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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED: June 30, 2021

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM __________ TO __________

 

COMMISSION FILE NUMBER 000-53497

 

VIVOS INC

(Exact name of registrant as specified in its charter)

 

Delaware   80-0138937

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

719 Jadwin Avenue,

Richland, WA 99352

(Address of principal executive offices, Zip Code)

 

(509) 736-4000

(Registrant’s telephone number, including area code)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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. (Check one):

 

  Large accelerated filer ☐ Accelerated filer ☐  
       
  Non-accelerated filer Smaller reporting company  
       
    Emerging growth company  

 

If an emerging growth company, indicate by check mark if the company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of Each Class   Trading Symbol   Name of Each Exchange on which registered
         

 

As of August 2, 2021, there were 334,937,194 shares of the registrant’s common stock outstanding, 2,071,007 shares of the registrant’s Series A Convertible Preferred Stock outstanding, 436,653 of the registrant’s Series B Convertible Preferred Stock outstanding and 385,302 of the registrant’s Series C Convertible Preferred Stock outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

    Page
  PART I – FINANCIAL INFORMATION  
     
Item 1. Condensed Financial Statements 1
     
  Condensed Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020 1
     
  Condensed Statements of Operations for the Six and Three Months ended June 30, 2021 and 2020 (unaudited) 2
     
  Condensed Statement of Changes in Stockholders’ Deficit for the Six Months Ended June 30, 2021 and 2020 (unaudited) 3
     
  Condensed Statements of Cash Flow for the Six Months ended June 30, 2021 and 2020 (unaudited) 4
     
  Notes to Condensed Financial Statements (unaudited) 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
     
Item 4. Controls and Procedures 40
     
  PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 42
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42
     
Item 6. Exhibits 43
     
SIGNATURES 44

 

-i -
 

 

PART I – FINANCIAL INFORMATION

 

VIVOS INC

CONDENSED BALANCE SHEETS

JUNE 30, 2021 (UNAUDITED) AND DECEMBER 31, 2020

 

   2021   2020 
   JUNE 30,   DECEMBER 31, 
   2021   2020 
   (UNAUDITED)      
ASSETS          
           
Current Assets:          
Cash  $2,164,669   $903,704 
Prepaid expenses   68,123    33,835 
           
Total Current Assets   2,232,792    937,539 
           
TOTAL ASSETS  $2,232,792   $937,539 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)          
           
LIABILITIES          
Current Liabilities:          
Accounts payable and accrued expenses  $167,068   $361,880 
Related party accounts payable   32,110    32,110 
Accrued interest payable   112,745    100,954 
Payroll liabilities payable   -    66,143 
Convertible notes payable, net   58,308    107,418 
Related party promissory note   237,000    237,000 
           
Total Current Liabilities   607,231    905,505 
           
Total Liabilities   607,231    905,505 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS’ EQUITY (DEFICIT)          
Preferred stock, par value, $0.001, 20,000,000 shares authorized, Series A Convertible Preferred, 5,000,000 shares authorized, 2,071,007 and 2,171,007 shares issued and outstanding, respectively                 2,071                       2,171      
Additional paid in capital - Series A Convertible preferred stock   8,842,458    8,857,358 
Series B Convertible Preferred, 5,000,000 shares authorized, 436,653 and 436,653 shares issued and outstanding, respectively           436               436    
Additional paid in capital - Series B Convertible preferred stock   385,235    385,235 
Series C Convertible Preferred, 5,000,000 shares authorized, 385,302 and 385,302 shares issued and outstanding, respectively           385               385    
Additional paid in capital - Series C Convertible preferred stock   500,507    500,507 
Common stock, par value, $0.001, 950,000,000 shares authorized, 334,937,194 and 292,278,591 issued and outstanding, respectively           334,937               292,279    
Additional paid in capital - common stock   68,266,009    64,551,764 
Subscription receivable   -    - 
Accumulated deficit   (76,706,477)   (74,558,101)
           
Total Stockholders’ Equity (Deficit)   1,625,561    32,034 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)  $2,232,792   $937,539 

 

The accompanying notes are an integral part of these financial statements. 

 

1
 

 

VIVOS INC

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2021 AND 2020

 

   2021   2020   2021   2020 
   SIX MONTHS ENDED   THREE MONTHS ENDED 
   JUNE 30,   JUNE 30,   JUNE 30,   JUNE 30, 
   2021   2020   2021   2020 
                 
Consulting revenues, net  $-   $-   $-   $- 
                     
OPERATING EXPENSES                    
Professional fees   116,445    111,269    38,231    57,277 
Stock based compensation   1,614,000    2,176    1,614,000    2,176 
Payroll expenses   137,503    60,000    82,500    30,000 
Research and development   160,322    17,425    88,624    16,397 
General and administrative expenses   60,505    57,957    30,330    22,603 
                     
Total Operating Expenses   2,088,775    248,827    1,853,685    128,453 
                     
OPERATING LOSS   (2,088,775)   (248,827)   (1,853,685)   (128,453)
                     
NON-OPERATING INCOME (EXPENSE)                    
Interest expense   (13,051)   (273,491)   (6,502)   (33,634)
Other income   -    3,000    -    3,000 
Forgiveness of debt   129,745    -    -    - 
Loss on debt extinguishment   (176,295)   -    -    - 
                     
Total Non-Operating Income (Expenses)   (59,601)   (270,491)   (6,502)   (30,634)
                     
NET LOSS BEFORE PROVISION FOR INCOME TAXES   (2,148,376)   (519,318)   (1,860,187)   (159,087)
                     
Provision for income taxes   -    -    -    - 
                     
NET LOSS  $(2,148,376)  $(519,318)  $(1,860,187)  $(159,087)
                     
Net loss per share - basic and diluted  $(0.01)  $(0.00)  $(0.01)  $(0.00)
                     
Weighted average common shares outstanding – basic and diluted   314,454,422    169,693,285    328,215,562    173,196,401 

 

The accompanying notes are an integral part of these financial statements.

 

2
 

 

VIVOS INC

CONDENSED STATEMENT OF CHANGES IN  STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

 

   Shares   Amount   Preferred   Shares   Amount   Preferred   Shares   Amount   Preferred   Shares   Amount   Common   Issued   Deficit   Total 
           Additional           Additional           Additional              (Subscription         
           Paid-In           Paid-In           Paid-In       Additional   Receivable) /         
   Series A Preferred   Capital - Series A   Series B Preferred   Capital - Series B   Series C Preferred   Capital - Series C   Common Stock   Paid-InCapital -   Shares
to be
   Accumulated     
   Shares   Amount   Preferred   Shares   Amount   Preferred   Shares   Amount   Preferred   Shares   Amount   Common   Issued   Deficit   Total 
                                                             
Balance - December 31, 2019   2,552,642   $2,553   $8,870,626    1,113,245   $1,113   $665,195    821,292   $821   $674,457    184,845,821   $184,846   $61,721,809   $-   $(73,601,109)  $(1,479,689)
                                                                            
Stock issued for:                                                                           
Cash   -    -    -    -    -    -    -    -    -    -    -    -    6,870    -    6,870 
Note conversions   -    -    -    -    -    -    -    -    -    -    -    -    526,113    -    526,113 
Redemption of preferred stock in convertible note agreement   -    -    -    (100,000)   (100)   (49,900)   -    -    -    -    -    -    -    -    (50,000)
Conversion of preferred stock into common stock   -    -    -    -    -    -    (435,990)   (436)   (173,950)   5,449,875    5,449    168,937    -    -    - 
Warrants issued with notes payable (discount)   -    -    -    -    -    -    -    -    -    -    -    28,482    -    -    28,482 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    77,883    -    -    77,883 
Share adjustment   -    -    -    -    -    -    -    -    -    (62)   -    -    -    -    - 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -    -    (360,231)   (360,231)
                                                                            
Balance - March 31, 2020   2,552,642    2,553    8,870,626    1,013,245    1,013    615,295    385,302    385    500,507    190,295,634    190,295    61,997,111    532,983    (73,961,340)   (1,250,572)
                                                                            
Stock issued for:                                                                           
Cash   -    -    -    -    -    -    -    -    -    18,440,000    18,440    479,440    

(6,980

)   -    491,010 
Note conversions   -    -    -    -    -    -    -    -    -    24,112,742    24,113    626,931    (526,113   -    124,931 
Warrants purchased for cash   -    -    -    -    -    -    -    -    -    -    -    6,900    -     -    6,900 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    2,176    -     -    2,176 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -   -    (159,087)   (159,087)
                                                                            
Balance - June 30, 2020   2,552,642   $2,553   $8,870,626    1,013,245   $1,013   $615,295    385,302   $385   $500,507    232,848,376   $232,848   $63,112,558  $-   $(74,120,427)   $(784,642)
                                                                            
Balance - December 31, 2020   2,171,007   $2,171   $8,857,358    436,653   $436   $385,235    385,302   $385   $500,507    292,278,591   $292,279   $64,551,764   $-   $(74,558,101)  $32,034 
                                                                            
Stock issued for:                                                                           
 Cash   -    -    -    -    -    -    -    -    -    22,500,000    22,500    1,777,500    -    -    1,800,000 
 Note conversions/settlements   -    -    -    -    -    -    -    -    -    1,259,250    1,259    225,406    -    -    226,665 
Accounts payable   -    -    -    -    -    -    -    -    -    384,445    384    49,616    -    -    50,000 
Warrant exercises   -    -    -    -    -    -    -    -    -    3,870,428    3,870    (3,870)   -    -    - 
Warrants purchased for cash   -    -    -    -    -    -    -    -    -    -    -    11,238    -    -    11,238 
Net loss for the year   -    -    -    -    -    -    -    -    -    -    -    -    -    (288,189)   (288,189)
                                                                            
                                                                            
Balance - March 31, 2021   2,171,007    2,171    8,857,358    436,653    436    385,235    385,302    385    500,507    320,292,714    320,292    66,611,654    -    (74,846,290)   1,831,748 
                                                                            
Stock issued for:                                                                           
 RSUs   -    -    -    -    -    -    -    -    -    12,000,000    12,000    (12,000)   -    -    - 
 Stock option exercises   (100,000)   (100)   (14,900)   -    -    -    -    -    -    2,125,000    2,125    12,875    -    -    - 
 Accounts payable   -    -    -    -    -    -    -    -    -    519,480    520    39,480    -    -    40,000 
RSU’s granted to consultants that have vested   -    -    -    -    -    -    -    -    -    -    -    1,614,000            -    -    1,614,000 
Net loss for the year   -    -    -    -    -    -    -    -    -    -    -    -    -    (1,860,187)   (1,860,187)
                                                                            
Balance - June 30, 2021   2,071,007   $2,071   $8,842,458    436,653   $436   $385,235    385,302   $385   $500,507    334,937,194   $334,937   $68,266,009   $-   $(76,706,477)  $1,625,561 

 

The accompanying notes are an integral part of these financial statements.

 

3
 

 

    2021    2020 
 
VIVOS INC
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
         
    2021    2020 
CASH FLOW FROM OPERATING ACTIVITIES          
Net loss  $(2,148,376)  $(519,318)
Adjustments to reconcile net loss to net cash used in operating activities          
Amortization of convertible debt discount   -    53,527 
Amortization of BCF discount   -    6,187 
Stock options and warrants for services   -    2,176 
RSUs issued for services   1,614,000    - 
Loss on conversion of debt   176,295    - 
Forgiveness of debt   (129,745)   - 
Warrants issued for interest expense   -    77,883 
Exchange premium in conversion of notes   -    98,508 
Changes in assets and liabilities          
Prepaid expenses and other assets   (34,288)   (27,212)
Accounts payable and accrued expenses   24,933    (97,060)
Accounts payable and accrued expenses from related party   -    - 
Payroll liabilities   (66,143)   50,000 
Accrued interest   13,051    29,003 
Total adjustments   1,598,103    193,012 
           
Net cash used in operating activities   (550,273)   (326,306)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Redemption of preferred stock   -    (50,000)
Proceeds from sale of common stock and warrants   1,811,238    504,780 
Proceeds from convertible debt   -    100,000 
Proceeds from promissory notes - related party, net of repayments   -    - 
Net cash provided by financing activities   1,811,238    554,780 
           
NET INCREASE IN CASH   1,260,965    228,474 
           
CASH- BEGINNING OF PERIOD   903,704    20,381 
           
CASH - END OF PERIOD  $2,164,669   $248,855 
           
CASH PAID DURING THE PERIOD FOR:          
Interest expense  $-   $7,500 
           
Income taxes  $-   $- 
           
SUPPLEMENTAL INFORMATION - NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Conversion of preferred stock into common stock  $-   $174,386 
Recognition of debt discount at inception of notes payable  $-   $28,482 
Conversion of notes payable and accrued interest into common stock  $50,370   $651,044 
Common stock issued in cashless exercise of warrants  $3,870   $- 
RSUs vested into common stock  $12,000   $- 
Accounts payable converted into shares of common stock  $90,000   $- 
Stock options exercised for recission of common and preferred stock  $60,000   $- 

 

The accompanying notes are an integral part of these financial statements.

 

4
 

 

Vivos Inc.

Notes to Condensed Financial Statements

(Unaudited)

 

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying condensed financial statements of Vivos Inc. (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2021 and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 24, 2021.

 

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 950,000,000 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 located at 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.

 

In January 2018, the Center for Veterinary Medicine Product Classification Group ruled that RadioGelshould be classified as a device for animal therapy of feline sarcomas and canine soft tissue sarcomas. Additionally, after a legal review, the Company believes that the device classification obtained from the Food and Drug Administration (“FDA”) Center for Veterinary Medicine is not limited to canine and feline sarcomas, but rather may be extended to a much broader population of veterinary cancers, including all or most solid tumors in animals. We expect the result of such classification and label review will be that no additional regulatory approvals are necessary for the use of IsoPet®for the treatment of solid tumors in animals. The FDA does not have premarket authority over devices with a veterinary classification, and the manufacturers are responsible for assuring that the product is safe, effective, properly labeled, and otherwise in compliance with all applicable laws and regulations.

 

Based on the FDA’s recommendation, RadioGel 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 RadioGel are used synonymously throughout this document. The only distinction between IsoPet®and RadioGel is the FDA’s recommendation that we use “IsoPet®” for veterinarian usage, and reserve “RadioGel™” for human therapy. Based on these developments, the Company has shifted its primary focus to the development and marketing of Isopet® for animal therapy, through the Company’s IsoPet® Solutions division.

 

5
 

 

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 three different university veterinarian hospitals on IsoPet® testing and therapy. Washington State University treated five cats for feline sarcoma and served to develop the procedures which are incorporated in our label. They concluded that the product was safe and effective in killing cancer cells. Colorado State University demonstrated the CT and PET-CT imaging of IsoPet®. A contract was signed with University of Missouri to treat canine sarcomas and equine sarcoids starting in November 2017.

 

The dogs were treated for canine soft tissue sarcoma. Response evaluation criteria in solid tumors (“RECIST”) is a set of published rules that define when tumors in cancer patients improve (respond), stay the same (stabilize), or worsen (progress) during treatment. The criteria were published by an international collaboration including the European Organisation for Research and Treatment of Cancer (“EORTC”), National Cancer Institute of the United States, and the National Cancer Institute of Canada Clinical Trials Group.

 

The testing at the University of Missouri met its objective to demonstrate the safety of IsoPet®. Using its advanced CT and PET equipment it was able to demonstrate that the dose calculations were accurate and that the injections perfused into the cell interstices and did not stay concentrated in a bolus. This results in a more homogeneous dose distribution. There was insignificant spread of Y-90 outside the points of injection demonstrating the effectiveness of the particles and the gel to localize the radiation with no spreading to the blood or other organs nor to urine or fecal material. This confirms that IsoPet® is safe for same day therapy.

 

The effectiveness of IsoPet® for life extension was not the prime objective, but it resulted in valuable insights. Of the cases one is still cancer-free but the others eventually recurred since there was not a strong focus on treating the margins. The University of Missouri has agreed to become a regional center to administer IsoPet® therapy and will incorporate the improvements suggested by the testing program.

 

The Company anticipates that future profits, if any, 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.

 

Commencing in July 2019, the Company recognized its first commercial sale of IsoPet®. A veterinarian from Alaska brought his cat with a re-occurrent spindle cell sarcoma tumor on his face. The cat had previously received external beam therapy, but now the tumor was growing rapidly. He was given a high dose of 400Gy with heavy therapy at the margins. This sale met the revenue recognition requirements under ASC 606 as the performance obligation was satisfied. The Company completed sales for an additional four animals that received the IsoPet® during 2019.

 

Our plan is to incorporate the data assembled from our work with Isopet® in animal therapy to support the Company’s efforts in the development of our RadioGel device candidate, including obtaining approval from the 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, less than two microns, 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.

 

Recently, the Company modified its Indication for Use from skin cancel to cancerous tissue or solid tumors pathologically associated with locoregional papillary thyroid carcinoma and recurrent papillary thyroid carcinoma having discernable tumors associated with metastatic lymph nodes or extranodal disease in patients who are not surgical candidates or who have declined surgery, or patients who require post-surgical remnant ablation (for example, after prior incomplete radioiodine therapy). Papillary thyroid carcinoma belongs to the general class of head and neck tumors for which tumors are accessible by intraoperative direct needle injection. The Company’s Medical Advisory Board felt that demonstrating efficacy in clinical trials was much easier with this new indication.

 

6
 

 

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 (March 2022). 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 received the Patent Cooperation Treaty (“PCT”) International Search Report on our patent application (No.1811.191). Seven of our claims were immediately ruled as having novelty, inventive step and industrial applicability. This gives us the basis to extend for many years the patent protection for our proprietary Yttrium-90 phosphate particles utilized in Isopet® and Radiogel. As part of the normal review process, we have also submitted the technical justification for seven additional claims. We are in the process of filing patent claims in Canada, UK (Great Britain, Scotland, Wales and Ireland), Japan, Germany, Italy, France, Australia, Brazil, China, India, North Countries (Sweden, Norway, Finland, and Denmark).

 

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 $2 million annually to maintain current operating activities.

 

The Company completed its reverse stock split which was approved by FINRA and went effective on June 28, 2019.

 

The Company’s stock offering under Regulation A+ was qualified by the Securities and Exchange Commission (“SEC”) on June 3, 2020.

 

The Company over the past twelve months has raised approximately $4,000,000 from the sale of shares under Regulation A+, and intends to use the proceeds generated as follows:

 

For the animal therapy market:

 

  Fund the effort to communicate the benefits of IsoPet® to the veterinary community and the pet parents.
  Conduct additional clinical studies to generate more data for the veterinary community
  Subsidize some IsoPet® therapies, if necessary, to ensure that all viable candidates are treated.
  Assist a new regional clinic with their license and certification training.

 

For the human market:

 

  Enhance the pedigree of the Quality Management System.
  Complete the previously defined pre-clinical testing and additional testing on an animal model closely aligned with our revised indication for use. Report the results to the FDA in a pre-submission meeting.
  Use the feedback from that meeting to write the IDE (Investigational Device Exemption), which is required to initiate clinical trials.

 

Research and development of the Company’s brachytherapy product line has been funded with proceeds from the sale of equity and debt securities. The Company may require additional funding of approximately $2 million annually to maintain current operating activities. Over the next 12 to 24 months, the Company believes it will cost approximately $9 million to: (1) fund the FDA approval process to conduct human clinical trials, (2) conduct Phase I, pilot, clinical trials, (3) activate several regional clinics to administer IsoPet® across the county, (4) create an independent production center within the current production site to create a template for future international manufacturing, and (5) initiate regulatory approval processes outside of the United States.

 

7
 

 

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, the Company’s independent registered public accounting firm 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.

 

The Company has been impacted from the effects of COVID-19. The Company’s headquarters are in Northeast Washington however there focus of the animal therapy market has been the Northwestern sector of the United States, the initial epicenter of the COVID-19 outbreak in the United States. The Company is hopeful that by the end of the third quarter of 2021, they will be allowed to continue their marketing to the animal therapy market and attempt to increase the exposure to their product and generate revenue accordingly.

 

As of June 30, 2021, the Company has $2,164,669 cash on hand. There are currently commitments to vendors for products and services purchased. To continue the development of the Company’s products, the current level of cash may not be enough to cover the fixed and variable obligations of the Company.

 

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.

 

8
 

 

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. Estimates the Company considers include criteria for stock-based compensation expense, and valuation allowances on deferred tax assets. Actual results could differ from those estimates.

 

Financial Statement Reclassification

 

Certain account balances from prior periods have been reclassified in these 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.

 

The Company occasionally maintains cash balances in excess of the FDIC insured limit. The Company does not consider this risk to be material.

 

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 June 30, 2021 and December 31, 2020, 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. Accounting Standards Codification (“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.

 

The Company measures certain financial instruments including options and warrants issued during the period at fair value on a recurring basis.

 

Derivative Liabilities and Beneficial Conversion Feature

 

The Company evaluates its convertible debt, options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC Topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretations of this standard and Accounting Standards Update 2017-11, which was adopted by the Company effective January 1, 2018. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings.

 

Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings.

 

9
 

 

The result of this accounting treatment is that the fair value of the derivative instrument is marked-to-market each balance sheet date and with the change in fair value recognized in the statement of operations as other income or expense.

 

Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation than that the related fair value is removed from the books. Gains or losses on debt extinguishment are recognized in the statement of operations upon conversion, exercise or cancellation of a derivative instrument after any shares issued in such a transaction are recorded at market value.

 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Instruments that become a derivative after inception are recognized as a derivative on the date they become a derivative with the offsetting entry recorded in earnings.

 

The Company determines the fair value of derivative instruments and hybrid instruments, considering all of the rights and obligations of each instrument, based on available market data using a binomial model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk-free rates) necessary to fair value these instruments. For instruments in default with no remaining time to maturity the Company uses a one-year term for their years to maturity estimate unless a sooner conversion date can be estimated or is known. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock.

 

The Company accounts for the beneficial conversion feature on its convertible instruments in accordance with ASC 470-20. The Beneficial Conversion Feature (“BCF”) is normally characterized as the convertible portion or feature that provides a rate of conversion that is below market value or in the money when issued. The Company records a BCF when these criteria exist, when issued. BCFs that are contingent upon the occurrence of a future event are recorded when the contingency is resolved.

 

To determine the effective conversion price, the Company first allocates the proceeds received to the convertible instrument, and then use those allocated proceeds to determine the effective conversion price. The intrinsic value of the conversion option should be measured using the effective conversion price for the convertible instrument on the proceeds allocated to that instrument.

 

The accounting for a BCF requires that the BCF be recognized by allocating the intrinsic value of the conversion option to additional paid in capital, resulting in a discount to the convertible instrument. This discount should be accreted from the date on which the BCF is first recognized through the earliest conversion date for instruments that do not have a stated redemption date.

 

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