Notes
to Financial Statements
For
the Years Ended December 31, 2018 and 2017
NOTE
1: ORGANIZATION & BASIS OF PRESENTATION
Business
Overview
Vivos
Inc. (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. On October
8, 2018 the Company created out of the shares of Preferred Stock, par value $0.001 per share, of the Company, as authorized in
Article IV of the Company’s Certificate of Incorporation, a series of Preferred Stock of the Company, to be named “Series
B Convertible Preferred Stock,” consisting of Five Million (5,000,000) shares.
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.
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 Food and Drug Administration
(
“
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 (“
Annual Report
”) for a discussion regarding the Company’s application for FDA approval
of RadioGel™.
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. To date, three dogs, listed below as Dog A, Dog B and
Dog C, respectively, have been treated with IsoPet
®
at the University of Missouri.
Dog
A was treated for canine soft tissue sarcoma in June 2018. 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 principal investigator from the University of Missouri rated the tumor as CR, Complete Response,
after three months. This RECIST rating means that the tumor was completely eliminated by the IsoPet therapy. Dog B which was treated
in July 2018 has displayed encouraging results. This patient had transient mild acute radiation side effects, and had SD (stable
disease) at the time of recheck. There was a small amount of growth, but not enough to be considered progression per the RECIST
criteria. The CT on its last visit in February 2019 showed that the tumor site had a slightly larger but diffuse image. Based
on this single observation, the diffuse image could mean that the hydrogel, in addition to trapping the particles, provides a
secondary benefit of locking in the dead tumor tissue allowing for a slower rate of resorption of the necrotic tissue. This could
be a positive outcome whereas killing a tumor and having it resorb within the tissue all at once might be a shock to the animal’s
system. We will continue to monitor how this case proceeds.
Dog
C was treated in January 2019. This very large, half-pound, tumor was initially scheduled for therapy in December 2018 but had
to be rescheduled due to the hydrogel not meeting our rigid specifications. From this, we learned that frozen hydrogel has a limited
shelf life and this allowed us to make the appropriate adjustments to our product specifications. This patient had mild to moderate
acute radiation side effects and has SD (stable disease) one-month post treatment. The February follow-up included a CT scan.
The mass showed no new growth and measured almost the same as it did at the time of treatment. There is a small region at the
bottom of the tumor where the mass seems to be draining. The tumor around the highest dose region appears dead with no blood supply,
according to the CT. Dog C was outside of the scope of our criteria as an eligible patient prospect and we deem the patient as
likely terminal, however, we treated it for humanitarian reasons and for discovery to determine residual effects of the treatment.
Dog D was treated for canine soft tissue sarcoma in February 2019, and we are awaiting a follow-up appointment for an examination
of the dog. These animal therapies generate data to assure the private veterinary clinics of the safety and efficacy of IsoPet
®
.
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.
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 $2.3 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: (1) fund 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, 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.
As
of December 31, 2018, the Company has $5,494 cash on hand. There are currently commitments to vendors for products and services
purchased 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. The Company was able to execute the following transactions
to improve their balance sheet and decrease the liabilities incurred and increase their cash flow:
|
●
|
On
October 10, 2018, the Company successfully completed the terms of certain Path Forward and Standstill Agreements previously
entered into by and between the Company and certain debtholders (the “
Path Forward Agreements
”), resulting
in the automatic conversion of the outstanding balance due under certain outstanding convertible secured debentures and convertible
promissory notes, amounting to an aggregate of $2,253,538, into an aggregate of 302,339,252 shares of Company common
stock and 2,610,453 shares of Series B Convertible Preferred at a fixed conversion price of $0.004 per share. These shares
were subject to a restriction on any sales below $0.02 through December 31, 2018 and will have volume limitations on any sales
below $0.01 during the first six months of 2019.
|
|
|
|
|
●
|
On
October 10, 2018 the Company consummated a private placement transaction, resulting in
net proceeds to the Company of
$738,140. In addition,
the Company issued an aggregate of 287,168,409 shares of its common stock, 695,302 shares
of Series B Convertible Preferred, and warrants to purchase that number of shares of
common stock equal to 50% of the shares of common stock issued in the private placement
valued at $3,352,068 from the exchange of notes, past due executive compensation, and
certain other liabilities. All shares issued in the private placement are restricted
securities. The warrants have a two-year term and are exercisable at a price of $0.01
per share.
|
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. 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 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
consisted of finished goods. The Company has no inventory for the years ended December 31, 2018 and 2017.
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, 2018 and 2017, 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 at fair value on a recurring basis.
There
were no assets and liabilities measured at fair value on a recurring basis at December 31, 2018 and 2017, respectively however
during the years ended December 31, 2018 and 2017 there were Level 3 derivative liabilities measured at fair value.
Derivative
Liabilities
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.
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 the Black-Scholes 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.
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.
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 originally called 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. The license agreement was most recently amended on December 20, 2018, and
pursuant to the amendment the maintenance fee schedule was updated for minimum royalties, as well as the increase in royalties
from one percent (1%) to two percent (2%).
Future
minimum royalties for the years ended December 31 are noted below:
Calendar
Year
|
|
Minimum
Royalties
per
Calendar
Year
|
|
2019
|
|
$
|
10,000
|
|
2020
|
|
|
10,000
|
|
2021
|
|
|
25,000
|
|
2022
|
|
|
25,000
|
|
Total
|
|
$
|
70,000
|
|
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.
The
Company entered into a Letter Amendment #2 with Battelle Memorial Institute on December 20, 2018. as a result of this Amendment,
the Company has agreed to revised terms regarding the license fee as indicated in the chart above. $10,000 of this fee due within
1 year relates to the 2018 license fee which was paid in January 2019. The Company also agreed to increase the royalty fee on
net sales from 1% to 2%.
Amortization
is computed using the straight-line method over the estimated useful live of three years.
Patents
and Intellectual Property
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.
There
have been no such costs in the years ended December 31, 2018 and 2017, respectively.
Revenue
Recognition
In
May 2014, the Financial Accounting Standards Board (“F
ASB
”) issued Accounting Standard Update (“
ASU
”)
No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue
recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step
model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers
at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company adopted the updated guidance effective January 1, 2018 using the full retrospective method.
Under
ASC 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to preform respective
obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for
the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration
is probable. The adoption of ASC 606 did not have an impact on the Company’s operations or cash flows.
Revenue
for the year ended December 31, 2017 consisted of consulting revenue. The Company recognized revenue as consulting services had
been performed. Prepayments, if any, received from customers prior to the services being performed were recorded as deferred revenue.
In these cases, when the services were performed, the amount recorded as deferred revenue was recognized as revenue. The Company
did not accrue for sales returns and other allowances as it had 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 that Washington State University awarded it $17,500 of grant funds from the
sub-award project entitled “
Optimized Injectable Radiogels for High-dose Therapy of Non-Resectable Solid Tumors
”.
The Company received the $17,500 of the grant award in the year ended December 31, 2018.
Loss
Per Share
The
Company accounts for its loss per common share by replacing primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic loss per share is computed by dividing 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 years ended December 31, 2018 and 2017, the basic earnings per share equals the diluted earnings per share.
The
following represent common stock equivalents that could be dilutive in the future as of December 31, 2018 and 2017, which include
the following:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Convertible debt
|
|
|
17,594
|
|
|
|
18,155,788
|
|
Preferred stock
|
|
|
356,101,920
|
|
|
|
37,786,220
|
|
Common stock options
|
|
|
90,544,169
|
|
|
|
1,097,623
|
|
Common stock
warrants
|
|
|
184,419,772
|
|
|
|
304,201
|
|
Total potential
dilutive securities
|
|
|
631,083,455
|
|
|
|
57,343,832
|
|
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 $104,208 and $203,037 research and development costs for the years ended December 31, 2018, and 2017, respectively,
all of which were recorded in the Company’s operating expenses noted on the statements of operations 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.
There were no tradeshow expenses incurred and not expensed for the years ended December 31, 2018, and 2017, respectively. During
the years ended December 31, 2018 and 2017, the Company incurred $11,500 and $111,662, respectively, in advertising and marketing
costs.
Shipping
and Handling Costs
Shipping
and handling costs are expensed as incurred and included in cost of materials.
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. See Note 10 - Subsequent Events for description of lawsuit filed against the Company on January 28, 2019. In addition,
the Company has entered into various agreements that require them to pay certain fees to consultants and/or employees that have
been fully accrued for as of December 31, 2018 and 2017.
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, 2018 and 2017. The Company did not have any deferred tax liability or asset on its balance sheet on December 31,
2018 and 2017.
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, 2018 and 2017, 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 twelve months.
The
Tax Cuts and Jobs Act (the “
Act
”) was enacted on December 22, 2017. The Act reduces the U.S. 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. 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 compensation costs to employees under FASB ASC Topic 718, Compensation – Stock Compensation. Under FASB
ASC Topic. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the
grant-date fair value and recognize the costs in the financial statements over the period during which employees are required
to provide services. Share based compensation arrangements include stock options, restricted share plans, performance-based awards,
share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their
fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
In
May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation.” The update provides guidance about
which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in
ASC Topic 718. An entity shall account for the effects of a modification described in ASC paragraphs 718-20-35-3 through 35-9,
unless all the following are met: (1) The fair value of the modified award is the same as the fair value of the original award
immediately before the original award is modified; (2) The vesting conditions of the modified award are the same as the vesting
conditions of the original award immediately before the original award is modified; and (3) The classification of the modified
award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before
the original award is modified. The provisions of this update become effective for annual periods and interim periods within those
annual periods beginning after December 15, 2017. The Company’s adoption of this guidance on January 1, 2018 did not have
a material impact on the Company’s results of operations, financial position and related disclosures.
In
June 2018, the FASB issued ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently
only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services.
Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes
Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The guidance is effective for public companies for fiscal years,
and interim fiscal periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, but no earlier
than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The adoption of this standard did not
have a material impact on its financial statements.
Recent
Accounting Pronouncements
In
November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” or ASU 2016-18.
ASU 2016-18 is intended to clarify how entities present restricted cash in the statement of cash flows. The guidance requires
entities to show the changes in the total of cash and cash equivalents and restricted cash in the statement of cash flows. As
a result, entities will no longer present transfers between cash and cash equivalents and restricted cash in the statement of
cash flows. When cash and cash equivalents and restricted cash are presented in more than one line-item on the balance sheet,
the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance
sheet. This reconciliation can be presented either on the face of the statement of cash flows or in the notes to the financial
statements. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively.
Early adoption was permitted, including adoption in an interim period. The adoption did not have a material impact on the Company’s
financial statements.
In
January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment”, which eliminates Step 2 from the goodwill impairment test. When an indication of impairment was identified
after performing the first step of the goodwill impairment test, Step 2 required that an entity determine the fair value at the
impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) using the same procedure
that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under
the amendments in ASU No. 2017-04, an entity would perform its annual or interim goodwill impairment test by comparing the fair
value of a reporting unit with its carrying value. An entity would recognize an impairment charge for the amount by which the
carrying value exceeds the reporting unit’s fair value.
In
addition, an entity must consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting
unit when measuring the goodwill impairment loss, if applicable. A public business entity that is a SEC filer should adopt the
amendments in ASU No. 2017-04 for its annual, or any interim, good will impairment tests in fiscal years beginning after December
15, 2019. The Company does not believe the guidance will have a material impact on its financial statements.
In
July 2017, the FASB issued ASU 2017-11 “Earnings Per Share (Topic 260).” The amendments in the update change
the classification of certain equity-linked financial instruments (or embedded features) with down round features. The amendments
also clarify existing disclosure requirements for equity-classified instruments. For freestanding equity-classified financial
instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260,
Earnings Per Share, to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend
and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options
that have down round features would be subject to the specialized guidance for contingent beneficial conversion features (in Subtopic
470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). For public business
entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. The adoption did not have a material impact on the Company’s financial statements.
In
August 2017, the FASB issued ASU 2017-12 “Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging
Activities.” ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally
requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the
hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components
excluded from the assessment of hedge effectiveness. The guidance is effective for the Company beginning after December 15, 2018,
although early adoption is permitted. The Company as of December 31, 2018 does not have any derivative liabilities and as a result
does not believe the guidance will have a material impact on its financial statements.
In
August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements,”
which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard
removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2019. The Company does not believe the guidance will have a material impact on its
financial statements.
Other
accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected
to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements
that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or
disclosures.
NOTE
3: FIXED ASSETS
Fixed
assets consist of the following at December 31, 2018 and 2017:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Production equipment
|
|
$
|
15,182
|
|
|
$
|
15,182
|
|
Less accumulated
depreciation
|
|
|
(15,182
|
)
|
|
|
(15,182
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Depreciation
expense for the above fixed assets for the years ended December 31, 2018 and 2017 was $0 and $1,473, respectively.
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: RELATED PARTY TRANSACTIONS
Related
Party Convertible Notes Payable
As
of December 31, 2018 and 2017, the Company had the following related party convertible notes outstanding:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
Principal
(net)
|
|
|
Accrued
Interest
|
|
|
Principal
(net)
|
|
|
Accrued
Interest
|
|
March 2017 $332,195
Note, 10% interest, due May 2017
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
383,771
|
|
|
$
|
29,230
|
|
Total Convertible
Notes Payable, Net
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
383,771
|
|
|
$
|
29,230
|
|
In
March 2017, the Company combined Outstanding Notes owed to a director and major stockholder, along with $51,576 of accrued interest
payable, into one promissory note (the “
Related Party Note
”). The Related Party Note accrues interest at a
rate of 10% and was due and payable on December 31, 2017. The note holder agreed to an extension of the due date until May 9,
2018. On August 9, 2018 the Company entered into a Path Forward and Restructuring Agreement whereby this Convertible Note would
convert at a conversion price of $0.004 per share concurrently with a funding of at least $500,000 (the “
Qualified Financing
”).
The Qualified Financing occurred on October 10, 2018 at which time this note was fully converted into 50,000,000 shares of Company
common stock, 385,302 Series B Convertible Preferred shares of the Company, and 44,265,100 warrants that are exercisable into
common shares with an exercise price of $0.01. The Company valued this transaction at a price of $0.013 per share as the conversion
occurred October 19, 2018 upon board approval. As of December 31, 2018 and 2017 the balance of the Related Party Note was $0 and
$383,771, respectively, and the accrued interest payable on the Related Party Note was $0 and $29,230, respectively.
The
Company has outstanding accrued interest in the amount of $1,054 from old related party notes that the principal had been paid
off in full.
Interest
expense for the years ended December 31, 2018 and 2017 on the related party convertible notes payable amounted to $29,650 and
$29,230, respectively.
Related
Party Payables
The
Company periodically receives advances for operating funds from related parties or has related parties make payments on the Company’s
behalf. As a result of these activities the Company had related party payables of $38,610 and $57,297 as of December 31,
2018 and 2017, respectively. All related party advances that occurred through September 30, 2018 were converted into shares of
common stock, and Series B Convertible Preferred stock and warrants on October 30, 2018.
Preferred
and Common Shares Issued to Officers and Directors
During
2018, the Company issued 38,662,562 shares of common stock and warrants to purchase shares of common stock totaling 19,331,281
in settlement of accrued compensation valued at $541,276. The warrants were valued at $238,973 and the Company reflected $586,936
as a loss on conversion of debt.
During
2018, the Company issued 3,600,000 shares of common stock in settlement of accounts payable and notes payable valued at $50,400.
The Company granted 1,800,000 warrants in connection with this transaction and recognized a loss of $35,400 in accordance with
this settlement.
During
2017, the Company issued 100,000 shares of its Series A Convertible Preferred to its CEO, in settlement 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 Convertible Preferred to its former CFO, in settlement for $83,280 of accrued
payroll and wages valued at $166,299.
Rent
Expenses
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, 2018 and 2017 for the corporate offices was $0 and $4,500, respectively.
NOTE
5: CONVERTIBLE NOTES PAYABLE
As
of December 31, 2018 and 2017, the Company had the following convertible notes outstanding:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
|
|
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
|
|
|
$
|
34,603
|
|
|
$
|
45,000
|
|
|
|
29,218
|
|
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
|
|
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 $0 and $544,845, 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 $0 and $147,335, 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 $0 and $25,085, 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 $0 and $74,662, respectively
|
|
|
-
|
|
|
|
-
|
|
|
|
92,004
|
|
|
|
16,667
|
|
Penalties on
notes in default
|
|
|
8,824
|
|
|
|
-
|
|
|
|
7,028
|
|
|
|
-
|
|
Total Convertible
Notes Payable, Net
|
|
$
|
53,824
|
|
|
$
|
58,593
|
|
|
$
|
2,563,272
|
|
|
$
|
316,784
|
|
Interest
expense for the years ended December 31, 2018 and 2017 on the convertible notes payable amounted to $187,741 and $268,961, respectively.
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 Convertible 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.
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
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.
On
October 10, 2018, the Company successfully completed the terms of the
Path Forward Agreements
, resulting in the automatic
conversion of the outstanding balance due under certain outstanding convertible secured debentures and convertible promissory,
amounting to an aggregate of $2,253,538, into an aggregate of 302,339,252 shares of Company common stock and 2,610,453 shares
of Series B Convertible Preferred at a fixed conversion price of $0.004 per share. These shares were subject to a restriction
on any sales below $0.02 through December 31, 2018 and will have volume limitations on any sales below $0.01 during the first
six months of 2019.
The
Company entered into a convertible note in the amount of $50,000 in July 2018 with an interest rate of 8%. This note was convertible
upon a Company capital raise of at least $500,000. On October 30, 2018, the Company converted this note into 12,000,000 shares
of common stock at a conversion rate of $0.014 (total of $60,000 which includes $10,000 of interest and other costs) and recognized
a loss on extinguishment of $108,916 on this conversion.
See
Note 6 for discussion on the derivative liabilities associated with the various convertible notes.
NOTE
6: DERIVATIVE LIABILITY
During
the years ended December 31, 2018 and 2017, certain convertible notes become convertible on a set date at variable conversion
rates. Upon becoming convertible, the Company bifurcated the embedded conversion feature and recorded a derivative liability at
fair value with the offsetting entry recorded in the statement of operations. The activity in the derivative liability account
during the years ended December 31, 2018 and 2017 is summarized as follows:
|
|
Warrants
|
|
|
Conversion
Feature
|
|
|
Total
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Derivative Liability Recorded on New
Instruments
|
|
|
-
|
|
|
|
4,636,517
|
|
|
|
4,636,517
|
|
Elimination of Liability on Conversion
|
|
|
-
|
|
|
|
(4,217,762
|
)
|
|
|
(4,217,762
|
)
|
(Gain) on Settlement of Debt
|
|
|
-
|
|
|
|
(605,601
|
)
|
|
|
(605,601
|
)
|
Change in Fair Value
|
|
|
-
|
|
|
|
186,846
|
|
|
|
186,846
|
|
Derivative Liability at December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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, 2018 and 2017, the Company used the following
assumptions in their Black-Scholes model:
|
|
December
31, 2018
|
|
December
31, 2017
|
|
|
Warrants
|
|
Conversion
Feature
|
|
|
Warrants
|
|
|
Conversion
Feature
|
Risk-free interest rate
|
|
n/a
|
|
|
1.62%-2.59
|
%
|
|
|
1.39
|
|
|
n/a
|
Expected life in years
|
|
n/a
|
|
|
0.11-1.10
|
|
|
|
0.25
|
|
|
n/a
|
Dividend yield
|
|
n/a
|
|
|
0
|
%
|
|
|
0
|
%
|
|
n/a
|
Expected volatility
|
|
n/a
|
|
|
174.46%-519.42
|
%
|
|
|
187.59
|
%
|
|
n/a
|
NOTE
7: 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. The Company based on its assessment of
the accounting for the tax effects of enactment of the Act; 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, 2018 and 2017:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
5,760,000
|
|
|
$
|
5,640,000
|
|
Depreciation
|
|
|
-
|
|
|
|
-
|
|
Related party accrual
|
|
|
2,300
|
|
|
|
110,600
|
|
Capital Loss Carryover
|
|
|
3,400
|
|
|
|
3,400
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(2,100
|
)
|
|
|
(2,100
|
)
|
Valuation
allowance
|
|
|
(5,763,600
|
)
|
|
|
(5,751,900
|
)
|
Net deferred
tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
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, 2018 and 2017 due to the following:
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Book income (loss)
|
|
$
|
(1,617,600
|
)
|
|
$
|
(1,347,900
|
)
|
Grant income
|
|
|
-
|
|
|
|
-
|
)
|
Depreciation
|
|
|
(1,100
|
)
|
|
|
(700
|
)
|
Intangible asset impairment
|
|
|
-
|
|
|
|
-
|
|
Related party accrual
|
|
|
(108,300
|
)
|
|
|
(100
|
)
|
Meals and entertainment
|
|
|
300
|
|
|
|
200
|
|
Stock for services
|
|
|
100
|
|
|
|
130,300
|
|
Options expense
|
|
|
302,000
|
|
|
|
142,600
|
|
Non-cash interest expense
|
|
|
1,046,900
|
|
|
|
946,500
|
|
Other non-deductible expenses
|
|
|
261,800
|
|
|
|
(12,200
|
)
|
Valuation
allowance
|
|
|
115,900
|
|
|
|
141,300
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2018, the Company had net operating loss carryforwards of approximately $27,408,300 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, 2018, 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 2015.
NOTE
8: STOCKHOLDERS’ DEFICIT
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, 2018 and 2017,
the Company has 1,307,565,888 and 65,695,213 shares issued and outstanding, respectively.
Preferred
Stock
As
of December 31, 2018 and 2017, the Company has 20,000,000 shares of Preferred stock 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,
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.
The
following is a summary of the rights and preferences of the Series A Convertible Preferred, which summary is not meant to be a
complete description of those terms.
On
October 8, 2018 the Company created out of the shares of Preferred Stock, par value $0.001 per share, of the Company, as authorized
in Article IV of the Company’s Certificate of Incorporation, a series of Preferred Stock of the Company, to be named “Series
B Convertible Preferred Stock,” consisting of Five Million (5,000,000) shares.
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 Convertible 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 Convertible Preferred from 2,500,000 shares to 5,000,000 shares. The following summarizes the current rights and preferences
of the Series A Convertible Preferred:
Liquidation
Preference
. The Series A Convertible Preferred has a liquidation preference of $5.00 per share.
Dividends
.
Shares of Series A Convertible 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 Convertible 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 Convertible 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 Convertible 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 Convertible Preferred in cash at a price per share
of Series A Convertible Preferred equal to 100% of the Liquidation Preference.
Voting
Rights
. Holders of Series A Convertible 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 Convertible 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 Convertible
Preferred.
Liquidation
.
Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “
Liquidation
”),
the holders of Series A Convertible 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 Convertible 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 Convertible 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.
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 Convertible Preferred prior to any such merger or reorganization
would have been entitled to receive pursuant to such transaction.
Series
B Convertible Preferred Stock
In
October 2018, the Series B Certificate of Designation was filed with the Delaware Secretary of State to designate 5.0 million
shares of our preferred stock as Series B Convertible Preferred. The following summarizes the current rights and preferences of
the Series B Convertible Preferred:
Liquidation
Preference
. The Series B Convertible Preferred has a liquidation preference of $1.00 per share.
Dividends
.
Shares of Series B Convertible Preferred do not have any separate dividend rights.
Conversion
.
Subject to certain limitations set forth in the Series B Certificate of Designation, each share of Series B Convertible Preferred
is convertible, at the option of the holder, into that number of shares of common stock (the “
Series B Conversion Shares
”)
equal to the liquidation preference thereof, divided by Conversion Price (as such term is defined in the Series B Certificate
of Designation), currently $0.01.
Redemption
.
Subject to certain conditions set forth in the Series B Certificate of Designation, in the event of a Change of Control (defined
in the Series B Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders
of the Series B Convertible 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 B Convertible Preferred in cash at a price per share
of Series B Convertible Preferred equal to 100% of the Liquidation Preference.
Voting
Rights
. Holders of Series B Convertible Preferred are entitled to vote on all matters, together with the holders of common
stock, and have the equivalent of two (2) votes for every Series B Conversion Share issuable upon conversion of such holder’s
outstanding shares of Series B Convertible Preferred. However, the Series B 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 Convertible
Preferred.
Liquidation
.
Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “
Liquidation
”),
the holders of Series B Convertible 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 B Convertible 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 B Convertible 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.
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
B Convertible 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 B Convertible Preferred prior to any such merger
or reorganization would have been entitled to receive pursuant to such transaction.
Common
Stock Issuances
Common
Stock Issued for Services
During
2018, the Company issued 10,000 shares of common stock for services valued at $449.
During
2017, the Company issued 2,302,194 shares of common stock for services valued at $254,438.
Common
Stock Issued for the Exercise of Options and Warrants
During
2018, the Company did not issue any shares of common stock 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.
Common
Stock and Preferred Stock Issued for Settlement and Conversion of Debt
During
2018, the Company issued 1,028,230,303 shares of common stock and 2,995,755 shares of Series B Convertible Preferred in conjunction
with the settlement of $3,545,378 worth of convertible debt (both related and non-related) and $506,245 worth of accrued interest
(both related and non-related). As part of these conversions, the Company recognized offsets of $4,823,363 for derivative liabilities
and recognized a gain on extinguishment of debt of $1,694,005.
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.
Common
Stock Issued for Conversion of Preferred Stock
During
2018, the Company issued 12,259,810 shares of common stock valued at $4,678,380 in exchange for 1,225,981 shares of Series A Convertible
Preferred.
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 Convertible
Preferred.
Common
Stock Issued for Cash
During
2018, the Company issued 136,628,000 shares of common stock for cash in the amount of $683,140.
Preferred
Stock Issuances
Preferred
Stock Issued for Cash
During
2018, the Company issued no shares of Series A Convertible Preferred for cash.
During
2018, the Company issued 110,000 shares of Series B Convertible Preferred for cash in the amount of $55,000.
During
2017, the Company issued no shares of Series A Convertible Preferred for cash.
Preferred
Stock Issued for Exercise of Warrants
During
2018, the Company issued no shares of Series A Convertible Preferred for the exercise of warrants.
During
2018, the Company issued no shares of Series B Convertible Preferred for the exercise of warrants.
During
2017, the Company issued no shares of Series A Convertible Preferred for the exercise of warrants.
Preferred
Stock Issued for Warrants Surrendered
During
2018, the Company issued no shares of Series A Convertible Preferred for the surrender of warrants.
During
2018, the Company issued no shares of Series B Convertible Preferred for the surrender of warrants.
During
2017, the Company issued no shares of Series A Convertible Preferred for the surrender of warrants.
Preferred
Stock Issued for Services
During
2018, the Company issued no shares of its Series A Convertible Preferred for services.
During
2018, the Company issued no shares of its Series B Convertible Preferred for services.
During
2017, the Company issued no shares of its Series A Convertible Preferred for services.
Preferred
Stock Issued for Loan Fees
During
2018, the Company issued no shares of Series A Convertible Preferred for loan fees.
During
2018, the Company issued no shares of Series B Convertible Preferred for loan fees.
During
2017, the Company issued 843,699 shares of Series A Convertible 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 Convertible 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.
Preferred
Stock Issued for Debt Extinguishment
For
2018 activity, see above for the Preferred Series A Convertible Preferred and Series B Convertible Preferred that were issued
along with the common stock to convert debt and accrued interest.
During
2017, the Company issued no shares of Series A Convertible Preferred in exchange for debt extinguishment.
Common
and Preferred Stock Issued for Accounts Payable and Accrued Liabilities
During
2018, no shares of Series A Convertible Preferred were issued for accounts payable and accrued liabilities.
During
2018, 62,262,562 shares of common stock and 200,000 shares of Series B Convertible Preferred were issued to officers and consultants
for accrued compensation as well as to settle accounts payable and shareholder advances made during the year. The value of these
shares were $1,665,285. The Company recognized a loss on extinguishment on these issuances of $1,256,972.
During
2017, the Company issued 183,279 shares of Series A Convertible 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 Convertible 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.
The
Company recorded a gain on debt extinguishment of $35,217 as a result of offsetting certain payables that were written off after
statutes of limitations had passed on payment.
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, 2016
|
|
|
2,402,500
|
|
|
$
|
0.50-15.00
|
|
|
3.91
years
|
|
$
|
-
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
|
|
|
$
|
-
|
|
Options
exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
|
|
|
$
|
-
|
|
Options
expired
|
|
|
(1,180,000
|
)
|
|
$
|
0.12-.0.15
|
|
|
-
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
1,222,500
|
|
|
$
|
0.50-15.00
|
|
|
2.91
years
|
|
$
|
-
|
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
89,321,669
|
|
|
$
|
0.014
|
|
|
-
|
|
|
|
|
|
$
|
-
|
|
Options
exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
|
|
|
$
|
-
|
|
Options
expired
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
|
90,544,169
|
|
|
$
|
0.014-15.00
|
|
|
6.75
years
|
|
$
|
-
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2018
|
|
|
90,544,669
|
|
|
$
|
0.014-15.00
|
|
|
6.75
years
|
|
$
|
-
|
|
|
$
|
0.03
|
|
During
the years ending December 31, 2018 and 2017, the Company recognized $1,164,885 and $103,865, respectively, worth of stock based
compensation related to the vesting of it stock options.
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, 2016
|
|
|
3,579,505
|
|
|
$
|
0.1-10.00
|
|
|
1.90
years
|
|
$
|
2,052,699
|
|
|
$
|
4.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
|
|
|
$
|
|
|
Warrants
exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
|
|
|
$
|
|
|
Warrants
expired/cancelled
|
|
|
(3,275,305
|
)
|
|
$
|
4.62
|
|
|
-
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
|
|
304,200
|
|
|
$
|
1.19
|
|
|
1.19
years
|
|
$
|
749
|
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted
|
|
|
184,349,305
|
|
|
$
|
0.01
|
|
|
-
|
|
|
|
|
|
$
|
|
|
Warrants
exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
-
|
|
|
|
|
|
$
|
|
|
Warrants
expired/cancelled
|
|
|
(233,733
|
)
|
|
$
|
0.40
|
|
|
-
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
|
184,419,772
|
|
|
$
|
0.01
|
|
|
1.77
years
|
|
$
|
-
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2018
|
|
|
184,419,772
|
|
|
$
|
0.01
|
|
|
1.77
years
|
|
$
|
-
|
|
|
$
|
0.01
|
|
For
the year ended December 31, 2018, the Company granted 19,331,281 warrants to settle accrued payroll, 63,404,024 warrants to settle
other payables, 21,800,000 warrants to settle accounts payable, 6,000,000 warrants issued for consulting services and 73,814,000
warrants in the issuance of shares issued for cash. The Company did not grant any warrants in the year ended December 31, 2017.
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
|
|
|
|
|
|
|
|
|
|
|
RSU’s granted
|
|
|
-
|
|
|
$
|
0.07
|
|
RSU’s vested
|
|
|
(2,480,000
|
)
|
|
$
|
-
|
|
RSU’s forfeited
|
|
|
(1,160,000
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
2,100,000
|
|
|
$
|
0.07
|
|
During
the years ended December 31, 2018 and 2017, the Company recognized $113,189 and $575,011 worth of expense related to the vesting
of its RSU’s, respectively. As of December 31, 2018, the Company had $155,400 worth of expense yet to be recognized for
RSU’s not yet vested.
NOTE
9: CONCENTRATIONS OF CREDIT AND OTHER RISKS
Accounts
Receivable
The
Company had one customer that represented 100% of the Company’s total revenues for the year ended December 31, 2017. The
customer that represented 100% of the Company’s total revenue for the year ended December 31, 2017 had no net accounts receivable
balance at December 31, 2017.
The
loss of a significant customer representing the percentage of total revenue 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, 2018 and 2017, 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
including the source for the main component in the Company’s products, Y-90 which is only derived from one source, 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
10: SUBSEQUENT EVENTS
Debt
and Equity Transactions
In
January 2019, the Company received $100,000 in gross proceeds resulting from the issuance to accredited investors of 10,000,000
shares of common stock, 100,000 shares of Series B Convertible Preferred and warrants to purchase 10,000,000 shares of common
stock.
The
Company issued a one-year 8% promissory note in January 2019 with a related party in the amount of $60,000.
The
Company issued two six-month 8% promissory notes in February 2019 totaling $100,000 which includes the issuance of warrants to
purchase 10,000,000 shares of common stock with a term of two-years.
The
Company issued 52,421,800 shares of common stock in consideration for the conversion of 524,218 shares of Series B Convertible
Preferred.
The
Company issued warrants to consultants in February 2019 to purchase 675,000 shares of common stock.
Corporate
Matters
The
Company’s board of directors approved a resolution to reverse split the Company’s shares of common stock on
a 1 for 8 basis, and reduce the number of authorized shares of common stock from 2,000,000,000 to 950,000,000. The Company
intends to seek stockholder approval of the reverse split in the near term.
Legal Matters
On
January 28, 2019, James Katzaroff, (“
Plaintiff
”) the Company’s former Chief Executive Officer filed a
lawsuit in the Superior Court in the State of Washington in and for the County of Benton against the Company and its current and
former directors, alleging a default of the Separation Agreement and General Release (“
Release
”) that the Company
entered into with Plaintiff on July 21, 2017 (the “
Complaint
”). The Company has made required payments under
the Release. Although the Plaintiff has filed the Complaint, the Company has not been formally served with the Complaint. The
Company believes the allegations in the Complaint are without merit and has engaged legal counsel to represent it and the current
and former directors. The Company intends to vigorously defend the Complaint, including bringing counterclaims for certain breaches
of the Agreement by Plaintiff.