United Health Products, Inc. - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022

COMMISSION FILE NUMBER: 000-27781

Registrant’s telephone number, including area code: (475) 755-1005

Securities registered pursuant to Section 12 (b) of the Act:

 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 ☒

Check whether the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐     No ☒

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 ☒ 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 ☒ No ☐

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.

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 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. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 30, 2022, the number of shares held by non-affiliates was approximately 226,241,797 shares. The approximate market value based on the last sale (i.e. $0.42 per share as of June 30, 2022, the last business day of the second quarter) of the Company’s Common Stock was approximately $95,021,555.

The number of shares issued and outstanding of the Registrant’s Common Stock, as of March 27, 2023 was 234,343,534.

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.

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. Our gauze product, HemoStyp®, is a neutralized, oxidized, regenerated cellulose (“NORC”) derived from cotton and designed to absorb exudate/drainage from superficial wounds and help control bleeding. We are in the process of seeking regulatory approval to sell our Hemostyp product line into the U.S. Class III and European Union CE Mark surgical markets.

Recent Developments

The following developments in the Company’s business have occurred during 2022 and prior to the filing of this report:

Our HemoStyp Gauze Products

HemoStyp hemostatic gauze is a natural substance created from chemically treated cellulose derived from cotton. It is an effective hemostatic agent registered with the FDA for superficial use under a 510(k) approval obtained in 2012 to help control bleeding from open wounds and body cavities. The HemoStyp hemostatic material contains no chemical additives, thrombin, collagen or animal-derived products, and is hypoallergenic. When the product comes in contact with blood it expands slightly and quickly converts to a translucent gel that subsequently breaks down into glucose and salts. Because of its benign impact on body tissue and the fact that it degrades to non-toxic end products, HemoStyp does not impede the healing of body tissue as compared to certain competing hemostatic products. Laboratory testing has shown HemoStyp to be 100% absorbable in the human body within 24 hours, compared to days or weeks with competing organic regenerated cellulose products. A human trial conducted in 2019 and 2020 demonstrated the effectiveness of HemoStyp in vascular, thoracic and abdominal surgical procedures.

HemoStyp hemostatic gauze is a flexible, silk-like material that is applied by placing the gauze onto the bleeding tissue. The supple material can be easily folded and manipulated as needed to fit the size of the wound or incision. In surface bleeding and surgical situations, the product quickly converts to a translucent gel that allows the physician or surgeon to monitor the coagulation process. The gel maintains a neutral pH level, which avoids damaging the surrounding tissue. In superficial bleeding situations, HemoStyp can be bonded to an adhesive plastic bandage or integrated into a traditional gauze component to address a broad range of needs, including traumatic bleeding injuries and prolonged bleeding following hemodialysis.

Potential Target Markets

Our HemoStyp material is currently cut to several sizes and configuration and marketed as HemoStyp Gauze. Our potential customer base includes, without limitation, the following:

Primary Strategy

Our HemoStyp technology received an FDA 510(k) approval in 2012 for use in external or superficial bleeding situations and we believe there is an opportunity for HemoStyp products to address unmet needs in several medical applications that represent attractive commercial opportunities. However, the Class III surgical markets, both domestic and international, represent the most attractive market for our products due to the smaller number of competitors offering Class III approved hemostatic agents and the resulting premium pricing for products that can meet the demanding requirements of the human surgical environment. We believe that our extensive laboratory testing and our completed human trial indicate that the HemoStyp technology could successfully compete against established Class III market participants, and could gain a significant market share. There can be no assurance that an FDA Premarket Approval (PMA) will be granted.

In 2018, we made the decision to focus our efforts and resources on accessing these Class III markets to maximize the value potential of our HemoStyp products. The Class III PMA process required a substantial investment of time and resources so we made the strategic determination to pause our sales and marketing to non-Class III markets in order to devote our full attention to the PMA process. In the fourth quarter of 2021, with our PMA application largely complete and under review by the FDA, we re-engaged with certain consumers and distributors of 510(k) hemostatic products with the objective of developing a revenue channel in this market going forward. Our primary market focus for this initiative includes the first-aid, dental surgery and emergency medicine sectors.

In anticipation of receiving a Class III PMA (which cannot be assured), we are evaluating paths to rapidly grow our revenue and profits in all potential market segments, with the objective of maximizing shareholder value. We do not intend to pursue the full commercialization of our products independently nor to remain an independent company in the long term. Options under consideration include (i) a sale or merger of the Company with an industry leader in the wound care and surgical device sectors, which may include a pre-sale collaboration on commercialization and distribution and (ii) one or more commercial partnerships with established market participants, without any specific, associated sale or merger 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, we have held discussions to evaluate the potential commercial partnerships in anticipation of an FDA decision on our Class III PMA application. There can be no assurances that any specific transaction will occur as a result of these discussions. No assurances can be given that the Company will identify any commercialization candidate(s) or complete a transaction.

Manufacturing and Packaging of our Products

The Company’s NORC products will be manufactured to our specifications and using our equipment through a contract manufacturing arrangement with an FDA certified supplier that maintains stringent quality control protocols to assure the uniformity and quality of all of our gauze products. Information on the manufacturing process and our manufacturer’s facility has been submitted as part of our PMA submission. Our gauze products are cut to size, packaged and sterilized by service providers in the United States.

Patents and Trademarks

Our NORC technology is protected through patents filed with the U.S. Patent and Trademark Office, which protection currently runs through 2029. In 2020 and 2021, we filed additional U.S. and International patents that protect the use of our NORC technology in a gel or hydrocolloid formulation.

On January 21, 2021, the U.S. Patent Office provided notification of publication of the Company’s patent application for the method of forming and using a hemostatic hydrocolloid. This publication does not imply any assurance of the receipt of the patent but establishes an obligation of any party that seeks to use the applicable method to pay royalties for the right to do so. The patent application for this process remains pending as of the date of this filing.

On February 11, 2021, the Company was notified that its application to establish global patent protection for the process of creating and deploying a hydrocolloid (or gel) format of its HemoStyp technology was accepted for publication under the procedures of the Patent Cooperation Treaty (“PCT”), an international patent law treaty which provides a unified procedure for filing a patent application in most foreign countries. We previously filed provisional patent applications for our HemoStyp hydrocolloid process in 2020. In January 2022, the Company initiated steps to register its hydrocolloid patent in the European common market and in additional foreign countries where we intend to commercialize any future HemoStyp gel formats. We can give no assurance that foreign registration of our patents will be granted in any of these jurisdictions.

The Company has registered trademarks for the following product formats:

Competition

The wound care products market in the United States is concentrated among large and established companies such as Baxter International, Becton Dickinson & Company, Bristol-Myers Squibb Company, Johnson & Johnson and 3M Company, each of which have greater capital and operational resources than us. Our hemostatic gauze product will directly compete in the gauze markets served by these companies. In this market, competitive factors include product performance, price, breadth of 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 generally applicable to the healthcare and medical device industries.

Environmental Matters

The Company may be 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 (CERCLA or Superfund) and the Resource Conservation and Recovery Act. There may be laws and regulations that exist or that may come to pass that may also have an impact on the Company in ways that we cannot foresee. 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. To date, the Company has not been impacted by these laws and regulations.

Research and Development Expenditures

In the years ending December 31, 2022 and 2021 we incurred research and development expenditures of $624,564 and $237,458, respectively.

Personnel

As of March 27, 2023, we have seven full-time personnel working under consulting agreements. Additionally, we have four Medical Advisory Board members.

ITEM 1A. RISK FACTORS

We are engaged in the development, 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.

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, 2022 and 2021, the Company had a net loss of $1,687,501 and $30,549,183, respectively. We may continue to lose money in the future, and we will rely on financing to fund our business strategy for the foreseeable future as discussed in the Risk Factor “We will need additional financing to execute our business plan and fund operations, which may not be available”.

We can provide no assurances that our Class III application for internal surgical procedures in the U.S. market will be approved by the FDA.

In response to the FDA’s comments and questions to our 2021 and 2022 PMA submissions, we have developed and incorporated several product design, manufacturing and quality assurance procedures into our production process. Upon completion of certain finished product testing that is being conducts by outside laboratories we will submit a revised application to the FDA. There can be no assurance that our revised application, once resubmitted, will lead to a successful FDA decision regarding a PMA.

No assurances can be given that our Management plans to penetrate all market segments will be successful.

We continue to believe that 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 is ongoing and we are preparing to submit an application for CE Mark approval in order to access the European and other markets. In the event we receive Class III and CE Mark approvals, which cannot be assured, we are evaluating the best paths grow our revenue and profits in all potential markets, 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 plans 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.

We can provide no assurances that ongoing discussions with potential commercial partners and acquirers 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 continues to consider a range of strategic alternatives, which include, without limitation, entering into one or more commercial and distribution partnerships, a sale of the Company or a standalone growth plan. There can be no assurances that any specific transaction will occur as a result of these discussions. No assurances can be given that the Company will identify a suitable acquisition or commercialization partnership candidate(s) or complete any transaction on terms that are in the best interests of shareholders.

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

We currently have a working capital deficit, minimal cash and limited sales of our products. 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 will 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 will pursue required additional capital through various means, including commercial collaborations 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. The issuances of incentive awards under existing and future employee incentive plans, 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 may adversely impact our financial condition.

Our ability to obtain needed financing may be impaired by such factors as capital markets disruptions, both generally and specifically relating to the healthcare industry, and events that have a negative impact on existing and potential investors or funding sources. 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 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 be certain that healthcare professionals and purchasing decision makers will conclude that our products offer a superior performance or value proposition, in any or all of the target markets we have identified, or that we will attain the level of market acceptance necessary to generate adequate revenues to cover our business costs and generate a return for investors.

We may be dependent upon commercial relationships to conduct our operations and implement our strategy.

Our proposed strategy includes the use of distribution and commercial partnerships to market and sell our hemostatic gauze products. We currently do not have any such commercial relationships. We may not be able to establish these 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 these 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.

Our NORC products are manufactured in Asia and the United States to our specifications. Unforeseen events at any manufacturing or packaging location may result in a disruption of production that could negatively impact our ability to supply our customers and generate revenues. We own certain specialized production equipment which is installed at our own manufacturing location which is not readily available should we need to replace it. While we intend to maintain significant supplies of finished product inventory, any prolonged disruption this facility could have a material adverse impact on our operations and business.

We are currently dependent on one hemostatic gauze product to generate income in the future.

The Company’s hemostatic gauze products are currently our sole source of potential revenue in the future. While we have multiple formats of this product and hope to access new markets upon receipt of a Class III PMA, we cannot provide assurance that our product will be accepted by potential customers or that new, superior hemostatic technologies will not be introduced that negatively impact the market perceptions of our own products. Unless we are able to develop or acquire additional product lines, the failure to develop 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 correctly interpret and respond to market data, economic 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 intend to ensure that management and any key employees are appropriately compensated; however, their continued service to the Company 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.

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.

We have identified various material weaknesses in our internal control over financial reporting which could affect 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.

Our Chief Executive Officer and Principal Financial Officer have concluded that, as of December 31, 2022, 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, 2022. See “Controls and Procedures” under Item 9A for a detailed discussion of the material weaknesses identified as of December 31, 2022 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.

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 creditors, investors and suppliers.

Our auditors believe that substantial doubt exists regarding our ability 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, creditors, investors and suppliers, and therefore could have a material adverse effect on our business.

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. Adhering to these requirements generally carries significant costs to industry participants, including our Company. Given our limited financial resources these significant costs may adversely affect our business and financial results. If we are unable to pass on these costs through our product pricing they 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 ongoing uncertainty in healthcare related legislation may not be known for several years, making it difficult to predict the future consequences that would create challenges to our Company, or if we can overcome them.

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 products and 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.

GENERAL RISK FACTORS

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.

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, our existing 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 for our common stock and could impair the Company’s ability to raise additional capital through the sale of its equity securities. The Company has in the past and may in the future compensate certain consultants and other service providers using our shares of common stock, which would result in further dilution for our existing stockholders.

Our stock price may be volatile.

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

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 changes in 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, return on investment will only occur if our stock price appreciates.

There is currently no 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.

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 may 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 certain of our stockholders seek to sell substantial amounts of our common stock in the public market 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 impair 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, a central mailing address as its principal executive office, located at 526 Commerce Circle, Ste. #120, Mesquite, NV 89027.  On October 31, 2022, the Company signed a 120-day lease for 600 square feet of space in Hammonton, New Jersey to install, commission and test its medical device equipment. The Company is a virtual company with personnel in Nevada and five other states working remotely.

ITEM 3. LEGAL PROCEEDINGS

Philip Forman, who served as Chairman, a director, Chief Executive Officer and Chief Medical Advisor of the Company at various times between 2011 and October 2015, filed a lawsuit against the Company and our then-Chief Executive Officer, Douglas Beplate, in the United States District Court of the District of Nevada. The plaintiff has claimed, 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 enforceable due to lack of consideration; that a July 22, 2015 Stock Purchase Agreement pursuant to which the plaintiff 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 remains valid and that he is entitled to cash and stock compensation under that Employment Agreement (without giving regard to the Amendment); 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 filed a motion to dismiss the plaintiff’s claims which was denied on March 19, 2020. On May 5, 2021, the plaintiff provided a deposition as instructed by the Court, subsequent to which the Company filed a motion for dismissal of this proceeding. On February 14, 2022, the Court issued an Order which declared the Amendment to be unenforceable and thus the terms of the original Employment Agreement to remain in effect. The Order also noted that the Company is not a party to the Stock Purchase Agreement, and the Employment Agreement does not constitute a prior agreement that could have been superseded by the Stock Purchase Agreement.

In July 2022, United Health Products filed a motion to reopen discovery for the purpose of developing additional issues it wished to raise at trial.  At the beginning of August 2022, the court denied United Health Products’ request to reopen discovery.  The court instructed counsel for both parties to meet and confer regarding a Joint Trial Order to be filed with the court.  The Joint Trial Order generally details the parties’ position on which issues are to be addressed at trial.  The parties are currently seeking to reach agreement on what issues should be addressed at trial.  Once the issues have been agreed upon, the Joint Trial Order will be filed with the court and the court will set a trial date.  Concurrently with the completion of the Joint Trial Order, the parties are engaged in various settlement negotiations. 

In August 2020, United Health Products filed suit against its former auditors, in Utah State Court, asserting claims related to professional negligence and breach of fiduciary duty. The Company and the defendant through mediation reached an agreement on settlement in which the defendant paid the Company $392,000 in September 2022.

Due to uncertainties inherent in litigation, we cannot predict the outcome of the legal proceedings described herein.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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 is no established trading market for our common shares and 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.

(b) Holders

As of March 27, 2023, there were approximately 404 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.

(d) Stock Issuances and Repurchases

The following table summarizes all sales and issuances by the Company of unregistered securities during the year ended December 31, 2022. The securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(a)(2), 4(a)(6) and/or 3(b) of the Securities Act and on Regulation D promulgated under the Securities Act, and in reliance on similar exemptions under applicable state laws as transactions not involving a public offering. No placement or underwriting fees were paid in connection with these transactions. All cash proceeds from the sale of securities were used for working capital and general corporate purposes.

ISSUER PURCHASES OF EQUITY SECURITIES 

(e) Description of Our Capital Stock

The following description of our capital stock is a summary only and is qualified by reference to our Certificate of Incorporation and Bylaws, which are included as Exhibits 3.1, 3.2, 3.3 and 3.4 to this report.

General

Our authorized capital stock consists of 300,000,000 shares of common stock, with a par value of $0.001 per share. As of March 27, 2023, there were 234,343,534 shares of common stock issued and outstanding.

Common Stock

Each holder of Common Stock will be entitled to one vote for each share of Common Stock held of record by such holder with respect to all matters to be voted on or consented to by our stockholders, except as may otherwise be required by applicable Nevada law. The stockholders will not have pre-emptive rights under our Certificate of Incorporation to acquire additional shares of Common Stock or other securities. The Common Stock will not be subject to redemption rights and will carry no subscription or conversion rights. In the event of liquidation of the Company, the stockholders will be entitled to share in corporate assets on a pro rata basis after the Company satisfies all liabilities and after provision is made for each class of capital stock having preference over the Common Stock (if any). Subject to the laws of the State of Nevada, and the rights of the holders of any outstanding series of preferred stock (if any), the Board of Directors will determine, in their discretion, to declare dividends advisable and payable to the holders of outstanding shares of Common Stock.

Transfer Agent and Registrar

Pacific Stock Transfer Company is the registrar and transfer agent for our shares of common stock. Its address is 6725 Via Austi Pkwy, Suite 300, Las Vegas, NV 89119, United States; Telephone: (800) 785-7782.

ITEM 6. [RESERVED]

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 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.

Results of Operations years ending December 31, 2022 and 2021

The following table sets forth a summary of certain key financial information for the years ended December 31, 2022 and 2021:

Year ended December 31, 2022 versus year ended December 31, 2021

During the year ended December 31, 2022 and 2021, the Company had $37,500 and $59 of revenues, respectively. The Company fulfilled an order to one customer, which accounted for all the revenue during the year ended December 31, 2022.  The Company generated minimal revenues during the years ended December 31, 2022 and 2021 due to focusing its capital and resources towards seeking a Class III PMA.

Total operating expenses for the year ended December 31, 2022 and 2021 were $2,820,895 and $29,800,669, respectively. The decrease in operating expenses is due primarily to a $26,377,647 decrease in stock-based compensation expense, a decrease of $224,972 in loss on settlement of debt and a decrease of $232,000 of litigation settlement expense (see Note 7 to the financial statements) compared to 2021.

The decrease in stock-based compensation is primarily related to vesting and amortization of RSUs. During the year ended December 31, 2021, the Company amended the RSU agreement with its former Chief Executive Officer and Chairman. The amendment resulted in the vesting of 21,970,000 RSUs along with the issuance of an additional 2,000,000 shares of restricted stock as a bonus. The change in vesting and issuance of the bonus shares of common stock resulted in the immediate recognition of $26,127,300 in stock-based compensation expense. The Company also recognized $43,121 of stock-based compensation due to the amortization of the RSUs that vested on January 1, 2021, issued 100,000 shares of common stock for settlement of a consulting agreement valued at $111,000, issued 125,000 shares of common stock for services valued at $102,500 and issued 560,000 shares of common stock valued at $477,175 due to vesting of RSUs.

During the year ended December 31, 2022, the Company recorded $483,450 of stock-based compensation. The Company issued 1,170,000 shares of common stock for services valued at $483,450 and did not have any RSUs vest during the year ended December 31, 2022.

Other income (expense) for the year ended December 31, 2022 and 2021 was $1,114,538 and $(748,548), respectively. The increase in other income was due to other income of $1,402,981 offset by total interest expense of $78,845 and loss on settlement of debt of $209,598.  The increase in other income was due to the Company receiving $392,000 as a settlement payment from its former auditor related to litigation and the receipt of $202,200 in cash and 2,085,258 shares of common stock as payment of $808,781 from its former Chief Executive Officer to satisfy a disgorgement obligation during the year ended December 31, 2022 compared with the Company  receiving $304,273 for settlement of its December 2019 arbitration with Maxim during the year ended December 31, 2021.

The decrease in interest expense is primarily due to the amortization of beneficial conversion features on convertible notes payable and convertible notes payable – related party during the year ended December 31, 2022 totaling $16,533 compared to $608,710 in the year ended December 31, 2021. The decrease in the loss on settlement of debt is due to the Company issuing common stock with a fair value of $458,001 for the settlement of an aggregate of $330,626 of accrued liabilities and accrued liabilities – related parties and recording $82,223 in loss on settlement of debt related to lowering the conversion price of a convertible note as an inducement for conversion during the year ended December 31, 2022 compared to issuing shares of common stock with a fair value of $1,205,718 for the settlement of $771,148 of various debts and accrued liabilities – related party during the year ended December 31, 2021.

Our net loss for the year ended December 31, 2022 was $1,687,501 as compared to a net loss of $30,549,183 for the prior year. The decrease in the net loss was due to the Company having a decrease in operating expenses of $26,979,774 along with an increase in other income (expense) from $(748,548) during the year ended December 31, 2021 to $1,114,538 for the year ended December 31, 2022, as explained above.

Financial Condition, Liquidity and Capital Resources

As of December 31, 2022, the Company had a negative working capital of $2,344,416. The Company has not yet attained a level of operations, and for the foreseeable future will not be pursuing commercial operations, which will allow it to meet its current overhead expense obligations. The report of our independent registered public accounting firm on our 2022 and 2021 financial statements includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The Company generated minimal revenues during the years ended December 31, 2022 and 2021 due to focusing its capital and resources towards seeking a Class III PMA for its HemoStyp technology, and has funded its initial operations with private placements, and unsecured 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.

As discussed in Note 6 of the financial statements, the Company entered into a common stock purchase agreement (“CSPA”) with White Lion, which gives the Company the right, but not the obligation, to require White Lion to purchase up to $10,000,000 of the Company’s common stock, subject to certain limitations and conditions set forth in the CSPA. As of the date of this filing, the Company has received $577,855 in proceeds from White Lion to pay for its operations and finalization of its Class III PMA application. The sale of additional equity or convertible debt securities would be dilutive to our shareholders. In addition, economic conditions and actions by policymaking bodies are contributing to rising interest rates and significant capital market volatility, which, along with increases in our borrowing levels, could increase our future borrowing costs.

Cash Flows

The Company’s cash on hand as of December 31, 2022 and 2021 was $13,377 and $21,799, respectively.

The following table summarizes selected items from our statements of cash flows for the years ended December 31, 2022 and 2021:

Net Cash Provided by (Used in) Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $619,720. The Company had net loss of $1,687,501 and $808,781 as stock received as other income offset by stock for services and compensation of $483,450, amortization expense of $4,050, amortization of debt discount of $16,533 and a loss on debt settlement of $209,598.  The Company had an increase in accounts payable and accrued expenses of $638,721, an increase in accrued liabilities - related party of $296,872, an increase in accrued litigation settlement of $280,000, an increase in prepaid expenses of $17,932 and an increase in inventory of $34,730.

Net cash used in operating activities for the year ended December 31, 2021 was $828,079. The Company had net loss of $30,549,183 offset by non-cash stock-based compensation of $26,861,097, amortization of debt discount of $608,710, stock issued for litigation settlement of $312,000, write-off of inventory of $69,649, write-off of property and equipment of $101,350 and a loss on settlement of debt of $434,570. The Company also had a decrease in inventory of $26, change in accounts payable and accrued expenses of $693,692, a change in accounts payable and accrued expenses related party of $525,011 and a change in accrued litigation settlement of $120,000. The Company also had an increase in prepaid and other current assets of $5,000.

 Net Cash Used by Investing Activities

The Company paid $40,500 related to the patent application fees during the year ended December 31, 2022.

The Company did not have any investing activities during the year ended December 31, 2021.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $651,798. This was due to the Company receiving $383,275 in proceeds from related parties, $175,887 in proceeds from the sale of stock, $93,000 in proceeds from convertible notes – related party and $392,975 in proceeds from convertible notes payable offset by making payments of $226,275 on loans payable – related party, $90,864 on a promissory note payable, $26,200 of offering costs and repurchasing $50,000 of common stock.

Net cash provided by financing activities for the year ended December 31, 2021 was $803,802 consisting of $245,500 in proceeds from related party loans, $479,802 in proceeds from the sale of stock and $115,000 in proceeds from the issuance of convertible notes offset by $36,500 of repayments to related parties.

Off-Balance Sheet Arrangements

As of December 31, 2022 and 2021, we had 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 Estimates

The preparation of financial statements in conformity with generally accepted accounting principles of the United States (“GAAP”) requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses in the financial statements and accompanying notes. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the Company. Based on this definition, we have the critical accounting estimates identified below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results which are found in Note 2 – Significant Accounting Policies of the accompanying financial statements. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of ASC 718, Compensation-Stock Compensation. Stock-based compensation expense for employees and non-employees is measured at the grant date fair value. Stock-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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by Item 8 can be found beginning on Page F-2 of this report.

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

United Health Products, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of United Health Products, Inc. as of December 31, 2022 and 2021, and the related statement of operations, stockholders’ deficiency, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of Untied Health Products, Inc. as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 2 to the financial statements, the entity has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to United Health Products, Inc. in accordance with the 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. United Health Products, Inc. is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion.

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.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Mac Accounting Group, LLP

We have served as United Health Products, Inc.'s auditor since 2019.

Midvale, Utah 

March 28, 2023

    UNITED HEALTH PRODUCTS, INC.

Balance Sheets

See notes to financial statements.

UNITED HEALTH PRODUCTS, INC

Statements of Operations

See notes to financial statements.

UNITED HEALTH PRODUCTS, INC

Statement of Stockholders’ Deficiency

For the Years Ended December 31, 2022 and 2021

See notes to financial statements.

  UNITED HEALTH PRODUCTS, INC

Statements of Cash Flows

See notes to financial statements.

UNITED HEALTH PRODUCTS, INC.

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Note 1. Description of the Business

United Health Products, Inc. (the “Company”) develops, manufactures, and markets a patented hemostatic gauze for the healthcare and wound care sectors. Our gauze product, HemoStyp®, is a neutralized, oxidized, regenerated cellulose derived from cotton and designed to absorb exudate/drainage from superficial wounds and help control bleeding. The Company in the process of seeking regulatory approval to sell our HemoStyp product line into the U.S. Class III and European Union CE Mark surgical markets.

Note 2. 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, 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 factors, there is substantial doubt about the Company's ability to continue as a going concern. The Company intends to finance 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 and other business 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.

Basis of Presentation

The Company prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

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.

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, 2022 and 2021. 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.

As of December 31, 2022 and 2021, the Company has approximately $21.8 and $20.0 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.

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 depending on the shipping terms. No discounts are offered by the Company as part of payment terms. The Company does not provide an estimate for returns as there is no anticipation for any returns in the normal course of business.

Trade Accounts Receivable and Concentration Risk

The Company records accounts receivable at the invoiced amount and does not charge interest. The Company reviews 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, the Company makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. The Company will also maintain a sales allowance to reserve for potential credits issued to customers. The Company will determine the amount of the reserve based on historical credits issued.

There was no provision for doubtful accounts recorded at December 31, 2022 and 2021. The Company recorded $0 in bad debt expense for the years ended December 31, 2022 and 2021.

For the year ended December 31, 2022, one customer accounted for 100% of the Company’s net revenue.

For the year ended December 31, 2021, one customer accounted for 100% of the Company’s net revenue.

Inventory

Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventory on the balance sheet consists of raw materials purchased by the Company and finished goods.

During the years ended December 31, 2022 and 2021, the Company determined that $0 and $69,649, needed to be impaired and written-off, respectively.

Patents

Patents are stated on the balance sheet at cost. Costs, such as filing fees with patent granting agencies and legal fees directly relating to those filings, incurred to file patent applications were capitalized when the Company believed that there was a high likelihood that the patent would be issued and there would be future economic benefit associated with the patent. These costs were amortized from the date of the patent application on a straight-line basis over the estimated useful life of 10 years. All costs associated with any abandoned patent applications are expensed.

Accumulated amortization as of December 31, 2022 and December 31, 2021 was $4,050 and $0, respectively. Amortization expense for the years ended December 31, 2022 and 2021 was $4,050 and $0, respectively.

Future Amortization Expense

 Deferred Offering Costs

Deferred offering costs represent specific incremental costs directly attributable to the offering of securities. The deferred offering costs are recorded as an offset to additional paid-in capital and charged against the proceeds received.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred. The Company incurred $112,036 and $166,510 in advertising and marketing costs during the years ended December 31, 2022 and 2021, respectively.

Shipping and Handling Costs

The Company includes shipping and handling cost as part of cost of goods sold.

Research and Development

The Company charges research and development costs to expense when incurred. The Company incurred $624,564 and $237,458 in research and development expenses during the years ended December 31, 2022 and 2021, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of ASC 718, Compensation-Stock Compensation. Stock-based compensation expense for employees and non-employees is measured at the grant date fair value. Stock-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.

Per Share Information

Basic earnings per share are calculated using the weighted average number of common shares outstanding for the period presented. Diluted earnings per share is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. The dilutive effect of potential common shares is not reflected in diluted earnings per share because the Company incurred a net loss for the years ended December 31, 2022 and 2021 and the effect of including these potential common shares in the net loss per share calculations would be anti-dilutive.

The total potential common shares as of December 31, 2022 include 49,165,000 of restricted stock units, 2,338,832 shares for convertible notes payable – related parties and 925,887 shares for convertible notes payable. The total potential common shares as of December 31, 2021 include 28,190,000 of restricted stock units.

Impairment of Long-lived Assets

The Company applies the provisions of ASC 360, Property, Plant and Equipment, where applicable to all long-lived assets. ASC 360 addresses accounting and reporting for impairment and disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

When equipment is sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. During the years ended December 31, 2022 and 2021 the Company determined its property and equipment should be impaired and $0 and $101,350 was written off, respectively.

Leases

The Company has elected not to recognize right-of-use assets and lease liabilities that arise from short-term leases for any class of assets.

New and Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

Under current GAAP, there are five accounting models for convertible debt instruments. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. Additionally, for convertible debt instruments with substantial premiums accounted for as paid-in capital, the FASB decided to add disclosures about (1) the fair value amount and the level of fair value hierarchy of the entire instrument for public business entities and (2) the premium amount recorded as paid-in capital.

ASU 2020-06 will be effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this accounting pronouncement on January 1, 2022 and it did not have any impact to its financial statements.

The Company considers all new pronouncements and management has determined that there have been no other recently adopted or issued accounting standards that had or will have a material impact on its financial statements.

Note 3. Related Party Transactions

Convertible notes payable - related parties

As of December 31, 2022 and 2021, convertible notes payable – related parties totaled $478,331 and $0, respectively.

As of December 31, 2020, Brian Thom, the Chief Executive Officer had a total outstanding convertible note payable balance of $555,000 and unamortized debt discount of $199,314.

During the year ended December 31, 2021, Mr. Thom converted $45,000 of accrued compensation into a convertible note. The note was convertible at $0.50 per share at the discretion of Mr. Thom, had a maturity date of March 31, 2021 and carried an interest rate of 3%. The note resulted in a beneficial conversion feature of $45,000 which was recorded as a debt discount.

During the year ended December 31, 2021, Mr. Thom, converted the total outstanding convertible note balance of $600,000, which was related to $450,000 of loans to the Company and $150,000 of accrued compensation along with accrued interest of $10,135 into 1,220,272 shares of common stock leaving $0 owed to Mr. Thom as of December 31, 2021.  The debt discount on the convertible notes was amortized during the year and a total of $244,314 for all of Mr. Thom’s notes was amortized to interest expense – related party, which included the unamortized debt discount of $199,314 as of December 31, 2020 and the debt discount of $45,000 recorded during 2021. As of December 31, 2021, the remaining unamortized debt discount was $0.

During the year ended December 31, 2022, Mr. Thom, converted $372,000 of a loan payable balance to a convertible note payable.  The unpaid accrued interest on the loan payable was transferred to the convertible note payable. The note has an interest rate of 10%, an original issue discount (“OID”) of 7% and has a maturity date of December 31, 2023. The note is convertible into common stock of the Company at $0.35 per share.  In the event the Company issues any shares of common stock before the maturity date at a price that is lower than $0.35 per share, the conversion price shall be reduced to equal such lower issue price per share.  The Company recorded $28,000 of a debt discount related to the OID. As of December 31, 2022, the remaining unamortized debt discount was $16,998 and accrued interest associated with the note was $33,897.

As of December 31, 2020, Louis Schiliro, the former Chief Operating Officer, had a total outstanding convertible note payable balance of $170,000 and an unamortized debt discount of $69,564. 

During the year ended December 31, 2021, Mr. Schiliro converted $45,000 of accrued compensation into a convertible note. The note was convertible at $0.50 per share at the discretion of Mr. Schiliro, had a maturity date of March 31, 2021 and carried an interest rate of 3%. The note resulted in a beneficial conversion feature of $45,000 which was recorded as a debt discount.

During the year ended December 31, 2021, $175,000 of the convertible note payable along with $1,502 of accrued interest was assigned to one of the Company’s legal counsel leaving a total outstanding balance of $40,000. The remaining balance of $40,000 along with accrued interest was converted into 80,173 shares of common stock leaving $0 owed to Mr. Schiliro as of December 31, 2021.  The debt discount on the convertible notes payable was amortized during the year and a total of $114,654 for all of Mr. Schiliro’s notes was amortized to interest expense – related party during the year ended December 31, 2021, which included the unamortized debt discount of $69,654 as of December 31, 2020 and the debt discount of $45,000 recorded during 2021. As of December 31, 2021, the remaining unamortized debt discount was $0.

                As of December 31, 2020, Kristofer Heaton, the Principal Financial Officer, has a convertible notes payable balance of $3,750 and an unamortized debt discount of $3,750.

During the year ended December 31, 2021, Mr. Heaton, converted $22,500 of accrued compensation into a convertible note. The note was convertible at $0.50 per share at the discretion of Mr. Heaton, had a maturity date of March 31, 2021 and carried an interest rate of 3%. The note resulted in a beneficial conversion feature totaling $22,500 which was recorded as a debt discount.

The total outstanding principal balance of $26,250 along with accrued interest was converted into 52,666 shares of common stock leaving $0 owed to Mr. Heaton as of December 31, 2021.  The debt discount on the convertible notes payable was amortized during the year and a total of $26,250 for all of Mr. Heaton’s convertible notes payable was amortized to interest expense – related party during the year ended December 31, 2021, which included the unamortized debt discount of $3,750 as of December 31, 2020 and the debt discount of $22,500 recorded during the 2021. As of December 31, 2021, the remaining unamortized debt discount was $0.

 During the year ended December 31, 2022, Robert Denser, Director of the Company, loaned the Company $93,000 through a convertible note.  The note has an interest rate of 10%, an OID of 7% and has a maturity date of December 31, 2023. The note is convertible into common stock of the Company at $0.35 per share.  In the event the Company issues any shares of common stock before the maturity date at a price that is lower than $0.35 per share, the conversion price shall be reduced to equal such lower issue price per share. The Company recorded $7,000 of a debt discount related to the OID. As of December 31, 2022, the remaining unamortized debt discount was $4,671 and accrued interest associated with the note was $4,034.

Interest expense – related party on the above convertible notes payable was $36,531 (including $13,331 of debt discount amortization related to the OID) and $389,804 (including $385,218 of debt discount amortization) during the year ended December 31, 2022 and 2021, respectively. Accrued interest – related party due to these convertible notes was $37,931 and $0, as of December 31, 2022 and 2021, respectively.

Loans payable/Advances - related parties

As of December 31, 2022 and 2021, loans payable – related parties totaled $4,000 and $219,000, respectively.

During the year ended December 31, 2021, Mr. Thom loaned the Company a total of $175,000 to pay for operating expenses. The loans had an interest rate of 10% and had a maturity date of December 31, 2022. 

During the year ended December 31, 2022, Mr. Thom loaned the Company $315,000 to pay for operating expenses. The loans had an interest rate of 10% and was due on demand. The Company repaid $118,000 in principal and $6,569 of accrued interest and $372,000 of principal was converted to a convertible note payable and any unpaid accrued interest was transferred to the convertible note payable as mentioned above.  The outstanding balance owed to Mr. Thom on the loan payable was $0 and $175,000 as of December 31, 2022 and 2021, respectively.  Accrued interest on the loan payable was $0 and $2,125 as of December 31, 2022 and 2021, respectively.

During the year ended December 31, 2021, Mr. Schiliro advanced the Company $34,000 to pay for operating expenses and paid $30,000 of expenses on behalf of the Company. During the year ended December 31, 2021, the Company issued 25,000 shares of common stock to settle $20,000 of the outstanding balance leaving a balance of $44,000 as of December 31, 2021. The shares of common stock had a fair market value of $26,750 and the Company recorded a loss on debt settlement of $6,750.

During the year ended December 31, 2022, Mr. Schiliro, loaned the Company $64,275 to pay for operating expenses. The loans had an interest rate of 10% and was due on demand.  The Company repaid $108,275 in principal and $5,802 of accrued interest leaving a balance of $0 on the loan payable and accrued interest owed to Mr. Schiliro as of December 31, 2022.

During the year ended December 31, Mr. Heaton, loaned the Company $4,000 to pay for operating expenses. As of December 31, 2022, $4,000 in principal and $224 in accrued interest is owed to Mr. Heaton. The loan has an interest rate of 10% and is due on demand.

Interest expense – related party on the above loans was $25,292 and $2,308 during the years ended December 31, 2022 and 2021, respectively. Accrued interest – related party as of December 31, 2022 and 2021 was $224 and $2,308, respectively.

Accrued liabilities – related parties

As of December 31, 2020, $74,056 was owed to Nate Knight, who was the Company’s Chief Financial Officer until November 2020, for accrued compensation and reimbursable expenses. During the year ended December 31, 2021, the Company issued 78,500 shares of common stock to settle the total balance owed of $74,056. The shares of common stock had a fair market value of $82,425 and the Company recorded a loss on debt settlement of $8,368.

As of December 31, 2021, $899 was owed to Mr. Thom, for reimbursable expenses. During the year ended December 2021, $45,000 of compensation was converted into convertible loans as mentioned above and $135,000 of accrued compensation was settled with the issuance of 270,000 shares of common stock. The stock had a fair market value of $221,400 which resulted in a $86,400 loss on settlement of debt (see Note 6).

During the year ended December 31, 2022, the Company had accrued Mr. Thom’s 2022 first quarter compensation of $45,000 and during the second quarter of 2022, the Company issued 150,000 shares of common stock to Mr. Thom to settle the accrued compensation.  The common stock had a fair value of $72,000 and the Company recorded $27,000 as a loss on settlement of debt. The Company also paid him $899 for reimbursable expenses leaving a balance of $0 owed for reimbursable expenses.

 As of December 31, 2020, $59,467 was owed to Mr. Schiliro, for accrued salary and reimbursable expenses, respectively. During the year ended December 31, 2021, $45,000 of accrued compensation was converted into a convertible note as mentioned above, 74,335 shares of common stock were issued to settle the total prior year balance owed of $59,467 and 270,000 shares of common stock were issued to settle $135,000 of accrued compensation. The shares of common stock had a total fair market value of $300,938 and the Company recorded a loss on settlement of debt in the amount of $106,471 (see Note 6).

During the year ended December 31, 2022, the Company had accrued Mr. Schiliro’s 2022 first quarter compensation of $45,000 and during the second quarter of 2022, the Company issued 150,000 shares of common stock to Mr. Schiliro for the accrued compensation. The common stock had a fair value of $72,000 and the Company recorded $27,000 as a loss on settlement of debt. As of December 31, 2022, $6,923 was owed to Mr. Schiliro, for reimbursable expenses.

As of December 31, 2020, $52,625 was owed to Mr. Heaton, for accrued compensation and services provided. During the year ended December 31, 2021, $22,500 of compensation was converted into a convertible note as described above and 320,250 shares of common shares of stock were issued to settle $105,000 of accrued compensation and $52,625 of prior accruals. The shares of common stock had a total fair market value of $262,605 and the Company recorded a loss on settlement of debt in the amount of $104,980 (see Note 6).

During the year ended December 31, 2022, the Company had accrued Mr. Heaton’s 2022 first quarter compensation of $37,500 and during the second quarter of 2022, the Company issued 125,000 shares of common stock to Mr. Heaton for the accrued compensation. The common stock had a fair value of $60,000 and the Company recorded $22,500 as a loss on settlement of debt.

As of December 31, 2022, $45,000, $45,000 and $37,500 of accrued compensation was due to Mr. Thom, Mr. Schiliro and Mr. Heaton, respectively.

Equity transactions

Per the vesting schedules of certain of the Company’s amended RSU Agreements, on January 1, 2021, 6,760,000 shares of common stock were issued to Mr. Douglas Beplate, former Chairman of the Board, 2,000,000 shares of common stock were issued to Mr. Schiliro and 100,000 shares of common stock were issued to Mr. Heaton.

On January 6, 2021, the Board of Directors approved the second amendment to the RSU Agreement between the Company and Mr. Beplate in conjunction with Mr. Beplate’s retirement from his day-to-day management role with the Company. The amendment accelerated the vesting and immediately settled his remaining RSU’s by issuing 21,970,000 shares of common stock. Further, as a bonus in recognition of Mr. Beplate’s service to the Company and in recruitment of new executive management, the Company issued to Mr. Beplate an additional 2,000,000 shares of common stock. The Company recorded $26,127,300 of stock-based compensation expense during the year ended December 31, 2021 related to the accelerated vesting of these RSU’s and issuance of common stock.

 In December 2020, the Company entered into a second restricted stock unit agreement with Mr. Heaton. The second agreement issued an additional 1,000,000 RSU’s, 500,000 of which were granted on the award date and 500,000 of which would be granted on May 15, 2021 provided his professional services agreement was in effect on that date. The 500,000 RSU’s were granted during 2021 per the agreement. The RSU’s, subject to certain conditions, shall vest upon the achievement of certain Company objectives and milestones.

During the year ended December 31, 2021, 200,000 of Mr. Heaton’s RSU’s mentioned above vested due to achievement of certain Company objectives. The Company recorded stock-based compensation expense of $220,000 related to the vesting of these RSU’s which was the grant date fair value.

During the year ended December 31, 2021, the Company issued 30,000 shares of common stock to Mr. Thom, 30,000 shares of common stock to Mr. Schiliro and 25,000 shares of common stock to Mr. Heaton for services rendered. The 85,000 shares of common stock had a total fair market value of $69,700.

During the year ended December 31, 2022, the Board of Directors approved an amendment to Mr. Thom’s RSU Agreement dated November 24, 2020. The amendment increased the number of RSU’s granted from 11,500,000 to 13,225,000. The RSU’s are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones. 

During the year ended December 31, 2022, the Board of Directors approved an RSU Agreement with Robert Denser, Director of the Board. The agreement grants Mr. Denser 1,000,000 RSU’s which are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones.

During the year ended December 31, 2022, the Company acquired 2,228,115 shares of common stock from its former Chief Executive Officer as described in Note 6.

During the year ended December 31, 2022, the Company issued 300,000 shares of common stock each to Mr. Thom and Mr. Schiliro and 250,000 shares of common stock to Mr. Heaton for compensation in lieu of cash. The common stock had a total fair value of $344,250.

Note 4. Promissory Note Payable

During the year ended December 31, 2022, the Company reached a settlement agreement related to Patterson’s counterclaim (see Note 8). The Company agreed to pay $120,000 which had previously been accrued as of December 31, 2021.

The Company paid $20,000 of the settlement and entered into a $100,000 promissory note with its legal counsel to fund the payment of the remaining balance. The Company paid $90,864 of principal and $500 in interest expense leaving a principal balance of $9,136 and accrued interest of $0 as of December 31, 2022. The note accrues interest at 1% and requires monthly payments of $9,136 until the balance is paid in full.

The promissory note is secured by 200,000 shares of restricted common stock which would have demand registration rights and the Company would file a registration statement within 45 days of the request.

Note 5. Convertible Notes

Convertible notes 2021

During the year ended December 31, 2021, the service providers and medical advisor converted $90,000 of accrued compensation into convertible notes. The notes were convertible at $0.50 per share at the discretion of the note holders, had a maturity date of March 31, 2021 and carried an interest rate of 3%. These notes resulted in a beneficial conversion feature of $90,000 which was recorded as a debt discount. The debt discount was amortized through the maturity dates and a total of $191,080 was amortized to interest expense during the year ended December 31, 2021, which included the unamortized debt discount of $101,080 as of December 31, 2020 and the $90,000 recorded during the year. The remaining unamortized debt discount is $0.

The total outstanding principal balance of $295,000 ($205,000 principal balance from 2020 and $90,000 principal balance from 2021) along with accrued interest of $3,569 was converted into 597,139 shares of common stock leaving $0 owed to the service providers and medical advisor as of December 31, 2021.

During the year ended December 31, 2021, one of the Company’s legal counsel was assigned $175,000 worth of convertible notes payable and $1,502 of accrued interest after paying outstanding balances owed to Mr. Schiliro (see Note 3). The Company’s legal counsel converted the entire balance of $176,502 into 350,000 shares of common.

During the year ended December 31, 2021, the Company issued a total of $115,000 in convertible notes to two unaffiliated individuals to pay for operating expenses. The notes were convertible at $0.85 per share provided that in the event the Company issues any shares of common stock before the maturity date at a price that is lower than $0.85 per share, the conversion price shall be reduced to equal such lower issue price per share. The notes had a maturity date of June 30, 2021 and carried an interest rate of 3%. These notes resulted in a beneficial conversion feature of $32,412 which was recorded as a debt discount. The debt discount was amortized through the maturity dates of the notes. A total amount of $32,412 was amortized to interest expense related to these two notes during the year ended December 31, 2021.

During the year ended December 31, 2021, the $115,000 principal balance and $397 of accrued interest was converted into 137,996 shares of common stock leaving a balance of $0 owed on the two convertible notes.

Convertible notes 2022

During the year ended December 31, 2022, the Company issued a $200,000 convertible promissory note.  The note had an interest rate of 10% and a maturity date of November 30, 2022. The note was convertible into common stock of the Company at $0.40 per share. 

In November 2022, the Company amended the conversion terms of the convertible promissory note from a conversion price of $0.40 per share to $0.25 per share.   The $200,000 principal balance and $6,849 of accrued interest were converted into 827,397 shares of common stock leaving a balance owed of $0 on the convertible note.   The reduction in the conversion price was considered an inducement for conversion and the Company recorded $82,223 as loss on settlement of debt.

During the year ended December 31, 2022, the Company issued a $93,000 convertible note and a $99,975 convertible note and received total proceeds of $192,975.  The notes have an interest rate of 10%, an OID of 7% and have a maturity date of December 31, 2023. The notes are convertible into common stock of the Company at $0.35 per share.  In the event the Company issues any shares of common stock before the maturity date at a price that is lower than $0.35 per share, the conversion price shall be reduced to equal such lower issue price per share. The Company recorded $14,525 of a debt discount related to the OID. As of December 31, 2022, the remaining unamortized debt discount was $11,323.

Interest expense on the above convertible notes payable was $15,505 (including $3,202 of debt discount amortization related to the OID) during the year ended December 31, 2022. Accrued interest as of December 31, 2022 was $5,454 and has been recorded in accrued liabilities on the balance sheet. 

Note 6. Issuances of Securities

Share issuances 2021

During the year ended December 31, 2021, the Company had the following common stock transactions:

Triton Purchase Agreement

On June 25, 2021, the Company entered into a common stock purchase agreement (the “Triton Purchase Agreement”) with Triton Funds LP (“Triton”) to sell Triton up to $6,000,000 of common stock. The Triton Purchase Agreement expired on June 30, 2022.

Share issuances 2022

During the year ended December 31, 2022, the Company had the following common stock transactions:

On September 1, 2022, the Company entered into a common stock purchase agreement (the “CSPA”) with White Lion Capital, LLC (“White Lion”). Pursuant to the CSPA, the Company has the right, but not the obligation, to require White Lion to purchase up to $10,000,000 of the Company’s common stock, subject to certain limitations and conditions set forth in the CSPA. The Company is required to register the resale of the shares issuable to White Lion under the CSPA with the U.S. Securities and Exchange Commission, as a condition to requesting White Lion purchase shares.  On September 7, 2022, we filed a registration statement on Form S-3 to register for resale up to 15,000,000 common shares. The Company’s S-3 registration statement was declared effective by the SEC on September 19, 2022.

The Company’s right to sell shares to White Lion commenced on the effective date of the resale registration statement and extends for a period of three years. During this term, the Company may exercise its right to sell shares to White Lion, subject to limitations on the amount of shares that are permitted to be sold with each exercise. The purchase price to be paid by White Lion for such shares will equal 93% the lower of: (i) the volume-weighted average price of the Company’s common stock during a period of five consecutive trading days following the Company’s exercise of its right to sell shares, or (ii) the closing price of the common stock on the day the Company exercises its right to sell shares, subject to a minimum price of $0.25 per share.

In consideration for White Lion’s commitment to purchase shares under the CSPA when requested, the Company issued 757,576 shares to White Lion with a fair value of $250,000, as disclosed above.

The Company will have the right to terminate the CSPA at any time, at no cost or penalty, upon ten trading days prior written notice. Additionally, White Lion will have the right to terminate the CSPA in accordance with its terms for certain breaches of the CSPA by the Company, a Company bankruptcy filing, or the Company’s CEO, Principal Financial Officer or Director of Operations terminating their respective employment with the Company.

During the year ended December 31, 2022, the Company sold 395,000 shares of common stock to White Lion and received net proceeds of $72,395 after legal and administrative fees of $26,200 related to the CSPA were deducted, which were included in the total shares issued for cash disclosed above.

See Note 12 “Subsequent Events” to our financial statement include in this report for additional information.

 Share repurchases 2022

During the year ended December 31, 2022, the Company paid $50,000 to repurchase 142,857 shares of common stock and received 2,085,258 shares of common stock from its former Chief Executive Officer in connection with his remaining $808,781 disgorgement settlement obligation with the SEC (Note 10). The aggregate amount of 2,228,115 shares of common stock were cancelled.

Share cancellations 2022

During the year ended December 31, 2022, 250,000 shares of common stock were returned to the Company for no consideration, therefore the Company cancelled the shares, reducing common stock by $250 and increasing additional paid-in capital by the same.

Restricted stock units

During the year ended December 31, 2020 the Board of Directors approved amendments to its March 25, 2019 RSU Agreement for certain management and consultants to the Company.

The amendment resulted in 9,960,000 of the RSU’s vesting on January 1, 2021. The fair value of the 9,960,000 RSU’s was $7,071,600. The compensation expense was being amortized on a straight-line basis from the date of the amendment through January 1, 2021 which is the vesting date. Stock-based compensation of $43,121 was recognized as expense during the year ended December 31, 2021.

On January 6, 2021, the Board of Directors approved the second amendment to the Restricted Stock Unit Agreement between the Company and Mr. Beplate, former Chief Executive Officer and current Chairman of the Board, in conjunction with Mr. Beplate’s retirement from his day-to-day management role with the Company. The amendment accelerated the vesting and immediately settled his remaining RSU’s by issuing 21,970,000 shares of common stock. Per ASC 718-20-35, the change in vesting conditions resulted in a modification of the stock-based compensation awards. The modification is considered a Type III modification as described in ASC 718-20-55 and resulted in recording $23,947,300 of stock-based compensation expense which was the fair value of the shares on the date of the modification.

In April 2021, the Company entered into an RSU agreement with a service provider granting 750,000 RSU’s on the date of the agreement and will grant an additional 750,000 RSU’s, upon the receipt by the Company of an FDA Class III PMA. The 750,000 RSU’s had a grant date fair value of $664,875. The RSUs, subject to certain conditions, shall vest upon the achievement of certain Company objectives and milestones which management is unable to determine when they will be achieved therefore no compensation expense was recognized during the year ended December 31, 2021.

During the year ended December 31, 2021, the Company terminated the services of one of its legal counsels who had an RSU agreement in place. Per the RSU agreement, all of the unvested RSU’s owed to the legal counsel vested immediately upon termination of services. This resulted in 325,000 shares of common stock being issued and $230,750 of stock-based compensation being recorded which was the fair value of the shares on the original grant date of the RSU agreement.

During the year ended December 31, 2021, the Company recorded the grant of 100,000 RSU’s to one of its legal counsels and 35,000 of the RSU’s vested.  The vested RSU’s had a grant date fair value of $26,425 which was recorded as stock-based compensation expense.

As discussed in Note 3, Mr. Heaton was granted 500,000 RSU’s in December of 2020 and an additional 500,000 RSU’s in May of 2021. The vesting conditions are contingent upon the achievement of certain Company objectives and milestones. During the year ended December 31, 2021, certain objectives were achieved which resulted in the vesting of 200,000 of RSU’s granted to Mr. Heaton. The 200,000 RSU’s had a grant date fair value of $220,000 which was recorded as stock-based compensation expense.

As described above in Note 3, during the year ended December 31, 2022, the Board of Directors approved an RSU Agreement in which Robert Denser, Director was granted 1,000,000 RSU’s which are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones. In addition, Mr. Thom’s original RSU Agreement was amended. The amendment increased the amount of RSU’s granted from 11,500,000 to 13,225,000. The RSU’s are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones. 

During the year ended December 31, 2022, the Board of Directors approved RSU Agreements with four physicians as consideration to acquire their rights to the patent application and related intellectual property rights in the “Method of Forming and Using a Hemostatic Hydrocolloid”, U.S. Patent Office Serial No. 62/875,798, filed July 18, 2019, in which a total of 16,000,000 RSU’s were granted.  The RSU’s are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones.

During the year ended December 31, 2022, the Board of Directors approved an amendment to the original terms of an RSU Agreement with a consultant.  The amendment increased the amount of RSU’s granted from 750,000 to 3,000,000. The RSU’s are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones.

Management is unable to determine if and when FDA approval of a PMA Class III will be awarded to the Company or when a change of control will occur, if at all, and as of December 31, 2022, there was a total of $25,313,630 unrecognized compensation cost related to the restricted stock unit awards.

Activity related to our restricted stock units during the year ended December 31, 2021 was as follows:

Activity related to our restricted stock units during the year ended December 31, 2022 was as follows:

 Note 7. Accrued Litigation Settlement

On June 15, 2022, the Security and Exchange Commission’s (SEC) investigation of the Company, initially reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, was settled through the filing of a consent judgment without the Company admitting or denying the SEC’s allegations. As part of the settlement, the Company is required to pay a civil penalty of $450,000, payable in four installments as follows:

The Company made the initial scheduled payment of $50,000 and the second scheduled payment of $100,000 towards the civil penalty and as of December 31, 2022, the accrued litigation balance is $300,000.

Note 8. Litigation

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 case was transferred to the United States District Court in Las Vegas, Nevada. Mr. Safran sought 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 denied the Plaintiff’s allegations. On July 21, 2021, Mr. Safran and the Defendants entered into a Settlement Agreement and General Release whereby the Company agreed to pay $250,000 in cash and issue 300,000 shares of common stock to Mr. Safran. The 300,000 shares have a fair market value of $312,000. As of December 31, 2021, the 300,000 shares of common stock have been issued and $250,000 in cash has been paid.

In March 2021, the Company received payment of $304,273 from Maxim Group LLC, representing the full settlement payment in accordance with a Settlement Agreement in a previously disclosed arbitration between the Company and Maxim that was reached in December 2019.

Philip Forman, who served as Chairman, a director, Chief Executive Officer and Chief Medical Advisor of the Company at various times between 2011 and October 2015, filed a lawsuit against the Company and our then-Chief Executive Officer, Douglas Beplate, in the United States District Court of the District of Nevada. The plaintiff has claimed, 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 enforceable due to lack of consideration; that a July 22, 2015 Stock Purchase Agreement pursuant to which the plaintiff 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 remains valid and that he is entitled to cash and stock compensation under that Employment Agreement (without giving regard to the Amendment); 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 filed a motion to dismiss the plaintiff’s claims which was denied on March 19, 2020. On May 5, 2021, the plaintiff provided a deposition as instructed by the Court, subsequent to which the Company filed a motion for dismissal of this proceeding. On February 14, 2022, the Court issued an Order which declared the Amendment to be unenforceable and thus the terms of the original Employment Agreement to remain in effect. The Order also noted that the Company is not a party to the Stock Purchase Agreement, and the Employment Agreement does not constitute a prior agreement that could have been superseded by the Stock Purchase Agreement.

In July 2022, United Health Products filed a motion to reopen discovery for the purpose of developing additional issues it wished to raise at trial.  At the beginning of August 2022, the court denied United Health Products’ request to reopen discovery.  The court instructed counsel for both parties to meet and confer regarding a Joint Trial Order to be filed with the court.  The Joint Trial Order generally details the parties’ position on which issues are to be addressed at trial.  The parties are currently seeking to reach agreement on what issues should be addressed at trial.  Once the issues have been agreed upon, the Joint Trial Order will be filed with the court and the court will set a trial date.  Concurrently with the completion of the Joint Trial Order, the parties are engaged in various settlement negotiations. 

In 2018, an action was commenced in the United States District Court Southern District of New York entitled JEC Consulting Associates, LLC. Liquidator of Lead Dog Capital LP against United Health Products t/k/a United EcoEnergy Corp and Douglas K. Beplate under Docket Number 18-cv-1139 (ER). The third-party action sought to remove a restrictive legend from a particular stock certificate for Three Million Fifty Thousand (3,050,000) shares and declare the shares to be free trading. The third-party plaintiff alleges that the Company and Mr. Beplate refused to have the restrictive legend on the stock certificate removed under Rule 144 and sought compensatory and punitive damages. The Federal court issued an order that the Securities Exchange Commission should review the claim before the District Court renders a final ruling. Discovery appears to be substantially complete and settlement discussions between the third-party plaintiff and the Company have been initiated. On April 22, 2022 the parties entered in a Settlement Agreement wherein the Company would agree to allow the removal of the restrictive legend as permitted under applicable securities laws and distribution of the shares to affiliates of the plaintiffs. Under the Settlement Agreement the Company will make no payments other than to pay expenses related to its own legal counsel.

As mentioned in Note 7 above, the Company settled the SEC’s investigation through the filing of a consent judgment on the terms described in the Company’s Form 8-K filed on April 29, 2022, without the Company admitting or denying the SEC’s allegations.

Due to uncertainties inherent in litigation, we cannot predict the outcome of the above legal proceedings.

The Company is or was also a party to the following legal proceedings:

On February 7, 2020, the Company filed the Original Petition for Fraud and Breach of Contract in the Texas District Court for the 215th Judicial District of Harris County against defendants Patterson Companies Inc., Patterson Management, L.P., Patterson Veterinary, Inc. and Patterson Logistics Services, Inc., and Animal Health International, Inc. On March 5, 2020, the defendants removed the case to U.S. District Court for Southern District of Texas. The defendants filed their answer in federal court on March 12, 2020. The original August 25, 2020 pretrial deadlines were extended. On January 18, 2022, the Company’s claims were dismissed, with prejudice, by the court. On February 9, 2022, the Company and Patterson reached an agreement on settlement of Patterson’s counterclaim. The Company agreed to pay $120,000 which was accrued as of December 31, 2021. The $120,000 settlement payment was paid in full in February 2022.

In August 2020, United Health Products filed suit against its former auditors, in Utah State Court, asserting claims related to professional negligence and breach of fiduciary duty. The Company and the defendant, through mediation reached an agreement on settlement in which the defendant agreed to pay $392,000 and the entire amount was paid in September 2022 and recorded as other income in the statement of operations (Note 10).

Note 9. Income Tax

The Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the years ended December 31, 2022 and 2021. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at December 31, 2022 or 2021.

The Company’s federal income tax returns for the years ended December 31, 2019 through December 31, 2022 remain subject to examination by the Internal Revenue Service as of December 31, 2022.

During 2022 and 2021, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved.

Net deferred tax assets consist of the following components as of December 31, 2022 and 2021

The income tax provision differs from the amount of income tax determined by applying the U.S federal income tax rate (21%) for the years ended December 31, 2022 and 2021 due to the following: