Notes
to the Condensed Consolidated Financial Statements
Note
1. The Company
QHSLab, Inc. (f/k/a USA Equities Corp.) (the
“Company”, or the “Registrant”) was incorporated in Delaware on September 1, 1983.
In 2015, the Company changed its name to USA Equities Corp. On September 23, 2021, the Company changed its state
of incorporation from Delaware to Nevada as a result of a merger with and into its newly formed wholly-owned subsidiary, USA Equities
Corp., a Nevada corporation (“USA Equities Nevada”), the surviving entity pursuant to an Agreement and Plan of Merger. The
reincorporation was approved by the stockholders of the Company and USA Equities Nevada is deemed to be the successor to USA Equities
Corp, the Delaware corporation. On April 19, 2022, the Company changed its name to QHSLab, Inc.
The Company is a medical device technology
and software as a service (“SaaS”) company focused on enabling primary care physicians (“PCP’s”) to increase
their revenues by providing them with relevant, value-based tools to evaluate and treat chronic disease as well as provide preventive
care through reimbursable procedures.
Note
2. Going Concern
The
accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The
Company has incurred losses since inception, has negative operational cash flows and began recognizing revenues in the fourth quarter
of fiscal 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The continuation
of the Company’s business is dependent upon its ability to achieve profitability and positive cash flows and, pending such achievement,
future issuances of equity or other financings to fund ongoing operations. However, access to such funding may not be available
on commercially reasonable terms, if at all. These condensed consolidated financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
Note
3. Basis of Presentation
The
condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
in the United States of America (“U.S. GAAP”). In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair statement of financial
position, results of operations, and cash flows. The information included in this Quarterly Report on Form 10-Q should be read in conjunction
with the consolidated financial statements and the accompanying notes included in our Annual Report on Form 10- K for the year ended
December 31, 2021.
The
accounting policies are described in the “Notes to the Consolidated Financial Statements” in the 2021 Annual Report on Form
10-K and updated, as necessary, in this Form 10-Q. The year-end balance sheet data presented for comparative purposes was derived from
audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in
the United States. The results of operations for the three months ended March 31, 2022 and 2021 are not necessarily indicative of the
operating results for the full year or for any other subsequent interim period.
Reclassifications
Certain reclassifications were made to the
prior condensed consolidated financial statements to conform to the current period presentation. There was no change to the previously
reported net loss.
Risks
Related to COVID-19 Pandemic
The
COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third
parties on which the Company relies. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult
to assess or predict, the impact of the COVID-19 pandemic could negatively impact the Company’s short-term and long-term liquidity.
The ultimate impact of the COVID-19 pandemic is highly uncertain and the Company does not yet know the full extent of potential impacts
on its business, financing or global economy as a whole. However, these effects could have a material impact on the Company’s liquidity,
capital resources and operations.
Accounting
Policies
Use
of Estimates:
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the condensed consolidated financial statement and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from the estimates.
Principles
of Consolidation: The condensed consolidated financial statements include the accounts of QHSLab, Inc. and its wholly owned subsidiaries
USAQ Corporation, Inc., and Medical Practice Income, Inc. All significant inter-company balances and transactions have been eliminated.
Cash
and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments
with original maturities of three months or less to be cash or cash equivalents.
Accounts
Receivable: The Company extends unsecured credit to its customers on a regular basis. Management monitors the payments on outstanding
balances and will establish a reserve for uncollectible balances as necessary based on experience.
Inventories:
Inventories are stated
at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. The Company uses actual costs
to determine its cost basis for inventories. Inventories consist of only finished goods.
Capitalized
Software Development Costs:
Software development costs for internal-use software are accounted for in accordance with Accounting Standards Codification (“ASC”)
350-40, Internal-Use Software. Development costs that are incurred during the application development stage begin to be capitalized
when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed
and used for its intended function. Capitalization ceases once the software is substantially complete and ready for its intended use.
Costs incurred during the preliminary project stage of software development and post-implementation operating stages are expensed as
incurred. Amortization is calculated on a straight-line basis over the remaining economic life of the software (typically three to five
years) and will be included in the operating expenses on the condensed consolidated Statements of Operations once amortization
begins.
The
estimated useful lives of software are reviewed at least annually and will be tested for impairment whenever events or changes in circumstances
occur that could impact the recoverability of the assets.
Capitalized
software development costs for internal-use software totaled $223,390 as of March 31, 2022 and $186,271 as of December 31, 2021. The
software application is still in development with costs continuing to be capitalized and no amortization expense being recognized during
the periods ended March 31, 2022 and December 31, 2021. There were no impairments recognized during the periods ended March 31, 2022
and December 31, 2021.
Intangible
Assets: Intangible assets represent the value the Company paid to acquire assets including a trademark, patent and web domain on
June 23, 2021. The allocation of the purchase price to each of these assets was determined based on ASC 805-50-30, Business
Combination, Related Issues, Initial Measurement. These assets are accounted for in accordance with ASC 350-30, Intangibles, General
Intangibles Other Than Goodwill. The cost of the assets is amortized over the remaining useful life of the assets as follows:
Schedule of Indefinite-Lived Intangible Assets
U.S.
Method Patent |
13.4
years |
|
|
Web
Domain |
Indefinite
life |
|
|
Trademark |
Indefinite
life |
The
estimated useful lives and carrying value of the assets are reviewed at least annually or whenever events or circumstances may result
in an impact to the value of the assets.
Convertible
Notes Payable: The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional
convertible notes which qualify as equity under ASC 815, Derivatives and Hedging, in accordance with the provisions of ASC 470-20,
Debt with Conversion and Other Options, which provides guidance on accounting for convertible securities with beneficial conversion
features. ASC 470-20 addresses classification determination for specific obligations, such as short-term obligations
expected to be refinanced on a long-term basis, due-on-demand loan arrangements, callable debt, sales of future revenue, increasing rate
debt, debt that includes covenants, revolving credit agreements subject to lock-box arrangements and subjective acceleration clauses.
Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences
between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.
Revenue
Recognition: Pursuant to ASC Topic 606, Revenue from Contracts with Customers, or ASC
606, the Company recognizes revenue upon transfer of control of goods, in an amount that reflects the consideration that is expected
to be received in exchange for those goods. The Company does not allow for the return of products and therefore does not establish an
allowance for returns.
To
determine the revenue to be recognized for transactions that the Company determines are within the scope of ASC 606, the Company follows
the established five-step framework as follows:
|
(i) |
identify
the contract(s) with a customer; |
|
(ii) |
identify
the performance obligations in the contract(s); |
|
(iii) |
determine
the transaction price; |
|
(iv) |
allocate
the transaction price to the performance obligations in the contract(s); and |
|
(v) |
recognize
revenue when (or as) the Company satisfies a performance obligation. |
The
Company sells allergy diagnostic-related products and
immunotherapy treatments to physicians. Revenue is recognized once the Company satisfies its performance obligation which occurs at the
point in time when title and possession of products have transitioned to the customer, typically upon delivery of the products.
The
Company includes shipping and handling fees billed to customers in revenue.
There
are several practical expedients and exemptions allowed under ASC 606 that impact timing of revenue recognition and disclosures. The
Company elected to treat similar contracts as a portfolio of contracts, as allowed under ASC 606. The contracts that fall within the
portfolio have the same terms and management has the expectation that the result will not be materially different from the consideration
of each individual contract.
Research
and Development: Research and development expense is primarily related to developing and improving methods related to the Company’s
Software as a Service (SaaS) platform. Research and development expenses are expensed when incurred. For
the three months ended March 31, 2022 and 2021, there were $28,979 and $28,021 of research and development expenses incurred, respectively.
Stock-based
Compensation: The Company applies the fair value method of ASC 718, Share Based Payment, in accounting for its stock-based
compensation. The standard states that compensation cost is measured at the grant date based on the fair value of the award and is recognized
over the service period, which is usually the vesting period. The Company values stock-based compensation at the market price for the
Company’s common stock and other pertinent factors at the grant date.
Earnings
Per Common Share: Basic net loss per share is computed using the weighted average number of common shares outstanding during the
period. Diluted net loss per common share is computed using the weighted average number of common and dilutive equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of options and warrants to purchase common stock (only if those options
and warrants are exercisable and at prices below the average share price for the period) and shares issuable upon the conversion of issued
and outstanding preferred stock. Due to the net losses reported, dilutive common equivalent shares were excluded from the computation
of diluted loss per share, as inclusion would be anti-dilutive for the periods presented. There were no common equivalent shares required
to be added to the basic weighted average shares outstanding to arrive at diluted weighted average shares outstanding as of March 31,
2022 or 2021.
Income
Taxes: The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, which requires recognition
of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable
to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with
the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
The
Company has net operating losses of $2,709,199 which begin to expire in 2027. Future utilization of currently generated federal and state
NOL and tax credit carry forwards may be subject to a substantial annual limitation due to the ownership change limitations. The annual
limitation may result in the expiration of NOL and tax credit carry-forwards before full utilization.
Recently
Issued Accounting Standards
In
August 2020, the Financial Accounts Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”)
2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s
Own Equity (Subtopic 815-40), or ASU 2020-06. The updated guidance is part of the FASB’s simplification initiative, which aims
to reduce unnecessary complexity in U.S. GAAP. Consequently, more convertible debt instruments will be reported as single liability instruments
with no separate accounting for embedded conversion features. The ASU 2020-06 also removes certain settlement conditions that are required
for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception.
In addition, ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The Company adopted the provisions
of ASU 2020-06 using a modified retrospective approach, which resulted in no cumulative effect adjustment to stockholders’ deficit
as of January 1, 2021.
This
Quarterly Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have a current and/or future impact
on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures.
Note
4. Capitalized Software and Intangible Assets
Non-current
assets consist of the following at March 31, 2022 and December 31, 2021:
Schedule of Intangible Assets
| |
Estimated Useful Life (in years) | | |
March 31, 2022 | | |
December 31, 2021 | |
Capitalized Software | |
| TBD | | |
$ | 223,390 | | |
$ | 186,271 | |
Intangible Assets: | |
| | | |
| | | |
| | |
U.S. Method Patent | |
| 13.4 | | |
$ | 967,500 | | |
$ | 967,500 | |
Web Domain | |
| N/A | | |
| 161,250 | | |
| 161,250 | |
Trademark | |
| N/A | | |
| 483,750 | | |
| 483,750 | |
Total Intangible Assets | |
| | | |
$ | 1,612,500 | | |
$ | 1,612,500 | |
Accumulated amortization | |
| | | |
| (54,084 | ) | |
| (36,056 | ) |
Intangible assets, net | |
| | | |
$ | 1,558,416 | | |
$ | 1,576,444 | |
Capitalized
software represents the development costs for internal-use software. The software application is still in development with costs continuing
to be capitalized and no amortization expense being recognized yet. Capitalization will cease and amortization will begin once development
is substantially complete. The Capitalized software costs will be amortized over the estimated life of the software. There were no impairments
recognized during the periods ended March 31, 2022 and December 31, 2021.
The
intangible assets represent the value the Company paid to acquire the trademark “AllergiEnd”, the web domain “AllergiEnd.com”
along with the U.S. Method Patent registration relating to the allergy testing kit and related materials the Company distributes to physician
clients. The Company acquired the intangible assets from MedScience Research Group as of June 23, 2021 for total consideration of $1,612,500
which was financed through a combination of restricted stock and a promissory note. The allocation of the purchase price
to each of these assets was determined based on ASC 805-50-30, Business Combination, Related Issues, Initial Measurement. The
assets are being amortized over their useful lives beginning July 1, 2021. The Trademark and Web Domain are determined to have an indefinite
life and will be tested annually for impairment in accordance with ASC 350-30-35, Intangibles, General Intangibles Other Than Goodwill.
There was $18,028 of amortization expense during the quarter ended March 31, 2022 and no amortization expense during the quarter ended
March 31, 2021.
Note
5. Loans Payable
On
June 23, 2021, the Company entered into a purchase agreement to acquire certain assets from MedScience Research Group, Inc (“MedScience”)
(See Note 4 for additional information). As part of that purchase agreement, the Company issued a Promissory Note with a principal sum
of $750,000. The principal, along with associated interest, are being paid in 36 equal monthly installments that began in July 2021.
The principal balance of the loan is divided between current and long-term liabilities on the Company’s condensed consolidated
balance sheets. The combined principal due along with accrued interest as of March 31, 2022 is $586,716 and as of December 31, 2021 was
$644,158.
On
March 2, 2022, the Company entered into a fixed-fee short-term loan with its merchant bank and received $128,500
in loan proceeds. The
loan payable, which is split between current and long-term liabilities on the Company’s condensed consolidated balance sheets,
is due in August 2023. The loan is repaid by the merchant bank withholding an agreed-upon percentage of payments they process on behalf
of the Company with a minimum of $16,305 paid every 60 days. As of March 31, 2022, the loan balance is $117,117.
The prior fixed-fee short-term loan with the same merchant bank had a balance of $16,793 as
of December 31, 2021 and was paid in full during the first quarter 2022.
Note
6. Convertible Notes Payable
Convertible
notes payable at March 31, 2022 and December 31, 2021, consist of the following:
Schedule of Convertible Notes Payable
| |
March 31,
2022 | | |
December 31,
2021 | |
Note 1 – Accredited investors | |
$ | - | | |
$ | 25,000 | |
Note 2 – Shareholder | |
| 100,000 | | |
| 100,000 | |
Note 3 – Mercer Note | |
| 756,000 | | |
| 756,000 | |
Total | |
| 856,000 | | |
| 881,000 | |
Debt discount and issuance costs | |
| (142,046 | ) | |
| (238,896 | ) |
Total
convertible notes payable | |
| 713,954 | | |
| 642,104 | |
Less:
current portion | |
| 613,954 | | |
| 542,104 | |
Non-current portion | |
$ | 100,000 | | |
$ | 100,000 | |
Note
1 – Effective December 23, 2020, the Company issued a Convertible Promissory Note in the principal amount of $25,000
to a shareholder (Note 1). This Note was issued
under a subscription agreement dated September
25, 2020. As of March 31, 2022 and December 31,
2021, this note had $0
and $2,555,
respectively, of accrued interest. On February 23, 2022 the shareholder elected to convert
the outstanding principal of $25,000
along with accrued
interest into 59,415
shares of common stock
at a price of $0.47
per share.
Additionally, the shareholder
received warrants exercisable for two years to purchase 14,854
common shares at $0.705
per share.
Note
2 – Effective May 7, 2021, the Company issued a Convertible Promissory Note in the principal amount of $100,000
to a shareholder (Note 2). The Note bears interest
at the rate of 10%
per annum and matures on September
30, 2022 (the “Maturity Date”) at
which date all outstanding principal and accrued and unpaid interest are due and payable. The
Company may satisfy the Note upon maturity or Default, as defined, by the issuance of common shares at a conversion price equal to the
greater of a 25% discount to the 15-day average market price of the Company’s common stock or $0.50. The principal and interest
accrued are convertible at any time through the maturity date of September 30, 2022 at the option of the holder using the same conversion
calculation. As of March 31, 2022 and December
31, 2021, this note had $8,986
and $6,521,
respectively, of accrued interest.
Note
3 – Effective August 10, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to
which it issued to the investor an Original Issue Discount Secured Convertible Promissory Note (the “Note”) in the principal
amount of $806,000 and warrants to purchase 930,000 shares of the Company’s common stock for aggregate consideration of $750,000.
In addition, pursuant to the Purchase Agreement the Company entered into a Registration Rights Agreement with the investor.
The
principal amount of the Note and all interest accrued thereon is payable on August 10, 2022, and are secured by a lien on substantially
all of the Company’s assets. The Note provides for interest at the rate of 5% per annum, payable at maturity, and is convertible
into common stock at a price of $0.65 per share. In addition to customary anti-dilution adjustments upon the occurrence of certain corporate
events, the Note provides, subject to certain limited exceptions, that if we issue any common stock or common stock equivalents, as defined
in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share
price at which such stock or common stock equivalents were sold. The conversion price of the Note had been subject to a potential decrease
if the average closing price of the Company’s common stock during any ten consecutive trading days beginning September 16, 2021,
and ending on November 15, 2021, was below $0.65. As the trading price of the common stock has not been below $0.65 since September 21,
2021, this provision is no longer operative.
On
November 11, 2021, Mercer
Street Global Opportunity Fund, LLC, converted $50,000
of the principal amount
of the $806,000
Secured Convertible
Promissory Note issued August 10, 2021, into 76,923
shares of the Company’s
common stock at a price of $0.65
per share.
The
930,000
Warrants are initially exercisable for a period
of three years at a price of $1.25
per share, subject to customary anti-dilution
adjustments upon the occurrence of certain corporate events as set forth in the Warrant. The shares issuable upon conversion of the Note
and exercise of the Warrants are to be registered under the Securities Act of 1933, as amended, for resale by the investor as provided
in the Registration Rights Agreement. The Warrants may be exercised by means of a “cashless exercise” if at any time the
shares issuable upon exercise of the Warrant are not covered by an effective registration statement.
The
Company accounts for the allocation of its issuance costs to its Warrants in accordance with ASC 470-20, Debt with Conversion and
Other Options. Under this guidance, if debt or stock is issued with detachable warrants, the proceeds need to be allocated to the
two instruments using either the fair value method, the relative fair value method, or the residual value method. The Company used the
relative fair value at the time of issuance to allocate the value received between the convertible note and the warrants.
The
Company estimated the fair value of the Warrants utilizing the Black-Scholes pricing model, which is dependent upon several assumptions
such as the expected term of the Warrants, expected volatility of the Company’s stock price over the expected term, expected risk-free
interest rate over the expected term and expected dividend yield rate over the expected term. The Company believes this valuation methodology
is appropriate for estimating the fair value of warrants. The value allocated to the relative fair value of the Warrants was recorded
as debt issuance costs and additional paid in capital.
The
principal, net of the original issue discount and debt issuance costs, including the allocated relative fair value of the Warrants, which
are being recognized over the life of the Note, along with associated interest, is recorded with current liabilities on the Company’s
condensed consolidated balance sheets. As of March 31, 2022, this Note had $24,767
of accrued interest, total unamortized debt issuance
costs of $121,794,
including the Warrant value, and the remaining discount of $20,252.
As of December 31, 2021, this note had $15,446
of accrued interest, total unamortized debt issuance costs
of $204,835,
including the Warrant value, and the remaining discount of $34,060.
Note
7. Preferred Stock
Series
A Preferred Stock
The
shares of Series A Preferred Stock have a stated value of $0.25 per share and are initially convertible into shares of common stock at
a price of $0.05 per share (subject to adjustment upon the occurrence of certain events). The Series A Preferred Stock does not accrue
dividends and ranks prior to the common stock upon a liquidation of the Company. The Series A Preferred Stock votes on all matters brought
before the shareholders together with the Common stock as a single class and each share of Series A Preferred Stock has a number of votes,
initially 5, equal to the number of shares of preferred stock into which it is convertible as of the record date for any vote.
Series A-2 Preferred Stock
On
December 30, 2021, the Company issued 2,644,424
of the Company’s Series A-2 Convertible
Preferred Shares to its principal shareholder in satisfaction of multiple outstanding convertible promissory notes with initial
principal amounts totaling $286,078
together with all interest accrued thereon.
The
rights of holders of the Company’s common stock with respect to the payment of dividends and upon liquidation are junior in right
of payment to holders of the Series A-2 Convertible Preferred Shares. The rights of the holders of the Company’s Series A-2 Preferred
Shares are pari passu to the rights of the holders of the Company’s Series A Preferred Shares currently outstanding.
Holders
of the Series A-2 Convertible Preferred Stock will vote on an as converted basis with the holders of the Company’s common stock
and Series A Preferred Shares as to all matters to be voted on by the holders of the common stock. Each Series A-2 Preferred Share shall
be entitled to a number of votes equal to five times the number of shares of common stock into which it is then convertible on the applicable
record date.
Note
8. Loss Per Common Share
The
Company calculates net loss per common share in accordance with ASC 260, Earnings Per Share. Basic and diluted net loss per common share
was determined by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during
the period. The Company’s potentially dilutive shares, which include shares issuable upon exercise or conversion of outstanding
common stock options, common stock warrants, and convertible debt have not been included in the computation of diluted net loss per share
for the quarters ended March 31, 2022 and 2021 as the result would be anti-dilutive.
Schedule of Anti-dilutive Securities Excluded From Calculation of Earning Per Share
| |
2022 | | |
2021 | |
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Stock options | |
| 1,100,000 | | |
| 650,000 | |
Stock warrants | |
| 1,026,647 | | |
| - | |
Total shares excluded from calculation | |
| 2,126,647 | | |
| 650,000 | |
Note
9. Stock-based Compensation
During
the three-month periods ended March 31, 2022 and 2021, there was $8,920
in stock-based compensation associated with stock
options included in Research and development expense. Additionally, during the same periods there was expense associated with shares
issued for services. The following table shows how the expenses associated with shares issued for services were classified in
the condensed consolidated statements of operations during the respective periods.
Schedule
of Stock-based Compensation Expenses
| |
2022 | | |
2021 | |
| |
Three Months Ended March 31, | |
| |
2022 | | |
2021 | |
Research and development | |
$ | - | | |
$ | 21,625 | |
Sales and marketing | |
| - | | |
| 29,187 | |
General and administrative | |
| 3,484 | | |
| 17,581 | |
Total expense – shares issued for services | |
$ | 3,484 | | |
$ | 68,393 | |
During
the three months ended March 31, 2021 there were 450,000 options granted to certain scientific and business advisors (“Advisors”)
with a weighted-average exercise price of $0.65. The options vest in equal annual installments over three years beginning in April 2021
and expire five years after grant date. There were no options exercised, forfeited or cancelled during the period. During
the three months ended March 31, 2022 there were no options granted.
As
of March 31, 2022, there was $27,164 of unrecognized compensation related to 1,100,000 outstanding options which is expected to be recognized
over a weighted-average period of 11 months. The options are being expensed over the vesting period for each Advisor. The weighted-average
grant date fair value for options granted during the three months ended March 31, 2021 was $0.12.
The
fair value of all options granted is determined using the Black-Scholes option-pricing model. The following weighted-average assumptions
were used:
Schedule
of Fair Value of Option Grant of Weighted-average Assumptions
| |
Three Months Ended March 31, 2022 | | |
Three Months Ended March 31, 2021 | |
Risk-free interest rate | |
| N/A | | |
| 0.21 | % |
Expected life of the options | |
| N/A | | |
| 3.5 years | |
Expected volatility of the underlying stock | |
| N/A | | |
| 76.3 | % |
Expected dividend rate | |
| N/A | | |
| 0 | % |
The
risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining
term similar to the expected term of the options. The expected life of the options is based on the option term. Due to the Company’s
limited historical data, the expected volatility is calculated based upon the historical volatility of comparable companies whose share
prices are publicly available for a sufficient period of time. The dividend rate is based on the Company never paying or having the intent
to pay any cash dividends.
Options
outstanding at March 31, 2022 consist of:
Schedule of Options Outstanding and Exercisable
Date Issued | |
Number Outstanding | | |
Number Exercisable | | |
Exercise Price | | |
Expiration Date |
March 12, 2020 | |
| 500,000 | | |
| 333,333 | | |
$ | 0.40 | | |
March 12, 2025 |
June 27, 2020 | |
| 150,000 | | |
| 100,000 | | |
$ | 0.40 | | |
June 27, 2025 |
January 1, 2021 | |
| 450,000 | | |
| 150,000 | | |
$ | 0.65 | | |
December 31, 2025 |
Total | |
| 1,100,000 | | |
| 583,333 | | |
| | | |
|
Warrants
outstanding at March 31, 2022 consist of:
Schedule of Warrants Outstanding and Exercisable
Date Issued | |
Number Outstanding | | |
Number Exercisable | | |
Exercise Price | | |
Expiration Date |
March 16, 2021 | |
| 15,900 | | |
| 15,900 | | |
$ | 0.75 | | |
March 15, 2023 |
May 7, 2021 | |
| 53,704 | | |
| 53,704 | | |
$ | 0.74 | | |
May 6, 2023 |
June 17, 2021 | |
| 12,189 | | |
| 12,189 | | |
$ | 0.83 | | |
June 16, 2023 |
August 10, 2021 | |
| 930,000 | | |
| 930,000 | | |
$ | 1.25 | | |
August 9, 2024 |
February 23, 2022 | |
| 14,854 | | |
| 14,854 | | |
$ | 0.705 | | |
February 22, 2024 |
Total | |
| 1,026,647 | | |
| 1,026,647 | | |
| | | |
|
Note
10. Related Party Transactions
Convertible
notes payable, related party: See Note 6.
Note 11. Income Taxes
For the three month period ended March 31, 2022
and the year ended December 31, 2021, the Company did not record a tax provision as the Company did not earn any taxable income in either
period and maintains a full valuation allowance against its net deferred tax assets.
Note
12. Commitments and Contingencies
On
February 9, 2021, the Company entered into a Receivables Purchase and Security Agreement (“Factoring Agreement”) with a Factoring
Company. The Factoring Agreement has an initial term of one
year and, in accordance with its terms, has been renewed for an additional year.
Under
the terms of the agreement, designated receivables are sold for periodic advances of up to $150,000. The Factoring Company retains a
reserve of 10% of purchased receivables with the balance available to the Company. Factoring fees begin at 1.8% for the first 30 days
a purchased invoice is outstanding and increase the longer an invoice remains outstanding. After 90 days, the Factoring Company has the
right to assign the invoice back to the Company. The Factoring Agreement includes minimum average monthly volumes.
As
of March 31, 2022, the balance of outstanding invoices that the Factoring Company may assign back to the Company if not collected within
90 days is included in the Company’s Accounts Receivable balance with the amounts received, net of reserves held, included with
other current liabilities on the condensed consolidated balance sheets. The net amount included in other current liabilities is $10,334
and $25,420 as of March 31, 2022 and December 31, 2021, respectively.
There
are no pending or threatened legal proceedings as of March 31, 2022. The Company has no non-cancellable operating leases.