VIVOS INC - Quarter Report: 2018 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED: September 30, 2018

OR

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER 000-53497

VIVOS INC

(Exact name of registrant as specified in its charter)

719 Jadwin Avenue,

Richland, WA 99352

(Address of principal executive offices, Zip Code)

(509) 736-4000

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

As of November 12, 2018, there were 1,302,950,426 shares of the registrant’s Common outstanding and 2,952,192 shares of the registrant’s Series A Convertible Preferred Stock outstanding and 3,305,754 of the registrant’s Series B Convertible Preferred Stock outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Vivos Inc.

Condensed Balance Sheets

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

Vivos Inc.

Condensed Statements of Operations

(unaudited)

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

Vivos Inc.

Condensed Statements of Cash Flow

(Unaudited)

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

Vivos Inc.

Notes to Condensed Financial Statements

(Unaudited)

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed financial statements of Vivos Inc. (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2018 and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on April 2, 2018.

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

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2018 and December 31, 2017, the balances reported for cash, prepaid expenses, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were calculated using the Black-Scholes pricing model and are as follows at September 30, 2018:

Derivative Liabilities

The Company evaluates its convertible debt, options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Accounting Standards Codification topic 815, Accounting for Derivative Instruments and Hedging Activities (“ASC 815”) as well as related interpretations of this standard and Accounting Standards Update 2017-11, which was adopted by the Company effective January 1, 2018. In accordance with this standard, derivative instruments are recognized as either assets or liabilities in the balance sheet and are measured at fair values with gains or losses recognized in earnings. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and are recognized at fair value with changes in fair value recognized as either a gain or loss in earnings.

The result of this accounting treatment is that the fair value of the derivative instrument is marked-to-market each balance sheet date and with the change in fair value recognized in the statement of operations as other income or expense.

Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then that the related fair value is removed from the books. Gains or losses on debt extinguishment are recognized in the statement of operations upon conversion, exercise or cancellation of a derivative instrument after any shares issued in such a transaction are recorded at market value. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Instruments that become a derivative after inception are recognized as a derivative on the date they become a derivative with the offsetting entry recorded in earnings.

The Company determines the fair value of derivative instruments and hybrid instruments, considering all of the rights and obligations of each instrument, based on available market data using the Black-Scholes model, adjusted for the effect of dilution, because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk-free rates) necessary to fair value these instruments. For instruments in default with no remaining time to maturity the Company uses a one-year term for their years to maturity estimate unless a sooner conversion date can be estimated or is known. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques (such as Black-Scholes model) are highly volatile and sensitive to changes in the trading market price of our common stock.

Reclassifications

Certain account balances from prior periods have been reclassified in the current period financial statements so as to conform to current period classifications.

Recent Accounting Pronouncements

There are no recently issued accounting pronouncements that the Company has not yet adopted that they believe are applicable or would have a material impact on the financial statements of the Company.

NOTE 2: GOING CONCERN

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

As of September 30, 2018, the Company has no cash. There are currently commitments to vendors for products and services purchased, plus, the employment agreements of the CEO and CFO of the Company that will necessitate liquidation of the Company if it is unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company.

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

The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to seek additional funding to maintain its operations through debt and equity financing and to improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements to the cost structure. There is no assurance that the Company will be successful in its efforts to raise additional working capital or achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3: FIXED ASSETS

Fixed assets consist of the following at September 30, 2018 and December 31, 2017:

Depreciation expense for the above fixed assets for the three months ended September 30, 2018 and 2017, respectively, was $0 and $0 and for the nine months ended September 30, 2018 and 2017, respectively, was $0 and $1,473.

NOTE 4: RELATED PARTY TRANSACTIONS

Related Party Convertible Notes Payable

In March 2017, the Company combined Outstanding Notes owed to a director and major stockholder, along with $51,576 of accrued interest payable, into one promissory note (the “Related Party Note”). The Related Party Note accrues interest at a rate of 10% and was due and payable on December 31, 2017. The note holder agreed to an extension of the due date until May 9, 2018. On August 9, 2018 the Company entered into a Path Forward and Restructuring Agreement whereby this Convertible Note would convert at a conversion price of $0.004 per share concurrently with a funding of at least $500,000 (the “Qualified Financing”). The Qualified Financing occurred on October 10, 2018 at which time this note was fully converted into 50,000,000 common and 385,302 Series B preferred shares of the Company. As of September 30, 2018 and December 31, 2017 the balance of the Related Party Note was $383,771 and $383,771, respectively, and the accrued interest payable on the Related Party Note was $57,934 and $29,230, respectively.

Related Party Payables

The Company periodically receives advances for operating funds from related parties or has related parties make payments on the Company’s behalf. As a result of these activities the Company had related party payables of $106,833 and $57,297 as of September 30, 2018 and December 31, 2017, respectively.

Preferred Shares Issued to Officers

During 2017, the Company issued 100,000 shares of its Series A Preferred to its CEO, in exchange for $32,308 of accrued payroll, $67,692 of accounts payable, and wages valued at $199,690.

During 2017, the Company issued 83,279 shares of its Series A Preferred to its CFO, in exchange for $83,280 of accrued payroll and wages valued at $166,299.

Rent Expenses

The Company was renting office space from a significant shareholder and director of the Company on a month-to-month basis with a monthly payment of $1,500. This rental agreement was terminated as of April 1, 2017.

There was no rental expense for each of the three months ended September 30, 2018 and 2017. Rental expense was $0 and $4,500 for the nine months ended September 30, 2018 and 2017, respectively.

NOTE 5: CONVERTIBLE NOTES PAYABLE

As of September 30, 2018 and December 31, 2017 the Company had the following convertible notes outstanding:

NOTE 6: DERIVATIVE LIABILITY

During the nine months ended September 30, 2018 the Company had certain convertible notes become convertible on a set date at variable conversion rates. Upon becoming convertible the Company bifurcated the embedded conversion feature and recorded a derivative liability at fair value with the offsetting entry recorded in the statement of operations. The activity in the derivative liability account during the nine months ended September 30, 2018 is summarized as follows:

The Company uses the Black-Scholes pricing model to estimate fair value for those instruments convertible into common stock at inception, at conversion date, and at each reporting date. During the nine months ended September 30, 2018 the Company used the following assumptions in their Black-Scholes model:

NOTE 7: COMMON STOCK OPTIONS AND WARRANTS

Common Stock Options

The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options and warrants, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.

The following schedule summarizes the changes in the Company’s stock options:

During the three and nine months ended September 31, 2018 the Company recognized $0 and $45,400 worth of stock based compensation related to the vesting of its stock options.

Common Stock Warrants

The following schedule summarizes the changes in the Company’s stock warrants:

Restricted Stock Units

The following schedule summarizes the changes in the Company’s restricted stock units:

During the three and the nine months ended September 30, 2018 the Company recognized $19,515 and $104,410 worth of expense related to the vesting of its RSU’s. As of September 30, 2018, the Company had $250,019 worth of expense yet to be recognized for RSU’s not yet vested.

NOTE 8: STOCKHOLDERS’ EQUITY

Common Stock

During the nine months ending September 30, 2018 the Company issued 637,613,204 shares of its common stock valued at $3,240,661 for conversion of convertible debt, 10,000 shares of its common stock valued at $449 for services, 10,076,830 shares of its common stock valued at $4,050,654 for conversions of 1,007,683 shares of Series A Preferred Stock, and 1,860,000 shares of its common stock valued at $1,860 in the form of Restricted Stock Units.

NOTE 9: SUPPLEMENTAL CASH FLOW INFORMATION

During the nine months ending September 30,2018 the Company had the following non-cash investing and financing activities:

NOTE 10: COMMITMENTS AND CONTINGENCIES

The Company is continuing work on many avenues to find the money needed to fund operations and provide sufficient funds needed to bring its product to market. The Company entered into an agreement in May 2018 to find accredited investors for funding the Company under which it will pay a 5% finders fee of the gross proceeds for any financing made available to the Company plus common stock shares equal to 5% of the aggregate proceeds divided by the price per share of common stock issued in connection with the financing.

NOTE 11: SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date of this filing pursuant to ASC Topic 855 and has determined that, except as disclosed herein, there are no additional subsequent events to disclose.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except for statements of historical fact, certain information described in this Form 10-K report contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would” or similar words. The statements that contain these or similar words should be read carefully because these statements discuss the Company’s future expectations, including its expectations of its future results of operations or financial position, or state other “forward-looking” information. Vivos Inc. believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict or to control. Further, the Company urges you to be cautious of the forward-looking statements which are contained in this Form 10-Q report because they involve risks, uncertainties and other factors affecting its operations, market growth, service, products and licenses. The risk factors in the section captioned “Risk Factors” in Item 1A of the Company’s previously filed Form 10-K, as well as other cautionary language in this Form 10-Q report, describe such risks, uncertainties and events that may cause the Company’s actual results and achievements, whether expressed or implied, to differ materially from the expectations the Company describes in its forward-looking statements. The occurrence of any of the events described as risk factors could have a material adverse effect on the Company’s business, results of operations and financial position.

General Statement of 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. The Company has authorized capital of 2,000,000,000 shares of common stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share.

Our principal place of business is 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 OTC Pink 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.

The Company’s current focus is on the development of our RadioGel™ device candidate, including obtaining approval from the Food and Drug Administration (“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. 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.

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 II of III, 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 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.

The Company believes that its submissions to the FDA to date have taken into account all the FDA staff’s feedback over the past three 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.

In the event the FDA denies the Company’s application for de novo review, and therefore determines that RadioGel™ cannot be classified as a Class I or Class I1 device, the Company will then need to submit a pre-market approval application to obtain the necessary regulatory approval as a Class III device.

Animal Therapy

As noted above, the Office of Combination Products previously classified RadioGel™ as a device for human therapy for non-sectable cancers. In January 2018, the Center for Veterinary Medicine Product Classification Group ruled that RadioGel™ should be classified as a device for animal therapy of feline sarcomas and canine soft tissue sarcomas. In addition, the FDA also reviewed and approved our label, which is a requirement for any device used in animals. We expect the result of such classification and label approval is that no additional regulatory approvals are necessary for the use of RadioGel™ for the treatment of skin cancer in animals.

Based on the FDA’s recommendation, RadioGel™ will be marketed as “IsoPet® for use by veterinarians to avoid any confusion between animal and human therapy. The Company already has trademark protection for the “IsoPet®” name. IsoPet® and RadioGel™ are used synonymously throughout this document. As we stated the only distinction between the two is the FDA’s recommendation we use IsoPet® for all veterinarian usage and reserve RadioGel™ for human therapy.

IsoPet® Solutions

The Company’s IsoPet® Solutions division was established in May 2016 to focus on the veterinary oncology market, namely engagement of university veterinarian hospital to develop the detailed therapy procedures to treat animal tumors and ultimately use of the technology in private clinics. The Company has worked with four different university veterinarian hospitals on RadioGel™ testing and therapy. Colorado State University demonstrated the procedures and the CT and PET-CT imaging of RadioGel™. Washington State University treated five cats for feline sarcoma. They concluded that the product was safe and effective in killing cancer cells. A contract was signed with University of Missouri to treat canine sarcomas and equine sarcoids starting early in 2019. The safety review at UC Davis was completed. One dog was treated for canine soft tissue sarcoma in June 2018. The principle investigator rated the tumor as CR, Complete Response, after three months. This RECIST rating means that the tumor was totally eliminated by the IsoPet therapy. Four other dogs will be treated on this test plan series.

These animal therapies will generate the additional data required by the private veterinary clinics to assure them of the safety and efficacy of IsoPet® to complement the previous work at Washington State University.

The Company anticipates that future profit 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.

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 implementation of its business strategy and not be able to continue operations.

Results of Operations

Comparison of the Three Months Ended September 30, 2018 and 2017

The following table sets forth information from our statements of operations for the three months ended September 30, 2018 and 2017.

Revenue

Revenue was $0 for the three months ended September 30, 2018 and September 30, 2017.

Operating Expenses

Operating expenses for the three months ended September 30, 2018 and 2017 consists of the following:

Operating expenses for the three months ended September 30, 2018 and 2017 was $136,906 and $961,799, respectively. The decrease in operating expenses from 2017 to 2018 can be attributed to the decrease in payroll expense ($436,319 for the three months ended September 30, 2017 versus $82,500 for the three months ended September 30, 2018. The reason for the $353,819 additional payroll for the three months ended September 30, 2017 was due to approximately $366,000 of officers past due payroll that was settled by the issuance of common stock shares); decrease in professional fees expenses ($211,954 for the three months ended September 30, 2017 versus $16,223 for the three months ended September 30, 2018. The reason for the $195,731 additional professional fees for the three months ended September 30, 2017 was due to approximately $60,000 of consulting fees and $129,000 of legal fees that were attributable to a shareholder meeting and preparation for and meetings with the FDA); decrease in sales and marketing expense ($52,620 for the three months ended September 30, 2017 versus $750 for the three months ended September 30, 2018. The reason for the $51,870 additional sales and marketing expense for the three months ended September 30, 2017 was due to expenses incurred for an investors relations firm and the attendance of a convention); decrease in research and development ($43,758 for the three months ended September 30, 2017 versus $2,455 for the three months ended September 30, 2018. The reason for the $41,303 additional research and development costs for the three months ended September 30, 2017 was due to costs incurred in the development of the Company’s RadioGel product); decrease in reserved stock units granted ($169,650 for the three months ended September 30, 2017 versus $19,515 for the three months ended September 30, 2018. The reason for the $150,135 additional reserved stock units granted costs for the three months ended September 30, 2017 was due to the 6,820,000 granted versus the 620,000 granted for the three months ended September 30, 2018); decrease in stock options granted ($24,283 for the three months ended September 30, 2017 versus $0 for the three months ended September 30, 2018); and the decrease in general and administrative expense ($23,215 for the three months ended September 30, 2017 versus $15,463 for the three months ended September 30, 2018).

Non-Operating Income (Expense)

Non-operating income (expense) for the three months ended September 30, 2018 and 2017 consists of the following:

Non-operating income (expense) for the three months ended September 30, 2018 varied from the three months ended September 30, 2017 primarily due to a loss on debt extinguishment of $369,428 for the three months ended September 30, 2017 versus a gain of $394,618 for the three months ended September 30, 2018; a gain on derivative liability for the three months ended September 30, 2017 of $9 versus a loss of $27,109,374 for the three months ended September 30, 2018; and an decrease in interest expense from $527,188 for the three months ended September 30, 2017 to $60,752 for the three months ended September 30, 2018. The reason for the increase in non-operating expenses for the three months ended September 30, 2018 versus September 30, 2017 was due to the expiration of the due date of the convertible debt thereby causing the reversal of the accrued debt discount and the conversions of convertible debt resulting in a loss on derivative liability after calculation of Black Sholes for each of the conversions.

Net Loss

Our net income (loss) for the three months ended September 30, 2018 and 2017 was $(26,912,414) and $(1,858,406), respectively.

Comparison of the Nine Months Ended September 30, 2018 and 2017

The following table sets forth information from our statements of operations for the nine months ended September 30, 2018 and 2017.

Revenue

Revenue was $4,054 for the nine months ended September 30, 2017, compared to $0 for the nine months ended September 30, 2018, a period over period decrease of $4,054. The decrease was a result of a loss of consulting revenue, currently our only source of revenue, during the first half of the fiscal year. Consulting revenue consists of providing clients with assistance in strategic targetry services, and research into production of radiopharmaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this consulting. Consulting services had been our only source of revenue. The Company does not have any current contracts or arrangements for consulting services, and, until such time as the Company secures contracts or arrangements to provide consulting services, the Company does not expect to generate any additional revenue during the fourth quarter of 2018 and beyond.

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

Operating Expense

Operating expenses for the nine months ended September 30, 2018 and 2017 consists of the following:

Operating expenses for the nine months ended September 30, 2018 and 2017 was $765,500 and $1,949,739, respectively. The decrease in operating expenses from 2017 to 2018 can be attributed to the decrease in professional fees expense from 2017 to 2018 ($642,101 for the nine months ended September 30, 2017 versus $231,501 for the nine months ended September 30, 2018. This decrease was due to a reduction in accounting fees from $119,686 to $74,099 for the nine months ended September 30 2017 and 2018, respectively; a decrease in consulting fees from $176,977 to $53,705 for the nine months ended September 30 2017 and 2018, respectively, due to the costs incurred for a shareholder meeting in 2017 and none in 2018 and approximately $61,000 for the value of common stock shares given to the Medical Advisory Board in 2017 and none in 2018.); a decrease in reserved stock units granted from 2017 to 2018 ($169,650 for the nine months ended September 30, 2017 versus $104,410 for the nine months ended September 30, 2018); a decrease in stock options granted from 2017 to 2018 ($79,582 for the nine months ended September 30, 2017 versus $45,400 for the nine months ended September 30, 2018); a decrease in payroll expenses from 2017 to 2018 ($722,594 for the nine months ended September 30, 2017 versus $243,570 for the nine months ended September 30, 2018. This decrease was due approximately $366,000 of officers past due payroll that was settled by the issuance of common stock shares and due to the Company having five employees in 2017 versus 2 in 2018); a decrease in research and development from 2017 to 2018 ($157,168 for the nine months ended September 30, 2017 versus $77,035 for the nine months ended September 30, 2018. The reason for the $80,133 additional research and development costs for the nine months ended September 30, 2017 was due to costs incurred in the development of the Company’s RadioGel product.); a decrease in general and administrative expense from 2017 to 2018 ($83,301 for the nine months ended September 30, 2017 versus $49,884 for the nine months ended September 30, 2018); and a decrease in sales and marketing expense from 2017 to 2018 ($93,870 for the nine months ended September 30, 2017 versus $13,700 for the nine months ended September 30, 2018. The reason for the $80,170 additional sales and marketing expense for the nine months ended September 30, 2017 was due to expenses incurred for an investors relations firm and the attendance at conventions). ).

Non-Operating Income (Expense)

Non-Operating income (expense) for the nine months ended September 30, 2018 and 2017 consists of the following:

The Company had non-operating expense of $1,848,282 during the nine months ended September 30, 2017, as compared to non-operating expense of $33,060,069 during the nine months ended September 30, 2018. As shown above, this increase in non-operating expense is primarily due to a loss on derivative liability of $27,976,982 for the nine months ended September 30, 2018, as compared to a gain of $408,488 during the same period in 2017. The Company’s gain on debt extinguishment increased from a loss of $423,291 during the nine months ended June 30, 2017, as compared to a gain of $526,222 for the nine months ended September 30, 2018. Additionally, the Company experienced an increase in interest expense from $1,836,279 for the nine months ended September 30, 2017, as compared to $5,626,892 for the nine months ended September 30, 2018. The majority of the interest recorded by the Company consists of amortization of debt discount and new derivative liabilities recorded as loan fees. The reason for the increase in non-operating expenses for the nine months ended September 30, 2018 versus September 30, 2017 was due to the expiration of the due date of the convertible debt thereby causing the reversal of the accrued debt discount and the conversions of convertible debt resulting in a loss on derivative liability after calculation of Black Sholes for each of the conversions.

Net Gain (Loss)

Our net income (loss) for the nine months ended September 30, 2018 and 2017 was $(33,825,569) and $(3,793,967) respectively.

Liquidity and Capital Resources

At September 30, 2018, the Company had negative working capital of $34,697,778 as compared to $4,262,470 at December 31, 2017. During the nine months ended September 30, 2018 the Company experienced negative cash flow from operations of $167,808 and it received $0 for investing activities while adding $159,491 of cash flows from financing activities. As of September 30, 2018, the Company had no commitments for capital expenditures.

Cash used in operating activities decreased from $1,124,282 for the nine month period ending September 30, 2017 to $167,808 for the nine month period ending September 30, 2018. Cash used in operating activities was primarily a result of the Company’s net loss, partially offset by non-cash items, such as loss on derivative liability and amortization and depreciation, included in that net loss and preferred and common stock issued for services and other expenses. The Company received $0 and $2,800 in cash from investing activities for the nine month periods ended September 30, 2018 and 2017, respectively. Cash provided from financing activities decreased from $1,115,703 for the nine month period ending September 30, 2017 to $159,491 for the nine month period ending September 30, 2018. The decrease in cash provided from financing activities was primarily a result of decrease in proceeds from convertible debt, as well as a decrease in shareholder advances.

The Company has generated material operating losses since inception. The Company had a net loss of $33,825,569 for the nine months ended September 30, 2018, and a net loss of $3,793,967 for the nine months ended September 30, 2017. The Company expects to continue to experience net operating losses. 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 from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business.

The Company anticipates raising additional capital within the next twelve months from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to cease operations.

The Company requires funding of at least $1.5 million per year to maintain current operating activities. Over the next 12 to 24 months, the Company believes it will cost approximately $11.0 million to fund: (1) the FDA approval process and initial deployment of RadioGel™ and other brachytherapy products. 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, 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 thereof will be materially dilutive 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.

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. During the period ended September 30, 2018, 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, 2017, filed on April 2, 2018.

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

This item is not applicable to us because we are a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, because of the disclosed material weaknesses in the Company’s internal control over financial reporting, the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the period ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

PART II

Item 1. Legal Proceedings

In 2016, the Company was awarded in the Superior Court of the State of Washington a total sum of $527,876 against BancLeasing. The Company is pursuing its options for collection of the awarded amount, however there can be no assurance as to any eventual collection.

Item 2. Unregistered Sales of Equity Securities

During the nine months ending September 30, 2018 the Company issued 10,000 common shares for services.

During the nine months ending September 30, 2018 the Company issued 10,076,830 common shares in exchange for 1,007,683 shares Series A Preferred.

During the nine months ending September 30, 2018 the Company issued 637,613,204 common shares in exchange for settlement of debt.

In connection with the above stock sales, we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act of 1933, as amended (the “Securities Act”). We had or one of our affiliates had a prior business relationship with each of the purchasers, and no general solicitation was used in connection with the sales. In making the sales without registration under the Securities Act, we relied upon the exemption from registration contained in Section 4(a)(2) of the Securities Act.

Item 6. Exhibits.

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.