Notes to the Condensed Financial Statements
March 31, 2019
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Nu-Med Plus, Inc. (or “the Company”) is an emerging growth early stage medical device company principally engaged in the design, innovation, development, enhancement and commercialization of beginning, early, and selective later-stage quality medical devices. The Company's immediate focus is on the development of Nitric Oxide delivery devices, including a hospital unit, a clinical unit to be used in doctors’ offices and extended care facilities, a portable unit and a single use disposable unit. We are also developing a powder formulation to generate Nitric Oxide that is 99% pure, with a one-year shelf life, a "desktop" generator device with controls plus safety monitors built in that delivers inhaled Nitric Oxide to replace expensive pressurized canisters and a compact mobile rechargeable device to deliver inhaled Nitric Oxide gas. The Company is incorporated in Utah.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Interim Financial Statement Presentation
The accompanying unaudited financial statements have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission. The information furnished in the interim financial statements includes normal recurring adjustments and reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim financial statements be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its December 31, 2018 financial statements. Operating results for the three-months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
b. Revenue Recognition
The Financial Accounting Standards Board (“FASB”) issued new guidance for the recognizing and reporting of revenue in contracts with customers. The effective date for implementation for public companies is January 1, 2018.
The new guidance established a five-step analysis to be followed when determining the recognition of revenue.
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 the performance obligations in the contract.
5.
Recognize revenue when, or as, the reporting organization satisfied a performance obligation.
While the Company is an early-stage company with no revenue, at the time we begin to generate revenue the Company will recognize such revenue in conformity with the guidelines set forth by ASC 606.
c. Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
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States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
d. Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB Accounting Standards Codification (“ASC”) Topic 820 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements), as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than level one inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
All accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to the short-term nature of these financial instruments.
e. Cash and Cash Equivalents
The Company considers all deposit accounts and investment accounts with an original maturity of 90 days or less to be cash equivalents. The cash balance of $23,276 we currently have on deposit is within the limits for which the FDIC insures.
f. Property and Equipment
Property and equipment is stated at cost. Expenditure for minor repairs, maintenance, and replacement parts which do not increase the useful lives of the assets are charged to expense as incurred. Expenditures, exceeding $500, for new assets or that increase the useful life of existing assets are capitalized. Depreciation is computed using the straight-line method. The lives over which the fixed assets are depreciated are five to seven years.
g. Leases
In February 2016, the FASB updated the accounting guidance related to leases, requiring lessees to recognize lease assets and liabilities on the balance sheet for all operating leases, with the exception of short-term leases. We adopted the updated guidance on January 2019 on a prospective basis and as a result, prior periods presented in these financial statements have not been adjusted to reflect the impact of this new guidance. The resultant assets and liabilities recognized in the current period will be amortized over the remaining life of the respective leases.
h. Earnings per Share
The computation of earnings per share of common stock is based on the weighted average number of shares outstanding during the period of the financial statement.
Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. As of March 31, 2019 and 2018, there were convertible notes which
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could be converted into 36,581,072 shares and 31,560,500 shares of restricted common stock, respectively. In addition, at March 31, 2019 and March 31, 2018 there were stock subscriptions for which 3,572,950 and 3,357,300 shares of stock, respectively, are to be issued.
i. Income Taxes
Deferred taxes are provided on an asset and liability approach whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
j. Stock-based Compensation
The Company, in accordance with ASC 718,
Compensation – Stock Compensation
, records all share-based payments to employees at the grant-date fair value of the equity instruments issued. In accordance with ASC 718-10-30-9,
Measurement Objective – Fair Value at Grant Date
, the Company uses the closing price of the stock, as quoted by NASDAQ, on the date of the grant. The Company believes this pricing method provides the best estimate of the fair value of the consideration given. Compensation cost is recognized over the requisite service period.
The Company, in accordance with this updated standard, establishes the value of equity instruments issued to non-employees for goods and services by using the closing price of the stock, as quoted by NASDAQ on the date of the grant. The Company believes this method fairly establishes the value of the goods and/or services received.
k. Recent Accounting Pronouncements
In July 2018, the Financial Accounting Standards Board issued ASU No. 2018-11 “
Leases
”, a clarification of the guidance issued in February 2016, ASU No. 2016-02, “
Leases
” Topic 842. The Company adopted this standard effective January 1, 2019. The adoption of this standard resulted in recording right-of-use assets and lease liabilities on its balance sheet. The adoption was made on a prospective basis and, as a result, prior period amounts were not adjusted to reflect the impact of the updated guidance. The adoption of this new accounting guidance did not have a significant impact on our financial statements. See Note 8.
June 2018, the FASB issued ASU 2018-07,
Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
, which simplifies the accounting for nonemployee share-based payment transactions by expanding the scope of ASC Topic 718,
Compensation - Stock Compensation
,
to include share-based payment transactions for acquiring goods and services from nonemployees. Under the new standard, most of the guidance on stock compensation payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. This standard became effective for us on January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.
The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position and cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.
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NOTE 3 - GOING CONCERN
The Company acknowledges that the funds on hand as of March 31, 2019, will not be sufficient to enable it to execute its business plan and funding through the sale of equity capital and short term related party and other shareholder loans in order to meet the planned expenditures for development, operations, and administrative cost over the next 12 months will be required. Planned expenditures are approximately $1,200,000 for the next twelve months. The Company is currently funded through August 31, 2019. If plans to obtain further financing prove to be insufficient to fund operations, continued viability could be at risk. These factors raise substantial doubt about the Company's ability to continue as a going concern.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation consisted of the following at March 31, 2019, and December 31, 2018:
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|
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March 31, 2019
|
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December 31, 2018
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|
|
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|
|
|
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Computer and office equipment
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$ 90,368
|
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$ 90,368
|
|
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Accumulated depreciation
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(57,352)
|
|
(53,577)
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|
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Total Fixed Assets
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$ 33,016
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$ 36,791
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Depreciation expense for the three months ended March 31, 2019 and 2018 was $3,775 and $3,585, respectively.
NOTE 5 - PREFERRED STOCK
On October 19, 2011, the Company filed Articles of Incorporation with the State of Utah so as to authorize 10,000,000 shares of preferred stock having a par value of $0.001 per share. No preferred shares are issued or outstanding at March 31, 2019.
NOTE 6 - COMMON STOCK
Stock issued for stock subscriptions payable
As of March 31, 2019 and 2018, the Company had subscriptions payable of $894,175 and $864,625, for which the Company had an obligation to issue 3,572,950 and 3,357,300 shares of restricted common stock, respectively.
During the three months ended March 31, 2019, the Company issued 40,000 shares of restricted common stock for $10,000 received during the year ended December 31, 2018.
In September 2017, the Company entered into a stock purchase agreement with a related party, significant shareholder and debt holder, under which the buyer may purchase up to $400,000 in shares of common stock at $0.25 per share. The agreement expires on December 31, 2019. We received cash proceeds of $55,000 under this agreement during the period ended March 31, 2019 for 220,000 shares of restricted common stock. The buyer has the option to fund an additional $191,930 for 767,720 shares of common stock, until the expiration on December 31, 2019. At the date of this report no stock has been issued against this agreement. As of March 31, 2019, the shares that have yet to be issued have been recorded as a subscription payable in the amount of $208,070.
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Stock issued for services
In September 2018, the Company issued 650,000 shares of stock to two consultants. Of these shares, 150,000 were issued under a consulting contract for services rendered and vested upon issue and 500,000 shares of restricted stock were issued to a consultant for services rendered and to be rendered through June 1, 2019. The common stock was valued at $639,000, of which $122,055 was recorded as consulting expense for the three months ended March 31, 2019 and $432,750 was recorded as consulting expense during the year ended December 31, 2018. A prepaid expense for the remaining balance of $84,195 is recorded and will be amortized over the remaining term of the consulting agreement.
Stock issued for compensation
On February 14, 2018 the Company announced that the consulting agreement with Mr. Merrell was terminated effective December 31, 2017, and that a new agreement was entered into effective January 1, 2018 under which Mr. Merrell would receive 2,000,000 shares of restricted common stock, vesting at 500,000 shares per year, for services to be performed between January 01, 2018 and December 31, 2021. The shares were valued at $800,000. An expense of $50,000 was recorded for the three-month period ended March 31, 2019 and an expense of $200,000 was recorded for the year ended December 31, 2018, which represents the fair value of the stock vested during that reporting period. The remaining $550,000 will be expensed over the remaining term of the contract as services are rendered.
NOTE 7 – CONVERTIBLE POMISSORY NOTES – Related Party
$100,000 Convertible Promissory Note
On November 12, 2012, the Company issued a $100,000 convertible promissory note to SCS, a related party and significant shareholder, as compensation for services provided during the period April 1, 2012 through March 31, 2013. The note is due on demand, bears annual interest at 5.5%, and is convertible into shares of common stock at a conversion price to be agreed upon immediately prior to conversion. On September 27, 2013, the Company amended the note to include a conversion price which of $0.01 per share for all unpaid principal and interest. As of March 31, 2019 and December 31, 2018 the Company has unpaid accrued interest of $56,832 and $55,453, respectively.
$130,100 Convertible Promissory Note
Prior to 2015, the Company entered into a convertible promissory note with SCS, a related party and significant shareholder, due on demand, bearing interest at 8% per annum, unsecured and convertible at $0.01 per share. The balance of this note was $130,100 at March 31, 2019 and December 31, 2018 the unpaid accrued interest on this note was $44,751 and $42,149, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company has obligations under both a financing lease and operating lease, as detailed below.
Operating Lease Obligations
The following was included in our consolidated condensed balance sheet as of March 31, 2019:
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Leases
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As of March 31, 2019
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Assets
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ROU operating lease assets
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$
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5,039
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Liabilities
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Short-term operating lease liabilities
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$
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5,039
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Total operating lease liabilities
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$
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5,039
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The Company entered into a lease for office space in February 2017 for $950 per month. In November 2017 the Company signed a six-month extension of the lease with a lease payment of $978 per month. In March 2018 the Company extended the lease agreement through August 31, 2019 at a rate of $1,008 per month. Obligations under this lease are as follows:
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2019
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2020
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2021
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Office lease
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$ 5,039
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$ -
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$ -
|
Upon the adoption of ASC 842, the calculation of our lease obligation using a discount rate of 8% resulted in an immaterial difference and therefore, no interest will be imputed on the lease obligation.
Supplemental cash flow information related to leases for the period ended March 31, 2019:
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Right-of-use operating lease assets obtained in exchange for operating lease liabilities
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First
Quarter
2019
$8,063
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|
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Financing Lease Obligations
In March 2017, the Company also entered into a 32-month lease for a nitric oxide analyzer, with a monthly payment of $1,014 per month.
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As of March 31, 2019, maturities of financing lease liabilities were the following:
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Year ended December 31,
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Amounts under operating leases
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Remaining 2019
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$
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9,045
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Total lease payment
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9,045
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Less: Imputed interest
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(628)
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Total
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$
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8,417
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The lease is a financing lease, with the option to purchase at the end of the lease term. The Company plans to exercise the purchase option under the lease, whereby 70% of the lease payments will be applied toward the purchase price of the equipment.
As of
March 31, 2019, the following disclosures for remaining lease term and incremental borrowing rates were applicable:
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Supplemental disclosure
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March 31, 2019
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Weighted average remaining financing lease term
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.75 years
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Weighted average discount rate
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1.67%
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NOTE 10 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no events that require disclosure as of the date of issuance.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Financial Statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.
The Company’s accounting policies are more fully described in Note 2 of the audited financial statements in our
recently filed Form 10-K. As discussed in Note 2, the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the future events that affect the amounts reported in the financial statements and the accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual differences could differ from these estimates under different assumptions or conditions. The Company believes that the following addresses the Company’s most critical accounting policies.
We recognize revenue in accordance with ASC 606, which establishes a five-step analysis to be followed when determining the recognition of revenue. While the Company is an early-stage company with no revenue, at the time we begin to generate revenue the Company will recognize such revenue in conformity with the guidelines set forth by ASC 606.
Our policy for our allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required payments. If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required.
We account for income taxes in accordance with the Tax Cuts and Jobs Act and SAB 118
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BUSINESS OVERVIEW
NU-MED PLUS, INC., a Utah corporation (“NU-MED” or the “Company”) was incorporated in October 2011 in the state of Utah to develop, manufacture and market new technologies utilizing nitric oxide in the medical device field, primarily through the creation of a nitric oxide generating compound formulation and delivery systems. To date we have developed a hospital nitric oxide delivery system, a clinical nitric oxide delivery system, a mobile rechargeable device to deliver nitric oxide gas, and a nitric oxide system that can be used for research applications. NU-MED is headquartered in Salt Lake City, Utah.
Business
The mission of NU-MED is to design, develop, and market technologies in the medical device field. Our technologies will focus on market niches in high growth trend areas. We hope each developed technology will fill a current need in medical procedures by improving upon an existing technology or device, or by designing a device to serve a need that is clearly defined and acknowledged by medical professionals.
NU-MED is a medical device company principally engaged in the design, innovation, development, enhancement and commercialization of beginning, early, and selective later-stage quality medical devices. The mission of NU-MED is to design, develop, and market technologies utilizing nitric oxide in the medical device field. Our technologies will focus on market niches in high growth trend areas. Our products are developed to target a current need in medical procedures by improving upon an existing technology or device or by designing a device to serve a currently unfilled need that is clearly defined and acknowledged by medical professionals. Our focus has been on the creation of a nitric oxide generating formulation, a hospital bedside nitric oxide delivery system, a clinical unit for use in medical clinics and rehabilitation centers and a mobile rechargeable device to deliver nitric oxide gas to offer solutions to hospitals, health systems and the medical community throughout the world.
NU-MED PLUS has focused on the development of five distinct products for the delivery of nitric oxide. NU-MED products have not been fully developed; therefore we have not made any submission for FDA approval under any medical use.
1.
Nitric oxide proprietary formulation.
2. A hospital delivery device with controls and safety monitors built in that delivers inhaled nitric oxide to a patient at therapeutic levels. This delivery system is intended for hospitals specifically intensive care units. The goal is to have a system that delivers a metered therapeutic dose (up to 40 ppm) of nitric oxide via a ventilator. The core technology allows dilution of nitric oxide to therapeutic levels to be accomplished without the use of injectors or valves. Safeguards such as concentration monitoring, flow and gas purity would be standard.
3. A clinical delivery unit that is designed for treatment in an office or physician’s clinic. A unit powered by a wall outlet, administration of the nitric oxide would be via cannula or non-rebreather face mask
4. A compact, mobile/portable rechargeable device to deliver inhaled nitric oxide gas. The portable system necessitates a design which can be deployed where a reliable source of power is not available or is difficult to access. The key feature is a rechargeable battery pack that powers the unit for the full duration of a therapeutic session. It can be recharged using existing electrical sources, a solar array or other alternative energy source. The unit is designed as a low power but fully functional nitric oxide delivery system for inhalation therapy, that can be used as a transport device during the movement of a patient or as a delivery device in those remote areas of the world that do not currently have electrical power readily available.
5. A unit that is one of the world’s first nitric oxide dilution systems designed for research. A patent pending technology utilizes pure 100% nitric oxide from a pressurized tank source and dilutes it with air or other non-
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reactive diluent gas to provide a 1 to 500 ppm source of high purity nitric oxide for investigational applications.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2019, we had assets of $154,501 with current assets of $121,485 and liabilities of $379,169. Our current assets consisted primarily of cash in the amount of $23,276 and prepaid expenses in the amount of $93,170. We currently have no revenue and have had to rely on loans from shareholders or sale of our stock to cover expenses. Without additional capital, we will not be able to stay in business and move our business plan forward. We anticipate, based on our preliminary budgets, that we will need $300,000 in additional financing for the next twelve months to cover our corporate overhead and need an additional $900,000 to cover ongoing product development. Since we will not have a commercial product in the next twelve months, we will have to continue to rely on outside funding to support our operations and product development and testing efforts. Given the financial state of NU-MED, we will not be able to seek traditional bank financing and have to rely on private stock sales as well as potential loans from investors and shareholders. At this time, we have a stock subscription agreement under which the investor has the right to purchase up to $400,000 of restricted common stock at a price of $0.25 per share. During the three-month period ended March 31, 2019, we accepted $55,000 under this agreement. We cannot estimate the full costs to bring our proposed product to market or the timing of such commercialization. Given the nature of our product being in the medical field, testing is very expensive and we would need more capital prior to completing the testing phase. Any refinement or modification of the product after the prototype is developed would also require additional capital. At this time, we will have to continue to rely on outside capital and a budget that may require adjustment as we move further in the product development phase.
RESULTS OF OPERATIONS
For the three months ended March 31, 2019 and March 31, 2018, we had no revenues and operating expenses of $423,728 and $142,563, respectively. The higher operating expenses results from increased use of consultants to accelerate the finalization of the design and production of our first nitric oxide dispensing units, non-cash charges for stock issued to a consultant and to an officer of the Company. For the three months ended March 31, 2019 we had other expenses of $4,467. For the three months ended March 31, 2018, we had other expense of $4,923. We will be dependent on outside capital to support operations for the foreseeable future and at this time do not have any commitments for additional capital beyond the $400,000 stock subscription earlier mentioned. We do not anticipate any revenue for the foreseeable future as our products are still in the development stage.
Off-Balance Sheet Arrangements.
The Company does not have any off-balance sheet arrangements and it is not anticipated that the Company will enter into any off-balance sheet arrangements.
Forward-looking Statements
Our Company and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this Quarterly Report and other filings with the Securities and Exchange Commission and in reports to our Company’s stockholders. Management believes that all statements that express expectations and projections with respect to future matters, as well as from developments beyond our Company’s control including changes in global economic conditions are forward-looking statements within the meaning of the Act. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Factors that may affect forward-looking statements include a wide range of factors that could materially affect future developments and performance, including the following:
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Changes in Company-wide strategies, which may result in changes in the types or mix of businesses in which our Company is involved or chooses to invest; changes in U.S., global or regional economic conditions, changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede our Company’s access to, or increase the cost of, external financing for our operations and investments; increased competitive pressures, both domestically and internationally, legal and regulatory developments, such as regulatory actions affecting environmental activities, the imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls; adverse weather conditions or natural disasters, such as hurricanes and earthquakes, labor disputes, which may lead to increased costs or disruption of operations.
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.