Cardax,
Inc., and Subsidiary
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For
the three-months ended June 30,
|
|
|
For
the six-months ended June 30
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES, net
|
|
$
|
45,391
|
|
|
$
|
272,049
|
|
|
$
|
210,363
|
|
|
$
|
585,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS
SOLD
|
|
|
29,481
|
|
|
|
145,669
|
|
|
|
133,661
|
|
|
|
281,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
15,910
|
|
|
|
126,380
|
|
|
|
76,702
|
|
|
|
304,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages
|
|
|
384,917
|
|
|
|
397,239
|
|
|
|
789,726
|
|
|
|
815,457
|
|
Selling, general,
and administrative expenses
|
|
|
233,876
|
|
|
|
391,250
|
|
|
|
525,445
|
|
|
|
818,117
|
|
Professional fees
|
|
|
200,880
|
|
|
|
229,278
|
|
|
|
442,248
|
|
|
|
411,167
|
|
Stock based compensation
|
|
|
178,687
|
|
|
|
133,062
|
|
|
|
359,062
|
|
|
|
262,687
|
|
Research and development
|
|
|
59,196
|
|
|
|
67,747
|
|
|
|
104,868
|
|
|
|
127,978
|
|
Depreciation
and amortization
|
|
|
7,766
|
|
|
|
7,530
|
|
|
|
19,028
|
|
|
|
17,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,065,322
|
|
|
|
1,226,106
|
|
|
|
2,240,377
|
|
|
|
2,452,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,049,412
|
)
|
|
|
(1,099,726
|
)
|
|
|
(2,163,675
|
)
|
|
|
(2,148,383
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value
of derivative liability
|
|
|
17,385
|
|
|
|
-
|
|
|
|
17,385
|
|
|
|
-
|
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
556
|
|
Interest income
|
|
|
-
|
|
|
|
815
|
|
|
|
2
|
|
|
|
1,934
|
|
Interest
expense
|
|
|
(49,667
|
)
|
|
|
(1,211
|
)
|
|
|
(70,826
|
)
|
|
|
(2,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other (expense) income, net
|
|
|
(32,282
|
)
|
|
|
(396
|
)
|
|
|
(53,439
|
)
|
|
|
398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before the
provision for income taxes
|
|
|
(1,081,694
|
)
|
|
|
(1,100,122
|
)
|
|
|
(2,217,114
|
)
|
|
|
(2,147,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR
INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(1,081,694
|
)
|
|
$
|
(1,100,122
|
)
|
|
$
|
(2,217,114
|
)
|
|
$
|
(2,147,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHARES USED IN CALCULATION OF NET LOSS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
136,934,763
|
|
|
|
122,975,014
|
|
|
|
135,449,180
|
|
|
|
122,825,595
|
|
Diluted
|
|
|
136,934,763
|
|
|
|
122,975,014
|
|
|
|
135,449,180
|
|
|
|
122,825,595
|
|
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Cardax,
Inc., and Subsidiary
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER DEFICIT
Six-months
ended June 30, 2018 and 2019
|
|
Common
Stock
|
|
|
Additional
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In-Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
|
|
122,674,516
|
|
|
$
|
122,675
|
|
|
$
|
56,401,069
|
|
|
$
|
(10,125
|
)
|
|
$
|
(57,919,096
|
)
|
|
$
|
(1,405,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock grants
to independent directors
|
|
|
469,274
|
|
|
|
469
|
|
|
|
112,031
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,125
|
|
|
|
-
|
|
|
|
10,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises
- cashless
|
|
|
156,997
|
|
|
|
157
|
|
|
|
(157
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
- options
|
|
|
-
|
|
|
|
-
|
|
|
|
140,062
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,147,985
|
)
|
|
|
(2,147,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2018
|
|
|
123,300,787
|
|
|
$
|
123,301
|
|
|
$
|
56,653,005
|
|
|
$
|
-
|
|
|
$
|
(60,067,081
|
)
|
|
$
|
(3,290,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2019
|
|
|
133,888,573
|
|
|
$
|
133,889
|
|
|
$
|
58,274,038
|
|
|
$
|
-
|
|
|
$
|
(61,943,318
|
)
|
|
$
|
(3,535,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock grants
to independent directors
|
|
|
1,043,858
|
|
|
|
1,044
|
|
|
|
173,956
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock grant to
service providers
|
|
|
75,000
|
|
|
|
75
|
|
|
|
10,987
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
- options
|
|
|
-
|
|
|
|
-
|
|
|
|
173,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
173,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issuances
|
|
|
1,633,330
|
|
|
|
1,633
|
|
|
|
243,367
|
|
|
|
-
|
|
|
|
-
|
|
|
|
245,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
attached to a convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
33,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,217,114
|
)
|
|
|
(2,217,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2019
|
|
|
136,640,761
|
|
|
$
|
136,641
|
|
|
$
|
58,908,648
|
|
|
$
|
-
|
|
|
$
|
(64,160,432
|
)
|
|
$
|
(5,115,143
|
)
|
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Cardax,
Inc., and Subsidiary
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER DEFICIT
(continued)
Three-months
ended June 30, 2018 and 2019
|
|
Common
Stock
|
|
|
Additional
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In-Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2018
|
|
|
122,859,700
|
|
|
$
|
122,860
|
|
|
$
|
56,520,383
|
|
|
$
|
-
|
|
|
$
|
(58,966,959
|
)
|
|
$
|
(2,323,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock grants
to independent directors
|
|
|
284,090
|
|
|
|
284
|
|
|
|
62,216
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises
- cashless
|
|
|
156,997
|
|
|
|
157
|
|
|
|
(157
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
- options
|
|
|
-
|
|
|
|
-
|
|
|
|
70,563
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,100,122
|
)
|
|
|
(1,100,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2018
|
|
|
123,300,787
|
|
|
$
|
123,301
|
|
|
$
|
56,653,005
|
|
|
$
|
-
|
|
|
$
|
(60,067,081
|
)
|
|
$
|
(3,290,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2019
|
|
|
134,686,596
|
|
|
$
|
134,687
|
|
|
$
|
58,498,615
|
|
|
$
|
-
|
|
|
$
|
(61,943,318
|
)
|
|
$
|
(3,310,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock grants
to independent directors
|
|
|
583,333
|
|
|
|
583
|
|
|
|
86,917
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock grant to
service providers
|
|
|
37,500
|
|
|
|
38
|
|
|
|
4,649
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
- options
|
|
|
-
|
|
|
|
-
|
|
|
|
86,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issuances
|
|
|
1,333,332
|
|
|
|
1,333
|
|
|
|
198,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants
attached to a convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
33,300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,217,114
|
)
|
|
|
(2,217,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June
30, 2019
|
|
|
136,640,761
|
|
|
$
|
136,641
|
|
|
$
|
58,908,648
|
|
|
$
|
-
|
|
|
$
|
(64,160,432
|
)
|
|
$
|
(5,115,143
|
)
|
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Cardax,
Inc., and Subsidiary
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the six-months ended June 30,
|
|
2019
|
|
|
2018
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,217,114
|
)
|
|
$
|
(2,147,985
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
19,028
|
|
|
|
17,135
|
|
Amortization of
debt discount
|
|
|
9,459
|
|
|
|
-
|
|
Stock based compensation
|
|
|
359,062
|
|
|
|
262,687
|
|
Bad debt expense
on note receivable and accrued interest
|
|
|
-
|
|
|
|
89,933
|
|
Change in fair value
of derivative liability
|
|
|
(17,385
|
)
|
|
|
|
|
Changes in assets
and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
170,225
|
|
|
|
83,201
|
|
Inventories
|
|
|
55,579
|
|
|
|
(58,637
|
)
|
Deposits and other
assets
|
|
|
-
|
|
|
|
(118,168
|
)
|
Prepaid expenses
|
|
|
1,315
|
|
|
|
(78,376
|
)
|
Accrued payroll
and payroll related expenses
|
|
|
9,072
|
|
|
|
15,982
|
|
Accounts payable
and accrued expenses
|
|
|
(452,689
|
)
|
|
|
44,902
|
|
Accrued
separation costs
|
|
|
(4,500
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(2,067,948
|
)
|
|
|
(1,889,326
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Increase
in intangible assets
|
|
|
(14,354
|
)
|
|
|
(20,328
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used
in investing activities
|
|
|
(14,354
|
)
|
|
|
(20,328
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from the
issuance of common stock
|
|
|
245,000
|
|
|
|
-
|
|
Proceeds from the
issuances of notes payable
|
|
|
1,550,000
|
|
|
|
-
|
|
Proceeds
from the issuances of a shareholder note payable
|
|
|
75,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
1,870,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN
CASH
|
|
|
(212,302
|
)
|
|
|
(1,909,654
|
)
|
|
|
|
|
|
|
|
|
|
BEGINNING OF THE PERIOD
|
|
|
243,753
|
|
|
|
2,236,837
|
|
|
|
|
|
|
|
|
|
|
END OF THE PERIOD
|
|
$
|
31,451
|
|
|
$
|
327,183
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
42,045
|
|
|
$
|
2,092
|
|
Cash paid for income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Discount recognized
on notes payable at issuance
|
|
$
|
83,300
|
|
|
$
|
-
|
|
Settlement of receivables
with payables
|
|
$
|
47,597
|
|
|
$
|
80,000
|
|
Right to use assets
funded through leases
|
|
$
|
26,298
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS
NOTE
1 – COMPANY BACKGROUND
The
Company’s predecessor, Cardax Pharmaceuticals, Inc. (“Holdings”), was incorporated in the State of Delaware
on March 23, 2006.
Cardax,
Inc. (the “Company”) (OTCQB:CDXI) is a development stage biopharmaceutical company primarily focused on the development
of pharmaceuticals for chronic diseases driven by inflammation. The Company also has a commercial business unit that markets dietary
supplements for inflammatory health. CDX-101, the Company’s astaxanthin pharmaceutical candidate, is being developed for
cardiovascular inflammation and dyslipidemia, with a target initial indication of severe hypertriglyceridemia. CDX-301, the Company’s
zeaxanthin pharmaceutical candidate, is being developed for macular degeneration, with a target initial indication of Stargardt
disease. The Company’s pharmaceutical candidates are currently in pre-clinical development, including the planning of IND
enabling studies. ZanthoSyn® is a physician recommended astaxanthin dietary supplement for inflammatory health. The Company
sells ZanthoSyn® primarily through wholesale and e-commerce channels. The safety and efficacy of the Company’s products
have not been directly evaluated in clinical trials or confirmed by the FDA.
Going
concern matters
The
accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying condensed consolidated
financial statements, the Company incurred net losses of $1,081,694 and $2,217,114 for the three and six-months ended June 30,
2019, respectively, and incurred net losses of $1,100,122 and $2,147,985 for the three and six-months ended June 30, 2018, respectively.
The Company has incurred losses since inception resulting in an accumulated deficit of $64,160,432 as of June 30, 2019, and has
had negative cash flows from operating activities since inception. The Company expects that its marketing program for ZanthoSyn®
will continue to focus on outreach to physicians, healthcare professionals, retail personnel, and consumers, and anticipates further
losses in the development of its consumer business. The Company also plans to advance the research and development of its pharmaceutical
candidates and anticipates further losses in the development of its pharmaceutical business. As a result of these and other factors,
management has determined there is substantial doubt about the Company’s ability to continue as a going concern.
During
the six-months ended June 30, 2019, the Company raised additional capital to carry out its business plan. As part of the Company’s
efforts, it raised an additional $245,000 in equity from existing stockholders and issued $1,625,000 in debt, including $1,400,000
from a current stockholder that beneficially owns more than 5% of the Company’s common stock and $75,000 from a related
party. In addition, the Company raised $850,000 subsequent to June 30, 2019 from a current stockholder that beneficially
owns more than 5% of the Company’s common stock. On August 14, 2019, the Company filed a registration statement on
Form S-1 for a proposed $15 million public offering of common stock and warrants. The Company intends to use the proceeds
from the proposed public offering primarily to fund pharmaceutical development and its operations. The Company’s
continued ability to raise additional capital through future equity and debt securities issuances is unknown. Obtaining additional
financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately,
to profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors
raises substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial
statements of the Company do not include any adjustments that may result from the outcome of these uncertainties.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited
interim financial information
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the rules and
regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. In the opinion
of the Company’s management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting
of normal, recurring adjustments, considered necessary for a fair presentation of the results for the interim periods ended June
30, 2019 and 2018.
Although
management believes that the disclosures in these unaudited condensed consolidated financial statements are adequate to make the
information presented not misleading, certain information and footnote disclosures normally included in financial statements that
have been prepared in accordance U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.
These
unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and
the related notes included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2018, filed
with the SEC on March 28, 2019.
Revenue
from contracts with customers
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard related to revenue recognition.
Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects
the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure
of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The
Company adopted this standard effective January 1, 2018, using the retrospective method. As there was no impact on contracts that
were previously completed and no significant impact to contracts completed after adoption, there was no need to restate prior
results from operations.
The
Company recognizes revenues from its contracts with customers for its products through wholesale and e-commerce channels when
goods and services have been identified, the payment terms agreed to, the contract has commercial substance, both parties have
approved the contract, and it is probable that the Company will collect all substantial consideration.
The
following table presents our revenues disaggregated by revenue source and geographical location. Sales and usage-based taxes are
included as a component of revenues for the six-months ended:
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Geographical
area
|
|
Source
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
United States
|
|
Nutraceuticals
|
|
$
|
210,363
|
|
|
$
|
568,946
|
|
Hong Kong
|
|
Nutraceuticals
|
|
$
|
-
|
|
|
$
|
16,413
|
|
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
from contracts with customers (continued)
Sales
discounts, rebates, promotional amounts to vendors, and returns and allowances are recorded as a reduction to sales in the period
in which sales are recorded. The Company records shipping charges and sales tax gross in revenues and cost of goods sold. Sales
discounts and other adjustments are recorded at the time of sale.
Leases
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
. This ASU requires management to recognize lease assets and lease
liabilities for all leases. ASU No. 2016-02 retains a distinction between finance leases and operating leases. The classification
criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria
for distinguishing between capital leases and operating leases in the previous lease guidance. The result of retaining a distinction
between finance leases and operating leases is that under the lessee accounting model, the effect of leases in the statement of
comprehensive income and the statement of cash flows is largely unchanged from previous U.S. GAAP. The guidance in ASU No. 2016-02
is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
The
Company applied the modified retrospective approach in adopting this standard. The modified retrospective approach includes a
number of optional practical expedients that the Company elected to apply; primarily the identification and classification of
leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and
the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset.
As part of this adoption, the Company will, in effect, continue to account for leases that commence before the effective date
in accordance with previous U.S. GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use
asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum
rental payments that were tracked and disclosed under previous U.S. GAAP. This adoption of this standard on January 1, 2019, resulted
in the Company recognizing a right-to-use asset and lease liability. The Company elected to not recognize any right-to-use assets
or liabilities for leases that are twelve months or less. Lease costs are recognized straight-line over the term of the lease.
The adoption of this standard did not impact retained earnings or cash flows of the Company.
Derivative
financial instruments
The
Company accounts for the fair value of the conversion feature in accordance with ASC 815-15,
Derivatives and Hedging; Embedded
Derivatives
, which requires the Company to bifurcate and separately account for the conversion feature as an embedded derivative
contained in the Company’s convertible note. The Company is required to carry the embedded derivative on its balance sheet
at fair value. The initial value of the embedded derivative is accounted for as a discount to the convertible note and a derivative
liability. The liability is required to be remeasured at each reporting date and changes in fair value is recognized as a component
in its results of operations. The Company valued the embedded derivatives on the condensed consolidated balance sheet at fair
value using the Black-Scholes valuation model.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other
significant accounting policies
There
have been no other material changes to our significant accounting policies during the six-months ended June 30, 2019, as compared
to the significant accounting policies described in our Annual Report.
Reclassifications
The
Company has made certain reclassifications to conform its prior periods’ data to the current presentation, such as reclassifying
a separation agreement that has terms extending beyond one year. These reclassifications had no effect on the reported results
of operations or cash flows.
NOTE
3 – INVENTORIES
Inventories
consist of the following as of:
|
|
June
30, 2019
(Unaudited)
|
|
|
December 31, 2018
|
|
Finished goods
|
|
$
|
650,213
|
|
|
$
|
96,750
|
|
Raw materials
|
|
|
774,588
|
|
|
|
1,383,630
|
|
Total inventories
|
|
$
|
1,424,801
|
|
|
$
|
1,480,380
|
|
As
of June 30, 2019 and December 31, 2018, all raw materials were held at the manufacturer’s facility for future production.
NOTE
4 – INTANGIBLE ASSETS, net
Intangible
assets, net, consists of the following as of:
|
|
June
30, 2019
(Unaudited)
|
|
|
December 31, 2018
|
|
Patents
|
|
$
|
585,589
|
|
|
$
|
578,326
|
|
Less
accumulated amortization
|
|
|
(311,540
|
)
|
|
|
(292,512
|
)
|
|
|
|
274,049
|
|
|
|
285,814
|
|
Patents
pending
|
|
|
155,811
|
|
|
|
148,720
|
|
Total
intangible assets, net
|
|
$
|
429,860
|
|
|
$
|
434,534
|
|
Patents
are amortized straight-line over a period of fifteen years. Amortization expense was $7,766 and $19,028 for the three and six-months
ended June 30, 2019, respectively. Amortization expense was $6,717 and $15,235 for the three and six-months ended June 30, 2018,
respectively.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
4 – INTANGIBLE ASSETS, net (continued)
The
Company has capitalized costs for several patents that are still pending. In those instances, the Company has not recorded any
amortization. The Company will commence amortization when these patents are approved.
The
Company owns 28 issued patents, including 14 in the United States and 14 others in Europe, Canada, China, India, Japan, and Hong
Kong. These patents will expire beginning in 2023 through 2028, subject to any patent term extensions of the individual patent.
The Company has 1 patent application pending in the United States and 2 foreign patent applications pending in Europe and Brazil.
NOTE
5 –ACCRUED SEPARATION COSTS
On
August 9, 2016, the Company entered into a separation agreement with an employee to pay $118,635 of accrued compensation over
nine-years. As of June 30, 2019, $97,135 remains outstanding of which $9,000 is due within one-year and is reflected as a current
liability.
NOTE
6 –RELATED PARTY NOTE PAYABLE
On
June 26, 2019, the Company borrowed $75,000 from the Chief Executive Officer of the Company with principal and interest due on
August 26, 2019. This note accrues interest at the rate of 4.5% per annum and is unsecured. Accrued interest expense as of June
30, 2019 and for the six-months then ended was $46.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
7 – NOTES PAYABLE
Notes
payable consisted of the following as of:
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
|
|
(Unaudited)
|
|
|
|
|
Inventory
financing.
On January 11, 2019, the Company entered into a $1,000,000 revolving inventory financing facility with a
lender that is also a current stockholder that beneficially owns more than 5% of the Company’s common
stock. Use of proceeds from this facility is limited to the purchase of inventory, including raw materials, intermediates,
and finished goods, unless otherwise waived by the lender. This facility accrues interest at the rate of 12% per annum, is
unsecured, and matures in three years from origination. This facility requires monthly interest payments.
|
|
$
|
1,000,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Promissory
note.
On May 20, 2019, the Company entered into a $400,000 promissory note with a lender
that is also a current stockholder that beneficially owns more than 5% of the Company’s common stock. This note accrues
interest at the rate of 12% per annum, is unsecured, and matures on August 20, 2019. All principal and accrued interest is
due on the maturity date.
|
|
|
400,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible
note.
On April 18, 2019, the Company issued a convertible note payable in the amount $150,000. This note accrues interest
at 10% per annum and matures on December 31, 2019. This note and accrued interest may convert into shares of common stock
at $0.12 per share any time at the holder’s option or automatically upon maturity provided the 20-day volume weighted
average price per share of the Company’s common stock upon maturity is at least $0.12 per share. This note was also
issued with a detachable warrant to purchase 500,000 shares of stock at $0.20 per share. The valuation of the conversion feature
and detachable warrants resulted in the recognition of an $83,300 aggregate discount on this note.
|
|
|
150,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
1,550,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less amortized
discount
|
|
|
(73,841
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total notes payable, net
|
|
|
1,476,159
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less current
portion
|
|
|
(476,159
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Long term
notes payable
|
|
$
|
1,000,000
|
|
|
|
-
|
|
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
7 – LONG-TERM NOTE PAYABLE (continued)
Discount
The
Convertible Note was issued with a detachable warrant to purchase 500,000 shares of stock at $0.20 per share. The valuation of
the conversion feature and detachable warrants resulted in the recognition of a $33,300 discount on this note at the date of issuance.
The
Convertible Note is convertible into shares of common stock at $0.12 per share for a maximum amount of 1,250,000 shares. This
conversion feature is accounted for as an embedded derivative (see Note 8) and resulted in the recognition of a $50,000 discount
on this note at the date of issuance.
Total
discounts of $83,300 are amortized using the interest method, which resulted in amortization recorded as interest expense of $9,459
for the three and six-months ended June 30, 2019.
Interest
expense
The
Company incurred interest charges of $38,528 and $58,501 during the three and six-months ended June 30, 2019, respectively, on
these notes payable of which $18,474 was accrued and payable as of June 30, 2019.
Maturities
Future
maturities of notes payable are as follows as of June 30, 2019:
2019
|
|
$
|
550,000
|
|
2020
|
|
|
-
|
|
2021
|
|
|
-
|
|
2022
|
|
|
1,000,000
|
|
|
|
$
|
1,550,000
|
|
NOTE
8 – DERIVATIVE FINANCIAL INSTRUMENT
The
Company estimates the fair value of the conversion feature in its issued convertible note as derivative financial instrument at
issuance and at each subsequent reporting date using the Black-Scholes valuation model. The initial value is used in the determination
of a note discount with each subsequent change in fair value as a component of operations. The fair value assumptions related
to options issued were as follows:
|
|
As
of
June 30, 2019
|
|
|
As
of Issuance Date of
April 18, 2019
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free rate
|
|
|
1.92
|
%
|
|
|
2.44
|
%
|
Volatility
|
|
|
123
|
%
|
|
|
102
|
%
|
Expected term
|
|
|
1
year
|
|
|
|
1
year
|
|
Volatility
was calculated based on the historical volatility of the Company. The risk-free interest rate used was based on the U.S. Treasury
constant maturity rate in effect at the time of grant for the expected term of the stock options to be valued. The expected dividend
yield was zero, because the Company does not anticipate paying a dividend within the relevant timeframe.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
9 – STOCKHOLDERS’ DEFICIT
Self-directed
stock issuance 2019
During
the six-months ended June 30, 2019, the Company sold securities in a self-directed offering to existing stockholders of the Company
in the aggregate amount of $245,000, respectively, at $0.30 per unit. Each $0.30 unit consisted of 2 shares of restricted common
stock (1,633,330 shares) and a five-year warrant to purchase 1 share of restricted common stock (816,665 warrant shares) at $0.20
per share.
Warrant
exchange offering
In
June 2018, the Company commenced an offering to exchange outstanding warrants for shares of common stock under a Form S-4 Registration
Statement. These shares of common stock were issued to warrant holders in exchange for (i) their outstanding warrants to purchase
shares of common stock at $0.625 per share, and (ii) cash payment of $0.15 per share. This offering closed on July 27, 2018, and
resulted in an exchange of 9.6 million warrants and $1,440,043 in gross proceeds for 9,600,286 shares of common stock. Stock issuance
costs associated with this capital raise totaled $196,006, resulting in a net total of $1,244,037 raised in this offering.
Shares
outstanding
As
of June 30, 2019 and December 31, 2018, the Company had a total of 136,640,761 and 133,888,573, respectively, shares of common
stock outstanding.
NOTE
10 – STOCK GRANTS
Director
stock grants
During
the six-months ended June 30, 2019 and 2018, the Company granted its independent directors an aggregate of 1,043,858 and 469,274,
respectively, shares of restricted common stock in the Company. These shares were fully vested upon issuance. The increase in
number of shares issued was due to the expansion of the Board of Directors by two members in June 2018. The expense recognized
for these grants based on the grant date fair value was $175,000 and $112,500 for the six-months ended June 30, 2019 and 2018,
respectively.
Consultant
stock grants
On
April 10, 2017, the Company granted a consultant 100,000 shares of restricted common stock valued at $0.23 per share. These shares
were subject to a risk of forfeiture and vested quarterly in arrears commencing on April 1, 2017. The Company recognized $0 and
$5,750 in stock-based compensation related to this grant during the six-months ended June 30, 2019 and 2018, respectively.
On
August 8, 2017, the Company granted a consultant 100,000 shares of restricted common stock valued at $0.175 per share. These shares
were subject to a risk of forfeiture and vested 25% upon grant and quarterly in arrears thereafter commencing on September 1,
2017. The Company recognized $0 and $4,375 in stock-based compensation related to this grant during the six-months ended June
30, 2019 and 2018, respectively.
On
December 31, 2018, the Company granted consultants 112,500 shares of restricted common stock valued at $0.20 per share. These
shares were fully vested upon issuance. The Company recognized $22,500 in stock-based compensation related to these grants during
the year ended December 31, 2018.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
10 – STOCK GRANTS (continued)
On
March 31, 2019, the Company granted consultants 37,500 shares of restricted common stock valued at $0.17 per share. On
June 30, 2019, the Company granted consultants 37,500 shares of restricted common stock valued at $0.125 per share. These
shares were fully vested upon issuance. The Company recognized $11,062 in stock-based compensation related to these grants during
the six-months ended June 30, 2019.
NOTE
11 – STOCK OPTION PLANS
On
February 7, 2014, the Company adopted the 2014 Equity Compensation Plan. Under this plan, the Company may issue options to purchase
shares of common stock to employees, directors, advisors, and consultants. The aggregate number of shares reserved under this
plan upon adoption was 30,420,148. On April 16, 2015, the majority stockholder of the Company approved an increase in the Company’s
2014 Equity Compensation Plan by 15 million shares. On December 4, 2018, the stockholders of the Company approved an increase
in the Company’s 2014 Equity Compensation Plan by an additional 5 million shares, for a total of 50,420,148 shares reserved
under the plan.
Under
the terms of the 2014 Equity Compensation Plan and the 2006 Stock Incentive Plan (collectively, the “Plans”), incentive
stock options may be granted to employees at a price per share not less than 100% of the fair market value at date of grant. If
the incentive stock option is granted to a 10% stockholder, then the purchase or exercise price per share shall not be less than
110% of the fair market value per share of common stock on the grant date. Non-statutory stock options and restricted stock may
be granted to employees, directors, advisors, and consultants at a price per share, not less than 100% of the fair market value
at date of grant. Options granted are exercisable, unless specified differently in the grant documents, over a default term of
ten years from the date of grant and generally vest over a period of four years.
A
summary of stock option activity is as follows:
|
|
Options
|
|
|
Weighted
average
exercise price
|
|
|
Weighted
average
remaining
contractual
term in years
|
|
|
Aggregate
intrinsic value
|
|
Outstanding
January 1, 2018
|
|
|
38,213,427
|
|
|
$
|
0.41
|
|
|
|
5.23
|
|
|
$
|
562,456
|
|
Exercisable
January 1, 2018
|
|
|
36,213,427
|
|
|
$
|
0.41
|
|
|
|
4.98
|
|
|
$
|
562,456
|
|
Canceled
|
|
|
(350,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,833,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(200,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
December 31, 2018
|
|
|
40,496,761
|
|
|
$
|
0.40
|
|
|
|
4.52
|
|
|
$
|
986,808
|
|
Exercisable
December 31, 2018
|
|
|
37,157,179
|
|
|
$
|
0.41
|
|
|
|
4.10
|
|
|
$
|
966,808
|
|
Canceled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
June 30, 2019
|
|
|
40,496,761
|
|
|
$
|
0.40
|
|
|
|
4.03
|
|
|
$
|
335,405
|
|
Exercisable
June 30, 2019
|
|
|
37,846,756
|
|
|
$
|
0.41
|
|
|
|
3.69
|
|
|
$
|
335,405
|
|
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
11 – STOCK OPTION PLANS (continued)
The
aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise
price option recipients would have received if all options had been exercised on June 30, 2019, based on a valuation of the Company’s
stock for that day.
A
summary of the Company’s non-vested options for the six-months ended June 30, 2019 and year ended December 31, 2018, are
presented below:
Non-vested at January 1, 2018
|
|
|
2,000,000
|
|
Granted
|
|
|
2,833,334
|
|
Vested
|
|
|
(1,143,752
|
)
|
Canceled
|
|
|
(350,000
|
)
|
Non-vested at December 31, 2018
|
|
|
3,339,582
|
|
Granted
|
|
|
-
|
|
Vested
|
|
|
(689,577
|
)
|
Canceled
|
|
|
-
|
|
Non-vested at June 30, 2019
|
|
|
2,650,005
|
|
The
Company estimates the fair value of stock options granted on each grant date using the Black-Scholes option valuation model and
recognizes an expense ratably over the requisite service period. The range of fair value assumptions related to options issued
were as follows for the:
|
|
Six-months
ended
June 30, 2019
|
|
|
Year
ended
December 31, 2018
|
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Risk-free rate
|
|
|
2.38%
- 3.04
|
%
|
|
|
2.38%
- 3.04
|
%
|
Volatility
|
|
|
214%
- 226
|
%
|
|
|
214%
- 226
|
%
|
Expected term
|
|
|
3
- 7 years
|
|
|
|
3
- 7 years
|
|
Volatility
was calculated based on the historical volatility of the Company. The risk-free interest rate used was based on the U.S. Treasury
constant maturity rate in effect at the time of grant for the expected term of the stock options to be valued. The expected dividend
yield was zero, because the Company does not anticipate paying a dividend within the relevant timeframe.
The
Company records forfeitures as they occur and reverses compensation cost previously recognized, in the period the award is forfeited,
for an award that is forfeited before completion of the requisite service period.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
11 – STOCK OPTION PLANS (continued)
Stock
option exercise
During
the year ended December 31, 2018, the Company issued 156,997 shares of common stock in connection with the cashless exercise of
stock options for 100,000, 50,000, and 50,000 shares of common stock exercisable at $0.06 per share with 43,003 shares of common
stock withheld with an aggregate fair market value equal to the aggregate exercise price.
Stock
based compensation
The
Company recognized stock-based compensation expense related to options during the:
|
|
Six-months
ended June 30
|
|
|
|
2019
|
|
|
2018
|
|
|
|
Amount
|
|
|
Amount
|
|
Service provider compensation
|
|
$
|
88,750
|
|
|
$
|
31,562
|
|
Employee compensation
|
|
|
84,250
|
|
|
|
108,500
|
|
Total
|
|
$
|
173,000
|
|
|
$
|
140,062
|
|
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
12 – WARRANTS
The
following is a summary of the Company’s warrant activity:
|
|
Warrants
|
|
|
Weighted
average exercise price
|
|
|
Weighted
average remaining contractual term in years
|
|
|
Aggregate
intrinsic value
|
|
Outstanding January
1, 2018
|
|
|
127,434,122
|
|
|
$
|
0.24
|
|
|
|
3.15
|
|
|
$
|
3,957,689
|
|
Exercisable January 1, 2018
|
|
|
127,434,122
|
|
|
$
|
0.24
|
|
|
|
3.15
|
|
|
$
|
3,957,689
|
|
Canceled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
315,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(9,600,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(101,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding December 31, 2018
|
|
|
118,046,862
|
|
|
$
|
0.20
|
|
|
|
2.32
|
|
|
$
|
7,848,637
|
|
Exercisable December 31, 2018
|
|
|
118,046,862
|
|
|
$
|
0.20
|
|
|
|
2.32
|
|
|
$
|
7,848,637
|
|
Expired
|
|
|
(18,405,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,316,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2019
|
|
|
100,958,031
|
|
|
$
|
0.13
|
|
|
|
2.27
|
|
|
$
|
1,276,243
|
|
Exercisable June 30, 2019
|
|
|
100,958,031
|
|
|
$
|
0.13
|
|
|
|
2.27
|
|
|
$
|
1,276,243
|
|
The
Company estimates the fair value of warrants granted on each grant date using the Black-Scholes option valuation model. Volatility
is calculated based on the historical volatility of the Company. The risk-free interest rate used is based on the U.S. Treasury
constant maturity rate in effect at the time of grant for the expected term of the warrants to be valued. The expected dividend
yield is zero, because the Company does not anticipate paying a dividend within the relevant timeframe.
The
Company did not recognize any stock-based compensation expense related to warrants during the three-months ended June 30, 2019
and 2018.
Convertible
note issuance
Warrants
to purchase 500,000 shares of stock at $0.20 per share were issued in connection with the issuance of a convertible note. These
warrants were immediately vested and expire in five years and were recorded as a discount on the convertible note in the amount
of $33,300.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
12 – WARRANTS (continued)
Warrant
exchange offering
In
June 2018, the Company commenced an offering to exchange outstanding warrants for shares of common stock under a Form S-4 Registration
Statement. These shares of common stock were issued to warrant holders in exchange for (i) their outstanding warrants to purchase
shares of common stock at $0.625 per share, and (ii) cash payment of $0.15 per share. This offering closed on July 27, 2018, and
resulted in an exchange of 9.6 million warrants and $1,440,043 in gross proceeds for 9,600,286 shares of common stock. Stock issuance
costs associated with this capital raise totaled $196,006, resulting in a net total of $1,244,037 raised in this offering. As
part of this offering, warrants to purchase 315,010 shares of common stock at $0.21 per share were issued to investment bankers
for their services.
Warrant
expiration
During
the six-months ended June 30, 2019, warrants to purchase an aggregate of 18,405,496 were canceled. During the year ended December
31, 2018, warrants to purchase an aggregate of 101,984 expired.
NOTE
13 – INCOME TAXES
The
Company accounts for income taxes using the asset and liability method. Under this method, deferred income tax assets and liabilities
are determined based upon the difference between the financial statement carrying amounts and the tax basis of assets and liabilities
and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differences are expected
to be reversed.
The
effective tax rate for the three and three-months ended June 30, 2019 and 2018, differs from the statutory rate of 21% as a result
of state taxes (net of Federal benefit), permanent differences, and a reserve against deferred tax assets.
The
Company’s valuation allowance was primarily related to the operating losses. The valuation allowance is determined in accordance
with the provisions of ASC No. 740,
Income Taxes
, which requires an assessment of both negative and positive evidence when
measuring the need for a valuation allowance. Based on the available objective evidence and the Company’s history of losses,
management provides no assurance that the net deferred tax assets will be realized. As of June 30, 2019, and December 31, 2018,
the Company has applied a valuation allowance against its deferred tax assets net of the expected income from the reversal of
the deferred tax liabilities.
Recent
tax legislation
On
March 22, 2018, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law, which significantly changes existing U.S.
tax law and includes numerous provisions that affect our business, such as reducing the U.S. federal statutory tax rate from 35%
to 21% effective January 1, 2018.
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
13 – INCOME TAXES (continued)
Uncertain
tax positions
The
Company is subject to taxation in the United States and two state jurisdictions. The preparation of tax returns requires management
to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid
by the Company. Management, in consultation with its tax advisors, files its tax returns based on interpretations that are believed
to be reasonable under the circumstances. The income tax returns, however, are subject to routine reviews by the various taxing
authorities. As part of these reviews, a taxing authority may disagree with respect to the tax positions taken by management (“uncertain
tax positions”) and therefore may require the Company to pay additional taxes.
Management
evaluates the requirement for additional tax accruals, including interest and penalties, which the Company could incur as a result
of the ultimate resolution of its uncertain tax positions. Management reviews and updates the accrual for uncertain tax positions
as more definitive information becomes available from taxing authorities, completion of tax audits, expiration of statute of limitations,
or upon occurrence of other events.
As
of June 30, 2019 and December 31, 2018, there was no liability for income tax associated with unrecognized tax benefits. The Company
recognizes accrued interest related to unrecognized tax benefits as well as any related penalties in interest income or expense
in its condensed consolidated statements of operations, which is consistent with the recognition of these items in prior reporting
periods.
The
federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally
for three years after they were filed.
NOTE
14 – BASIC AND DILUTED NET LOSS PER SHARE
The
following table sets forth the computation of the Company’s basic and diluted net loss per share for:
|
|
Three-months
ended June 30, 2019
(Unaudited)
|
|
|
|
Net
Loss (Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
share
amount
|
|
Basic loss per share
|
|
$
|
(1,081,694
|
)
|
|
|
135,932,016
|
|
|
$
|
(0.01
|
)
|
Effect of dilutive
securities—Common stock options, warrants, and convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted loss per share
|
|
$
|
(1,081,694
|
)
|
|
|
135,932,016
|
|
|
$
|
(0.01
|
)
|
|
|
Three-months
ended June 30, 2018
(Unaudited)
|
|
|
|
Net
Loss (Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
share
amount
|
|
Basic loss per share
|
|
$
|
(1,100,122
|
)
|
|
|
122,975,014
|
|
|
$
|
(0.01
|
)
|
Effect of dilutive
securities—Common stock options, warrants, and convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted loss per share
|
|
$
|
(1,100,122
|
)
|
|
|
122,975,014
|
|
|
$
|
(0.01
|
)
|
NOTE
14 – BASIC AND DILUTED NET LOSS PER SHARE (continued)
|
|
Six-months
ended June 30, 2019
(Unaudited)
|
|
|
|
Net
Loss (Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
share
amount
|
|
Basic loss per share
|
|
$
|
(2,217,114
|
)
|
|
|
134,945,037
|
|
|
$
|
(0.02
|
)
|
Effect of dilutive
securities—Common stock options, warrants, and convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted loss per share
|
|
$
|
(2,217,114
|
)
|
|
|
134,945,037
|
|
|
$
|
(0.02
|
)
|
|
|
Six-months
ended June 30, 2018
(Unaudited)
|
|
|
|
Net
Loss (Numerator)
|
|
|
Shares
(Denominator)
|
|
|
Per
share
amount
|
|
Basic loss per share
|
|
$
|
(2,147,985
|
)
|
|
|
122,825,595
|
|
|
$
|
(0.02
|
)
|
Effect of dilutive
securities—Common stock options, warrants, and convertible note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted loss per share
|
|
$
|
(2,147,985
|
)
|
|
|
122,825,595
|
|
|
$
|
(0.02
|
)
|
The
following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for
the periods presented because including them would have been antidilutive for the periods ended:
|
|
June
30, 2019
|
|
|
June
30, 2018
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
Convertible note
|
|
|
1,250,000
|
|
|
|
-
|
|
Common stock options
|
|
|
40,496,761
|
|
|
|
38,696,761
|
|
Common stock
warrants
|
|
|
100,958,031
|
|
|
|
127,434,122
|
|
Total common
stock equivalents
|
|
|
142,704,792
|
|
|
|
166,130,883
|
|
Cardax,
Inc., and Subsidiary
NOTES
TO THE CONDENSED CONSOLIDATED
FINANCIAL
STATEMENTS (continued)
NOTE
15 – LEASES
Manoa
Innovation Center
The
Company entered into an automatically renewable month-to-month lease for office space on August 13, 2010. Under the terms of this
lease, the Company must provide a written notice 45 days prior to vacating the premises. Total rent expense under this agreement
as amended was $9,100 and $18,199 for the three and six-months ended June 30, 2019, respectively, and $13,701 and $20,902 for
the three and six-months ended June 30, 2018, respectively.
Fleet
Lease
In
January 2018, the Company entered into a vehicle lease arrangement with a rental company for three vehicles. The terms of the
leases require monthly payments of $1,619 for three years. These leases convert to month-to-month leases in January 2021 unless
terminated. Total lease expense under this agreement was $5,597 and $11,556 for the three and six-months ended June 30, 2019,
respectively, and $5,621 and $9,351 for the three and six-months ended June 30, 2018, respectively.
Right-to-use
leased asset and liability
As
a result of the adoption of ASU No. 2016-02,
Leases
, on January 1, 2019, the Company recognized a right-to-use leased asset
and liability for the Fleet Leases. The balance of this right-to-use asset and liability was $26,298 as of June 30, 2019.
NOTE
16 – SUBSEQUENT EVENTS
The
Company evaluated all material events through the date the financials were ready for issuance.
On
July 10, 2019, an addendum to the $400,000 Promissory Note dated May 20, 2019 increased the borrowing by $100,000.
On August 8, 2019, a second addendum to the note extended the due date to June 30, 2020. All other terms remain unchanged.
On July 11, 2019, the Company
notified GNC that the exclusivity provision of its purchasing agreement with GNC will not automatically renew on October 16, 2019;
however, the other provisions of its purchasing agreement with GNC shall remain in effect.
On
July 19, 2019, the Company entered into a Senior Convertible Note, with a lender that is also a current stockholder that beneficially
owns more than 5% of the Company’s common stock, for $815,217 with an original issue discount of $65,219 and gross proceeds
to the Company of $750,000. This note accrues interest payable monthly at the rate of 8% per annum and matures on June
30, 2020. This note and accrued interest may convert into shares of common stock at $0.12 per share any time at the holder’s
option or automatically upon a qualified financing of at least $5 million. This note also contains a detachable warrant to purchase
1,500,000 shares of common stock at $0.12 per share.
On August 12, 2019, an addendum
to the $75,000 Promissory Note dated June 26, 2019 extended the due date to December 31, 2019. All other terms remain unchanged.
On
August 14, 2019, the Company filed a registration statement on Form S-1 for a proposed $15 million public offering of common stock
and warrants. Such offering is contingent upon the Company obtaining stockholder and board of director approval to effect a reverse
stock split and increase of its authorized number of shares of common stock in amounts to be specified in the registration statement,
which actions would be effective upon such registration statement being declared effective under the Securities Act of 1933, as
amended.
***