You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion and analysis contains 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' in our annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with SEC on July 9, 2020.





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.

Impact of Covid-19 on our Business

In late 2019 the novel coronavirus, Covid-19, was identified. By February 2020, the virus had spread to many countries around the world, including the United States. By late February, authorities in the United States began advising American businesses to prepare for the effects of the outbreak.

The extent of the long-term adverse effect of the Covid-19 pandemic on the economy, our industry and our results of operations and financial condition is unknown and largely dependent on future developments, most of which, including the severity and duration of this pandemic, are beyond our control.

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.





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





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 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-Q, the FDA review process, which was temporarily held up by the Covid-19 virus pandemic, is ongoing.

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.






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The Company has registered trademarks for the following:





  · Boo Boo Strips:

  · The Ultimate Bandage

  · Hemostrips

  · Nik Fix

Results of Operations for the three months ending June 30, 2020 and 2019

The following table sets forth a summary of certain key financial information for the three months ended June 30, 2020 and 2019:





                            For the Three Months Ended June 30,
                               2020                    2019

Revenue                  $             136       $           4,927

Gross profit             $              56       $             502

Operating (expenses)     $        (647,956 )     $        (608,755 )

Operating (loss)         $        (647,876 )     $        (604,330 )

Other income (expense)   $         (45,176 )     $        (202,753 )

Net (loss)               $        (693,052 )     $        (807,083 )

Basic and diluted        $           (0.00 )     $           (0.00 )

Three Months ended June 30, 2020 versus Three Months ended June 30, 2019

During the three months ended June 30, 2020 and 2019, the Company had $136 and $4,927 of revenues, respectively. Revenues were minimal in the second quarter of 2020 and 2019 and decreased compared to the prior year. The Company has continued to devote its attention and efforts 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.






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Total operating expenses for the three months ended June 30, 2020 and 2019 were $647,956 and $608,755, respectively. The increase in operating expenses is due primarily to an increase in consulting/professional fees of approximately $288,000 offset by a decrease in travel of approximately $33,000 and a decrease in advertising and marketing of approximately $4,500 offset by a decrease in research and development of $195,975. The increase in consulting/professional fees is due to additional expenses associated with restating prior years' financial statements, ongoing litigation and issuing 125,000 shares of common stock for services valued $100,625. The decrease in travel is due to Covid-19 and the limitations and restrictions on travel.

Our net loss for the three months ended June 30, 2020 was $693,052 as compared to net loss of $807,083 for the comparable period of the prior year. The decrease in the net loss is due to the Company having a decrease in operating expenses of $39,201 as explained above along with interest expense decreasing from $202,753 during the three months ended June 30, 2019 to $45,176 for the three months ended June 30, 2020. The decrease in interest expense is due to the Company only having $46,505 of amortization of debt discount during the three months ended June 30, 2020 compared to $202,753 in the comparable period of 2019.

Results of Operations for the six months ending June 30, 2020 and 2019

The following table sets forth a summary of certain key financial information for the six months ended June 30, 2020 and 2019:





                             For the Six Months Ended June 30,
                               2020                    2019

Revenue                  $             427       $           4,927

Gross profit             $             161       $             502

Operating (expenses)     $      (1,271,948 )     $      (3,272,153 )

Operating (loss)         $      (1,271,682 )     $      (3,267,729 )

Other income (expense)   $         (47,191 )     $        (202,752 )

Net (loss)               $      (1,318,873 )     $      (3,470,481 )

Basic and diluted        $           (0.01 )     $           (0.02 )





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Six Months ended June 30, 2020 versus Six Months ended June 30, 2019

During the six months ended June 30, 2020 and 2019, the Company had $427 and $4,927 of revenues, respectively. Revenues were minimal during the six months June 30, 2020 and 2019 and decreased compared to the prior year. The Company has continued to devote its attention and efforts 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 six months ended June 30, 2020 and 2019 were $1,271,948 and $3,272,153, respectively. The decrease in operating expenses is due primarily to a decrease in consulting/professional fees. The Company issued 175,000 shares of common stock for services valued at $148,125 during the six months ended June 30, 2020 compared to 400,000 shares of common stock for services valued at $380,000 and recorded 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 six months ended June 30, 2019. The decrease in stock-based compensation expenses related to consulting/professional fees was offset by an increase in legal and accounting expenses related to the restatement of prior year financial statements and ongoing litigation.

Our net loss for the six months ended June 30, 2020 was $1,318,873 as compared to net loss of $3,470,081 for the comparable period of the prior year. The decrease in the net loss is due to the Company having a decrease in operating expenses of $1,996,046 as explained above along with interest expense decreasing from $202,753 during the three months ended June 30, 2019 to $47,191 for the six months ended June 30, 2020. The decrease in interest expense is due to the Company only having $47,191 of amortization of debt discount during the six months ended June 30, 2020 compared to $202,753 in the comparable period of 2019.

Financial Condition, Liquidity and Capital Resources

As of June 30, 2020, the Company had a negative working capital of $903,786. 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 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 June 30, 2020 and December 31, 2019 was $15,193 and $16,624, respectively.






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The following table summarizes selected items from our statements of cash flows for the six months ended June 30, 2020 and 2019:





                                                    For the Six Months Ended June 30,
                                                         2020                 2019
Net cash used in operating activities              $       (904,342 )     $   (833,128 )
Net cash used in investing activities                       (87,000 )                -
Net cash provided by financing activities                   989,911          1,302,750

Net increase (decrease) in cash and cash
equivalents                                        $         (1,431 )     $    469,622

Net Cash Provided by (Used in) Operating Activities

Net cash used in operating activities for the six months ended June 30, 2020 was $904,342. The Company had net loss of $1,318,873 offset by stock based compensation of $148,125, amortization of debt discount of $46,505 a decrease in inventory of $160, an increase in accounts payable and accrued expenses of $197,096 and an increase in accrued liabilities - related party of $32,645. The Company also had an increase in prepaid and other current assets of $10,000.

Net cash used in operating activities for the six ended June 30, 2019 was $833,128. The Company had a net loss $3,470,481 offset by stock based compensation of $2,401,000, amortization of debt discount of $202,753, a decrease in prepaid and other current assets of $50,000 and an increase in accrued liabilities - related party of $35,000. The Company also had an increase in accounts receivable of $4,927, an increase in inventory of $25,498 and a decrease in accounts payable and accrued expenses of $20,974.

Net Cash Provided by (Used in) Investing Activities

Net cash used in investing activities for the six months ended June 30, 2020 was $87,000. The was due to the Company purchasing equipment during the period in preparation of opening up its own facility.

The Company did not have any investing activities during the six months ended June 30, 2019.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2020 was $989,911. This was due to the Company receiving $200,000 from in proceeds related to a convertible loan, $180,230 from related parties, $1,105,696 in proceeds from the sale of stock offset by making payments of $496,015 on related party loans.

Net cash provided by financing activities for the six months ended June 30, 2019 was $1,302,750. This was due to the Company receiving $1,110,750 in proceeds from the sale of stock and receiving $192,000 from related party loans.

Off-Balance Sheet Arrangements

As of June 30, 2020, we have no off-balance sheet arrangements.





Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.






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Revenue Recognition

The Company recognizes revenue in accordance with 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. No 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 accounts 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.

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