United Health Products Inc

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Note 1. Description of the Business

United Health Products, Inc. (the “Company”) develops, manufactures, and markets a patented hemostatic gauze for the healthcare and wound care sectors. Our gauze product, HemoStyp®, is a neutralized, oxidized, regenerated cellulose derived from cotton and designed to absorb exudate/drainage from superficial wounds and help control bleeding. The Company in the process of seeking regulatory approval to sell our HemoStyp product line into the U.S. Class III, European Union CE Mark and Canadian human surgical markets.

Note 2. Significant Accounting Policies

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred recurring net losses, negative working capital and operations have not provided cash flows. Additionally, the Company does not currently have sufficient revenue producing operations to cover its operating expenses and meet its current obligations. In view of these factors, there is substantial doubt about the Company's ability to continue as a going concern. The Company intends to finance its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital and other business requirements. The financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

Basis of Presentation

The Company prepares its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, as well as in the healthcare industry, and any other parameters used in determining these estimates, could cause actual results to differ.

Cash and Cash Equivalents

The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.

Fair Value Measurements

Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1. We value assets and liabilities included in this level using dealer and broker quotations, bid prices, quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2023 and 2022. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.

Income Taxes

The Company accounts for income taxes using a method that requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of the Company’s assets and liabilities which is commonly known as the asset and liability method. In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year. The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof, with due consideration given to the fact that tax periods are open to examination by tax authorities.

As of December 31, 2023 and 2022, the Company has approximately $23.8 and $21.8 million of net operating loss carry-forwards, respectively, available to affect future taxable income and has established a valuation allowance equal to the tax benefit of the net operating loss carry forwards and temporary differences as realization of the asset is not assured.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606,Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the sale of its HemoStyp product by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

The Company receives orders for its HemoStyp products directly from its customers. Revenues are recognized based on the agreed upon sales or transaction price with the customer when control of the promised goods are transferred to the customer. The transfer of goods to the customer and satisfaction of the Company’s performance obligation will occur either at the time when products are shipped or when the products arrive and are received by the customer depending on the shipping terms. No discounts are offered by the Company as part of payment terms. The Company does not provide an estimate for returns as there is no anticipation for any returns in the normal course of business.

Trade Accounts Receivable and Concentration Risk

The Company records accounts receivable at the invoiced amount and does not charge interest. The Company reviews the accounts receivable by amounts due from customers which are past due to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, the Company makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. The Company will also maintain a sales allowance to reserve for potential credits issued to customers. The Company will determine the amount of the reserve based on historical credits issued.

There was no provision for doubtful accounts recorded at December 31, 2023 and 2022. The Company recorded $0 in bad debt expense for the years ended December 31, 2023 and 2022.

For the year ended December 31, 2022, one customer accounted for 100% of the Company’s net revenue.

Inventory

Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Inventory on the balance sheet consists of raw materials purchased by the Company and finished goods.

During the year ended December 31, 2023, the Company used $1,132 of inventory for its PMA submission and recorded it to research and development.

During the years ended December 31, 2023 and 2022, the Company determined that $0 needed to be impaired and written-off.

Patents

Patents are stated on the balance sheet at cost. Costs, such as filing fees with patent granting agencies and legal fees directly relating to those filings, incurred to file patent applications were capitalized when the Company believed that there was a high likelihood that the patent would be issued and there would be future economic benefit associated with the patent. These costs were amortized from the date of the patent application on astraight-line basis over the estimated useful life of 10 years. All costs associated with any abandoned patent applications are expensed.

Accumulated amortization as of December 31, 2023 and December 31, 2022 was $8,100 and $4,050, respectively. Amortization expense for the years ended December 31, 2022 and 2021 was $4,050 and $4,050, respectively.

Future Amortization Expense

Impairment of Long-lived Assets

The Company applies the provisions of ASC 360, Property, Plant and Equipment, where applicable to all long-lived assets. ASC 360 addresses accounting and reporting for impairment and disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

When equipment is sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. During the years ended December 31, 2023 and 2022 the Company determined no impairment was required.

Deferred Offering Costs

Deferred offering costs represent specific incremental costs directly attributable to the offering of securities. The deferred offering costs are recorded as an offset to additional paid-in capital and charged against the proceeds received.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred. The Company incurred $111,104 and $112,036 in advertising and marketing costs during the years ended December 31, 2023 and 2022, respectively.

Shipping and Handling Costs

The Company includes shipping and handling cost as part of cost of goods sold.

Research and Development

The Company charges research and development costs to expense when incurred. The Company incurred $598,810 and $624,564 in research and development expenses during the years ended December 31, 2023 and 2022, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation under the provisions of ASC 718,Compensation-Stock Compensation. Stock-based compensation expense for employees and non-employees is measured at the grant date fair value. Stock-based compensation for all stock-based awards to employees and directors is recognized as an expense over the requisite service period, which is generally the vesting period.

Per Share Information

Basic earnings per share are calculated using the weighted average number of common shares outstanding for the period presented. Diluted earnings per share is computed using the weighted-average number of common shares and, if dilutive, potential common shares outstanding during the period. The dilutive effect of potential common shares is not reflected in diluted earnings per share because the Company incurred a net loss for the years ended December 31, 2023 and 2022 and the effect of including these potential common shares in the net loss per share calculations would be anti-dilutive.

The total potential common shares as of December 31, 2023 include 47,665,000 of restricted stock units,3,747,463 shares for convertible notes payable – related parties and 1,483,530 shares for convertible notes payable. The total potential common shares as of December 31, 2022 include 47,665,000 of restricted stock units,2,338,832 shares for convertible notes payable – related parties and 925,887 shares for convertible notes payable.

Leases

The Company follows the provisions of ASC 842, and records right-of-use (“ROU”) assets and lease obligations for its operating leases, which are initially recognized based on the discounted future lease payments over the term of the lease. If the rate implicit in the Company's leases is not readily determinable, the Company's applicable incremental borrowing rate is used in calculating the present value of the sum of the lease payments.

The lease term is defined as the non-cancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company has elected not to recognize ROU asset and lease obligations for its short-term leases, which are defined as leases with an initial term of 12 months or less.

New and Recently Adopted Accounting Pronouncements

The Company considers all new pronouncements and management has determined that there have been no recently adopted or issued accounting standards that had or will have a material impact on its financial statements.

Note 3. Related Party Transactions

Convertible notes payable - related parties

As of December 31, 2023 and 2022, convertible notes payable – related parties (net of debt discount) totaled $500,000 and $478,331 respectively.

During the year ended December 31, 2022, Brian Thom, the Company’s Chief Executive Officer, converted $372,000 of a loan payable balance to a convertible note payable. The unpaid accrued interest on the loan payable was transferred to the convertible note payable. The note had an interest rate of 10%, an original issue discount (“OID”) of 7% and had a maturity date of December 31, 2023. The note is convertible into common stock of the Company at $0.35 per share. In the event the Company issues any shares of common stock before the maturity date at a price that is lower than $0.35 per share, the conversion price shall be reduced to equal such lower issue price per share. The Company recorded $28,000 of a debt discount related to the OID. As of December 31, 2023 and December 31, 2022, the remaining unamortized debt discount was $0 and $16,998, respectively. Accrued interest associated with the note was $77,287 and $33,897 as of December 31, 2023 and 2022, respectively.

During the year ended December 31, 2022, Robert Denser, a Director of the Company, loaned the Company $93,000 through a convertible note. The note had an interest rate of 10%, an OID of 7% and had a maturity date of December 31, 2023. The note is convertible into common stock of the Company at $0.35 per share. In the event the Company issues any shares of common stock before the maturity date at a price that is lower than $0.35 per share, the conversion price shall be reduced to equal such lower issue price per share. The Company recorded $7,000 of a debt discount related to the OID. As of December 31, 2023 and December 31, 2022, the remaining unamortized debt discount was $0 and $4,671, respectively. Accrued interest associated with the note was $14,438 and $4,034 as of December 31, 2023 and 2022, respectively.

On December 15, 2023, the Company entered into amendments on the above convertible notes, which extended the maturity date to December 31, 2024 and increased the interest rate from 10% to 13%, effective January 1, 2024.

Interest expense – related party on the above convertible notes payable was $75,684 (including $21,669 of debt discount amortization related to the OID) and $36,531 (including $13,331 of debt discount amortization) during the year ended December 31, 2023 and 2022, respectively. Accrued interest – related party due to these convertible notes was $91,725 and $37,931, as of December 31, 2023 and 2022, respectively.

Loans payable/advances - related parties

As of December 31, 2023 and 2022, loans payable – related parties totaled $0 and $4,000, respectively.

During the year ended December 31, 2022, Mr. Thom loaned the Company $315,000 to pay for operating expenses. The loans had an interest rate of 10% and was due on demand. The Company repaid $118,000 in principal and $6,569 of accrued interest and $372,000 of principal was converted to a convertible note payable and any unpaid accrued interest was transferred to the convertible note payable as mentioned above. The outstanding principal balance and accrued interest owed to Mr. Thom on the loan payable was $0 as of December 31, 2022.

During the year ended December 31, 2022, Mr. Schiliro, loaned the Company $64,275 to pay for operating expenses. The loan had an interest rate of 10% and was due on demand. The Company repaid $108,275 in principal ($44,000 of principal was owed as of December 31, 2021) and $5,802 of accrued interest leaving a balance of $0 on the loan payable and accrued interest owed to Mr. Schiliro as of December 31, 2022.

During the year ended December 31, 2022, Kristofer Heaton, the Principal Financial Officer, loaned the Company $4,000 to pay for operating expenses. The loan had an interest rate of 10% and was due on demand. During the year ended December 31, 2023, the Company repaid $4,000 of principal and $446 of accrued interest leaving a balance of $0 as of December 31, 2023.

Interest expense – related party on the above loans was $222 and $25,292 during the years ended December 31, 2023 and 2022, respectively. Accrued interest – related party as of December 31, 2023 and 2022 was $0 and $224, respectively.

Accrued liabilities – related parties

As of December 31, 2023 and December 31, 2022, $134,750 and $127,500 of accrued compensation was due to the Company’s officers and management, respectively.

As of December 31, 2023 and December 31, 2022, $0 and $6,923 was owed to the Company’s officers and management for reimbursable expenses.

Equity transactions

During the year ended December 31, 2022, the Company issued 300,000 shares of common stock each to Mr. Thom and Mr. Schiliro and 250,000 shares of common stock to Mr. Heaton for compensation in lieu of cash. The common stock had a total fair value of $344,250 (see Note 6).

During the year ended December 31, 2022, the Company had accrued Mr. Thom’s 2022 first quarter compensation of $45,000 and during the second quarter of 2022, the Company issued 150,000 shares of common stock to Mr. Thom to settle the accrued compensation. The common stock had a fair value of $72,000 and the Company recorded $27,000 as a loss on settlement of debt (see Note 6).

During the year ended December 31, 2022, the Company had accrued Mr. Schiliro’s 2022 first quarter compensation of $45,000 and during the second quarter of 2022, the Company issued 150,000 shares of common stock to Mr. Schiliro for the accrued compensation. The common stock had a fair value of $72,000 and the Company recorded $27,000 as a loss on settlement of debt (see Note 6).

During the year ended December 31, 2022, the Company had accrued Mr. Heaton’s 2022 first quarter compensation of $37,500 and during the second quarter of 2022, the Company issued 125,000 shares of common stock to Mr. Heaton for the accrued compensation. The common stock had a fair value of $60,000 and the Company recorded $22,500 as a loss on settlement of debt (see Note 6).

During the year ended December 31, 2022, the Board of Directors approved an amendment to Mr. Thom’s RSU Agreement dated November 24, 2020. The amendment increased the number of RSU’s granted from 11,500,000 to 13,225,000. The RSU’s are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones.

During the year ended December 31, 2022, the Board of Directors approved an RSU Agreement with Robert Denser, Director of the Board. The agreement grants Mr. Denser 1,000,000 RSU’s which are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones.

During the year ended December 31, 2022, the Company acquired 2,228,115 shares of common stock from its former Chief Executive Officer as described in Note 6.

During the year ended December 31, 2023, the Company issued 1,204,688 shares of common stock with a fair value of $271,031 to its officers and management for $218,250 of accrued compensation (see Note 6) which resulted in $52,781 being recorded as a loss on settlement of debt.

Note 4. Promissory Note Payable

During the year ended December 31, 2022, the Company entered into a $100,000 promissory note with its legal counsel which accrued interest at 1%, required monthly payments of $9,136 until the balance was paid in full and was secured by 200,000 shares of restricted common stock which would have demand registration rights and the Company would file a registration statement within 45 days of the request.

During the year ended December 31, 2022, the Company paid $90,864 of principal and $500 in interest expense leaving a principal balance of $9,136 and accrued interest of $0 as of December 31, 2022.

During the year ended December 31, 2023, the Company paid the remaining principal balance of $9,136. As of December 31, 2023, the principal balance and accrued interest was $0.

During the year ended December 31, 2023, $10,000 of accounts payable and accrued liabilities were paid on behalf of the Company. The Company entered into a note payable for the $10,000 payment. The note payable had an interest rate of 5% and a maturity date of December 31, 2023. During the year ended December 31, 2023, the Company repaid $10,000 of principal and $256 of accrued interest leaving a balance of $0 as of December 31, 2023.

Interest expense on the above loans was $256 and $500 during the years ended December 31, 2023 and 2022, respectively. Accrued interest as of December 31, 2023 and 2022 was $0.

Note 5. Convertible Notes

During the year ended December 31, 2022, the Company issued a $200,000 convertible promissory note. The note had an interest rate of 10% and a maturity date of November 30, 2022. The note was convertible into common stock of the Company at $0.40 per share.

In November 2022, the Company amended the conversion terms of the convertible promissory note from a conversion price of $0.40 per share to $0.25 per share. The $200,000 principal balance and $6,849 of accrued interest were converted into 827,397 shares of common stock leaving a balance owed of $0 on the convertible note. The reduction in the conversion price was considered an inducement for conversion and the Company recorded $82,223 as loss on settlement of debt.

During the year ended December 31, 2022, the Company issued a $100,000 convertible note and a $107,500 convertible note and received total proceeds of $192,975. The notes had an interest rate of 10%, an OID of 7% and had a maturity date of December 31, 2023. The notes are convertible into common stock of the Company at $0.35 per share. In the event the Company issues any shares of common stock before the maturity date at a price that is lower than $0.35 per share, the conversion price shall be reduced to equal such lower issue price per share. The Company recorded $14,525 of a debt discount related to the OID. As of December 31, 2023 and December 31, 2022, the remaining unamortized debt discount was $0 and $11,323, respectively.

On December 15, 2023, the Company entered into amendments on the above convertible notes, which extended the maturity date to December 31, 2024 and increased the interest rate from 10% to 13%, effective January 1, 2024.

Interest expense on the above convertible notes payable was $32,875 (including $11,323 of debt discount amortization related to the OID) and $15,505 (including $3,202 of debt discount amortization related to the OID) during the year ended December 31, 2023 and 2022, respectively. Accrued interest as of December 31, 2023 and December 31, 2022 was $26,749 and $5,454, respectively, and has been recorded in accrued liabilities on the balance sheet.

Note 6. Issuances of Securities

Share Issuances (2022)

During the year ended December 31, 2022, the Company had the following common stock transactions:

Triton Purchase Agreement

On June 25, 2021, the Company entered into a common stock purchase agreement (the “Triton Purchase Agreement”) with Triton Funds LP (“Triton”) to sell Triton up to $6,000,000 of common stock. The Triton Purchase Agreement expired on June 30, 2022.

White Lion Common Stock Purchase Agreement

On September 1, 2022, the Company entered into a common stock purchase agreement (the “CSPA”) with White Lion Capital, LLC (“White Lion”). Pursuant to the CSPA, the Company has the right, but not the obligation, to require White Lion to purchase up to $10,000,000 of the Company’s common stock, subject to certain limitations and conditions set forth in the CSPA. The Company is required to register the resale of the shares issuable to White Lion under the CSPA with the U.S. Securities and Exchange Commission, as a condition to requesting White Lion purchase shares. On September 7, 2022, the Company filed a registration statement on Form S-3 to register for resale up to 15,000,000 common shares. The Company’s S-3 registration statement was declared effective by the SEC on September 19, 2022.

The Company’s right to sell shares to White Lion commenced on the effective date of the resale registration statement and extends for a period of three years. During this term, the Company may exercise its right to sell shares to White Lion, subject to limitations on the amount of shares that are permitted to be sold with each exercise. The purchase price to be paid by White Lion for such shares will equal 93% the lower of: (i) the volume-weighted average price of the Company’s common stock during a period of five consecutive trading days following the Company’s exercise of its right to sell shares, or (ii) the closing price of the common stock on the day the Company exercises its right to sell shares, subject to a minimum price of $0.25 per share.

In consideration for White Lion’s commitment to purchase shares under the CSPA when requested, the Company issued 757,576 shares to White Lion with a fair value of $250,000, as disclosed above.

The Company has the right to terminate the CSPA at any time, at no cost or penalty, upon ten trading days prior written notice. Additionally, White Lion will have the right to terminate the CSPA in accordance with its terms for certain breaches of the CSPA by the Company, a Company bankruptcy filing, or the Company’s CEO, Principal Financial Officer or Director of Operations terminating their respective employment with the Company.

During the year ended December 31, 2022, the Company sold 395,000 shares of common stock to White Lion and received net proceeds of $72,395 after legal and administrative fees of $26,200 related to the CSPA were deducted, which were included in the total shares issued for cash to non-affiliated investors disclosed above.

Share Repurchases (2022)

During the year ended December 31, 2022, the Company paid $50,000 to repurchase 142,857 shares of common stock and received 2,085,258 shares of common stock from its former Chief Executive Officer in connection with his remaining $808,781 disgorgement settlement obligation with the SEC (Note 10). The aggregate amount of 2,228,115 shares of common stock were cancelled.

Share Cancellations (2022)

During the year ended December 31, 2022,250,000 shares of common stock were returned to the Company for no consideration, therefore the Company cancelled the shares, reducing common stock by $250 and increasing additional paid-in capital by the same.

Share Issuances (2023)

During the year ended December 31, 2023, the Company had the following common stock transactions:

Restricted Stock Units

As described above in Note 3, during the year ended December 31, 2022, the Board of Directors approved an RSU Agreement in which Robert Denser, Director was granted 1,000,000 RSU’s which are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones. In addition, an RSU Agreement with Brian Thom, originally entered into on November 24, 2020, was amended. The amendment increased the amount of RSU’s granted from 11,500,000 to 13,225,000. The RSU’s are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones.

During the year ended December 31, 2022, the Board of Directors approved RSU Agreements with four physicians as consideration to acquire their rights to the patent application and related intellectual property rights in the “Method of Forming and Using a Hemostatic Hydrocolloid”, U.S. Patent Office Serial No. 62/875,798, filed July 18, 2019, in which a total of 16,000,000 RSU’s were granted. The RSU’s are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones.

During the year ended December 31, 2022, the Board of Directors approved an amendment to the original terms of an RSU Agreement with a consultant. The amendment increased the amount of RSU’s granted from 750,000 to 3,000,000. The RSU’s are subject to certain conditions and shall vest upon the achievement of certain Company objectives and milestones.

Management is unable to determine if and when FDA approval of a PMA Class III will be awarded to the Company or when a change of control will occur, if at all, and as of December 31, 2023, there was a total of $25,313,630 unrecognized compensation cost related to the restricted stock unit awards.

Activity related to our restricted stock units during the year ended December 31, 2022 was as follows:

Note 7. Accrued Litigation Settlement

On June 15, 2022, the Security and Exchange Commission’s (SEC) investigation of the Company, initially reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, was settled through the filing of a consent judgment without the Company admitting or denying the SEC’s allegations. As part of the settlement, the Company was required to pay a civil penalty of $450,000, payable in four installments as follows:

During the year ended December 31, 2022 the Company made the initial scheduled payment of $50,000 and the second scheduled payment of $100,000 towards the civil penalty and as of December 31, 2022, the accrued litigation balance was $300,000.

During the year ended December 31, 2023, the Company amended its installment payment plan to the SEC related to its civil penalty. The amended payment plan called for the Company to make three $50,000 payments with payments due on August 1, 2023, September 1, 2023 and October 1, 2023 with any remaining principal plus outstanding post-judgement interest to be paid on November 1, 2023.

During the year ended December 31, 2023, the Company made the remaining payments owed on the civil penalty and paid $7,638 of post-judgement interest. As of December 31, 2023 the accrued litigation settlement balance was $0.

Note 8. Litigation

In 2018, an action was commencedin the United States District Court Southern District of New York entitled JEC Consulting Associates, LLC. Liquidator of Lead Dog Capital LP against United Health Products t/k/a United EcoEnergy Corp and Douglas K. Beplate under Docket Number 18-cv-1139 (ER). The third-party action sought to remove a restrictive legend from a particular stock certificate for Three Million Fifty Thousand (3,050,000) shares and declare the shares to be free trading. The third-party plaintiff alleges that the Company and Mr. Beplate refused to have the restrictive legend on the stock certificate removed under Rule 144 and sought compensatory and punitive damages. The Federal court issued an order that the Securities Exchange Commission should review the claim before the District Court renders a final ruling. On April 22, 2022 the parties entered in a Settlement Agreement wherein the Company would agree to allow the removal of the restrictive legend as permitted under applicable securities laws and distribution of the shares to affiliates of the plaintiffs. Under the Settlement Agreement the Company will make no payments other than to pay expenses related to its own legal counsel.

Effective as of March 31, 2023, a 2018 lawsuit filed by Philip Forman, against the Company and its former CEO relating to the validity of a June 25, 2015 Amendment to his November 10, 2014 Employment Agreement with the Company and claims for compensation on termination of his employment was settled. In the settlement, as full and complete consideration, the Company issued to Mr. Forman 1,850,000 shares of common stock of the Company with a fair value of $462,500.

As mentioned in Note 7 above, the Company settled the SEC’s investigation through the filing of a consent judgment on the terms described in the Company’s Form 8-K filed on April 29, 2022, without the Company admitting or denying the SEC’s allegations.

The Company was also a party to the following legal proceedings:

On February 7, 2020, the Company filed the Original Petition for Fraud and Breach of Contract in the Texas District Court for the 215th Judicial District of Harris County against defendants Patterson Companies Inc., Patterson Management, L.P., Patterson Veterinary, Inc. and Patterson Logistics Services, Inc., and Animal Health International, Inc. On March 5, 2020, the defendants removed the case to U.S. District Court for Southern District of Texas. The defendants filed their answer in federal court on March 12, 2020. The original August 25, 2020 pretrial deadlines were extended. On January 18, 2022, the Company’s claims were dismissed, with prejudice, by the court. On February 9, 2022, the Company and Patterson reached an agreement on settlement of Patterson’s counterclaim. The Company agreed to pay $120,000 which was accrued as of December 31, 2021. The $120,000 settlement payment was paid in full in February 2022.

In August 2020, United Health Products filed suit against its former auditors, in Utah State Court, asserting claims related to professional negligence and breach of fiduciary duty. The Company and the defendant, through mediation reached an agreement on settlement in which the defendant agreed to pay $392,000 and the entire amount was paid in September 2022 and recorded as other income in the statement of operations (Note 10).

Note 9. Income Tax

The Company accounts for income taxes under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 740, Income Taxes (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the years ended December 31, 2023 and 2022. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at December 31, 2023 or 2022.

The Company’s federal income tax returns for the years ended December 31, 2020 through December 31, 2023 remain subject to examination by the Internal Revenue Service as of December 31, 2023.

During 2023 and 2022, the Company incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved.

Net deferred tax assets consist of the following components as of December 31, 2023 and 2022

The income tax provision differs from the amount of income tax determined by applying the U.S federal income tax rate (21%) for the years ended December 31, 2023 and 2022 due to the following:

As of December 31, 2023 and 2022, the Company has taxable net loss carryovers of approximately $23.8 and $21.8 million, respectively that may be offset against future taxable income.

Note 10. Other Income

During the year ended December 31, 2022, as described in Note 8 above, the Company received $392,000 as a settlement payment from its former auditor. The Company also received $202,200 in cash and 2,085,258 shares of its common stock to satisfy its former Chief Executive Officer’s remaining $808,781 disgorgement obligation under a settlement with the SEC (Note 6). The total amount of $1,402,981 was recorded as other income in the Statement of Operations.

Note 11. Leases

On October 31, 2022, the Company signed a 120-day lease for 600 square feet of space in Hammonton, New Jersey to install and test its medical device equipment. The agreement required $2,500 upon signing the agreement and monthly payments of $2,500. As of December 31, 2022, the Company had not made any payments on the lease agreement and had accrued $7,500 related to the lease expense. The Company did not renew the lease agreement but used the facility on a month-to-month basis until a new location was found. During the year ended December 31, 2023, the Company paid $10,000 in lease expense related to this lease.

In May 2023, the Company entered into 36-month operating lease, which provides for approximately 1,800 square feet of office space, that commenced on June 1, 2023 and ends on May 31, 2026. The lease required a $2,850 security deposit and monthly lease payments are $2,850 the first year of the lease, $2,964 the second year and $3,082 the third year. The Company or landlord may terminate the lease at the expiration date by giving to the other party written noticeat least ninety (90) days prior to the expiration date. The lease may be renewed for a term of one (1) year.

Operating lease right-of-use (“ROU”) assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. On the commencement date of the lease, the Company recorded $92,425 related to the ROU asset and lease liability.

The components of lease expense and supplemental cash flow information related to the lease for the period are as follows: