Notes to the Financial Statements
March 31, 2017
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Nu-Med Plus, Inc. is an emerging growth early stage medical device company principally engaged in the design, innovation, development, enhancement and commercialization of beginning, early, and selective later-stage quality medical devices. The Company's immediate focus is on a nitric oxide powder formulation that is 99% pure-with a one year shelf life, a "hospital" generator device with controls, plus built-in safety monitors, that delivers inhaled nitric oxide to replace expensive pressurized canisters, a compact mobile rechargeable device to deliver inhaled nitric oxide gas and a nitric oxide clinical unit, along with research into the application of nitric oxide in wound healing. The Company is incorporated in Utah.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Interim Financial Statement Presentation
The accompanying unaudited financial statements have been prepared by the Company pursuant to accounting principles generally accepted in the United States of America. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission. The information furnished in the interim financial statements includes normal recurring adjustments and reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim financial statements be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its December 31, 2016 financial statements. Operating results for the three-months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
b. Revenue Recognition
The Company is currently developing its products. It is anticipated that revenue will be recognized on product sales once the product has been shipped to the customers, persuasive evidence of an agreement exists, the price is fixed or determinable, and collectability is reasonably assured.
c. Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
d. Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including convertible notes payable, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. ASC
7
815,
Derivatives and Hedging
, which requires that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value as of the reporting date. ASC 815 also requires that changes in the derivatives’ fair value be recognized in earnings.
e. Fair Value
All cash, accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to the short-term nature of these financial instruments. Additionally, we measure certain financial instruments at fair value on a recurring basis.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB Accounting Standards Codification (“ASC”) Topic 820 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than level one inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is observable.
Liabilities measured at fair value on a recurring basis are as follows at March 31, 2017 and December 31, 2016:
|
|
|
|
|
|
| |
|
|
Level 3 Carrying Value at
|
|
|
March 31, 2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
Derivative Liability
|
$
|
-
|
|
|
$
|
4,083,787
|
|
Total Liabilities Measured at Fair Value
|
$
|
-
|
|
|
$
|
4,083,787
|
f. Cash and Cash Equivalents
The Company considers all deposit accounts and investment accounts with an original maturity of 90 days or less to be cash equivalents.
g. Fixed Assets
Fixed assets are stated at cost. Expenditure for minor repairs, maintenance, and replacement parts which do not increase the useful lives of the assets are charged to expense as incurred. Expenditures exceeding $500 for new assets, or that increase the useful life of existing assets, are capitalized. Depreciation is computed using the straight-line method. The lives over which the fixed assets are depreciated are five to seven years.
8
h. Earnings per Share
The computation of earnings per share of common stock is based on the weighted average number of shares outstanding during the period of the financial statement as follows:
Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. During the periods ended March 31, 2017 and March 31, 2016 there were 38,099,500 and 28,655,552 common stock equivalents from outstanding convertible notes included in the calculation.
Earnings per share are shown, both basic and diluted, on the statement of operations.
i. Income Taxes
Deferred taxes are provided on an asset and liability approach whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
j. Equity Instruments Issued for Non-Cash Items
In accordance with ASC Topic 718, the Company records equity instruments issued for non-cash items at the grant-date fair value of the equity instruments issued.
k. Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2017-04, “Intangibles – Goodwill and Other (Topic 350).” This ASU was issued to simplify the annual goodwill impairment assessment process. Currently, the first step of the impairment test requires an entity to compare the fair value of the reporting unit with its carrying value, including goodwill. If, as a result of this analysis, the entity concludes there is an indication of impairment in a reporting unit having goodwill, the entity is required to perform the second step of the impairment analysis, determining the amount of goodwill impairment to be recorded. The amount is calculated by comparing the implied fair value of the goodwill to its carrying amount. This exercise requires the entity to allocate the fair value determined in step one to the individual assets and liabilities of the reporting unit. Any remaining fair value would be the implied fair value of goodwill on the testing date. ASU 2017-04 eliminates the second step of the impairment analysis. Accordingly, if the first step of a quantitative goodwill impairment analysis performed after adoption of this ASU indicates that the fair value of a reporting unit is less than its carrying value, the goodwill of that reporting unit would be impaired to the extent of that difference. The Company must adopt this ASU in 2020, but early adoption is permitted. However, if there is an indication of potential impairment of goodwill as a result of an annual impairment assessment prior to 2020, the Company will evaluate the impact of ASU 2017-04 and could elect to early adopt this ASU.
In March 2017, the FASB issued ASU 2017-07, “
Compensation – Retirement Benefits (Topic 715)
.” This ASU was issued to improve the presentation of net periodic pension and other postretirement benefit costs. The Company must adopt this ASU beginning January 1, 2018. The Company does not currently have a pension or retirement plan to which it contributes and therefore believes it will not have an impact on its financial statements and statements of operations.
9
In March 2017, the FASB issued ASU No. 2017-08, “
Receivables – Nonrefundable Fees and Other Costs (Topic 310-20)
.” The ASU amends the amortization period for certain purchased callable debt securities held at a premium. The update requires premiums to be amortized over the period to the earliest call date. The new standard has an effective adoption date of January 1, 2019. Early adoption is permitted. The Company is analyzing the impact of this new standard.
The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position and cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.
NOTE 3 - GOING CONCERN
The Company acknowledges that the funds on hand as of March 31, 2017, will not be sufficient and funding through the sale of equity capital and short term related party and other shareholder loans in order to meet the planned expenditures for development, operations, and administrative cost over the next 12 months will be required. Planned expenditures are approximately $1,160,000 for the next twelve months. The Company is currently funded through November 30, 2017. If plans to obtain further financing prove to be insufficient to fund operations, continued viability could be at risk. These factors raise substantial doubt about the Company's ability to continue as a going concern.
NOTE 4 - FIXED ASSETS
Fixed assets and related accumulated depreciation consisted of the following at March 31, 2017, and December 31, 2016:
|
|
|
|
| |
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Equipment
|
$ 49,373
|
|
$ 49,373
|
|
|
Accumulated depreciation
|
(28,078)
|
|
(26,290)
|
|
|
|
|
|
|
|
|
Total Fixed Assets
|
$ 21,295
|
|
$ 23,083
|
|
Depreciation expense for the three months ended March 31, 2017 and 2016 was $1,787 and $1,787, respectively.
NOTE 5 - PREFERRED STOCK
On October 19, 2011, the Company filed Articles of Incorporation with the State of Utah so as to authorize 10,000,000 shares of preferred stock having a par value of $0.001 per share. No preferred shares are issued or outstanding at March 31, 2017.
NOTE 6 - COMMON STOCK
In February 2017, the Company entered into a stock subscription agreement with an investor for them to invest up to $700,000 to purchase up to 2,800,000 shares of common stock at a price of $0.25 per share. At March 31, 2017 the Company had received $387,500 under this stock subscription agreement. A second agreement with this same investor allows them to invest up to $20,000 to purchase up to 80,000 shares of common stock at $0.25 per share. At March 31, 2017 the Company had received $19,000 under this stock agreement. Under these and combined prior year similar agreements, the investor has the right, but not the obligation, to invest an additional $476,500 or purchase 1,661,500 shares of common stock.
10
Previous to 2017, the Company entered into an agreement with their Chief Financial Officer whereby it issues shares of restricted common stock rather than paying cash for the services performed. At March 31, 2017, under the terms of that agreement, the valuation of the shares earned, but unissued, is $7,500 in services provided, which amount is shown in the financial statements as a subscription payable.
As of the March 31, 2017, the stock purchase agreements and services agreements stated above have resulted in stock subscriptions payable balance of $438,675, which equate to 1,738,500 shares of common stock to be issued.
NOTE 7 – CONVERTIBLE NOTES AND DERIVATIVE LIABILITY
The Company adopted ASC 815 which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. The exercise price of the newly issued and outstanding warrants are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than exercise price of these warrants. If these provisions are triggered, the exercise price of the warrant will be reduced. As a result, the Company has determined that the exercise feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the exercise feature of the warrants and recorded a derivative liability.
ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with warrants.
$100,000 Convertible Promissory Note
On November 12, 2012, the Company issued a $100,000 convertible promissory note to SCS as compensation for services provided and to be provided during the period April 1, 2012 through March 31, 2013. The note is due on demand, bears annual interest at 5.5%, and is convertible into shares of common stock at a conversion price to be agreed upon immediately prior to conversion. On September 27, 2013, the Company amended the note to include a conversion price of $0.01 per share for all unpaid principal and interest. This note does not contain price protection feature and therefore, was not treated using derivative accounting. The noteholder advanced an additional $79,810 during the year ended December 31, 2016. As of March 31, 2017 and December 31, 2016 the principal balance of the note was $179,810 and $100,000. The interest accrued, but unpaid, was $28,771 and $26,332, respectively.
$130,100 Convertible Promissory Note
The Company received, during the year ended December 31, 2013, proceeds from a loan in the amount of $91,600. The Lender agreed to loan the Company up to $10,000 per month effective September 2012, for up to one year. This loan was memorialized in writing on September 30, 2013. The loan is considered to be a demand note, with a maturity 30 days from the receipt of demand and the holder may not make demand for payment until six months from the date thereof. The note contains a price protection feature. The conversion price is up to one share for each $0.01 of principal and accrued but unpaid interest of the note subject to a beneficial ownership limitation. That limitation prevents the holder from owning more than 4.9% of the number of shares of the common stock outstanding after conversion. If the holder's ownership has not previously been reduced to less than 4.9% of the number of shares outstanding, then the limitation shall be 9.9%. In March 2017, the note was modified to remove the price protection conversion feature to a fixed rate of $0.01 per share.
These actions taken by the Company to amend the note, resulted in recording a $2,644,381 loss on derivative and a gain of $6,716,358 on extinguishment of debt to remove the derivative liability, both of which were recognized in the three month period ended March 31, 2017. The balance of this note was $130,100 at March 31, 2017 and December 31, 2016 with accrued interest balances of $42,314 and $39,748, respectively.
11
$55,000 Convertible Promissory Note
On November 18, 2015, the Company received $55,000 for which it issued a convertible note payable with a maturity date of November 18, 2017, unsecured and convertible into shares of common stock at $0.25 per share with a price protection provision to adjust to a lower conversion price. As the note carries no rate of interest, during 2015, 50,000 shares of restricted common stock were issued in consideration.
During the year-ended December 31, 2016, the Company repaid $27,500 of principal. The remaining principal balance of $27,500 was repaid during the period ended March 31, 2017. The remaining debt discount which was recorded at origination of the note, has been amortized. The debt discount balance at March 31, 2017 and December 31, 2016 were $0 and $21,508, respectively. The repayment of the note resulted in a gain on the change in derivative of $11,810 during the period ended March 31, 2017.
During the three months ended March 31, 2017 we had the following activity in the amounts related to our derivative liabilities, as summarized in the table below:
|
|
|
| |
|
|
|
|
Loss(Gains) on
|
|
|
Derivative
|
Debt
|
Derivative
|
|
|
Liability
|
Discount
|
Liability
|
|
|
|
|
|
|
Balance at December 31, 2016
|
$ 4,083,787
|
$ (21,508)
|
$ -
|
|
|
|
|
|
|
Gain (Loss) on derivative liability
|
2,632,571
|
-
|
2,632,571
|
|
Gain on debt extinguishment
|
(6,716,358)
|
|
-
|
|
Amortization of debt discount to interest expense
|
-
|
21,508
|
-
|
|
|
|
|
|
|
Balance at March 31, 2017
|
$ -
|
$ -
|
$ 2,632,571
|
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Operating Lease Obligations
The Company entered into a lease office space in February 2017. The lease has a term of one year, beginning March 1, 2017, with a monthly payment of $950. Previous to entering into this lease the Company rented office space on a month-to-month basis for $1,000 per month.
The Company also had a one-year lease on lab space, beginning April 1, 2012 and ending March 31, 2013, with a monthly lease payment of $388. Pursuant to the lease agreement, at the end of one year, the term became month-to-month at the same rate of $388 per month.
NOTE 9 – REVISION OF PRIOR QUARTERS FINANCIAL STATEMENT
During the audit of the Company’s financial statements for the year ended December 31, 2016, the Company identified an error relating to the accounting treatment of a convertible note. The note was not accounted for using derivative accounting treatment. The effect of error is to increase the gain on change in the derivative liability for the period ended March 31, 2016.
In accordance with the guidance provided by the SEC’s Staff Accounting Bulletin 99, Materiality, and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Measurements in Current Year Financial Statements, the Company determined that the impact of the adjustments relating to the correction of this accounting error are not material to previously issued unaudited consolidated financial statements. Accordingly, these changes are disclosed herein and will be disclosed prospectively.
12
As a result of the aforementioned correction of accounting errors, the revised prior unaudited financial statements have been revised as follows:
Effects on financials for the three months ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Three Months ended March 31, 2016
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
Consolidated Statement of Operations
|
Reported
|
|
|
Adjustments
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivative
|
$
|
120,483
|
|
|
$
|
10,929,891
|
|
|
$
|
11,050,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
108,090
|
|
|
|
10,929,891
|
|
|
|
11,037,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
42,429
|
|
|
|
10,929,891
|
|
|
|
10,972,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share-basic
|
|
(0.00)
|
|
|
|
|
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding- basic
|
|
36,741,744
|
|
|
|
|
|
|
|
36,741,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share- diluted
|
|
(0.00)
|
|
|
|
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average commons shares outstanding- diluted
|
|
36,741,744
|
|
|
|
|
|
|
|
65,397,296
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
For the Three Months ended March 31, 2016
|
|
|
As Previously
|
|
|
|
|
|
As
|
|
Consolidated Statement of Cash Flows
|
Reported
|
|
|
Adjustments
|
|
|
Revised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
42,429
|
|
|
$
|
10,929,891
|
|
|
$
|
10,972,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) on derivative liability
|
|
(120,483)
|
|
|
|
(10,929,891)
|
|
|
|
(11,050,374)
|
NOTE 10 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no events that require disclosure as of the date of issuance.
13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain statements in this Report constitute “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words “believe,” “expect,” “anticipate,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Financial Statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions.
The Company’s accounting policies are more fully described in Note 2 of the audited financial statements in our
recently filed Form 10-K. As discussed in Note 2, the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the future events that affect the amounts reported in the financial statements and the accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual differences could differ from these estimates under different assumptions or conditions. The Company believes that the following addresses the Company’s most critical accounting policies.
We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”). Under SAB 104, revenue is recognized at the point of passage to the customer of title and risk of loss, when there is persuasive evidence of an arrangement, the sales price is determinable, and collection of the resulting receivable is reasonably assured.
Our policy for our allowance for doubtful accounts is maintained to provide for losses arising from customers’ inability to make required payments. If there is deterioration of our customers’ credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required.
We account for income taxes in accordance with FASC 740-20, “Accounting for Income Taxes”. Under FASC 740-20, deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets will be reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized.
14
BUSINESS OVERVIEW
NU-MED PLUS, INC., a Utah corporation (“NU-MED” or the “Company”) was incorporated in October 2011 in the state of Utah as an early stage, emerging growth company, to develop, manufacture and market new technologies in the medical device field. NU-MED’s immediate focus is on the creation of a nitric oxide tablet formulation along with a hospital nitric oxide generator and a mobile rechargeable device to deliver nitric oxide gas. NU-MED is headquartered in Salt Lake City, Utah.
Business
The mission of NU-MED is to design, develop, and market technologies in the medical device field. Our technologies will focus on market niches in high growth trend areas. We hope each developed technology will fill a current need in medical procedures by improving upon an existing technology or device, or by designing a device to serve a need that is clearly defined and acknowledged by medical professionals.
NU-MED intends to become a medical device company principally engaged in the design, innovation, development, enhancement and commercialization of beginning, early, and selective later-stage quality medical devices. Our immediate focus is on the creation of a nitric oxide tablet formulation, a hospital and clinical inhaled nitric oxide (“NO”) generator and a mobile rechargeable device to deliver nitric oxide gas to offer solutions to hospitals, health systems and the medical community throughout the world.
The core of the product embodiment is the kinetically controlled release of nitric oxide from a chemical reaction. The mechanical means to deliver a metered dose to a patient is of secondary concern and will be addressed once the nitric oxide generation has been optimized. A research laboratory, completed in July 2012, has been equipped with the appropriate safety measures (negative pressure fume hood), nitric oxide analyzer, and standard lab ware to assess chemical reactions that produce nitric oxide. The initial goal is developing a kinetic control and be able to complete testing to optimize the process. Initial efforts are focusing on a proprietary mixture that will show the requisite parameters for generating nitric oxide in a controlled manner. Once this stage of development is complete, we will move forward with additional development of the delivery system. The optimization may take an unknown direction that will necessitate changes in the anticipated design of the mechanical delivery apparatus. Additionally, unforeseen delays, such as obtaining needed chemicals, which we experienced in September and October of 2012, can hamper development timelines. Management believes it will take some time before a product will be finalized and testing completed. Until a final product is completed and testing done, no assurance can be given we will be able to complete the product or achieve the costs savings for the patient.
Presently we have filed for four patents for our nitric oxide systems and we hope to file additional patents for our products which will help us build a strong IP portfolio and value for our company and our shareholders. Our initial preliminary patent applications cover a gas generator (#14/996,685) a controlled delivery of medical gases using diffusion membrane (#14529112), a self-pressuring technique for nitric oxide (62/392,086) and Thermal release of nitric oxide for short term therapies (#62/283,145). Our patent applications are still pending and have not been approved. Our application related to Thermal release of nitric oxide was a provisional patent and we are in the process of filing the definitive patent application. No assurance can be given that we will be successful in obtaining patent protection and, even if obtained, that there will be any value to the patents. We are also pursuing a proprietary protection strategy of our key formulations and methods for further strengthening the overall intellectual property portfolio. We have no trademarks. We also have no franchises, concessions, royalty agreements or labor contracts.
The gas generator was developed with the hope it could eventually be used in the delivery of inhaled nitric oxide gas to patients. The basis of the patent for the gas generator’s gas delivery system is the kinetically controlled release of gas from a chemical reaction which converts our low cost proprietary powder into a highly purified, therapeutic metered dose. Our system is designed for precision and safety of the delivered quantity over the full range of anticipated doses and applications. We have also filed a patent for our portable rechargeable inhaled nitric oxide
15
membrane unit and a short term therapy thermal release unit. We have only filed the initial patent applications and there is no assurance any patent will be received from such filing. Additionally, even if we receive the patent, the gas generator systems would still require extensive study and would be required to receive FDA approval before it could be used, which could take years to receive.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2017, we had assets of $349,748 with current assets of $328,453 and liabilities of $386,398. Our current assets consisted primarily of cash in the amount of $317,547 and prepaid expenses in the amount of $10,906. We currently have no revenue and have had to rely on loans from shareholders or sale of our stock to cover expenses. Without additional capital, we will not be able to stay in business and move our business plan forward. We anticipate, based on our preliminary budgets, that we will need $240,000 in additional financing for the next twelve months to cover our corporate overhead and need an additional $960,000 to cover ongoing product development. Since we will not have a commercial product in the next twelve months, we will have to continue to rely on outside funding to support our operations and product development and testing efforts. Given the financial state of NU-MED, we will not be able to seek traditional bank financing and have to rely on private stock sales as well as potential loans from investors and shareholders. At this time, we have a stock subscription agreement under which the investor has the right to purchase up to $700,000 of restricted common stock at a price of $0.25 per share. During the three-month period ended March 31, 2017, we accepted $387,500 under this agreement. We cannot estimate the full costs to bring our proposed product to market or the timing of such commercialization. Given the nature of our product being in the medical field, testing is very expensive and we would need more capital prior to completing the testing phase. Any refinement or modification of the product after the prototype is developed would also require additional capital. At this time, we will have to continue to rely on outside capital and a budget that may require adjustment as we move further in the product development phase.
RESULTS OF OPERATIONS
For the three months ended March 31, 2017 and March 31, 2016, we had no revenues and operating expenses of $69,726 and $65,661, respectively. For the three months ended March 31, 2017, we had net income of $3,988,650 resulting from the recognition of a non-cash $2,632,571 loss on derivative and a $6,716,358 gain on extinguishment of debt. This compares to net income of $10,972,320 for the three months ended March 31, 2016, which profit resulted from the recognition of a non-cash $11,050,374 gain on derivative. We will be dependent on outside capital to support operations for the foreseeable future and at this time do not have any commitments for additional capital beyond the $700,000 stock subscription earlier mentioned. We do not anticipate any revenue for the foreseeable future as our products are still in the development stage.
Off-Balance Sheet Arrangements.
The Company does not have any off-balance sheet arrangements and it is not anticipated that the Company will enter into any off-balance sheet arrangements.
Forward-looking Statements
Our Company and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this Quarterly Report and other filings with the Securities and Exchange Commission and in reports to our Company’s stockholders. Management believes that all statements that express expectations and projections with respect to future matters, as well as from developments beyond our Company’s control including changes in global economic conditions are forward-looking statements within the meaning of the Act. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and business performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Factors that may affect forward- looking statements
16
include a wide range of factors that could materially affect future developments and performance, including the following:
Changes in Company-wide strategies, which may result in changes in the types or mix of businesses in which our Company is involved or chooses to invest; changes in U.S., global or regional economic conditions, changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede our Company’s access to, or increase the cost of, external financing for our operations and investments; increased competitive pressures, both domestically and internationally, legal and regulatory developments, such as regulatory actions affecting environmental activities, the imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls; adverse weather conditions or natural disasters, such as hurricanes and earthquakes, labor disputes, which may lead to increased costs or disruption of operations.
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.