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EX-32.2 - CERTIFICATION - United Health Products, Inc.ueec_ex322.htm
EX-32.1 - CERTIFICATION - United Health Products, Inc.ueec_ex321.htm
EX-31.2 - CERTIFICATION - United Health Products, Inc.ueec_ex312.htm
EX-31.1 - CERTIFICATION - United Health Products, Inc.ueec_ex311.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019

 

COMMISSION FILE NUMBER: 000-27781

 

UNITED HEALTH PRODUCTS, INC.

(Exact name of Registrant as specified in its charter)

 

Nevada

84-1517723

(State of jurisdiction of

incorporation or organization)

(I.R.S. Employee

Identification Number)

 

 

10624 S. Eastern Avenue, Ste. A209

Henderson, NV

89052

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (877) 358-3444

 

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

 

Securities registered pursuant to Section 12 (g) of the Act: Common Stock, $.001 Par Value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

Check whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ¨

 

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 every Interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

 

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10 K ¨.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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.

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

x

Smaller reporting company

x

 

 

Emerging growth company

¨

 

If an emerging growth company, indicate by check mark if the registrant 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. Yes ¨ No ¨

 

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 June 28, 2019, the number of shares held by non-affiliates was approximately 172,779,765 shares. The approximate market value based on the last sale (i.e. $0.94 per share as of June 28, 2019, the last business day of the second quarter) of the Company’s Common Stock was approximately $162,412,979.

 

The number of shares issued and outstanding of the Registrant’s Common Stock, as of June 29, 2020 was 180,128,456, excluding restricted stock units issued to officers, directors and consultants covering 50,100,000 shares to be issued upon a change in control of the Company as described herein. See “Item 11.”

 

 

 

 

Forward-looking Statements

 

Statements in this annual report on Form 10-K that are not historical facts constitute forward-looking statements which are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Those factors include, among other things, those listed under “Risk Factors” and elsewhere in this annual report. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Moreover, neither we nor any other person assumes responsibility.

 

Explanatory Note

  

In accordance with the SEC’s Order under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions From Specified Provisions of the Exchange Act and Certain Rules Thereunder dated March 4, 2020 (Release No. 34-88318) (as modified on March 25, 2020 by Release No. 34-88465, the “Order”), the Company relied on the relief provided by the Order in connection with the filing of this Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Report”) due to the circumstances related to coronavirus or COVID-19. The impact of the COVID-19 outbreak has resulted in the implementation, by State and Federal authorities, of numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns. The Company has been following the recommendations of local authorities to minimize exposure risk to its team members, We were unable to file this Annual Report on the extended March 30, 2020 due date because of the impact of COVID-19 as disclosed above.

 

Restatement:

 

General. This comprehensive Annual Report is for the year ended December 31, 2019, with expanded financial and other disclosures in lieu of filing separate amended Annual Report on Form 10-K/A for the years ended December 31, 2018 and 2017 and Quarterly Reports on Form 10-Q/A for each of the quarters ended March 31, 2017, June 30, 2017, September 30, 2017, March 31, 2018, June 30, 2018, September 30, 2018, March 31, 2019, June 30, 2019 and September 30, 2019. We believe that the filing of this expanded annual report enables us to provide information to investors in a more efficient manner than separately filing each of the amended filings described above.

 

As discussed in further detail below and in Note 2 to the accompanying financial statements, the restatements of the prior filings are the result of two separate transactions. The first transaction was a revenue transaction that involved a sale of a lost in-bound shipment of product that was recognized and recorded in the first quarter of 2017. This sale was canceled in the second quarter of 2017 and the transaction was subsequently corrected to back out the revenue and exclude it from the audited 2017 annual financial statements which were included in our 2017 Annual Report on Form 10-K. The Company inadvertently did not go back and restate the prior interim financial statements for 2017 to reflect the correction. The second transaction was a revenue transaction regarding product that was in the shipping process at the end of December 2017 that was recognized and recorded as revenue in the 2017 audited annual financial statements where there was a question related to the timing of revenue recognition due to the shipping and receiving terms. The Company’s customer had not paid the Company for this product and the Company, in consultation with its former auditor, ultimately wrote off the receivable in the third and fourth quarters of 2018 as a bad debt expense. Those write-offs were reflected in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2018 and Company’s Annual Report on Form 10-K for the year ended December 31, 2018. However, in light of the information currently available to the Company, the Company has determined that no revenue should have been recognized in 2017 or 2018 due to the customer disputing the shipment and refusing to pay the amount owed and therefore the transaction did not meet all of the revenue recognition criteria under ASC 606, which the Company adopted on January 1, 2018. The Company is continuing collection efforts to recover payment from its customer, and it instituted a lawsuit against the customer in February 2020 to recover payment, which is ongoing. Due to uncertainties inherent in litigation, the Company cannot predict the outcome of this action.

   

During the process of restating its financial statements due to the transactions mentioned above, other adjustments were noted and related to inventory valuation, loss on settlement of debt and equity transactions along adjustments to accruals based on factors known at the time of this filing versus what was known as of the original filing date.

  

Please see also “Controls and Procedures” under Item 9A of this report for a discussion of material weaknesses in our internal controls over financial reporting which existed as of December 31, 2019.

  

 
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PART I

 

ITEM 1. BUSINESS

 

Company Overview

 

United Health Products, Inc. (“UHP” or the “Company”) develops, manufactures, and markets a patented hemostatic gauze for the healthcare and wound care sectors. The product, HemoStyp®, is derived from all natural, regenerated oxidized cellulose and designed to absorb exudate/drainage from superficial wounds and help control bleeding. We currently have limited sales of products aimed at the consumer market via Walmart.com. We are in the process of seeking regulatory approval to sell products into the U.S. Class III surgical market.

 

Recent Developments

 

The following developments in the Company’s business have occurred during 2019:

 

 

In August 2019, the Company filed a patent application covering methods of forming and using a hemostatic material, and more specifically, methods of forming and using a hemostatic hydrocolloid that is formed into a gel, foam or spray used to control bleeding and oozing from a variety of wounds. The approval of the new patent would allow for the HemoStyp hydrocolloid to act as a conduit to transfer other properties associated with the treatment of wounds within the hydrocolloid. This would enable HemoStyp to be bundled as a suite of multiple products for surgical and wound care applications. We cannot assure that our patent application will be granted.

 

 

 

 

 

In August 2019, the Company successfully completed the surgeries for its Human Trial study “Efficacy and Safety of HemoStyp as an Adjunct for Management of Secondary Hemostasis in the Operative Setting” which finalized human trial enrollment

 

 

 

 

Furthermore, in August 2019, the Company received the pathology results of a preclinical animal study to assess the effect of HemoStyp on bone tissue. The Company conducted the animal study to evaluate the suitability of HemoStyp in contact with bone in the chronic swine model, and to validate HemoStyp for this application. This study and indication are independent of the current PMA application and will potentially allow UHP to access new and significant market opportunities. The study results determined that there was no adverse pH effect on the bone and surrounding tissue, which UHP believes demonstrate the potential for safe application of HemoStyp in human orthopedic procedures. The Company is using this study as part of its indication request in its current PMA application.

 

 

 

 

Also, in October 2019 the Company received a final report by an independent reviewer of the result of its Human Trial study, confirming the non-inferiority and superiority of HemoStyp over Surgicel ORIGINAL, the market leader for hemostatic agents. This report was integrated into the Company’s Class III PMA submission for FDA approval

 

Our HemoStyp Gauze Products

 

HemoStyp Hemostatic Gauze is a collagen-like natural substance created from chemically treated cellulose. It is an effective hemostatic agent registered with the FDA to help control bleeding from open wounds and body cavities. The HemoStyp hemostatic material contains no chemical additives, thrombin or collagen, and is hypoallergenic. When the product comes in contact with blood it expands slightly and converts to an adhesive gel that subsequently dissolves into glucose and saline. Because of its purity and the fact that it simply degrades to non-toxic end products, HemoStyp does not cause significant delay in healing as do certain other hemostatic materials. Additional testing has shown HemoStyp to be 100% absorbable in 24 hours or less. Tests have also been conducted to demonstrate the effectiveness of HemoStyp in thoracic and abdominal procedures.

 

HemoStyp Hemostatic Gauze is a flexible cloth-like material that is applied by folding the gauze as needed to fit the size of the wound or incision, and then placing the gauze onto the bleeding tissue. In surgical situations, the product converts to a transparent gel with a neutral pH level that allows the surgeon to monitor the coagulation process and also avoids damage to the surrounding tissue. In first responder or other non-surgical situations, putting a bandage on top of the gauze is optional and, in many cases, unnecessary. Since EMS (Emergency Medical Services) work is pre-hospital, rinsing the gauze out with saline or water is not necessary, as a wound will be debrided and possibly reopened prior to suturing at the hospital.

 

 
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Potential Target Markets

 

Our technology can be marketed as HemoStyp Gauze in various configurations and sizes both nationally and internationally. Our potential customer base for our HemoStyp includes, without limitation, the following (noting that we have several formats of Trauma Gauze):

 

Hospitals and Surgery Centers for all Internal Surgical usage, post FDA Class III approval

 

Hospitals, Clinics and Physicians – For external trauma

EMS, Fire Departments and Other First Responders

Public Safety, Police Departments and Military

Correctional Facilities

Schools, Universities and Day Care Facilities

Nursing Homes and Assisted Living Environments

Home Care Providers

Dental offices for oral surgery

Sports Medicine Providers

Veterinarians

Municipalities and Government Agencies

Occupational and Industrial Healthcare Professionals

 

Consumers

 

Island dressings to support intravenous procedures such as kidney dialysis

 

Primary Strategy

 

In 2018, management made the decision that rather than focusing on immediate sales activities of our products in targeted markets during this period of time before receiving anticipated FDA approval for Class III surgical markets, the Company would refocus efforts to become a stronger, medical technology company with a patented technology for Class III surgical markets that would enhance the Company’s value and overall market strength. The FDA approval process requires substantial amount of the Company’s resources and energy so the focus was removed from sales and marketing and full attention was focused on the FDA process and seeking an acquisition/commercial partner candidate. Thus we made a determination not to engage new distribution partners while pursuing this strategy as that could create conflicts and limit or preclude opportunities with a potential acquiror/commercial candidate and tie the Company’s hands from a revenue or branding perspective. The Class III surgical markets, both domestic and international, represent the most attractive market for our products due to the limited competition from other Class III approved ORC (Oxidized Regenerated Cellulose) products and the resulting premium pricing for hemostatic agents that can meet the demanding requirements of the human surgical environment. In addition, our preliminary tests and our completed Human Trial study, leads us to believe that the HemoStyp technology can compete against established market participants and allow us to gain market share. Given this assessment, we have devoted considerable resources since 2018 to completing the FDA process and gaining access to this market in the U.S. As of the filing date of this Form 10-K, the FDA review process, which was temporarily held up by the Covid-19 virus pandemic, is ongoing.

 

 
4

 

  

In anticipation of receiving Class III approval, we are evaluating the best paths to rapidly grow our revenue and profits in all potential market segments, which could include seeking (i) a potential sale or merger, which may include a pre-sale commercialization component, (ii) one or more commercial partnerships and licensing agreements with established market participants, without there being a sale or merger, or (iii) to raise the necessary capital to establish and grow our own marketing and distribution capabilities via organic growth.

  

The Company has been contacted by several medical technology companies that are active in the surgical equipment and hemostatic products sectors, and who have expressed an interest in the Company’s products and business strategy. In response to these inbound contacts, and to maximize shareholder value, the Company’s board of directors has determined to conduct a review of strategic alternatives, which include, without limitation, identifying an acquisition candidate, joint ventures or other commercial partnerships, or a standalone growth plan. To assist in this review and strategy, the Company is working with a financial advisory firm. There can be no assurances that any specific transaction will occur as a result of the retention of this firm. No assurances can be given that the Company will identify an acquisition or commercialization candidate(s) or complete a transaction with one or more candidates on terms satisfactory to us, if at all.

 

Manufacturing and Packaging of our Products

 

The Company’s cellulose products are manufactured in the United States to our specifications at various facilities. We have established various contract manufacturing facilities. All of these facilities have been carefully vetted and have supplied multiple Quality Control program certificates and are registered FDA facilities. These facilities have been submitted as part of our PMA submission, which includes the FDA inspection records of these facilities.

 

Patents and Trademarks

 

The Company’s hemostatic gauze products are patented in the U.S. Patent and Trademark Office (“USPTO”), which patent protection currently runs through 2029. However, if our intellectual property positions are challenged, invalidated, circumvented, or expire, or if we fail to prevail in future intellectual property litigation, our business could be adversely affected. We have created multiple variations of our gauze product and will protect each of these new generation platforms and product with additional intellectual property. Our success depends in part on our ability to defend our intellectual property rights. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and often involve complex legal, scientific, and factual questions. Third parties may seek to challenge, invalidate, or circumvent our intellectual property rights. In addition, our patent positions might not protect us against competitors with similar products or technologies because competing products or technologies may not infringe our patents. Also, there are third parties who have patents or pending patent applications that they may claim necessitate payment of a royalty or prevent us from commercializing our patent in certain territories. Patent disputes are frequent, costly and can preclude, delay, or increase the cost of commercialization of products.

 

During 2019, the Company received trademarks for the following::

 

 

·

Boo Boo Strips:

 

 

 

 

·

The Ultimate Bandage

 

 

 

 

·

Hemostrips

 

 

 

 

·

Nik Fix

 

 
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Competition

 

The disposable medical supply market in the United States is dominated by large companies such as Baxter International, Bristol-Myers Squibb Company, Johnson & Johnson and 3M Company, each of which have far greater capital and operational resources than us. Our hemostatic gauze product will directly compete in the gauze markets dominated by these majors. However, the market for hemostatic products, which includes gauzes, gels, bandages and powders, is largely composed of smaller, privately-held companies with the exception of Johnson & Johnson, which manufactures Surgicel. In this market, competitive factors include price, product offerings, value-added service programs, service and delivery, credit terms, and customer support.

 

Government Regulation

 

We are subject to oversight by various federal and state governmental entities and we are subject to, and affected by, a variety of federal and state laws, regulations and policies applicable to the healthcare and medical device industries.

 

Environmental Matters

 

The Company may subject to, or affected by, environmental legislation including, among others, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act, Compensation and Liability Act (aka CERCLA or Superfund) and the Resource Conservation and Recovery Act. By no means do we certify this list as being complete, as there are many laws and regulations that exist or that may come to pass that we cannot foresee that may also have an impact on the Company. Compliance with the multitude of regulations issued by federal, state, provincial and local administrative agencies that may apply to the Company can be burdensome and costly.

 

Research and Development Expenditures

 

In the years ending December 31, 2019, 2018 and 2017 we incurred $666,388, $76,951 and $19,936, respectively, in research and development expenditures.

 

Personnel

 

As of June 29, 2020, we have five full-time employees and up to eight additional consultants, excluding our five Medical Advisory Board members.

  

ITEM 1A. RISK FACTORS

 

We are engaged in the sale and distribution of hemostatic gauze products to stop superficial bleeding. As we develop our business, there are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline, and investors could lose all or part of their investment.

 

Impacts of COVID-19 to Business and the General Economy

  

Covid -19 has recently caused a material and substantial adverse impact on our general economy. It has also caused there to be a temporary hold on our FDA application for class III approval of our HemoStyp product for internal surgical purposes while the FDA deals with the Covid-19 crisis which has delayed the process. Recently, this hold was lifted by the FDA.

 

 
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The impacts of the global emergence of Coronavirus disease (COVID-19) on our business and the general economy, are currently not fully known. We are conducting business as usual with some modifications to, employee work locations, among other modifications We have observed other companies taking precautionary and preemptive actions to address COVID-19 and companies may take further actions that alter their normal business operations. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, potential partners, suppliers and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our prospects, although we do anticipate it to negatively impact our financial results and the length of time needed to obtain FDA approval of our HemoStyp product for internal surgical purposes during fiscal year 2020.

 

Risks Related to Our Restatement and Internal Controls

 

We have identified various material weaknesses in our internal control over financial reporting which have materially adversely affected our ability to timely and accurately report our results of operations and financial condition. These material weaknesses may not have been fully remediated as of the filing date of this report and we cannot assure you that other material weaknesses will not be identified in the future.

 

As a result of the circumstances which gave rise to our restatements discussed under “Explanatory Note” and in our Comprehensive Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2019, we had material weaknesses in our internal controls over financial reporting and that, as a result, our disclosure controls and procedures and our internal controls over financial reporting were not effective at such date. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that creates a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

In addition, we believe that we continued to have material weaknesses in our internal control over financial reporting subsequent to December 31, 2019. See “Controls and Procedures” under Item 9A for a detailed discussion of the material weaknesses identified as of December 31, 2019 and possible material weaknesses as of subsequent periods. Although we are in the process of implementing remedial measures to address all of the identified material weaknesses, our assessment of the impact of these measures has not been completed as of the filing date of this report, and we cannot assure you that these measures will be adequate. Moreover, we cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future.

 

As a result, we must continue to improve our operational, information technology, and financial systems, infrastructure, procedures, and controls, as well as continue to expand, train, retain, and manage our employee base. Any failure to do so, or any difficulties we encounter during implementation, could result in additional material weaknesses or in material misstatements in our financial statements. These misstatements could result in a future restatement of our financial statements, could cause us to fail to meet our reporting obligations, or could cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.

 

The extraordinary processes underlying the preparation of the financial statements contained in this report may not have been adequate and our financial statements remain subject to the risk of future restatement.

 

The completion of our audits for the years ended December 31, 2019, 2018 and 2017, the restatement of certain items and the making of other corrective adjustments to our financial statements for the last three years, and the revenue recognition review undertaken in connection therewith, involved a comprehensive review and analysis of our contracts and business practices, and other accounting rules and pronouncements. Given the complexity and scope of these exercises, and notwithstanding the extensive time, effort, and expense that went into them, we cannot assure you that these processes were adequate or that additional accounting errors will not come to light in the future in these or other areas.

 

If additional accounting errors come to light in areas reviewed as part of our extraordinary processes or otherwise, or if ongoing interpretations of applicable accounting rules and pronouncements result in unanticipated changes in our accounting practices or financial reporting, future restatements of our financial statements may be required.

 

 
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We cannot assure that our regular financial statement preparation and reporting processes are or will be adequate or that future restatements will not be required.

 

As discussed in the preceding risk factor, the processes underlying the preparation of the financial statements contained in this report were extraordinary. During the current year ending December 31, 2020, we expect to increasingly rely on our regular financial statement preparation and reporting processes.

 

While we are in the process of changing and enhancing our processes (as described elsewhere in this report) as of the filing date of this report, we cannot assure you that previously identified material weaknesses have been fully remediated and we continue to:

 

 

make changes to our finance organization;

 

   

 

adopt new accounting and reporting processes and procedures;

 

   

 

enhance our revenue recognition and other existing accounting policies and procedures;

 

   

 

introduce new or enhanced accounting systems and processes; and

 

   

 

improve our internal controls over financial reporting.

 

Many of these changes and enhancements to our regular processes are ongoing as of the filing date of this report and we continue to assimilate the changes we have already made. We cannot assure you that the changes and enhancements made to date, or those that are still in process, are adequate, will operate as expected, or will be completed in a timely fashion (if still in process). As a result, we cannot assure you that we will not discover additional errors, that future financial reports will not contain material misstatements or omissions, that future restatements will not be required, that we will be able to timely complete our remaining SEC filings for periods subsequent to this report, or that we will be able to timely comply with our reporting obligations in the future.

 

RISKS RELATED TO OUR BUSINESS

 

We have a history of operating losses and we may continue to lose money in the future

 

For the years ended December 31, 2019, 2018 and 2017, the Company had a net loss of $6,602,295, $5,402,369 and $1,466,789, respectively. We may continue to lose money in the future.

 

We can provide no assurances that given that the Class III application for internal surgical procedures will be approved by the FDA.

 

In November 2019, the Company submitted to the FDA all materials relevant for the pre-market approval (“PMA”) for HemoStyp as a Class III application for internal surgical procedures. There can be no assurances given that the Class III application for internal surgical procedures will be approved by the FDA.

 

 
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We have refocused our business activities to seek to obtain FDA approval of our products for Class III surgical markets., of which there can be no assurances given. Further, no assurances can be given that our Management plans to attempt to penetrate all market segments will be successful.

 

We believe that rather than focusing on immediate sales activities of our products in targeted markets during this period of time before receiving anticipated FDA approval for Class III surgical markets, that refocusing the Company to become a stronger, medical technology corporation with a patented technology for Class III surgical markets is a preferable strategy to enhance the Company’s value and overall market strength. In this regard, the Class III surgical markets, both domestic and international, represent the most attractive market for our products due to the limited competition from other Class III approved ORC (Oxidized Regenerated Cellulose) products and the resulting premium pricing for hemostatic agents that can meet the demanding requirements of the human surgical environment. As of the filing date of this Form 10-K, the FDA review process, which was temporarily held up by the Covid-19 virus pandemic, is ongoing. In the event we receive Class III approval, the success of which cannot be assured, we are evaluating the best paths to attempt to rapidly grow our revenue and profits in all potential market segments, which could include one or more commercial partnerships and licensing agreements with established market participants or an acquisition/merger agreement with any such participants, each as an alternative to raising the necessary capital to establish and grow our own marketing and distribution capabilities via organic growth. We will carefully evaluate the returns on investment to create shareholder value of each of these strategies. No assurances can be given that our Management plans to attempt to penetrate all market segments or be acquired/merged with an established market participant will be successful on terms satisfactory to us, if at all.

 

Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. This could make it more difficult for us to raise funds and adversely affect our relationships with lenders, investors and suppliers.

 

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern. This indicates that our auditors believe that substantial doubt exists regarding our ability to continue to remain in business. We cannot provide any assurance that we will in fact operate our business profitably or obtain sufficient financing to sustain our business in the event we are not successful in our efforts to generate sufficient revenue and operating cash flow. The expression of such doubt by our independent registered public accounting firm or our inability to overcome the factors leading to such doubt could have a material adverse effect on our relationships with prospective customers, lenders, investors and suppliers, and therefore could have a material adverse effect on our business.

 

We can provide no assurances that the retention of a financial advisor to assist in strategic review will result in the occurrence of a specific transaction.

 

The Company has been contacted by several medical technology companies that are active in the surgical equipment and hemostatic products sectors, and who have expressed an interest in the Company’s products and business strategy. In response to these inbound contacts, and to maximize shareholder value, the Company’s board of directors has determined to conduct a review of strategic alternatives, which include, without limitation, identifying an acquisition candidate, joint ventures or other commercial partnerships, or a standalone growth plan. To assist in this review, the Company is working with a financial advisory firm. There can be no assurances that any specific transaction will occur as a result of the retention of this firm. No assurances can be given that the Company will identify an acquisition or commercialization candidate(s) or complete a transaction with one or more candidates on terms satisfactory to us, if at all.

 

 
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We will need additional financing to execute our business plan and fund operations, which additional financing may not be available.

 

We currently have a working capital deficit, minimal cash and limited sales of our products. Our Chief Executive Officer has in the past provided cash loans to us which are repayable upon demand to meet our working capital needs. These cash loans can be terminated at any time. As result of the Company’s financial position, we may not be able to execute our current business plan and fund business operations long enough to achieve profitability. Our ultimate success may depend upon our ability to raise additional capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.

 

We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, the issuance of warrants or other derivative securities, and the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.

 

Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the healthcare industry; the fact that we are not profitable, which could impact the availability and cost of future financings; and whether we would be able to obtain capital from investors or funding sources at all due to adverse economic conditions arising as a result of the COVID-19 pandemic. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

 

No guarantee of market acceptance.

 

Our success is dependent on market acceptance of our hemostatic gauze products. We cannot assure you that healthcare market professionals will conclude that our hemostatic gauze products are useful and/or safe. We cannot assure you that our hemostatic gauze products will ultimately achieve or maintain significant market acceptance among distributors, patients, physicians, or healthcare payers in general.

 

We are dependent upon strategic relationships to conduct our operations and implement our plans.

 

To market and sell our hemostatic gauze products business, we will endeavor to use the business relationships of our management to enter into strategic relationships, which may take the form of joint ventures with private parties and contractual arrangements with other resource companies, to implement our strategies. We currently do not have any strategic relationships. We may not be able to establish these strategic relationships, or if established, we may not be able to maintain them. In addition, the dynamics of our relationships with strategic partners may require us to incur expenses or undertake activities we would not otherwise be inclined to in order to fulfill our obligations to these partners or maintain our relationships. If our strategic relationships are not established or maintained, our business prospects may be limited, which could diminish our ability to conduct our operations. We can provide no assurances that distribution agreements will be entered into on terms satisfactory to us, if at all or that our operations will be profitable as a result of these distribution agreements.

 

We could experience difficulties in our supply chain.

 

The Company’s cellulose products are manufactured in the United States to our specifications at various facilities. We have established various contract manufacturing facilities. All of these facilities have been carefully vetted and have supplied multiple Quality Control program certificates and are registered FDA facilities. These facilities have been submitted as part of our PMA submission, which includes the FDA inspection records of these facilities.

 

Our contract manufacturers and packaging facilities are responsible for quality control and overseeing the packaging and labeling of our products for distribution. We rely upon the services of our contract manufacturer to perform its obligations in a satisfactory manner and we could experience difficulties in our supply chain.

 

 
10

 

  

We are currently dependent on one hemostatic gauze product line to generate income.

 

The Company’s hemostatic gauze product line is currently our only product line from which we can derive revenue. Unless we are able to implement one of the other strategies discussed in the report, the lack of success in developing a commercial market for this product line will materially adversely affect our operations.

 

Our business may suffer if we do not attract and retain talented personnel.

 

Our success will depend in large measure on the abilities, expertise, judgment, discretion, integrity and good faith of our management and other personnel in conducting our intended business. In addition, we depend on management and employees to interpret market data correctly and to interpret and respond to economic, market and other conditions to locate and adopt appropriate business opportunities. We presently have a small management team, which we intend to expand in conjunction with our planned operations and growth. We will have to ensure that management and any key employees are appropriately compensated; however, their services cannot be guaranteed. If we are unable to attract and retain additional key management personnel and enter into satisfactory employment and other agreements, our business may be adversely affected.

 

We may not be able to adequately protect our technologies or intellectual property rights.

 

Our ability to achieve commercial or strategic success will depend in part on maintaining patent protection and trade secret protection of our technologies as well as successfully defending our intellectual property against third-party challenges. We will only be able to protect our technologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. Furthermore, the degree of future protection of our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. Additionally, legal enforcement of intellectual property rights is costly and we may not have the financial resources to take the necessary legal action to protect our rights.

 

RISKS RELATED TO OUR INDUSTRY

 

The healthcare industry is subject to extensive government regulation, which can result in increased costs, delays, limits on its operating flexibility and competitive disadvantages.

 

The healthcare industry is generally subject to extensive regulatory requirements. Many of these requirements result in significant costs that may adversely affect our business and financial results. If we are unable to pass those costs on it would negatively impact our profit margin.

 

Healthcare insurance legislation may lead to unintended adverse effects for businesses involved in our industry. New legislation that gives the Federal government greater regulatory powers may lead to negative consequences for certain aspects of our business. The full scope of the recently passed healthcare legislation may not be felt for several years, it is therefore difficult to predict any future consequences that would be challenges to our Company, or if we can overcome them.

 

 
11

 

  

Failure to comply with laws or government regulations could result in penalties.

 

Certain government requirements for technologies in the healthcare market may require licensure or mandatory minimum standards relating to the provision of services. Failure to comply with these requirements could materially affect our ability to expand into new or existing markets. Future regulatory developments may also cause disruptions to our operations.

 

RISKS RELATING TO OUR ORGANIZATION

 

We are subject to the reporting requirements of the federal securities laws, which can be expensive.

 

We are a public reporting company and, accordingly, subject to the information and reporting requirements of the Exchange Act and other federal and state securities laws, including compliance with the Sarbanes-Oxley Act of 2002. The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders increase our operating costs.

 

It is time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal control’s requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications required by that Act.

 

Failure to achieve and maintain effective disclosure controls or internal controls could have a material adverse effect on our ability to report our financial results timely and accurately.

 

As result of our analysis of our system of internal accounting controls and accounting and financial reporting processes, we have identified a material weakness in our disclosure controls and internal controls. These are more specifically discussed in Item 9A of this Annual Report. As a result of these deficiencies, we must perform additional analysis and other post-closing procedures to ensure that our financial statements are prepared in accordance with US generally accepted accounting principles. As a result, we will incur expenses and devote significant management resources to this review process. Furthermore, effective internal controls and procedures are necessary for us to continue to provide reliable financial reports. If we continue to have material weaknesses in our internal controls and procedures, we may not be able to provide reliable financial reports and our business and operating results could be harmed.

 

Public company compliance requirements may make it more difficult to attract and retain officers and directors.

 

The Sarbanes-Oxley Act and rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. Compliance with the new rules and regulations increases our operating costs and makes certain activities more time consuming and costly than if we were not a public company. As a public company, these new rules and regulations make it more difficult and expensive for us to obtain director and officer liability insurance. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.

 

There exist risks to stockholders relating to dilution: authorization of additional securities and reduction of percentage share ownership following investment.

 

To the extent that additional shares of common stock are issued, the stockholders would experience dilution of their respective ownership interests in the Company. Additionally, if the Company issues a substantial number of shares of common stock in connection with or following an investment, a change in control of the Company may occur which may affect, among other things, the Company’s ability to utilize net operating loss carry forwards, if any. Furthermore, the issuance of a substantial number of shares of common stock may adversely affect prevailing market prices, if any, for the common stock and could impair the Company’s ability to raise additional capital through the sale of its equity securities. The Company may use consultants and other third parties providing goods and services or additional capital. These consultants or third parties may be paid in cash, stock, options or other securities of the Company, and the consultants or third parties may be Placement Agents or their affiliates.

 

 
12

 

  

RISKS RELATING TO OUR COMMON STOCK

 

Our stock price may be volatile.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

changes in the healthcare industry;

competitive pricing pressures;

our ability to obtain working capital financing;

additions or departures of key personnel;

limited “public float”, in the hands of a small number of persons whose sales or lack of sales, could result in positive or negative pricing pressure on the market price for our common stock;

our ability to execute our business plan;

operating results that fall below expectations;

loss of any strategic relationship;

regulatory developments;

economic and other external factors, including among others, effects on the markets stemming from the COVID-19 pandemic; and

period-to-period fluctuations in our financial results.

 

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

We have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.

 

We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of cash dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if our stock price appreciates.

 

There is currently established market for our common stock, and we cannot ensure that one will ever develop or be sustained.

 

The Company’s common stock is available for trading on the OTC Pink. Management considers the market for our common stock to be limited. We can provide no assurances that an established trading market for our common stock will exist in the future.

 

 
13

 

  

Our common stock is deemed a “penny stock”, which may make it more difficult for our investors to sell their shares.

 

Our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act of 1934. The penny stock rules apply to companies whose common stock is not listed on a national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. In as much as our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any holding period under Rule 144, or expiration of lock-up periods applicable to outstanding shares, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None

 

ITEM 2. DESCRIPTION OF PROPERTY

 

The Company is utilizing on a temporary basis rent free, as a central mailing address as its principal executive office, space located at 10624 S. Eastern Avenue, Ste. A209, Henderson, NV 89052. Conference facilities are available upon request at a fee. The Company is a virtual company with personnel in Nevada and six other states.

 

ITEM 3. LEGAL PROCEEDINGS

 

The following material legal proceedings are pending against us:

 

A Complaint was filed with the United States District Court, Southern District of New York by Steven Safran as Plaintiff against the Company and Douglas Beplate, its CEO, as Defendant. This court case was transferred to the United States District Court in Las Vegas, Nevada. Mr. Safran is seeking damages and monies allegedly owed pursuant to an employment agreement of approximately $734,000 and allegedly unpaid loans of $245,824 provided to Defendants. The Company has denied Plaintiff’s allegations and intends to vigorously defend said lawsuit. The parties have held various depositions and the Company had a motion to dismiss which was denied. The Plaintiff filed a motion to amend his complaint and the Company has submitted opposition papers and are awaiting an order from the Court.

   

In July 2015, the Company entered into a consulting agreement retaining the services of Maxim Group LLC. An amended agreement was executed in January 2018. A total of 4 million shares of common stock were issued to Maxim in exchange for its obligation to perform certain advisory and other services. In the fourth quarter of 2018, the Company notified Maxim of its intent to file for arbitration pursuant to the consulting agreement. Maxim, without providing a similar notice to the Company, immediately filed a complaint with FINRA seeking release of a restrictive legend from a Company stock certificate in the amount of 500,000 shares. The Company filed an affirmative defense that the required notice of arbitration was not provided to the Company prior to filing. The Company also filed a counterclaim for breach of contract seeking restitution of the original 4 million shares issued to Maxim. This case was settled on December 13, 2019, with Maxim agreeing to make certain payments to the Company post sale of their 500,000 Company shares, in an amount equal to one-half of their sales proceeds. To date, the Company has not received any payments.

 

 
14

 

 

During 2018, a vendor filed a judgement against the Company related to disputed invoices.  The Company paid $15,000 to settle the judgement in full during the year ended December 31, 2018.

 

Philip Forman, who served in positions as Chairman, a director, Chief Executive Officer and Chief Medical Advisor at various time between 2011 and October 2015, filed a lawsuit against the Company and our Chief Executive Officer, Douglas Beplate, in the United States District Court of the District of Nevada. The claimant is claiming, among other things, that: the June 25, 2015 Amendment to his November 10, 2014 Employment Agreement with the Company, which terminated the Employment Agreement on October 1, 2015, is not valid because of lack of consideration; that a July 22, 2015 Stock Purchase Agreement pursuant to which the claimant sold Company shares issued to him under the Amendment to a third a party is unenforceable (despite the fact that all payment for the shares under the Stock Purchase Agreement was made); that the plaintiff’s 2014 Employment Agreement is enforceable and that he is entitled to cash and stock compensation under that Employment Agreement (without giving regard to the Amendment); that if the Amendment is enforceable, he is entitled to the shares issued under the Amendment (without mention that those shares were sold to a third party under the Stock Purchase Agreement described above); and that the Company and Mr. Beplate defrauded the plaintiff relating to the foregoing. The plaintiff is seeking declaratory judgment regarding the parties’ relative rights under the Employment Agreement, the Amendment and the Stock Purchase Agreement; money damages of no less than $2,795,000; and punitive damages of $8,280,000. The Company believes that it has meritorious defenses to the matters claimed as well as counterclaims against the claimant. A motion to dismiss the plaintiff’s claims was filed and on March 19, 2020 the motion to dismiss was denied. Discovery is now taking place.

 

FSR Inc. commenced a lawsuit in 2018 against Korsair Holdings A.G. in the U.S. District Court for the Southern District of New York, seeking among other claims for relief, rescission of the transfer of 3,050,000 shares of United Health Products that FSR sold to Korsair in 2011. Third-Party Plaintiff, JEC Consulting Associates, LLC as Liquidator of LeadDog Capital L.P., Intervenor (“Intervenor”) in the above matter, filed a third-party complaint against United Health Products, and Douglas Beplate alleging among other things that the Company and Mr. Beplate refused to have the Rule 144 restrictive legend removed from the Korsair certificate held by JEC, and concomitantly fraudulently deprive JEC as Liquidator of LeadDog of the ability to sell the Shares in the open market, knowingly, intentionally and directly causing economic harm to LeadDog Capital L.P. Intervenor as Third Party Plaintiff further alleges that the Company and Mr. Beplate as Third-Party Defendants are not only monetarily liable to Third-Party Plaintiff for compensatory damages of $2,500,000 but should be made to pay exemplary damages in an amount determined by the Court, but not less than an equal amount - $2,500,000. Third-Party Plaintiff demands judgment for the above referenced amounts and for the Court to also declare that the 3,050,000 shares are free trading; that Third-Party Plaintiff’s rights to 2.5 million of the Shares are superior to the claims of Plaintiff FSR; that Plaintiff FSR has no claim to 2.5 million of the 3,050,000 Shares reflected by the Korsair certificate; that the Company and Mr. Beplate are to instruct its current transfer agent to remove the restrictive legend on the Korsair certificate for the Shares; and an order directing the Company and Mr. Beplate to instruct the Company’s transfer agent to exchange the Korsair certificate for new free-trading, unrestricted certificates. The Company believes that it had legal right to decline to instruct the transfer agent to remove the restrictive legend from the Korsair Shares where the ownership of the aforementioned shares have been in dispute and the Korsair shares have not been submitted for transfer to its transfer agent in proper form under the uniform commercial code. Recently, the Court granted the motion for a default by FSR, Inc against Korsair Holdings, AG., but denied any claim for relief against UHP, Inc. The Court ruled that the SEC must review the claim before the matter can proceed in Court.

 

In 2019 the Company commenced the following legal proceeding:

 

In October 2019 the Company filed a defamation, trade libel and unlawful and deceptive practices lawsuit against White Diamond Research LLC, Adam Gefvert, Streetsweeper.org, Sonya Colberg and others in response to a stock manipulation scheme to injure UHP for illegitimate personal gain. The complaint alleged that in August 2019 the above defendants published false and defamatory statements about UHP in “short and distort” schemes to artificially drive down the market price of UHP’s common stock while at the same time having a short position in UHP’s stock, so they could obtain illicit profits on their short sale positions. This lawsuit was settled in April 2020 on terms mutually agreed to by the Company and the defendant parties, without the exchange of monetary payment or other economic consideration.

 

In 2020 the Company commenced the following legal proceeding:

 

On February 7, 2020, the Company filed the Original Petition for Fraud and Breach of Contract in the 215th Judicial District of Harris County. The demand for trial by jury was made. Defendants Patterson Companies Inc., and Patterson Management, L.P., were served on February 24, 2020. Defendants Patterson Veterinary, Inc. and Patterson Logistics Services, Inc. were served on February 25, 2020. Defendant Animal Health was served on February 27, 2020. On March 5, 2020, the Defendants removed to federal court. The defendants filed their answer in federal court on March 12, 2020. An “initial pretrial and schedule conference” is set before the Magistrate Judge on August 25, 2020. Discovery is ongoing.

  

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

 
15

 

 

PART II

 

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

(a) Market information

 

The common shares of the Company trade on the OTC Pink under the symbol UEEC. There has been only limited trading activity to date. The following table sets forth the high and low sales price of the common stock on a quarterly basis for the periods presented, rounded to the nearest penny.

 

 

 

High

 

 

Low

 

For Year Ended 2019

 

 

 

 

 

 

First Quarter

 

$

1.01

 

 

$

0.64

 

Second Quarter

 

0.99

 

 

0.80

 

Third Quarter

 

$

2.45

 

 

0.94

 

Fourth Quarter

 

1.48

 

 

0.97

 

 

 

 

 

 

 

 

 

 

For Year Ended 2018

 

 

 

 

 

 

First Quarter

 

$

1.49

 

 

$

0.04

 

Second Quarter

 

1.02

 

 

0.75

 

Third Quarter

 

0.84

 

 

0.40

 

Fourth Quarter

 

0.69

 

 

 $

0.30

 

 

(b) Holders

 

As of June 29, 2020, there were approximately 374 holders of record of the Company’s issued and outstanding shares of common stock.

 

(c) Dividends

 

The Company has not paid any dividends to date, has not yet generated earnings sufficient to pay dividends, and currently does not intend to pay dividends in the foreseeable future.

 

 
16

 

 

(d) Stock Issuances and Repurchases

 

During the year ended December 31, 2019, the Company issued the following unregistered securities to accredited investors:

 

Date of Sale

 

Title of Security

 

Number Sold

 

 

Consideration Received

and Description of

Underwriting or Other

Discounts to Market Price

or Convertible Security,

Afforded to Purchasers

 

Exemption from Registration Claimed

 

If Option,

Warrant or Convertible Security, terms of

exercise

or conversion

Jan – March 31, 2019

 

Common Stock

2,700,000 shares

$75,000 in cash, $2,401,000 in services rendered, no commissions paid

 

Rule 506; Section 4(2)

 

Not applicable

 

April – September 30, 2019

 

Common Stock

2,095,769 shares

$1,035,750 in cash, $205,000 conversion of notes payable and accrued liabilities

 

Rule 506; Section 4(2)

 

Not applicable

 

October – December 31, 2019

 

Common Stock

1,471,430 shares

$120,000 in cash, $1,285,250 in services rendered; No commissions paid

 

Rule 506; Section 4(2)

 

Not applicable

 

 

During the period January 1, 2019 through December 31, 2019, there were no repurchases of the Company’s unregistered securities.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

You should read the following discussion and analysis of our financial condition and results of operations together with the section entitled “Explanatory Note” immediately preceding Item 1 of this Annual Report, ‘‘Selected Financial Data’’ and our financial statements and related notes appearing elsewhere in this annual report on Form 10-K. This discussion and analysis contain forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under ‘Risk Factors’ and elsewhere in this annual report on Form 10-K.

 

Restatement

 

The accompanying Management’s Discussion and Analysis gives effect to the restatement adjustments made to the previously reported Financial Statements for the years ended December 31, 2018 and 2017. For additional information and a detailed discussion of the restatement, see Note 2, “Restatement” included in this Annual Report under the caption Item 8, “Financial Statements and Supplementary Data”.

 

It also gives effect to the restatement adjustments made to the previously reported unaudited Financial Statements for the quarterly and year to date periods ended March 31, 2017, June 30, 2017, September 30, 2017, March 31, 2018, June 30, 2018, September 30, 2018, March 31, 2019, June 30, 2019 and September 30, 2019. For additional information and a detailed discussion of the restatements, see Note 2, “Restatement” included in this Annual Report under the caption Item 8, “Financial Statements and Supplementary Data”.

 

 
17

 

  

Results of Operations years ending December 31, 2019, 2018 and 2017

 

The following table sets forth a summary of certain key financial information for the years ended December 31, 2019, 2018, and 2017:

 

 

 

For the Years Ended December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

 

 

(Restated)

 

 

(Restated)

 

Revenue

 

$ 4,927

 

 

$ 34,876

 

 

$ 183,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$ 3,611

 

 

$ 12,606

 

 

$ 82,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (expenses)

 

$ (6,097,723 )

 

$ (1,909,580 )

 

$ (1,010,603 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss)

 

$ (6,094,112 )

 

$ (1,896,974 )

 

$ (928,418 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

$ (508,183 )

 

$ (3,505,395 )

 

$ (538,371 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss)

 

$ (6,602,295 )

 

$ (5,402,369 )

 

$ (1,466,789 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$ (0.04 )

 

$ (0.03 )

 

$ (0.01 )

  

Year ended December 31, 2019 versus year ended December 31, 2018

 

During the year ended December 31, 2019 and 2018, the Company had $4,927 and $34,876 of revenues, respectively. The decrease in revenues is due to the continued focus which commenced in 2018 of substantially all the Company’s energy and resources being devoted towards making our technology and product more commercially viable, by seeking to obtain FDA class III approval for internal surgical purposes. The Company is continuing this strategy based on our belief that the greatest value to our shareholders will come from this FDA Class III approval for general surgical use, and pursuing opportunities that we anticipate will be available to the Company if this FDA approval is obtained, including, among other things, fostering interest from potential merger and acquisition candidates. In this strategy and approach, the Company made a determination not to engage new distribution partners as that could create conflicts with a potential acquiror/commercialization candidate and tie the Company’s hands from a revenue or branding perspective. The Company expects that if an acquisition candidate is identified it may also include a pre-acquisition commercialization component and in that case current vendor and future relationships and all pending purchase orders will likely be facilitated by that company. No assurances can be given that the Company will identify an acquisition or commercialization candidate or complete a transaction with such a candidate on terms satisfactory to us, if at all.

 

Total operating expenses for the year ended December 31, 2019 and 2018 were $6,097,723 and $1,909,580, respectively. The increase in operating expenses is due primarily to an increase in consulting/professional fees and an increase in research and development expenses. The increase in consulting/professional fees include the issuance of 1,925,000 shares of our common stock for services valued at $1,859,250 and stock based modification expense of $2,021,000 due to the change in vesting conditions of 2,150,000 shares of common stock previously held in escrow during the year ended December 31, 2019 compared to the Company issuing 850,000 shares of common stock valued at $697,000 for services, including 800,000 shares of common stock to various medical advisors during the year ended December 31, 2018. The increase in research and development of $589,437 is due to higher expenses related to the continued efforts to obtain FDA Class III approval during the current year relative to the prior year.

 

Other income (expense) for 2019 and 2018 was $(508,183) and $(3,505,395), respectively. The decrease in other expense was due to the decrease in loss on debt settlement of $3,509,330 offset by an increase in interest expense of $508,183. The decrease in loss on debt settlement was due to the Company issuing a total of 3,387,000 shares of common stock to settle notes payable balance of $172,500 and $10,000 of accrued interest. The Company recorded a $3,509,330 loss on settlement of debt related to this transaction during the year ended December 31, 2018 and did not have these transactions during the year ended December 31, 2019. The increase in interest expense is due to amortization of beneficial conversion features on convertible notes payable – related party during the current year and the Company not having these transactions in the prior year.

  

 
18

 

  

Our net loss for the year ended December 31, 2019 was $6,602,295 as compared to a net loss of $5,402,369 for the prior year. The increase in the net loss is due to an increase in stock based stock compensation of $3,183,250, an increase in research and development expenses $589,437 and an increase in interest expense of $508,183 offset by a decrease in loss on debt settlement of $3,509,330 compared to the prior year for the reasons described above.

 

Year ended December 31, 2018 versus year ended December 31, 2017

 

During the year ended December 31, 2018 and 2017, the Company had $34,876 and $183,174 of revenues, respectively. The decrease in revenues is due to a change in focus and a pivot substantially of all the Company’s energy in making our technology and product more commercially viable, by attempting to obtain FDA class III approval for internal surgical purposes as noted under the heading “Year ended December 31, 2019 versus year ended December 31, 2018” above. We continued this strategic focus though 2019.

 

Total operating expenses for the year ended December 31, 2018 and 2017 were $1,909,580 and $1,010,603, respectively. The increase in operating expenses is due primarily to an increase in research and development expenses of approximately $57,000, an increase in advertising and marketing expenses of approximately $124,000 and an increase of approximately $696,000 in consulting/professional fees, which includes the Company issuing 850,000 shares of common stock valued at $697,000, including 800,000 shares to eight medical advisors.

 

Other income (expense) for 2018 and 2017 was $(3,505,395) and $(538,371), respectively. The increase in other expense was due to the Company issuing a total of 3,387,000 shares of common stock to settle notes payable balance of $172,500 and $10,000 of accrued interest. The Company recorded a $3,509,330 loss on settlement of debt related to this transaction. During 2017, the Company issued 4,200,000 shares of common stock to settle notes payable balance of $162,500 and accounts payable balances totaling $82,774. The fair value of the stock issued was $664,000 and the Company recorded loss on debt settlement of $418,726. In 2017, the Company had $82,166 related to a loss on disputed inventory due to shipping product to a customer and the customer subsequently not paying for the invoice. The Company determined that due to knowledge currently available this transaction was not recorded as revenue and recorded on a loss on the inventory. The Company had $0 interest expense in 2018 due to paying off its notes payable in the first quarter of 2018 compared to $39,479 interest expense in 2017.

  

Our net loss for the 2018 was $5,402,369 as compared to a net loss of $1,466,789 for 2017. The increase in the net loss is due to the decrease in revenues for the reasons described above and shares issued for services of $697,000 as mentioned above along with the issuance of 3,387,000 shares of common stock to settle $172,500 of outstanding notes payable and $10,000 of accrued interest. The Company recorded a $3,509,330 loss on settlement of debt related to this transaction.

 

UNAUDITED QUARTERLY DISCUSSION AND ANALYSIS

 

The following table sets forth selected unaudited financial data for each of the periods indicated.

 

 

 

For the Quarters Ended (Unaudited)

 

 

 

Sept. 30,

 

 

Jun. 30,

 

 

Mar. 31,

 

 

Sept. 30,

 

 

Jun. 30,

 

 

Mar. 31,

 

 

Sept. 30,

 

 

Jun. 30,

 

 

Mar. 31

 

 

 

2019

(Restated)

 

 

2019

(Restated)

 

 

2019

(Restated)

 

 

2018

(Restated)

 

 

2018

(Restated)

 

 

2018

(Restated)

 

 

2017

(Restated)

 

 

2017

(Restated)

 

 

2017

(Restated)

 

Revenue

 

$ -

 

 

$ 4,927

 

 

$ -

 

 

$ 9,048

 

 

$ 1,850

 

 

$ 18,943

 

 

$ 67,598

 

 

$ 41,816

 

 

 

96,404

 

Cost of goods sold

 

 

-

 

 

 

502

 

 

 

-

 

 

 

3,480

 

 

 

1,790

 

 

 

14,760

 

 

 

21,290

 

 

 

21,296

 

 

 

15,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

-

 

 

 

4,425

 

 

 

-

 

 

 

5,568

 

 

 

60

 

 

 

4,183

 

 

 

46,308

 

 

 

20,520

 

 

 

81,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

328,720

 

 

 

393,893

 

 

 

2,635,993

 

 

 

289,833

 

 

 

901,951

 

 

 

369,199

 

 

 

181,819

 

 

 

129,290

 

 

 

149,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

149,994

 

 

 

214,863

 

 

 

27,405

 

 

 

13,527

 

 

 

39,041

 

 

 

9,391

 

 

 

-

 

 

 

-

 

 

 

-

 

Total operating expenses

 

 

478,714

 

 

 

608,756

 

 

 

2,663,398

 

 

 

303,360

 

 

 

940,992

 

 

 

378,590

 

 

 

181,819

 

 

 

129,290

 

 

 

149,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(478,714 )

 

 

(604,331 )

 

 

(2,663,398 )

 

 

(297,792 )

 

 

(940,932 )

 

 

(374,407 )

 

 

(135,511 )

 

 

(108,770 )

 

 

(68,729 )

Other income (expense)

 

 

(46,154 )

 

 

(202,752 )

 

 

-

 

 

 

-

 

 

 

3,886

 

 

 

(3,509,330 )

 

 

(5,000 )

 

 

(8,854 )

 

 

(15,625 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

--

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(524,868 )

 

(807,084 )

 

(2,663,398 )

 

(297,792 )

 

(937,046 )

 

(3,883,737 )

 

(140,511 )

 

(117,624 )

 

(84,354 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic & diluted

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.02 )

 

$ (0.00 )

 

$ (0.01 )

 

$ (0.02 )

 

$ (0.00 )

 

$ (0.00 )

 

 

(0.00 )

Weight average number of shares outstanding

 

 

176,588,907

 

 

 

175,270,956

 

 

 

174,322,581

 

 

 

172,822,654

 

 

 

171,939,365

 

 

 

169,970,509

 

 

 

154,385,816

 

 

 

153,704,591

 

 

 

153,591,591

 

 

 
19

 

 

Three Months ended September 30, 2019 versus Three Months ended September 30, 2018

 

During the three months ended September 30, 2019 and 2018, the Company had $0 and $9,048 of revenues, respectively. The decrease in revenues is due to the Company not pursuing sales in the current quarter compared to achieving minimal revenues in the comparable quarter of the prior year.

 

Total operating expenses for the three months ended September 30, 2019 and 2018 were $478,714 and $297,972, respectively. The increase in operating expenses is due primarily to an increase in research and development expenses from $13,527 to $149,994. The increase in research and development expenses is due to higher expenditures on the ongoing process to obtain FDA Class III approval during the current period.

 

Our net loss for the three months ended September 30, 2019 and 2018 was $524,868 and $297,792, respectively. The increase in the net loss is due to reduced revenue, increased spending on research and development along with $46,154 of interest expense related to amortization of debt discount on convertible notes.

 

Three Months Ended June 30, 2019 compared to Three Months Ended June 30, 2018

 

During the three months ended June 30, 2019 and 2018, the Company had $4,927 and $1,850 of revenues, respectively. The increase in revenues is due to the Company having one customer order product during the current year compared to minimal revenues in the comparable quarter of the prior year.

 

Total operating expenses for the three months ended June 30, 2019 and 2018 were $608,756 and $940,992, respectively. The decrease in operating expenses is due primarily to a decrease in consulting/professional fees offset by an increase in research and development expenses of $175,822. The decrease in consulting/professional fees is due to the Company issuing 800,000 shares of common stock for services valued at $642,500 to various medical advisors during the three months ended June 30, 2018 and during the three months ended June 30, 2019 the Company did not issue any stock for services. The increase in research and development expenses is due to the Company going through the process to obtain FDA class III approval during the current period and not having these expenses in the prior year.

 

Our net loss for the three months ended June 30, 2019 and 2018 was $807,084 and $937,046, respectively. The decrease in the net loss is due to the Company not issuing shares for services during the period compared to shares issued for services of $642,500 as mentioned above, offset by an increase in research and development expense of $175,822 and interest expense of $202,752 related to amortization of debt discount related to beneficial conversion feature on notes payable – related party.

 

 
20

 

  

Three Months Ended March 31, 2019 compared to Three Months Ended March 31, 2018

 

During the first quarter of 2019 and 2018, the Company had $0 and $18,943 of revenues, respectively. Revenues decreased compared to the prior year due to the continued focus which commenced in 2018 of substantially all the Company’s energy in making our technology and product more commercially viable, by attempting to obtain FDA Class III approval for internal surgical purposes. This process requires substantially all of the Company’s resources and energy so the focus and resources were redirected from sales and marketing efforts to the FDA process. See the discussion under the heading “Year ended December 31, 2019 versus year ended December 31, 2018” above for the strategic reasons for our change in focus.

 

Total operating expenses for the first quarter of 2019 and 2018 were $2,663,398 and $378,590, respectively. The increase in operating expenses is due primarily to an increase in consulting/professional fees. The Company issued 400,000 shares of common stock for services valued at $380,000 and 2,150,000 shares of common stock valued at $2,021,000 vested during the first quarter of 2019 compared to 50,000 shares of common stock for services valued at $54,500 during the first quarter of 2018.

 

Our net loss for the quarter ended March 31, 2019 was $2,663,398 as compared to net loss of $3,883,737 for the comparable period of the prior year. The decrease in the net loss is due to the Company having an increase in operating expenses of $2,284,808 as explained above offset by a decrease of $3,509,330 in loss on settlement of debt.

 

Three Months Ended September 30, 2018 compared to Three Months Ended September 30, 2017

 

During the three month ended September 30, 2018 and 2017, the Company had $9,048 and $67,598 of revenues, respectively. Revenues decreased compared to the prior year due to the change in focus which commenced in 2018 of substantially all the Company’s energy in making our technology and product more commercially viable, by seeking to obtain FDA class III approval for internal surgical purposes. See the discussion under the heading “Year ended December 31, 2019 versus year ended December 31, 2018” above for the strategic reasons for our change in focus.

 

Total operating expenses for the three months ended September 30, 2018 and 2017 were $303,360 and $181,819, respectively. The increase in operating expenses is due primarily to an increase in consulting/professional fees of approximately $57,000, an increase in advertising and marketing expenses of approximately $24,200 and an increase in travel expenses of approximately $25,140.

 

Our net loss for the three months ended September 30, 2018 and 2017 was $297,792 and $140,511, respectively. The increase in the net loss is due to the decrease in revenues and the increase in the expenses mentioned in the preceding paragraph.

 

Three Months Ended June 30, 2018 compared to Three Months Ended June 30, 2017

 

During the three months ended June 30, 2018 and 2017, the Company had $1,850 and $41,816 of revenues, respectively. Revenues decreased compared to the prior year due to the change in focus which commenced in 2018 of substantially all the Company’s energy in making our technology and product more commercially viable, by seeking to obtain FDA class III approval for internal surgical purposes. See the discussion under the heading “Year ended December 31, 2019 versus year ended December 31, 2018” above for the strategic reasons for our change in focus. Total operating expenses for the three months ended June 30, 2018 and 2017 were $940,992 and $129,290, respectively. The increase in operating expenses is due primarily to an increase in consulting/professional fees. The Company issued 800,000 shares of common stock valued at $642,500 to various medical advisors during the three months ended June 30, 2018.

 

Our net loss for the three months ended June 30, 2018 and 2017 was $937,046 and $117,624, respectively. The increase in the net loss is due to the shares issued for services of $620,000 as mentioned above. The Company did not have this transaction during the three months ended June 30, 2017.

 

Three Months Ended March 31, 2018 compared to Three Months Ended March 31, 2017

 

During the first quarter of 2018 and 2017, the Company had $18,943 and $96,404 of revenues, respectively. Revenues decreased compared to the prior year due to a change in focus of substantially all the Company’s energy in making our technology and product more commercially viable, by seeking to obtain FDA class III approval for internal surgical purposes. See the discussion under the heading “Year ended December 31, 2019 versus year ended December 31, 2018” above for the strategic reasons for our change in focus. Total operating expenses for the first quarter of 2018 and 2017 were $378,590 and $149,754, respectively. The increase in operating expenses is due primarily to an increase in consulting/professional fees. The Company issued 50,000 shares of common stock for services valued at $54,500 during the first quarter of 2018 compared to $0 during the first quarter of 2017. The Company has also hired additional consultants as the Company’s operations have begun to increase.

 

 
21

 

  

Our net loss for the quarter ended March 31, 2018 was $3,883,737 as compared to $84,354 for the comparable period of the prior year. The increase in the net loss is due to the shares issued for services of $54,500 as mentioned above along with the issuance of 3,877,000 shares of common stock to settle $172,500 of outstanding notes payable and $10,000 of accrued interest. The Company recorded a $3,509,330 loss on settlement of debt related to this transaction. The Company did not have either of these transactions during the first quarter of 2017.

 

Financial Condition, Liquidity and Capital Resources

 

As of December 31, 2019, the Company had a negative working capital of $903,805. The Company has not yet attained a level of operations, and for the foreseeable future will not be pursuing commercial operations, which will allow the it to meet its current overhead while it focuses on its strategy of seeking FDA class III approval for internal surgical purposes, and opportunities which may arise from that including, among other things, fostering interest from potential merger and acquisition candidates or commercial partners. If we are not successful in our strategy, we cannot assure that we will be able to adjust to and fund a marketing and sale strategy, and if we do, we are unable to assure we will attain profitable operations within the next few business operating cycles or at all. The report of our independent registered public accounting firm on our 2019, 2018 and 2017 financial statements includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. While the Company has funded its initial operations with private placements, and secured loans from related parties, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company. Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, our ability to achieve our business goals and objectives, as well as improvement in the economic climate.

 

Cash Flows

 

The Company’s cash on hand at December 31, 2019, December 31, 2018 and December 31, 2017 was $16,624, $31,273 and $189,942, respectively.

 

The following table summarizes selected items from our statements of cash flows for the years ended December 31, 2019, 2018, and 2017:

 

 

 

For the Years Ended December 31,

 

(in thousands)

 

2019

 

 

2018

 

 

2017

 

Net cash used in operating activities

 

$ (1,766,764 )

 

$ (1,278,662 )

 

$ (649,675 )

Net cash used in investing activities

 

 

-

 

 

 

-

 

 

 

-

 

Net cash provided by financing activities

 

 

1,752,115

 

 

 

1,119,993

 

 

 

810,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

$ (14,649 )

 

$ (158,669 )

 

$ 160,575

 

  

Net Cash Provided by (Used in) Operating Activities

 

Net cash used in operating activities for the year ended December 31, 2019 was $1,766,764. The Company had a net loss of $6,602,295 offset by stock-based compensation of $3,880,250 and amortization of debt discount of $508,183. The Company also had an increase in inventory of $44,868, an increase in accounts payable and accrued expenses of $367,836, an increase in accrued liabilities – related party of $74,130 and a decrease if prepaid and other assets of $50,000.

 

 
22

 

 

Net cash used in operating activities for the year ended December 31, 2018 was $1,278,662. The Company had net loss of $5,402,369 offset by stock issued for services of $697,000, expenses paid by an officer of $30,000 and loss on settlement of debt of $3,509,330. The Company also had a decrease in accounts receivable of $371, a decrease in inventory of $5,411, an increase in prepaids and other current assets of $37,886, a decrease in accounts payable and accrued expenses of $14,019 and a decrease in accrued liabilities – related party of $71,500.

  

Net cash used in operating activities was $649,675 for the year ended December 31, 2017. The Company incurred a net loss of $1,466,789, an increase in inventory of $71,040 and an increase in prepaid and other current assets of $12,114 offset by a decrease in accounts receivable of $99,910, $144,000 in stock for services, $416,726 in loss on debt settlement, $8,479 related to common stock issued as debt financing costs, $82,166 related to loss on disputed inventory an increase in accounts payable and accrued expenses of $61,432 and an increase in accrued liabilities – related party of $87,555.

  

Net Cash Used by Investing Activities

 

The Company did not have any investing activities during the years ended December 31, 2019, 2018 or 2017.

 

Net Cash Provided by (Used in) Financing Activities

 

Net cash provided by financing activities for the year ended December 31, 2019 was $1,752,115. This was due to the Company receiving $1,255,750 in proceeds from the sale of stock and receiving net proceeds of $496,365 from a related party.

 

Net cash provided by financing activities for the year ended December 31, 2018 was $1,119,993. This was due to the Company receiving $1,415,200 in proceeds from the sale of stock and repaying a net amount of $280,207 in related party advances and $15,000 in notes payable.

  

Net cash provided by financing activities for the year ended December 31, 2017 was $810,250. The Company received net proceeds from related party of $133,750, net proceeds on notes payable of $32,500 and $644,000 from the sale of common stock.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2019, 2018, and 2017, we have no off-balance sheet arrangements.

 

Related Parties

 

Information concerning related party transactions is included in the financial statements and related notes, appearing elsewhere in this annual report on Form 10-K.

 

Critical Accounting Policies

 

Revenue Recognition

 

During the year ended December 31, 2017, the Company recognized revenue per ASC 605 – Revenue Recognition.  Under ASC 605 revenue was recognized when persuasive evidence of an arrangement existed, product had been delivered or services had been rendered, the price was fixed or determinable and collectability was reasonably assured. Revenue was recognized net of estimated sales returns and allowances.

  

Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the sale of its HemoStyp product by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

The Company receives orders for its HemoStyp products directly from its customers. Revenues are recognized based on the agreed upon sales or transaction price with the customer when control of the promised goods are transferred to the customer.  The transfer of goods to the customer and satisfaction of the Company’s performance obligation will occur either at the time when products are shipped or when the products arrive and are received by the customer.  The Company provided a 3% net 30 discount to one of its customers. No other discounts were offered by the Company. The Company does not provide an estimate for returns as there is no anticipation for any returns in the normal course of business.

     

Stock Based Compensation

 

The Company accounts for share-based compensation under the provisions of ASC 718, Compensation-Stock Compensation. Under the fair value recognition provisions, stock-based compensation expense is measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measured. Share-based compensation for all stock-based awards to employees and directors is recognized as an expense over the requisite service period, which is generally the vesting period.

 

The Company accounted for stock compensation arrangements with non-employees in accordance with ASC 505-50-30-11, until January 1, 2019, which provides that an issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date:

 

 

i.

The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); and

 

 

 

 

ii.

The date at which the counterparty’s performance is complete.

 

As of January 1, 2019, the Company accounted for stock compensation arrangements with non-employees in accordance with Accounting Standard Update (ASU) 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which requires that such equity instruments are recorded at the value on the grant date.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements required by Item 8 can be found beginning on Page F-3 of this report. 

 

 
23

 

  

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of United Health Products, Inc. 

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of United Health Products, Inc. (the Company) as of December 31, 2019, 2018, and 2017, the related statements of operations, stockholders' deficiency and cash flows for each of the three years in the period ended December 31, 2019, and the related notes to the financial statements (collectively, 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, 2018, and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Our report dated July 9, 2020 expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

  

Restatement

 

As discussed in Note 2 to the financial statements, the 2018 and 2017 financial statements have been restated to correct a misstatement.

 

Quarterly Financial Information

 

The selected quarterly financial data included in Note 2 to the financial statements contains information that we did not audit, and, accordingly, we do not express an opinion on that data. Further, we did not review the quarterly data in accordance with the standards of the Public Company Accounting Oversight Board.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations, its total liabilities exceed its total assets, and its operations have not provided adequate cash flows. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Adoption of New Accounting Pronouncements

  

As discussed in Note 3 to the financial statements, the Company has changed its method of accounting for revenue recognition effective January 1, 2018 due to the adoption of Accounting Standards Codification 606.  Also discussed in Note 3 to the financial statements, the Company changed its method of accounting for stock compensation arrangements with non-employees effective January 1, 2019 due to the adoption of Accounting Standards Codification 718.

  

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 PCAOB and are required to be independent with respect to the Company in accordance with 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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.

 

/s/ Mac Accounting Group, LLP

 

We have served as the Company's auditor since 2019.

 

Midvale, Utah

July 9, 2020 

  

 
F-1

 

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of United Health Products, Inc.

 

Opinion on the Internal Control Over Financial Reporting

 

We have audited United Health Products, Inc.'s (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

  

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of United Health Products, Inc. (the Company) as of December 31, 2019, 2018, and 2017, the related statements of operations, stockholders' deficiency and cash flows for each of the three years in the period ended December 31, 2019, and the related notes to the financial statements of the Company and our report dated July 9, 2020 expressed an unqualified opinion.

   

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management's assessment:

 

 

-

Inadequate Corporate Governance

 

-

Inadequate Internal Control Structure and Control Environment

 

-

Lack of IT General Controls

 

-

Lack of Segregation of Duties

 

-

Lack of Sufficient Accounting Resources with SEC Experience, US GAAP Experience, and Tax Accounting Expertise

 

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2019 financial statements, and this report does not affect our report dated July 9, 2020 on those financial statements.

   

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control Over Financial Reporting

 

A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Mac Accounting Group, LLP

 

Midvale, Utah

July 9, 2020

  

 
F-2

 

 

UNITED HEALTH PRODUCTS, INC

Balance Sheets

 

 

 

December 31,

2019

 

 

December 31,

2018

 

 

December 31,

2017

 

 

 

 

 

(Restated)

 

 

(Restated)

 

ASSETS

Current Assets

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$ 16,624

 

 

$ 31,273

 

 

$ 189,942

 

Accounts receivable

 

 

-

 

 

 

-

 

 

 

371

 

Inventory

 

 

76,848

 

 

 

31,980

 

 

 

37,391

 

Prepaid and other current assets

 

 

-

 

 

 

50,000

 

 

 

12,114

 

Total current assets

 

 

93,472

 

 

 

113,253

 

 

 

239,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 93,472

 

 

$ 113,253

 

 

$ 239,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 512,476

 

 

$ 152,970

 

 

$ 176,990

 

Accrued liabilities – related party

 

 

119,016

 

 

 

36,556

 

 

 

108,055

 

Loans payable – related parties

 

 

-

 

 

 

74,421

 

 

 

324,628

 

Convertible loans payable - related parties

 

 

365,785

 

 

 

-

 

 

 

-

 

Notes payable

 

 

-

 

 

 

-

 

 

 

182,500

 

Total current liabilities

 

 

997,277

 

 

 

263,947

 

 

 

792,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

997,277

 

 

 

263,947

 

 

 

792,173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficiency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock - $.001 par value, 300,000,000 shares authorized, 178,300,337, 173,943,138 and 165,152,410 shares issued at December 31, 2019, 2018 and 2017

 

 

178,300

 

 

 

173,943

 

 

 

165,152

 

Additional paid-in capital

 

 

25,045,754

 

 

 

19,200,927

 

 

 

13,405,688

 

Accumulated deficit

 

 

(26,127,859 )

 

 

(19,525,564 )

 

 

(14,123,195 )

Total stockholders’ deficiency

 

 

(903,805 )

 

 

(150,694 )

 

 

(552,355 )

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

 

$ 93,472

 

 

$ 113,253

 

 

$ 239,818

 

 

See notes to financial statements.

 

 
F-3

 

 

UNITED HEALTH PRODUCTS, INC

Statements of Operations

 

 

 

For the Years Ended

December 31,

 

 

 

2019

 

 

2018

 

 

2017

 

 

 

 

 

(Restated)

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$ 4,927

 

 

$ 34,876

 

 

$ 183,174

 

Cost of sales

 

 

1,316

 

 

 

22,270

 

 

 

100,989

 

Gross profit

 

 

3,611

 

 

12,606

 

 

 

82,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

5,431,335

 

 

 

1,832,629

 

 

 

990,667

 

Research and development expenses

 

 

666,388

 

 

 

76,951

 

 

 

19,936

 

Total Operating Expenses

 

 

6,097,723

 

 

 

1,909,580

 

 

 

1,010,603

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

(6,094,112 )

 

 

(1,896,974 )

 

 

(928,418 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

(508,183 )

 

 

-

 

 

 

(39,479 )

Other income

 

 

-

 

 

 

3,935

 

 

 

-

 

Loss on disputed inventory

 

 

-

 

 

 

-

 

 

 

(82,166 )

Loss on settlement of debt

 

 

-

 

 

 

(3,509,330 )

 

 

(416,726 )

Total other income (expense)

 

 

(508,183 )

 

 

(3,505,395 )

 

 

(538,371 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (6,602,295 )

 

$ (5,402,369 )

 

$ (1,466,789 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$ (0.04 )

 

$ (0.03 )

 

$ (0.01 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

175,876,273

 

 

 

172,119,786

 

 

 

155,826,936

 

 

See notes to financial statements.

 

 
F-4

 

 

UNITED HEALTH PRODUCTS, INC

Statement of Stockholders’ Deficiency

For the Years Ended December 31, 2019, 2018 and 2017

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016 - Restated

 

 

153,591,590

 

 

$ 153,591

 

 

$ 11,956,770

 

 

$ (12,656,406 )

 

$ (546,045 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for notes payable

 

 

2,500,000

 

 

 

2,500

 

 

 

232,500

 

 

 

-

 

 

 

235,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for accounts payable

 

 

1,700,000

 

 

 

1,700

 

 

 

427,300

 

 

 

-

 

 

 

429,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

200,000

 

 

 

200

 

 

 

143,800

 

 

 

-

 

 

 

144,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock

 

 

7,047,820

 

 

 

7,048

 

 

 

636,952

 

 

 

-

 

 

 

644,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued as debt financing costs

 

 

113,000

 

 

 

113

 

 

 

8,366

 

 

 

-

 

 

 

8,479

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss - Restated

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,466,789 )

 

 

(1,466,789 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017 - Restated

 

 

165,152,410

 

 

165,152

 

 

13,405,688

 

 

(14,123,195 )

 

(552,355 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares for notes payable and accrued interest

 

 

3,387,000

 

 

 

3,387

 

 

 

3,688,443

 

 

 

-

 

 

 

3,691,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

850,000

 

 

 

850

 

 

 

696,150

 

 

 

-

 

 

 

697,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock held in escrow

 

 

2,150,000

 

 

 

2,150

 

 

 

(2,150

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common Stock

 

 

2,403,728

 

 

 

2,404

 

 

 

1,412,796

 

 

 

-

 

 

 

1,415,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss - Restated

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,402,369 )

 

 

(5,402,369 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018 - Restated

 

 

173,943,138

 

 

173,943

 

 

19,200,927

 

 

(19,525,564 )

 

(150,694 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation modification expense on shares held in escrow

 

 

-

 

 

 

-

 

 

 

2,021,000

 

 

 

-

 

 

 

2,021,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

1,925,000

 

 

 

1,925

 

 

 

1,857,325

 

 

 

-

 

 

 

1,859,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares for notes payable – related party

 

 

410,000

 

 

 

410

 

 

 

204,590

 

 

 

-

 

 

 

205,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock

 

 

2,022,199

 

 

 

2,022

 

 

 

1,253,728

 

 

 

-

 

 

 

1,255,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

508,183

 

 

 

-

 

 

 

508,183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

 

 

 

 

(6,602,295 )

 

 

(6,602,295 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

178,300,337

 

 

$ 178,300

 

 

$ 25,045,754

 

 

$ (26,127,859 )

 

$ (903,805 )

 

See notes to financial statements.

  

 
F-5

 

 

UNITED HEALTH PRODUCTS, INC

Statements of Cash Flows

 

 

 

For the Years Ended

December 31,

 

 

 

2019

 

 

2018

 

 

2017 

 

 

 

 

 

(Restated)

 

 

(Restated)

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (6,602,295 )

 

$ (5,402,369 )

 

$ (1,466,789 )

Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 

3,880,250

 

 

 

697,000

 

 

 

144,000

 

Loss on settlement of debt

 

 

-

 

 

 

3,509,330

 

 

 

416,726

 

Expenses paid by officer

 

 

-

 

 

 

30,000

 

 

 

-

 

Loss on disputed inventory

 

 

-

 

 

 

-

 

 

 

82,166

 

Common stock issued for debt financing costs

 

 

-

 

 

 

-

 

 

 

8,479

 

Amortization of debt discount

 

 

508,183

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

-

 

 

 

371

 

 

 

99,910

 

Inventory

 

 

(44,868 )

 

 

5,411

 

 

 

(71,040 )

Prepaid and other current assets

 

 

50,000

 

 

 

(37,886 )

 

 

(12,114 )

Accounts payable and accrued expenses

 

 

367,836

 

 

 

(9,019 )

 

 

61,432

 

Accrued liabilities – related party

 

 

74,130

 

 

 

(71,500 )

 

 

87,555

 

Net Cash Used In Operating Activities

 

 

(1,766,764 )

 

 

(1,278,662 )

 

 

(649,675 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Repayment to related parties

 

 

(161,135 )

 

 

(295,207 )

 

 

(21,500 )

Proceeds from related parties

 

 

657,500

 

 

 

15,000

 

 

 

155,250

 

Repayments on notes payable

 

 

-

 

 

 

(15,000 )

 

 

(77,500 )

Proceeds from loans payable

 

 

-

 

 

 

-

 

 

 

110,000

 

Proceeds from issuance of common stock

 

 

1,255,750

 

 

 

1,415,200

 

 

 

644,000

 

Net Cash Provided By Financing Activities

 

 

1,752,115

 

 

 

1,119,993

 

 

 

810,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in Cash and Cash Equivalents

 

 

(14,649 )

 

 

(158,669 )

 

 

160,575

 

Cash and Cash Equivalents - Beginning of period

 

 

31,273

 

 

 

189,942

 

 

 

29,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$ 16,624

 

 

$ 31,273

 

 

 

189,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

 

$ 16,000

 

Cash paid for income taxes

 

$ -

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule of Non-Cash Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for accounts payable

 

$ -

 

 

$ -

 

 

$ 429,000

 

Shares issued and held in escrow

 

$ -

 

 

$ 2,150

 

 

$ -

 

Shares issued for loans payable – related party

 

$ 205,000

 

 

$ -

 

 

$ -

 

Accounts payable converted to note payable

 

$ -

 

 

$ -

 

 

$ 162,500

 

Common stock issued for settlement of debt and accrued interest

 

$ -

 

 

$ 182,500

 

 

$ 235,000

 

  

See notes to financial statements.

 

 
F-6

 

  

UNITED HEALTH PRODUCTS, INC. AND SUBSIDIARY COMPANY

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017

 

Note 1. Description of the Business

  

United Health Products, Inc. (“United” or the “Company”) is a product development and solutions company focusing on the wound-care industry and disposable medical supplies markets. The Company produces an innovative gauze product that absorbs exudate (fluids which have been discharged from blood vessels) by forming a gel-like substance upon contact.

 

Note 2. Restatement of Financial Statements

 

The Company’s management, concluded that, because of two separate transactions, as discussed in further detail below, the Company’s previously issued financial statements for all periods beginning with the quarterly period ended March 31, 2017 through December 31, 2018 (collectively, the “Affected Periods”) should no longer be relied upon. As such, the Company is restating in this Annual Report its financial statements for the following periods: (i) the years ended December 31, 2018 and December 31, 2017, and (ii) all quarterly periods of 2019, 2018 and 2017.

 

The first transaction was a revenue transaction that involved a sale of a lost in-bound shipment of product that was recognized and recorded in the first quarter of 2017. This sale was canceled in the second quarter of 2017 and the transaction was subsequently corrected to back out the revenue and exclude it from the audited 2017 annual financial statements which were included in our 2017 Annual Report on Form 10-K. The Company inadvertently did not go back and restate the prior interim financial statements for 2017 to reflect the correction. The second transaction was a revenue transaction regarding product that was in the shipping process at the end of December 2017 that was recognized and recorded as revenue in the 2017 audited annual financial statements where there was a question related to the timing of revenue recognition due to the shipping and receiving terms. The Company’s customer has not paid the Company for this product and the Company, in consultation with its former auditor, ultimately wrote off the receivable in the third and fourth quarters of 2018 as a bad debt expense. Those write-offs were reflected in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2018 and Company’s Annual Report on Form 10-K for the year ended December 31, 2018. However, in light of the information currently available to the Company, the Company determined that no revenue should have been recognized in 2017 or 2018 due to the customer disputing the shipment and refusing to pay the amount owed and therefore the transaction did not meet all of the revenue recognition criteria under ASC 606, which the Company adopted on January 1, 2018. The Company is continuing collection efforts to recover payment from its customer, and it instituted a lawsuit against the customer in February 2020 to recover payment, which is ongoing (see “Note 10”). Due to uncertainties inherent in litigation, the Company cannot predict the outcome of this action.

  

During the process of restating its financial statements due to the transaction mentioned above, other adjustments were noted and related to inventory valuation, loss on settlement of debt and equity transactions along with adjustments to accruals based on factors known at the time of this filing versus what was known as of the original filing date.  There was no impact on the statement of operations for the 3 months ended September 30, 2017

   

Impact of the Restatement – December 31, 2018 and December 31, 2017

 

 

 

Year Ended December 31, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

Revenue

 

$ 45,862

 

 

$

(10,986 )

 

$ 34,876

 

Cost of sales

 

96,701

 

 

(74,431 )

 

22,270

 

Gross profit

 

(50,839 )

 

63,445

 

 

12,606

 

Selling, general and administrative expenses

 

2,249,780

 

 

(417,151 )

 

1,832,629

 

Total operating expenses

 

2,326,731

 

 

(417,151 )

 

1,909,580

 

Loss from operations

 

(2,377,570 )

 

480,596

 

 

(1,896,974 )

Loss on settlement of debt

 

(3,632,500 )

 

123,170

 

 

(3,509,330 )

Total other income (expense)

 

(3,628,565 )

 

123,170

 

 

(3,505,395 )

Net loss

 

(6,006,135 )

 

603,766

 

 

(5,402,369 )

Net loss per share, basic and diluted

 

$ (0.04 )

 

0.01

 

 

$ (0.03 )

 

 
F-7

 

 

 

 

As of December 31, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 11,010

 

 

(11,010 )

 

$ -

 

Inventory

 

83,694

 

 

(51,714 )

 

31,980

 

Prepaid and other current assets

 

-

 

 

50,000

 

 

50,000

 

Total current assets

 

125,977

 

 

(12,724 )

 

113,253

 

Accounts payable and accrued expenses

 

243,713

 

 

(90,743 )

 

152,970

 

Accrued liabilities – related party

 

25,000

 

 

11,556

 

 

36,556

 

Liability for unissued shares

 

201,843

 

 

(201,843 )

 

-

 

Loans payable – related party

 

8,121

 

 

66,300

 

 

74,421

 

Total liabilities

 

478,677

 

 

(214,730 )

 

263,947

 

Common stock

 

185,943

 

 

(12,000 )

 

173,943

 

Additional paid-in capital

 

19,198,343

 

 

2,584

 

 

19,200,927

 

Accumulated deficit

 

(19,736,986 )

 

211,422

 

 

(19,525,564 )

Total stockholders’ deficiency

 

$ (352,700 )

 

202,006

 

 

$ (150,694 )
   

 

 

Year Ended December 31, 2018

 

 

 

As Previously

Reported

 

 

Adjustment

 

 

As Restated

 

Cash Flows Data:

 

 

 

 

 

 

 

 

 

Net loss

 

$ (6,006,135 )

 

603,766

 

 

$ (5,402,369 )

Loss on debt settlement

 

$

3,632,500

 

 

(123,170 )

 

3,509,330

 

Write-off of inventory

 

60,789

 

 

(60,789 )

 

-

 

Stock for services

 

674,500

 

 

22,500

 

 

697,000

 

Bad debt expense

 

447,574

 

 

(447,574 )

 

-

 

Accounts receivable

 

(10,614 )

 

10,985

 

 

371

 

Inventory

 

19,051

 

 

(13,640 )

 

5,411

 

Prepaid and other current assets

 

12,114

 

 

(50,000 )

 

(37,886 )

Accounts payable and accrued expenses

 

(71,941 )

 

57,922

 

 

(14,019 )

Accrued liabilities – related party

 

(61,500 )

 

(10,000 )

 

(71,500 )

Total cash used in operating activities

 

(1,273,662 )

 

(10,000 )

 

(1,283,662 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayment to related parties

 

(305,207 )

 

10,000

 

 

(295,207 )

Total cash provided by financing activities

 

$ 1,114,993

 

 

10,000

 

 

$ 1,124,993

 

 

 

 

Year Ended December 31, 2017

 

 

As Previously

 

 

 

 

 

 

 

 

 

Reported

 

 

 

Adjustment

 

 

 

As Restated

 

Statement of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ 645,652

 

 

(462,474 )

 

$ 183,174

 

Cost of sales

 

67,016

 

 

33,973

 

 

100,989

 

Gross profit

 

578,636

 

 

(496,451 )

 

82,185

 

General and administrative

 

1,278,018

 

 

(287,351 )

 

990,667

 

Total operating expenses

 

1,297,954

 

 

$

(287,351 )

 

1,010,603

 

Loss from operations

 

(719,318 )

 

(209,100 )

 

(928,418 )

Interest expense

 

(31,000 )

 

(8,479 )

 

(39,479 )

Loss on customer disputed inventory shipment

 

-

 

 

(82,166 )

 

(82,166 )

Loss on settlement of debt

 

(184,650 )

 

(232,076 )

 

(416,726 )

Total other income (expense)

 

(215,650 )

 

(322,721 )

 

(538,371 )

Net loss

 

$ (934,968 )

 

(531,821 )

 

$ (1,466,789 )

 

 
F-8

 

 

 

 

As of December 31, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 447,970

 

 

$

(447,599 )

 

$ 371

 

Inventory

 

$

163,534

 

 

$

(126,143 )

 

$

37,391

 

Total current assets

 

$

813,560

 

 

$

(573,742 )

 

$

239,818

 

Accounts payable and accrued expenses

 

$

325,654

 

 

$

(148,665 )

 

$

176,989

 

Accrued liabilities – related parties

 

$

86,500

 

 

$

21,556

 

 

$

108,056

 

Liability for unissued shares

 

$

211,843

 

 

$

(211,843 )

 

$

-

 

Loans payable – related parties

 

$

268,328

 

 

$

56,300

 

 

$

324,628

 

Total liabilities

 

$

1,074,825

 

 

$

(282,652 )

 

$

792,173

 

Common stock

 

$

164,969

 

 

$

183

 

 

$

165,152

 

Additional paid-in capital

 

$

13,304,617

 

 

$

101,071

 

 

$

13,405,688

 

Accumulated deficit

 

$

(13,730,851 )

 

$

(392,344 )

 

$

(14,123,195 )

Total stockholders’ deficiency

 

$ (261,265 )

 

$

(291,090 )

 

$ (552,355 )
  

 

 

Year Ended December 31, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Cash Flows Data:

 

 

 

 

 

 

 

 

 

Net loss

 

$ (934,968 )

 

$

(531,821 )

 

$ (1,466,789 )

Stock based compensation

 

$

429,000

 

 

$

(285,000 )

 

$

144,000

 

Loss on settlement of debt

 

$

184,650

 

 

$

232,076

 

 

$

416,726

 

Loss on customer disputed inventory shipment

 

$

-

 

 

$

82,166

 

 

$

82,166

 

Bad debt expense

 

$

20,226

 

 

$

(20,226 )

 

$

-

 

Common stock issued for debt financing costs

 

$

-

 

 

$

8,479

 

 

$

8,479

 

Accounts receivable

 

$

(362,569 )

 

$

462,479

 

 

$

99,910

 

Inventory

 

$

(101,566 )

 

$

30,526

 

 

$

(71,040 )

Accounts payable and accrued expenses

 

$

44,941

 

 

$

16,491

 

 

$

61,432

 

Accrued liabilities – related party

 

$ 86.500

 

 

$

1,055

 

 

$ 87,555

 

Total cash used in operating activities

 

$

(645,900 )

 

$

(3,775 )

 

$

(649,675 )

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from related parties

 

$

111,500

 

 

$

43,750

 

 

$

155,250

 

Proceeds from issuance of common stock

 

$

683,975

 

 

$

(39,975 )

 

$

644,000

 

Total cash provided by financing activities

 

$

806,475

 

 

$

3,775

 

 

$

810,250

 

    

Impact of the Restatement – Quarterly Interim Periods (Unaudited)

 

 

 

Three Months Ended September 30, 2019

 

 

 

As Previously

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$ 294,847

 

 

$

33,873

 

 

$ 328,720

 

Research and development expenses

 

$

141,820

 

 

$

8,174

 

 

$

149,994

 

Total operating expenses

 

$

436,667

 

 

$

42,047

 

 

$

478,714

 

Loss from operations

 

$

(436,667 )

 

$

(42,047 )

 

$

(478,714 )

Interest expense

 

$

-

 

 

$

(46,154 )

 

$

(46,154 )

Total other income (expense)

 

$

-

 

 

$

(46,154 )

 

$

(46,154 )

Net loss

 

$ (436,667 )

 

$

(88,201 )

 

$ (524,868 )

 

 
F-9

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Revenues

 

$ 25,009

 

 

$

(20,082 )

 

$ 4,927

 

Cost of goods sold

 

$ 9,887

 

 

$

(9,385 )

 

$ 502

 

Gross profit

 

$

15,122

 

 

$

(10,697 )

 

$

4,425

 

Selling, general and administrative expenses

 

$

3,609,708

 

 

$

(251,101 )

 

$

3,358,607

 

Research and development expenses

 

$

384,088

 

 

$

8,175

 

 

$

392,263

 

Total operating expense

 

$

3,993,796

 

 

$

(242,926 )

 

$

3,750,870

 

Loss from operations

 

$

(3,978,674 )

 

$

232,229

 

 

$

(3,746,445 )

Interest expense

 

$

(156,890 )

 

$

(92,016 )

 

$

(248,906 )

Total other income (expense)

 

$

(156,890 )

 

$

(92,016 )

 

$

(248,906 )

Net loss

 

$ (4,135,564 )

 

$

140,213

 

 

$ (3,995,351 )

 

 

 

Three Months Ended September 30, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$ 403,359

 

 

$

(113,526 )

 

$ 289,833

 

Research and development expenses

 

$

-

 

 

$

13,527

 

 

$

13,527

 

Total operating expenses

 

$

403,359

 

 

$

(100,000 )

 

$

303,359

 

Loss from operations

 

$

(397,791 )

 

$

100,000

 

 

$

(297,791 )

Net loss

 

$ (397,791 )

 

$

100,000

 

 

$ (297,791 )

 

 

 

Nine Months Ended September 30, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Revenues

 

$ 40,826

 

 

$

(10,985 )

 

$ 29,841

 

Cost of goods sold

 

$ 14,147

 

 

$

5,884

 

 

$ 20,031

 

Gross profit

 

$

26,679

 

 

$

(16,869 )

 

$

9,810

 

Selling, general and administrative expenses

 

$

1,700,442

 

 

$

(139,459 )

 

$

1,560,983

 

Research and development expenses

 

$

-

 

 

$

61,958

 

 

$

61,958

 

Total operating expense

 

$

1,700,442

 

 

$

(77,500 )

 

$

1,622,942

 

Loss from operations

 

$

(1,673,763 )

 

$

60,632

 

 

$

(1,613,131 )

Loss on settlement of debt

 

$

(3,632,500 )

 

$

123,170

 

 

$

(3,509,330 )

Total other income (expense)

 

$

(3,628,614 )

 

$

123,170

 

 

$

(3,505,444 )

Net loss

 

$

(5,302,377 )

 

$

183,802

 

 

$

(5,118,575 )

 

 
F-10

 

  

 

 

Nine Months Ended September 30, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Revenues

 

$ 336,543

 

 

$

(130,725 )

 

$ 205,818

 

Gross profit

 

$

278,578

 

 

$

(130,725 )

 

$

147,853

 

Loss from operations

 

$

(182,285 )

 

$

(130,725 )

 

$

(313,010 )

Interest expense

 

$

(21,000 )

 

$

(8,479 )

 

$

(29,479 )

Total other income (expense)

 

$

(21,000 )

 

$

(8,479 )

 

$

(29,479 )

Net loss

 

$ (203,285 )

 

$

(139,204 )

 

$ (342,489 )

 

 

 

As of September 30, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 36,019

 

 

$

(31,092 )

 

$ 4,927

 

Inventory

 

$

109,627

 

 

$

(42,328 )

 

$

67,299

 

Total current assets

 

$

233,865

 

 

$

(73,421 )

 

$

160,444

 

Total assets

 

$

233,865

 

 

$

(73,421 )

 

$

160,444

 

Accounts payable and accrued expenses

 

$

306,895

 

 

$

(53,715 )

 

$

253,180

 

Accrued liabilities – related party

 

$

17,251

 

 

$

8,979

 

 

$

26,230

 

Liability for unissued shares

 

$

201,843

 

 

$

(201,843 )

 

$

-

 

Loans payable – related party

 

$

-

 

 

$

61,421

 

 

$

61,421

 

Total current liabilities

 

$

525,989

 

 

$

(185,158 )

 

$

340,831

 

Total liabilities

 

$

525,989

 

 

$

(185,158 )

 

$

340,831

 

Additional paid-in capital

 

$

23,403,837

 

 

$

(239,898 )

 

$

23,163,939

 

Accumulated deficit

 

$

(23,872,550 )

 

$

351,636

 

 

$

(23,520,914 )

Total stockholders’ deficiency

 

$ (292,124 )

 

$

111,737

 

 

$ (180,387 )

 

 

 

As of September 30, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 356,399

 

 

$

(347,599 )

 

$ 8,800

 

Inventory

 

$

160,833

 

 

$

(143,013 )

 

$

17,820

 

Total current assets

 

$

648,120

 

 

$

(490,612 )

 

$

157,508

 

Total assets

 

$

648,120

 

 

$

(490,612 )

 

$

157,508

 

Accounts payable and accrued expenses

 

$

273,891

 

 

$

(141,212 )

 

$

132,679

 

Accrued liabilities – related party

 

$

86,500

 

 

$

4,100

 

 

$

90,600

 

Liability for unissued shares

 

$

326,843

 

 

$

(326,843 )

 

$

-

 

Loans payable – related party

 

$

169,828

 

 

$

66,300

 

 

$

236,128

 

Total current liabilities

 

$

857,062

 

 

$

(397,655 )

 

$

459,407

 

Total liabilities

 

$

857,062

 

 

$

(397,655 )

 

$

459,407

 

Common stock

 

$

184,823

 

 

$

(11,750 )

 

$

173,073

 

Additional paid-in capital

 

$

18,639,463

 

 

$

127,334

 

 

$

18,766,797

 

Accumulated deficit

 

$

(19,033,228 )

 

$

(208,542 )

 

$

(19,241,770 )

Total stockholders’ deficiency

 

$ (208,942 )

 

$

(92,957 )

 

$ (301,899 )

 

 
F-11

 

 

 

 

As of September 30, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 165,609

 

 

$

(136,071 )

 

$ 29,538

 

Inventory

 

$

79,863

 

 

$

(10,005 )

 

$

69,858

 

Total current assets

 

$

305,795

 

 

$

(146,076 )

 

$

159,719

 

Total assets

 

$

305,795

 

 

$

(146,076 )

 

$

159,719

 

Accounts payable and accrued expenses

 

$

460,681

 

 

$

(88,287 )

 

$

372,394

 

Liability for unissued shares

 

$

145,543

 

 

$

(145,543 )

 

$

-

 

Loans payable – related parties

 

$

262,078

 

 

$

12,550

 

 

$

274,628

 

Total current liabilities

 

$

1,070,802

 

 

$

(221,280 )

 

$

849,522

 

Common stock

 

$

156,697

 

 

$

(76 )

 

$

156,621

 

Additional paid-in capital

 

$

12,077,464

 

 

$

75,005

 

 

$

12,152,469

 

Accumulated deficit

 

$

(12,999,168 )

 

$

272

 

 

$

(12,998,896 )

Total stockholders’ deficiency

 

$ (765,007 )

 

$

75,201

 

 

$ (689,806 )

 

 

 

Nine Months Ended September 30, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Cash Flows Data (unaudited):

 

 

 

 

 

 

 

 

 

Net loss

 

$ (4,135,564 )

 

$

140,214

 

 

$ (3,995,350 )

Stock based compensation

 

$

2,723,500

 

 

$

(322,500 )

 

$

2,401,000

 

Amortization of debt discount

 

$

156,890

 

 

$

92,018

 

 

$

248,908

 

Accounts receivable

 

$ (25,009 )

 

$

20,082

 

 

$ (4,927 )

Inventory

 

$

(25,933 )

 

$

(9,386 )

 

$

(35,319 )

Prepaid and other current assets

 

$

-

 

 

$

50,000

 

 

$

50,000

 

Accounts payable and accrued expenses

 

$

63,182

 

 

$

29,572

 

 

$

92,754

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Cash Flows Data (unaudited):

 

 

 

 

 

 

 

 

 

Net loss

 

$ (5,302,377 )

 

$

183,802

 

 

$ (5,118,575 )

Stock based compensation

 

$

674,500

 

 

$

22,500

 

 

$

697,000

 

Loss on settlement of debt

 

$

3,632,500

 

 

$

(123,170 )

 

$

3,509,330

 

Bad debt expense

 

$ 100,000

 

 

$

(100,000 )

 

$ -

 

Inventory

 

$ 2,701

 

 

$

16,871

 

 

$ 19,572

 

Accrued liabilities – related party

 

$

-

 

 

$

(10,000 )

 

$

(10,000 )

Cash used in operating activities

 

$

(900,754 )

 

$

(10,000 )

 

$

(910,754 )

 

 

$

 

 

 

$

 

 

 

$

 

 

Proceeds from notes payable – related party

 

$

15,000

 

 

$

10,000

 

 

$

25,000

 

Cash provided by financing activities

 

$

841,700

 

 

$

10,000

 

 

$

851,700

 

 

 
F-12

 

  

 

 

Nine Months Ended September 30, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Cash Flows Data (unaudited):

 

 

 

 

 

 

 

 

 

Net loss

 

$ (203,285 )

 

$

(139,204 )

 

$ (342,489 )

Shares issued for debt financing costs

 

$

-

 

 

$

8,479

 

 

$

8,479

 

Accounts receivable

 

$ (59,982 )

 

$

130,725

 

 

$ 70,743

 

Inventory

 

$

(17,895 )

 

$

(3,447 )

 

$

(21,342 )

Accounts payable and accrued expenses

 

$

(14,382 )

 

$

3,447

 

 

$

(10,935 )

 

 

 

Three Months Ended June 30, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Revenue

 

$ 25,009

 

 

$

(20,082 )

 

$ 4,927

 

Cost of goods sold

 

$ 9,887

 

 

$

(9,385 )

 

$ 502

 

Gross profit

 

$

15,122

 

 

$

(10,697 )

 

$

4,425

 

Selling, general and administrative expenses

 

$ 356,369

 

 

$

37,524

 

 

$ 393,893

 

Total operating expenses

 

$

571,232

 

 

$

37,524

 

 

$

608,756

 

Loss from operations

 

$

(556,110 )

 

$

(48,222 )

 

$

(604,332 )

Interest expense

 

$

(156,890 )

 

$

(45,862 )

 

$

(202,752 )

Total other income (expense)

 

$

(156,890 )

 

$

(45,862 )

 

$

(202,752 )

Net loss

 

$ (713,000 )

 

$

(94,084 )

 

$ (807,084 )

  

 

 

Six Months Ended June 30, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Revenues

 

$ 25,009

 

 

$

(20,082 )

 

$ 4,927

 

Cost of goods sold

 

$ 9,887

 

 

$

(9,385 )

 

$ 502

 

Gross profit

 

$

15,122

 

 

$

(10,697 )

 

$

4,425

 

Selling, general and administrative expenses

 

$

3,314,861

 

 

$

(284,975 )

 

$

3,029,886

 

Total operating expense

 

$

3,557,129

 

 

$

(284,975 )

 

$

3,272,154

 

Loss from operations

 

$

(3,542,007 )

 

$

274,277

 

 

$

(3,267,730 )

Interest expense

 

$

(156,890 )

 

$

(45,862 )

 

$

(202,752 )

Total other income (expense)

 

$

(156,890 )

 

$

(45,862 )

 

$

(202,752 )

Net loss

 

$ (3,698,897 )

 

$

228,415

 

 

$ (3,470,482 )

 

 
F-13

 

 

 

 

Three Months Ended June 30, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$ 918,491

 

 

$ (16,540 )

 

$ 901,951

 

Research and development expenses

 

$ -

 

 

$ 39,041

 

 

$ 39,041

 

Total operating expenses

 

$ 918,491

 

 

$ 22,501

 

 

$ 940,992

 

Loss from operations

 

$ (918,491 )

 

$ (22,501 )

 

$ (940,992 )

Net loss

 

$ (914,545 )

 

$ (22,501 )

 

$ (937,046 )

  

 

 

Six Months Ended June 30, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Revenues

 

$ 31,778

 

 

$

(10,985 )

 

$

20,793

 

Cost of goods sold

 

$ 10,667

 

 

$

5,884

 

 

$ 16,551

 

Gross profit

 

$

21,111

 

 

$

(16,869 )

 

$

4,242

 

General and administrative expenses

 

$

1,297,083

 

 

$

22,498

 

 

$

1,271,150

 

Total operating expenses

 

$

1,297,083

 

 

$

22,498

 

 

$

1,319,581

 

Loss from operations

 

$

(1,275,972 )

 

$

(39,367 )

 

$

(1,315,339 )

Loss on settlement of debt

 

$

(3,632,500 )

 

$

123,170

 

 

$

(3,509,330 )

Total other income (expense)

 

$

(3,628,614 )

 

$

123,170

 

 

$

(3,505,444 )

Net loss

 

$ (4,904,586 )

 

$

83,803

 

 

$ (4,820,783 )

 

 

 

Three Months Ended June 30, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Interest expense

 

$ (11,000 )

 

$ 2,146

 

 

$ (8,854 )

Total other income (expense)

 

$ (11,000 )

 

$ 2,146

 

 

$ (8,854 )

Net loss

 

$ (119,768 )

 

$ 2,146

 

 

$ 117,622

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data  (unaudited):

 

 

 

 

 

 

 

 

 

Revenues

 

$ 268,945

 

 

$

(130,725 )

 

$ 138,220

 

Gross profit

 

$

232,270

 

 

$

(130,725 )

 

$

101,545

 

Loss from operations

 

$

(46,777 )

 

$

(130,725 )

 

$

(177,502 )

Interest expense

 

$

(16,000 )

 

$

(8,479 )

 

$

(24,479 )

Total other income (expense)

 

$

(16,000 )

 

$

(8,479 )

 

$

(24,479 )

Net loss

 

$ (62,777 )

 

$

(139,204 )

 

$ (201,981 )

 

 

 

As of June 30, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 36,019

 

 

$

(31,092 )

 

$ 4,927

 

Inventory

 

$

99,807

 

 

$

(42,328 )

 

$

57,479

 

Total current assets

 

$

636,721

 

 

$

(73,421 )

 

$

563,300

 

Total assets

 

$

636,721

 

 

$

(73,421 )

 

$

563,300

 

Accounts payable and accrued expenses

 

$

235,214

 

 

$

(95,763 )

 

$

139,451

 

Accrued liabilities – related party

 

$

55,121

 

 

$

8,979

 

 

$

64,100

 

Liability for unissued shares

 

$

211,843

 

 

$

(211,843 )

 

$

-

 

Loans payable – related party

 

$

-

 

 

$

61,421

 

 

$

61,421

 

Total current liabilities

 

$

502,178

 

 

$

(237,205 )

 

$

264,973

 

Total liabilities

 

$

502,178

 

 

$

(237,205 )

 

$

264,973

 

Additional paid-in capital

 

$

23,403,837

 

 

$

(286,052 )

 

$

23,117,785

 

Accumulated deficit

 

$

(23,435,883 )

 

$

439,837

 

 

$

(22,996,046 )

Total stockholders’ deficiency

 

$ 144,543

 

 

$

153,785

 

 

$ 298,328

 

 

 
F-14

 

 

 

 

As of June 30, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 453,611

 

 

$

(447,599 )

 

$ 6,012

 

Inventory

 

$

157,318

 

 

$

(143,013 )

 

$

14,305

 

Total current assets

 

$

940,183

 

 

$

(590,612 )

 

$

349,571

 

Total assets

 

$

940,183

 

 

$

(590,612 )

 

$

349,571

 

Accounts payable and accrued expenses

 

$

273,162

 

 

$

(141,211 )

 

$

131,951

 

Accrued liabilities – related party

 

$

86,500

 

 

$

14,100

 

 

$

100,600

 

Liability for unissued shares

 

$

211,843

 

 

$

(211,843 )

 

$

-

 

Loans payable – related party

 

$

189,828

 

 

$

56,300

 

 

$

246,128

 

Total current liabilities

 

$

761,333

 

 

$

(282,654 )

 

$

478,679

 

Total liabilities

 

$

761,333

 

 

$

(282,654 )

 

$

478,679

 

Common stock

 

$

184,809

 

 

$

(11,930 )

 

$

172,879

 

Additional paid-in capital

 

$

18,629,478

 

 

$

12,513

 

 

$

18,641,991

 

Accumulated deficit

 

$

(18,635,437 )

 

$

(308,541 )

 

$

(18,943,978 )

Total stockholders’ equity (deficiency)

 

$ 178,850

 

 

$

(307,958 )

 

$ (129,108 )

 

 

 

As of June 30, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 167,546

 

 

$

(136,071 )

 

$ 31,475

 

Inventory

 

$

89,525

 

 

$

(10,004 )

 

$

79,521

 

Total current assets

 

$

260,300

 

 

$

(146,076 )

 

$

114,224

 

Total assets

 

$

260,300

 

 

$

(146,076 )

 

$

114,224

 

Accounts payable and accrued expenses

 

$

481,928

 

 

$

(88,287 )

 

$

393,641

 

Liabilities for unissued shares

 

$

145,543

 

 

$

(145,543 )

 

$

-

 

Loans payable – related party

 

$

235,078

 

 

$

12,550

 

 

$

247,628

 

Total current liabilities

 

$

1,075,049

 

 

$

(221,280 )

 

$

853,769

 

Total liabilities

 

$

1,075,049

 

 

$

(221,280 )

 

$

853,769

 

Common stock

 

$

153,780

 

 

$

(76 )

 

$

153,704

 

Additional paid-in capital

 

$

11,890,131

 

 

$

75,005

 

 

$

11,965,136

 

Accumulated deficit

 

$

(12,858,660 )

 

$

276

 

 

$

(12,858,384 )

Total stockholders’ deficiency

 

$ (814,749 )

 

$

75,205

 

 

$ (739,544 )

 

 

 

Six Months Ended June 30, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Cash Flows Data (unaudited):

 

 

 

 

 

 

 

 

 

Net loss

 

$ (3,698,897 )

 

$

228,416

 

 

$ (3,470,481 )

Stock based compensation

 

$

2,723,500

 

 

$

(322,500 )

 

$

2,401,000

 

Amortization of debt discount

 

$

156,890

 

 

$

45,862

 

 

$

202,752

 

Accounts receivable

 

$ (25,009 )

 

$

20,082

 

 

$ (4,927 )

Inventory

 

$

(16,113 )

 

$

(9,385 )

 

$

(25,498 )

Prepaid and other current assets

 

$

-

 

 

$

50,000

 

 

$

50,000

 

Accounts payable and accrued expenses

 

$

(8,499 )

 

$

(12,475 )

 

$

(20,974 )

 

 
F-15

 

  

 

 

Six Months Ended June 30, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Cash Flows Data (unaudited)

 

 

 

 

 

 

 

 

 

Net loss

 

$ (4,904,586 )

 

$

83,803

 

 

$ (4,820,783 )

Stock based compensation

 

$

674,500

 

 

$

22,500

 

 

$

697,000

 

Loss on settlement of debt

 

$

3,632,500

 

 

$

(123,170 )

 

$

3,509,330

 

Inventory

 

$ 6,216

 

 

$

16,868

 

 

$ 26,084

 

 

 

 

Six Months Ended June 30, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Cash Flows Data (unaudited):

 

 

 

 

 

 

 

 

 

Net loss

 

$ (62,777 )

 

$

(139,201 )

 

$ (201,978 )

Stock issued for debt financing costs

 

$

-

 

 

$

8,479

 

 

$

8,479

 

Accounts receivable

 

$ (61,919 )

 

$

130,725

 

 

$ 68,806

 

Inventory

 

$

(27,557 )

 

$

(3,447 )

 

$

(31,004 )

Accounts payable and accrued expenses

 

$

6,865

 

 

$

3,444

 

 

$

10,309

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

 As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

$ 2,958,492

 

 

$

(322,499 )

 

$ 2,635,993

 

Total operating expense

 

$

2,985,897

 

 

$

(322,499 )

 

$

2,663,398

 

Loss from operations

 

$

(2,985,897

 

 

$

(322,499 )

 

$

(2,663,398 )

Net loss

 

$ (2,985,897

 

 

$

(322,499 )

 

$ (2,663,398 )

 

 
F-16

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Revenues

 

$ 29,928

 

 

$

(10,985 )

 

$ 18,943

 

Cost of goods sold

 

$ 8,877

 

 

$

5,883

 

 

$ 14,760

 

Gross profit

 

$

21,051

 

 

$

(16,868

 

 

$

4,183

 

Loss from operations

 

$

(357,540 )

 

$

(16,868

 

 

$

(374,408

 

Loss on settlement of debt

 

$

(3,632,500 )

 

$

123,170

 

 

$

(3,509,330

 

Total other income (expense)

 

$

(3,632,500 )

 

$

123,170

 

 

$

(3,509,330

 

Net loss

 

$ (3,990,040 )

 

$

106,303

 

 

$ (3,883,737

 

 

 

 

 

Three Months Ended March 31, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Statement of Operations Data (unaudited):

 

 

 

 

 

 

 

 

 

Revenues

 

$ 227,129

 

 

$

(130,725 )

 

$ 96,404

 

Gross profit

 

$

211,747

 

 

$

(130,725 )

 

$

81,022

 

Gain (loss) from operations

 

$

61,993

 

 

$

(130,725 )

 

$

(68,732 )

Interest expense

 

$

(10,000

)

 

$

(5,625 )

 

$

(15,625 )

Total other income (expense)

 

$

(10,000

)

 

$

(5,625 )

 

$

(15,625 )

Net income (loss)

 

$ 51,993

 

 

$

(136,350 )

 

$ (84,357 )

 

 

 

 

As of March 31, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 11,010

 

 

$

(11,010 )

 

$ -

 

Inventory

 

$

83,694

 

 

$

(51,713 )

 

$

31,981

 

Prepaid and other current assets

 

$

-

 

 

$

50,000

 

 

$

50,000

 

Total current assets

 

$

101,014

 

 

$

(12,723 )

 

$

88,291

 

Total assets

 

$

101,014

 

 

$

(12,723 )

 

$

88,291

 

Accounts payable and accrued expenses

 

$

240,147

 

 

$

(83,288 )

 

$

156,859

 

Accrued liabilities – related party

 

$

70,000

 

 

$

4,100

 

 

$

74,100

 

Liability for unissued shares

 

$

201,843

 

 

$

(201,843 )

 

$

-

 

Loans payable – related party

 

$

129,121

 

 

$

66,300

 

 

$

195,421

 

Total current liabilities

 

$

641,111

 

 

$

(214,730 )

 

$

426,381

 

Total liabilities

 

$

641,111

 

 

$

(214,730 )

 

$

426,381

 

Additional paid-in capital

 

$

22,008,293

 

 

$

(331,915 )

 

$

21,676,378

 

Accumulated deficit

 

$

(22,722,883 )

 

$

533,921

 

 

$

(22,188,962 )

Total stockholders’ deficiency

 

$ (540,097 )

 

$

202,007

 

 

$ (338,090 )

 

 
F-17

 

  

 

 

As of March 31, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 451,810

 

 

$

(447,599 )

 

$ 4,211

 

Inventory

 

$

157,538

 

 

$

(143,011 )

 

$

14,527

 

Total current assets

 

$

781,128

 

 

$

(590,610 )

 

$

190,518

 

Total assets

 

$

781,128

 

 

$

(590,610 )

 

$

190,518

 

Accounts payable and accrued liabilities

 

$

298,162

 

 

$

(141,211 )

 

$

156,951

 

Accrued liabilities – related party

 

$

86,500

 

 

$

14,100

 

 

$

100,600

 

Liability for unissued shares

 

$

298,843

 

 

$

(298,843 )

 

$

-

 

Loans payable – related party

 

$

198,328

 

 

$

56,300

 

 

$

254,628

 

Total current liabilities

 

$

881,833

 

 

$

(369,653 )

 

$

512,180

 

Total liabilities

 

$

881,833

 

 

$

(369,653 )

 

$

512,180

 

Common stock

 

$

183,173

 

 

$

(11,856 )

 

$

171,317

 

Additional paid-in capital

 

$

17,437,013

 

 

$

76,940

 

 

$

17,513,953

 

Accumulated deficit

 

$

(17,720,891 )

 

$

(286,040 )

 

$

(18,006,931 )

Total stockholders’ deficiency

 

$ (100,705 )

 

$

(220,956 )

 

$ (321,661 )

 

 

 

As of March 31, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (unaudited):

 

 

 

 

 

 

 

 

 

Accounts receivable

 

$ 234,214

 

 

$

(136,072 )

 

$ 98,142

 

Inventory

 

$

62,039

 

 

$

(10,005 )

 

$

52,034

 

Total current assets

 

$

311,468

 

 

$

(146,077 )

 

$

165,391

 

Total assets

 

$

311,468

 

 

$

(146,077 )

 

$

165,391

 

Accounts payable and accrued expenses

 

$

458,576

 

 

$

(88,288 )

 

$

370,288

 

Liability for unissued shares

 

$

145,543

 

 

$

(145,543 )

 

$

-

 

Loans payable -related party

 

$

182,328

 

 

$

12,550

 

 

$

194,878

 

Total current liabilities

 

$

1,011,447

 

 

$

(221,281 )

 

$

790,166

 

Total liabilities

 

$

1,011,447

 

 

$

(221,281 )

 

$

790,166

 

Common stock

 

$

153,780

 

 

$

(114 )

 

$

153,666

 

Additional paid-in capital

 

$

11,890,131

 

 

$

72,189

 

 

$

11,962,320

 

Accumulated deficit

 

$

(12,743,890 )

 

$

3,129

 

 

$

(12,740,761 )

Total stockholders’ deficiency

 

$ (699,979 )

 

$

75,204

 

 

$ (624,775 )

 

 
F-18

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Consolidated Cash Flows Data (unaudited):

 

 

 

 

 

 

 

 

 

Net loss

 

$ (2,985,897 )

 

 

322,500

 

 

$ (2,663,397 )

Stock based compensation

 

$ 2,723,500

 

 

 

(322,500 )

 

$ 2,401,000

 

 

 

 

Three Months Ended March 31, 2018

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Consolidated Cash Flows Data (unaudited):

 

 

 

 

 

 

 

 

 

Net loss

 

$ (3,990,040 )

 

106,304

 

 

$ (3,883,736 )

Loss on settlement of debt

 

3,632,500

 

 

(123,170 )

 

3,509,330

 

Inventory

 

$ 5,997

 

 

16,866

 

 

$ 22,863

 

 

 

 

Three Months Ended March 31, 2017

 

 

 

As Previously

 

 

 

 

 

 

 

Reported

 

 

Adjustment

 

 

As Restated

 

Consolidated Cash Flows Data (unaudited):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$ 51,993

 

 

$

(136,348 )

 

$ (84,355 )

Shares issued for debt financing costs

 

$

-

 

 

$

5,625

 

 

$

5,625

 

Accounts receivable

 

$ (128,587 )

 

$

130,726

 

 

$ 2,139

 

Inventory

 

$

(71 )

 

$

(3,446 )

 

$

(3,517 )

Accounts payable and accrued expenses

 

$

(16,487 )

 

$

3,443

 

 

$

(13,044

 

 

 
F-19

 

 

Note 3. Significant Accounting Policies

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring net losses, has negative working capital and operations have not provided cash flows. Additionally, the Company does not currently have sufficient revenue producing operations to cover its operating expenses and meet its current obligations. In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Chief Executive Officer has agreed to advance funds or make payments of the Company’s obligations at his discretion. There is no written agreement to continue this support.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, as well as in the healthcare industry, and any other parameters used in determining these estimates, could cause actual results to differ.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.

 

 
F-20

 

 

Fair Value Measurements

 

Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs other than quoted prices included in Level 1. We value assets and liabilities included in this level using dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2019 and 2018. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.

 

Income Taxes

 

The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company’s assets and liabilities which is commonly known as the asset and liability method. In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year. The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof, with due consideration given to the fact that tax periods are open to examination by tax authorities. The Company is no longer subject to U.S federal or state income tax examinations by tax authorities before 2015.

 

As of December 31, 2019, 2018 and 2017, the Company has approximately $15.6, $13.5 and $12.2 million of net operating loss carry-forwards, respectively, available to affect future taxable income and has established a valuation allowance equal to the tax benefit of the net operating loss carry forwards and temporary differences as realization of the asset is not assured.

 

Trade Accounts Receivable and Concentration Risk

 

We record accounts receivable at the invoiced amount and we do not charge interest. We review the accounts receivable by amounts due from customers which are past due, to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, we make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. We will also maintain a sales allowance to reserve for potential credits issued to customers. We will determine the amount of the reserve based on historical credits issued.

 

There was no provision for doubtful accounts recorded at December 31, 2019, 2018 and 2017. The Company re