QUALIS INNOVATIONS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

April 24, 2023 at 06:04 am EDT

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this filing. This discussion and other parts of this filing contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, intentions, and beliefs. Our actual results may differ materially from those discussed in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and in other parts of this filing, and you should not place undue certain on these forward-looking statements, which apply only as of the date of this filing. See "Disclosure Regarding Forward-Looking Statements".

We are an emerging growth company as defined in Section 2(a) (19) of the Securities Act. Pursuant to Section 107 of the Jumpstart Our Business Startups Act, we may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, meaning that we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen to take advantage of the extended transition period for complying with new or revised accounting standards applicable to public companies to delay adoption of such standards until such standards are made applicable to private companies. Accordingly, our consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.





OVERVIEW:



Historical Development



Our Company

Qualis Innovations Inc. (hereinafter the "Company," "We," "Qualis") "Qualis") was incorporated in the state of Nevada on March 23, 2006. On June 28, 2021, the Company entered into a Share Exchange Agreement by and among mPathix Health, Inc. (formerly known as EMF Medical Devices, Inc.), a Delaware corporation ("mPathix"), pursuant to which mPathix was acquired by the Company. Qualis is now the holding company under which mPathix operates. mPathix is a clinical stage company focused on the development, production, and distribution of pain management and other central nervous system (CNS) based solutions.

We are developing a product designed to address the unmet needs of patients who seek alternatives to traditional pain medications and interventions or adjunctive therapies to their current treatment regimen. We believe that our product will provide clinicians and patients with new and differentiated set of pain management tools to meet the diversity of patient





Recent Developments

We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP").





Financing Transactions

Insurance Financing Agreement

On July 20, 2022, the Company entered into a loan to finance its directors and officer's insurance policy effective June 28, 2022. The loan has a principal balance of $90,225, bears interest at 8.83% per annum, and is due and payable in nine monthly payments of $10,397. During the years ended December 31, 2022, the Company made repayments of $59,033 and has a balance of $31,192 at December 31, 2022.





Acquisition of mPathix

On June 28, 2021, the Company entered into a Share Exchange Agreement ("Exchange Agreement") by and among mPathix Health, Inc. (formerly EMF Medical Devices, Inc., a Delaware corporation) ("mPathix") and Qualis. The closing of the transaction (the "Closing") took place on June 29, 2021 (the "Closing Date"). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the "Shares") of mPathix. In exchange, the Company issued to the mPathix shareholder's, their designees or assigns, an aggregate of 6,988,300 shares of Company common stock (the "Shares Component") or 93.36% of the shares of common stock of the Company issued and outstanding after the Closing (the "Share Exchange"), at a valuation of $0.50 per share, and the Company issued warrants to purchase an additional 1,098,830 shares (698,830 warrants issued to the Company's previous CEO and 400,000 to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company's acting CEO and chairman of the board) of the Company's common stock, exercisable for 10 years at a $0.50 per share exercise price, subject to adjustment. In connection with the closing of the mPathix acquisition, the officers and directors of mPathix were appointed as the officers and directors of the Company.

The acquisition was accounted for as a "reverse merger" and recapitalization since the stockholders of mPathix prior to the acquisition acquired a majority of the outstanding shares of the common stock of the Company immediately following the completion of the transaction. mPathix was deemed to be the accounting acquirer in the transaction, and, consequently, the transaction was treated as a recapitalization of mPathix. As a result, the Company was considered to be the continuation of the predecessor, mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the Company's consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. The Company's assets, liabilities and results of operations were consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.





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Stock Based Compensation



Employment Agreement

On March 1, 2021, Mr. Ahmet Demir Bingol, the Company's CEO entered into an Employment Agreement with the Company, with an effective date of March 16, 2021, in which he receives an annual base salary of $250,000, plus bonus compensation not to exceed 80% of base salary. In addition, Mr. Bingol was granted 698,830 warrants to purchase 698,830 of the Company's common stock, valued at $165,378 (based on the Black Scholes valuation model on the date of grant). The warrants are exercisable for a period of ten years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date. Mr. Bingol's employment also provides for medical insurance, disability benefits and one year of severance pay if his employment is terminated without cause or due to a change in control. Mr. Bingol's compensation was approved by the Company's Board of Directors on March 1, 2021.

On September 9, 2021, the Board of Directors approved a modified Employment Agreement for Mr. Bingol which was subsequently signed on October 1, 2021. The modification resulted in changing Mr. Bingol's position from CEO to President and in reducing Mr. Bingol's base salary from $250,000 to $150,000 per year. In addition, his bonus plan was reset with a target bonus at fifty percent (50%) of Executive's Base Salary, based upon the actual achievement of financial and other targets as established in the annual budget approved by the Board, in its sole and absolute discretion. Further, on October 1, 2021, Mr. Bingol's previously issued warrants were modified such that he will receive 300,000 warrants that vest immediately at an exercise price of $0.50 and 398,830 warrants that vest over a period of three years with an exercise price of $0.50. As a result, in accordance with ASC 718-20-35-2A and 718-20-35-3, immediately prior to the modification, the Company calculated the fair value of the warrants and determined that there was no change to the fair value. Subsequent to the modification, the Company will recognize a loss of $9,155 over the remaining three year vesting period.

On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he will terminate his employment effective April 15, 2022. He received no severance payment and there were no disagreements between he or the Company. A total of 300,000 warrants have vested with the remaining 398,830 unvested warrants expiring. As a result of Mr. Bingol's termination, the Company reversed the remaining warrant modification balance of $94,101 during the years ended December 31, 2022.





Consulting Agreement

On May 1, 2021, the Company entered into a consulting agreement with a related party to provide advisory services to the Company. The consulting agreement terminates July 31, 2022. Under this consulting agreement, the related party will be entitled to a monthly consulting fee of $10,000 and a total of 300,000 common shares to be issued 200,000 common shares based on the closing of reverse acquisition transaction, 50,000 common shares on the delivery of two Company's medical devices and 50,000 common shares on the delivery of ten Company's medical devices. The Company issued 250,000 common shares during the year ended December 31, 2021, for the fair value of $125,000 and 50,000 common shares shall be issued on delivery of an additional eight devices at a fair value estimated to be $25,000. The agreement has been extended through July 31, 2023 with a 90 day cancellation clause.

On January 27, 2022 the Company hired an engineering consultant to assist in completing the design history file, updating new software, system design, pre 510(k) preparation, and testing of the SOLACE device. This work is expected to be completed by the end of September 2022 and the cost of the contract is $77,850.

On October 3, 2022, the Company entered into an Independent Contractor Services Agreement ("Agreement") with a third party to provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be entitled to a monthly consulting fee of $6,000 and a total of 36,000 common shares, valued at $18,000 (based on the estimated fair value of the stock on the date of grant) for services rendered. The 36,000 common shares to be issued by the end of November 2022.





Prior License

We previously licensed from Life Care Medical Devices a number of patents in connection with the Prior Device, the predicate device which was marketed as the "BeBe" device, and which received 510(k) clearance from the FDA in March 2014. The granted indication for the BeBe device was "to generate deep heat within body tissues for the treatment of medical conditions such as relief of pain, muscle spasms and joint contractures."

On August 28, 2019, our subsidiary, mPathix, entered into a Preliminary License Agreement with LCMD, licensing from LCMD certain patents, know how, trade secrets, 510(k) clearances and other property (the "Property") previously transferred to LCMD by the Marchitto Entities (defined below) in accordance with an Asset Purchase Agreement and a separate Intellectual Property License Agreement dated November 10, 2015. Jim Holt who served as the sole officer and director of LCMD, is also one of our directors. mPathix had an exclusive license to reproduce, distribute, sell, lease, display and perform and otherwise use the Property (including the SOLACE medical device) for use in pain management as of the August 28, 2019 agreement. In consideration, mPathix issued 2,000,000 shares of its common stock (1,878,955 shares issued to LCMD and 121,045 shares issued to an affiliate of LCMD) and paid $110,000 in cash to LCMD on or about on September 9, 2019, and mPathix was to pay continuing royalties to LCMD, with an initial royalty payment of 6.0% of the net revenues from pain application sales in each of the first twelve months, and lesser royalties thereafter based on annual device sales. No royalty payments have been made to or earned by LCMD since no revenues from medical device sales were generated.

On June 3, 2021, a Definitive License Agreement was signed by LCMD and mPathix in order to finalize the terms of the August 28, 2019 Preliminary License Agreement. The terms of the license with LCMD were contingent upon successful fulfilment of a court ordered resolution between LCMD and the original owners of the underlying intellectual property (the "Marchitto Entities"). LCMD was obligated to pay to the Marchitto Entities the sum of $2,400,000 on or before April 24, 2022, which has not occurred. Accordingly, we consider the license agreement to be expired, and we do not intend to renew the license agreement with LCMD or otherwise reacquire the intellectual property from the Marchitto Entities.

ASC 730-10-25-2(c), Intangible Assets Purchased From Others, requires a company to evaluate the technology acquired, and the applicable guidance for the determination of alternative future uses. mPathix determined, at the date of the acquisition of the technology, that it was acquiring an asset that represented a research and development (R&D) project that was still in the process of experimentation. The technology has additional potential future benefits including hyperhidrosis, stress bladder incontinence, and cosmetic indications. Therefore, the acquisition represented an asset by the Company.

Based on the Company's analysis of the Solace medical device, as of December 31, 2021, the Company reassessed the value of the Preliminary License Agreement with LCMD. Related to this assessment, management determined that the intellectual property used in the Solace device is different from the intellectual property in the Preliminary License Agreement with LCMD. Therefore, the Company recorded an impairment of intangible assets of $143,226 for the year ended December 31, 2021 and was classified in other expenses in the consolidated Statement of Operations.





Common Stock

On July 20, 2022, the Company issued 200,000 common shares to an affiliate for aggregate gross proceeds of $100,000.

In July 2021, the Company issued 250,000 common shares to a related party valued at $125,000 (based on the estimated fair value of the stock on the date of grant) for services rendered.

In July 2021, the Company issued 5,000 common shares to a third party valued at $2,500 (based on the estimated fair value of the stock on the date of grant) for services rendered.

In June 2021, the Company issued 300,000 common shares to a third party for aggregate gross proceeds of $150,000.

In June 2021, the Company issued 200,000 common shares to a related party for aggregate gross proceeds of $100,000.

The acquisition was accounted for as a "reverse merger'' and recapitalization since the stockholders of mPathix owned a majority of the outstanding shares of the common stock immediately following the completion of the transaction assuming that holders of 10% of the Public Shares exercise their conversion rights. mPathix was deemed to be the accounting acquirer in the transaction and, consequently, the transaction was treated as a recapitalization of mPathix. As a result, Qualis was considered to be the continuation of the predecessor mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. Qualis's assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.

On June 29, 2021, the Company issued 900,000 common shares to Echo Resources LLP in conjunction with share agreement.

On June 29, 2021, the Company issued 496,650 common shares for the recapitalization of Qualis in conjunction with the reverse acquisition.

On February 14, 2021, the Company issued a total of 30,000 restricted common shares to members of its Board of Directors, valued at $15,000 (based on the estimated fair value of the stock on the date of grant) for services to be rendered in FY 2021.

On February 11, 2021, the Company issued 2,000,000 common shares to third parties for aggregate gross proceeds of $1,000,000.





Warrants

On February 14, 2021, the Company granted 400,000 warrants to purchase 400,000 shares of the Company's common stock to a CreoMed (controlled by Dr. Joseph Pergolizzi, Acting CEO and Chairman of the Board) for consulting services, valued at $109,512 (based on the Black Scholes valuation model on the date of grant). The warrants are exercisable for a period of seven years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date.

On March 16, 2021, the Company granted 698,830 warrants to purchase 698,830 shares of the Company's common stock to Ahmet Demir Bingol, valued at $166,141 (based on the Black Scholes valuation model on the date of grant), pursuant to his Employment Agreement. The warrants are exercisable for a period of ten years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date.

On June 29, 2021, the Qualis Innovations, Inc. has cancelled previous warrants agreement and regranted warrants to purchase an additional 1,098,830 shares (698,830 warrants issued to the Ahmet Demir Bingol, Company's previous CEO and 400,000 to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company's acting CEO and chairman of the board) of the Company's common stock, exercisable for 10 years at a $0.50 per share exercise price, subject to adjustment in conjunction with the share exchange agreement.

On September 9, 2021, the Board of Directors approved a modified Employment Agreement for Mr. Bingol which was subsequently signed on October 1, 2021. The modification resulted in changing Mr. Bingol's position from CEO to President. Further, on October 1, 2021, Mr. Bingol's previously issued warrants were modified such that he will receive 300,000 warrants that vest immediately at an exercise price of $0.50 and 398,830 warrants that vest over a period of three years with an exercise price of $0.50. As a result, in accordance with ASC 718-20-35-2A and 718-20-35-3, immediately prior to the modification, the Company calculated the fair value of the warrants and determined that there was no change to the fair value. Subsequent to the modification, the Company will recognize a loss of $9,155 over the remaining three-year vesting period.

On February 1, 2022, the Company granted 30,000 warrants to purchase 30,000 of the Company's common stock to a third party for consulting services, valued at $13,547 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of three years at $1.00 per share in whole or in part, and fully vest at grant date.

On March 29, 2022, the Board of Directors approved the granting of 400,000 warrants, with effect from April 1, 2022, convertible to the Company's common shares with an exercise price of $1.10, valued at $290,276 (based on the Black Scholes valuation model on the date of grant), to our acting CEO and Chairman Joseph V. Pergolizzi Jr., MD through his company, CreoMed, Inc. with an expiration period of 10 years. These warrants were issued as compensation for the first quarter to Joseph V. Pergolizzi Jr., MD.

On August 1, 2022, based on a revised agreement signed by the relevant parties, the Company granted 60,000 warrants to purchase 60,000 of the Company's common stock to a third party for consulting services, valued at $7,632 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of three years at $1.10 per share in whole or in part, and fully vest at grant date.

On September 1, 2022, the Company granted 300,000 warrants to purchase 300,000 of the Company's common stock to a third party for consulting services, valued at $60,916 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of four years at $1.10 per share in whole or in part and vest 50% in six months and the remaining 50% in twelve months from the grant date.





Options

In July 2021, the Company granted a total of 100,000 options to purchase 100,000 shares of the Company's common stock to third parties for consulting services, valued at $25,077 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of five years at $0.50 per share in whole or in part and vest 50% in six months and the remaining 50% in twelve months from the grant date.

On June 7, 2021, the Company granted 20,000 options to purchase 20,000 shares of the Company's common stock to a third party for consulting services, valued at $5,040 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of five years at $0.50 per share in whole or in part and vest 50% in six months and the remaining 50% in twelve months from the grant date.

Impairment of Intangible Assets

Based on the Company's analysis of the Solace medical device, as of December 31, 2021, the Company reassessed the value of the Preliminary License Agreement with LCMD. Related to this assessment, management determined that the intellectual property used in the Solace device is different from the intellectual property in the Preliminary License Agreement with LCMD. Therefore, the Company recorded an impairment of intangible assets of $143,226 for the year ended December 31, 2021 and is classified in other expenses in the consolidated Statement of Operations.

Limited Operating History; Need for Additional Capital

There is limited historical financial information about us on which to base an evaluation of our performance. We have not finalized development of our planned SOLACE device, nor have we generated any cash flow from operations. The Company's cash position may not be sufficient to support the Company's daily operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and possible cost overruns due to increases in the cost of services. To become profitable and competitive, we must receive additional capital. We have no assurance that future financing will materialize. If that financing is not available, we may be unable to continue operations.





Overview of Presentation

The following Management's Discussion and Analysis ("MD&A") or Plan of Operations includes the following sections:





  ? Results of Operations

  ? Liquidity and Capital Resources

  ? Capital Expenditures

  ? Going Concern

  ? Critical Accounting Policies

  ? Off-Balance Sheet Arrangements




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General and administrative expenses consist primarily of personnel costs and professional fees required to support our operations and growth.

Depending on the extent of our future growth, we may experience significant strain on our management, personnel, and information systems. We will need to implement and improve operational, financial, and management information systems. In addition, we are implementing new information systems that will provide better record-keeping. However, there can be no assurance that our management resources or information systems will be sufficient to manage any future growth in our business, and the failure to do so could have a material adverse effect on our business, results of operations and financial condition.





Results of Operations

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

The following discussion represents a comparison of our results of operations for the years ended December 31, 2022 and 2021. The results of operations for the periods shown in our audited consolidated financial statements are not necessarily indicative of operating results for the entire period. In the opinion of management, the audited consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.





                                   Year Ended              Year Ended
                                December 31, 2022       December 31, 2021

Net revenues                   $                 -     $                 -
Cost of sales                                    -                       -
Gross Profit                                     -                       -
Operating expenses                         920,515               1,588,890
Other expense                                    -                 143,226

Net loss before income taxes $ (920,515 ) $ (1,732,116 )






Revenues

For the years ended December 31, 2022 and 2021, we had no revenues.





Cost of Sales

For the years ended December 31, 2022 and 2021, we had no cost of sales.





Operating expenses

Operating expenses decreased by $668,375, or 42.1%, to $920,515 for year ended December 31, 2022 from $1,588,890 for the year ended December 31, 2021 primarily due to decreases in compensation costs of $166,511, research and development costs of $424,207, consulting fees of $277,815, and travel costs of $3,240, offset partially by professional fees of $37,376, insurance costs of $61,832, depreciation costs of $149, stock based compensation of $81,782, and general and administration costs of $22,259. In March 2021, the Company hired its CEO resulting in compensation costs and stock based compensation. Effective April 15, 2022, the Company entered into a separation agreement with its CEO whereby he was terminated resulting in decreased compensation costs. In addition, the Company has incurred an increase in professional fees (primarily legal and audit fees) and has decreased consulting fees (primarily the fair value of common stock and options issued for services), as a result of the Company filing its S-1 and 10K. Amortization of the Company's Intellectual Property License Agreement decreased in the year ended December 31, 2022 compared to the years ended December 31, 2021.

For the year ended December 31, 2022, we had research and development costs of $76,360 and general and administrative expenses of $844,155 primarily due to professional fees of $165,993, compensation costs of $43,288, depreciation costs of $17,102, consulting fees of $187,894, insurance costs of $144,427, travel costs of $1,686, stock based compensation of $247,923, and general and administration costs of $35,842. Amortization of the Company's Intellectual Property License Agreement decreased in the year ended December 31, 2022 compared to the year ended December 31, 2021. Consulting fees consist of $273,387 of the fair value of common stock and options issued for services and $162,430 of consulting services.

For the years ended December 31, 2021, we had research and development costs of $500,567, stock based compensation of $166,141, and general and administrative expenses of $922,182 primarily due to compensation costs of $209,799, depreciation costs of $16,953, professional fees of $128,617, consulting costs of $465,709, insurance costs of $82,595, travel costs of $4,926, and general and administration costs of $13,583, as a result of adding administrative infrastructure for our anticipated business development. In March 2021, the Company hired its CEO resulting in compensation costs and stock based compensation. Consulting fees consist of $274,809 of the fair value of common stock and options issued for services and $190,900 of consulting services. Research and development costs consist of $429,677 for the amortization of the Company's Intellectual Property License Agreement, and $70,890 to a third party for an evaluation of our product.





Other Income

Other expense for the year ended December 31, 2022 was none. Other expense for the year ended December 31, 2021 of $143,226 resulted from an impairment of assets.





Net loss before income taxes

Net loss before income for years ended December 31, 2022 totaled $920,515 primarily due to (increases/decreases) in compensation costs, professional fees, consulting fees, depreciation, insurance costs, research and development costs, and general and administration costs compared to a loss of $1,732,116 for years ended December 31, 2021 primarily due to (increases/decreases) in compensation costs, consulting fees, professional fees, depreciation, travel costs, insurance costs, research and development costs, and general and administration costs.





Assets and Liabilities

Assets were $315,561 as of December 31, 2022. Assets consisted primarily of cash of $69,858, inventory of $40,175, deposits of $54,000, other current assets of $92,170, and property and equipment of $39,258. Liabilities were $71,507 as of December 31, 2022. Liabilities consisted primarily of accounts payable and accrued expenses and short-term note payable.

Liquidity and Capital Resources





Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $3,625,287 at December 31, 2022, had working capital of $184,696 at December 31, 2022, had net losses of $920,515 and $1,732,116 for the years ended December 31, 2022 and 2021, respectively, and net cash used in operating activities of $558,426 and $792,844 for the years ended December 31, 2022 and 2021, respectively, with no revenue earned since inception, and a lack of operational history. These matters raise substantial doubt about the Company's ability to continue as a going concern.

While the Company is attempting to expand operations and increase revenues, the Company's cash position may not be significant enough to support the Company's daily operations. Management intends to raise additional funds by way of a public offering or an asset sale transaction. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While management believes in the viability of its strategy to generate revenues and in its ability to raise additional funds or transact an asset sale, there can be no assurances to that effect or on terms acceptable to the Company. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate revenues.

The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

General - Overall, we had a decrease in cash flows for years ended December 31, 2022 of $458,426 resulting from cash used in operating activities of $558,426, offset partially by cash provided by financing activities of $100,000.

The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:





                                      Year Ended              Year Ended
                                   December 31, 2022       December 31, 2021

Net cash provided by (used in):
Operating activities              $          (558,426 )   $          (792,844 )
Investing activities                                -                  (1,787 )
Financing activities                          100,000               1,250,000
                                  $          (458,426 )   $           455,369




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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Cash Flows from Operating Activities - For the year ended December 31, 2022, net cash used in operations was $558,426 compared to net cash used in operations of $792,844 for the year ended December 31, 2021. Net cash used in operations was primarily due to a net loss of $920,515 for the year ended December 31, 2022 and the changes in operating assets and liabilities of $70,933, primarily due to other current assets of $8,974, inventory of $20,100, short-term notes payable of $31,192 and accounts payable and accrued expenses of $22,067, offset partially by other current liabilities of $11,400. In addition, net cash used in operating activities includes adjustments to reconcile net profit from depreciation expense of $17,102, warrants issued for services of $342,024, options issued for services of $8,131, issuance of common stock for services of $18,000, and warrants forfeited in conjunction with compensation - related parties of $94,101.

Net cash used in operations was primarily due to a net loss of $1,732,116 for year ended December 31, 2021 and the changes in operating assets and liabilities of $90,771, primarily due to the changes in deposits of $36,000, accounts payable and accrued expenses of $18,248, and other current liabilities of $11,400, offset partially by other current assets of $96,144 and inventory of $60,275. In addition, net cash used in operating activities includes adjustments to reconcile net profit from amortization expense of $429,677, depreciation expense of $16,953, warrants issued for services of $131,546, stock based compensation - related parties of $166,141, issuance of common stock for services of $2,500, issuance of common stock for services - related parties of $140,000, and an impairment of assets of $143,226.

Cash Flows from Investing Activities - For the years ended December 31, 2022, net cash used in investing was none compared to cash flows used in investing activities of $1,787 for years ended December 31, 2021 due to the purchase of property and equipment.

Cash Flows from Financing Activities - For years ended December 31, 2022, net cash provided by financing was $100,000 due to proceeds from issuance of common stock for cash. For years ended December 31, 2021, cash flows provided by financing activities was $1,250,000 due to proceeds from issuance of common stock for cash.

Financing - We expect that our current working capital position, together with our expected future cash flows from operations will be insufficient to fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements and other contractual obligations for at least the next twelve months. However, this belief is based upon many assumptions and is subject to numerous risks, and there can be no assurance that we will not require additional funding in the future.

We have no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. Due to the ongoing global economic crisis, we believe it may be difficult to obtain additional financing if needed. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our shareholders, in the case of equity financing.





Acquisition of mPathix





Stock Based Compensation



Employment Agreement





Consulting Agreement





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Prior License

The Company is in the process of finalizing the SOLACE product design and is beginning to compile the data required to complete an application with the FDA. Further, given the substantial changes and modifications that we have identified for our device, the Company will seek to file provisional patents at the earliest possible date.

The Intellectual Property License Agreement will expire in April 2022. mPathix recorded $1,110,000 as an intangible asset and is being amortized on a straight-line basis thru the end of the licensing agreement of April 2022.

Based on the Company's analysis of the Solace medical device, as of December 31, 2021, the Company reassessed the value of the Preliminary License Agreement with LCMD. Related to this assessment, management determined that the intellectual property used in the Solace device is different from the intellectual property in the Preliminary License Agreement with LCMD. Therefore, the Company recorded an impairment of intangible assets of $143,226 for the year ended December 31, 2021 and is classified in other expenses in the consolidated Statement of Operations.





Common Stock