UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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Commission
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(Exact Name Of Registrant As Specified In Its Charter)
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TABLE OF CONTENTS
Cautionary Statement regarding Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about our Company, our products, the markets in which we compete and general economic conditions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in this Annual Report on Form 10-K and in our other Securities and Exchange Commission filings.
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PART I
ITEM 1. BUSINESS.
Background
We are a medical device technology and software as a service (SaaS) company focused on enabling primary care physicians (PCP’s) to increase their revenues by providing them with relevant, value-based tools to evaluate and treat chronic disease as well as provide preventive care through reimbursable procedures. In some cases, the products we provide our physician clients will enable them to diagnose and treat patients with chronic diseases which they historically have referred to specialists, allowing them to increase their practice revenue. As part of our mission, we are providing PCP’s with the software, training and devices necessary to allow them to treat their patients using value-based healthcare, informatics and algorithmic personalized medicine, including digital therapeutics. Our digital healthcare and point of care solutions also support remote patient monitoring, to address chronic care and preventive medicine and are reimbursable to the medical practice.
In November 2020, we began shipping AllergiEnd® diagnostic related products and immunotherapy treatments to PCPs in response to their requests based upon courses of treatment recommended for their patients building on the capabilities of QHSLab, our primary SaaS tool. The Company’s revenue generated from sales of AllergiEnd® products was $124,532 in the fourth of quarter 2020 and $1,414,421 for the year ending 2021.
In June 2021, we announced that we had acquired the method patent, trademark and website associated with AllergiEnd®’s diagnostic and allergen immunotherapy product portfolio. The acquisition of the AllergiEnd® assets provides us the opportunity to more fully integrate and leverage our product portfolio across our marketing platform, customer relationships and cost structure.
Based on the success of PCPs using our Quality Health Score Lab Expert System (“QHSLab”) digital healthcare platform combined with the acquired AllergiEnd® product line, we intend to increase our revenues by charging physicians a monthly subscription fee for the use of QHSLab and soliciting additional PCPs to increase their revenues by using our proven revenue generating QHSLab and AllergiEnd® line of products. We also plan to introduce additional point of care diagnostics and treatments, and digital medicine programs that PCPs can use and prescribe in their practices. In all cases, PCPs will be paid under existing government and private insurance programs, based upon analyses conducted utilizing QHSLab and treatments provided as a result of such analyses.
Industry
The healthcare industry has yet to experience the improvements in outcomes, access, and cost-effectiveness that have transformed many other industries through the use of digital technologies. In an effort to address a worsening pandemic of chronic diseases associated with aging populations, technology companies are now contributing innovative solutions that enhance chronic and preventive care management through the structured capture, storage and analysis of large quantities of patient data, and remote monitoring digital applications to reduce the burden of care on healthcare systems.
Digital medicine products utilizing sophisticated hardware and software to capture, store, analyze and access patient data, can be used independently or in concert with pharmaceuticals, biologics, devices, or other products to optimize patient care and health outcomes. A key component of digital medicine is the analysis of raw patient data, including physiological and environmental signals or responses to digital health risk assessments to provide the physician with result-oriented output to support clinical decision making and better coordinate patient care and treatment.
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Digital Therapeutics, that is, the use of digital medicine products to assess a patient’s state of health and monitor progress in response to recommended lifestyle changes, medication adherence and treatment regimens, is considered a treatment in its own right, and may be reimbursable depending upon a patient’s health condition and diagnosis, giving health-care providers an economic incentive to engage in digital healthcare. We intend to add features to our QHSLab which allow PCPs to engage in digital medicine for which they will be reimbursed.
Our Operating Model
Our mission is to enhance the quality of life of individuals and populations through physician-directed digital medicine and innovative, artificial intelligence (AI) enhanced preventive health technologies.
| ● | Value Based. The Company provides the tools that enhance health care for patients while lowering costs to insurance providers and corporate America and allowing physicians to increase their practice revenues. | |
| ● | Patient Centered. Our products streamline the relationship between physicians and their patients, providing a high quality experience for patients, and increasing the value provided to them during care. | |
| ● | Time Saving. Physicians can maximize face-to-face office visits and non-face-to-face patient education while generating additional revenue through reimbursable preventative services. | |
| ● | Prevention Focused. Our products are designed to promote prevention, early detection, management, and reversal of chronic diseases. |
QHSLab Expert System
We have developed and are constantly upgrading our high-level, fully automated cloud-based SaaS system named the QHSLab which provides physicians and healthcare organizations with the ability to capture and store patient information electronically in a secure database. The patients’ data is analyzed by specific and proprietary algorithms, assisting the physician in making a diagnosis and prescribing a course of treatment and appropriate care coordination. During 2021, 163 medical practices utilized the QHSLab platform. We provided physicians at these practices with the analytical tools necessary to diagnose and treat allergies and asthma which allowed them to increase revenues by expanding the breadth of their practices. Our focus for the immediate future, is to increase the number of physicians utilizing the QHSLab platform, to charge users a monthly fee, to expand the number of diagnostic algorithms and health risk assessments incorporated into QHSLab and to add features which allow PCPs to engage in reimbursable forms of digital medicine, thereby enabling general practice physicians to increase their revenues.
Our QHSLab Expert System is capable of handling large quantities of data, without compromising security, accuracy or precision. We can set parameters to accommodate prospective client physician and healthcare organization policy and will deal easily with significant increases in user workload. Our cloud-based software and IT system scales to allow a virtually unlimited number of user sessions to be activated. By utilizing a set, well-known path built into our third-party ‘robust’ cloud server infrastructure our QHSLab is not only capable of scaling to a large number of users, but is also built on a globally-scalable architecture, allowing us to deliver high availability to users in just about any geographic region.
The importance of identifying particular health risks and the indicators of the risks to be identified vary between different healthcare settings and sectors. Some require psychological data while others require a detailed medical history and list of medications. The data collected and analyzed by our QHSLab and the feedback provided to a physician can be tailored to provide the physician with an individualized assessment tailored to his practice.
One example of how QHSLab can be programmed to provide a physician with specific information leading to a prescribed course of treatment is the use of QHSLab plus our AllergiEnd® allergy testing and treatment system. During 2021, 163 practices provided 11,235 patients with allergy diagnostic tests generating approximately $3.8 million dollars in new reimbursements for these practices. Additionally, physicians at these 163 practices provided allergen immunotherapy treatments to 1,019 patients generating approximately $1.2 million in new reimbursements for our customers. Traditionally, general practice physicians would have elected not to treat these conditions or referred the patients to an allergy specialist. It is estimated that practices utilizing AllergiEnd® and QHSLab enjoyed an additional 5-10% income for their practices with the addition of the Company’s products and treatments. It is noted that not all of these 163 practices commenced utilizing the Company’s products at the beginning of 2021, so in many cases, on a rolling 12 months basis, the Company’s products and services may in fact be supporting many of these practices to achieve new income levels well above 10% compared to not using the Company’s platform, products and services.
Advantages of the QHSLab Expert System
QHSLab has the potential to play the same role in behavioral medicine and lifestyle interventions that pharmacological interventions play in biological medicine. It will help physicians and healthcare organizations overcome barriers preventing adoption of behavioral and therapeutic change programs for health promotion and disease prevention through easy to use applications.
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Through purposeful design, the QHSLab Expert System:
| ● | Conducts a comprehensive assessment of patient behaviors, lifestyle and disease risk; |
| ● | Integrates into existing physician and healthcare interventions; |
| ● | Collects and compiles relevant, empirical data; |
| ● | Utilizes this information for decision making (both artificial and naturalistic); |
| ● | Accounts for individual differences yet is appropriate for whole populations; |
| ● | Provides guidelines for consistent decisions; |
| ● | Demonstrates flexibility by allowing new variables to be added; |
| ● | Requires relatively low-skilled IT involvement in assessment or patient program development; and |
| ● | Maximizes revenue by providing less costly ‘digital’ alternatives to face-to-face interactions. |
Our interventions are ideal for population-based approaches. We provide an efficient means of screening. Upon development, our interactive AI based programs will branch into in-depth assessment when a problem area is identified. QHSLab will include a large array of interventions that can be matched to individual user requirements.
QHSLab will be expanded to incorporate a wide variety of different digital healthcare intervention programs including allergies and asthma, mental health, musculoskeletal health and pain, hypertension, metabolic syndrome, sleep disorders, dietary assessments, weight loss and much more. Our AI driven approaches will range from patient treatment seeking interventions and motivational materials for participants in early stages of behavioral change to more detailed advice and support for participants in later stages of behavioral change. As a participant progresses (or regresses), different intervention materials will be available.
Our system will provide an automated recording device so that minimal amounts of progress can be detected and reinforced. Gathering data through automation provides an extensive empirical data base that can be used to both serve the participant and provide an evaluation of the effectiveness of the system. Since health risk prevention can be very expensive in terms of the resources required to provide services to all participants, QHSLab represents a far less costly alternative.
A recent article published December 28, 2021, in the Journal of the American Medical Association (JAMA) titled ‘Assessment of an Interactive Digital Health–Based Self-management Program to Reduce Hospitalizations Among Patients With Multiple Chronic Diseases’ reported on the success achieved by physicians utilizing a research system similar to QHSLab. The randomized clinical trial found that “among participants who received the internet chronic disease management intervention, fewer were admitted to the hospital” and “digital health interventions supporting patient self-management and self-monitoring has the potential to augment primary care among patients with multiple chronic diseases and co-morbidities.”
Physicians are seeking preventive and chronic care management tools for their medical decision making and patient care, including non-face to face interventions and easy to incorporate workflow digital screenings. Today, independent physicians and their practices desire digital health relationships that meet all their needs and those of their patients, instead of having to incorporate multiple limited services from numerous digital health companies. Physicians don’t have time to pick and choose among different digital health systems. QHSLab solves this problem especially for the independent primary care provider.
AllergiEnd®
The first point of contact for most allergy patients is their primary care doctor or pediatrician. There are approximately 60 million Americans affected by allergic disorders, yet there are fewer than 3,000 practicing Board Certified Allergists and approximately 2,400 Board Certified Otolaryngologists specializing in allergy or approximately 1 specialist for every 11,000 allergy sufferers. It is estimated that the number of full-time equivalent (FTE) allergists/immunologists will decline about 7 percent in coming years. Meanwhile, demand for the services these physicians provide is projected to increase by 35 percent over the foreseeable future.
Only a limited number of primary care physicians have sufficient training to diagnose and treat allergy-suffering patients in their offices. The primary care provider is managing many forms of chronic diseases today that in the past were in the specialist domain, while allergies have remained the exception. We believe there is a need to equip primary care physicians, physician assistants, nurse practitioners, and nurses with the ability to diagnose and treat allergy sufferers and that this need provides a strong economic opportunity for the Company.
The AllergiEnd® system empowers allergist primary care providers with means to test patients for a broad spectrum of allergens within the confines of their office, thereby enabling the physician to identify the specific cause of the patient’s allergies which can lead to targeted allergen immunotherapy treatment as opposed to merely masking symptoms with various anti-histamines. The product line consists primarily of a disposable, one-time use set of FDA cleared and patented skin test applicators and a unique patented test tray for use with the test applicators.
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As part of our service, we provide physicians and their staff with the know-how and training in allergy screening via the QHSLab digital medicine platform, skin test confirmation of the particular allergen causing the allergy symptoms and targeted allergen immunotherapy necessary to enable the physician to desensitize positive allergic patients, thereby treating the cause of the allergies, not merely the symptoms. AllergiEnd® allergen immunotherapies are pharmacy compounded preparations provided by a contract pharmacy in response to prescriptions given by the treating physicians that slowly expose the patient to small doses of the allergen culprit, either via subcutaneous injections in the doctor’s office or through convenient at home sublingual (under the tongue) oral drops. This approach is similar, if not identical, to that used by allergists the world over for many years. This builds the body’s immune system to the allergens, thereby overcoming the patient’s excessive reaction to allergens that were previously causing allergy symptoms. Allergen Immunotherapy practiced safety is the only known method of treatment that leads to prolonged tolerance to the allergens causing the patient’s allergic chronic disease. In addition to enhancing the level of care doctors can provide their patients; the screening, testing and allergen immunotherapy are reimbursable under established CPT codes enhancing the physician’s practice and, in many instances, also providing a new cash pay alternative for physicians and their patients.
Q-Scale Psychological Emotional Wellbeing
It has been suggested that nearly 75% of all medical office visits (to all types of healthcare providers) are related to stress, anxiety and depression.
| ● | “Q” stands for Quality of Life, and the Q-Scale measures a patient’s responses (or early “warning” signs) to questions regarding their sleep, stress, anxiety, worry, pain, and overall life satisfaction. Patients with high mental health risks are flagged for further screening during the same assessment. |
The Q-Scale is a digital health 10-item questionnaire designed to measure psycho-emotional factors in patients at risk of mental health issues.
| ● | Five categorical ratings are available for response to each item, ranging from “none of the time” to “all of the time.” If responses to the Q-Scale indicate potential mental health troubles, patients are directed to the Kessler 6 questions within the assessment to identify their risk of anxiety and depression for further clinical evaluation. Responses then categorize the patient as “at-risk” for mental health issues, including depression. Then the treating physician will be informed through a simple-to-read report of the need for more focused evaluation during their encounter with the patient. |
This assessment provides immediate feedback to patients while allowing for substantial reimbursements for physicians.
| ● | Patients are provided with a comprehensive, yet easy to interpret report based on their responses, providing supportive self-management strategies to improve their coping skills and wellbeing. The Q-Scale aligns with CPT code 96136, which is used when tests are administered by a physician or other qualified healthcare professional. It is defined as “psychological or neuropsychological test administration / scoring by a physician or other qualified healthcare professional, two or more tests, any method.” |
For our physician customers, the product is time-saving, maximizing face-to-face office visits while generating additional revenue through reimbursement codes accepted by commercial payors, Medicare and Medicaid. From a patient perspective, Q-Scale promotes early detection and treatment of conditions potentially related to stress, anxiety, or depression, and increases the value provided to patients during their care.
Industry trends also reinforce the growing need for new and time-sensitive approaches for the treatment of mental health-related issues. According to the Centers for Disease Control and Prevention, one in five Americans will experience a mental illness in a given year. Also, one in 25 Americans will be impacted by a severe mental illness, such as schizophrenia, bipolar disorder, or major depression. In addition, a recent study published by KFF, a non-profit organization focused on health-care issues, indicated that the COVID-19 pandemic and resulting economic recession have negatively affected many people’s mental health with up to 40% of people reporting anxiety and depressive-related symptoms.
Key aspects of the Q-Scale product include:
● Utilizes QHSLab’s cloud-based software and technology system that scales to allow a virtually unlimited number of user sessions to be activated and integrates into existing physician and healthcare interventions while collecting and compiling relevant, empirical data.
● Measures a patient’s responses, identifying early “warning” signs using questions regarding their sleep, stress, anxiety, worry, pain and overall life satisfaction. Patients determined to have high mental health risks are identified for further screening during the same assessment. Items in the Q-Scale have been deliberately written to emphasize normal psychological functioning in generally healthy patients, therefore it is a total population screening tool.
● If responses to the Q-Scale indicate potential mental health issues, patients are directed to the Kessler 6, a global measure of distress drawing from depressive and anxiety related symptomology. The treating physician is then alerted to the need for more focused evaluation during their encounter with the patient.
● Patients receive a post-assessment digital ‘feedback’ report and self-management strategies useful in addressing any items identified during the assessment.
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Executing on our Growth Strategy
| Growing Recuring Revenue Base | ● | Increasing the number of medical practitioners utilizing our point-of-care and digital medicine services, growing our revenue per client metric. | |
| ● | Future distribution channels include Management Service Organization (MSO) partnerships such as Privia Health, Independent Physician Associations (IPA’s), and complementary digital health networks. | ||
| Expanding Product Portfolio | ● | Additional point-of-care diagnostic, digital medicine, and treatments that PCPs can use, prescribe, and be reimbursed for under existing government and private insurance programs. | |
| Increasing Industry Visibility | ● | Increasing the number of company/university-sponsored medical conferences partnering with the University of Miami to introduce and educate members of the medical community about the technology and revenue opportunities available. |
Competition
The market for future point of care and software as a service solutions is highly competitive and characterized by rapid change. The success of our solutions will be contingent upon our ability to provide superior solutions and a strong value proposition for all potential customers and their patients. Many existing competitors are well-established and enjoy greater resources or other strategic advantages. It is likely that there will be new entrants into our market, some of which may become significant competitors. With the introduction of new technologies and market entrants, we expect the competitive environment to be and remain intense. We currently face competition from a range of companies, including Teledoc Health, Virta Health Corp., Omada Health, Inc., Glooko, Inc., Hello Heart Inc., Lyra Health, Inc., Onduo LLC, Lark Health, DarioHealth Corp and Noom, Inc., some of which market direct to the consumer, bypassing physicians.
Our main competitors fall into the following categories:
● private and public companies that offer specific chronic disease products and services, such as solutions for allergies and asthma, diabetes, hypertension, and certain addictions or behavioral health conditions;
● large enterprises focused on the healthcare industry, including initiatives and partnerships launched by companies which may offer or develop products or services with features or benefits that overlap with our proposed future solutions; and
● digital health device manufacturers that facilitate the collection of data but offer limited interpretation, feedback or guidance.
Many of our current competitors enjoy greater resources, recognition, deeper customer relationships, larger existing customer bases, and more mature intellectual property portfolios than we do currently.
Intellectual Property
Although certain of our current software applications and pioneering methods, as well as those developed in the future, will be eligible for patent and trademark protection, we believe that the costs of maintaining and enforcing such intellectual property rights may not afford us a competitive advantage and for the immediate future we intend to rely primarily on maintaining the secrecy of our proprietary information.
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Government Regulation
The healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the manner in which we and the PCPs which use our products provide and bill for services and collect reimbursement from governmental programs and private payors, our contractual relationships with vendors and clients, our marketing activities and other aspects of our operations. Of particular importance are:
| ● | the federal physician self-referral law, commonly referred to as the Stark Law; | |
| ● | the federal Anti-Kickback Act; | |
| ● | the criminal healthcare fraud provisions of HIPAA; | |
| ● | the federal False Claims Act; | |
| ● | reassignment of payment rules that prohibit certain types of billing and collection by companies which do business with PCPs; | |
| ● | similar state law provisions pertaining to anti-kickback, self-referral and false claims issues; | |
| ● | state laws that prohibit general business corporations, such as us, from practicing medicine; and | |
| ● | laws that regulate debt collection practices as applied to our debt collection practices. |
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. Dealing with investigations can be time- and resource-consuming and can divert management’s attention from our business.
The FDA issued a Finalized Guidance on medical mobile applications (“Apps”). The FDA determined that certain Apps may meet the definition of a medical device because they provide the user with certain biologic information. The Guidance contains an appendix that provides examples of mobile apps that may meet the definition of medical device but for which the FDA intends to exercise enforcement discretion. These mobile apps may be intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease. Even though these mobile apps may meet the definition of medical device, the FDA intends to exercise enforcement discretion for these mobile apps because they pose lower risk to the public. Based on our understanding of the Guidance, although there can be no guarantee, we believe our QHSLab services will eventually be subject to regulatory requirements because such services seem to fall within the statutory examples of medical devices with respect to which the FDA intends to monitor compliance with applicable regulations. Although many of the Apps described in the Guidance have been in use for an extended period of time, the impact they have had on the need for patient visits to a physician and thus, on the use of our products, has not been determined.
Employees
As of March 30, 2022, we had five employees devoting full-time services to the Company, all of whom were engaged in direct sales and operations. In addition, we engage independent entities and consultants that provide programming services, Quality Management System development, Marketing and Medical Consulting & Advisory services. We believe that our relationships with our employees and consultants are good.
ITEM 1A. RISK FACTORS.
You should carefully consider each of the following risks and all of the other information set forth in this annual report. The following risks relate principally to our business and our common stock. These risks and uncertainties are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the risks and uncertainties develop into actual events, this could have a material adverse effect on our business, financial condition or results of operations. In that case, the trading price of our common stock could decline. Please also see the section “Government Regulation” above.
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Risks Related to Our Business
We incurred net losses in 2021 and 2020 and may not be able to continue to operate as a going concern.
We suffered net losses of $770,176 and $327,388 for the years ended December 31, 2021 and 2020, respectively. We also had negative cash flows from operations for the years ended December 31, 2021 and 2020. During the years ended December 31, 2021 and 2020, to support our operations we received loans in the aggregate amount of $88,016 from Troy Grogan, our sole director and principal shareholder who is referred to in this Report as our “principal shareholder” in addition to $1,116,000 in loans from other parties. The report of our independent registered public accountants on our consolidated financial statements for the year ended December 31, 2021 states that these factors raise uncertainty about our ability to continue as a going concern.
Unless we are able to generate positive cash flows from operations, we will continue to depend upon further issuances of debt, equity or other financings to fund ongoing operations. We may continue to incur additional operating losses and we cannot assure you that we will continue as a going concern.
We may need additional financing.
We have funded our operating losses through borrowings, including amounts borrowed from our principal shareholder. As of December 31, 2021, all related party notes combined with the associated accrued interest payable to our principal shareholder have been converted into equity. As of the date of this annual report we have notes and loans outstanding in the aggregate amount, inclusive of accrued interest, of $1,327,577 and our Original Issue Discount Secured Convertible Promissory Note in the principal amount of $756,000 matures on August 10, 2022. If, we are not able to pay or refinance the outstanding principal and accrued interest on these notes when due, our operations may be materially and adversely affected. We may need to offer the holders of our debt increases in the rates of interest they receive or otherwise compensate them through payments of cash or issuances of our equity securities. Future financings or re-financings may involve the issuance of additional debt, equity and securities convertible into or exercisable for our equity securities. If we are unable to consummate such financings or re-financings, the trading price of our common stock could be adversely affected and the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse affect on our business and financial condition and may result in a decline in the price of our common stock. If we are not able to fund ongoing losses through funds provided by third parties or our principal shareholder, we may become insolvent.
Servicing our debt requires a significant amount of cash.
Our ability to make payments on and to refinance our debt, to fund planned capital expenditures and to maintain sufficient working capital depends on our ability to generate cash in the future. This is subject to numerous factors beyond our control, including our ability to expand our physician client base. We cannot assure you that our business will generate sufficient cash flow from operations in an amount sufficient to enable us to service our debt or to fund our other liquidity needs. If our cash flow and capital resources are insufficient to allow us to make scheduled payments on our debt, we will need to seek additional capital or restructure or refinance all or a portion of our debt on or before the maturity thereof, any of which could have a material adverse effect on our business, financial condition or results of operations. We cannot assure you that we will be able to refinance any of our debt on commercially reasonable terms or at all. If we are unable to generate sufficient cash flow to repay or refinance our debt on favorable terms, it could significantly adversely affect our financial condition and the value of our outstanding debt and common stock. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition. Any refinancing of our debt could be at higher interest rates and could require us to issue to the holders additional shares of our common stock and may require us to comply with more onerous covenants, which could further restrict our business operations. There can be no assurance that we will be able to obtain any financing when needed.
We are an early stage company with a short operating history and a relatively new business model in an emerging and rapidly evolving market, which makes it difficult to evaluate our future prospects.
We are an early stage entity subject to all of the risks inherent in a young business enterprise, such as, lack of market recognition and limited banking and financial relationships. We have little operating history to aid in assessing our future prospects. We will encounter risks and difficulties as an early stage company in a new and rapidly evolving market. We may not be able to successfully address these risks and difficulties, which could materially harm our business and operating results.
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We are not generating sufficient revenues to achieve our business plan.
We first generated revenues in the fourth quarter of 2020 but are not generating positive cash flow from operations. There is no assurance that we will generate sufficient revenues to become cash flow positive or ever be profitable. If planned operating levels are changed, higher operating costs encountered, more time needed to implement our plan, or less funding is received, more funds than currently anticipated may be required. If additional capital is not available when required, if at all, or is not available on acceptable terms we may be forced to modify or abandon our business plans.
We have identified material weaknesses in our internal controls, and we cannot provide assurances that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud, or file our periodic reports in a timely manner, which may cause investors to lose confidence in us and lead to a decline in our stock price. We cannot remedy the deficiencies in our internal controls until we increase the number of officers in our Company.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. We have identified material weaknesses in our internal controls with respect to our segregation of duties, which cannot be rectified until we have additional officers, and our limited resources and our insufficient controls over review of accounting for certain complex transactions, and therefore our disclosure controls and procedures are not effective in providing material information required to be included in our periodic SEC filings on a timely basis and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Some of the material weaknesses in our internal controls are due to our limited management staff. Due to limited staffing, we are not always able to detect errors or omissions in financial reporting and cannot eliminate weaknesses due to our inability to segregate duties. If we fail to comply with the rules under Sarbanes-Oxley related to disclosure controls and procedures in the future or continue to have material weaknesses and other deficiencies in our internal control and accounting procedures and disclosure controls and procedures, our stock price could decline significantly and raising capital could be more difficult. If additional material weaknesses or significant deficiencies are discovered or if we otherwise fail to address the adequacy of our internal control and disclosure controls and procedures our business may be harmed. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our securities could drop significantly.
All of our revenues have been generated from one product line.
To date, all of our revenue has been derived from the sale of the “AllergiEnd®” line of products. If we fail to develop or acquire additional products or services from which we can generate revenues, we may not achieve sustained positive cash flow or generate profits. As a result, we will be severely constrained in our ability to fund our operations and achieve our business plan.
We are dependent upon third parties for our products.
We depend upon third parties to supply us with all of the products included in the “AllergiEnd®” line of products from which we currently derive all of our revenues. If these parties were unable or unwilling to continue to supply our needs, we might not be able to find an alternative source of supply which would materially adversely impact our business, financial condition and operating results
We have engaged in limited product development activities and our product development efforts may not result in commercial products.
Although our QHSLab has been provided to physicians and enabled them to generate revenues, we will seek to charge physicians for this product throughout 2022 under various software as a service, subscription and license based revenue models. We intend to develop additional features to be added to QHSLab to provide PCPs with additional sources of revenue. There is no assurance that any of the new features we develop will gain market acceptance. We cannot guarantee we will be able to produce commercially successful products. Further, our eventual operating results could be susceptible to varying interpretations by potential customers, or scientists, medical personnel, regulatory personnel, statisticians and others, which may delay, limit or prevent executing our proposed business plan.
Our business model is unproven with no assurance of any revenues or operating profits.
Our current business model is unproven and the profit potential, if any, is unknown. We are subject to all the risks inherent in a new business model. There can be no assurance that our business model will prove successful or that we will achieve significant revenue or profitability.
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If we fail to raise additional capital, our ability to implement our business plan and strategy could be compromised.
We have limited capital resources and operations. To date, our operations primarily have been funded from capital contributions and loans from our sole officer and director. We may not be able to obtain additional financing on terms acceptable to us, or at all. Even if we obtain financing for our near-term operations and product development, we may require additional capital beyond the near term. If we are unable to raise capital when needed, our business, financial condition and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.
If we issue additional shares of common stock, it would reduce our stockholders’ percent of ownership and may dilute our share value.
Our Certificate of Incorporation authorizes the issuance of 900 million shares of common stock. As at March 30, 2022 we have outstanding 8,815,508 shares of common stock. The future issuance of common stock to raise capital may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our then existing stockholders, and might have an adverse effect on any trading market for our common stock.
Our cloud based software platform is new and unproven.
Our QHSLab has been provided to PCPs on a free test basis during 2021. We will be developing additional features to incorporate into QHSLab. The market for our solutions is relatively new and evaluating the size and scope of the market is subject to risks and uncertainties. Our future success will depend in large part on the growth of this market and our ability to design and incorporate features that appeal to PCPs and their patients. Potential customers may not recognize the need for, or benefits of, our platform, which may prompt them to adopt alternative products and services to satisfy their healthcare requirements. Assessing the market for which our solutions are competing in, or planning to compete in, is particularly difficult due to a number of factors, including limited available information and rapid evolution of the market. If our market does not experience significant growth, or if demand for our platform does not occur, then our business, results of operations and financial condition will be adversely affected.
Dependence on Key Existing and Future Personnel.
Our success depends, to a large degree, upon the efforts and abilities of Troy Grogan, our sole officer, and key consultants. The loss of the services of one or more of our key providers could have a material adverse effect on our operations. In addition, as our business model is implemented, we will need to recruit and retain additional management, key employees and consulting service providers in virtually all phases of our operations. Key employees and consultants will require a strong background in our industry. We cannot assure that we will be able to successfully attract and retain key personnel.
Our sole officer and director is engaged in other business activities and has a conflict in determining how much time to devote to our affairs. His failure to devote sufficient time to our business cloud have a negative impact on our operations.
Our sole executive officer and director is not required to, and will not, commit his full time to our affairs, which results in a conflict of interest in allocating his time between our operations and the other businesses in which he is engaged. Our sole executive officer and director is engaged in several other business endeavors and is not obligated to contribute any specific number of hours to our affairs. His failure to devote time to our business could have an adverse impact on our business, results of operations and financial condition.
We operate in a highly competitive industry.
We encounter competition from local, regional or national entities, some of which have superior resources or other competitive advantages. Intense competition may adversely affect our business, financial condition or results of operations. Our competitors may be larger and more highly capitalized, with greater name recognition. We will compete with such companies on brand name, quality of services, level of expertise, advertising, product and service innovation and differentiation of product and services. As a result, our ability to secure significant market share may be impeded.
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We face substantial competition, and others may discover, develop, acquire or commercialize competitive products before or more successfully than we do.
We operate in a highly competitive environment. Our products compete with other products or treatments for diseases for which our products may be indicated. Other healthcare companies have greater clinical, research, regulatory and marketing resources than us. In addition, some of our competitors may have technical or competitive advantages for the development of technologies and processes. These resources may make it difficult for us to compete with them to successfully discover, develop and market new products.
The growth of our business relies, in part, on the growth and success of our clients.
The utility of our products to our clients will be determined by their ability to incorporate them into their health care regimen and the acceptance of our products by their patients. The ability of our clients to incorporate our products into their practices is outside of our control. In addition, if the number of patients of one or more of our clients using our products were to be reduced, such decrease would lead to a decrease in our revenue.
Inflation and other factors could cause patients to reduce their visits to physicians.
Changes in consumer prices and other factors could cause members of the general public to avoid visits to their physicians, even if the treatment would be covered by insurance. Any reduction in the willingness of the general public to visit physicians could reduce the demand for our products and adversely impact our business, results of operations, cash flows and financial position.
We conduct business in a heavily regulated industry and if we fail to comply with applicable laws and government regulations, we could incur penalties or be required to make significant changes to our operations or experience adverse publicity, which could have a material adverse effect on our business, financial condition, and results of operations.
The healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern the products we offer and the manner in which we provide and bill for services and collect reimbursement from governmental programs and private payors, our contractual relationships with our providers, vendors and clients, our marketing activities and other aspects of our operations. Of particular importance are:
| ● | the federal physician self-referral law, commonly referred to as the Stark Law; | |
| ● | the federal Anti-Kickback Act; | |
| ● | the criminal healthcare fraud provisions of HIPAA; | |
| ● | the federal False Claims Act; | |
| ● | reassignment of payment rules that prohibit certain types of billing and collection; | |
| ● | similar state law provisions pertaining to anti-kickback, self-referral and false claims issues; | |
| ● | state laws that prohibit general business corporations, such as us, from practicing medicine; and | |
| ● | laws that regulate debt collection practices as applied to our debt collection practices. |
It is possible that some of our business activities could be subject to challenge under one or more of such laws. Achieving and sustaining compliance with these laws may prove costly. Failure to comply with these laws and other laws can result in civil and criminal penalties such as fines, damages, overpayment recoupment, loss of enrollment status and exclusion from the Medicare and Medicaid programs. The risk of our being found in violation of these laws and regulations is increased by the fact that many of their provisions are open to a variety of interpretations. Our failure to accurately anticipate the application of these laws and regulations to our business or any other failure to comply with regulatory requirements could create liability for us and negatively affect our business. Any action against us for violation of these laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and result in adverse publicity. Dealing with investigations can be time- and resource-consuming and can divert management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business. In addition, because of the potential for large monetary exposure under the federal False Claims Act, which provides for treble damages and mandatory minimum penalties of $5,500 to $11,000 per false claim or statement, healthcare providers often resolve allegations without admissions of liability for significant and material amounts to avoid the uncertainty of treble damages that may be awarded in litigation proceedings. Such settlements often contain additional compliance and reporting requirements as part of a consent decree, settlement agreement or corporate integrity agreement. It is expected that the government will continue to devote substantial resources to investigating healthcare providers’ compliance with the healthcare reimbursement rules and fraud and abuse laws. The laws, regulations and standards governing the provision of healthcare services may change significantly in the future.
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Developments in the healthcare industry could adversely affect our business.
Developments in the healthcare industry and evolving government policy could adversely affect healthcare spending and reimbursement for healthcare services. We expect that we will be particularly dependent on primary care physicians and possibly others in the healthcare industry who are dependent upon revenues derived from federal healthcare programs.
General reductions in expenditures by healthcare industry participants could result from, among other things:
| ● government or private initiatives that affect the manner in which healthcare providers interact with patients, payers or other healthcare industry participants, including changes in pricing or means of delivery of healthcare products and services; | |
| ● consolidation of healthcare industry participants; | |
| ● reductions in governmental funding for healthcare; | |
| ● adverse changes in business or economic conditions affecting healthcare payers or providers, pharmaceutical, biotechnology or medical device companies or other healthcare industry participants; and | |
| ● restructuring of the healthcare industry and possible elimination of private insurers. |
Even if general expenditures by industry participants remain the same or increase, developments in the healthcare industry may result in reduced spending for the products or services we provide. The use of our products and services could be affected by changes in health insurance plans resulting in a decrease in the willingness of PCPs to purchase our products.
The timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the markets for any products we may seek to distribute and services we provide will be sustained.
Our use and disclosure of personally identifiable information, including health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our client base, membership base and revenue.
Numerous state and federal laws and regulations govern the collection, dissemination, use, privacy, confidentiality, security, availability and integrity of personally identifiable information (PII), including protected health information (PHI). These laws and regulations include HIPAA. HIPAA establishes a set of basic national privacy and security standards for the protection of PHI, by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the businesses with which such covered entities contract for services, which includes us. HIPAA requires healthcare providers like us to develop and maintain policies and procedures with respect to PHI, including the adoption of administrative, physical and technical safeguards to protect such information. HIPAA imposes mandatory penalties for certain violations which can be significant. HIPAA mandates that the Secretary of Health and Human Services, or HHS conduct periodic compliance audits of HIPAA covered entities or business associates. It also tasks HHS with establishing a methodology whereby individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator. HIPAA further requires that patients and, in some instances, HHS be notified of any unauthorized acquisition, access, use or disclosure of their unsecured PHI that compromises the privacy or security of such information, with certain exceptions related to unintentional or inadvertent use or disclosure by employees or authorized individuals. Numerous other federal and state laws protect the confidentiality, privacy, availability, integrity and security of PHI. These laws in many cases are more restrictive than, and may not be preempted by, HIPAA, creating complex compliance issues for us and our clients potentially exposing us to additional expense, adverse publicity and liability. If we do not comply with existing or new laws and regulations related to PHI, we could be subject to criminal or civil sanctions. Because of the extreme sensitivity of the PII we store and transmit, the security features of our technology platform are very important. If our security measures, some of which are managed by third parties, are breached or fail, unauthorized persons may obtain access to sensitive client and patient data, including HIPAA-regulated PHI. As a result, our reputation could be severely damaged, adversely affecting client and patient confidence. Clients may curtail their use of or stop using our services or our client base could decrease, which would cause our business to suffer. In addition, we could face litigation, damages for contract breach, penalties and regulatory actions for violation of HIPAA and other applicable laws or regulations and significant costs for remediation, notification to individuals and for measures to prevent future occurrences. Any security breach could also result in increased costs associated with liability for stolen assets or information, repairing system damage that may have been caused by such breaches, incentives offered to clients or other business partners in an effort to maintain our business relationships after a breach and implementing measures to prevent future occurrences, including organizational changes, deploying additional personnel and protection technologies, training employees and engaging third-party experts and consultants. While we maintain insurance covering certain security and privacy damages and claim expenses, we may not carry insurance or maintain coverage sufficient to compensate for all liability and in any event, insurance coverage would not address the reputational damage that could result from a security incident. We outsource important aspects of the storage and transmission of client and patient information, and thus rely on third parties to manage functions that have material cyber-security risks. We attempt to address these risks by requiring outsourcing subcontractors who handle client and patient information to sign business associate agreements contractually requiring those subcontractors to adequately safeguard personal health data to the same extent that applies to us and in some cases by requiring such outsourcing subcontractors to undergo third-party security examinations. However, we cannot assure you that these contractual measures and other safeguards will adequately protect us from the risks associated with the storage and transmission of client and patient proprietary and protected health information. In addition, various states have enacted laws governing the privacy of personal information collected and used by businesses online.
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The security of our platform, networks or computer systems may be breached, and any unauthorized access to our customer data will have an adverse effect on our business and reputation.
The use of our products will involve the storage, transmission and processing of our clients’ and their patients’ private data. Individuals or entities may attempt to penetrate our network or platform security, or that of our third-party hosting and storage providers, and could gain access to our clients’ and their patients’ private data, which could result in the destruction, disclosure or misappropriation of proprietary or confidential information of our clients’ and their patients’ or their customers, employees and business partners. If any of our clients’ private data is leaked, obtained by others or destroyed without authorization, it could harm our reputation, we could be exposed to civil and criminal liability, and we may lose our ability to access private data, which will adversely affect the quality and performance of our platform. In addition, our platform may be subject to computer malware, viruses and computer hacking, fraudulent use attempts and phishing attacks, all of which have become more prevalent. Any failure to maintain the performance, reliability, security and availability of our products or services and technical infrastructure to the satisfaction of our clients may harm our reputation and our ability to retain existing customers and attract new users. While we will implement procedures and safeguards that are designed to prevent security breaches and cyber-attacks, they may not be able to protect against all attempts to breach our systems, and we may not become aware in a timely manner of any such security breach. Unauthorized access to or security breaches of our platform, network or computer systems, or those of our technology service providers, could result in the loss of business, reputational damage, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, civil and criminal penalties for violation of applicable laws, regulations or contractual obligations, and significant costs, fees and other monetary payments for remediation. If customers believe that our platform does not provide adequate security for the storage of sensitive information or its transmission over the Internet, our business will be harmed. Customers’ concerns about security or privacy may deter them from using our platform for activities that involve personal or other sensitive information.
To the extent we use “open source” software, our use could adversely affect our ability to offer our services and subject us to possible litigation.
We may use open source software in connection with our products and services. Companies that incorporate open source software into their products have, from time to time, faced claims challenging the use of open source software and/or compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or claiming noncompliance with open source licensing terms. Some open source software licenses require users who distribute software containing open source software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code, which could include valuable proprietary code of the user, on unfavorable terms or at no cost. While we monitor the use of open source software and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur, in part because open source license terms are often ambiguous. Any requirement to disclose our proprietary source code or pay damages for breach of contract could have a material adverse effect on our business, financial condition and results of operations and could help our competitors develop products and services that are similar to or better than ours.
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Assertions by third parties of infringement or other violations by us of their intellectual property rights could result in significant costs and harm our business and operating results.
Our success depends upon our ability to refrain from infringing upon the intellectual property rights of others. Some companies, including some of our competitors, own large numbers of patents, copyrights and trademarks, which they may use to assert claims against us. As we grow and enter new markets, we will face a growing number of competitors. As the number of competitors in our industry grows and the functionality of products in different industry segments overlaps, we expect that software and other solutions in our industry may be subject to such claims by third parties. Third parties may in the future assert claims of infringement, misappropriation or other violations of intellectual property rights against us. We cannot assure you that infringement claims will not be asserted against us in the future, or that, if asserted, any infringement claim will be successfully defended. A successful claim against us could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.
The continuation of the COVID-19 pandemic or the outbreak of a new pandemic could adversely affect our business, operating results, cash flow and financial condition.
The COVID-19 pandemic could adversely affect our business, operating results, cash flow and financial condition. In March 2020, the World Health Organization characterized COVID-19 as a pandemic and the President of the United States declared the COVID-19 outbreak a national emergency. Since then, the COVID-19 pandemic has resulted in significant volatility, uncertainty and economic disruption. The future impacts of the COVID-19 pandemic or any future pandemic and any resulting economic impact are largely unknown. It is possible that the COVID-19 pandemic, the measures taken by local, state and national governments in response to the COVID-19 pandemic or future pandemics, and the resulting economic impact may materially and adversely affect our business, results of operations, cash flow and financial condition. The extent to which COVID-19 ultimately impacts our business, results of operations, cash flow and financial condition will depend on future developments, which are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions taken by governments and authorities to contain the virus or treat its impact, and when and to what extent normal economic and operating conditions can resume. These uncertainties have resulted in volatility in securities and financial markets, which may prevent us from accessing the equity or debt capital markets on attractive terms or at all for a period of time, which could have an adverse effect on our liquidity position. The current level of uncertainty over the economic and operational impacts of COVID-19 means the impact on our business, results of operations, cash flows and financial position cannot be reasonably estimated at this time.
Risks Related to Regulation
Our products may be subject to product liability legal claims, which could have an adverse effect on our business, results of operations and financial condition.
Certain of our products provide applications that relate to patient clinical information. Any failure by our products to provide accurate and timely information concerning patients, their medication, treatment and health status, generally, could result in claims against us which could materially and adversely impact our financial performance, industry reputation and ability to market new systems. In addition, a court or government agency may take the position that our delivery of health information directly, including through licensed practitioners, or delivery of information by a third-party site that a consumer accesses through our websites, exposes us to assertions of malpractice, other personal injury liability, or other liability for wrongful delivery/handling of healthcare services or erroneous health information. We anticipate that in the future we will maintain insurance to protect against claims associated with the use of our products as well as liability limitation language in our end-user license agreements, but there can be no assurance that our insurance coverage or contractual language would adequately cover any claim asserted against us. A successful claim brought against us in excess of or outside of our insurance coverage could have an adverse effect on our business, results of operations and financial condition. Even unsuccessful claims could result in our expenditure of funds for litigation and management time and resources.
There is significant uncertainty in the healthcare industry in which we operate, and we are subject to the possibility of changing government regulation, which may adversely impact our business, financial condition and results of operations.
The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement processes and operation of healthcare facilities. During the past several years, the healthcare industry has been subject to an increase in governmental regulation of, among other things, reimbursement rates and certain capital expenditures.
Recently enacted public laws reforming the U.S. healthcare system may have an impact on our business. The Patient Protection and Affordable Care Act (H.R. 3590; Public Law 111-148) (“PPACA”) and The Health Care and Education Reconciliation Act of 2010 (H.R. 4872) (the “Reconciliation Act”), which amends the PPACA (collectively the “Health Reform Laws”), were signed into law in March 2010. The Health Reform Laws contain various provisions which may impact us and our patients. Some of these provisions may have a positive impact, while others, such as reductions in reimbursement for certain types of providers, may have a negative impact due to fewer available resources. Increases in fraud and abuse penalties may also adversely affect participants in the health care sector, including us.
Various legislators have announced that they intend to examine further proposals to reform certain aspects of the U.S. healthcare system. Healthcare providers may react to these proposals, and the uncertainty surrounding such proposals, by curtailing or deferring investments, including those for our systems and related services. Cost-containment measures instituted by healthcare providers as a result of regulatory reform or otherwise could result in a reduction of the allocation of capital funds. Such a reduction could have an adverse effect on our ability to sell our systems and related services. On the other hand, changes in the regulatory environment have increased and may continue to increase the needs of healthcare organizations for cost-effective data management and thereby enhance the overall market for healthcare management information systems. We cannot predict what effect, if any, such proposals or healthcare reforms might have on our business, financial condition and results of operations.
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We have taken steps to modify our products, services and internal practices as necessary to facilitate our compliance with applicable regulations, but there can be no assurance that we will be able to do so in a timely or complete manner. Achieving compliance with these regulations could be costly and distract management’s attention and divert other company resources, and any noncompliance by us could result in civil and criminal penalties.
Developments of additional federal and state regulations and policies have the potential to negatively affect our business.
Our software is anticipated to be considered a medical device by the U.S. Food and Drug Administration (“FDA”) and therefore subject to regulation by the FDA as a medical device. Such regulation requires the registration of the applicable manufacturing facility and software and hardware products, application of detailed record-keeping and manufacturing standards, and FDA approval or clearance prior to marketing. An approval or clearance requirement could create delays in marketing, and the FDA could require supplemental filings or object to certain of these applications, the result of which could adversely affect our business, financial condition and results of operations.
Compliance with changing regulation of corporate governance and public disclosure will result in significant additional expenses.
Changing laws, regulations, and standards relating to corporate governance and public disclosure for public companies, including the Sarbanes-Oxley Act of 2002 and various rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), are creating uncertainty for public companies. Our Company’s management will need to invest significant time and financial resources to comply with both existing and evolving requirements for public companies, which will lead, among other things, to significantly increased general and administrative expenses and a certain diversion of management time and attention from revenue generating activities to compliance activities.
We may be subject to false or fraudulent claim laws.
There are numerous federal and state laws that forbid submission of false information or the failure to disclose information in connection with submission and payment of physician claims for reimbursement. Any failure of our services to comply with these laws and regulations could result in substantial liability including, but not limited to, criminal liability, could adversely affect demand for our services and could force us to expend significant capital, research and development and other resources to address the failure. Errors by us or our systems with respect to entry, formatting, preparation or transmission of claim information may be determined or alleged to be in violation of these laws and regulations. Determination by a court or regulatory agency that our services violate these laws could subject us to civil or criminal penalties, invalidate all or portions of some of our client contracts, require us to change or terminate some portions of our business, require us to refund portions of our services fees, cause us to be disqualified from serving clients doing business with government payers and have an adverse effect on our business.
We are subject to the Stark Law, which may result in significant penalties.
Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. § 1395nn) (the “Stark Law”) prohibit referrals by a physician of “designated health services” which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subject to several exceptions. Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the Stark Law is not required. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law. These state laws may cover all (not just Medicare and Medicaid) patients. Many federal healthcare reform proposals in the past few years have attempted to expand the Stark Law to cover all patients as well. As with the Fraud and Abuse Law, we consider the Stark Law in planning our products, marketing and other activities, and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law, our financial results and operations could be adversely affected. Penalties for violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the Medicare and Medicaid programs.
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We are Required to Comply with Medical Device Reporting (MDR) and We Must Report Certain Malfunctions, Deaths and Serious Injuries Associated with Our Medical Device Which Can Result In Voluntary Corrective Actions, Mandatory Recall or FDA Enforcement Actions.
Under applicable FDA MDR regulations, medical device manufacturers are required to submit information to the FDA when they receive a report or become aware that a device has or may have caused or contributed to a death or serious injury or has or may have a malfunction that would likely cause or contribute to death or serious injury if the malfunction were to recur.
All manufacturers placing medical devices on the market in the European Economic Area and the United States are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the regulatory agency, or Competent Authority, in whose jurisdiction the incident occurred.
If our products fail to comply with evolving government and industry standards and regulations, we may have difficulty selling our products.
We may be subject to additional federal and state statutes and regulations in connection with offering services and products via the Internet. On an increasingly frequent basis, federal and state legislators are proposing laws and regulations that apply to Internet commerce and communications. Areas being affected by these regulations include user privacy, pricing, content, taxation, copyright protection, distribution, and quality of products and services. To the extent that our products and services are subject to these laws and regulations, the sale of our products and services could be harmed.
Risks related to our Common Stock
There is not now, and there may never be, an active market for our common stock.
Our common stock is listed on the OTCQB level of the OTC Market under the symbol “USAQ,” but there is no active trading market for our common stock. There can be no assurance that an active trading market for our securities will develop, or that if one develops, that it will be sustained. The trading market for securities of companies listed on the OTC Market is substantially less liquid than the average trading market for companies listed on a national securities exchange. In addition, our ability to raise capital will be adversely affected by a listing on the OTC Market, as compared to a listing on a national securities exchange.
Our stock price is likely to be highly volatile because of several factors, including a limited public float.
The market price of our common stock has been volatile and is likely to be highly volatile in the future. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.
Factors that could cause such volatility include, among other things:
| ● | actual or anticipated fluctuations in our operating results; | |
| ● | the limited number of securities analysts covering us and distributing research and recommendations about us; | |
| ● | the low public float for our common stock; | |
| ● | the low trading volume of our common stock; | |
| ● | announcements concerning our business or those of our competitors; | |
| ● | actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; | |
| ● | conditions or trends in our industry; | |
| ● | litigation; | |
| ● | changes in market valuations of similar companies; | |
| ● | future sales of common stock; | |
| ● | departure of key personnel or failure to hire key personnel; and | |
| ● | general market conditions. |
Any of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock and/or warrants, regardless of our actual operating performance.
Our common stock is subject to the “Penny Stock” Rules of the SEC, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience and objectives of the person; and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common shares and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
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Shares eligible for future sale may adversely affect the market.
Substantially all of the outstanding shares of our common stock are freely tradable without restriction or registration under the Securities Act or otherwise eligible sale under Rule 144 promulgated under the Securities Act, subject to certain limitations. In general, pursuant to Rule 144, non-affiliate stockholders may sell freely after six months, subject only to the current public information requirement. Affiliates may sell after six months, subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. Of the 8,815,508 shares of our common stock outstanding as of March 31, 2022, approximately 1,644,169 shares are tradable without restriction and the balance are restricted securities which may be sold in accordance with Rule 144. Given the limited trading of our common stock, resale of even a small number of shares of our common stock pursuant to Rule 144 or an effective registration statement, may adversely affect the market price of our common stock.
Our sole director and officer controls a majority of the votes which may be cast at a meeting of our stockholders.
In addition to the common stock owned by our sole director and officer, he owns shares of our Series A Preferred Stock which have the right to vote on all issues presented to our common stockholders. Taking into account the votes he is eligible to cast by virtue of the number of shares of our common stock and Series A Preferred Stock held by our sole officer and director, he controls a majority of the votes which may be cast at a meeting of our stockholders, and therefore controls our operations and will have the ability to control all matters submitted to stockholders for approval. This stockholder thus has complete control over our management and affairs. Accordingly, his ownership may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for our common stock, which may further affect its liquidity.
Under our Certificate of Incorporation, our director has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to adversely affect stockholder voting power and perpetuate the board’s control over our company.
Our director may authorize the issuance of preferred stock in one or more series with such limitations and restrictions as he may determine, in his sole discretion, with no further authorization by security holders required for the issuance of such shares. Our director may determine the specific terms of the preferred stock, including: designations; preferences; conversions rights; cumulative, relative; participating; and optional or other rights, including: voting rights; qualifications; limitations; or restrictions of the preferred stock. Our sole director has exercised this authority to authorize the Series A Preferred Stock which, taking into account the votes he is eligible to cast by virtue of the number of shares of our common stock and Series A Preferred Stock he holds, our sole director controls a majority of the votes which may be cast at a meeting of our stockholders, and therefore has the ability to control all matters submitted to stockholders for approval.
The issuance of preferred stock may adversely affect the voting power and other rights of the holders of common stock. Preferred stock may be issued quickly with terms calculated to discourage, make more difficult, delay or prevent a change in control of our company or make removal of management more difficult. As a result, the Board of Directors’ ability to issue preferred stock may discourage the potential hostile acquirer, possibly resulting in beneficial negotiations. Negotiating with an unfriendly acquirer may result in terms more favorable to us and our stockholders. Conversely, the issuance of preferred stock may adversely affect the market price of, and the voting and other rights of the holders of the common stock. We presently have no plans to issue any preferred stock.
We incur significant costs as a result of operating as a public company and our management will have to devote substantial time to public company compliance obligations.
The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the national stock exchanges, have imposed various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance requirements and any new requirements that the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 may impose on public companies. Moreover, these rules and regulations, along with compliance with accounting principles and regulatory interpretations of such principles, have increased and will continue to increase our legal, accounting and financial compliance costs and have made and will continue to make some activities more time- consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees, or as executive officers. We will evaluate the need to hire additional accounting and financial staff with appropriate public company experience and technical accounting and financial knowledge. We estimate the additional costs to be incurred as a result of being a public company to be in excess of $150,000 annually.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. Based on our assessment, we have concluded that our internal controls over financial reporting were not effective as of December 31, 2021, due to lack of an oversight committee and lack of segregation of duties. Management will consider the need to add personnel and implement improved review procedures.
Our system of internal control over financial reporting is not effective and we need to take remedial measures to improve our internal control over financial reporting. Remedial measures will likely require hiring additional personnel. We cannot assure our stockholders that the measures we will take to remediate areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future. If we are unable to maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
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Because we do not intend to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We have not declared or paid any cash dividends on our common stock nor do we anticipate paying any in the foreseeable future. Furthermore, we expect to retain any future earnings to finance our operations and expansion. The payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our earning levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. We cannot assure you that you will be able to sell shares when you desire to do so.
We are a “Smaller Reporting Company” with reduced disclosure requirements which may make our common stock less attractive to investors
We are a “smaller reporting company.” As a “smaller reporting company,” the disclosure we are required to provide in our SEC filings are less than it would be if we were not a “smaller reporting company.” Specifically, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting and have certain other decreased disclosure obligations in their SEC filings, including, among other things, being permitted to provide two years of audited financial statements in annual reports rather than three years. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects which may make our common stock less attractive, which may result in a less active trading market, higher volatility and a lower price for our common stock.
We are an “emerging growth company” and our election to comply with the reduced disclosure requirements as a public company may make our common stock less attractive to investors.
For so long as we remain an “emerging growth company,” as defined in the JOBS Act, we may take advantage of certain exemptions from various requirements applicable to public companies that are not “emerging growth companies,” including not being required to comply with the independent auditor attestation requirements of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, being required to provide fewer years of audited financial statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We would cease to be an “emerging growth company” upon the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a large accelerated filer, with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have, in any three-year period, issued more than $1.0 billion in non-convertible debt securities; and (iv) the last day of the fiscal year ending five years after our initial public offering of our stock. We may choose to take advantage of some but not all of these reduced reporting burdens. Accordingly, the information contained in our periodic reports may be different than the information provided by other public companies. The JOBS Act also provides that an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. We have elected to take advantage of this extended transition period under the JOBS Act. As a result, our operating results and financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. It is possible that some investors will find our common stock less attractive as a result, which may result in a less active trading market for our common stock and higher volatility in our stock price.
Limitations on director and officer liability and indemnification of our officers and directors by our articles of incorporation, as amended, and by-laws it may discourage stockholders from bringing suit against an officer or director.
Our articles of incorporation, as amended, and bylaws provide, with certain exceptions as permitted by Nevada law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director or officer, unless the director or officer committed both a breach of fiduciary duty and such breach was accompanied by intentional misconduct, fraud or knowing violation of law. These provisions may discourage stockholders from bringing suit against a director or officer for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on behalf of us against a director or officer.
We are responsible for the indemnification of our officers and directors.
Should our officers and/or directors require us to contribute to their defense in an action brought against them in their capacity as such, we may be required to spend significant amounts of our capital. Our articles of incorporation, as amended, and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of us. In addition, we have entered into an indemnification agreement with our Chief Executive Officer. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
No disclosure is required pursuant to this Item.
ITEM 3. LEGAL PROCEEDINGS.
We are currently not a party to any material legal or administrative proceedings and are not aware of any pending legal or administrative proceedings against us. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is subject to quotation on the OTCQB venture market under the symbol USAQ. The following table shows the high and low bid prices for our common stock during the fiscal years 2021 and 2020 as reported by the OTC Market. These prices reflect inter-dealer quotations without adjustments for retail markup, markdown or commission, and do not necessarily represent actual transactions.
| Price Range | ||||||||
| Period | High | Low | ||||||
| Year Ended December 31, 2021: | ||||||||
| First Quarter | $ | 0.70 | $ | 0.30 | ||||
| Second Quarter | $ | 0.73 | $ | 0.51 | ||||
| Third Quarter | $ | 1.00 | $ | 0.65 | ||||
| Fourth Quarter | $ | 0.75 | $ | 0.56 | ||||
| Year Ended December 31, 2020: | ||||||||
| First Quarter | $ | 0.54 | $ | 0.05 | ||||
| Second Quarter | $ | 0.53 | $ | 0.11 | ||||
| Third Quarter | $ | 0.77 | $ | 0.21 | ||||
| Fourth Quarter | $ | 0.70 | $ | 0.24 | ||||
Holders
On March 30, 2022, there were approximately 600 holders of record of our common stock. The number of record holders does not include persons who held our common stock in nominee or “street name” accounts through brokers.
Dividend Policy. We have neither declared nor paid any cash dividends on either preferred or common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business and do not anticipate paying any cash dividends on our preferred or common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including its financial condition, results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the Board of Directors considers relevant.
Recent Sales of Unregistered Equity Securities
All sales of unregistered securities made by us during 2021 were previously reported.
Purchases of Our Equity Securities
No repurchases of our common stock were made by us during the fiscal year ended December 31, 2021.
ITEM 6. [RESERVED]
Not required.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS AND OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and result of operations contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this Report. Actual results may differ materially from those contained in any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. We are under no obligation to update any of the forward-looking statements after the filing of this Report to conform such statements to actual results or to changes in our expectations.
The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of USA Equities Corp and its subsidiaries for the years ended December 31, 2021 and 2020 and should be read in conjunction with such financial statements and related notes included in this report.
Overview
We are a medical device technology and software as a service (SaaS) company focused on enabling primary care physicians (PCP’s) to increase their revenues by providing them with relevant, value-based tools to evaluate and treat chronic disease as well as provide preventive care through reimbursable procedures. In some cases, the products we provide our physician clients will enable them to diagnose and treat patients with chronic diseases which they historically have referred to specialists, allowing them to increase their practice revenue. As part of our mission, we are providing PCP’s with the software, training and devices necessary to allow them to treat their patients using value-based healthcare, informatics and algorithmic personalized medicine, including digital therapeutics. Our virtual and point of care solutions also support remote patient monitoring, to address chronic care and preventive medicine and are reimbursable to the medical practice.
In November 2020, we began shipping AllergiEnd® diagnostic related products and immunotherapy treatments to PCPs in response to their requests based upon courses of treatment recommended for their patients building on the capabilities of QHSLab, our primary SaaS tool. The Company’s revenue generated from sales of AllergiEnd® products was $329,989 in the fourth of quarter 2021 compared to $124,532 for the same period 2020 and $1,414,421 for the year ended 2021 compared to $124,532 for the year ended 2020. Our PCPs generated approximately $5,000,000 in revenues utilizing our products during 2021, of which $3.8 million was the result of providing allergy diagnostic tests to patients and approximately $1.2 million was the result of providing allergen immunotherapy treatments.
In June 2021, we announced that we had acquired the method patent, trademark and website associated with AllergiEnd®’s diagnostic and allergen immunotherapy product portfolio from MedScience Research Group, Inc. The acquisition of the AllergiEnd® assets provides us the opportunity to more fully integrate and leverage the product portfolio across our marketing platform, customer relationships and cost structure.
Based on the success of PCPs using our QHSLab allergy diagnostics combined with the products acquired from MedScience, we intend to increase our revenues by charging physicians a monthly subscription fee for the use of QHSLab and soliciting additional PCPs to increase their revenues by using our proven revenue generating QHSLab and AllergiEnd® line of products. We also plan to introduce additional point of care diagnostics and treatments, and digital medicine programs that PCPs can use and prescribe in their practices. In all cases, PCPs will be paid under existing government and private insurance programs, based upon analyses conducted utilizing QHSLab and treatments provided as a result of such analyses.
In addition to the direct sales and marketing efforts of our personnel, we have engaged with the University of Miami to launch and promote various continuing medical education activities to our target physician client audiences during 2021, and intend to replicate these programs during 2022. The Company has also engaged with Management Service Organizations (MSO), Independent Physician Associations (IPA’s) and Digital Marketing collaborations for joint marketing efforts and distribution. There are no assurances that these relationships will accelerate growth.
Recent Market Conditions
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). The pandemic has significantly impacted economic conditions in the United States and throughout the world. The ultimate impact of the COVID-19 pandemic is highly uncertain and we do not yet know the full extent of potential impacts on our business, financing or global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources and operations.
COVID-19 has accelerated both the healthcare provider and patient acceptance of virtual care and remote monitoring and therapeutic technologies supported by a physician’s direct involvement. Regulators and insurance companies are also recognizing what health care technologists have been saying for nearly 15 years, which is that most chronic conditions are better managed with more frequent and short patient encounters than infrequent visits to a medical professional. The Centers for Medicare and Medicaid Services (CMS) and commercial health insurers are beginning to recognize that artificial intelligence enabled digital medicine technologies such as those provided through QHSLab can provide the necessary tools and support to foster patient treatment adherence in between visits to a physician.
Our ability to operate profitably is determined by our ability to generate revenues from the licensing of our QHSLab and the sale of diagnostic related products and treatment protocols and the provision of services through our QHSLab. Currently, we are generating revenues from the sale of AllergiEnd® diagnostic related products and immunotherapy treatments. Our ability to generate a profit from these sales is determined by our ability to increase the number of physicians using these products. We will continue to upgrade QHSLab’s offerings in an effort to increase the number of products sold based upon the services it can provide and for which we are able to charge a fee for its use.
Our revenues are largely determined by the volume of product delivered and the prices at which such products are sold. The principal factors determining our costs are the cost of improvements to QHSLab, the costs of products sold to PCPs, marketing expenses to recruit new PCPs and introduce new products and financing costs. As our business grows, these costs should be leveraged over a wider base of PCPs leading to a reduction in costs per sale and, helping to increase our gross margin.
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Results of Operations during the year ended December 31, 2021 as compared to the year ended December 31, 2020
Revenues
During the fourth quarter of 2020 we began to sell the AllergiEnd® Products, consisting of AllergiEnd® Allergy Diagnostics and Allergen Immunotherapy treatments, to physicians. For the year ended December 31, 2021, we generated revenues of $1,414,421 compared to $124,532 of revenues in 2020. The revenue increase for the year ended December 31, 2021, reflects the fact that sales of our AllergiEnd® Products commenced in the fourth quarter of 2020 and increased through 2021. Revenues in 2021 were primarily driven by sales of Allergy Diagnostic Kits of $854,930 and Immunotherapy Treatment services of $516,013 as we continued to expand the roll-out of our product lines and customer base.
Our revenues consisted of the following:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Allergy Diagnostic Kit Sales | $ | 854,930 | $ | 81,766 | ||||
| Immunotherapy Treatment Sales | 516,013 | 39,155 | ||||||
| Shipping and handling | 43,478 | 3,611 | ||||||
| Total revenue | $ | 1,414,421 | $ | 124,532 | ||||
Cost of Revenues and Gross Profit
Cost of revenues consists of the cost of the AllergiEnd® test kit products and allergen immunotherapy pharmacy prepared treatment sets, shipping costs to our customers as well as labor expenses directly related to product sales.
For the years ended December 31, 2021 and 2020, cost of revenues was $743,673 and $74,439, respectively.
The Company generated a gross profit of $670,748, or a 47.4% gross margin for the year ended December 31, 2021 and $50,093, or 40.2% in 2020.
We are introducing new products at an early stage in our development cycle and the gross margins may vary significantly between periods, due, among other things, to differences among our customers and products sold, customer negotiating strengths, and product mix.
Research and Development
Research and development expenses (“R&D”) include expenses incurred in connection with the research and development of our QHSLab medical device technology solution. R&D costs are expensed as they are incurred.
For the year ended December 31, 2021, R&D expenses totaled $90,874 which is a decrease of $7,416, or 7.5%, compared to $98,290 for the year ended December 31, 2020.
The decrease in R&D expenses for the year ended December 31, 2021, as compared to 2020, is primarily due to lower spending as we focused on selling AllergiEnd® Products and the acquisition of the AllergiEnd® assets during 2021. We expect that our R&D expenses will increase as we invest in and expand our operations and further develop new products and services as part of the Company’s growth strategy.
Sales and Marketing
Sales and marketing expenses consist primarily of costs associated with selling and marketing our products to PCP’s, principally ongoing sales efforts to recruit new PCP’s and maintain our relationships with PCP’s already using our software and products. Beginning in January 2021, these expenses included newly hired employees of the Company in addition to third-party consultants.
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For the year ended December 31, 2021, sales and marketing expenses totaled $592,068 compared to $95,141 for the year ended December 31, 2020.
We expect our sales and marketing expenses to increase as we grow our customer base and launch additional products. However, sales and marketing expenses as a percentage of revenue may decrease if we are successful in onboarding a sufficient number of PCP’s and maintaining our relationships with these PCP’s once they begin to purchase our products.
General and Administrative
General and administrative expenses consist primarily of costs associated with operating a business including accounting, legal and management consulting fees.
For the year ended December 31, 2021, general and administrative expenses totaled $454,008, an increase of $322,241, compared to $131,767 for the year ended December 31, 2020.
The increases in general and administrative expenses for the year ended December 31, 2021, as compared to 2020, were primarily due to increased consulting fees for legal, investor relations and management services associated with the increase in our business activities. Additionally, we incurred expenses associated with processing payments on the sales generating revenue.
Other Expense
For the year ended December 31, 2021, interest expense increased by $215,506 to $246,490 from $30,984 for the year ended December 31, 2020. The increase in interest expense was due to increases in the convertible note payable balances and newly incurred debt during 2021 and the amortization of the related discounts as compared to December 31, 2020.
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Liquidity and Capital Resources
Liquidity is a measure of a company’s ability to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. On December 31, 2021, we had current assets totaling $445,782, including $286,855 of cash, $70,474 of accounts receivable, $65,740 of inventory, and $22,713 related to prepaid expenses and other current assets. At such date we had total current liabilities of $874,954 consisting of $20,370 in accounts payable, $253,865 relating to the current portions of loan balances, $542,104 relating to current portions of convertible notes payable and $58,615 in current liabilities. Our long-term liabilities balance of $509,477 consisted of convertible notes totaling $100,000 and $402,956 associated with the long-term portion of loans payable, and accrued interest expenses of $6,521.
On December 31, 2020, we had $266,163 of current assets including $94,342 of cash, $60,522 of accounts receivable, $99,701 of inventory, $11,598 related to the prepayment of service contracts. We had total current liabilities of $214,620 consisting of $159,620 in accounts payable and other current liabilities and $55,000 in a convertible note payable. Our long-term liabilities at such date of $691,569 consisted of seven convertible notes in the aggregate principal and premium amount of $576,003 along with accrued interest expenses of $115,566.
The increase in our assets and liabilities from December 31, 2020, to December 31, 2021, relates primarily to the promissory note of $750,000 issued in connection with our acquisition of certain assets related to our AllergiEnd® products and the Original Issue Discount Secured Convertible Promissory Note in the principal amount of $806,000 (the “OID Note”) issued along with warrants to purchase 930,000 shares of our common stock for aggregate consideration of $750,000. The acquisition of the assets related to our AllergiEnd® products should enable us to increase our margins on the sale of these products enabling us to satisfy the $750,000 Note. The net proceeds of the OID Note primarily will be used to increase our sales and marketing efforts.
The changes in accounts receivable, inventory and accounts payable primarily relate to sales of AllergiEnd® Products.
We used cash of $354,738 and $165,564 in operations during the years ended December 31, 2021 and 2020, respectively. We began to generate revenues in the fourth quarter of 2020. Nevertheless, we continued to generate negative cash flows which were financed primarily through our entry into a factoring agreement for our receivables, a loan from our credit card processor and other borrowings as we had done previously. As a result, we owed increased amounts to third parties discussed below. In addition, to preserve our cash, we paid our obligations to certain of our vendors by issuances of an aggregate of 120,000 shares of our common stock during the year ended 2021, net of cancelled shares.
Our convertible notes payable were reduced during the year ended 2021 as four notes totaling $802,367, inclusive of accrued interest, were converted into 837,213 shares of our common stock, 2,644,424 shares of our Series A-2 preferred shares and 81,793 warrants. In addition, in the second quarter of 2021 we sold 50,000 shares of our common stock to one individual for $30,000.
Although we are now generating revenues from the sale of our AllergiEnd® products we are likely to continue to require funds to support our operations for the immediate future. If our business continues to grow, we will seek to satisfy our cash needs by issuances of our equity securities or debt. In the past, we have had to rely on our principal shareholder to support our operations. More recently, we have borrowed money from third parties. If we are unable to obtain the funds we need from third parties, there is no assurance that any of our related parties will continue to provide such capital as may be necessary to continue our business or, if such funds are provided, that the agreed upon terms of any advance will be favorable to us.
To facilitate the expansion of our operations, on August 10, 2021, we issued an Original Issue Discount Secured Convertible Promissory Note (the “Note”) in the principal amount of $806,000 and warrants to purchase 930,000 shares of our common stock (the “Warrants”) for $750,000 and from which, after payment of brokerage commissions and other expenses, we derived net proceeds of approximately $665,000.
The principal amount of the Note and all interest accrued thereon is payable on August 10, 2022, and is secured by a lien on substantially all of our assets. The Note provides for interest at the rate of 5% per annum, payable at maturity, and is convertible into shares of our common stock at a price of $0.65 per share. In addition to customary anti-dilution adjustments the Note provides, subject to certain limited exceptions, that if we issue common stock or common stock equivalents at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such shares or common share equivalents are sold. The holder converted $50,000 of the principal amount into 76,923 shares of our common stock at a price of $0.65 per share.
The Warrants are excisable for a period of three years at a price of $1.25 per share, subject to customary anti-dilution adjustments. The shares issuable upon conversion of the Note and exercise of the Warrants have been registered under the Securities Act for resale by the Buyer. If at any time after February 10, 2022, there is no effective registration statement covering the resale of the shares issuable upon exercise of the Warrants, then the Warrant may be exercised by means of a “cashless exercise.”
Plan of Operation and Funding
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We had an accumulated deficit of $2,518,895 at December 31, 2021, generated net losses of $770,176 and $327,388 for the years ended December 31, 2021 and 2020, respectively, and used cash of $354,738 and $165,564 in operations in these periods. Although we began to generate revenue during the fourth quarter of 2020, we anticipate that we will continue to generate negative cash flow for the immediate future. These factors, among others, raise substantial doubt about our ability to continue as a going concern for a reasonable period of time. Our continuation as a going concern is dependent upon our ability to obtain necessary equity or debt financing and ultimately from generating revenues and positive cash flow to continue operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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We expect that working capital requirements will continue to be funded through a combination of our existing funds, further issuances of securities and borrowings, and that we will remain highly leveraged as we seek to expand our business. Our working capital requirements are expected to increase in line with the growth of our business, as we incur marketing expenses and the cost of building an inventory. Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next twelve months. We have entered into a Receivables Purchase and Security Agreement providing us with up to $150,000 against certain accounts receivable and received a short-term loan from a merchant bank with repayments tied to future credit card payment transactions. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments and advances from our principal shareholder. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) developmental expenses associated with a start-up business and (ii) marketing expenses. We intend to finance these expenses by raising additional capital or, when available, borrowing additional funds. In addition to meeting our working capital requirements to expand our business, as our outstanding notes become due, we will need to arrange for financing to satisfy the notes or enter into refinancing agreements with the holders of our notes. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
Critical Accounting Policies
Our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this annual report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See “Index to Consolidated Financial Statements” which appears on page F-1 of this Annual Report on Form 10-K.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of December 31, 2021, the Company’s chief executive officer/chief financial officer conducted an evaluation regarding the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e)) under the Exchange Act. Based upon the evaluation of these controls and procedures, our chief executive officer/chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of fiscal year 2021.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting and for the assessment of the effectiveness of those internal controls. As defined by the SEC, internal control over financial reporting is a process designed by our principal executive officer/principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment and those criteria, we have concluded that our internal control over financial reporting were not effective as of December 31, 2021, due to lack of an oversight committee and lack of segregation of duties. Management will consider the need to add personnel and implement improved review procedures as we begin to generate positive cash flow.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the year ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. A control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
| 28 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
| Name | Age | Title | ||
| Troy Grogan | 44 | CEO, CFO and Chairman |
Troy Grogan has been our Chairman and CEO since June 2016. Mr. Grogan has a background in health promotion, healthcare technology, and medical education – originally in Australia. He was previously appointed by the Minister of Health to one of Australia’s largest health systems in Sydney and served on numerous committees for over ten years. Mr. Grogan has also been involved in a US based medical device manufacturer, founded a workplace wellness company, and co-developed numerous University-affiliated Continuing Medical Education programs for physicians and healthcare providers. Mr. Grogan attended Newcastle University, majoring in biological sciences and the University of New England where he studied Corporate Governance.
ITEM 11. EXECUTIVE COMPENSATION.
Officer’s and Director’s Compensation
Mr. Grogan, our CEO and only executive officer, does not have an employment agreement and is not entitled to receive any compensation for services rendered prior to December 31, 2021. Mr. Grogan does not intend to receive any compensation for his services until our Company is generating positive cash flow. From time to time, the Company reimburses Mr. Grogan for out-of-pocket expenses incurred when acting on behalf of our Company.
Equity Awards
We did not grant Mr. Grogan any equity awards or stock options during the year ended December 31, 2021.
Outstanding Equity Awards at Fiscal Year-End
There were no equity awards outstanding as of the year ended December 31, 2021, nor were there any securities authorized for issuance under equity compensation plans.
| 29 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
Security Ownership
The following table sets forth information concerning beneficial ownership of our common stock as of March 31, 2022, by (i) any person or group with more than 5% of our common stock, (ii) our sole director, (iii) and our sole officer and director as a “group.”
Except as otherwise indicated, we believe, that each party named in the table below has sole investment and voting power with respect to his shares, subject to community property laws, where applicable. As of March 30, 2022, we had outstanding 8,815,508 shares of common stock and 1,080,092 shares of Series A Preferred Stock and 2,644,424 shares of Series A-2 Preferred Stock. Shares of Series A Preferred Stock are convertible into shares of our common stock at a conversion price of $0.05 per share, subject to certain anti-dilution adjustments. Shares of Series A-2 Preferred Stock are convertible into shares of our common stock at a conversion price of $0.16 per share, subject to certain anti-dilution adjustments. In addition, shares of common stock issuable upon exercise of options, warrants and other convertible securities anticipated to be exercisable or convertible at or within sixty days of March 30, 2022, are deemed outstanding for the purpose of computing the percentage ownership of the person holding those securities, and the group as a whole, but are not deemed outstanding for computing the percentage ownership of any other person. The address of Mr. Grogan is c/o of our company at 901 Northpoint Parkway, Suite 302, West Palm Beach, Florida 33407.
| Name of Shareholder | Amount and Nature of Beneficial Ownership | Percent of Common Stock | ||||||
| Directors and Executive Officers: | ||||||||
| Troy Grogan1 | 11,397,029 | (1) | 59.69 | % | ||||
| All directors and executive officers as a group (1 person) | 11,397,029 | (1) | 59.69 | % | ||||
| Owners of more than 5% of our outstanding shares: | ||||||||
Mercer Street Global Opportunity Fund, LLC | 2,232,000 | (2) | 11.69 | % | ||||
| (1) | Includes 3,352,145 shares of common stock, 5,400,460 shares of common stock that may be acquired upon conversion of shares of Series A Preferred Stock and 2,644,424 shares of common stock that may be acquired upon conversion of 2,644,424 shares of Series A-2 Convertible Preferred Shares. | |
| (2) | Jonathan Juchno is the managing partner of Mercer Street Global Opportunity Fund, LLC, and its principal business address is 1111 Brickell Avenue Suite 2920 Miami, FL 33131. Includes 1,163,077 shares of common stock issuable upon conversion, at a conversion price of $0.65 per share, of the remaining $756,000 principal amount of the Note acquired by Mercer in August 2021, and 930,000 shares of common stock issuable upon exercise of the Warrants acquired by Mercer, without giving effect to the blocker described in the next sentence. The Note and Warrants held by Mercer are subject to beneficial ownership limitations such that the Note and Warrants may not be converted or exercised, respectively, if it would result in the holder exceeding the beneficial ownership limitation. The beneficial ownership limitation is initially 9.99% and in the case of the Note may be increased, upon 61 days’ notice to the Company, or in the case of the Note and Warrant, decreased immediately upon written notice to the Company. |
| 30 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
On December 30, 2021, we consummated a transaction with Troy Grogan, whereby we issued 2,644,424 shares of our Series A-2 Convertible Preferred Shares, having a stated value of $0.16 per share, to Mr. Grogan in exchange for the cancellation of the entire principal amount of and interest accrued thereon of our $73,500 convertible promissory note issued October 2009, bearing interest at 12% per annum and convertible at a price of $0.10 per share, our $124,562 convertible promissory note issued September 2019, bearing interest at 1% per annum and convertible at a price of $0.25 per share, and our $88,016 convertible promissory note issued in September 2020, bearing interest at 6% per annum and convertible at a price of $1.00 per share.
Our principal executive offices are located at 901 Northpoint Parkway Suite 302, West Palm Beach, FL 33407. We are provided our office space at no cost by an entity controlled by Troy Grogan.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
On December 30, 2021, the Company advised Cherry Bekaert LLP, (“Cherry”) that the Company’s Board of Directors had determined to dismiss Cherry as the Company’s independent auditors effective December 30, 2021. Cherry issued the auditor’s report on the Company’s financial statements for the years ended December 31, 2018, 2019 and 2020.
Effective December 30, 2021, the Board of Directors of the Registrant approved the appointment of Accell Audit and Compliance, P.A. as its new independent registered auditor to audit the Registrant’s financial statements for its year ended December 31, 2021.
Principal Accounting Fees
The following table presents the fees for professional audit services rendered by Accell Audit and Compliance, P.A. and Cherry Bekaert LLP for the audit of the Registrant’s annual financial statements and review of the quarterly reports filed on Form 10-K for the years ended December 31, 2021 and 2020.
| Year Ended | Year Ended | |||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Audit fees | $ | 35,500 | $ | 17,750 | ||||
Section 16(a) Compliance
Section 16(a) of the Securities and Exchange Act of 1934 requires the Registrant’s directors and executive officers, and persons who own beneficially more than ten percent (10%) of the Registrant’s Common Stock, to file reports of ownership and changes of ownership with the Securities and Exchange Commission. Copies of all filed reports are required to be furnished to the Registrant pursuant to Section 16(a). Based solely on the reports received by the Registrant and on written representations from reporting persons, the Registrant was informed that its officer and director has not filed reports required under Section 16(a).
PART IV
ITEM 15. EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES.
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
ITEM 16. FORM 10-K SUMMARY
None.
| 31 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| USA Equities Corp. | ||
| By: | /s/ Troy Grogan | |
| Troy Grogan | ||
Chief Executive Officer, Chief Financial Officer And Director |
||
Date: March 31, 2022
| 32 |
USA EQUITIES CORP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of USA Equities Corp
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of USA Equities Corp. (the Company) as of December 31, 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2021, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has incurred net losses and negative cash flow from operations since inception. These factors, and the need for additional financing in order for the Company to meet its business plans raises substantial doubt about the Company’s ability to continue as a going concern. Our opinion is not modified with respect to that matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
3001 N. Rocky Point Dr. East Suite 200 ● Tampa, Florida 33607 ● 813.367.3527
| F-2 |
Convertible Notes Payable
As described in Note 3 to the Company’s consolidated financial statements, the Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
We identified the Company’s application of the accounting for convertible notes as a critical audit matter. The principal considerations for our determination of this critical audit matter related to the significant number of transactions which could potentially require a high degree of subjectivity in the Company’s judgments in determining the qualitative factors. Auditing these judgments and assumptions by the Company involves auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.
The primary procedures we performed to address these critical audit matters included the following:
| ● | We obtained debt related agreements and performed the following procedures: | |||
| - | Reviewed agreements for all relevant terms. | |||
| - | Tested management’s identification and treatment of agreement terms. | |||
| - | Determined whether any conversion features existed that resulted in a derivative. | |||
| - | Assessed the terms and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of the amortization of the debt discount. | |||
| - | Tested management’s calculation of the fair values of the notes that converted during the year, as well as the associated warrants for certain conversions. | |||
Stock Based Compensation
As described in Note 3 to the Company’s consolidated financial statements, the Company accounts for stock based compensation by applying the fair value method of ASC 718, which states that compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. The Company values stock based compensation at the market price for the company’s common stock and other pertinent factors at the grant date. Fully vested and non-forfeitable shares issued prior to the services being performed are classified as unearned stock compensation.
We identified the Company’s application of the accounting for stock based compensation as a critical audit matter. The principal considerations for our determination of this critical audit matter related to the significant number of transactions which could potentially require a high degree of subjectivity in the Company’s judgments in determining the qualitative factors. Auditing these judgments and assumptions by the Company involves auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.
The primary procedures we performed to address this critical audit matter included the following:
| ● | We obtained equity related agreements and performed the following procedures: | |||
| - | Reviewed agreements for all relevant terms. | |||
| - | Tested management’s identification and treatment of agreement terms. | |||
| - | Recalculated the fair value of each award based on the market price determined based on the terms in the agreements. | |||
| - | Assessed the terms and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of any portion that should be classified as unearned stock compensation. | |||
 |
|
| We have served as the Company’s auditor since 2021. | |
| PCAOB
Firm ID# |
|
| March 31, 2022 |
| F-3 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
USA Equities Corp. and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of USA Equities Corp. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 2, the Company has limited operations and revenue generating activities which raises substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board of the United States of America (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue from Contracts with Customers
Description of Matter
The Company had $124,532 in revenue for the year ended December 31, 2021. As disclosed in Note 2 to the consolidated financial statements, the Company management recognizes revenue upon the transfer of control of goods, in an amount that reflects the consideration that is expected to be received in exchange for those goods.
How We Addressed the Matter in Our Audits
Based on our knowledge of the Company, we determined the nature and extent of procedures to be performed over revenue. Our audit procedures included the following for each revenue stream where procedures were performed:
| ● | Obtained an understanding of the internal controls and processes in place over the Company’s revenue recognition processes and adoption of ASC 606. | |
| ● | Assessed the recorded revenue by selecting a sample of transactions, analyzing the related contract, testing management’s identification of distinct performance obligations, and comparing the amounts recognized for consistency with underlying documentation. |
We have served as the Company’s auditor from 2019 to 2020
| /s/
|
|
| PCAOB Firm ID# | |
| March 11, 2021 |
| F-4 |
USA Equities Corp.
Consolidated Balance Sheets
As of December 31, 2021 and 2020
| December 31, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Capitalized software development costs | ||||||||
| Intangible assets, net | - | |||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Other current liabilities | ||||||||
| Loans payable, current portion | - | |||||||
| Convertible notes payable, current portion | - | |||||||
| Convertible note payable, related party | - | |||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Accrued interest expenses | ||||||||
| Loans payable, non-current portion | - | |||||||
| Convertible notes payable | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitment and contingencies (Note 12) | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock Series A, shares authorized, $ par value; shares issued and outstanding | ||||||||
| Preferred stock Series A-2, $ par value; and shares issued and outstanding at December 31, 2021 and 2020, respectively | - | |||||||
| Common stock, shares authorized, $ par value; and shares issued and outstanding at December 31, 2021 and 2020, respectively | ||||||||
| Unearned stock compensation | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| F-5 |
USA Equities Corp.
Consolidated Statements of Operations
For the Years ended December 31, 2021 and 2020
| Year Ended | Year Ended | |||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating Expenses: | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Amortization | - | |||||||
| Total Operating Expenses | ||||||||
| Net operating loss | ( | ) | ( | ) | ||||
| Interest expense | ||||||||
| Loss on extinguishment of debt | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision on income taxes | - | - | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding (basic and diluted) | ||||||||
See accompanying notes to consolidated financial statements.
| F-6 |
USA Equities Corp.
Statements of Stockholders’ Equity (Deficit)
For the Years ended December 31, 2021 and 2020
| Preferred Stock- Series A |
Preferred Stock - Series A-2 | Common Stock | Unearned Stock | Additional Paid-In | Accumulated | Total Stockholders’ Equity | ||||||||||||||||||||||||||||||||||
| Shares | Shares |
Shares | Amount | Compensation | Capital | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ |
- | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||
| Shares issued for services | - | - | - | - | ( | ) | - | - | ||||||||||||||||||||||||||||||||
| Amortization of unearned compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | - | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Warrants issued as deferred financing costs | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Shares issued for services, net of cancellation | - | - | - | - | ( | ) | - | |||||||||||||||||||||||||||||||||
| Conversion of notes payable | - | - | - | |||||||||||||||||||||||||||||||||||||
| Warrants issued with conversion of notes payable | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Cancellation of shares | - | - | - | - | ( | ) | ( | ) | - | - | - | |||||||||||||||||||||||||||||
| Amortization of unearned compensation | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Shares issued for asset purchase | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Share purchase | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Shares issued in a funding | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
| F-7 |
USA Equities Corp.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2021 and 2020
| Year Ended | Year Ended | |||||||
| December 31, 2021 | December 31, 2020 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Amortization | - | |||||||
| Amortization of debt and warrant issuance costs | - | |||||||
| Stock-based compensation | ||||||||
| Shares issued for services | ||||||||
| Loss on extinguishment of debt | ||||||||
| Changes in net assets and liabilities: | ||||||||
| Increase in accounts receivable | ( | ) | ( | ) | ||||
| Decrease/(increase) in inventory | ( | ) | ||||||
| Decrease in prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| (Decrease)/increase in accounts payable | ( | ) | ||||||
| Increase/(decrease)/increase in other current liabilities | ( | ) | ||||||
| Decrease in accrued interest | ||||||||
| Cash flows from operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Capitalized software | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Proceeds from sales of common stock | - | |||||||
| Proceeds from convertible notes payable | ||||||||
| Proceeds of loan borrowings | - | |||||||
| Repayments of loan borrowings | ( | ) | - | |||||
| Payment of debt issuance costs | ( | ) | - | |||||
| Proceeds of related party borrowings | - | |||||||
| Cash flows from financing activities | ||||||||
| Change in cash | ||||||||
| Cash and cash equivalents - beginning of year | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow activity: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | - | - | ||||||
| Non-cash investing and financing activity: | ||||||||
| Long-term debt and accrued interest converted to shares of preferred stock | $ | $ | ||||||
| Debt and accrued interest converted to common stock | - | |||||||
| Debt and common stock issued for intangible assets (Note 4) | - | |||||||
| Common stock issued for debt issuance costs | - | |||||||
| Warrants issued in conjunction with convertible note payable | - | |||||||
| Conversion of due to related party to long-term debt | ||||||||
See accompanying notes to consolidated financial statements.
| F-8 |
USA EQUITIES CORP.
Notes to Consolidated Financial Statements
December 31, 2021 and 2020
Note 1. The Company
USA Equities Corp. (the “Company”, or the “Registrant”) was incorporated in Delaware on September 1, 1983. In 2015, the Company changed its name to USA Equities Corp. On September 23, 2021, the Company changed its state of incorporation from Delaware to Nevada as a result of a merger with and into its newly formed wholly-owned subsidiary, USA Equities Corp., a Nevada corporation (“USA Equities Nevada”), the surviving entity pursuant to an Agreement and Plan of Merger. The reincorporation was approved by the stockholders of the Company and USA Equities Nevada is deemed to be the successor to USA Equities Corp, the Delaware corporation.
Note 2. Going Concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred losses since inception, has negative operating cash flows and began recognizing revenues in the fourth quarter of fiscal 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company’s business is dependent upon its ability to achieve profitability and positive cash flows and, pending such achievement, future issuances of equity or other financings to fund ongoing operations. However, access to such funding may not be available on commercially reasonable terms, if at all. These consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 3. Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). In the opinion of management, the accompanying audited consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair statement of financial position, results of operations, and cash flows.
Reclassifications
Certain reclassifications were made to the prior consolidated financial statements to conform to the current period presentation. There was no change to the previously reported net loss.
Risks Related to COVID-19 Pandemic
The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic could negatively impact the Company’s liquidity, capital resources and operations. The ultimate impact of the COVID-19 pandemic is highly uncertain and the Company does not yet know the full extent of potential impacts on its business, financing or global economy as a whole.
Accounting Policies
Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
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Principles of Consolidation: The consolidated financial statements include the accounts of USA Equities Corp and its wholly owned subsidiaries USAQ Corporation, Inc., and Medical Practice Income, Inc. All significant inter-company balances and transactions have been eliminated.
Cash and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents.
Accounts Receivable: The Company extends unsecured credit to its customers on a regular basis. Management monitors the payments on outstanding balances and will establish a reserve for uncollectible balances as necessary based on experience. As of December 31, 2021 and 2020 there was no established reserve for uncollectible balances.
Inventories: Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. The Company uses actual costs to determine our cost basis for inventories. Inventories consist of only finished goods. Provisions for excess and obsolete inventory are based on the Company’s estimates of forecasted sales, expiration dates and assumptions about obsolescence. As of December 31, 2021 and 2020 there was no established provisions for excess and obsolete inventory.
Capitalized Software Development Costs: Software development costs for internal-use software are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Intangibles, Internal-Use Software. Development costs that are incurred during the application development stage begin to be capitalized when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases once the software is substantially complete and ready for its intended use. Costs incurred during the preliminary project stage of software development and post-implementation operating stages are expensed as incurred. Amortization is calculated on a straight-line basis over the remaining economic life of the software (typically three to five years) and will be included in operating expenses on the consolidated statements of operations once amortization begins.
The estimated useful lives of software are reviewed at least annually and will be tested for impairment whenever events or changes in circumstances occur that could impact the recoverability of the assets.
Capitalized
software development costs for internal-use software totaled $
Intangible Assets: Intangible assets represent the value the Company paid to acquire assets including a trademark, patent and web domain on June 23, 2021. The provisional allocation of the purchase price to each of these assets was determined based on ASC 805-50-30, Business Combination, Related Issues, Initial Measurement. These assets are accounted for in accordance with ASC 350-30, Intangibles, General Intangibles Other Than Goodwill. The cost of the assets is amortized over the remaining useful life of the assets as follows:
| U.S. Method Patent | |
| Web Domain | |
| Trademark |
The estimated useful lives and carrying value of the assets are reviewed at least annually or whenever events or circumstances may result in an impact to the value of the assets.
Convertible Notes Payable: The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, Derivatives and Hedging, in accordance with the provisions of ASC 470-20, Debt with Conversion and Other Options, which provides guidance on accounting for convertible securities with beneficial conversion features. ASC 470-10 addresses classification determination for specific obligations, such as short-term obligations expected to be refinanced on a long-term basis, due-on-demand loan arrangements, callable debt, sales of future revenue, increasing rate debt, debt that includes covenants, revolving credit agreements subject to lock-box arrangements and subjective acceleration clauses. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.
Revenue Recognition: Pursuant to ASC Topic 606, Revenue from Contracts with Customers, or ASC 606, the Company recognizes revenue upon transfer of control of goods, in an amount that reflects the consideration that is expected to be received in exchange for those goods. The Company does not allow for the return of products and therefore does not establish an allowance for returns.
To determine the revenue to be recognized for transactions that the Company determines are within the scope of ASC 606, the Company follows the established five-step framework as follows:
| (i) | identify the contract(s) with a customer; | |
| (ii) | identify the performance obligations in the contract(s); | |
| (iii) | determine the transaction price; | |
| (iv) | allocate the transaction price to the performance obligations in the contract(s); and | |
| (v) | recognize revenue when (or as) the Company satisfies a performance obligation. |
The Company sells allergy diagnostic-related products and immunotherapy treatments to physicians. Revenue is recognized once the Company satisfies its performance obligation which occurs at the point in time when title and possession of products have transitioned to the customer, typically upon delivery of the products.
The Company includes shipping and handling fees billed to customers in revenue.
There are several practical expedients and exemptions allowed under ASC 606 that impact timing of revenue recognition and disclosures. The Company elected to treat similar contracts as a portfolio of contracts, as allowed under ASC 606. The contracts that fall within the portfolio have the same terms and management has the expectation that the result will not be materially different from the consideration of each individual contract.
Research
and Development: Research and development expense is primarily related to developing and improving methods related to the Company’s
Software as a Service (SaaS) platform. Research and development expenses are expensed when incurred. For the years ended December 31,
2021 and 2020, there were $
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Stock-based Compensation: The Company applies the fair value of method of ASC 718, Share Based Payment, in accounting for its stock-based compensation. The standard states that compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. The Company values stock-based compensation at the market price for the Company’s common stock and other pertinent factors at the grant date.
Income Taxes: The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
The
Company has net operating losses of $
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU’) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), or ASU 2020-06. The updated guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. Consequently, more convertible debt instruments will be reported as single liability instruments with no separate accounting for embedded conversion features. ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. In addition, ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The Company adopted the provisions of ASU 2020-06 using a modified retrospective approach, which resulted in no cumulative effect adjustment to stockholders’ deficit as of January 1, 2021.
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Note 4. Capitalized Software and Intangible Assets
Non-current assets consist of the following at December 31, 2021 and December 31, 2020:
| Estimated Useful Life (in years) | December 31, 2021 | December 31, 2020 | ||||||||||
| Capitalized Software | TBD | $ | $ | |||||||||
| Intangible Assets: | ||||||||||||
| U.S. Method Patent | $ | $ | ||||||||||
| Web Domain | N/A | - | ||||||||||
| Trademark | N/A | - | ||||||||||
| Total Intangible Assets | $ | $ | ||||||||||
| Accumulated amortization | ( | ) | - | |||||||||
| Intangible assets, net | $ | $ | ||||||||||
Capitalized
software represents the development costs for internal-use software. The software application is still in development with costs continuing
to be capitalized and no amortization expense being recognized yet. Capitalization will cease and amortization will begin once development
is substantially complete. The Capitalized software costs will be amortized over the estimated life of the software. There were
The
intangible assets represent the value the Company paid to acquire the trademark “AllergiEnd”, the web domain “AllergiEnd.com”
along with the U.S. Method Patent registration relating to the allergy testing kit and related materials the Company distributes to physician
clients. The Company acquired the intangible assets from MedScience Research Group as of June 23, 2021 for total consideration of
$
Note 5. Loans Payable
On
June 21, 2021, the Company entered into a fixed-fee short-term loan with its merchant bank and received $
On
June 23, 2021, the Company entered into a purchase agreement to acquire certain assets from MedScience Research Group, Inc (“MedScience”)
(See Note 4 for additional information). As part of that purchase agreement, the Company issued a Promissory Note with a principal sum
of $
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Note 6. Convertible Notes Payable
Convertible notes payable at December 31, 2021 and December 31, 2020 consist of the following:
| December 31, 2021 | December 31, 2020 | |||||||
| Note 1 and accrued interest and premium – Principal shareholder | $ | $ | ||||||
| Note 2 and accrued interest – Principal shareholder | - | |||||||
| Note 3 and accrued interest – Shareholder | - | |||||||
| Note 4 and accrued interest – Principal shareholder | - | |||||||
| Note 5 and accrued interest – Accredited investors | - | |||||||
| Note 6 and accrued interest – Principal shareholder | - | |||||||
| Note 7 and accrued interest – Accredited investors | - | |||||||
| Note 8 and accrued interest – Accredited investors | ||||||||
| Note 9 and accrued interest – Shareholder | - | |||||||
| Note 10 and accrued interest, net of discount and issuance costs – Mercer Note | - | |||||||
| Total Convertible notes payable and accrued interest | $ | $ | ||||||
Note 1 – In October 2009, the Company issued a Convertible Promissory Note with a principal amount of $to its principal shareholder (Note 1). The note bears interest at the rate of % per annum until paid or the note and accrued interest is converted into shares of the Company’s common stock. On February 27, 2020, the note was modified to extend the maturity date to and increase the conversion price to $per share. In accordance with ASC 470-50-40, Debt, Modification and Extinguishments, the modification was accounted for as an extinguishment with a loss of $ on the extinguishment of debt and an offsetting premium on the new note recorded during the quarter ended March 31, 2020.
On December 30, 2021, the Company and its principal shareholder entered into an agreement to exchange certain convertible promissory notes of the Company held by the principal shareholder along with associated accrued interest into of newly authorized Series A-2 Convertible Preferred Shares. Note 1 was included in that agreement with $ of principal combined with a premium of $ and accrued interest of $ converted at $ per share. As of December 31, 2021 and December 31, 2020, this note had accumulated $ and $, respectively, in accrued interest.
Note 2 – Effective September 1, 2019, the Company issued a Convertible Promissory Note in the principal amount of $ to its principal shareholder in consideration for advances previously made to the Company (Note 2). This note bears interest at the rate of % per annum and is due and payable on December 30, 2022. The Note is convertible into shares of common stock at a price of $ per share.
On December 30, 2021, the Company and its principal shareholder entered into an agreement to exchange certain convertible promissory notes of the Company held by the principal shareholder along with associated accrued interest into of newly authorized Series A-2 Convertible Preferred Shares. Note 2 was included in that agreement with $ of principal combined with accrued interest of $ converted at $ per share. As of December 31, 2021 and December 31, 2020, this note had accumulated $ and $, respectively of accrued interest.
Note 3 – Effective September 12, 2019, the Company issued a Convertible Promissory Note in the principal amount of $ to a shareholder (Note 3). This Note bore interest at the rate of % per annum and principal plus any accrued but unpaid interest was due and payable on January 1, 2021. The Note was convertible at the option of the holder into shares of common stock at a price of $ per share. On January 1, 2021, the shareholder elected to convert the outstanding principal of $ along with accrued interest of $ into common stock at a price of $ per share resulting in the issuance of shares of common stock.
Note 4 – Effective December 27, 2019, the Company issued a Convertible Promissory Note in the principal amount of $to its principal shareholder in consideration for advances previously made to the Company (Note 4). This note bore interest at the rate of % per annum and was due and payable on . The Note was convertible into shares of common stock at a price of $per share. On March 15, 2021, the principal shareholder assigned this convertible note along with all accrued and future interest to a third-party shareholder. On March 31, 2021 the shareholder elected to convert the outstanding principal of $along with accrued interest of $into common stock at a price of $per share resulting in the issuance of shares of common stock. As of December 31, 2021 and December 31, 2020, this note had accumulated $and $, respectively of accrued interest.
| F-13 |
Note
5 – Under subscription agreements dated September 25, 2020, the Company issued Convertible Promissory Notes (the “Notes”)
to various individuals totaling $
As
of March 16, 2021 one of the note holders had elected to convert outstanding principal of $
As
of June 17, 2021 the other note holder had elected to convert outstanding principal of $
As
of December 31, 2021 and December 31, 2020, these notes had accumulated $
Note 6 – Effective September 30, 2020, the Company issued a Convertible Promissory Note in the principal amount of $to its principal shareholder in consideration for advances previously made to the Company (Note 6). This note bears interest at the rate of % per annum and is due and payable on . The Note is convertible into shares of common stock at a price of $per share.
On December 30, 2021, the Company and its principal shareholder entered into an agreement to exchange certain convertible promissory notes of the Company held by the principal shareholder along with associated accrued interest into of newly authorized Series A-2 Convertible Preferred Shares. Note 6 was included in that agreement with $of principal combined with accrued interest of $converted at $per share. As of December 31, 2021 and December 31, 2020, this note had accumulated $and $, respectively of accrued interest.
Note
7 – Effective October 27, 2020, the Company issued a Convertible Promissory Note in the principal amount of $
Note
8 – Effective December 23, 2020, the Company issued a Convertible Promissory Note in the principal amount of $
| F-14 |
Note 9 – Effective May 7, 2021, the Company issued a Convertible Promissory Note in the principal amount of $to a shareholder (Note 9). The Note bears interest at the rate of % per annum and matures on (the “Maturity Date”) at which date all outstanding principal and accrued and unpaid interest are due and payable unless a Default Event, as defined, occurs. of accrued interest.
Note
10 – Effective August 10, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to
which it issued to the investor an Original Issue Discount Secured Convertible Promissory Note (the “Note”) in the principal
amount of $
The
principal amount of the Note and all interest accrued thereon is payable on August 10, 2022, and are secured by a lien on substantially
all of the Company’s assets. The Note provides for interest at the rate of
Mercer
Street Global Opportunity Fund, LLC, converted $
The
The Company accounts for the allocation of its issuance costs to its Warrants in accordance with ASC 470-20, Debt with Conversion and Other Options. Under this guidance, if debt or stock is issued with detachable warrants, the proceeds need to be allocated to the two instruments using either the fair value method, the relative fair value method, or the residual value method. The Company used the relative fair value at the time of issuance to allocate the value received between the convertible note and the warrants.
The Company estimated the fair value of warrants utilizing the Black-Scholes pricing model, which is dependent upon several assumptions such as the expected term of the Warrants, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected term and expected dividend yield rate over the expected term. The Company believes this valuation methodology is appropriate for estimating the fair value of warrants. The value allocated to the relative fair value of the Warrants was recorded as debt issuance costs and additional paid in capital.
The
principal, net of the original issue discount and debt issuance costs, including the allocated relative fair value of the Warrants, which
are being recognized over the life of the note, along with associated interest, is recorded with current liabilities on the Company’s
consolidated balance sheets. As of December 31, 2021, this note had accumulated $
Note 7. Preferred Stock
Issuance of Series A Preferred Stock
Effective
September 1, 2019, the Company issued shares of Series A Preferred Stock in satisfaction of a previously issued convertible
promissory note held by its principal shareholder in the initial principal amount of $
The
shares of Series A Preferred Stock have a stated value of $ per share and are initially convertible into shares of common stock at
a price of $
Issuance of Series A-2 Preferred Stock
On December 30, 2021, the Board of Directors of the Company authorized the issuance of of the Company’s Series A-2 Convertible Preferred Shares to its principal shareholder in satisfaction of multiple previously issued convertible promissory notes with initial principal amounts totaling $ together with all interest accrued thereon.
The rights of holders of the Company’s common stock with respect to the payment of dividends and upon liquidation are junior in right of payment to holders of the Series A-2 Convertible Preferred Shares. The rights of the holders of the Company’s Series A-2 Preferred Shares are pari passu to the rights of the holders of the Company’s Series A Preferred Shares currently outstanding.
Holders of the Series A-2 Convertible Preferred Stock will vote on an as converted basis with the holders of the Company’s common stock and Series A Preferred Shares as to all matters to be voted on by the holders of the common stock. Each Series A-2 Preferred Share shall be entitled to a number of votes equal to five times the number of shares of common stock into which it is then convertible on the applicable record date.
| F-15 |
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Stock options | ||||||||
| Stock warrants | ||||||||
| Total shares excluded from calculation | ||||||||
During the years ended December 31, 2021 and 2020, there was $and $, respectively, in stock-based compensation associated with stock options included in research and development expense. Additionally, during the same periods there was $and $, respectively, of expense associated with shares issued for services. The following table shows where the expense has been recorded.
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Research and development | $ | $ | ||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Total expense – shares issued for services | $ | $ | ||||||
During the year ended December 31, 2021, there were options granted to certain scientific and business advisors (“Advisors”) with a weighted-average exercise price of $. The options vest in equal annual installments over beginning in April 2021 and expire after grant date. During the year ended December 31, 2020, there were options granted to certain scientific and business advisors (“Advisors”) with a weighted-average exercise price of $. The options vest in equal annual installments over beginning in July 2020 and expire after grant date. There were no options exercised, forfeited or cancelled during either period.
As
of December 31, 2021, there was $ of unrecognized compensation related to the of outstanding options which is expected
to be recognized over a weighted-average period of months. The options are being expensed over the vesting period for each Advisor.
The weighted-average grant date fair value for options granted during the year ended December 31, 2021 was $
| F-16 |
| Year Ended December 31, 2021 | Year Ended December 31, 2020 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected life of the options | years | years | ||||||
| Expected volatility of the underlying stock | % | % | ||||||
| Expected dividend rate | % | % | ||||||
The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. The expected life of the options is based on the option term. Due to the Company’s limited historical data, the expected volatility is calculated based upon the historical volatility of comparable companies whose share prices are publicly available for a sufficient period of time. The dividend rate is based on the Company never paying or having the intent to pay any cash dividends.
On March 8, 2021, the Company entered into a Consulting Agreement (“Agreement 1”) with an Investor Relations Consultant, pursuant to which the Investor Relations Consultant was to provide investor relations services to the Company for consideration of shares of common stock of the Company (the “Share Payment”) in addition to monthly cash payments for a term of three months. Agreement 1 contains a clause providing the Company the right to cancel the shares of common stock pursuant to the terms of Agreement 1. The value of the shares were to be expensed when the Investor Relations Consultant met the terms of the Consulting Agreement. The Company notified the Consultant that the Agreement was terminated effective April 7, 2021 without the terms of the Consulting Agreement being met. The Company cancelled the Share Payment associated with the Consulting Agreement.
On
March 10, 2021, the Company entered into a Consulting Agreement (“Agreement 2”) with a Legal Consultant to provide legal
services to the Company for consideration of shares of common stock of the Company (the “Share Payment”). The term
of Agreement 2 is
On
May 5, 2021, the Company entered into a Consulting Agreement (“Agreement 3”) with a Strategic Advisory Consultant to provide
strategic and advisory services to the Company for consideration of shares of common stock of the Company (the “Share Payment”).
The term of Agreement 3 was
On June 14, 2021, the Company entered into a one-month Consulting Agreement (“Agreement 4”) with a Strategic Advisory Consultant to provide strategic and advisory services to the Company for consideration of shares of common stock of the Company (the “Share Payment”).
On July 16, 2021, the Company entered into a one-month Consulting Agreement (“Agreement 5”) with a Strategic Advisory Consultant to provide strategic and advisory services to the Company for consideration of shares of common stock of the Company (the “Share Payment”).
On August 16, 2021, the Company entered into a one-month Consulting Agreement (“Agreement 6”) with a Strategic Advisory Consultant to provide strategic and advisory services to the Company for consideration of shares of common stock of the Company (the “Share Payment”).
| Date Issued | Number Outstanding | Number Exercisable | Exercise Price | Expiration Date | ||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| Total | ||||||||||||||
Warrants outstanding at December 31, 2021 consist of:
| Date Issued | Number Outstanding | Number Exercisable | Exercise Price | Expiration Date | ||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| Total | ||||||||||||||
| F-17 |
Note 10. Related-Party Transactions
Convertible notes payable, related party: See Note 6.
Issuance of Series A-2 Preferred Stock, related party: See Note 7.
Note 11. Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. Given its history of net operating losses, the Company has determined that it is more likely than not that it will not be able to realize the tax benefit of its net operating loss carryforwards. Accordingly, the Company has not recognized a deferred tax asset for this benefit.
The valuation allowance at December 31, 2021
and 2020 was $
Reconciliation between the provision for income taxes and the expected tax benefit using the federal statutory rate of 21% for 2021 and 2020 are as follows:
| For the Years Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Income tax at federal statutory rate | % | % | ||||||
| Valuation allowance | ( | )% | ( | )% | ||||
| Income tax expense | ||||||||
The
Company has net operating losses of $
Note 12. Commitments and Contingencies
On
February 9, 2021, the Company entered into a Receivables Purchase and Security Agreement (“Factoring Agreement”) with a Factoring
Company. The Factoring Agreement has an initial term of
Under
the terms of the agreement, designated receivables are sold for periodic advances of up to $
As of December 31, 2021, the balance of outstanding
invoices that the Factoring Company may assign back to the Company if not collected within 90 days is included in the Company’s
Accounts Receivable balance with the amounts received, net of reserves held, included with other current liabilities on the consolidated
balance sheets. The net amount included in other current liabilities is $
There are no pending or threatened legal proceedings as of December 31, 2021. The Company has no non-cancellable operating leases.
Note 13. Subsequent Event
On February 23, 2022 the shareholder of convertible Note 8 listed in Note 6 elected to convert the outstanding principal of $ along with accrued interest into shares of common stock at a price of $. Additionally, the shareholder received warrants exercisable for to purchase common shares at $ per share.
On
March 2, 2022, the Company entered into a fixed-fee short-term loan with its merchant bank and received $
| F-18 |