NUMD Nu Med Plus Inc (QB)

Notes to the Condensed Financial Statements

June 30, 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 and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

b. Reclassification of operating expenses

The Company has made a reclassification of the 2018 operating expenses that affects general and administrative expense payroll expense.  In the previously published 2018 financial statement presentations stock-based compensation was included in general and administrative expenses.  In these accompanying unaudited financial statements those stock-based compensation expenses have been reclassified to payroll expense for comparative purposes, as in the 2019 financial presentation stock-based compensation expenses are included in payroll expenses.

c. 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.

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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.

d. Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United 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.

e. 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.  

f. 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 $15,686 we currently have on deposit is within the limits for which the FDIC insures.

g. 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.

h. 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 1, 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.

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i. 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.  For purposes of computing basic and diluted earnings per share, shares for which cash has been received, but for which shares have not yet been issued are included as if the shares had been issued when an agreement was entered into and cash was received.

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 June 30, 2019 and 2018, there were convertible notes which could be converted into 33,620,000 shares and 31,560,500 shares of restricted common stock, respectively.

j. 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.

k. 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.

l. 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.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity of financial reporting for non-employee share-based payments. Currently, the accounting requirements for non-employee and employee share-based payments are significantly different. ASU 2018-07 expands the scope of Topic 718 to include share-based payments to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.  The adoption of this new accounting guidance did not have a significant impact on our financial statements.

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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.

NOTE 3 - GOING CONCERN

The Company acknowledges that the funds on hand as of June 30, 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.

Depreciation expense for the six months ended June 30, 2019 and 2018 was $7,196 and $7,388, 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 June 30, 2019.

NOTE 6 - COMMON STOCK

Stock issued for stock subscriptions payable

As of June 30, 2019 and December 31, 2018, the Company had subscriptions payable of $1,009,773 and $849,175, for which the Company had an obligation to issue 4,035,340 and 3,521,300 shares of restricted common stock, respectively.

During the six months ended June 30, 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 $170,598 under this

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agreement during the period ended June 30, 2019 for 682,392 shares of restricted common stock. In addition, a total of $153,070 was received under this agreement in prior periods.  The buyer has the option to fund an additional $76,332 for 305,330 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 June 30, 2019, the shares that have yet to be issued under this agreement have been recorded as a subscription payable in the amount of $323,668.

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 $206,250 was recorded as consulting expense for the six months ended June 30, 2019 and $432,750 was recorded as consulting expense during the year ended December 31, 2018.  At June 30, 2019 all of the expense related to these services was fully amortized.

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 1, 2018 and December 31, 2021. The shares were valued at $800,000. An expense of $100,000 was recorded for the six-month period ended June 30, 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 $500,000 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 original note was due on demand, had an annual interest of 5.5%, and was 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 of $0.01 per share for all unpaid principal and interest.  As of June 30, 2019 and December 31, 2018 the Company has unpaid accrued interest of $58,218 and $55,453, respectively, recorded in accrued expenses on the balance sheet.

$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 June 30, 2019 and December 31, 2018 the unpaid accrued interest on this note was $47,383 and $42,149, respectively, recorded in accrued expenses on the balance sheet.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

The Company has obligations under both a financing lease and operating lease, as detailed below.

Operating Lease Obligations

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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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.

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.  

Obligations under the financing lease are as follows:

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.