UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the period from ______________ to_______________
Commission
file number
(f/k/a USA Equities Corp)
(Exact Name Of Registrant As Specified In Its Charter)
(State of Incorporation) |
(I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (ZIP Code) |
Registrant’s
Telephone Number, Including Area Code:
Securities Registered Pursuant to Section 12(g) of The Act:
| Title of Each Class | Trading Symbol(s) | Name of each Exchange on Which Registered | ||
| NA |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller
reporting company |
| Emerging
Growth Company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
On August 12, 2022, the Registrant had shares of common stock outstanding.
TABLE OF CONTENTS
| Item | Description | Page | ||
| PART I - FINANCIAL INFORMATION | ||||
| ITEM 1. | FINANCIAL STATEMENTS. | 3 | ||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 18 | ||
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | 23 | ||
| ITEM 4. | CONTROLS AND PROCEDURES. | 23 | ||
| PART II - OTHER INFORMATION | ||||
| ITEM 1A. | RISK FACTORS. | 24 | ||
| ITEM 6. | EXHIBITS. | 24 |
| 2 |
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements. Certain of the matters discussed herein concerning, among other items, our operations, cash flows, financial position and economic performance including, in particular, future sales, product demand, competition and the effect of economic conditions, include forward-looking statements.
Forward-looking statements are predictive in nature and do not relate strictly to historical or current facts and generally include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions. Although we believe that the forward-looking statements contained in this report are based upon reasonable assumptions, these statements and other projections contained herein expressing opinions about future outcomes and non-historical information, are subject to uncertainties and, therefore, there is no assurance that the outcomes expressed in these statements will be achieved.
Investors are cautioned that forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from the expectations expressed in forward-looking statements contained herein. Given these uncertainties, you should not place any reliance on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. You are advised, however, to consult any additional disclosures we make in our reports filed with the Securities and Exchange Commission (“SEC”).
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
| 3 |
QHSLab, Inc.
Condensed Consolidated Balance Sheets
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Capitalized software development costs, net | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Other current liabilities | ||||||||
| Loans payable, current portion | ||||||||
| Convertible notes payable, current portion | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Accrued interest expenses | ||||||||
| Loans payable, non-current portion | ||||||||
| Convertible notes payable, non-current portion | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitment and contingencies (Note 13) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, shares authorized | ||||||||
| Preferred stock Series A, $ par value; shares issued and outstanding | ||||||||
| Preferred stock Series A-2, $ par value; shares issued and outstanding | ||||||||
| Common stock, shares authorized, $ par value; and shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | ||||||||
| Unearned stock compensation | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 4 |
QHSLab, Inc.
Condensed Consolidated Statements of Operations
| Three Months | Three Months | Six Months | Six Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| 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 | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares outstanding: (Basic and diluted) | ||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 5 |
QHSLab, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
| 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, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Shares issued for services | - | - | ||||||||||||||||||||||||||||||||||||||
| Conversion of notes payable | - | - | ||||||||||||||||||||||||||||||||||||||
| Warrants issued with conversion of notes payable | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Shares issued for services | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Shares issued for services | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of notes payable | - | - | ||||||||||||||||||||||||||||||||||||||
| Cancellation of shares | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Amortization of unearned compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Shares issued for services, net of cancellation | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Conversion of notes payable | - | - | ||||||||||||||||||||||||||||||||||||||
| Amortization of unearned compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | - | |||||||||||||||||||||||||||||||||||||
| Shares issued for asset purchase | - | - | ||||||||||||||||||||||||||||||||||||||
| Share purchase | - | - | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 6 |
QHSLab, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended | For the Six Months Ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Allowance for doubtful accounts | ||||||||
| Amortization | ||||||||
| Amortization of debt and warrant issuance costs | ||||||||
| Stock-based compensation | ||||||||
| Shares issued for services | ||||||||
| Loss on extinguishment of debt | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase)/decrease in accounts receivable | ( | ) | ||||||
| Decrease in inventory | ||||||||
| Increase in prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Increase/(decrease) in accounts payable | ( | ) | ||||||
| Increase in other current liabilities | ||||||||
| Increase 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 | ||||||||
| Issuance of convertible notes payable | ||||||||
| Proceeds of loan borrowings | ||||||||
| Repayments of loan 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 taxes | $ | $ | ||||||
| Supplemental noncash investing and financing activity: | ||||||||
| Debt and accrued interest converted to shares of common stock | $ | $ | ||||||
| Debt and common stock issued for intangible assets (Note 5) | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
| 7 |
QHSLab, Inc.
Notes to the Condensed Consolidated Financial Statements
Note 1. The Company
QHSLab, Inc. (f/k/a USA Equities Corp.) (the “Company”, or the “Registrant”) was incorporated in Delaware on September 1, 1983. In 2015, the Company changed its name to USA Equities Corp. On September 23, 2021, the Company changed its state of incorporation from Delaware to Nevada as a result of a merger with and into its newly formed wholly-owned subsidiary, USA Equities Corp., a Nevada corporation (“USA Equities Nevada”), the surviving entity pursuant to an Agreement and Plan of Merger. The reincorporation was approved by the stockholders of the Company and USA Equities Nevada is deemed to be the successor to USA Equities Corp, the Delaware corporation. On April 19, 2022, the Company changed its name to QHSLab, Inc.
The Company is a medical device technology and software-as-a-service (“SaaS”) company focused on enabling primary care physicians (“PCP’s”) to increase their revenues by providing them with relevant, value-based tools to evaluate and treat chronic disease as well as provide preventive care through reimbursable procedures.
Note 2. Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred losses since inception, has negative operational cash flows and began recognizing revenues in the fourth quarter of fiscal 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company’s business is dependent upon its ability to achieve profitability and positive cash flows and, pending such achievement, future issuances of equity or other financings to fund ongoing operations. However, access to such funding may not be available on commercially reasonable terms, if at all. These condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 3. Basis of Presentation
The condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair statement of financial position, results of operations, and cash flows. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the accompanying notes included in our Annual Report on Form 10- K for the year ended December 31, 2021.
The accounting policies are described in the “Notes to the Consolidated Financial Statements” in the 2021 Annual Report on Form 10-K and updated, as necessary, in this Form 10-Q. The year-end balance sheet data presented for comparative purposes was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Reclassifications
Certain reclassifications were made to the prior condensed consolidated financial statements to conform to the current period presentation. There was no change to the previously reported net loss.
Risks Related to COVID-19 Pandemic
The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic are difficult to assess or predict, the impact of the COVID-19 pandemic could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and the Company does not yet know the full extent of potential impacts on its business, finances or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources and operations.
Accounting Policies
Use of Estimates: The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
| 8 |
Principles of Consolidation: The condensed consolidated financial statements include the accounts of QHSLab, Inc. and its wholly owned subsidiaries USAQ Corporation, Inc., and Medical Practice Income, Inc. All significant inter-company balances and transactions have been eliminated.
Cash and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents.
Accounts Receivable: The Company extends unsecured credit to its customers on a regular basis. Management monitors the payments on outstanding balances and adjusts the reserve for uncollectible balances as necessary based on experience.
Inventories: Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. The Company uses actual costs to determine its cost basis for inventories. Inventories consist of only finished goods.
Capitalized Software Development Costs: Software development costs for internal-use software are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software. Development costs that are incurred during the application development stage begin to be capitalized when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases once the software is substantially complete and ready for its intended use. Costs incurred during the preliminary project stage of software development and post-implementation operating stages are expensed as incurred. Amortization is calculated on a straight-line basis over three years which is the remaining economic life of the software and is included in the Cost of revenue on the condensed consolidated statements of operations.
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 net of amortization expense 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 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.
| 9 |
Convertible Notes Payable: The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, Derivatives and Hedging, in accordance with the provisions of ASC 470-20, Debt with Conversion and Other Options, which provides guidance on accounting for convertible securities with beneficial conversion features. ASC 470-20 addresses classification determination for specific obligations, such as short-term obligations expected to be refinanced on a long-term basis, due-on-demand loan arrangements, callable debt, sales of future revenue, increasing rate debt, debt that includes covenants, revolving credit agreements subject to lock-box arrangements and subjective acceleration clauses. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.
Revenue Recognition: Pursuant to ASC Topic 606, Revenue from Contracts with Customers, or ASC 606, the Company recognizes revenue upon transfer of control of goods, in an amount that reflects the consideration that is expected to be received in exchange for those goods. The Company does not allow for the return of products and therefore does not establish an allowance for returns.
To determine the revenue to be recognized for transactions that the Company determines are within the scope of ASC 606, the Company follows the established five-step framework as follows:
| (i) | identify the contract(s) with a customer; | |
| (ii) | identify the performance obligations in the contract(s); | |
| (iii) | determine the transaction price; | |
| (iv) | allocate the transaction price to the performance obligations in the contract(s); and | |
| (v) | recognize revenue when (or as) the Company satisfies a performance obligation. |
The Company sells allergy diagnostic-related products and immunotherapy treatments to physicians. Revenue is recognized once the Company satisfies its performance obligation which occurs at the point in time when title and possession of products have transitioned to the customer, typically upon delivery of the products. During the quarter ended June 30, 2022, the Company began entering into SaaS subscription agreements to provide physicians with access to the Company’s proprietary internally-developed QHSLab platform software that provides clinical decision support and patient monitoring. Subscriptions are generally invoiced at the beginning of each subscription period and revenue is recognized ratably over the subscription period with unearned revenue being recorded as Deferred revenue within Other current liabilities on the Company’s condensed consolidated balance sheets.
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
SaaS platform. Research and development expenses are expensed when incurred. For the six months
ended June 30, 2022 and 2021, there were $
| 10 |
Income Taxes: The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
The
Company has net operating losses of $
Recently Issued Accounting Standards
In August 2020, the Financial Accounts Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), or ASU 2020-06. The updated guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. Consequently, more convertible debt instruments will be reported as single liability instruments with no separate accounting for embedded conversion features. The ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. In addition, ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The Company adopted the provisions of ASU 2020-06 using a modified retrospective approach, which resulted in no cumulative effect adjustment to stockholders’ deficit as of January 1, 2021.
This Quarterly Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have a current and/or future impact on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures.
| 11 |
Note 4. Accounts Receivable
Accounts receivable is recorded in the condensed consolidated balance sheets when customers are invoiced for revenue to be collected and there is an unconditional right to receive payment. Timing of revenue recognition may differ from the timing of invoicing customers resulting in deferred revenue until the Company satisfies its performance obligation.
Accounts receivable is presented net of an allowance for potentially uncollectible accounts. During the quarter ended June 30, 2022, the Company established an allowance for potentially uncollectible accounts that represents future expected credit losses over the life of the receivables based on past experience, current information and forward-looking economic considerations. The beginning and ending balances of accounts receivable, net of allowance, are as follows:
| June 30, 2022 | December 31, 2021 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for doubtful accounts | ( | ) | ||||||
| Accounts receivable, net | $ | $ | ||||||
Note 5. Capitalized Software and Intangible Assets
Non-current assets consist of the following at June 30, 2022 and December 31, 2021:
| Estimated Useful Life (in years) | June 30, 2022 | December 31, 2021 | ||||||||||
| Capitalized Software | $ | $ | ||||||||||
| Accumulated amortization | ( | ) | ||||||||||
| Capitalized Software, net | $ | $ | ||||||||||
| 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 the Company’s internal-use QHSLab platform software. The Company completed testing
of its QHSLab platform software application at the end of the first quarter of 2022 and began to amortize the capitalized expenses on
a straight-line basis over the useful life of the software. During the periods ended June 30, 2022 and December 31, 2021 there was $
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 6. Loans Payable
On
June 23, 2021, the Company entered into a purchase agreement to acquire certain assets from MedScience Research Group, Inc (“MedScience”)
(See Note 5 for additional information). As part of that purchase agreement, the Company issued a Promissory Note with a principal sum
of $
On
March 2, 2022, the Company entered into a fixed-fee short-term loan with its merchant bank and received $
| 12 |
Note 7. Convertible Notes Payable
Convertible notes payable at June 30, 2022 and December 31, 2021, consist of the following:
| June 30, 2022 | December 31, 2021 | |||||||
| Note 1 – Accredited investors | $ | $ | ||||||
| Note 2 – Shareholder | ||||||||
| Note 3 – Mercer Note | ||||||||
| Debt discount and issuance costs | ( | ) | ( | ) | ||||
| Less: current portion | ||||||||
| Non-current portion | $ | $ | ||||||
Note
1 – Effective December 23, 2020, the Company issued a Convertible Promissory Note in the principal amount of $
Note 2 – Effective May 7, 2021, the Company issued a Convertible Promissory Note in the principal amount of $ to a shareholder (Note 2). 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. As of June 30, 2022 and December 31, 2021, this Note had $ and $, respectively, of accrued interest.
Note
3 – Effective August 10, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to
which it issued to the investor an Original Issue Discount Secured Convertible Promissory Note (the “Note”) in the principal
amount of $
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
On
November 11, 2021, Mercer Street Global Opportunity Fund, LLC, converted $
The
| 13 |
The Company accounts for the allocation of its issuance costs to its Warrants in accordance with ASC 470-20, Debt with Conversion and Other Options. Under this guidance, if debt or stock is issued with detachable warrants, the proceeds need to be allocated to the two instruments using either the fair value method, the relative fair value method, or the residual value method. The Company used the relative fair value at the time of issuance to allocate the value received between the convertible note and the warrants.
The Company estimated the fair value of the Warrants utilizing the Black-Scholes pricing model, which is dependent upon several assumptions such as the expected term of the Warrants, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected term and expected dividend yield rate over the expected term. The Company believes this valuation methodology is appropriate for estimating the fair value of warrants. The value allocated to the relative fair value of the Warrants was recorded as debt issuance costs and additional paid in capital.
The
principal, net of the original issue discount and debt issuance costs, including the allocated relative fair value of the Warrants, which
are being recognized over the life of the Note, along with associated interest, is recorded with current liabilities on the Company’s
condensed consolidated balance sheets. As of June 30, 2022, this Note had $
Note 8. Preferred Stock
Series A Preferred Stock
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 $
Series A-2 Preferred Stock
On December 30, 2021, the Company issued of the Company’s Series A-2 Convertible Preferred Shares to its principal shareholder in satisfaction of multiple outstanding convertible promissory notes with initial principal amounts totaling $ 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.
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The Company calculates net loss per common share in accordance with ASC 260, Earnings Per Share. Basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. The Company’s potentially dilutive shares, which include shares issuable upon exercise or conversion of outstanding common stock options, common stock warrants, and convertible debt have not been included in the computation of diluted net loss per share for the six months ended June 30, 2022 and 2021 as the result would be anti-dilutive.
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock options | ||||||||
| Stock warrants | ||||||||
| Total shares excluded from calculation | ||||||||
During the six months ended June 30, 2022 and 2021, there was $ in stock-based compensation associated with stock options included in Research and development expense. Additionally, during the same periods there was expense associated with shares issued for services. The following table shows how the expenses associated with shares issued for services were classified in the condensed consolidated statements of operations during the respective periods.
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Research and development | $ | $ | ||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Total expense – shares issued for services | $ | $ | ||||||
During the six months ended June 30, 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. There were no options exercised, forfeited or cancelled during the period. During the six months ended June 30, 2022 there were no options granted.
As of June 30, 2022, there was $ of unrecognized compensation related to 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 six months June 30, 2022 was $.
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| Risk-free interest rate | N/A | % | ||||||
| Expected life of the options | N/A | years | ||||||
| Expected volatility of the underlying stock | N/A | % | ||||||
| Expected dividend rate | N/A | % | ||||||
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.
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| Date Issued | Number Outstanding | Number Exercisable | Exercise Price | Expiration Date | ||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| Total | ||||||||||||||
Warrants outstanding at June 30, 2022 consist of:
| Date Issued | Number Outstanding | Number Exercisable | Exercise Price | Expiration Date | ||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| $ | ||||||||||||||
| Total | ||||||||||||||
Note 11. Related Party Transactions
Convertible notes payable, related party: See Note 7.
Note 12. Income Taxes
For the six month period ended June 30, 2022 and the year ended December 31, 2021, the Company did not record a tax provision as the Company did not earn any taxable income in either period and maintains a full valuation allowance against its net deferred tax assets.
Note 13. 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 June 30, 2022, the balance of outstanding invoices that the Factoring Company may assign back to the Company if not collected within
90 days is included in the Company’s Accounts Receivable balance with the amounts received, net of reserves held, included with
other current liabilities on the condensed consolidated balance sheets. The net amount included in other current liabilities is $
There are no pending or threatened legal proceedings as of June 30, 2022. The Company has no non-cancellable operating leases.
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Note 14. Subsequent Events
Effective
July 19, 2022, 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
The Note provides for various events of default similar to those provided for in similar transactions, including the failure to timely pay amounts due thereunder. The Note provides further that the Company will be liable to the Buyer for various amounts, including the cost of a buy-in, if the Company shall default in its obligation to register the shares issuable upon conversion of the Note for sale by the Buyer under the Securities Act or otherwise fails to facilitate Buyer’s sale of the shares issuable upon conversion of the Note as required by the terms of the Note.
The
The Registration Rights Agreement requires the Company to file with the Securities and Exchange Commission within 60 days following the closing of the issuance of the Note, a registration statement (the “Registration Statement”) with respect to all shares which may be acquired upon conversion of the Note and exercise of the Warrant (the “Registrable Securities”) and to cause the Registration Statement to be declared effective no later than 90 days after the date of the issuance of the Note, provided, that if the Company is notified by the SEC that the Registration Statement will not be reviewed or is no longer subject to further review and comments, the Company shall cause the Registration Statement to be declared effective on the fifth trading day following the date on which the Company is so notified. The Company is to cause the Registration Statement to remain continuously effective until all Registrable Securities covered by such Registration Statement have been sold, or may be sold pursuant to Rule 144 without the volume or other limitations of such rule, or are otherwise not required to be registered in reliance upon the exemption in Section 4(a)(1) or 4(a)(7) under the Securities Act.
For
services rendered in connection with the Securities Purchase Agreement the Company paid Carter, Terry & Company a cash fee of $
As
a result of the issuance of the Note in the principal amount of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2022 and 2021 and notes thereto contained elsewhere in this Report, and our annual report on Form 10-K for the twelve months ended December 31, 2021 including the consolidated financial statements and notes thereto. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements. See “Cautionary Note Concerning Forward-Looking Statements.”
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. Our PCPs generated approximately $2,500,000 in revenues utilizing our products during the first half of 2022, of which $1.9 million was the result of providing allergy diagnostic tests to patients and approximately $600 thousand was the result of providing allergen immunotherapy treatments.
Based on the success of PCPs using our QHSLab allergy diagnostics combined with the products acquired from MedScience, we have begun to charge physicians a monthly subscription fee for the use of QHSLab and continue to solicit 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.
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, finances or the 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 technologies. Many patients are now open to telemedicine, which is excellent, but it’s not the complete solution, as it typically requires a physician’s direct involvement. Regulators and insurance companies recognize 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 encounters often without a physician’s direct participation, rather than infrequent visits. Health insurers are beginning to recognize that AI enabled digital medicine technologies such as those provided through QHSLab can provide the necessary encounters to foster patient compliance 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 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.
While our revenues are largely determined by the volume of product delivered and the prices at which such products are sold, our costs are determined by a number of factors. The principal factors impacting 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 spread 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
Three months and six months ended June 30, 2022 as compared to the three months and six months ended June 30, 2021
Revenues
During the fourth quarter of 2020 we began to sell AllergiEnd® Products, consisting of AllergiEnd® Allergy Diagnostics and Allergen Immunotherapy treatments, to physicians. During the second quarter of 2022, we began to enter SaaS subscription agreements to provide physicians with access to our proprietary internally-developed QHSLab platform software that provides clinical decision support and patient monitoring which facilitate the diagnosis and treatments of allergies using our AllergiEnd® Products. Subscriptions are generally invoiced at the beginning of each subscription period and revenue is recognized ratably over the subscription period with unearned revenue being recorded as Deferred revenue within Other current liabilities on the Company’s condensed consolidated balance sheets until we have completed our performance obligations.
For the three months ended June 30, 2022, we generated revenues of $350,816 compared to $455,622 of revenues in the comparable period of 2021. The decrease for the three months ended June 30, 2022 related to reductions in sales of Allergy Diagnostic Kits of $48,548 and Immunotherapy Treatments of $58,863 compared to the three months ended June 30, 2021. These reductions were partially offset by Subscription revenue of $1,375 and Training revenue of $4,100 during the quarter ended June 30, 2022.
For the six months ended June 30, 2022, we generated revenues of $706,146 compared to $759,957 of revenues in the comparable period of 2021. The decrease for the six months ended June 30, 2022 as compared to the comparable period in 2021, was primarily due to a reduction in sales of Allergy Diagnostic Kits of $32,361 and Immunotherapy Treatment services of $24,710 as we continued to expand the roll-out of our product lines and customer base.
Our revenues consisted of the following:
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Allergy Diagnostic Kit Sales | $ | 224,317 | $ | 272,865 | $ | 427,911 | $ | 460,272 | ||||||||
| Immunotherapy Treatment Sales | 110,716 | 169,579 | 252,722 | 277,432 | ||||||||||||
| Subscription Revenue | 1,375 | - | 1,375 | - | ||||||||||||
| Training Revenue | 4,100 | - | 4,100 | - | ||||||||||||
| Shipping and handling | 10,308 | 13,178 | 20,038 | 22,253 | ||||||||||||
| Total revenue | $ | 350,816 | $ | 455,622 | $ | 706,146 | $ | 759,957 | ||||||||
Cost of Revenues and Gross Profit
Cost of revenues consists of the cost of the AllergiEnd® test kits and allergen immunotherapy pharmacy prepared treatment sets, shipping costs to our customers as well as labor expenses directly related to product sales.
For the three months ended June 30, 2022 and 2021, cost of revenues was $180,608 and $248,502, respectively.
The Company generated a gross profit of $170,208 during the three months ended June 30, 2022 compared to $207,120 for the three months ended June 30, 2021. Gross margin increased from 45.5% gross margin during the three months ended June 30, 2021 to 48.5% during the three months ended June 30, 2022. The increase in gross margin was attributable to a combination of changes in the product mix and improved cost structure since the acquisition of intangible assets from MedScience during the quarter ended June 30, 2021.
For the six months ended June 30, 2022 and 2021, cost of revenues was $347,249 and $419,258, respectively.
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The Company generated a gross profit of $358,897 during the six months ended June 30, 2022 compared to $340,699 for the six months ended June 30, 2021. Gross margin increased from 44.8% gross margin during the six months ended June 30, 2021 to 50.8% during the six months ended June 30, 2022. The increase in gross margin was attributable to a combination of changes in the product mix and improved cost structure since the acquisition of intangible assets from MedScience during the quarter ended June 30, 2021.
We are introducing new products at an early stage in our development cycle and the margins earned may vary significantly between periods, customers and products due to the learning process, customer negotiating strengths, and product mix.
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. These expenses include employee compensation and costs of consultants. For the three months ended June 30, 2022, sales and marketing expenses totaled $119,772 compared to $161,619 for the three months ended June 30, 2021.
For the six months ended June 30, 2022, sales and marketing expenses totaled $233,067 compared to $273,308 for the six months ended June 30, 2021.
The decreases in Sales and marketing expenses in both the three and six month periods ended June 30, 2022 compared to the respective prior year periods relates to the shift of marketing efforts to a more internal effort rather than relying upon third-party providers. We expect our sales and marketing expenses to increase as we seek to build our customer base and launch additional products. Nevertheless, if we are successful in onboarding a sufficient number of PCP’s and maintaining our relationships with these PCP’s once they begin to distribute our products, selling and marketing expenses could decrease as a percentage of revenues, though we may increase our marketing efforts as funds become available.
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 three months ended June 30, 2022, general and administrative expenses totaled $124,093, a decrease of $10,871, compared to $134,964 for the three months ended June 30, 2021.
For the six months ended June 30, 2022, general and administrative expenses totaled $213,608 an increase of $8,518, compared to $205,090 for the six months ended June 30, 2020.
The decrease in General and administrative expenses for the three months ended June 30, 2022, as compared to the comparable period of 2021, was primarily due to decreased fees for legal, investor relations and management services partially offset by an increase in bad debt expense related to the creation of our allowance for uncollectible accounts. The increase in General and administrative expenses for the six months ended June 30, 2022, as compared to the comparable period of 2021, was primarily due to increased fees for legal, investor relations and management services during the beginning of the year associated with the increase in our business activities. Additionally, the six months ended June 30, 2021 did not include expenses associated with processing payments on the sales invoices generating revenue which began during the third quarter of 2021.
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Research and Development
Research and development (“R&D”) includes expenses incurred in connection with the research and development of our medical device technology solution, including software development. R&D costs are expensed as they are incurred.
For the three months ended June 30, 2022, R&D expenses totaled $58,615 which is an increase of $43,344, or over 283%, compared to $15,271 for the three months ended June 30, 2021.
For the six months ended June 30, 2022, R&D expenses totaled $87,593 which is an increase of $44,301, or more than 102%, compared to $43,292 for the six months ended June 30, 2021.
The increases in R&D expenses for the three and six months ended June 30, 2022, as compared to the respective periods of 2021 were driven by the completion of testing of our QHSLab platform software. As a result, the spending on development is no longer being capitalized as the software is now in post-implementation stages. Any future development that may result in substantial enhancements or additional functionality for all users will be considered for capitalization as appropriate. 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.
Other Expense
For the three months ended June 30, 2022, interest expense increased by $121,492 to $129,085 from $7,593 for the three months ended June 30, 2021. For the six months ended June 30, 2022, interest expense increased by $238,220 to $256,242 from $18,022 for the six months ended June 30, 2021.
The increase in interest expenses for the three and six months ended June 30, 2022, was due to higher debt balances, primarily related to the purchase of assets related to our AllergiEnd® products in 2021. Interest expense during the first half of 2022 included interest on the outstanding debt as well as the amortization of debt issuance costs including legal fees and warrants issued in connection with the sale of our convertible note in 2021 and the note issued to purchase assets related to our AllergiEnd® products. The amortization of those costs, which are non-cash expenses, totaled $167,005, or 65% of the interest expense during the first half of 2022. Interest expense during the first half of 2021 was all related to interest on outstanding debt balances, primarily outstanding convertible notes payable.
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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 June 30, 2022, we had current assets totaling $292,519, including $97,172 of cash, $112,008 of net accounts receivable, $54,157 of inventory, and $29,182 related to prepaid expenses and other current assets. At such date we had total current liabilities of $1,353,283 consisting of $113,500 in accounts payable, $100,805 in other current liabilities and $1,138,978 representing the current portions of outstanding loans and convertible notes. Our long-term liabilities balance of $275,268 is associated with the long-term portion of loans payable.
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, $58,615 in other current liabilities and $795,969 representing the current portions of outstanding loans and convertible notes payable. 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.
We used cash of $98,110 and $99,404 in operations during the six-month periods ending June 30, 2022 and 2021, respectively.
During the third quarter of 2021, we issued a promissory note of $750,000 in connection with our acquisition of assets related to our AllergiEnd® products and an Original Issue Discount Secured Convertible Promissory Note in the principal amount of $806,000 (the “First OID Note”) along with warrants to purchase 930,000 shares of our common stock (the “Warrants”) for aggregate consideration of $750,000. The acquisition of the assets related to our AllergiEnd® products has enabled us to increase our margins on the sale of these products. The net proceeds of the First OID Note primarily were used to increase our sales and marketing efforts. In July 2022, to supplement our cash on hand, we issued to the holder of the First OID Note an Original Issue Discount Secured Convertible Promissory Note (the “Second OID Note”) in the principal amount of $440,000 and warrants to purchase 550,000 shares of the Company’s common stock for aggregate consideration of $400,000. The proceeds of this Note will primarily be used to fulfill our inventory requirements and expand our sales and marketing.
The remaining principal amount of the First OID Note and all interest accrued thereon is payable on August 10, 2022, and is secured by a lien on substantially all of our assets. We have begun discussions with the holder of the First OID Note regarding the need to extend the due date. There is no assurance we will come to an accommodation with the holder of the First OID Note or refinance the First OID Note by issuing debt or equity to a third party on terms that will be favorable to us. If we are unable to come to an agreement with the holder or refinance the First OID Note with a third party, and the holder were to seek to exercise its rights under the Note, it could have a material adverse impact on the price of our common stock. As noted above in July 2022 we issued the Second OID Note in the principal amount of $440,000 to the holder of the First OID Note. As a result of this issuance, the conversion price of the First OID Note was reduced to $0.20 and in 2022, the holder of the First OID Note converted an aggregate of $50,000 of the First OID Note into shares of our common stock, reducing the outstanding balance and interest accrued on the First OID Note to $742,987 immediately following the conversion.
The principal amount of the Second OID Note and all interest accrued thereon is payable on July 19, 2023, and are secured by a lien on substantially all of the Company’s assets. The Note provides for interest at the rate of 5% per annum, payable at maturity, and is convertible into common stock at a price of $0.20 per share. In addition to customary anti-dilution adjustments upon the occurrence of certain corporate events, similar to the First OID Note, the Second OID Note provides, subject to certain limited exceptions, that if we issue any common stock or common stock equivalents, as defined in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such stock or common stock equivalents were sold. The remaining terms and conditions of the Second OID Note including the events of default are substantially identical to those of the First OID Note.
The 550,000 Warrants are initially exercisable for a period of three years at a price of $0.50 per share, subject to customary anti-dilution adjustments upon the occurrence of certain corporate events as set forth in the Warrant. The shares issuable upon conversion of the Note and exercise of the Warrants are to be registered under the Securities Act of 1933, as amended, for resale by the investor as provided in the Registration Rights Agreement. The Warrants may be exercised by means of a “cashless exercise” if at any time the shares issuable upon exercise of the Warrant are not covered by an effective registration statement.
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The Registration Rights Agreement requires the Company to file with the Securities and Exchange Commission within 60 days following the closing of the issuance of the Note, a registration statement (the “Registration Statement”) with respect to all shares which may be acquired upon conversion of the Note and exercise of the Warrant (the “Registrable Securities”) and to cause the Registration Statement to be declared effective no later than 90 days after the date of the issuance of the Note.
Plan of Operation and Funding
The accompanying condensed 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 $2,988,584 at June 30, 2022, generated net losses of $469,689 and $770,176 for the six months ended June 30, 2022 and the year ended December 31, 2021, respectively, and used cash of $98,110 and $354,738 in operations in these periods. Although we are generating revenue from the sale of our AllergiEnd® products and the licensing of QHSLab, 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 condensed 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.
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. In the past we have had to rely upon our principal shareholder to support our operations. More recently we have financed our operations through the proceeds from private placements of equity and debt instruments issued to third parties. 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. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders and could cause the price of our common stock to decrease. 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.
Our ability to obtain funds through the issuance of debt or equity is dependent upon the state of the financial markets at such time as we may seek to raise funds. The state of the capital market markets may be adversely impacted by various risks and uncertainties, including, but not limited to future and current impacts of global events such as COVID-19 and the war in the Ukraine, increases in inflation and other risks detailed in our 2021 Annual Report on Form 10K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
As of June 30, 2022, the Company’s chief executive officer and 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 as provided under the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013), our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report. Management has identified corrective actions for the weakness and will periodically reevaluate the need to add personnel and implement improved review procedures as they can be supported by the growth in our business.
Changes in internal controls.
During the quarterly period covered by this report, no changes occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1A. RISK FACTORS.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1. Description of Business, subheading Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results.
ITEM 6. EXHIBITS.
(a) The following documents are filed as exhibits to this report on Form 10-Q or incorporated by reference herein. Any document incorporated by reference is identified by a parenthetical reference to the SEC filing that included such document.
| 101.INS | Inline XBRL Instance Document | |
| 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) |
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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.
| QHSLab, Inc. | ||
| By: | /s/ Troy Grogan | |
| Troy Grogan | ||
| Chief Executive Officer and Chief Financial Officer | ||
| Date: | August 15, 2022 | |
| 25 |
Exhibit 31
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Troy Grogan, certify that:
1. I have reviewed this quarterly report of QHSLab, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as 4efined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the issuer’s most recent fiscal quarter (the issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and
5. The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.
| Date: August 15, 2022 | |
| /s/ Troy Grogan | |
| CEO and CFO |
Exhibit 32
(18 U.S.C. SECTION 1350)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of QHSLab, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 (the “Report”), as filed with the Securities and Exchange Commission (the “Report”), Troy Grogan, Chief Executive Officer and Chief Financial Officer of the Company, does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Troy Grogan | |
| Troy Grogan | |
| CEO and CFO | |
| Dated: August 15, 2022 |
A signed original of this written statement required by Section 906 has been provided to QHSLab, Inc. and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Common stock, shares authorized | 900,000,000 | 900,000,000 |
| Common stock, par value | $ 0.0001 | $ 0.0001 |
| Common stock, shares issued | 8,815,508 | 8,756,093 |
| Common stock, shares outstanding | 8,815,508 | 8,756,093 |
| Series A Preferred Stock [Member] | ||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares issued | 1,080,092 | 1,080,092 |
| Preferred stock, shares outstanding | 1,080,092 | 1,080,092 |
| Series A-2 Preferred Stock [Member] | ||
| Preferred stock, par value | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares issued | 2,644,424 | 2,644,424 |
| Preferred stock, shares outstanding | 2,644,424 | 2,644,424 |
| Preferred Stock [Member] | ||
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Income Statement [Abstract] | ||||
| Revenue | $ 350,816 | $ 455,622 | $ 706,146 | $ 759,957 |
| Cost of revenue | 180,608 | 248,502 | 347,249 | 419,258 |
| Gross profit | 170,208 | 207,120 | 358,897 | 340,699 |
| Operating Expenses: | ||||
| Sales and marketing | 119,772 | 161,619 | 233,067 | 273,308 |
| General and administrative | 124,093 | 134,964 | 213,608 | 205,090 |
| Research and development | 58,615 | 15,271 | 87,593 | 43,292 |
| Amortization | 18,028 | 36,056 | ||
| Total Operating Expenses | 320,508 | 311,854 | 570,324 | 521,690 |
| Net operating loss | (150,300) | (104,734) | (211,427) | (180,991) |
| Interest expense | 129,085 | 7,593 | 256,242 | 18,022 |
| Loss on extinguishment of debt | 2,020 | |||
| Net loss | $ (279,385) | $ (112,327) | $ (469,689) | $ (199,013) |
| Basic and diluted net loss per share | $ (0.03) | $ (0.02) | $ (0.05) | $ (0.03) |
| Weighted average shares outstanding: (Basic and diluted) | 8,797,782 | 7,206,586 | 8,815,508 | 6,966,046 |
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) |
Preferred Stock [Member]
Series A Preferred Stock [Member]
|
Preferred Stock [Member]
Series A-2 Preferred Stock [Member]
|
Common Stock [Member] |
Unearned Stock Compensation [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Beginning balance at Dec. 31, 2020 | $ 108 | $ 656 | $ (124,479) | $ 1,264,108 | $ (1,748,719) | $ (608,326) | |
| Beginning balance, shares at Dec. 31, 2020 | 1,080,092 | 6,562,735 | |||||
| Shares issued for services | $ 15 | (89,419) | 89,985 | 581 | |||
| Shares issued for services, shares | 150,000 | ||||||
| Conversion of notes payable | $ 50 | 194,161 | 194,211 | ||||
| Conversion of notes payable, shares | 496,718 | ||||||
| Stock-based compensation expense | 8,920 | 8,920 | |||||
| Net loss | (86,686) | (86,686) | |||||
| Cancellation of shares | $ (10) | 10 | |||||
| Cancellation of shares, shares | (100,000) | ||||||
| Amortization of unearned compensation | 67,812 | 67,812 | |||||
| Ending balance at Mar. 31, 2021 | $ 108 | $ 711 | (146,086) | 1,557,184 | (1,835,405) | (423,488) | |
| Ending balance, shares at Mar. 31, 2021 | 1,080,092 | 7,109,453 | |||||
| Beginning balance at Dec. 31, 2020 | $ 108 | $ 656 | (124,479) | 1,264,108 | (1,748,719) | (608,326) | |
| Beginning balance, shares at Dec. 31, 2020 | 1,080,092 | 6,562,735 | |||||
| Net loss | (199,013) | ||||||
| Ending balance at Jun. 30, 2021 | $ 108 | $ 860 | (46,742) | 2,548,631 | (1,947,732) | 555,125 | |
| Ending balance, shares at Jun. 30, 2021 | 1,080,092 | 8,603,025 | |||||
| Beginning balance at Mar. 31, 2021 | $ 108 | $ 711 | (146,086) | 1,557,184 | (1,835,405) | (423,488) | |
| Beginning balance, shares at Mar. 31, 2021 | 1,080,092 | 7,109,453 | |||||
| Conversion of notes payable | $ 26 | 132,049 | 132,075 | ||||
| Conversion of notes payable, shares | 263,572 | ||||||
| Stock-based compensation expense | 8,921 | 8,921 | |||||
| Net loss | (112,327) | (112,327) | |||||
| Amortization of unearned compensation | 36,594 | 36,594 | |||||
| Shares issued for services, net of cancellation | $ (7) | 62,750 | (41,893) | 20,850 | |||
| Shares issued for services, net of cancellation, shares | (70,000) | ||||||
| Shares issued for asset purchase | $ 125 | 862,375 | 862,500 | ||||
| Shares issued for asset purchase, shares | 1,250,000 | ||||||
| Share purchase | $ 5 | 29,995 | 30,000 | ||||
| Share purchase, shares | 50,000 | ||||||
| Ending balance at Jun. 30, 2021 | $ 108 | $ 860 | (46,742) | 2,548,631 | (1,947,732) | 555,125 | |
| Ending balance, shares at Jun. 30, 2021 | 1,080,092 | 8,603,025 | |||||
| Beginning balance at Dec. 31, 2021 | $ 108 | $ 264 | $ 876 | (6,968) | 3,348,681 | (2,518,895) | 824,066 |
| Beginning balance, shares at Dec. 31, 2021 | 1,080,092 | 2,644,424 | 8,756,093 | ||||
| Shares issued for services | 3,484 | 3,484 | |||||
| Shares issued for services, shares | |||||||
| Conversion of notes payable | $ 6 | 27,919 | 27,925 | ||||
| Conversion of notes payable, shares | 59,415 | ||||||
| Warrants issued with conversion of notes payable | 2,020 | 2,020 | |||||
| Stock-based compensation expense | 8,920 | 8,920 | |||||
| Net loss | (190,304) | (190,304) | |||||
| Ending balance at Mar. 31, 2022 | $ 108 | $ 264 | $ 882 | (3,484) | 3,387,540 | (2,709,199) | 676,111 |
| Ending balance, shares at Mar. 31, 2022 | 1,080,092 | 2,644,424 | 8,815,508 | ||||
| Beginning balance at Dec. 31, 2021 | $ 108 | $ 264 | $ 876 | (6,968) | 3,348,681 | (2,518,895) | 824,066 |
| Beginning balance, shares at Dec. 31, 2021 | 1,080,092 | 2,644,424 | 8,756,093 | ||||
| Net loss | (469,689) | ||||||
| Ending balance at Jun. 30, 2022 | $ 108 | $ 264 | $ 882 | 3,396,461 | (2,988,584) | 409,131 | |
| Ending balance, shares at Jun. 30, 2022 | 1,080,092 | 2,644,424 | 8,815,508 | ||||
| Beginning balance at Mar. 31, 2022 | $ 108 | $ 264 | $ 882 | (3,484) | 3,387,540 | (2,709,199) | 676,111 |
| Beginning balance, shares at Mar. 31, 2022 | 1,080,092 | 2,644,424 | 8,815,508 | ||||
| Shares issued for services | 3,484 | 3,484 | |||||
| Stock-based compensation expense | 8,921 | 8,921 | |||||
| Net loss | (279,385) | (279,385) | |||||
| Ending balance at Jun. 30, 2022 | $ 108 | $ 264 | $ 882 | $ 3,396,461 | $ (2,988,584) | $ 409,131 | |
| Ending balance, shares at Jun. 30, 2022 | 1,080,092 | 2,644,424 | 8,815,508 |
The Company |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| The Company | Note 1. The Company
QHSLab, Inc. (f/k/a USA Equities Corp.) (the “Company”, or the “Registrant”) was incorporated in Delaware on September 1, 1983. In 2015, the Company changed its name to USA Equities Corp. On September 23, 2021, the Company changed its state of incorporation from Delaware to Nevada as a result of a merger with and into its newly formed wholly-owned subsidiary, USA Equities Corp., a Nevada corporation (“USA Equities Nevada”), the surviving entity pursuant to an Agreement and Plan of Merger. The reincorporation was approved by the stockholders of the Company and USA Equities Nevada is deemed to be the successor to USA Equities Corp, the Delaware corporation. On April 19, 2022, the Company changed its name to QHSLab, Inc.
The Company is a medical device technology and software-as-a-service (“SaaS”) company focused on enabling primary care physicians (“PCP’s”) to increase their revenues by providing them with relevant, value-based tools to evaluate and treat chronic disease as well as provide preventive care through reimbursable procedures.
|
Going Concern |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Going Concern | Note 2. Going Concern
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred losses since inception, has negative operational cash flows and began recognizing revenues in the fourth quarter of fiscal 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The continuation of the Company’s business is dependent upon its ability to achieve profitability and positive cash flows and, pending such achievement, future issuances of equity or other financings to fund ongoing operations. However, access to such funding may not be available on commercially reasonable terms, if at all. These condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
|
Basis of Presentation |
6 Months Ended | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | ||||||||||||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||||||||||||
| Basis of Presentation | Note 3. Basis of Presentation
The condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair statement of financial position, results of operations, and cash flows. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and the accompanying notes included in our Annual Report on Form 10- K for the year ended December 31, 2021.
The accounting policies are described in the “Notes to the Consolidated Financial Statements” in the 2021 Annual Report on Form 10-K and updated, as necessary, in this Form 10-Q. The year-end balance sheet data presented for comparative purposes was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Reclassifications
Certain reclassifications were made to the prior condensed consolidated financial statements to conform to the current period presentation. There was no change to the previously reported net loss.
Risks Related to COVID-19 Pandemic
The COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third parties on which the Company relies. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic are difficult to assess or predict, the impact of the COVID-19 pandemic could negatively impact the Company’s short-term and long-term liquidity. The ultimate impact of the COVID-19 pandemic is highly uncertain and the Company does not yet know the full extent of potential impacts on its business, finances or the global economy as a whole. However, these effects could have a material impact on the Company’s liquidity, capital resources and operations.
Accounting Policies
Use of Estimates: The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
Principles of Consolidation: The condensed consolidated financial statements include the accounts of QHSLab, Inc. and its wholly owned subsidiaries USAQ Corporation, Inc., and Medical Practice Income, Inc. All significant inter-company balances and transactions have been eliminated.
Cash and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents.
Accounts Receivable: The Company extends unsecured credit to its customers on a regular basis. Management monitors the payments on outstanding balances and adjusts the reserve for uncollectible balances as necessary based on experience.
Inventories: Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. The Company uses actual costs to determine its cost basis for inventories. Inventories consist of only finished goods.
Capitalized Software Development Costs: Software development costs for internal-use software are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software. Development costs that are incurred during the application development stage begin to be capitalized when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases once the software is substantially complete and ready for its intended use. Costs incurred during the preliminary project stage of software development and post-implementation operating stages are expensed as incurred. Amortization is calculated on a straight-line basis over three years which is the remaining economic life of the software and is included in the Cost of revenue on the condensed consolidated statements of operations.
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 net of amortization expense totaled $204,775 as of June 30, 2022 and $186,271 as of December 31, 2021. The Company completed testing of its internally-developed software application (“QHSLab platform”) at the end of the first quarter of 2022 and began to amortize the capitalized expenses on a straight-line basis over the useful life of the software. During the six-month periods ended June 30, 2022 and 2021 there was $18,615 and $0 of amortization recognized, respectively. There were no impairments recognized during the three and six-month periods ended June 30, 2022.
Intangible Assets: Intangible assets represent the value the Company paid to acquire assets including a trademark, patent and web domain on June 23, 2021. The allocation of the purchase price to each of these assets was determined based on ASC 805-50-30, Business Combination, Related Issues, Initial Measurement. These assets are accounted for in accordance with ASC 350-30, Intangibles, General Intangibles Other Than Goodwill. The cost of the assets is amortized over the remaining useful life of the assets as follows:
The estimated useful lives and carrying value of the assets are reviewed at least annually or whenever events or circumstances may result in an impact to the value of the assets.
Convertible Notes Payable: The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, Derivatives and Hedging, in accordance with the provisions of ASC 470-20, Debt with Conversion and Other Options, which provides guidance on accounting for convertible securities with beneficial conversion features. ASC 470-20 addresses classification determination for specific obligations, such as short-term obligations expected to be refinanced on a long-term basis, due-on-demand loan arrangements, callable debt, sales of future revenue, increasing rate debt, debt that includes covenants, revolving credit agreements subject to lock-box arrangements and subjective acceleration clauses. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.
Revenue Recognition: Pursuant to ASC Topic 606, Revenue from Contracts with Customers, or ASC 606, the Company recognizes revenue upon transfer of control of goods, in an amount that reflects the consideration that is expected to be received in exchange for those goods. The Company does not allow for the return of products and therefore does not establish an allowance for returns.
To determine the revenue to be recognized for transactions that the Company determines are within the scope of ASC 606, the Company follows the established five-step framework as follows:
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. During the quarter ended June 30, 2022, the Company began entering into SaaS subscription agreements to provide physicians with access to the Company’s proprietary internally-developed QHSLab platform software that provides clinical decision support and patient monitoring. Subscriptions are generally invoiced at the beginning of each subscription period and revenue is recognized ratably over the subscription period with unearned revenue being recorded as Deferred revenue within Other current liabilities on the Company’s condensed consolidated balance sheets.
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 SaaS platform. Research and development expenses are expensed when incurred. For the six months ended June 30, 2022 and 2021, there were $87,593 and $43,292 of research and development expenses incurred, respectively.
Income Taxes: The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
The Company has net operating losses of $2,988,584 which begin to expire in 2027. Future utilization of currently generated federal and state NOL and tax credit carry forwards may be subject to a substantial annual limitation due to the ownership change limitations. The annual limitation may result in the expiration of NOL and tax credit carry-forwards before full utilization.
Recently Issued Accounting Standards
In August 2020, the Financial Accounts Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), or ASU 2020-06. The updated guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. Consequently, more convertible debt instruments will be reported as single liability instruments with no separate accounting for embedded conversion features. The ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. In addition, ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The Company adopted the provisions of ASU 2020-06 using a modified retrospective approach, which resulted in no cumulative effect adjustment to stockholders’ deficit as of January 1, 2021.
This Quarterly Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have a current and/or future impact on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures.
|
Accounts Receivable |
6 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||
| Credit Loss [Abstract] | |||||||||||||||||||||||||||||||||||||
| Accounts Receivable | Note 4. Accounts Receivable
Accounts receivable is recorded in the condensed consolidated balance sheets when customers are invoiced for revenue to be collected and there is an unconditional right to receive payment. Timing of revenue recognition may differ from the timing of invoicing customers resulting in deferred revenue until the Company satisfies its performance obligation.
Accounts receivable is presented net of an allowance for potentially uncollectible accounts. During the quarter ended June 30, 2022, the Company established an allowance for potentially uncollectible accounts that represents future expected credit losses over the life of the receivables based on past experience, current information and forward-looking economic considerations. The beginning and ending balances of accounts receivable, net of allowance, are as follows:
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Capitalized Software and Intangible Assets |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Capitalized Software and Intangible Assets | Note 5. Capitalized Software and Intangible Assets
Non-current assets consist of the following at June 30, 2022 and December 31, 2021:
Capitalized software represents the development costs for the Company’s internal-use QHSLab platform software. The Company completed testing of its QHSLab platform software application at the end of the first quarter of 2022 and began to amortize the capitalized expenses on a straight-line basis over the useful life of the software. During the periods ended June 30, 2022 and December 31, 2021 there was $18,615 and $0 of amortization recognized, respectively. Amortization related to the QHSLab platform is recorded within Cost of revenue on the Company’s condensed consolidated statements of operations. There were no impairments recognized during the periods ended June 30, 2022 and December 31, 2021.
The intangible assets represent the value the Company paid to acquire the trademark “AllergiEnd”, the web domain “AllergiEnd.com” along with the U.S. Method Patent registration relating to the allergy testing kit and related materials the Company distributes to physician clients. The Company acquired the intangible assets from MedScience Research Group as of June 23, 2021 for total consideration of $1,612,500 which was financed through a combination of restricted stock and a promissory note. The allocation of the purchase price to each of these assets was determined based on ASC 805-50-30, Business Combination, Related Issues, Initial Measurement. The assets are being amortized over their useful lives beginning July 1, 2021. The Trademark and Web Domain are determined to have an indefinite life and will be tested annually for impairment in accordance with ASC 350-30-35, Intangibles, General Intangibles Other Than Goodwill. There was $36,056 of amortization expense during the six months quarter ended June 30, 2022 and amortization expense during the six months ended June 30, 2021.
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Loans Payable |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Loans Payable | |
| Loans Payable | Note 6. Loans Payable
On June 23, 2021, the Company entered into a purchase agreement to acquire certain assets from MedScience Research Group, Inc (“MedScience”) (See Note 5 for additional information). As part of that purchase agreement, the Company issued a Promissory Note with a principal sum of $750,000. The principal, along with associated interest, are being paid in 36 equal monthly installments that began in July 2021. The principal balance of the loan is divided between current and long-term liabilities on the Company’s condensed consolidated balance sheets. The combined principal due along with accrued interest as of June 30, 2022 is $527,794 and as of December 31, 2021 was $644,158.
On March 2, 2022, the Company entered into a fixed-fee short-term loan with its merchant bank and received $128,500 in loan proceeds. The loan payable, which is split between current and long-term liabilities on the Company’s condensed consolidated balance sheets, is due in August 2023. The loan is repaid by the merchant bank withholding an agreed-upon percentage of payments they process on behalf of the Company with a minimum of $16,305 paid every 60 days. As of June 30, 2022, the loan balance is $88,984 and is all in current liabilities based on the minimum payment schedule. The prior fixed-fee short-term loan with the same merchant bank had a balance of $16,793 as of December 31, 2021 and was paid in full during the first quarter 2022.
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Convertible Notes Payable |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible Notes Payable | Note 7. Convertible Notes Payable
Convertible notes payable at June 30, 2022 and December 31, 2021, consist of the following:
Note 1 – Effective December 23, 2020, the Company issued a Convertible Promissory Note in the principal amount of $25,000 to a shareholder (Note 1). This Note was issued under a subscription agreement dated September 25, 2020. As of June 30, 2022 and December 31, 2021, this Note had $0 and $2,555, respectively, of accrued interest. On February 23, 2022 the shareholder elected to convert the outstanding principal of $25,000 along with accrued interest into shares of common stock at a price of $0.47 per share. Additionally, the shareholder received warrants exercisable for two years to purchase 14,854 common shares at $0.705 per share.
Note 2 – Effective May 7, 2021, the Company issued a Convertible Promissory Note in the principal amount of $ to a shareholder (Note 2). 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. As of June 30, 2022 and December 31, 2021, this Note had $ and $, respectively, of accrued interest.
Note 3 – Effective August 10, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which it issued to the investor an Original Issue Discount Secured Convertible Promissory Note (the “Note”) in the principal amount of $806,000 and warrants to purchase 930,000 shares of the Company’s common stock for aggregate consideration of $750,000. In addition, pursuant to the Purchase Agreement the Company entered into a Registration Rights Agreement with the investor.
The principal amount of the Note and all interest accrued thereon is payable on August 10, 2022, and are secured by a lien on substantially all of the Company’s assets. The Note provides for interest at the rate of 5% per annum, payable at maturity, and is convertible into common stock at a price of $0.65 per share. In addition to customary anti-dilution adjustments upon the occurrence of certain corporate events, the Note provides, subject to certain limited exceptions, that if we issue any common stock or common stock equivalents, as defined in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such stock or common stock equivalents were sold. The conversion price of the Note had been subject to a potential decrease if the average closing price of the Company’s common stock during any ten consecutive trading days beginning September 16, 2021, and ending on November 15, 2021, was below $0.65. As the trading price of the common stock has not been below $0.65 since September 21, 2021, this provision is no longer operative.
On November 11, 2021, Mercer Street Global Opportunity Fund, LLC, converted $50,000 of the principal amount of the $806,000 Secured Convertible Promissory Note issued August 10, 2021, into shares of the Company’s common stock at a price of $0.65 per share.
The 930,000 Warrants are initially exercisable for a period of three years at a price of $1.25 per share, subject to customary anti-dilution adjustments upon the occurrence of certain corporate events as set forth in the Warrant. The shares issuable upon conversion of the Note and exercise of the Warrants are to be registered under the Securities Act of 1933, as amended, for resale by the investor as provided in the Registration Rights Agreement. The Warrants may be exercised by means of a “cashless exercise” if at any time the shares issuable upon exercise of the Warrant are not covered by an effective registration statement.
The Company accounts for the allocation of its issuance costs to its Warrants in accordance with ASC 470-20, Debt with Conversion and Other Options. Under this guidance, if debt or stock is issued with detachable warrants, the proceeds need to be allocated to the two instruments using either the fair value method, the relative fair value method, or the residual value method. The Company used the relative fair value at the time of issuance to allocate the value received between the convertible note and the warrants.
The Company estimated the fair value of the Warrants utilizing the Black-Scholes pricing model, which is dependent upon several assumptions such as the expected term of the Warrants, expected volatility of the Company’s stock price over the expected term, expected risk-free interest rate over the expected term and expected dividend yield rate over the expected term. The Company believes this valuation methodology is appropriate for estimating the fair value of warrants. The value allocated to the relative fair value of the Warrants was recorded as debt issuance costs and additional paid in capital.
The principal, net of the original issue discount and debt issuance costs, including the allocated relative fair value of the Warrants, which are being recognized over the life of the Note, along with associated interest, is recorded with current liabilities on the Company’s condensed consolidated balance sheets. As of June 30, 2022, this Note had $34,191 of accrued interest, total unamortized debt issuance costs of $37,830, including the Warrant value, and the remaining discount of $6,290. As of December 31, 2021, this Note had $15,446 of accrued interest, total unamortized debt issuance costs of $204,835, including the Warrant value, and the remaining discount of $34,060.
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Preferred Stock |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Equity [Abstract] | |
| Preferred Stock | Note 8. Preferred Stock
Series A Preferred Stock
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 $0.05 per share (subject to adjustment upon the occurrence of certain events). The Series A Preferred Stock does not accrue dividends and ranks prior to the common stock upon a liquidation of the Company. The Series A Preferred Stock votes on all matters brought before the shareholders together with the Common stock as a single class and each share of Series A Preferred Stock has a number of votes, initially 5, equal to the number of shares of preferred stock into which it is convertible as of the record date for any vote.
Series A-2 Preferred Stock
On December 30, 2021, the Company issued of the Company’s Series A-2 Convertible Preferred Shares to its principal shareholder in satisfaction of multiple outstanding convertible promissory notes with initial principal amounts totaling $ 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.
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Loss Per Common Share |
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Loss Per Common Share |
The Company calculates net loss per common share in accordance with ASC 260, Earnings Per Share. Basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. The Company’s potentially dilutive shares, which include shares issuable upon exercise or conversion of outstanding common stock options, common stock warrants, and convertible debt have not been included in the computation of diluted net loss per share for the six months ended June 30, 2022 and 2021 as the result would be anti-dilutive.
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Stock-based Compensation |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation |
During the six months ended June 30, 2022 and 2021, there was $ in stock-based compensation associated with stock options included in Research and development expense. Additionally, during the same periods there was expense associated with shares issued for services. The following table shows how the expenses associated with shares issued for services were classified in the condensed consolidated statements of operations during the respective periods.
During the six months ended June 30, 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. There were no options exercised, forfeited or cancelled during the period. During the six months ended June 30, 2022 there were no options granted.
As of June 30, 2022, there was $ of unrecognized compensation related to 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 six months June 30, 2022 was $.
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.
Warrants outstanding at June 30, 2022 consist of:
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Related Party Transactions |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | Note 11. Related Party Transactions
Convertible notes payable, related party: See Note 7.
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Income Taxes |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | Note 12. Income Taxes
For the six month period ended June 30, 2022 and the year ended December 31, 2021, the Company did not record a tax provision as the Company did not earn any taxable income in either period and maintains a full valuation allowance against its net deferred tax assets.
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Commitments and Contingencies |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | Note 13. Commitments and Contingencies
On February 9, 2021, the Company entered into a Receivables Purchase and Security Agreement (“Factoring Agreement”) with a Factoring Company. The Factoring Agreement has an initial term of one year and, in accordance with its terms, has been renewed for an additional year.
Under the terms of the agreement, designated receivables are sold for periodic advances of up to $150,000. The Factoring Company retains a reserve of 10% of purchased receivables with the balance available to the Company. Factoring fees begin at 1.8% for the first 30 days a purchased invoice is outstanding and increase the longer an invoice remains outstanding. After 90 days, the Factoring Company has the right to assign the invoice back to the Company. The Factoring Agreement includes minimum average monthly volumes.
As of June 30, 2022, the balance of outstanding invoices that the Factoring Company may assign back to the Company if not collected within 90 days is included in the Company’s Accounts Receivable balance with the amounts received, net of reserves held, included with other current liabilities on the condensed consolidated balance sheets. The net amount included in other current liabilities is $37,913 and $25,420 as of June 30, 2022 and December 31, 2021, respectively.
There are no pending or threatened legal proceedings as of June 30, 2022. The Company has no non-cancellable operating leases.
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Subsequent Events |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 14. Subsequent Events
Effective July 19, 2022, 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 $440,000 and warrants to purchase 550,000 shares of the Company’s common stock for aggregate consideration of $400,000. In addition, pursuant to the Purchase Agreement the Company entered into a Registration Rights Agreement with the investor.
The principal amount of the Note and all interest accrued thereon is payable on July 19, 2023, and are secured by a lien on substantially all of the Company’s assets. The Note provides for interest at the rate of 5% per annum, payable at maturity, and is convertible into common stock at a price of $0.20 per share. In addition to customary anti-dilution adjustments upon the occurrence of certain corporate events, the Note provides, subject to certain limited exceptions, that if the Company issues any common stock or common stock equivalents, as defined in the Note, at a per share price lower than the conversion price then in effect, the conversion price will be reduced to the per share price at which such stock or common stock equivalents were sold.
The Note provides for various events of default similar to those provided for in similar transactions, including the failure to timely pay amounts due thereunder. The Note provides further that the Company will be liable to the Buyer for various amounts, including the cost of a buy-in, if the Company shall default in its obligation to register the shares issuable upon conversion of the Note for sale by the Buyer under the Securities Act or otherwise fails to facilitate Buyer’s sale of the shares issuable upon conversion of the Note as required by the terms of the Note.
The 550,000 Warrants are initially exercisable for a period of three years at a price of $0.50 per share, subject to customary anti-dilution adjustments upon the occurrence of certain corporate events as set forth in the Warrant. The shares issuable upon conversion of the Note and exercise of the Warrants are to be registered under the Securities Act of 1933, as amended, for resale by the investor as provided in the Registration Rights Agreement. The Warrants may be exercised by means of a “cashless exercise” if at any time the shares issuable upon exercise of the Warrant are not covered by an effective registration statement.
The Registration Rights Agreement requires the Company to file with the Securities and Exchange Commission within 60 days following the closing of the issuance of the Note, a registration statement (the “Registration Statement”) with respect to all shares which may be acquired upon conversion of the Note and exercise of the Warrant (the “Registrable Securities”) and to cause the Registration Statement to be declared effective no later than 90 days after the date of the issuance of the Note, provided, that if the Company is notified by the SEC that the Registration Statement will not be reviewed or is no longer subject to further review and comments, the Company shall cause the Registration Statement to be declared effective on the fifth trading day following the date on which the Company is so notified. The Company is to cause the Registration Statement to remain continuously effective until all Registrable Securities covered by such Registration Statement have been sold, or may be sold pursuant to Rule 144 without the volume or other limitations of such rule, or are otherwise not required to be registered in reliance upon the exemption in Section 4(a)(1) or 4(a)(7) under the Securities Act.
For services rendered in connection with the Securities Purchase Agreement the Company paid Carter, Terry & Company a cash fee of $20,000. In addition, the Company reimbursed the Buyer $5,000 for legal expenses incurred in connection with the transaction.
As a result of the issuance of the Note in the principal amount of $440,000 convertible into shares of the Company’s common stock at a price of $0.20 per share, the price at which the Note in the principal amount of $806,000 referred to in Note 7 may be converted into shares of the Company’s common stock has been reduced to $0.20 per share. On July 27, 2022, Mercer Street Global Opportunity Fund, LLC, converted $50,000 of the principal amount of the $806,000 Secured Convertible Promissory Note mentioned in Note 7 into shares of the Company’s common stock at a price of $ per share. |
Basis of Presentation (Policies) |
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Jun. 30, 2022 | ||||||||||||||||
| Accounting Policies [Abstract] | ||||||||||||||||
| Use of Estimates | Use of Estimates: The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
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| Principles of Consolidation | Principles of Consolidation: The condensed consolidated financial statements include the accounts of QHSLab, Inc. and its wholly owned subsidiaries USAQ Corporation, Inc., and Medical Practice Income, Inc. All significant inter-company balances and transactions have been eliminated.
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| Cash and Cash Equivalents | 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.
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| Accounts Receivable | Accounts Receivable: The Company extends unsecured credit to its customers on a regular basis. Management monitors the payments on outstanding balances and adjusts the reserve for uncollectible balances as necessary based on experience.
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| Inventories | Inventories: Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. The Company uses actual costs to determine its cost basis for inventories. Inventories consist of only finished goods.
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| Capitalized Software Development Costs | Capitalized Software Development Costs: Software development costs for internal-use software are accounted for in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software. Development costs that are incurred during the application development stage begin to be capitalized when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed and used for its intended function. Capitalization ceases once the software is substantially complete and ready for its intended use. Costs incurred during the preliminary project stage of software development and post-implementation operating stages are expensed as incurred. Amortization is calculated on a straight-line basis over three years which is the remaining economic life of the software and is included in the Cost of revenue on the condensed consolidated statements of operations.
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 net of amortization expense totaled $204,775 as of June 30, 2022 and $186,271 as of December 31, 2021. The Company completed testing of its internally-developed software application (“QHSLab platform”) at the end of the first quarter of 2022 and began to amortize the capitalized expenses on a straight-line basis over the useful life of the software. During the six-month periods ended June 30, 2022 and 2021 there was $18,615 and $0 of amortization recognized, respectively. There were no impairments recognized during the three and six-month periods ended June 30, 2022.
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| Intangible Assets | Intangible Assets: Intangible assets represent the value the Company paid to acquire assets including a trademark, patent and web domain on June 23, 2021. The allocation of the purchase price to each of these assets was determined based on ASC 805-50-30, Business Combination, Related Issues, Initial Measurement. These assets are accounted for in accordance with ASC 350-30, Intangibles, General Intangibles Other Than Goodwill. The cost of the assets is amortized over the remaining useful life of the assets as follows:
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.
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| Convertible Notes Payable | Convertible Notes Payable: The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, Derivatives and Hedging, in accordance with the provisions of ASC 470-20, Debt with Conversion and Other Options, which provides guidance on accounting for convertible securities with beneficial conversion features. ASC 470-20 addresses classification determination for specific obligations, such as short-term obligations expected to be refinanced on a long-term basis, due-on-demand loan arrangements, callable debt, sales of future revenue, increasing rate debt, debt that includes covenants, revolving credit agreements subject to lock-box arrangements and subjective acceleration clauses. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt.
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| Revenue Recognition | 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:
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. During the quarter ended June 30, 2022, the Company began entering into SaaS subscription agreements to provide physicians with access to the Company’s proprietary internally-developed QHSLab platform software that provides clinical decision support and patient monitoring. Subscriptions are generally invoiced at the beginning of each subscription period and revenue is recognized ratably over the subscription period with unearned revenue being recorded as Deferred revenue within Other current liabilities on the Company’s condensed consolidated balance sheets.
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.
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| Research and Development | Research and Development: Research and development expense is primarily related to developing and improving methods related to the Company’s SaaS platform. Research and development expenses are expensed when incurred. For the six months ended June 30, 2022 and 2021, there were $87,593 and $43,292 of research and development expenses incurred, respectively.
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| Stock-based Compensation |
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| Earnings Per Common Share |
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| Income Taxes | Income Taxes: The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
The Company has net operating losses of $2,988,584 which begin to expire in 2027. Future utilization of currently generated federal and state NOL and tax credit carry forwards may be subject to a substantial annual limitation due to the ownership change limitations. The annual limitation may result in the expiration of NOL and tax credit carry-forwards before full utilization.
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| Recently Issued Accounting Standards | Recently Issued Accounting Standards
In August 2020, the Financial Accounts Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), or ASU 2020-06. The updated guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. Consequently, more convertible debt instruments will be reported as single liability instruments with no separate accounting for embedded conversion features. The ASU 2020-06 also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception. In addition, ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas. The Company adopted the provisions of ASU 2020-06 using a modified retrospective approach, which resulted in no cumulative effect adjustment to stockholders’ deficit as of January 1, 2021.
This Quarterly Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have a current and/or future impact on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures. |
Basis of Presentation (Tables) |
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| Schedule of Indefinite-Lived Intangible Assets |
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Accounts Receivable (Tables) |
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Capitalized Software and Intangible Assets (Tables) |
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| Schedule of Intangible Assets | Non-current assets consist of the following at June 30, 2022 and December 31, 2021:
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Convertible Notes Payable (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Convertible Notes Payable | Convertible notes payable at June 30, 2022 and December 31, 2021, consist of the following:
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Loss Per Common Share (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Anti-dilutive Securities Excluded From Calculation of Earning Per Share |
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Stock-based Compensation (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock-based Compensation Expenses |
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| Schedule of Fair Value of Option Grant of Weighted-average Assumptions |
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| Schedule of Options Outstanding and Exercisable |
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| Schedule of Warrants Outstanding and Exercisable | Warrants outstanding at June 30, 2022 consist of:
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Schedule of Indefinite-Lived Intangible Assets (Details) |
6 Months Ended |
|---|---|
Jun. 30, 2022 | |
| Web Domain [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Impaired intangible asset | Indefinite life |
| Trademarks [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Impaired intangible asset | Indefinite life |
| Patents [Member] | |
| Finite-Lived Intangible Assets [Line Items] | |
| Finite-lived intangible assets, amortization method | 13 years 4 months 24 days |
Basis of Presentation (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||||
| Capitalized Software Development Costs for Software Sold to Customers | $ 204,775 | $ 204,775 | $ 186,271 | ||
| Capitalized Computer Software, Amortization | 18,615 | $ 0 | 0 | ||
| Capitalized Computer Software, Impairments | 0 | $ 0 | |||
| Research and development expense | 58,615 | $ 15,271 | $ 87,593 | $ 43,292 | |
| Common stock equivalent shares of weighted average shares outstanding dilutive | 2,126,647 | 1,189,793 | |||
| Operating loss carryforwards | $ 2,988,584 | $ 2,988,584 | |||
| Net operating losses carryforwards, expire date | begin to expire in 2027 | ||||
| Common Stock [Member] | |||||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||||
| Common stock equivalent shares of weighted average shares outstanding dilutive | 0 | 0 | |||
Schedule of Accounts Receivable (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Credit Loss [Abstract] | ||
| Accounts receivable | $ 123,230 | $ 70,474 |
| Allowance for doubtful accounts | (11,222) | |
| Accounts receivable, net | $ 112,008 | $ 70,474 |
Schedule of Intangible Assets (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Dec. 31, 2021 |
|
| Finite-Lived Intangible Assets [Line Items] | ||
| Capitalized Software | $ 223,390 | $ 186,271 |
| Accumulated amortization | (18,615) | |
| Capitalized Software, net | 204,775 | 186,271 |
| Intangible Assets: | ||
| Total Intangible Assets | 1,612,500 | 1,612,500 |
| Accumulated amortization | (72,112) | (36,056) |
| Intangible assets, net | $ 1,540,388 | 1,576,444 |
| Computer Software, Intangible Asset [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Finite-lived intangible assets, amortization method | 3 years | |
| Patents [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Finite-lived intangible assets, amortization method | 13 years 4 months 24 days | |
| Intangible Assets: | ||
| Total Intangible Assets | $ 967,500 | 967,500 |
| Web Domain [Member] | ||
| Intangible Assets: | ||
| Total Intangible Assets | 161,250 | 161,250 |
| Trademarks [Member] | ||
| Intangible Assets: | ||
| Total Intangible Assets | $ 483,750 | $ 483,750 |
Capitalized Software and Intangible Assets (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||
|---|---|---|---|---|---|---|
Jun. 23, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Jun. 30, 2022 |
Jun. 30, 2021 |
Dec. 31, 2021 |
|
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||
| Capitalized computer software, amortization | $ 18,615 | $ 0 | $ 0 | |||
| Capitalized computer software, impairments | 0 | $ 0 | ||||
| Acquired intangible assets | $ 1,612,500 | |||||
| Amortization expense | $ 18,028 | $ 36,056 | ||||
Loans Payable (Details Narrative) - USD ($) |
Mar. 02, 2022 |
Jun. 30, 2022 |
Dec. 31, 2021 |
Jun. 23, 2021 |
|---|---|---|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Debt default longterm debt amount | $ 527,794 | $ 644,158 | ||
| Proceeds from loan | $ 128,500 | |||
| Payments for loan | $ 16,305 | |||
| Loan payable | $ 88,984 | $ 16,793 | ||
| Purchase Agreement [Member] | ||||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | ||||
| Debt instrument face amount | $ 750,000 |
Schedule of Convertible Notes Payable (Details) - USD ($) |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Short-Term Debt [Line Items] | ||
| Total | $ 856,000 | $ 881,000 |
| Debt discount and issuance costs | (44,121) | (238,896) |
| Total convertible notes payable | 811,879 | 642,104 |
| Less: current portion | 811,879 | 542,104 |
| Non-current portion | 100,000 | |
| Convertible Notes Payable One [Member] | Accredited Investor [Member] | ||
| Short-Term Debt [Line Items] | ||
| Total | 25,000 | |
| Convertible Notes Payable Two [Member] | Shareholder [Member] | ||
| Short-Term Debt [Line Items] | ||
| Total | 100,000 | 100,000 |
| Convertible Notes Payable Three [Member] | Mercer Street Global Opportunity Fund LLC [Member] | ||
| Short-Term Debt [Line Items] | ||
| Total | $ 756,000 | $ 756,000 |
Preferred Stock (Details Narrative) - USD ($) |
Dec. 30, 2021 |
Sep. 01, 2019 |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|---|---|
| Series A Preferred Stock [Member] | ||||
| Class of Stock [Line Items] | ||||
| Preferred stock stated value | $ 0.25 | $ 0.0001 | $ 0.0001 | |
| Debt instrument, conversion price | $ 0.05 | |||
| Preferred stock voting rights description | The Series A Preferred Stock does not accrue dividends and ranks prior to the common stock upon a liquidation of the Company. The Series A Preferred Stock votes on all matters brought before the shareholders together with the Common stock as a single class and each share of Series A Preferred Stock has a number of votes, initially 5, equal to the number of shares of preferred stock into which it is convertible as of the record date for any vote. | |||
| Series A2 Convertible Preferred Shares [Member] | ||||
| Class of Stock [Line Items] | ||||
| Stock issued during period, shares | 2,644,424 | |||
| Debt instrument face amount | $ 286,078 |
Schedule of Anti-dilutive Securities Excluded From Calculation of Earning Per Share (Details) - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total shares excluded from calculation | 2,126,647 | 1,189,793 |
| Stock Options [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total shares excluded from calculation | 1,100,000 | 1,100,000 |
| Stock Warrant [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Total shares excluded from calculation | 1,026,647 | 89,793 |
Schedule of Stock-based Compensation Expenses (Details) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Total expense – shares issued for services | $ 6,968 | $ 125,837 |
| Research and Development Expense [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Total expense – shares issued for services | 29,031 | |
| Selling and Marketing Expense [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Total expense – shares issued for services | 48,628 | |
| General and Administrative Expense [Member] | ||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||
| Total expense – shares issued for services | $ 6,968 | $ 48,178 |
Schedule of Fair Value of Option Grant of Weighted-average Assumptions (Details) |
6 Months Ended |
|---|---|
Jun. 30, 2021 | |
| Share-Based Payment Arrangement [Abstract] | |
| Risk-free interest rate | 0.21% |
| Expected life of the options | 3 years 6 months |
| Expected volatility of the underlying stock | 76.30% |
| Expected dividend rate | 0.00% |
Schedule of Options Outstanding and Exercisable (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2022
$ / shares
shares
| |
| Option One [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Date Issued | Mar. 12, 2020 |
| Number Outstanding | 500,000 |
| Number Exercisable | 333,333 |
| Exercise Price | $ / shares | $ 0.40 |
| Expiration Date | Mar. 12, 2025 |
| Option Two [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Date Issued | Jun. 27, 2020 |
| Number Outstanding | 150,000 |
| Number Exercisable | 100,000 |
| Exercise Price | $ / shares | $ 0.40 |
| Expiration Date | Jun. 27, 2025 |
| Option Three [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Date Issued | Jan. 01, 2021 |
| Number Outstanding | 450,000 |
| Number Exercisable | 300,000 |
| Exercise Price | $ / shares | $ 0.65 |
| Expiration Date | Dec. 31, 2025 |
| Options Held [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Number Outstanding | 1,100,000 |
| Number Exercisable | 583,333 |
Stock-based Compensation (Details Narrative) - USD ($) |
6 Months Ended | |
|---|---|---|
Jun. 30, 2022 |
Jun. 30, 2021 |
|
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | ||
| Stock-based compensation | $ 17,841 | $ 17,841 |
| Unrecognized compensation related to unvested options | $ 18,243 | |
| Unrecognized compensation related to unvested options, shares | 1,100,000 | |
| Recognized weighted-average period | 9 months | |
| Weighted-average fair value for options granted | $ 0.12 | |
| Scientific and Business Advisors [Member] | ||
| Deferred Compensation Arrangement with Individual, Excluding Share-Based Payments and Postretirement Benefits [Line Items] | ||
| Number of options granted | 450,000 | |
| Weighted-average exercise price | $ 0.65 | |
| Options vesting term | 3 years | |
| Options expiration period | 5 years | |
Commitments and Contingencies (Details Narrative) - USD ($) |
Feb. 09, 2021 |
Jun. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Other current liabilities | $ 100,805 | $ 58,615 | |
| Factoring Agreement [Member] | |||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Agreement term | 1 year | ||
| Advances on sale on receivables | $ 150,000 | ||
| Reserve of purchased receivables, percentage | 10.00% | ||
| Factoring fees, percentage | 1.80% | ||
| Other current liabilities | $ 37,913 | $ 25,420 |
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