Notes
to the Condensed Consolidated Financial Statements
Note
1. The Company
USA
Equities Corp. (the “Company”, “We” 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
December 20, 2019 the Company entered into and consummated a share exchange with the former stockholders of Medical Practice Income,
Inc. (“MPI”) pursuant to a share exchange agreement (the “Exchange Agreement”) by which the Company issued 2,172,600
shares of common stock, $.0001 par value (the “common stock”) to the former stockholders of MPI in exchange for all of the
then issued and outstanding shares of common stock of MPI (the “Share Exchange”). MPI, based in West Palm Beach, Florida,
is focused on value-based healthcare, informatics and algorithmic personalized medicine including digital therapeutics, behavior-based
remote patient monitoring, chronic care and preventive medicine.
Prior
to the transaction with MPI, the owner of a majority of the outstanding Class A voting shares of MPI owned approximately 91%
of our then outstanding shares. Consequently, the transaction with MPI was accounted for as a change
in reporting entity between entities under common control, which requires retrospective combination of the entities for all periods as
if the combination had been in effect since inception of common control in accordance with ASC 250-10-45-21, Accounting Changes and
Error Corrections. As a result of the Share Exchange, MPI became our wholly-owned-subsidiary.
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 operating cash flows and began recognizing revenues in the fourth
quarter of fiscal 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going
concern. The continuation of the Company’s business is dependent upon its ability to achieve profitability and positive
cash flows and, pending such achievement, future issuances of equity or other financings to fund ongoing operations. However, access
to such funding may not be available on commercially reasonable terms, if at all. These 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, 2020.
The
accounting policies are described in the “Notes to the Consolidated Financial Statements” in the 2020 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 nine months ended September 30, 2021 and 2020 are not necessarily indicative
of the operating results for the full year or for any other subsequent interim period.
Risks
Related to COVID-19 Pandemic
The
COVID-19 pandemic is affecting the United States and global economies and may affect the Company’s operations and those of third
parties on which the Company relies. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult
to assess or predict, the impact of the COVID-19 pandemic could negatively impact the Company’s liquidity, capital resources and
operations. The ultimate impact of the COVID-19 pandemic is highly uncertain and the Company does not yet know the full extent of potential
impacts on its business, financing or global economy as a whole.
Accounting
Policies
Use
of Estimates: The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles
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 USA Equities Corp and its wholly owned
subsidiaries USAQ Corporation, Inc., and Medical Practice Income, Inc. All significant inter-company balances and transactions have been
eliminated.
Cash
and Cash Equivalents: For financial statement presentation purposes, the Company considers those short-term, highly liquid investments
with original maturities of three months or less to be cash or cash equivalents.
Accounts
Receivable: The Company extends unsecured credit to its customers on a regular basis. Management monitors the payments on outstanding
balances and will establish a reserve for uncollectible balances as necessary based on experience.
Inventories:
Inventories are stated at the lower of cost or estimated net realizable value, on a first-in, first-out, or FIFO, basis. We use actual
costs to determine our 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 ASC 350-40,
Intangibles, Internal-Use Software. Development costs that are incurred during the application development stage begin to be capitalized
when two criteria are met: (i) the preliminary project stage is completed and (ii) it is probable that the software will be completed
and used for its intended function. Capitalization ceases once the software is substantially complete and ready for its intended use.
Costs incurred during the preliminary project stage of software development and post-implementation operating stages are expensed as
incurred. Amortization is calculated on a straight-line basis over the remaining economic life of the software (typically three to five
years) and will be included in the operating expense on the Consolidated Statements of Operations once amortization begins.
The
estimated useful lives of software are reviewed at least annually and will be tested for impairment whenever events or changes in circumstances
occur that could impact the recoverability of the assets.
Capitalized
software development costs for internal-use software totaled $139,865 as of September 30, 2021 and $31,700 as of December 31, 2020. The
software application is still in development with costs continuing to be capitalized and no amortization expense being recognized during
the periods ended September 30, 2021 and December 31, 2020. There were no impairments recognized during the periods ended September 30,
2021 and December 31, 2020.
Intangible
Assets: Intangible assets represent the value the Company paid to acquire assets including a trademark, patent and web domain
on June 23, 2021. The provisional allocation of the purchase price to each of these assets was determined based on ASC 805-50-30, Business
Combination, Related Issues, Initial Measurement. These assets are accounted for in accordance with ASC 350-30, Intangibles, General
Intangibles Other Than Goodwill. The cost of the assets is amortized over the remaining useful life of the assets as follows:
Schedule of Indefinite-Lived Intangible Assets
U.S.
Method Patent
|
13.4
years
|
|
|
Web
Domain
|
Indefinite
life
|
|
|
Trademark
|
Indefinite
life
|
Revenue
Recognition: Pursuant to ASC Topic 606, Revenue from Contracts with Customers, or ASC
606, the Company recognizes revenue upon transfer of control of goods, in an amount that reflects the consideration that is expected
to be received in exchange for those goods. The Company does not allow for the return of products and therefore does not establish an
allowance for returns.
To
determine the revenue to be recognized for transactions that the Company determines are within the scope of ASC 606, the Company follows
the established five-step framework as follows:
|
(i)
|
identify
the contract(s) with a customer;
|
|
(ii)
|
identify
the performance obligations in the contract(s);
|
|
(iii)
|
determine
the transaction price;
|
|
(iv)
|
allocate
the transaction price to the performance obligations in the contract(s); and
|
|
(v)
|
recognize
revenue when (or as) the Company satisfies a performance obligation.
|
The
Company sells allergy diagnostic-related products and
immunotherapy treatments to physicians. Revenue is recognized once the Company satisfies its performance obligation which occurs at the
point in time when title and possession of products have transitioned to the customer, typically upon delivery of the products.
The
Company includes shipping and handling fees billed to customers in revenue.
There
are several practical expedients and exemptions allowed under ASC 606 that impact timing of revenue recognition and disclosures. The
Company elected to treat similar contracts as a portfolio of contracts, as allowed under ASC 606. The contracts that fall within the
portfolio have the same terms and management has the expectation that the result will not be materially different from the consideration
of each individual contract.
Research
and Development:
Research and development expense is primarily related to developing and improving methods related to the Company’s Software as
a Service (SaaS) platform. Research and development expenses are expensed when incurred. For the
nine months ended September 30, 2021 and 2020, there was $62,901
and $68,065,
respectively, of research and development expenses incurred.
Earnings
Per Common Share: Basic net loss per share is computed using the weighted average number of common shares outstanding during the
period. Diluted net loss per common share is computed using the weighted average number of common and dilutive equivalent shares outstanding
during the period. Dilutive common equivalent shares consist of options and warrants to purchase common stock (only if those options
and warrants are exercisable and at prices below the average share price for the period) and shares issuable upon the conversion of issued
and outstanding preferred stock. Due to the net losses reported, dilutive common equivalent shares were excluded from the computation
of diluted loss per share, as inclusion would be anti-dilutive for the periods presented. There were no common equivalent shares required
to be added to the basic weighted average shares outstanding to arrive at diluted weighted average shares outstanding as of September
30, 2021 or 2020.
Income
Taxes: The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires recognition of estimated
income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to
temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the
measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
The
Company has net operating losses of $2,217,514 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 FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
- Contracts in Entity’s Own Equity (Subtopic 815-40), or ASU 2020-06. The updated guidance is part of the FASB’s simplification
initiative, which aims to reduce unnecessary complexity in U.S. GAAP. Consequently, more convertible debt instruments will be reported
as single liability instruments with no separate accounting for embedded conversion features. ASU 2020-06 also removes certain settlement
conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts
to qualify for the exception. In addition, ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas.
The Company adopted the provisions of ASU 2020-06 using a modified retrospective approach, which resulted in no cumulative effect adjustment
to stockholders’ deficit as of January 1, 2021.
This
Quarterly Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have a current and/or future impact
on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures.
Note
4. Capitalized Software and Intangible Assets
Non-current
assets consist of the following at September 30, 2021 and December 31, 2020:
Schedule of Intangible Assets
|
|
Estimated
Useful Life
(in years)
|
|
|
September 30, 2021
|
|
|
December 31,
2020
|
|
Capitalized Software TBD
|
|
|
|
|
|
$
|
139,865
|
|
|
$
|
31,700
|
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Method Patent
|
|
|
13.4
|
|
|
|
967,500
|
|
|
|
-
|
|
Web Domain
|
|
|
N/A
|
|
|
|
161,250
|
|
|
|
-
|
|
Trademark
|
|
|
N/A
|
|
|
|
483,750
|
|
|
|
-
|
|
Total Intangible Assets
|
|
|
|
|
|
$
|
1,612,500
|
|
|
$
|
-
|
|
Accumulated amortization
|
|
|
|
|
|
|
(18,028
|
)
|
|
|
-
|
|
Intangible assets, net
|
|
|
|
|
|
$
|
1,594,472
|
|
|
$
|
-
|
|
Capitalized
software represents the development costs for internal-use software. The software application is still in development with costs continuing
to be capitalized and no amortization expense being recognized yet. Capitalization will cease and amortization will begin once development
is substantially complete. The Capitalized software costs will be amortized over the estimated life of the software. There were no
impairments recognized during the periods ended
September 30, 2021 and December 31, 2020.
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. The provisional allocation of
the purchase price to each of these assets was determined based on ASC 805-50-30, Business Combination, Related Issues, Initial Measurement.
The assets are being amortized over their useful lives beginning July 1, 2021. The Trademark and Web Domain are determined to have
an indefinite life and will be tested annually for impairment in accordance with ASC 350-30-35, Intangibles, General Intangibles Other
Than Goodwill. There was $18,028
of amortization expense during the three month
period ended September 30, 2021 and no
amortization expense during the period ended
December 31, 2020.
Note
5. Loans Payable
On
June 21, 2021, the Company entered into a fixed-fee short-term loan with its merchant bank and received $86,000
in loan proceeds. The loan payable, which is
classified within current liabilities, will be repaid in nine months of the original loan date with the merchant bank withholding an
agreed-upon percentage of payments they process on behalf of the Company. As of September 30, 2021, the loan balance is $52,566.
On
June 23, 2021, the Company entered into a purchase agreement to acquire certain assets from MedScience Research Group, Inc (“MedScience”)
(See Note 4 for additional information). As part of that purchase agreement, the Company issued a Promissory Note with a principal sum
of $750,000. The principal, along with associated interest, will be paid in 36 equal monthly installments beginning in July 2021. The
principal balance of the loan is divided between current and long-term liabilities on the Company’s Condensed Consolidated Balance
Sheet. The combined principal due along with accrued interest as of September 30, 2021 is $695,699.
Note
6. Convertible Notes Payable
Convertible
notes payable at September 30, 2021 and December 31, 2020 consist of the following:
Schedule
of Convertible Notes Payable
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
Note 1 and accrued interest and premium – Principal shareholder
|
|
$
|
201,774
|
|
|
$
|
195,177
|
|
Note 2 and accrued interest – Principal shareholder
|
|
|
127,142
|
|
|
|
126,210
|
|
Note 3 and accrued interest – Shareholder
|
|
|
-
|
|
|
|
62,951
|
|
Note 4 and accrued interest – Principal shareholder
|
|
|
-
|
|
|
|
97,537
|
|
Note 5 and accrued interest – Accredited investors
|
|
|
-
|
|
|
|
56,462
|
|
Note 6 and accrued interest – Principal shareholder
|
|
|
|
|
|
89,347
|
|
Note 7 and accrued interest – Accredited investors
|
|
|
-
|
|
|
|
101,781
|
|
Note 8 and accrued interest – Accredited investors
|
|
|
26,925
|
|
|
|
25,055
|
|
Note 9 and accrued interest – Shareholder
|
|
|
104,000
|
|
|
|
-
|
|
Note 10 and accrued interest, net of discount and issuance costs – Mercer Note
|
|
|
473,733
|
|
|
|
-
|
|
Total Convertible notes payable and accrued interest
|
|
$
|
1,026,871
|
|
|
$
|
754,520
|
|
Note
1 – In October 2009, the Company issued a Convertible Promissory Note with a principal amount of $73,500 to its principal shareholder
(Note 1). The note bears interest at the rate of 12% per annum until paid or the note and accrued interest is converted into shares of
the Company’s common stock. On February 27, 2020, the note was modified to extend the maturity date to June 30, 2023 and increase
the conversion price to $0.10 per share. In accordance with ASC 470-50-40, Debt, Modification and Extinguishments, the modification
was accounted for as an extinguishment with a loss of $21,299 on the extinguishment of debt and an offsetting premium on the new note
recorded during the quarter ended June 30, 2020. As of September 30, 2021 and December 31, 2020, this note had accumulated $106,975 and
$100,378, respectively, in accrued interest.
Note
2 – Effective September 1, 2019, the Company issued a Convertible Promissory Note in the principal amount of $124,562 to its principal
shareholder in consideration for advances previously made to the Company (Note 2). This note bears interest at the rate of 1% per annum
and is due and payable on December 30, 2022. The Note is convertible into shares of common stock at a price of $0.25 per share. As of
September 30, 2021 and December 31, 2020, this note had accumulated $2,580 and $1,648, respectively of accrued interest.
Note
3 – Effective September 12, 2019, the Company issued a Convertible Promissory Note in the principal amount of $55,000 to a shareholder
(Note 3). This Note bore interest at the rate of 12% per annum and principal plus any accrued but unpaid interest was due and payable
on January 1, 2021. The Note was convertible at the option of the holder into shares of common stock at a price of $0.25 per share. On
January 1, 2021, the shareholder elected to convert the outstanding principal of $55,000 along with accrued interest of $7,951 into common
stock at a price of $0.25 per share resulting in the issuance of 251,805 shares of common stock.
Note
4 – Effective December 27, 2019, the Company issued a Convertible Promissory Note in the principal amount of $88,626 to its principal
shareholder in consideration for advances previously made to the Company (Note 4). This note bore interest at the rate of 10% per annum
and was due and payable on December 30, 2022. The Note was convertible into shares of common stock at a price of $0.55 per share. On
March 15, 2021, the majority shareholder assigned this convertible note along with all accrued and future interest to a third-party shareholder.
On March 31, 2021 the shareholder elected to convert the outstanding principal of $88,626 along with accrued interest of $11,096 into
common stock at a price of $0.55 per share resulting in the issuance of 181,313 shares of common stock. As of September 30, 2021 and
December 31, 2020, this note had accumulated $0 and $8,911, respectively of accrued interest.
Note
5 – Under subscription agreements dated September 25, 2020, the Company issued Convertible Promissory Notes (the “Notes”)
to various individuals totaling $55,000. The Notes bore interest at the rate of 10% per annum and matured on September 30, 2022 (the
“Maturity Date”) at which date all outstanding principal and accrued and unpaid interest are due and payable unless a Default
Event, as defined, occurs. The Company could satisfy the Notes upon maturity or Default, as defined, by the issuance of Common shares
at a conversion price equal to the greater of a 20% discount to the 15 day average market price of the Company’s common stock or
$0.10. The principal and interest accrued are convertible at any time after six months through the Maturity Date at the option of the
holder at a 20% discount to the 15 day average market price of the Company’s share price, but in no event less than $0.10 per share.
Upon conversion of any portion of the Notes, the investor will receive warrants to purchase up to 25% of the number of common shares
issued as a result of such conversion exercisable for a period of two years at a price per share equal to 150% of the conversion price
of the Notes.
As
of March 31, 2021 one of the note holders had elected to convert outstanding principal of $30,000 along with accrued interest into 63,600
shares of common stock at a price of $0.50. Additionally, the shareholder received warrants, exercisable for two years, to purchase 15,900
common shares at $0.75 per share.
As
of June 17, 2021 the other note holder had elected to convert outstanding principal of $25,000 along with accrued interest into 48,755
shares of common stock at a price of $0.55. Additionally, the shareholder received warrants, exercisable for two years, to purchase 12,189
common shares at $0.83 per share.
As
of September 30, 2021 and December 31, 2020, these notes had accumulated $0 and $1,462, respectively of accrued interest.
Note
6 – Effective September 30, 2020, the Company issued a Convertible Promissory Note in the principal amount of $88,016 to its principal
shareholder in consideration for advances previously made to the Company (Note 6). This note bears interest at the rate of 6% per annum
and is due and payable on December 31, 2022. The Note is convertible into shares of common stock at a price of $1.00 per share. As of
September 30, 2021 and December 31, 2020, this note had accumulated $5,281 and $1,331, respectively of accrued interest.
Note
7 – Effective October 27, 2020, the Company issued a Convertible Promissory Note in the principal amount of $100,000 to a shareholder
(Note 7). This Note was issued under the subscription agreements dated September 25, 2020 and described in Note 5 above. As of May 7,
2021, the shareholder had elected to convert outstanding principal of $100,000 along with accrued interest into 214,817 shares of common
stock at a price of $0.49. Additionally, the shareholder received warrants, exercisable for two years, to purchase 53,704 common shares
at $0.74 per share. As of September 30, 2021 and December 31, 2020, this note had accumulated $0 and $1,781, respectively of accrued
interest.
Note
8 – Effective December 23, 2020, the Company issued a Convertible Promissory Note in the principal amount of $25,000 to a shareholder
(Note 8). This Note was issued under the subscription agreements dated September 25, 2020 and described in Note 5 above. As of September
30, 2021 and December 31, 2020, this note had accumulated $1,925 and $55, respectively of accrued interest.
Note
9 – Effective May 7, 2021, the Company issued a Convertible Promissory Note in the principal amount of $100,000 to a shareholder
(Note 9). The Note bears interest at the rate of 10% per annum and matures on September 30, 2022 (the “Maturity Date”) at
which date all outstanding principal and accrued and unpaid interest are due and payable unless a Default Event, as defined, occurs.
The Company may satisfy the Note upon maturity or Default, as defined, by the issuance of Common shares at a conversion price equal to
the greater of a 25% discount to the 15 day average market price of the Company’s common stock or $0.50. The principal and interest
accrued are convertible at any time after six months through the maturity date of September 30, 2022 at the option of the holder at a
25% discount to the 15 day average market price of the Company’s share price, but in no event less than $0.50 per share. As of
September 30, 2021, this note had accumulated $4,000 of accrued interest.
Note
10 – Effective August 10, 2021, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to
which it issued to the investor an Original Issue Discount Secured Convertible Promissory Note (the “Note”) in the principal
amount of $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.
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. If at any time after February 10, 2022, there is no effective registration statement covering the
resale of the shares issuable upon exercise of the Warrants at prevailing market prices, then the Warrants may be exercised by means
of a “cashless exercise” in which event the investor would be entitled to receive a number of shares determined in accordance
with a customary formula set forth in the Warrant.
The
Company accounts for the allocation of its issuance costs to its Warrants in accordance with ASC 470-20, Debt with Conversion and Other
Options. Under this guidance, if debt or stock is issued with detachable warrants, the proceeds need to be allocated to the two instruments
using either the fair value method, the relative fair value method, or the residual value method. The Company used the relative fair
value at the time of issuance to allocate the value received between the convertible note and the warrants.
The
Company estimated the fair value of warrants utilizing the Black-Scholes pricing model, which is dependent upon several assumptions such
as the expected term of the Warrants, expected volatility of the Company’s stock price over the expected term, expected risk-free
interest rate over the expected term and expected dividend yield rate over the expected term. The Company believes this valuation methodology
is appropriate for estimating the fair value of warrants. The value allocated to the relative fair value of the Warrants was recorded
as debt issuance costs and additional paid in capital.
The
principal, net of the original issue discount and debt issuance costs, including the allocated relative fair value of the Warrants,
which are being recognized over the life of the note, along with associated interest, is recorded with current liabilities on the
Company’s Condensed Consolidated Balance Sheet. As of September 30, 2021, this note had accumulated $5,631
of accrued interest, total unamortized debt
issuance costs of $289,723, including the Warrant value, and the remaining discount of $48,175.
Note
7. Preferred Stock
Issuance
of Series A Preferred Stock
Effective
September 1, 2019, the Company issued 1,080,092
shares of Series A Preferred Stock in satisfaction
of a previously issued convertible promissory note held by its principal shareholder in the initial principal amount of $255,681
together with all interest accrued thereon.
The
shares of Series A Preferred Stock have a stated value of $0.25 per share and are initially convertible into shares of common stock at
a price of $0.05 per share (subject to adjustment upon the occurrence of certain events). The Series A Preferred Stock does not accrue
dividends and ranks prior to the common stock upon a liquidation of the Company. The Series A Preferred Stock votes on all matters brought
before the shareholders together with the Common stock as a single class and each share of Series A Preferred Stock has a number of votes,
initially 5, equal to the number of shares of preferred stock into which it is convertible as of the record date for any vote.
Note
8. Loss Per Common Share
The
Company calculates net loss per common share in accordance with ASC 260, Earnings Per Share. Basic and diluted net loss
per common share was determined by dividing net loss applicable to common stockholders by the weighted average number of
common shares outstanding during the period. The Company’s potentially dilutive shares, which include 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
nine months ended September 30, 2021 and 2020 as the result would be anti-dilutive.
Schedule
of Anti-dilutive Securities Excluded From Calculation of Earning Per Share
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
1,100,000
|
|
|
|
650,000
|
|
Stock warrants
|
|
|
1,019,793
|
|
|
|
-
|
|
Total shares excluded from calculation
|
|
|
2,119,793
|
|
|
|
650,000
|
|
Note
9. Stock-based Compensation
During
the nine months ended September 30, 2021 and 2020, there was $26,762 and $4,161, respectively, in stock-based compensation associated
with stock options included in Research and development expense. Additionally, during the same periods there was $195,328 and $65,458,
respectively, of expense associated with shares issued for services. The following table shows where the expense has been recorded.
Schedule
of Stock-based Compensation Expenses
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Research and development
|
|
$
|
29,031
|
|
|
$
|
35,844
|
|
Sales and marketing
|
|
|
98,332
|
|
|
|
22,531
|
|
General and administrative
|
|
|
67,965
|
|
|
|
7,083
|
|
Total expense – shares issued for services
|
|
$
|
195,328
|
|
|
$
|
65,458
|
|
During
the nine months ended September 30, 2021, there were 450,000 options granted to certain scientific and business advisors (“Advisors”)
with a weighted-average exercise price of $0.65. The options vest in equal annual installments over three years beginning in April 2021
and expire five years after grant date. During the nine months ended September 30,
2020, there were 650,000 options granted to certain scientific and business advisors (“Advisors”) with a weighted-average
exercise price of $0.40. The options vest in equal annual installments over three years beginning in July 2020 and expire five years
after grant date. There were no options exercised, forfeited or cancelled during either period.
As
of September 30, 2021, there was $45,006 of unrecognized compensation related to the 1,100,000 of outstanding options which is expected
to be recognized over a weighted-average period of 16 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 nine months ended September 30, 2021 was $0.12.
The
fair value of all options granted is determined using the Black-Scholes option-pricing model. The following weighted-average assumptions
were used:
Schedule
of Fair Value of Option Grant of Weighted-average Assumptions
|
|
Nine Months Ended
September 30, 2021
|
|
|
Nine Months Ended
September 30, 2020
|
|
Risk-free interest rate
|
|
|
0.21
|
%
|
|
|
0.51
|
%
|
Expected life of the options
|
|
|
3.5 years
|
|
|
|
3.5 years
|
|
Expected volatility of the underlying stock
|
|
|
76.3
|
%
|
|
|
70.7
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The
risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining
term similar to the expected term of the options. The expected life of the options is based on the option term. Due to the Company’s
limited historical data, the expected volatility is calculated based upon the historical volatility of comparable companies whose share
prices are publicly available for a sufficient period of time. The dividend rate is based on the Company never paying or having the intent
to pay any cash dividends.
On
March 8, 2021, the Company entered into a Consulting Agreement (“Agreement 1”) with an Investor Relations Consultant, pursuant
to which the Investor Relations Consultant was to provide investor relations services to the Company for consideration of 120,000 shares
of common stock of the Company (the “Share Payment”) in addition to monthly cash payments for a term of three months. Agreement
1 contains a clause providing the Company the right to cancel the shares of common stock pursuant to the terms of Agreement 1. The value
of the shares were to be expensed when the Investor Relations Consultant met the terms of the Consulting Agreement. The Company notified
the Consultant that the Agreement was terminated effective April 7, 2021 without the terms of the Consulting Agreement being met. The
Company cancelled the Share Payment associated with the Consulting Agreement.
On
March 10, 2021, the Company entered into a Consulting Agreement (“Agreement 2”) with a Legal Consultant to provide legal
services to the Company for consideration of 30,000 shares of common stock of the Company (the “Share Payment”). The term
of Agreement 2 is 16 months and the value of the shares is being expensed over the term.
On
May 5, 2021, the Company entered into a Consulting Agreement (“Agreement 3”) with a Strategic Advisory Consultant to provide
strategic and advisory services to the Company for consideration of 30,000
shares of common stock of the Company (the “Share
Payment”). The term of Agreement 3 was three
months and the value of the shares was expensed
over the term.
On
June 14, 2021, the Company entered into a one-month Consulting Agreement (“Agreement 4”) with a Strategic Advisory
Consultant to provide strategic and advisory services to the Company for consideration of 20,000
shares of common stock of the Company (the “Share
Payment”).
On
July 16, 2021, the Company entered into a one-month Consulting Agreement (“Agreement 5”) with a Strategic Advisory
Consultant to provide strategic and advisory services to the Company for consideration of 20,000
shares of common stock of the Company (the “Share
Payment”).
On
August 16, 2021, the Company entered into a one-month Consulting Agreement (“Agreement 6”) with a Strategic Advisory
Consultant to provide strategic and advisory services to the Company for consideration of 20,000
shares of common stock of the Company (the “Share
Payment”).
Options
outstanding at September 30, 2021 consist of:
Schedule
of Options Outstanding and Exercisable
Date Issued
|
|
Number Outstanding
|
|
|
Number Exercisable
|
|
|
Exercise Price
|
|
|
Expiration Date
|
March 12, 2020
|
|
|
500,000
|
|
|
|
333,333
|
|
|
$
|
0.40
|
|
|
December 31, 2024
|
June 27, 2020
|
|
|
150,000
|
|
|
|
100,000
|
|
|
$
|
0.40
|
|
|
December 31, 2024
|
January 1, 2021
|
|
|
450,000
|
|
|
|
150,000
|
|
|
$
|
0.65
|
|
|
December 31, 2025
|
Total
|
|
|
1,100,000
|
|
|
|
583,667
|
|
|
|
|
|
|
|
Warrants
outstanding at September 30, 2021 consist of:
Schedule
of Warrants Outstanding and Exercisable
Date
Issued
|
|
Number
Outstanding
|
|
|
Number
Exercisable
|
|
|
Exercise
Price
|
|
|
Expiration
Date
|
March
16, 2021
|
|
|
15,900
|
|
|
|
15,900
|
|
|
$
|
0.75
|
|
|
March
15, 2023
|
May
7, 2021
|
|
|
53,704
|
|
|
|
53,704
|
|
|
$
|
0.74
|
|
|
May
6, 2023
|
June
17, 2021
|
|
|
12,189
|
|
|
|
12,189
|
|
|
$
|
0.83
|
|
|
June
16, 2023
|
August
10, 2021
|
|
|
930,000
|
|
|
|
930,000
|
|
|
$
|
1.25
|
|
|
August
9, 2024
|
Total
|
|
|
1,019,793
|
|
|
|
1,019,793
|
|
|
|
|
|
|
|
Note
10. Related-Party Transactions
Convertible
notes payable, related party: See Note 6.
Note
11. 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 can be renewed for additional annual terms.
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.
Amounts
due from the Factoring Company, net of fees, are typically included in Prepaid expenses and other current assets on the Condensed Consolidated
Balance Sheet. As of September 30, 2021, the balance due to the Factoring Company is included with other current liabilities on
the Condensed Consolidated Balance Sheet.
There
are no pending or threatened legal proceedings as of September 30, 2021. The Company has no non-cancellable operating leases.