Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
Or
| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 333-191175
DTHERA SCIENCES
(Exact name of registrant as specified in its charter)
| Nevada | 90-0925768 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| 7310 Miramar Rd., Suite 350, San Diego, CA | 92126 |
| (Address of principal executive offices) | (Zip Code) |
(858) 215-6360
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant 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). Yes x No o
Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days.
Yes o No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o
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 | o | Accelerated filer | o | |
| | Non-accelerated filer | o | Smaller reporting company | x | |
| | | | Emerging growth company | x | |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The number of shares outstanding of the registrant’s common stock on May 15, 2018, was 50,343,367.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
DTHERA SCIENCES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | March 31, | | | December 31, | |
| | | 2018 | | | 2017 | |
| | | (Unaudited) | | | | |
| ASSETS | | | | | |
| CURRENT ASSETS | | | | | | | | |
| Cash | | $ | 428,966 | | | $ | 323,483 | |
| Prepaid expenses | | | 277,869 | | | | 95,176 | |
| Deposits | | | 2,500 | | | | 2,500 | |
| TOTAL CURRENT ASSETS | | | 709,335 | | | | 421,159 | |
| | | | | | | | | |
| LONG TERM ASSETS | | | | | | | | |
| Property and equipment, net | | | 93,248 | | | | 77,365 | |
| Computer software development costs | | | 78,608 | | | | – | |
| TOTAL LONG TERM ASSETS | | | 171,856 | | | | 77,365 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 881,191 | | | $ | 498,524 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 311,570 | | | $ | 429,015 | |
| Deferred revenue | | | 3,381 | | | | 1,800 | |
| Related party advances | | | 16,188 | | | | 7,457 | |
| TOTAL CURRENT LIABILITIES | | | 331,139 | | | | 438,272 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 331,139 | | | | 438,272 | |
| | | | | | | | | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | |
| Common stock 600,000,000 shares authorized; $0.001 par value; 50,343,367 and 47,043,304 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively | | | 50,343 | | | | 47,043 | |
| Stock subscriptions receivable | | | (500,000 | ) | | | – | |
| Additional paid in capital | | | 6,147,199 | | | | 4,550,156 | |
| Accumulated deficit | | | (5,147,490 | ) | | | (4,536,947 | ) |
| TOTAL STOCKHOLDERS' EQUITY | | | 550,052 | | | | 60,252 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 881,191 | | | $ | 498,524 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
DTHERA SCIENCES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
(Unaudited)
| | | 2018 | | | 2017 | |
| | | | | | | | | |
| REVENUES | | $ | – | | | $ | – | |
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| General and administrative | | | 597,074 | | | | 345,504 | |
| Research and development | | | 10,410 | | | | 6,968 | |
| TOTAL OPERATING EXPENSES | | | 607,484 | | | | 352,472 | |
| | | | | | | | | |
| OPERATING LOSS | | | (607,484 | ) | | | (352,472 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSES) | | | | | | | | |
| Interest expense | | | (280 | ) | | | (185,847 | ) |
Gain on derivative liability
| | | – | | | | 142,835 | |
| Loss on extinguishment of debt | | | – | | | | (91,593 | ) |
| Impairment of fixed assets | | | (2,779 | ) | | | – | |
| TOTAL OTHER EXPENSES | | | (3,059 | ) | | | (134,605 | ) |
| | | | | | | | | |
| NET LOSS | | $ | (610,543 | ) | | $ | (487,077 | ) |
| | | | | | | | | |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | | | | | | | | |
| Basic and diluted | | | 48,174,059 | | | | 12,551,951 | |
| | | | | | | | | |
| Loss per common share | | | | | | | | |
| Basic and diluted | | $ | (0.01 | ) | | $ | (0.04 | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
DTHERA SCIENCES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
(Unaudited)
| | | 2018 | | | 2017 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | |
| Net Loss | | $ | (610,543 | ) | | $ | (487,077 | ) |
| Adjustments for non-cash items: | | | | | | | | |
| Depreciation | | | 956 | | | | 178 | |
| Amortization of debt discount | | | – | | | | 172,655 | |
| Impairment of fixed assets | | | 2,779 | | | | – | |
| Loss on extinguishment of debt | | | – | | | | 91,593 | |
| Loss on derivative liability | | | – | | | | (142,835 | ) |
| Fair value of options vested | | | 71,891 | | | | 189,154 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Prepaid expenses | | | (182,693 | ) | | | – | |
| Accounts payable and accrued liabilities | | | (117,445 | ) | | | (24,520 | ) |
| Deferred revenue | | | 1,581 | | | | – | |
| Accounts payable-related party | | | 8,731 | | | | – | |
| NET CASH USED IN OPERATING ACTIVITIES | | | (824,743 | ) | | | (200,852 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| Purchases of property and equipment | | | (19,618 | ) | | | – | |
| Payments for capitalized computer software costs | | | (78,608 | ) | | | – | |
| NET CASH USED IN INVESTING ACTIVITIES | | | (98,226 | ) | | | – | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Proceeds from issuance of common stock | | | 1,028,452 | | | | 846,000 | |
| Proceeds from issuance of notes payable | | | – | | | | 50,000 | |
| Payments on convertible notes payable | | | – | | | | (240,000 | ) |
| NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 1,028,452 | | | | 656,000 | |
| | | | | | | | | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | | | 105,483 | | | | 455,148 | |
| | | | | | | | | |
| CASH AND CASH EQUIVALENTS | | | | | | | | |
| Beginning of period | | | 323,483 | | | | 12,191 | |
| | | | | | | | | |
| End of period | | $ | 428,966 | | | $ | 467,339 | |
| | | | | | | | | |
| Cash paid for interest | | $ | 280 | | | $ | 18,000 | |
| | | | | | | | | |
| NON-CASH INVESTING AND FINANCING ACTIVITIES | | | | | | | | |
| Common Stock subscription receivable | | $ | 500,000 | | | $ | – | |
| Common stock issued in extinguishment of debt | | $ | – | | | $ | 183,260 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
DTHERA SCIENCES
Notes to Condensed Consolidated Financial Statements
March 31, 2018 and December 31, 2017
NOTE 1– CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements of Dthera Sciences (the “Company”) have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2018, and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2017 audited financial statements. The results of operations for the periods ended March 31, 2018 and 2017, are not necessarily indicative of the operating results for the full years.
NOTE 2 – GOING CONCERN
The Company's financial statements are prepared using U.S. GAAP applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of the date of this Report, the Company had an accumulated deficit of $5,147,490 and no revenues to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As of the date of this Report, the Company had not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.
The future of the Company as an operating business will depend on its ability to (1) obtain sufficient capital contributions and/or financing as may be required to sustain its operations, and (2) to achieve adequate revenues from its operations. Management's plan to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing, (c) placing revenue producing services into place, and (d) identifying and executing on additional revenue generating opportunities.
There is a risk that the Company will be unable to achieve the above results or obtain adequate financing on terms considered satisfactory to the Company, or at all.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Dthera Sciences is a Nevada corporation.
The Company, based in San Diego, CA, is a digital therapeutics company focused on developing innovative quality of life therapies for the elderly and those suffering from cognitive decline. The Company’s lead product, ReminX, is an artificial-intelligence-powered consumer health product designed to digitally deliver reminiscence therapy to individuals suffering from neurodegenerative diseases such as Dementia and Alzheimer’s disease, as well as seniors experiencing limited social interaction with others (“Social Isolation”). Additional products are under development that are expected to directly target the symptoms of Alzheimer’s disease and other dementias, such as anxiety, depression, and cognitive decline, and for which Company may seek FDA clearance or approval as well as reimbursement.
Accounting Basis
The Company’s financial statements are prepared using the accrual basis of accounting in accordance with U.S. GAAP. The Company has a December 31 fiscal year end.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates are made in relation to the fair value of certain financial instruments.
Principles of Consolidation
The consolidated financial statements include the accounts of Dthera Sciences and its subsidiaries. All significant inter-company accounts and transactions have been eliminated.
Software Development
The Company accounts for internal use software development costs in accordance with authoritative guidance related to accounting for the costs of app and web software developed or obtained for internal use. Software development costs that are incurred in the preliminary development stage are expensed as incurred. Once certain criteria have been met (“application development stage”), direct costs incurred in developing or obtaining computer software are capitalized. Costs in the post-implementation/operation stage, including costs related to training and software maintenance, are expensed as incurred. Some costs in post-implementation stage can be capitalized if the modifications add additional functionality in the future.
Research and Development
The Company engages in new software development efforts. Research and development expenses relating to possible future software are expensed as incurred. Research and development expenses were approximately $10,410 and $6,968 for the three months ended March 31, 2018 and 2017.
Reclassification
Certain balances in previously issued financial statements have been reclassified to be consistent with the current period presentation.
Loss Per Common Share
Basic loss per Common Share is computed by dividing losses attributable to Common shareholders by the weighted-average number of shares of Common Stock outstanding during the period.
Diluted loss per Common Share is computed by dividing loss attributable to Common shareholders by the weighted-average number of Shares of Common Stock outstanding during the period increased to include the number of additional Shares of Common Stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options and warrants. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.
For the three months ended March 31, 2018 and 2017, all of the Company’s potentially dilutive securities (options and warrants) were excluded from the computation of diluted earnings per share as they were anti-dilutive. The total numbers of potentially dilutive Common Shares that were excluded were 3,938,950 and 1,312,983 for the three months ended March 31, 2018 and 2017, respectively.
Recent Accounting Pronouncements
Management has considered all other recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.
NOTE 4 – PROPERTY AND EQUIPMENT
The Company’s property and equipment were comprised of the following as of March 31, 2018, and December 31, 2017:
| | | March 31, 2018 | | | December 31, 2017 | |
| Computer & Equipment | | | 13,972 | | | | 10,237 | |
| Assets Used to Fulfill Contract Obligations | | | 83,299 | | | | 70,195 | |
| Less: Accumulated Depreciation | | | (4,023 | ) | | | (3,067 | ) |
| Net Property and Equipment | | $ | 93,248 | | | $ | 77,365 | |
Depreciation on the assets used to fulfill contract obligations will begin when put into use and will be depreciated over a 3-year period. Depreciation expense for the three months ended March 31, 2018 and 2017, was $956 and $178. The Company recorded an impairment in the three month period ended March 31, 2018 totaling $2,779.
NOTE 5 – COMPUTER SOFTWARE DEVELOPMENT COSTS
The Company’s capitalized application development stage costs related to computer software development under ASC 350-40 “Intangibles-Goodwill and Other- Internal-Use Software” as the Company reached the application development stage in the first quarter of 2018, totaling $78,608 and $0 as of March 31, 2018, and December 31, 2017, respectively.
Amortization expense for computer software development costs for the three months ended March 31, 2018 and 2017, was $0 and $0, respectively. Amortization on these computer software development costs will begin when put into use and will be amortized over the life of the software.
NOTE 6 – COMMON STOCK
As of March 31, 2018, the Company was authorized to issue 600,000,000 shares of $0.001 par value per share Common Stock, of which 50,343,367 and 47,043,268 shares were issued outstanding as of March 31, 2018, and December 31, 2017, respectively.
Three Months Ended March 31, 2018
During the three months ended March 31, 2018, the Company issued 3,201,108 shares of Common Stock for $1,017,850 in cash in connection with a private placement offering and $500,000 in subscription receivables as part of the pre-launch offering.
On January 26, 2018, an option holder exercised 98,955 options at $0.11 per share of common stock for $10,602.
NOTE 7 – STOCK PURCHASE OPTIONS AND WARRANTS
Stock Purchase Options
On March 21, 2018, the Company’s Board of Directors voted to grant to sixteen individuals options to purchase up to an aggregate of 1,500,000 shares of the Company’s common stock. The terms of the options are as follows: the options vest one-third on the first anniversary of the date of grant; one-third on the second anniversary of the date of grant; and one-third on the third anniversary of the date of grant; the options have a contractual life of eight years from the date of grant; and the exercise price is $0.65, which was the market price of the options on the date of the grant. Included in the grants were options to purchase up to 250,000 shares to the Company’s President and Chief Executive Officer, and options to purchase up to 250,000 shares to the Company’s Chief Technical Officer. The options were not issued pursuant to a stock option or stock incentive plan.
During the three months ended March 31, 2018, the Company had issued 1,500,000 options. As the holders of the Company’s outstanding options are employees and non-employees, the values attributable to non-employee options are re-measured on a quarterly basis and amortized over the service period and until they have fully vested over a 3-year vesting period. Stock options issued to employees are valued on the date of issuance and amortized over the service period until they have fully vested over a 3-year vesting period. The Company believes that the fair value of the stock options is more reliably measurable than the fair value of the services received. The fair value of the non-employee stock options granted was re-measured at each reporting date using the Black-Scholes valuation model. As of March 31, 2018, the Company re-measured the options at a value of $1,794,222 to be recognized over the vesting period, of which $540,169 has been recognized since inception. The Company recorded $71,891 of stock-based compensation expense in the three months ended March 31, 2018.
The following table summarizes the changes in options outstanding of the Company during the three months ending March 31, 2018:
| | | | Number of Options | | | Weighted Average Exercise Price $ | |
| | | | | | | | |
| | Outstanding, December 31, 2017 | | | | 1,382,351 | | | | 0.29 | |
| | Granted | | | | 1,500,000 | | | | 0.65 | |
| | Converted | | | | (98,955 | ) | | | 0.11 | |
| | Outstanding, March 31, 2018 | | | | 2,783,396 | | | | 0.49 | |
| | | | | | | | | | | |
| | Exercisable, March 31, 2018 | | | | 1,118,315 | | | | 0.30 | |
As of March 31, 2018, the Company had $1,254,053 in unrecognized expense related to future vesting of stock options.
Stock Purchase Warrants
During the three months ended March 31, 2018, the Company did not issue any warrants.
The following table summarizes the changes in Warrants outstanding during the three months ending March 31, 2018:
| | | | Number of Warrants | | | Weighted Average Exercise Price $ | |
| | | | | | | | |
| | Outstanding, December 31, 2017 | | | | 6,553,860 | | | | 0.45 | |
| | | | | | | | | | | |
| | Outstanding, March 31, 2018 | | | | 6,553,860 | | | | 0.45 | |
| | | | | | | | | | | |
| | Exercisable, March 31, 2018 | | | | – | | | | – | |
NOTE 8 – FAIR VALUE MEASUREMENTS
Equities measured at fair value on a recurring basis at March 31, 2018, are summarized as follows:
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Fair value of options | | $ | – | | | $ | 1,794,222 | | | $ | – | | | $ | 1,794,222 | |
| | | | | | | | | | | | | | | | | |
Equities measured at fair value on a recurring basis at December 31, 2017, are summarized as follows:
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Fair value of options | | $ | – | | | $ | 960,518 | | | $ | – | | | $ | 960,518 | |
| | | | | | | | | | | | | | | | | |
Fair value is calculated using the Black-Scholes options pricing model for options and warrants.
NOTE 9- SUBSEQUENT EVENTS
In accordance with ASC 855, Company’s management reviewed all material events through the date of this filing and determined that there were the following material subsequent events to report:
New Director; Grant of Options
Effective April 6, 2018, the Company’s Board of Directors voted to increase the size of the Board from three directors to four directors and to appoint Steve R. Martin to the Board to fill the resulting vacancy. Mr. Martin accepted the appointment and joined the Board of Directors effective April 9, 2018.
In connection with the appointment, the Company’s Board of Directors also approved and granted options to Mr. Martin to purchase up to 250,000 shares of the Company’s common stock. The terms of the options are as follows: the options vest one-third on the first anniversary of the date of grant; one-third on the second anniversary of the date of grant; and one-third on the third anniversary of the date of grant; the options have a contractual life of eight years from the date of grant; and the exercise price is $0.65.
On April 13, 2018, the Company received $500,000 related to a subscription agreement entered into on March 26, 2018.
Promissory Note
On May 11, 2018, the Company issued a short-term note to an unrelated party for $50,000 due 30 days from the date of issuance. The note bears an interest rate of 14.4% per annum interest, and the Company has the right to pre-pay with no penalty or premium. The Company’s obligation to repay the note was secured by the grant of a security interest in the assets of the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017, and our interim financial statements and accompanying notes to these financial statements. All amounts are in U.S. dollars.
Forward-Looking Statement Notice
This quarterly report on Form 10-Q of Dthera Sciences (the “Company”) contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual report referenced below.
This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements, particularly those set forth under Item 1A – Risk Factors as disclosed in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission on April 17, 2017.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Overview of the Company
Dthera Sciences, based in San Diego, CA, is a digital therapeutics company focused on developing innovative quality of life therapies for the elderly and those suffering from cognitive decline. The Company’s lead product, ReminX, is an artificial intelligence powered consumer health product designed to digitally deliver reminiscence therapy to seniors suffering from limited social interaction with others (“Social Isolation”) and/or neurodegenerative diseases such as Dementia, Alzheimer’s disease, and for which Company may seek FDA clearance/approval and/or reimbursement.
On September 21, 2017, the Company announced that its shares of common stock had been approved for trading on the OTCQB® Venture Market.
Our principal offices are located at 7310 Miramar Road, Suite 350, San Diego, CA, 92126.
The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”).
Dthera Business and Platform
Overview – The ReminX product and the Dthera Delivery Platform
The ReminX Product is comprised of two components and is built on the Dthera Delivery Platform.
The first component is the customized hardware tablet (the “Tablet”) that is specifically designed for use by individuals with neurodegenerative diseases or the elderly who are not able to operate standard consumer tablets. The Tablet does not display a user-interface for the elderly person. It presents itself more closely similar to a detachable photo frame that charges in a docking station without having to be plugged in. The absence of wires, buttons, or confusing interfaces is critical to making the product accessible to this patient or demographic group. Additionally, the Tablet is wrapped in a protective foam casing which increases durability of the Tablet if it is dropped or thrown. The speakers and sound system have been optimized to maximize volume and clarity in comparison to off the shelf tablets. The included dock allows for charging of the Tablet in a cordless manner and powerful magnets make sure the Tablet lands securely in the dock.
The ReminX Tablet Software (the “Software”), which drives the use of the Tablet, combines a simplified viewing experience for the end user while simultaneously incorporating monitoring and tracking functionality for caregivers and administrators. The user interface is designed so the end user does not need to press any buttons. The user simply lifts the Tablet (off of the docking station) and it automatically begins to play calming, positive, and personalized media. This software uses proprietary emotional recognition software that learns what content has the greatest positive effect on the end user and relays the information to the Software’s artificial intelligence system, which can focus its collection and organization of added media to the positive subject categories.
The second component of the ReminX Product is the Software stack which is comprised of proprietary software functionality that includes an easy-to-use interface, which allows families, friends, caregivers, and administrators to customize and organize the content displayed to the end user – the individual who is experiencing Social Isolation or certain neurodegenerative diseases.
Primary interaction with the ReminX Product by content observers and contributors such as family members is primarily driven through text message communication. Each paying customer is given a private concierge phone number and any photos or videos that are sent to that number will appear on the end users tablet. In addition, the concierge phone number can be given to the paying customers’ family and friends so they can also contribute content to the end user. The concierge phone number can also be added to a group text between loved ones who typically share photos and videos with each other and in this use case, through no additional effort, the content will also be shared with the end user.
In addition to text messaging, the ReminX product has several additional channels of content collection. These include The ReminX Family Mobile App (iOS/Android), The ReminX Family Web App and email. The Company will continue to develop innovative content collection methods to ensure that the end user is given the highest quantity and quality of content possible.
The ReminX Family App is guided by an artificial intelligence system known as Rachel. Rachel asks group members (family, friends, caregivers, and others) to add photos, videos and audio with the long-term goal of learning about what types of content is most helpful to the end user.
Rachel maximizes the amount of content that is added by working with individual contributors, asking questions, leading the contributor through a process to develop additional media content to be presented to the Tablet user. Contributors can work with Rachel through the Family App on their own schedule, taking time when available to create new content, which generally takes 5-10 minutes per “story” added. Rachel also allows users to contribute content via text message, email, or the ReminX website as adjuncts to the Family App.
In addition, the underlying Dthera Delivery Platform upon which ReminX is built can be modified and adapted to support people with additional clinical indications. The Company is presently researching additional vertical markets to determine different clinical development timelines.
The Company conducts its operations from its facilities located in San Diego, California.
Plan of Operations
Revenue Model
The Company expects to market and sell its initial product ReminX through four possible sales channels.
Direct-Response Consumer Health (DRCH)
The primary near-term sales channel the Company is pursuing is the Direct-Response Consumer Health (DRCH) starting with its initial launch, anticipated in mid 2018. In the fourth quarter of 2017, the Company completed a beta sales test to show both viability and scalability of the DRCH sales channel. Based on the success of that test, the Company plans to market the ReminX Product directly to the family members and caregivers of individuals who maybe suffering from Social Isolation or several neurodegenerative diseases such as Dementia (“Loved Ones”).
Management anticipates that those who wish to purchase the ReminX Product will pay either $40 per month or an annual fee (which will be optimized and finalized in the second quarter of 2018) through a subscription based model. The subscription includes unlimited access to the ReminX Family App (no limit to users) and the Tablet/Dock System. The Company anticipates that the hardware will be leased to the subscribers until they have paid the minimum subscription fee.
The Company feels the mechanism by which it executes this specific sales channel is somewhat proprietary and appears very unique to the space Dthera operates in. The successful execution of this sales channel would give Dthera a competitive advantage over other potential competitive products.
Senior Living/Revenue Shares - Institutional Sales
The second channel the company intends to explore later in 2018 is the marketing of a revenue-sharing offering directly to Senior Living/Long Term Care management firms such as Independent Living (IL), Assisted Living (AL), and Memory Care (MC) businesses. This sales channel will be pursued through our approximately 30 direct contract-sales representatives.
Skilled Nursing/Cost Savings – Institutional Sales
Skilled Nursing Facilities (SNFs) operate with a different business model from those of IL/AL/MC communities and, as such, cost-savings, specifically improving labor efficiency, is possibly the single highest priority for operators in the space. Dthera intends to explore over the course of 2018 whether it believes its product ReminX, with expanded use, can indeed reduce overtime costs, staff turnover, and improve quality survey scores within SNFs. If Management believes that the Company can demonstrate improvement, then the Company intends to directly market the product to Skilled Nursing Facilities as a cost saving service via the same contract sales force pursuing the IL/AL/MC channel.
FDA Approved and Reimbursed Medical Claims
Once Dthera has begun implementation of the Platform for Social Isolation and initial neurodegenerative indications, the Company intends, through robust clinical trials, to pursue FDA clearance or approval and medical reimbursement for specific medical claims most likely related to the symptoms of Dementia and Alzheimer’s disease.
Other therapeutic uses
The Company is already exploring other applications of the Platform targeting other indications with patients that could benefit from the core technology, some of which may be able to be pursued using the same sales channels listed above.
Results of Operations – Three Months Ended March 31, 2018, Compared to the Three Months March 31, 2017
Operating Expenses
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2018, totaled $597,074, a 73% increase compared to general and administrative expenses of $345,504 for the three months ended March 31, 2017. The increase is due to the Company’s amortizing stock options as compensation and increases in consulting fees and legal fees in the current period, offset by a reduction in estimated compensation expense versus payments in the prior period.
Research and Development Expenses
Research and development expenses for the three months ended March 31, 2018, totaled $10,410, a 49% increase compared to research and development expenses of $6,968 for the three months ended March 31, 2017. The increase is due to the Company’s entering into a Standard Services Agreement (the “SSA”) with Hatch International Limited relating to the additional services related to tooling on the current prototype for the Company’s product in the current period.
Other Expenses
Interest Expense
Interest expense for the three months ended March 31, 2018, totaled $280, a 99% decrease compared to interest expenses of $185,847 for the three months ended March 31, 2017. The decrease is due to notes accruing interest and the full amortization of debt discounts due to payment of all convertible notes in the prior year.
Gain on Derivative Liability
Gain on derivative liability for the three months ended March 31, 2018, totaled $0, a 100% decrease compared to gain on derivative liability of $142,835 for the three months ended March 31, 2017. The decrease is from revaluing the derivative instruments before the instruments settled during the prior year.
Loss on Settlement of Debt
Loss on settlement of debt for the three months ended March 31, 2018, totaled $0, a 100% decrease compared to loss on settlement of debt of $91,593 for the three months ended March 31, 2017. The decrease is from settling convertible notes and accrued interest for stock and cash during the prior year.
Impairment of fixed assets
For the three months ended March 31, 2018, totaled $2,779, a 100% increase compared $0 for the three months ended March 31, 2017. The increase is due to the Company’s impairing damaged equipment in the current period.
Net Loss
For the reasons stated above, the Company’s net loss for the three months ended March 31, 2018, was $610,543, compared to net loss of $487,077 during the three months ended March 31, 2017.
Liquidity and Capital Resources
As of the March 31, 2018, the Company had cash of $428,966, prepaid expenses of $277,869, and deposits of $2,500, compared to cash of $323,483, prepaid expenses of $95,176, and deposits of $2,500 for the year ended December 31, 2017. The increase in cash is due to the Company conducting private placements of its securities in the current period. The increase in prepaid expenses are related to prepayment on 5,000 Tablets ordered under the Standard Services Agreement (the “SSA”) with Hatch International Limited offset by prepayments for insurance and marketing services in the fourth quarter of 2017, which were amortized during the three months ended March 31, 2018. The Company had current liabilities of $331,139 consisting of accounts payable, accrued expenses, deferred revenue, and related party advances as compared to current liabilities totaling $438,272 for the year ended December 31, 2017. The decrease in current liabilities is directly related to the Company paying off accrued payables related to consultants and employees and a reduction in estimated compensation expense versus payments in the prior period during the current period, partially offset by increases in deferred revenue and in expenses pay by related parties. As of the three months ended March 31, 2018, the Company had working capital of $378,196 which increased when compared to a working deficit of $17,113 for the year ended December 31, 2017.
We incurred operating losses and had negative operating cash flows and may continue to generate negative cash flows as the Company implements its business plan for the future. There can be no assurance that our continuing efforts to execute our business plan will be successful and that we will be able to continue as a going concern as the report of our independent registered public accounting firm with respect to our financial statements for the years ended December 31, 2017 and 2016, indicates that our recurring losses and negative cash flows from operations and the need for additional capital raise substantial doubt about our ability to continue as a going concern. During the three months ended March 31, 2018 and 2017, we had a net loss of $610,543 and $487,077, respectively and net cash used in operations of $824,743 and $200,852, respectively, and working capital (deficit) amounted to $378,196 and ($17,113) as of March 31, 2018 and December 31, 2017, respectively. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Management’s plans include the fourth quarter offering of up to $3,000,000 worth of our common stock. There can be no assurance that we will be successful to raise additional capital under this offering. As of March 31, 2018, the Company had current liabilities of approximately $331,139. If we are not able to raise additional capital that may be needed, it is probable that the Company will be unable to meet its obligations as they become due within one year from the issuance date of this filing and could have a material adverse effect on our future business plans. Management believes that if we are not able to consummate this offering, we would have to find other sources of financing to complete our business plans for the future. There can be no guarantee that we would obtain financing with terms that are acceptable to us, in which case, we may have to limit our expansion of new products or limit our working capital.
Recent Developments
Pre-Launch Offering
The Company commenced a private placement offering of shares of its common stock (the “Pre-launch Offering”) in the fourth quarter of 2017. As of year-end the Company had sold a total of 1,195,385 shares of the Company's Common Stock for net proceeds of $777,000 in the Pre-launch Offering.
As of May 15, 2018, 2018, the Company had sold a total of 4,396,493 shares of the Company’s common stock in the Pre-launch Offering and had raised an aggregate of $2,294,850.
The Pre-launch Offering is being made to accredited investors only. No warrants or other securities are being offered in the Offering.
New Director; Grant of Options
Effective April 6, 2018, the Company’s Board of Directors voted to increase the size of the Board from three directors to four directors and to appoint Steve R. Martin to the Board to fill the resulting vacancy. Mr. Martin accepted the appointment and joined the Board of Directors effective April 9, 2018.
In connection with the appointment, the Company’s Board of Directors also granted options to Mr. Martin to purchase up to 250,000 shares of the Company’s common stock. The terms of the options are as follows: the options vest one-third on the first anniversary of the date of grant; one-third on the second anniversary of the date of grant; and one-third on the third anniversary of the date of grant; the options have a contractual life of eight years from the date of grant; and the exercise price is $0.65.
Promissory Note
On May 11, 2018, the Company issued a short-term note to an unrelated party for $50,000 due 30 days from the date of issuance. The note bears an interest rate of 14.4% per annum interest, and the Company has the right to pre-pay with no penalty or premium. The Company’s obligation to repay the note was secured by the grant of a security interest in the assets of the Company.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, the Company is not required to provide the disclosure required by this item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer who is also our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by the Report, we did not have a formal audit committee and there was a lack of segregation of duties.
Subsequent to the end of the period covered by this Report, the Company added a new member to the Company’s Board of Directors who is serving as the Chairman of the Company’s Audit Committee. The Company is continuing to work to remediate the issues relating to segregation of duties and to strengthen its disclosure controls and procedures.
Changes in internal control over financial reporting
Other than as discussed above, there has been no change in our internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during our most recent fiscal quarter ended March31,2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1A. Risk Factors
See “Item 1A – Risk Factors” as disclosed in Form 10-K as filed with the Commission on April 2, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Pre-Launch Offering
The Company commenced a private placement offering of shares of its common stock (the “Pre-launch Offering”) in the fourth quarter of 2017. As of year-end the Company had sold a total of 1,195,385 shares of the Company's Common Stock for net proceeds of $777,000 in the Pre-launch Offering.
As of May 15, 2018, the Company had sold a total of 4,396,493 shares of the Company’s common stock in the Pre-launch Offering, and had raised an aggregate of $2,294,850.
The Pre-launch Offering is being made to accredited investors only. No warrants or other securities are being offered in the Offering.
The above issuances were completed in reliance on exemptions from registration under Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”). These transactions qualified for exemption from registration because (i) the Company did not engage in any general solicitation or advertising to market the securities; (ii) each purchaser was provided the opportunity to ask questions and receive answers from the Company regarding the Company and the issuance; (iii) the securities were issued to persons with knowledge and experience in financial and business matters so that he or she is capable of evaluating the merits and risks of an investment in the Company; and (iv) the recipients received “restricted securities” that include a restrictive legend on the certificate, which restricts the shares from being transferred except pursuant to a registration statement that is effective with the SEC or pursuant to an exemption from registration.
Item 6. Exhibits
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.
| | Dthera Sciences | | |
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| Date: May 15, 2018 | By: | /s/ Edward Cox | | |
| | | Edward Cox
Chief Executive Officer, Chief Financial Officer (Principal Executive Officer and Principal Financial Officer)
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