains representations,
warranties and indemnity obligations for each of CDx and NDT. In connection with the License Agreement, on May 19, 2015, CDx and
NDT also executed an Amended Amendment No. 4 (the “Amended Amendment No. 4”) to the Joint Development Agreement, dated
as of November 1, 2013, between CDx and NDT, which extended the date of negotiation for the License Agreement through May 19, 2015.
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. During the year ended December 31, 2018, the Company agreed to eventually
convert the vendor liability into 45,355 Series B Preferred shares. In connection with this transaction the Company recorded a
loss on settlement of vendor liability of $7,369,504.
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
Brand”). 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. There was no activity in this joint venture during the year ended December 31, 2018.
License and Distribution Agreement
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).
On April 26, 2018, MyDx, Inc. (the “Company”
or “Licensor”) entered into a license and services agreement (the “License Agreement”) with Humanity Holdings
(the “Licensee”). The Licensor agrees to grant to the Licensee access to the MyDx360 platform. The Licensor agrees
to issue the Licensee $25,000 of shares on the 45
th
day anniversary of this agreement. These shares will vest with achievement-based
milestones. As of the date of this filing no milestones were reached therefore no shares were issued. The Licensee will pay a support
and service fee equal to 20% of net sales and a royalty of 30% of net sales. The term of this Agreement shall be two (2) years.
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 1st 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%.
During the year ended December 31, 2018 this agreement was canceled and the Company agreed to eventually convert the vendor liability
into 38,272 Series B Preferred shares. In connection with this transaction the Company recorded a loss on settlement of vendor
liability of $2,884,074.
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 Phylos Agreement is five (5) years.
On February 1, 2018 MyDx and Erai Beckmann
entered into a twelve (12) month Research, Manufacturing, Advertising and Marketing Services Agreement. The Company agrees to pay
$15,000 in restricted common stock on the first day of each quarter. In addition, Erai Beckmann is entitled to 2,500,000 of the
Company’s common stock on the 60
th
day anniversary of this agreement.
Litigation
In the ordinary course of business, we
are subject to claims and litigation, including claims that we infringe third party patents, trademarks and other intellectual
property rights. Although we believe it is unlikely that any current claims or actions will have a material adverse impact on
our operating results or our financial position, given the uncertainty of litigation, we cannot be certain of this. Moreover,
the defense of claims or actions against us, even if not meritorious, could result in the expenditure of significant financial
and managerial resources.
Our involvement in any patent dispute,
other intellectual property dispute or action to protect trade secrets and know-how could result in a material adverse effect on
our business. Adverse determinations in current litigation or any other litigation in which we may become involved and regulatory
non-compliance, including with respect to export regulations, could subject us to significant liabilities to third parties or government
agencies, require us to grant licenses to or seek licenses from third parties and prevent us from manufacturing and selling our
products. Any of these situations could have a material adverse effect on our business.
Lawsuit Against Jerome Dewald and
Skip Sanzeri
As previously disclosed, in July 2017,
the Company and its CEO (collectively, the “Plaintiffs”) filed a lawsuit against Jerome Dewald and Skip Sanzeri. On
or about July 9, 2018, the Company settled with Mr. Dewald and has dismissed the matter with prejudice as to Mr. Dewald. On or
about July 25, 2018, the Company settled with Mr. Sanzeri, which settlement calls for settlement payments of $1,000 per month over
the course of five months, after which the Company will dismiss the matter as to Mr. Sanzeri and fully dispose of the lawsuit. As of December 31, 2018, all five $1,000 payments had been made to the Company and the matter had not yet been dismissed.
Lawsuit Against Bright Light Marketing,
Inc.
On March 10, 2017, the Company and Bright
Light Marketing, Inc. (“BLM”) entered into a Settlement Agreement (the “BLM Settlement”). Pursuant to the
BLM Settlement, BLM was to pay the Company a total of $217,500 over the twelve (12) months following March 13, 2017. BLM’s
first payment of $100,000 was due within thirty (30) business days of the signing of the BLM Settlement. BLM was then to pay the
Company $10,000 per month on the first day of the next eleven (11) months and the final payment of $7,500 was due on March 1, 2018.
As of January 22, 2018, BLM had not made
any payments to the Company pursuant to the BLM Settlement. On that date, the Company filed a complaint in Superior Court of California
against BLM to enforce the BLM Settlement amount of $217,500 and to collect interest at the default rate of $47.67 per day. In
addition, the Company is seeking court costs and attorney’s fees. BLM answered the complaint on March 12, 2018. The initial
case management conference was in May 2018. Defendant did not make an apperance and the court set a continued case management conference
for July 24, 2018, where the court struck the answer for BLM. The court set trial for May 13, 2019 at 8:30 a.m. and required MyDx’s
counsel to reach out to defendant for settlement purposes.
The components of the provision
for income taxes are as follows:
|
|
For the years ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
374
|
|
|
|
800
|
|
|
|
|
374
|
|
|
|
800
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Total provision for (benefit from) income taxes
|
|
$
|
374
|
|
|
$
|
800
|
|
Deferred tax assets (liabilities) consist of the following:
|
|
For the years ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
2,218,360
|
|
|
$
|
3,551,327
|
|
Research and development credits
|
|
|
146,322
|
|
|
|
144,305
|
|
Accruals, reserves and other
|
|
|
77,270
|
|
|
|
59,006
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
445,806
|
|
|
|
628,289
|
|
Total deferred tax asset
|
|
|
2,887,758
|
|
|
|
4,382,927
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(2,906,301
|
)
|
|
|
(4,376,733
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18,543
|
|
|
|
(6,194
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Reconciliation of the statutory federal income tax to the Company’s
effective tax:
|
|
For the year ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
%
|
|
|
%
|
|
Statutory federal tax rate
|
|
|
21.00
|
%
|
|
|
34.00
|
%
|
State taxes, net of federal benefit
|
|
|
6.50
|
%
|
|
|
0.00
|
%
|
Valuation allowance
|
|
|
(27.50
|
)%
|
|
|
25.14
|
%
|
Other
|
|
|
0
|
%
|
|
|
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, 2018 and 2017. Accordingly, management had applied a full valuation allowance against net deferred
tax assets as of December 31, 2018 and 2017.
The valuation allowance decreased by approximately
$1.4 million and increased approximately $1.1 million during the years ended December 31, 2018 and 2017.
As of December 31, 2018, 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, 2018, the Company had
research & development (“R&D”) credits carryforward of approximately $43,600 and $43,600 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 2018 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.
Subsequent to December 31, 2018 the company entered into a 8%
convertible promissory note with GS Capital Partners. The Company received proceeds of $210,000. This Note was issued with a $3,000
original issue discount (OID) and as such the issuance price was $207,000. Holder of this Note is entitled, at its option, at any
time after the 6 month anniversary of this Note, to convert all or any amount of the principal face amount of this Note then outstanding
into shares of the Company’s common stock (the “Common Stock”) at a price (“Conversion Price”) for each share
of Common Stock equal to 65% of the average of the two lowest closing bid prices of the Common Stock as reported on the National
Quotations Bureau OTC Marketplace exchange upon which the Company’s shares are traded or any exchange upon which the Common
Stock may be traded in the future (“Exchange”) for the fifteen prior trading days including the day upon which a Notice
of Conversion is received by the Company or its transfer agent.
Subsequent to December 31, 2018 an investor
exercised his warrants to receive 292,890,071 shares. The Company did not receive any cash for this issuance. These shares have
not been issued and is still under review by the Company.