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UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
Form
10-Q
(Mark
One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
QUARTERLY PERIOD ENDED:
September 30,
2021
OR
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
TRANSITION PERIOD FROM __________ TO __________
COMMISSION
FILE NUMBER
000-53497
VIVOS INC
(Exact name
of registrant as specified in its charter)
|
Delaware |
|
80-0138937 |
|
(State or
other jurisdiction of
incorporation or
organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
719 Jadwin Avenue,
Richland,
WA
99352
(Address of
principal executive offices, Zip Code)
(509)
736-4000
(Registrant’s telephone
number, including area code)
Indicate by
check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by
check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ☒ No ☐
Indicate by
check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit such
files).
Yes ☒ No ☐
Indicate by
check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer”, “smaller reporting company”, and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
|
Large
accelerated filer ☐ |
Accelerated
filer ☐ |
|
| |
|
|
|
| |
Non-accelerated filer ☒ |
Smaller reporting
company
☒ |
|
| |
|
|
|
| |
|
Emerging growth company
☐ |
|
If an
emerging growth company, indicate by check mark if the company has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by
check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
Securities
registered pursuant to Section 12(b) of the Act: None
|
Title of
Each Class |
|
Trading
Symbol |
|
Name of
Each Exchange on which registered |
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|
As of
October 25, 2021, there were
337,781,082 shares of the
registrant’s common stock outstanding, 2,071,007 shares of the
registrant’s Series A Convertible Preferred Stock outstanding,
436,653 of the registrant’s Series B Convertible Preferred Stock
outstanding and 385,302 of the registrant’s Series C Convertible
Preferred Stock outstanding.
TABLE OF
CONTENTS
PART I – FINANCIAL
INFORMATION
VIVOS
INC
CONDENSED BALANCE SHEETS
SEPTEMBER
30, 2021 (UNAUDITED) AND DECEMBER 31, 2020
The
accompanying notes are an integral part of these financial
statements.
VIVOS
INC
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2021 AND
2020
The accompanying notes are an integral part of these financial
statements.
VIVOS
INC
CONDENSED STATEMENT OF CHANGES IN
STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
The accompanying notes are an integral part of these financial
statements.
VIVOS
INC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
The accompanying notes are an integral part of these financial
statements.
Vivos
Inc.
Notes to Condensed Financial
Statements
(Unaudited)
NOTE 1:
BASIS OF PRESENTATION
AND SIGNIFICANT ACCOUNTING POLICIES
The
accompanying condensed financial statements of Vivos Inc. (the
“Company”) have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures required by accounting
principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. These
condensed financial statements reflect all adjustments that, in the
opinion of management, are necessary to present fairly the results
of operations of the Company for the period presented. The results
of operations for the nine months ended September 30, 2021, are not
necessarily indicative of the results that may be expected for any
future period or the fiscal year ending December 31, 2021 and
should be read in conjunction with the Company’s Annual Report on
Form 10-K for the year ended December 31, 2020, filed with the
Securities and Exchange Commission on March 24, 2021.
Business
Overview
The Company
was incorporated under the laws of Delaware on December 23, 1994 as
Savage Mountain Sports Corporation (“SMSC”). On September 6,
2006, the Company changed its name to Advanced Medical Isotope
Corporation, and on December 28, 2017, the Company began operating
as Vivos Inc. The Company has authorized capital of 950,000,000 shares
of common stock, $0.001 par value per share,
and 20,000,000 shares
of preferred stock, $0.001 par value per
share.
Our
principal place of business is located at 719 Jadwin Avenue,
Richland, WA 99352. Our telephone number is (509) 736-4000. Our
corporate website address is http://www.radiogel.com. Our common
stock is currently quoted on the OTC Pink Marketplace under the
symbol “RDGL.”
The Company
is a radiation oncology medical device company engaged in the
development of its yttrium-90 based brachytherapy device,
RadioGel™, for the treatment of non-resectable tumors. A
prominent team of radiochemists, scientists and engineers,
collaborating with strategic partners, including national
laboratories, universities and private corporations, lead the
Company’s development efforts. The Company’s overall vision is to
globally empower physicians, medical researchers and patients by
providing them with new isotope technologies that offer safe and
effective treatments for cancer.
In January
2018, the Center for Veterinary Medicine Product Classification
Group ruled that RadioGel ™should be classified as a
device for animal therapy of feline sarcomas and canine soft tissue
sarcomas. Additionally, after a legal review, the Company believes
that the device classification obtained from the Food and Drug
Administration (“FDA”) Center for Veterinary Medicine is not
limited to canine and feline sarcomas, but rather may be extended
to a much broader population of veterinary cancers, including all
or most solid tumors in animals. We expect the result of such
classification and label review will be that no additional
regulatory approvals are necessary for the use of
IsoPet® for the treatment of solid tumors in animals.
The FDA does not have premarket authority over devices with a
veterinary classification, and the manufacturers are responsible
for assuring that the product is safe, effective, properly labeled,
and otherwise in compliance with all applicable laws and
regulations.
Based on the
FDA’s recommendation, RadioGel™ will be marketed as
“IsoPet®” for use by veterinarians to avoid any
confusion between animal and human therapy. The Company already has
trademark protection for the “IsoPet®” name.
IsoPet® and RadioGel™ are used synonymously
throughout this document. The only distinction between
IsoPet® and RadioGel™ is the FDA’s
recommendation that we use “IsoPet®” for veterinarian
usage, and reserve “RadioGel™” for human therapy. Based
on these developments, the Company has shifted its primary focus to
the development and marketing of Isopet® for animal
therapy, through the Company’s IsoPet® Solutions
division.
IsoPet
Solutions
The
Company’s IsoPet Solutions division was established in May 2016 to
focus on the veterinary oncology market, namely engagement of
university veterinarian hospital to develop the detailed therapy
procedures to treat animal tumors and ultimately use of the
technology in private clinics. The Company has worked with three
different university veterinarian hospitals on IsoPet®
testing and therapy. Washington State University treated five cats
for feline sarcoma and served to develop the procedures which are
incorporated in our label. They concluded that the product was safe
and effective in killing cancer cells. Colorado State University
demonstrated the CT and PET-CT imaging of IsoPet®. A
contract was signed with University of Missouri to treat canine
sarcomas and equine sarcoids starting in November 2017.
The dogs
were treated for canine soft tissue sarcoma. Response evaluation
criteria in solid tumors (“RECIST”) is a set of published
rules that define when tumors in cancer patients improve (respond),
stay the same (stabilize), or worsen (progress) during treatment.
The criteria were published by an international collaboration
including the European Organisation for Research and Treatment of
Cancer (“EORTC”), National Cancer Institute of the United States,
and the National Cancer Institute of Canada Clinical Trials
Group.
The testing
at the University of Missouri met its objective to demonstrate the
safety of IsoPet®. Using its advanced CT and PET
equipment it was able to demonstrate that the dose calculations
were accurate and that the injections perfused into the cell
interstices and did not stay concentrated in a bolus. This results
in a more homogeneous dose distribution. There was insignificant
spread of Y-90 outside the points of injection demonstrating the
effectiveness of the particles and the gel to localize the
radiation with no spreading to the blood or other organs nor to
urine or fecal material. This confirms that IsoPet® is
safe for same day therapy.
The
effectiveness of IsoPet® for life extension was not the
prime objective, but it resulted in valuable insights. Of the cases
one is still cancer-free but the others eventually recurred since
there was not a strong focus on treating the margins. The
University of Missouri has agreed to become a regional center to
administer IsoPet® therapy and will incorporate the
improvements suggested by the testing program.
The Company
anticipates that future profits, if any, will be derived from
direct sales of RadioGel™ (under the name
IsoPet®) and related services, and from licensing to
private medical and veterinary clinics in the U.S. and
internationally. The Company intends to report the results from the
IsoPet® Solutions division as a separate operating
segment in accordance with GAAP.
Commencing
in July 2019, the Company recognized its first commercial sale of
IsoPet®. A veterinarian from Alaska brought his cat with
a re-occurrent spindle cell sarcoma tumor on his face. The cat had
previously received external beam therapy, but now the tumor was
growing rapidly. He was given a high dose of 400Gy with heavy
therapy at the margins. This sale met the revenue recognition
requirements under ASC 606 as the performance obligation was
satisfied. The Company completed sales for an additional four
animals that received the IsoPet® during
2019.
Our plan is
to incorporate the data assembled from our work with
Isopet® in animal therapy to support the Company’s
efforts in the development of our RadioGel™ device
candidate, including obtaining approval from the FDA to
market and sell RadioGel™ as a Class II medical device.
RadioGel™ is an injectable particle-gel for
brachytherapy radiation treatment of cancerous tumors in people and
animals. RadioGel™ is comprised of a hydrogel, or a
substance that is liquid at room temperature and then gels when
reaching body temperature after injection into a tumor. In the gel
are small, less than two microns, yttrium-90 phosphate particles
(“Y-90”). Once injected, these inert particles are locked in
place inside the tumor by the gel, delivering a very high local
radiation dose. The radiation is beta, consisting of high-speed
electrons. These electrons only travel a short distance so the
device can deliver high radiation to the tumor with minimal dose to
the surrounding tissue. Optimally, patients can go home immediately
following treatment without the risk of radiation exposure to
family members. Since Y-90 has a half-life of 2.7 days, the
radioactivity drops to 5% of its original value after ten
days.
Recently,
the Company modified its Indication for Use from skin cancel to
cancerous tissue or solid tumors pathologically associated with
locoregional papillary thyroid carcinoma and recurrent papillary
thyroid carcinoma having discernable tumors associated with
metastatic lymph nodes or extranodal disease in patients who are
not surgical candidates or who have declined surgery, or patients
who require post-surgical remnant ablation (for example, after
prior incomplete radioiodine therapy). Papillary thyroid carcinoma
belongs to the general class of head and neck tumors for which
tumors are accessible by intraoperative direct needle injection.
The Company’s Medical Advisory Board felt that demonstrating
efficacy in clinical trials was much easier with this new
indication.
The
Company’s lead brachytherapy products, including
RadioGel™, incorporate patented technology developed for
Battelle Memorial Institute (“Battelle”) at Pacific
Northwest National Laboratory, a leading research institute for
government and commercial customers. Battelle has granted the
Company an exclusive license to patents covering the manufacturing,
processing and applications of RadioGel™ (the
“Battelle License”). This exclusive license is to terminate
upon the expiration of the last patent included in this agreement
(March 2022). Other intellectual property protection includes
proprietary production processes and trademark protection in 17
countries. The Company plans to continue efforts to develop new
refinements on the production process, and the product and
application hardware, as a basis for future patents.
The Company
received the Patent Cooperation Treaty (“PCT”) International Search
Report on our patent application (No.1811.191). Seven of our claims
were immediately ruled as having novelty, inventive step and
industrial applicability. This gives us the basis to extend for
many years the patent protection for our proprietary Yttrium-90
phosphate particles utilized in Isopet® and
Radiogel™. As part of the normal review process, we have
also submitted the technical justification for seven additional
claims. We are in the process of filing patent claims in Canada, UK
(Great Britain, Scotland, Wales and Ireland), Japan, Germany,
Italy, France, Australia, Brazil, China, India, North Countries
(Sweden, Norway, Finland, and Denmark).
Going
Concern
The
accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As
shown in the accompanying financial statements, the Company has
suffered recurring losses and used significant cash in support of
its operating activities and the Company’s cash position is not
sufficient to support the Company’s operations. Research and
development of the Company’s brachytherapy product line has been
funded with proceeds from the sale of equity and debt securities as
well as a series of grants. The Company requires funding of
approximately $2 million annually to
maintain current operating activities.
The Company
completed its reverse stock split which was approved by FINRA and
went effective on June 28, 2019.
The
Company’s stock offering under Regulation A+ was qualified by the
Securities and Exchange Commission (“SEC”) on June 3, 2020. A
second Regulation A+ was qualified by the SEC on September 15, 2021
to raise capital for 50,000,000 shares at a price
of $0.10 for a maximum of $5,000,000.
The
Company’s initial Regulation A+ raised approximately $4,000,000 from the sale
of shares under Regulation A+, and intends to use the proceeds
generated as follows:
For the
animal therapy market:
|
|
● |
Fund the
effort to communicate the benefits of IsoPet® to the veterinary
community and the pet parents. |
|
|
● |
Conduct
additional clinical studies to generate more data for the
veterinary community |
|
|
● |
Subsidize
some IsoPet® therapies, if necessary, to ensure that all
viable candidates are treated. |
|
|
● |
Assist new
regional clinics with their license and certification
training. |
For the
human market:
|
|
● |
Enhance the
pedigree of the Quality Management System. |
| |
● |
Complete the
previously defined pre-clinical testing and additional testing on
an animal model closely aligned with our revised indication for
use. Report the results to the FDA in a pre-submission
meeting. |
| |
● |
Use the
feedback from that meeting to write the IDE (Investigational Device
Exemption), which is required to initiate clinical
trials. |
Research and
development of the Company’s brachytherapy product line has been
funded with proceeds from the sale of equity and debt securities.
The Company may require additional funding of approximately
$2 million annually to
maintain current operating activities. Over the next 12 to 24 months, the Company
believes it will cost approximately $9 million to: (1) fund the FDA
approval process to conduct human clinical trials, (2) conduct
Phase I, pilot, clinical trials, (3) activate several regional
clinics to administer IsoPet® across the county, (4) create an
independent production center within the current production site to
create a template for future international manufacturing, and (5)
initiate regulatory approval processes outside of the United
States. The proceeds to be raised from the recent qualified
Regulation A+ will be used to continue to fund this
development.
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 from proceeds to be raised from the
recent qualified Regulation A+.
Following
receipt of required regulatory approvals and financing, in the
U.S., the Company intends to outsource material aspects of
manufacturing, distribution, sales and marketing. Outside of the
U.S., the Company intends to pursue licensing arrangements and/or
partnerships to facilitate its global commercialization
strategy.
In the
longer-term, subject to the Company receiving adequate funding,
regulatory approval for RadioGel™ and other
brachytherapy products, and thereafter being able to successfully
commercialize its brachytherapy products, the Company intends to
consider resuming research efforts with respect to other products
and technologies intended to help improve the diagnosis and
treatment of cancer and other illnesses.
Based on the
Company’s financial history since inception, the Company’s
independent registered public accounting firm has expressed
substantial doubt as to the Company’s ability to continue as a
going concern. The Company has limited revenue, nominal cash, and
has accumulated deficits since inception. If the Company cannot
obtain sufficient additional capital, the Company will be required
to delay the implementation of its business strategy and may not be
able to continue operations.
The Company
has been impacted from the effects of COVID-19. The Company’s
headquarters are in Northeast Washington however there focus of the
animal therapy market has been the Northwestern sector of the
United States, the initial epicenter of the COVID-19 outbreak in
the United States. The Company has started to in recent weeks to
continue their marketing to the animal therapy market and attempt
to increase the exposure to their product and generate revenue
accordingly.
As of
September 30, 2021, the Company has $1,986,591 cash on hand. There are
currently commitments to vendors for products and services
purchased. To continue the development of the Company’s products,
the current level of cash may not be enough to cover the fixed and
variable obligations of the Company.
There is no
guarantee that the Company will be able to raise additional funds
or to do so at an advantageous price.
The
financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern. The Company’s continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis and ultimately to attain
profitability. The Company plans to seek additional funding to
maintain its operations through debt and equity financing and to
improve operating performance through a focus on strategic products
and increased efficiencies in business processes and improvements
to the cost structure. There is no assurance that the Company will
be successful in its efforts to raise additional working capital or
achieve profitable operations. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Use of
Estimates
The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of financial statements and the reported
amounts of revenues and expenses during the reporting period.
Estimates the Company considers include criteria for stock-based
compensation expense, and valuation allowances on deferred tax
assets. Actual results could differ from those
estimates.
Financial Statement
Reclassification
Certain
account balances from prior periods have been reclassified in these
financial statements so as to conform to current period
classifications.
Cash
Equivalents
For the
purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
The Company
occasionally maintains cash balances in excess of the FDIC insured
limit. The Company does not consider this risk to be
material.
Fair Value of Financial
Instruments
Fair value
of financial instruments requires disclosure of the fair value
information, whether or not recognized in the balance sheet, where
it is practicable to estimate that value. As of September 30, 2021
and December 31, 2020, the balances reported for cash, prepaid
expenses, accounts receivable, accounts payable, and accrued
expenses, approximate the fair value because of their short
maturities.
Fair value
is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Accounting Standards
Codification (“ASC”) Topic 820 established a three-tier fair
value hierarchy which prioritizes the inputs used in measuring fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(level 1 measurements) and the lowest priority to unobservable
inputs (level 3 measurements). These tiers include:
Level 1,
defined as observable inputs such as quoted prices for identical
instruments in active markets;
Level 2,
defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable such as quoted prices
for similar instruments in active markets or quoted prices for
identical or similar instruments in markets that are not active;
and
Level 3,
defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions, such as valuations derived from valuation techniques
in which one or more significant inputs or significant value
drivers are unobservable.
The Company
measures certain financial instruments including options and
warrants issued during the period at fair value on a recurring
basis.
Derivative Liabilities and
Beneficial Conversion Feature
The Company
evaluates its convertible debt, options, warrants or other
contracts, if any, to determine if those contracts or embedded
components of those contracts qualify as derivatives to be
separately accounted for in accordance with ASC Topic 815,
Accounting for Derivative Instruments and Hedging Activities
(“ASC 815”) as well as related interpretations of this
standard and Accounting Standards Update 2017-11, which was adopted
by the Company effective January 1, 2018. In accordance with this
standard, derivative instruments are recognized as either assets or
liabilities in the balance sheet and are measured at fair values
with gains or losses recognized in earnings.
Embedded
derivatives that are not clearly and closely related to the host
contract are bifurcated and are recognized at fair value with
changes in fair value recognized as either a gain or loss in
earnings.
The result
of this accounting treatment is that the fair value of the
derivative instrument is marked-to-market each balance sheet date
and with the change in fair value recognized in the statement of
operations as other income or expense.
Upon
conversion, exercise or cancellation of a derivative instrument,
the instrument is marked to fair value at the date of conversion,
exercise or cancellation than that the related fair value is
removed from the books. Gains or losses on debt extinguishment are
recognized in the statement of operations upon conversion, exercise
or cancellation of a derivative instrument after any shares issued
in such a transaction are recorded at market value.
The
classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period. Equity instruments
that are initially classified as equity that become subject to
reclassification are reclassified to liability at the fair value of
the instrument on the reclassification date. Instruments that
become a derivative after inception are recognized as a derivative
on the date they become a derivative with the offsetting entry
recorded in earnings.
The Company
determines the fair value of derivative instruments and hybrid
instruments, considering all of the rights and obligations of each
instrument, based on available market data using a binomial model,
adjusted for the effect of dilution, because it embodies all of the
requisite assumptions (including trading volatility, estimated
terms, dilution and risk-free rates) necessary to fair value these
instruments. For instruments in default with no remaining time to
maturity the Company uses a one-year term for their years to
maturity estimate unless a sooner conversion date can be estimated
or is known. Estimating fair values of derivative financial
instruments requires the development of significant and subjective
estimates that may, and are likely to, change over the duration of
the instrument with related changes in internal and external market
factors. In addition, option-based techniques (such as
Black-Scholes model) are highly volatile and sensitive to changes
in the trading market price of our common stock.
The Company
accounts for the beneficial conversion feature on its convertible
instruments in accordance with ASC 470-20. The Beneficial
Conversion Feature (“BCF”) is normally characterized as the
convertible portion or feature that provides a rate of conversion
that is below market value or in the money when issued. The Company
records a BCF when these criteria exist, when issued. BCFs that are
contingent upon the occurrence of a future event are recorded when
the contingency is resolved.
To determine
the effective conversion price, the Company first allocates the
proceeds received to the convertible instrument, and then use those
allocated proceeds to determine the effective conversion price. The
intrinsic value of the conversion option should be measured using
the effective conversion price for the convertible instrument on
the proceeds allocated to that instrument.
The
accounting for a BCF requires that the BCF be recognized by
allocating the intrinsic value of the conversion option to
additional paid in capital, resulting in a discount to the
convertible instrument. This discount should be accreted from the
date on which the BCF is first recognized through the earliest
conversion date for instruments that do not have a stated
redemption date.
Fixed
Assets
Fixed assets
are carried at the lower of cost or net realizable value.
Production equipment with a cost of $2,500 or greater and other fixed
assets with a cost of $1,500 or greater are
capitalized. 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:
SCHEDULE OF DEPRECIATION ESTIMATED USEFUL
LIFE
| 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%), then on October 8, 2019
to reduce the fee back to one percent (1%).
Future
minimum royalties for the years ending December 31 are noted
below:
SCHEDULE
OF FUTURE MINIMUM ROYALTIES
| |
|
Sep 30, 2021 |
|
| |
|
Minimum |
|
| |
|
Royalties per |
|
|
Calendar Year |
|
Calendar Year |
|
| 2021 |
|
$ |
10,000 |
|
| 2022 |
|
|
4,000 |
|
| Total |
|
$ |
14,000 |
|
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 2021 fee
was paid in December 2020.
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 capitalized costs in the nine months ended September
30, 2021 or years ended December 31, 2020 and 2019, respectively.
However, a patent was filed on July 1, 2019 (No. 1811.191) filed by
Michael Korenko and David Swanberg and assigned to the Company
based on the Company’s proprietary particle manufacturing process.
The timing of this filing was important given the Company’s plans
to make IsoPet® commercially available, which it did on
or about July 9, 2019. This additional patent protection will
strengthen the Company’s competitive position. It is the Company’s
intention to further extend this patent protection to several key
countries within one year, as permitted under international patent
laws and treaties.
Revenue
Recognition
In May 2014,
the Financial Accounting Standards Board (“FASB”) 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.
The Company
recognized revenue as they (i) identified the contracts with each
customer; (ii) identified the performance obligation in each
contract; (iii) determined the transaction price in each contract;
(iv) were able to allocate the transaction price to the performance
obligations in the contract; and (v) recognized revenue upon the
satisfaction of the performance obligation. Upon the sales of the
product to complete the procedures on the animals, the Company
recognized revenue as that was considered the performance
obligation.
All revenue
recognized in the nine months ended September 30, 2021 and 2020
relate to consulting income with respect to the IsoPet®
therapies.
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 periods ended in the nine months ended September 30, 2021 and
2020, 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 September 30, 2021 and December 31, 2020, which
include the following:
SCHEDULE
OF DILUTIVE EARNINGS PER SHARE
| |
|
September
30, 2021 |
|
|
December 31,
2020 |
|
| Convertible debt |
|
|
2,492 |
|
|
|
1,252,456 |
|
| Preferred stock |
|
|
12,863,195 |
|
|
|
12,988,195 |
|
| Common stock options |
|
|
2,252,809 |
|
|
|
28,885,461 |
|
| Common stock
warrants |
|
|
35,362,500 |
|
|
|
32,064,375 |
|
| Total
potential dilutive securities |
|
|
50,480,996 |
|
|
|
75,190,487 |
|
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 $227,154 and
$31,809 research and
development costs for the nine months ended September 30, 2021 and
2020, respectively, all of which were recorded in the Company’s
operating expenses noted on the statements of operations for the
periods 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. During
the nine months ended September 30, 2021 and 2020, the Company
incurred no
advertising and marketing costs.
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. 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 September 30, 2021 and
December 31, 2020.
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 nine months ended
September 30, 2021 and 2020. The Company did not have any deferred
tax liability or asset on its balance sheet on September 30, 2021
and December 31, 2020.
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
nine months ended September 30, 2021 and 2020, 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.
Stock-Based
Compensation
The Company
recognizes compensation costs under FASB ASC Topic 718,
Compensation – Stock Compensation and ASU 2018-07. 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. The Company
has determined that no amounts had to be revalued upon adoption of
this amendment.
Recent Accounting
Pronouncements
In August,
the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2020-06, Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and
Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40),
Accounting for Convertible Instruments and Contract’s in an
Entity’s Own Equity. The ASU simplifies accounting for convertible
instruments by removing major separation models required under
current GAAP. Consequently, more convertible debt instruments will
be reported as a single liability instrument with no separate
accounting for embedded conversion features. The ASU removes
certain settlement conditions that are required for equity
contracts to qualify for the derivative scope exception, which will
permit more equity contracts to qualify for it. The ASU simplifies
the diluted net income per share calculation in certain areas. The
ASU is effective for annual and interim periods beginning after
December 31, 2021, and early adoption is permitted for fiscal years
beginning after December 15, 2020, and interim periods within those
fiscal years. The Company is currently evaluating the impact that
this new guidance will have on its financial statements.
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 2:
RELATED PARTY
TRANSACTIONS
Related
Party Convertible Notes Payable
The Company
from time to time receives non-interest bearing advancers from its
Chief Executive Officer that are due on demand. During the year
ended December 31, 2019, the Company received $20,000 in advances and
repaid $5,000 of
these and had $15,000
outstanding at September 24, 2019. On September 24, 2019, these
advances were converted into a convertible note at 8% interest which
matures January 15, 2020. Interest on
this note for the period ended December 31, 2019 amounted to
$321, and this
amount is accrued at December 31, 2019. The Chief Executive Officer
received 150,000 warrants when the
advances were converted into this convertible note payable.
The Company recognized a
discount on the convertible note of $3,721 as a result of the warrants
which are being amortized over the life of the note through January
15, 2020. The Company was in default of this note. As a
result of the default, the interest rate charged was changed to
12.5% through
conversion of this note in April 2020.
Interest
expense for the nine months ended September 30, 2021 and 2020 on
the related party convertible notes payable amounted to $0 and $298,
respectively.
Related
Party Notes Payable
As of
September 30, 2021 and December 31, 2020, the Company had the
following related party notes outstanding:
SCHEDULE
OF RELATED PARTY TRANSACTION
| |
|
September
30, 2021 |
|
|
December 31,
2020 |
|
| January 2019 $60,000
Note,
8% interest, due
January 2020 |
|
$ |
60,000 |
|
|
$ |
60,000 |
|
| March 2019 $48,000
Note,
8% interest, due
March 2020 |
|
|
48,000 |
|
|
|
48,000 |
|
| April 2019 $29,000
Note,
8% interest, due
April 2020 |
|
|
29,000 |
|
|
|
29,000 |
|
| July 2019 $50,000
Note
8% interest, due
July 2020 |
|
|
50,000 |
|
|
|
50,000 |
|
| November 2019 $50,000
Note
8% interest, due
November 2020 |
|
|
50,000 |
|
|
|
50,000 |
|
| |
|
|
|
|
|
|
|
|
| Total Related
Party Notes Payable, Net |
|
$ |
237,000 |
|
|
$ |
237,000 |
|
On January
24, 2019 the Company entered into a note payable with a trust
related to one of the Company’s directors in the amount of
$60,000. The note is
for a one-year period which was to mature
January 24, 2020 and bears
interest at an annual rate of 8.00%. The Company is
in default of this note.
On March 27,
2019 the Company entered into a note payable with a trust related
to one of our directors in the amount of $48,000. The note is
for a one-year period maturing
March 27, 2020 and bears interest
at an annual rate of 8%. The Company is in
default of this note. On April 29, 2019 the Company entered into a
note payable with a trust related to one of our directors in the
amount of $29,000. The Company
is in default of this note. On July 5, 2019 the Company entered
into a note payable with a trust related to one of our directors in
the amount of $50,000. The note is
for a one-year period maturing July 5, 2020 and bears interest
at an annual rate of 8%. The Company is in
default of this note. On November 25, 2019 the Company entered into
a note payable with a trust related to one of our directors in the
amount of $50,000. The note is
for a one-year period maturing November 25, 2020 and bears
interest at an annual rate of 8%. The Company is in
default of this note. Interest expense for these notes for the nine
months ended September 30, 2021 and 2020 was $14,142 and
$14,194,
respectively and accrued interest at September 30, 2021 is
$44,409.
The Company
borrowed $15,000 in March 2020 from its
CEO and repaid this amount in April 2020.
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 $32,110 and $32,110 as of September 30,
2021 and December 31, 2020, respectively.
Preferred
and Common Shares Issued to Officers and Directors
The
Company’s Chairman converted the Series B Convertible Preferred
Shares into Series C Convertible Preferred Shares and as of April
2020, the 385,302 shares that are
issued in the Series C Convertible Preferred Stock are all to the
Chairman.
In April
2020, effective March 31, 2020, the Company converted the
$15,000 convertible note
payable along with $619 in accrued interest and
an exchange premium of $3,124 into
694,178 shares of
common stock. This was part of the Regulation A+. These shares were
issued on June 10, 2020 following the qualification of the
Regulation A+.
The
Company’s Chief Executive Officer exercised 2,500,000 stock options
for $60,000 in December 2020. In
addition, in June 2021, the Company’s Chief Executive Officer
exercised 2,500,000 stock options
for a value of $60,000 that was paid through
the cancelation of 375,000 common shares and
100,000 Series A Convertible
Preferred shares. The Chief Executive Officer in May 2021 rescinded
8,120,152 stock options and in
June 2021 rescinded 16,000,000 stock options. In
September 2021, the Chief Executive Officer exercised 150,000
warrants in a cashless exercise into 91,304
shares of common stock.
NOTE 3:
CONVERTIBLE NOTES
PAYABLE
As of
September 30, 2021 and December 31, 2020, the Company had the
following convertible notes outstanding. All prior notes that have
been converted into common stock or repaid prior to December 31,
2020 have been excluded from the chart:
SCHEDULE
OF CONVERTIBLE NOTES PAYABLE
| |
|
2021 |
|
|
2020 |
|
| 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 |
|
|
$ |
45,000 |
|
| November 2020 $50,000
Note convertible into common shares at $0.04,
6% interest, due
May 30, 2021 |
|
|
- |
|
|
|
50,000 |
|
| Penalties on
notes in default |
|
|
13,761 |
|
|
|
12,418 |
|
| |
|
$ |
58,761 |
|
|
$ |
107,418 |
|
The Company
entered into a $50,000 convertible
promissory note on November 30, 2020, that matures May 30, 2021. The convertible
promissory notes bear interest at a rate of 6%, The convertible
promissory note is convertible into shares of common stock at a
price of $0.04 per share. Upon the
closing of an equity financing pursuant to an effective
registration statement with gross proceeds to the Company totaling
at least $350,000 exclusive of
any exchanges (“Qualified Financing”), the outstanding principal
amount of this convertible promissory notes together with all
accrued and unpaid interest shall be exchanged into such securities
as are issued in the Qualified Financing at a rate of 1.20. Upon an exchange, the Payee
shall be granted all rights afforded to an investor in the
Qualified Financing. The Company along with the noteholder agreed
to exchange 1,867,500 warrants into
933,750 common shares.
These shares were issued in December 2020. The convertible note was
converted into shares of common stock in January 2021.
Interest
expense for the nine months ended September 30, 2021 and 2020 on
the convertible notes payable amounted to $4,028 and $19,783, respectively.
NOTE 4:
PROMISSORY NOTES
PAYABLE
The Company
issued two separate promissory notes on February 20, 2019 at
$50,000 each
(total of $100,000) that were to
mature on August 20, 2019 and accrued
interest at 8.00% per annum. In
connection with the promissory notes, the Company issued warrants
to purchase 1,250,000 shares of common
stock. The Company recorded the relative fair value of the warrants
as a debt discount of $28,721 and
amortized the discount over the life of the note (6
months).
On August
20, 2019, the two noteholders agreed to extend these notes another
six-months to February 20, 2020, then amended again for six-months
and the notes were to mature August 20, 2020. In consideration
for the extension, the note holders received 750,000 warrants
(375,000 each) and
the interest rate on the notes increased from 8% to
15% per
annum.
The interest
expense on these notes for the nine months ended September 30, 2021
and 2020 amounted to $0 and $8,032.
The Company
repaid $50,000 of these notes
plus $13,442 in accrued interest
in July 2020 and settled the remaining $50,000 into
1,851,852
shares of common stock effective July 14, 2020.
NOTE 5:
STOCKHOLDERS’
DEFICIT
Common
Stock
The Company
has 950,000,000
shares of common stock authorized, with a par value of $0.001, and as of
September 30, 2021 and December 31, 2020, the Company has 335,775,389
and 292,278,591
shares issued and outstanding, respectively.
On March 28,
2019, the Company’s board of directors approved a reverse 1-for-8 stock split, and
a decrease in the authorized shares from 2,000,000,000 to
950,000,000. The
reverse stock split went effective by FINRA on June 28,
2019.
Preferred
Stock
As of
September 30, 2021 and December 31, 2020, 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.
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.
On March 27,
2019 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 C Convertible Preferred Stock,” consisting of Five
Million (5,000,000)
shares.
Series A
Convertible Preferred Stock (“Series A Convertible
Preferred”)
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
$4.00.
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.
In June
2021, 100,000 shares of Series A
Convertible Preferred were canceled as partial payment for the
exercise of stock options by the Chief Executive
Officer.
Series B
Convertible Preferred Stock (“Series B Convertible
Preferred”)
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
$0.08.
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.
Series C
Convertible Preferred Stock (“Series C Convertible
Preferred”)
In March
2019, the Series C Certificate of Designation was filed with the
Delaware Secretary of State to designate 5.0 million shares
of our preferred stock as Series C Convertible Preferred. The
following summarizes the current rights and preferences of the
Series C Convertible Preferred:
Liquidation Preference. The
Series C Convertible Preferred has a liquidation preference of
$1.00 per
share.
Dividends. Shares of Series C
Convertible Preferred do not have any separate dividend
rights.
Conversion. Subject to certain
limitations set forth in the Series C Certificate of Designation,
each share of Series C Convertible Preferred is convertible, at the
option of the holder, into that number of shares of common stock
(the “Series C Conversion Shares”) equal to the liquidation
preference thereof, divided by Conversion Price (as such term is
defined in the Series C Certificate of Designation), currently
$0.08.
The Series C
Convertible Preferred will only be convertible at any time after
the date that the Company shall have amended its Certificate of
Incorporation to increase the number of shares of common stock
authorized for issuance thereunder or effect a reverse stock split
of the outstanding shares of common stock by a sufficient amount to
permit the conversion of all Series C Convertible Preferred into
shares of common stock (“Authorized Share Approval”) (such
date, the “Initial Convertibility Date”), each share of
Series C Convertible Preferred shall be convertible into validly
issued, fully paid and non-assessable shares of Common Stock on the
terms and conditions set forth in the Series C Certificate of
Designation under the definition “Conversion
Rights”.
Redemption. Subject to certain conditions set forth
in the Series C Certificate of Designation, in the event of a
Change of Control (defined in the Series C Certificate of
Designation as the time at which as a third party not affiliated
with the Company or any holders of the Series C 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 C Convertible Preferred
in cash at a price per share of Series C Convertible Preferred
equal to 100% of the Liquidation
Preference.
Voting Rights. Holders of
Series C Convertible Preferred are entitled to vote on all matters,
together with the holders of common stock, and have the equivalent
of thirty-two (32) votes for every Series C Conversion Share
issuable upon conversion of such holder’s outstanding shares of
Series C Convertible Preferred. However, the Series C 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 C Convertible Preferred.
Liquidation. Upon any
liquidation, dissolution, or winding-up of the Company, whether
voluntary or involuntary (a “Liquidation”), the holders of
Series C 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 C 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 C 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 C
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 C Convertible Preferred prior to any such merger or
reorganization would have been entitled to receive pursuant to such
transaction.
Common
and Preferred Stock Issuances - 2021
In January
2021, the Company issued 384,445 shares of common
stock in a settlement of accounts payable valued at $50,000. In May 2021,
the Company issued 519,480 shares of common
stock in a settlement of accounts payable valued at $40,000.
In January
2021, the Company issued 1,259,250 shares of common
stock in conversion of a note payable and accrued interest totaling
$50,370. The
conversion resulted in a loss on conversion of $176,295
that is reflected in the Condensed Statement of Operations for the
nine months ended September 30, 2021.
In March
2021, the Company issued 22,500,000 shares of common
stock along with 11,237,500 warrants under the
Regulation A+ for cash proceeds of $1,800,000 for
the common stock and the warrants were purchased for $11,238.
Between
January 8, 2021 and January 29, 2021, the Company issued 3,870,428 shares of common
stock in the cashless exercise of 5,430,000
warrants.
On June 28,
2021, the Company issued
2,500,000 shares of common stock for the exercise of
2,500,000 stock options to the Chief Executive Officer. In
this transaction, the Company canceled
375,000 shares of common stock as partial payment for the
exercise of the stock options.
In June
2021, the Company issued 12,000,000 shares of common
stock for vested RSUs with a fair value of $1,080,000.
From July 9
through September 24, 2021, the Company issued 838,195 shares of common
stock in the cashless exercise of 1,800,000
warrants.
Common
and Preferred Stock Issuances - 2020
The Company
in January 2020 paid $50,000 to
redeem 100,000 shares of Series
B Convertible Preferred Stock. The redemption price was agreed to
by the investor.
In January
2020, the Company converted 435,990 shares of Series
C Convertible Preferred stock into 5,449,875 shares of common
stock.
In March
2020, the Company entered into agreements to issue 4,640,000 shares of common
stock conditioned upon the qualification of the offer and sale of
such shares under Regulation A+ for $125,280.
Additionally, the Company agreed to issue 2,320,000 warrants with a
term of two years and an exercise price of
$.045 for a purchase price of
$1,243. These shares
were issued on June 10, 2020 following the qualification of the
Regulation A+ and are reflected as shares to be issued as of March
31, 2020.
In March
2020, certain holders of convertible promissory notes entered into
agreements to exchange certain notes totaling $526,113, including $425,000 in principal amount,
$23,430 in accrued interest and
an exchange premium as provided for in the note agreements of
$77,683 into 19,485,668 shares of common
stock effective upon the qualification of the offer and sale of
such shares under Regulation A+. In connection with the holder’s
agreement to enter into the exchange, the Company intends to issue
2,200,000 warrants with a
two-year term and an
exercise price of $0.045 per share and amend
4,400,000 previously
issued warrants to provide for a $.045 exercise price and an
expiration date of March 31, 2022. These shares
were issued on June 10, 2020 following the qualification of the
Regulation A+ and are reflected as shares to be issued as of March
31, 2020.
NOTE 6:
COMMON STOCK OPTIONS,
WARRANTS AND RESTRICTED STOCK UNITS
Common
Stock Options
The Company
recognizes in the financial statements compensation related to all
stock-based awards, including stock options and warrants, based on
their estimated grant-date fair value. The Company has estimated
expected forfeitures and is recognizing compensation expense only
for those awards expected to vest. All compensation is recognized
by the time the award vests.
The
following schedule summarizes the changes in the Company’s stock
options:
SCHEDULE OF CHANGES IN STOCK
OPTION
|
|
|
|
|
|
|
|
|
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, 2020 |
|
|
28,885,461 |
|
|
$ |
0.024-120.00 |
|
|
|
5.57 years |
|
|
$ |
1,661,429 |
|
|
$ |
0.05 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options
granted |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
|
|
|
$ |
- |
|
| Options
exercised |
|
|
(2,500,000 |
) |
|
$ |
- |
|
|
|
- |
|
|
|
|
|
|
$ |
- |
|
| Options
expired/canceled |
|
|
(24,132,652 |
) |
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at September 30,
2021 |
|
|
2,252,809 |
|
|
$ |
0.024-0.04 |
|
|
|
7.95 years |
|
|
$ |
191,301 |
|
|
$ |
0.04 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable at September
30, 2021 |
|
|
2,252,809 |
|
|
$ |
0.024-0.04 |
|
|
|
7.95 years |
|
|
$ |
191,301 |
|
|
$ |
0.04 |
|
During the
nine months ended September 30, 2021, the Company’s CEO exercised
2,500,000 stock options,
and rescinded 24,120,152, stock
options. In addition, 12,500 options
expired.
During the
nine months ended September 30, 2021 and 2020, the Company
recognized $0 and $2,176, 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 stock
warrants:
SCHEDULE OF CHANGES IN STOCK
WARRANTS
|
|
|
Warrants
Outstanding |
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
Number Of
Shares |
|
|
Exercise
Price Per Share |
|
|
Average
Remaining
Contractual
Life
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Average
Exercise
Price Per
Share
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2020 |
|
|
32,064,375 |
|
|
$ |
0.04-80.00 |
|
|
|
1.65 years |
|
|
$ |
1,614,567 |
|
|
$ |
0.06 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Warrants
granted |
|
|
11,237,500 |
|
|
$ |
0.10 |
|
|
|
- |
|
|
|
|
|
|
$ |
- |
|
| Warrants
exercised |
|
|
(7,230,000 |
) |
|
$ |
- |
|
|
|
- |
|
|
|
|
|
|
$ |
|
|
| Warrants
expired/cancelled |
|
|
(709,375 |
) |
|
$ |
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at September 30,
2021 |
|
|
35,362,500 |
|
|
$ |
0.04-0.10 |
|
|
|
1.22 years |
|
|
$ |
1,829,923 |
|
|
$ |
0.07 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable at September
30, 2021 |
|
|
35,362,500 |
|
|
$ |
0.04-0.10 |
|
|
|
1.22
years |
|
|
$ |
1,829,923 |
|
|
$ |
0.07 |
|
Changes to
these inputs could produce a significantly higher or lower fair
value measurement. The fair value of each option/warrant is
estimated using the Black-Scholes valuation model. The following
assumptions were used for the periods as follows:
SCHEDULE OF ASSUMPTIONS USED IN FAIR VALUE
MEASUREMENT
|
|
|
|
Nine
Months
Ended
|
|
|
|
Year
Ended
|
|
|
|
|
|
September
30,
2021
|
|
|
|
December
31,
2020
|
|
|
Expected
term |
|
|
- |
|
|
|
2 - 5 years |
|
| Expected
volatility |
|
|
- |
% |
|
|
109 - 147 |
% |
| Expected dividend
yield |
|
|
- |
|
|
|