Notes
to Financial Statements
For
the Years Ended December 31, 2020 and 2019
NOTE
1: ORGANIZATION & BASIS OF PRESENTATION
Business
Overview
Vivos
Inc. (the “Company”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports
Corporation (“SMSC”). On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation,
and on December 28, 2017, the Company began operating as Vivos Inc. The Company has authorized capital of 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 RadioGelTM 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, RadioGelTM 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 RadioGelTM are used synonymously throughout this document. The only distinction between
IsoPet® and RadioGelTM is the FDA’s recommendation that we use “IsoPet®” for veterinarian
usage, and reserve “RadioGelTM” 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 has 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 and have issued the first tranche of shares under the Regulation A+ on June 10, 2020. The intent is to raise up
to $1,800,000 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:
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Fund
the effort to communicate the benefits of IsoPet® to the veterinary community and the pet parents.
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Conduct
additional clinical studies to generate more data for the veterinary community
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●
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Subsidize
some IsoPet® therapies, if necessary, to ensure that all viable candidates are treated.
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●
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Assist
a new regional clinic with their license and certification training.
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For
the human market:
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●
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Enhance
the pedigree of the Quality Management System.
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●
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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.
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●
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Use
the feedback from that meeting to write the IDE (Investigational Device Exemption), which is required to initiate clinical
trials.
|
The
Company received $497,880 which were deposited into the Company’s accounts between April and June 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 $525,000, $27,536 in accrued interest and $98,508 in an exchange premium
stipulated in the note agreements into shares of common stock. In addition, the Company raised $1,138,800 in the Regulation A+
from November 30, 2020 through December 3, 2020 and issued 42,177,778 shares of common stock and sold 19,200,000 warrants for
$19,200 in these offerings.
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 requires 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
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 2021, they will be allowed to continue their marketing to the animal therapy market and attempt
to increase the exposure to their product and generate revenue accordingly.
As
of December 31, 2020, the Company has $903,704 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.
Assuming
the Company is successful in the Company’s sales/development effort, it believes that it will be able to raise additional
funds through strategic agreements or the sale of the Company’s stock to either current or new stockholders. There is no
guarantee that the Company will be able to raise additional funds or to do so at an advantageous price.
The
financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern
is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain
profitability. The Company plans to seek additional funding to maintain its operations through debt and equity financing and to
improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements
to the cost structure. There is no assurance that the Company will be successful in its efforts to raise additional working capital
or achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates the
Company considers include criteria for stock-based compensation expense, and valuation allowances on deferred tax assets. Actual
results could differ from those estimates.
Financial
Statement Reclassification
Certain
account balances from prior periods have been reclassified in these audited financial statements so as to conform to current period
classifications.
Cash
Equivalents
For
the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
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 December 31, 2020 and 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.
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:
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Production
equipment:
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3
to 7 years
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Office
equipment:
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2
to 5 years
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Furniture
and fixtures:
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2
to 5 years
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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 $17,500 nonrefundable license fee and a royalty
based on a percent of gross sales for licensed products sold; the license agreement also contains a minimum royalty amount to
be paid each year starting with 2013. The license agreement was most recently amended on December 20, 2018, and pursuant to the
amendment the maintenance fee schedule was updated for minimum royalties, as well as the increase in royalties from one percent
(1%) to two percent (2%), then on October 8, 2019 to reduce the fee back to one percent (1%).
Future
minimum royalties for the years ended December 31 are noted below:
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Minimum
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Royalties per
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Calendar Year
|
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Calendar Year
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|
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2021
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$
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10,000
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2022
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4,000
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Total
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$
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14,000
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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 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 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 years ended December 31, 2020 and 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 years ended
December 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 December 31, 2020 and 2019, which include
the following:
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|
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December 31, 2020
|
|
|
December 31, 2019
|
|
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Convertible debt
|
|
|
1,252,456
|
|
|
|
10,914,782
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Preferred stock
|
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12,998,195
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|
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27,372,515
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|
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Common stock options
|
|
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28,885,461
|
|
|
|
34,524,580
|
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Common stock warrants
|
|
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32,064,375
|
|
|
|
31,286,847
|
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Total potential dilutive securities
|
|
|
75,190,487
|
|
|
|
104,098,724
|
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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 $84,668 and $67,584 research and development costs for the years ended December 31, 2020 and 2019, respectively,
all of which were recorded in the Company’s operating expenses noted on the statements of operations for the years then
ended.
Advertising
and Marketing Costs
Advertising
and marketing costs are expensed as incurred except for the cost of tradeshows which are deferred until the tradeshow occurs.
During the years ended December 31, 2020 and 2019, the Company incurred $6,182 and $0 in advertising and marketing costs which
are included in general and administrative expenses.
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 December 31, 2020 and 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 years ended
December 31, 2020 and 2019. The Company did not have any deferred tax liability or asset on its balance sheet on December 31,
2020 and 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 years ended December 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.
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
3: FIXED ASSETS
Fixed
assets consist of the following at December 31, 2020 and 2019:
|
|
|
|
December 31, 2020
|
|
|
|
December 31, 2019
|
|
|
Production equipment
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Less accumulated depreciation
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
There
is no depreciation expense for the years ended December 31, 2020 and 2019.
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 December 31, 2020 and 2019, the Company had the following related party convertible notes outstanding:
|
|
|
2020
|
|
|
2019
|
|
|
September 2019 $15,000 Note, 8% interest, due January 2020
|
|
$
|
-
|
|
|
$
|
15,000
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
Total Convertible Notes Payable, Net
|
|
$
|
-
|
|
|
$
|
15,000
|
|
|
Less: Debt Discount
|
|
|
-
|
|
|
|
(500
|
)
|
|
|
|
$
|
-
|
|
|
$
|
14,500
|
|
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 years ended December 31, 2020 and 2019 on the related party convertible notes payable amounted to $298 and $321,
respectively.
Related
Party Notes Payable
As
of December 31, 2020 and 2019, the Company had the following related party notes outstanding:
|
|
|
2020
|
|
|
2019
|
|
|
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 years
ended December 31, 2020 and 2019 was $18,960 and $11,307, respectively and accrued interest at December 31, 2020 is $30,267.
The
Company borrowed $107,000 in the year ended December 31, 2020 from its CEO and repaid these amounts in full.
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 December 31, 2020
and 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+.
The
Company’s Chief Executive Officer exercised 2,500,000 stock options for $60,000 in December 2020.
NOTE
5: CONVERTIBLE NOTES PAYABLE
As
of December 31, 2020 and 2019, the Company had the following convertible notes outstanding:
|
|
|
2020
|
|
|
2019
|
|
|
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
|
|
|
May 2019 $60,000 Note convertible into common shares at $0.04 per share, 8% interest, due October 30, 2019
|
|
|
-
|
|
|
|
60,000
|
|
|
July 2019 $50,000 Note convertible into common shares at $0.04 per share, 8% interest, due January 15, 2020
|
|
|
-
|
|
|
|
50,000
|
|
|
September 2019 $50,000 Note convertible into common shares at $0.04 per share, 8% interest, due January 15, 2020
|
|
|
-
|
|
|
|
50,000
|
|
|
September 2019 $38,000 Note convertible into common shares at $0.04 per share, 8% interest, due January 15, 2020
|
|
|
-
|
|
|
|
38,000
|
|
|
September 2019 $25,000 Note convertible into common shares at $0.04 per share, 8% interest, due January 15, 2020
|
|
|
-
|
|
|
|
25,000
|
|
|
September 2019 $50,000 Note convertible into common shares at $0.04 per share, 8% interest, due January 15, 2020
|
|
|
-
|
|
|
|
50,000
|
|
|
September 2019 $50,000 Note convertible into common shares at $0.04 per share, 8% interest, due January 15, 2020
|
|
|
-
|
|
|
|
50,000
|
|
|
September 2019 $37,000 Note convertible into common shares at $0.04 per share, 8% interest, due January 15, 2020
|
|
|
-
|
|
|
|
37,000
|
|
|
December 2019 $50,000 Note convertible into common shares at $0.04 per share, 8% interest, due March 31, 2020
|
|
|
-
|
|
|
|
50,000
|
|
|
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
|
|
|
12,418
|
|
|
|
10,618
|
|
|
Total Convertible Notes Payable, Net
|
|
$
|
107,418
|
|
|
$
|
465,618
|
|
|
Less: BCF Discount
|
|
|
-
|
|
|
|
(6,187
|
)
|
|
Less: Debt Discount
|
|
|
-
|
|
|
|
(24,545
|
)
|
|
|
|
$
|
107,418
|
|
|
$
|
434,886
|
|
Interest
expense for the years ended December 31, 2020 and 2019 on the convertible notes payable amounted to $21,394 and $16,563, respectively.
The
Company entered into a $50,000 convertible promissory note dated May 31, 2019, that was to mature October 30, 2019. The convertible
promissory note bears interest at a rate of 8%, The convertible promissory note is convertible into shares of common stock at
a price of $0.032 per share. Upon the closing of an equity financing pursuant to an effective registration statement with gross
proceeds to the Company totaling at least $250,000 exclusive of any exchanges (“Qualified Financing”), the outstanding
principal amount of this convertible promissory note 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 $10,000 contingent exchange amount is classified as original issue discount
and will be amortized over the life of the convertible promissory note. The convertible promissory noteholder received 625,000
warrants at an exercise price of $0.04 per share, that have a term of two years. The warrants were valued at $12,592 and represent
a debt discount, which were amortized over the life of the convertible promissory note.
The
Company entered into $300,000 in convertible promissory notes in July and September 2019, that were to mature January 15, 2020.
The convertible promissory notes bear interest at a rate of 8%, The convertible promissory notes are 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 $250,000 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 convertible promissory noteholders received 3,000,000 warrants
at an exercise price ranging between $0.06 and $0.08 per share (amended to $0.045 per share), that have a term of two years. The
warrants were valued at $91,716 and represent a debt discount, which will be amortized over the life of the convertible promissory
notes. In addition, the Company recognized a beneficial conversion feature discount to the notes of $59,957 that is being amortized
over the life of the notes.
Prior
to the conversion of these notes, the Company was in default of these notes. As a result of the default, the interest rate charged
was changed to 12.5% up through the conversion of these notes.
The
Company entered into $50,000 in a convertible promissory note on December 31, 2019, that matures March 31, 2020. The convertible
promissory notes bear interest at a rate of 8%, 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 $250,000 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 convertible promissory noteholders received 625,000 warrants at an exercise
price of $0.06 per share (amended to $0.045 per share), that have a term of two years. The warrants were valued at $14,299 and
represent a debt discount, which will be amortized over the life of the convertible promissory note. This note was converted effective
March 31, 2020. These shares were issued on June 10, 2020 following the qualification of the Regulation A+.
The
Company issued a convertible note in January 2020 in the amount of $100,000 to an accredited investor. The note bears interest
at 8% per annum and was to mature March 31, 2020. The Company granted 1,250,000 warrants with an exercise price of $0.06 per share
and a term of two years with this note and amended 1,312,500 previously issued warrants held by the investor to provide for a
$.06 exercise price and an expiration date of March 31, 2022, the note was converted in June 2020.
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.
NOTE
6: PROMISSORY NOTES PAYABLE
As
of December 31, 2020 and 2019, the Company had the following promissory notes outstanding:
|
|
|
2020
|
|
|
2019
|
|
|
February 2019, two promissory notes for $50,000 each (total of $100,000), maturing August 2019, extended to February 2020, at 8.00% interest (originally) and now 15% interest and extended to August 20, 2020
|
|
$
|
-
|
|
|
$
|
100,000
|
|
|
Debt discount
|
|
|
(-
|
)
|
|
|
-
|
|
|
Total Promissory Notes Payable, Net
|
|
$
|
-
|
|
|
$
|
100,000
|
|
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). Amortization of debt discount for the year ended December 31, 2019
was $28,721 and is recorded as interest expense on the statement of operations for the year ended December 31, 2019.
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 years ended December 31, 2020 and 2019 amounted to $8,032 and $9,410.
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
7: INCOME TAXES
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Net
deferred tax assets consist of the following components as of December 31, 2020 and 2019:
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
6,080,000
|
|
|
$
|
5,890,000
|
|
|
Interest expense
|
|
|
-
|
|
|
|
15,000
|
|
|
Related party accrual
|
|
|
6,400
|
|
|
|
23,400
|
|
|
Capital Loss Carryover
|
|
|
3,400
|
|
|
|
3,400
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(-
|
)
|
|
|
(2,100
|
)
|
|
Valuation allowance
|
|
|
(6,089,800
|
)
|
|
|
(5,929,700
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The
income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income
from continuing operations for the years ended December 31, 2020 and 2019 due to the following:
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Book income (loss)
|
|
$
|
(201,000
|
)
|
|
$
|
(338,100
|
)
|
|
Forgiveness of debt
|
|
|
(600
|
)
|
|
|
(7,200
|
)
|
|
Depreciation
|
|
|
(1,100
|
)
|
|
|
(1,100
|
)
|
|
Interest expense
|
|
|
-
|
|
|
|
15,000
|
|
|
Related party accrual
|
|
|
4,000
|
|
|
|
21,100
|
|
|
Stock for services
|
|
|
-
|
|
|
|
2,600
|
|
|
Options expense
|
|
|
500
|
|
|
|
134,000
|
|
|
Non-cash interest expense
|
|
|
5,900
|
|
|
|
39,900
|
|
|
Valuation allowance
|
|
|
192,300
|
|
|
|
133,800
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
At
December 31, 2020, the Company had net operating loss carryforwards of approximately $28,960,300.
Topic
740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements.
Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination
based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax
position to determine the amount to recognize in the financial statements. At the adoption date of January 1, 2007, the Company
had no unrecognized tax benefit, which would affect the effective tax rate if recognized.
The
Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision
for income taxes. As of December 31, 2020, the Company had no accrued interest or penalties related to uncertain tax positions.
The
Company files income tax returns in the U.S. federal jurisdiction. The Company is located in the state of Washington and Washington
state does not require the filing of income taxes. With few exceptions, the Company is no longer subject to U.S. federal, state
and local, or non-U.S. income tax examinations by tax authorities for years before 2017.
NOTE
8: 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 December 31, 2020 and December
31, 2019, the Company has 292,278,591 and 184,845,821 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 December 31, 2020 and 2019, 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.
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 B 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 - 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 through June 2020, the Company entered into agreements to issue 18,440,000 shares of common stock conditioned upon the qualification
of the offer and sale of such shares under Regulation A+ for $497,880. Additionally, the Company agreed to issue 9,220,000 warrants
with a term of two years and an exercise price of $.045 for a purchase price of $8,143. These shares were issued in June 2020
and July 2020 following the qualification of the Regulation A+.
In
March through June 2020, certain holders of convertible promissory notes entered into agreements to exchange certain notes totaling
$651,044, including $525,000 in principal amount, $27,536 in accrued interest and an exchange premium as provided for in the note
agreements of $98,508 into 21,770,668 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 issued 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+.
During
the three months ended September 30, 2020, the Company issued 1,851,852 shares of common stock to settle $50,000 in promissory
notes.
Between
November 30 and December 2, 2020, the Company issued 42,177,778 shares of common stock along with 19,200,000 warrants under the
Regulation A+ for cash proceeds of $1,138,800 for the common stock and the warrants were purchased for $19,200.
On
November 30, 2020, the Company issued 933,750 shares of common stock in exchange for 1,867,500 warrants in accordance with a convertible
promissory note.
On
December 2, 2020, holders of Series A Preferred stock redeemed 381,635 shares of Series A Preferred stock for $13,650. The Company
canceled these certificates simultaneous to the redemption.
On
December 3, 2020, a Series B Preferred holder converted 276,592 Series B shares into 3,457,400 common shares, and on December
29, 2020 this Series B Preferred holder converted 300,000 Series B shares into 3,750,000 common shares.
On
December 10, 2020, the Chief Executive Officer exercised 2,500,000 stock options into common shares valued at $60,000.
Between
December 14, 2020 and December 28, 2020, the Company issued 4,759,435 shares of common stock in the cashless exercise of 6,860,000
warrants.
Common
and Preferred Stock Issuances - 2019
In
January 2019, the Company received $100,000 in gross proceeds resulting from the issuance to accredited investors of 1,250,000
shares of common stock, 100,000 shares of Series B Convertible Preferred and warrants to purchase 1,250,000 shares of common stock.
The
Company issued 18,390,225 shares of common stock in consideration for the conversion of 1,471,218 shares of Series B Convertible
Preferred.
The
Company issued 821,292 shares of Series C Convertible Preferred in exchange for 821,292 shares of Series B Convertible Preferred.
The
Company issued 1,062,500 shares of common stock in a settlement of accounts payable valued at $43,900. This includes 500,000 shares
to the Company’s former CEO in settlement of that litigation (see Note 9).
The
Company issued 312,500 shares of common stock for services rendered in connection with the raising of debt instruments valued
at $12,500.
The
Company issued 385.000 shares of common stock in conversion of vested 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:
|
|
|
|
|
|
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, 2018
|
|
|
11,318,021
|
|
|
$
|
0.11-120.00
|
|
|
|
3.91 years
|
|
|
$
|
-
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
23,252,809
|
|
|
$
|
0.024-0.04
|
|
|
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
Options exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
Options expired
|
|
|
(46,250
|
)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
34,524,580
|
|
|
$
|
0.024-120.00
|
|
|
|
6.49 years
|
|
|
$
|
277,973
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
Options exercised
|
|
|
(2,500,000
|
)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
Options expired
|
|
|
(3,139,119
|
)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
28,885,461
|
|
|
$
|
0.024-120.00
|
|
|
|
5.57 years
|
|
|
$
|
1,661,429
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
|
|
28,789,836
|
|
|
$
|
0.024-120.00
|
|
|
|
5.56 years
|
|
|
$
|
1,653,636
|
|
|
$
|
0.05
|
|
In
June 2019, the Company issued 382,500 stock options to consultants that vest through June 30, 2020. The grant date of these options
was June 17, 2019, the date of board approval. On June 21, 2019, 46,250 stock options expired that were issued June 21, 2016.
There was $6,529 expensed in 2019 and $2,176 remaining to be expensed through June 30, 2020 for these options.
The
Company has granted 21,000,000 stock options under the Company’s 2015 Omnibus Securities and Incentive Plan to Dr. Korenko.
The granting of the stock options occurs 10 days after the approval of the Company’s recent 1 for 8 reverse stock split
that occurred on June 28, 2018. The vesting of the options are as follows: (i) 50% vested in equal amounts at the end of each
of the two successive calendar quarters (25% for each of the quarters September 30, 2019, and December 31, 2019); (ii) 25% upon
the Company filing a patent (completed on July 1, 2019); and (iii) 25% upon the first commercial sale of IsoPet®.
The first commercial sale occurred in July 2019. The value of these options in the aggregate is $585,144.
In
September 2019, the Company granted 1,000,000 stock options in a settlement agreement for past due legal fees. The options have
a ten-year life and vest immediately. These options were valued at $33,829 which offset accounts payable. The Company recognized
a gain of $34,106 on this transaction which is included in the net (gain) loss on debt extinguishment in the statement of operations
for the year ended December 31, 2019.
In
September 2019, the Company granted 500,000 stock options to a consultant for services rendered. The options have a ten-year life
and vest immediately. These options were valued at $16,915.
In
December 2019, the Company granted 370,309 stock options to consultants for accounts payable. The options have a ten-year life
and vest immediately. These options were valued at $14,812.
On
December 10, 2020, the Chief Executive Officer exercised 2,500,000 stock options into common shares valued at $60,000.
During
the years ending December 31, 2020 and 2019, the Company recognized $2,176 and $608,588, respectively, worth of stock based compensation
related to the vesting of it stock options.
Common
Stock Warrants
The
following schedule summarizes the changes in the Company’s common stock warrants:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Warrants
Outstanding
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Exercise
|
|
|
|
|
Of
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Price
|
|
|
|
|
Shares
|
|
|
Per
Share
|
|
|
Life
|
|
|
Value
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
|
|
23,052,472
|
|
|
$
|
0.08-80.00
|
|
|
|
1.77
years
|
|
|
$
|
-
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted
|
|
|
8,234,375
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
|
|
|
Warrants
exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
|
|
|
Warrants
expired/cancelled
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2019
|
|
|
31,286,847
|
|
|
$
|
0.08-80.00
|
|
|
|
0.97
years
|
|
|
$
|
-
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
granted
|
|
|
31,870,000
|
|
|
$
|
0.045-0.06
|
|
|
|
-
|
|
|
|
|
|
|
$
|
|
|
|
Warrants
exercised/exchanged
|
|
|
(8,727,500
|
)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
|
|
|
Warrants
expired/cancelled
|
|
|
(22,364,972
|
)
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2020
|
|
|
32,064,375
|
|
|
$
|
0.04-80.00
|
|
|
|
1.65
years
|
|
|
$
|
1,614,567
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2020
|
|
|
32,064,375
|
|
|
$
|
0.04-80.00
|
|
|
|
1.65
years
|
|
|
$
|
1,614,567
|
|
|
$
|
0.06
|
|
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 years ended December 31, 2020 and
2019:
|
|
|
|
Year
Ended
|
|
|
|
Year
Ended
|
|
|
|
|
|
December
31,
2020
|
|
|
|
December
31,
2019
|
|
|
Expected term
|
|
|
2
- 5 years
|
|
|
|
2
- 5 years
|
|
|
Expected volatility
|
|
|
109
- 147
|
%
|
|
|
144
- 295
|
%
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
Risk-free interest rate
|
|
|
0.20
- 0.58
|
%
|
|
|
0.58
– 0.81
|
%
|
For
the year ended December 31, 2019, the Company granted 1,250,000 warrants in the issuance of common and preferred shares issued
for cash to accredited investors, 5,650,000 warrants in the issuance of promissory notes (recorded as a debt discount valued at
$151,048), 750,000 warrants for the extension of promissory notes, recorded as interest expense valued at $25,656, 500,000 warrants
for settlement of accounts payable valued at $18,500 (see Note 9) and 84,375 warrants issued for consulting services valued at
$3,792.
The
Company issued a convertible note in the amount of $100,000 to an accredited investor. The note bears interest at 8% per annum
and matures March 31, 2020. The Company granted 1,250,000 warrants with an exercise price of $0.06 per share and a term of two
years with this note and amended 1,312,500 previously issued warrants held by the investor to provide for a $.06 exercise price
and an expiration date of March 31, 2022. This issuance resulted in a debt discount of $28,482.
In
March through June 2020, the Company entered into agreements to issue 18,440,000 shares of common stock conditioned upon the qualification
of the offer and sale of such shares under Regulation A+ for $497,880. Additionally, the Company agreed to issue 9,220,000 warrants
with a term of two years and an exercise price of $.045 for a purchase price of $8,143. These shares were issued in June 2020
and July 2020 following the qualification of the Regulation A+.
In
March through June 2020, certain holders of convertible promissory notes entered into agreements to exchange certain notes totaling
$651,044, including $525,000 in principal amount, $27,536 in accrued interest and an exchange premium as provided for in the note
agreements of $98,508 into 21,770,668 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 issued 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+. The issuance of the warrants resulted in $77,883 in additional warrant expense.
Between
November 30, 2020 and December 2, 2020 the Company sold 19,200,000 warrants for $19,200. These warrants have a two-year term and
have an exercise price of $0.06 per share.
On
November 30, 2020, the Company exchanged 1,867,500 warrants into 933,750 shares of common stock, and between December 14, 2020
and December 28, 2020, there were cashless exercises of 6,860,000 warrants into 4,759,435 shares of common stock.
In
the Company’s quarter ended December 31, 2020, 22,364,972 warrants expired.
Restricted
Stock Units
The
following schedule summarizes the changes in the Company’s restricted stock units:
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
Average
|
|
|
|
|
Of
|
|
|
Grant Date
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
262,500
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
RSU’s granted
|
|
|
-
|
|
|
$
|
-
|
|
|
RSU’s vested
|
|
|
-
|
|
|
$
|
-
|
|
|
RSU’s forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
|
262,500
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
RSU’s granted
|
|
|
-
|
|
|
$
|
-
|
|
|
RSU’s vested
|
|
|
-
|
|
|
$
|
-
|
|
|
RSU’s forfeited
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
|
262,500
|
|
|
$
|
0.59
|
|
During
the years ended December 31, 2020 and 2019, the Company recognized $0 and $0 worth of expense related to the vesting of its RSU’s,
respectively. As of December 31, 2020, the Company had $155,400 worth of expense yet to be recognized for RSU’s not yet
vested.
NOTE
9: LEGAL MATTERS
The
Company may, from time to time, be involved in various legal proceedings incidental to the conduct of our business. Historically,
the outcome of all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial
condition, results of operations or liquidity. Other than as set forth below, there are no additional material pending or threatened
legal proceedings at this time.
On
January 28, 2019, James Katzaroff, (“Plaintiff”) the Company’s former Chief Executive Officer filed a
lawsuit in the Superior Court in the State of Washington in and for the County of Benton against the Company and its current and
former directors, alleging a default of the Separation Agreement and General Release (“Release”) that the Company
entered into with Plaintiff on July 21, 2017 (the “Complaint”). The Company has made required payments under
the Release.
On
November 25, 2019, the Company and its current and former directors entered into a Settlement Agreement with the Plaintiff. Under
the terms of the Settlement Agreement, the Company has agreed to issue 500,000 shares of common stock and 500,000 warrants to
the Plaintiff, make an initial payment of $33,503 by December 4, 2019 and beginning on December 16, 2019, the Company will make
payments of $10,000 per month for 10 months in full satisfaction of the Separation Agreement and General Release originally entered
into on July 21, 2017. The Company has paid this liability in full as of September 11, 2020.
NOTE
10: COMMITMENT
On
June 4, 2019, the Company entered into an Executive Employment Agreement (“Employment Agreement”) with Dr. Michael
K. Korenko, the Company’s Chief Executive Officer. The employment term under the Employment Agreement commenced with an
effective date of June 11, 2019 and expires on December 31, 2020, and December 31 of each successive year if the Employment Agreement
is extended, unless terminated earlier as set forth in the Employment Agreement. The Company on December 31, 2020 extended this
agreement through December 31, 2021.
Under
the terms of the Employment Agreement, the Company shall pay to Dr. Korenko a base compensation of $180,000. Additionally,
in December 2020, Dr. Korenko satisfied the conditions to have his deferred compensation as discussed in the Employment Agreement
paid to him.
NOTE
11: CONCENTRATIONS OF CREDIT AND OTHER RISKS
Accounts
Receivable
The
Company had one customer that represented 100% of the Company’s total revenues for the years ended December 31, 2020 and
2019. The customer that represented 100% of the Company’s total revenue as of December 31, 2020 and 2019 had no net accounts
receivable balances.
The
loss of a significant customer representing the percentage of total revenue would have a temporary adverse effect on the Company’s
revenue, which would continue until the Company located new customers to replace them.
The
Company routinely assesses the financial strength of its customers and provides an allowance for doubtful accounts as necessary.
As of December 31, 2020 and 2019, the Company had no allowance or bad debt expense recorded.
Product
Purchases
Some
of the products the Company might market and components thereof are currently available only from a limited number of suppliers
including the source for the main component in the Company’s products, Y-90 which is only derived from one source. Failure
to obtain deliveries from this source could have a material adverse effect on the Company’s ability to operate.
NOTE
12: SUBSEQUENT EVENTS
In
January 2021, the Company issued 1,259,250 shares of common stock in conversion of a convertible note payable of $50,000 and accrued
interest of $370. This conversion resulted in a loss on conversion of $176,295.
In
January 2021, the Company issued 3,423,968 shares of common stock in the cashless exercise of 4,875,000 warrants.
In March 2021, the Company received $1,360,000
as part of their amended Regulation A+ at $0.08 (17,000,000 shares), along with the sale of 8,487,500 two-year warrants at a strike
price of $0.10 per share for $8,238.
