NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 2021 AND 2020
(Unaudited)
Note 1. Organization and Basis of Preparation
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 (“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 surgical market.
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Regulation S-X. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements and should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2021.
In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period, have been included.
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.
On March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (COVID-19) as a pandemic. As a result, economic uncertainties have arisen which have the potential to negatively impact the Company’s ability to raise funding and to pursue is business objectives. Other factors that carry financial implications for the Company could occur although the potential impacts are unknown at this time.
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.
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.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the sale of its HemoStyp product by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
The Company receives orders for its HemoStyp products directly from its customers. Revenues are recognized based on the agreed upon sales or transaction price with the customer when control of the promised goods are transferred to the customer. The transfer of goods to the customer and satisfaction of the Company’s performance obligation will occur either at the time when products are shipped or when the products arrive and are received by the customer. No discounts are currently offered by the Company. The Company does not provide an estimate for returns as there is no anticipation for any returns in the normal course of business.
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 were no provisions for doubtful accounts recorded at March 31, 2021 and December 31, 2020. The Company recorded $0 and $0 in bad debt expense for the three month periods ended March 31, 2021 and 2020, respectively.
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.
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Raw materials
|
|
$
|
50,654
|
|
|
$
|
50,654
|
|
Finished goods
|
|
|
18,995
|
|
|
|
19,020
|
|
|
|
$
|
69,649
|
|
|
$
|
69,674
|
|
During the three months ended March 31, 2021 and 2020, the Company determined $0 and $0, respectively, of inventory should be impaired and written-off to cost of goods sold.
Stock Based Compensation
The Company accounts for share-based compensation under the provisions of ASC 718, Compensation-Stock Compensation. Under the fair value recognition provisions, stock-based compensation expense is measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measured. Share-based compensation for all stock-based awards to employees and directors is recognized as an expense over the requisite service period, which is generally the vesting period.
The Company accounts for stock compensation arrangements with non-employees in accordance with Accounting Standard Update (ASU) 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which requires that such equity instruments are recorded at the value on the grant date.
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 three months ended March 31, 2021 and 2020 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 March 31, 2021 included 27,400,000 of restricted stock units and 35,294 shares for convertible notes payable. The total potential common shares as of March 31, 2020 includes 50,100,000 of restricted stock units, and 198,648 shares for convertible loans payable - related party.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the straight-line method. The depreciation and amortization methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:
Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.
New 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 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.
Note 3. Related Party Transactions
Related party convertible notes payable
As of March 31, 2021 and December 31, 2020, convertible notes payable – related party totaled $0 and $456,032, respectively.
As of December 31, 2020, Brian Thom, the Chief Executive Officer, had a convertible note payable – related party balance of $555,000 and unamortized debt discount of $199,314 for a net balance of $355,686.
During the three months ended March 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 had an interest rate of 3%. The note resulted in a beneficial conversion feature of $45,000 which was recorded as a debt discount. The debt discount was being amortized through the maturity dates and a total of $244,314 for all of Mr. Thom’s notes was amortized to interest expense – related party during the three months ended March 31, 2021, which included the unamortized debt discount of $199,314 as of December 31, 2020 and the debt discount of $45,000 recorded during the current period. The remaining unamortized debt discount is $0.
The total outstanding principal balance of $600,000 along with accrued interest of $10,135 was converted into 1,220,272 shares of common stock leaving $0 owed to Mr. Thom as of March 31, 2021.
As of December 31, 2020, Louis Schiliro, the Chief Operating Officer, had a convertible note payable – related party balance of $170,000 and unamortized debt discount of $69,654 for a net balance of $100,346.
During the three months ended March 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 had an interest rate of 3%. The note resulted in a beneficial conversion feature of $45,000 which was recorded as a debt discount. The debt discount was being amortized through the maturity dates and a total of $114,654 for all of Mr. Schiliro’s notes was amortized to interest expense – related party during the three months ended March 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 the current period. The remaining unamortized debt discount is $0.
During the three months ended March 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 March 31, 2021.
As of December 31, 2020, Kristofer Heaton, the Vice President of Finance, had a convertible note payable – related party balance of $3,750 and unamortized debt discount of $3,750 for net balance of $3,750.
During the three months ended March 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 had an interest rate of 3%. The note resulted in a beneficial conversion feature totaling $22,500 which was recorded as a debt discount. The debt discount is being amortized through the maturity date and a total of $26,250 for all of Mr. Heaton’s notes was amortized to interest expense – related party during the three months ended March 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 current period. The remaining unamortized debt discount is $0.
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 March 31, 2021.
Advances from related parties
During the three months ended March 31, 2021, Mr. Schiliro advanced the Company $20,000 to pay for operating expenses. The advance was due on demand and non-interest bearing.
During the three months ended March 31, 2021, the Company issued 25,000 shares of common stock to settle the outstanding balance of $20,000. 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.
Accrued liabilities
As of March 31, 2021 and December 31, 2020, $0 and $74,056 was owed to Nate Knight, who was the Chief Financial Officer until November 2020, for accrued compensation and reimbursable expenses, respectively. During the three months ended March 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 record a loss on debt settlement of $8,368.
As of March 31, 2021 and December 31, 2020, $0 and $0 was owed to Brian Thom, the Chief Executive Officer, for accrued compensation, respectively. During the year three months ended March 31, 2021, $45,000 of compensation was converted into a convertible note as mentioned above.
As of March 31, 2021 and December 31, 2020, $0 and $59,467 was owed to Louis Schiliro, the Chief Operating Officer, for reimbursable expenses, respectively. During the three months ended March 31, 2021, $45,000 of compensation was converted into a convertible note as described above. During the three months ended March 31, 2021, the Company issued 74,335 shares of common stock to settle the total balance owed of $59,467. The shares of common stock had a fair market value of $79,538 and the Company recorded a loss on debt settlement of $20,071.
As of March 31, 2021 and December 31, 2020, $0 and $0 was owed to Kristofer Heaton, the Vice President of Finance, for accrued compensation, respectively. During the three months ended March 31, 2021, $22,500 of compensation was converted into a convertible note as described above. As of March 31, 2021 and December 31, 2020, Mr. Heaton was owed $52,625 and $52,625 for prior services provided to the Company, 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, 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 RSUs 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 three months ended March 31, 2021 related to the accelerated vesting of these RSU’s and issuance of common stock.
Note 4. Subscription Receivable
The Company had a balance of $50,000 and $0 as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, the Company sold 125,000 shares of common stock for $100,000. The Company received $50,000 during the three months ended March 31, 2021 and the remaining $50,000 was received in April 2021.
Note 5. Convertible Notes
As of December 31, 2020, certain service providers and a medical advisor had convertible notes payable balances totaling $205,000 and unamortized debt discount of $101,080 for a net balance of $103,920.
During the three months ended March 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, have a maturity date of March 31, 2021 and have 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 three months ended March 31, 2021, which included the unamortized debt discount of $101,080 as of December 31, 2020 and the $90,000 recorded during the period. The remaining unamortized debt discount is $0.
The total outstanding principal balance of $295,000 along with accrued interest of $3,595 was converted into 597,139 shares of common stock leaving $0 owed to the service providers and medical advisor as of March 31, 2021.
During the three months ended March 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 three months ended March 31, 2021, the Company issued a total of $115,000 in convertible notes to two unaffiliated individuals. The notes are convertible at $0.85 per share have a maturity date of June 30, 2021 and have 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 is being amortized through the maturity dates of the notes. A total amount of $28,233 has been amortized to interest expense related to these two notes during the three months ended March 31, 2021.
One note in the amount of $85,000 was converted into 100,000 shares of common stock. As of March 31, 2021, the outstanding principal balance owed to the unaffiliated individuals is $30,000 and the remaining unamortized debt discount is $4,189 leaving a net balance of $25,811.
Note 6. Issuances of Securities
Share issuances 2020
During the three months ended March 31, 2020, 1,417,500 shares of common stock were sold to non-affiliated investors in a private placement for total cash proceeds of $826,696, 50,000 shares of common stock were issued to a former medical advisor for services rendered with a fair value of $47,500 and 22,381 shares of common stock were cancelled.
Share issuances 2021
During the three months ended March 31, 2021, a total of 31,930,000 shares of common stock were issued to officers, directors and various consultants related to vesting of RSU’s with a total stock-based compensation cost of $23,990,421, 2,000,000 shares of common stock were issued to Mr. Beplate as a stock bonus with a stock-based compensation cost of $2,180,000, 125,000 shares of common stock were sold to an affiliated investor in a private placement for total cash proceeds of $100,000, 100,000 shares of common stock were issued for settlement of a business consulting agreement with a fair value of $111,000, 25,000 shares of commons stock were issued to settle $20,000 of related party advances (see Note 3), 152,835 shares of common stock were issued to settle $133,523 of accrued liabilities – related party (see Note 3), 1,047,139 shares of common stock were issued due to the conversion of convertible notes payable and accrued interest (see Note 5), 1,353,111 shares of common stock were issued due to the conversion of convertible notes payable and accrued interest – related party (see Note 3) and 117,647 shares of common stock were cancelled.
Restricted stock units
As discussed in Note 3, 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. 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 three months ended March 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 RSUs 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.
Activity related to our restricted stock units during the three months ended March 31, 2021 was as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant
|
|
|
|
Number of
|
|
|
Date Fair
|
|
|
|
Units
|
|
|
Value
|
|
Total awards outstanding at December 31, 2020
|
|
|
59,330,000
|
|
|
$
|
0.82
|
|
Units granted
|
|
|
21,970,000
|
|
|
$
|
1.09
|
|
Units Exercised/Released
|
|
|
(31,930,000
|
)
|
|
$
|
0.97
|
|
Units Cancelled/Forfeited
|
|
|
(21,970,000
|
)
|
|
$
|
0.71
|
|
Total awards outstanding at March 31, 2021
|
|
|
27,400,000
|
|
|
$
|
0.97
|
|
Management is unable to predict if or when a Covered Transaction or Triggering Event under the RSU Agreements governing the restricted stock units will occur and as of March 31, 2021, there was $26,479,000 of unrecognized compensation cost related to unvested restricted stock unit awards.
Note 7. 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 is seeking 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 has denied Plaintiff’s allegations and intends to vigorously defend this lawsuit. The parties have held various depositions and the Company made a motion to dismiss which was denied. The Plaintiff filed a motion to amend his complaint and the Company has submitted opposition papers and we are awaiting an order from the Court.
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 claimant 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 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. 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. The Company intends to file a motion for dismissal of this proceeding during the 2nd quarter of 2021.
FSR Inc. commenced a lawsuit in 2018 against Korsair Holdings A.G. (“Korsair”) in the U.S. District Court for the Southern District of New York, seeking among other claims for relief, rescission of the transfer of 3,050,000 shares of United Health Products common stock (the “Shares”) that FSR Inc. sold to Korsair in 2011. Third-Party Plaintiff, JEC Consulting Associates, LLC as Liquidator of LeadDog Capital L.P., Intervenor (“Intervenor”) in the above matter, filed a third-party complaint against the Company and Douglas Beplate alleging, among other things, that the Company and Mr. Beplate refused to have the Rule 144 restrictive legend removed from the Korsair certificate held by JEC, and concomitantly fraudulently deprived JEC as Liquidator of Intervenor of the ability to sell the Shares in the open market, knowingly, intentionally and directly causing economic harm to Intervenor. Third Party Plaintiff further alleges that the Company and Mr. Beplate as Third-Party Defendants are not only monetarily liable to Third-Party Plaintiff for compensatory damages of $2,500,000 but should be made to pay exemplary damages in an amount determined by the Court, but not less than an equal amount - $2,500,000. Third-Party Plaintiff demands judgment for the above referenced amounts and for the Court to also declare that the Shares are free trading; that Third-Party Plaintiff’s rights to 2,500,000 of the Shares are superior to the claims of Plaintiff FSR Inc.; that Plaintiff FSR Inc. has no claim to 2,500,000 of the Shares reflected by the Korsair certificate; that the Company and Mr. Beplate are to instruct its current transfer agent to remove the restrictive legend on the Korsair certificate for the Shares; and an order directing the Company and Mr. Beplate to instruct the Company’s transfer agent to exchange the Korsair certificate for new free-trading, unrestricted certificates. The Company believes that it had legal right to decline to instruct the transfer agent to remove the restrictive legend from the Shares where the ownership of the Shares have been in dispute and the Shares have not been submitted for transfer to its transfer agent in proper form under the uniform commercial code. The Court granted the motion for a default by FSR, Inc against Korsair Holdings, AG., but denied any claim for relief against UHP. The Court ruled that the SEC must review the claim before the matter can proceed in Court. As of the date of this filing the SEC had not commenced any such review to the Company’s knowledge.
Due to uncertainties inherent in litigation, we cannot predict the outcome of the above legal proceedings.
The Company has commenced 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 and we expect the case to be trial ready by the end of 2021.
The defendants filed a Motion for Summary Judgment which was denied by the court on March 11, 2021.
In August 2020, United Health Products filed suit against its former auditors, Haynie & Company, in Utah State Court, asserting claims related to professional negligence and breach of fiduciary duty. Haynie & Company has denied the allegations. The parties are conducting discovery.
Note 8. Other Income
As described in Note 7 above, the Company received payment of $304,273 from Maxim Group LLC, as full and final settlement of its previously disclosed arbitration between the Company and Maxim that was settled in December 2019. The $304,273 was recorded as other income in the Statement of Operations.
Note 9. Subsequent Events
The Company has evaluated events from March 31, 2021, through the date whereupon the financial statements were issued and has determined that there are no material events that need to be disclosed except as follow:
On May 4, 2021 the Company received notification from the Food & Drug Administration (FDA) that, following the resubmission of its application for Pre-market Approval for HemoStyp gauze on April 6th, the FDA has now accepted for review and commenced its Substantive Review of the application. The commencement of Substantive Review serves as a confirmation that the FDA deems the contents of a PMA application to be adequate and in acceptable form to review and thoroughly evaluate the merits of the product and its proposed applications. The FDA has not yet offered any assessment of the Company’s PMA application beyond taking this step, and there can be no assurance that a PMA will be granted.
The Board of Directors approved an amendment to the Restricted Stock Unit Agreement between the Company and its former legal counsel. The amendment accelerated the vesting of the 325,000 RSU’s owed and the Company issued 325,000 restricted shares.