UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number 000-55596
MyDx, Inc.
(Exact Name of Registrant as Specified in its Charter)
Nevada
|
|
99-0384160 |
State or Other Jurisdiction of
Incorporation or Organization
|
|
I.R.S. Employer
Identification No. |
|
|
|
6335 Ferris Square, Suite B
San Diego, CA |
|
92121 |
Address of Principal Executive Offices |
|
Zip Code |
(800) 814-4550
Registrant’s Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such
shorter period that the Registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer ☐
|
Accelerated filer ☐ |
Non-accelerated filer ☒ |
Smaller reporting company ☒ |
|
Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the
Registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
|
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
None |
|
None |
|
None |
4,814,093,774 shares of common stock, par value $0.001 per share,
issued and outstanding as of October 3, 2019.
MyDx, INC.
TABLE OF CONTENTS
PART I. FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
MyDx, Inc.
Condensed Consolidated Balance Sheets
|
|
June 30,
2019 |
|
|
December 31,
2018 |
|
|
|
(unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash |
|
$ |
103,537 |
|
|
$ |
102,698 |
|
Accounts receivable, net |
|
|
- |
|
|
|
- |
|
Inventory |
|
|
208,687 |
|
|
|
114,031 |
|
Total
current assets |
|
|
312,224 |
|
|
|
216,729 |
|
|
|
|
|
|
|
|
|
|
Tooling in process |
|
|
173,854 |
|
|
|
173,854 |
|
Property and equipment, net |
|
|
14,362 |
|
|
|
26,748 |
|
Other assets |
|
|
13,983 |
|
|
|
18,983 |
|
Total assets |
|
$ |
514,423 |
|
|
$ |
436,314 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
1,039,542 |
|
|
$ |
1,101,853 |
|
Customer deposits |
|
|
215,952 |
|
|
|
69,330 |
|
Accrued liabilities |
|
|
736,164 |
|
|
|
692,071 |
|
Leases payable |
|
|
2,756 |
|
|
|
2,756 |
|
Due
to related party |
|
|
1,075 |
|
|
|
1,075 |
|
Convertible notes payable, net of debt discount |
|
|
661,439 |
|
|
|
436,177 |
|
Derivative liability |
|
|
1,352,547 |
|
|
|
1,222,186 |
|
Preferred
shares liability |
|
|
2,850,401 |
|
|
|
2,850,401 |
|
Warrant liability |
|
|
2,165,282 |
|
|
|
6,267,426 |
|
Total
current liabilities |
|
|
9,025,157 |
|
|
|
12,643,275 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
9,025,157 |
|
|
|
12,643,275 |
|
|
|
|
|
|
|
|
|
|
Redeemable Series B Preferred stock, $0.001 par value; 10,000,000
shares authorized 107,000 and 107,000 shares issued and outstanding
as of June 30, 2019 and December 31, 2018, respectively |
|
|
2,033,000 |
|
|
|
2,033,000 |
|
|
|
|
|
|
|
|
|
|
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 June 30, 2019 and
December 31, 2018, respectively |
|
|
- |
|
|
|
- |
|
Common stock,
$0.001 par value, 10,000,000,000 shares authorized; 4,435,372,829
and 3,905,200,946 shares issued and outstanding as of June 30, 2019
and December 31, 2018, respectively |
|
|
4,435,372 |
|
|
|
3,905,201 |
|
Additional paid-in capital |
|
|
22,746,911 |
|
|
|
21,820,069 |
|
Accumulated deficit |
|
|
(37,726,017 |
) |
|
|
(39,965,231 |
) |
Total stockholders’ deficit |
|
|
(10,543,734 |
) |
|
|
(14,239,961 |
) |
Total liabilities and stockholders’ deficit |
|
$ |
514,423 |
|
|
$ |
436,314 |
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
MYDX INC.
Condensed Consolidated Statements of Operations
(unaudited)
|
|
For the Three Months Ended
June 30, |
|
|
For the Six Months Ended
June 30, |
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
Sales |
|
|
|
|
|
|
|
|
|
|
|
|
Product revenue |
|
$ |
- |
|
|
$ |
84,061 |
|
|
$ |
1,251 |
|
|
$ |
150,905 |
|
Product service revenue |
|
|
- |
|
|
|
6,122 |
|
|
|
288 |
|
|
|
11,577 |
|
Licensing revenue |
|
|
867 |
|
|
|
3,641 |
|
|
|
867 |
|
|
|
7,771 |
|
Total
sales |
|
|
867 |
|
|
|
93,824 |
|
|
|
2,406 |
|
|
|
170,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs |
|
|
10,630 |
|
|
|
35,762 |
|
|
|
27,513 |
|
|
|
62,100 |
|
Total cost of sales |
|
|
10,630 |
|
|
|
35,762 |
|
|
|
27,513 |
|
|
|
62,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
(9,763 |
) |
|
|
58,062 |
|
|
|
(25,107 |
) |
|
|
108,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
12,251 |
|
|
|
39,218 |
|
|
|
26,184 |
|
|
|
272,308 |
|
Sales
and marketing |
|
|
10,123 |
|
|
|
58,872 |
|
|
|
64,413 |
|
|
|
111,125 |
|
General and administrative |
|
|
105,968 |
|
|
|
312,282 |
|
|
|
532,890 |
|
|
|
557,929 |
|
Total operating expenses |
|
|
128,342 |
|
|
|
410,372 |
|
|
|
623,487 |
|
|
|
941,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(138,105 |
) |
|
|
(352,310 |
) |
|
|
(648,595 |
) |
|
|
(833,209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(326,905 |
) |
|
|
(7,951 |
) |
|
|
(473,259 |
) |
|
|
(16,702 |
) |
Change in fair value of derivative liability |
|
|
(46,442 |
) |
|
|
(327,117 |
) |
|
|
88,802 |
|
|
|
1,191,940 |
|
Change in fair value of warrant liability |
|
|
2,603,135 |
|
|
|
- |
|
|
|
3,419,105 |
|
|
|
- |
|
Derivative expense |
|
|
(18,092 |
) |
|
|
(127,513 |
) |
|
|
(18,092 |
) |
|
|
(281,515 |
) |
Gain
(loss) on settlement of debt |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,500 |
|
Gain
(loss) on extinguishment of debt |
|
|
(19,536 |
) |
|
|
4,581 |
|
|
|
(19,535 |
) |
|
|
4,581 |
|
Loss on settlement of vendor liability |
|
|
(109,212 |
) |
|
|
- |
|
|
|
(109,212 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other income (expense) |
|
|
2,082,948 |
|
|
|
(458,000 |
) |
|
|
2,887,809 |
|
|
|
902,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before provision for income taxes |
|
|
1,944,843 |
|
|
|
(810,310 |
) |
|
|
2,239,214 |
|
|
|
69,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net income (loss) |
|
$ |
1,944,843 |
|
|
$ |
(810,310 |
) |
|
$ |
2,239,214 |
|
|
$ |
69,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
(10,700 |
) |
|
|
- |
|
|
|
(21,400 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders |
|
|
1,934,143 |
|
|
|
(810,310 |
) |
|
|
2,217,814 |
|
|
|
69,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
Diluted |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
|
|
4,261,863,744 |
|
|
|
3,007,985,341 |
|
|
|
4,151,099,739 |
|
|
|
2,452,630,014 |
|
Weighted average common shares outstanding - diluted |
|
|
8,711,025,440 |
|
|
|
3,007,985,341 |
|
|
|
8,600,261,434 |
|
|
|
3,999,109,821 |
|
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
MyDx, INC.
Condensed Consolidated Statements of Stockholders’ Deficit
For the Six and Three Months Ended June 30, 2019
|
|
Convertible Preferred Stock Series A |
|
|
Common Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Shareholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
Balances as of December 31, 2018 |
|
|
51 |
|
|
$ |
- |
|
|
|
3,905,200,946 |
|
|
$ |
3,905,201 |
|
|
$ |
21,820,069 |
|
|
$ |
(39,965,231 |
) |
|
$ |
(14,239,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon cashless exercise of warrants |
|
|
- |
|
|
|
- |
|
|
|
165,546,562 |
|
|
|
165,546 |
|
|
|
680,336 |
|
|
|
- |
|
|
|
845,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to settle vendor liabilities |
|
|
- |
|
|
|
- |
|
|
|
150,000,000 |
|
|
|
150,000 |
|
|
|
120,000 |
|
|
|
- |
|
|
|
270,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued upon conversion of convertible notes |
|
|
- |
|
|
|
- |
|
|
|
214,625,321 |
|
|
|
214,625 |
|
|
|
126,506 |
|
|
|
|
|
|
|
341,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for three months ended March 31, 2019 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,239,214 |
|
|
|
2,239,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019 |
|
|
51 |
|
|
$ |
- |
|
|
|
4,435,372,829 |
|
|
$ |
4,435,372 |
|
|
$ |
22,746,911 |
|
|
$ |
(37,726,017 |
) |
|
$ |
(10,543,734 |
) |
|
|
Convertible Preferred Stock Series A |
|
|
Common Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Shareholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
Balance as of March 31, 2019 |
|
|
51 |
|
|
$ |
- |
|
|
|
4,070,747,508 |
|
|
$ |
4,070,747 |
|
|
$ |
22,500,405 |
|
|
$ |
(39,670,860 |
) |
|
$ |
(13,099,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services rendered |
|
|
|
|
|
|
|
|
|
|
150,000,000 |
|
|
|
150,000 |
|
|
|
120,000 |
|
|
|
|
|
|
|
270,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued for Conversion of Debt |
|
|
|
|
|
|
|
|
|
|
214,625,321 |
|
|
|
214,625 |
|
|
|
126,506 |
|
|
|
|
|
|
|
341,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for three months ended March 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,944,843 |
|
|
|
1,944,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019 |
|
|
51 |
|
|
$ |
- |
|
|
|
4,435,372,829 |
|
|
$ |
4,435,372 |
|
|
$ |
22,746,911 |
|
|
$ |
(37,726,017 |
) |
|
$ |
(10,543,734 |
) |
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
MyDx, INC.
Condensed Consolidated Statements of Stockholders’ Deficit
For the Six and Three Months Ended June 30, 2018
|
|
Convertible Preferred Stock Series A |
|
|
Common Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Shareholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
Balances as of December 31, 2017 |
|
|
51 |
|
|
$ |
- |
|
|
|
1,859,397,541 |
|
|
$ |
1,859,397 |
|
|
$ |
19,818,536 |
|
|
$ |
(31,632,972 |
) |
|
$ |
(9,955,039 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on Settlement of vendor liabilities |
|
|
- |
|
|
|
- |
|
|
|
5,000,000 |
|
|
|
5,000 |
|
|
|
20,500 |
|
|
|
- |
|
|
|
25,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,971 |
|
|
|
|
|
|
|
1,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services rendered |
|
|
|
|
|
|
|
|
|
|
57,500,000 |
|
|
|
57,500 |
|
|
|
188,250 |
|
|
|
|
|
|
|
245,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B to common |
|
|
|
|
|
|
|
|
|
|
1,897,000,000 |
|
|
|
1,897,000 |
|
|
|
1,707,300 |
|
|
|
|
|
|
|
3,604,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes to equity |
|
|
- |
|
|
|
- |
|
|
|
26,086,956 |
|
|
|
26,087 |
|
|
|
88,696 |
|
|
|
- |
|
|
|
114,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for prepaid services |
|
|
|
|
|
|
|
|
|
|
4,285,714 |
|
|
|
4,286 |
|
|
|
9,000 |
|
|
|
|
|
|
|
13,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for three months ended March 31, 2018 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
69,595 |
|
|
|
69,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2018 |
|
|
51 |
|
|
$ |
- |
|
|
|
3,849,270,211 |
|
|
$ |
3,849,270 |
|
|
$ |
21,834,253 |
|
|
$ |
(31,563,377 |
) |
|
$ |
(5,879,855 |
) |
|
|
Convertible Preferred Stock Series A |
|
|
Common Stock |
|
|
Additional
Paid-in |
|
|
Accumulated |
|
|
Shareholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Deficit |
|
Balance as of March 31, 2018 |
|
|
51 |
|
|
$ |
- |
|
|
|
1,894,397,541 |
|
|
$ |
1,894,397 |
|
|
$ |
19,961,007 |
|
|
$ |
(30,753,068 |
) |
|
$ |
(8,897,664 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for services rendered |
|
|
|
|
|
|
|
|
|
|
27,500,000 |
|
|
|
27,500 |
|
|
|
68,250 |
|
|
|
|
|
|
|
95,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for prepaid services |
|
|
|
|
|
|
|
|
|
|
4,285,714 |
|
|
|
4,286 |
|
|
|
9,000 |
|
|
|
|
|
|
|
13,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series B to common |
|
|
|
|
|
|
|
|
|
|
1,897,000,000 |
|
|
|
1,897,000 |
|
|
|
1,707,300 |
|
|
|
|
|
|
|
3,604,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes to equity |
|
|
|
|
|
|
|
|
|
|
26,086,956 |
|
|
|
26,087 |
|
|
|
88,696 |
|
|
|
|
|
|
|
114,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for three months ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(810,310 |
) |
|
|
(810,310 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2018 |
|
|
51 |
|
|
$ |
- |
|
|
|
3,849,270,211 |
|
|
$ |
3,849,270 |
|
|
$ |
21,834,253 |
|
|
$ |
(31,563,378 |
) |
|
$ |
(5,879,855 |
) |
The accompanying notes are an
integral part of these condensed consolidated financial
statements.
MyDx, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
For the Six Months Ended
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
|
$ |
2,239,214 |
|
|
$ |
69,595 |
|
Adjustments to reconcile net income to net cash(used in)operating
activties: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
12,386 |
|
|
|
33,994 |
|
Common stock issued for services |
|
|
- |
|
|
|
245,750 |
|
Change in fair value of derivative liability |
|
|
(88,802 |
) |
|
|
(1,191,940 |
) |
Change in fair value of warrant liability |
|
|
(3,419,105 |
) |
|
|
- |
|
Principal Increase Upon Default |
|
|
38,900 |
|
|
|
- |
|
Derivative expense |
|
|
18,092 |
|
|
|
281,515 |
|
(Gain) / Loss on settlement of vendor liabilities |
|
|
109,212 |
|
|
|
(4,500 |
) |
Stock
based compensation |
|
|
162,844 |
|
|
|
1,971 |
|
Loss
on extinguishment of debt |
|
|
19,535 |
|
|
|
(4,581 |
) |
Interest expense related to amortization of debt issuance costs and
debt discount |
|
|
345,351 |
|
|
|
- |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
- |
|
Inventory |
|
|
(94,656 |
) |
|
|
18,178 |
|
Prepaid expenses and other assets |
|
|
5,000 |
|
|
|
33,227 |
|
Accounts payable and accrued liabilities |
|
|
151,247 |
|
|
|
492,284 |
|
Customer deposits |
|
|
146,622 |
|
|
|
2,680 |
|
Net cash provided by (used in) operating activities |
|
|
(354,160 |
) |
|
|
(38,285 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
|
Tooling in process |
|
|
- |
|
|
|
(173,854 |
) |
Net cash used in
financing activities |
|
|
- |
|
|
|
(173,854 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
Proceeds from
due to related party |
|
|
- |
|
|
|
105,000 |
|
Proceeds from the issuance of convertible notes payable, net of
issuance costs |
|
|
355,000 |
|
|
|
30,000 |
|
Net cash provided by financing activities |
|
|
355,000 |
|
|
|
135,000 |
|
|
|
|
|
|
|
|
|
|
Net
change in cash |
|
|
839 |
|
|
|
(77,139 |
) |
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
102,698 |
|
|
|
119,028 |
|
Cash, end of period |
|
$ |
103,537 |
|
|
$ |
41,889 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
- |
|
|
$ |
- |
|
Taxes paid |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
Settlement of debt with convertible note |
|
$ |
- |
|
|
$ |
60,000 |
|
Stock issued for
settlement of vendor liabilities |
|
$ |
160,788 |
|
|
$ |
25,500 |
|
Conversion of convertible debt and derivatives to
common stock |
|
$ |
321,596 |
|
|
$ |
114,783 |
|
Conversion of convertible preferred stock to common stock |
|
$ |
- |
|
|
$ |
3,604,300 |
|
|
|
|
|
|
|
|
|
|
Reclassification of warrant liability to additional paid-in capital
upon Exercise of warrant |
|
$ |
845,883 |
|
|
$ |
- |
|
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 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. |
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 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.
Item 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
The following discussion and analysis should be read in
conjunction with, and is qualified in its entirety by, MyDx’s
audited annual financial statements and the related notes thereto
as filed with the Securities and Exchange Commission (“SEC”) on
April 24, 2019. This discussion contains certain forward-looking
statements that involve risks and uncertainties, as described under
the heading “Forward-Looking Statements” in this quarterly report.
Actual results could differ materially from those projected in the
forward-looking statements. For additional information regarding
these risks and uncertainties, please see the disclosure under the
heading “Risk Factors” elsewhere in this quarterly report.
We
believe that our assumptions are based upon reasonable data derived
from and known about our business and operations and the business
and operations of the Company. No assurances are made that actual
results of operations or the results of our future activities will
not differ materially from its assumptions. Factors that could
cause differences include, but are not limited to, expected market
demand for the Company’s products and services and
competition.
Overview
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 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.
Business
Plan
The
Company is currently focused on 4 key business segments to service
the cannabis industry.
Smart
Devices & Consumables
|
● |
The
cannabis industry’s first hand-held cannabis sensor and analyzer
with disposable single use inserts. |
|
● |
Comes
with a mobile app that acts as a ‘virtual budtender’. |
|
● |
Analyzes
cannabis sample and provides a Total Canna ProfileTM
(TCP), a more complete chemical profile to include THC and the most
prevalent cannabinoids and terpenes found in cannabis
plants. |
|
● |
Cannabinoids
such as THC and CBD have been reported to bind the CB1 and CB2
receptors found throughout the human body and have been reported to
provide relief to an array of symptoms, including pain, nausea, and
inflammation to name a few. Terpenes, which have been reported to
compound the effects of cannabinoids on the body via an “Entourage
Effect”, are also important in determining the overall
physiological effects various cannabis chemical
profiles. |
|
● |
Enables
users to log their ailments and side effects and tie those back to
the exact chemical profile. |
|
● |
Provides
strain recommendations based on desired “relief” input based on
crowdsourced community feedback. |
|
2) |
Eco
Smart PenTM and Other Delivery Devices |
|
● |
MyDx
plans to develop additional smart hardware that gather user data,
such as the Eco Smart Pen. MyDx plans to release the Eco Smart Pen
in the first quarter of 2019. |
|
● |
Integrated
with Bluetooth as well as other technologies that will allow for
mobile-app control, dose restrictions, safety controls, and usage
statistics. |
|
● |
We
plan to OEM these product to third-party customers. |
|
● |
MyDx
plans to develop he first touchscreen kitchen tablet in the market
with integrated MyDx sensor reading capability. |
|
● |
Sensor
lineup to include OrganaDx, AquaDx, and AeroDx. |
|
● |
Company
plans to offer CannaDx data portal management ability in MyDx
Tablet Edition. |
MyDx
plans to evaluate the 510K FDA device approval process to leverage
its consumer products and the ability of insurance companies to
support sales of its smart devices and generate HIPPA compliant
crowdsourced data.
Pre-Clinical
Chemical Analysis and Patient Feedback Ecosystem.
MyDx
has four classes of data and algorithms:
|
● |
When
users download the CannaDx mobile app, we may ask them put in
personal details such as gender, location, height, weight, age etc.
that we maintain while complying with HIPAA. |
|
2) |
Chemical
Composition Data |
|
● |
This
information is sourced from a number of inputs including the
CannaDx Handheld’s Total Canna Profile (TCP), partner laboratories
analyses, and branded pre-tested concentrates. |
|
● |
Provided
by users in our CannaDx mobile app as they try various products and
record their experiences with those products. |
|
● |
We
plan to capture type, frequency, dosage, ailments relieved, and
side effects. |
MyDx
plans to leverage this data, which combined is referred to as the
Total Canna ProfileTM (TCP), combined with our
proprietary algorithms, to develop key insights into user behavior
based on unique chemical profiles. Our goal is to track how a
specific sample is expected to help relieve certain ailments and to
validate the results.
Identifying
‘green Active Pharmaceutical IngredientsTM’
(gAPITM) and corresponding formulations
|
1) |
Sale
and License of Product Formulations |
|
● |
MyDx
plans to work with third party customers to license crowdsourced
formulated chemical profiles that are expected to address a
specific “relief” desired using its own proprietary formulas
derived from our extensive dataset and algorithms. |
|
2) |
Sale
of green Active Pharmaceutical Ingredients
(gAPITM) |
|
● |
This
division will also look to provide an organic source of extracted
green Active Pharmaceutical Ingredients (gAPITM), such
as a predefined terpene formulation, for consumer and industrial
use. |
|
● |
Given
that certain classes of gAPI’s such hemp derived CBD and terpenes
might offer “relief” without the “high” THC provides, MyDx intends
to partner with leaders in the industry to offer branded products
without THC, akin to a “virgin” cocktail, if it finds that these
formulations offer the benefits desired and the legal framework to
sell them is viable. |
4. |
SaaS
(Software as a Service) |
Software
services for prescribers, patient groups, cultivators, and
regulators
|
● |
Available
in iOS and Android and controls the MyDx Analyzer. |
|
● |
Tracks
patient tested samples and physiological feedback. |
|
● |
Prints
a Certificate of Analysis, which includes patient
feedback. |
|
● |
Offers
patients groups and their doctors with OEM software to track what
the community is experiencing. |
|
● |
Centrally
hosted in our secure cloud based server. |
|
● |
Will
offer in App purchases for additional software subscription
features. |
|
● |
MyDx360
is a Software As A Service (SAAS)-based community engagement
platform designed to help entrepreneurs develop, launch and track
the effects of new formulated products on consumers to help
penetrate their target markets more effectively. |
|
● |
As
part of the service, companies will choose from among MyDx’s many
chemical formulations that best align with the physiological
response its target demographic is seeking. From there, MyDx will
outsource the delivery of those formulations through licensed
concentrate manufacturing facilities and provide
customer-engagement support via its SAAS platform and MyDx smart
devices such as the EcoSmartPen to acquire and analyze user
feedback. |
|
● |
Collectively,
this suite of services will be called MyDx360. |
|
3) |
Software
to Support Laboratory Marketing, Customer Service and Data
Aggregation |
|
● |
MyDx
will offer what we believe will be the premier lead generator and
outsourced services provider for cannabis testing labs. |
|
● |
Through
certain assets MyDx expects to develop or acquire, as well as leads
generated from our handheld analysis and smart devices, we believe
MyDx will be positioned to become a world leader in cannabis
laboratory marketing and services and as the largest “data holder”
of tested cannabis and the associated chemical profiles tied to the
ailment therapy. |
Change in Officers and Directors
On
November 10, 2018, the Company entered into a consulting agreement
(the “Mr. Cannabis Consulting Agreement”) with Mr. Cannabis, Inc.,
a California corporation (the “Consultant”), pursuant to which the
Consultant 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 “Term”). The Mr. Cannabis
Consulting Agreement shall not be terminated within the first six
months of the Term. The Company or the Consultant may terminate
this Agreement, with or without cause, at any time after the first
six months of the 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, the Consultant 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 (the “Common
Stock”) at the time of the first notice of exercise given by the
Consultant to the Company, exercisable at a price of $.001 per
share and for a term of three years from the date of issuance (the
“Mr. Cannabis Warrant”).
In
connection with the Mr. Cannabis Consulting Agreement, Mr. Daniel
Yazbeck resigned from his position as the Company’s Chief Executive
Officer (the “Yazbeck Resignation”), but remains a member of the
Company’s Board of Directors (the “Board”). Upon Mr. Yazbeck’s
resignation, the Board appointed Mr. Matthew Bucciero, an affiliate
of the Consultant, as Chief Executive Officer of the Company.
Additionally, Mr. Erai Beckmann, currently President of the
Consultant, was appointed to the Board.
Mr.
Beckmann was the CEO of Humanity Holdings through February 2018. At
the time the Company entered into the License and Services
Agreement with Humanity Holdings in April 2018, Mr. Beckmann’s
position was Co-Founder and he owned 23% of the entity. In
addition, on February 1, 2018, the Company and Mr. Beckmann entered
into a twelve (12) month Research, Manufacturing, Advertising and
Marketing Services Agreement. During the year ended December 31,
2018, the Company has
issued 43,906,926 restricted shares of common stock to Mr.
Beckmann in connection with the
February agreement.
Effective
August 1, 2019, Mr. Erai Beckman resigned from his position as a
member of the Board and Mr. Matthew Bucciero resigned from his
position as Chief Executive Officer and Chief Financial Officer of
the Company. The resignations were not caused by a disagreement
with the Company.
Effective as of October 2, 2019, Daniel Yazbeck was appointed as
Interim Chief Executive Officer and Interim Chief Financial Officer
of the Company.
Results
of Operations
As shown in the accompanying consolidated financial statements, the
Company incurred a net income of $2,239,214 and net income of
$69,595, respectively, for the six months June 30, 2019 and 2018.
The Company had an accumulated deficit of $37,726,017 and
$39,965,231 respectively, as of June 30, 2019 and December 31,
2018.
Comparison
of The Three Months Ended June 30, 2019 and 2018
Revenue
For the
three months ended June 30, 2019 and 2018, the Company had
licensing revenue of $867 and $3,641, respectively. For the three
months ended June 30, 2019 and 2018, the Company had product
revenue of $0 and $84,061 respectively. The decrease in revenue for
the three months ended June 30, 2019 compared to 2018 was a result
of backlog of orders that have not been shipped for both product
and service revenue. Due to a supply
chain disruption, MyDx was unable to deliver finished units in the
first quarter of 2019. These issues have since been resolved and
deliveries are expected to resume in the beginning of the third
quarter.
Cost
of Goods Sold and Gross Profit
Gross
profit as a percentage of net revenues for the three months ended
June 30, 2019 and 2018 were (1,126)% and 62%, respectively.
During the
three months ended June 30, 2019 the Company had $867 in revenue
and $10,630 in costs of goods sold. The Company has fixed costs
that are contributing to the high cost of goods sold.
Operating
Expenses
For the three months ended June 30, 2019, the Company incurred
operating expenses in the amount of $128,357 compared to $410,372
for the three months ended June 30, 2018. These operating expenses
were composed of research and development costs, sales and
marketing and general and administrative expenses. The decrease
mainly resulted from the decrease of general and administrative
costs, research and development, and sales and marketing for the
reasons discussed below.
Research
and Development Expenses
Research
and development expenses primarily consist of engineering and
product development, incurred in the design, development, testing
and enhancement of our products. For the three months ended June
30, 2019, the Company expended $12,249 for various research and
development projects for hardware, database, software and sensor
development as compared to $39,218 for the three months ended June
30, 2018. The decrease of $26,969, or 69%, resulted primarily from
the Company decreasing its research and development efforts as a
result of limited cashflow and resources.
Sales
and Marketing Expenses
Sales and
marketing expenses consist primarily of consulting fees for
third-party services and general marketing expenses. For the three
months ended June 30, 2019, the Company expended $10,123 as
compared to $58,872 for the three months ended June 30, 2018. The
decrease of $48,749, or 83%, resulted primarily from the Company
resulted primarily from the Company decreasing marketing efforts as
a result of limited cashflow and resources.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries, wages
and benefits, consulting fees, legal fees, accounting fees and
general administrative expenses.
For the
three months ended June 30, 2019, the Company expended $105,985 as
compared to $312,282 for the three months ended June 30, 2018.
The decrease of $206,297, or 66%, resulted primarily from an
decrease in stock - based compensation.
Other
income (expense)
Other
expenses decreased by approximately $2.5 million, resulted
primarily from an increase in change in fair value of derivative
liability, offset by an increase in interest expense. This was
offset by an increase in change in derivative expense, an increase
in change in fair value of derivative liability of $2,603,135 and a
loss on settlement of vendor liability of $109,212.
Comparison
of The Six Months Ended June 30, 2019 and 2018
Revenue
For the
six months ended June 30, 2019 and 2018, the Company had licensing
revenue of $867 and $7,771, respectively. For the six months ended
June 30, 2019 and 2018, the Company had product revenue of $1,251
and $150,905, respectively. For the six months ended June 30, 2019
and 2018, the Company had product service revenue of $288 and
$11,577, respectively. The decrease in revenue for the six months
ended June 30, 2019 compared to 2018 was a result of backlog of
orders that have not been shipped for both product and service
revenue. Due to a supply chain disruption, MyDx was unable to
deliver finished units in the first quarter of 2019. These issues
have since been resolved and deliveries are expected to resume in
the beginning of the third quarter.
Cost
of Goods Sold and Gross Profit
Gross
profit as a percentage of net revenues for the six months ended
June 30, 2019 and 2018 were (1,044%) and 64%,
respectively.
Operating
Expenses
For the six months ended June 30, 2019, the Company incurred
operating expenses in the amount of $623,487 compared to $941,362
for the six months ended June 30, 2018. These operating expenses
were composed of research and development costs, sales and
marketing and general and administrative expenses. The decrease
mainly resulted from the decrease in research and development,
decrease in sales and marketing, which were partially offset by the
increase in general and administrative for the reasons discussed
below.
Research and Development Expenses
Research
and development expenses primarily consist of engineering and
product development, incurred in the design, development, testing
and enhancement of our products. For the six months ended June 30,
2019, the Company expended $26,184 for various research and
development projects for hardware, database, software and sensor
development as compared to $272,308 for the three months ended June
30, 2018. The decrease of $246,124, or 90%, resulted primarily from
the Company decreasing its research and development efforts due to
limited cashflow and resources.
Sales and Marketing Expenses
Sales and
marketing expenses consist primarily of consulting fees for
third-party services and general marketing expenses. For the six
months ended June 30, 2019, the Company expended $64,413 as
compared to $111,125 for the three months ended June 30, 2018. The
decrease of $46,712, or 42%, resulted primarily from the Company
decreasing marketing efforts due to limited cashflow and
resources.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries,
wages and benefits, consulting fees, legal fees, accounting fees
and general administrative expenses.
For the
six months ended June 30, 2019, the Company expended $532,890 as
compared to $557,929 for the three months ended June 30, 2018.
The decrease of $25,039, or 4%, resulted primarily from an decrease
in stock - based compensation.
Other income (expense)
Other
income increased by $1,985,004, resulted primarily from an increase
in change in fair value of derivative liability, and a decrease in
interest expense. This was offset by an increase in change in
derivative expense and an increase in change in in fair value of
warrant liability of $3,419,105.
Liquidity
and Capital Resources
Since
its inception, capital raised by the Company has been used
primarily for the Company’s research and development efforts and to
support its operations. As of June 30, 2019, the Company had
remaining cash of $103,537 with a net working capital deficit of
$8,712,932. As a result of the Company’s significant operating
expenditures and the lack of significant product sales revenue, we
expect to incur losses from operations for the near future and will
be required to seek additional capital to sustain our
operations.
It is
anticipated that we will continue to report negative operating cash
flow in future periods, likely until one or more of our products
generate sufficient revenue to cover our operating expenses. If any
of the warrants are exercised, all net proceeds of the warrant
exercise will be used for working capital to fund negative
operating cash flow.
Our
cash balance of $103,537 will not be sufficient to fund our
operations for at least 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 their investment. Additional funding that we do
obtain may be dilutive to the interests of existing
stockholders.
To
the extent, we raise additional capital by issuing equity
securities or obtaining borrowings convertible into equity,
ownership dilution to existing stockholders will result and future
investors may be granted rights superior to those of existing
stockholders. The incurrence of indebtedness or debt financing
would result in increased fixed obligations and could also result
in covenants that would restrict our operations. Our ability to
obtain additional capital may depend on prevailing economic
conditions and financial, business and other factors beyond our
control. The Company cannot provide any assurances that it will be
able to raise the additional capital needed to fund its operations,
or if the Company is able to raise such additional capital, that
any such financing will be on terms which are beneficial to the
existing shareholders.
Working
Capital
|
|
June 30,
2019 |
|
|
December 31,
2018 |
|
Current assets |
|
$ |
312,224 |
|
|
$ |
216,729 |
|
Current
liabilities |
|
|
9,025,157 |
|
|
|
12,643,275 |
|
Working Capital
Deficit |
|
$ |
(8,712,932 |
) |
|
$ |
(12,426,546 |
) |
Current
assets for June 30, 2019 increased compared to December 31, 2018
primarily due to an increase in cash and inventory.
Current liabilities for June 30, 2019 decreased compared to
December 31, 2018 primarily due to a decrease in Warrant liability,
offset by an increase in Accrued Liabilities, Customer Deposits,
Convertible Notes Payable, and Derivative Liability.
Cash
Flows
|
|
Six Months Ended
June 30, |
|
|
|
2019 |
|
|
2018 |
|
Net Cash(Used in)
Operating Activities |
|
$ |
(354,161 |
) |
|
$ |
(38,285 |
) |
Net Cash(Used in) Investing
activities |
|
|
- |
|
|
|
(173,854 |
) |
Net Cash
Provided by Financing Activities |
|
|
355,000 |
|
|
|
135,000 |
|
Net Change |
|
$ |
839 |
|
|
$ |
(77,139 |
) |
Net Cash(Used in) Operating Activities
Our
primary uses of cash from operating activities include payments to
consultants for research and development, compensation and related
costs, legal and professional fees and other general corporate
expenditures.
Cash
used in operating activities consist of net loss adjusted for
certain non-cash items, primarily equity-based compensation
expense, common stock issued in exchange for services, and the
change in fair value of derivative liabilities due primarily to the
mark to market of the Company’s derivatives embedded in the
convertible notes, and a gain of settlement of liabilities during
the six months ended June 30, 2019, as well as the effect of
changes in working capital and other activities.
Net Cash(Used in) Investing activities
For the six months ended June 30, 2019 and 2018, investing
activities used cash of $0 and $0.
Net Cash Provided by Financing Activities
For the six months ended June 30, 2019 and 2018, financing
activities provided cash of $355,000 and $261,071.
Going Concern
At June 30, 2019, we had an accumulated deficit of $37,726,017. We
expect to incur further losses in the development of our business,
all of which casts substantial doubt about our ability to continue
as a going concern. Our ability to continue as a going concern is
dependent upon our ability to generate future profitable operations
and/or to obtain the necessary financing to meet our obligations
and repay our liabilities arising from normal business operations
when they come due.
Off-Balance Sheet Arrangements
We do
not have any off-balance sheet arrangements as defined in Item
303(a)(4) of Regulation S-K.
ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The
Company is not required to provide the information required under
this Item 3.
ITEM
4. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of our
disclosure controls and procedures, as such term is defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, as of the end of the period covered by this Quarterly
Report on Form 10-Q, to provide reasonable assurance that
information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure, and that such
information is recorded, processed, summarized and reported within
the time periods specified in the SEC rules and forms. Based upon
that evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that our disclosure controls and
procedures are not effective as of June 30, 2019, due to the fact
that management has not fully remediated the material weakness
described in our Current Report on Form 10-K filed with the
Securities and Exchange Commission on April 25, 2019.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during the six months ended June 30, 2019, that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II. OTHER
INFORMATION
Item 1. LEGAL
PROCEEDINGS
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.
All Quality & Services, Inc. Matter
On
October 18, 2018, ALL QUALITY & SERVICES, INC., a California
corporation (“AQS”), filed a complaint (the “AQS Complaint”) in the
Superior Court of California, County of Alameda against the Company
alleging breach of contract relating to certain purchase orders and
purchases related thereto. On February 14, 2019, the Company
settled the matter with AQS by paying $25,000 cash to AQS and
agreeing to pay a minimum of $15,000 each month until 2,000 units
have been purchased from AQS which shall not be later than March 1,
2021.
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 April 23, 2019, all five $1,000 payments
have been made to the Company and the matter has 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 appearance
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. A
Judgment in favor of Company in the amount of $258,600 against
Bright Light Marketing, Inc. was entered on May 21,
2019.
Item 1A. RISK FACTORS
We
believe there are no changes that constitute material changes from
the risk factors previously disclosed in our Annual Report on Form
10-K, filed with the SEC on April 25, 2019.
Item 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS
Other than as reported in our Current Reports on Form 8-K, or prior
periodic reports, we have not sold any of our equity securities
during the period covered by this Quarterly Report, except as set
forth below:
On April 25, 2019, the Company issued 10,000,000 shares of common
stock for the conversion of $15,000 of a convertible note.
On April 26, 2019, the Company issued 10,000,000 shares of common
stock for the conversion of $15,000 of a convertible note.
On April 29, 2019, the Company issued 10,000,000 shares of common
stock for the conversion of $15,000 of a convertible note.
On April 29, 2019, the Company issued 11,398,855 shares of common
stock for the conversion of $16,726 of a convertible note.
On April 30, 2019, the Company issued 8,035,900 shares of common
stock for the conversion of $10,447 of a convertible note.
On May 3, 2019, the Company issued 11,538,462 shares of common
stock for the conversion of $15,000 of a convertible note.
On May 6, 2019, the Company issued 18,181,818 shares of common
stock for the conversion of $20,000 of a convertible note.
On May 7, 2019, the Company issued 10,059,827 shares of common
stock for the conversion of $10,462 of a convertible note.
On May 8, 2019, the Company issued 14,545,455 shares of common
stock for the conversion of $16,000 of a convertible note.
On May 9, 2019, the Company issued 17,818,182 shares of common
stock for the conversion of $19,600 of a convertible note.
On May 10, 2019, the Company issued 12,389,219 shares of common
stock for the conversion of $10,469 of a convertible note.
On June 11, 2019, the Company issued 22,455,787 shares of common
stock for the conversion of $14,821 of a convertible note.
On June 12, 2019, the Company issued 13,515,667 shares of common
stock for the conversion of $10,542 of a convertible note.
On June 24, 2019, the Company issued 18,088,883 shares of common
stock for the conversion of $10,853 of a convertible note.
On June 27, 2019, the Company issued 26,597,266 shares of common
stock for the conversion of $15,958 of a convertible note.
On July 2, 2019, the Company issued 20,148,148 shares of common
stock for the conversion of $10,880 of a convertible note.
On July 9, 2019, the Company issued 25,960,310 shares of common
stock for the conversion of $10,903 of a convertible note.
On July 10, 2019, the Company issued 46,741,166 shares of common
stock for the conversion of $19,631 of a convertible note.
On July 18, 2019, the Company issued 36,444,433 shares of common
stock for the conversion of $10,933 of a convertible note.
On July 24, 2019, the Company issued 45,638,875 shares of common
stock for the conversion of $10,953 of a convertible note.
On July 26, 2019, the Company issued 51,014,833 shares of common
stock for the conversion of $12,244 of a convertible note.
On July 31, 2019, the Company issued 45,736,125 shares of common
stock for the conversion of $10,977 of a convertible note.
On August 7, 2019, the Company issued 45,833,333 shares of common
stock for the conversion of $11,000 of a convertible note.
On August 12, 2019, the Company issued 61,203,722 shares of common
stock for the conversion of $11,017 of a convertible note.
The securities described above were issued pursuant to Section
4(a)(2) of the Securities Act of 1933, as amended.
The
Company has not repurchased shares of its common stock.
Item 3. DEFAULTS UPON SENIOR
SECURITIES
There
has been no default in the payment of principal, interest, sinking
or purchase fund installment, or any other material default, with
respect to any indebtedness of the Company.
Item 4. MINE SAFETY
DISCLOSURES
None.
Item 5. OTHER
INFORMATION
None.
Item 6. EXHIBITS
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
MYDX,
INC. |
|
|
|
Dated: October 3,
2019 |
By: |
/s/Daniel Yazbeck |
|
|
Interim Chief Executive
Officer and |
|
|
Interim Chief Financial
Officer |
|
|
|
|
|
(signed both as an Officer
duly authorized to sign on behalf of the Registrant and Principal
Financial Officer of the Registrant) |
35
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