UNITED HEALTH PRODUCTS, INC. 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 endedDecember 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 endedMarch 31, 2017 ,June 30, 2017 ,September 30, 2017 ,March 31, 2018 ,June 30, 2018 ,September 30, 2018 ,March 31, 2019 ,June 30, 2019 andSeptember 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
The following table sets forth a summary of certain key financial information
for the years ended
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)
Net (loss)$ (6,602,295 ) $ (5,402,369 ) $ (1,466,789 ) Basic and diluted$ (0.04 ) $ (0.03 ) $ (0.01 )
Year ended
During the year endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 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 endedDecember 31, 2018 and did not have these transactions during the year endedDecember 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 endedDecember 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
During the year endedDecember 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 endedDecember 31, 2019 versus year endedDecember 31, 2018 " above. We continued this strategic focus though 2019. Total operating expenses for the year endedDecember 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 2019 2019 2018 2018 2018 2017 2017 2017
(Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (Restated) (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
During the three months endedSeptember 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 endedSeptember 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 endedSeptember 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
During the three months endedJune 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 endedJune 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 endedJune 30, 2018 and during the three months endedJune 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 endedJune 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
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 endedDecember 31, 2019 versus year endedDecember 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 endedMarch 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
During the three month endedSeptember 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 endedDecember 31, 2019 versus year endedDecember 31, 2018 " above for the strategic reasons for our change in focus. Total operating expenses for the three months endedSeptember 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 endedSeptember 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
During the three months endedJune 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 endedDecember 31, 2019 versus year endedDecember 31, 2018 " above for the strategic reasons for our change in focus. Total operating expenses for the three months endedJune 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 endedJune 30, 2018 . Our net loss for the three months endedJune 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 endedJune 30, 2017 .
Three Months Ended
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 endedDecember 31, 2019 versus year endedDecember 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 endedMarch 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 ofDecember 31, 2019 , the Company had a negative working capital of$903,805 . The Company has not yet attained a level of operations, and for the foreseeable future will not be pursuing commercial operations, which will allow the it to meet its current overhead while it focuses on its strategy of seeking FDA class III approval for internal surgical purposes, and opportunities which may arise from that including, among other things, fostering interest from potential merger and acquisition candidates or commercial partners. If we are not successful in our strategy, we cannot assure that we will be able to adjust to and fund a marketing and sale strategy, and if we do, we are unable to assure we will attain profitable operations within the next few business operating cycles or at all. The report of our independent registered public accounting firm on our 2019, 2018 and 2017 financial statements includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. While the Company has funded its initial operations with private placements, and secured loans from related parties, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company. Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, our ability to achieve our business goals and objectives, as well as improvement in the economic climate. Cash Flows
The Company's cash on hand at
The following table summarizes selected items from our statements of cash flows
for the years ended
For the Years Ended December 31,
(in thousands) 2019 2018 2017
Net cash used in operating activities
- - -
Net cash provided by financing activities 1,752,115 1,119,993
810,250
Net increase (decrease) in cash and cash equivalents$ (14,649 ) $ (158,669 ) $ 160,575
Net Cash Provided by (Used in) Operating Activities
Net cash used in operating activities for the year endedDecember 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 endedDecember 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 endedDecember 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 .
The Company did not have any investing activities during the years ended
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities for the year endedDecember 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 endedDecember 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 endedDecember 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
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 endedDecember 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. EffectiveJanuary 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, untilJanuary 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.
© Edgar Online, source
