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EX-31.1 - VIVOS INCex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

 

FOR THE QUARTERLY PERIOD ENDED: March 31, 2020

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark 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 [X] Smaller reporting company [X]  
       
    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 [X]

 

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

 

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

 

As of June 29, 2020, there were 228,221,302 shares of the registrant’s common stock outstanding, 2,552,642 shares of the registrant’s Series A Convertible Preferred Stock outstanding, 1,013,245 of the registrant’s Series B Convertible Preferred Stock outstanding and 385,302 of the registrant’s Series C Convertible Preferred Stock outstanding.

 

 

 

   

 

 

TABLE OF CONTENTS

 

    Page
  PART I – FINANCIAL INFORMATION  
     
Item 1. Condensed Financial Statements 1
     
  Condensed Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019 1
     
  Condensed Statements of Operations for the Three Months ended March 31, 2020 and 2019 (unaudited) 2
     
  Condensed Statement of Changes in Stockholders’ Deficit for the Three Months Ended March 31, 2020 (unaudited) and Year Ended December 31, 2019 3
     
  Condensed Statements of Cash Flow for the Three Months ended March 31, 2020 and 2019 (unaudited) 4
     
  Notes to Condensed Financial Statements (unaudited) 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 35
     
Item 4. Controls and Procedures 35
     
  PART II – OTHER INFORMATION  
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
     
Item 6. Exhibits 37
     
SIGNATURES 38

 

 -i- 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements. 

 

VIVOS INC

BALANCE SHEETS

MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, 2019

 

   MARCH 31,   DECEMBER 31, 
   2020   2019 
   (UNAUDITED)     
ASSETS        
Current Assets:          
Cash  $5,004   $20,381 
Prepaid expenses   7,098    23,492 
           
Total Current Assets   12,102    43,873 
           
           
TOTAL ASSETS  $12,102   $43,873 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
LIABILITIES          
Current Liabilities:          
Accounts payable and accrued expenses  $506,476   $511,817 
Related party accounts payable   32,110    32,110 
Accrued interest payable   86,022    93,249 
Payroll liabilities payable   130,000    100,000 
Related party advances   15,000    - 
Convertible notes payable, related party, net   -    14,500 
Convertible notes payable, net   156,066    434,886 
Promissory notes payable, net of discount   100,000    100,000 
Related party promissory note   237,000    237,000 
           
Total Current Liabilities   1,262,674    1,523,562 
           
Total Liabilities   1,262,674    1,523,562 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS’ DEFICIT          
Preferred stock, par value, $0.001, 20,000,000 shares authorized, Series A Convertible Preferred, 5,000,000 shares authorized, 2,552,642 shares issued and outstanding, respectively   2,553    2,553 
Additional paid in capital - Series A Convertible preferred stock   8,870,626    8,870,626 
Series B Convertible Preferred, 5,000,000 shares authorized, 1,013,245 and 1,113,245 shares issued and outstanding, respectively   1,013    1,113 
Additional paid in capital - Series B Convertible preferred stock   615,295    665,195 
Series C Convertible Preferred, 5,000,000 shares authorized, 385,302 and 821,292 shares issued and outstanding, respectively   385    821 
Additional paid in capital - Series C Convertible preferred stock   500,507    674,457 
Common stock, par value, $0.001, 950,000,000 shares authorized, 190,295,634 and 184,845,821 issued and outstanding, respectively   190,295    184,846 
Additional paid in capital - common stock   61,997,111    61,721,809 
Shares to be issued   532,983    - 
Accumulated deficit   (73,961,340)   (73,601,109)
           
Total Stockholders’ Deficit   (1,250,572)   (1,479,689)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $12,102   $43,873 

 

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

 

 1 

 

 

VIVOS INC

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)

 

   2020   2019 
         
Revenues, net  $-   $- 
Cost of Goods Sold   -    - 
           
Gross profit   -    - 
           
OPERATING EXPENSES          
Sales and marketing expenses   4,233    - 
Professional fees   53,992    166,535 
Stock based compensation   -    3,792 
Payroll expenses   30,000    30,000 
Research and development   1,028    23,686 
General and administrative expenses   31,120    1,190 
           
Total Operating Expenses   120,373    225,203 
           
OPERATING LOSS   (120,373)   (225,203)
           
NON-OPERATING INCOME (EXPENSE)          
Interest expense   (239,858)   (11,179)
           
Total Non-Operating Income (Expenses)   (239,858)   (11,179)
           
NET LOSS BEFORE PROVISION FOR INCOME TAXES   (360,231)   (236,382)
           
Provision for income taxes   -    - 
           
NET LOSS  $(360,231)  $(236,382)
           
Net loss per share - basic and diluted  $(0.00)  $(0.00)
           
Weighted average common shares outstanding - basic   189,097,921    166,151,246 

 

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

 

 2 

 

 

VIVOS INC

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, 2019

 

   Series A Preferred   Additional
Paid-In
Capital -
Series A
   Series B Preferred   Additional
Paid-In
Capital -
Series B
   Series C Preferred   Additional
Paid-In
Capital -
Series C
   Common Stock   Additional
Paid-In
Capital -
   Shares to be   Accumulated     
   Shares   Amount   Preferred   Shares   Amount   Preferred   Shares   Amount   Preferred   Shares   Amount   Common   Issued   Deficit   Total 
                                                             
Balance - December 31, 2018   2,552,642   $2,553   $8,870,626    3,305,755   $3,306   $1,876,768    -   $-   $-    163,445,736   $163,446   $60,132,139   $-   $(71,991,012)  $(942,174)
                                                                            
Stock issued for:                                                                           
Cash   -    -    -    100,000    100    49,900    -    -    -    1,250,000    1,250    48,750    -    -    100,000 
Conversion of preferred stock into common stock   -    -    -    (524,218)   (525)   (209,163)   -    -    -    6,552,725    6,553    203,135    -    -    - 
Conversion of Series B Preferred into Series C Preferred   -    -    -    (821,292)   (821)   (674,457)   821,292    821    674,457    -    -    -    -    -    - 
Warrants issued with notes payable (discount)   -    -    -    -    -    -    -    -    -    -    -    28,721    -    -    28,721 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    3,792    -    -    3,792 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -    -    (236,382)   (236,382)
                                                                            
Balance - March 31, 2019   2,552,642    2,553    8,870,626    2,060,245    2,060    1,043,048    821,292    821    674,457    171,248,461    171,249    60,416,537    -    (72,227,394)   (1,046,043)
                                                                            
Conversion of preferred stock into common stock   -    -    -    (517,000)   (517)   (206,283)   -    -    -    6,462,500    6,462    200,338    -    -    - 
Adjustment for fractional shares in reverse split   -    -    -    -    -    -    -    -    -    (140)   -    -    -    -    - 
Warrants issued with notes payable (discount)   -    -    -    -    -    -    -    -    -    -    -    12,592    -    -    12,592 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    2,176    -    -    2,176 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -    -    (200,305)   (200,305)
                                                                            
Balance - June 30, 2019   2,552,642    2,553    8,870,626    1,543,245    1,543    836,765    821,292    821    674,457    177,710,821    177,711    60,631,643    -    (72,427,699)   (1,231,580)
                                                                            
Stock issued for:                                                                           
Accounts payable   -    -    -    -    -    -    -    -    -    562,500    563    21,937    -    -    22,500 
Services   -    -    -    -    -    -    -    -    -    312,500    312    12,188    -    -    12,500 
Warrants issued with notes payable (discount)   -    -    -    -    -    -    -    -    -    -    -    95,437    -    -    95,437 
Warrants issued for extension of notes payable   -    -    -    -    -    -    -    -    -    -    -    25,656    -    -    25,656 
Options issued for settlement of accounts payable   -    -    -    -    -    -    -    -    -    -    -    33,829    -    -    33,829 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    457,949    -    -    457,949 
BCF recognized on convertible notes   -    -    -    -    -    -    -    -    -    -    -    59,957    -    -    59,957 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -    -    (669,372)   (669,372)
                                                                            
Balance - September 30, 2019   2,552,642    2,553    8,870,626    1,543,245    1,543    836,765    821,292    821    674,457    178,585,821    178,586    61,338,596    -    (73,097,071)   (1,193,124)
                                                                            
Stock issued for:                                                                           
Accounts payable   -    -    -    -    -    -    -    -    -    500,000    500    20,900    -    -    21,400 
Conversion of preferred stock into common stock   -    -    -    (430,000)   (430)   (171,570)   -    -    -    5,375,000    5,375    166,625    -    -    - 
Conversion of restricted stock units into common stock   -    -    -    -    -    -    -    -    -    385,000    385    (385)   -    -    - 
Warrants issued with notes payable (discount)   -    -    -    -    -    -    -    -    -    -    -    14,299    -    -    14,299 
Warrants issued in settlement of litigation   -    -    -    -    -    -    -    -    -    -    -    18,500    -    -    18,500 
Options issued for settlement of payables   -    -    -    -    -    -    -    -    -    -    -    14,812    -    -    14,812 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    148,462    -    -    148,462 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -    -    (504,038)   (504,038)
                                                                            
Balance - December 31, 2019   2,552,642    2,553    8,870,626    1,113,245    1,113    665,195    821,292    821    674,457    184,845,821    184,846    61,721,809    -    (73,601,109)   (1,479,689)
                                                                            
Stock issued for:                                                                           
Cash   -    -    -    -    -    -    -    -    -    -    -    -    6,870    -    6,870 
Note conversions   -    -    -    -    -    -    -    -    -    -    -    -    526,113    -    526,113 
Redemption of preferred stock in convertible note agreement   -    -    -    (100,000)   (100)   (49,900)   -    -    -    -    -    -    -    -    (50,000)
Conversion of preferred stock into common stock   -    -    -    -    -    -    (435,990)   (436)   (173,950)   5,449,875    5,449    168,937    -    -    - 
Warrants issued with notes payable (discount)   -    -    -    -    -    -    -    -    -    -    -    28,482    -    -    28,482 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    77,883    -    -    77,883 
Share adjustment   -    -    -    -    -    -    -    -    -    (62)   -    -    -    -    - 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -    -    (360,231)   (360,231)
Balance - March 31, 2020   2,552,642   $2,553   $8,870,626    1,013,245   $1,013   $615,295    385,302   $385   $500,507    190,295,634   $190,295   $61,997,111   $532,983   $(73,961,340)  $(1,250,572)

 

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

 

 3 

 

 

VIVOS INC

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)

 

   2020   2019 
CASH FLOW FROM OPERTING ACTIVIITES          
Net loss  $(360,231)  $(236,382)
Adjustments to reconcile net loss to net cash          
used in operating activities          
Amortization of convertible debt discount   53,527    6,706 
Amortization of BCF discount   6,187    - 
Stock options and warrants for services   -    3,792 
Warrants issued for interest expense   77,883    - 
Exchange premium in conversion of notes   77,683    - 
Changes in assets and liabilities          
Prepaid expenses and other assets   16,394    (4,538)
Accounts payable and accrued expenses   (5,341)   (56,420)
Accounts payable and accrued expenses from related party   -    3,500 
Payroll liabilities   30,000    8,549 
Accrued interest   16,651    3,088 
Total adjustments   270,830    (35,323)
           
Net cash used in operating activities   (87,247)   (271,705)
           
CASH FLOWS FROM FINANCING ACTIVITES          
Proceeds from related party notes payable   -    108,000 
Redemption of preferred stock   (50,000)   - 
Proceeds from sale of preferred stock   -    50,000 
Proceeds from sale of common stock   -    50,000 
Proceeds from sale of common stock to be issued   6,870    - 
Proceeds from convertible debt   100,000    - 
Proceeds from promissory notes   -    100,000 
Proceeds from related party advances   15,000    - 
Net cash provided by financing activities   71,870    308,000 
           
NET INCREASE (DECREASE) IN CASH   (15,377)   36,295 
           
CASH - BEGINNING OF PERIOD   20,381    5,494 
           
CASH - END OF PERIOD  $5,004   $41,789 
           
CASH PAID DURING THE PERIOD FOR:          
Interest expense  $7,500   $- 
           
Income taxes  $-   $- 
           
SUPPLEMENTAL INFORMATION - NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Conversion of preferred stock into common stock  $174,386   $209,687 
Conversion of convertible preferred B into convertible preferred C  $-   $675,278 
Recognition of debt discount at inception of notes payable  $28,482   $28,721 
Conversion of notes payable and accrued interest into common stock to be issued  $526,113   $- 

 

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

 

 4 

 

 

Vivos Inc.

Notes to Condensed Financial Statements

(Unaudited)

 

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying condensed financial statements of Vivos Inc. (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2020 and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on April 28, 2020.

 

Effective June 28, 2019, FINRA approved the Company’s reverse 1 for 8 stock-split. The reverse stock split will enable the Company to issue additional shares now that there is availability to do so. All share and per-share figures herein have been restated to take effect for this reverse stock-split.

 

In April of 2017, the Company filed a Certificate of Merger with the Delaware Division of Corporations in order to merge the Company’s wholly-owned subsidiary, IsoPet Solutions Corporation, with and into the Company. The Company therefore no longer prepares Consolidated Financial Statements.

 

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.

 

 5 

 

 

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.

 

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.

 

 6 

 

 

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 doctor 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, one micron, yttrium-90 phosphate particles (“Y-90”). Once injected, these inert particles are locked in place inside the tumor by the gel, delivering a very high local radiation dose. The radiation is beta, consisting of high-speed electrons. These electrons only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the surrounding tissue. Optimally, patients can go home immediately following treatment without the risk of radiation exposure to family members. Since Y-90 has a half-life of 2.7 days, the radioactivity drops to 5% of its original value after ten days.

 

The Company’s lead brachytherapy products, including RadioGel™, incorporate patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted the Company an exclusive license to patents covering the manufacturing, processing and applications of RadioGel™ (the “Battelle License”). This exclusive license is to terminate upon the expiration of the last patent included in this agreement (January 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.

 

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.

 

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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 three-months ended March 31, 2020 and for the year ended December 31, 2019.

 

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 March 31, 2020 and December 31, 2019, 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.

 

 8 

 

 

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:

 

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.

 

 9 

 

 

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 ended December 31 are noted below:

 

Calendar Year 

Minimum

Royalties per

Calendar Year

 
2020  $10,000 
2021   10,000 
2022   4,000 
Total  $24,000 

 

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 2020 fee was paid in January 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 three-months ended March 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.

 

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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 ach 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 generated during the year ended December 31, 2019 related to sales of product.

 

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 three months ended March 31, 2020 and 2019, 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 March 31, 2020 and December 31, 2019, which include the following:

 

   March 31, 2020   December 31, 2019 
Convertible debt   2,552,073    10,914,782 
Common shares to be issued   24,125,668    - 
Preferred stock   20,672,640    27,372,515 
Common stock options   34,524,580    34,524,580 
Common stock warrants   36,956,847    31,286,847 
Total potential dilutive securities   118,831,808    104,098,724 

 

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 $1,028 and $23,686 research and development costs for the three-months ended March 31, 2020, and 2019, respectively, all of which were recorded in the Company’s operating expenses noted on the statements of operations for the three months 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 three months ended March 31, 2020, and 2019, respectively. During the three months ended March 31, 2020 and 2019, the Company incurred $4,233 and $0, respectively, in advertising and marketing costs.

 

 11 

 

 

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. 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 March 31, 2020 and December 31, 2019.

 

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 three months ended March 31, 2020 and 2019. The Company did not have any deferred tax liability or asset on its balance sheet on March 31, 2020 and December 31, 2019.

 

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 three months ended March 31, 2020 and 2019, 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.

 

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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

 

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 2: GOING CONCERN

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has suffered recurring losses and used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. Research and development of the Company’s brachytherapy product line has been funded with proceeds from the sale of equity and debt securities as well as a series of grants. The Company requires funding of approximately $1.5 to $2.0 million annually to maintain current operating activities.

 

The Company’s stock offering under Regulation A+ was qualified by the Securities and Exchange Commission (“SEC”) on June 3, 2020 and have issued the first tranche of shares under the Regulation A+ on June 10, 2020.

The intent is to raise up to $4,050,000 over the next 12-18 months, which may be completed in separate closings.

 

The Company intends to use the proceeds generated from the sale of shares under Regulation A+ as follows:

 

For the animal therapy market:

 

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

 

For the human market:

 

  Enhance the pedigree of the Quality Management System.
  Complete the pre-clinical testing that has been previously defined and report the bulk of 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.

  

 13 

 

 

The Company received advances of $125,280 which were deposited into the Company’s accounts in April 2020. Following the clearance of the Regulation A+ offering by the SEC on June 3, 2020, the common shares for these proceeds were issued. In addition, the Company exchanged their outstanding convertible notes payable of $425,000, $23,430 in accrued interest and $77,683 in an exchange premium stipulated in the note agreements into shares of common stock effective March 31, 2020. The shares from the exchange of the outstanding notes payable were issued in June 2020, with an effective date of March 31, 2020. The Company exchanged this debt into shares to be issued of $532,983 as of March 31, 2020 as the remaining funds of $118,410 were not collected until April 2020.

 

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.

 

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. In addition to a slow down in the marketing of the services, the volatility of the stock market has contributed to a lack of funds that ordinarily may have been available to the Company. The Company is hopeful that by the end of the third quarter of 2020, they will be allowed to continue their marketing to the animal therapy market and attempt to increase the exposure to their product and generate revenue accordingly.

 

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.

 

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As of March 31, 2020, the Company has $5,004 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:

 

  In November 2019, the Company had its Regulation A+ initially qualified by the SEC for an offering up to 150 million shares of common stock. On April 30, 2020, the Company filed a post-effective Amendment, which was qualified by the SEC on June 3, 2020.
     
  During the Company’s second and third fiscal quarters, the Company secured approximately $300,000 in convertible promissory notes.
     
  The Company recognized initial sales of IsoPet®.

 

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 3: FIXED ASSETS

 

Fixed assets consist of the following at March 31, 2020 (unaudited) and December 31, 2019:

 

    March 31, 2020    December 31, 2019 
Production equipment  $-   $- 
Less accumulated depreciation   (-)   (-)
   $-   $- 

 

There is no depreciation expense for the above fixed assets for the three months ended March 31, 2020 and 2019, respectively. In June 2019, the Company sold the one piece of equipment still held for $0. The basis of this piece of equipment was also $0, resulting in no gain or loss on the sale.

 

NOTE 4: RELATED PARTY TRANSACTIONS

 

Related Party Convertible Notes Payable

 

As of March 31, 2020 and December 31, 2019, the Company had the following related party convertible notes outstanding:

 

   March 31, 2020   December 31, 2019 
   Principal   Accrued
Interest
   Principal   Accrued
Interest
 
September 2019 $15,000 Note, 8% interest, due January 2020  $      -   $-   $15,000   $321 
Other related party notes   -    1,054    -    1,054 
March 2017 $332,195 Note, 10% interest, due May 2017   -    -    -    - 
Total Convertible Notes Payable, Net  $-   $1,054   $15,000   $1,375 
Less: Debt Discount   -    -    (500)   - 
   $-   $1,054   $14,500   $1,375 

 

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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 $0.032 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 6,250,000 shares of Company common stock, 385,302 Series B Convertible Preferred shares of the Company, and 5,533,138 warrants that are exercisable into common shares with an exercise price of $0.08. The Company valued this transaction at a price of $0.104 per share as the conversion occurred October 19, 2018 upon board approval.

 

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.

 

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 is 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 three months ended March 31, 2020 and 2019 on the related party convertible notes payable amounted to $298 and $0, respectively.

 

Related Party Notes Payable

 

As of March 31, 2020 and December 31, 2019, the Company had the following related party notes outstanding:

 

   March 31, 2020   December 31, 2019 
   Principal   Accrued
Interest
   Principal   Accrued
Interest
 
January 2019 $60,000 Note, 8% interest, due January 2020  $60,000   $5,665   $60,000   $4,472 
March 2019 $48,000 Note, 8% interest, due March 2020   48,000    3,882    48,000    2,927 
April 2019 $29,000 Note, 8% interest, due April 2020   29,000    2,136    29,000    1,559 
July 2019 $50,000 Note 8% interest, due July 2020   50,000    2,951    50,000    1,956 
November 2019 $50,000 Note 8% interest, due November 2020   50,000    1,388    50,000    393 
                     
Total Related Party Notes Payable, Net  $237,000   $16,022   $237,000   $11,307 

 

 16 

 

 

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%. 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%. Interest expense for these notes for the three months ended March 31, 2020 and 2019 was $4,715 and $908, respectively and accrued interest at March 31, 2020 is $16,022.

 

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 March 31, 2020 and December 31, 2019, 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+ and are reflected as shares to be issued as of March 31, 2020.

 

 17 

 

 

NOTE 5: CONVERTIBLE NOTES PAYABLE

 

As of March 31, 2020 and December 31, 2019, the Company had the following convertible notes outstanding:

 

   March 31, 2020