The financial statements required by Item 8 can be found beginning on Page F-2 of this report.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
Note 1. Organization and Basis of Preparation
United Health Products, Inc. ("United" or the "Company") is a product development and solutions company focusing its growth initiatives on the expanding wound-care industry and disposable medical supplies markets. The Company produces an innovative gauze product that absorbs exudate (fluids which have been discharged from blood vessels) by forming a gel-like substance upon contact.
Note 2. 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 matters, there is substantial doubt about the Company's ability to continue as a going concern. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Chief Executive Officer has agreed to advance funds or make payments of the Company's obligations at his discretion. There is no written agreement to continue this support.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, as well as in the healthcare industry, and any other parameters used in determining these estimates, could cause actual results to differ.
Cash and Cash Equivalents
The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.
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, 2018 and 2017. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
Income Taxes
The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company's assets and liabilities which is commonly known as the asset and liability method. In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are ''more-likely-than-not'' of being sustained by the applicable tax authority. Tax positions not deemed to meet the "more-likely-than-not" threshold are recorded as an expense in the applicable year. The Company does not have a liability for any unrecognized tax benefits. Management's evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof, with due consideration given to the fact that tax periods are open to examination by tax authorities. The Company is no longer subject to U.S federal or state income tax examinations by tax authorities before 2015.
As of December 31, 2018 and 2017, the Company has approximately $14.5 and $12.1 million of net operating loss carry-forwards, respectively, available to affect future taxable income and has established a valuation allowance equal to the tax benefit of the net operating loss carry forwards and temporary differences as realization of the asset is not assured.
Trade Accounts Receivable and Concentration Risk
We record accounts receivable at the invoiced amount and we do not charge interest. We review the accounts receivable by amounts due from customers which are past due, to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, we make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. We will also maintain a sales allowance to reserve for potential credits issued to customers. We will determine the amount of the reserve based on historical credits issued.
There was no provision for doubtful accounts recorded at December 31, 2018 and 2017. The Company recorded $447,574 and $20,226 in bad debt expense for the years ended December 31, 2018 and 2017.
For the year ended December 31, 2018, three customers made up 98.9% of the Company’s outstanding accounts receivable balance. For the year ended December 31, 2018 four customers accounted for 91.5% of the Company’s net revenue.
For the year ended December 31, 2017, one customer made up 99.9% of the Company’s outstanding accounts receivable balance. For the year ended December 31, 2017 one customer accounted for 93.2% of the Company’s net revenue.
Inventory
Inventory is valued at the lower of cost or market using the first-in, first-out (FIFO) method. Inventory on the balance sheet consists of raw materials purchased by the Company and finished goods.
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
Raw materials
|
|
$
|
46,121
|
|
|
$
|
34,270
|
|
Finished goods
|
|
|
37,573
|
|
|
|
129,264
|
|
|
|
$
|
83,694
|
|
|
$
|
163,534
|
|
During the years ended December 31, 2018 and 2017, the Company determined $60,789 and $0, respectively, of inventory should be impaired and written-off to cost of goods sold.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred. The Company incurred $176,999 and $53,050 in advertising and marketing costs during the years ended December 31, 2018 and 2017, 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 $76,951 and $19,936 in research and development expenses during the years ended December 31, 2018 and 2017, respectively.
Stock Based Compensation
The Company issues restricted stock to consultants and employees for various services. Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock for non-employees is measured at the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached and expense is recognized during the term at which the counterparty's performance is earned or at the date the shares are considered non-forfeitable. The Company recognized consulting expenses and a corresponding increase to additional paid-in-capital related to stock issued for services. Compensation for employee stock grants are recognized at the fair market value of the shares at the date of grant and recognized at the grant date, as it is considered that the shares issued are considered non-forfeitable at the date of grant. Stock compensation for the periods presented were issued for past services provided, accordingly, all shares issued are fully vested, and there is no unrecognized compensation associated with these transactions.
In January 2018, the Company issued 14,150,000 shares of common stock and placed them in escrow during the period. The shares are to be issued to various individuals upon change of control of the Company. The Company is unable to estimate when a change of control may occur and has not recorded any expenses related to these shares. The shares were valued at their fair market value of $1.09 per share totaling $15,423,500 on the then date of issuance.
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. Potential common shares consist of the shares of common stock held in escrow. 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, 2018 and 2017 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, 2018 and December 31, 2017 include 14,150,000 and 0, respectively, of common stock held in escrow until a change of control in the Company occurs.
New Accounting Pronouncements, Recently Adopted Accounting Pronouncements
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the sale of its HemoStyp product by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The standard became effective for the Company beginning January 1, 2018 and permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. The Company adopted the standard using the modified retrospective method. There was no effect for any adjustments to retained earnings upon adoption of the standard on January 1, 2018.
Leases
In February 2016, the FASB issued Accounting Standards Update (ASU) No. ASU 2016-02,
Leases,
which amends existing lease accounting guidance, including the requirement to recognize most lease arrangements on the balance sheet. The adoption of this standard will result in the Company recognizing a right-of-use asset representing its rights to use the underlying asset for the lease term with an offsetting lease liability. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential impact of the adoption of this accounting pronouncement 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.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
Note 3. Related Party Transactions
As of December 31, 2018, and 2017, notes payable to related parties totaled $8,121 and $268,328, respectively. These amounts are owed to Doug Beplate, our Chief Executive Officer. During the year ended December 31, 2018, Mr. Beplate gave a personal vehicle to an employee of the Company valued at $30,000 in lieu of the Company paying travel expenses and consulting expenses. During 2018, the Company repaid a net amount of $305,207 of the outstanding notes payable balance. During the year ended December 31, 2017, Mr. Beplate provided loans to the Company of $111,500. These loans were for operating expenses of the Company, are due on demand and have no interest rate.
Per Mr. Beplate’s services agreement, he receives monthly compensation of $15,000 per month. During the year ended December 31, 2017, he received $93,500 of compensation and the remaining balance of $86,500 was recorded as accrued liabilities – related party on the balance sheet. During the year ended December 31, 2018, he received his entire salary of $180,000 and $61,500 of the accrued compensation was paid leaving a balance of $25,000.
During the year ended December 31, 2017, the Company issued 750,000 shares of common stock to a director of the Company for services performed. The shares had a fair market value of $142,500.
During the year ended December 31, 2018, the Company issued 1,600,000 shares to Nate Knight who is the Chief Financial Officer of the Company, 500,000 shares issued to the office administrator, who is a person affiliated with the Company’s CEO and 5,000,000 shares to the Chief Operating Officer. These shares, which had a fair market value of $1.09 per share at the date of issuance, were placed in escrow and will be released when a change of control occurs. Management is unable to determine when a change of control will occur and $0 has been expensed as of December 31, 2018. See “Note 9” below.
The Company by board resolution approved an executive compensation stock bonus package for Mr. Beplate such that upon the sale of all or substantially all of the assets of the Company or other change in control or merger transaction in which the Company is involved, or in the event that no such transaction occurs by December 31, 2019, Mr. Beplate shall receive an amount equal to 15% post issuance of the then outstanding shares of the Company's common stock on a fully diluted basis. It is intended that the board approved stock bonus package will be in lieu of the 5% stock bonus that Mr. Beplate is already entitled to in the event of a sale of the Company’s assets or change in control or merger transaction per his services agreement. See “Note 9” below.
Note 4. Issuances of Securities
Share issuances 2017
In 2017, the Company sold 7,694,269 shares of its common stock in a private placement offering for gross proceeds of $683,975. Exemption from registration is claimed under Rule 506 of Regulation D of the Securities Act of 1933, as amended.
During 2017, the Company issued 200,000 shares of stock with a fair value of $144,000 to settle an accounts payable balance of $31,850. The Company recorded $112,150 as loss on settlement of debt.
During 2017, a consultant converted $162,500 in accounts payable to a promissory note. The consultant then converted this promissory note into 2,500,000 shares of common stock. The shares of stock had a fair value of $235,000 and the Company recorded $72,500 as loss on settlement of debt.
In December 2017, the Company issued 750,000 shares of common stock to a director of the Company and 950,000 shares of common stock to unaffiliated individuals for services performed. The shares had a total fair market value of $429,000.
Share issuances 2018
During 2018, the Company issued an aggregate of 20,973,475 shares of common stock. The Company issued 800,000 shares of common stock to our medical advisors with a total fair market value of $620,000 for services, 50,000 shares of common stock to an unaffiliated individual with a total fair market value of $54,500 for services, 2,403,728 shares of common stock were sold for total proceeds of $1,415,200 and 69,747 shares of common stock were issued related to $10,000 of previously recorded liability for unissued shares during 2017.
The Company issued 3,500,000 shares of common stock to convert $172,500 of notes payable and $10,000 of accrued interest. The shares were valued at their fair market value of $1.09 which resulted in a loss on debt settlement of $3,632,500. See “Note 7” below.
The Company issued 14,150,000 shares of common stock with a fair market value of $1.09 per share were issued to officers and various consultants for services to be provided related to a change of control of the Company and placed in escrow. The shares will be released from escrow upon the change of control of the Company. Management is unable to determine when a change of control will occur and $0 has been expensed as of December 31, 2018. See “Note 9” below.
Note 5. Litigation
There are no legal proceedings pending or threatened against us, and we are unaware of any governmental authority initiating a proceeding against us, except as follow:
During 2017, a Complaint was filed with the United States District Court, Southern District of New York by Steven Safran as Plaintiff against the Company and Douglas Beplate, its CEO, as Defendant. This court case was transferred to the United States District Court in Las Vegas, Nevada. Mr. Safran is seeking damages and monies allegedly owed pursuant to an employment agreement and allegedly unpaid loans of $245,824 provided to Defendants. The Company has denied Plaintiff’s allegations and intends to vigorously defend said lawsuit. The parties have held various depositions and the Company has a motion to dismiss which is pending with the court. No accural has been recorded related to this litigation.
In July 2015, the Company entered into a consulting agreement retaining the services of Maxim Group LLC. An amended agreement was executed in January 2018. A total of 4 million shares of common stock were issued to Maxim in exchange for its obligation to perform certain advisory and other services. In the fourth quarter of 2018, the Company notified Maxim of its intent to file for arbitration pursuant to the consulting agreement. Maxim, without providing a similar notice to the Company, immediately filed a complaint with FINRA seeking release of a restrictive legend from a Company stock certificate in the amount of 500,000 shares. The Company filed an affirmative defense that the required notice of arbitration was not provided to the Company prior to filing. The Company also filed a counterclaim for breach of contract seeking restitution of the original 4 million shares issued to Maxim. The Company intends to vigorously defend Maxim’s complaint and to obtain relief pursuant to its counterclaim. Currently, the Company and Maxim have a scheduled mediation date of April 15, 2019. If this is not successful, arbitration with FINRA will be held in September.
Note 6. Material Agreements and Other Matters
On October 1, 2013, the Company entered into an Operating Agreement with Hemo Manufacturing LLC. Hemo Manufacturing is to act as the exclusive supplier of manufactured products for the Company's products. Pursuant to said agreement, 2,000,000, restricted shares of the Company's Common Stock valued at $231,270, were issued. Under certain conditions, an additional 2,000,000 shares of the Company's Common Stock would be issued in the event the Company is bought out by a third party. The Company anticipates booking all sales directly to customers and making payment for goods directly to Hemo Manufacturing. The managing member of Hemo Manufacturing will retain 100% of the profits earned by Hemo Manufacturing unless the Company is sold to a third party. In the event of such a sale, the managing member of Hemo Manufacturing and the Company would have equal share in the gross profits. The Company’s operating agreement with Hemo Manufacturing was terminated in the first quarter of 2017.
Note 7. Other Notes Payable
During the year ended December 31, 2016, the Company received $150,000 related to a note payable. The note was due on demand and interest accrued at the rate of 10% per annum. During the year ended December 31, 2018, the Company issued 2,500,000 shares of common stock to settle the outstanding balance of $150,000 and accrued interest of $10,000. The balance was $0 and $150,000 as of December 31, 2018 and 2017, respectively.
During the year ended December 31, 2017, the Company received a total of $75,000 related to a note payable. The note had a maturity date of May 15, 2017 and interest accrued at the rate of 20% per annum. The Company paid down $42,500 of the balance during 2017 leaving a balance of $32,500 as of December 31, 2017. During the year ended December 31, 2018, the Company paid $10,000 of the balance and issued 1,000,000 shares of common stock to settle the remaining balance of $22,500. The balance was $0 and $32,500 as of December 31, 2018.
The Company borrowed $35,000 in April 2017 related to a note payable, with original issue discount of $3,500. The note was paid off in full in May 2017.
The Company has recognized a "Liability for unissued shares" for shares granted to employees and consultants along with shares purchased by investors, but unissued as of the balance sheet date. The granted shares are recorded at the fair market value of the shares to be issued at the grant date and a corresponding current liability is recorded for these unissued shares. The activity in this account and balances, classified as Liabilities for unissued shares, as of December 31 was as follows:
|
|
2018
|
|
|
2017
|
|
Balance, beginning
|
|
$
|
211,843
|
|
|
$
|
145,543
|
|
Reclass of previous shares purchased and recorded in equity
|
|
|
-
|
|
|
|
66,300
|
|
Issuance of shares in satisfaction of liability
|
|
|
10,000
|
|
|
|
-
|
|
Balance, ending
|
|
$
|
201,843
|
|
|
$
|
211,843
|
|
The total number of shares granted but unissued were 2,414,059 and 2,483,806, as of December 31, 2018 and 2017, respectively.
Note 8. 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.
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. The Company does not have any foreign earnings and therefore, we do not anticipate the impact of a transition tax. We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21%.
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, 2018 or 2017.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, 2018.
The Company's federal income tax returns for the years ended December 31, 2015 through December 31, 2018 remain subject to examination by the Internal Revenue Service as of December 31, 2018.
During 2018 and 2017, 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.
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Income tax provision (benefit) at statutory rate
|
|
$
|
(1,261,000
|
)
|
|
$
|
(196,000
|
)
|
Impact of rate changes on valuation allowance
|
|
|
-
|
|
|
|
1,485,200
|
|
Change in valuation allowance
|
|
|
1,261,000
|
|
|
|
(1,289,000
|
)
|
Income Tax Expense
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets and liabilities were comprised of the following:
|
|
|
|
|
|
|
|
|
Net Operating Losses
|
|
$
|
3,070,415
|
|
|
$
|
2,522,000
|
|
Accrued officer compensation
|
|
|
12,915
|
|
|
|
34,800
|
|
Other non-deductible expenses
|
|
|
904,470
|
|
|
|
170,000
|
|
Valuation allowance
|
|
|
(3,987,800
|
)
|
|
|
(2,726,800
|
)
|
Deferred tax asset, net
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2018 and 2017, the Company has taxable net loss carryovers of approximately $14.5 million and $12.1 million, respectively. The change in the valuation allowance for the years ended December 31, 2018 and 2017 was $369,400 and $(1,289,200), respectively. The Company reduced its valuation allowance by approximately $1,485,200 during 2017 due to the change in tax rates to 21%. Under the Internal Revenue Code of 1986, as amended, these losses can be carried forward twenty years. Net operating losses will expire through 2038.
Note 9. Subsequent Events
The Company has evaluated events from December 31, 2018, through the date whereupon the financial statements were issued and has determined that there are no other material events that need to be disclosed, except as follows:
|
·
|
200,000 shares were issued to securities counsel for services rendered;
|
|
|
|
|
·
|
100,000 shares were issued in January 2019 to each of two directors;
|
|
|
|
|
·
|
50,000 shares of common stock were issued to a private placement investor at $.50 per share; and
|
|
|
|
|
·
|
2,150,000 shares of the 14,150,000 shares referenced in Note 3 became vested by the Board of Directors, including 1,600,000 shares to the Company’s Chief Financial Officer/director, 500,000 shares to an office administrator and 50,000 shares to a Technical Product Supervisor, who is the son of the office administrator. The Company recorded an expense of $2,343,500 related to the vesting of these shares.
|
In March 2019, the Company canceled the 12,000,000 shares issued to various officers, directors and consultants described in Notes 3 and 4 herein and Mr. Beplate’s bonus arrangement described in Note 3 above. Contemporaneously, the Company replaced these stock bonus arrangements with Board approved restricted stock unit agreements with its officers, directors and consultants covering an aggregate of 50,100,000 shares of common stock to be issued and delivered to such persons upon the earlier of (i) a change in control of the Company by a cash tender offer, merger, acquisition or otherwise or (ii) the Company achieving gross revenues of $20,000,000 in gross revenues on a go forward basis, or (iii) the commencement of an event by a third party without the Board’s approval to effect, or seek to effect, a change in control of the Company or the Company’s management.
The Company has become aware that Philip Forman, who served in positions as Chairman, a director, Chief Executive Officer and Chief Medical Advisor at various time between 2011 and October 2015, has filed a lawsuit against the Company and our Chief Executive Officer, Douglas Beplate, in the United States District Court of the District of Nevada. Neither the Company nor our Chief Executive Officer has been served in this action as of the time this Annual Report was filed. The claimant is claiming, among other things, that: the June 25, 2015 Amendment to his November 10, 2014 Employment Agreement with the Company, which terminated the Employment Agreement on October 1, 2015, is not valid because of lack of consideration; that a July 22, 2015 Stock Purchase Agreement pursuant to which the claimant sold Company shares issued to him under the Amendment to a third a party is unenforceable (despite the fact that all payment for the shares under the Stock Purchase Agreement was made); that the plaintiff’s 2014 Employment Agreement is enforceable and that he is entitled to cash and stock compensation under that Employment Agreement (without giving regard to the Amendment); that if the Amendment is enforceable, he is entitled to the shares issued under the Amendment (without mention that those shares were sold to a third party under the Stock Purchase Agreement described above); and that the Company and Mr. Beplate defrauded the plaintiff relating to the foregoing. The plaintiff is seeking declaratory judgment regarding the parties’ relative rights under the Employment Agreement, the Amendment and the Stock Purchase Agreement; money damages of no less than $2,795,000; and punitive damages of $8,280,000. The Company believes that it has meritorious defenses to the matters claimed as well as counterclaims against the claimant. If the Company is served the summons and complaint in this matter, we plan to vigorously respond to the claims and pursue our remedies. If this action is served upon us, due to uncertainties inherent in litigation generally, we could not predict the outcome with certainty.