UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission file number: 000-27781

 

UNITED HEALTH PRODUCTS, INC.

(Exact name of Company as specified in its charter)

 

Nevada

 

84-1517723

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

10624 S. Eastern Ave., Suite A209

Henderson, NV

 

89052

(Address of Company’s principal executive offices)

 

(Zip Code)

 

(877) 358-3444

(Company’s telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)

  

Securities registered pursuant to Section 12 (b) of the Act: None

 

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 checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit such file). Yes ☒    No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

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. ☐

 

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

 

The number of shares issued and outstanding of the Registrant’s Common Stock, as of November 13, 2020 was 188,273,456

 

 

 

   

UNITED HEALTH PRODUCTS, INC.

 

FORM 10-Q QUARTERLY REPORT

 

TABLE OF CONTENTS

 

 

PAGE

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

Condensed Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited)

 

3

 

Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2020 and September 30, 2019 (unaudited)

 

4

 

Condensed Statement of Stockholders’ Deficiency for the Three and Nine Months Ended September 30, 2020 and September 30, 2019 (unaudited)

 

 

 5

 

 

 

 

 

 

 

Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2020 and September 30, 2019 (unaudited)

 

6

 

Notes to Condensed Financial Statements (unaudited)

 

7

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

Item 3.

Quantitative and Qualitative Disclosures

 

22

 

Item 4.

Controls and Procedures

 

22

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

23

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

Item 3.

Defaults Upon Senior Securities

 

23

 

Item 4.

Mine Safety Disclosures

 

23

 

Item 5.

Other Information

 

23

 

Item 6.

Exhibits and Reports on Form 8-K

 

24

 

SIGNATURES

 

26

 

 

2

 

 

 

UNITED HEALTH PRODUCTS, INC.

Condensed Balance Sheets

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

ASSETS

 

Current Assets

 

 

 

 

 

 

Cash and Cash Equivalents

 

$ 6,705

 

 

$ 16,624

 

Inventory

 

 

76,654

 

 

 

76,848

 

Prepaid and other current assets

 

 

10,000

 

 

 

-

 

Total current assets

 

 

93,359

 

 

 

93,472

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

 

92,089

 

 

 

-

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 185,448

 

 

$ 93,472

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 677,258

 

 

$ 512,476

 

Accrued liabilities - related parties

 

 

174,121

 

 

 

119,016

 

Convertible loans, net of debt discount

 

 

322,856

 

 

 

-

 

Convertible loans payable – related party, net of debt discount

 

 

240,140

 

 

 

365,785

 

Total current liabilities

 

 

1,414,375

 

 

 

997,277

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficiency

 

 

 

 

 

 

 

 

Common Stock - $.001 par value, 300,000,000 Shares

 

 

 

 

 

 

 

 

Authorized, 188,273,456 and 178,300,337 shares issued at September 30, 2020 and December 31, 2019

 

 

188,273

 

 

 

178,300

 

Additional Paid-In Capital

 

 

35,250,891

 

 

 

25,045,754

 

Accumulated Deficit

 

 

(36,668,091 )

 

 

(26,127,859 )

Total Stockholders’ Deficiency

 

 

(1,228,927 )

 

 

(903,805 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

 

$ 185,448

 

 

$ 93,472

 

 

See notes to unaudited condensed financial statements.

 

 
3

Table of Contents

   

UNITED HEALTH PRODUCTS, INC.

Condensed Statements of Operations

(Unaudited)

   

 

 

For the Three Months Ended

September 30,

 

 

For the Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$ 136

 

 

$ -

 

 

$ 563

 

 

$ 4,927

 

Cost of goods sold

 

 

34

 

 

 

-

 

 

 

195

 

 

 

502

 

Gross profit

 

 

102

 

 

 

-

 

 

 

368

 

 

 

4,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Costs and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

9,045,859

 

 

 

328,721

 

 

 

10,287,132

 

 

 

3,358,606

 

Research and development

 

 

60,042

 

 

 

149,994

 

 

 

90,717

 

 

 

392,263

 

Total Operating Expenses

 

 

9,105,901

 

 

 

478,715

 

 

 

10,377,849

 

 

 

3,750,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from Operations

 

 

(9,105,799 )

 

 

(478,715 )

 

 

(10,377,481 )

 

 

(3,746,444 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense – related party

 

 

(62,834 )

 

 

-

 

 

 

(102,256 )

 

 

-

 

Interest expense

 

 

(52,726 )

 

 

(46,154 )

 

 

(60,495 )

 

 

(248,906 )

Total other income (expenses)

 

 

(115,560 )

 

 

(46,154 )

 

 

(162,751 )

 

 

(248,906 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

$ (9,221,359 )

 

$ (524,869 )

 

$ (10,540,232 )

 

$ (3,995,350 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$ (0.05 )

 

$ (0.00 )

 

$ (0.06 )

 

$ (0.02 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

186,861,228

 

 

 

176,588,907

 

 

 

182,092,792

 

 

 

175,402,450

 

   

See notes to unaudited condensed financial statements.

  

 
4

Table of Contents

   

UNITED HEALTH PRODUCTS, INC

Condensed Statement of Stockholders’ Deficiency

Three and Nine Months Ended September 30, 2020 and September 30, 2019

(Unaudited)

   

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

173,943,138

 

 

$ 173,943

 

 

$ 19,200,927

 

 

$ (19,525,564 )

 

$ (150,694 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation modification expense on shares held in escrow

 

 

 

 

 

 

-

 

 

 

2,021,000

 

 

 

-

 

 

 

2,021,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

400,000

 

 

 

400

 

 

 

379,600

 

 

 

-

 

 

 

380,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock

 

 

150,000

 

 

 

150

 

 

 

74,850

 

 

 

-

 

 

 

75,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,663,398 )

 

 

(2,663,398 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2019

 

 

174,493,138

 

 

 

174,493

 

 

 

21,676,377

 

 

 

(22,188,962 )

 

 

(338,092 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock

 

 

1,685,769

 

 

 

1,686

 

 

 

1,034,064

 

 

 

-

 

 

 

1,035,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for notes payable and accrued liabilities – related party

 

 

410,000

 

 

 

410

 

 

 

204,590

 

 

 

-

 

 

 

205,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

202,753

 

 

 

-

 

 

 

202,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(807,083 )

 

 

(807,083 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2019

 

 

176,588,907

 

 

 

176,589

 

 

 

23,117,784

 

 

 

(22,996,045 )

 

 

298,328

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

46,155

 

 

 

-

 

 

 

46,155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(524,869 )

 

 

(524,869 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2019

 

 

176,588,907

 

 

$ 176,589

 

 

$ 23,163,939

 

 

$ (23,520,914 )

 

$ (180,386 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2019

 

 

178,300,337

 

 

$ 178,300

 

 

$ 25,045,754

 

 

$ (26,127,859 )

 

$ (903,805 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

2,015

 

 

 

-

 

 

 

2,015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

50,000

 

 

 

50

 

 

 

47,450

 

 

 

-

 

 

 

47,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock

 

 

1,417,500

 

 

 

1,417

 

 

 

825,279

 

 

 

-

 

 

 

826,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of common stock

 

 

(22,381 )

 

 

(22 )

 

 

22

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(625,821 )

 

 

(625,821 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2020

 

 

179,745,456

 

 

 

179,745

 

 

 

25,920,520

 

 

 

(26,753,680 )

 

 

(653,415 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

150,056

 

 

 

-

 

 

 

150,056

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

125,000

 

 

 

125

 

 

 

100,500

 

 

 

-

 

 

 

100,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of common stock

 

 

558,000

 

 

 

558

 

 

 

278,442

 

 

 

-

 

 

 

279,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(693,052 )

 

 

(693,052 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2020

 

 

180,428,456

 

 

 

180,428

 

 

 

26,449,518

 

 

 

(27,446,732 )

 

$ (816,786 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beneficial conversion feature

 

 

-

 

 

 

-

 

 

 

170,796

 

 

 

-

 

 

 

170,796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

 

250,000

 

 

 

250

 

 

 

153,500

 

 

 

-

 

 

 

153,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation on vesting of restricted stock units

 

 

7,595,000

 

 

 

7,595

 

 

 

8,477,077

 

 

 

-

 

 

 

8,484,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,221,359 )

 

 

(9,221,359 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

 

188,273,456

 

 

$ 188,273

 

 

$ 35,250,891

 

 

$ (36,668,091 )

 

$ (1,228,927 )

  

See notes to unaudited condensed financial statements.

 

 
5

Table of Contents

 

UNITED HEALTH PRODUCTS, INC.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

For the Nine Months

Ended September 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net (Loss)

 

$ (10,540,232 )

 

$ (3,995,350 )

Adjustments to Reconcile net (loss) to Net Cash Used In Operating Activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

8,786,547

 

 

 

2,401,000

 

Amortization of debt discount

 

 

158,110

 

 

 

248,908

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

-

 

 

 

(4,927 )

Inventory

 

 

194

 

 

 

(35,319 )

Prepaid and other current assets

 

 

(10,000 )

 

 

50,000

 

Accounts payable and accrued expenses

 

 

279,782

 

 

 

92,754

 

Accrued liabilities – related party

 

 

145,105

 

 

 

(2,870 )

Net Cash Used In Operating Activities

 

 

(1,180,494 )

 

 

(1,245,804 )

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(92,089 )

 

 

-

 

Net Cash Used in Investing Activities

 

 

(92,089 )

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from convertible loan

 

 

325,000

 

 

 

-

 

Proceeds from related party

 

 

337,730

 

 

 

292,000

 

Repayments to related party

 

 

(505,762 )

 

 

(100,000 )

Proceeds from sale of common stock

 

 

1,105,696

 

 

 

1,110,750

 

Cash flow provided by financing activities

 

 

1,262,664

 

 

 

1,302,750

 

Increase (Decrease) in Cash and Cash Equivalents

 

 

(9,919 )

 

 

56,946

 

Cash and Cash Equivalents – Beginning of period

 

 

16,624

 

 

 

31,273

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS – END OF PERIOD

 

$ 6,705

 

 

$ 88,219

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ -

 

 

$ -

 

Cash paid for income taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-cash Investing & Financing Activities:

 

 

 

 

 

 

 

 

Cancellation of common stock

 

$ 22

 

 

$ -

 

Debt discount related to beneficial conversion feature

 

$ 322,867

 

 

$ -

 

Conversion of accounts payable and accrued expenses to convertible notes payable

 

$ 115,000

 

 

$ -

 

Conversion of accrued liabilities – related parties to convertible notes payable – related party

 

$ 90,000

 

 

$ -

 

Common stock issued for notes payable and accrued liabilities – related party

 

$ -

 

 

$ 205,000

 

 

See notes to unaudited condensed financial statements.

 

 
6

Table of Contents

    

UNITED HEALTH PRODUCTS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020 AND 2019

(unaudited)

   

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.

 

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, 2019 filed with the SEC on July 9, 2020.

 

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.

 

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.

 

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 from the markets. Other financial impact could occur though such potential impact is unknown at this time.

 

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.

 

 
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Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the sale of its HemoStyp product by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

The Company receives orders for its HemoStyp products directly from its customers. Revenues are recognized based on the agreed upon sales or transaction price with the customer when control of the promised goods are transferred to the customer. The transfer of goods to the customer and satisfaction of the Company’s performance obligation will occur either at the time when products are shipped or when the products arrive and are received by the customer. No discounts were offered by the Company. The Company does not provide an estimate for returns as there is no anticipation for any returns in the normal course of business.

 

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 September 30, 2020 and December 31, 2019. The Company recorded $0 and $0 in bad debt expense for the nine month periods ended September 30, 2020 and 2019, respectively.

 

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.

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Raw materials

 

$ 54,774

 

 

$ 54,774

 

Finished goods

 

 

21,880

 

 

 

22,074

 

 

 

$ 76,654

 

 

$ 76,848

 

 

During the nine months ended September 30, 2020 and 2019, 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.

 

 
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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 nine months ended September 30, 2020 and 2019 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 September 30, 2020 includes 47,755,000 of restricted stock units, 535,000 shares for convertible loans payable – related party and 880,000 shares for convertible loans payable. The total potential common shares as of September 30, 2019 included 50,350,000 of restricted stock units and 94,494 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:

 

Equipment

10 years

 

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

 

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 loans and related party convertible loans payables

 

As of September 30, 2020 and December 31, 2019, convertible loans payable – related party totaled $240,140 and $365,785, respectively. The amount of $365,785 as of December 31, 2019 was owed to Doug Beplate, our Chief Executive Officer and convertible at $0.65 per share, at the sole discretion of Mr. Beplate.

 

During the nine months ended September 30, 2020, Mr. Beplate loaned the Company $227,730 which were convertible at $0.65. These loans resulted in a beneficial conversion feature of $59,987 which was recorded to interest expense – related party upon issuance. The Company made repayments to Mr. Beplate totaling $505,762 during the nine months ended September 30, 2020, leaving a balance of $87,753 owed to Mr. Beplate as of September 30, 2020. These loans were for operating expenses of the Company, due on demand and have no interest rate.

 

 
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During the nine months ended September 30, 2020, Louis Schiliro, the Chief Operating Officer loaned the Company $110,000. The loan is convertible at $0.50 per share at the discretion of Mr. Schiliro, has a maturity date of December 31, 2020 and has an interest rate of 3%.

 

During the nine months ended September 30, 2020, Mr. Schiliro, also converted $90,000 of accrued compensation into a convertible loan. The loan is convertible at $0.50 per share at the discretion of Mr. Schiliro, has a maturity date of March 31, 2021 and has an interest rate of 3%.

 

These loans resulted in a beneficial conversion feature totaling $88,385 which was recorded as a debt discount. The debt discount is being amortized through the maturity dates and $40,774 was amortized to interest expense – related party during the nine months ended September 30, 2020. The remaining unamortized debt discount is $47,611. As of September 30, 2020, Mr. Schiliro is owed $200,000 and the balance on the loan net of the debt discount is $152,389. Interest expense was $1,495 during the nine months ended September 30, 2020 and the entire amount has been accrued.

  

Accrued liabilities

 

As of September 30, 2020 and December 31, 2019, $68,395 and $77,130 was owed to Mr. Beplate, respectively, for accrued compensation. During the nine months ended September 30, 2020 $188,375 was paid to Mr. Beplate.

 

As of September 30, 2020 and December 31, 2019, $56,600 and $24,100 was owed to Nate Knight, the Chief Financial Officer, for accrued compensation, respectively. During the nine months ended September 30, 2020 $32,500 of compensation was accrued and $12,500 was paid. As of September 30, 2020 and December 31, 2019, Mr. Knight was owed $7,456 for reimbursable expenses.

 

As of September 30, 2020 and December 31, 2019, $15,000 and $0 was owed to Louis Schiliro, the Chief Operating Officer, for accrued compensation, respectively. During the nine months ended September 30, 2020 $15,000 of compensation was accrued, $30,000 was paid and $90,000 was converted into a convertible loan as mentioned above. As of September 30, 2020 and December 31, 2019, Mr. Schiliro was owed $18,243 and $0 for reimbursable expenses, respectively.

 

As of September 30, 2020 and December 31, 2019, $5,000 and $0 was owed to the office administrator, who is a person affiliated with the Company’s CEO, for accrued compensation, respectively. During the nine months ended September 30, 2020 $5,000 of compensation was accrued and $40,000 was paid. As of September 30, 2020 and December 31, 2019, $1,932 and $10,330 was also owed for reimbursable expenses, respectively.

 

Equity transactions

 

On July 21, 2020 the Board of Directors approved amendments to the previously granted restricted stock units (RSU) on March 25, 2019. The approved amendments increased the amount of RSU’s granted to Mr. Beplate from 33,000,000 to 33,800,000, increased the amount of RSU’s granted to Mr. Schiliro from 8,000,000 to 10,000,000, increased the amount of RSU’s granted to the office administrator, who is a person affiliated with the Company’s CEO from 250,000 to 500,000 and increased the amount of RSU’s granted to the Technical Product Supervisor, who is the son of the office administrator.

 

The amendment also changed the vesting conditions so now 15% of RSU units vested on July 15, 2020, an additional 15% of RSU units upon FDA approval of a PMA Class III awarded to the Company, an additional 20% of RSU units on January 1, 2021 and the balance of all unvested RSU units on the earliest date that (a) the Company achieves $20 million in gross cumulative sales commencing as of January 1, 2020, (b) a Covered Transaction is consummated or (c) a Trigger Event occurs. The Grantee has the option to delay the Vesting Date of all or part of his RSU Units until no later than an event described in (a), (b) or (c) above, by serving written notice to the Company prior to the Vesting Date. 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.

  

 
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The change in vesting terms resulted in a total of 6,720,000 of the RSU’s vesting on July 15, 2020 with 5,070,00 being issued to Mr. Beplate, 1,500,000 being issued to Mr. Schiliro, 75,000 being issued to the office administrator, who is a person affiliated with the Company’s CEO and 75,000 being issued to the Technical Product Supervisor, who is the son of the office administrator. The change in vesting terms also resulted in a total of 50,000 of the RSU’s vesting on July 20, 2020 with 50,000 being issued to the Marketing and Advertising Supervisor, who is the daughter of the office administrator. The vesting of the 6,770,000 RSU’s resulted in stock-based compensation expense of $4,806,700 which is the fair value of the stock on the vesting date.

 

Note 4. Convertible Loans

 

During the nine months ended September 30, 2020, a consultant loaned the Company $325,000. The loan is convertible at $0.50 per share at the discretion of the consultant, has a maturity date of March 31, 2021 and has an interest rate of 3%.

 

During the nine months ended September 30, 2020, a consultant and a medical advisor converted $115,000 of accrued compensation into convertible loans. The loans are 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 loans resulted in a beneficial conversion feature totaling $174,495 which was recorded as a debt discount. The debt discount is being amortized through the maturity dates and $57,350 was amortized to interest expense during the nine months ended September 30, 2020. The remaining unamortized debt discount is $117,145. As of September 30, 2020, the convertible loans have a principal balance of $440,000 and the balance on the loans net of the debt discount is $322,855. Interest expense was $3,144 during the nine months ended September 30, 2020 and the entire amount has been accrued.

 

Note 5. Prepaid and Other Current Assets

 

The Company had a balance of $10,000 and $0 as of September 30, 2020 and December 31, 2019, respectively. During the nine months ended September 30, 2020, the Company paid $10,000 as a security deposit on a lease for office and warehouse space.

 

Note 6. Property and Equipment

 

As of September 30, 2020 and December 31, 2019, the balance of property and equipment represented consisted of the followings:

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Equipment (not placed in service)

 

$ 92,089

 

 

$ -

 

Accumulated depreciation

 

 

-

 

 

 

-

 

 

 

$ 92,089

 

 

$ -

 

 

Depreciation expense for the nine months ended September 30, 2020 and 2019 was $0 and $0, respectively.

 

During the nine months ended September 30, 2020 and 2019, the Company acquired property and equipment of $92,089 and $0, respectively.

 

 
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Note 7. Issuances of Securities

 

Share issuances 2019

 

During the nine months ended September 30, 2019, 1,435,769 shares of common stock were sold to non-affiliated investors in a private placement for total cash proceeds of $910,750, 400,000 shares of common stock were sold to securities counsel for total cash proceeds of $200,000, 200,000 shares of common stock were issued to securities counsel for services rendered with a fair value of $190,000, 100,000 shares of common stock were issued to each of two directors for services rendered with a fair value of $190,000 and 410,000 shares of common stock were issued to the Company’s CEO for conversion of notes payable and accrued liabilities totaling $205,000.

 

During the nine months ended September 30, 2019, 2,150,000 shares that were held in escrow originally were to vest upon a change of control of the Company were modified by the Board of Directors and deemed vested. The modification resulted in recording $2,021,000 of stock-based compensation expense which was the fair value of the shares on the date of the modification.

 

Share issuances 2020

 

During the nine months ended September 30, 2020, 1,975,500 shares of common stock were sold to non-affiliated investors in a private placement for total cash proceeds of $1,105,696, 50,000 shares of common stock were issued to a former medical advisor for services rendered with a fair value of $47,500, 425,000 shares of common stock were issued to consultants for services rendered with a fair value of $301,875 and 22,381 shares of common stock were cancelled.

 

Restricted stock units

 

As discussed in Note 3, the Board of Directors approved amendments to the previously granted restricted stock units (RSU) on March 25, 2019 for certain management and consultants to the Company. The amendments increased the total amount of RSU’s granted from 50,350,000 to 55,350,000. The amendments also changed the vesting conditions which resulted in 7,545,000 of the RSU’s vesting on July 15, 2020 and 50,000 of the RSU’s vesting on July 20, 2020. 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 $5,392,450 of stock-based compensation expense which was the fair value of the shares on the date of the modification.

 

In addition, the amendment will result in 10,060,000 of the RSU’s vesting on January 1, 2021. The fair value of these RSU’s on the date of the amendment was $7,142,600. The compensation expense is 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 $3,092,222 was recognized as expense during the nine months ended September 30, 2020 leaving total unrecognized compensation cost of $4,050,378.

 

Management is unable to determine 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 September 30, 2020, there was $31,963,827 unrecognized compensation cost related to the restricted stock unit awards.

 

 
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Activity related to our restricted stock units during the nine months ended September 30, 2020 was as follows:

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

 

 

Grant

 

 

 

Number of

 

 

Date Fair

 

 

 

Units

 

 

Value

 

Total awards outstanding at December 31, 2019

 

 

50,350,000

 

 

$ 0.94

 

Units granted

 

 

50,350,000

 

 

$ 0.71

 

Units Exercised/Released

 

 

(7,595,000 )

 

$ 0.71

 

Units Cancelled/Forfeited

 

 

(45,350,000 )

 

$ 0.94

 

Total awards outstanding at September 30, 2020

 

 

47,755,000

 

 

$ 0.73

 

 

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 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 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 said lawsuit. The parties have held various depositions and the Company had a motion to dismiss which was denied. The Plaintiff filed a motion to amend his complaint and the Company has submitted opposition papers and are awaiting an order from the Court. A trial is scheduled for August 10, 2021.

 

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. This case was settled on December 13, 2019, with Maxim agreeing to make certain payments to the Company post sale of their 500,000 Company shares, in an amount equal to one-half of their sales proceeds. To date, the Company has received no money.

 

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, filed a lawsuit against the Company and our Chief Executive Officer, Douglas Beplate, in the United States District Court of the District of Nevada. 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. A motion to dismiss the plaintiff’s claims was filed and on March 19, 2020 the motion to dismiss was denied. Discovery is now taking place.

 

 
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FSR Inc. commenced a lawsuit in 2018 against Korsair Holdings A.G. 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 that FSR 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 United Health Products, 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 deprive JEC as Liquidator of LeadDog of the ability to sell the Shares in the open market, knowingly, intentionally and directly causing economic harm to LeadDog Capital L.P. Intervenor as 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 3,050,000 shares are free trading; that Third-Party Plaintiff’s rights to 2.5 million of the Shares are superior to the claims of Plaintiff FSR; that Plaintiff FSR has no claim to 2.5 million of the 3,050,000 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 Korsair Shares where the ownership of the aforementioned shares have been in dispute and the Korsair shares have not been submitted for transfer to its transfer agent in proper form under the uniform commercial code. Recently, the Court granted the motion for a default by FSR, Inc against Korsair Holdings, AG., but denied any claim for relief against UHP, Inc. The Court ruled that the SEC must review the claim before the matter can proceed in Court. The SEC has yet to render a determination.

 

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

 

In October 2019 the Company filed a defamation, trade libel and unlawful and deceptive practices lawsuit against White Diamond Research LLC, Adam Gefvert, Streetsweeper.org, Sonya Colberg and others in response to a stock manipulation scheme to injure UHP for illegitimate personal gain. The complaint alleged that in August 2019 the above defendants published false and defamatory statements about UHP in “short and distort” schemes to artificially drive down the market price of UHP’s common stock while at the same time having a short position in UHP’s stock, so they could obtain illicit profits on their short sale positions. This lawsuit was settled in April 2020 on terms mutually agreed to by the Company and the defendant parties, without the exchange of monetary payment or other economic consideration.

 

On February 7, 2020, the Company filed the Original Petition for Fraud and Breach of Contract in the 215th Judicial District of Harris County. The demand for trial by jury was made. Defendants Patterson Companies Inc., and Patterson Management, L.P., were served on February 24, 2020. Defendants Patterson Veterinary, Inc. and Patterson Logistics Services, Inc. were served on February 25, 2020. Defendant Animal Health was served on February 27, 2020. On March 5, 2020, the Defendants removed to federal court. The defendants filed their answer in federal court on March 12, 2020.

 

On June 26, 2020 Defendant’s Animal Health International, et al filed a Motion for Judgment on the Pleadings. On July 16, 2020 Plaintiff, United Health Products, Inc., filed an opposed Motion for Leave to Amend the state court petition to conform with federal rules. On July 22, 2010 Judge Andrew Hanen denied the Defendant’s Motion for Judgment on the Pleadings and granted the Plaintiff’s Motion for Leave to file an Amended Complaint, directing the Clerk of the Court to file the First Amended Complaint. The initial pretrial conference occurred on August 25, 2020. The defendant has filed for summary judgement.

 

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 denies the allegations. The parties recently began conducting discovery.

   

Note 9. Subsequent Events

 

The Company has evaluated events from September 30, 2020, through the date whereupon the financial statements were issued and has determined that the following material events have occurred:

 

The Company received a total of $15,000 in loans from the Company’s Chief Executive Officer,

     

The Company’s Chief Operating Officer, Mr. Schiliro, converted $15,000 of accrued compensation into a convertible loan. The loan is convertible at $0.50 per share at the discretion of Mr. Schiliro, has a maturity date of March 31, 2021 and has an interest rate of 3%.

 

Various consultants, the Company's legal counsel and a medical advisor converted a total of $115,000 of accrued compensation into convertible loans. The loans are 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%.

   

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under ‘Risk Factors’ in our annual report on Form 10-K for the fiscal year ended December 31, 2019, filed with SEC on July 9, 2020.

 

Company Overview

 

United Health Products, Inc. (“UHP” or the “Company”) develops, manufactures, and markets a patented hemostatic gauze for the healthcare and wound care sectors. The product, HemoStyp®, is derived from all natural, oxidized regenerated cellulose and designed to absorb exudate/drainage from superficial wounds and help control bleeding. We are in the process of seeking regulatory approval to sell products into the U.S. Class III surgical market and are exploring commercial opportunities outside the Class III market in hemodialysis, emergency medicine, first responder and military applications, among others.

 

Impact of Covid-19 on our Business

 

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

 

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

 

Recent Developments

 

The following developments in the Company’s business have occurred during 2020:

 

 

·

The London based Journal of Wound Care published the Company's submitted article, Efficacy and Safety of HemoStyp as an Adjunct for Management of Secondary Hemostasis in the Operative Setting, in its November 2020 edition. The article highlights the results of the study demonstrating HemoStyp's superiority to Surgicel® Original, the current standard of care produced by Johnson & Johnson Ethicon division.

    

Our HemoStyp Gauze Products

 

HemoStyp Hemostatic Gauze is a collagen-like natural substance created from chemically treated cellulose. It is an effective hemostatic agent registered with the FDA to help control bleeding from open wounds and body cavities. The HemoStyp hemostatic material contains no chemical additives, thrombin or collagen, and is hypoallergenic. When the product comes in contact with blood it expands slightly and converts to an adhesive gel that subsequently breaks down into glucose and salts. Because of its benign impact on body tissue and the fact that it simply degrades to non-toxic end products, HemoStyp does not cause significant delay in healing as do certain other hemostatic materials. Labratory testing has shown HemoStyp to be 100% absorbable in the human body in 24 hours or less. A human trial conducted in 2019 and 2020 demonstrated the effectiveness of HemoStyp in vascular, thoracic and abdominal surgical procedures.

 

 
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HemoStyp Hemostatic Gauze is a flexible, cloth-like material that is applied by folding the gauze as needed to fit the size of the wound or incision, and then placing the gauze onto the bleeding tissue. In surgical situations, the product quickly converts to a transparent gel with a neutral pH level that allows the surgeon to monitor the coagulation process and also avoids damage to the surrounding tissue. In superficial wound situations, HemoStyp can be integrated into a plastic bandage with or without a traditional gauze component to help stop bleeding.

 

Potential Target Markets

 

Our technology can be marketed as HemoStyp Gauze in various configurations and sizes both domestically and internationally. Our potential customer base includes, without limitation, the following (noting that we have several formats of Trauma Gauze):

 

Hospitals and Surgery Centers for all Internal Surgical usage, post FDA Class III approval

 

Hospitals, Clinics and Urgent Care centers – For external trauma

EMS, Fire Departments and other First Responders

Correctional Facilities

Schools, Universities and Day Care Facilities

Nursing Homes and Assisted Living Environments

Home Care Providers

Dentist and OMS offices

Sports Medicine Providers

Veterinary hospitals

Municipalities and Government Agencies

Hemodialysis centers

 

Consumers

 

Primary Strategy

 

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 hemostatic agents and the resulting premium pricing for products that can meet the demanding requirements of the human surgical environment. Our preliminary tests and our completed human trial lead us to believe that the HemoStyp technology can compete against established market participants and allow us to gain a significant market share. In 2018, we made the decision to focus our efforts on becoming a stronger medical technology company with a patented technology for Class III surgical markets that would enhance the Company’s value and overall market strength. The FDA approval process requires a substantial amount of the Company’s resources and energy so we paused our efforts on sales and marketing to non-Class III markets and our full attention was focused on completing the FDA process and identifying an acquisition/commercial partner candidate. As of the filing date of this Form 10-Q, the FDA review process, which was temporarily held up by the Covid-19 pandemic, is ongoing.

 

 
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In anticipation of receiving Class III approval, we are evaluating the best paths to rapidly grow our revenue and profits in all potential market segments, which could include seeking (i) a potential sale or merger, which may include a pre-sale commercialization component, (ii) one or more commercial partnerships and licensing agreements with established market participants, without an associated sale or merger, or (iii) to raise the necessary capital to establish and grow our own marketing and distribution capabilities and drive revenue and profits organically.

 

The Company has been contacted by several medical technology companies that are active in the surgical equipment and hemostatic products sectors, and who have expressed an interest in the Company’s products and business strategy. In response to these inbound contacts, and to maximize shareholder value, the Company’s board of directors has determined to conduct a review of strategic alternatives, which include, without limitation, identifying an acquisition candidate, joint ventures or other commercial partnerships, or a standalone growth plan. To assist in this review and strategy, the Company is working with a financial advisory firm. There can be no assurances that any specific transaction will occur as a result of this strategic. No assurances can be given that the Company will identify an acquisition or commercialization candidate(s) or complete a transaction.

 

Manufacturing and Packaging of our Products

 

The Company’s cellulose products are manufactured in the United States to our specifications at various facilities. We have established various contract manufacturing facilities. All of these facilities have been carefully vetted and have supplied multiple Quality Control program certificates and are registered FDA facilities. These facilities have been submitted as part of our PMA submission, which includes the FDA inspection records of these facilities.

 

Patents and Trademarks

 

The Company’s hemostatic gauze products are patented in the U.S. Patent and Trademark Office (“USPTO”), which patent protection currently runs through 2029. However, if our intellectual property positions are challenged, invalidated, circumvented, or expire, or if we fail to prevail in future intellectual property litigation, our business could be adversely affected. We have created multiple variations of our gauze product and will protect each of these new generation platforms and product with additional intellectual property. Our success depends in part on our ability to defend our intellectual property rights. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and often involve complex legal, scientific, and factual questions. Third parties may seek to challenge, invalidate, or circumvent our intellectual property rights. In addition, our patent positions might not protect us against competitors with similar products or technologies because competing products or technologies may not infringe our patents. Also, there are third parties who have patents or pending patent applications that they may claim necessitate payment of a royalty or prevent us from commercializing our patent in certain territories. Patent disputes are frequent, costly and can preclude, delay, or increase the cost of commercialization of products.

 

The Company has registered trademarks for the following:

 

 

Boo Boo Strips:

 

 

 

 

The Ultimate Bandage

 

 

 

 

Hemostrips

 

 

 

 

Nik Fix

 

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

 

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

     

 

 

For the Three Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Revenue

 

$ 136

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$ 102

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Operating (expenses)

 

$ (9,105,901 )

 

$ (478,715 )

 

 

 

 

 

 

 

 

 

Operating (loss)

 

$ (9,105,799 )

 

$ (478,715 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

$ (115,560 )

 

$ (46,154 )

 

 

 

 

 

 

 

 

 

Net (loss)

 

$ (9,221,359 )

 

$ (524,869 )

 

 

 

 

 

 

 

 

 

Basic and diluted (loss) per common share

 

$ (0.05 )

 

$ (0.00 )

   

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

 

During the three months ended September 30, 2020 and 2019, the Company had $136 and $0 of revenues, respectively. Revenues were minimal and insignificant in the third quarter of 2020 and there were no sales in the third quarter of 2019. The Company has continued to devote its attention and efforts towards making our technology and product more commercially viable, by seeking to obtain FDA class III approval for internal surgical purposes. The Company is continuing this strategy based on our belief that the greatest value to our shareholders will come from this FDA Class III approval for general surgical use, and pursuing opportunities that we anticipate will be available to the Company if this FDA approval is obtained, including, among other things, fostering interest from potential merger and acquisition candidates. In this strategy and approach, the Company made a determination not to engage new distribution partners as that could create conflicts with a potential acquiror/commercialization candidate and tie the Company’s hands from a revenue or branding perspective. The Company expects that if an acquisition candidate is identified it may also include a pre-acquisition commercialization component and in that case current vendor and future relationships and all pending purchase orders will likely be facilitated by that company. No assurances can be given that the Company will identify an acquisition or commercialization candidate or complete a transaction with such a candidate on terms satisfactory to us, if at all.

 

Total operating expenses for the three months ended September 30, 2020 and 2019 were $9,105,901 and $478,715, respectively. The increase in operating expenses is due primarily to an increase in stock-based compensation expense. The Company recorded $8,484,672 of stock-based compensation related to the amendment to the restricted stock award agreement made during the quarter. The amendment resulted in the vesting of 7,595,000 of restricted stock awards the immediate recognition of $5,392,450 of expenses and also $3,092,222 of stock-based compensation due to the amortization of the restricted stock units that vest on January 1, 2021. In addition, the Company issued 250,000 shares of common stock to consultants for services with a value of $153,750. The increase in stock-based compensation was offset by a decrease in research and development of $89,951.

 

 
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Our net loss for the three months ended September 30, 2020 was $9,221,359 as compared to net loss of $524,869 for the comparable period of the prior year. The increase in the net loss is due to the Company having an increase in operating expenses of $8,627,186 as explained above along with interest expense increasing from $46,154 during the three months ended September 30, 2019 to $115,560 for the three months ended September 30, 2020. The increase in interest expense is due to the Company entering into various convertible loans and convertible loans – related party during the quarter which resulted in amortization of debt discount during the three months ended September 30, 2020 of $111,606 compared to $46,154 in the comparable period of 2019.

 

Results of Operations for the nine months ending September 30, 2020 and 2019

 

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

   

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Revenue

 

$ 563

 

 

$ 4,927

 

 

 

 

 

 

 

 

 

 

Gross profit

 

$ 368

 

 

$ 4,425

 

 

 

 

 

 

 

 

 

 

Operating (expenses)

 

$ (10,377,849 )

 

$ (3,750,869 )

 

 

 

 

 

 

 

 

 

Operating (loss)

 

$ (10,377,481 )

 

$ (3,746,444 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

$ (162,751 )

 

$ (248,906 )

 

 

 

 

 

 

 

 

 

Net (loss)

 

$ (10,540,232 )

 

$ (3,995,350 )

 

 

 

 

 

 

 

 

 

Basic and diluted net (loss) per common share

 

$ (0.06 )

 

$ (0.02 )

   

Nine Months ended September 30, 2020 versus Nine Months ended September 30, 2019

 

During the nine months ended September 30, 2020 and 2019, the Company had $563 and $4,927 of revenues, respectively. Revenues were minimal during the nine months September 30, 2020 and 2019 and decreased compared to the prior year. The Company has continued to devote its attention and efforts towards making our technology and product more commercially viable, by seeking to obtain FDA class III approval for internal surgical purposes. The Company is continuing this strategy based on our belief that the greatest value to our shareholders will come from this FDA Class III approval for general surgical use, and pursuing opportunities that we anticipate will be available to the Company if this FDA approval is obtained, including, among other things, fostering interest from potential merger and acquisition candidates. In this strategy and approach, the Company made a determination not to engage new distribution partners as that could create conflicts with a potential acquiror/commercialization candidate and tie the Company’s hands from a revenue or branding perspective. The Company expects that if an acquisition candidate is identified it may also include a pre-acquisition commercialization component and in that case current vendor and future relationships and all pending purchase orders will likely be facilitated by that company. No assurances can be given that the Company will identify an acquisition or commercialization candidate or complete a transaction with such a candidate on terms satisfactory to us, if at all.

 

 
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Total operating expenses for the nine months ended September 30, 2020 and 2019 were $10,377,849 and $3,750,869, respectively. The increase in operating expenses is due primarily is due primarily to an increase in stock-based compensation expense. The Company recorded $8,484,672 of stock-based compensation related to the amendment to the restricted stock award agreement made during the period. The amendment resulted in the vesting of 7,595,000 of restricted stock awards the immediate recognition of $5,392,450 of expenses and also $3,092,222 of stock-based compensation due to the amortization of the restricted stock units that vest on January 1, 202 compared to the Company recording stock based modification expense of $2,021,000 due to the change in vesting conditions of 2,150,000 shares of common stock previously held in escrow during the nine months ended September 30, 2019.

 

In addition, the Company issued 425,000 shares of common stock to consultants for services with a value of $301,875 during the nine months ended September 30, 2020 compared to 400,000 shares of common stock for services valued at $380,000.

 

The increase in stock-based compensation was offset by a decrease in research and development of $301,546.

 

Our net loss for the nine months ended September 30, 2020 was $10,540,232 as compared to net loss of $3,995,350 for the comparable period of the prior year. The increase in the net loss is due to the Company having an increase in operating expenses of $6,626,980 as explained above along with interest expense decreasing from $248,906 during the nine months ended months ended September 30, 2019 to $162,751 for the nine months ended September 30, 2020. The decrease in interest expense is due to the Company only having $158,110 of amortization of debt discount during the nine months ended September 30, 2020 compared to $248,908 in the comparable period of 2019.

 

Financial Condition, Liquidity and Capital Resources

 

As of September 30, 2020, the Company had a negative working capital of $1,321,016. The Company has not yet attained a level of operations, and for the foreseeable future will not be pursuing commercial operations, which will allow the it to meet its current overhead while it focuses on its strategy of seeking FDA class III approval for internal surgical purposes, and opportunities which may arise from that including, among other things, fostering interest from potential merger and acquisition candidates or commercial partners. If we are not successful in our strategy, we cannot assure that we will be able to adjust to and fund a marketing and sale strategy, and if we do, we are unable to assure we will attain profitable operations within the next few business operating cycles or at all. The report of our independent registered public accounting firm on our 2019 financial statements includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. While the Company has funded its initial operations with private placements, and secured loans from related parties, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company. Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, our ability to achieve our business goals and objectives, as well as improvement in the economic climate.

 

Cash Flows

 

The Company’s cash on hand at September 30, 2020 and December 31, 2019 was $6,705 and $16,624, respectively.

 

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

 

 

 

For the Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

Net cash used in operating activities

 

$ (1,180,494 )

 

$ (1,245,804 )

Net cash used in investing activities

 

 

(92,089 )

 

 

-

 

Net cash provided by financing activities

 

 

1,262,664

 

 

 

1,302,750

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

$ (9,919 )

 

$ 56,946

 

 

 
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Net Cash Provided by (Used in) Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2020 was $1,180,494. The Company had net loss of $10,540,232 offset by stock based compensation of $8,786,547, amortization of debt discount of $158,110 a decrease in inventory of $194, an increase in accounts payable and accrued expenses of $279,782 and an increase in accrued liabilities - related party of $145,105. The Company also had an increase in prepaid and other current assets of $10,000.

 

Net cash used in operating activities for the nine months ended September 30, 2019 was $1,245,804. The Company had a net loss $3,995,350 offset by stock-based compensation of $2,401,000, amortization of debt discount of $248,908, a decrease in prepaid and other current assets of $50,000 and an increase in accounts payable and accrued expenses of $92,754. The also had a decrease in accrued liabilities – related party of $2,870, an increase in accounts receivable of $4,927 and an increase in inventory of $35,319.

 

Net Cash Provided by (Used in) Investing Activities

 

Net cash used in investing activities for the six months ended September 30, 2020 was $92,089. This was due to the Company purchasing equipment during the period in preparation of opening up its own facility.

 

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

 

Net Cash Provided by (Used in) Financing Activities

 

Net cash provided by financing activities for the nine months ended September 30, 2020 was $1,262,664. This was due to the Company receiving $325,000 from proceeds related to a convertible loan, $337,730 from related parties, $1,105,696 in proceeds from the sale of stock offset by making payments of $505,762 on related party loans.

 

Net cash provided by financing activities for the nine months ended September 30, 2019 was $1,302,750. This was due to the Company receiving $1,110,750 in proceeds from the sale of stock and receiving $292,000 from related party loans offset by making payments of $100,000 on related party loans.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies

 

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

 

 
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Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the sale of its HemoStyp product by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

The Company receives orders for its HemoStyp products directly from its customers. Revenues are recognized based on the agreed upon sales or transaction price with the customer when control of the promised goods are transferred to the customer. The transfer of goods to the customer and satisfaction of the Company’s performance obligation will occur either at the time when products are shipped or when the products arrive and are received by the customer. No discounts were offered by the Company. The Company does not provide an estimate for returns as there is no anticipation for any returns in the normal course of business.

 

Stock Based Compensation

 

The Company accounts for share-based compensation under the provisions of ASC 718, Compensation-Stock Compensation. Under the fair value recognition provisions, stock-based compensation expense is measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measured. Share-based compensation for all stock-based awards to employees and directors is recognized as an expense over the requisite service period, which is generally the vesting period.

 

The Company accounts for stock compensation arrangements with non-employees in accordance with Accounting Standard Update (ASU) 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which requires that such equity instruments are recorded at the value on the grant date.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company is in the process of implementing disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports are recorded, processed, summarized, and reported within the time periods specified in rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our Chief Executive Officer to allow timely decisions regarding required disclosure.

 

As of September 30, 2020, the Chief Executive Officer and Chief Financial Officer carried out an assessment of the effectiveness of the design and operation of our disclosure controls and procedure and concluded that the Company’s disclosure controls and procedures were not effective.

 

Changes in Internal Control over Financial Reporting

 

During the three months ended September 30, 2020, there were no changes in our system of internal controls over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

See “Note 8” in the Notes to Condensed Financial Statements.

 

Item 1A. Risk Factors

 

Management does not believe there have been any material changes to the risk factors listed in Part I, “Item 1A, Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2019. These risk factors should be carefully considered with the information provided elsewhere in this report, which could materially adversely affect our business, financial condition or results of operations.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(a) From January 1, 2020 through September 30, 2020, we had no sales or issuances of unregistered common stock, except we made sales or issuances of unregistered securities listed in the table below:

 

Date of Sale

 

Title of

Security

 

Number

Sold

 

 

Consideration Received

and Description of

Underwriting or Other

Discounts to Market Price

or Convertible Security,

Afforded to Purchasers

 

Exemption

from

Registration Claimed

 

If Option, Warrant or Convertible Security, terms of exercise or conversion

 

Jan. – March 31, 2020

 

Common Stock

 

 

1,467,500

 

 

$826,696 in cash, $47,500 in services rendered, no commissions paid

 

Rule 506;

Section 4(2)

 

Not applicable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

April – June 30, 2020

 

Common Stock

 

 

683,000

 

 

$279,000 in cash, $100,625 in services rendered, no commissions paid

 

Rule 506;

Section 4(2)

 

Not applicable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July – Sept. 30, 2020

 

Common Stock

 

 

7,845,000

 

 

$5,546,200 in services rendered, no commissions paid

 

Rule 506;

Section 4(2)

 

Not applicable

 

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

Not applicable.

 

 
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Item 6. Exhibits

 

The following exhibits are filed with this report, or incorporated by reference as noted:

 

3(i)

 

Articles of Incorporation of the Company dated February 28, 1997. (1)

 

3(ii)

 

Amendment to Articles of Incorporation. (1)

 

3(iii)

 

By-laws of the Company. (2)

 

3(iv)

 

August 2015 Amendment to Articles of Incorporation. (3)

 

10.1

 

Services Agreement with Louis Schiliro (5)

 

10.2

 

Services Agreement – Nate Knight (4)

 

 

 

10.3

 

January 2015 Services Agreement with Douglas Beplate (6)

 

10.4

 

Restricted Stock Unit Agreement - Louis Schiliro (7)

 

 

 

10.5

 

Restricted Stock Unit Agreement - Douglas Beplate (7)

 

21

 

Subsidiaries of the Registrant – none

 

31.1

 

Certification of Principal Executive Officer*

 

31.2

 

Certification of Principal Financial Officer*

 

32.1

 

Section 1350 Certificate by Principal Executive Officer*

 

32.2

 

Section 1350 Certificate by Principal Financial Officer*

 

99.1

 

2019 Employee Benefit and Consulting Services Compensation Plan (8)

 

 

 

101.SCH

Document, XBRL Taxonomy Extension (*)

101.CAL

Calculation Linkbase, XBRL Taxonomy Extension Definition (*)

101.DEF

Linkbase, XBRL Taxonomy Extension Labels (*)

101.LAB

Linkbase, XBRL Taxonomy Extension (*)

101.PRE

Presentation Linkbase (*)

__________ 

* Filed herewith.

 

 
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(1)

Incorporated by reference to the Company’s Form 10-Q for the quarter ended September 30, 2014.

(2)

Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2005.

(3)

Incorporated by reference to Form 8-K dated August 7, 2015 – date of earliest event filed on August 10, 2015.

(4)

Incorporated by reference to Form 8-K dated November 23, 2014.

(5)

Incorporated by reference to the Company’s Form 10-Q for the quarter ended June 30, 2018.

(6)

Incorporated by reference to the Form 8-K dated January 16, 2015.

 

 

(7)

Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2018.

 

 

(8)

Incorporated by reference to Form S-8 dated October 31, 2019.

  

 
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SIGNATURES

 

Pursuant to the requirements Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

UNITED HEALTH PRODUCTS, INC.

Dated: November 13, 2020

By:

/s/ Douglas Beplate

Douglas Beplate

Principal Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

Signatures

Title

Date

By:

/s/ Douglas Beplate

Principal Executive Officer and

November 13, 2020

Douglas Beplate

Chairman of the Board

By:

/s/ Nate Knight

Principal Financial Officer and Director

November 13, 2020

Nate Knight

By:

/s/ Robert Denser

Director

November 13, 2020

Robert Denser

 

Douglas Beplate, Nate Knight and Robert Denser represent all the current members of the Board of Directors.

 

 
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