Item
2.
Manage
m
ent’s Discussion and Analysis of Financial
Condition and Results of Operations.
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-Q 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 previously filed Form 10-K, as well as
other cautionary language in this Form 10-Q 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.
General Statement of Business
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.
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 RadioGel
TM
as a device for
human therapy for non-sectable cancers. In January 2018, the Center
for Veterinary Medicine Product Classification Group ruled that
RadioGel
TM
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 RadioGel
TM
for the treatment
of skin cancer in animals.
Based
on the FDA’s recommendation, RadioGel
TM
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
TM
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
RadioGel
TM
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 RadioGel
TM
. 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.
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.
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 not be able to continue
operations.
Results of Operations
Comparison of the Three Months Ended March 31, 2018 and
2017
The
following table sets forth information from our statements of
operations for the three months ended March 31, 2018 and
2017.
|
Three Months
Ended
March 31,
2018
|
Three Months
Ended
March 31,
2017
|
Revenues
|
$
-
|
$
4,054
|
Operating
expenses
|
(286,694
)
|
(368,769
)
|
Operating
loss
|
(286,694
)
|
(364,715
)
|
Non-operating
income (expense):
|
|
|
Gain on sale of
assets
|
-
|
2,800
|
Gain (loss) on debt
extinguishment
|
-
|
147,710
|
Gain (loss) on
derivative liability
|
-
|
325,390
|
Grants
received
|
17,583
|
-
|
Interest
expense
|
(632,074
)
|
(527,951
)
|
Net income
(loss)
|
$
(901,185
)
|
$
(416,766
)
|
Revenue
Revenue
was $0 for the three months ended March 31, 2018 and March 31,
2017. Revenue consists of consulting revenues, including providing
a company with assistance in strategic targetry services, and
research into production of radiophamaceuticals and the operations
of radioisotope production facilities. No proprietary information
belonging to our Company is shared during the process of this
consulting.
Operating Expenses
Operating expenses
for the three months ended March 31, 2018 and 2017 consists of the
following:
|
Three months
ended
March 31,
2018
|
Three months
ended
March 31,
2017
|
Depreciation and
amortization expense
|
$
-
|
$
740
|
Professional
fees
|
70,058
|
134,604
|
Reserved stock
units granted
|
52,094
|
-
|
Stock options
granted
|
23,755
|
28,240
|
Payroll
expenses
|
78,870
|
104,780
|
Research and
development
|
32,814
|
-
|
General and
administrative expenses
|
19,103
|
74,407
|
Sales and marketing
expense
|
10,000
|
25,998
|
|
$
286,694
|
$
368,769
|
Operating expenses
for the three months ended March 31, 2018 and 2017 was $286,694 and
$368,769, respectively. The decrease in operating expenses from
2017 to 2018 can be attributed to the decrease in payroll expense
($104,780 for the three months ended March 31, 2017 versus $78,870
for the three months ended March 31, 2018); decrease in
professional fees expenses ($134,604 for the three months ended
March 31, 2017 versus $70,058 for the three months ended March 31,
2018; and the decrease in general and administrative expense
($74,407 for the three months ended March 31, 2017 versus $19,103
for the three months ended March 31, 2018). These decreases in
operating expenses were partially offset by an increase in reserved
stock units granted ($52,094 for the three months ended March 31,
2018 versus $0 for the three months ended March 31, 2017); and the
increase in research and development ($32,814 for the three months
ended March 31, 2018 versus $0 for the three months ended March 31,
2017).
Non-Operating Income (Expense)
Non-operating
income (expense) for the three months ended March 31, 2018 and 2017
consists of the following:
|
Three months
ended
March 31,
2018
|
Three months
ended
March 31,
2017
|
Interest
expense
|
$
(632,074
)
|
$
(527,951
)
|
Net gain on sale of
assets
|
-
|
2,800
|
Grants
received
|
17,583
|
-
|
Net gain (loss) on
debt extinguishment
|
-
|
147,710
|
Gain (loss) on
derivative liability
|
-
|
325,390
|
|
$
(614,491
)
|
$
(52,051
)
|
Non-operating
income (expense) for the three months ended March 31, 2018 varied
from the three months ended March 31, 2017 primarily due to a gain
on debt extinguishment of $147,710 for the three months ended March
31, 2017 versus a gain of $0 for the three months ended March 31,
2018; a gain on derivative liability for the three months ended
March 31, 2017 of $325,390 versus $0 for the three months ended
March 31, 2018; and an increase in interest expense from $527,951
for the three months ended March 31, 2017 to $632,074 for the three
months ended March 31, 2018. The majority of the interest recorded
by the Company consists of amortization of debt discount. This was
partially offset by an increase in grant income from $0 for the
three months ended March 31, 2017 to $17,583 for the three months
ended March 31, 2018.
Net Loss
Our net income
(loss) for the three months ended March 31, 2018 and 2017 was
$(901,185) and $(416,766), respectively.
Liquidity and Capital Resources
At March 31, 2018,
the Company had negative working capital of $5,088,015, as compared
to $4,263,139 at December 31, 2017. During the three months ended
March 31, 2018 the Company experienced negative cash flow from
operations of $48,301 and it received $0 for investing activities
while adding $40,000 of cash flows from financing activities. As of
March 31, 2018, the Company had no commitments for capital
expenditures.
Cash
used in operating activities decreased from $275,658 for the three
month period ending March 31, 2017 to $48,301 for the three month
period ending March 31, 2018. Cash used in operating activities was
primarily a result of the Company’s net loss, partially
offset by non-cash items, such as loss on derivative liability and
amortization and depreciation, included in that net loss and
preferred and common stock issued for services and other expenses.
The Company received $0 and $2,800 in cash from investing
activities for the three month periods ended March 31, 2018 and
2017, respectively. Cash provided from financing activities
decreased from $268,699 for the three month period ending March 31,
2017 to $40,000 for the three month period ending March 31, 2018.
The decrease in cash provided from financing activities was
primarily a result of decrease in proceeds from convertible debt,
as well as a decrease in shareholder advances.
The
Company has generated material operating losses since inception.
The Company had a net loss of $901,185 for the three months ended
March 31, 2018, and a net loss of $416,766 for the three months
ended March 31, 2017. 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 from investors for
working capital as well as business expansion, although the Company
can provide no assurance that additional investor funds will be
available on terms acceptable to the Company. If the Company is
unable to obtain additional financing to meet its working capital
requirements, it may have to curtail its business.
The
Company anticipates raising additional capital within the next
twelve months from investors for working capital as well as
business expansion, although the Company can provide no assurance
that additional investor funds will be available on terms
acceptable to the Company. If the Company is unable to obtain
additional financing to meet its working capital requirements, it
may have to 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 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.
Accounting Policies and Estimates
The
preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and
assumptions that affect the amounts reported in the unaudited
condensed consolidated financial statements and accompanying notes.
Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under
the circumstances. Actual results could differ from these estimates
under different assumptions or conditions. During the period ended
March 31, 2018, we believe there have been no significant changes
to the items disclosed as significant accounting policies in
management’s notes to the consolidated financial statements
in our annual report on Form 10-K for the year ended December 31,
2017, filed on April 2, 2018.
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.