UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For
the quarterly period ended
| For the transition period from______to______ | Commission File Number |
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number
Indicate
by check mark whether registrant (1) has filed all reports 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. ☒
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
| Large accelerated filer | ☐ | 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 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 ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
There were shares of common stock $0.001 par value, issued and outstanding as of March 31, 2023.
QUALIS INNOVATIONS, INC
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements.
The accompanying unaudited Condensed Consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management, the financial statements contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations, and cash flows of the Company for the interim periods presented.
The results for the period ended March 31, 2023 are not necessarily indicative of the results of operations for the full year.
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QUALIS INNOVATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Inventory | ||||||||
| Deposits | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Short-term note payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Common stock, $ par value, shares authorized; and shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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QUALIS INNOVATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net revenues | $ | $ | ||||||
| Gross Profit | ||||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Income taxes | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding Basic and diluted | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
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QUALIS INNOVATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| Common Stock | Additional Paid | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | in Capital | Deficit | Equity | ||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Warrants issued to third parties in conjunction with services | - | |||||||||||||||||||
| Warrants forfeited in conjunction with compensation - related party | - | ( | ) | ( | ) | |||||||||||||||
| Options issued to third parties in conjunction with services | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Warrants issued to third parties in conjunction with services | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
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QUALIS INNOVATIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expense | ||||||||
| Warrants issued for services | ||||||||
| Options issued for services | ||||||||
| Warrants forfeited in conjunction with compensation - related parties | ( | ) | ||||||
| Other current assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| None | ||||||||
| Net cash used in investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| None | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Cancellation of short term loan for insurance policy | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements
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QUALIS INNOVATIONS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Corporate History and Background
Qualis Innovations, Inc. (the “Company” or “Qualis”), formerly known as Hoopsoft Development Corp., Yellowstone Mining, Inc. and Sky Digital Holding Corp. was incorporated in the state of Nevada on March 23, 2006 under the name Hoopsoft Development Corp (“Hoopsoft”). On January 12, 2007, the Company entered into an agreement and plan of merger (“Agreement and Plan of Merger”) with Yellowcake Mining, Inc. (“Yellowcake”), a Nevada corporation and wholly-owned subsidiary of Hoopsoft Development Corp., incorporated for the sole purpose of effecting the merger. Pursuant to the terms of the Agreement and Plan of Merger, Yellowcake merged with and into Hoopsoft, with Hoopsoft carrying on as the surviving corporation under the name “Yellowcake Mining, Inc.”
On April 6, 2011, Yellowcake restated its articles of incorporation and changed its name to Sky Digital Stores Corp (“SKYC”). On May 5, 2011, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among SKYC and Hong Kong First Digital Holding Ltd. (“First Digital”), and the shareholders of First Digital (the “FDH Shareholders”) entered into a Share “FDH”), and the shareholders of FDH (the “FDH Shareholders”). The closing of the transaction (the “Closing”) took place on May 5, 2011 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of FDH from the FDH Shareholders; and FDH Shareholders transferred and contributed all of their Shares to us. In exchange, the Company issued to the FDH Shareholders, their designees or assigns, an aggregate of shares (the “Shares Component”) or % of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at $ per share.
Mr. Lin Xiangfeng planned, organized and executed the Share Exchange. Prior to the Share Exchange, Mr. Lin Xiangfeng was the largest shareholder and sole officer of FDH. He was also the CEO of SKYC but did not own any shares of the Company. The parties involved in the Share Exchange Agreement are SKYC, FDH and all FDH Shareholders. Mr. Lin Jinshui, an FDH Shareholder, is the father of Mr. Lin Xiangfeng and Mr. Lin Xiuzi, an FDH Shareholder, is the brother of Mr. Lin Xiangfeng. Other than Mr. Lin Xiangfeng, no third party played a substantial role in the agreement.
FDH
owned (i)
On
February 13, 2018, a change of control occurred, and new officers and directors of the Company were appointed. The name change of ‘Sky
Digital Stores Corp.’ (SKYC) to Qualis Innovations, Inc. and the
In July, 2019, John Ballard and a Charles Achoa, formed a new company named EMF Medical Devices Inc. for the development, maintenance, marketing and sale of an electronic device for the treatment of pain that would make use of certain intellectual property interests held by LCMD. In May 2021 the Company changed its name to mPathix Health Inc. Presently, John Ballard and Charles Achoa do not participate in any management or board position.
On June 28, 2021, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among mPathix Health, Inc. (formerly EMF Medical Devices, Inc., a Delaware corporation) (“mPathix”) and Qualis. The closing of the transaction (the “Closing”) took place on June 29, 2021 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of mPathix. In exchange, the Company issued to the mPathix shareholder’s, their designees or assigns, an aggregate of shares of Company common stock (the “Shares Component”) or % of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at a valuation of $ per share, and the Company issued warrants to purchase an additional shares ( warrants issued to the Company’s previous CEO and to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company’s acting CEO and chairman of the board) of the Company’s common stock, exercisable for years at a $ per share exercise price, subject to adjustment. In connection with the closing of the mPathix acquisition, the officers and directors of mPathix were appointed as the officers and directors of the Company. On June 29, 2021, the Company issued common shares for the recapitalization of Qualis in conjunction with the reverse acquisition for a net book value of $.
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The acquisition was accounted for as a “reverse merger’’ and recapitalization since the stockholders of mPathix own a majority of the outstanding shares of the common stock immediately following the completion of the transaction assuming that holders of % of the Public Shares exercise their conversion rights. mPathix will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of mPathix. As a result, Qualis is considered to be the continuation of the predecessor mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. Qualis’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.
NOTE 2 – BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and stated in U.S. dollars. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The Company currently operates in one business segment. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of businesses or separate business entities.
Going Concern
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates,
among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated
deficit of $
While the Company is attempting to expand operations and generate revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While management believes in the viability of its strategy to generate revenues and in its ability to raise additional funds or transact an asset sale, there can be no assurances to that effect or on terms acceptable to the Company. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The 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 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the consolidated financial statements.
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Use of Estimates
The preparation of these consolidated financial statements in accordance 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 disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements. The more significant estimates and assumptions by management include among others: common stock valuation, amortization of intangible assets, depreciation of property and equipment, the recoverability of intangibles. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Cash
The
Company’s cash is held in bank accounts in the United States and is insured by the Federal Deposit Insurance Corporation (FDIC)
up to $
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company.
Income Taxes
Income taxes are accounted for under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Balance Sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The likelihood that its deferred tax assets will be recovered from future taxable income must be assessed and, to the extent that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance in a period are recorded through the income tax provision in the consolidated Statements of Operations.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s consolidated financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company does not have a liability for unrecognized income tax benefits.
Advertising and Marketing Costs
Advertising
and marketing expenses are recorded as marketing expenses when they are incurred. The Company had
Research and Development
All
research and development costs are expensed as incurred. Research and development expenses comprise costs incurred in performing research
and development activities, including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well
as other contracted services, license fees, and other external costs. Nonrefundable advance payments for goods and services that will
be used in future research and development activities are expensed when the activity is performed or when the goods have been received,
rather than when payment is made, in accordance with ASC 730, Research and Development. The Company incurred research and development
expense of $
With respect to the current status of the patent, there has been no movement during the quarter ended March 31, 2023 and till date. The Company has a disagreement with the specific vendor and the project relating to collection of data, testing and filing the patent application has been kept on hold. The Company and the vendor are trying to resolve this disagreement, about achieving a particular milestone.
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General and Administrative Expenses
General and administrative expenses consisted of professional service fees, and other general and administrative overhead costs. Expenses are recognized when incurred.
Deposits
Deposits
consist of amounts paid to a vendor in advance to manufacture pain treatment products. Deposits as of March 31, 2023 and December 31,
2022 were $
Property and Equipment
Property
and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, generally
Impairment of Long-lived Assets
The Company periodically evaluates whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.
The Company’s impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-party comparable sales and discounted cash flow models. If actual results are not consistent with the Company’s assumptions and estimates, or the assumptions and estimates change due to new information, the Company may be exposed to an impairment charge in the future.
Fair Value of Financial Instruments
The provisions of accounting guidance, FASB Topic ASC 825 requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2023, there were no financial instruments requiring fair value.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
| ● | Level 1 – Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities |
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The carrying value of financial assets and liabilities recorded at fair value are measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels.
The computation of net profit (loss) per share included in the Statements of Operations, represents the net profit (loss) per share that would have been reported had the Company been subject to ASC 260, “Earnings Per Share as a corporation for all periods presented.
Diluted earnings (loss) per share are computed on the basis of the weighted average number of common shares (including common stock subject to redemption) plus dilutive potential common shares outstanding for the reporting period. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period.
There were and dilutive securities outstanding for the three months ended March 31, 2023 and 2022, respectively. These potential dilutive securities outstanding have not been considered as the inclusion would be anti-dilutive.
Stock based compensation issued to employees and members of our board of directors is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock based award is recognized as an expense over the requisite service period of the award on a straight-line basis.
For purposes of determining the variables used in the calculation of stock based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our consolidated statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our unaudited condensed consolidated financial statements.
Issuances of the Company’s common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. Although situations may arise in which counter performance may be required over a period of time, the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Non-Cash Equity Transactions
Shares of equity instruments issued for non-cash consideration are recorded at the fair value of the consideration received based on the market value of services to be rendered, or at the value of the stock given, considered in reference to contemporaneous cash sale of stock.
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Concentrations, Risks, and Uncertainties
Business Risk
Substantial business risks and uncertainties are inherent to an entity, including the potential risk of business failure.
The Company is headquartered and operates in the United States. To date, the Company has generated no revenues from operations. There can be no assurance that the Company will be able to raise additional capital and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. Currently, these contingencies include general economic conditions, price of components, competition, and governmental and political conditions.
Interest rate risk
Financial assets and liabilities do not have material interest rate risk.
Credit risk
The Company is not exposed to credit risk.
Seasonality
The business is not subject to substantial seasonal fluctuations.
Major Suppliers
The Company has not entered into any contracts that obligate it to purchase a minimum quantity or exclusively from any supplier.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and had an immaterial impact from this standard.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, while also clarifying and amending existing guidance, including interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU No. 2019-12 in the first quarter of fiscal 2021, coinciding with the standard’s effective date, and had an immaterial impact from this standard.
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures.
Other recently issued accounting updates are not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.
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NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
| March 31, | December 31, | |||||||||
| Estimated Life | 2023 | 2022 | ||||||||
| Tooling | $ | $ | ||||||||
| Computer Equipment | ||||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||||
| Total | $ | $ | ||||||||
Depreciation
expense was $
NOTE 5 – SHORT TERM LOAN
On
July 20, 2022, the Company entered into a loan to finance its directors and officer’s insurance policy effective June 28, 2022.
The loan has a principal balance of $
NOTE 6 – STOCKHOLDERS’ EQUITY
The Company has authorized preferred stock with a par value of $ with preferred shares outstanding at March 31, 2023 and December 31, 2022.
The Company has authorized shares of par value $ common stock, of which and shares are outstanding at March 31, 2023 and December 31, 2022, respectively.
Common Stock
On
October 3, 2022, the Company entered into an Independent Contractor Services Agreement (“Agreement”) with a third party to
provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be
entitled to a monthly consulting fee of $
On
July 20, 2022, the Company issued common shares to an affiliate for aggregate gross proceeds of $
Warrants
On
March 16, 2021, the Company granted warrants to purchase
On
February 24, 2022, Mr. Bingol entered into a separation agreement whereby he terminated his employment effective April 15, 2022. He received
no severance payment and there were no disagreements between he or the Company. A total of warrants have vested with the remaining
unvested warrants expiring. As a result of Mr. Bingol’s termination, the Company reversed the remaining warrant modification
balance of $
On
February 1, 2022, the Company granted warrants to purchase
On
March 29, 2022, the Board of Directors approved the granting of warrants, with effect from April 1, 2022, convertible to the
Company’s common shares with an exercise price of $
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On
August 1, 2022, based on a revised agreement signed by the relevant parties, the Company granted warrants to purchase
On
September 1, 2022, the Company granted warrants to purchase
The following represents a summary of the warrants outstanding at March 31, 2023 and changes during the periods then ended:
| Warrants | Weighted Average Exercise Price | Weighted Average Contract Life (in Years) | Aggregate Intrinsic Value * | |||||||||||||
| Outstanding at January 1, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | - | |||||||||||||||
| Expired/Forfeited | ( | ) | - | ( | ) | |||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired/Forfeited | - | |||||||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2023 | $ | $ | ||||||||||||||
| Expected to be vested | $ | $ | ||||||||||||||
| * |
| 15 |
Options
| Options | Weighted Average Exercise Price | Weighted Average Contract Life (in Years) | Aggregate Intrinsic Value * | |||||||||||||
| Outstanding at January 1, 2022 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired/Forfeited | - | - | ||||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | - | - | ||||||||||||||
| Expired/Forfeited | - | - | ||||||||||||||
| Outstanding at March 31, 2023 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2023 | $ | $ | ||||||||||||||
| Expected to be vested | $ | $ | ||||||||||||||
| * |
NOTE 7 – RELATED PARTY TRANSACTIONS
Other than as set forth below, and as disclosed in Notes 6, 7 and 10, there have not been any transaction entered into or been a participant in which a related person had or will have a direct or indirect material interest.
FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations.
Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Options to purchase shares of common stock | ||||||||
| Warrants to purchase shares of common stock granted on February 14, 2021 to CreoMed, Inc.* | ||||||||
| Warrants to purchase shares of common stock granted on March 16, 2021 to Demir Bingol* | ||||||||
| Warrants to purchase shares of common stock granted on April 1, 2022 to CreoMed, Inc. | ||||||||
| Warrants to purchase shares of common stock | ||||||||
| Total potentially dilutive shares | ||||||||
| * |
| 16 |
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net loss attributable to the common stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic weighted average outstanding shares of common stock | ||||||||
| Dilutive effect of options and warrants | ||||||||
| Diluted weighted average common stock and common stock equivalents | ||||||||
| Loss per share: | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal
From time to time, various lawsuits and legal proceedings may arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition or operating results.
2021 Equity Incentive Plan
In June 2021, the board of directors of the Company authorized the adoption and implementation of the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The principal purpose of the 2021 Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies by providing them the opportunity to acquire a proprietary interest in the Company and to link their interests and efforts to the long-term interests of the Company’s shareholders. Under the 2021 Plan, an aggregate of shares of the Company’s common stock have initially been reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock awards, restricted stock, restricted stock units and other stock and cash-based awards. The exercise price for each option may not be less than fair market value of the common stock on the date of grant, and shall vest as determined by the Company’s board of directors but shall not exceed a ten-year period.
Employment Agreement
On
March 1, 2021, Mr. Ahmet Demir Bingol, the Company’s Chief Executive Officer (“CEO”) entered into an Employment Agreement
with the Company, with an effective date of March 16, 2021, in which he receives an annual base salary of $
On
February 24, 2022, Mr. Bingol entered into a separation agreement whereby he terminated his employment effective April 15, 2022. He received
no severance payment and there were no disagreements between he or the Company. A total of warrants have vested with the remaining
unvested warrants expiring. As a result of Mr. Bingol’s termination, the Company reversed the remaining warrant modification
balance of $
Consulting Agreement
On
January 27, 2022 the Company hired an engineering consultant to assist in completing the design history file, updating new software,
system design, pre 510(k) preparation, and testing of the SOLACE device. This work has been placed on hold and the cost of the contract
is $
On
October 3, 2022, the Company entered into an Independent Contractor Services Agreement (“Agreement”) with a third party to
provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be
entitled to a monthly consulting fee of $
NOTE 10 – SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after March 31, 2023 up through the date the consolidated financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the period ended March 31, 2023 except for the following:
Board of Directors Resolutions
On April 28, 2023, by unanimous written consent, the Company’s Board of Directors adopted the following:
| 1. | Appointment of Mr. Ulderico Conte as a director of the Company. | |
| 2. | Granted warrants to purchase of the Company’s common stock to Mr. Jim Holt, the Company’s acting CEO and Director as compensation. The warrants are exercisable for a period of seven years at $ per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date. |
| 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statement Notice
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Goliath Film and Media Holdings, (“we”, “us”, “our” or the “Company”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.
Description of Business
Background.
Qualis Innovations, Inc. (the “Company” or “Qualis”), formerly known as Hoopsoft Development Corp., Yellowstone Mining, Inc. and Sky Digital Holding Corp. was incorporated in the state of Nevada on March 23, 2006 under the name Hoopsoft Development Corp (“Hoopsoft”). On January 12, 2007, the Company entered into an agreement and plan of merger (“Agreement and Plan of Merger”) with Yellowcake Mining, Inc. (“Yellowcake”), a Nevada corporation and wholly-owned subsidiary of Hoopsoft Development Corp., incorporated for the sole purpose of effecting the merger. Pursuant to the terms of the Agreement and Plan of Merger, Yellowcake merged with and into Hoopsoft, with Hoopsoft carrying on as the surviving corporation under the name “Yellowcake Mining, Inc.”
On April 6, 2011, Yellowcake restated its articles of incorporation and changed its name to Sky Digital Stores Corp (“SKYC”). On May 5, 2011, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among SKYC and Hong Kong First Digital Holding Ltd. (“First Digital”), and the shareholders of First Digital (the “FDH Shareholders”) entered into a Share “FDH”), and the shareholders of FDH (the “FDH Shareholders”). The closing of the transaction (the “Closing”) took place on May 5, 2011 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of FDH from the FDH Shareholders; and FDH Shareholders transferred and contributed all of their Shares to us. In exchange, the Company issued to the FDH Shareholders, their designees or assigns, an aggregate of 23,716,035 shares (the “Shares Component”) or 97.56% of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at $0.20 per share.
Mr. Lin Xiangfeng planned, organized and executed the Share Exchange. Prior to the Share Exchange, Mr. Lin Xiangfeng was the largest shareholder and sole officer of FDH. He was also the CEO of SKYC but did not own any shares of the Company. The parties involved in the Share Exchange Agreement are SKYC, FDH and all FDH Shareholders. Mr. Lin Jinshui, an FDH Shareholder, is the father of Mr. Lin Xiangfeng and Mr. Lin Xiuzi, an FDH Shareholder, is the brother of Mr. Lin Xiangfeng. Other than Mr. Lin Xiangfeng, no third party played a substantial role in the agreement.
FDH owned (i) 100% of the issued and outstanding capital stock of Shenzhen Dong Sen Mobile Communication Technology Co., Ltd (also known and doing business as Shenzhen Donxon Mobile Communication Technology Co., Ltd, “Donxon”), a company organized under the laws of the People’s Republic of China (“China” or the “PRC”); and (ii) 100% of the issued and outstanding capital stock of Shenzhen Xing Tian Kong Digital Company Limited (“XTK”), a PRC company. XTK was the holder of 100% of the issued and outstanding capital stock of Shenzhen Da Sheng Communication Technology Company Limited (also known and do business as Shenzhen Dasen Communication Technology Company Limited, “Dasen”), a PRC company. Dasen is the holder of 70% of the issued and outstanding capital stock of Foshan Da Sheng Communication Chain Service Company Limited (also known and do business as Foshan Dasen Communication Chain Service Co. Ltd, “FDSC”), a PRC company. Pursuant to the Exchange Agreement, FDH became a wholly-owned subsidiary of the Company, and the Company owned 100% of Donxon, 100% of XKT, 100% of Dasen and 70% of FDSC indirectly through FDH.
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On February 13, 2018, a change of control occurred, and new officers and directors of the Company were appointed. The name change of ‘Sky Digital Stores Corp.’ (SKYC) to Qualis Innovations, Inc. and the 1 – 1,000 reverse split was announced on FINRA’s Daily List. Echo Resources LLLP took over control of Qualis owning 232,689 of the 396,650 common shares outstanding. Since that event Qualis did not have any business operations or any assets or liabilities.
In July 2019, John Ballard and a Charles Achoa, formed a new company named EMF Medical Devices Inc. for the development, maintenance, marketing and sale of an electronic device for the treatment of pain that would make use of certain intellectual property interests held by LCMD. In May 2021 the Company changed its name to mPathix Health Inc. Presently, John Ballard is the Chief Financial Officer and Charles Achoa does not participate in any management or board position.
On June 28, 2021, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among mPathix Health, Inc. (formerly EMF Medical Devices, Inc., a Delaware corporation) (“mPathix”) and Qualis. The closing of the transaction (the “Closing”) took place on June 29, 2021 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of mPathix. In exchange, the Company issued to the mPathix shareholder’s, their designees or assigns, an aggregate of 6,988,300 shares of Company common stock (the “Shares Component”) or 93.36% of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at a valuation of $0.50 per share, and the Company issued warrants to purchase an additional 1,098,830 shares (698,830 warrants issued to the Company’s previous CEO and 400,000 to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company’s acting CEO and chairman of the board) of the Company’s common stock, exercisable for 10 years at a $0.50 per share exercise price, subject to adjustment. In connection with the closing of the mPathix acquisition, the officers and directors of mPathix were appointed as the officers and directors of the Company. On June 29, 2021, the Company issued 496,650 common shares for the recapitalization of Qualis in conjunction with the reverse acquisition for a net book value of $0.
The acquisition will be accounted for as a “reverse merger’’ and recapitalization since the stockholders of mPathix will own a majority of the outstanding shares of the common stock immediately following the completion of the transaction assuming that holders of 10% of the Public Shares exercise their conversion rights. mPathix will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of mPathix. As a result, Qualis is considered to be the continuation of the predecessor mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. Qualis’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.
The Company is now the holding company under which mPathix operates. mPathix is a clinical stage company focused on the development, production, and distribution of pain management and other central nervous system (CNS) based solutions.
We are developing a product designed to address the unmet needs of patients who seek alternatives to traditional pain medications and interventions or adjunctive therapies to their current treatment regimen. We believe that our product will provide clinicians and patients with new and differentiated set of pain management tools to meet the diversity of patient needs.
A key element to the Company’s growth strategy is to acquire the rights to or develop existing devices. Large device companies have increased the minimum market opportunity they require in order to commit marketing resources to their products. As a result, there are many products that are unsupported by such companies and are currently scheduled to be phased out or “sunsetted.” Qualis Innovations believes that it can create significant value by developing or acquiring rights to a portfolio of such products, expanding their therapeutic uses and/or markets, improving or enhancing such products and dedicating the appropriate amount of marketing and other resources to maximize the value of the Company’s portfolio.
There are several key criteria the Company uses when evaluating product opportunities:
| ● | The disease or condition largely has been ignored due to lack of interest by other, larger companies and, as a result, overall competition in the space is limited. | |
| ● | The device is not selling well for various reasons (including, among other things, poor management, poor reimbursement, improper or no available billing codes, inaccurate pricing, and limited and/or poor clinical outcomes) which, Qualis would attempt to eliminate, thereby increasing product revenues. | |
| ● | The device should be easy to manufacture, thereby avoiding the need for costly investment by the Company develop products and complicated manufacturing facilities. | |
| ● | There should be a large, underserved patient population. The device should have clear regulatory and reimbursement paths with the FDA and CMS, respectively (or already be approved). | |
| ● | The device should be relatively easy to distribute/dispense and administer. Most importantly, the product must have a history of limited adverse events to patients. |
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Our planned product, which is our sole product and is in the development pipeline, is SOLACE, a non-invasive medical device that uses electromagnetic induction to generate deep heat below the surface of the skin to reduce and relieve pain. SOLACE™ delivers radio frequency (RF) energy continuously and thereby delivers thermal effects to the tissue and utilizes several differentiated features vs other radio frequency devices currently on the market. We have not yet finalized development of the planned SOLACE device and have not generated any cash flows from operations in connection with the planned device.
The SOLACE device is based on proprietary high-frequency magnetic induction technology, which we refer to as Electromagnetic Induction (“EMI”). Electromagnetic or magnetic induction is the use of electric currents or a derivative of a current in the form of a sound or an acoustic wave or an electromagnetic energy wave. Administered electric currents or their derivatives have two attributes: (1) pain relief and (2) regeneration of tissues.
Magnetic fields are induced beneath the skin surface to create localized, planar heat in the dermis and deeper muscle, while selectively avoiding sensitive structures in the epidermis and fat layers. By comparison, our SOLACE device creates currents in discreet planes beneath the tissue surface rather than directing energy through the planes and penetrating the epidermis. Therefore, our EMI technology may provide for shorter duration of treatments and a more comfortable patient experience vs. other energy-based technologies
SOLACE™ delivers RF energy via a user-friendly hand-held applicator that allows for targeted and ergonomic application of RF energy to discrete areas of concern. In contrast, competitor diathermy devices utilize a large drum applicator wherein the RF energy is emitted across a large surface area. Diathermy is the controlled production of deep heating beneath the skin in the subcutaneous tissue, deep muscles and joints for therapeutic purposes. There are two types of diathermy devices on the market today: radio or high frequency and microwave. The drum applicator design limits the tissue targeting to larger joints, while smaller joints or tissue areas (e.g. acromion of the shoulder, plantar aspect of foot, neck) are largely unaddressed. The hand-held applicator from the SOLACE™ device provides a small surface area (approx. 3 cm2) which is coated in Teflon® that can easily be positioned to target smaller body parts providing a differentiation compared to large drum-type radio frequency devices fail to adequately treat.
Presently, the Company is in the process of preparing the documents necessary to submit an application to the FDA for clearance of our planned device. We plan on also filing a provisional patent for the changes and new development of our device over our previous licensed device from LCMD, The Company has an accumulated deficit of $3,310,374. It is anticipated that the total expected financial outlay to complete the development and FDA application is approximately $250,000, combined with operating expenses the Company may not be able to have enough cash flow to support the Company’s daily operations resulting in an opinion by the auditors of the Company continuing as a going concern.
We anticipate that our SOLACE device will be cleared by the FDA via the 510k process and that it will be deemed to be substantially equivalent to the identified predicate device called the Bebe device, The Bebe device was originally cleared by the FDA in 2014 by the Marchitto Entities and subsequently sold to LCMD via an Asset Purchase Agreement and an Intellectual Property License Agreement. The Bebe device is indicated for use in the treatment of selected medical conditions such as pain relief, muscle spasms, and joint contractures, but not for the treatment of malignancies.
Overview.
Qualis Innovations Inc. (hereinafter the “Company,” “We,” “Qualis”) “Qualis”) was incorporated in the state of Nevada on March 23, 2006. On June 28, 2021, the Company entered into a Share Exchange Agreement by and among mPathix Health, Inc. (formerly known as EMF Medical Devices, Inc.), a Delaware corporation (“mPathix”), pursuant to which mPathix was acquired by the Company. Qualis is now the holding company under which mPathix operates. mPathix is a clinical stage company focused on the development, production, and distribution of pain management and other central nervous system (CNS) based solutions.
We are developing a product designed to address the unmet needs of patients who seek alternatives to traditional pain medications and interventions or adjunctive therapies to their current treatment regimen. We believe that our product will provide clinicians and patients with new and differentiated set of pain management tools to meet the diversity of patient needs.
| 20 |
Manufacturing
We will use Shanghai Zhiting Intelligent Technology Co., Ltd (“SZIT”) as our CMO to manufacture the SOLACE device, and to warehouse our product in their facilities in the San Francisco. SZIT is ISO 13482:2016 certified. We also intend to identify a back-up manufacture to ensure the integrity of our product supply chain in case of natural disaster or political uncertainty.
We plan use Kanban inventory management by which our SOLACE inventory will be held by Supertech Medical Devices Inc.(“Supertech”) at their warehouse until customer orders are received. Devices will be shipped from Supertech’s warehouse.
Product Distribution
We plan to initially offer our SOLACE device via a purchase or leasing model and we will generate demand with a combination of direct and independent sales representatives in the United States. Field sales representatives will be engaged to sell in predefined geographic markets and will be compensated based on a commission amount of the revenues generated by the medical device. The focus will be to market our device to a target audience of professionals who specialize in the use of multi-modal, or multi-disciplinary, pain management techniques.
Our target audience includes chiropractors, physical therapists, and pain management specialists. However, our sales and promotional effort will be focused on using an account-based approach to further segment the market which will allow us to promote the SOLACE device in the most efficient manner. Our primary promotional targets will be multi-practitioner clinics and high throughput, solo-practitioner offices. We also intend to have a Corporate Accounts team to target large national and regional chiropractic and physical therapy chains. Examples of corporate accounts targets include The Joint, a national chiropractic franchise with over 500 locations, and ATI Physical Therapy with 900 locations across the US.
At launch, we will sell our SOLACE™ device directly to customers who will be able to either buy it outright or lease it via a third-party financing partner, Coastal Capital Group. If the device is to be leased, mPathix will be paid 50% of the purchase price upon leasing signing and 50% upon device delivery to the customer.
Although we plan to sell or lease the SOLACE™ device to target accounts at launch, we are also developing a proprietary method of revenue sharing that will allow for greater utilization of our device with customers, and thus expanding our market penetration into a broader subset of customers for whom purchasing or leasing the SOLACE device is not practical. Based on this approach, we may be able to accelerate the number of devices placed based on a greatly reduced acquisition cost for our customer. Further, it may be possible for mPathix to have real-time revenue recognition, which could lead to significantly lower days sales outstanding.
mPathix is also evaluating unique distribution models to fully maximize our reach with our target audience. Potential distribution models include “device sharing” or “on-demand” availability of the SOLACE™ device, allowing even the lowest patient throughput practices to access our technology. Such distribution models will be test marketed prior to any potential national implementation.
Regardless of which distribution model, or combination of models, is utilized, each account that accesses the SOLACE device will incorporate a monthly fee for device calibration and maintenance.
Reimbursement
Based on our target market (i.e., chiropractors and physical therapists), we believe many, if not most, patients will pay out of pocket for treatment with the SOLACE™ device. However, there will be certain practitioners, including medical doctors, who will treat patients with medical insurance plans and attempt get reimbursement for their service. In this revenue stream, revenue will be derived from patients with insurance plans held by private health insurance carriers, typically known as HMOs or PPOs, who pay on behalf of their insureds and worker’s compensation claims. This will continue to create revenue which will become recurring as patients are treated on a regular basis.
The Current Procedural Terminology (CPT) code 97024, as maintained by American Medical Association, is a medical procedural code under the category of Supervised Physical Medicine and Rehabilitation Modalities. CPT 97024 includes the application of a modality to 1 or more areas; Diathermy (e.g., microwave). This is the code healthcare professionals may be able to use for billing and reimbursement, in addition to the ICD-10 diagnosis code, for payment by insurers. The provider fee for 97024 is assumed to about $30.
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Employees
As of the date of this prospectus, we have no full-time employees, one full-time contracted consultant, John Ballard, our current chief financial officer (CFO), and four part-time contracted consultants. None of our employees is subject to a collective bargaining agreement. We believe our relations with our current employee is satisfactory.
Where You Can Find our Reports
Any person or entity may read and copy our reports with the Commission at the Commission’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Room by calling the Commission toll free at 1-800-SEC-0330. The Commission also maintains an Internet site at http://www.sec.gov where reports, proxies and other disclosure statements on public companies may be viewed by the public.
Recent Developments
We have prepared our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). There are no recent developments.
Board of Directors Resolutions
On April 28, 2023, by unanimous written consent, the Company’s Board of Directors adopted the following:
| 1. | Appointment of Mr. Ulderico Conte as a director of the Company. | |
| 2. | Granted 3,333,333 warrants to purchase 3,333,333 of the Company’s common stock to Mr. Jim Holt, the Company’s acting CEO and Director as compensation. The warrants are exercisable for a period of seven years at $0.03 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date. |
Financing Transactions
Insurance Financing Agreement
On July 20, 2022, the Company entered into a loan to finance its directors and officer’s insurance policy effective June 28, 2022. The loan has a principal balance of $90,225, bears interest at 8.83% per annum, and is due and payable in nine monthly payments of $10,397. During the three months ended March 31, 2023 and 2022, the Company made no payments. During the three months ended March 31, 2023, the Company cancelled the insurance policy.
Acquisition of mPathix
On June 28, 2021, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among mPathix Health, Inc. (formerly EMF Medical Devices, Inc., a Delaware corporation) (“mPathix”) and Qualis. The closing of the transaction (the “Closing”) took place on June 29, 2021 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of mPathix. In exchange, the Company issued to the mPathix shareholder’s, their designees or assigns, an aggregate of 6,988,300 shares of Company common stock (the “Shares Component”) or 93.36% of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at a valuation of $0.50 per share, and the Company issued warrants to purchase an additional 1,098,830 shares (698,830 warrants issued to the Company’s previous CEO and 400,000 to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company’s acting CEO and chairman of the board) of the Company’s common stock, exercisable for 10 years at a $0.50 per share exercise price, subject to adjustment. In connection with the closing of the mPathix acquisition, the officers and directors of mPathix were appointed as the officers and directors of the Company.
The acquisition was accounted for as a “reverse merger” and recapitalization since the stockholders of mPathix prior to the acquisition acquired a majority of the outstanding shares of the common stock of the Company immediately following the completion of the transaction. mPathix was deemed to be the accounting acquirer in the transaction, and, consequently, the transaction was treated as a recapitalization of mPathix. As a result, the Company is considered to be the continuation of the predecessor, mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the Company’s consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. The Company’s assets, liabilities and results of operations were consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.
| 22 |
Stock Based Compensation
Employment Agreement
On March 1, 2021, Mr. Ahmet Demir Bingol, the Company’s CEO entered into an Employment Agreement with the Company, with an effective date of March 16, 2021, in which he receives an annual base salary of $250,000, plus bonus compensation not to exceed 80% of base salary. In addition, Mr. Bingol was granted 698,830 warrants to purchase 698,830 of the Company’s common stock, valued at $165,378 (based on the Black Scholes valuation model on the date of grant). The warrants are exercisable for a period of ten years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date. Mr. Bingol’s employment also provides for medical insurance, disability benefits and one year of severance pay if his employment is terminated without cause or due to a change in control. Mr. Bingol’s compensation was approved by the Company’s Board of Directors on March 1, 2021.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he will terminate his employment effective April 15, 2022. He received no severance payment and there were no disagreements between he or the Company. A total of 300,000 warrants have vested with the remaining 398,830 unvested warrants expiring. As a result of Mr. Bingol’s termination, the Company reversed the remaining warrant modification balance of $94,101 during the nine months ended September 30, 2022.
Consulting Agreement
On January 27, 2022 the Company hired an engineering consultant to assist in completing the design history file, updating new software, system design, pre 510(k) preparation, and testing of the SOLACE device. This work has been placed on hold and the cost of the contract is $77,850.
On October 3, 2022, the Company entered into an Independent Contractor Services Agreement (“Agreement”) with a third party to provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be entitled to a monthly consulting fee of $6,000 and a total of 36,000 common shares, valued at $18,000 (based on the estimated fair value of the stock on the date of grant) for services rendered. The 36,000 common shares to be issued by the end of November 2022.
Common Stock
On October 3, 2022, the Company entered into an Independent Contractor Services Agreement (“Agreement”) with a third party to provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be entitled to a monthly consulting fee of $6,000 and a total of 36,000 common shares, valued at $18,000 (based on the estimated fair value of the stock on the date of grant) for services rendered.
On July 20, 2022, the Company issued 200,000 common shares to an affiliate for aggregate gross proceeds of $100,000.
Warrants
On March 16, 2021, the Company granted 698,830 warrants to purchase 698,830 shares of the Company’s common stock to Ahmet Demir Bingol, valued at $166,141 (based on the Black Scholes valuation model on the date of grant), pursuant to his Employment Agreement. The warrants are exercisable for a period of ten years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he will terminate his employment effective April 15, 2022. He received no severance payment and there were no disagreements between he or the Company. A total of 300,000 warrants have vested with the remaining 398,830 unvested warrants expiring. As a result of Mr. Bingol’s termination, the Company reversed the remaining warrant modification balance of $94,101 during the nine months ended September 30, 2022.
On February 1, 2022, the Company granted 30,000 warrants to purchase 30,000 of the Company’s common stock to a third party for consulting services, valued at $13,547 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of three years at $1.00 per share in whole or in part, and fully vest at grant date.
On March 29, 2022, the Board of Directors approved the granting of 400,000 warrants, with effect from April 1, 2022, convertible to the Company’s common shares with an exercise price of $1.10, valued at $290,276 (based on the Black Scholes valuation model on the date of grant), to our acting CEO and Chairman Joseph V. Pergolizzi Jr., MD through his company, CreoMed, Inc. with an expiration period of 10 years. These warrants were issued as compensation for the first quarter to Joseph V. Pergolizzi Jr., MD.
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On August 1, 2022, based on a revised agreement signed by the relevant parties, the Company granted 60,000 warrants to purchase 60,000 of the Company’s common stock to a third party for consulting services, valued at $7,632 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of three years at $1.10 per share in whole or in part, and fully vest at grant date.
On September 1, 2022, the Company granted 300,000 warrants to purchase 300,000 of the Company’s common stock to a third party for consulting services, valued at $60,916 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of four years at $1.10 per share in whole or in part and vest 50% in six months and the remaining 50% in twelve months from the grant date.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us on which to base an evaluation of our performance. We have not finalized development of our planned SOLACE device, nor have we generated any cash flow from operations. The Company’s cash position may not be sufficient to support the Company’s daily operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and possible cost overruns due to increases in the cost of services. To become profitable and competitive, we must receive additional capital. We have no assurance that future financing will materialize. If that financing is not available, we may be unable to continue operations.
Overview of Presentation
The following Management’s Discussion and Analysis (“MD&A”) or Plan of Operations includes the following sections:
| ● | Results of Operations | |
| ● | Liquidity and Capital Resources | |
| ● | Capital Expenditures | |
| ● | Going Concern | |
| ● | Critical Accounting Policies | |
| ● | Off-Balance Sheet Arrangements |
General and administrative expenses consist primarily of personnel costs and professional fees required to support our operations and growth.
Depending on the extent of our future growth, we may experience significant strain on our management, personnel, and information systems. We will need to implement and improve operational, financial, and management information systems. In addition, we are implementing new information systems that will provide better record-keeping. However, there can be no assurance that our management resources or information systems will be sufficient to manage any future growth in our business, and the failure to do so could have a material adverse effect on our business, results of operations and financial condition.
Results of Operations
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
The following discussion represents a comparison of our results of operations for the three months ended March 31, 2023 and 2022. The results of operations for the periods shown in our unaudited condensed consolidated financial statements are not necessarily indicative of operating results for the entire period. In the opinion of management, the unaudited condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our financial position, results of operations and cash flows for the periods presented.
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Net revenues | $ | - | $ | - | ||||
| Cost of sales | - | - | ||||||
| Gross Profit | - | - | ||||||
| Operating expenses | 79,811 | 95,073 | ||||||
| Other income | - | - | ||||||
| Net loss before income taxes | $ | (79,811 | ) | $ | (95,073 | ) | ||
| 24 |
Revenues
For the three months ended March 31, 2023 and 2022, we had no revenues.
Cost of Sales
For the three months ended March 31, 2023 and 2022, we had no cost of sales.
Operating expenses
Operating expenses decreased by $15,262, or 16.1%, to $79,811 for three months ended March 31, 2023 from $95,073 for the three months ended March 31, 2022 primarily due to decreases in compensation costs of $34,413, research and development costs of $10,667, insurance costs of $19,353, professional fees of $19,359, and general and administration costs of $8,831, offset partially by consulting fees of $77,361. In March 2021, the Company hired its CEO resulting in compensation costs and stock based compensation. Effective April 15, 2022, the Company entered into a separation agreement with its CEO whereby he was terminated resulting in decreased compensation costs.
For the three months ended March 31, 2023, we had research and development costs of $1,500 and general and administrative expenses of $78,311 primarily due to depreciation costs of $4,275, consulting fees of $53,509, and insurance costs of $20,527 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
For the three months ended March 31, 2022, we had research and development costs of $12,167 and general and administrative expenses of $82,906 primarily due to professional fees of $19,359, compensation costs of $34,413, depreciation costs of $4,275, travel costs of $257, and general and administration costs of $24,602 as a result of reorganizing our administrative infrastructure due to refocusing our personnel and marketing initiatives to generate anticipated sales growth.
Other Income
Other expense for the three months ended March 31, 2023 and 2022 was none.
Net loss before income taxes
Net loss before income for three months ended March 31, 2023 totaled $79,811 primarily due to (increases/decreases) in consulting fees, depreciation, insurance costs, and general and administration costs compared to a loss of $95,073 for three months ended March 31, 2022 primarily due to (increases/decreases) in research and development costs, compensation costs, professional fees, consulting fees, depreciation, insurance costs, travel costs, and general and administration costs.
Assets and Liabilities
Assets were $184,163 as of March 31, 2023. Assets consisted primarily of cash of $16,105, inventory of $40,175, deposits of $54,000, other current assets of $38,900, and property and equipment of $34,983. Liabilities were $22,489 as of March 31, 2023. Liabilities consisted primarily of accounts payable and accrued expenses.
Liquidity and Capital Resources
General – Overall, we had a decrease in cash flows for three months ended March 31, 2023 of $53,753 resulting from cash used in operating activities of $53,753.
| 25 |
The following is a summary of our cash flows provided by (used in) operating, investing, and financing activities during the periods indicated:
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||
| 2023 | 2022 | |||||||
| Net cash provided by (used in): | ||||||||
| Operating activities | $ | (53,753 | ) | $ | (129,799 | ) | ||
| Investing activities | - | - | ||||||
| Financing activities | - | - | ||||||
| $ | (53,753 | ) | $ | (129,799 | ) | |||
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
Cash Flows from Operating Activities – For the three months ended March 31, 2023, net cash used in operations was $53,753 compared to net cash used in operations of $129,799 for the three months ended March 31, 2022. Net cash used in operations was primarily due to a net loss of $79,811 for the three months ended March 31, 2023 and the changes in operating assets and liabilities of $4,252, primarily due to other current assets of $22,078, offset partially by accounts payable and accrued expenses of $17,826. In addition, net cash used in operating activities includes adjustments to reconcile net profit from depreciation expense of $4,275, and warrants issued for services of $17,531.
Net cash used in operations was primarily due to a net loss of $95,073 for three months ended March 31, 2022 and the changes in operating assets and liabilities of $37,761, primarily due to other current assets of $45,872 and accounts payable and accrued expenses of $3,289, offset partially other current liabilities of $11,400. In addition, net cash used in operating activities includes adjustments to reconcile net profit from depreciation expense of $4,275, warrants issued for services of $13,547, options issued for services of $3,792, offset partially by warrants forfeited in conjunction with compensation - related parties of $94,101.
Cash Flows from Investing Activities – For the three months ended March 31, 2023 and 2022, net cash used in investing was none.
Cash Flows from Financing Activities – For three months ended March 31, 2023 and 2022, net cash provided by financing was none.
Financing – We expect that our current working capital position, together with our expected future cash flows from operations will be insufficient to fund our operations in the ordinary course of business, anticipated capital expenditures, debt payment requirements and other contractual obligations for at least the next twelve months. However, this belief is based upon many assumptions and is subject to numerous risks, and there can be no assurance that we will not require additional funding in the future.
We have no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies or any other material capital expenditures. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, capital equipment or improvements or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. Due to the ongoing global economic crisis, we believe it may be difficult to obtain additional financing if needed. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our shareholders, in the case of equity financing.
Board of Directors Resolutions
On April 28, 2023, by unanimous written consent, the Company’s Board of Directors adopted the following:
| 1. | Appointment of Mr. Ulderico Conte as a director of the Company. | |
| 2. | Granted 3,333,333 warrants to purchase 3,333,333 of the Company’s common stock to Mr. Jim Holt, the Company’s acting CEO and Director as compensation. The warrants are exercisable for a period of seven years at $0.03 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date. |
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Acquisition of mPathix
On June 28, 2021, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among mPathix Health, Inc. (formerly EMF Medical Devices, Inc., a Delaware corporation) (“mPathix”) and Qualis. The closing of the transaction (the “Closing”) took place on June 29, 2021 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of mPathix. In exchange, the Company issued to the mPathix shareholder’s, their designees or assigns, an aggregate of 6,988,300 shares of Company common stock (the “Shares Component”) or 93.36% of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at a valuation of $0.50 per share, and the Company issued warrants to purchase an additional 1,098,830 shares (698,830 warrants issued to the Company’s previous CEO and 400,000 to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company’s acting CEO and chairman of the board) of the Company’s common stock, exercisable for 10 years at a $0.50 per share exercise price, subject to adjustment. In connection with the closing of the mPathix acquisition, the officers and directors of mPathix were appointed as the officers and directors of the Company.
The acquisition was accounted for as a “reverse merger” and recapitalization since the stockholders of mPathix prior to the acquisition acquired a majority of the outstanding shares of the common stock of the Company immediately following the completion of the transaction. mPathix was deemed to be the accounting acquirer in the transaction, and, consequently, the transaction was treated as a recapitalization of mPathix. As a result, the Company is considered to be the continuation of the predecessor, mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the Company’s consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. The Company’s assets, liabilities and results of operations were consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.
Stock Based Compensation
Employment Agreement
On March 1, 2021, Mr. Ahmet Demir Bingol, the Company’s CEO entered into an Employment Agreement with the Company, with an effective date of March 16, 2021, in which he receives an annual base salary of $250,000, plus bonus compensation not to exceed 80% of base salary. In addition, Mr. Bingol was granted 698,830 warrants to purchase 698,830 of the Company’s common stock, valued at $165,378 (based on the Black Scholes valuation model on the date of grant). The warrants are exercisable for a period of ten years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date. Mr. Bingol’s employment also provides for medical insurance, disability benefits and one year of severance pay if his employment is terminated without cause or due to a change in control. Mr. Bingol’s compensation was approved by the Company’s Board of Directors on March 1, 2021.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he will terminate his employment effective April 15, 2022. He received no severance payment and there were no disagreements between he or the Company. A total of 300,000 warrants have vested with the remaining 398,830 unvested warrants expiring. As a result of Mr. Bingol’s termination, the Company reversed the remaining warrant modification balance of $94,101 during the nine months ended September 30, 2022.
Consulting Agreement
On January 27, 2022 the Company hired an engineering consultant to assist in completing the design history file, updating new software, system design, pre 510(k) preparation, and testing of the SOLACE device. This work is expected to be completed by the end of September 2022 and the cost of the contract is $77,850.
On October 3, 2022, the Company entered into an Independent Contractor Services Agreement (“Agreement”) with a third party to provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be entitled to a monthly consulting fee of $6,000 and a total of 36,000 common shares, valued at $18,000 (based on the estimated fair value of the stock on the date of grant) for services rendered. The 36,000 common shares to be issued by the end of November 2022.
| 27 |
Common Stock
On October 3, 2022, the Company entered into an Independent Contractor Services Agreement (“Agreement”) with a third party to provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be entitled to a monthly consulting fee of $6,000 and a total of 36,000 common shares, valued at $18,000 (based on the estimated fair value of the stock on the date of grant) for services rendered.
On July 20, 2022, the Company issued 200,000 common shares to an affiliate for aggregate gross proceeds of $100,000.
In July 2021, the Company issued 250,000 common shares to a related party valued at $125,000 (based on the estimated fair value of the stock on the date of grant) for services rendered.
Warrants
On March 16, 2021, the Company granted 698,830 warrants to purchase 698,830 shares of the Company’s common stock to Ahmet Demir Bingol, valued at $166,141 (based on the Black Scholes valuation model on the date of grant), pursuant to his Employment Agreement. The warrants are exercisable for a period of ten years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he will terminate his employment effective April 15, 2022. He received no severance payment and there were no disagreements between he or the Company. A total of 300,000 warrants have vested with the remaining 398,830 unvested warrants expiring. As a result of Mr. Bingol’s termination, the Company reversed the remaining warrant modification balance of $94,101 during the nine months ended September 30, 2022.
On February 1, 2022, the Company granted 30,000 warrants to purchase 30,000 of the Company’s common stock to a third party for consulting services, valued at $13,547 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of three years at $1.00 per share in whole or in part.
On March 29, 2022, the Board of Directors approved the granting of 400,000 warrants, with effect from April 1, 2022, convertible to the Company’s common shares with an exercise price of $1.10, valued at $290,276 (based on the Black Scholes valuation model on the date of grant), to our acting CEO and Chairman Joseph V. Pergolizzi Jr., MD through his company, CreoMed Inc with an expiration period of 10 years. These warrants were issued as compensation for the first quarter to Joseph V. Pergolizzi Jr., MD.
On August 1, 2022, the Company granted 60,000 warrants to purchase 60,000 of the Company’s common stock to a third party for consulting services, valued at $7,632 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of three years at $1.10 per share in whole or in part, and fully vest at grant date.
On September 1, 2022, the Company granted 300,000 warrants to purchase 300,000 of the Company’s common stock to a third party for consulting services, valued at $60,916 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of four years at $1.10 per share in whole or in part and vest 50% in six months and the remaining 50% in twelve months from the grant date.
Insurance Financing Agreement
On July 20, 2022, the Company entered into a loan to finance its directors and officer’s insurance policy effective June 28, 2022. The loan has a principal balance of $90,225, bears interest at 8.83% per annum, and is due and payable in nine monthly payments of $10,397. During the three months ended March 31, 2023 and 2022, the Company made no payments. During the three months ended March 31, 2023, the Company cancelled the insurance policy.
Capital Expenditures
Other Capital Expenditures
We expect to purchase approximately $30,000 of equipment in connection with the expansion of our business during the next twelve months.
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Fiscal year end
Our fiscal year end is December 31.
Critical Accounting Policies
Refer to Note 3 in the accompanying notes to the unaudited condensed consolidated financial statements for critical accounting policies.
Recent Accounting Pronouncements
Refer to Note 3 in the accompanying notes to the condensed consolidated financial statements.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $3,705,098 at March 31, 2023, had working capital of $126,691 and $184,696 at March 31, 2023 and December 31, 2022, respectively, had a net loss of $79,811 and $95,073 for the three months ended March 31, 2023 and 2022, respectively, and net cash used in operating activities of $53,753 and $129,799 for three months ended March 31, 2023 and 2022, respectively, with no revenue earned since inception, and a lack of operational history. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
While the Company is attempting to expand operations and generate revenues from product sales, we have not yet finalized development or produced our planned medical device, nor have we generated any cash flow from operations, and the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While management believes in the viability of its strategy to generate revenues and in its ability to raise additional funds or transact an asset sale, there can be no assurances to that effect or on terms acceptable to the Company. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise capital, further implement its business plan, and generate revenues.
The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
The Commission has defined a company’s critical accounting policies as the ones that are most important to the portrayal of our financial condition and results of operations and which require us to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies that are significant to understanding our results.
Contractual Obligations and Off-Balance Sheet Arrangements
We do not have any contractual obligations or off balance sheet arrangements.
Inflation
We do not believe that inflation has had a material effect on our results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
| 29 |
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure Controls and Procedures. We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported accurately, in accordance with U.S. Generally Accepted Accounting Principles and within the required time periods, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, who is also our acting Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. As of the end of the period covered by this report (March 31, 2023), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q our disclosure controls and procedures were not effective to enable us to accurately record, process, summarize and report certain information required to be included in the Company’s periodic SEC filings within the required time periods, and to accumulate and communicate to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2023 that have materially affected or are reasonably likely to materially affect our internal controls.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to or otherwise involved in any legal proceedings.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On April 28, 2023, by unanimous written consent, the Company’s Board of Directors granted 3,333,333 warrants to purchase 3,333,333 of the Company’s common stock to Mr. Jim Holt, the Company’s acting CEO and Director as compensation. The warrants are exercisable for a period of seven years at $0.03 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date.
Item 3. Defaults Upon Senior Securities.
There have been no events which are required to be reported under this Item.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
31. Certification of CEO and CFO.
32. Certification pursuant to 18 U.S.C. Section 1350 of CEO and CFO
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| QUALIS INNOVATIONS, INC. | ||
| Dated: May 23, 2023 | By: | /s/ Jim Holt |
| Jim Holt | ||
| Acting CEO and Chairman | ||
| 31 |
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Jim Holt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Qualis Innovations, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 23, 2023
| /s/ Jim Holt | |
| Jim Holt | |
Acting CEO and Chairman
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Qualis Innovations, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jim, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.
This certificate is being made for the exclusive purpose of compliance by the Acting Chief Executive Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.
Date: May 23, 2023
| /s/ Jim Holt | |
| Jim Holt | |
| Acting CEO and Chairman |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 25,000,000 | 25,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 750,000,000 | 750,000,000 |
| Common stock, shares issued | 8,475,950 | 8,475,950 |
| Common stock, shares outstanding | 8,475,950 | 8,475,950 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Income Statement [Abstract] | ||
| Net revenues | ||
| Gross Profit | ||
| Operating expenses: | ||
| Research and development | 1,500 | 12,167 |
| General and administrative | 78,311 | 82,906 |
| Total operating expenses | 79,811 | 95,073 |
| Loss from operations | (79,811) | (95,073) |
| Loss before income taxes | (79,811) | (95,073) |
| Income taxes | ||
| Net loss | $ (79,811) | $ (95,073) |
| Net loss per share, basic and diluted | $ (0.01) | $ (0.01) |
| Weighted average number of shares outstanding Basic and diluted | 8,475,950 | 8,239,950 |
Condensed Consolidated Statements of Changes In Stockholders' Equity (Unaudited) - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Total |
||
|---|---|---|---|---|---|---|
| Beginning balance, value at Dec. 31, 2021 | $ 8,240 | $ 3,466,947 | $ (2,704,772) | $ 770,415 | ||
| Beginning balance, shares at Dec. 31, 2021 | [1] | 8,239,950 | ||||
| Warrants issued to third parties in conjunction with services | 13,547 | 13,547 | ||||
| Warrants forfeited in conjunction with compensation - related party | (94,101) | (94,101) | ||||
| Options issued to third parties in conjunction with services | 3,792 | 3,792 | ||||
| Net loss | (95,073) | (95,073) | ||||
| Ending balance, value at Mar. 31, 2022 | $ 8,240 | 3,390,185 | (2,799,845) | 598,580 | ||
| Ending balance, shares at Mar. 31, 2022 | 8,239,950 | |||||
| Beginning balance, value at Dec. 31, 2022 | $ 8,476 | 3,840,765 | (3,625,287) | 223,954 | ||
| Beginning balance, shares at Dec. 31, 2022 | [1] | 8,475,950 | ||||
| Warrants issued to third parties in conjunction with services | 17,531 | 17,531 | ||||
| Net loss | (79,811) | (79,811) | ||||
| Ending balance, value at Mar. 31, 2023 | $ 8,476 | $ 3,858,296 | $ (3,705,098) | $ 161,674 | ||
| Ending balance, shares at Mar. 31, 2023 | 8,475,950 | |||||
| ||||||
ORGANIZATION AND PRINCIPAL ACTIVITIES |
3 Months Ended |
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Mar. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| ORGANIZATION AND PRINCIPAL ACTIVITIES | NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Corporate History and Background
Qualis Innovations, Inc. (the “Company” or “Qualis”), formerly known as Hoopsoft Development Corp., Yellowstone Mining, Inc. and Sky Digital Holding Corp. was incorporated in the state of Nevada on March 23, 2006 under the name Hoopsoft Development Corp (“Hoopsoft”). On January 12, 2007, the Company entered into an agreement and plan of merger (“Agreement and Plan of Merger”) with Yellowcake Mining, Inc. (“Yellowcake”), a Nevada corporation and wholly-owned subsidiary of Hoopsoft Development Corp., incorporated for the sole purpose of effecting the merger. Pursuant to the terms of the Agreement and Plan of Merger, Yellowcake merged with and into Hoopsoft, with Hoopsoft carrying on as the surviving corporation under the name “Yellowcake Mining, Inc.”
On April 6, 2011, Yellowcake restated its articles of incorporation and changed its name to Sky Digital Stores Corp (“SKYC”). On May 5, 2011, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among SKYC and Hong Kong First Digital Holding Ltd. (“First Digital”), and the shareholders of First Digital (the “FDH Shareholders”) entered into a Share “FDH”), and the shareholders of FDH (the “FDH Shareholders”). The closing of the transaction (the “Closing”) took place on May 5, 2011 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of FDH from the FDH Shareholders; and FDH Shareholders transferred and contributed all of their Shares to us. In exchange, the Company issued to the FDH Shareholders, their designees or assigns, an aggregate of shares (the “Shares Component”) or % of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at $ per share.
Mr. Lin Xiangfeng planned, organized and executed the Share Exchange. Prior to the Share Exchange, Mr. Lin Xiangfeng was the largest shareholder and sole officer of FDH. He was also the CEO of SKYC but did not own any shares of the Company. The parties involved in the Share Exchange Agreement are SKYC, FDH and all FDH Shareholders. Mr. Lin Jinshui, an FDH Shareholder, is the father of Mr. Lin Xiangfeng and Mr. Lin Xiuzi, an FDH Shareholder, is the brother of Mr. Lin Xiangfeng. Other than Mr. Lin Xiangfeng, no third party played a substantial role in the agreement.
FDH owned (i) 100% of the issued and outstanding capital stock of Shenzhen Dong Sen Mobile Communication Technology Co., Ltd (also known and doing business as Shenzhen Donxon Mobile Communication Technology Co., Ltd, “Donxon”), a company organized under the laws of the People’s Republic of China (“China” or the “PRC”); and (ii) 100% of the issued and outstanding capital stock of Shenzhen Xing Tian Kong Digital Company Limited (“XTK”), a PRC company. XTK was the holder of 100% of the issued and outstanding capital stock of Shenzhen Da Sheng Communication Technology Company Limited (also known and do business as Shenzhen Dasen Communication Technology Company Limited, “Dasen”), a PRC company. Dasen is the holder of 70% of the issued and outstanding capital stock of Foshan Da Sheng Communication Chain Service Company Limited (also known and do business as Foshan Dasen Communication Chain Service Co. Ltd, “FDSC”), a PRC company. Pursuant to the Exchange Agreement, FDH became a wholly-owned subsidiary of the Company, and the Company owned 100% of Donxon, 100% of XKT, 100% of Dasen and 70% of FDSC indirectly through FDH.
On February 13, 2018, a change of control occurred, and new officers and directors of the Company were appointed. The name change of ‘Sky Digital Stores Corp.’ (SKYC) to Qualis Innovations, Inc. and the 1 – 1,000 reverse split was announced on FINRA’s Daily List. Echo Resources LLLP took over control of Qualis owning of the common shares outstanding. Since that event Qualis did not have any business operations or any assets or liabilities.
In July, 2019, John Ballard and a Charles Achoa, formed a new company named EMF Medical Devices Inc. for the development, maintenance, marketing and sale of an electronic device for the treatment of pain that would make use of certain intellectual property interests held by LCMD. In May 2021 the Company changed its name to mPathix Health Inc. Presently, John Ballard and Charles Achoa do not participate in any management or board position.
On June 28, 2021, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) by and among mPathix Health, Inc. (formerly EMF Medical Devices, Inc., a Delaware corporation) (“mPathix”) and Qualis. The closing of the transaction (the “Closing”) took place on June 29, 2021 (the “Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired all of the outstanding shares (the “Shares”) of mPathix. In exchange, the Company issued to the mPathix shareholder’s, their designees or assigns, an aggregate of shares of Company common stock (the “Shares Component”) or % of the shares of common stock of the Company issued and outstanding after the Closing (the “Share Exchange”), at a valuation of $ per share, and the Company issued warrants to purchase an additional shares ( warrants issued to the Company’s previous CEO and to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the Company’s acting CEO and chairman of the board) of the Company’s common stock, exercisable for years at a $ per share exercise price, subject to adjustment. In connection with the closing of the mPathix acquisition, the officers and directors of mPathix were appointed as the officers and directors of the Company. On June 29, 2021, the Company issued common shares for the recapitalization of Qualis in conjunction with the reverse acquisition for a net book value of $.
The acquisition was accounted for as a “reverse merger’’ and recapitalization since the stockholders of mPathix own a majority of the outstanding shares of the common stock immediately following the completion of the transaction assuming that holders of % of the Public Shares exercise their conversion rights. mPathix will be deemed to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of mPathix. As a result, Qualis is considered to be the continuation of the predecessor mPathix. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements are those of mPathix and are recorded at the historical cost basis of mPathix. Qualis’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of mPathix after consummation of the acquisition.
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BASIS OF PRESENTATION |
3 Months Ended |
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Mar. 31, 2023 | |
| Accounting Policies [Abstract] | |
| BASIS OF PRESENTATION | NOTE 2 – BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and stated in U.S. dollars. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).
The Company currently operates in one business segment. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of businesses or separate business entities.
Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $3,705,098 at March 31, 2023, had working capital of $126,691 and $184,696 at March 31, 2023 and December 31, 2022, respectively, had a net loss of $79,811 and $95,073 for the three months ended March 31, 2023 and 2022, respectively, and net cash used in operating activities of $53,753 and $129,799 for the three months ended March 31, 2023 and 2022, respectively, with no revenue earned since inception, and a lack of operational history. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
While the Company is attempting to expand operations and generate revenues, the Company’s cash position may not be significant enough to support the Company’s daily operations. Management intends to raise additional funds by way of a private offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern. While management believes in the viability of its strategy to generate revenues and in its ability to raise additional funds or transact an asset sale, there can be no assurances to that effect or on terms acceptable to the Company. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate revenues.
The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Mar. 31, 2023 | ||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to GAAP and have been consistently applied in the preparation of the consolidated financial statements.
Use of Estimates
The preparation of these consolidated financial statements in accordance 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 disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements. The more significant estimates and assumptions by management include among others: common stock valuation, amortization of intangible assets, depreciation of property and equipment, the recoverability of intangibles. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Cash
The Company’s cash is held in bank accounts in the United States and is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company has not experienced any cash losses.
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company.
Income Taxes
Income taxes are accounted for under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Balance Sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The likelihood that its deferred tax assets will be recovered from future taxable income must be assessed and, to the extent that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance in a period are recorded through the income tax provision in the consolidated Statements of Operations.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s consolidated financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company does not have a liability for unrecognized income tax benefits.
Advertising and Marketing Costs
Advertising and marketing expenses are recorded as marketing expenses when they are incurred. The Company had no advertising and marketing expense for the three months ended March 31, 2023 and 2022, respectively.
Research and Development
All research and development costs are expensed as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730, Research and Development. The Company incurred research and development expense of $0 and $375,833 for three months ended March 31, 2023 and 2022, respectively. The research and development expense for the three months ended March 31, 2023 includes $1,500 and $12,167, respectively.
With respect to the current status of the patent, there has been no movement during the quarter ended March 31, 2023 and till date. The Company has a disagreement with the specific vendor and the project relating to collection of data, testing and filing the patent application has been kept on hold. The Company and the vendor are trying to resolve this disagreement, about achieving a particular milestone.
General and Administrative Expenses
General and administrative expenses consisted of professional service fees, and other general and administrative overhead costs. Expenses are recognized when incurred.
Deposits
Deposits consist of amounts paid to a vendor in advance to manufacture pain treatment products. Deposits as of March 31, 2023 and December 31, 2022 were $54,000 and $54,000, respectively. Deposits are included in current assets in the accompanying Condensed Consolidated Balance Sheets.
Property and Equipment
Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, generally five years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Fixed assets are examined for the possibility of decreases in value when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Impairment of Long-lived Assets
The Company periodically evaluates whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.
The Company’s impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-party comparable sales and discounted cash flow models. If actual results are not consistent with the Company’s assumptions and estimates, or the assumptions and estimates change due to new information, the Company may be exposed to an impairment charge in the future.
Fair Value of Financial Instruments
The provisions of accounting guidance, FASB Topic ASC 825 requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2023, there were no financial instruments requiring fair value.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
The carrying value of financial assets and liabilities recorded at fair value are measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels.
The computation of net profit (loss) per share included in the Statements of Operations, represents the net profit (loss) per share that would have been reported had the Company been subject to ASC 260, “Earnings Per Share as a corporation for all periods presented.
Diluted earnings (loss) per share are computed on the basis of the weighted average number of common shares (including common stock subject to redemption) plus dilutive potential common shares outstanding for the reporting period. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period.
There were and dilutive securities outstanding for the three months ended March 31, 2023 and 2022, respectively. These potential dilutive securities outstanding have not been considered as the inclusion would be anti-dilutive.
Stock based compensation issued to employees and members of our board of directors is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock based award is recognized as an expense over the requisite service period of the award on a straight-line basis.
For purposes of determining the variables used in the calculation of stock based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our consolidated statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our unaudited condensed consolidated financial statements.
Issuances of the Company’s common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. Although situations may arise in which counter performance may be required over a period of time, the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Non-Cash Equity Transactions
Shares of equity instruments issued for non-cash consideration are recorded at the fair value of the consideration received based on the market value of services to be rendered, or at the value of the stock given, considered in reference to contemporaneous cash sale of stock.
Concentrations, Risks, and Uncertainties
Business Risk
Substantial business risks and uncertainties are inherent to an entity, including the potential risk of business failure.
The Company is headquartered and operates in the United States. To date, the Company has generated no revenues from operations. There can be no assurance that the Company will be able to raise additional capital and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. Currently, these contingencies include general economic conditions, price of components, competition, and governmental and political conditions.
Interest rate risk
Financial assets and liabilities do not have material interest rate risk.
Credit risk
The Company is not exposed to credit risk.
Seasonality
The business is not subject to substantial seasonal fluctuations.
Major Suppliers
The Company has not entered into any contracts that obligate it to purchase a minimum quantity or exclusively from any supplier.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and had an immaterial impact from this standard.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, while also clarifying and amending existing guidance, including interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU No. 2019-12 in the first quarter of fiscal 2021, coinciding with the standard’s effective date, and had an immaterial impact from this standard.
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures. Other recently issued accounting updates are not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements.
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PROPERTY AND EQUIPMENT |
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| PROPERTY AND EQUIPMENT | NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of:
Depreciation expense was $4,275 and $4,275 for the three months ended March 31, 2023 and 2022, respectively, and is classified in general and administrative expenses in the consolidated Statements of Operations.
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SHORT TERM LOAN |
3 Months Ended |
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Mar. 31, 2023 | |
| Debt Disclosure [Abstract] | |
| SHORT TERM LOAN | NOTE 5 – SHORT TERM LOAN
On July 20, 2022, the Company entered into a loan to finance its directors and officer’s insurance policy effective June 28, 2022. The loan has a principal balance of $90,225, bears interest at 8.83% per annum, and is due and payable in nine monthly payments of $10,397. During the three months ended March 31, 2023 and 2022, the Company made no payments. During the three months ended March 31, 2023, the Company cancelled the insurance policy.
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STOCKHOLDERS’ EQUITY |
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| STOCKHOLDERS’ EQUITY | NOTE 6 – STOCKHOLDERS’ EQUITY
The Company has authorized preferred stock with a par value of $ with preferred shares outstanding at March 31, 2023 and December 31, 2022.
The Company has authorized shares of par value $ common stock, of which and shares are outstanding at March 31, 2023 and December 31, 2022, respectively.
Common Stock
On October 3, 2022, the Company entered into an Independent Contractor Services Agreement (“Agreement”) with a third party to provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be entitled to a monthly consulting fee of $6,000 and a total of common shares, valued at $18,000 (based on the estimated fair value of the stock on the date of grant) for services rendered. The common shares to be issued by the end of November 2022.
On July 20, 2022, the Company issued common shares to an affiliate for aggregate gross proceeds of $100,000.
Warrants
On March 16, 2021, the Company granted warrants to purchase 698,830 of the Company’s common stock to Ahmet Demir Bingol, valued at $165,378 (based on the Black Scholes valuation model on the date of grant), pursuant to his Employment Agreement. The warrants are exercisable for a period of ten years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he terminated his employment effective April 15, 2022. He received no severance payment and there were no disagreements between he or the Company. A total of warrants have vested with the remaining unvested warrants expiring. As a result of Mr. Bingol’s termination, the Company reversed the remaining warrant modification balance of $94,101 during the nine months ended September 30, 2022.
On February 1, 2022, the Company granted warrants to purchase 30,000 of the Company’s common stock to a third party for consulting services, valued at $13,547 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of three years at $1.00 per share in whole or in part, and fully vest at grant date.
On March 29, 2022, the Board of Directors approved the granting of warrants, with effect from April 1, 2022, convertible to the Company’s common shares with an exercise price of $1.10, valued at $290,276 (based on the Black Scholes valuation model on the date of grant), to our acting CEO and Chairman Joseph V. Pergolizzi Jr., MD through his company, CreoMed Inc with an expiration period of 10 years. These warrants were issued as compensation for the first quarter to Joseph V. Pergolizzi Jr., MD.
On August 1, 2022, based on a revised agreement signed by the relevant parties, the Company granted warrants to purchase 60,000 of the Company’s common stock to a third party for consulting services, valued at $7,632 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of at $ per share in whole or in part, and fully vest at grant date.
On September 1, 2022, the Company granted warrants to purchase 300,000 of the Company’s common stock to a third party for consulting services, valued at $60,916 (based on the Black Scholes valuation model on the date of grant). The options are exercisable for a period of at $ per share in whole or in part and vest % in six months and the remaining % in from the grant date.
The following represents a summary of the warrants outstanding at March 31, 2023 and changes during the periods then ended:
Options
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RELATED PARTY TRANSACTIONS |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | NOTE 7 – RELATED PARTY TRANSACTIONS
Other than as set forth below, and as disclosed in Notes 6, 7 and 10, there have not been any transaction entered into or been a participant in which a related person had or will have a direct or indirect material interest.
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EARNINGS PER SHARE |
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| EARNINGS PER SHARE |
FASB ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (EPS) computations.
Basic earnings (loss) per share are computed by dividing net earnings available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
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COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal
From time to time, various lawsuits and legal proceedings may arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition or operating results.
2021 Equity Incentive Plan
In June 2021, the board of directors of the Company authorized the adoption and implementation of the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The principal purpose of the 2021 Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies by providing them the opportunity to acquire a proprietary interest in the Company and to link their interests and efforts to the long-term interests of the Company’s shareholders. Under the 2021 Plan, an aggregate of shares of the Company’s common stock have initially been reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock awards, restricted stock, restricted stock units and other stock and cash-based awards. The exercise price for each option may not be less than fair market value of the common stock on the date of grant, and shall vest as determined by the Company’s board of directors but shall not exceed a ten-year period.
Employment Agreement
On March 1, 2021, Mr. Ahmet Demir Bingol, the Company’s Chief Executive Officer (“CEO”) entered into an Employment Agreement with the Company, with an effective date of March 16, 2021, in which he receives an annual base salary of $250,000, plus bonus compensation not to exceed 80% of salary. In addition, Mr. Bingol was granted warrants to purchase of the Company’s common stock, valued at $165,378 (based on the Black Scholes valuation model on the date of grant). The warrants are exercisable for a period of ten years at $0.50 per share in whole or in part, as either a cash exercise or as a cashless exercise, and fully vest at grant date. Mr. Bingol’s employment also provides for medical insurance, disability benefits and one year of severance pay if his employment is terminated without cause or due to a change in control. Mr. Bingol’s compensation was approved by the Company’s Board of Directors on March 1, 2021.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he terminated his employment effective April 15, 2022. He received no severance payment and there were no disagreements between he or the Company. A total of warrants have vested with the remaining unvested warrants expiring. As a result of Mr. Bingol’s termination, the Company reversed the remaining warrant modification balance of $94,101 during the nine months ended September 30, 2022.
Consulting Agreement
On January 27, 2022 the Company hired an engineering consultant to assist in completing the design history file, updating new software, system design, pre 510(k) preparation, and testing of the SOLACE device. This work has been placed on hold and the cost of the contract is $77,850.
On October 3, 2022, the Company entered into an Independent Contractor Services Agreement (“Agreement”) with a third party to provide professional services to the Company. The Agreement terminates January 3, 2023. Under this Agreement, the contractor will be entitled to a monthly consulting fee of $6,000 and a total of common shares, valued at $18,000 (based on the estimated fair value of the stock on the date of grant) for services rendered. The common shares to be issued by the end of November 2022.
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SUBSEQUENT EVENTS |
3 Months Ended | |||||||||
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Mar. 31, 2023 | ||||||||||
| Subsequent Events [Abstract] | ||||||||||
| SUBSEQUENT EVENTS | NOTE 10 – SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after March 31, 2023 up through the date the consolidated financial statements were available to be issued. During this period, the Company did not have any material recognizable subsequent events required to be disclosed as of and for the period ended March 31, 2023 except for the following:
Board of Directors Resolutions
On April 28, 2023, by unanimous written consent, the Company’s Board of Directors adopted the following:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended | |||||||||||||||
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Mar. 31, 2023 | ||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||
| Use of Estimates | Use of Estimates
The preparation of these consolidated financial statements in accordance 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 disclosures of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of net sales and expenses during the reported periods. Actual results may differ from those estimates and such differences may be material to the consolidated financial statements. The more significant estimates and assumptions by management include among others: common stock valuation, amortization of intangible assets, depreciation of property and equipment, the recoverability of intangibles. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
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| Cash | Cash
The Company’s cash is held in bank accounts in the United States and is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The Company has not experienced any cash losses.
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| Related Parties | Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions. Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company.
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| Income Taxes | Income Taxes
Income taxes are accounted for under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Balance Sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The likelihood that its deferred tax assets will be recovered from future taxable income must be assessed and, to the extent that recovery is not likely, a valuation allowance is established. Changes in the valuation allowance in a period are recorded through the income tax provision in the consolidated Statements of Operations.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s consolidated financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company does not have a liability for unrecognized income tax benefits.
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| Advertising and Marketing Costs | Advertising and Marketing Costs
Advertising and marketing expenses are recorded as marketing expenses when they are incurred. The Company had no advertising and marketing expense for the three months ended March 31, 2023 and 2022, respectively.
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| Research and Development | Research and Development
All research and development costs are expensed as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730, Research and Development. The Company incurred research and development expense of $0 and $375,833 for three months ended March 31, 2023 and 2022, respectively. The research and development expense for the three months ended March 31, 2023 includes $1,500 and $12,167, respectively.
With respect to the current status of the patent, there has been no movement during the quarter ended March 31, 2023 and till date. The Company has a disagreement with the specific vendor and the project relating to collection of data, testing and filing the patent application has been kept on hold. The Company and the vendor are trying to resolve this disagreement, about achieving a particular milestone.
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| General and Administrative Expenses | General and Administrative Expenses
General and administrative expenses consisted of professional service fees, and other general and administrative overhead costs. Expenses are recognized when incurred.
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| Deposits | Deposits
Deposits consist of amounts paid to a vendor in advance to manufacture pain treatment products. Deposits as of March 31, 2023 and December 31, 2022 were $54,000 and $54,000, respectively. Deposits are included in current assets in the accompanying Condensed Consolidated Balance Sheets.
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| Property and Equipment | Property and Equipment
Property and equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets, generally five years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Fixed assets are examined for the possibility of decreases in value when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
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| Impairment of Long-lived Assets | Impairment of Long-lived Assets
The Company periodically evaluates whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.
The Company’s impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-party comparable sales and discounted cash flow models. If actual results are not consistent with the Company’s assumptions and estimates, or the assumptions and estimates change due to new information, the Company may be exposed to an impairment charge in the future.
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| Fair Value of Financial Instruments | Fair Value of Financial Instruments
The provisions of accounting guidance, FASB Topic ASC 825 requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2023, there were no financial instruments requiring fair value.
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| Fair Value Measurements | Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
The carrying value of financial assets and liabilities recorded at fair value are measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. There were no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. There have been no transfers between levels.
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| Basic and diluted earnings per share |
The computation of net profit (loss) per share included in the Statements of Operations, represents the net profit (loss) per share that would have been reported had the Company been subject to ASC 260, “Earnings Per Share as a corporation for all periods presented.
Diluted earnings (loss) per share are computed on the basis of the weighted average number of common shares (including common stock subject to redemption) plus dilutive potential common shares outstanding for the reporting period. In periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Potentially dilutive securities were excluded from the calculation of diluted net loss per share because the effects were anti-dilutive based on the application of the treasury stock method and because the Company incurred net losses during the period.
There were and dilutive securities outstanding for the three months ended March 31, 2023 and 2022, respectively. These potential dilutive securities outstanding have not been considered as the inclusion would be anti-dilutive.
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| Employee Stock Based Compensation |
Stock based compensation issued to employees and members of our board of directors is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock based award is recognized as an expense over the requisite service period of the award on a straight-line basis.
For purposes of determining the variables used in the calculation of stock based compensation issued to employees, the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our consolidated statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our unaudited condensed consolidated financial statements.
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| Non-Employee Stock Based Compensation |
Issuances of the Company’s common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. Although situations may arise in which counter performance may be required over a period of time, the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
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| Non-Cash Equity Transactions | Non-Cash Equity Transactions
Shares of equity instruments issued for non-cash consideration are recorded at the fair value of the consideration received based on the market value of services to be rendered, or at the value of the stock given, considered in reference to contemporaneous cash sale of stock.
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| Concentrations, Risks, and Uncertainties | Concentrations, Risks, and Uncertainties
Business Risk
Substantial business risks and uncertainties are inherent to an entity, including the potential risk of business failure.
The Company is headquartered and operates in the United States. To date, the Company has generated no revenues from operations. There can be no assurance that the Company will be able to raise additional capital and failure to do so would have a material adverse effect on the Company’s financial position, results of operations and cash flows. Also, the success of the Company’s operations is subject to numerous contingencies, some of which are beyond management’s control. Currently, these contingencies include general economic conditions, price of components, competition, and governmental and political conditions.
Interest rate risk
Financial assets and liabilities do not have material interest rate risk.
Credit risk
The Company is not exposed to credit risk.
Seasonality
The business is not subject to substantial seasonal fluctuations.
Major Suppliers
The Company has not entered into any contracts that obligate it to purchase a minimum quantity or exclusively from any supplier.
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| Recent Accounting Pronouncements | Recent Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. This standard removes, modifies, and adds certain disclosure requirements for fair value measurements. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU No. 2018-13 in the first quarter of fiscal 2020, coinciding with the standard’s effective date, and had an immaterial impact from this standard.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, while also clarifying and amending existing guidance, including interim-period accounting for enacted changes in tax law. This standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company adopted ASU No. 2019-12 in the first quarter of fiscal 2021, coinciding with the standard’s effective date, and had an immaterial impact from this standard.
In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements and related disclosures. Other recently issued accounting updates are not expected to have a material impact on the Company’s unaudited condensed consolidated financial statements. |
PROPERTY AND EQUIPMENT (Tables) |
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| SCHEDULE OF PROPERTY AND EQUIPMENT | Property and equipment consisted of the following as of:
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STOCKHOLDERS’ EQUITY (Tables) |
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SUMMARY OF WARRANTS OUTSTANDING | The following represents a summary of the warrants outstanding at March 31, 2023 and changes during the periods then ended:
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| SUMMARY OF STOCK OPTIONS OUTSTANDING |
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EARNINGS PER SHARE (Tables) |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES WERE EXCLUDED FROM CALCULATION OF DILUTED NET LOSS PER SHARE |
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| SCHEDULE OF COMPUTATION OF BASIC AND DILUTED NET INCOME PER SHARE |
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BASIS OF PRESENTATION (Details Narrative) - USD ($) |
3 Months Ended | ||
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Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
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| Accounting Policies [Abstract] | |||
| Accumulated deficit | $ 3,705,098 | $ 3,625,287 | |
| Working capital | 126,691 | $ 184,696 | |
| Net loss | 79,811 | $ 95,073 | |
| Net cash used in operating activities | $ 53,753 | $ 129,799 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) |
3 Months Ended | ||
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Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
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| Accounting Policies [Abstract] | |||
| FDIC cash | $ 250,000 | ||
| Advertising and marketing expense | 0 | $ 0 | |
| Incurred research and development costs | 0 | 375,833 | |
| Research and development expense | 1,500 | $ 12,167 | |
| Deposits | $ 54,000 | $ 54,000 | |
| Estimated useful lives | 5 years | ||
| Antidilutive securities excluded from computation of earnings per share, amount | 1,610,000 | 1,250,000 | |
SCHEDULE OF PROPERTY AND EQUIPMENT (Details) - USD ($) |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Estimated Life | 5 years | |
| Accumulated depreciation | $ (49,334) | $ (45,059) |
| Property and equipment, net | $ 34,983 | 39,258 |
| Tools, Dies and Molds [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Estimated Life | 5 years | |
| Property and equipment, gross | $ 82,530 | 82,530 |
| Computer Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Estimated Life | 3 years | |
| Property and equipment, gross | $ 1,787 | $ 1,787 |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) |
3 Months Ended | |
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Mar. 31, 2023 |
Mar. 31, 2022 |
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| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 4,275 | $ 4,275 |
SHORT TERM LOAN (Details Narrative) - Director and Officer [Member] - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Jul. 20, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
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| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | |||
| Fair value insurance | $ 90,225 | ||
| Interest percentage | 8.83% | ||
| Loans monthly payments | $ 10,397 | ||
| Repayments debt | $ 0 | $ 0 | |
SUMMARY OF STOCK OPTIONS OUTSTANDING (Details) - USD ($) |
3 Months Ended | |||
|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||
| Equity [Abstract] | ||||
| Options outstanding, Beginning balance | 120,000 | 120,000 | ||
| Warrants, Expected to be vested | $ 0.50 | $ 0.50 | ||
| Options, Weighted Average Contractual Term (in Years), Granted | 4 years 2 months 12 days | 5 years 2 months 12 days | ||
| Options, Aggregate Intrinsic Value, Beginning balance | [1] | $ 84,000 | ||
| Options, Granted | ||||
| Options, Weighted Average Exercise Price, Granted | ||||
| Options, Aggregate Intrinsic Value, Granted | [1] | |||
| Options, Exercised | ||||
| Options, Weighted Average Exercise Price, Exercised | ||||
| Options, Expired/Forfeited | ||||
| Options, Weighted Average Exercise Price, Expired/Forfeited | ||||
| Options outstanding, Ending balance | 120,000 | |||
| Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance | $ 0.50 | |||
| Options, Weighted Average Contractual Term (in Years), Outstanding | 4 years | |||
| Options, Aggregate Intrinsic Value, Ending balance | [1] | |||
| Options, Exercisable | 120,000 | |||
| Options, Weighted Average Exercise Price, Exercisable | $ 0.50 | |||
| Options, Weighted Average Contractual Term (in Years), Exercisable | 4 years | |||
| Options, Aggregate Intrinsic Value, Exercisable | [1] | |||
| Options, Expected to be vested | 120,000 | |||
| Options, Weighted Average Exercise Price, Expected to be vested | $ 0.50 | |||
| Weighted Average Contractual Term (in Years), Expected to be vested | 4 years | |||
| Options, Aggregate Intrinsic Value, Expected to be vested | [1] | |||
| ||||
STOCKHOLDERS’ EQUITY (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | 9 Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 03, 2022 |
Sep. 01, 2022 |
Aug. 01, 2022 |
Jul. 20, 2022 |
Apr. 15, 2022 |
Mar. 29, 2022 |
Feb. 01, 2022 |
Mar. 16, 2021 |
Nov. 30, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Sep. 30, 2022 |
Dec. 31, 2022 |
Dec. 31, 2021 |
|
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Preferred stock, shares authorized | 25,000,000 | 25,000,000 | 25,000,000 | |||||||||||
| Preferred stock, par value | $ 0.001 | $ 0.001 | ||||||||||||
| Preferred stock, shares outstanding | 0 | 0 | ||||||||||||
| Common stock, shares authorized | 750,000,000 | 750,000,000 | ||||||||||||
| Common stock, par value | $ 0.001 | $ 0.001 | ||||||||||||
| Common stock, shares outstanding | 8,475,950 | 8,475,950 | ||||||||||||
| Warrant [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Warrants granted | 790,000 | |||||||||||||
| Warrant [Member] | Ahmet Demir Bingol [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Warrants granted | 698,830 | |||||||||||||
| Number of common stock for purchase | 698,830 | |||||||||||||
| Value of warrants granted | $ 165,378 | |||||||||||||
| Warrants term | 10 years | |||||||||||||
| Warrants exercise price | $ 0.50 | |||||||||||||
| Unvested warrants expired | 398,830 | |||||||||||||
| Warrants modification expense | $ 94,101 | |||||||||||||
| Warrant [Member] | Ahmet Demir Bingol [Member] | Share-Based Payment Arrangement, Tranche One [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Warrants granted | 300,000 | |||||||||||||
| Warrant [Member] | Third Party [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Warrants granted | 30,000 | |||||||||||||
| Number of common stock for purchase | 30,000 | |||||||||||||
| Value of warrants granted | $ 13,547 | |||||||||||||
| Warrants term | 3 years | |||||||||||||
| Warrants exercise price | $ 1.00 | |||||||||||||
| Warrant [Member] | Dr Joseph Pergolizzi [Member] | CreoMed Inc [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Warrants granted | 400,000 | |||||||||||||
| Value of warrants granted | $ 290,276 | |||||||||||||
| Warrants term | 10 years | |||||||||||||
| Warrants exercise price | $ 1.10 | |||||||||||||
| Independent Contractor Services Agreement [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Consulting fee | $ 6,000 | |||||||||||||
| Shares issued for services, shares | 36,000 | 36,000 | ||||||||||||
| Number of shares issued, value | $ 18,000 | |||||||||||||
| Affiliate [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Shares issued for services, shares | 200,000 | |||||||||||||
| Number of shares issued, value | $ 100,000 | |||||||||||||
| Third Party [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Warrants granted | 300,000 | 60,000 | ||||||||||||
| Number of common stock for purchase | 300,000 | 60,000 | ||||||||||||
| Value of options granted | $ 60,916 | $ 7,632 | ||||||||||||
| Options exercisable period | 1.10 | three years | ||||||||||||
| Share exercise price | $ 1.10 | |||||||||||||
| Options exercisable period | four years | |||||||||||||
| Third Party [Member] | Share-Based Payment Arrangement, Tranche One [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Vesting percentage | 50.00% | |||||||||||||
| Third Party [Member] | Share-Based Payment Arrangement, Tranche Two [Member] | ||||||||||||||
| Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||||||||||||
| Vesting percentage | 50.00% | |||||||||||||
| Vesting period | 12 months | |||||||||||||
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES WERE EXCLUDED FROM CALCULATION OF DILUTED NET LOSS PER SHARE (Details) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 1,610,000 | 1,250,000 |
| Options to Purchase Shares of Common Stock [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 120,000 | 120,000 |
| Warrants to Purchase Shares of Common Stock [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 390,000 | 30,000 |
| Warrants to Purchase Shares of Common Stock [Member] | CreoMed Inc [Member] | February Fourteen Two Thousand Twenty One [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 400,000 | 400,000 |
| Warrants to Purchase Shares of Common Stock [Member] | CreoMed Inc [Member] | April One Two Thousand Twenty Two [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 400,000 | 400,000 |
| Warrants to Purchase Shares of Common Stock [Member] | Ahmet Demir Bingol [Member] | March Sixteen Two Thousand Twenty One [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total potentially dilutive shares | 300,000 | 300,000 |
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES WERE EXCLUDED FROM CALCULATION OF DILUTED NET LOSS PER SHARE (Details) (Parenthetical) - Share Exchange Agreement [Member] - Warrant [Member] |
Jun. 29, 2021
shares
|
|---|---|
| Warrants to purchase shares | 1,098,830 |
| CreoMed Inc [Member] | |
| Warrants to purchase shares | 400,000 |
| Mr. Bingol [Member] | |
| Warrants to purchase shares | 698,830 |
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED NET INCOME PER SHARE (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Earnings Per Share [Abstract] | ||
| Net loss attributable to the common stockholders | $ (79,811) | $ (95,073) |
| Basic weighted average outstanding shares of common stock | 8,475,950 | 8,239,950 |
| Dilutive effect of options and warrants | ||
| Diluted weighted average common stock and common stock equivalents | 8,475,950 | 8,239,950 |
| Loss per share: | ||
| Basic and diluted | $ (0.01) | $ (0.01) |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Oct. 03, 2022 |
Apr. 15, 2022 |
Mar. 16, 2021 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Sep. 30, 2022 |
Jan. 03, 2023 |
Nov. 30, 2022 |
Jan. 27, 2022 |
Jun. 01, 2021 |
|
| Independent Contractor Services Agreement [Member] | ||||||||||
| Product Liability Contingency [Line Items] | ||||||||||
| Consulting fee | $ 6,000 | |||||||||
| Common stock to be issued | 36,000 | 36,000 | ||||||||
| Number of common stock for services, value | $ 18,000 | |||||||||
| SOLACE Device [Member] | ||||||||||
| Product Liability Contingency [Line Items] | ||||||||||
| Cost of contract | $ 77,850 | |||||||||
| Warrant [Member] | ||||||||||
| Product Liability Contingency [Line Items] | ||||||||||
| Warrants granted | 790,000 | |||||||||
| Ahmet Demir Bingol [Member] | ||||||||||
| Product Liability Contingency [Line Items] | ||||||||||
| Annual base salary | $ 250,000 | |||||||||
| Ahmet Demir Bingol [Member] | Warrant [Member] | ||||||||||
| Product Liability Contingency [Line Items] | ||||||||||
| Warrants granted | 698,830 | |||||||||
| Value of warrants granted | $ 165,378 | |||||||||
| Warrants exercisable term | 10 years | |||||||||
| Warrants exercise price | $ 0.50 | |||||||||
| Unvested warrants expired | 398,830 | |||||||||
| Warrants modification expense | $ 94,101 | |||||||||
| Ahmet Demir Bingol [Member] | Warrant [Member] | Share-Based Payment Arrangement, Tranche One [Member] | ||||||||||
| Product Liability Contingency [Line Items] | ||||||||||
| Warrants granted | 300,000 | |||||||||
| 2021 Plan [Member] | ||||||||||
| Product Liability Contingency [Line Items] | ||||||||||
| Common stock reserved for issuance | 1,000,000 | |||||||||
SUBSEQUENT EVENTS (Details Narrative) - $ / shares |
3 Months Ended | |||
|---|---|---|---|---|
Apr. 28, 2023 |
Apr. 28, 2023 |
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Subsequent Event [Line Items] | ||||
| Granted shares | ||||
| Warrant [Member] | Subsequent Event [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Warrants exercisable per share | $ 0.03 | $ 0.03 | ||
| Warrant [Member] | Subsequent Event [Member] | Chief Executive Officer [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Granted shares | 3,333,333 | |||
| Common Stock [Member] | Subsequent Event [Member] | Director [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Warrants to purchase of common stock | 3,333,333 | |||