UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number: 0-53497
| VIVOS INC |
| (Exact name of registrant as specified in its charter) |
| Delaware | 80-0138937 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| 719 Jadwin Avenue ● Richland, Washington 99352 |
| (Address of principal executive offices) (Zip Code) |
| (509) 736-4000 |
| Registrant’s telephone number, including area code |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | [ ] | Accelerated Filer | [ ] |
| Non-Accelerated Filer | [ ] | Smaller Reporting Company | [X] |
| (Do not check if a smaller reporting company) | Emerging Growth Company | [ ] | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $3,972,034. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.
As of March 28, 2018, there were 71,447,213 shares of the registrant’s Common Stock and 3,204,422 shares of the registrant’s Series A Convertible Preferred Stock outstanding.
VIVOS INC
Report on Form 10-K
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FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information described in this Form 10-K report contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would” or similar words. The statements that contain these or similar words should be read carefully because these statements discuss the Company’s future expectations, including its expectations of its future results of operations or financial position, or state other “forward-looking” information. Vivos Inc. believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict or to control. Further, the Company urges you to be cautious of the forward-looking statements which are contained in this Form 10-K report because they involve risks, uncertainties and other factors affecting its operations, market growth, service, products and licenses. The risk factors in the section captioned “Risk Factors” in Item 1A of the Company’s Form 10-K, as well as other cautionary language in this Form 10-K report, describe such risks, uncertainties and events that may cause the Company’s actual results and achievements, whether expressed or implied, to differ materially from the expectations the Company describes in its forward-looking statements. The occurrence of any of the events described as risk factors could have a material adverse effect on the Company’s business, results of operations and financial position.
Vivos Inc. (the “Company” or “we”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”). On December 28, 2017, the Company changed its name from Advanced Medical Isotope Corp. to Vivos Inc. The Company has authorized capital of 2,000,000,000 shares of common stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share.
Our principal place of business is 719 Jadwin Avenue, Richland, Washington 99352. Our telephone number is (509) 736-4000. Our corporate website address is http://www.radiogel.com. Our common stock is currently listed for quotation on the OTC Pink Marketplace under the symbol “RDGL.”
Overview
The Company is a radiation oncology medical device company engaged in the development of its yttrium-90 based brachytherapy device, RadioGel™, for the treatment of non-resectable tumors. A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead the Company’s development efforts. The Company’s overall vision is to globally empower physicians, medical researchers and patients by providing them with new isotope technologies that offer safe and effective treatments for cancer.
The Company’s current focus is on the development of our RadioGel™ device candidate, including obtaining approval from the Food and Drug Administration (“FDA”) to market and sell RadioGel™ as a Class II medical device. RadioGel™ is an injectable particle-gel for brachytherapy radiation treatment of cancerous tumors in people and animals. RadioGel™ is comprised of a hydrogel, or a substance that is liquid at room temperature and then gels when reaching body temperature after injection into a tumor. In the gel are small, one micron, yttrium-90 phosphate particles (“Y-90”). Once injected, these inert particles are locked in place inside the tumor by the gel, delivering a very high local radiation dose. The radiation is beta, consisting of high-speed electrons. These electrons only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the surrounding tissue. Optimally, patients can go home immediately following treatment without the risk of radiation exposure to family members. Since Y-90 has a half-life of 2.7 days, the radioactivity drops to 5% of its original value after ten days.
The Company’s lead brachytherapy products, including RadioGel™, incorporate patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted the Company an exclusive license to patents covering the manufacturing, processing and applications of RadioGel™ (the “Battelle License”). This exclusive license is to terminate upon the expiration of the last patent included in this agreement. Other intellectual property protection includes proprietary production processes and trademark protection in 17 countries. The Company plans to continue efforts to develop new refinements on the production process, and the product and application hardware, as a basis for future patents.
Regulatory History
Human Therapy
RadioGel™ has a long regulatory history with the Food and Drug Administration (“FDA”). Initially, the Company submitted a presubmission (Q130140) to obtain FDA feedback about the proposed product. The FDA requested that the Company file a request for designation with the Office of Combination Products (RFD130051), which led to the determination that RadioGel™ is a device for human therapy for non-resectable cancers, which must be reviewed and ultimately regulated by the Center for Devices and Radiological Health (“CDRH”). The Company then submitted a 510(k) notice for RadioGel™ (K133368), which was found Not Substantially Equivalent due to the lack of a suitable predicate, and RadioGel™ was assigned to the Class III product code NAW (microspheres). Class III products or devices are generally the highest risk devices and are therefore subject to the highest level of regulatory review, control and oversight. Class III products or devices must typically be approved by FDA before they are marketed. Class II devices represent lower risk products or devices than Class III and require fewer regulatory controls to provide reasonable assurance of the product’s or device’s safety and effectiveness. In contrast, Class I products and devices are deemed to be lower risk than Class I or II, and are therefore subject to the least regulatory controls.
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A pre-submission meeting (Q140496) was held with the FDA on June 17, 2014, during which the FDA maintained that RadioGel™ should be considered a Class III device and therefore subject to pre-market approval. On December 29, 2014, the Company submitted a de novo petition for RadioGel™ (DEN140043). The de novo petition was denied by the FDA on June 1, 2015, with the FDA providing numerous comments and questions. On September 29, 2015, the Company submitted a follow-up pre-submission informational meeting request with the FDA (Q151569). This meeting took place on November 9, 2015, at which the FDA indicated acceptance of the Company’s applied dosimetry methods and clarified the FDA’s outstanding questions regarding RadioGel™. Following the November 2015 pre-submission meeting, the Company prepared a new pre-submission package to obtain FDA feedback on the proposed testing methods, intended to address the concerns raised by the FDA staff and to address the suitability of RadioGel™ for de novo reclassification. This pre-submission package was presented to the FDA in a meeting on August 29, 2017. During the August 2017 meeting, the FDA clarified their position on the remaining pre-clinical testing needed for RadioGel™. Specifically, the FDA addressed proposed dosimetry calculating techniques, dosimetry distribution between injections, hydrogel viscoelastic properties, and the details of the Company’s proposed animal testing.
The Company believes that its submissions to the FDA to date have taken into account all the FDA staff’s feedback over the past three years. Of particular importance, the Company has provided corresponding supporting data for proposed future testing of RadioGel™ to address any remaining questions raised by the FDA. We believe, although no assurances can be given, that the clinical testing modifications presented to the FDA in August 2017 will result in a de novo reclassification for RadioGel™ by the FDA. In addition, in previous FDA submittals, the Company proposed applying RadioGel™ for a very broad range of cancer therapies, referred to as Indication for Use. The FDA requested that the Company reduce its Indications for Use. To comply with that request, the Company expanded its Medical Advisory Board (“MAB”) and engaged doctors from respected hospitals who have evaluated the candidate cancer therapies based on three criteria: (1) potential for FDA approval and successful therapy; (2) notable advantage over current therapies; and (3) probability of wide spread acceptance by the medical community.
The MAB selected eighteen applications for RadioGel™, each of which meet the criteria described above. This large number confirms the wide applicability of the device and defines the path for future business growth. The Company’s application establishes a single Indication for Use - treatment of basal cell and squamous cell skin cancers. We anticipate that this initial application will facilitate each subsequent application for additional Indications for Use, and the testing for many of the subsequent applications could be conducted in parallel, depending on available resources.
In the event the FDA denies the Company’s application for de novo review, and therefore determines that RadioGel™ cannot be classified as a Class I or Class I1 device, the Company will then need to submit a pre-market approval application to obtain the necessary regulatory approval as a Class III device.
Animal Therapy
As noted above, the Office of Combination Products previously classified RadioGelTM as a device for human therapy for non-sectable cancers. In January 2018, the Center for Veterinary Medicine Product Classification Group ruled that RadioGelTM should be classified as a device for animal therapy of feline sarcomas and canine soft tissue sarcomas. In addition, the FDA also reviewed and approved our label, which is a requirement for any device used in animals. We expect the result of such classification and label approval is that no additional regulatory approvals are necessary for the use of RadioGelTM for the treatment of skin cancer in animals.
Based on the FDA’s recommendation, RadioGelTM will be marketed as “IsoPet™” for use by veterinarians to avoid any confusion between animal and human therapy. The Company already has trademark protection for the “IsoPet™” name. IsoPet™ and RadioGelTM are used synonymously throughout this document. As we stated the only distinction between the two is the FDA’s recommendation we use IsoPet™ for all veterinarian usage and reserve RadioGelTM for human therapy.
IsoPet Solutions
The Company’s IsoPet Solutions division was established in May 2016 to focus on the veterinary oncology market, namely engagement of university veterinarian hospital to develop the detailed therapy procedures to treat animal tumors and ultimately use of the technology in private clinics. The Company has worked with four different university veterinarian hospitals on RadioGel™ testing and therapy. Colorado State University demonstrated the procedures and the CT and PET-CT imaging of RadioGelTM. Washington State University treated five cats for feline sarcoma. They concluded that the product was safe and effective in killing cancer cells. A contract was signed with University of Missouri to treat canine sarcomas and equine sarcoids starting early in 2019. The safety review at UC Davis is almost completed. They will be treating prostate and liver cancer in canines in 2019.
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These animal therapies will generate the additional data required by the private veterinary clinics to assure them of the safety and efficacy of IsoPet™ to complement the previous work at Washington State University.
The Company anticipates that future profit will be derived from direct sales of RadioGel™ (under the name IsoPet™) and related services, and from licensing to private medical and veterinary clinics in the U.S. and internationally.
Financing and Strategy
Research and development of RadioGel™ and other products in the Company’s brachytherapy product line has been funded with proceeds from the sale of equity and debt securities as well as a series of grants. The Company requires funding of approximately $1.5 million annually to maintain current operating activities. Over the next 12 to 24 months, the Company believes it will cost approximately $5.0 million to $10.0 million to fund: (1) the FDA approval process and initial deployment of RadioGel™ and other brachytherapy products, and (2) initiate regulatory approval processes outside of the United States. The continued deployment of RadioGel™ and the Company’s other brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products, including RadioGel™, as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.
Following receipt of required regulatory approvals and financing in the U.S., the Company intends to outsource material aspects of manufacturing, distribution, sales and marketing. Outside of the U.S., the Company intends to pursue licensing arrangements and/or partnerships to facilitate its global commercialization strategy.
In the longer-term, subject to the Company receiving adequate funding, regulatory approval for RadioGel™ and other brachytherapy products, and thereafter being able to successfully commercialize its brachytherapy products, the Company intends to consider resuming research efforts with respect to other products and technologies intended to help improve the diagnosis and treatment of cancer and other illnesses
Based on the Company’s financial history since inception, its auditor has expressed substantial doubt as to the Company’s ability to continue as a going concern. The Company has limited revenue, nominal cash, and has accumulated deficits since inception. If the Company cannot obtain sufficient additional capital, the Company will be required to delay the implementation of its business strategy and may not be able to continue operations.
Product Features
The Company’s RadioGel™ device has the following product features:
| ● | Beta particles only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the nearby normal tissues. In medical terms Y-90 beta emitter has a high efficacy rate; | |
| ● | Benefitting from the short penetration distance, the patient can go home immediately with no fear of exposure to family members, and there is a greatly reduced radiation risk to the doctor. A simple plastic tube around the syringe, gloves and safety glasses are all that is required. Other gamma emitting products require much more protection; | |
| ● | A 2.7-day half-life means that only 5% of the radiation remains after ten days. This is in contrast to the industry-standard gamma irradiation product, which has a half-life of 17 days; | |
| ● | The short half-life also means that any medical waste can be stored for thirty days then disposed as normal hospital waste; | |
| ● | RadioGel™ can be administered with small diameter needles (27-gauge) so there is minimal damage to the normal tissue. This is in contrast to the injection of metal seeds, which does considerable damage; and | |
| ● | After about 120 days the gel resorbs by a normal biological cycle, called the Krebs Cycle. The only remaining evidence of the treatment are phosphate particles so small in diameter that it requires a high-resolution microscope to find them. This is in contrast to permanent presence of metal seeds. |
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Steps from Production to Therapy
Device Production
During the next two years, the Company intends to outsource material aspects of manufacturing and distribution. As future product volume increases, the Company will reassess its make-buy decision on manufacturing and will analyze the cost/benefit of a centrally located facility.
Production of the Hydrogel
RadioGel™ is manufactured with a proprietary process under ventilated sterile hood by following strict Good Laboratory Practices, or GLP, procedures. It is made in large batches that are frozen for up to three months. When the product is ready to ship, a small quantity of the gel is dissolved in a sterile saline solution. It is then passed through an ultra-fine filter to ensure sterility.
Production of the Yttrium-90 Phosphate Particles
The Y-90 particles are produced with simple ingredients via a proprietary process, again following strict GLP procedures. They are then mixed into a phosphate-buffered saline solution. They can be produced in large batches for several shipments. The number of particles per shipment is determined by the dose prescribed by the doctor.
Shipment
RadioGel™ is shipped in two containers, one with a solution of the gel and the other with a solution of the particles. Before shipment they are subjected to sterility testing, again by strict procedures. The vial with the Y-90 is put through a special radiation calibrator, which measures beta particles. The vials can be shipped via FedEx or UPS by following the proper protocols.
At the User
The user receives the two vials. The solution containing the RadioGel™ is mixed with the solution containing the Y-90 particles. This is then shaken to ensure homogeneity and withdrawn into a syringe. The quantities that are mixed are calculated from the information on the product label.
The specific injection technique depends on the Indication for Use. For small tumors, one centimeter in diameter or less, the cancer is treated with a single injection. For larger tumors, the cancer is treated with a series of small injections from the same syringe.
Principal Markets
The Company is currently pursuing two synergistic business sectors, medical and veterinary, each of which are summarized below.
Medical Sector
Brachytherapy is the use of radiation to destroy cancerous tumors by placing a radiation source inside or next to the treatment area. According to the 2014 MEDraysintell report, the global market for brachytherapy reached US$ 680 million in 2013 and is projected to reach $2.4 billion by 2030. It is estimated that the U.S. market represents approximately half of the global market. The Company believes there are significant opportunities in prostate, breast, liver, pancreatic, head and neck cancers. The 2014 U.S. estimated new cases of cancer according to the American Cancer Society are 233,000 prostate, 235,000 breast, 31,000 liver, and 46,000 pancreas.
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RadioGel™ is currently fully developed, requiring only FDA approval before commercialization. The Company has been seeking FDA approval of RadioGel™ for almost four years. The principal issue preventing approval is that the Company attempted to obtain regulatory approval for a broad range of Indications for Use, including all non-resectable cancers, without sufficient supporting data.
Building on the FDA’s ruling of RadioGel™ as a device, the Company is currently developing test plans to address issues raised in the Company’s prior FDA submittal regarding RadioGel™. The Company intends to request FDA approval to submit RadioGel™ for de novo classification, which would reclassify the device from a Class III device to a Class II device and accelerate the regulatory approval path.
After analyzing the Company’s data and the last four years of communication from the FDA, the Company has taken the following steps:
| 1. | Under new leadership, the Company is implementing all past recommendations from the FDA. The Company intends to narrow the Indications for Use, will provide test plans for FDA review to respond to answer all previous FDA questions, and will request a pre-submission meeting; | |
| 2. | Prepare a pre-submission request document and FDA meeting request to obtain feedback on the test plans in order to initiate testing, to present the proposed content for the final application and to request permission to submit a de novo; | |
| 3. | Submit an Investigational Device Exemption (“IDE”) to obtain permission to conduct human clinical studies; and | |
| 4. | File a de novo or Pre-Market Approval application. |
The critical path is the required testing – in vitro, animal testing, human clinical studies – all of which is resource dependent.
In previous submittals, the Company proposed applying a very broad range of cancer therapies, referred to as Indications for Use, to RadioGel™. The FDA has strongly advised the Company to reduce its Indications for Use. To comply with that request, the Company has expanded its MAB, consisting of Drs. Barry D. Pressman (Chairman), Albert DeNittis, and Howard Sandler.
The MAB evaluated the candidate cancer therapies based on three criteria: (i) the potential for FDA approval and successful therapy; (ii) notable advantages of RadioGel™ over current therapies; and (iii) the likelihood that RadioGel™ can be widely accepted by the medical community and profitably commercialized.
The MAB selected eighteen Indications for Use for RadioGel™, each of which meets the above-mentioned criteria. These eighteen Indications for Use are listed below. This large number confirms the wide applicability of the device and defines the path for future growth. The Company intends to apply to the FDA for a single Indication for Use, followed by subsequent applications for additional Indications for Use. The initial application should facilitate each subsequent application, and the testing for many of the subsequent applications could be conducted in parallel, depending on available resources.
| ● | Skin cancer | ● | Non-dendritic brain |
| ● | Involved lymph nodes | ● | Pediatric cancers – several types |
| ● | Bladder | ● | Rectal |
| ● | Liver | ● | Gynecological |
| ● | Localized prostate | ● | Spinal |
| ● | Pancreas | ● | Recurrent esophageal |
| ● | Head and neck (including sino-nasal and oropharyngeal) | ● | Breast cancer resection cavity |
| ● | Ocular melanoma | ● | Anaplastic thyroid |
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After thorough review to prioritize indications, the MAB has selected basal cell and squamous cell carcinoma (skin cancers) as the first Indication for Use to be presented to the FDA. According to American Cancer Society, one out of every three new cancers diagnosed in the U.S. is a cancerous skin lesion of this type, representing 5.5 million tumors annually. The MAB believes RadioGel™ will be the preferred treatment in a reasonable number of cases in a very large market.
Veterinary Sector
There are about 150 million pet dogs and cats in the United States. Nearly one-half of dogs and one-third of cats are diagnosed with cancer at some point in their lifetime. The Veterinary Oncology & Hematology Center in Norwalk, Connecticut, reports that cancer is the number one natural cause of death in older cats and dogs, accounting for nearly 50 percent of pet deaths each year. The American Veterinary Medical Association reports that half of the dogs ten years or older will die because of cancer. The National Cancer Institute reports that about six million dogs are diagnosed with cancer each year, translating to more than 16,000 a day. The average cost of treating tumors in dogs using radiation is $5,000 to $7,000, according to petcarerx.com.
The Company’s IsoPet™ operating division focuses on the veterinary oncology market. Dr. Alice Villalobos, a founding member of the Veterinary Cancer Society and the Chair of our Veterinary Medicine Advisory Board, has been providing guidance to management regarding this market. The Veterinary Medicine Advisory Board gives us recommendations regarding the overall strategy for our animal business sector. Specially, they recommended the university veterinary hospitals for demonstration therapies, the specific cancers to be treated, and have provided business contact information to the private clinics.
Development of the product and application techniques and animal testing is allowed under FDA regulation. Commercial sales of RadioGelTM for animals requires confirmation by the FDA Center for Veterinary Medicine (“CVM”). In January 2018, the Center for Veterinary Medicine Product Classification Group, the entity within the CVM that is responsible for determining the classification of a product, ruled that RadioGelTM should be classified as a device for animal therapy of feline sarcomas and canine soft tissue sarcomas. In addition, the FDA reviewed and approved our label, which is a requirement for any device used in animals. The result of such classification and label approval is that no additional regulatory approvals are necessary for the use of RadioGelTM for the treatment of skin cancer in animals.
The Company currently intends to utilize university veterinary hospitals for therapy development, given that veterinary hospitals offer superior and plentiful veterinarians and students, a large number of animal patients, radioactive material handling licenses, and are respected by private veterinary centers and hospitals.
The Company has worked with four different university veterinarian hospitals on RadioGel™ testing and therapy. Colorado State University demonstrated the procedures and the CT and PET-CT imaging of RadioGelTM. Washington State University treated four cats for feline sarcoma. They concluded that the product was safe and effective in killing cancer cells. A contract was signed with University of Missouri to treat canine sarcomas and equine sarcoids starting early in 2019. The safety review at UC Davis is almost completed. They will be treating prostate and liver cancer in canines in 2019.
Pursuant to the terms of the grant with Washington State University, it will be responsible for conducting studies regarding in vivo dosimetry and toxicity of intralesional Y-90 phosphate nanoparticles for the treatment of spontaneous feline and canine sarcomas. The term of the grant is October 1, 2016 through January 31, 2018. The Company provides the university with the RadioGelTM required to complete the studies, as well as technical support for dosimetry calculations. All payments provided to Washington State University in relation to the grant shall be made by Washington State Life Sciences Discovery Fund pursuant to a grant, and shall not be paid by the Company. To compliment the grant, additional scope was added to explore the option of pre-mixing the vials prior to shipment and the Company was reimbursed $17,583 as a separate contract to the grant.
Pursuant to the terms of the contract with the University of Missouri, it will be responsible for conducting studies regarding in vivo dosimetry and toxicity of intralesional Y-90 phosphate nanoparticles for the treatment of soft tissue carcinoma and equine sarcoids. The term of the contract is November 1, 2017 through October 31, 2018. Project costs shall not exceed $74,009, and payments shall be made by the Company to the University of Missouri in the following installments: (i) 60% upon the date that the project commences, (ii) 50% six months thereafter, and (iii) the remaining 10% upon the Company’s receipt of the final report.
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The Company is currently in negotiations with University of California Davis, and the parties have not yet entered into a formal contract. Although the Company anticipates that such contract will be executed in the near future, no assurances can be given that the Company will be successful.
Competitors
The Company competes in a market characterized by technological innovation, extensive research efforts, and significant competition.
The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological changes. A number of companies are pursuing the development of pharmaceuticals and products that target the same diseases and conditions that our products target. We cannot predict with accuracy the timing or impact of the introduction of potentially competitive products or their possible effect on our sales. Certain potentially competitive products to our products are possibly in various stages of development. Also, there may be many ongoing studies with currently marketed products and other developmental products, which may yield new data that could adversely impact the use of our products in their current and potential future Indications for Use. The introduction of competitive products could significantly reduce our sales, which, in turn would adversely impact our financial and operating results.
There are a wide variety of cancer treatments approved and marketed in the U.S. and globally. General categories of treatment include surgery, chemotherapy, radiation therapy and immunotherapy. These products have a diverse set of success rates and side effects. The Company’s products, including RadioGel™, fall into the brachytherapy treatment category. There are a number of brachytherapy devices currently marketed in the U.S. and globally. The traditional iodine-125 (I-125) and palladium-103 (Pd-103) technologies for brachytherapy are well entrenched with powerful market players controlling the market. The industry-standard I-125-based therapy was developed by Oncura, which is a unit of General Electric Company. Additionally, C.R. Bard, a major industry player competes in the I-125 brachytherapy marketplace. These market competitors are also involved in the distribution of Pd-103 based products. Cs-131 brachytherapy products are sold by IsoRay. Several Y-90 therapies have been FDA approved including SIR-Spheres by Sirtex, TheraSphere by Biocompatibles UK and Zevalin by Spectrum Pharmaceuticals.
Raw Materials
The Company currently subcontracts the manufacturing of RadioGelTM at IsoTherapeutics. PerkinElmer Inc., the only supplier of Y-90 in the United States, is the sole supplier of the Y-90 used by IsoTherapeutics to manufacture the Company’s RadioGel™. The Company obtains supplies, hardware, handling equipment and packaging from several different U.S. suppliers.
Customers
The Company anticipates that potential customers for our potential brachytherapy products likely would include those institutions and individuals that currently purchase brachytherapy products or other oncology treatment products.
Government Regulation
The Company’s present and future intended activities in the development, manufacturing and sale of cancer therapy products, including RadioGel™, are subject to extensive laws, regulations, regulatory approvals and guidelines. Within the United States, the Company’s therapeutic radiological devices must comply with the U.S. Federal Food, Drug and Cosmetic Act, which is enforced by FDA. The Company is also required to adhere to applicable FDA Quality System Regulations, also known as the Good Manufacturing Practices, which include extensive record keeping and periodic inspections of manufacturing facilities.
In the United States, the FDA regulates, among other things, new product clearances and approvals to establish the safety and efficacy of these products. We are also subject to other federal and state laws and regulations, including the Occupational Safety and Health Act and the Environmental Protection Act.
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The Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations govern or influence the research, testing, manufacture, safety, labeling, storage, record keeping, approval, distribution, use, reporting, advertising and promotion of such products. Noncompliance with applicable requirements can result in civil penalties, recall, injunction or seizure of products, refusal of the government to approve or clear product approval applications, disqualification from sponsoring or conducting clinical investigations, preventing us from entering into government supply contracts, withdrawal of previously approved applications, and criminal prosecution.
In the United States, medical devices are classified into three different categories over which the FDA applies increasing levels of regulation: Class I, Class II, and Class III. Most Class I devices are exempt from premarket notification 510(k); most Class II devices require premarket notification 510(k); and most Class III devices require premarket approval. RadioGel™ is currently classified as a Class III device.
Approval of new Class III medical devices is a lengthy procedure and can take a number of years and require the expenditure of significant resources. There is a shorter FDA review and clearance process for Class II medical devices, the premarket notification or 510(k) process, whereby a company can market certain Class II medical devices that can be shown to be substantially equivalent to other legally marketed devices.
The Company intends to apply for a de novo with an anticipated expenditure of $4.0 million over the next four years. This expenditure estimate includes anticipated costs associated with in vitro and in vivo pre-clinical testing, our application for an Investigational Device Exemption, Phase I and Phase II clinical trials and our application for a de novo.
As a registered medical device manufacturer with the FDA, we are subject to inspection to ensure compliance with FDA’s current Good Manufacturing Practices, or cGMP. These regulations require that we and any of our contract manufacturers design, manufacture and service products, and maintain documents in a prescribed manner with respect to manufacturing, testing, distribution, storage, design control, and service activities. Modifications or enhancements that could significantly affect the safety or effectiveness of a device or that constitute a major change to the intended use of the device require a new 510(k) premarket notification for any significant product modification.
The Medical Device Reporting regulation requires that we provide information to the FDA on deaths or serious injuries alleged to be associated with the use of our devices, as well as product malfunctions that are likely to cause or contribute to death or serious injury if the malfunction were to recur. Labeling and promotional activities are regulated by the FDA and, in some circumstances, by the Federal Trade Commission.
As a medical device manufacturer, we are also subject to laws and regulations administered by governmental entities at the federal, state and local levels. For example, our facility is licensed as a medical device manufacturing facility in the State of Washington and is subject to periodic state regulatory inspections. Our customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us.
In the United States, as a manufacturer of medical devices and devices utilizing radioactive byproduct material, we are subject to extensive regulation by not only federal governmental authorities, such as the FDA and FAA, but also by state and local governmental authorities, such as the Washington State Department of Health, to ensure such devices are safe and effective. In Washington State, the Department of Health, by agreement with the federal Nuclear Regulatory Commission (“NRC”), regulates the possession, use, and disposal of radioactive byproduct material as well as the manufacture of radioactive sealed sources to ensure compliance with state and federal laws and regulations. RadioGel™ constitutes both medical devices and radioactive sealed sources and are subject to these regulations.
Moreover, our use, management, and disposal of certain radioactive substances and wastes are subject to regulation by several federal and state agencies depending on the nature of the substance or waste material. We believe that we are in compliance with all federal and state regulations for this purpose.
Environmental Regulation
Our business does not require us to comply with any extraordinary environmental regulations. Our RadioGel™ product is manufactured in an independently owned and operated facility. Any environmental effects or contamination event that could result would be from the shipping company during shipment and misuse by the treatment facility upon arrival.
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Employees
As of December 31, 2017, the Company had two full-time personnel. The Company utilizes several independent contractors to assist with its operations. The Company does not have a collective bargaining agreement with any of its personnel and believes its relations with its personnel are good.
Available Information
The Company prepares and files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and certain other information with the United States Securities and Exchange Commission (the “SEC”). Persons may read and copy any materials the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. Eastern Time. Information may be obtained on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Moreover, the Company maintains a website at http://www.RadioGel.com that contains important information about the Company, including biographies of key management personnel, as well as information about the Company’s business. This information is publicly available and is updated regularly. The content on any website referred to in this Form 10-K report is not incorporated by reference into this Form 10-K report, unless (and only to the extent) expressly so stated herein.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Form 10-K, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
RISKS ASSOCIATED WITH THE COMPANY’S BUSINESS
Our independent registered public accounting firms’ reports on its financial statements questions the Company’s ability to continue as a going concern.
The Company’s independent registered public accounting firms’ reports on the Company’s financial statements for the years ended December 31, 2017 and 2016 express doubt about the Company’s ability to continue as a going concern. The reports include an explanatory paragraph stating that the Company has suffered recurring losses, used significant cash in support of its operating activities and, based on its current operating levels, require additional capital or significant restructuring to sustain its operation for the foreseeable future. There is no assurance that the Company will be able to obtain sufficient additional capital to continue its operations and to alleviate doubt about its ability to continue as a going concern. If the Company obtains additional financing, such funds may not be available on favorable terms and likely would entail considerable dilution to existing shareholders. Any debt financing, if available, may involve restrictive covenants that restrict its ability to conduct its business. It is extremely remote that the Company could obtain any financing on any basis that did not result in considerable dilution for shareholders. Inclusion of a “going concern qualification” in the report of its independent accountants or in any future report may have a negative impact on its ability to obtain debt or equity financing and may adversely impact its stock price.
A combination of our current financial condition and the FDA’s determinations to date regarding our brachytherapy products raise material concerns about ability to continue as a going concern.
The Company will not be able to continue as a going concern unless the Company obtains financing. Depending upon the amount of financing, if any, the Company is able to obtain, the Company may not receive adequate funds to continue the approval process for RadioGel™ or other brachytherapy products with the FDA.
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The Company has generated operating losses since inception, which are expected to continue, and has increasing cash requirements, which it may be unable to satisfy.
The Company has generated material operating losses since inception. The Company has had recurring net losses since inception which has resulted in an accumulated deficit of $64,288,167 as of December 31, 2017, including a net loss of $6,418,727 for the year ended December 31, 2017 and a net loss of $9,854,895 for the year ended December 31, 2016. Historically, the Company has relied upon investor funds to maintain its operations and develop its business. The Company needs to raise additional capital within the next quarter from investors for working capital as well as business expansion, and there is no assurance that additional investor funds will be available on terms acceptable to the Company, or at all. If the Company is unable to unable to obtain additional financing to meet its working capital requirements, the Company likely would cease operations.
The Company requires funding of at least $1.5 million per year to maintain current operating activities. Over the next 12 to 24 months, the Company believes it will cost approximately $5.0 million to $10.0 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies, which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.
Recent economic events, including the inherent instability in global capital markets, as well as the lack of liquidity in the capital markets, could adversely impact the Company’s ability to obtain financing and its ability to execute its business plan.
The Company has a limited operating history, which may make it difficult to evaluate its business and prospects.
The Company has a limited operating history upon which one can base an evaluation of its business and prospects. As a company in the development stage, there are substantial risks, uncertainties, expenses and difficulties to which its business is subject. To address these risks and uncertainties, the Company must do the following:
| ● | successfully develop and execute the business strategy; | |
| ● | respond to competitive developments; and | |
| ● | attract, integrate, retain and motivate qualified personnel. |
There is no assurance that the Company will achieve or maintain profitable operations or that the Company will obtain or maintain adequate working capital to meet its obligations as they become due. The Company cannot be certain that its business strategy will be successfully developed and implemented or that the Company will successfully address the risks that face its business. In the event that the Company does not successfully address these risks, its business, prospects, financial condition, and results of operations could be materially and adversely affected.
The Company’s new products are regulated and require appropriate clearances and approvals to be marketed in the U.S. and globally.
There is no assurance the FDA or other global regulatory authorities will grant the Company permission to market the Company’s brachytherapy Y-90 RadioGel™ device.
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The Company has been working with the FDA to obtain clearance for its brachytherapy Y-90 RadioGelTM device, but no assurances have been received. On December 23, 2014, the Company announced that it submitted a de novo to the FDA for marketing clearance for its patented Y-90 RadioGelTM device pursuant to Section 513(f)(2) of the U.S. Food, Drug and Cosmetic Act (the “Act”). In June 2015, the FDA notified the Company the de novo was not granted. In February 2014, the FDA found the same device under Section 510(k) of the Act not substantially equivalent and concluded that the device is classified by statute as a Class III medical device, unless the device is reclassified. The Company is seeking reclassification of the product to Class II. If the Company is successful in seeking reconsideration of the Company’s de novo application, as a regulatory matter, the device could be on an easier and faster path to market in the United States. However, there would still be the requirements to complete the in vitro and in vivo testing, and then some human clinical trials. That testing date is submitted in a de novo pre-market application and if accepted we could then go to market. As a practical matter, the Company would still need to secure funding and commercial arrangements before marketing could commence. If the de novo is declined and if the Company obtains funding to permit it to continue operations, the Company will explore steps toward seeking approval for the device as a Class III medical device. Generally, the time period and cost of seeking approval as a Class III medical device is materially greater than the time period and cost of seeking approval as a Class II medical device. If the Company seeks approval as a Class III device, human clinical trials will be necessary. Generally, human trials for Class III products are larger, of longer duration and costlier than those for Class II devices. If human clinical trials are necessary, there will be additional cost and time to reach marketing clearance or approval. Unless the Company obtains sufficient funding, it will be unable to do the foregoing activities. There can be no assurance that the product will be approved as either a Class II or Class III device by the FDA even if additional data is provided. There can be no assurance that the Company will receive FDA approval, or if it does, the timing thereof.
If the Company is successful in increasing the size of its organization, the Company may experience difficulties in managing growth.
The Company is a small organization with a minimal number of employees. If the Company is successful, it may experience a period of significant expansion in headcount, facilities, infrastructure and overhead and further expansion may be required to address potential growth and market opportunities. Any such future growth will impose significant added responsibilities on members of management, including the need to improve the Company’s operational and financial systems and to identify, recruit, maintain and integrate additional managers. The Company’s future financial performance and its ability to compete effectively will depend, in part, on the ability to manage any future growth effectively.
The Company’s business is dependent upon the continued services of the Company’s Chief Executive Officer, Michael Korenko. Should the Company lose the services of Dr. Korenko, the Company’s operations will be negatively impacted.
The Company’s business is dependent upon the expertise of its Chief Executive Officer, Michael Korenko. Dr. Korenko is essential to the Company’s operations. Accordingly, an investor must rely on Dr. Korenko’s management decisions that will continue to control the Company’s business affairs. The Company does not maintain key man insurance on Dr. Korenko’s life. The loss of the services of Dr. Korenko would have a material adverse effect upon the Company’s business.
The Company is heavily dependent on consultants for many of the services necessary to continue operations. The loss of any of these consultants could have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company’s success is heavily dependent on the continued active participation of certain consultants and collaborating scientists. Certain key employees and consultants have no written employment contracts. Loss of the services of any one or more of its consultants could have a material adverse effect upon the Company’s business, results of operations and financial condition.
If the Company is unable to hire and retain additional qualified personnel, the business and financial condition may suffer.
The Company’s success and achievement of its growth plans depend on its ability to recruit, hire, train and retain highly qualified technical, scientific, regulatory and managerial employees, consultants and advisors. Competition for qualified personnel among pharmaceutical and biotechnology companies is intense, and an inability to attract and motivate additional highly skilled personnel required for the expansion of the Company’s activities, or the loss of any such persons, could have a material adverse effect on its business, results of operations and financial condition.
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The Company’s revenues have historically been derived from sales made to a small number of customers. The Company has discontinued prior operations related to its core business. To succeed, we will need to recommence our operations and achieve sales to a materially larger number of customers.
During 2014, the Company ceased all previous manufacturing and sales activities. Our sales for the year ended December 31, 2017 and 2016 consisted of only consulting revenue. The Company’s consulting revenues for the years ended December 31, 2017 and 2016 were made to one customer, and those sales constituted 100.0% of total revenues for those years. At such time as the Company recommences active operations, no assurances can be given that the Company will be successful in commercializing its products or expanding the number of customers purchasing its products and services.
Many of the Company’s competitors have greater resources and experience than the Company has.
Many of the Company’s competitors have greater financial resources, longer history, broader experience, greater name recognition, and more substantial operations than the Company has, and they represent substantial long-term competition for us. The Company’s competitors may be able to devote more financial and human resources than the Company can to research, new product development, regulatory approvals, and marketing and sales. The Company’s competitors may develop or market products that are viewed by customers as more effective or more economical than the Company’s products. There is no assurance that the Company will be able to compete effectively against current and future competitors, and such competitive pressures may adversely affect the Company’s business and results of operations.
The Company’s future revenues depend upon acceptance of its current and future products in the markets in which they compete.
The Company’s future revenues depend upon receipt of financing, regulatory approval and the successful production, marketing, and sales of the various isotopes the Company might market in the future. The rate and level of market acceptance of each of these products, if any, may vary depending on the perception by physicians and other members of the healthcare community of its safety and efficacy as compared to that of any competing products; the clinical outcomes of any patients treated; the effectiveness of its sales and marketing efforts in the United States, Europe, Far East, Middle East, and Russia; any unfavorable publicity concerning its products or similar products; the price of the Company’s products relative to other products or competing treatments; any decrease in current reimbursement rates from the Centers for Medicare and Medicaid Services or third-party payers; regulatory developments related to the manufacture or continued use of its products; availability of sufficient supplies to either purchase or manufacture its products; its ability to produce sufficient quantities of its products; and the ability of physicians to properly utilize its products and avoid excessive levels of radiation to patients. Any material adverse developments with respect to the commercialization of any such products may adversely affect revenues and may cause the Company to continue to incur losses in the future.
There is only one supplier of Y-90 in the United States, requiring us to rely entirely on this supplier to provide the Y-90 particles needed to produce RadioGelTM. If we are unable to obtain a sufficient supply of Y-90 particles, we will not be able to proceed with our development of RadioGelTM and our business will be materially harmed.
The Company currently subcontracts the manufacturing of RadioGelTM at IsoTherapeutics. PerkinElmer Inc., the only supplier of Y-90 particles in the United States, is the sole supplier of the Y-90 used by IsoTherapeutics to manufacture the Company’s RadioGel™. In the event PerkinElmer is unable to satisfy our supply requirements or stope producing Y-90 particles, we will be unable to continue with development of RadioGel™ and our business would be materially harmed.
The Company will in the future rely heavily on a limited number of suppliers.
Some of the products the Company might market and components thereof are currently available only from a limited number of suppliers, several of which are international suppliers. Failure to obtain deliveries from these sources could have a material adverse effect on the Company’s ability to operate.
The Company may incur material losses and costs as a result of product liability claims that may be brought against it.
The Company faces an inherent business risk of exposure to product liability claims in the event that products supplied by the Company fail to perform as expected or such products result, or is alleged to result, in bodily injury. Any such claims may also result in adverse publicity, which could damage the Company’s reputation by raising questions about the safety and efficacy of its products and could interfere with its efforts to market its products. A successful product liability claim against the Company in excess of its available insurance coverage or established reserves may have a material adverse effect on its business. Although the Company currently maintains liability insurance in amounts it believes are commercially reasonable, any product liability the Company may incur may exceed its insurance coverage.
| -12- |
The Company is subject to the risk that certain third parties may mishandle the Company’s products.
If the Company markets products, the Company likely will rely on third parties, such as commercial air courier companies, to deliver the products, and on other third parties to package the products in certain specialized packaging forms requested by customers. The Company thus would be subject to the risk that these third parties may mishandle its product, which could result in material adverse effects, particularly given the radioactive nature of some of the products.
The Company is subject to uncertainties regarding reimbursement for use of its products.
Hospitals and freestanding clinics may be less likely to purchase the Company’s products if they cannot be assured of receiving favorable reimbursement for treatments using its products from third-party payers, such as Medicare and private health insurance plans. Third-party payers are increasingly challenging the pricing of certain medical services or devices, and there is no assurance that they will reimburse the Company’s customers at levels sufficient for it to maintain favorable sales and price levels for the Company’s products. There is no uniform policy on reimbursement among third-party payers, and there is no assurance that the Company’s products will continue to qualify for reimbursement from all third-party payers or that reimbursement rates will not be reduced. A reduction in or elimination of third-party reimbursement for treatments using the Company’s products would likely have a material adverse effect on the Company’s revenues.
The Company’s future growth is largely dependent upon its ability to develop new technologies that achieve market acceptance with appropriate margins.
The Company’s business operates in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, future growth rates depend upon a number of factors, including the Company’s ability to (i) identify emerging technological trends in the Company’s target end-markets, (ii) develop and maintain competitive products, (iii) enhance the Company’s products by adding innovative features that differentiate the Company’s products from those of its competitors, and (iv) develop, manufacture and bring products to market quickly and cost-effectively. The Company’s ability to develop new products based on technological innovation can affect the Company’s competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in the Company’s business, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of the Company’s customers as fully as competitive offerings. In addition, the markets for the Company’s products may not develop or grow as it currently anticipates. The failure of the Company’s technologies or products to gain market acceptance due to more attractive offerings by the Company’s competitors could significantly reduce the Company’s revenues and adversely affect the Company’s competitive standing and prospects.
The Company may rely on third parties to represent it locally in the marketing and sales of its products in international markets and its revenue may depend on the efforts and results of those third parties.
The Company’s future success may depend, in part, on its ability to enter into and maintain collaborative relationships with one or more third parties, the collaborator’s strategic interest in the Company’s products and the Company’s products under development, and the collaborator’s ability to successfully market and sell any such products. The Company intends to pursue collaborative arrangements regarding the marketing and sales of its products; however, it may not be able to establish or maintain such collaborative arrangements, or if it is able to do so, the Company’s collaborators may not be effective in marketing and selling its products. To the extent that the Company decides not to, or is unable to, enter into collaborative arrangements with respect to the sales and marketing of its products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise. To the extent that the Company depends on third parties for marketing and distribution, any revenues received by the Company will depend upon the efforts and results of such third parties, which may or may not be successful.
| -13- |
The Company may pursue strategic acquisitions that may have an adverse impact on its business.
Executing the Company’s business strategy may involve pursuing and consummating strategic transactions to acquire complementary businesses or technologies. In pursuing these strategic transactions, even if the Company does not consummate them, or in consummating such transactions and integrating the acquired business or technology, the Company may expend significant financial and management resources and incur other significant costs and expenses. There is no assurance that any strategic transactions will result in additional revenues or other strategic benefits for the Company’s business. The Company may issue the Company’s stock as consideration for acquisitions, joint ventures or other strategic transactions, and the use of stock as purchase consideration could dilute the interests of its current stockholders. In addition, the Company may obtain debt financing in connection with an acquisition. Any such debt financing may involve restrictive covenants relating to capital-raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and pursue business opportunities, including potential acquisitions. In addition, such debt financing may impair the Company’s ability to obtain future additional financing for working capital, capital expenditures, acquisitions, general corporate or other purposes, and a substantial portion of cash flows, if any, from the Company’s operations may be dedicated to interest payments and debt repayment, thereby reducing the funds available to the Company for other purposes.
The Company will need to hire additional qualified accounting personnel in order to remediate a material weakness in its internal control over financial accounting, and the Company will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of its internal control over financial reporting and its disclosure controls and procedures.
As a public company, the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002. The Company’s management is required to evaluate and disclose its assessment of the effectiveness of the Company’s internal control over financial reporting as of each year-end, including disclosing any “material weakness” in the Company’s internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of its assessment, management has determined that there is a material weakness due to the lack of segregation of duties and, due to this material weakness, management concluded that, as of December 31, 2017 and 2016, the Company’s internal control over financial reporting was ineffective. This material weakness was first identified in the Company’s Form 10-K/A amended annual report for the year ended December 31, 2008. This material weakness has the potential of adversely impacting the Company’s financial reporting process and the Company’s financial reports. Because of this material weakness, management also concluded that the Company’s disclosure controls and procedures were ineffective as of December 31, 2017 and 2016. The Company needs to hire additional qualified accounting personnel in order to resolve this material weakness. The Company also will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures.
The Company may be unable to make timely license and patent payments
Patent costs associated with existing and new technology were significant; however, the licensing contract was re-negotiated to significantly reduce these costs. Existing patent and license fees must be paid for the Company to maintain rights to the technology. The Company would forfeit its exclusive rights to licensed technologies without paying patent and rights fees in a timely fashion. There is no assurance of sufficient capital to meet ongoing legal costs associated with the patent costs for the Company’s technology.
The Company’s patented or other technologies may infringe on other patents, which may expose it to costly litigation.
It is possible that the Company’s patented or other technologies may infringe on patents or other rights owned by others. The Company may have to alter its products or processes, pay licensing fees, defend infringement actions or challenge the validity of the patents in court, or cease activities altogether because of patent rights of third parties, thereby causing additional unexpected costs and delays to the Company. Patent litigation is costly and time consuming, and the Company may not have sufficient resources to pursue such litigation. If the Company does not obtain a license under such patents, if it is found liable for infringement, or if it is not able to have such patents declared invalid, the Company may be liable for significant money damages, may encounter significant delays in bringing products to market or may be precluded from participating in the manufacture, use or sale of products or methods of treatment requiring such licenses.
| -14- |
Protecting the Company’s intellectual property is critical to its innovation efforts.
The Company owns or has a license to use several U.S. and foreign patents and patent applications, trademarks and copyrights. The Company’s intellectual property rights may be challenged, invalidated or infringed upon by third parties, or it may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual property on commercially reasonable terms. In some non-U.S. countries, laws affecting intellectual property are uncertain in their application, which can adversely affect the scope or enforceability of the Company’s patents and other intellectual property rights. Any of these events or factors could diminish or cause the Company to lose the competitive advantages associated with the Company’s intellectual property, subject the Company to judgments, penalties and significant litigation costs, or temporarily or permanently disrupt its sales and marketing of the affected products or services.
The Company may not be able to protect its trade secrets and other unpatented proprietary technology, which could give competitors an advantage.
The Company relies upon trade secrets and other unpatented proprietary technology. The Company may not be able to adequately protect its rights with regard to such unpatented proprietary technology, or competitors may independently develop substantially equivalent technology. The Company seeks to protect trade secrets and proprietary knowledge, in part through confidentiality agreements with its employees, consultants, advisors and collaborators. Nevertheless, these agreements may not effectively prevent disclosure of the Company’s confidential information and may not provide the Company with an adequate remedy in the event of unauthorized disclosure of such information, and as result the Company’s competitors could gain a competitive advantage.
General economic conditions in markets in which the Company does business can impact the demand for the Company’s goods and services. Decreased demand for the Company’s products and services could have a negative impact on its financial performance and cash flow.
Demand for the Company’s products and services, in part, depends on the general economic conditions affecting the countries and industries in which the Company does business. A downturn in economic conditions in a country or industry that the Company serves may adversely affect the demand for the Company’s products and services, in turn negatively impacting the Company’s operations and financial results. Further, changes in demand for the Company’s products and services can magnify the impact of economic cycles on the Company’s businesses. Unanticipated contract terminations by current customers can negatively impact operations, financial results and cash flow. The Company’s earnings, cash flow and financial position are exposed to financial market risks worldwide, including interest rate and currency exchange rate fluctuations and exchange rate controls. Fluctuations in domestic and world financial markets could adversely affect interest rates and impact the Company’s ability to obtain credit or attract investors.
The Company is subject to extensive government regulation in jurisdictions around the world in which it does business. Regulations address, among other things, environmental compliance, import/export restrictions, healthcare services, taxes and financial reporting, and those regulations can significantly increase the cost of doing business, which in turn can negatively impact operations, financial results and cash flow.
If the Company is successful in developing manufacturing capability, the Company will be subject to extensive government regulation and intervention both in the U.S. and in all foreign jurisdictions in which it conducts business. Compliance with applicable laws and regulations will result in higher capital expenditures and operating costs, and changes to current regulations with which the Company complies can necessitate further capital expenditures and increases in operating costs to enable continued compliance. Additionally, from time to time, the Company may be involved in proceedings under certain of these laws and regulations. Foreign operations are subject to political instabilities, restrictions on funds transfers, import/export restrictions, and currency fluctuation.
Volatility in raw material and energy costs, interruption in ordinary sources of supply, and an inability to recover from unanticipated increases in energy and raw material costs could result in lost sales or could increase significantly the cost of doing business.
Market and economic conditions affecting the costs of raw materials, utilities, energy costs, and infrastructure required to provide for the delivery of the Company’s products and services are beyond the Company’s control. Any disruption or halt in supplies, or rapid escalations in costs, could adversely affect the Company’s ability to manufacture products or to competitively price the Company’s products in the marketplace. To date, the ultimate impact of energy costs increases has been mitigated through price increases or offset through improved process efficiencies; however, continuing escalation of energy costs could have a negative impact upon the Company’s business and financial performance.
| -15- |
RISKS RELATED TO THE COMPANY’S COMMON STOCK
The Company’s common stock is currently quoted on the OTC Pink Marketplace. Failure to develop or maintain a more active trading market may negatively affect the value of the Company’s common stock, may deter some potential investors from purchasing the Company’s common stock or other equity securities, and may make it difficult or impossible for stockholders to sell their shares of common stock.
The Company’s average daily volume of shares traded for the years ended December 31, 2017 and 2016 was 223,500 and 113,034, respectively. Failure to develop or maintain an active trading market may negatively affect the value of the Company’s common stock, may make some potential investors unwilling to purchase the Company’s common stock or equity securities that are convertible into or exercisable for the Company’s common stock, and may make it difficult or impossible for the Company’s stockholders to sell their shares of common stock and recover any part of their investment.
The Company’s outstanding securities, the stock or securities that it may become obligated to issue under existing agreements, and certain provisions of those securities, may cause immediate and substantial dilution to existing stockholders and may make it more difficult to raise additional equity capital.
The Company had 71,447,213 shares of common stock outstanding on March 28, 2018. The Company also had outstanding on that date derivative securities consisting of options, warrants, and convertible notes that if they had been exercised and converted in full on March 28, 2018, would have resulted in the issuance of up to 19,557,612 additional shares of common stock. The issuance of shares upon the exercise of options or the conversion of convertible notes may result in substantial dilution to each stockholder by reducing that stockholder’s percentage ownership of the Company’s total outstanding common stock. Additionally, the Company has outstanding notes that if not prepaid by specific dates entitle the holder to convert the principal and accrued interest into common stock at 60% of the lowest trading price during the previous thirty-day trading period of the Company’s common stock prior to conversion as provided in the notes. See Note 9 of the footnotes to the Financial Statements for the years ended December 31, 2017 and 2016 beginning on page [F-2] of this report regarding the equity issuable upon conversion. The issuance of some or all those warrants and any exercise of those warrants will have the effect of further diluting the percentage ownership of the Company’s other stockholders. That agreement also provides for stock compensation for consulting services. The existence and terms of these derivative securities and other obligations may make it more difficult for the Company to raise additional capital through the sale of stock or other equity securities.
Future sales of the Company’s stock, including sales following exercise or conversion of derivative securities, or the perception that such sales may occur, may depress the price of common stock and could encourage short sales.
The sale or availability for sale of substantial amounts of the Company’s shares in the public market, including shares issuable upon exercise of options or warrants or upon the conversion of convertible securities, or the perception that such sales may occur, may adversely affect the market price of the Company’s common stock. Any decline in the price of the Company’s common stock may encourage short sales, which could place further downward pressure on the price of the Company’s common stock.
The Company’s stock price is likely to be volatile.
For the year ended December 31, 2017, the reported low closing price for the Company’s common stock was $0.02 per share, and the reported high closing price was $0.18 per share. For the year ended December 31, 2016, the reported low closing price for the Company’s common stock was $0.07 per share, and the reported high closing price was $0.96 per share. There is generally significant volatility in the market prices, as well as limited liquidity, of securities of early stage companies, particularly early stage medical product companies. Contributing to this volatility are various events that can affect the Company’s stock price in a positive or negative manner. These events include, but are not limited to: governmental approvals, refusals to approve, regulations or other actions; market acceptance and sales growth of the Company’s products; litigation involving the Company or the Company’s industry; developments or disputes concerning the Company’s patents or other proprietary rights; changes in the structure of healthcare payment systems; departure of key personnel; future sales of its securities; fluctuations in its financial results or those of companies that are perceived to be similar to us; investors’ general perception of us; and general economic, industry and market conditions. If any of these events occur, it could cause the Company’s stock price to fall, and any of these events may cause the Company’s stock price to be volatile.
| -16- |
The Company’s common stock is subject to the “Penny Stock” rules of the SEC and the trading market in its securities is limited, which makes transactions in its common stock cumbersome and may reduce the value of an investment in the Company’s stock.
The Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires that a broker or dealer approve a person’s account for transactions in penny stocks and that the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and must make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of the Company’s common stock and may cause a decline in the market value of its stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
As a result of the Company issuing preferred stock, the rights of holders of the Company’s common stock and the value of the Company’s common stock may be adversely affected.
The Company’s board of directors is authorized to issue classes or series of preferred stock, without any action on the part of the stockholders. The Company’s board of directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of its business, and other terms. The Company has issued preferred stock that has a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, and with respect to voting rights. In accordance with that and with the issuance of preferred stock the voting rights the common stockholders voting rights have been diluted and it is possible that the rights of holders of the common stock or the value of the common stock have been adversely affected.
The Company does not expect to pay any dividends on common stock for the foreseeable future.
The Company has not paid any cash dividends on its common stock to date and does not anticipate it will pay cash dividends on its common stock in the foreseeable future. Accordingly, stockholders must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Any determination to pay dividends in the future will be made at the discretion of the Company’s board of directors and will depend on the Company’s results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, and other factors that the Company’s board deems relevant.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
This item is not applicable to the Company because the Company is a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.
| -17- |
The Company is headquartered in Richland, Washington. The Company was renting office space from a significant shareholder and director of the Company on a month-to-month basis with a monthly payment of $1,500. This rental agreement was terminated as of April 1, 2017.
On March 6, 2015, Robert and Maribeth Myers filed a lawsuit against the Company and BancLeasing, Inc., owner of a linear accelerator and other equipment leased by the Company, in the Superior Court of the State of Washington, in and for Benton County (Case No. 15-2-0054101), asserting various claims related to the Company’s five-year lease of production center space owned by Mr. and Mrs. Myers. The Company subsequently filed counterclaims against Mr. and Mrs. Myers, BancLeasing and Washington Trust Bank, alleging misapplication of lease payments to the principal loan amount for a linear accelerator and other equipment stored on the production center property, as well as certain building improvements made by the Company. During 2016, the Company entered into a Settlement Agreement with Robert and Maribeth Myers, pursuant to which the Company agreed to pay a settlement amount of $438,830 in exchange for the release of all claims related to the matter, which amount was paid by the Company during the year ended December 31, 2016.
In 2016, the Company was awarded in the Superior Court of the State of Washington a total sum of $527,876 against BancLeasing. The Company is pursuing its options for collection of the awarded amount, however there can be no assurance as to any eventual collection.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
The Company’s common stock is traded on the OTC Pink Marketplace under the symbol “RDGL.” The following table sets forth, in U.S. dollars the high and low closing prices for each of the calendar quarters indicated, as reported by the OTC Pink Marketplace for the past two fiscal years. Such OTC Pink quotations reflect inter-dealer prices, without markup, markdown or commissions and, particularly because our common stock is traded infrequently, may not necessarily represent actual transactions or a liquid trading market. All prices listed below reflect the Company’s 1:100 reverse stock split implemented on October 7, 2016.
| High | Low | |||||||
| 2017 | ||||||||
| Quarter ended December 31 | $ | 0.09 | $ | 0.02 | ||||
| Quarter ended September 30 | $ | 0.11 | $ | 0.07 | ||||
| Quarter ended June 30 | $ | 0.16 | $ | 0.06 | ||||
| Quarter ended March 31 | $ | 0.18 | $ | 0.10 | ||||
| 2016 | ||||||||
| Quarter ended December 31 | $ | 0.24 | $ | 0.07 | ||||
| Quarter ended September 30 | $ | 0.40 | $ | 0.14 | ||||
| Quarter ended June 30 | $ | 0.96 | $ | 0.20 | ||||
| Quarter ended March 31 | $ | 0.96 | $ | 0.07 | ||||
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Holders
As of March 28, 2018, we had 71,447,213 shares of common stock, par value $0.001 per share, issued and outstanding held by approximately 341 shareholders of record. Our transfer agent is American Registrar & Transfer Co., 1234 W South Jordan Pkwy Ste B3, South Jordan, UT 84095.
Dividend Policy
The Company has not paid any cash dividends on its common stock to date and do not anticipate it will pay cash dividends on its common stock in the foreseeable future. The payment of dividends in the future will be contingent upon revenues and earnings, if any, capital requirements, and its general financial condition. The payment of any dividends will be within the discretion of the board of directors. It is the present intention of the board of directors to retain all earnings, if any, for use in the business operations. Accordingly, the board does not anticipate declaring any dividends on its common stock in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information as of December 31, 2017 with respect to the Company’s equity compensation plans previously approved by stockholders and equity compensation plans not previously approved by stockholders.
| Equity Compensation Plan Information | ||||||||||||
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
| (a) | (b) | (c) | ||||||||||
| Equity compensation plans approved by stockholders | - | $ | - | 17,525,925 | ||||||||
| Equity compensation plans not approved by stockholders | 1,401,824 | $ | 0.15 | - | ||||||||
| Total | 1,401,824 | (1) | $ | 0.15 | (1) | - | ||||||
| (1) | In addition to the 2015 Plan (defined below), the Company has individual compensation arrangements under which equity securities are authorized for issuance in exchange for consideration in the form of goods or services of certain individuals. |
2015 Omnibus Securities and Incentive Plan
In October 2015, our Board of Directors and stockholders approved the adoption of the 2015 Omnibus Securities and Incentive Plan (the “2015 Plan”). The 2015 Plan authorizes an aggregate number of shares of common stock for issuance to all employees of the Company or any subsidiary of the Company, any non-employee director, consultants and independent contractors of the Company or any subsidiary, and any joint venture partners (including, without limitation, officers, directors and partners thereof) of the Company or any subsidiary. The aggregate number of shares that may be issued under the Plan shall not exceed twenty percent (20%) of the issued and outstanding shares of common stock on an as converted primary basis on a rolling basis. For calculation purposes, the As Converted Primary Shares shall include all shares of common stock and all shares of common stock issuable upon the conversion of outstanding preferred stock and other convertible securities, but shall not include any shares of common stock issuable upon the exercise of options, warrants and other convertible securities issued pursuant to the 2015 Plan. As of December 31, 2017 the Converted Primary Shares calculation results in 17,525,925 aggregate shares that may be issued under the 2015 Plan. The 2015 Plan is administered by the Company’s Compensation Committee, who may issue awards in the form of stock options and/or restricted stock awards. Effective December 31, 2017, an aggregate total of 6,820,000 restricted stock units (“RSUs”) under the 2015 Plan were authorized but as of March 28, 2018 have not been issued.
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Recent Sales of Unregistered Securities
Below is a description of all unregistered securities issued by the Company during and subsequent to the quarter ended December 31, 2017, through the date of this report. Each of the issuances identified below were issued in transactions exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 3(a)(9) and/or 4(2) thereof.
Issuances During the Quarter Ended December 31, 2017
During the months of October, November and December 2017, the Company issued 627,302 shares of Series A Preferred as loan fees for loan amendments.
During the month November 2017, the Company issued 100,000 shares of Series A Preferred as a commitment fee for a loan.
During the month December 2017, the Company issued 81,250 shares of common stock as payment to the Medical Advisory Board for services.
During the months of October, November and December 2017, the Company issued 5,325,400 shares of common stock in exchange for 532,540 shares of Series A Preferred.
Issuances Subsequent to December 31, 2017
In January and through March 2, 2018, the Company issued 5,742,000 shares of common stock for 574,200 shares of Series A Preferred.
In March 2018, the Company issued 10,000 shares of common stock to a member of the Veterinary Medical Advisory Board.
ITEM 6. SELECTED FINANCIAL DATA.
This item is not applicable to the Company because the Company is a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the Company’s financial statements and the notes presented herein. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ significantly from those anticipated in these forward-looking statements as a result of the risk factors set forth above in Item 1A and other factors discussed in this Annual Report on Form 10-K.
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Results of Operations
Comparison for the Year Ended December 31, 2017 and December 31, 2016
The following table sets forth information from the Company’s statements of operations for the years ended December 31, 2017 and 2016.
| Year Ended December 31, 2017 | Year Ended December 31, 2016 | |||||||
| Revenues | $ | 4,054 | $ | 8,108 | ||||
| Operating expense | 2,620,968 | 4,444,578 | ||||||
| Operating loss | (2,616,914 | ) | (4,436,470 | ) | ||||
| Non-operating income (expense) | (3,801,813 | ) | (5,418,425 | ) | ||||
| Net income (loss) | $ | (6,418,727 | ) | $ | (9,854,895 | ) | ||
Revenue
Revenue was $4,054 for the year ended December 31, 2017, compared to $8,108 for the year ended December 31, 2016, a period over period decrease of $4,054. The decrease was a result of a loss of consulting revenue, which was our only source of revenue during the years ended December 31, 2017 and 2016. Consulting revenue consists of providing clients with assistance in strategic targetry services, and research into production of radiopharmaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this consulting. Consulting services had been our only source of revenue. The Company does not have any current contracts or arrangements for consulting services, and, until such time as the Company secures contracts or arrangements to provide consulting services, the Company does not expect to generate any additional revenue.
Management does not anticipate that the Company will generate revenue sufficient to sustain operations until such time as the Company secures revenue-generating arrangements with respect to RadioGel™ and/or any of our other brachytherapy technologies.
Operating Expense
Operating expense for the twelve months ended December 31, 2017 and 2016 consists of the following:
Twelve months ended December 31, 2017 | Twelve months ended December 31, 2016 | |||||||
| Sales and marketing expense | $ | 111,662 | $ | 284,138 | ||||
| Depreciation and amortization expense | 1,473 | 2,947 | ||||||
| Professional fees | 709,843 | 2,068,796 | ||||||
| Reserved stock units granted | 575,011 | - | ||||||
| Stock options and warrants granted | 103,865 | 675,324 | ||||||
| Payroll expense | 806,620 | 652,877 | ||||||
| Research and development | 203,037 | 328,026 | ||||||
| General and administrative expense | 109,457 | 432,470 | ||||||
| $ | 2,620,968 | $ | 4,444,578 | |||||
Operating expense for the twelve months ended December 31, 2017 and 2016 was $2,620,968 and $4,444,578, respectively. The decrease in operating expense from 2016 to 2017 is attributable to decreased sales and marketing expense ($284,138 for the twelve months ended December 31, 2016 versus $111,662 for the twelve months ended December 31, 2017), stock options and warrants granted ($675,324 for the twelve months ended December 31, 2016 versus $103,865 for the twelve months ended December 31, 2017), research and development ($328,026 for the twelve months ended December 31, 2016 versus $203,037 for the twelve months ended December 31, 2017), general and administrative expense ($432,470 for the twelve months ended December 31, 2016 versus $109,457 for the twelve months ended December 31, 2017), and professional fees ($2,068,796 for the twelve months ended December 31, 2016 versus $709,843 for the twelve months ended December 31, 2017). The decrease in professional fees was due to hiring consultants to assist in raising capital to pay off debt and for operating expenses that was incurred in the twelve months ended December 31, 2016.
The decrease in operating expense from 2016 to 2017 was partially offset by the increase in reserved restricted stock units that were authorized as of December 31, 2017 but have not been issued as of March 28, 2018 ($0 for the twelve months ended December 31, 2016 versus $575,011 for the twelve months ended December 31, 2017), and payroll expense ($652,877 for the twelve months ended December 31, 2016 versus $806,620 for the twelve months ended December 31, 2017).
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Non-Operating Income (Expense)
Non-Operating income (expense) for the twelve months ended December 31, 2017 and 2016 consists of the following:
Twelve months ended December 31, 2017 | Twelve months ended December 31, 2016 | |||||||
| Interest expense | $ | (3,903,015 | ) | $ | (6,259,467 | ) | ||
| Net gain (loss) on settlement of debt | (310,086 | ) | 3,108,342 | |||||
| Recognized income from grants | - | 21,010 | ||||||
| Gain (loss) on derivative liability | 408,488 | (2,244,353 | ) | |||||
| Gain on sale of assets | 2,800 | - | ||||||
| Loss on impaired assets | - | (43,957 | ) | |||||
| $ | (3,801,813 | ) | $ | (5,418,425 | ) | |||
Non-operating income (expense) for the twelve months ended December 31, 2017 varied from the twelve months ended December 31, 2016 primarily due to the difference in the gain (loss) on derivative liability of $2,652,841 (a $408,488 gain on derivative liability in 2017 versus a $2,244,353 loss on derivative liability in 2016), and the difference in the gain (loss) on settlement of debt of $3,418,428 (a $3,108,342 gain on settlement of debt in 2016 versus a $310,086 loss on settlement of debt in 2017). Additionally, there was a decrease in interest expense of $2,356,452, attributable to the decrease in notes payable activity from 2016 to 2017.
Income from Grants
On December 22, 2017, the Company received notification that it had been awarded from Washington State University $17,500 grant funds from the sub-award project entitled “Optimized Injectable Radiogels for High-dose Therapy of Non-Resectable Solid Tumors”. The Company expects to receive these funds early in 2018 after meeting certain conditional milestones.
Net Loss
The Company’s net income (loss) for the twelve months ended December 31, 2017 and 2016 was $(6,418,727) and $(9,854,895), respectively, as a result of the items described above.
Liquidity and Capital Resources
At December 31, 2017, the Company had negative working capital of $4,263,139, as compared to $3,022,417 at December 31, 2016. During the twelve months ended December 31, 2017, the Company experienced negative cash flow from operations of $1,288,075 and it realized $2,800 from investing activities while adding $1,265,703 of cash flows from financing activities. As of December 31, 2017, the Company had $0 commitments for capital expenditures.
Cash used in operating activities decreased from $1,926,713 for the twelve-month period ending December 31, 2016 to $1,288,075 for the twelve-month period ending December 31, 2017. Cash used in operating activities was primarily a result of the Company’s non-cash items, such as loss from operations, loss on preferred and common stock and stock options and warrants issued for services and other expenses, and settlement of debt, offset by the net gain and the gain realized from derivative liabilities. Cash provided from financing activities decreased from $1,775,570 for the twelve month period ending December 31, 2016 to $1,265,703 for the twelve month period ending December 31, 2017. The decrease in cash provided from financing activities was primarily a result of decrease in proceeds from convertible debt.
The Company has generated material operating losses since inception. The Company had a net loss of $6,418,727 for the twelve months ended December 31, 2017, and a net loss of $9,854,895 for the twelve months ended December 31, 2016. The Company expects to continue to experience net operating losses. Historically, the Company has relied upon investor funds to maintain its operations and develop the Company’s business. The Company anticipates raising additional capital within the next twelve months for working capital as well as business expansion, although the Company can provide no assurance that additional capital will be available on terms acceptable to the Company, if at all. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business or cease all operations.
| -22- |
The Company requires funding of at least $1.5 million per year to maintain current operating activities. Over the next 12 to 24 months, the Company believes it will cost approximately $5.0 million to $10.0 million to fund: (1) the FDA approval process and initial deployment of RadioGel™ and other brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the Company’s brachytherapy products, including RadioGel™, and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies, which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.
Although the Company is seeking to raise additional capital and has engaged in numerous discussions with investment bankers and investors, the Company has not received firm commitments for the required funding. Based upon its discussions, the Company anticipates that if the Company is able to obtain the funding required to retire outstanding debt, pay past due payables and maintain its current operating activities, that the terms thereof will be materially dilutive to existing shareholders.
Recent geopolitical events, including the inherent instability and volatility in global capital markets, as well as the lack of liquidity in the capital markets, could impact the Company’s ability to obtain financing and its ability to execute its business plan.
Contractual Obligations (payments due by period as of December 31, 2017)
| Contractual Obligation |
Total Payments Due |
Less than 1 Year | 1-3 Years | 3-5 Years |
More than 5 Years | |||||||||||||||
| License Agreement with Battelle Memorial Institute | $ | 100,000 | $ | 10,000 | $ | 45,000 | $ | 150,000 | $ | - | ||||||||||
Effective March 2012, the Company entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented RadioGel™ technology. This license agreement calls for a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold; the license agreement also contains a minimum royalty amount to be paid each year starting with 2013.
In January 2014, the Company entered into a new 12-month lease for its corporate offices for a monthly rent of $1,500 from an entity controlled by Carlton M. Cadwell, a significant shareholder and a Director of the Company. The Company continued to rent this facility in 2015 and 2016 on a month-to-month basis. This rental agreement was terminated as of April 1, 2017. The Company incurred $4,500 and $18,000 rent expense for this facility for each of the twelve months ended December 31, 2017 and 2016.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on the Company’s financial condition, revenues, results of operations, liquidity or capital expenditures.
Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| -23- |
Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
| Production equipment: | 3 to 7 years |
| Office equipment: | 2 to 5 years |
| Furniture and fixtures: | 2 to 5 years |
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down.
License Fees
License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the asset.
The Company periodically reviews the carrying values of capitalized license fees and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value.
Patents and Intellectual Property
The Company had a total $35,482 of capitalized patents and intellectual property costs at December 31, 2015 for the patent rights in the area of a Brachytherapy seed with a Fast-dissolving Matrix for Optimized Delivery of Radionuclides. Effective December 31, 2016 the Company agreed to terminate this non-utilized patent license for which the $35,482 of capitalized patent and intellectual costs applied and therefore the Company wrote off $35,482 of capitalized costs in the twelve months ending December 31, 2016.
While patents are being developed or pending, they are not being amortized. Management has determined that the economic life of the patents to be ten years and amortization, over such 10-year period and on a straight-line basis will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues.
The Company evaluates the recoverability of intangible assets, including patents and intellectual property on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue for the fiscal years ended December 31, 2017 and 2016 consisted of consulting revenue. The Company recognizes revenue as consulting services have been performed. Prepayments, if any, received from customers prior to the services being performed are recorded as deferred revenue. In these cases, when the services are performed, the amount recorded as deferred revenue is recognized as revenue. The Company does not accrue for sales returns and other allowances as it has not experienced any returns or other allowances.
| -24- |
Income from Grants and Deferred Income
Government grants are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled. The Company has chosen to recognize income from grants as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as deferred income on the balance sheet.
Net Income (Loss) Per Share
The Company accounts for its income (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings/loss per share is computed by dividing income (loss) available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period, and does not include the impact of any potentially dilutive common stock equivalents. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
Research and Development Costs
Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.
Income Taxes
To address accounting for uncertainty in tax positions, the Company clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company also provides guidance on de-recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition.
The Company files income tax returns in the U.S. federal jurisdiction.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company’s financial statements. For the years ended December 31, 2017 and 2016, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.
Fair Value of Financial Instruments
The Company adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
| - | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; | |
| - | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and | |
| - | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
| -25- |
Stock-Based Compensation
The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options and awards under The 2015 Omnibus Securities and Incentive Plan, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item is not applicable to the Company because the Company is a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
All financial information required by this Item is included on the pages immediately following the Index to Financial Statements appearing on page F-1, and is hereby incorporated by reference.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, because of the disclosed material weaknesses in the Company’s internal control over financial reporting, the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, to allow timely decisions regarding required disclosure.
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Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2017, using the criteria established in Internal Control – Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of management’s assessment, management has determined that there are material weaknesses due to the lack of segregation of duties and, due to the limited resources based on the size of the Company. Due to the material weaknesses management concluded that as of December 31, 2017, the Company’s internal control over financial reporting was ineffective. In order to address and resolve the weaknesses, the Company will endeavor to locate and appoint additional qualified personnel to the board of directors and pertinent officer positions as the Company’s financial means allow. To date, the Company’s limited financial resources have not allowed the Company to hire the additional personnel necessary to address the material weaknesses.
Management’s Annual Report on Internal Control Over Financial Reporting
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| (a) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; |
| (b) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and |
| (c) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The Company’s current directors and executive officers are as follows:
| NAME | AGE | POSITION | ||
| Michael K. Korenko | 76 | President, Chief Executive Officer, and Director | ||
| L. Bruce Jolliff | 68 | Chief Financial Officer | ||
| Carlton M. Cadwell | 73 | Chairman of the Board and Secretary |
Term of Office
All the Company’s directors hold office until the next annual meeting of the stockholders or until their successors is elected and qualified. The Company’s executive officers are appointed by the Company’s board of directors and hold office until their resignation, removal, death or retirement.
Background and Business Experience
The business experience during the past five years of each of the Company’s directors and executive officers is as follows:
Dr. Michael K. Korenko, President and Chief Executive Officer of the Company since December 2016, and a member of the Board of Directors since August 2017, joined the Company as an Advisor to the Board of the Company during 2009 and served as member of the Board from May 2009 to March 2010. Dr. Korenko has also served on the Hanford Advisory Board since 2009. Dr. Korenko served as Business Development Manager for Curtiss-Wright from 2006 to 2009, as Chief Operating Officer for Curtiss-Wright from 2000 to 2005 and was Executive Vice President of Closure for Safe Sites of Colorado at Rocky Flats from 1994 to 2000. Dr. Korenko served as Vice President of Westinghouse from 1987 to 1994 and was responsible for the 300 and 400 areas, including the Fast Flux Testing Facility (“FFTF”) and all engineering, safety analysis, and projects for the Hanford site. Dr. Korenko is the author of 28 patents and has received many awards, including the National Energy Resources Organization Research and Development Award, the U.S. Steelworkers Award for Excellence in Promoting Safety, and the Westinghouse Total Quality Award for Performance Manager of the Year. Dr. Korenko has a Doctor of Science from MIT, was a NATO Postdoctoral Fellow at Oxford University, and was selected as a White House Fellow for the Department of Defense, reporting to Secretary Cap Weinberger.
Dr. Korenko brings to the Board over seven years’ experience working with and advising various small businesses, including companies involved in turnarounds. Dr. Korenko has also been involved as an advisor to the Company since 2009 in the development of medical isotopes.
Carlton M. Cadwell, Chairman of the Board and Secretary since December 2016, joined the Company as a director in 2006. Dr. Cadwell brings over 30 years of experience in business management, strategic planning, and implementation. He co-founded Cadwell Laboratories, Inc. in 1979 and has served as its President since its inception. Cadwell Laboratories, Inc. is a major international provider of neurodiagnostic medical devices. After receiving his bachelor’s degree from the University of Oregon in 1966 and a doctoral degree from the University of Washington in 1970, he began his career serving in the United States Army as a dentist for three years. From 1973 to 1980, Dr. Cadwell practiced dentistry in private practice and since has started several businesses.
Mr. Cadwell brings to the Board over ten years of service on the Board and over forty-five years of experience as a successful entrepreneur, as well as medical expertise.
Leonard Bruce Jolliff, the Chief Financial Officer, joined the Company as chief financial officer in 2006. For nine years prior to joining the Company, Mr. Jolliff was a sole practitioner in the role of CFO for Hire and as a Forensic Accountant, working with companies ranging from Fortune 500 to small family operations. Mr. Jolliff is a CPA and a member of the Washington Society of CPAs. He is also a CFE and a member of the Association of Certified Fraud Examiners.
Mr. Jolliff has held CFO and Controller positions in an array of industries and has worked as a CPA in public practice.
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Identification of Significant Consultants
David J. Swanberg, M.S., P.E. Chief Technical Officer, has over 30 years’ experience in radiochemical processing, medical isotope production, nuclear waste management, materials science, regulatory affairs, and project management. He has worked in diverse organizations ranging from small start-up businesses to corporations with multi-billion dollar annual revenues. He previously served as Executive Vice President of Operations for IsoRay Medical Inc. managing day-to-day operations, R&D, and New Product Development. Mr. Swanberg was a co-founder of IsoRay and led the initial Cs-131 brachytherapy seed product development, FDA 510(k) submission/clearance, and NRC Sealed Source review and registration. He led the radiation dosimetry evaluations to meet American Association of Physicists in Medicine guidelines and is a current member of the AAPM. Mr. Swanberg served on the IsoRay Board of Directors and participated in several capital financing rounds totaling over $30.0 million. He holds a BA in Chemistry from Bethel University (MN) and an MS in Chemical Engineering from Montana State University. He has numerous technical publications and holds several patents.
Nigel R. Stevenson, Ph.D., is an expert in the production of medical isotopes. He holds a Ph.D. in Nuclear Physics from the University of London and has directed many corporate innovations for imaging and therapeutic nuclide agents. For the past five years he has served as Chief Operating Officer for Clear Vascular Inc. and was previously Chief Operating Officer of Trace Life Sciences, which produced a range of medical radiochemicals and radiopharmaceuticals. Prior to this, he had been VP Production and Research for Theragenics Corp. and directed operations in Atlanta for the world’s largest cyclotron facility (14 cyclotrons) that produced brachytherapy seeds. Dr. Stevenson was also Head of Isotope Production and Research at TRIUMF (Canadian National Accelerator Laboratory) where he managed the production of medical radioisotopes for MDS Nordion.
Donald A. Ludwig, Ph.D., Special Projects Manager and IsoPet™ Business Development Manager. Dr. Ludwig is an expert in particle accelerator applications in radiation therapy, nuclear medicine and radioisotope production. Since 1988 he has served as an advisor to numerous entities in the field, both domestic and foreign. Among these are the Atomic Energy of Canada, the U. S. Department of Energy Labs at Los Alamos, Berkeley, Fermi, Hanford and Oak Ridge, the Israel Atomic Energy Agency, the Australian Nuclear Science and Technology Organization, the Kurchatov Russian Research Institute in Moscow and the Bhabha Atomic Research Center in Mumbai, India. He holds a Ph.D. from UCLA in Medical Physics as well as an MS in Nuclear Physics from Cal Tech, a BS in Physics from the U. S. Military Academy at West Point and an MBA in Theoretical Marketing from the University of Southern California.
Medical and Veterinarian Advisory Boards
Dr. Barry D. Pressman MD, FACR - Chairman Medical Advisory Board. Dr. Pressman is Professor and Chairman of the S. Mark Taper Foundation Imaging Centre and Department, and Chief of the Section of Neuroradiology and Head and Neck Radiology at Cedars-Sinai Medical Center, located in Los Angeles, California.
Dr. Pressman is a past President of The American College of Radiology, the Western Neuroradiological Society, as well as past President of the California Radiological Society. Currently he is a member of the American Society of Neuroradiology and the American Society of Pediatric Neuroradiology.
Dr. Pressman earned his medical degree Cum Laude from Harvard Medical School after graduating Summa Cum Laude from Dartmouth College. After a surgical internship at Harvard’s Peter Bent Brigham Hospital in Boston, he completed a diagnostic radiology residency at Columbia-Presbyterian Medical Center in New York and a Neuroradiology fellowship at George Washington University Hospital. During this period, he wrote many original papers for Computer Tomography (CT).
Dr. Albert S. DeNittis MD, MS, FCPP - Medical Advisory Board. Dr. Albert S. DeNittis is currently is the Chief of Radiation Oncology at Lankenau Medical Center and Clinical Professor at Lankenau Institute for Medical Research in Wynnewood, Pennsylvania and the Director of Radiation Oncology at Brodesseur Cancer Center in New Jersey. He is also the Principal Investigator and in charge of a grant awarded by the NIH for its National Cancer Oncology Research Program (NCORP) at Main Line Health. Dr. DeNittis’ practice experience includes image-guided radiosurgery, stereotactic body radiation therapy (SBRT), intensity modulated radiation therapy (IMRT), image guided radiation therapy (IGRT), high-dose rate (HDR) brachytherapy, cranial and extracranial stereotactic radiosurgery, respiratory gating, and Cyberknife.
Dr. DeNittis has served on numerous regional, national and government committees related to key issues in Dr. DeNittis earned a BA and a MS at Rutgers University and a MD from the Robert Wood Johnson Medical School at the University of Medicine and Dentistry of New Jersey. He completed postdoctoral training internships and residency at the Department of Radiation Oncology at the Hospital of the University of Pennsylvania. Dr. DeNittis is board certified by the American Board of Radiology and Licensed in New Jersey and Pennsylvania.
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Dr. Howard M. Sandler, MD, MS, FASTRO, FASCO - Medical Advisory Board. Dr. Sandler is Ronald H. Bloom Family Chair in Cancer Therapeutics and Professor and Chairman of Radiation Oncology and a member of the Samuel Oschin Cancer Institute, Cedars-Sinai Medical Center, Los Angeles. He received his undergraduate degree, masters in physics and medical degree from the University of Connecticut and completed his training in Radiation Oncology at the University of Pennsylvania. He was recruited to Cedars-Sinai in 2008 from the University of Michigan, where he served as Newman Family Professor of Radiation Oncology. Dr. Sandler’s research interests include prostate and other genitourinary tumors, as well as a broad range of subjects related to radiation oncology. He has served as chairman of the Radiation Therapy Oncology Group — now part of NRG Oncology — Genitourinary Cancer Committee since 1997. He has written nearly 300 peer-reviewed publications primarily on prostate cancer and radiation therapy.
Dr. Alice Villalobos, DVM, FNAP - Chair of the Veterinary Medicine Advisory Board. Dr. Alice Villalobos is a well-known pioneer in the field of cancer care for companion animals and a founding member of the Veterinary Cancer Society. A 1972 graduate of UC Davis, she completed Dr. Gordon Theilen’s first mock residency program in oncology and has served the profession by consulting, writing and lecturing in the rapidly growing field of veterinary oncology and end of life care.
Dr. Alice Villalobos is President Emeritus of the Society for Veterinary Medical Ethics, Past President of the American Association of Human Animal Bond Veterinarians and Chair of the Veterinary Academy for the National Academies of Practice. She operated Coast Pet Clinic/Animal Cancer Center for 25 years, which is now VCA Coast Animal Hospital. She is the author of numerous articles, papers, and including her classic veterinarian textbook, Canine and Feline Geriatric Oncology: Honoring the Human-Animal Bond. She has lectured worldwide on oncology, quality of life, the human-animal bond and end of life care and bioethics. She founded Pawspice, an end of life care program that embraces kinder, gentler palliative cancer medicine and integrative care for pets with cancer and terminal illness (www.Pawspice.com). Dr. Alice is Director of Animal Oncology Consultation Service in Woodland Hill, California and Pawspice at VCA Coast Animal Hospital in Hermosa Beach, California. Dr. Alice was elected 2016 Hermosa Beach Woman of the Year.
Dr. Villalobos’ role with the Company is to support the commercialization of the Company’s yttrium-90 brachytherapy products for use in companion animals.
Tariq Shah BSc. DipMS - Veterinary Medicine Advisory Board Member. Mr. Shah is a new member of the Veterinary Medicine Advisory Board as of March 2, 2018. He has been working within Animal Health for 25 years. A graduate in Marine Biology from the University of Liverpool, United Kingdom, he has held managerial positions for both veterinary pharmaceutical companies and veterinary diagnostic laboratories. Since he came to the US in 2008, he has worked with veterinary oncologists across America, conducting research and commercializing diagnostic technology.
Mr. Shah holds an adjunct faculty position at the University of Missouri College of Veterinary Medicine, which is our key canine testing center. In 2017 he established Oncologize, a pioneering company designed to support and assist organizations in their development and commercialization of oncology products.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors and persons who own more than 10% of the Company’s common stock to file with the SEC initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4, and an annual statement of beneficial ownership on Form 5. Such executive officers, directors and greater than 10% stockholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed.
Based solely on its review of such forms filed with the SEC and received by the Company and representations from certain reporting persons, the Company believes that each of its executive officers and directors reported all transactions during the year ended December 31, 2017.
Code of Ethics
The Company’s Board of Directors has not adopted a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, because of the Company’s limited number of executive officers and employees that would be covered by such a code and the Company’s limited financial resources. The Company anticipates that it will adopt a code of ethics after it increases the number of executive officers and employees and obtain additional financial resources.
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Audit Committee and Audit Committee Financial Expert
As of the date of this report, the Company has not established an audit committee, and therefore, the Company’s board of directors performs the functions that customarily would be undertaken by an audit committee. The Company’s board of directors during 2017 was comprised of three directors, two of whom the Company had determined satisfied the general independence standards of the NASDAQ listing requirements, however one of those Directors resigned effective December 31, 2017.
The Company’s Board of Directors has determined that none of its current members qualifies as an “audit committee financial expert,” as defined by the rules of the SEC. In the future, the Company intends to establish board committees and to appoint such persons to those committees as are necessary to meet the corporate governance requirements imposed by a national securities exchange, although it is not required to comply with such requirements until the Company elects to seek listing on a national securities exchange.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth the compensation paid to the Company’s Chief Executive Officer and those executive officers that earned in excess of $100,000 during the twelve-month periods ended December 31, 2017 and 2016 (collectively, the “Named Executive Officers”):
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($)(3) | Total ($) | ||||||||||||||||||
| Dr. Michael K. Korenko | 2017 | $ | 164,548 | $ | - | $ | - | $ | - | $ | 164,548 | |||||||||||||
| CEO, President and Director | 2016 | $ | - | (1) | $ | - | $ | - | $ | - | $ | - | ||||||||||||
| James C. Katzaroff | 2017 | $ | - | $ | - | $ | - | $ | 7,525 | (4) | $ | 7,525 | ||||||||||||
| Former CEO and Chairman | 2016 | $ | 250,000 | (2) | $ | - | $ | - | $ | 408,165 | (4) | $ | 658,165 | |||||||||||
| L. Bruce Jolliff | 2017 | $ | 139,629 | (5) | $ | 10,000 | (6) | $ | $ | 43,653 | (7) | $ | 149,629 | |||||||||||
| CFO | 2016 | $ | 180,000 | - | $ | - | $ | 110,389 | (7) | $ | 290,389 | |||||||||||||
(1) Mr. Korenko began serving as our Chief Executive Officer and President on December 14, 2016 and, as such, did not receive any compensation during 2016. Mr. Korenko received an annual salary of $120,000 for the period December 14, 2016 through May 9, 2017, at which time his salary was raised to $180,000. Of the $164,548 salary for 2017, $66,308 has not been paid and is reflected as accrued payroll at December 31, 2017.
(2) Mr. Katzaroff resigned as Chief Executive Officer in December 2016.
(3) The amounts in this column represent the grant date fair value of stock option awards, computed in accordance with FASB ASC Topic 718.
(4) In June 2016, Mr. Katzaroff received 100,000, three-year common stock options at $1.00, and 1,000,000, five-year common stock options at $0.50. Additionally, Mrs. Katzaroff received 100,000, five-year common stock options at $0.50, vested equally over 24 months. These options have a grant date fair value of $34,771, $363,776, and $36,378, respectively, which amounts were calculated in accordance with ASC Topic 718.
(5) Mr. Jolliff received an annual salary of $120,000 for the period January 1, 2017 through May 9, 2017, at which time his salary was raised to $150,000. Of the $149,629 salary for 2017, $19,480 has not been paid and is reflected as accrued payroll at December 31, 2017.
(6) Mr. Jolliff received a $10,000 bonus for the year ended December 31, 2017.
(7) In June 2016, Mr. Jolliff received 240,000, five-year common stock options at $0.50 and another 240,000, five-year common stock options at $0.50 vesting equally over 24 months. These options have a grant date fair value of $87,306 and $87,306, respectively, which amounts were calculated in accordance with ASC Topic 718.
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Narrative Disclosure to Summary Compensation Table
Dr. Michael K. Korenko. On September 12, 2017, Mr. Korenko entered into an employment agreement with the Company, which commenced retroactively with an effective date of December 14, 2016, and which shall terminate on December 31, 2018 (the “Termination Date”). Under the terms of his employment agreement, the Company may terminate Dr. Korenko’s employment either with or without cause prior to the Termination Date, but in the event of a termination without cause, Dr. Korenko shall be entitled to receive monthly payments of his base salary for a period of eighteen months thereafter.
Pursuant to his employment agreement, the Company shall issue to Dr. Korenko 100,000 shares of Series A Preferred Stock in satisfaction of past due compensation, in exchange for $32,308 of accrued payroll, $67,692 of accounts payable, and wages valued at $199,690. For the period spanning December 14, 2016 to May 8, 2017, the annual base salary shall be $120,000. From May 9, 2017 to the Termination Date, the annual base salary shall increase to $180,000; provided, however, that one third of such increase shall be deferred until such time that the Company’s cash balance exceeds $2.0 million. In addition, the Company shall issue to Dr. Korenko 4.0 million Restricted Stock Units under the Company’s 2015 Omnibus Securities and Incentive Plan (the “Incentive Plan”), which shall serve as an employee bonus, and Dr. Korenko shall be eligible to participate in a discretionary annual Executive Bonus Program.
In 2017, Mr. Korenko received an annual salary of $120,000 for the period December 14, 2016 through May 9, 2017, at which time his salary was raised to $180,000. Of the $164,548 salary for 2017, $66,308 has not been paid and is reflected as accrued payroll at December 31, 2017.
James C. Katzaroff. The Company’s former Chief Executive Officer, James C. Katzaroff, did not have a written employment agreement and, therefore, no contracted amount or schedule of pay. However, his annual compensation was $250,000 and, accordingly, accruals were made for his compensation in 2016 to bring his recorded salary to $250,000. In 2016, Mr. Katzaroff received $43,928 and an additional $206,072 was accrued as of December 31, 2016. Mr. Katzaroff resigned as Chief Executive Officer in December 2016, and therefore did not receive any compensation from the Company in 2017.
L. Bruce Jolliff. Through the year ended December 31, 2016, Mr. Jolliff had a May 2007 employment agreement with the Company that provides for a salary of $100,000 per year, which amount was increased on January 1, 2012 to $156,000, and again adjusted beginning January 1, 2013 to $180,000. In 2016, Mr. Jolliff received $96,721 and an additional $83,279 was accrued as of December 31, 2016.
On September 12, 2017, the Company entered into a new employment agreement with Mr. Jolliff, which commenced retroactively with an effective date of January 1, 2017, and which shall terminate on December 31, 2018 (the “Termination Date”). Pursuant to his employment agreement, the Company may terminate Mr. Jolliff’s employment either with or without cause prior to the Termination Date, but in the event of a termination without cause, Mr. Jolliff shall be entitled to receive monthly payments of his base salary for a period of eighteen months thereafter.
Mr. Jolliff’s employment agreement also provides that the Company shall issue to Mr. Jolliff 83,279 shares of Series A Preferred Stock in satisfaction of past due compensation, in exchange for $83,280 of accrued payroll and wages valued at $166,299. For the period spanning January 1, 2017 to May 8, 2017, the annual base salary shall be $120,000. From May 9, 2017 to the Termination Date, the annual base salary shall increase to $150,000; provided, however, that one fifth of such increase shall be deferred until such time that the Company’s cash balance exceeds $2.0 million. In addition, the Company shall issue to Mr. Jolliff 2.2 million Restricted Stock Units under the Incentive Plan, which shall serve as an employee bonus, and Mr. Jolliff shall be eligible to participate in a discretionary annual Executive Bonus Program.
In 2017, Mr. Jolliff received an annual salary of $120,000 for the period January 1, 2017 through May 9, 2017, at which time his salary was raised to $150,000. Of the $149,629 salary for 2017, $19,480 has not been paid and is reflected as accrued payroll at December 31, 2017.
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The Company paid bonuses to certain employees based on their performance, the Company’s need to retain such employees, and funds available. All bonus payments were approved by the Company’s Board of Directors.
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth all outstanding equity awards held by the Company’s Named Executive Officers as of the end of last fiscal year.
| Option Awards | ||||||||||||
| Name | Number of Securities Underlying Unexercised Options(#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Exercise Date | ||||||||
| L. Bruce Jolliff | 480,000 | 423,452 | $ | 0.50 | 6/21/21 | |||||||
Compensation of Directors
During the year ended December 31, 2017, the Company’s non-employee directors were not paid any compensation.
The following table sets forth, for each of the Company’s non-employee directors who served during 2017, the aggregate number of stock awards and the aggregate number of stock option awards that were outstanding as of December 31, 2017:
| Outstanding | Outstanding | |||||||
| Stock | Stock | |||||||
| Name | Awards (#) | Options (#) | ||||||
| Carlton M. Cadwell | - | 100,000 | ||||||
| Thomas J. Clement | - | 100,000 | ||||||
During June 2016, the Company granted to Messrs. Cadwell and Clement options to purchase 100,000 shares of common stock at an exercise price of $1.00 per share. The options are fully vested and expire June 21, 2019. These options have a grant date fair value of $34,771 and $34,771, respectively, which amounts were calculated in accordance with ASC Topic 718.
There are no employment contracts or compensatory plans or arrangements with respect to any director that would result in payments by the Company to such person because of his or her resignation as a director or any change in control of the Company.
Compensation Committee Interlocks and Insider Participation
None of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more officers serving as a member of our board of directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Beneficial Ownership of The Company’s Common Stock
The following table sets forth, as of March 26, 2018, the number of shares of common stock beneficially owned by the following persons: (i) all persons the Company knows to be beneficial owners of at least 5% of the Company’s common stock, (ii) the Company’s directors, (iii) the Company’s executive officers, both of whom are named in the Summary Compensation Table above, and (iv) all current directors and executive officers as a group.
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As of March 26, 2018, there were 71,477,213 shares outstanding and up to 19,557,612 shares issuable upon exercise of outstanding options, warrants, and conversion of outstanding convertible securities, assuming exercise and conversion occurred as of that date, for a total of 91,034,825 shares.
| Name and Address of Beneficial Owner(1) | Amount and Nature of Beneficial Ownership(2) | Percent of Class | ||||||
| Cadwell Family Irrevocable Trust (3) | 1,698,390 | 2.3 | % | |||||
| Carlton M. Cadwell (4) | 9,233,734 | 11.5 | % | |||||
| Michael K. Korenko (5) | 6,739,000 | 9.1 | % | |||||
| L. Bruce Jolliff (6) | 4,920,124 | 6.7 | % | |||||
| All Current Directors and Executive Officers as a group (3 individuals) | 22,591,248 | 18.4 | % | |||||
| (1) | The address of each of the beneficial owners above is c/o Vivos Inc, 719 Jadwin Avenue, Richland, WA 99336, except that the address of the Cadwell Family Irrevocable Trust (the “Cadwell Trust “) is 909 North Kellogg Street, Kennewick, WA 99336. | |
| (2) | In determining beneficial ownership of the Company’s common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired upon exercise of options or conversion of convertible securities within 60 days of that date. In determining the percent of common stock owned by a person or entity on December 31, 2017, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on December 31, 2017, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the convertible securities and upon exercise of the options. Subject to community property laws where applicable, the Company believes that each beneficial owner has sole power to vote and dispose of its shares, except that Dr. Cadwell under the terms of the Cadwell Trust does not have or share voting or investment power over the shares beneficially owned by the Cadwell Trust. | |
| (3) | Includes 1,483,090 shares issuable upon conversion of Series A Preferred. | |
| (4) | Includes 100,000 shares issuable upon exercise of options and 9,089,100 shares issuable upon conversion of Series A Preferred. | |
| (5) | Includes 1,000,000 shares issuable upon conversion of Series A Preferred and 4,400,000 of vested Restricted Stock Units. | |
| (6) | Includes 480,000 shares issuable upon exercise of options held by Mr. Jolliff and 1,979,790 shares issuable upon conversion of Series A Preferred and 2,420,000 of vested Restricted Stock Units. |
Beneficial Ownership of The Company’s Preferred Stock
As of March 26, 2018, there were 71,447,213 Common stock shares issued and outstanding, and up to 19,557,612 shares issuable upon exercise of outstanding options, warrants, and conversion of outstanding convertible securities, assuming exercise and conversion occurred as of that date, for a total of 91,034,825 shares. In addition, as of March 31, 2018, there was 3,204,422 shares of Series A Preferred issued and outstanding, convertible into 32,044,220 Common stock shares.
The following table sets forth, as of March 26, 2018, the number of shares of preferred stock beneficially owned by the following persons: (i) all persons the Company known to be beneficial owners of at least 5% of the Company’s preferred stock, (ii) the Company’s directors, (iii) the Company’s executive officers, both of whom are named in the Summary Compensation Table above, and (iv) all current directors and executive officers as a group.
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| Name and Address of Beneficial Owner (1) | Amount and Nature of Beneficial Ownership (2) | Percent of Class | ||||||
| Cadwell Family Irrevocable Trust | 148,309 | 4.6 | % | |||||
| Carlton M. Cadwell | 908,910 | 28.4 | % | |||||
| Michael K. Korenko | 100,000 | 3.1 | % | |||||
| L. Bruce Jolliff | 197,979 | 6.2 | % | |||||
| All Current Directors and Executive Officers as a group (3 individuals) | 1,355,198 | 42.3 | % | |||||
| Major Shareholder(s): | ||||||||
| Andrew Limpert(3) | 723,952 | 22.6 | % | |||||
| MEF I, LP | 251,800 | 7.9 | % | |||||
| (1) | The address of each of the beneficial owners above is c/o Vivos Inc, 719 Jadwin Avenue, Richland, WA 99336, except that the address of (i) the Cadwell Family Irrevocable Trust (the “Cadwell Trust “) is 909 North Kellogg Street, Kennewick, WA 99336; (ii) Andrew Limpert is 254 N 860 East, American Fork, UT 84003; and (iii) MEF I, LLP is c/o Magna Management, 40 Wall Street, 58th Floor, New York, NY 10005. |
| (2) | Subject to community property laws where applicable, the Company believes that each beneficial owner has sole power to vote and dispose of its shares, except that Dr. Cadwell under the terms of the Cadwell Trust does not have or share voting or investment power over the Series A Preferred beneficially owned by the Cadwell Trust. |
| (3) | Includes 16,200 shares of Series A Preferred held by Trina Limpert, Mr. Limpert’s spouse. |
Changes in Control
The Company does not know of any arrangements, including any pledges of the Company’s securities that may result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Indebtedness from Related Parties
Beginning in December 2008, the Company has obtained financing from Carlton M. Cadwell, one of our directors and a beneficial owner of more than 10% of the Company’s common stock, in transactions which involved the Company’s issuance of convertible notes and common stock. On September 4, 2015, the Company exchanged $1,414,100 of convertible notes plus $810,538 of accrued interest into 148,311 shares of Series A Preferred and another $2,224,466 of convertible notes plus $889,838 of accrued interest into 207,620 shares of Series A Preferred. Additionally, the Company exchanged the remaining $906,572 of convertible notes plus $148,960 accrued interest into a $1,055,532 demand note, 8% interest rate, due on demand at any time after March 31, 2017. Such note was converted into 73,546 shares of Series A Preferred on May 19, 2016. At December 31, 2016 Mr. Cadwell has an aggregate total of $332,195 in promissory notes. In March 2017 the Company converted the $332,195 promissory note and $51,576 of accrued interest into a new promissory note totaling $383,771, due December 31, 2017. In December 2017 the note due date was extended to May 9, 2018.
| -35- |
Independent Directors
The Company’s common stock is traded on the OTC Pink Marketplace, which does not impose any independence requirements on the board of directors or the board committees of the companies whose stock is traded on that market. The Company has decided to adopt the independence standards of the NASDAQ listing rules in determining whether the Company’s directors are independent. Generally, under those rules a director does not qualify as an independent director if the director or a member of the director’s immediate family has had in the past three years certain relationships or affiliations with the Company, the Company’s auditors, or other companies that do business with the Company. The Company’s Board of Directors has determined that Mr. Cadwell is qualified as an independent director under those NASDAQ rules, and accordingly, each would have been qualified under those rules to serve on a compensation committee or a nominating committee, if the Company had established such committees of the Company’s Board of Directors. Dr. Korenko is not an independent director due to his employment by the Company as an executive officer.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate fees incurred by the Company’s principal accountant for the audit of the Company’s annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2017 and 2016 were $79,900 and $13,500, all of which was paid to Fruci & Associates II, PLLC.
Tax Fees
The aggregate fees billed for professional services rendered by principal accountant for tax compliance, tax advice and tax planning during the fiscal years ended December 31, 2017 and 2016 were $2,500 and $0, all of which was paid to Fruci & Associates II, PLLC.
All Other Fees
Other fees billed for products or services provided by the Company’s principal accountant during the fiscal years ended December 31, 2017 and 2016 were $4,250 and $0, all of which was paid to Fruci & Associates II, PLLC..
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of this Report.
| 1. | Financial Statements. The Vivos Inc. Balance Sheets as of December 31, 2017 and 2016, the Statements of Operations for the years ended December 31, 2017 and 2016, the Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2017 and December 31, 2016, and the Statements of Cash Flows for the years ended December 31, 2017 and 2016, together with the notes thereto and the reports of Fruci & Associates II as required by Item 8 are included in this 2017 Annual Report on Form 10-K as set forth in Item 8 above. |
| 2. | Financial Statement Schedules. All financial statement schedules have been omitted since they are either not required or not applicable, or because the information required is included in the financial statements or the notes thereto. |
| 3. | Exhibits. The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K. Exhibits 10.3, 10.5, 10.7 and 10.10 relate to compensatory plans included or incorporated by reference as exhibits hereto. |
| -36- |
| -37- |
* Filed herewith.
| -38- |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| VIVOS INC. | ||
| Date: April 2, 2018 | By: | /s/ Michael K. Korenko |
| Name: | Michael K. Korenko | |
| Title: | Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Date: April 2, 2018 | By: | /s/ Michael K. Korenko |
| Name: | Michael K. Korenko | |
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| Date: April 2, 2018 | By: | /s/ L. Bruce Jolliff |
| Name: | L. Bruce Jolliff | |
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | |
| Date: April 2, 2018 | By: | /s/ Carlton M. Cadwell |
| Name: | Carlton M. Cadwell | |
| Title: | Secretary and Chairman of the Board |
| -39- |
Vivos Inc.
Index to Financial Statements
| -40- |
802 N Washington
Spokane, WA 99201
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Vivos, Inc. (f/k/a Advanced Medical Isotope Corp.)
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Vivos, Inc. (f/k/a Advanced Medical Isotope Corp.) as of December 31, 2017 and 2016 and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the two years then ended, and the related notes to the financial statements (collectively referred to herein as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of Vivos, Inc. as of December 31, 2017, and the results of its operations and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and we are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses and used significant cash in support of its operating activities, resulting in the Company’s cash position being not sufficient to support its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| Fruci & Associates ll, PLLC | |
| Spokane, WA |
We have been the Company’s auditors since 2016
April 2, 2018
| F-1 |
Vivos Inc.
| December 31, 2017 | December 31, 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 8,317 | $ | 27,889 | ||||
| Prepaid expenses | 6,711 | 11,990 | ||||||
| Total current assets | 15,028 | 39,879 | ||||||
| Fixed assets, net of accumulated depreciation | - | 1,473 | ||||||
| Other assets: | ||||||||
| Deposits | 669 | 644 | ||||||
| Total other assets | 669 | 644 | ||||||
| Total assets | $ | 15,697 | $ | 41,996 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 840,972 | $ | 1,137,086 | ||||
| Related party accounts payable | 57,297 | 109,718 | ||||||
| Accrued interest payable | 347,069 | 114,755 | ||||||
| Payroll liabilities payable | 85,786 | 499,502 | ||||||
| Convertible notes payable, net | 2,563,272 | 544,508 | ||||||
| Derivative liability | - | 324,532 | ||||||
| Related party promissory note | 383,771 | 332,195 | ||||||
| Total current liabilities | 4,278,167 | 3,062,296 | ||||||
| Total liabilities | 4,278,167 | 3,062,296 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, $.001 par value, 20,000,000 shares authorized; 3,778,622 and 3,773,592 shares issued and outstanding, respectively | 3,779 | 3,774 | ||||||
| Paid in capital, preferred stock | 13,547,780 | 14,140,797 | ||||||
| Common stock, $.001 par value; 2,000,000,000 shares authorized; 65,695,213 and 31,743,797 shares issued and outstanding, respectively | 65,695 | 31,744 | ||||||
| Paid in capital, common stock | 46,408,443 | 40,672,825 | ||||||
| Accumulated deficit | (64,288,167 | ) | (57,869,440 | ) | ||||
| Total stockholders’ equity (deficit) | (4,262,470 | ) | (3,020,300 | ) | ||||
| Total liabilities and stockholders’ equity (deficit) | $ | 15,697 | $ | 41,996 | ||||
The accompanying notes are an integral part of these financial statements.
| F-2 |
Vivos Inc.
| Year ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Consulting revenues | $ | 4,054 | $ | 8,108 | ||||
| Operating expenses | ||||||||
| Sales and marketing expenses | 111,662 | 284,138 | ||||||
| Depreciation and amortization expense | 1,473 | 2,947 | ||||||
| Professional fees | 709,843 | 2,068,796 | ||||||
| Reserved stock units granted | 575,011 | - | ||||||
| Stock based compensation | 103,865 | 675,324 | ||||||
| Payroll expenses | 806,620 | 652,877 | ||||||
| Research and development | 203,037 | 328,026 | ||||||
| General and administrative expenses | 109,457 | 432,470 | ||||||
| Total operating expenses | 2,620,968 | 4,444,578 | ||||||
| Operating loss | (2,616,914 | ) | (4,436,470 | ) | ||||
| Non-operating income (expense): | ||||||||
| Interest expense | (3,903,015 | ) | (6,259,467 | ) | ||||
| Gain (loss) on settlement of debt | (310,086 | ) | 3,108,342 | |||||
| Grant income | - | 21,010 | ||||||
| Gain (loss) on derivative liability | 408,488 | (2,244,353 | ) | |||||
| Gain on sale of assets | 2,800 | - | ||||||
| Loss on impaired assets | - | (43,957 | ) | |||||
| Non-operating income (expense), net | (3,801,813 | ) | (5,418,425 | ) | ||||
| Income (loss) before income taxes | (6,418,727 | ) | (9,854,895 | ) | ||||
| Income tax provision | - | - | ||||||
| Net income (loss) | $ | (6,418,727 | ) | $ | (9,854,895 | ) | ||
| Basic and diluted earnings (loss) per common share | $ | (0.13 | ) | $ | (0.46 | ) | ||
| Basic and diluted weighted average number of common shares outstanding | 48,386,991 | 21,497,069 | ||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
Vivos Inc.
Statements of Changes in Stockholders’ Equity (Deficit)
| Preferred Series A | Common Stock | |||||||||||||||||||||||||||||||
| Shares | Amount | Paid in Capital | Shares | Amount | Paid in Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||
| Balances at December 31, 2015 | 1,628,000 | $ | 1,628 | $ | 4,615,424 | 19,969,341 | $ | 19,969 | $ | 34,515,033 | $ | (48,014,545 | ) | $ | (8,862,491 | ) | ||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||
| Cash | 46,666 | 47 | 69,953 | - | - | - | - | 70,000 | ||||||||||||||||||||||||
| Exercise of options and warrants | 250,000 | 250 | - | 30,644 | 31 | (31 | ) | - | 250 | |||||||||||||||||||||||
| Cancellation of warrants | 62,854 | 63 | 407,910 | - | - | - | - | 407,973 | ||||||||||||||||||||||||
| Settlement of debt | 2,150,391 | 2,150 | 12,283,232 | 563,523 | 564 | 70,299 | - | 12,356,245 | ||||||||||||||||||||||||
| Services | 228,000 | 228 | 996,568 | - | - | - | - | 996,796 | ||||||||||||||||||||||||
| Loan fees | 463,146 | 463 | 594,860 | - | - | - | - | 595,323 | ||||||||||||||||||||||||
| Conversion of preferred stock into common stock | (1,055,465 | ) | (1,055 | ) | (4,827,150 | ) | 11,180,289 | 11,180 | 4,817,025 | - | - | |||||||||||||||||||||
| Options and warrants issued for services | - | - | 1,270,499 | - | 1,270,499 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (9,854,895 | ) | (9,854,895 | ) | ||||||||||||||||||||||
| Balances at December 31, 2016 | 3,773,592 | 3,774 | 14,140,797 | 31,743,797 | 31,744 | 40,672,825 | (57,869,440 | ) | (3,020,300 | ) | ||||||||||||||||||||||
| Stock issued for: | ||||||||||||||||||||||||||||||||
| Settlement of debt | - | - | - | 3,040,239 | 3,040 | 217,803 | - | 220,843 | ||||||||||||||||||||||||
| Accounts payable and accrued liabilities | 343,279 | 343 | 1,011,454 | 3,096,483 | 3,096 | 306,354 | - | 1,312,247 | ||||||||||||||||||||||||
| Services | - | - | - | 2,302,194 | 2,302 | 252,136 | - | 254,438 | ||||||||||||||||||||||||
| Loan fees | 1,471,001 | 1,471 | 2,699,682 | - | - | - | - | 2,701,153 | ||||||||||||||||||||||||
| Conversion of preferred stock into common stock | (1,809,250 | ) | (1,809 | ) | (4,304,153 | ) | 18,692,500 | 18,693 | 4,287,269 | - | - | |||||||||||||||||||||
| Restricted units vested | - | - | - | 6,820,000 | 6,820 | (6,820 | ) | - | - | |||||||||||||||||||||||
| Reserved shares for services | - | - | - | - | - | 575,011 | - | 575,011 | ||||||||||||||||||||||||
| Options and warrants issued for services | - | - | - | - | - | 103,865 | - | 103,865 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (6,418,727 | ) | (6,418,727 | ) | ||||||||||||||||||||||
| Balances at December 31, 2017 | 3,778,622 | $ | 3,779 | $ | 13,547,780 | 65,695,213 | $ | 65,695 | $ | 46,408,443 | $ | (64,288,167 | ) | $ | (4,262,470 | ) | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-4 |
Vivos Inc.
| Year ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | (6,418,727 | ) | $ | (9,854,895 | ) | ||
| Adjustments to reconcile net income (loss) to net cash used by operating activities: | ||||||||
| Depreciation of fixed assets | 1,473 | 2,947 | ||||||
| Amortization of convertible debt discount | 2,023,144 | 604,042 | ||||||
| Amortization of prepaid expenses paid with stock | - | (2,500 | ) | |||||
| (Gain) loss on derivative liability | (408,488 | ) | 2,244,353 | |||||
| (Gain) loss on settlement of debt | 310,086 | (3,108,342 | ) | |||||
| Gain on sale of assets | (2,800 | ) | - | |||||
| Loss on impaired assets | - | 43,957 | ||||||
| Preferred stock issued for services | 365,988 | 1,003,814 | ||||||
| Preferred and common stock issued for loan fees | 1,488,650 | 162,456 | ||||||
| Common stock issued for services | 254,438 | - | ||||||
| Stock options and warrants issued for services | 103,865 | 1,270,499 | ||||||
| Reserved stock units issued for services | 575,011 | - | ||||||
| New derivatives recorded as loan fees | - | 4,935,638 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 5,254 | 16,721 | ||||||
| Accounts payable | 102,316 | 102,954 | ||||||
| Accounts payable from related party | (52,421 | ) | - | |||||
| Payroll liabilities | (25,965 | ) | 200,602 | |||||
| Accrued interest | 390,101 | 451,041 | ||||||
| Net cash used by operating activities | (1,288,075 | ) | (1,926,713 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Sale of equipment | 2,800 | - | ||||||
| Net cash from investing activities | 2,800 | - | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible note | 1,230,334 | 1,273,534 | ||||||
| Proceeds from related party notes | - | 723,308 | ||||||
| Proceeds from shareholder advances | 137,000 | 132,533 | ||||||
| Proceeds from warrant exercised for preferred stock | - | 250 | ||||||
| Proceeds from sale of preferred stock | - | 70,000 | ||||||
| Payments on convertible debt | - | (419,055 | ) | |||||
| Payments on shareholder advances | - | (5,000 | ) | |||||
| Payments made for loan fees | (101,631 | ) | - | |||||
| Net cash provided by financing activities | 1,265,703 | 1,775,570 | ||||||
| Net increase in cash | (19,572 | ) | (151,143 | ) | ||||
| Cash, beginning of period | 27,889 | 179,032 | ||||||
| CASH, END OF PERIOD | $ | 8,317 | $ | 27,889 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | - | $ | 105,758 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
| F-5 |
Vivos Inc.
For the years ended December 31, 2017 and 2016
NOTE 1: ORGANIZATION & BASIS OF PRESENTATION
Business Overview
The Company was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”). On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation, and on December 28, 2017, the Company began operating as Vivos Inc. The Company has authorized capital of 2,000,000,000 shares of common stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share.
Our principal place of business is 719 Jadwin Avenue, Richland, WA 99352. Our telephone number is (509) 736-4000. Our corporate website address is http://www.radiogel.com. Our common stock is currently quoted on the OTC Pink Marketplace under the symbol “RDGL.”
The Company is a radiation oncology medical device company engaged in the development of its yttrium-90 based brachytherapy device RadioGel™ for the treatment of non-resectable tumors. A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead the Company’s development efforts. The Company’s overall vision is to globally empower physicians, medical researchers and patients by providing them with new isotope technologies that offer safe and effective treatments for cancer.
The Company’s current focus is on the development of its RadioGel™ device. RadioGel™ is an injectable particle-gel, for brachytherapy radiation treatment of cancerous tumors in people and animals. RadioGel™ is comprised of a hydrogel, or a substance that is liquid at room temperature and then gels when reaching body temperature after injection into a tumor. In the gel are small, one micron, yttrium-90 phosphate particles (“Y-90”). Once injected, these inert particles are locked in place inside the tumor by the gel, delivering a very high local radiation dose. The radiation is beta, consisting of high-speed electrons. These electrons only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the surrounding tissue. Optimally, patients can go home immediately following treatment without the risk of radiation exposure to family members. Since Y-90 has a half-life of 2.7 days, the radioactively drops to 5% of its original value after ten days.
The Company’s lead brachytherapy products, including RadioGel™, incorporate patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted the Company an exclusive license to patents covering the manufacturing, processing and applications of RadioGel™ (the “Battelle License”). Other intellectual property protection includes proprietary production processes and trademark protection in 17 countries. The Company plans to continue efforts to develop new refinements on the production process, and the product and application hardware, as a basis for future patents.
The Company is currently focusing on obtaining approval from the FDA to market and sell RadioGel™ as a Class II medical device. The Company first requested FDA approval of RadioGel™ in June 2013, at which time the FDA classified RadioGel™ as a medical device. The Company then followed with a 510(k) submission which the FDA responded, in turn, with a request for a physician letter of substantial equivalence and a reformatted 510(k) summary, which the Company provided in January 2014. In February 2014, the FDA ruled the device as not substantially equivalent due to a lack of a predicate device and it was therefore classified as a Class III device. Class III devices are generally the highest risk devices and are therefore subject to the highest level of regulatory review, control and oversight. Class III devices must typically be approved by the FDA before they are marketed. Class II devices represent lower risk devices than Class III and require fewer regulatory controls to provide reasonable assurance of the device’s safety and effectiveness. In contrast, Class I devices are deemed to be lower risk than Class II or III, and are therefore subject to the least regulatory controls.
The Company is currently developing test plans to address issues raised by the FDA in connection with the Company’s previous submissions regarding RadioGel™, including developing specific test plans and specific indication of use. The Company intends to request that the FDA grant approval to re-apply for de novo classification of RadioGel™, which would reclassify the device from a Class III device to a Class II device, further simplifying the path to FDA approval. In the event the FDA denies the Company’s application and subsequently determines during the de novo review that RadioGel™ cannot be classified as a Class I or Class I1 device, the Company will then need to submit a pre-market approval application to obtain the necessary regulatory approval as a Class III device. See also Business – Regulatory History in Part I of this Annual Report on Form 10-K for a discussion regarding the Company’s application for FDA approval of RadioGel™.
| F-6 |
IsoPet Solutions
The Company’s IsoPetTM Solutions division was established in May 2016 as a wholly owned subsidiary, then was absorbed into the Company as a new division. The IsoPetTM Solutions division is to focus on the veterinary oncology market, namely engagement of university veterinarian hospital to develop the detailed therapy procedures to treat animal tumors and ultimately use of the technology in private clinics. The Company has worked with four different university veterinarian hospitals on RadioGel™ testing and therapy. Colorado State University demonstrated the procedures and the CT and PET-CT imaging of RadioGelTM. Washington State University treated four cats for feline sarcoma. They concluded that the product was safe and effective in killing cancer cells. A contract was signed with University of Missouri to treat canine sarcomas and equine sarcoids starting early in 2019. The safety review at UC Davis is almost completed. They will be treating prostate and liver cancer in dogs in 2019.
These animal therapies will focus on creating labels that describe the procedures in detail as a guide to future veterinarians. The labels will be voluntarily submitted to the FDA for review. They will then be used as data for future FDA applications in the medical sector and as key intellectual property for licensing to private veterinary clinics.
The Company anticipates that future profit will be derived from direct sales of RadioGel™ (under the name IsoPet™) and related services, and from licensing to private medical and veterinary clinics in the U.S. and internationally. The Company intends to report the results from the IsoPet™ Solutions division as a separate operating segment in accordance with GAAP.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has suffered recurring losses and used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. Research and development of the Company’s brachytherapy product line has been funded with proceeds from the sale of equity and debt securities as well as a series of grants. The Company requires funding of approximately $1.5 million annually to maintain current operating activities. Over the next 12 to 24 months, the Company believes it will cost approximately $5.0 million to $10.0 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products, and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.
Following receipt of required regulatory approvals and financing, in the U.S., the Company intends to outsource material aspects of manufacturing, distribution, sales and marketing. Outside of the U.S., the Company intends to pursue licensing arrangements and/or partnerships to facilitate its global commercialization strategy.
In the longer-term, subject to the Company receiving adequate funding, regulatory approval for RadioGel™ and other brachytherapy products, and thereafter being able to successfully commercialize its brachytherapy products, the Company intends to consider resuming research efforts with respect to other products and technologies intended to help improve the diagnosis and treatment of cancer and other illnesses
Based on the Company’s financial history since inception, its auditor has expressed substantial doubt as to the Company’s ability to continue as a going concern. The Company has limited revenue, nominal cash, and has accumulated deficits since inception. If the Company cannot obtain sufficient additional capital, the Company will be required to delay the implementation of its business strategy and may not be able to continue operations.
As of December 31, 2017, the Company has $8,317 cash on hand. There are currently commitments to vendors for products and services purchased, plus, the employment agreements of the CFO and other employees of the Company and the Company’s current lease commitments that will necessitate liquidation of the Company if it is unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company.
| F-7 |
Assuming the Company is successful in the Company’s sales/development effort, it believes that it will be able to raise additional funds through strategic agreements or the sale of the Company’s stock to either current or new stockholders. There is no guarantee that the Company will be able to raise additional funds or to do so at an advantageous price.
The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to seek additional funding to maintain its operations through debt and equity financing and to improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements to the cost structure. There is no assurance that the Company will be successful in its efforts to raise additional working capital or achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Financial Statement Reclassification
Certain account balances from prior periods have been reclassified in these audited financial statements so as to conform to current period classifications.
Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Inventory
Inventory is reported at the lower of cost or market, determined using the first-in, first-out basis, or net realizable value. All inventories consist of finished goods. The Company had no raw materials or work in process. The Company had been carrying inventory consisting of two bottles of O-18 water for a value of $8,475. The Company determined this water was no longer usable and wrote off the $8,475 value as of December 31, 2016.
Fair Value of Financial Instruments
Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2017, and December 31, 2016, the balances reported for cash, prepaid expenses, accounts receivable, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
| F-8 |
The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were calculated using the Black-Scholes pricing model and are as follows at December 31, 2017:
| Total | Level 1 | Level 2 | Level 3 | ||||||||||
| Assets: | |||||||||||||
| Total Assets Measured at Fair Value | $ | - | $ | - | $ | - | $ | - | |||||
| Liabilities: | |||||||||||||
| Derivative Liability | - | - | - | - | |||||||||
| Total Liabilities Measured at Fair Value | $ | - | $ | - | $ | - | $ | - | |||||
Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2016:
| Total | Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | |||||||||||||
| Total Assets Measured at Fair Value | $ | - | $ | - | $ | - | $ | - | |||||
| Liabilities | |||||||||||||
| Derivative Liability | 324,532 | - | - | 324,532 | |||||||||
| Total Liabilities Measured at Fair Value | $ | 324,532 | $ | - | $ | - | $ | 324,532 | |||||
Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
| Production equipment: | 3 to 7 years |
| Office equipment: | 2 to 5 years |
| Furniture and fixtures: | 2 to 5 years |
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down.
License Fees
License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the assets.
The Company made a $5,000 investment in February 2011 for a one-year option agreement to negotiate an exclusive license agreement with Battelle Memorial Institute regarding its patents for the production of RadioGel™. This option agreement calls for a $5,000 upfront fee for the option, which expired February 2012 and was fully expensed in the twelve months ended December 31, 2011. Effective March 2012, the Company entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented RadioGel™ technology. This license agreement calls for a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold; the license agreement also contains a minimum royalty amount to be paid each year starting with 2013.
| F-9 |
| Calendar Year | Minimum
Royalties per Calendar Year | |||
| 2012 | $ | - | ||
| 2013 | $ | 5,000 | (1) | |
| 2014 | $ | 7,500 | (2) | |
| 2015 | $ | 10,000 | (3) | |
| 2016 | $ | 10,000 | (4) | |
| 2017 | $ | 10,000 | (5) | |
| 2018 | $ | 10,000 | ||
| 2019 | $ | 10,000 | ||
| 2020 | $ | 25,000 | ||
| 2021 | $ | 50,000 | ||
| 2022, to be paid each year thereafter | $ | 100,000 | ||
(1) Paid February, 2014
(2) Paid February, 2015
(3) Paid February, 2016
(4) $5,399 was paid January 2017 and the remaining $4,601 was paid February 2017.
(5) Paid January, 2018
The Company periodically reviews the carrying values of capitalized license fees and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value.
Amortization is computed using the straight-line method over the estimated useful live of three years.
Patents and Intellectual Property
The Company had a total $35,482 of capitalized patents and intellectual property costs at December 31, 2015 for the patent rights in the area of a Brachytherapy seed with a Fast-dissolving Matrix for Optimized Delivery of Radionuclides. Effective December 31, 2016 the Company agreed to terminate this non-utilized patent license for which the $35,482 of capitalized patent and intellectual costs applied and therefore the Company wrote off $35,482 of capitalized costs in the twelve months ending December 31, 2016.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue for the fiscal year ended December 31, 2017 and December 31, 2016 consisted of consulting revenue. The Company recognizes revenue once an order has been received and shipped to the customer or services have been performed. Prepayments, if any, received from customers prior to the time products are shipped are recorded as deferred revenue. In these cases, when the related products are shipped, the amount recorded as deferred revenue is recognized as revenue. The Company does not accrue for sales returns and other allowances as it has not experienced any returns or other allowances.
Income from Grants and Deferred Income
Government grants are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled. The Company has chosen to recognize income from grants as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as deferred income on the balance sheet.
On December 22, 2017, the Company received notification it had been awarded from Washington State University, $17,500 grant funds from the sub-award project entitled “Optimized Injectable Radiogels for High-dose Therapy of Non-Resectable Solid Tumors”. The Company expects to receive $17,500 of the grant award in the twelve months ended December 31, 2018.
| F-10 |
Earnings (Loss) Per Share
The Company accounts for its earnings (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period, and does not include the impact of any potentially dilutive common stock equivalents since the impact would be anti-dilutive. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. For the given periods of loss, of the periods ending December 31, 2017 and 2016, the basic earnings per share equals the diluted earnings per share.
Securities, all of which represent common stock equivalents, that could be dilutive in the future as of December 31, 2017 and 2016, are as follows:
| December 31, 2017 | December 31, 2016 | |||||||
| Convertible debt | 18,155,788 | 6,441,644 | ||||||
| Preferred stock | 37,786,220 | 37,735,920 | ||||||
| Common stock options | 1,097,623 | 2,402,500 | ||||||
| Common stock warrants | 304,201 | 3,579,505 | ||||||
| Total potential dilutive securities | 57,343,832 | 50,159,569 | ||||||
Research and Development Costs
Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.
The Company incurred $203,037 and $328,026 research and development costs for the years ended December 31, 2017, and 2016, respectively, all of which were recorded in the Company’s operating expenses noted on the income statements for the years then ended.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred except for the cost of tradeshows which are deferred until the tradeshow occurs. Tradeshow expenses incurred and not expensed as of the years ended December 31, 2017, and 2016 were $0 and $0, respectively. During the twelve months ended December 31, 2017 and 2016, the Company incurred $111,662 and $284,138, respectively, in advertising and marketing costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of materials.
Legal Contingencies
In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. The Company discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimated probable losses require analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, the Company does not believe any probable legal proceedings or claims will have a material impact on its financial position or results of operations. However, if actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.
There had been an ongoing dispute with the landlord, Rob and Maribeth Myers, regarding the production center rent. During 2016, the Company reached a Settlement Agreement with regards to this dispute resulting in a payment of $438,830 for rent, interest, and costs.
There is an ongoing dispute with BancLeasing and Washington Trust Bank regarding application of lease payments to the principal loan amount for the linear accelerator, and the Company believed it overpaid by approximately $300,000. In 2016 the Company was awarded in the Superior Court of the State of Washington a total sum of $527,876 against BancLeasing. The Company is pursuing its options for collection of the awarded amount, however there can be no assurance as to any eventual collection and so the Company has not reflected any contingent gain in these financial statements.
| F-11 |
Income Taxes
To address accounting for uncertainty in tax positions, the Company clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company also provides guidance on de-recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition.
The Company files income tax returns in the U.S. federal jurisdiction. The Company did not have any tax expense for the years ended December 31, 2017 and 2016. The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2017 and 2016.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company’s financial statements. For the years ended December 31, 2017 and 2016, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, we have not completed the accounting for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on existing deferred tax balances. These amounts are provisional and subject to change. The most significant impact of the legislation for the Company was a $3,300,000 reduction of the value of net deferred tax assets (which represent future tax benefits) as a result of lowering the U.S. corporate income tax rate from 35% to 21%. The Act also includes a requirement to pay a one-time transition tax on the cumulative value of earnings and profits that were previously not repatriated for U.S. income tax purposes. The Company has no earnings and profits that were previously not repatriated for U.S. income tax purposes.
Stock-Based Compensation
The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the Company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that the Company believes are applicable or would have a material impact on the financial statements of the Company.
NOTE 3: FIXED ASSETS
Fixed assets consist of the following at December 31, 2017 and 2016:
| December 31, 2017 | December 31, 2016 | |||||||
| Production equipment | $ | 15,182 | $ | 15,182 | ||||
| Office equipment | - | 14,594 | ||||||
| 15,182 | 29,776 | |||||||
| Less accumulated depreciation | (15,182 | ) | (28,303 | ) | ||||
| $ | - | $ | 1,473 | |||||
Depreciation expense for the above fixed assets for the years ended December 31, 2017 and 2016, respectively, was $1,473 and $2,947.
| F-12 |
During the year ended December 31, 2016, the Company abandoned production equipment, building, leasehold improvements, and office equipment with an original cost totaling $1,016,532 that had been located in the production center. Additionally, the Company removed the linear accelerator form the production center and has placed the equipment into storage. The $1,375,000 original cost of the linear accelerator was also written off during the year ended December 31, 2016. All the equipment written off during the year ended December 31, 2016 had been fully depreciated.
During the year ended December 31, 2017, the Company abandoned production equipment, building, leasehold improvements, and office equipment with an original cost totaling $14,594.
NOTE 4: INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2017 and December 31, 2016:
| December 31, 2017 | December 31, 2016 | |||||||
| License Fee | $ | - | $ | 112,500 | ||||
| Less accumulated amortization | - | (112,500 | ) | |||||
| - | - | |||||||
Amortization expense for the above intangible assets for the years ended December 31, 2017 and 2016, respectively, was $0 and $0.
NOTE 5: RELATED PARTY TRANSACTIONS
Related Party Promissory Notes
As of December 31, 2017, and 2016, the Company had the following related party promissory notes outstanding:
| December 31, 2017 | December 31, 2016 | ||||||||||||
| Principal
(net) | Accrued Interest | Principal (net) | Accrued Interest | ||||||||||
| October 2015 $82,500 Note, 10% interest due October 2016 | $ | - | $ | - | $ | 82,500 | 10,239 | ||||||
| February 2016 $50,000 Note, 10% interest, due February 2017 | - | - | 50,000 | 4,192 | |||||||||
| May 2016 $109,695 Note, 10% interest, due July 2017 | - | - | 109,695 | 7,093 | |||||||||
| May 2016 $90,000 Note, 10% interest, due May 2017 | - | - | 90,000 | 5,425 | |||||||||
| March 2017 $332,195 Note, 10% interest, due May 2017 | 383,771 | 29,230 | - | - | |||||||||
| Total Convertible Notes Payable, Net | $ | 383,771 | $ | 29,230 | $ | 332,195 | $ | 26,949 | |||||
During the year ending December 31, 2016, the Company received proceeds from new related party promissory notes of $249,695 and recorded conversions of $1,197,950 for related party note principal.
The Company, in March 2017, combined outstanding notes owed to a director and major stockholder, along with $51,576 of accrued interest payable, into one promissory note.
Related Party Convertible Notes Payable
During the year ending December 31, 2016, the Company received proceeds from new related party convertible notes of $473,613 and, at inception, issued 37,906 shares of Series A Convertible Preferred Stock (“Series A Preferred”) as loan fees valued at $29,156. Each of the Company’s related party convertible notes have a conversion rate that is variable, therefore the Company has accounted for such conversion features as derivative instruments (see Note 9). As a result of recording the preferred stock and the derivative liabilities at note inception, the Company increased the debt discount recorded on their convertible notes by $473,613 and recorded $1,912,587 in additional interest expense. During the year ending December 31, 2016, the Company recorded amortization of $25,000 on their related party convertible note debt discounts, recorded conversions of $473,613 for related party note principal, and recorded $448,613 of debt discount write-offs for early debt conversion. As a result of all related party convertible notes being converted during the year ending December 31, 2016, the related party convertible notes payable balance was $0 as of December 31, 2016.
| F-13 |
Preferred Shares Issued to Officers
During 2017, the Company issued 100,000 shares of its Series A Preferred to its CEO, in exchange for $32,308 of accrued payroll, $67,692 of accounts payable, and wages valued at $199,690.
During 2017, the Company issued 83,279 shares of its Series A Preferred to its CFO, in exchange for $83,280 of accrued payroll and wages valued at $166,299.
During 2016, the Company issued 10,000 shares of its Series A Preferred to its CFO, representing $54,152, for wages.
Rent Expenses
On July 17, 2007, the Company entered into a five-year lease for its production center from a less than 5% shareholder. Subsequent to July 31, 2012, the Company was renting this space on a month-to-month basis at $11,904 per month. Effective January 1, 2015, the Company’s lease was terminated. There has been an ongoing dispute with the landlord, Rob and Maribeth Myers, regarding the production center rent. During 2016, the Company reached a Settlement Agreement with regards to this dispute resulting in a payment of $438,830 for rent, interest, and costs.
The Company was renting office space from a significant shareholder and director of the Company on a month-to-month basis with a monthly payment of $1,500. This rental agreement was terminated as of April 1, 2017.
Rental expense for the years ended December 31, 2017 and 2016 consisted of the following:
| Year
ended December 31, 2017 | Year ended December 31, 2016 | |||||||
| Office and warehouse space | $ | - | $ | 40,000 | ||||
| Corporate office | 4,500 | 18,000 | ||||||
| Total Rental Expense | $ | 4,500 | $ | 58,000 | ||||
NOTE 6: CONVERTIBLE NOTES PAYABLE
As of December 31, 2017, and 2016, the Company had the following convertible notes outstanding:
| December 31, 2017 | December 31, 2016 | |||||||||||||||
| Principal
(net) | Accrued
Interest | Principal
(net) | Accrued Interest | |||||||||||||
| July and August 2012 $1,060,000 Notes convertible into common stock at $4.60 per share, 12% interest, due December 2013 and January 2014 | $ | 45,000 | $ | 29,218 | $ | 95,000 | 50,365 | |||||||||
| May through October 2015 $605,000 Notes convertible into preferred stock at $1 per share, 8-10% interest, due September 30, 2015 | - | 17,341 | - | 17,341 | ||||||||||||
| October through December 2015 $613,000 Notes convertible into preferred stock at $1 per share, 8% interest, due June 30, 2016, net of debt discount of $0 and $560,913, respectively | - | 5,953 | - | 5,953 | ||||||||||||
| January through March 2016 $345,000 Notes convertible into preferred stock at $1 per share, 8% interest, due June 30, 2016 | - | 696 | - | 696 | ||||||||||||
| November 2016 $979,162 Notes convertible into common stock at a variable conversion price, 10% interest, due May 2017, net of debt discounts of $540,720 and $0, respectively | - | - | 438,442 | 12,397 | ||||||||||||
| May 2017 $2,378,155 Notes convertible into common stock after April 15, 2018 at a $0.20 conversion price (subject to adjustment), 7.5% interest, due May 2018, net of debt discounts of $544,845 and $0, respectively | 1,833,310 | 178,304 | - | - | ||||||||||||
| May 2017 $820,420 Notes convertible into common stock after April 15, 2018 at a $0.12 conversion price (subject to adjustment), 7.5% interest, due May 2018, net of debt discounts of $147,335 and $0, respectively | 500,703 | 52,831 | - | - | ||||||||||||
| May 2017 $110,312 Notes convertible after April 15, 2018 into common stock at a $0.13 conversion price (subject to adjustment), 7.5% interest, due May 2018, net of debt discounts of $25,085 and $0, respectively | 85,227 | 15,773 | - | - | ||||||||||||
| November 2017 $166,666 Note convertible at maturity or upon the issuance of a variable security at a $0.12 conversion price (subject to adjustment), with a one-time interest charge of 10%, due April 15, 2018, net of debt discounts of $74,662 and $0, respectively | 92,004 | 16,667 | - | - | ||||||||||||
| Penalties on notes in default | 7,028 | - | 11,066 | - | ||||||||||||
| Total Convertible Notes Payable, Net | $ | 2,563,272 | $ | 316,784 | $ | 544,508 | $ | 86,752 | ||||||||
| F-14 |
During the year ending December 31, 2017, the Company received proceeds from the issuance of 10% Convertible Notes (“Convertible Notes”) and 7.5% Original Issue Discount Senior Secured Convertible Debentures (“Debentures”) of $1,230,334 and obtained advances from shareholders of $137,000 that were reclassified into Convertible Notes. The Company also assigned or exchanged $1,358,750 worth of Convertible Notes and Notes that were outstanding as of December 31, 2016 into Debentures, while also reclassifying $69,732 worth of accrued interest to convertible note principal. The Company recorded original issue discounts and loan fees on Convertible Notes and Debentures of $774,362 and $386,758, respectively, which also increased the debt discounts recorded on the Convertible Notes and Debentures.
The Company recorded $322,381 of conversions on certain outstanding notes. The Company also recorded amortization of $2,023,144 on outstanding note debt discounts. Lastly, the Company paid $101,631 in cash for loan fees and issued 843,699 shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred”) as loan fees in connection with the issuance of the Convertible Notes and Debentures. The Company therefore increased its debt discount by $1,212,503, which represented the portion of the proceeds from the Convertible Notes and Debentures that were allocated to preferred stock.
During the year ending December 31, 2016, the Company received proceeds from new convertible notes of $1,273,534, obtained advances from shareholders of $127,533 that were reclassified into convertible notes payable, and reclassified $455,150 of accrued interest into convertible notes payable. The Company recorded original issue discounts and loan fees on new convertible notes of $193,831 and $6,000, respectively, which also increased the debt discounts recorded on the convertible notes. The Company recorded $419,055 of payments on their convertible notes, conversions of $1,444,950 of convertible note principal, a total gain on settlement of $1,456,113 representing the write-off of convertible note principal, and $814,625 of debt discount write-offs for early debt conversion or extinguishment. Each of the Company’s convertible notes have a conversion rate that is variable. The Company therefore has accounted for such conversion features as derivative instruments (see Note 7). As a result of recording derivative liabilities at note inception, the Company increased the debt discount recorded on their convertible notes by $809,835 during the year ending December 31, 2016. The Company also recorded amortization of $579,042 on their convertible note debt discounts. Lastly, the Company issued 347,400 shares of Series A Preferred as loan fees with their new convertible notes. The Company therefore increased their convertible note debt discount by $363,807, which represented the portion of the convertible note proceeds that were allocated to preferred stock.
The May 2017 notes totaling $3,136,506, $2,419,240 after debt discounts, had a December 2017 due date which was extended to May 2018. The Company has not yet evaluated the embedded conversion feature in the notes, given the notes are not convertible at the option of the holder until maturity in May 2018.
The November 2017 Note totaling $166,666, $92,004 after debt discount, included an Investor’s Put Option whereby if the Company’s stock was not listed on the Nasdaq or NYSE by January 31, 2018, the lender had the right to require the Company to repurchase the Note at any time after January 31, 2018 in an amount equal to 130% of the sum of the Principal plus all accrued and unpaid interest. The Investor issued notice February 2, 2018 exercising it’s Put Option and requiring the Company repurchase the Note on April 19, 2018 in the aggregate amount of $228,332. The investor may elect to cancel the repurchase notice at any time prior to receiving the repurchase payment.
| F-15 |
NOTE 7: DERIVATIVE LIABILITY
During the years ending December 31, 2017 and 2016, the Company had the following activity in their derivative liability account:
| Warrants | Conversion
Feature | Total | ||||||||
| Derivative Liability at December 31, 2015 | 714,401 | 3,520,615 | 4,235,016 | |||||||
| Derivative Liability Recorded on New Instruments | - | 6,150,026 | 6,150,026 | |||||||
| Elimination of Liability on Conversion | (1,266,795 | ) | (10,381,138 | ) | (11,647,933 | ) | ||||
| (Gain) on Settlement of Debt | - | (656,930 | ) | (656,930 | ) | |||||
| Change in Fair Value | 552,452 | 1,691,901 | (2,244,353 | ) | ||||||
| Derivative Liability at December 31, 2016 | 58 | 324,474 | 324,532 | |||||||
| Derivative Liability Recorded on New Instruments | - | 99,661 | 99,661 | |||||||
| Elimination of Liability on Conversion | - | - | - | |||||||
| (Gain) on Settlement of Debt | - | (15,704 | ) | (15,704 | ) | |||||
| Change in Fair Value | (58 | ) | (408,431 | ) | (408,489 | ) | ||||
| Derivative Liability at December 31, 2017 | - | - | - | |||||||
The Company uses the Black-Scholes pricing model to estimate fair value for those instruments convertible into common stock at inception, at conversion date, and at each reporting date. During the years ending December 31, 2017, and 2016, the Company used the following assumptions in their Black-Scholes model:
| December 31, 2017 | December 31, 2016 | |||||||||||||
| Warrants | Conversion Feature | Warrants | Conversion Feature | |||||||||||
| Risk-free interest rate | 1.39 | % | n/a | 0.46% - 1.38% | 0.12% - 0.85% | |||||||||
| Expected life in years | 0.25 | n/a | 0.53 - 4.08 | 0.01 - 1.00 | ||||||||||
| Dividend yield | 0 | % | n/a | 0 | % | 0 | % | |||||||
| Expected volatility | 187.59 | % | n/a | 156.29% - 273.70 | % | 115.46% - 239.93 | % | |||||||
NOTE 8: INCOME TAXES
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, the Company has not completed the accounting for the tax effects of enactment of the Act; however, as described below, it has made a reasonable estimate of the effects on existing deferred tax balances. These amounts are provisional and subject to change. The most significant impact of the legislation for the Company was a $3,300,000 reduction of the value of the Company’s net deferred tax assets (which represent future tax benefits) as a result of lowering the U.S. corporate income tax rate from 35% to 21%. The Act also includes a requirement to pay a one-time transition tax on the cumulative value of earnings and profits that were previously not repatriated for U.S. income tax purposes. The Company has no earnings and profits that were previously not repatriated for U.S. income tax purposes.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2017 and 2016:
| December 31, 2017 | December 31, 2016 | ||||||
| Deferred tax assets: | |||||||
| Net operating loss carryover | $ | 5,640,000 | $ | 8,854,900 | |||
| Depreciation | - | - | |||||
| Related party accrual | 110,600 | 179,400 | |||||
| Capital Loss Carryover | 3,400 | 5,500 | |||||
| Deferred tax liabilities | |||||||
| Depreciation | (2,100 | ) | (197,200 | ) | |||
| Valuation allowance | (5,751,900 | ) | (8,842,600 | ) | |||
| Net deferred tax asset | $ | - | $ | - | |||
| Net deferred tax asset | $ | - | $ | - | |||
| F-16 |
The income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income from continuing operations for the years ended December 31, 2017 and 2016 due to the following:
| December 31, 2017 | December 31, 2016 | ||||||
| Book income (loss) | $ | (1,347,900 | ) | $ | (3,350,700 | ) | |
| Grant income | - | (7,100 | ) | ||||
| Depreciation | (700 | ) | (25,300 | ) | |||
| Intangible asset impairment | - | 12,100 | |||||
| Related party accrual | (100 | ) | (65,900 | ) | |||
| Meals and entertainment | 200 | 1,600 | |||||
| Stock for services | 130,300 | 341,300 | |||||
| Options expense | 142,600 | 229,600 | |||||
| Non-cash interest expense | 946,500 | 1,976,300 | |||||
| Other non-deductible expenses | (12,200 | ) | (90,600 | ) | |||
| Valuation allowance | 141,300 | 846,900 | |||||
| Income tax expense | $ | - | $ | - | |||
At December 31, 2017, the Company had net operating loss carryforwards of approximately$26,856,300 that may be offset against future taxable income from the year 2018 through 2037.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. At the adoption date of January 1, 2007, the Company had no unrecognized tax benefit, which would affect the effective tax rate if recognized.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December 31, 2017, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction. The Company is located in the state of Washington and Washington state does not require the filing of income taxes. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014.
NOTE 9: STOCKHOLDERS’ EQUITY
Common Stock
The Company has 2,000,000,000 shares of common stock authorized, with a par value of $0.001, and as of December 31, 2017 and 2016, the Company has 65,695,213 and 31,743,797 shares issued and outstanding, respectively. The Company’s Board of Directors is authorized to provide for the issuance of shares of preferred stock in one or more series, fix or alter the designations, preferences, rights, qualifications, limitations or restrictions of the shares of each series, including the dividend rights, dividend rates, conversion rights, voting rights, term of redemption including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series without further vote or action by the shareholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of management without further action by the shareholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others.
Effective October 2016, the Company filed a Certificate of Amendment to perform a 1:100 reverse stock split. The Company’s financial statements have been retroactively adjusted for all periods presented to reflect the reverse stock split.
| F-17 |
Preferred Stock
As of December 31, 2017, and 2016, the Company has 20,000,000 shares of Series A Preferred authorized with a par value of $0.001. The Company’s Board of Directors is authorized to provide for the issuance of shares of preferred stock in one or more series, to establish the number of shares in each series, and to determine the designations, preferences and rights through a resolution of the Board of Directors.
We currently have one series of preferred stock authorized, the Series A Preferred. The following is a summary of the rights and preferences of the Series A Preferred, which summary is not meant to be a complete description of those terms. For a complete description of the rights and preferences attributable to the Series A Preferred, please see the Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock (the “Series A Certificate of Designation”), attached as Exhibit 4.1 to our Current Report on Form 8-K filed with the SEC on July 8, 2015.
Series A Convertible Preferred Stock
In June 2015, the Series A Certificate of Designation was filed with the Delaware Secretary of State to designate 2.5 million shares of our preferred stock as Series A Preferred. Effective March 31, 2016, the Company amended the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred of the Registrant, increasing the maximum number of shares of Series A Preferred from 2,500,000 shares to 5,000,000 shares. The following summarizes the current rights and preferences of the Series A Preferred:
Liquidation Preference. The Series A Preferred has a liquidation preference of $5.00 per share.
Dividends. Shares of Series A Preferred do not have any separate dividend rights.
Conversion. Subject to certain limitations set forth in the Series A Certificate of Designation, each share of Series A Preferred is convertible, at the option of the holder, into that number of shares of common stock (the “Series A Conversion Shares”) equal to the liquidation preference thereof, divided by Conversion Price (as such term is defined in the Series A Certificate of Designation), currently $0.50.
In the event the Company completes an equity or equity-based public offering, registered with the SEC, resulting in gross proceeds to the Company totaling at least $5.0 million, all issued and outstanding shares of Series A Preferred at that time will automatically convert into Series A Conversion Shares.
Redemption. Subject to certain conditions set forth in the Series A Certificate of Designation, in the event of a Change of Control (defined in the Series A Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series A Preferred shall have acquired, in one or a series of related transactions, equity securities of the Company representing more than fifty percent 50% of the outstanding voting securities of the Company), the Company, at its option, will have the right to redeem all or a portion of the outstanding Series A Preferred in cash at a price per share of Series A Preferred equal to 100% of the Liquidation Preference.
Voting Rights. Holders of Series A Preferred are entitled to vote on all matters, together with the holders of common stock, and have the equivalent of five (5) votes for every Series A Conversion Share issuable upon conversion of such holder’s outstanding shares of Series A Preferred. However, the Series A Conversion Shares, when issued, will have all the same voting rights as other issued and outstanding common stock of the Company, and none of the rights of the Series A Preferred.
Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of Series A Preferred shall be entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the liquidation preference of the Series A Preferred before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company is insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series A Preferred shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Certain Price and Share Adjustments.
a) Stock Dividends and Stock Splits. If the Company (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any other common stock equivalents; (ii) subdivides outstanding shares of common stock into a larger number of shares; (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares; or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the Company, then the conversion price shall be adjusted accordingly.
| F-18 |
b) Merger or Reorganization. If the Company is involved in any reorganization, recapitalization, reclassification, consolidation or merger in which the Common Stock is converted into or exchanged for securities, cash or other property than each share of Series A Preferred shall be convertible into the kind and amount of securities, cash or other property that a holder of the number of shares of common stock issuable upon conversion of one share of Series A Preferred prior to any such merger or reorganization would have been entitled to receive pursuant to such transaction.
Common Stock Issued for Services
During 2017, the Company issued 2,302,194 shares of common stock for services valued at $254,438.
During 2016, the Company did not issue any shares of common stock for services.
Common Stock Issued for the Exercise of Options and Warrants
During 2017, the Company did not issue any shares of common stock for the exercise of options and warrants.
During 2016, the Company issued 30,644 shares of common stock for cashless warrants exercise.
Common Stock Issued for Settlement and Conversion of Debt
During 2017, the Company issued 3,040,239 shares of common stock in conjunction with the settlement of $322,381 worth of convertible debt and $36,479 worth of accrued interest. The shares were valued at $334,048 and $159,299 worth of debt discount was written off, with $21,282 recognized as a loss on the settlement of debt and $113,205 recorded to Additional Paid in Capital upon conversion.
During 2016, the Company issued 563,523 shares of common stock in conjunction with the settlement of convertible debt that was paid in cash. The shares were valued at $70,863 and were recognized as a loss on the settlement of debt.
Common Stock Issued for Conversion of Preferred Stock
During 2017, the Company issued 18,692,500 shares of common stock valued at $4,305,962 in exchange for 1,809,250 shares of Series A Preferred.
During 2016, the Company issued 11,180,289 shares of common stock valued at $4,828,204 in exchange for 1,118,024 shares of Series A Preferred.
Preferred Stock Issued for Cash
During 2017, the Company issued no shares of Series A Preferred for cash.
During 2016, the Company issued 46,666 shares of Series A Preferred for $70,000 cash.
Preferred Stock Issued for Exercise of Warrants
During 2017, the Company issued no shares of Series A Preferred for the exercise of warrants.
During 2016, the Company issued 250,000 shares of Series A Preferred for $250 for the exercise of warrants.
Preferred Stock Issued for Warrants Surrendered
During 2017, the Company issued no shares of Series A Preferred for the surrender of warrants.
During 2016, the Company issued 62,854 shares of Series A Preferred, representing $407,973, in exchange for the surrender of 2,407,500 warrants. This resulted in the Company writing off $1,179,710 worth of derivative liabilities and recognizing a gain on debt extinguishment of $771,737.
| F-19 |
Preferred Stock Issued for Services
During 2017, the Company issued no shares of its Series A Preferred for services.
During 2016, the Company issued 218,000 shares of its Series A Preferred, representing $942,644, for services valued at $949,661, therefore recognizing $7,018 of a gain on settlement of debt. During 2016, the Company issued 10,000 shares of its Series A Preferred to its CFO, representing $54,152, for wages.
Preferred Stock Issued for Loan Fees
During 2017, the Company issued 843,699 shares of Series A Preferred, valued at $1,212,503, for loan fees, and recorded $1,212,503 as debt discount.
During 2017, the Company issued 627,302 shares of Series A Preferred, valued at $1,488,650, to current note holders for the due date extension on the conversion date of the related notes from December 15, 2017 to May 9, 2018.
During 2016, the Company issued 30,000 shares of its Series A Preferred, valued at $162,456, as a finder’s fee and issued 37,906 shares of its Series A Preferred, valued at $29,156, as loan fees on related party convertible notes. The Company also issued 347,400 shares of its Series A Preferred, valued at $363,807, as loan fees on convertible notes recorded as debt discount, and issued 47,840 shares of its Series A Preferred, valued at $39,904, as loan fees on convertible notes recorded as derivative liabilities.
Preferred Stock Issued for Debt Extinguishment
During 2017, the Company issued no shares of Series A Preferred in exchange for debt extinguishment.
During 2016, the Company issued 215,961 shares of Series A Preferred, valued at $1,401,760, in exchange for $1,197,950 of related party debt, and $59,671 of accrued interest. This resulted in the Company recognizing $144,139 as a loss on debt extinguishment.
During 2016, the Company issued 473,830 shares of Series A Preferred, valued at $2,330,876, in exchange for $473,613 of related party convertible debt, and $0 of accrued interest (see Note 6). This resulted in the Company writing off $2,330,154 in derivative liabilities, $448,613 in debt discounts, and recognizing $24,278 as a gain on debt extinguishment.
During 2016, the Company issued 1,460,600 shares of Series A Preferred, valued at $8,552,746 in exchange for $1,444,950 of convertible debt, and $50,711 of accrued interest (see Note 8). This resulted in the Company writing off $8,138,070 in derivative liabilities, $814,625 in debt discounts, and recognizing $266,358 as a gain on debt extinguishment.
Stock Issued for Accounts Payable and Accrued Liabilities
During 2017, the Company issued 183,279 shares of Series A Preferred to the CEO and CFO, in exchange for $115,587 of accrued payroll, $67,692 of accounts payable and wages valued at $365,989. Additionally, the Company issued 3,096,483 shares of Common Stock and 160,000 shares of Series A Preferred to third parties and former employees to extinguish $205,283 worth of accounts payable and $272,164 of accrued payroll, which resulted in the Company recording a loss on extinguishment of debt of $294,530.
During 2016, no shares were issued for accounts payable and accrued liabilities.
Common Stock Options
The following schedule summarizes the changes in the Company’s stock options:
| Weighted | Weighted | |||||||||||||||||
| Options Outstanding | Average | Average | ||||||||||||||||
| Number | Exercise | Remaining | Aggregate | Exercise | ||||||||||||||
| Of | Price | Contractual | Intrinsic | Price | ||||||||||||||
| Shares | Per Share | Life | Value | Per Share | ||||||||||||||
| Balance at December 31, 2015 | 51,350 | $ | 12.00-15.00 | 7.12 years | $ | - | $ | 15.00 | ||||||||||
| Options granted | 2,370,000 | $ | 0.50-1.00 | - | $ | 0.62 | ||||||||||||
| Options exercised | - | $ | - | - | $ | - | ||||||||||||
| Options expired | (18.850 | ) | $ | 0.12-.0.15 | - | $ | 14.84 | |||||||||||
| Balance at December 31, 2016 | 2,402,500 | $ | 0.50-15 | 4.05 years | $ | - | $ | 0.81 | ||||||||||
| Options granted | - | $ | - | $ | ||||||||||||||
| Options exercised | - | $ | - | - | $ | - | ||||||||||||
| Options expired | (1,180,000 | ) | $ | 1.00-0.50 | - | $ | 0.53 | |||||||||||
| Balance at December 31, 2017 | 1,222,500 | $ | 0.50-15 | 2.91 years | $ | - | $ | 1.08 | ||||||||||
| Exercisable at December 31, 2017 | 1,097,623 | $ | 0.50-15 | 2.85 years | $ | - | $ | 1.14 | ||||||||||
During the year ending December 31, 2017 and 2016, the Company recognized $103,865 and $675,324, respectively, worth of stock based compensation related to the vesting of it stock options.
| F-20 |
Common Stock Warrants
The following schedule summarizes the changes in the Company’s common stock warrants:
| Weighted | Weighted | |||||||||||||||||
| Warrants Outstanding | Average | Average | ||||||||||||||||
| Number | Exercise | Remaining | Aggregate | Exercise | ||||||||||||||
| Of | Price | Contractual | Intrinsic | Price | ||||||||||||||
| Shares | Per Share | Life | Value | Per Share | ||||||||||||||
| Balance at December 31, 2015 | 6,803,503 | $ | 0.1-10 | 1.90 years | $ | 2,052,699 | $ | 0.81 | ||||||||||
| Warrants granted | 233,334 | $ | 0.40-0.10 | 1.71 years | $ | 0.34 | ||||||||||||
| Warrants exercised | (202,500 | ) | $ | - | - | $ | $ | 0.10 | ||||||||||
| Warrants expired/cancelled | (3,254,832 | ) | $ | 0.01-6.00 | - | $ | $ | 0.13 | ||||||||||
| Balance at December 31, 2016 | 3,579,505 | $ | 0.01-10 | 0.52 years | $ | 749 | $ | 4.45 | ||||||||||
| Warrants granted | - | $ | - | - | $ | |||||||||||||
| Warrants exercised | - | $ | - | - | $ | |||||||||||||
| Warrants expired/cancelled | (3,275,305 | ) | $ | 4.62 | - | $ | ||||||||||||
| Balance at December 31, 2017 | 304,200 | $ | 1.19 | years | $ | - | $ | 2.63 | ||||||||||
| Exercisable at December 31, 2017 | 304,200 | $ | 1.19 | years | $ | - | $ | 2.63 | ||||||||||
During the year ending December 31, 2017 and 2016, the Company recognized $0 and $595,175, respectively, worth of expense related to warrants granted for services.
Restricted Stock Units
The following schedule summarizes the changes in the Company’s restricted stock units:
| Weighted | ||||||||
| Number | Average | |||||||
| Of | Grant Date | |||||||
| Shares | Fair Value | |||||||
| Balance at December 31, 2016 | - | $ | - | |||||
| RSU’s granted | 12,560,000 | $ | 0.07 | |||||
| RSU’s vested | (6,820,000 | ) | $ | - | ||||
| RSU’s forfeited | - | $ | - | |||||
| Balance at December 31, 2017 | 5,740,000 | $ | 0.07 | |||||
During the year ending December 31, 2017 and 2016, the Company recognized $575,011 and $0 worth of expense related to the vesting of its RSU’s, respectively. As of December 31, 2017, the Company had $354,429 worth of expense yet to be recognized for RSU’s not yet vested.
| F-21 |
NOTE 10: CONCENTRATIONS OF CREDIT AND OTHER RISKS
Accounts Receivable
The Company had one customer that represented 100% of the Company’s total revenues for each of the years ended December 31, 2017 and 2016. The customer that represented 100% of the Company’s total revenue for the years ended December 31, 2017 and 2016, and accounted for 100% of the consulting revenue for that year. The Company had no net accounts receivable balance at December 31, 2017 and 2016.
The loss of a significant customer representing the percentage of total revenue as represented for the years ended December 31, 2017 and 2016 would have a temporary adverse effect on the Company’s revenue, which would continue until the Company located new customers to replace them.
The Company routinely assesses the financial strength of its customers and provides an allowance for doubtful accounts as necessary. As of December 31, 2017, and 2016, the Company had no allowance or bad debt expense recorded.
Product Purchases
Some of the products the Company might market and components thereof are currently available only from a limited number of suppliers, several of which are international suppliers. Failure to obtain deliveries from these sources could have a material adverse effect on the Company’s ability to operate.
NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 2017, the Company had the following non-cash investing and financing activities:
| - | Decreased convertible note principal by $322,381 offset by a decrease in debt discount of $159,299, decreased accrued interest by $36,479, increased common stock by $3,040 and increased paid in capital by $196,540 due to shares issued in conjunction with the settlement of convertible notes. | |
| - | Decreased accrued payroll by $387,751, decreased accounts payable by $272,976, and increased common stock, preferred stock and paid in capital for $660,727 due to shares issued to extinguish liabilities. | |
| - | Increased common stock by $18,693, increased paid in capital - common by $4,287,269, decreased preferred stock by $1,809, and decreased paid in capital - preferred by $4,304,153 due to preferred shares converted to common shares. | |
| - | Increased preferred stock by $844, increased paid in capital - preferred by $1,211,659, and increased debt discount by $1,212,503 due to preferred shares issued for loan fees. | |
| - | Increased common stock and decreased paid in capital by $6,820 due to the vesting of restricted stock units. | |
| - | Increased convertible notes payable and decreased loan from shareholder by $137,000 to roll proceeds from shareholder advances to a formal convertible note payable. | |
| - | Increased derivative liability and debt discount for $99,660 to record a debt discount on convertible notes payable. | |
| - | Decreased accrued interest by $121,308, increased related party notes payable by $51,576, and increased convertible notes payable by $69,732 due to accrued interest being reclassified to principal. |
During the year ended December 31, 2016, the Company had the following non-cash investing and financing activities:
| - | Issued 30,644 shares of common stock valued at $0 for the issuance of cashless warrants. | |
| - | Decreased convertible notes by $473,613, offset by a decrease $448,613 in debt discount decreased convertible notes payable by $1,444,950, offset by a decrease $814,624 in debt discount, decreased accrued interest by $110,382, decreased derivative liabilities by $10,468,224, and increased Series A Preferred by $12,431,882 due to 2,150,391 shares issued in conjunction with the settlement of convertible notes. |
| F-22 |
| - | Increased convertible notes payable and decreased accrued interest by $455,150 for the reclassification of accrued interest to principal. | |
| - | Issued 62,854 shares of Series A Preferred, valued at $407,973, which decreased derivative liabilities by $1,179,710 and for which a gain on debt extinguishment was recorded for $771,737. | |
| - | Increased derivative liabilities for $1,283,448 to record a debt discount on related party convertible notes of $473,613 and a debt discount on convertible notes of $809,835. | |
| - | Increased paid in capital and decreased liability for lack of authorized shares for $852,092. | |
| - | Increased convertible notes payable and decreased loan from shareholder by $127,533 to roll proceeds from shareholder advances to a formal convertible note payable. | |
| - | Issued 433,146 shares of Series A Preferred, valued at $432,866, for loan fees that increased the convertible note debt discount by $363,807 and increased derivative liabilities by $69,059. | |
| - | Issued 11,180,289 shares of common stock valued at $1,590,801 in exchange for 1,118,024 shares of Series A Preferred valued at $4,828,204, resulting in an increase in retained earnings of $3,237,403. |
NOTE 12: SUBSEQUENT EVENTS
In January 2018, the Company issued a $32,279 promissory note due January 2, 2019 in exchange for $32,279 of accounts payable.
In January 2018, the Company received $40,000 as a shareholder loan.
In January and through March 2, 2018, the Company issued 5,742,000 shares of common stock for 574,200 shares of Series A Preferred.
In February 2018, the Company revised the license agreement with Battelle for its patented technology.
In March 2018, the Company issued 10,000 shares of common stock to a member of the Veterinary Medical Advisory Board.
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to disclose.
| F-23 |
