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 IngredientsTM,
(gAPITM) 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 condensed consolidated Financial Statements, the Company had an accumulated deficit
at June 30, 2019 and a net cash used in operating activities for the six months ended June 30, 2019. These factors raise substantial
doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial
statements.
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 six months ended June 30, 2019. It is anticipated that we will continue to report negative operating cash flow
in future periods, likely until one or more of our products 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 $103,537 at June 30,
2019 will not be sufficient to fund our operations for the next 12 months. Additionally, if we are unable to generate sufficient
revenues to pay our expenses, we will need to raise additional funds to continue our operations. We have historically financed
our operations through private equity and debt financings. We do not have any commitments for financing at this time, and financing
may not be available to us on favorable terms, if at all. If we are unable to obtain debt or equity financing in amounts sufficient
to fund our operations, if necessary, we will be forced to suspend or curtail our operations. In that event, current stockholders
would likely experience a loss of most or all of their investment. Additional funding that we do obtain may be dilutive to the
interests of existing stockholders.
The condensed consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.
4.
|
Summary of Significant Accounting Policies
|
Basis of Presentation - Unaudited
Interim Financial Information
The accompanying unaudited interim condensed
consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) for interim financial information, and in accordance with the rules
and regulations of the United States Securities and Exchange Commission (the “SEC”) with respect to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for
complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited
interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2018.
Use of Estimates
The preparation of the consolidated finance
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated
Financial Statements and the reported amounts of revenues and expenses during the reporting period. Such management estimates
include allowance for doubtful accounts, estimates of product returns, warranty expense, inventory valuation, valuation allowances
of deferred taxes, stock-based compensation expenses and fair value of warrants and derivatives. The Company bases its estimates
on historical experience and on assumptions that it believes are reasonable. The Company assesses these estimates on a regular
basis; however, actual results could materially differ from those estimates.
Concentration of Risk Related to
Third-party Suppliers
We depend on a limited number of third-party
suppliers for the materials and components required to manufacture our products. A delay or interruption by our suppliers may
harm our business, results of operations, and financial condition, and could also adversely affect our future profit margins.
In addition, the lead time needed to establish a relationship with a new supplier can be lengthy, and we may experience delays
in meeting demand in the event we must change or add new suppliers. Our dependence on our suppliers exposes us to numerous risks,
including but not limited to the following: our suppliers may cease or reduce production or deliveries, raise prices, or renegotiate
terms; we may be unable to locate a suitable replacement supplier on acceptable terms or on a timely basis, or at all; and delays
caused by supply issues may harm our reputation, frustrate our customers, and cause them to turn to our competitors for future
needs.
Fair Value of Financial Instruments
The Company recognizes and discloses the
fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant
to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and difficulty involved in determining
fair value.
|
Level 1
|
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets
at the measurable date.
|
|
|
|
|
Level 2
|
Inputs, other than quoted prices included in Level 1, that are observable for the asset or
liability through corroboration with market data at the measurement date.
|
|
|
|
|
Level 3
|
Unobservable inputs that reflect management’s best estimate of what participants would
use in pricing the asset or liability at the measurement date.
|
The carrying amounts of the Company’s
financial assets and liabilities, including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair
value because of the short maturity of these instruments. The carrying value of the Company’s loan payable and convertible
notes payable approximates fair value based upon borrowing rates currently available to the Company for loans with similar terms.
Business Segments
ASC 280 defines operating segments as
components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing performances. Currently, ASC 280 has no effect on the Company’s
condensed consolidated financial statements as substantially all of the Company’s operations are conducted in one industry
segment.
Cash
The Company considers all highly liquid
investments with original maturities of three months or less to be cash equivalents. As of June 30, 2019 and December 31, 2018,
the Company held no cash equivalents.
The Company’s policy is to place
its cash with high credit quality financial instruments and institutions and limit the amounts invested with any one financial
institution or in any type of instrument. Deposits held with banks may exceed the amount of insurance provided on such deposits.
The Company has not experienced any losses on its deposits of cash.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable are recorded at the
invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability
of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the allowance,
the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic
trends affecting its customers that might impact the level of credit losses in the future and result in different rates of bad
debts than previously seen. The Company also considers its historical level of credit losses. As of June 30, 2019 and December
31, 2018, there was an allowance for doubtful accounts of $27,851 and $27,851 respectively.
During the six months ended June 30, 2019
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.
Revenue Recognition
The Company adopted ASC 606 effective
January 1, 2018 using the modified retrospective method which would require a cumulative effect adjustment for initially applying
the new revenue standard as an adjustment to the opening balance of retained earnings and the comparative information would not
require to be restated and continue to be reported under the accounting standards in effect for those periods.
Based on the Company’s analysis
the Company did not identify a cumulative effect adjustment for initially applying the new revenue standards. The Company principally
generates revenue through providing product, services and licensing revenue
The adoption of ASC 606 represents a change
in accounting principle that will more closely align revenue recognition with the delivery of the Company’s services and
will provide financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized when a customer
obtains control of promised services. The amount of revenue recognized reflects the consideration to which the Company expects
to be entitled to receive in exchange for these services. To achieve this core principle, the Company applies the following five
steps:
1)
|
Identify the contract with a customer
|
A contract with a customer exists when
(i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services
to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and,
(iii) the Company determines that collection of substantially all consideration for services that are transferred is probable
based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining
the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical
payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.
2)
|
Identify the performance obligations in the contract
|
Performance obligations promised in a
contract are identified based on the services that will be transferred to the customer that are both capable of being distinct,
whereby the customer can benefit from the service either on its own or together with other resources that are readily available
from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services
is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services,
the Company must apply judgment to determine whether promised services are capable of being distinct and distinct in the context
of the contract. If these criteria are not met the promised services are accounted for as a combined performance obligation.
3)
|
Determine the transaction price
|
The transaction price is determined based
on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent
the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should
be included in the transaction price utilizing either the expected value method or the most likely amount method depending on
the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s
judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. None of the
Company’s contracts as of December 31, 2018 contained a significant financing component. Determining the transaction price
requires significant judgment, which is discussed by revenue category in further detail below.
4)
|
Allocate the transaction price to performance obligations in the contract
|
If the contract contains a single performance
obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services
that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company
must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. For
example, a bonus or penalty may be associated with one or more, but not all, distinct services promised in a series of distinct
services that forms part of a single performance obligation. Contracts that contain multiple performance obligations require an
allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the
transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service
that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which
the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the
Company estimates the standalone selling price taking into account available information such as market conditions and internally
approved pricing guidelines related to the performance obligations.
5)
|
Recognize revenue when or as the Company satisfies a performance obligation
|
The Company satisfies performance obligations
either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring
a promised service to a customer.
|
|
Three Months ended June 30,
2019
|
|
|
Three Months ended June 30,
2018
|
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
Product Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,945
|
|
|
|
47,116
|
|
|
|
84,061
|
|
Product Service Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,449
|
|
|
|
2,673
|
|
|
|
6,122
|
|
Licensing Revenue
|
|
|
867
|
|
|
|
-
|
|
|
|
867
|
|
|
|
3,641
|
|
|
|
-
|
|
|
|
3,641
|
|
|
|
|
867
|
|
|
|
-
|
|
|
|
867
|
|
|
|
44,035
|
|
|
|
49,789
|
|
|
|
93,824
|
|
|
|
Six Months ended June 30, 2019
|
|
|
Six Months ended June 30, 2018
|
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
|
United States
|
|
|
International
|
|
|
Total
|
|
Product Revenue
|
|
|
494
|
|
|
|
757
|
|
|
|
1,251
|
|
|
|
76,611
|
|
|
|
74,294
|
|
|
|
150,905
|
|
Product Service Revenue
|
|
|
288
|
|
|
|
-
|
|
|
|
288
|
|
|
|
6,917
|
|
|
|
4,660
|
|
|
|
11,577
|
|
Licensing Revenue
|
|
|
867
|
|
|
|
-
|
|
|
|
867
|
|
|
|
7,771
|
|
|
|
-
|
|
|
|
7,771
|
|
|
|
|
1,649
|
|
|
|
757
|
|
|
|
2,406
|
|
|
|
91,299
|
|
|
|
78,954
|
|
|
|
170,253
|
|
Product revenue
Revenue from multiple-element arrangements
is allocated among separate elements based on their estimated sales prices, provided the elements have value on a stand-alone
basis.
Licensing revenue
Some of the Company’s revenues are
generated from software-as-a-service (“SaaS”) subscription offerings and related product support and maintenance.
SaaS revenues stem mainly from annual subscriptions and are recorded evenly over the term of the subscription. Any customer payments
received in advance are deferred until they are earned. Consulting and training revenues are recognized as work is performed.
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 six months ended June 30, 2019 and 2018 were $ 26,184 and $272,308,
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 $64,413 and $111,125 for the six months ended June 30, 2019 and
2018, respectively.
Stock-Based Compensation
The Company accounts for stock-based compensation
in accordance with ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”) which establishes
financial accounting and reporting standards for stock-based employee compensation. It defines a fair value based method of accounting
for an employee stock option or similar equity instrument. Accordingly, stock-based compensation is recognized in the consolidated
statements of operations as an operating expense over the requisite service period. The Company uses the Black-Scholes option
pricing model adjusted for the estimated forfeiture rate for the respective grant to determine the estimated fair value of stock-based
compensation arrangements on the date of grant and expenses this value ratably over the requisite service period of the stock
option. The Black-Scholes option pricing model requires the input of highly subjective assumptions. Because the Company’s
stock options have characteristics significantly different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models may not provide
a reliable single measure of the fair value of the Company’s stock options. In addition, management will continue to assess
the assumptions and methodologies used to calculate estimated fair value of stock-based compensation. Circumstances may change
and additional data may become available over time, which could result in changes to these assumptions and methodologies for future
grants, and which could materially impact the Company’s fair value determination.
Collaborative Arrangements
The Company and its collaborative partners
are active participants in the collaborative arrangements and both parties are exposed to significant risks and rewards depending
on the commercial success of the activity. The Company records all expenses related to collaborative arrangements as research
and development expense in the consolidated statements of operations as incurred.
Earnings per Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by
the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using
the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents.
The following
table provides a reconciliation of the numerator and denominator used in computing basic and diluted net income (loss) attributable
to common stockholders per common share.
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to common stockholders
|
|
$
|
1,944,843
|
|
|
$
|
(810,310
|
)
|
|
$
|
2,239,213
|
|
|
$
|
69,595
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note - Interest expense
|
|
|
63,629
|
|
|
|
-
|
|
|
|
83,870
|
|
|
|
-
|
|
Net Change in warrant liability
|
|
|
(2,603,135
|
)
|
|
|
|
|
|
|
(3,419,105
|
)
|
|
|
|
|
Net change in derivative liabilities - convertible payables
|
|
|
46,442
|
|
|
|
-
|
|
|
|
(88,802
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss)
|
|
$
|
(548,221
|
)
|
|
$
|
(810,310
|
)
|
|
$
|
(1,184,824
|
)
|
|
$
|
69,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic
|
|
|
4,261,863,744
|
|
|
|
3,007,985,341
|
|
|
|
4,151,099,739
|
|
|
|
2,452,630,014
|
|
Dilutive securities (a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred stock
|
|
|
51
|
|
|
|
-
|
|
|
|
51
|
|
|
|
51
|
|
Series B Preferred stock
|
|
|
1,070,000,000
|
|
|
|
-
|
|
|
|
1,070,000,000
|
|
|
|
1,070,000,000
|
|
Convertible notes payable
|
|
|
1,628,303,534
|
|
|
|
-
|
|
|
|
1,628,303,534
|
|
|
|
-
|
|
Convertible accounts payable
|
|
|
660,000,000
|
|
|
|
-
|
|
|
|
660,000,000
|
|
|
|
379,889,803
|
|
Options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants
|
|
|
721,723,282
|
|
|
|
-
|
|
|
|
721,723,282
|
|
|
|
96,589,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and assumed conversion - diluted
|
|
|
8,341,890,611
|
|
|
|
3,007,985,341
|
|
|
|
8,231,126,605
|
|
|
|
3,999,109,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) - Anti-dilutive options excluded:
|
|
|
4,449,161,696
|
|
|
|
1,700,463,104
|
|
|
|
4,449,161,696
|
|
|
|
153,983,297
|
|
The Company had the following common stock
equivalents at June 30, 2019 and 2018:
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
Series A Preferred stock
|
|
|
51
|
|
|
|
51
|
|
Series B Preferred stock
|
|
|
1,070,000,000
|
|
|
|
1,070,000,000
|
|
Convertible notes payable
|
|
|
1,628,303,534
|
|
|
|
144,915,652
|
|
Convertible accounts payable
|
|
|
660,000,000
|
|
|
|
379,889,803
|
|
Options
|
|
|
-
|
|
|
|
1,496,250
|
|
Warrants
|
|
|
2,621,460,806
|
|
|
|
104,161,788
|
|
Totals
|
|
|
5,979,764,391
|
|
|
|
1,700,463,053
|
|
Recent Accounting Guidance Adopted
In February 2016, the FASB issued ASU
2016-02 “Leases” (Topic 842) which amended guidance for lease arrangements to increase transparency and
comparability by providing additional information to users of financial statements regarding an entity’s leasing activities.
Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease
guidance is referred to as ASC 842. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize
lease assets and lease liabilities on the balance sheet for substantially all lease arrangements.
On January 1, 2019, the Company adopted
ASC 842 using the modified retrospective approach. Results for the three months ended March 31, 2019 are presented under ASC 842,
while prior period amounts were not adjusted and continue to be reported in accordance with the legacy accounting guidance under
ASC Topic 840, Leases.
As part of the adoption we elected the
practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to:
|
1.
|
Continue applying our current policy for accounting for land easements that existed as of,
or expired before, January 1, 2019.
|
|
|
|
|
2.
|
Not separate non-lease components from lease components and instead to account for each separate
lease component and the non-lease components associated with that lease component as a single lease component.
|
|
|
|
|
3.
|
Not to apply the recognition requirements in ASC 842 to short-term leases.
|
|
|
|
|
4.
|
Not record a right of use asset or right of use liability for leases with an asset or liability
balance that would be considered immaterial.
|
Inventory as of June 30, 2019 and June
30, 2018 is as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Finished goods
|
|
$
|
-
|
|
|
$
|
9,781
|
|
Raw materials
|
|
|
208,687
|
|
|
|
104,250
|
|
|
|
$
|
208,687
|
|
|
$
|
114,031
|
|
Convertible Notes
The following table shows the outstanding
balance as of June 30, 2019 and June 30, 2018 respectively.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Convertible Note - February 6, 2017
|
|
|
265,750
|
|
|
|
265,750
|
|
Convertible Note - July 23, 2018
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible Note – October 1, 2018
|
|
|
-
|
|
|
|
74,800
|
|
Convertible Note – October 4, 2018
|
|
|
30,000
|
|
|
|
73,500
|
|
Convertible Note – October 11, 2018
|
|
|
233,500
|
|
|
|
283,500
|
|
Convertible Note – December 19, 2018
|
|
|
82,000
|
|
|
|
82,000
|
|
Convertible Note – March 7, 2019
|
|
|
210,000
|
|
|
|
-
|
|
Convertible Note –May 2, 2019
|
|
|
63,945
|
|
|
|
-
|
|
Convertible Note – May 7, 2019
|
|
|
100,000
|
|
|
|
-
|
|
|
|
|
1,010,195
|
|
|
|
804,550
|
|
Less: Debt Discount
|
|
|
(348,756
|
)
|
|
|
(368,373
|
)
|
Total
|
|
$
|
661,439
|
|
|
$
|
436,177
|
|
Amendment 2
On December 27, 2017 the Company, Hasfer,
Inc. and Legacy, entered into an amendment to the note. The note was modified as follows:
|
●
|
A portion of
the outstanding principal and interest was assigned to Legacy.
|
|
●
|
The company
received proceeds of $48,500.
|
|
●
|
Fees related
to the amendment totaled $1,500. The fees were recorded as a loss on extinguishment of
debt.
|
All remaining terms of the Revolving note
remained the same.
In accordance with ASC 470, since the
present value of the cash flows under the new debt instrument was at least ten percent different from the present value of the
remaining cash flows under the terms of the original debt instrument, the Company accounted for the amendment to SPA as a debt
extinguishment. Accordingly, the Company recorded a loss on extinguishment of debt of $155,086.
During the year ended December 31, 2017
Hasfer converted $236,250 of the outstanding principal into 99,891,304 share of the company’s common stock.
As of December 31, 2017 and 2016 the balance
of this agreement was $295,750 and $0 respectively.
During the year ended December 31, 2018
Hasfer, Inc and Carte Blanche, LLC entered into a note purchase agreement. Hasfer assigned $60,000 to Carte Blanche, LLC. The
Company received additional proceeds of $30,000.
During the year ended December 31, 2018
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.
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.
During the six months ended June 30, 2019
the Company went into default on the convertible note. Interest accrues at a rate of twenty-two percent (22%) per annum during
the time that the convertible note is in default.
The company recorded an interest expense of $37,400 related to the default provisions in the agreement
During the six months ended June 30, 2019
the lender converted $112,200 of the outstanding principal and $3,400 of the outstanding interest into 92,083,917 shares of the
Company’s common stock.
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.
During the six months ended June 30, 2019,
the Company went into default on the convertible note. Interest accrues at a rate of twenty-four percent (24%) per annum during
the time that the convertible note is in default. The company recorded an interest expense of $1,500.
During the six months ended June 30, 2019,
the lender converted $45,000 of the outstanding principal and $2,505 of the outstanding interest into 60,451,908 shares of the
Company’s common stock.
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% of the average
of the lowest three closing bid prices 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 $84,941 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.
During the six months ended June 30, 2019,
the Company went into default on the convertible note. Interest accrues at a rate of twenty-four percent (24%) per annum during
the time that the convertible note is in default.
During the six months ended June 30, 2019,
the lender converted $50,000 of the outstanding principal and $2,773 of the outstanding interest into 62,089,496 shares of the
Company’s common stock.
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 $78,828.
The maturity date of the GSC Note is December
19, 2019 (the “the GSC Maturity Date”). The GSC Note shall bear interest at a rate of eight percent (8%) per annum
(the “GSC Interest Rate”), which interest shall be paid by the Company to GSC in shares of common stock at any time
GSC sends a notice of conversion to the Company. GSC is entitled to, at its option, convert all or any amount of the principal
face amount and any accrued but unpaid interest of the GSC Note into shares of the Company’s common stock, at any time,
at the conversion price specified in the for each share of common stock equal to 67% of the average of the three lowest closing
bid prices of the common stock for the fifteen prior trading days including the day upon which a notice of conversion is received
by the Company or its transfer agent. In connection with this note, the Company recorded a $76,000 debt discount.
The GSC Note may be prepaid until 180
days from the issuance date in accordance with its terms.
The Company shall reserve 211,267,000
of its authorized and unissued common stock (the “GSC Reserved Amount”), free from preemptive rights, to provide for
the issuance of Common Stock upon the full conversion of the GSC Note.
GS Capital Agreement
Effective March 7, 2019 the Company entered
into a securities purchase agreement with GS Capital Partners, pursuant to which GSC purchased a 8% unsecured convertible promissory
note from the Company in aggregate principal amount of $210,000, such principal and interest thereon convertible into shares of
the Company’s common stock at the option of GSC.
The purchase price of $210,000 of the
GS Capital note was paid in cash by GS Capital on March 11, 2019. After payment of transaction-related expenses, net proceeds
to the Company from the note totaled $200,000.
The maturity date of the GS Capital
note is March 7, 2020. The GS Capital Note shall bear interest at a rate of eight percent (8%) per annum which interest shall
be paid by the Company to GS Capital in shares of common stock at any time GSC sends a notice of conversion to the Company.
GSC is entitled to, at its option, convert all or any amount of the principal face amount and any accrued but unpaid interest
of the GSC Note into shares of the Company’s common stock, at any time, at the conversion price specified in the for
each share of common stock equal to 65% of the average of the two lowest closing bid prices of the common stock for the
fifteen prior trading days including the day upon which a notice of conversion is received by the Company or its transfer
agent. In connection with this note, the Company recorded a $167,296 debt discount.
During the six months ended June 30, 2019
the Company went into default on the convertible note. Interest accrues at a rate of twenty-four percent (24%) per annum during
the time that the convertible note is in default.
LG capital Agreement
Effective May 2, 2019 the Company entered
into a securities purchase agreement with LG Capital Funding, pursuant to which LG purchased a 8% unsecured convertible promissory
note from the Company in aggregate principal amount of $63,945, such principal and interest thereon convertible into shares of
the Company’s common stock at the option of LG Capital.
The purchase price of $63,945 of the LG
capital note was paid in cash by LG capital on May 2, 2019. After payment of transaction-related expenses, net proceeds to the
Company from the note totaled $60,000.
The maturity date of the LG Capital note
is May 2, 2020. The LG Capital Note shall bear interest at a rate of eight percent (8%) per annum which interest shall be paid
by the Company to LG Capital in shares of common stock at any time LG sends a notice of conversion to the Company. LG is entitled
to, at its option, convert all or any amount of the principal face amount and any accrued but unpaid interest of the LG Capital
Note into shares of the Company’s common stock, at any time, at the conversion price specified in the for each share of common
stock equal to 65% of the average of the two 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 $44,999 debt discount.
During the six months ended June 30, 2019
the Company went into default on the convertible note. Interest accrues at a rate of twenty-four percent (24%) per annum during
the time that the convertible note is in default.
Odyssey capital Agreement
Effective May 7, 2019 the Company entered
into a securities purchase agreement with Odyssey Capital, pursuant to which Odyssey purchased a 12% unsecured convertible promissory
note from the Company in aggregate principal amount of $100,000, such principal and interest thereon convertible into shares of
the Company’s common stock at the option of LG Capital.
The purchase price of $100,000 of the Odyssey
capital note was paid in cash by Odyssey capital on May 7, 2019. After payment of transaction-related expenses, net proceeds to
the Company from the note totaled $95,000.
The maturity date of the Odyssey Capital
note is May 7, 2020. The Odyssey Capital Note shall bear interest at a rate of twelve percent (12%) per annum which interest shall
be paid by the Company to Odyssey Capital in shares of common stock at any time Odyssey sends a notice of conversion to the Company.
Odyssey is entitled to, at its option, convert all or any amount of the principal face amount and any accrued but unpaid interest
of the Odyssey Capital 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 60% of the lowest closing bid prices of the common stock for the twenty 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 $95,000 debt discount.
During the six months ended June 30, 2019
the Company went into default on the convertible note. Interest accrues at a rate of twenty-four percent (24%) per annum during
the time that the convertible note is in default.
7.
|
Derivative Liabilities
|
The Company has identified derivative
instruments arising from embedded conversion features in the Company’s convertible notes payable and accounts payable at
June 30, 2019.
The following summarizes the Binomial-lattice
model assumptions used to estimate the fair value of the derivative liability and warrant liability at the date of issuance and
for the convertible notes converted during the six months ended June 30, 2019.
|
|
Low
|
|
|
High
|
|
Annual dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected life in years
|
|
|
0
|
|
|
|
1.00
|
|
Risk-free interest rate
|
|
|
1.93
|
%
|
|
|
2.59
|
%
|
Expected volatility
|
|
|
107
|
%
|
|
|
139
|
%
|
Risk-free interest rate: The Company uses
the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.
Dividend yield: The Company uses a 0%
expected dividend yield as the Company has not paid dividends to date and does not anticipate declaring dividends in the near
future.
Volatility: The volatility was estimated
using the historical volatilities of the Company’s common stock.
Remaining term: The Company’s remaining
term is based on the remaining contractual maturity of the convertible notes payable and accounts payable.
The following are the changes in the derivative liabilities
during the six months ended June 30, 2019.
|
|
Six Months Ended June 30, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative Liability as of January 1, 2019
|
|
|
|
|
|
|
|
|
|
|
1,222,186
|
|
Derivative expense
|
|
|
|
|
|
|
|
|
|
|
18,092
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
307,295
|
|
Conversions
|
|
|
|
|
|
|
|
|
|
|
(106,224
|
)
|
Gain on changes in fair value
|
|
|
|
|
|
|
|
|
|
|
(88,802
|
)
|
Derivative liabilities as of June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
1,352,547
|
|
The following are the changes in the warrant liabilities during
the six months ended June 30, 2019.
|
|
Six Months Ended June 30, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Balance, January 1, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,267,426
|
|
Change due to exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
(845,883
|
)
|
Gain on changes in fair value
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,419,105
|
)
|
Accretion of warrant expense
|
|
|
|
|
|
|
|
|
|
|
162,844
|
|
Warrant liabilities as June 30, 2019
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,165,282
|
|
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 June 30, 2019, and December 31, 2018,
the Company has designated 51 shares of Series A Preferred Stock par value $0.001 and 51 shares are issued and outstanding. The
Series A Preferred Stock can convert into common stock at a 1:1 ratio. Each one (1) share of the Series A Preferred shall have
voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding shares of Common Stock eligible to vote at the
time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z) the Numerator. For purposes of illustration
only, if the total issued and outstanding shares of Common Stock eligible to vote at the time of the respective vote is 5,000,000,
the voting rights of one share of the Series A Preferred Stock shall be equal to 102,036 (0.019607 x 5,000,000) / 0.49) –
(0.019607 x 5,000,000) = 102,036). On December 23, 2016 the 51 shares were issued to Mr. Yazbeck, the Company’s sole officer
and the sole member of the Board. Mr. Yazbeck, via his ownership of the 51 shares of the Series A Preferred, has control of the
majority of the Company’s voting stock.
Series B Preferred Stock
The Series B Preferred is convertible
into shares of Common Stock at a conversion price of $0.0001. Holders of the Series B Preferred are entitled to receive dividends
annually equal to $0.10 for each share of Series B Preferred held. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, the holders of Series B Preferred then outstanding shall be entitled to be paid out of the assets
of the Company available for distribution to its stockholders, before any payment shall be made to the holders of Common Stock.
Until such time as there are fewer than 20,000 shares of Series B Preferred outstanding, the Company needs to obtain the majority
votes of the holders of Series B Preferred with regard to certain actions. Holders of Series B Preferred shares are entitled to
one vote for each share held, are entitled to elect up to two members to the Board, and, absent such election, are provided certain
voting and veto rights with regard to any vote by the Board.
On July 31, 2018, the Company agreed to
eventually issue 38,272 shares of Series B Preferred at a value of $1.00 per Series B Preferred share to settle outstanding vendor
liability. The shares of Series B Preferred will be issued upon an increase in the authorized shares of Series B Preferred. The
Company also agreed to the assignment or issuance of three warrants giving the holder the right to purchase seven and one half
percent (7.5%) of the Company’s shares of Common Stock issued and outstanding at the time of exercise and having an exercise
price of $0.001 per share. This form of warrant is referred to herein as the “7.5% Warrant.” The Company agreed to
the assignment of one previously issued 7.5% Warrant to an entity related to BCI Advisors. This 7.5% Warrant will expire on July
31, 2020. In addition, the Company also agreed to the assignment of another previously issued 7.5% Warrant to an entity related
to BCI Advisors and agreed to extend the expiration date from March 1, 2019 to July 31, 2020. Finally, the Company agreed to issue
a new 7.5% Warrant which will expire on July 31, 2020.
On July 30, 2018, the Company agreed to
eventually issue 45,355 shares of the Company’s Series B Preferred at a value of $1.00 per Series B Preferred share to settle
outstanding vendor liability. The Company also agreed to issue a 7.5% Warrant with an expiration date of August 1, 2022.
During the nine months ended September
30, 2018 investors converted 189,700 Series B Preferred stock in to 1,897,000,000 shares of common stock.
Common Stock
On September 30, 2016, the Company amended
articles of incorporation to increase the number of authorized commons shares to 10,000,000,000 as included on Form 8-K filed
with the SEC on October 4, 2016.
On January 15, 2019, the Company issued
165,546,562 shares of common stock for a cashless exercise on warrants.
On April 17, 2019, the Company issued 50,000,000
shares of its restricted common stock to settle outstanding vendor liabilities of $64,000. In connection with this transaction
the Company also recorded a loss on settlement of vendor liabilities of $56,000. The fair value of the common stock based on the
trading price of the stock on April 17, 2019 was $120,000.
On May 13, 2019, the Company issued 100,000,000
shares of its restricted common stock to settle outstanding vendor liabilities of $96,788. In connection with this transaction
the Company also recorded a loss on settlement of vendor liabilities of $53,212. The fair value of the common stock based on the
trading price of the stock on May 13, 2019 was $150,000.
During the six months ended June 30, 2019
the lenders converted $207,200 of the outstanding principal and $8,678 of the outstanding interest into 214,625,321 shares of the
Company’s common stock.
9.
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Commitments and Contingencies
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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 six months ended June 30, 2019, the Company did not incur any development costs related to the Distribution and License
Agreement.
On November 1, 2013, the Company entered
into a two-year Joint Development Agreement (the “Agreement”) with an unrelated third-party to develop chemical sensors
and peripheral sensing equipment and software for the detection and characterization of cannabis and compounds associated with
cannabis.
The Agreement provides for, among other
things, any arising intellectual property rights (as defined) outside of the field (as defined), and any arising intellectual
property rights relating to improvements to detection materials shall belong to the Joint Venture Developer.
The Agreement also provides that any arising
intellectual property rights other than those covered above shall belong to the Company. To the extent that it is necessary to
do so to enable the Company to use and exploit its respective arising intellectual property rights, the Joint Developer grants
the Company a perpetual, irrevocable, exclusive, and royalty free license (including the right to assign the license and to grant
sub-licenses) to use and exploit the Joint Developer’s arising intellectual property rights in the field. Under the terms
of the Agreement, either party may cancel the Agreement as the specific tasks provided for in the Agreement have been completed
or for causes specifically provided for in the Agreement.
On May 19, 2015, the Company entered into
an Exclusive Patent Sublicense Agreement (the “License Agreement”) with Next Dimension Technologies, Inc. (“NDT”).
The License Agreement grants the Company a worldwide right to the patents licensed by NDT from the California Institute of Technology.
The License Agreement grants both exclusive and non-exclusive patent rights. The license granted in the License Agreement permits
the Company to make, have made, use, sell and offer for sale sublicensed products in the field of use. The License Agreement continues
until the expiration, revocation, invalidation or enforceability of the rights licensed. The License Agreement provides for the
payment of a license fee and royalty payments by CDx to NDT. The License Agreement also contains minimum royalty payments and
milestone payments by CDx to NDT. NDT has a right to terminate the License Agreement in the event of an uncured breach by CDx;
the insolvency or bankruptcy of CDx; or if CDx does not meet certain productivity milestones. The License Agreement also contains
representations, warranties and indemnity obligations for each of CDx and NDT. In connection with the License Agreement, on May
19, 2015, CDx and NDT also executed an Amended Amendment No. 4 (the “Amended Amendment No. 4”) to the Joint Development
Agreement, dated as of November 1, 2013, between CDx and NDT, which extended the date of negotiation for the License Agreement
through May 19, 2015.
Litigation
In the normal course of business, the
Company may be subject to other legal proceedings, lawsuits and other claims. Although the ultimate aggregate amount of probable
monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable
with assurance, the Company’s management believes that any monetary liability or financial impact to the Company from these
other matters, individually and in the aggregate, would not be material to the Company’s financial condition, results of
operations or cash flows.
However, there can be no assurance with
respect to such result, and monetary liability or financial impact to the Company from these other matters could differ materially
from those projected.
Effective
August 1, 2019, Mr. Erai Beckman resigned from his position as a member of the Board of Directors of MyDx, Inc and Mr.
Matthew Bucciero resigned from his position as Chief Executive Officer and Chief Financial Officer of the Company. Effective
October 2, 2019, Mr. Daniel Yazbeck was appointed as the Company’s interim Chief Executive Officer and interim Chief
Financial Officer.
From September 20, 2019 to September 24,
2019, the Company entered into a series of debt financing transactions to raise capital for the Company.
Eagle Note
On September 20, 2019, the Company entered
into a Securities Purchase Agreement (the “Eagle Securities Purchase Agreement”) dated September 18, 2019, with Eagle
Equities, LLC (“Eagle”) for the sale of an 8% Convertible Redeemable Note in the amount of $27,500 (the “Eagle
Note”). Pursuant to the terms of the Eagle Securities Purchase Agreement, the Company issued the Eagle Note with a $2,500
original issue discount and paid Eagle’s legal fees of $2,000 out of the proceeds of the Eagle Note.
The Eagle Note bears interest at the rate
of 8% per annum. All interest and principal must be repaid on September 18, 2020 (the “Eagle Note Maturity Date”).
The Eagle Note is convertible into common stock at any time, at Eagle’s option, at a price equal to 65% of the lowest closing
bid price of the common stock during the fifteen trading days prior to conversion. The Eagle Note may not be prepaid more than
180 days prior to the Eagle Note Maturity Date. In the event the Company prepays the Eagle Note in full during the 180 days prior
to the Eagle Note Maturity Date, the Company must pay off all principal, interest and any other amounts owing multiplied by a premium
ranging from 5% to 30%.
Odyssey Note
On September 23, 2019, the Company entered
into a Securities Purchase Agreement (the “Odyssey Securities Purchase Agreement”) dated September 18, 2019, with Odyssey
Capital Funding, LLC (“Odyssey”) for the sale of a 12% Convertible Redeemable Note in the amount of $35,000 (the “Odyssey
Note”). Pursuant to the terms of the Odyssey Securities Purchase Agreement, the Company paid Odyssey’s legal fees of
$2,000 out of the proceeds of the Odyssey Note.
The Odyssey Note bears interest at the
rate of 12% per annum. All interest and principal must be repaid on September 18, 2020 (the “Odyssey Note Maturity Date”).
The Odyssey Note is convertible into common stock at any time after the six month anniversary of the Odyssey Note, at Odyssey’s
option, at a price equal to 60% of the lowest trading price of the common stock during the twenty trading days prior to conversion.
The Odyssey Note may not be prepaid more than 180 days prior to the Odyssey Note Maturity Date. In the event the Company prepays
the Odyssey Note in full during the 180 days prior to the Odyssey Note Maturity Date, the Company must pay off all principal, interest
and any other amounts owing multiplied by a premium ranging from 25% to 45%.
GS Capital Note
On September 24, 2019, the Company entered
into a Securities Purchase Agreement (the “GS Capital Securities Purchase Agreement”) dated September 18, 2019, with
GS Capital Partners, LLC (“GS Capital”) for the sale of an 8% Convertible Redeemable Note in the amount of $69,000
(the “GS Capital Note”). Pursuant to the terms of the GS Capital Securities Purchase Agreement, the Company issued
the GS Capital Note with a $6,000 original issue discount and paid GS Capital’s legal fees of $3,000 out of the proceeds
of the GS Capital Note.
The GS Capital Note bears interest at the
rate of 8% per annum. All interest and principal must be repaid on September 18, 2020 (the “GS Capital Note Maturity Date”).
The GS Capital Note is convertible into common stock at any time after the six month anniversary of the GS Capital Note, at GS
Capital’s option, at a price equal to 50% of the lowest trading price of the common stock during the twenty trading days
prior to conversion. The GS Capital Note may not be prepaid more than 180 days prior to the GS Capital Note Maturity Date. In the
event the Company prepays the GS Capital Note in full during the 180 days prior to the GS Capital Note Maturity Date, the Company
must pay off all principal, interest and any other amounts owing multiplied by a premium ranging from 20% to 40%.
LG Capital Note
Additionally, on September 24, 2019, the
Company entered into a Securities Purchase Agreement (the “LG Capital Securities Purchase Agreement” and together with
the Eagle Securities Purchase Agreement, Odyssey Securities Purchase Agreement and GS Capital Securities Purchase Agreement, the
“Securities Purchase Agreements”) dated September 18, 2019, with LG Capital Funding, LLC (“LG Capital”)
for the sale of an 8% Convertible Redeemable Note in the amount of $25,000 (the “LG Capital Note” and together with
the Eagle Note, Odyssey Note and GS Capital Note, the “Notes”). Pursuant to the terms of the LG Capital Securities
Purchase Agreement, the Company paid LG Capital’s legal fees of $2,000 out of the proceeds of the LG Capital Note.
The LG Capital Note bears interest at the
rate of 8% per annum. All interest and principal must be repaid on September 18, 2020 (the “LG Capital Note Maturity Date”).
The LG Capital Note is convertible into common stock at any time after the six month anniversary of the LG Capital Note, at LG
Capital’s option, at a price equal to 60% of the lowest trading price of the common stock during the twenty trading days
prior to conversion. The LG Capital Note may not be prepaid more than 180 days prior to the LG Capital Note Maturity Date. In the
event the Company prepays the LG Capital Note in full during the 180 days prior to the LG Capital Note Maturity Date, the Company
must pay off all principal, interest and any other amounts owing multiplied by a premium ranging from 25% to 45%.
The Notes and the Securities Purchase Agreements
contain the customary representations, warranties, covenants, and events of default.
Subsequent to June 30, 2019 the Company
converted notes into 378,720,945 shares of the Companies common stock.