PART II AND III 2 partiiandiii.htm

 

POST-QUALIFICATION OFFERING CIRCULAR

 

DATED MAY 20, 2020

 

Vivos Inc.

 

 

719 Jadwin Avenue

Richland, Washington 99352

(509) 736-4000

http://www.radiogel.com

 

Up to 150,000,000 Shares of Common Stock, par value $0.001 per share at an Offering Price of $0.027 per Share

 

Minimum Investment: 370,370 Shares ($10,000)

Maximum Offering: 150,000,000 Shares ($4,050,000)

 

SEE “DESCRIPTION OF CAPITAL STOCK” AT PAGE 7.

 

This Post-Qualification Offering Circular Amendment No. 1 (this “Offering Circular Amendment No. 1”) amends the offering circular of Vivos Inc. (the “Company”). dated November 20, 2019, as qualified on November 26, 2019, and as may be amended and supplemented from time to time (the “Offering Circular”), to add, update and/or replace information contained in the Offering Circular as expressly set forth herein. Unless otherwise defined below, capitalized terms used herein shall have the same meanings as set forth in the Offering Circular. See “Incorporation by Reference of Offering Circular” below.

 

The primary purpose of this Offering Circular Amendment No. 1 is to adjust the offering price per share to $0.027. See the sections titled “The Offering,” “Use of Proceeds” and “Dilution”.

 

Incorporation by Reference of Offering Circular

 

The Offering Circular, including this Offering Circular Amendment No. 1, is part of an offering statement that we filed with the Securities and Exchange Commission (the “SEC”). Please note that any statement that we make in this Offering Circular Amendment No. 1 (or have made in the Offering Circular) will be modified or superseded by any inconsistent statement made by us in a subsequent offering circular supplement or post-qualification amendment.

 

This Offering Will Commence Upon Qualification of this Offering by the Securities and Exchange Commission and Will Terminate Twelve Months from the Day the Offering is Qualified or the Date on which the Maximum Offering Amount is Sold (such earlier date, the “Termination Date”).

 

Securities Offered by the Company  Price Per Share to Public   Total Number of Shares Being Offered  

Broker-Dealer discount and commissions

(1)

  

Proceeds

to issuer

(2)(3)

 
Per Share of Common Stock  $0.027                
Total Minimum  $10,000    370,370   $            -   $10,000 
Total Maximum  $4,050,000    150,000,000   $-   $4,050,000 

 

(1) We may offer the shares of our common stock through registered broker-dealers or a selling agent and we may pay finders, although we have no current arrangements to do so. We currently do not have any specific plans or arrangements to use a selling agent, broker-dealer or finder; however, if we choose to do so in the future, information about any such broker dealer, selling agent, or finder shall be disclosed in an amendment to this Offering Circular.
   
(2) This does not account for the payment of expenses of this offering, which is currently estimated to be approximately $100,000. See “Plan of Distribution.”
   
(3) The Company currently has outstanding 8% Promissory Notes that may be exchanged for shares of common stock issued in connection with the offering, in which event the proceeds to the Company will be reduced by the amount of principal and accrued interest exchanged for common stock. See “Plan of Distribution”.

 

The Company is offering up to 150,000,000 shares of common stock, par value $0.001 per share, at an offering price of $0.027 per share. The offering will terminate at the earlier of: (i) the date at which the maximum offering amount has been sold, (ii) the date which is one year from this offering being qualified by the SEC, or (iii) the date at which the offering is earlier terminated by us in our sole discretion, which may occur at any time.

 

This offering is being conducted on a “best efforts” basis without any minimum offering amount pursuant to Regulation A of Section 3(6) of the Securities Act for Tier 2 offerings. We reserve the right to undertake one or more closings on a rolling basis. Until we complete a closing, the proceeds for the offering will not be kept in an escrow account. All funds derived by us from this offering will be immediately available for use by us, in accordance with the uses set forth in the section of this Offering Circular entitled “Use of Proceeds.”

 

We have yet to identify a broker-dealer or selling agent to act as our lead managing selling agent to offer shares of our common stock to prospective investors on a “best efforts” basis. In the event that we do identify and make arrangements with a selling agent to offer our securities, the selling agent may engage one or more co-managing selling agents, sub selling agents or selected dealers. A selling agent is not required to purchase the shares of common stock being offered pursuant to this Offering Circular, and is not required to sell any specific number or dollar amount of shares of common stock in the offering.

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION

 

GENERALLY, NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN 10% OF THE GREATER OF YOUR ANNUAL INCOME OR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(d)(2)(i)(C) OF REGULATION A. FOR GENERAL INFORMATION ON INVESTING, WE ENCOURAGE YOU TO REFER TO www.investor.gov.

 

This offering is inherently risky. See “Risk Factors” located on page 7 for a discussion of certain risks that you should consider in connection with an investment in our common stock.

 

The Company is following the Form S-1 format of disclosure under Regulation A pursuant to general instructions of Part II(a)(1)(ii) of Form 1-A for this Offering Circular.

 

   

 

 

 

TABLE OF CONTENTS

 

  Page
   
OFFERING CIRCULAR SUMMARY 4
   
RISK FACTORS 10
   
USE OF PROCEEDS 20
   
DILUTION 22
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24
   
OUR BUSINESS 28
   
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES 38
   
EXECUTIVE COMPENSATION 41
   
DIRECTOR COMPENSATION 43
   
RELATED PERSON TRANSACTIONS 44
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 45
   
DESCRIPTION OF CAPITAL STOCK 48
   
DIVIDEND POLICY 52
   
SHARES ELIGIBLE FOR FUTURE SALE 53
   
PLAN OF DISTRIBUTION 54
   
EXPERTS 57
   
WHERE YOU CAN FIND ADDITIONAL INFORMATION 57
   
INDEX TO FINANCIAL STATEMENTS F-1

 

In this Offering Circular, the term “Vivos” or the “Company” refers to Vivos Inc. and its subsidiaries.

 

   

 

 

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

THIS OFFERING CIRCULAR MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

 

Industry and Market Data

 

Although we are responsible for all disclosure contained in this Offering Circular, in some cases we have relied on certain market and industry data obtained from third-party sources that we believe to be reliable. Market estimates are calculated by using independent industry publications in conjunction with our assumptions regarding the medical device industry and market. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings “Statement Regarding Forward- Looking Statements” and “Risk Factors” in this Offering Circular.

 

   

 

 

OFFERING CIRCULAR SUMMARY

 

This summary highlights selected information contained elsewhere in this Offering Circular. This summary is not complete and does not contain all the information that you should consider before deciding whether to invest in our common stock. You should carefully read the entire Offering Circular, including the risks associated with an investment in the Company’s securities discussed in the “Risk Factors” section of this Offering Circular, before making an investment decision. Some of the statements in this Offering Circular are forward looking- statements. See the section entitled “Statement Regarding Forward- Looking Statements.”

 

Company Information

 

Vivos Inc. (the “Company” or “we”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”). On December 28, 2017, the Company changed its name from Advanced Medical Isotope Corp. to Vivos Inc.

 

On June 25, 2019, the Company amended their Certificate of Incorporation amending their authorized common shares to 950,000,000 from 2,000,000,000 shares. In addition, the 1 for 8 reverse stock-split was effective on June 28, 2019. The reverse stock-split reduced the number of common shares issued and outstanding from 1,421,687,688 to 177,710,961 shares. The par value for the common shares remained $0.001 per share, The Company did not amend their preferred stock which is 20,000,000 shares of preferred stock authorized, $0.001 par value per share.

 

Our principal place of business is located at 719 Jadwin Avenue, Richland, Washington 99352. Our telephone number is (509) 736-4000. Our corporate website address is http://www.radiogel.com. Our common stock is currently listed for quotation on the OTCQB Marketplace under the symbol “RDGL.”

 

Overview

 

The Company is a radiation oncology medical device company engaged in the development of its yttrium-90 based brachytherapy device, RadioGel™, for the treatment of non-resectable tumors. A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead the Company’s development efforts. The Company’s overall vision is to globally empower physicians, medical researchers and patients by providing them with new isotope technologies that offer safe and effective treatments for cancer.

 

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.

 

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.

 

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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 doctor brought his cat with a re-occurrent spindle cell sarcoma tumor on his face. The cat had previously received external beam therapy, but now the tumor was growing rapidly. He was given a high dose of 400Gy with heavy therapy at the margins. This sale met the revenue recognition requirements under ASC 606 as the performance obligation was satisfied. The Company completed sales for an additional four animals that received the IsoPet® during 2019.

 

Our plan is to incorporate the data assembled from our work with Isopet® in animal therapy to support the Company’s efforts in the development of our RadioGel™ device candidate, including obtaining approval from the FDA to market and sell RadioGel™ as a Class II medical device. RadioGel™ is an injectable particle-gel for brachytherapy radiation treatment of cancerous tumors in people and animals. RadioGel™ is comprised of a hydrogel, or a substance that is liquid at room temperature and then gels when reaching body temperature after injection into a tumor. In the gel are small, one micron, yttrium-90 phosphate particles (“Y-90”). Once injected, these inert particles are locked in place inside the tumor by the gel, delivering a very high local radiation dose. The radiation is beta, consisting of high-speed electrons. These electrons only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the surrounding tissue. Optimally, patients can go home immediately following treatment without the risk of radiation exposure to family members. Since Y-90 has a half-life of 2.7 days, the radioactivity drops to 5% of its original value after ten days.

 

The Company’s lead brachytherapy products, including RadioGel™, incorporate patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted the Company an exclusive license to patents covering the manufacturing, processing and applications of RadioGel™ (the “Battelle License”). This exclusive license is to terminate upon the expiration of the last patent included in this agreement (January 2022). Other intellectual property protection includes proprietary production processes and trademark protection in 17 countries. The Company plans to continue efforts to develop new refinements on the production process, and the product and application hardware, as a basis for future patents.

 

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Recent Developments

 

The Company completed its reverse stock split, effective June 28, 2019 which provides sufficient authorized shares to issue in order to enable us to raise capital through our Regulation A+ Offering Statement, which was qualified by the Securities and Exchange Commission (“SEC”) in November 2019. The Company intends to use these proceeds from the Regulation A+ as follows:

 

For the animal therapy market:

 

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

 

For the human market:

 

  Enhance the pedigree of the Quality Management System.
  Complete the pre-clinical testing that has been previously defined and report the bulk of the results to the FDA in a pre-submission meeting.
  Use the feedback from that meeting to write the IDE (Investigational Device Exemption), which is required to initiate clinical trials.

 

The Company received an investment from three existing accredited investors of $125,280 in March 2020, which was deposited in escrow until April 2020 at which time it was released to the Company to provide for the Company’s short-term capital requirements pending agreement on the terms of the investment, which remain outstanding. In addition, the Company converted their outstanding convertible notes payable of $415,000, $23,427 in accrued interest and $87,686 in an exchange premium stipulated in the note agreements into shares of common stock effective March 31, 2020. These shares were issued in April 2020, however, effective as of March 31, 2020.

 

Over the next 12 to 24 months, the Company believes it will cost approximately $5.0 million to $10.0 million to: (1) fund the FDA approval process and initial deployment of the brachytherapy products, and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.

 

Following receipt of required regulatory approvals and financing, in the U.S., the Company intends to outsource material aspects of manufacturing, distribution, sales and marketing. Outside of the U.S., the Company intends to pursue licensing arrangements and/or partnerships to facilitate its global commercialization strategy.

 

In the longer-term, subject to the Company receiving adequate funding, regulatory approval for RadioGel™ and other brachytherapy products, and thereafter being able to successfully commercialize its brachytherapy products, the Company intends to consider resuming research efforts with respect to other products and technologies intended to help improve the diagnosis and treatment of cancer and other illnesses.

 

Based on the Company’s financial history since inception, the Company’s independent registered public accounting firm has expressed substantial doubt as to the Company’s ability to continue as a going concern. The Company has limited revenue, nominal cash, and has accumulated deficits since inception. If the Company cannot obtain sufficient additional capital, the Company will be required to delay the implementation of its business strategy and may not be able to continue operations.

 

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The Company has been impacted from the effects of COVID-19. The Company’s headquarters are in Northeast Washington however there focus of the animal therapy market has been the Northwestern sector of the United States, the initial epicenter of the COVID-19 outbreak in the United States. In addition to a slow down in the marketing of the services, the volatility of the stock market has contributed to a lack of funds that ordinarily may have been available to the Company. The Company is hopeful that by the end of the third quarter of 2020, they will be allowed to continue their marketing to the animal therapy market and attempt to increase the exposure to their product and generate revenue accordingly.

 

The financial statements included elsewhere in this Offering Statement 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 included elsewhere in this Offering Statement do not include any adjustments that might result from the outcome of this uncertainty.

 

As of December 31, 2019, the Company has $20,381 cash on hand. There are currently commitments to vendors for products and services purchased that will necessitate liquidation of the Company if it is unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company. The Company was able to execute the following transactions to improve their balance sheet and decrease the liabilities incurred and increase their cash flow:

 

  In November 2019, the Company had its Regulation A+ approved by the Securities and Exchange Commission for an offering up to 150 million shares of common stock.
     
  During the Company’s second and third fiscal quarters, the Company secured approximately $300,000 in convertible promissory notes.
     
  The Company recognized its first few sales of IsoPet®.

 

Assuming the Company is successful in the Company’s sales/development effort, it believes that it will be able to raise additional funds through strategic agreements or the sale of the Company’s stock to either current or new stockholders. There is no guarantee that the Company will be able to raise additional funds or to do so at an advantageous price.

 

THE OFFERING

 

Issuer:  

Vivos Inc.

 

Securities offered by the Company:

 

  A maximum of 150,000,000 shares of our common stock, par value $0.001 per share. See the section entitled “Plan of Distribution.
     

Number of shares of common stock outstanding before the offering:

 

  214,421,364 shares

Number of shares of common stock to be outstanding after the offering:

 

  Up to 364,421,364 shares

Price per share:

 

  $0.027 per share

Minimum offering amount:

 

 

370,370 shares of common stock ($10,000)

 

Maximum offering amount:

 

 

150,000,000 shares of common stock ($4,050,000)

 

Trading Market

 

  OTCQB

Use of proceeds:

 

  We currently intend to use the majority of the proceeds we receive from this offering to expand our animal therapy business and to complete the pre-clinical testing necessary to file the Investigational Device Exemption (IDE), which will set the stage for clinical trials. In addition, we intend to apply certain proceeds towards international patent protection, up-listing, the repayment of certain debt, offering expenses, public company and corporate costs, research and development and other application development, and working capital. See the section entitled “Use of Proceeds” for additional details regarding out intended use of proceeds.

 

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Risk factors

 

we are a development stage company with no current revenue, and limited experience developing medical devices, including those intended for use in the radiation oncology field, which makes it difficult to assess our future viability;
   
we depend heavily on the success of RadioGel™, and we cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, RadioGel™, or any other future product candidates;
   
failures or delays in the commencement or business plan could delay, prevent or limit our ability to generate revenue and continue our business;
   
we face significant competition, and if we are unable to compete effectively, we may not be able to achieve or maintain significant market penetration or improve our results of operations;
   

future sales or issuances of our securities, including the sale of securities being offered hereby, may cause immediate and substantial dilution to existing stockholders;

 

there is only one supplier of Y-90 in the United States, requiring us to rely entirely on this supplier to provide the Y-90 particles needed to produce RadioGelTM. If we are unable to obtain a sufficient supply of Y-90 particles, we will not be able to proceed with our development of RadioGelTM and our business will be materially harmed;
   
if we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents that are sufficient to protect our product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects; and

 

we have incurred significant net losses since inception and we will continue to incur substantial operating losses for the foreseeable future.

 

See the section entitled “Risk Factors” for a more thorough discussion of risks related to an investment in our common stock.

 

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Summary Financial Information

 

The following table summarizes the relevant financial data for our business and should be read with our financial statements, which are included later in this Offering Circular. We have not had any significant operations to date, so only balance sheet data is presented.

 

  

Year Ended

December 31,

 
   2019   2018 
         
Revenues, net  $9,500   $- 
Cost of Goods sold   (6,028)   - 
Gross profit   3,472    - 
           
OPERATING EXPENSES          
Sales and marketing expenses   -    11,500 
Professional fees   462,952    682,217 
Reserved stock units granted   -    113,189 
Stock based compensation   608,588    1,164,885 
Payroll expenses   120,000    315,000 
Research and development   67,584    104,208 
General and administrative expenses   74,327    98,638 
Total Operating Expenses   1,333,451    2,489,637 
           
OPERATING LOSS   (1,329,979)   (2,489,637)
           
NON-OPERATING INCOME (EXPENSE)          
Interest expense   (261,374)   (5,649,546)
Net gain (loss) on debt extinguishment   (18,744)   605,601 
Net loss on derivative liability   -    (186,846)
Grant income   -    17,583 
           
Total Non-Operating Income (Expenses)   (280,118)   (5,213,208)
           
NET LOSS BEFORE PROVISION FOR INCOME TAXES   (1,610,097)   (7,702,845)
Provision for income taxes   -    - 
NET LOSS  $(1,610,097)   (7,702,845)
Net loss per share - basic and diluted (1)  $(0.01)  $(0.14)
Weighted average common shares outstanding – basic (1)   175,195,600    55,501,248 

 

Consolidated Balance Sheet Data: 

At

December 31, 2019

 
   Actual   Pro Forma  (1)   Pro Forma, as Adjusted (2) 
Cash  $20,381   $125,280   $145,661 
Total assets   43,873    125,280    169,153 
Accounts payable and accrued expenses   511,817         511,817 
Related party accounts payable   32,110         32,110 
Accrued interest payable   93,249    (11,178)   82,071 
Payroll liabilities payable   100,000         100,000 
Convertible notes payable, related party, net   14,500    (14,500)   - 
Convertible notes payable, net   434,886    (379,268)   55,618 
Promissory notes payable, net of discount   100,000         100,000 
Related party promissory note   237,000         237,000 
Total stockholders’ equity (deficit)   (1,479,689)   530,226    (949,463)

 

(1) The pro forma information included herein assumes that we sell the maximum number of shares of common stock offered hereby at an assumed public offering price of $0.027 per share. Each $0.01 increase (decrease) in the assumed public offering price of $0.027 per share of common stock would increase (decrease) each of our as adjusted cash and cash equivalents, total assets and total stockholders’ equity (deficit) by approximately $1,500,000, assuming the public offering price per share remains at $0.027and we sell the maximum amount of common stock set forth on the cover page of this Offering Circular and after deducting the estimated offering expenses payable by us. The conversion of the notes and issuance of shares for stock effective upon the qualification of the offer and sale of such shares under Regulation A+  are included in the pro forma and pro forma  as adjusted figures with a deemed completion of March 31, 2020.

 

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RISK FACTORS

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Offering Circular, including our financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. The occurrence of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

 

RISKS ASSOCIATED WITH THE COMPANY’S BUSINESS

 

Our independent registered public accounting firms’ reports on its financial statements questions the Company’s ability to continue as a going concern.

 

The Company’s independent registered public accounting firms’ reports on the Company’s financial statements for the years ended December 31, 2019 and 2018 express substantial doubt about the Company’s ability to continue as a going concern. The reports include an explanatory paragraph stating that the Company has suffered recurring losses, used significant cash in support of its operating activities and, based on its current operating levels, require additional capital or significant restructuring to sustain its operation for the foreseeable future. There is no assurance that the Company will be able to obtain sufficient additional capital to continue its operations and to alleviate doubt about its ability to continue as a going concern. If the Company obtains additional financing, such funds may not be available on favorable terms and likely would entail considerable dilution to existing shareholders. Any debt financing, if available, may involve restrictive covenants that restrict its ability to conduct its business. It is extremely remote that the Company could obtain any financing on any basis that did not result in considerable dilution for shareholders. Inclusion of a “going concern qualification” in the report of its independent accountants or in any future report may have a negative impact on its ability to obtain debt or equity financing and may adversely impact its stock price.

 

A combination of our current financial condition and the FDA’s determinations to date regarding our brachytherapy products raise material concerns about ability to continue as a going concern.

 

The Company will not be able to continue as a going concern unless the Company obtains financing. Depending upon the amount of financing, if any, the Company is able to obtain, the Company may not receive adequate funds to continue the approval process for RadioGel™ or other brachytherapy products with the FDA.

 

The Company has generated operating losses since inception, which are expected to continue, and has increasing cash requirements, which it may be unable to satisfy.

 

The Company has generated material operating losses since inception. The Company has had recurring net losses since inception which has resulted in an accumulated deficit of $73,601,109 and $71,991,012 as of December 31, 2019 and 2018, respectively including net losses of $1,610,097 and $7,702,845 for the years ended December 31, 2019 and 2018. Of these losses $(18,744) and $418,755 represent net gains (losses) attributable to the recorded derivative liabilities and extinguishment of debt for the years ended December 31, 2019 and 2018, respectively. Historically, the Company has relied upon investor funds to maintain its operations and develop its business. The Company needs to raise additional capital within the next quarter from investors for working capital as well as business expansion, and there is no assurance that additional investor funds will be available on terms acceptable to the Company, or at all. If the Company is unable to unable to obtain additional financing to meet its working capital requirements, the Company likely would cease operations.

 

The Company requires funding of at least $2.3 million per year to maintain current operating activities. Over the next 24 months, the Company believes it will cost approximately $5.0 million to $10.0 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel.

 

10

 

 

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.

 

Recent economic events, including the inherent instability in global capital markets, as well as the lack of liquidity in the capital markets, could adversely impact the Company’s ability to obtain financing and its ability to execute its business plan.

 

The Company has a limited operating history, which may make it difficult to evaluate its business and prospects.

 

The Company has a limited operating history upon which one can base an evaluation of its business and prospects. As a company in the development stage, there are substantial risks, uncertainties, expenses and difficulties to which its business is subject. To address these risks and uncertainties, the Company must do the following:

 

  successfully develop and execute the business strategy;
     
  respond to competitive developments; and
     
  attract, integrate, retain and motivate qualified personnel.

 

There is no assurance that the Company will achieve or maintain profitable operations or that the Company will obtain or maintain adequate working capital to meet its obligations as they become due. The Company cannot be certain that its business strategy will be successfully developed and implemented or that the Company will successfully address the risks that face its business. In the event that the Company does not successfully address these risks, its business, prospects, financial condition, and results of operations could be materially and adversely affected.

 

The Company’s products are regulated and require appropriate clearances and approvals to be marketed in the U.S. and globally.

 

There is no assurance the FDA or other global regulatory authorities will grant the Company permission to market the Company’s brachytherapy Y-90 RadioGel™ device.

 

The Company has been working with the FDA to obtain clearance for its brachytherapy Y-90 RadioGelTM device, but no assurances have been received. On December 23, 2014, the Company announced that it submitted a de novo to the FDA for marketing clearance for its patented Y-90 RadioGelTM device pursuant to Section 513(f)(2) of the U.S. Food, Drug and Cosmetic Act (the “Act”). In June 2015, the FDA notified the Company the de novo was not granted. In February 2014, the FDA found the same device under Section 510(k) of the Act not substantially equivalent and concluded that the device is classified by statute as a Class III medical device, unless the device is reclassified. The Company is seeking reclassification of the product to Class II. If the Company is successful in seeking reconsideration of the Company’s de novo application, as a regulatory matter, the device could be on an easier and faster path to market in the United States. However, there would still be the requirements to complete the in vitro and in vivo testing, and then some human clinical trials. That testing date is submitted in a de novo pre-market application and if accepted we could then go to market. As a practical matter, the Company would still need to secure funding and commercial arrangements before marketing could commence. If the de novo is declined and if the Company obtains funding to permit it to continue operations, the Company will explore steps toward seeking approval for the device as a Class III medical device. Generally, the time period and cost of seeking approval as a Class III medical device is materially greater than the time period and cost of seeking approval as a Class II medical device. If the Company seeks approval as a Class III device, human clinical trials will be necessary. Generally, human trials for Class III products are larger, of longer duration and costlier than those for Class II devices.

 

11

 

 

If human clinical trials are necessary, there will be additional cost and time to reach marketing clearance or approval. Unless the Company obtains sufficient funding, it will be unable to do the foregoing activities. There can be no assurance that the product will be approved as either a Class II or Class III device by the FDA even if additional data is provided. In August 2017, the Company met again with the FDA in a pre-submission meeting to once again go through the requirements for pre-clinical testing and to answer the previous FDA questions submitted years before. There can be no assurance that the Company will receive FDA approval, or if it does, the timing thereof.

 

If the Company is successful in increasing the size of its organization, the Company may experience difficulties in managing growth.

 

The Company is a small organization with a minimal number of employees. If the Company is successful, it may experience a period of significant expansion in headcount, facilities, infrastructure and overhead and further expansion may be required to address potential growth and market opportunities. Any such future growth will impose significant added responsibilities on members of management, including the need to improve the Company’s operational and financial systems and to identify, recruit, maintain and integrate additional managers. The Company’s future financial performance and its ability to compete effectively will depend, in part, on the ability to manage any future growth effectively.

 

The Company’s business is dependent upon the continued services of the Company’s Chief Executive Officer, Michael Korenko. Should the Company lose the services of Dr. Korenko, the Company’s operations will be negatively impacted.

 

The Company’s business is dependent upon the expertise of its Chief Executive Officer, Michael Korenko. Dr. Korenko is essential to the Company’s operations. Accordingly, an investor must rely on Dr. Korenko’s management decisions that will continue to control the Company’s business affairs. The Company does not maintain key man insurance on Dr. Korenko’s life. The loss of the services of Dr. Korenko would have a material adverse effect upon the Company’s business. To mitigate this risk, David Swanberg has been groomed as a replacement candidate. He has extensive experience as a co-founder of IsoRay and has been actively working with Dr. Korenko as a consultant for the last two years.

 

The Company is heavily dependent on consultants for many of the services necessary to continue operations. The loss of any of these consultants could have a material adverse effect on the Company’s business, results of operations and financial condition.

 

The Company’s success is heavily dependent on the continued active participation of certain consultants and collaborating scientists. Certain key employees and consultants have no written employment contracts. Loss of the services of any one or more of its consultants could have a material adverse effect upon the Company’s business, results of operations and financial condition.

 

If the Company is unable to hire and retain additional qualified personnel, the business and financial condition may suffer.

 

The Company’s success and achievement of its growth plans depend on its ability to recruit, hire, train and retain highly qualified technical, scientific, regulatory and managerial employees, consultants and advisors. Competition for qualified personnel among pharmaceutical and biotechnology companies is intense, and an inability to attract and motivate additional highly skilled personnel required for the expansion of the Company’s activities, or the loss of any such persons, could have a material adverse effect on its business, results of operations and financial condition.

 

The Company’s revenues have historically been derived from sales made to a small number of customers. The Company has discontinued prior operations related to its core business. To succeed, we will need to recommence our operations and achieve sales to a materially larger number of customers.

 

During 2014, the Company ceased all previous manufacturing and sales activities. Our revenues for the year ended December 31, 2017 consisted of only consulting revenue, and our revenues for the year ended December 31, 2018 consisted of only $17,583 of grant revenue. The Company’s consulting revenues for the year ended December 31, 2017 were made to one customer, and those sales constituted 100% of total revenues for that years. At such time as the Company recommences active operations, no assurances can be given that the Company will be successful in commercializing its products or expanding the number of customers purchasing its products and services. The Company had $9,500 in operating revenues, net of discounts for the year ended December 31, 2019, and no operating revenues for the year ended December 31, 2018 as they have commenced sales of IsoPet®.

 

12

 

 

Many of the Company’s competitors have greater resources and experience than the Company has.

 

Many of the Company’s competitors have greater financial resources, longer history, broader experience, greater name recognition, and more substantial operations than the Company has, and they represent substantial long-term competition for us. The Company’s competitors may be able to devote more financial and human resources than the Company can to research, new product development, regulatory approvals, and marketing and sales. The Company’s competitors may develop or market products that are viewed by customers as more effective or more economical than the Company’s products. There is no assurance that the Company will be able to compete effectively against current and future competitors, and such competitive pressures may adversely affect the Company’s business and results of operations.

 

The Company’s future revenues depend upon acceptance of its current and future products in the markets in which they compete.

 

The Company’s future revenues depend upon receipt of financing, regulatory approval and the successful production, marketing, and sales of the various isotopes the Company might market in the future. The rate and level of market acceptance of each of these products, if any, may vary depending on the perception by physicians and other members of the healthcare community of its safety and efficacy as compared to that of any competing products; the clinical outcomes of any patients treated; the effectiveness of its sales and marketing efforts in the United States, Europe, Far East, Middle East, and Russia; any unfavorable publicity concerning its products or similar products; the price of the Company’s products relative to other products or competing treatments; any decrease in current reimbursement rates from the Centers for Medicare and Medicaid Services or third-party payers; regulatory developments related to the manufacture or continued use of its products; availability of sufficient supplies to either purchase or manufacture its products; its ability to produce sufficient quantities of its products; and the ability of physicians to properly utilize its products and avoid excessive levels of radiation to patients. Any material adverse developments with respect to the commercialization of any such products may adversely affect revenues and may cause the Company to continue to incur losses in the future.

 

The Company currently relies on a single supplier for Y-90 particles, and that supplier is the only supplier in the United States. An inability to procure Y-90 particles will harm the Company’s business.

 

There is only one supplier of Y-90 particles in the United States, requiring us to rely entirely on this supplier to provide the Y-90 particles needed to produce RadioGelTM. If we are unable to obtain a sufficient supply of Y-90 particles, we will not be able to proceed with our development of RadioGelTM and our business may be materially harmed.

 

The Company currently subcontracts the manufacturing of RadioGelTM to IsoTherapeutics. PerkinElmer Inc. is the sole supplier of the Y-90 particles used by IsoTherapeutics and is the only supplier of Y-90 particles in the United States. In the event PerkinElmer is unable to satisfy our supply requirements or stope producing Y-90 particles, we will be unable to continue with development of RadioGel™ and our business would be materially harmed.

 

The Company will rely heavily on a limited number of suppliers for the foreseeable future.

 

Some of the products the Company might market, and components thereof are currently available only from a limited number of suppliers, several of which are international suppliers. Failure to obtain deliveries from these sources could have a material adverse effect on the Company’s ability to operate.

 

The Company may incur material losses and costs as a result of product liability claims that may be brought against it.

 

The Company faces an inherent business risk of exposure to product liability claims in the event that products supplied by the Company fail to perform as expected or such products result, or is alleged to result, in bodily injury. Any such claims may also result in adverse publicity, which could damage the Company’s reputation by raising questions about the safety and efficacy of its products and could interfere with its efforts to market its products. A successful product liability claim against the Company in excess of its available insurance coverage or established reserves may have a material adverse effect on its business. Although the Company currently maintains liability insurance in amounts it believes are commercially reasonable, any product liability the Company may incur may exceed its insurance coverage.

 

13

 

 

The Company is subject to the risk that certain third parties may mishandle the Company’s products.

 

If the Company markets products, the Company likely will rely on third parties, such as commercial air courier companies, to deliver the products, and on other third parties to package the products in certain specialized packaging forms requested by customers. The Company thus would be subject to the risk that these third parties may mishandle its product, which could result in material adverse effects, particularly given the radioactive nature of some of the products.

 

The Company is subject to uncertainties regarding reimbursement for use of its products.

 

Hospitals and freestanding clinics may be less likely to purchase the Company’s products if they cannot be assured of receiving favorable reimbursement for treatments using its products from third-party payers, such as Medicare and private health insurance plans. Third-party payers are increasingly challenging the pricing of certain medical services or devices, and there is no assurance that they will reimburse the Company’s customers at levels sufficient for it to maintain favorable sales and price levels for the Company’s products. There is no uniform policy on reimbursement among third-party payers, and there is no assurance that the Company’s products will continue to qualify for reimbursement from all third-party payers or that reimbursement rates will not be reduced. A reduction in or elimination of third-party reimbursement for treatments using the Company’s products would likely have a material adverse effect on the Company’s revenues.

 

The Company’s future growth is largely dependent upon its ability to develop new technologies that achieve market acceptance with appropriate margins.

 

The Company’s business operates in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, future growth rates depend upon a number of factors, including the Company’s ability to (i) identify emerging technological trends in the Company’s target end-markets, (ii) develop and maintain competitive products, (iii) enhance the Company’s products by adding innovative features that differentiate the Company’s products from those of its competitors, and (iv) develop, manufacture and bring products to market quickly and cost-effectively. The Company’s ability to develop new products based on technological innovation can affect the Company’s competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in the Company’s business, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of the Company’s customers as fully as competitive offerings. In addition, the markets for the Company’s products may not develop or grow as it currently anticipates. The failure of the Company’s technologies or products to gain market acceptance due to more attractive offerings by the Company’s competitors could significantly reduce the Company’s revenues and adversely affect the Company’s competitive standing and prospects.

 

The Company may rely on third parties to represent it locally in the marketing and sales of its products in international markets and its revenue may depend on the efforts and results of those third parties.

 

The Company’s future success may depend, in part, on its ability to enter into and maintain collaborative relationships with one or more third parties, the collaborator’s strategic interest in the Company’s products and the Company’s products under development, and the collaborator’s ability to successfully market and sell any such products.

 

The Company intends to pursue collaborative arrangements regarding the marketing and sales of its products; however, it may not be able to establish or maintain such collaborative arrangements, or if it is able to do so, the Company’s collaborators may not be effective in marketing and selling its products. To the extent that the Company decides not to, or is unable to, enter into collaborative arrangements with respect to the sales and marketing of its products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise. To the extent that the Company depends on third parties for marketing and distribution, any revenues received by the Company will depend upon the efforts and results of such third parties, which may or may not be successful.

 

14

 

 

The Company may pursue strategic acquisitions that may have an adverse impact on its business.

 

Executing the Company’s business strategy may involve pursuing and consummating strategic transactions to acquire complementary businesses or technologies. In pursuing these strategic transactions, even if the Company does not consummate them, or in consummating such transactions and integrating the acquired business or technology, the Company may expend significant financial and management resources and incur other significant costs and expenses. There is no assurance that any strategic transactions will result in additional revenues or other strategic benefits for the Company’s business. The Company may issue the Company’s stock as consideration for acquisitions, joint ventures or other strategic transactions, and the use of stock as purchase consideration could dilute the interests of its current stockholders. In addition, the Company may obtain debt financing in connection with an acquisition. Any such debt financing may involve restrictive covenants relating to capital-raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and pursue business opportunities, including potential acquisitions. In addition, such debt financing may impair the Company’s ability to obtain future additional financing for working capital, capital expenditures, acquisitions, general corporate or other purposes, and a substantial portion of cash flows, if any, from the Company’s operations may be dedicated to interest payments and debt repayment, thereby reducing the funds available to the Company for other purposes.

 

The Company will need to hire additional qualified accounting personnel in order to remediate a material weakness in its internal control over financial accounting, and the Company will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of its internal control over financial reporting and its disclosure controls and procedures.

 

As a public company, the Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002. The Company’s management is required to evaluate and disclose its assessment of the effectiveness of the Company’s internal control over financial reporting as of each year-end, including disclosing any “material weakness” in the Company’s internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of its assessment, management has determined that there is a material weakness due to the lack of segregation of duties and, due to this material weakness, management concluded that, as of December 31, 2019 and 2018, the Company’s internal control over financial reporting was ineffective. This material weakness has the potential of adversely impacting the Company’s financial reporting process and the Company’s financial reports. Because of this material weakness, management also concluded that the Company’s disclosure controls and procedures were ineffective as of December 31, 2019 and 2018. The Company needs to hire additional qualified accounting personnel in order to resolve this material weakness. The Company also will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures.

 

The Company may be unable to make timely license and patent payments

 

Patent costs associated with existing and new technologies are significant; however, the licensing contract with Battelle Pacific Northwest Laboratory (“Battelle”) was re-negotiated to significantly reduce these costs. Existing patent and license fees must be paid for the Company to maintain rights to its technologies. The Company would forfeit its exclusive rights to licensed technologies in the event it fails to pay patent and rights fees in a timely fashion. No assurance can be given that the Company will be able to continue to pay license fees in the event it is unable to secure adequate working capital. Battelle has advised the Company that if we did not make a payment they would not attempt to relicense but would allow the patents to lapse. The Company has decided to pursue additional patents outside the Battelle contract based on exclusive proprietary manufacturing techniques developed by the Company.

 

15

 

 

The Company’s patented or other technologies may infringe on other patents, which may expose it to costly litigation.

 

It is possible that the Company’s patented or other technologies may infringe on patents or other rights owned by others. The Company may have to alter its products or processes, pay licensing fees, defend infringement actions or challenge the validity of the patents in court, or cease activities altogether because of patent rights of third parties, thereby causing additional unexpected costs and delays to the Company. Patent litigation is costly and time consuming, and the Company may not have sufficient resources to pursue such litigation. If the Company does not obtain a license under such patents, if it is found liable for infringement, or if it is not able to have such patents declared invalid, the Company may be liable for significant money damages, may encounter significant delays in bringing products to market or may be precluded from participating in the manufacture, use or sale of products or methods of treatment requiring such licenses.

 

Protecting the Company’s intellectual property is critical to its innovation efforts.

 

The Company owns or has a license to use several U.S. and foreign patents and patent applications, trademarks and copyrights. The Company’s intellectual property rights may be challenged, invalidated or infringed upon by third parties, or it may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual property on commercially reasonable terms. In some non-U.S. countries, laws affecting intellectual property are uncertain in their application, which can adversely affect the scope or enforceability of the Company’s patents and other intellectual property rights. Any of these events or factors could diminish or cause the Company to lose the competitive advantages associated with the Company’s intellectual property, subject the Company to judgments, penalties and significant litigation costs, or temporarily or permanently disrupt its sales and marketing of the affected products or services.

 

The Company may not be able to protect its trade secrets and other unpatented proprietary technology, which could give competitors an advantage.

 

The Company relies upon trade secrets and other unpatented proprietary technology. The Company may not be able to adequately protect its rights with regard to such unpatented proprietary technology, or competitors may independently develop substantially equivalent technology. The Company seeks to protect trade secrets and proprietary knowledge, in part through confidentiality agreements with its employees, consultants, advisors and collaborators. Nevertheless, these agreements may not effectively prevent disclosure of the Company’s confidential information and may not provide the Company with an adequate remedy in the event of unauthorized disclosure of such information, and as result the Company’s competitors could gain a competitive advantage.

 

General economic conditions in markets in which the Company does business can impact the demand for the Company’s goods and services. Decreased demand for the Company’s products and services could have a negative impact on its financial performance and cash flow.

 

Demand for the Company’s products and services, in part, depends on the general economic conditions affecting the countries and industries in which the Company does business. A downturn in economic conditions in a country or industry that the Company serves may adversely affect the demand for the Company’s products and services, in turn negatively impacting the Company’s operations and financial results. Further, changes in demand for the Company’s products and services can magnify the impact of economic cycles on the Company’s businesses. Unanticipated contract terminations by customers can negatively impact operations, financial results and cash flow. The Company’s earnings, cash flow and financial position are exposed to financial market risks worldwide, including interest rate and currency exchange rate fluctuations and exchange rate controls. Fluctuations in domestic and world financial markets could adversely affect interest rates and impact the Company’s ability to obtain credit or attract investors.

 

The Company is subject to extensive government regulation in jurisdictions around the world in which it does business. Regulations address, among other things, environmental compliance, import/export restrictions, healthcare services, taxes and financial reporting, and those regulations can significantly increase the cost of doing business, which in turn can negatively impact operations, financial results and cash flow.

 

If the Company is successful in developing manufacturing capability, the Company will be subject to extensive government regulation and intervention both in the U.S. and in all foreign jurisdictions in which it conducts business. Compliance with applicable laws and regulations will result in higher capital expenditures and operating costs, and changes to current regulations with which the Company complies can necessitate further capital expenditures and increases in operating costs to enable continued compliance. Additionally, from time to time, the Company may be involved in proceedings under certain of these laws and regulations. Foreign operations are subject to political instabilities, restrictions on funds transfers, import/export restrictions, and currency fluctuation.

 

16

 

 

Volatility in raw material and energy costs, interruption in ordinary sources of supply, and an inability to recover from unanticipated increases in energy and raw material costs could result in lost sales or could increase significantly the cost of doing business.

 

Market and economic conditions affecting the costs of raw materials, utilities, energy costs, and infrastructure required to provide for the delivery of the Company’s products and services are beyond the Company’s control. Any disruption or halt in supplies, or rapid escalations in costs, could adversely affect the Company’s ability to manufacture products or to competitively price the Company’s products in the marketplace. To date, the ultimate impact of energy costs increases has been mitigated through price increases or offset through improved process efficiencies; however, continuing escalation of energy costs could have a negative impact upon the Company’s business and financial performance.

 

RISKS RELATED TO THE COMPANY’S COMMON STOCK

 

The Company’s common stock is currently quoted on the OTCQB Marketplace. Failure to develop or maintain a more active trading market may negatively affect the value of the Company’s common stock, may deter some potential investors from purchasing the Company’s common stock or other equity securities, and may make it difficult or impossible for stockholders to sell their shares of common stock.

 

The Company’s average daily volume of shares traded for the years ended December 31, 2019 and 2018 was 681,623 and 1.795.854, respectively. Failure to develop or maintain an active trading market may negatively affect the value of the Company’s common stock, may make some potential investors unwilling to purchase the Company’s common stock or equity securities that are convertible into or exercisable for the Company’s common stock, and may make it difficult or impossible for the Company’s stockholders to sell their shares of common stock and recover any part of their investment.

 

The Company’s outstanding securities, the stock or other securities that it may become obligated to issue under existing agreements, and certain provisions of those securities, may cause immediate and substantial dilution to existing stockholders and may make it more difficult to raise additional equity capital.

 

The Company had 214,421,364 shares of common stock outstanding on April 24, 2020. The Company also had outstanding on that date dilutive securities consisting of preferred stock, restricted stock units, options, warrants, and convertible notes (collectively, “Common Stock Equivalents”) that if they had been exercised and converted in full on April 24, 2020, would have resulted in the issuance of up to 94,681,140 additional shares of common stock. The issuance of shares upon the exercise of the Common Stock Equivalents may result in substantial dilution to each stockholder by reducing that stockholder’s percentage ownership of the Company’s total outstanding shares of common stock. The issuance of some or all those warrants and any exercise of those warrants will have the effect of further diluting the percentage ownership of the Company’s other stockholders.

 

Future sales of the Company’s securities, including sales following exercise or conversion of derivative securities, or the perception that such sales may occur, may depress the price of common stock and could encourage short sales.

 

The sale or availability for sale of substantial amounts of the Company’s shares in the public market, including shares issuable upon exercise of the Common Stock Equivalents, or the perception that such sales may occur, may adversely affect the market price of the Company’s common stock. Any decline in the price of the Company’s common stock may encourage short sales, which could place further downward pressure on the price of the Company’s common stock.

 

17

 

 

The Company’s stock price is likely to be volatile.

 

For the year ended December 31, 2019, the reported low closing price for the Company’s common stock was $0.0112 per share, and the reported high closing price was $0.0893 per share. For the year ended December 31, 2018, the reported low closing price for the Company’s common stock was $0.0208 per share, and the reported high closing price was $0.80 per share. There is generally significant volatility in the market prices, as well as limited liquidity, of securities of early stage companies, particularly early stage medical product companies. Contributing to this volatility are various events that can affect the Company’s stock price in a positive or negative manner. These events include, but are not limited to: governmental approvals, refusals to approve, regulations or other actions; market acceptance and sales growth of the Company’s products; litigation involving the Company or the Company’s industry; developments or disputes concerning the Company’s patents or other proprietary rights; changes in the structure of healthcare payment systems; departure of key personnel; future sales of its securities; fluctuations in its financial results or those of companies that are perceived to be similar to us; investors’ general perception of us; and general economic, industry and market conditions. If any of these events occur, it could cause the Company’s stock price to fall, and any of these events may cause the Company’s stock price to be volatile.

 

The Company’s common stock is subject to the “Penny Stock” rules of the SEC and the trading market in its securities is limited, which makes transactions in its common stock cumbersome and may reduce the value of an investment in the Company’s stock.

 

The SEC has adopted Rule 3a51-1, which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires that a broker or dealer approve a person’s account for transactions in penny stocks and that the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and must make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of the Company’s common stock and may cause a decline in the market value of its stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

As a result of the Company issuing preferred stock, the rights of holders of the Company’s common stock and the value of the Company’s common stock may be adversely affected.

 

The Company’s Board of Directors is authorized to issue classes or series of preferred stock, without any action on the part of the stockholders. The Company’s Board of Directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of its business, and other terms. The Company has issued preferred stock that has a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, and with respect to voting rights. In accordance with that and with the issuance of preferred stock, our common stockholders voting rights have been diluted and it is possible that the rights of holders of the common stock or the value of the common stock have been adversely affected.

 

18

 

 

The Company does not expect to pay any dividends on common stock for the foreseeable future.

 

The Company has not paid any cash dividends on its common stock to date and does not anticipate it will pay cash dividends on its common stock in the foreseeable future. Accordingly, stockholders must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Any determination to pay dividends in the future will be made at the discretion of the Company’s board of directors and will depend on the Company’s results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, and other factors that the Company’s board deems relevant.

 

Pandemics including COVID-19 may adversely affect our business.

 

The recent unprecedented events related to COVID-19, the disease caused by the novel coronavirus (SARS-CoV-2), have had significant health, economic, and market impacts and may have short-term and long-term adverse effects on our business that we cannot predict as the global pandemic continues to evolve. The extent and effectiveness of responses by governments and other organizations also cannot be predicted.

 

Our ability to access the capital markets is unknown during the COVID-19 pandemic. Any such limitation on available financing would adversely affect our business.

 

RISKS RELATED TO THIS OFFERING

 

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

 

Because the public offering price per share is substantially higher than the book value per share of our common stock, you will incur immediate and substantial dilution in the net tangible book value of the common stock you purchase in this offering. After giving effect to the assumed sale by us of the maximum of 150,000,000 shares of our common stock at an assumed public offering price of $0.027 per share, and after deducting the estimated offering expenses payable by us, which we estimate will be approximately $100,000, you will suffer immediate and substantial dilution of $0.014 per share in the pro forma net tangible book value of the common stock you purchase in this offering.

 

To the extent outstanding options, warrants or other derivative securities are ultimately exercised or converted, or if we issue restricted stock to our employees under our 2015 Omnibus Securities and Incentive Plan, there will be further dilution to investors who purchase shares in this offering. In addition, if we issue additional equity securities or derivative securities, investors purchasing shares in this offering will experience additional dilution. For a further description of the dilution that you will experience immediately after this offering, see “Dilution” on page 18.

 

Proceeds from the offering may be substantially less in the event the Company’s 8% Promissory Notes are exchanged for common stock in the offering.

 

The Company currently has outstanding 8% Promissory Notes that may be exchanged for shares of common stock issued in connection with the offering, in which event the proceeds to the Company will be reduced by the amount of principal and accrued interest exchanged for common stock. See “Plan of Distribution” on page 54 for additional information. In the event we accept such exchanges, we may not generate sufficient proceeds from the offering to satisfy our working capital requirements, resulting in the need to raise additional working capital to continue as a going concern.

 

We may allocate the net proceeds from this offering in ways that differ from our estimates based on our current plans and assumptions discussed in the section titled “Use of Proceeds” and with which you may not agree.

 

The allocation of net proceeds of the offering set forth in the “Use of Proceeds” section of this Offering Circular represents our estimates based upon our current plans and assumptions regarding industry and general economic conditions, our future revenues and expenditures. The amounts and timing of our actual expenditures will depend on numerous factors, including market conditions, cash generated by our operations, business developments and related rate of growth. We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes. Circumstances that may give rise to a change in the use of proceeds and the alternate purposes for which the proceeds may be used are discussed in the section in this Offering Circular entitled “Use of Proceeds.” You may not have an opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use our proceeds. As a result, you and other stockholders may not agree with our decisions. See “Use of Proceeds” on page 20 for additional information.

 

Sales of a substantial number of shares of our common stock, or the perception that such sales may occur, may adversely impact the price of our common stock.

 

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception that such sales may occur, may adversely impact the price of our common stock, even if there is no relationship between such sales and the performance of our business. As of April 24, 2020, we had 214,421,364 shares of common stock outstanding, as well as outstanding options to purchase an aggregate of 34,524,580 shares of our common stock at a weighted average exercise price of $0.08 per share, 2,552,073 shares of common stock issuable upon exercise of outstanding convertible promissory notes, 20,672,640 shares of common stock issuable upon conversion of outstanding shares of our preferred stock, and outstanding warrants to purchase up to an aggregate of 36,931,847 shares of our common stock at a weighted average exercise price of $0.10 per share. The exercise of such outstanding derivative securities may result in further dilution of your investment.

 

19

 

 

USE OF PROCEEDS

 

The maximum gross proceeds from the sale of the shares of our common stock being offered hereby is $4,050,000. Assuming that we sell the maximum number of shares of common stock being offered pursuant to this Offering Circular, and 100% of the shares sold in the offering are sold for cash rather than the cancellation of principal and accrued interest due under the terms of the 8% Promissory Notes, we currently estimate that we will receive net proceeds of approximately $3,950,000 after the payment of estimated offering expenses payable by us. The estimate of the budget for offering costs is an estimate only, and the actual offering costs may differ from those expected by management.

 

We currently intend to use the majority of the proceeds we receive from this offering to expand our animal therapy business. This includes supporting the startup of regional centers beyond our initial pilot clinic, establishing an Isolated Production Facility (“IPF”) within IsoTherapeutics, to reduce production costs, enhance product yield and shorten the product ordering to delivery cycle. We also intend to expand animal testing at the University of Missouri to include equoid sarcoids in horses and to enhance our intellectual property by completing new patent filings in both the United States and international markets. In the event that we secure incremental funding from this offering in excess of $4,050,000 million, we intend to complete the pre-clinical testing required to file an IDE with the FDA to initiate clinical trials for advanced human skin cancer, which we believe will significantly improve our ability to partner and/or license our product for human therapy.

 

In addition, we intend to apply certain proceeds towards offering expenses, public company and corporate costs, research and development and other application development, and working capital. We expect that approximately 10% to 20% of the proceeds from this offering will be used for general working capital purposes.

 

As of April 24, 2020, the Company had convertible promissory notes in the aggregate principal amount of $45,000 outstanding (the “Outstanding Convertible Notes”), which currently accrue interest at rates of 12% per annum. All of the Outstanding Convertible Notes are currently past due and payable. In addition, the Company currently has (i) two promissory notes payable in the aggregate principal amount of $100,000, which accrue interest at a rate of 15% per annum, (ii) a convertible promissory notes totaling $100,000 that we entered into in January 2020, which accrues interest at a rate of 8% per annum, and (iii) five notes totaling $237,000 that we entered into with a trust affiliated with our Chairman of the Board of Directors, which accrue interest at a rate of 8% per annum. (“Outstanding Notes”). We may also use a portion of the net proceeds from the offering to repay the Outstanding Notes. For a further description of the Outstanding Notes as of April —, 2020, including applicable interest rates for each of the Outstanding Notes, please see the financial statements for the years ended December 31, 2019 and 2018, included elsewhere in this Offering Circular.

 

Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.

 

The precise amounts that we will devote to each of the foregoing items, and the timing of expenditures, will vary depending on numerous factors.

 

The expected use of net proceeds from this offering represents our intentions based on our current plans and business conditions, which could change in the future as our plans and business conditions evolve and change. The amounts and timing of our actual expenditures, specifically with respect to working capital, may vary significantly depending on numerous factors. As a result, the Company reserves the right to change the above use of proceeds if management believes it is in the best interests of the Company.

 

In the event we do not sell all of the shares being offered, we may seek additional financing from other sources to support the intended use of proceeds indicated above. If we secure additional equity funding, investors in this offering would be diluted. No plans for additional financing are currently being contemplated by the Company; however, in the event only the minimum proceeds are received in this offering, management may seek additional financing. No assurances can be given that additional financing would be available, and if available, on terms acceptable to us.

 

20

 

 

The following table sets forth the uses of proceeds assuming the sale of 100%, 75%, 50% and 25% of the securities offered for sale by the Company at 0.027 per share. No assurance can be given that we will raise the full $4,050,000 as reflected in the following table, or that 100% of the shares sold in the offering will be sold for cash:

 

Use of Proceeds (at $0.027 per share) 

100%

of Offering

  

75%

of Offering

  

50%

of Offering

  

25%

of Offering

 
Isolated Production Facility (IPF)  $230,000   $230,000   $230,000   $- 
Regional clinic support and marketing  $460,000   $432,500   $270,000   $137,500 
Pre-Clinical Testing  $1,050,000   $1,050,000   $1,050,000   $550,000 
Investigational Device Exemption (IDE) Preparation  $1,000,000   $750,000   $-   $- 
Repayment of Outstanding Notes and liabilities  $500,000   $100,000   $100,000   $100,000 
Offering expenses(1)  $75,000   $75,000   $75,000   $75,000 
Working capital(2)  $735,000   $400,000   $300,000   $150,000 
TOTAL  $4,050,000   $3,037,500   $2,025,000   $1,012,500 

 

(1) As of the date of this Offering Circular, we have not entered into any agreements with selling agents or broker dealers for the sale of the Offered Shares, and currently do not intend to retain a selling agent or broker dealer to assist in the Offering. As a result, no proceeds are currently allocated to pay any sales commissions. However, we reserve the right to engage FINRA-member broker-dealers to aid in the sale of the shares of our common stock being offered hereby. In the event we engage FINRA-member broker-dealers, we expect to pay sales commissions of up to 7.0% of the gross offering proceeds from their sales of shares of our common stock pursuant to this Offering Circular, although we may pay sales commissions greater than 7.0%.
   
(2) Although management does not currently anticipate using proceeds from the offering to pay off Outstanding Notes in their entirety in the event the offering is consummated at $0.027 per share, management may elect to use a portion of the proceeds to pay off some or all of such Outstanding Notes in the event more that 50% of the securities are sold at $0.027 per share. In the event management so elects, the net proceeds available for working capital could decrease by as much as $337,000. Management may also elect to exchange outstanding principal and accrued interest due under the terms of the Outstanding Notes for shares in the offering, in which case the net proceeds from the sale of shares in the offering may be substantially lower.

 

21

 

 

DILUTION

 

The term “dilution” means the reduction of any one share as a percentage of the aggregate shares outstanding. Assuming that we sell the maximum number of shares of common stock being offered pursuant to this Offering Circular, the shares of common stock being offered hereby will constitute approximately 47% of the total issued and outstanding shares of common stock of the Company immediately after the offering, assuming that we do not issue any additional shares of our common stock in the interim. We currently anticipate that subsequent to this offering we may require additional capital and such capital may take the form of other stock or securities or debt convertible into stock. The issuance of such additional securities will result in additional dilution to our stockholders.

 

Immediate Dilution

 

An early-stage company typically sells its shares (or grants options over its shares) to its founders and early employees at a very low cash cost, because they are, in effect, putting their “sweat equity” into the company. When the company seeks cash investments from outside investors, like you, the new investors typically pay a much larger sum for their shares than the founders or earlier investors, which means that the cash value of your stake is diluted because all the shares are worth the same amount, and you paid more than earlier investors for your shares.

 

If 100% of the Shares Are Sold for Cash:

 

As of December 31, 2019, the net tangible book value of our shares of common stock was $(1,479,689), as adjusted ($949,463), or ($0.007) per share. Upon completion of this offering, in the event all of the shares are sold for cash for an aggregate amount of $4,050,000, the pro-forma net tangible book value of the 364,421,364 shares to be outstanding will be $2,570,000 or approximately $0.007 per share. As a result, the net tangible book value of the shares held by our existing shareholders will be increased by $0.014 per share without any additional investment on their part. Investors in the offering will incur an immediate dilution of $0.007 per share, or 50%.

 

After completion of this offering, assuming 150,000,000 shares are sold, investors in the offering will own 47% of the total number of shares then outstanding for which they will have made a cash investment of $4,050,000 at an offering price of $0.027 per share. Our existing shareholders will own 53% of the total number of shares then outstanding, for which they have invested $60,587,785 or $0.3409 per share.

 

If 75% of the Shares Are Sold:

 

Upon completion of this offering, in the event that 75% of the shares are sold for cash, the net tangible book value of the 326,921,364 shares to be outstanding will be $1,557,500 or approximately $0.005 per share. The net tangible book value per share prior to the offering is ($0.007). The net tangible book value of the shares held by our existing shareholders will be increased by $0.012 per share without any additional investment on their part. Investors in the offering will incur an immediate dilution of $0.007 per share, or 58%.

 

After completion of this offering, assuming 112,500,000 shares are sold for cash, investors in the offering will own 34% of the total number of shares then outstanding for which they will have made a cash investment of $3,037,500 at an offering price of $0.27 per share. Our existing shareholders will own 66% of the total number of shares then outstanding, for which they have invested $60,587,785 or $0.3409 per share.

 

If 50% of the Shares Are Sold:

 

Upon completion of this offering, in the event that 50% of the shares are sold for cash, the net tangible book value of the 289,421,364 shares to be outstanding will be $545,000 or approximately $0.002 per share. The net tangible book value per share prior to the offering is ($0.007). The net tangible book value of the shares held by our existing shareholders will be increased by $0.009 per share without any additional investment on their part. Investors in the offering will incur an immediate dilution of $0.007 per share, or 78%.

 

After completion of this offering, assuming 75,000,000 shares are sold, investors in the offering will own 26% of the total number of shares then outstanding for which they will have made a cash investment of $2,025,000 at an offering price of $0.27 per share. Our existing shareholders will own 74% of the total number of shares then outstanding, for which they have invested $60,587,785 or $0.3409 per share.

 

22

 

 

If 25% of the Shares Are Sold:

 

Upon completion of this offering, in the event that 25% of the shares are sold for cash, the net tangible book value of the 251,921,364 shares to be outstanding will be ($467,500) or approximately ($0.002) per share. The net tangible book value per share prior to the offering is ($0.007). The net tangible book value of the shares held by our existing shareholders will be increased by $0.005 per share without any additional investment on their part. Investors in the offering will incur an immediate dilution of $0.007 per share, or 100%.

 

After completion of this offering, assuming 37,500,000 shares are sold for cash, investors in the offering will own 15% of the total number of shares then outstanding for which they will have made a cash investment of $1,012,500 at an offering price of $0.027 per share. Our existing shareholders will own 85% of the total number of shares then outstanding, for which they have invested $60,587,785 or $0.3409 per share.

 

In the event all shares are not sold upon completion of this offering, the following table details the range of possible outcomes from the offering assuming the sale of 100%, 75%, 50% and 25% of the shares for cash. The information in this table would be affected in the event that future investments were made at a different valuation, or shares are issued in consideration for the exchange of Outstanding Notes, and thus are subject to adjustment.

 

Funding Level  100% of Shares Sold   75% of Shares Sold   50% of Shares Sold   25% of Shares Sold   10% of Shares Sold 
                     
Offering price per share of common stock  $0.027   $0.027   $0.027   $0.027   $0.027 
Net tangible book value per common share before the offering (based on 214,421,364 shares)  $(0.007)  $(0.007)  $(0.007)  $(0.007)  $(0.007)
Increase in net tangible book value per share attributable to shares offered in this offering (based on 150,000,000 shares)  $0.014   $0.012   $0.009   $0.005   $0.004 
Pro forma net tangible book value per common share after the offering (based on 364,421,364 shares)  $0.007   $0.005   $0.002   ($0.002)  ($0.003)
Dilution of net tangible book value per share to investors in this offering  $0.007   $0.007   $0.007   $0.007   $0.007 
Dilution as a percentage of offering price   50%   58%   78%   100%   100%

 

Based on 214,421,364 shares of common stock outstanding as of April 24, 2020, and total stockholder’s deficit of $1,479,689 as of December 31, 2019, as adjusted ($949,463), as adjusted ($949,463).

 

Since inception, the officers, directors, promoters and affiliated persons have paid an aggregate average price of $0.008 per share of common stock in comparison to the anticipated offering price of $0.027 per common share.

 

To the extent that any of the outstanding options or warrants to purchase shares of our common stock are exercised, new investors may experience further dilution. In addition, we may issue additional shares of common stock, other equity securities or convertible debt securities in the future, which may cause further dilution to new investors in this offering.

 

23

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Business

 

Vivos Inc. (the “Company” or “we”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”). On December 28, 2017, the Company changed its name from Advanced Medical Isotope Corp. to Vivos Inc.

 

On June 25, 2019, the Company amended their Certificate of Incorporation amending their authorized common shares to 950,000,000 from 2,000,000,000 shares. In addition, the 1 for 8 reverse stock-split was effective on June 28, 2019. The reverse stock-split reduced the number of common shares issued and outstanding from 1,421,687,688 to 177,710,961 shares. The par value for the common shares remained $0.001 per share, The Company did not amend their preferred stock which is 20,000,000 shares of preferred stock authorized, $0.001 par value per share.

 

Our principal place of business is located at 719 Jadwin Avenue, Richland, Washington 99352. Our telephone number is (509) 736-4000. Our corporate website address is http://www.radiogel.com. Our common stock is currently listed for quotation on the OTCQB Marketplace under the symbol “RDGL.”

 

Results of Operations

 

Comparison for the Year Ended December 31, 2019 and December 31, 2018

 

The following table sets forth information from the Company’s statements of operations for the years ended December 31, 2019 and 2018.

 

   Year Ended
December 31, 2019
   Year Ended
December 31, 2018
 
Revenues, net  $9,500   $- 
           
Cost of goods sold   6,028    - 
           
Gross profit   3,472    - 
           
Operating expense   1,333,451    2,489,637 
           
Operating loss   (1,329,979)   (2,489,637)
           
Non-operating expense   (280,118)   (5,213,208)
           
Net loss  $(1,610,097)  $(7,702,845)

 

Revenue and Cost of Goods Sold

 

We had no revenue for the year ended December 31, 2018, compared to $9,500 in revenue for the year ended December 31, 2019, a period over period increase of $9,500. These revenues are reflected net of discounts. The increase was a result of the Company’s recognition of their sales for IsoPet®.

 

We had no cost of goods sold for the year ended December 31, 2018, compared to $6,028 in cost of goods sold for the year ended December 31, 2019, a period over period increase of $6,028. The increase was a result of the Company’s recognition of their sales and related costs of goods sold for IsoPet®.

 

24

 

 

Management does not anticipate that the Company will generate sufficient revenue to sustain operations until such time as the Company secures multiple revenue-generating arrangements with respect to RadioGel™ and/or any of our other brachytherapy technologies.

 

Operating Expenses

 

Operating expenses for the years ended December 31, 2019 and 2018 consisted of the following:

 

   Year ended
December 31, 2019
   Year ended
December 31, 2018
 
Sales and marketing expense  $-   $11,500 
Professional fees   462,952    682,217 
Reserved stock units granted   -    113,189 
Stock options and warrants granted   608,588    1,164,885 
Payroll expense   120,000    315,000 
Research and development   67,584    104,208 
General and administrative expense   74,327    98,638 
   $1,333,451   $2,489,637 

 

Operating expenses for the years ended December 31, 2019 and 2018 were $1,333,451 and $2,489,637, respectively. The decrease in operating expense from 2018 to 2019 is attributable to decreased sales and marketing expense ($11,500 for the year ended December 31, 2018 versus $0 for the year ended December 31, 2019) due to slow down in operations as a result of cash flow issues the Company incurred, decreased stock options and warrants granted ($1,164,885 for the year ended December 31, 2018 versus $608,588 for the year ended December 31, 2019) as a result of granting of options with respect to revised employment agreements and increase in warrant grants as a result of the Path Forward agreements in 2018, decreased research and development ($104,208 for the year ended December 31, 2018 versus $67,584 for the year ended December 31, 2019) as a result of slow-down in operations as a result of cash flow issues, decreased general and administrative expense ($98,638 for the year ended December 31, 2018 versus $74,327 for the year ended December 31, 2019), decreased payroll expense ($315,000 for the year ended December 31, 2018 versus $120,000 for the year ended December 31, 2019) as a result of lack of cash flow to pay the employees and decreased professional fees ($682,217 for the year ended December 31, 2018 versus $462,952 for the year ended December 31, 2019), which resulted from reduced consulting expenses as the Company was restructuring debt in the last six months of the year for 2018.

 

Non-Operating Income (Expense)

 

Non-Operating income (expense) for the years ended December 31, 2019 and 2018 consisted of the following:

 

   Year ended
December 31, 2019
   Year ended
December 31, 2018
 
Interest expense  $(261,374)  $(5,649,546)
Net gain (loss) on settlement of debt   (18,744)   605,601 
Recognized income from grants   -    17,583 
Gain (loss) on derivative liability   -    (186,846)
Forgiveness of debt   -    - 
   $(280,118)  $(5,213,208)

 

Non-operating income (expense) for the year ended December 31, 2019 varied from the year ended December 31, 2018 primarily due to the difference in the gain (loss) on derivative liability of $595,334 (a $186,846 loss on derivative liability in 2018 versus a $0 loss on derivative liability in 2019), and the difference in the gain (loss) on settlement of debt of $658,451 (a $605,601 gain on settlement of debt in 2018 versus a $18,744 loss on settlement of debt in 2019). Additionally, there was a decrease in interest expense of $5,388,172, attributable to the notes payable activity from 2018 to 2019. Overall, the decrease in non-operating expenses, net was the result of additional interest expense as a result of the convertible debentures the Company entered into in 2018.

 

25

 

 

Net Loss

 

The Company’s net loss for the years ended December 31, 2019 and 2018 was $1,610,097 and $7,702,845, respectively, as a result of the items described above.

 

Liquidity and Capital Resources

 

At December 31, 2019, the Company had negative working capital of $1,479,689, as compared to negative working capital of $942,174 at December 31, 2018. During the year ended December 31, 2019, the Company experienced negative cash flow from operations of $837,113 and realized $852,000 of cash flows from financing activities. As of December 31, 2019, the Company did not have any commitments for capital expenditures.

 

Cash used in operating activities increased from $700,454 for the year ended December 31, 2018 to $837,113 for the year ended December 31, 2019. Cash used in operating activities was primarily a result of the Company’s non-cash items, such as loss from operations, loss on preferred and common stock and stock options and warrants issued for services and other expenses, and settlement of debt, and the loss realized from derivative liabilities. Cash provided from financing activities increased from $697,631 for the year ended December 31, 2018 to $852,000 for the year ended December 31, 2019. The increase in cash provided from financing activities was primarily a result of increase in proceeds from convertible debt and related parties offset by proceeds received from the sale of common and preferred stock.

 

The Company has generated material operating losses since inception. The Company had a net loss of $1,610,097 for the year ended December 31, 2019, and a net loss of $7,702,845 for the year ended December 31, 2018. The Company expects to continue to experience net operating losses for the foreseeable future. Historically, the Company has relied upon investor funds to maintain its operations and develop the Company’s business. The Company anticipates raising additional capital within the next twelve months for working capital as well as business expansion, although the Company can provide no assurance that additional capital will be available on terms acceptable to the Company, if at all. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business or cease all operations. The Company recently completed its Regulation A+ with the Securities and Exchange Commission and went effective in November 2019.

 

The Company currently requires funding of at least $2.3 million per year to maintain current operating activities. Over the next 24 months, the Company believes it will cost approximately $5.0 million to $10.0 million to: (1) fund the FDA approval process and initial deployment of RadioGel™ and other brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the Company’s brachytherapy products, including RadioGel™, and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies, which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.

 

Although the Company is seeking to raise additional capital and has engaged in numerous discussions with investment bankers and investors, to date, the Company has not received firm commitments for the required funding. Based upon its discussions, the Company anticipates that if the Company is able to obtain the funding required to retire outstanding debt, pay past due payables and maintain its current operating activities, that the terms associated with such funding will result in material dilution to existing shareholders.

 

Recent geopolitical events, including the inherent instability and volatility in global capital markets, as well as the lack of liquidity in the capital markets, could impact the Company’s ability to obtain financing and its ability to execute its business plan.

 

26

 

 

Contractual Obligations (payments due by period as of December 31, 2019)

 

Contractual Obligation 

Total

Payments Due

  

 

Less than

1 Year

  

1-3

Years

  

3-5

Years

  

 

More than

5 Years

 
License Agreement with Battelle Memorial Institute  $24,000   $10,000   $24,000   $4,000   $- 

 

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%).

 

Our Chief Executive Officer currently works from his home office in virtual communication with key personnel. Cadwell Laboratories, which is controlled by Carl Cadwell, a director of the Company, provides office space to management on an as-needed basis until such time as the Company leases permanent office space.

 

Accounting Policies and Estimates

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. We believe there have been no significant changes to the items disclosed as significant accounting policies in management’s notes to the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2019, filed on April 28, 2020.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on the Company’s financial condition, revenues, results of operations, liquidity or capital expenditures.

 

27

 

 

OUR BUSINESS

 

Overview

 

The Company is a radiation oncology medical device company engaged in the development of its yttrium-90 based brachytherapy device, RadioGel™, for the treatment of non-resectable tumors. A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead the Company’s development efforts. The Company’s overall vision is to globally empower physicians, medical researchers and patients by providing them with new isotope technologies that offer safe and effective treatments for cancer.

 

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.

 

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.

 

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Commencing in July 2019, the Company recognized its first commercial sale of IsoPet®. A doctor brought his cat with a re-occurrent spindle cell sarcoma tumor on his face. The cat had previously received external beam therapy, but now the tumor was growing rapidly. He was given a high dose of 400Gy with heavy therapy at the margins. This sale met the revenue recognition requirements under ASC 606 as the performance obligation was satisfied. The Company completed sales for an additional four animals that received the IsoPet® during 2019.

 

Our plan is to incorporate the data assembled from our work with Isopet® in animal therapy to support the Company’s efforts in the development of our RadioGel™ device candidate, including obtaining approval from the FDA to market and sell RadioGel™ as a Class II medical device. RadioGel™ is an injectable particle-gel for brachytherapy radiation treatment of cancerous tumors in people and animals. RadioGel™ is comprised of a hydrogel, or a substance that is liquid at room temperature and then gels when reaching body temperature after injection into a tumor. In the gel are small, one micron, yttrium-90 phosphate particles (“Y-90”). Once injected, these inert particles are locked in place inside the tumor by the gel, delivering a very high local radiation dose. The radiation is beta, consisting of high-speed electrons. These electrons only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the surrounding tissue. Optimally, patients can go home immediately following treatment without the risk of radiation exposure to family members. Since Y-90 has a half-life of 2.7 days, the radioactivity drops to 5% of its original value after ten days.

 

The Company’s lead brachytherapy products, including RadioGel™, incorporate patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted the Company an exclusive license to patents covering the manufacturing, processing and applications of RadioGel™ (the “Battelle License”). This exclusive license is to terminate upon the expiration of the last patent included in this agreement (January 2022). Other intellectual property protection includes proprietary production processes and trademark protection in 17 countries. The Company plans to continue efforts to develop new refinements on the production process, and the product and application hardware, as a basis for future patents.

 

Vista Veterinary Hospital

 

Vista Veterinary Hospital (“Vista”) was selected as the pilot private clinic to initiate commercial sales of IsoPet®. It is good management practice to implement and learn from a pilot program before spreading to regional clinics across the country. Vista is located in the Tri-Cities Washington area which is convenient for interactions with key personnel of Vista Inc. The pilot is being used to

 

  Refine the Memorandum of Understanding to define all the germane interfaces, roles and liabilities between Vista Inc and the private clinics, including the pilot responsivity to document and share the key aspects of all therapies with the Company;
  Create and implement proprietary certification training packages;
  Amend the production center radioactive material license at IsoTherapeutics, the Company’s IsoPet® production center, to allow distribution for commercial applications;
  Work with the pilot program to obtain a radioactive material licensing in an NRC agreement state;
  Create equipment and supplies list;
  Create and post regulatory signage;
  Explore different IsoPet® pricing options;
  Evaluate different approaches to obtain patients;
  Optimize patient scheduling practices to reduce cost to the pet owners; and
  Develop communication material and a liability document for the pet owners.

 

Vista Veterinary Hospital has done well on two audits by the Washington State Department of Health. The Company is working closely with the Washington State Department of Health to refine and improve the radioactive material license. The Company has added several detailed procedures, which will benefit future regional clinics. In addition, a second veterinarian has completed all the preliminary requirements to become certified. All that remains is to demonstrate proficiency in three therapies.

 

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The testing at the universities and at Vista Veterinary Hospital have demonstrated that IsoPet® is effective on killing cancer tissue in close proximity to the injections. It is most effective in early cases before the cancer has begun to spread. Later stage cancers are more difficult to treat since the tendrils from the primary cancer site are not well defined and therefore can lead to recurrence.

 

There have been 36 expressions of interest in IsoPet® therapy from across the United States, but only four of these were treated and they were very advanced cases. The reasons are instructive. Most of the cases were for so advanced that the pet parents found out about IsoPet® on the Internet as a last hope. Several others were internal cancers that could not be reached, for example deep in the throat. Four cases were treatable, but the pets weighed more than 20 pounds and the pet parents were not willing to fly them in the “Safe Cargo” holds. Those patients would have been treated by regional clinics once we implement that strategy. Three cases were mast cell cancers. The Company is confident that those tumors could have been treated, but once killed they release mast cells in a process called granulation. This could cause a shock to the animal’s system. The Company will focus one of our clinical studies on the optimum approach for those therapies.

 

Vista Veterinary Hospital accepted four advanced cancer cases. The first cat was terminally ill and had previously had external beam, surgery and chemotherapy. The facial tumor was treated with 400 Gy and the biopsy confirmed that the cancer was killed. In about seven months the cancer returned in the throat and could not be treated so the cat had to be put down. Dr. Buader, the veterinarian pet parent, was still elated about the life extension and is asking us to use him as a reference. Two other cases were also very advanced with multiple tumor and they recurred since they had already spread before therapy.

 

The Company’s efforts are now to obtain more early stage cancer patients. The biggest obstacle is to convince the veterinarians of the pet parents to agree with IsoPet® therapy rather than using a more traditional method such as surgery. This is a slow process due to the conservative nature of the veterinarian professions. This is the prime motivation to continue with additional clinical trials and to publish the results.

 

Regulatory History

 

Human Therapy

 

RadioGel™ has a long regulatory history with the Food and Drug Administration (“FDA”). Initially, the Company submitted a presubmission (Q130140) to obtain FDA feedback about the proposed product. The FDA requested that the Company file a request for designation with the Office of Combination Products (RFD130051), which led to the determination that RadioGel™ is a device for human therapy for non-resectable cancers, which must be reviewed and ultimately regulated by the Center for Devices and Radiological Health (“CDRH”). The Company then submitted a 510(k) notice for RadioGel™ (K133368), which was found Not Substantially Equivalent due to the lack of a suitable predicate, and RadioGel™ was assigned to the Class III product code NAW (microspheres). Class III products or devices are generally the highest risk devices and are therefore subject to the highest level of regulatory review, control and oversight. Class III products or devices must typically be approved by FDA before they are marketed. Class II devices represent lower risk products or devices than Class III and require fewer regulatory controls to provide reasonable assurance of the product’s or device’s safety and effectiveness. In contrast, Class I products and devices are deemed to be lower risk than Class I or II, and are therefore subject to the least regulatory controls.

 

A pre-submission meeting (Q140496) was held with the FDA on June 17, 2014, during which the FDA maintained that RadioGel™ should be considered a Class III device and therefore subject to pre-market approval. On December 29, 2014, the Company submitted a de novo petition for RadioGel™ (DEN140043). The de novo petition was denied by the FDA on June 1, 2015, with the FDA providing numerous comments and questions. On September 29, 2015, the Company submitted a follow-up pre-submission informational meeting request with the FDA (Q151569). This meeting took place on November 9, 2015, at which time the FDA indicated acceptance of the Company’s applied dosimetry methods and clarified the FDA’s outstanding questions regarding RadioGel™. Following the November 2015 pre-submission meeting, the Company prepared a new pre-submission package to obtain FDA feedback on the proposed testing methods, intended to address the concerns raised by the FDA staff and to address the suitability of RadioGel™ for de novo reclassification. This pre-submission package was presented to the FDA in a meeting on August 29, 2017. During the August 2017 meeting, the FDA clarified their position on the remaining pre-clinical testing needed for RadioGel™. Specifically, the FDA addressed proposed dosimetry calculating techniques, dosimetry distribution between injections, hydrogel viscoelastic properties, and the details of the Company’s proposed animal testing.

 

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The Company believes that its submissions to the FDA to date have addressed all the FDA staff’s feedback over the past four years. Of particular importance, the Company has provided corresponding supporting data for proposed future testing of RadioGel™ to address any remaining questions raised by the FDA. We believe, although no assurances can be given, that the clinical testing modifications presented to the FDA in August 2017 will result in a de novo reclassification for RadioGel™ by the FDA. In addition, in previous FDA submittals, the Company proposed applying RadioGel™ for a very broad range of cancer therapies, referred to as Indication for Use. The FDA requested that the Company reduce its Indications for Use. To comply with that request, the Company expanded its Medical Advisory Board (“MAB”) and engaged doctors from respected hospitals who have evaluated the candidate cancer therapies based on three criteria: (1) potential for FDA approval and successful therapy; (2) notable advantage over current therapies; and (3) probability of wide-spread acceptance by the medical community.

 

The MAB selected eighteen applications for RadioGel™, each of which meet the criteria described above. This large number confirms the wide applicability of the device and defines the path for future business growth. The Company’s application establishes a single Indication for Use - treatment of basal cell and squamous cell skin cancers. We anticipate that this initial application will facilitate each subsequent application for additional Indications for Use, and the testing for many of the subsequent applications could be conducted in parallel, depending on available resources.

 

Financing and Strategy

 

Research and development of the Company’s brachytherapy product line has been funded with proceeds from the sale of equity and debt securities as well as a series of grants. The Company requires funding of approximately $2.3 million annually to maintain current operating activities. Over the next 12 to 24 months, the Company believes it will cost approximately $5.0 million to $10.0 million to: (1) fund the FDA approval process and initial deployment of the brachytherapy products, and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.

 

Following receipt of required regulatory approvals and financing, in the U.S., the Company intends to outsource material aspects of manufacturing, distribution, sales and marketing. Outside of the U.S., the Company intends to pursue licensing arrangements and/or partnerships to facilitate its global commercialization strategy.

 

The following recent financing events have supported the Company’s execution of its development strategy:

 

  In November 2019, the Company had its Regulation A+ approved by the Securities and Exchange Commission for an offering up to 150 million shares of common stock.
     
  During the Company’s second and third fiscal quarters, the Company secured approximately $300,000 in convertible promissory notes.
     
  The Company recognized its first few sales of IsoPet®.

 

The Company obtained Regulation A+ approval. The intent is to obtain up to 4,050,000 in tranches of $250,000 over time. The Company intends to use these proceeds as follows:

 

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For the animal therapy market:

 

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

 

For the human market:

 

  Enhance the pedigree of the Quality Management System.
  Complete the pre-clinical testing that has been previously defined and report the bulk of the results to the FDA in a pre-submission meeting.
  Use the feedback from that meeting to write the IDE (Investigational Device Exemption), which is required to initiate clinical trials.

 

Based on the Company’s financial history since inception, its auditor has expressed substantial doubt as to the Company’s ability to continue as a going concern. The Company has limited revenue, nominal cash, and has accumulated deficits since inception. If the Company cannot obtain sufficient additional capital, the Company will be required to delay the execution of its business strategy and may not be able to continue operations. Although management believes that it will be able to secure necessary working capital to fund its development programs and execute its business strategy, no assurances can be given. The Company has raised $125,280 in proceeds under this Regulation A+ in March 2020, which was in escrow until April 2020 at which time it was deposited into the Company’s accounts. The common shares for these proceeds were issued in April 2020. In addition, the Company converted their outstanding convertible notes payable of $415,000, $23,427 in accrued interest and $87,686 in an exchange premium stipulated in the note agreements into shares of common stock effective March 31, 2020. These shares were issued in April 2020, however effective as of March 31, 2020.

 

Product Features

 

The Company’s RadioGel™ device has the following product features:

 

  Beta particles only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the nearby normal tissues. In medical terms Y-90 beta emitter has a high efficacy rate;
     
  Benefitting from the short penetration distance, the patient can go home immediately with no fear of exposure to family members, and there is a greatly reduced radiation risk to the doctor. A simple plastic tube around the syringe, gloves and safety glasses are all that is required. Other gamma emitting products require much more protection;
     
  A 2.7-day half-life means that only 5% of the radiation remains after ten days. This is in contrast to the industry-standard gamma irradiation product, which has a half-life of 17 days;
     
  The short half-life also means that any medical waste can be stored for thirty days then disposed as normal hospital waste;
     
  RadioGel™ can be administered with small diameter needles (27-gauge) so there is minimal damage to the normal tissue. This is in contrast to the injection of metal seeds, which does considerable damage; and
     
  After about 120 days the gel resorbs by a normal biological cycle, called the Krebs Cycle. The only remaining evidence of the treatment are phosphate particles so small in diameter that it requires a high-resolution microscope to find them. This is in contrast to permanent presence of metal seeds.

 

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Steps from Production to Therapy

 

Device Production

 

During the next two years, the Company intends to outsource material aspects of manufacturing and distribution. As future product volume increases, the Company will reassess its make-buy decision on manufacturing and will analyze the cost/benefit of a centrally located facility.

 

Production of the Yttrium-90 Phosphate Particles

 

The Y-90 particles are produced with simple ingredients via a proprietary process, again following strict GLP procedures. They are then mixed into a phosphate-buffered saline solution. They can be produced in large batches for several shipments. The number of particles per shipment is determined by the dose prescribed by the doctor.

 

Shipment

 

RadioGel™ is shipped in two containers, one with a solution of the gel and the other with a solution of the particles. Before shipment they are subjected to sterility testing, again by strict procedures. The vial with the Y-90 is put through a special radiation calibrator, which measures beta particles. The vials can be shipped via FedEx or UPS by following the proper protocols.

 

At the User

 

The user receives the two vials. The solution containing the RadioGel™ is mixed with the solution containing the Y-90 particles. This is then shaken to ensure homogeneity and withdrawn into a syringe. The quantities that are mixed are calculated from the information on the product label.

 

The specific injection technique depends on the Indication for Use. For small tumors, one centimeter in diameter or less, the cancer is treated with a single injection. For larger tumors, the cancer is treated with a series of small injections from the same syringe or multiple syringes.

 

Principal Markets

 

The Company is currently pursuing two synergistic business sectors, medical and veterinary, each of which are summarized below.

 

Medical Sector

 

RadioGel™ is currently fully developed, requiring only FDA approval before commercialization. The Company has been seeking FDA approval of RadioGel™ for almost five years. Recent progress has been delayed due to a lack of adequate funding. The principal issue preventing approval is that the Company attempted to obtain regulatory approval for a broad range of Indications for Use, including all non-resectable cancers, without sufficient supporting data.

 

Building on the FDA’s ruling of RadioGel™ as a device, the Company is currently developing test plans to address issues raised in the Company’s prior FDA submittal regarding RadioGel™. The Company intends to request FDA approval to submit RadioGel™ for de novo classification, which would reclassify the device from a Class III device to a Class II device and accelerate the regulatory approval path.

 

After analyzing the Company’s data and the last five years of communication from the FDA, the Company has taken the following steps:

 

  1. Under new leadership, the Company is implementing all past recommendations from the FDA. The Company intends to narrow the Indications for Use, will provide test plans for FDA review to respond to answer all previous FDA questions, and will request a pre-submission meeting;
     
  2. Prepare a pre-submission request document and FDA meeting request to obtain feedback on the test plans in order to initiate testing, to present the proposed content for the final application and to request permission to submit a de novo;
     
  3. Submit an Investigational Device Exemption (“IDE”) to obtain permission to conduct human clinical studies; and
     
  4. File a de novo or Pre-Market Approval application.

 

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The critical path is the required testing – in vitro, animal testing, human clinical studies – all of which is resource dependent.

 

In previous submittals, the Company proposed applying a very broad range of cancer therapies, referred to as Indications for Use, to RadioGel™. The FDA has strongly advised the Company to reduce its Indications for Use. To comply with that request, the Company has expanded its MAB, consisting of Drs. Barry D. Pressman (Chairman), Albert DeNittis, and Howard Sandler.

 

The MAB evaluated the candidate cancer therapies based on three criteria: (i) the potential for FDA approval and successful therapy; (ii) notable advantages of RadioGel™ over current therapies; and (iii) the likelihood that RadioGel™ can be widely accepted by the medical community and profitably commercialized.

 

The MAB selected eighteen Indications for Use for RadioGel™, each of which meets the above-mentioned criteria. These eighteen Indications for Use are listed below. This large number confirms the wide applicability of the device and defines the path for future growth. The Company intends to apply to the FDA for a single Indication for Use, followed by subsequent applications for additional Indications for Use. The initial application should facilitate each subsequent application, and the testing for many of the subsequent applications could be conducted in parallel, depending on available resources.

 

Skin cancer Non-dendritic brain
Involved lymph nodes Pediatric cancers – several types
Bladder Rectal
Liver Gynecological
Localized prostate Spinal
Pancreas Recurrent esophageal
Head and neck (including sino-nasal and oropharyngeal) Breast cancer resection cavity
Ocular melanoma Anaplastic thyroid

 

After thorough review to prioritize indications, the MAB has selected basal cell and squamous cell carcinoma (skin cancers) as the first Indication for Use to be presented to the FDA. According to American Cancer Society, one out of every three new cancers diagnosed in the U.S. is a cancerous skin lesion of this type, representing 5.5 million tumors annually. The MAB believes RadioGel™ will be the preferred treatment in a reasonable number of cases in a very large market.

 

Veterinary Sector

 

There are approximately 150 million pet dogs and cats in the United States. Nearly one-half of dogs and one-third of cats are diagnosed with cancer at some point in their lifetime. The Veterinary Oncology & Hematology Center in Norwalk, Connecticut, reports that cancer is the number one natural cause of death in older cats and dogs, accounting for nearly 50 percent of pet deaths each year. The American Veterinary Medical Association reports that half of the dogs ten years or older will die because of cancer. The National Cancer Institute reports that about six million dogs are diagnosed with cancer each year, translating to more than 16,000 a day.

 

The Company’s IsoPet® operating division focuses on the veterinary oncology market. Dr. Alice Villalobos, a founding member of the Veterinary Cancer Society and the Chair of our Veterinary Medicine Advisory Board, has been providing guidance to management regarding this market. The Veterinary Medicine Advisory Board gives us recommendations regarding the overall strategy for our animal business sector. Specially, they recommended the university veterinary hospitals for demonstration therapies, the specific cancers to be treated, and have provided business contact information to the private clinics.

 

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Development of the product and application techniques and animal testing is allowed under FDA regulation. Commercial sales of RadioGelTM for animals requires confirmation by the FDA Center for Veterinary Medicine (“CVM”). In January 2018, the Center for Veterinary Medicine Product Classification Group, the entity within the CVM that is responsible for determining the classification of a product, 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 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 all solid tumors in animals. We expect the result of such classification and label approval will be that no additional regulatory approvals are necessary for the use of RadioGelTM 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.

 

The Company currently intends to utilize university veterinary hospitals for therapy development, given that veterinary hospitals offer superior and plentiful veterinarians and students, a large number of animal patients, radioactive material handling licenses, and are respected by private veterinary centers and hospitals.

 

Pursuant to the terms of the grant with Washington State University, it was responsible for conducting studies regarding in vivo dosimetry and toxicity of intralesional Y-90 phosphate nanoparticles for the treatment of spontaneous feline and canine sarcomas. The term of the grant was October 1, 2016 through January 31, 2018. The Company provided the university with the RadioGelTM required to complete the studies, as well as technical support for dosimetry calculations. All payments provided to Washington State University in relation to the grant were made by Washington State Life Sciences Discovery Fund pursuant to a grant and were not paid by the Company. To compliment the grant, additional scope was added to explore the option of pre-mixing the vials prior to shipment and the Company was reimbursed $17,583 as a separate contract to the grant.

 

Pursuant to the terms of the contract with the University of Missouri, it was responsible for conducting studies regarding in vivo dosimetry and toxicity of intralesional Y-90 phosphate nanoparticles for the treatment of soft tissue carcinoma and equine sarcoids. The term of the contract was initially from November 1, 2017 through October 31, 2018, but it has recently been working to extend this contract through testing completion on canine soft tissue sarcoma and equine sarcoids, plus additional tumors of interest defined by the University of Missouri principal investigators. This extension is dependent upon keeping current with paying for the expenses of the ongoing therapies.

 

Competitors

 

The Company competes in a market characterized by technological innovation, extensive research efforts, and significant competition.

 

The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological changes. A number of companies are pursuing the development of pharmaceuticals and products that target the same diseases and conditions that our products target. We cannot predict with accuracy the timing or impact of the introduction of potentially competitive products or their possible effect on our sales. Certain potentially competitive products to our products may be in various stages of development. Also, there may be many ongoing studies with currently marketed products and other developmental products, which may yield new data that could adversely impact the use of our products in their current and potential future Indications for Use. The introduction of competitive products could significantly reduce our sales, which, in turn would adversely impact our financial and operating results.

 

There are a wide variety of cancer treatments approved and marketed in the U.S. and globally. General categories of treatment include surgery, chemotherapy, radiation therapy and immunotherapy. These products have a diverse set of success rates and side effects. The Company’s products, including RadioGel™, fall into the brachytherapy treatment category. There are a number of brachytherapy devices currently marketed in the U.S. and globally. The traditional iodine-125 (I-125) and palladium-103 (Pd-103) technologies for brachytherapy are well entrenched with powerful market players controlling the market. The industry-standard I-125-based therapy was developed by Oncura, which is a unit of General Electric Company. Additionally, C.R. Bard, a major industry player competes in the I-125 brachytherapy marketplace. These market competitors are also involved in the distribution of Pd-103 based products. Cs-131 brachytherapy products are sold by IsoRay. Several Y-90 therapies have been FDA approved including SIR-Spheres by Sirtex, TheraSphere by Biocompatibles UK and Zevalin by Spectrum Pharmaceuticals.

 

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Raw Materials

 

The Company currently subcontracts the manufacturing of RadioGelTM at IsoTherapeutics. PerkinElmer Inc., the only supplier of Y-90 in the United States, is the sole supplier of the Y-90 used by IsoTherapeutics to manufacture the Company’s RadioGel™. The Company obtains supplies, hardware, handling equipment and packaging from several different U.S. suppliers.

 

Customers

 

The Company anticipates that potential customers for our potential brachytherapy products likely would include those institutions and individuals that currently purchase brachytherapy products or other oncology treatment products.

 

Government Regulation

 

The Company’s present and future intended activities in the development, manufacturing and sale of cancer therapy products, including RadioGel™, are subject to extensive laws, regulations, regulatory approvals and guidelines. Within the United States, the Company’s therapeutic radiological devices must comply with the U.S. Federal Food, Drug and Cosmetic Act, which is enforced by FDA. The Company is also required to adhere to applicable FDA Quality System Regulations, also known as the Good Manufacturing Practices, which include extensive record keeping and periodic inspections of manufacturing facilities.

 

In the United States, the FDA regulates, among other things, new product clearances and approvals to establish the safety and efficacy of these products. We are also subject to other federal and state laws and regulations, including the Occupational Safety and Health Act and the Environmental Protection Act.

 

The Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations govern or influence the research, testing, manufacture, safety, labeling, storage, record keeping, approval, distribution, use, reporting, advertising and promotion of such products. Noncompliance with applicable requirements can result in civil penalties, recall, injunction or seizure of products, refusal of the government to approve or clear product approval applications, disqualification from sponsoring or conducting clinical investigations, preventing us from entering into government supply contracts, withdrawal of previously approved applications, and criminal prosecution.

 

In the United States, medical devices are classified into three different categories over which the FDA applies increasing levels of regulation: Class I, Class II, and Class III. Most Class I devices are exempt from premarket notification 510(k); most Class II devices require premarket notification 510(k); and most Class III devices require premarket approval. RadioGel™ is currently classified as a Class III device.

 

Approval of new Class III medical devices is a lengthy procedure and can take a number of years and require the expenditure of significant resources. There is a shorter FDA review and clearance process for Class II medical devices, the premarket notification or 510(k) process, whereby a company can market certain Class II medical devices that can be shown to be substantially equivalent to other legally marketed devices.

 

The Company intends to apply for a de novo with an anticipated expenditure of $10.0 million over the next four years. This expenditure estimate includes anticipated costs associated with in vitro and in vivo pre-clinical testing, our application for an Investigational Device Exemption, Phase I and Phase II clinical trials and our application for a de novo.

 

As a registered medical device manufacturer with the FDA, we are subject to inspection to ensure compliance with FDA’s current Good Manufacturing Practices, or cGMP. These regulations require that we and any of our contract manufacturers design, manufacture and service products, and maintain documents in a prescribed manner with respect to manufacturing, testing, distribution, storage, design control, and service activities. Modifications or enhancements that could significantly affect the safety or effectiveness of a device or that constitute a major change to the intended use of the device require a new 510(k) premarket notification for any significant product modification.

 

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The Medical Device Reporting regulation requires that we provide information to the FDA on deaths or serious injuries alleged to be associated with the use of our devices, as well as product malfunctions that are likely to cause or contribute to death or serious injury if the malfunction were to recur. Labeling and promotional activities are regulated by the FDA and, in some circumstances, by the Federal Trade Commission.

 

As a medical device manufacturer, we are also subject to laws and regulations administered by governmental entities at the federal, state and local levels. For example, our facility is licensed as a medical device manufacturing facility in the State of Washington and is subject to periodic state regulatory inspections. Our customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us.

 

In the United States, as a manufacturer of medical devices and devices utilizing radioactive byproduct material, we are subject to extensive regulation by not only federal governmental authorities, such as the FDA and FAA, but also by state and local governmental authorities, such as the Washington State Department of Health, to ensure such devices are safe and effective. In Washington State, the Department of Health, by agreement with the federal Nuclear Regulatory Commission (“NRC”), regulates the possession, use, and disposal of radioactive byproduct material as well as the manufacture of radioactive sealed sources to ensure compliance with state and federal laws and regulations. RadioGel™ constitutes both medical devices and radioactive sealed sources and are subject to these regulations.

 

Moreover, our use, management, and disposal of certain radioactive substances and wastes are subject to regulation by several federal and state agencies depending on the nature of the substance or waste material. We believe that we are in compliance with all federal and state regulations for this purpose.

 

Environmental Regulation

 

Our business does not require us to comply with any extraordinary environmental regulations. Our RadioGel™ product is manufactured in an independently owned and operated facility. Any environmental effects or contamination event that could result would be from the shipping company during shipment and misuse by the treatment facility upon arrival.

 

Employees

 

As of December 31, 2019, the Company had one full-time personnel. The Company utilizes several independent contractors to assist with its operations. The Company does not have a collective bargaining agreement with any of its personnel and believes its relations with its personnel are good.

 

Available Information

 

The Company prepares and files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and certain other information with the United States Securities and Exchange Commission (the “SEC”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Moreover, the Company maintains a website at http://www.RadioGel.com that contains important information about the Company, including biographies of key management personnel, as well as information about the Company’s business. This information is publicly available and is updated regularly. The content on any website referred to in this Annual Report is not incorporated by reference into this Annual Report, unless (and only to the extent) expressly so stated herein.

 

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DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

 

The Company’s current directors and executive officers are as follows:

 

NAME   AGE   POSITION
Michael K. Korenko   73   President, Chief Executive Officer, and Director
Michael Pollack   53   Interim Chief Financial Officer
Carlton M. Cadwell   75   Chairman of the Board and Secretary

 

Term of Office

 

All the Company’s directors hold office until the next annual meeting of the stockholders or until their successors is elected and qualified. The Company’s executive officers are appointed by the Company’s board of directors and hold office until their resignation, removal, death or retirement.

 

Background and Business Experience

 

The business experience during the past five years of each of the Company’s directors and executive officers is as follows:

 

Dr. Michael K. Korenko, President and Chief Executive Officer of the Company since December 2016, and a member of the Board of Directors since August 2017, joined the Company as an Advisor to the Board of the Company during 2009 and served as member of the Board from May 2009 to March 2010. Dr. Korenko has also served on the Hanford Advisory Board since 2009. Dr. Korenko served as Business Development Manager for Curtiss-Wright from 2006 to 2009, as Chief Operating Officer for Curtiss-Wright from 2000 to 2005 and was Executive Vice President of Closure for Safe Sites of Colorado at Rocky Flats from 1994 to 2000. Dr. Korenko served as Vice President of Westinghouse from 1987 to 1994 and was responsible for the 300 and 400 areas, including the Fast Flux Testing Facility (“FFTF”) and all engineering, safety analysis, and projects for the Hanford site.

 

Dr. Korenko is the author of 28 patents and has received many awards, including the National Energy Resources Organization Research and Development Award, the U.S. Steelworkers Award for Excellence in Promoting Safety, and the Westinghouse Total Quality Award for Performance Manager of the Year. Dr. Korenko has a Doctor of Science from MIT, was a NATO Postdoctoral Fellow at Oxford University, and was selected as a White House Fellow for the Department of Defense, reporting to Secretary Cap Weinberger.

 

Dr. Korenko brings to the Board over seven years’ experience working with and advising various small businesses, including companies involved in turnarounds. Dr. Korenko has also been involved as an advisor to the Company since 2009 in the development of medical isotopes.

 

Carlton M. Cadwell, Chairman of the Board and Secretary since December 2016, joined the Company as a director in 2006. Dr. Cadwell brings over 30 years of experience in business management, strategic planning, and implementation. He co-founded Cadwell Laboratories, Inc. in 1979 and has served as its President since its inception. Cadwell Laboratories, Inc. is a major international provider of neurodiagnostic medical devices. After receiving his bachelor’s degree from the University of Oregon in 1966 and a doctoral degree from the University of Washington in 1970, he began his career serving in the United States Army as a dentist for three years. From 1973 to 1980, Dr. Cadwell practiced dentistry in private practice and since has started several businesses.

 

Mr. Cadwell brings to the Board over ten years of service on the Board and over forty-five years of experience as a successful entrepreneur, as well as medical expertise.

 

Michael Pollack CPA, the Interim Chief Financial Officer, joined the Company as interim Chief Financial Officer in December 2018. Mr. Pollack has been a partner in a certified public accounting firm for the past fifteen years and specializes in accounting and auditing for small public companies. Mr. Pollack has approximately 30 years of experience in public accounting and consulting to over 100 publicly traded and 250 private companies. Mr. Pollack has also held CFO and Controller positions in an array of industries. Mr. Pollack graduated from the University of Maryland with a Bachelor of Arts in Economics. Mr. Pollack is a member of the American Institute of Certified Public Accountants, as well as licensed to practice in New Jersey, and New York.

 

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Identification of Significant Consultants

 

David J. Swanberg, M.S., P.E. Mr. Swanberg has over 30 years’ experience in radiochemical processing, medical isotope production, nuclear waste management, materials science, regulatory affairs, and project management. Mr. Swanberg has worked in diverse organizations ranging from small start-up businesses to corporations with multi-billion dollar annual revenues. From 2005 to 2008, he served as Executive Vice President of Operations and as a member of the Board of Directors for IsoRay Medical Inc. from 2005 to 2008 managing day-to-day operations, R&D, and New Product Development. Mr. Swanberg was a co-founder of IsoRay and led the initial Cs-131 brachytherapy seed product development, FDA 510(k) submission/clearance, and NRC Sealed Source review and registration. Mr. Swanberg led the radiation dosimetry evaluations to meet American Association of Physicists in Medicine guidelines and is a current member of the AAPM. Mr. Swanberg and participated in several capital financing rounds totaling over $30.0 million. Mr. Swanberg also served as Assistant General Manager of IsoRay LLC from 2000 to 2003, and in additionally in key management roles as IsoRay transitioned from IsoRay LLC to IsoRay Medical, Inc. Mr. Swanberg holds a BA in Chemistry from Bethel University (MN) and an MS in Chemical Engineering from Montana State University. Mr. Swanberg has numerous technical publications and holds several patents.

 

Medical and Veterinarian Advisory Boards

 

Dr. Barry D. Pressman MD, FACR - Chairman Medical Advisory Board. Dr. Pressman is Professor and Chairman of the S. Mark Taper Foundation Imaging Centre and Department, and Chief of the Section of Neuroradiology and Head and Neck Radiology at Cedars-Sinai Medical Center, located in Los Angeles, California.

 

Dr. Pressman is a past President of The American College of Radiology, the Western Neuroradiological Society, as well as past President of the California Radiological Society. Currently he is a member of the American Society of Neuroradiology and the American Society of Pediatric Neuroradiology.

 

Dr. Pressman earned his medical degree Cum Laude from Harvard Medical School after graduating Summa Cum Laude from Dartmouth College. After a surgical internship at Harvard’s Peter Bent Brigham Hospital in Boston, he completed a diagnostic radiology residency at Columbia-Presbyterian Medical Center in New York and a Neuroradiology fellowship at George Washington University Hospital. During this period, he wrote many original papers for Computer Tomography (CT).

 

Dr. Albert S. DeNittis MD, MS, FCPP - Medical Advisory Board. Dr. Albert S. DeNittis is currently is the Chief of Radiation Oncology at Lankenau Medical Center and Clinical Professor at Lankenau Institute for Medical Research in Wynnewood, Pennsylvania and the Director of Radiation Oncology at Brodesseur Cancer Center in New Jersey. He is also the Principal Investigator and in charge of a grant awarded by the NIH for its National Cancer Oncology Research Program (NCORP) at Main Line Health. Dr. DeNittis’ practice experience includes image-guided radiosurgery, stereotactic body radiation therapy (SBRT), intensity modulated radiation therapy (IMRT), image guided radiation therapy (IGRT), high-dose rate (HDR) brachytherapy, cranial and extracranial stereotactic radiosurgery, respiratory gating, and Cyberknife.

 

Dr. DeNittis has served on numerous regional, national and government committees related to key issues in Dr. DeNittis earned a BA and a MS at Rutgers University and a MD from the Robert Wood Johnson Medical School at the University of Medicine and Dentistry of New Jersey. He completed postdoctoral training internships and residency at the Department of Radiation Oncology at the Hospital of the University of Pennsylvania. Dr. DeNittis is board certified by the American Board of Radiology and Licensed in New Jersey and Pennsylvania.

 

Dr. Alice Villalobos, DVM, FNAP - Chair of the Veterinary Medicine Advisory Board. Dr. Alice Villalobos is a well-known pioneer in the field of cancer care for companion animals and a founding member of the Veterinary Cancer Society. A 1972 graduate of UC Davis, she completed Dr. Gordon Theilen’s first mock residency program in oncology and has served the profession by consulting, writing and lecturing in the rapidly growing field of veterinary oncology and end of life care.

 

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Dr. Alice Villalobos is President Emeritus of the Society for Veterinary Medical Ethics, Past President of the American Association of Human Animal Bond Veterinarians and Chair of the Veterinary Academy for the National Academies of Practice. She operated Coast Pet Clinic/Animal Cancer Center for 25 years, which is now VCA Coast Animal Hospital. She is the author of numerous articles, papers, and including her classic veterinarian textbook, Canine and Feline Geriatric Oncology: Honoring the Human-Animal Bond. She has lectured worldwide on oncology, quality of life, the human-animal bond and end of life care and bioethics. She founded Pawspice, an end of life care program that embraces kinder, gentler palliative cancer medicine and integrative care for pets with cancer and terminal illness (www.Pawspice.com). Dr. Alice is Director of Animal Oncology Consultation Service in Woodland Hill, California and Pawspice at VCA Coast Animal Hospital in Hermosa Beach, California. Dr. Alice was elected 2016 Hermosa Beach Woman of the Year.

 

Dr. Villalobos’ role with the Company is to support the commercialization of the Company’s yttrium-90 brachytherapy products for use in companion animals.

 

Dr. Richard Weller, DVM, DACVIM (Internal Medicine; Oncology) DipMS - Veterinary Medicine Advisory Board Member. Prior to his retirement in 2014, Dr. Weller was a Senior Program Manager in the Radiation Biology Group of the Biological Sciences Division at Pacific Northwest National Laboratory (PNNL), where he was involved in the development of RadioGel. A 1973 graduate of Washington State University. Dr. Weller has extensive experience in designing and executing clinical studies, treatment planning, mechanisms of carcinogenesis, radiation biology, targeted delivery systems for chemotherapeutic and radio-therapeutic agents, bio-markers of disease, and comparative oncology; as well as over 30 years of experience developing and using animal models, including the use of spontaneous tumors in companion animals, for bio-medical applications.

 

Dr. Weller is board-certified by the American College of Veterinary Internal Medicine in Internal Medicine (1980) and Oncology (1987), Past Chairperson of the Organizing Committee for the Specialty of Veterinary Medical Oncology, Past Chairperson of the Board of Regents of the American College of Veterinary Internal Medicine, Past President of the Board of Regents of the American College of Veterinary Internal Medicine, Past President of the Specialty of Oncology, and a Charter Member of the Veterinary Cancer Society which he served as Treasurer for 16 years. He is an Honorary Professor of the Institute of Veterinary Medicine in Kyiv, Ukraine. Dr. Weller has lectured and trained veterinarians worldwide and has authored or co-authored over 250 articles, technical reports, book chapters, and presentations in his fields of expertise.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors and persons who own more than 10% of the Company’s common stock to file with the SEC initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4, and an annual statement of beneficial ownership on Form 5. Such executive officers, directors and greater than 10% stockholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed.

 

Based solely on its review of such forms filed with the SEC and received by the Company and representations from certain reporting persons, the Company believes that all reports required to be filed by each of each of its executive officers, directors and 10% stockholders were filed during the year ended December 31, 2019 and that such reports were timely.

 

Code of Ethics

 

The Company’s Board of Directors has not adopted a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, because of the Company’s limited number of executive officers and employees that would be covered by such a code and the Company’s limited financial resources. The Company anticipates that it will adopt a code of ethics after it increases the number of executive officers and employees and obtain additional financial resources.

 

Audit Committee and Audit Committee Financial Expert

 

As of the date of this report, the Company has not established an audit committee, and therefore, the Company’s full board of directors performs the functions that customarily would be undertaken by an audit committee. The Company’s board of directors during 2019 was comprised of two directors, one of whom the Company had determined satisfied the general independence standards of the NASDAQ listing requirements.

 

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The Company’s Board of Directors has determined that none of its current members qualifies as an “audit committee financial expert,” as defined by the rules of the SEC. In the future, the Company intends to establish board committees and to appoint such persons to those committees as are necessary to meet the corporate governance requirements imposed by a national securities exchange, although it is not required to comply with such requirements until the Company elects to seek listing on a national securities exchange.

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth the compensation paid to the Company’s Chief Executive Officer and those executive officers that earned in excess of $100,000 during the year ended December 31, 2019 (collectively, the “Named Executive Officers”):

 

Name and Principal Position (1)  Year   Salary ($)  

Bonus

($)

   Stock Awards ($)  

Option

Awards

($)(2)

  

Total

($)

 
                         
Dr. Michael K. Korenko   2019   $120,000(4)  $-   $-   $585,144   $705,144 
CEO, President and Director   2018   $20,000   $-   $206,306   $-   $226,306 
                               
L. Bruce Jolliff (3)   2019   $-   $-   $-   $-   $- 
Former CFO   2018   $64,000   $-   $90,479   $-   $154,629 

 

  (1) Michael Pollack began serving as the Company’s Interim Chief Financial Officer in December 2018 and was paid no compensation in 2018 or 2019. Accordingly, he has not been included in this table.
     
  (2) The amounts in this column represent the grant date fair value of stock option awards, computed in accordance with FASB ASC Topic 718.
     
  (3)

Mr. Jolliff was terminated as Chief Financial Officer in November 2018.

 

  (4) Of the $120,000 due Mr. Korenko, $100,000 is accrued for as of December 31, 2019.

 

Narrative Disclosure to Summary Compensation Table

 

Dr. Michael K. Korenko. On October 24, 2018, Mr. Korenko entered into an employment agreement with the Company (the “Old Employment Agreement”), which was scheduled to terminate on December 31, 2019. On June 4, 2019, Mr. Korenko and the Company entered into a new employment agreement, effective June 11, 2019, which shall terminate on December 31, 2020 and December 31 of subsequent years (the “Termination Date”) if the agreement is extended pursuant to its terms. Under the terms of his employment agreement, the Company may terminate Dr. Korenko’s employment either with or without cause prior to the Termination Date, but in the event of a termination without cause, Dr. Korenko shall be entitled to receive monthly payments of his base salary for a period of six months thereafter, all of Dr. Korenko’s outstanding options, if any, shall vest, and Dr. Korenko shall be entitled to receive all past due compensation within three weeks of the date of termination.

 

The Company shall pay to Dr. Korenko an annual base compensation of $180,000, which is payable in equal monthly intervals. Of the $180,000 in annual base salary, $60,000 of annual pay shall be deferred and accrued until the Company’s cash balance exceeds $1,000,000. Dr. Korenko’s employment agreement provides that he shall receive a stock option grant issued under the Company’s 2015 Omnibus Securities and Incentive Plan in an amount equal to 21 million options ten days after the Company’s 1-for-8 reverse split, which was consummated in late June 2019. The options shall have a seven year term, shall be exercisable at a price of $0.024 per share, and shall vest as follows: 50% shall vest in equal amounts at the end of each quarter for the two quarters after grant date, 25% shall vest upon the Company filing for a patent, and the remaining 25% shall vest upon the first commercial sale of IsoPet.

 

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Pursuant to Dr. Korenko’s Old Employment Agreement, the Company agreed to issue to Dr. Korenko 3,500,000 shares of common stock and warrants to purchase 1,762,321 shares of common stock in satisfaction of his past due and accrued compensation. In addition, in consideration for Dr. Korenko’s past performance, the Company agreed to compensate Dr. Korenko with a cash bonus in the amount of $200,000, which will be deferred until the cash balance exceeds $2,000,000. The Company also granted Dr. Korenko a stock option grant of 8,120,152 options under the 2015 Omnibus Securities and Incentive Plan on October 24, 2018. The options vested immediately upon issuance, have a term of seven years, and are exercisable at a price of $0.112 per share.

 

L. Bruce Jolliff. On October 24, 2018, Mr. Jolliff entered into an employment agreement with the Company, which was scheduled to terminate on December 31, 2019 (the “Termination Date”) and September 30 of subsequent years if the agreement were extended. Under the terms of his employment agreement, the Company could terminate Mr. Jolliff’s employment either with or without cause prior to the Termination Date, but in the event of a termination without cause, Mr. Jolliff would be entitled to receive monthly payments of his base salary for a period of six months thereafter. The Company also granted Mr. Jolliff a stock option grant of 3,045,057 options under the 2015 Omnibus Securities and Incentive Plan on October 22, 2018. The options vested immediately upon issuance, have a term of seven years, and are exercisable at a price of $0.112 per share. The options were granted prior to the termination of Mr. Jolliff and have not been canceled. In November 2018, the Company terminated Mr. Jolliff for reasons other than cause, and paid Mr. Jolliff his monthly agreed upon, non-deferred salary of $10,000 per month for a period of six months through May 2019.

 

The Company paid bonuses to certain employees based on their performance, the Company’s need to retain such employees, and funds available. All bonus payments were approved by the Company’s Board of Directors.

 

Outstanding Equity Awards at Fiscal Year-End Table

 

The following table sets forth all outstanding equity awards held by the Company’s Named Executive Officers as of the end of last fiscal year.

 

   Option Awards 
Name  Number of Securities Underlying Unexercised Options(#) Exercisable   Number of Securities Underlying Unexercised Options (#) Unexercisable   Option
Exercise
Price ($)
   Option
Exercise Date
L. Bruce Jolliff (1) (2)   60,000             -   $4.00   6/21/21
L. Bruce Jolliff (1)(2)   3,045,057    -   $0.112   10/24/25
Michael Korenko (3)   8,120,152    -   $0.112   10/24/25
Michael Korenko   21,000,000    -   $0.024   7/7/26

 

  (1) As noted above, Mr. Jolliff was terminated as Chief Financial Officer in November 2018.
  (2) Issued pursuant to employment contract dated October 24, 2018
  (3) Issued pursuant to employment contract dated July 7, 2019

 

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DIRECTOR COMPENSATION

 

During the year ended December 31, 2019, the Company’s non-employee directors were not paid any compensation.

 

The following table sets forth, for each of the Company’s non-employee directors who served during 2019, the aggregate number of stock awards and the aggregate number of stock option awards that were outstanding as of December 31, 2019:

 

    Outstanding    Outstanding 
    Stock    Stock 
Name   Awards (#)    Options (#) 
Carlton M. Cadwell     -       - 

 

During June 2016, the Company granted to Mr. Cadwell options to purchase 12,500 shares of common stock at an exercise price of $8.00 per share, which options expired June 21, 2019. These options had a grant date fair value of $34,771, which amounts were calculated in accordance with ASC Topic 718.

 

Additionally, the Company granted warrants to purchase 6,425,503 shares of Company common stock to Carlton Cadwell in 2018 as a result of the Path Forward Agreements and conversion of his advances to the Company.

 

There are no employment contracts or compensatory plans or arrangements with respect to any director that would result in payments by the Company to such person because of his or her resignation as a director or any change in control of the Company.

 

Compensation Committee Interlocks and Insider Participation

 

None of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more officers serving as a member of our board of directors.

 

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RELATED PERSON TRANSACTIONS

 

Indebtedness from Related Parties

 

Beginning in December 2008, the Company has obtained financing from Carlton M. Cadwell, a member of the Company’s Board of Directors and a beneficial owner of more than 10% of the Company’s common stock, in transactions which involved the Company’s issuance of convertible notes and common stock. On September 4, 2015, the Company exchanged $1,414,100 of convertible notes plus $810,538 of accrued interest into 148,311 shares of Series A Convertible Preferred and another $2,224,466 of convertible notes plus $889,838 of accrued interest into 207,620 shares of Series A Convertible Preferred. Additionally, the Company exchanged the remaining $906,572 of convertible notes plus $148,960 accrued interest into a $1,055,532 demand note, 8% interest rate, due on demand at any time after March 31, 2017. Such note was converted into 73,546 shares of Series A Convertible Preferred on May 19, 2016. At December 31, 2016, Mr. Cadwell had an aggregate total of $332,195 in promissory notes. In March 2017, the Company converted the $332,195 promissory note and $51,576 of accrued interest into a new promissory note totaling $383,771, due December 31, 2017. In December 2017, the note due date was extended to May 9, 2018. On October 19, 2018, the $383,771 promissory note and $58,880 of accrued interest was converted into 6,250,000 shares of Company common stock, 385,302 Series B Convertible Preferred shares, and 5,533,138 warrants that are exercisable into Company common stock at an exercise price of $0.08 per share.

 

During 2018, the Company executed various Path Forward Agreements with Mr. Cadwell and with the Chief Executive Officer of the Company, Michael Korenko, and converted related party debt and accrued interest into shares of common stock, Series B Convertible Preferred Stock and warrants.

 

On January 24, 2019, the Company entered into a note payable with a trust related to Mr. Cadwell in the amount of $60,000. The note is for a one-year period maturing January 24, 2020 and bears interest at an annual rate of 8.0%. This note is currently in default.

 

On March 27, 2019 the Company entered into a note payable with a trust related to Mr. Cadwell 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 8.0%. This note is currently in default.

 

On April 29, 2019, the Company entered into a note payable with a trust related to Mr. Cadwell in the amount of $29,000. The note is for a one-year period maturing April 29, 2020 and bears interest at an annual rate of 8.0%.

 

On May 20, 2019 and May 23, 2019, Mr. Korenko advanced $20,000 collectively to the Company. Mr. Korenko is not charging interest on these amounts advanced and they are short-term advances, due on demand. Of this amount $5,000 was repaid and the balance of $15,000 was converted into a convertible note payable at an annual interest rate of 8% due January 15, 2020. This note was converted in April 2020.

 

On July 5, 2019, the Company entered into a note payable with a trust related to Mr. Cadwell 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 8.0%.

 

On November 25, 2019, the Company entered into a note payable with a trust related to Mr. Cadwell 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 8.0%.

 

In March 2020, Mr. Korenko advanced $15,000 to the Company which was repaid in April 2020.

 

Independent Directors

 

The Company’s common stock is traded on the OTCQB Marketplace, which does not impose any independence requirements on the Board of Directors or the board committees of the companies whose stock is traded on that market. The Company has decided to adopt the independence standards of the Nasdaq listing rules in determining whether the Company’s directors are independent. Generally, under those rules a director does not qualify as an independent director if the director or a member of the director’s immediate family has had in the past three years certain relationships or affiliations with the Company, the Company’s auditors, or other companies that do business with the Company. The Company’s Board of Directors has determined that Mr. Cadwell is qualified as an independent director under those Nasdaq rules, and accordingly, would have been qualified under those rules to serve on a compensation committee or a nominating committee, if the Company had established such committees of the Company’s Board of Directors. Dr. Korenko is not an independent director due to his employment by the Company as an executive officer.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

Beneficial Ownership of the Company’s Common Stock

 

The following table sets forth, as of April 24, 2020, the number of shares of common stock beneficially owned by the following persons: (i) all persons the Company knows to be beneficial owners of at least 5% of the Company’s common stock, (ii) the Company’s current directors, (iii) the Company’s current executive officers, and (iv) all current directors and executive officers as a group.

 

As of April 24, 2020, there were 214,421,364 shares of common stock outstanding and up to 94,681,140 shares issuable upon exercise of common stock equivalents, assuming exercise and conversion occurred as of that date, for a total of 309,102,504 shares.

 

Name and Address of Beneficial Owner(1) 

Amount and

Nature

of Beneficial

Ownership(2)

   Percent of Class 
Cadwell Family Irrevocable Trust   26,912    *%
           
Carlton M. Cadwell (3)   20,601,446    6.7%
           
Michael K. Korenko (4)   36,952,543    12%
           
All Current Directors and Executive Officers as a group (3 individuals) (5)   57,580,901    18.75%

 

*Less than 1%

 

(1) The address of each of the beneficial owners above is c/o Vivos Inc, 719 Jadwin Avenue, Richland, WA 99336, except that the address of the Cadwell Family Irrevocable Trust (the “Cadwell Trust”) is 909 North Kellogg Street, Kennewick, WA 99336.
   
(2) In determining beneficial ownership of the Company’s common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired upon exercise of the common stock equivalents within 60 days of that date. In determining the percent of common stock owned by a person or entity on April 24, 2020, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of the common stock equivalents, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on April 24, 2020, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the common stock equivalents. Subject to community property laws where applicable, the Company believes that each beneficial owner has sole power to vote and dispose of its shares, except that under the terms of the Cadwell Trust, Dr. Cadwell does not have or share voting or investment power over the shares beneficially owned by the Cadwell Trust.
   
(3) Includes 1,136,137 shares issuable upon conversion of Series A Preferred; 4,816,275 shares issuable upon conversion of Series C Preferred; and 6,425,503 shares issuable upon the exercise of warrants that may be exercised within 60 days of April 24, 2020.
   
(4) Includes 125,000 shares issuable upon conversion of Series A Preferred; 825,000 of vested Restricted Stock Units; 29,120,152 shares issuable upon the exercise of stock options exercisable within 60 days of April 24, 2020; and 2,212,321 shares issuable upon the exercise of warrants that may be exercised within 60 days of November 15, 2019.
   
(5) Michael Pollack, the Company’s Interim Chief Financial Officer, does not hold any Company securities, and has therefore been omitted from this table.

 

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Beneficial Ownership of the Company’s Series A Convertible Preferred Stock

 

As of April 24, 2020, there were 2,552,642 shares of Series A Preferred issued and outstanding, convertible into 3,190,803 shares of the Company’s common stock.

 

The following table sets forth, as of April 24, 2020, the number of shares of Series A Preferred beneficially owned by the following persons: (i) all persons the Company known to be beneficial owners of at least 5% of the Company’s Series A Preferred, (ii) the Company’s current directors, (iii) the Company’s current executive officers, and (iv) all current directors and executive officers as a group.

 

Name and Address of Beneficial Owner (1) 

Amount and

Nature

of Beneficial

Ownership (2)

   Percent of Class 
Cadwell Family Irrevocable Trust   148,309    5.8%
           
Carlton M. Cadwell   908,910    35.6%
           
Michael K. Korenko   100,000    3.9%
           
All Current Directors and Executive Officers as a group (2 individuals)(3)   1,157,219    45.3%
           
Major Shareholder(s):          
           
Jason Adelman(4)   381,635    15.0%
           
L. Bruce Jolliff   197,979    7.8%
           
Stoel Rives   133,333    5.2%

 

(1) The address of each of the beneficial owners above is c/o Vivos Inc, 719 Jadwin Avenue, Richland, WA 99336, except that the address of (i) the Cadwell Family Irrevocable Trust (the “Cadwell Trust” ) is 909 North Kellogg Street, Kennewick, WA 99336; (ii) Jason Adelman is 40 East 66th Street, New York, NY 10065; (iii) L. Bruce Jolliff is 206 N 41st St. Unit 1, Yakima, WA 98901; (iv) Stoel Rives is One Union Square, 600 University Street, Suite 3600, Seattle, WA 98101 and (v) MEF I, LLP is c/o Magna Management, 40 Wall Street, 58th Floor, New York, NY 10005.
   
(2) Subject to community property laws where applicable, the Company believes that each beneficial owner has sole power to vote and dispose of its shares, except that Dr. Cadwell under the terms of the Cadwell Trust does not have or share voting or investment power over the Series A Convertible Preferred beneficially owned by the Cadwell Trust.
   
(3) Michael Pollack, the Company’s Interim Chief Financial Officer, does not hold any Company securities, and has therefore been omitted from this table.
   
(4) Includes 251,800 shares held by Cipher 06, LLC.

 

Beneficial Ownership of the Company’s Series B Convertible Preferred Stock

 

As of April 24, 2020, there were 1,013,245 shares of Series B Preferred issued and outstanding, convertible into 12,665,563 shares of the Company’s common stock.

 

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The following table sets forth, as of April 24, 2020, the number of shares of Series B Preferred beneficially owned by the following persons: (i) all persons the Company known to be beneficial owners of at least 5% of the Company’s Series B Preferred, (ii) the Company’s current directors, (iii) the Company’s current executive officers, and (iv) all current directors and executive officers as a group.

 

Name and Address of Beneficial Owner (1)  

Amount and

Nature

of Beneficial

Ownership (2)

    Percent of Class  
Cadwell Family Irrevocable Trust     -       * %
                 
Carlton M. Cadwell     -       * %
                 
Michael K. Korenko     -       * %
                 
All Current Directors and Executive Officers as a group (2 individuals)     -       * %
                 
Major Shareholder(s):                
                 
Jason Adelman(3)     1,012,882       99 %

 

*Less than 1%

 

(1) None of the Company’s directors and executive officers hold any shares of the Company’s Series B Convertible Preferred, and they have therefore been omitted from this table. The address of each of the beneficial owners are as follows: (i) Jason Adelman is 40 East 66th St., New York, NY 10065; and (ii) Cipher 06, LLC, c/o Ellis Lake Capital, 444 Madison Avenue, 40th Floor, New York, NY 10022.
   
(2) Subject to community property laws where applicable, the Company believes that each beneficial owner has sole power to vote and dispose of its shares.
   
(3) Includes 200,000 shares of Series B Preferred held by JTA Resources LLC; and 576,592 shares of Series B Preferred held by Cipher 06 LLC, for which the holder has shared voting and investment power.

 

Beneficial Ownership of the Company’s Series C Convertible Preferred Stock

 

As of April 24, 2020, there were 385,302 shares of Series C Preferred issued and outstanding, convertible into 4,816,275 shares of the Company’s common stock.

 

The following table sets forth, as of April 24, 2020, the number of shares of Series C Preferred beneficially owned by the following persons: (i) all persons the Company known to be beneficial owners of at least 5% of the Company’s Series C Preferred, (ii) the Company’s current directors, (iii) the Company’s current executive officers, and (iv) all current directors and executive officers as a group.

 

Name and Address of Beneficial Owner (1)  

Amount and

Nature

of Beneficial

Ownership (2)

   

Percent of

Class

 
Carlton M. Cadwell     385,302       100 %
                 
All Current Directors and Executive Officers as a group (3 individuals) (3)     385,302       100 %

 

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DESCRIPTION OF CAPITAL STOCK

 

Authorized Capital Stock

 

Our authorized capital stock currently consists of 950 million shares of common stock and 20.0 million shares of preferred stock, par value $0.001 per share (the “Preferred Stock”), of which 5.0 million shares of Preferred Stock have been designated as Series A Convertible Preferred Stock (“Series A Preferred”), 5.0 million shares have been designated as Series B Convertible Preferred Stock (“Series B Preferred”), and 5.0 million shares have been designated as Series C Convertible Preferred Stock (“Series C Preferred”). As of April 24, 2020, there were: (i) 214,421,364 shares of common stock outstanding; (ii) 2,552,642 shares of Series A Preferred, convertible into approximately 3,190,803 shares of common stock; (iii) 1,013,245 shares of Series B Preferred, convertible into approximately 12,665,563 shares of common stock, and (iv) 385,302 shares of Series C Preferred, convertible into approximately 4,816,275 shares of common stock.

 

Common Stock

 

As of April 24, 2020, there were 214,421,364 shares of our common stock issued and outstanding. Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the Company’s shareholders. Holders of common stock are entitled to receive ratably any dividends that may be declared by our Board out of legally available funds, subject to any preferential dividend rights of any outstanding Preferred Stock. Upon the Company’s liquidation, dissolution or winding up, the holders of common stock are entitled to receive ratably the Company’s net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding Preferred Stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are also subject to, and may be adversely affected by, the rights of holders of shares of any series of Preferred Stock which the Company may designate and issue in the future without further shareholder approval.

 

Preferred Stock

 

Our Board of Directors is currently authorized, without further shareholder approval, to issue from time to time up to an aggregate of 20.0 million shares of preferred stock in one or more series and to 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.

 

We currently have three series of preferred stock designated, our Series A Preferred, Series B Preferred and Series C Preferred. The following is a summary of the rights and preferences of such series of Preferred Stock, which summary is not meant to be a complete description of those terms. For a complete description of the rights and preferences attributable to our Series A Preferred, Series B Preferred and Series C Preferred, please see the Certificate of Designations, Preferences and Rights (the “Certificate of Designation”) of each, each available as an exhibit to our filings with the Securities and Exchange Commission.

 

Series A Convertible Preferred Stock

 

Liquidation Preference. The Series A Preferred has a liquidation preference of $5.00 per share.

 

Dividends. Shares of Series A Preferred do not have any separate dividend rights.

 

Conversion. Subject to certain limitations set forth in the Series A Preferred Certificate of Designation, each share of Series A 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 Preferred Certificate of Designation), currently $4.00.

 

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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 Preferred at that time will automatically convert into Series A Conversion Shares.

 

Redemption. Subject to certain conditions set forth in the Series A Preferred Certificate of Designation, in the event of a Change of Control (defined in the Series A Preferred Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series A 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 Preferred in cash at a price per share of Series A Preferred equal to 100% of the Liquidation Preference.

 

Voting Rights. Holders of Series A 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 Preferred.

 

Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of Series A 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 Preferred before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company are insufficient to pay such amounts in full, then the entire assets to be distributed to the holders of the Series A 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 Preferred prior to any such merger or reorganization would have been entitled to receive pursuant to such transaction.

 

Series B Convertible Preferred Stock

 

In October 2018, the Series B Preferred Certificate of Designation was filed with the Delaware Secretary of State to designate 5.0 million shares of our Preferred Stock as Series B Preferred. The following summarizes the current rights and preferences of the Series B Preferred:

 

Liquidation Preference. The Series B Preferred has a liquidation preference of $1.00 per share.

 

Dividends. Shares of Series B Preferred do not have any separate dividend rights.

 

Conversion. Subject to certain limitations set forth in the Series B Preferred Certificate of Designation, each share of Series B 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 Preferred Certificate of Designation), currently $0.08.

 

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Redemption. Subject to certain conditions set forth in the Series B Preferred Certificate of Designation, in the event of a Change of Control (defined in the Series B Preferred Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series B 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 Preferred in cash at a price per share of Series B Preferred equal to 100% of the Liquidation Preference.

 

Voting Rights. Holders of Series B 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 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 B Preferred.

 

Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of Series B 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 Preferred before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company are insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of the Series B 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 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 Preferred prior to any such merger or reorganization would have been entitled to receive pursuant to such transaction.

 

Series C Convertible Preferred Stock

 

In March 2019, the Series C Preferred Certificate of Designation was filed with the Delaware Secretary of State to designate 5.0 million shares of our preferred stock as Series C Preferred. The following summarizes the current rights and preferences of the Series C Preferred:

 

Liquidation Preference. The Series C Preferred has a liquidation preference of $1.00 per share.

 

Dividends. Shares of Series C Preferred do not have any separate dividend rights.

 

Conversion. Subject to certain limitations set forth in the Series C Preferred Certificate of Designation, each share of Series C 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 Preferred Certificate of Designation), currently $0.08.

 

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Redemption. Subject to certain conditions set forth in the Series C Preferred Certificate of Designation, in the event of a Change of Control (defined in the Series C Preferred Certificate of Designation as the time at which as a third party not affiliated with the Company or any holders of the Series C Preferred shall have acquired, in one or a series of related transactions, equity securities of the Company representing more than fifty percent 50% of the outstanding voting securities of the Company), the Company, at its option, will have the right to redeem all or a portion of the outstanding Series C Preferred in cash at a price per share of Series C Preferred equal to 100% of the Liquidation Preference.

 

Voting Rights. Holders of Series C 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 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 Preferred.

 

Liquidation. Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of Series C 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 Preferred before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company are 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 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 Preferred prior to any such merger or reorganization would have been entitled to receive pursuant to such transaction.

 

Options

 

As of April 24, 2020, we had options to purchase 34,524,580 shares of our common stock outstanding, with a weighted average exercise price of $0.08 per share.

 

Warrants

 

As of April 24, 2020, warrants to purchase 36,931,847 shares of our common stock were outstanding, with a weighted average exercise price of $0.10 per share.

 

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DIVIDEND POLICY

 

Since our inception, we have not paid any dividends on our common stock, and we currently expect that, for the foreseeable future, all earnings (if any) will be retained for the development of our business and no dividends will be declared or paid. In the future, our Board of Directors may decide, at their discretion, whether dividends may be declared and paid, taking into consideration, among other things, our earnings (if any), operating results, financial condition and capital requirements, general business conditions and other pertinent facts.

 

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SHARES ELIGIBLE FOR FUTURE SALE

 

Future sales of substantial amounts of common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of certain restrictions on resale, sales of substantial amounts of our common stock in the public market after the restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future.

 

Upon completion of this offering, assuming the maximum number of shares of common stock offered in this offering are sold, there will be 364,421,364 shares of our common stock outstanding. This number excludes any issuance of additional shares of common stock that could occur in connection with any exercise of stock options and/or warrants outstanding as of the date of this Offering Circular. These shares of our common stock will be freely tradable in the public market, except to the extent they are acquired by an “affiliate” of ours, as such term is defined in Rule 405 under the Securities Act. Under Rule 405, an affiliate of a specified person is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the specified person. Any affiliate of ours that acquires our shares can only further transact in such shares in compliance with Rule 144 under the Securities Act, which imposes sales volume limitations and other restrictions on such further transactions. See “Rule 144,” below.

 

In addition to the foregoing, shares of our common stock not sold in this offering will be restricted securities written the meaning of Rule 144, and would be tradable only if they are sold pursuant to a registration statement under the Securities Act or if they qualify for an exemption from registration, including under Rule 144. See “Rule 144,” below.

 

Rule 144

 

In general, a person who has beneficially owned restricted shares of our common stock for at least one year, in the event we are a company that files reports under Regulation A, or at least six months, in the event we have been a company that files reports under the Exchange Act for at least 90 days, would be entitled to sell such securities, provided that such person is not deemed to be an affiliate of ours at the time of sale or to have been an affiliate of ours at any time during the three months preceding the sale. A person who is an affiliate of ours at such time would be subject to additional restrictions, by which such person would be entitled to sell within any three -month period only a number of shares that does not exceed the greater of the following:

 

1% of the number of shares of our common stock then outstanding; or
   
the average weekly trading volume of our common stock during the four calendar weeks preceding the filing by such person with the SEC of a notice on Form 144 with respect to the sale; 
provided that, in each case, we have been subject to the periodic reporting requirements of the Exchange Act for at least 90 days before the sale. Persons replying on Rule 144 to transact in our common stock must also comply with the manner of sale, notice and other provisions of Rule 144, to the extent applicable. In general, Rule 701 allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of ours during the immediately preceding 90 days to sell those shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Persons relying on Rule 701 to transact in our common stock, however, are required to wait until 90 days after the date of this Offering Circular before selling shares pursuant to Rule 701.

 

Lock Up -Agreements

 

There are currently no lock-up agreements with our officers, directors, and current stockholders.

 

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PLAN OF DISTRIBUTION

 

General

 

The Company is offering up to 150,000,000 shares of common stock on a “best efforts basis,” at an assumed offering price of $0.027 per share, as further described in this Offering Circular. Any funds derived from the sale of the shares of common stock offered hereby will be immediately available to us for use. There will be no refunds.

 

There is no minimum number of shares of common stock that we are required to sell in this offering. All funds derived by us from this offering will be immediately available for use by us, in accordance with the uses set forth in the section of this Offering Circular entitled “Use of Proceeds.” No funds will be placed in an escrow account during the offering period and no funds will be returned, once an investor’s subscription agreement has been accepted by us.

 

We may accept subscriptions for common stock in the offering from holders of the Company’s outstanding promissory notes (“Outstanding Notes”), in which case all principal and accrued and unpaid interest due and payable under such Outstanding Notes would be exchanged for common stock in the offering. By way of example, a holder of Outstanding Notes with principal and accrued interest due and payable such holder of $100,000, could exchange such Outstanding Notes for approximately 3,703,703 shares of common stock based on an offering price of $0.027 per share.

 

We currently intend to sell the shares of common stock offered hereby through the efforts of members of our management team, including our Chief Executive Officer, Michael Korenko, among others. Members of our management team will not receive any compensation for offering or selling the shares of common stock offered pursuant to this Offering Circular. We believe that Mr. Korenko and the other members of our management team are exempt from registration as broker-dealers under the provisions of Rule 3a4-1 promulgated under the Exchange Act. In particular, such individuals:

 

  are not subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Securities Act;
     
  are not to be compensated in connection with their participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities;
     
  are not an associated person of a broker or dealer; and
     
  meet the conditions of the following:

 

  primarily performs, and will perform at the end of this offering, substantial duties for us or on our behalf otherwise than in connection with transactions in securities;
     
  were not a broker or dealer, or an associated person of a broker or dealer, within the preceding 12 months; and
     
  did not participate in selling an offering of securities for any issuer more than once every 12 months other than in reliance on paragraphs (a)(4)(i) or (iii) of Rule 3a4-1 under the Exchange Act.

 

As of the date of this Offering Circular, we have not entered into any agreements with selling agents or broker dealers for the sale of the Offered Shares. However, we reserve the right to engage FINRA-member broker-dealers to aid in the sale of the shares of our common stock being offered hereby. In the event we engage FINRA-member broker-dealers, we expect to pay sales commissions of up to 7.0% of the gross offering proceeds from their sales of shares of our common stock pursuant to this Offering Circular, although we may pay sales commissions greater than 7.0%. In the event that we choose to utilize the services of a selling broker-dealer to aid in the sale of shares of our common stock, we expect that we will enter into a standard selling agent agreement with such broker-dealer, pursuant to which the broker-dealer would act as our non-exclusive sales agent in consideration of our payment of commissions on the sale of shares of common stock effected by the broker-dealer.

 

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Termination of Offering

 

This offering will terminate at the earlier of (i) the date at which the maximum offering amount has been sold, (ii) the date that is twelve months from the date of this Offering Statement being qualified by the SEC, or (iii) the date at which the offering is earlier terminated by the Company in its sole discretion, which may happen at any time (the “Offering Termination Date”).

 

Investors’ Tender of Funds

 

After the Offering Statement has been qualified by the SEC, the Company will accept tenders of funds to purchase shares of our common stock offered hereby. In addition, the Company currently has outstanding 8% Promissory Notes that may be exchanged for shares of common stock offered in connection with the offering, The Company may close on investments on a “rolling” basis (so not all investors will receive their shares on the same date). There are no conditions that the Company must meet in order to hold a closing. A closing will occur each time the Company determines to accept funds. Tendered funds will only be returned to investors upon termination of the offering as set out above, in which case any money tendered by potential investors and not accepted by the Company will be promptly returned by the Company. Upon a closing, funds tendered by investors will be made immediately available to the company for its use.

 

Offering Expenses

 

We are responsible for all offering fees and expenses, including the following: (i) fees and disbursements of our legal counsel, accountants, and other professionals we engage; (ii) fees and expenses incurred in the production of offering documents, including design, printing, photograph, and written material procurement costs; (iii) all filing fees, including FINRA and blue sky notice filing fees; (iv) all of the legal fees related to the filing of notice filings under state securities laws and FINRA clearance; and (v) our transportation, accommodation, and other roadshow expenses.

 

Investment Limitations

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth (please see below on how to calculate your net worth). Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

Because this is a Tier 2 Regulation A offering, most investors must comply with the 10% limitation on investment in the offering. The only investor in this offering exempt from this limitation is an “accredited investor” as defined under Rule 501 of Regulation D under the Securities Act (an “Accredited Investor”). If you meet one of the following tests you should qualify as an Accredited Investor:

 

i. You are a natural person who has had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year;
   
ii. You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase Offered Shares (please see below on how to calculate your net worth);
   
iii. You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer;
   
iv. You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the Offered Shares, with total assets in excess of $5,000,000;

 

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v. You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”), or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940;
   
vi. You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor;
   
vii. You are a trust with total assets in excess of $5,000,000, your purchase of Offered Shares is directed by a person who either alone or with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the Offered Shares; or
   
viii. You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000.

 

Procedures for Subscribing

 

If you are interested in subscribing for shares of common stock in this offering, please go to www.radiogel.com to electronically receive and review the information set forth on such website.

 

If you decide to subscribe for share of common stock being offered pursuant to this Offering Circular, you should:

 

Go to www. radiogel.com, click on the “Invest Now: button and follow the procedures as described therein, which are:

 

1. Electronically receive, review, execute and deliver to us a subscription agreement; and
   
2. Deliver funds directly by wire or electronic funds transfer via ACH to the specified account maintained by Vivos Inc.

 

Any potential investor will have ample time to review the subscription agreement, along with their counsel, prior to making any final investment decision. We shall only deliver such subscription agreement upon request after a potential investor has had ample opportunity to review this Offering Circular.

 

Right to Reject Subscriptions

 

After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been transferred to our account, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, without interest or deduction.

 

Acceptance of Subscriptions

 

Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.

 

Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).

 

56

 

 

For the purposes of calculating your net worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of shares of our common stock.

 

In order to purchase shares of our common stock in this offering, and prior to the acceptance of any funds from an investor, an investor will be required to represent, to the Company’s satisfaction, that he is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation on investment in this offering.

 

Registrar and Transfer Agent, Book-Entry Only

 

All shares of common stock sold in this offering will be issued by our Transfer Agent to investors in book-entry only format and will be represented by a stock transfer ledger, maintained by our Transfer Agent.

 

Investors in the shares of our common stock will not be entitled to have the stock certificates registered in their names and will not receive or be entitled to receive physical delivery of the shares in definitive form. Transfers of investors, common stock will be facilitated through the Transfer Agent. As a result, you will not be entitled to receive a stock certificate representing your interest in the shares of common stock you purchase. Your ability to pledge shares of common stock that you purchase, and to take other actions, may be limited because you will not possess a physical certificate that represents your shares. Investors will receive written confirmation from the Transfer Agent upon closing of their purchases. Transfers of the shares of common stock will be recorded on the stock transfer ledger maintained by the Transfer Agent. We have no responsibility for any aspect of the actions of the Transfer Agent. In addition, we have no responsibility or liability for any aspect of the records kept by the Transfer Agent relating to, or payments made on account of investors in, the shares, or for maintaining, supervising or reviewing any records relating to ownership of shares. We also do not supervise the systems of the Transfer Agent.

 

EXPERTS

 

The financial statements of the company appearing elsewhere in this Offering Circular have been included herein in reliance upon the report, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, of Fruci & Associates II, PLLC (“Fruci”), an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of Fruci as experts in accounting and auditing.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We have filed with the SEC a Regulation A Offering Statement on Form 1-A under the Securities Act with respect to the shares of common stock offered hereby. This Offering Circular, which constitutes a part of the Offering Statement, does not contain all of the information set forth in the Offering Statement or the exhibits and schedules filed therewith. For further information about us and the shares of common stock offered hereby, we refer you to the Offering Statement and the exhibits and schedules filed therewith. Statements contained in this Offering Circular regarding the contents of any contract or other document that is filed as an exhibit to the Offering Statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the Offering Statement. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, including us, that file electronically with the SEC. The address of this site is www.sec.gov.

 

57

 

 

VIVOS INC.

 

FINANCIAL STATEMENTS

 

    Pages
     
Report of Independent Registered Public Accounting Firm   F-2
     
Balance Sheets as of December 31, 2019 and 2018   F-3
     
Statements of Operations for the years ended December 31, 2019 and 2018   F-4
     
Statement of Changes in Stockholders’ Deficit for the years ended December 31, 2019 and 2018   F-5
     
Statements of Cash Flow for the years ended December 31, 2019 and 2018   F-6
     
Notes to Financial Statements   F-7

 

F-1

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Vivos, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Vivos, Inc. (“the Company”) as of December 31, 2019 and 2018, and the related statements of operations, changes in stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses, utilizes a significant amount of cash to fund its operations, and does not have sufficient cash to support current operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

 

We have served as the Company’s auditor since 2016.

 

Spokane, Washington

 
April 28, 2020  

 

F-2

 

 

VIVOS INC

BALANCE SHEETS

DECEMBER 31, 2019 AND DECEMBER 31, 2018

 

   DECEMBER 31, 2019   DECEMBER 31, 2018 
         
ASSETS          
Current Assets:          
Cash  $20,381   $5,494 
Prepaid expenses   23,492    10,992 
           
Total Current Assets   43,873    16,486 
           
TOTAL ASSETS  $43,873   $16,486 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
LIABILITIES          
Current Liabilities:          
Accounts payable and accrued expenses  $511,817   $795,129 
Related party accounts payable   32,110    38,610 
Accrued interest payable   93,249    59,646 
Payroll liabilities payable   100,000    11,451 
Convertible notes payable, related party, net   14,500    - 
Convertible notes payable, net   434,886    53,824 
Promissory notes payable, net of discount   100,000    - 
Related party promissory note   237,000    - 
           
Total Current Liabilities   1,523,562    958,660 
           
Total Liabilities   1,523,562    958,660 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS’ DEFICIT          
Preferred stock, par value, $0.001, 20,000,000 shares authorized,Series A Convertible Preferred, 5,000,000 shares authorized, 2,552,642 shares issued and outstanding, respectively   2,553    2,553 
Additional paid in capital - Series A Convertible preferred stock   8,870,626    8,870,626 
Series B Convertible Preferred, 5,000,000 shares authorized, 1,113,245 and   3,305,755 shares issued and outstanding, respectively   1,113    3,306 
Additional paid in capital - Series B Convertible preferred stock   665,195    1,876,768 
Series C Convertible Preferred, 5,000,000 shares authorized, 821,292 and   0 shares issued and outstanding, respectively   821    - 
Additional paid in capital - Series C Convertible preferred stock   674,457    - 
Common stock, par value, $0.001, 950,000,000 shares authorized,184,845,821 and 163,445,736 issued and outstanding, respectively   184,846    163,446 
Additional paid in capital - common stock   61,721,809    60,132,139 
Accumulated deficit   (73,601,109)   (71,991,012)
           
Total Stockholders’ Deficit   (1,479,689)   (942,174)
           
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $43,873   $16,486 

 

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

 

F-3

 

 

VIVOS INC

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

   2019   2018 
         
Revenues, net  $9,500   $- 
Cost of Goods Sold   (6,028)   - 
           
Gross profit   3,472    - 
           
OPERATING EXPENSES          
Sales and marketing expenses   -    11,500 
Professional fees   462,952    682,217 
Reserved stock units granted   -    113,189 
Stock based compensation   608,588    1,164,885 
Payroll expenses   120,000    315,000 
Research and development   67,584    104,208 
General and administrative expenses   74,327    98,638 
           
Total Operating Expenses   1,333,451    2,489,637 
           
OPERATING LOSS   (1,329,979)   (2,489,637)
           
NON-OPERATING INCOME (EXPENSE)          
Interest expense   (261,374)   (5,649,546)
Net gain (loss) on debt extinguishment   (18,744)   605,601 
Net loss on derivative liability   -    (186,846)
Grant income   -    17,583 
           
Total Non-Operating Income (Expenses)   (280,118)   (5,213,208)
           
NET LOSS BEFORE PROVISION FOR INCOME TAXES   (1,610,097)   (7,702,845)
           
Provision for income taxes   -    - 
           
NET LOSS  $(1,610,097)  $(7,702,845)
           
Net loss per share - basic and diluted  $(0.01)  $(0.14)
           
Weighted average common shares outstanding - basic   175,195,600    55,501,248 

 

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

 

F-4

 

 

VIVOS INC

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018

 

           Additional           Additional           Additional                
   Series A Preferred   Paid-In Capital -   Series B Preferred   Paid-In Capital -   Series C Preferred   Paid-In Capital -   Common Stock   Additional Paid-In        
   Shares   Amount   Series A Preferred   Shares   Amount   Series B Preferred   Shares   Amount   Series C Preferred   Shares   Amount   Capital - Common   Accumulated Deficit   Total 
                                                         
Balance - December 31, 2017   3,778,622   $3,779   $13,547,780    -   $-   $-    -   $-   $-    8,211,902   $8,212   $46,465,926   $(64,288,167)  $(4,262,470)
                                                                       
Stock issued for:                                                                      
Services   -    -    -    -    -    -    -    -    -    1,250    1    448    -    449 
Conversion of preferred stock into common stock   (574,200)   (575)   (3,236,164)   -    -    -    -    -    -    717,750    718    3,236,021    -    - 
Restricted units vested   -    -    -    -    -    -    -    -    -    77,500    78    (78)   -    - 
Reserved shares for services   -    -    -    -    -    -    -    -    -    -    -    52,094    -    52,094 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    23,766    -    23,766 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -    (901,185)   (901,185)
                                                                       
Balance - March 31, 2018   3,204,422    3,204    10,311,616    -    -    -    -    -    -    9,008,402    9,009    49,778,177    (65,189,352)   (5,087,346)
                                                                       
Stock issued for:                                                                      
Settlement of debt   -    -    -    -    -    -    -    -    -    5,143,258    5,143    371,038    -    376,181 
Conversion of preferred stock into common stock   (392,467)   (393)   (735,811)   -    -    -    -    -    -    490,584    490    735,714    -    - 
Restricted units vested   -    -    -    -    -    -    -    -    -    77,500    78    (78)   -    - 
Reserved shares for services   -    -    -    -    -    -    -    -    -    -    -    32,801    -    32,801 
Options and warrants issued for services   -    -    -    -    -    -    -    -    -    -    -    21,645    -    21,645 
Net loss for the period   -    -    -    -    -    -    -    -    -    -    -    -    (6,011,970)   (6,011,970)
                                                                       
Balance - June 30, 2018   2,811,955    2,811    9,575,805    -    -    -    -    -    -    14,719,744    14,720    50,939,297    (71,201,322)   (10,668,689)
                                                                       
Stock issued for:                                                                      
Settlement of debt   -    -    -    -    -    -    -    -    -    74,558,393