Forward Looking Statement Notice
Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of Goliath Film and Media Holdings, ("we", "us", "our" or the
"Company") to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. The Company's plans and
objectives are based, in part, on assumptions involving the continued expansion
of business. Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance the forward-looking
statements included in this Quarterly Report will prove to be accurate. In light
of the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
Description of Business
Background.
Qualis Innovations, Inc. (the "Company" or "Qualis"), formerly known as Hoopsoft
Development Corp., Yellowstone Mining, Inc. and Sky Digital Holding Corp. was
incorporated in the state of Nevada on March 23, 2006 under the name Hoopsoft
Development Corp ("Hoopsoft"). On January 12, 2007, the Company entered into an
agreement and plan of merger ("Agreement and Plan of Merger") with Yellowcake
Mining, Inc. ("Yellowcake"), a Nevada corporation and wholly-owned subsidiary of
Hoopsoft Development Corp., incorporated for the sole purpose of effecting the
merger. Pursuant to the terms of the Agreement and Plan of Merger, Yellowcake
merged with and into Hoopsoft, with Hoopsoft carrying on as the surviving
corporation under the name "Yellowcake Mining, Inc."
On April 6, 2011, Yellowcake restated its articles of incorporation and changed
its name to Sky Digital Stores Corp ("SKYC"). On May 5, 2011, the Company
entered into a Share Exchange Agreement ("Exchange Agreement") by and among SKYC
and Hong Kong First Digital Holding Ltd. ("First Digital"), and the shareholders
of First Digital (the "FDH Shareholders") entered into a Share "FDH"), and the
shareholders of FDH (the "FDH Shareholders"). The closing of the transaction
(the "Closing") took place on May 5, 2011 (the "Closing Date"). On the Closing
Date, pursuant to the terms of the Exchange Agreement, the Company acquired all
of the outstanding shares (the "Shares") of FDH from the FDH Shareholders; and
FDH Shareholders transferred and contributed all of their Shares to us. In
exchange, the Company issued to the FDH Shareholders, their designees or
assigns, an aggregate of 23,716,035 shares (the "Shares Component") or 97.56% of
the shares of common stock of the Company issued and outstanding after the
Closing (the "Share Exchange"), at $0.20 per share.
Mr. Lin Xiangfeng planned, organized and executed the Share Exchange. Prior to
the Share Exchange, Mr. Lin Xiangfeng was the largest shareholder and sole
officer of FDH. He was also the CEO of SKYC but did not own any shares of the
Company. The parties involved in the Share Exchange Agreement are SKYC, FDH and
all FDH Shareholders. Mr. Lin Jinshui, an FDH Shareholder, is the father of Mr.
Lin Xiangfeng and Mr. Lin Xiuzi, an FDH Shareholder, is the brother of Mr. Lin
Xiangfeng. Other than Mr. Lin Xiangfeng, no third party played a substantial
role in the agreement.
FDH owned (i) 100% of the issued and outstanding capital stock of Shenzhen Dong
Sen Mobile Communication Technology Co., Ltd (also known and doing business as
Shenzhen Donxon Mobile Communication Technology Co., Ltd, "Donxon"), a company
organized under the laws of the People's Republic of China ("China" or the
"PRC"); and (ii) 100% of the issued and outstanding capital stock of Shenzhen
Xing Tian Kong Digital Company Limited ("XTK"), a PRC company. XTK was the
holder of 100% of the issued and outstanding capital stock of Shenzhen Da Sheng
Communication Technology Company Limited (also known and do business as Shenzhen
Dasen Communication Technology Company Limited, "Dasen"), a PRC company. Dasen
is the holder of 70% of the issued and outstanding capital stock of Foshan Da
Sheng Communication Chain Service Company Limited (also known and do business as
Foshan Dasen Communication Chain Service Co. Ltd, "FDSC"), a PRC company.
Pursuant to the Exchange Agreement, FDH became a wholly-owned subsidiary of the
Company, and the Company owned 100% of Donxon, 100% of XKT, 100% of Dasen and
70% of FDSC indirectly through FDH.
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On February 13, 2018, a change of control occurred, and new officers and
directors of the Company were appointed. The name change of 'Sky Digital Stores
Corp.' (SKYC) to Qualis Innovations, Inc. and the 1 - 1,000 reverse split was
announced on FINRA's Daily List. Echo Resources LLLP took over control of Qualis
owning 232,689 of the 396,650 common shares outstanding. Since that event Qualis
did not have any business operations or any assets or liabilities.
In July, 2019, John Ballard and a Charles Achoa, formed a new company named EMF
Medical Devices Inc. for the development, maintenance, marketing and sale of an
electronic device for the treatment of pain that would make use of certain
intellectual property interests held by LCMD. In May 2021 the Company changed
its name to mPathix Health Inc. Presently, John Ballard is the Chief Financial
Officer and Charles Achoa does not participate in any management or board
position.
On June 28, 2021, the Company entered into a Share Exchange Agreement ("Exchange
Agreement") by and among mPathix Health, Inc. (formerly EMF Medical Devices,
Inc., a Delaware corporation) ("mPathix") and Qualis. The closing of the
transaction (the "Closing") took place on June 29, 2021 (the "Closing Date"). On
the Closing Date, pursuant to the terms of the Exchange Agreement, the Company
acquired all of the outstanding shares (the "Shares") of mPathix. In exchange,
the Company issued to the mPathix shareholder's, their designees or assigns, an
aggregate of 6,988,300 shares of Company common stock (the "Shares Component")
or 93.36% of the shares of common stock of the Company issued and outstanding
after the Closing (the "Share Exchange"), at a valuation of $0.50 per share, and
the Company issued warrants to purchase an additional 1,098,830 shares (698,830
warrants issued to the Company's previous CEO and 400,000 to CreoMed which is
beneficially owned by Dr. Joseph Pergolizzi, the Company's acting CEO and
chairman of the board) of the Company's common stock, exercisable for 10 years
at a $0.50 per share exercise price, subject to adjustment. In connection with
the closing of the mPathix acquisition, the officers and directors of mPathix
were appointed as the officers and directors of the Company. On June 29, 2021,
the Company issued 496,650 common shares for the recapitalization of Qualis in
conjunction with the reverse acquisition for a net book value of $0.
The acquisition will be accounted for as a "reverse merger" and recapitalization
since the stockholders of mPathix will own a majority of the outstanding shares
of the common stock immediately following the completion of the transaction
assuming that holders of 10% of the Public Shares exercise their conversion
rights. mPathix will be deemed to be the accounting acquirer in the transaction
and, consequently, the transaction is treated as a recapitalization of mPathix.
As a result, Qualis is considered to be the continuation of the predecessor
mPathix. Accordingly, the assets and liabilities and the historical operations
that are reflected in the consolidated financial statements are those of mPathix
and are recorded at the historical cost basis of mPathix. Qualis's assets,
liabilities and results of operations will be consolidated with the assets,
liabilities and results of operations of mPathix after consummation of the
acquisition.
The Company is now the holding company under which mPathix operates. mPathix is
a clinical stage company focused on the development, production, and
distribution of pain management and other central nervous system (CNS) based
solutions.
We are developing a product designed to address the unmet needs of patients who
seek alternatives to traditional pain medications and interventions or
adjunctive therapies to their current treatment regimen. We believe that our
product will provide clinicians and patients with new and differentiated set of
pain management tools to meet the diversity of patient needs.
A key element to the Company's growth strategy is to acquire the rights to or
develop existing devices. Large device companies have increased the minimum
market opportunity they require in order to commit marketing resources to their
products. As a result, there are many products that are unsupported by such
companies and are currently scheduled to be phased out or "sunsetted." Qualis
Innovations believes that it can create significant value by developing or
acquiring rights to a portfolio of such products, expanding their therapeutic
uses and/or markets, improving or enhancing such products and dedicating the
appropriate amount of marketing and other resources to maximize the value of the
Company's portfolio.
There are several key criteria the Company uses when evaluating product
opportunities:
? The disease or condition largely has been ignored due to lack of interest by
other, larger companies and, as a result, overall competition in the space is
limited.
? The device is not selling well for various reasons (including, among other
things, poor management, poor reimbursement, improper or no available billing
codes, inaccurate pricing, and limited and/or poor clinical outcomes) which,
Qualis would attempt to eliminate, thereby increasing product revenues.
? The device should be easy to manufacture, thereby avoiding the need for costly
investment by the Company develop products and complicated manufacturing
facilities.
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? There should be a large, underserved patient population. The device should
have clear regulatory and reimbursement paths with the FDA and CMS,
respectively (or already be approved).
? The device should be relatively easy to distribute/dispense and administer.
Most importantly, the product must have a history of limited adverse events to
patients.
Our planned product, which is our sole product and is in the development
pipeline, is SOLACE, a non-invasive medical device that uses electromagnetic
induction to generate deep heat below the surface of the skin to reduce and
relieve pain. SOLACE™ delivers radio frequency (RF) energy continuously and
thereby delivers thermal effects to the tissue and utilizes several
differentiated features vs other radio frequency devices currently on the
market. We have not yet finalized development of the planned SOLACE device and
have not generated any cash flows from operations in connection with the planned
device.
The SOLACE device is based on proprietary high-frequency magnetic induction
technology, which we refer to as Electromagnetic Induction ("EMI").
Electromagnetic or magnetic induction is the use of electric currents or a
derivative of a current in the form of a sound or an acoustic wave or an
electromagnetic energy wave. Administered electric currents or their derivatives
have two attributes: (1) pain relief and (2) regeneration of tissues.
Magnetic fields are induced beneath the skin surface to create localized, planar
heat in the dermis and deeper muscle, while selectively avoiding sensitive
structures in the epidermis and fat layers. By comparison, our SOLACE device
creates currents in discreet planes beneath the tissue surface rather than
directing energy through the planes and penetrating the epidermis. Therefore,
our EMI technology may provide for shorter duration of treatments and a more
comfortable patient experience vs. other energy-based technologies
SOLACE™ delivers RF energy via a user-friendly hand-held applicator that allows
for targeted and ergonomic application of RF energy to discrete areas of
concern. In contrast, competitor diathermy devices utilize a large drum
applicator wherein the RF energy is emitted across a large surface area.
Diathermy is the controlled production of deep heating beneath the skin in the
subcutaneous tissue, deep muscles and joints for therapeutic purposes. There are
two types of diathermy devices on the market today: radio or high frequency and
microwave. The drum applicator design limits the tissue targeting to larger
joints, while smaller joints or tissue areas (e.g. acromion of the shoulder,
plantar aspect of foot, neck) are largely unaddressed. The hand-held applicator
from the SOLACE™ device provides a small surface area (approx. 3 cm2) which is
coated in Teflon® that can easily be positioned to target smaller body parts
providing a differentiation compared to large drum-type radio frequency devices
fail to adequately treat.
Presently, the Company is in the process of preparing the documents necessary to
submit an application to the FDA for clearance of our planned device. We plan on
also filing a provisional patent for the changes and new development of our
device over our previous licensed device from LCMD, The Company has an
accumulated deficit of $3,310,374. It is anticipated that the total expected
financial outlay to complete the development and FDA application is
approximately $250,000, combined with operating expenses the Company may not be
able to have enough cash flow to support the Company's daily operations
resulting in an opinion by the auditors of the Company continuing as a going
concern.
We anticipate that our SOLACE device will be cleared by the FDA via the 510k
process and that it will be deemed to be substantially equivalent to the
identified predicate device called the Bebe device, The Bebe device was
originally cleared by the FDA in 2014 by the Marchitto Entities and subsequently
sold to LCMD via an Asset Purchase Agreement and an Intellectual Property
License Agreement. The Bebe device is indicated for use in the treatment of
selected medical conditions such as pain relief, muscle spasms, and joint
contractures, but not for the treatment of malignancies.
Overview.
Qualis Innovations Inc. (hereinafter the "Company," "We," "Qualis") "Qualis")
was incorporated in the state of Nevada on March 23, 2006. On June 28, 2021, the
Company entered into a Share Exchange Agreement by and among mPathix Health,
Inc. (formerly known as EMF Medical Devices, Inc.), a Delaware corporation
("mPathix"), pursuant to which mPathix was acquired by the Company. Qualis is
now the holding company under which mPathix operates. mPathix is a clinical
stage company focused on the development, production, and distribution of pain
management and other central nervous system (CNS) based solutions.
We are developing a product designed to address the unmet needs of patients who
seek alternatives to traditional pain medications and interventions or
adjunctive therapies to their current treatment regimen. We believe that our
product will provide clinicians and patients with new and differentiated set of
pain management tools to meet the diversity of patient needs.
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Manufacturing
We will use Shanghai Zhiting Intelligent Technology Co., Ltd ("SZIT") as our CMO
to manufacture the SOLACE device, and to warehouse our product in their
facilities in the San Francisco. SZIT is ISO 13482:2016 certified. We also
intend to identify a back-up manufacture to ensure the integrity of our product
supply chain in case of natural disaster or political uncertainty.
We plan use Kanban inventory management by which our SOLACE inventory will be
held by Supertech Medical Devices Inc.("Supertech") at their warehouse until
customer orders are received. Devices will be shipped from Supertech's
warehouse.
Product Distribution
We plan to initially offer our SOLACE device via a purchase or leasing model and
we will generate demand with a combination of direct and independent sales
representatives in the United States. Field sales representatives will be
engaged to sell in predefined geographic markets and will be compensated based
on a commission amount of the revenues generated by the medical device. The
focus will be to market our device to a target audience of professionals who
specialize in the use of multi-modal, or multi-disciplinary, pain management
techniques.
Our target audience includes chiropractors, physical therapists, and pain
management specialists. However, our sales and promotional effort will be
focused on using an account-based approach to further segment the market which
will allow us to promote the SOLACE device in the most efficient manner. Our
primary promotional targets will be multi-practitioner clinics and high
throughput, solo-practitioner offices. We also intend to have a Corporate
Accounts team to target large national and regional chiropractic and physical
therapy chains. Examples of corporate accounts targets include The Joint, a
national chiropractic franchise with over 500 locations, and ATI Physical
Therapy with 900 locations across the US.
At launch, we will sell our SOLACE™ device directly to customers who will be
able to either buy it outright or lease it via a third-party financing partner,
Coastal Capital Group. If the device is to be leased, mPathix will be paid 50%
of the purchase price upon leasing signing and 50% upon device delivery to the
customer.
Although we plan to sell or lease the SOLACE™ device to target accounts at
launch, we are also developing a proprietary method of revenue sharing that will
allow for greater utilization of our device with customers, and thus expanding
our market penetration into a broader subset of customers for whom purchasing or
leasing the SOLACE device is not practical. Based on this approach, we may be
able to accelerate the number of devices placed based on a greatly reduced
acquisition cost for our customer. Further, it may be possible for mPathix to
have real-time revenue recognition, which could lead to significantly lower days
sales outstanding.
mPathix is also evaluating unique distribution models to fully maximize our
reach with our target audience. Potential distribution models include "device
sharing" or "on-demand" availability of the SOLACE™ device, allowing even the
lowest patient throughput practices to access our technology. Such distribution
models will be test marketed prior to any potential national implementation.
Regardless of which distribution model, or combination of models, is utilized,
each account that accesses the SOLACE device will incorporate a monthly fee for
device calibration and maintenance.
Reimbursement
Based on our target market (i.e., chiropractors and physical therapists), we
believe many, if not most, patients will pay out of pocket for treatment with
the SOLACE™ device. However, there will be certain practitioners, including
medical doctors, who will treat patients with medical insurance plans and
attempt get reimbursement for their service. In this revenue stream, revenue
will be derived from patients with insurance plans held by private health
insurance carriers, typically known as HMOs or PPOs, who pay on behalf of their
insureds and worker's compensation claims. This will continue to create revenue
which will become recurring as patients are treated on a regular basis.
The Current Procedural Terminology (CPT) code 97024, as maintained by American
Medical Association, is a medical procedural code under the category of
Supervised Physical Medicine and Rehabilitation Modalities. CPT 97024 includes
the application of a modality to 1 or more areas; Diathermy (e.g., microwave).
This is the code healthcare professionals may be able to use for billing and
reimbursement, in addition to the ICD-10 diagnosis code, for payment by
insurers. The provider fee for 97024 is assumed to about $30.
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Employees
As of the date of this prospectus, we have no full-time employees, one full-time
contracted consultant, John Ballard, our current chief financial officer (CFO),
and four part-time contracted consultants. None of our employees is subject to a
collective bargaining agreement. We believe our relations with our current
employee is satisfactory.
Where You Can Find our Reports
Any person or entity may read and copy our reports with the Commission at the
Commission's Public Reference Room at 100 F Street N.E., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Room by calling
the Commission toll free at 1-800-SEC-0330. The Commission also maintains an
Internet site at http://www.sec.gov where reports, proxies and other disclosure
statements on public companies may be viewed by the public.
Recent Developments
We have prepared our consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). There are no recent developments.
Financing Transactions
Insurance Financing Agreement
On July 20, 2022, the Company entered into a loan to finance its directors and
officer's insurance policy effective June 28, 2022. The loan has a principal
balance of $90,225, bears interest at 8.83% per annum, and is due and payable in
nine monthly payments of $10,397. During the three and nine months ended
September 30, 2022, the Company made repayments of $31,192 and has a balance of
$62,384 at September 30, 2022.
Financing Engagement Agreement
On August 2, 2022 the Company entered into an Engagement Agreement with CIM
Securities ("CIM") in connection with a best efforts REG D 506c general
solicitation equity offering of up to $4 million gross proceeds structured as a
8% Convertible Note financing. According to the contract, there may be multiple
closings for the transaction and there is no minimum amount for any closing. The
exclusivity period shall expire after the first three (3) months ("Term") from
the date of this fully executed Engagement Agreement. After the exclusive Term,
this Engagement Agreement shall become non-exclusive and continue on a
"month-to-month" basis until either party cancels this Engagement Agreement in
writing giving 10 days written notice to either Party. CIM shall receive a cash
fee equal to 7% and an additional 3% to outside placement agents of the gross
proceeds from the sale of Shares by the Placement Agent, and a five-year warrant
to purchase for $1.00 per share of Common Stock, exercisable on a cashless
basis, that number of shares of Common Stock that is equal to 7% of the number
of Shares sold by the Placement Agent. Shares may be purchased by (a) registered
broker-dealers, including the Placement Agent and other selling agents, which
persons will receive commission, fees, warrants and/or other compensation from
such sales and (b) officers, directors, employees and affiliates of the Company,
which persons may not receive cash fees or other compensation, or gain based on
the success of the Offering.
Acquisition of mPathix
On June 28, 2021, the Company entered into a Share Exchange Agreement ("Exchange
Agreement") by and among mPathix Health, Inc. (formerly EMF Medical Devices,
Inc., a Delaware corporation) ("mPathix") and Qualis. The closing of the
transaction (the "Closing") took place on June 29, 2021 (the "Closing Date"). On
the Closing Date, pursuant to the terms of the Exchange Agreement, the Company
acquired all of the outstanding shares (the "Shares") of mPathix. In exchange,
the Company issued to the mPathix shareholder's, their designees or assigns, an
aggregate of 6,988,300 shares of Company common stock (the "Shares Component")
or 93.36% of the shares of common stock of the Company issued and outstanding
after the Closing (the "Share Exchange"), at a valuation of $0.50 per share, and
the Company issued warrants to purchase an additional 1,098,830 shares (698,830
warrants issued to the Company's previous CEO and 400,000 to CreoMed which is
beneficially owned by Dr. Joseph Pergolizzi, the Company's acting CEO and
chairman of the board) of the Company's common stock, exercisable for 10 years
at a $0.50 per share exercise price, subject to adjustment. In connection with
the closing of the mPathix acquisition, the officers and directors of mPathix
were appointed as the officers and directors of the Company.
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The acquisition was accounted for as a "reverse merger" and recapitalization
since the stockholders of mPathix prior to the acquisition acquired a majority
of the outstanding shares of the common stock of the Company immediately
following the completion of the transaction. mPathix was deemed to be the
accounting acquirer in the transaction, and, consequently, the transaction was
treated as a recapitalization of mPathix. As a result, the Company is considered
to be the continuation of the predecessor, mPathix. Accordingly, the assets and
liabilities and the historical operations that are reflected in the Company's
consolidated financial statements are those of mPathix and are recorded at the
historical cost basis of mPathix. The Company's assets, liabilities and results
of operations were consolidated with the assets, liabilities and results of
operations of mPathix after consummation of the acquisition.
Stock Based Compensation
Employment Agreement
On March 1, 2021, Mr. Ahmet Demir Bingol, the Company's CEO entered into an
Employment Agreement with the Company, with an effective date of March 16, 2021,
in which he receives an annual base salary of $250,000, plus bonus compensation
not to exceed 80% of base salary. In addition, Mr. Bingol was granted 698,830
warrants to purchase 698,830 of the Company's common stock, valued at $165,378
(based on the Black Scholes valuation model on the date of grant). The warrants
are exercisable for a period of ten years at $0.50 per share in whole or in
part, as either a cash exercise or as a cashless exercise, and fully vest at
grant date. Mr. Bingol's employment also provides for medical insurance,
disability benefits and one year of severance pay if his employment is
terminated without cause or due to a change in control. Mr. Bingol's
compensation was approved by the Company's Board of Directors on March 1, 2021.
On September 9, 2021, the Board of Directors approved a modified Employment
Agreement for Mr. Bingol which was subsequently signed on October 1, 2021. The
modification resulted in changing Mr. Bingol's position from CEO to President
and in reducing Mr. Bingol's base salary from $250,000 to $150,000 per year. In
addition, his bonus plan was reset with a target bonus at fifty percent (50%) of
Executive's Base Salary, based upon the actual achievement of financial and
other targets as established in the annual budget approved by the Board, in its
sole and absolute discretion. Further, on October 1, 2021, Mr. Bingol's
previously issued warrants were modified such that he will receive 300,000
warrants that vest immediately at an exercise price of $0.50 and 398,830
warrants that vest over a period of three years with an exercise price of $0.50.
As a result, in accordance with ASC 718-20-35-2A and 718-20-35-3, immediately
prior to the modification, the Company calculated the fair value of the warrants
and determined that there was no change to the fair value. Subsequent to the
modification, the Company will recognize a loss of $9,155 over the remaining
three year vesting period.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he
will terminate his employment effective April 15, 2022. He received no severance
payment and there were no disagreements between he or the Company. A total of
300,000 warrants have vested with the remaining 398,830 unvested warrants
expiring. As a result of Mr. Bingol's termination, the Company reversed the
remaining warrant modification balance of $94,101 during the nine months ended
September 30, 2022.
Consulting Agreement
On May 1, 2021, the Company entered into a consulting agreement with a related
party to provide advisory services to the Company. The consulting agreement
terminates July 31, 2022. Under this consulting agreement, the related party
will be entitled to a monthly consulting fee of $10,000 and a total of 300,000
common shares to be issued 200,000 common shares based on the closing of reverse
acquisition transaction, 50,000 common shares on the delivery of two Company's
medical devices and 50,000 common shares on the delivery of ten Company's
medical devices. The Company issued 250,000 common shares during the year ended
December 31, 2021, for the fair value of $125,000 and 50,000 common shares shall
be issued on delivery of an additional eight devices at a fair value estimated
to be $25,000. The agreement has been extended through July 31, 2023 with a 90
day cancellation clause.
On January 27, 2022 the Company hired an engineering consultant to assist in
completing the design history file, updating new software, system design, pre
510(k) preparation, and testing of the SOLACE device. This work is expected to
be completed by the end of September 2022 and the cost of the contract is
$77,850.
Prior License
We previously licensed from Life Care Medical Devices a number of patents in
connection with the Prior Device, the predicate device which was marketed as the
"BeBe" device, and which received 510(k) clearance from the FDA in March 2014.
The granted indication for the BeBe device was "to generate deep heat within
body tissues for the treatment of medical conditions such as relief of pain,
muscle spasms and joint contractures."
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On August 28, 2019, our subsidiary, mPathix, entered into a Preliminary License
Agreement with LCMD, licensing from LCMD certain patents, know how, trade
secrets, 510(k) clearances and other property (the "Property") previously
transferred to LCMD by the Marchitto Entities (defined below) in accordance with
an Asset Purchase Agreement and a separate Intellectual Property License
Agreement dated November 10, 2015. Jim Holt who served as the sole officer and
director of LCMD, is also one of our directors. mPathix had an exclusive license
to reproduce, distribute, sell, lease, display and perform and otherwise use the
Property (including the SOLACE medical device) for use in pain management as of
the August 28, 2019 agreement. In consideration, mPathix issued 2,000,000 shares
of its common stock (1,878,955 shares issued to LCMD and 121,045 shares issued
to an affiliate of LCMD) and paid $110,000 in cash to LCMD on or about on
September 9, 2019, and mPathix was to pay continuing royalties to LCMD, with an
initial royalty payment of 6.0% of the net revenues from pain application sales
in each of the first twelve months, and lesser royalties thereafter based on
annual device sales. No royalty payments have been made to or earned by LCMD
since no revenues from medical device sales were generated.
On June 3, 2021, a Definitive License Agreement was signed by LCMD and mPathix
in order to finalize the terms of the August 28, 2019 Preliminary License
Agreement. The terms of the license with LCMD were contingent upon successful
fulfilment of a court ordered resolution between LCMD and the original owners of
the underlying intellectual property (the "Marchitto Entities"). LCMD was
obligated to pay to the Marchitto Entities the sum of $2,400,000 on or before
April 24, 2022, which has not occurred. Accordingly, we consider the license
agreement to be expired, and we do not intend to renew the license agreement
with LCMD or otherwise reacquire the intellectual property from the Marchitto
Entities.
ASC 730-10-25-2(c), Intangible Assets Purchased From Others, requires a company
to evaluate the technology acquired, and the applicable guidance for the
determination of alternative future uses. mPathix determined, at the date of the
acquisition of the technology, that it was acquiring an asset that represented a
research and development (R&D) project that was still in the process of
experimentation. The technology has additional potential future benefits
including hyperhidrosis, stress bladder incontinence, and cosmetic indications.
Therefore, the acquisition represented an asset by the Company.
Based on the Company's analysis of the Solace medical device, as of December 31,
2021, the Company reassessed the value of the Preliminary License Agreement with
LCMD. Related to this assessment, management determined that the intellectual
property used in the Solace device is different from the intellectual property
in the Preliminary License Agreement with LCMD. Therefore, the Company recorded
an impairment of intangible assets of $143,226 for the year ended December 31,
2021 and was classified in other expenses in the consolidated Statement of
Operations.
Common Stock
On October 3, 2022, the Company entered into an Independent Contractor Services
Agreement ("Agreement") with a third party to provide professional services to
the Company. The Agreement terminates January 3, 2023. Under this Agreement, the
contractor will be entitled to a monthly consulting fee of $6,000 and a total of
36,000 common shares, valued at $18,000 (based on the estimated fair value of
the stock on the date of grant) for services rendered.
On July 20, 2022, the Company issued 200,000 common shares to an affiliate for
aggregate gross proceeds of $100,000.
In July 2021, the Company issued 250,000 common shares to a related party valued
at $125,000 (based on the estimated fair value of the stock on the date of
grant) for services rendered.
In July 2021, the Company issued 5,000 common shares to a third party valued at
$2,500 (based on the estimated fair value of the stock on the date of grant) for
services rendered.
In June 2021, the Company issued 300,000 common shares to a third party for
aggregate gross proceeds of $150,000.
In June 2021, the Company issued 200,000 common shares to a related party for
aggregate gross proceeds of $100,000.
On June 28, 2021, the Company entered into a Share Exchange Agreement ("Exchange
Agreement") by and among mPathix Health, Inc. (formerly EMF Medical Devices,
Inc., a Delaware corporation) ("mPathix") and Qualis. The closing of the
transaction (the "Closing") took place on June 29, 2021 (the "Closing Date"). On
the Closing Date, pursuant to the terms of the Exchange Agreement, the Company
acquired all of the outstanding shares (the "Shares") of mPathix. In exchange,
the Company issued to the mPathix shareholder's, their designees or assigns, an
aggregate of 6,988,300 shares of Company common stock (the "Shares Component")
or 93.36% of the shares of common stock of the Company issued and outstanding
after the Closing (the "Share Exchange"), at a valuation of $0.50 per share, and
the Company issued warrants to purchase an additional 1,098,830 shares (698,830
warrants issued to the Company's previous CEO and 400,000 to CreoMed which is
beneficially owned by Dr. Joseph Pergolizzi, the Company's acting CEO and
chairman of the board) of the Company's common stock, exercisable for 10 years
at a $0.50 per share exercise price, subject to adjustment. In connection with
the closing of the mPathix acquisition, the officers and directors of mPathix
were appointed as the officers and directors of the Company.
28
The acquisition will be accounted for as a "reverse merger" and recapitalization
since the stockholders of mPathix will own a majority of the outstanding shares
of the common stock immediately following the completion of the transaction
assuming that holders of 10% of the Public Shares exercise their conversion
rights. mPathix will be deemed to be the accounting acquirer in the transaction
and, consequently, the transaction is treated as a recapitalization of mPathix.
As a result, Qualis is considered to be the continuation of the predecessor
mPathix. Accordingly, the assets and liabilities and the historical operations
that are reflected in the consolidated financial statements are those of mPathix
and are recorded at the historical cost basis of mPathix. Qualis's assets,
liabilities and results of operations will be consolidated with the assets,
liabilities and results of operations of mPathix after consummation of the
acquisition.
On June 29, 2021, the Company issued 900,000 common shares to Echo Resources LLP
in conjunction with share agreement.
On June 29, 2021, the Company issued 496,650 common shares for the
recapitalization of Qualis in conjunction with the reverse acquisition.
On February 14, 2021, the Company issued a total of 30,000 restricted common
shares to members of its Board of Directors, valued at $15,000 (based on the
estimated fair value of the stock on the date of grant) for services to be
rendered in FY 2021.
On February 11, 2021, the Company issued 2,000,000 common shares to third
parties for aggregate gross proceeds of $1,000,000.
Warrants
On February 14, 2021, the Company granted 400,000 warrants to purchase 400,000
shares of the Company's common stock to a CreoMed (controlled by Dr. Joseph
Pergolizzi, Acting CEO and Chairman of the Board) for consulting services,
valued at $109,512 (based on the Black Scholes valuation model on the date of
grant). The warrants are exercisable for a period of seven years at $0.50 per
share in whole or in part, as either a cash exercise or as a cashless exercise,
and fully vest at grant date.
On March 16, 2021, the Company granted 698,830 warrants to purchase 698,830
shares of the Company's common stock to Ahmet Demir Bingol, valued at $166,141
(based on the Black Scholes valuation model on the date of grant), pursuant to
his Employment Agreement. The warrants are exercisable for a period of ten years
at $0.50 per share in whole or in part, as either a cash exercise or as a
cashless exercise, and fully vest at grant date.
On June 29, 2021, the Qualis Innovations, Inc. has cancelled previous warrants
agreement and regranted warrants to purchase an additional 1,098,830 shares
(698,830 warrants issued to the Ahmet Demir Bingol, Company's previous CEO and
400,000 to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the
Company's acting CEO and chairman of the board) of the Company's common stock,
exercisable for 10 years at a $0.50 per share exercise price, subject to
adjustment in conjunction with the share exchange agreement.
On September 9, 2021, the Board of Directors approved a modified Employment
Agreement for Mr. Bingol which was subsequently signed on October 1, 2021. The
modification resulted in changing Mr. Bingol's position from CEO to President.
Further, on October 1, 2021, Mr. Bingol's previously issued warrants were
modified such that he will receive 300,000 warrants that vest immediately at an
exercise price of $0.50 and 398,830 warrants that vest over a period of three
years with an exercise price of $0.50. As a result, in accordance with ASC
718-20-35-2A and 718-20-35-3, immediately prior to the modification, the Company
calculated the fair value of the warrants and determined that there was no
change to the fair value. Subsequent to the modification, the Company will
recognize a loss of $9,155 over the remaining three-year vesting period.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he
will terminate his employment effective April 15, 2022. He received no severance
payment and there were no disagreements between he or the Company. A total of
300,000 warrants have vested with the remaining 398,830 unvested warrants
expiring. As a result of Mr. Bingol's termination, the Company reversed the
remaining warrant modification balance of $94,101 during the nine months ended
September 30, 2022.
On February 1, 2022, the Company granted 30,000 warrants to purchase 30,000 of
the Company's common stock to a third party for consulting services, valued at
$13,547 (based on the Black Scholes valuation model on the date of grant). The
options are exercisable for a period of three years at $1.00 per share in whole
or in part, and fully vest at grant date.
29
On March 29, 2022, the Board of Directors approved the granting of 400,000
warrants, with effect from April 1, 2022, convertible to the Company's common
shares with an exercise price of $1.10, valued at $290,276 (based on the Black
Scholes valuation model on the date of grant), to our acting CEO and Chairman
Joseph V. Pergolizzi Jr., MD through his company, CreoMed, Inc. with an
expiration period of 10 years. These warrants were issued as compensation for
the first quarter to Joseph V. Pergolizzi Jr., MD.
On August 1, 2022, based on a revised agreement signed by the relevant parties,
the Company granted 60,000 warrants to purchase 60,000 of the Company's common
stock to a third party for consulting services, valued at $7,632 (based on the
Black Scholes valuation model on the date of grant). The options are exercisable
for a period of three years at $1.10 per share in whole or in part, and fully
vest at grant date.
On September 1, 2022, the Company granted 300,000 warrants to purchase 300,000
of the Company's common stock to a third party for consulting services, valued
at $60,916 (based on the Black Scholes valuation model on the date of grant).
The options are exercisable for a period of four years at $1.10 per share in
whole or in part and vest 50% in six months and the remaining 50% in twelve
months from the grant date.
Options
In July 2021, the Company granted a total of 100,000 options to purchase 100,000
shares of the Company's common stock to third parties for consulting services,
valued at $25,077 (based on the Black Scholes valuation model on the date of
grant). The options are exercisable for a period of five years at $0.50 per
share in whole or in part and vest 50% in six months and the remaining 50% in
twelve months from the grant date.
On June 7, 2021, the Company granted 20,000 options to purchase 20,000 shares of
the Company's common stock to a third party for consulting services, valued at
$5,040 (based on the Black Scholes valuation model on the date of grant). The
options are exercisable for a period of five years at $0.50 per share in whole
or in part and vest 50% in six months and the remaining 50% in twelve months
from the grant date.
Impairment of Intangible Assets
Based on the Company's analysis of the Solace medical device, as of December 31,
2021, the Company reassessed the value of the Preliminary License Agreement with
LCMD. Related to this assessment, management determined that the intellectual
property used in the Solace device is different from the intellectual property
in the Preliminary License Agreement with LCMD. Therefore, the Company recorded
an impairment of intangible assets of $143,226 for the year ended December 31,
2021 and is classified in other expenses in the consolidated Statement of
Operations.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us on which to base an
evaluation of our performance. We have not finalized development of our planned
SOLACE device, nor have we generated any cash flow from operations. The
Company's cash position may not be sufficient to support the Company's daily
operations. We cannot guarantee we will be successful in our business
operations. Our business is subject to risks inherent in the establishment of a
new business enterprise, including limited capital resources, and possible cost
overruns due to increases in the cost of services. To become profitable and
competitive, we must receive additional capital. We have no assurance that
future financing will materialize. If that financing is not available, we may be
unable to continue operations.
Overview of Presentation
The following Management's Discussion and Analysis ("MD&A") or Plan of
Operations includes the following sections:
? Results of Operations
? Liquidity and Capital Resources
? Capital Expenditures
? Going Concern
? Critical Accounting Policies
? Off-Balance Sheet Arrangements
30
General and administrative expenses consist primarily of personnel costs and
professional fees required to support our operations and growth.
Depending on the extent of our future growth, we may experience significant
strain on our management, personnel, and information systems. We will need to
implement and improve operational, financial, and management information
systems. In addition, we are implementing new information systems that will
provide better record-keeping. However, there can be no assurance that our
management resources or information systems will be sufficient to manage any
future growth in our business, and the failure to do so could have a material
adverse effect on our business, results of operations and financial condition.
Results of Operations
Three Months Ended September 30, 2022 Compared to Three Months Ended September
30, 2021
The following discussion represents a comparison of our results of operations
for the three months ended September 30, 2022 and 2021. The results of
operations for the periods shown in our unaudited condensed consolidated
financial statements are not necessarily indicative of operating results for the
entire period. In the opinion of management, the unaudited condensed
consolidated financial statements recognize all adjustments of a normal
recurring nature considered necessary to fairly state our financial position,
results of operations and cash flows for the periods presented.
Three Months Three Months
Ended Ended
September 30, 2022 September 30, 2021
Net revenues $ - $ -
Cost of sales - -
Gross Profit - -
Operating expenses 126,659 518,866
Other income - -
Net loss before income taxes $ (126,659 ) $ (518,866 )
Revenues
For the three months ended September 30, 2022 and 2021, we had no revenues.
Cost of Sales
For the three months ended September 30, 2022 and 2021, we had no cost of sales.
Operating expenses
Operating expenses decreased by $392,207, or 75.6%, to $126,659 for three months
ended September 30, 2022 from $518,866 for the three months ended September 30,
2021 primarily due to decreases in compensation costs of $117,599, research and
development costs of $121,934, consulting fees of $146,443, insurance costs of
$17,044, and general and administration costs of $563, offset partially by
professional fees of $10,149, and travel costs of $1,228. In March 2021, the
Company hired its CEO resulting in compensation costs and stock based
compensation. Effective April 15, 2022, the Company entered into a separation
agreement with its CEO whereby he was terminated resulting in decreased
compensation costs. In addition, the Company has incurred an increase in
professional fees (primarily legal and audit fees) and has decreased consulting
fees (primarily the fair value of common stock and options issued for services),
as a result of the Company filing its S-1 and 10Q. Amortization of the Company's
Intellectual Property License Agreement decreased in the three months ended
September 30, 2022 compared to the three months ended September 30, 2021.
For the three months ended September 30, 2022, we had general and administrative
expenses of $126,659 primarily due to professional fees of $27,783, compensation
costs of $275, depreciation costs of $4,275, consulting fees of $65,493,
insurance costs of $23,872, and general and administration costs of $4,961.
Amortization of the Company's Intellectual Property License Agreement decreased
in the three months ended September 30, 2022 compared to the three months ended
September 30, 2021. Consulting fees consist of $16,128 of the fair value of
common stock and options issued for services and $49,365 of consulting services.
31
For the three months ended September 30, 2021, we had research and development
costs of $121,934 and general and administrative expenses of $396,932 primarily
due to compensation costs of $117,874, depreciation costs of $4,275,
professional fees of $17,634, consulting costs of $211,936, insurance costs of
$40,916, travel costs of $686, and general and administration costs of $3,611,
as a result of adding administrative infrastructure for our anticipated business
development. In March 2021, the Company hired its CEO resulting in compensation
costs and stock based compensation. Consulting fees consist of $127,500 of the
fair value of common stock and options issued for services and $84,436 of
consulting services. Research and development costs consist of $107,419 for the
amortization of the Company's Intellectual Property License Agreement, and
$14,515 to a third party for an evaluation of our product.
Other Income
Other expense for the three months ended September 30, 2022 and 2021 was none.
Net loss before income taxes
Net loss before income for three months ended September 30, 2022 totaled
$126,659 primarily due to (increases/decreases) in compensation costs,
professional fees, consulting fees, depreciation and amortization, and general
and administration costs compared to a loss of $518,866 for three months ended
September 30, 2021 primarily due to (increases/decreases) in compensation costs,
consulting fees, professional fees, depreciation and amortization, travel costs,
and general and administration costs.
Assets and Liabilities
Assets were $453,199 as of September 30, 2022. Assets consisted primarily of
cash of $171,952, inventory of $60,275, deposits of $54,000, other current
assets of $123,438, and property and equipment of $43,534. Liabilities were
$82,043 as of September 30, 2022. Liabilities consisted primarily of accounts
payable and accrued expenses and short-term note payable.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30,
2021
The following discussion represents a comparison of our results of operations
for the nine months ended September 30, 2022 and 2021. The results of operations
for the periods shown in our unaudited condensed consolidated financial
statements are not necessarily indicative of operating results for the entire
period. In the opinion of management, the unaudited condensed consolidated
financial statements recognize all adjustments of a normal recurring nature
considered necessary to fairly state our financial position, results of
operations and cash flows for the periods presented.
Nine Months Nine Months
Ended Ended
September 30, 2022 September 30, 2021
Net revenues $ - $ -
Cost of sales - -
Gross Profit - -
Operating expenses 732,261 1,345,674
Other income - -
Net loss before income taxes $ (799,235 ) $ (1,345,674 )
Revenues
For the nine months ended September 30, 2022 and 2021, we had no revenues.
Cost of Sales
For the nine months ended September 30, 2022 and 2021, we had no cost of sales.
32
Operating expenses
Operating expenses decreased by $613,413, or 45.6%, to $732,261 for nine months
ended September 30, 2022 from $1,345,674 for the nine months ended September 30,
2021 primarily due to decreases in compensation costs of $212,423, research and
development costs of $322,573, stock based compensation - related party of
165,378, consulting fees of $49,428, and travel costs of $2,756, offset
partially by professional fees of $52,092, depreciation costs of $149, insurance
costs of $74,770, and general and administration costs of $12,134. In March
2021, the Company hired its CEO resulting in compensation costs and stock based
compensation. Effective April 15, 2022, the Company entered into a separation
agreement with its CEO whereby he was terminated resulting in decreased
compensation costs. In addition, the Company has incurred an increase in
professional fees (primarily legal and audit fees) and has decreased consulting
fees (primarily the fair value of common stock and options issued for services),
as a result of the Company filing its S-1 and 10Q. Amortization of the Company's
Intellectual Property License Agreement decreased in the nine months ended
September 30, 2022 compared to the nine months ended September 30, 2021.
For the nine months ended September 30, 2022, we had research and development
costs of $53,260 and general and administrative expenses of $679,001 primarily
due to professional fees of $124,322, compensation costs of $43,082,
depreciation costs of $12,826, consulting fees of $357,697, insurance costs of
$116,449, travel costs of $2,171, and general and administration costs of
$22,454. Consulting fees consist of $233,314 of the fair value of common stock
and options issued for services and $124,383 of consulting services. Research
and development costs consist of $53,260 to a third party for an evaluation of
our product.
For the nine months ended September 30, 2021, we had research and development
costs of $375,833, stock based compensation - related party of $165,378, and
general and administrative expenses of $804,463 primarily due to consulting fees
of $407,125, compensation costs of $255,505, depreciation costs of $12,677,
professional fees of $72,230, travel costs of $4,927, insurance costs of
$41,679, and general and administration costs of $10,320, as a result of adding
administrative infrastructure for our anticipated business development. In March
2021, the Company hired its CEO resulting in compensation costs and stock based
compensation. Consulting fees consist of $246,160 of the fair value of common
stock and options issued for services and $160,965 of consulting services.
Research and development costs consist of $322,258 for the amortization of the
Company's Intellectual Property License Agreement, and $53,575 to a third party
for an evaluation of our product.
Other Income
Other expense for the nine months ended September 30, 2022 and 2021 was none.
Net loss before income taxes
Net loss before income for nine months ended September 30, 2022 totaled $732,261
primarily due to (increases/decreases) in research and development costs,
compensation costs, professional fees, consulting fees, depreciation and
amortization, travel costs, and general and administration costs compared to a
loss of $1,345,674 for nine months ended September 30, 2021 primarily due to
(increases/decreases) in research and development costs, compensation costs,
consulting fees, professional fees, stock based compensation, depreciation and
amortization, and general and administration costs.
Liquidity and Capital Resources
General - Overall, we had a decrease in cash flows for nine months ended
September 30, 2022 of $356,332 resulting from cash used in operating activities
of $456,332, offset partially by cash provided by financing activities of
$100,000.
The following is a summary of our cash flows provided by (used in) operating,
investing, and financing activities during the periods indicated:
Nine Months Nine Months
Ended Ended
September 30, 2022 September 30, 2021
Net cash provided by (used in):
Operating activities $ (456,332 ) $ (617,207 )
Investing activities - (1,787 )
Financing activities 100,000 1,250,000
$ (356,332 ) $ 631,006
33
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30,
2021
Cash Flows from Operating Activities - For the nine months ended September 30,
2022, net cash used in operations was $456,332 compared to net cash used in
operations of $617,207 for the nine months ended September 30, 2021. Net cash
used in operations was primarily due to a net loss of $732,261 for the nine
months ended September 30, 2022 and the changes in operating assets and
liabilities of $30,101, primarily due to short-term note payable of $62,384 and
accounts payable and accrued expenses of $1,411, offset partially by other
current liabilities of $11,400, and other current assets of $22,294. In
addition, net cash used in operating activities includes adjustments to
reconcile net profit from depreciation expense of $12,826, warrants issued for
services of $318,972, options issued for services of $8,131, and warrants
forfeited in conjunction with compensation - related parties of $94,101.
Net cash used in operations was primarily due to a net loss of $1,345,674 for
nine months ended September 30, 2021 and the changes in operating assets and
liabilities of $33,006, primarily due to the changes in deposits of $36,000,
accounts payable and accrued expenses of $23,757, and other current liabilities
of $99,688, offset partially by other current assets of $132,176 and inventory
of $60,275. In addition, net cash used in operating activities includes
adjustments to reconcile net profit from amortization expense of $322,258,
depreciation expense of $12,677, warrants issued for services of $109,512,
options issued for services of $9,148, stock based compensation - related
parties of $165,378, issuance of common stock for services of $140,000, and
issuance of common stock for services - related parties of $2,500.
Cash Flows from Investing Activities - For the nine months ended September 30,
2022, net cash used in investing was none compared to cash flows used in
investing activities of $1,787 for nine months ended September 30, 2021 due to
the purchase of property and equipment.
Cash Flows from Financing Activities - For nine months ended September 30, 2022,
net cash provided by financing was $100,000 due to proceeds from issuance of
common stock for cash. For nine months ended September 30, 2021, cash flows
provided by financing activities was $1,250,000 due to proceeds from issuance of
common stock for cash.
Financing - We expect that our current working capital position, together with
our expected future cash flows from operations will be insufficient to fund our
operations in the ordinary course of business, anticipated capital expenditures,
debt payment requirements and other contractual obligations for at least the
next twelve months. However, this belief is based upon many assumptions and is
subject to numerous risks, and there can be no assurance that we will not
require additional funding in the future.
We have no present agreements or commitments with respect to any material
acquisitions of other businesses, products, product rights or technologies or
any other material capital expenditures. However, we will continue to evaluate
acquisitions of and/or investments in products, technologies, capital equipment
or improvements or companies that complement our business and may make such
acquisitions and/or investments in the future. Accordingly, we may need to
obtain additional sources of capital in the future to finance any such
acquisitions and/or investments. We may not be able to obtain such financing on
commercially reasonable terms, if at all. Due to the ongoing global economic
crisis, we believe it may be difficult to obtain additional financing if needed.
Even if we are able to obtain additional financing, it may contain undue
restrictions on our operations, in the case of debt financing, or cause
substantial dilution for our shareholders, in the case of equity financing.
Acquisition of mPathix
On June 28, 2021, the Company entered into a Share Exchange Agreement ("Exchange
Agreement") by and among mPathix Health, Inc. (formerly EMF Medical Devices,
Inc., a Delaware corporation) ("mPathix") and Qualis. The closing of the
transaction (the "Closing") took place on June 29, 2021 (the "Closing Date"). On
the Closing Date, pursuant to the terms of the Exchange Agreement, the Company
acquired all of the outstanding shares (the "Shares") of mPathix. In exchange,
the Company issued to the mPathix shareholder's, their designees or assigns, an
aggregate of 6,988,300 shares of Company common stock (the "Shares Component")
or 93.36% of the shares of common stock of the Company issued and outstanding
after the Closing (the "Share Exchange"), at a valuation of $0.50 per share, and
the Company issued warrants to purchase an additional 1,098,830 shares (698,830
warrants issued to the Company's previous CEO and 400,000 to CreoMed which is
beneficially owned by Dr. Joseph Pergolizzi, the Company's acting CEO and
chairman of the board) of the Company's common stock, exercisable for 10 years
at a $0.50 per share exercise price, subject to adjustment. In connection with
the closing of the mPathix acquisition, the officers and directors of mPathix
were appointed as the officers and directors of the Company.
34
The acquisition was accounted for as a "reverse merger" and recapitalization
since the stockholders of mPathix prior to the acquisition acquired a majority
of the outstanding shares of the common stock of the Company immediately
following the completion of the transaction. mPathix was deemed to be the
accounting acquirer in the transaction, and, consequently, the transaction was
treated as a recapitalization of mPathix. As a result, the Company is considered
to be the continuation of the predecessor, mPathix. Accordingly, the assets and
liabilities and the historical operations that are reflected in the Company's
consolidated financial statements are those of mPathix and are recorded at the
historical cost basis of mPathix. The Company's assets, liabilities and results
of operations were consolidated with the assets, liabilities and results of
operations of mPathix after consummation of the acquisition.
Stock Based Compensation
Employment Agreement
On March 1, 2021, Mr. Ahmet Demir Bingol, the Company's CEO entered into an
Employment Agreement with the Company, with an effective date of March 16, 2021,
in which he receives an annual base salary of $250,000, plus bonus compensation
not to exceed 80% of base salary. In addition, Mr. Bingol was granted 698,830
warrants to purchase 698,830 of the Company's common stock, valued at $165,378
(based on the Black Scholes valuation model on the date of grant). The warrants
are exercisable for a period of ten years at $0.50 per share in whole or in
part, as either a cash exercise or as a cashless exercise, and fully vest at
grant date. Mr. Bingol's employment also provides for medical insurance,
disability benefits and one year of severance pay if his employment is
terminated without cause or due to a change in control. Mr. Bingol's
compensation was approved by the Company's Board of Directors on March 1, 2021.
On September 9, 2021, the Board of Directors approved a modified Employment
Agreement for Mr. Bingol which was subsequently signed on October 1, 2021. The
modification resulted in changing Mr. Bingol's position from CEO to President
and in reducing Mr. Bingol's base salary from $250,000 to $150,000 per year. In
addition, his bonus plan was reset with a target bonus at fifty percent (50%) of
Executive's Base Salary, based upon the actual achievement of financial and
other targets as established in the annual budget approved by the Board, in its
sole and absolute discretion. Further, on October 1, 2021, Mr. Bingol's
previously issued warrants were modified such that he will receive 300,000
warrants that vest immediately at an exercise price of $0.50 and 398,830
warrants that vest over a period of three years with an exercise price of $0.50.
As a result, in accordance with ASC 718-20-35-2A and 718-20-35-3, immediately
prior to the modification, the Company calculated the fair value of the warrants
and determined that there was no change to the fair value. Subsequent to the
modification, the Company will recognize a loss of $9,155 over the remaining
three year vesting period.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he
will terminate his employment effective April 15, 2022. He received no severance
payment and there were no disagreements between he or the Company. A total of
300,000 warrants have vested with the remaining 398,830 unvested warrants
expiring. As a result of Mr. Bingol's termination, the Company reversed the
remaining warrant modification balance of $94,101 during the nine months ended
September 30, 2022.
Consulting Agreement
On May 1, 2021, the Company entered into a consulting agreement with a related
party to provide advisory services to the Company. The consulting agreement
terminates July 31, 2022. Under this consulting agreement, the related party
will be entitled to a monthly consulting fee of $10,000 and a total of 300,000
common shares to be issued 200,000 common shares based on the closing of reverse
acquisition transaction, 50,000 common shares on the delivery of two Company's
medical devices and 50,000 common shares on the delivery of ten Company's
medical devices. The Company issued 250,000 common shares during the year ended
December 31, 2021, for the fair value of $125,000 and 50,000 common shares shall
be issued on delivery of an additional eight devices at a fair value estimated
to be $25,000. The agreement has been extended through July 31, 2023 with a 90
day cancellation clause.
On January 27, 2022 the Company hired an engineering consultant to assist in
completing the design history file, updating new software, system design, pre
510(k) preparation, and testing of the SOLACE device. This work is expected to
be completed by the end of September 2022 and the cost of the contract is
$77,850.
Prior License
We previously licensed from Life Care Medical Devices a number of patents in
connection with the Prior Device, the predicate device which was marketed as the
"BeBe" device, and which received 510(k) clearance from the FDA in March 2014.
The granted indication for the BeBe device was "to generate deep heat within
body tissues for the treatment of medical conditions such as relief of pain,
muscle spasms and joint contractures."
35
On August 28, 2019, our subsidiary, mPathix, entered into a Preliminary License
Agreement with LCMD, licensing from LCMD certain patents, know how, trade
secrets, 510(k) clearances and other property (the "Property") previously
transferred to LCMD by the Marchitto Entities (defined below) in accordance with
an Asset Purchase Agreement and a separate Intellectual Property License
Agreement dated November 10, 2015. Jim Holt who served as the sole officer and
director of LCMD, is also one of our directors. mPathix had an exclusive license
to reproduce, distribute, sell, lease, display and perform and otherwise use the
Property (including the SOLACE medical device) for use in pain management as of
the August 28, 2019 agreement. In consideration, mPathix issued 2,000,000 shares
of its common stock (1,878,955 shares issued to LCMD and 121,045 shares issued
to an affiliate of LCMD) and paid $110,000 in cash to LCMD on or about on
September 9, 2019, and mPathix was to pay continuing royalties to LCMD, with an
initial royalty payment of 6.0% of the net revenues from pain application sales
in each of the first twelve months, and lesser royalties thereafter based on
annual device sales. No royalty payments have been made to or earned by LCMD
since no revenues from medical device sales were generated.
On June 3, 2021, a Definitive License Agreement was signed by LCMD and mPathix
in order to finalize the terms of the August 28, 2019 Preliminary License
Agreement. The terms of the license with LCMD were contingent upon successful
fulfilment of a court ordered resolution between LCMD and the original owners of
the underlying intellectual property (the "Marchitto Entities"). LCMD was
obligated to pay to the Marchitto Entities the sum of $2,400,000 on or before
April 24, 2022, which has not occurred. Accordingly, we consider the license
agreement to be expired, and we do not intend to renew the license agreement
with LCMD or otherwise reacquire the intellectual property from the Marchitto
Entities.
The Company is in the process of finalizing the SOLACE product design and is
beginning to compile the data required to complete an application with the FDA.
Further, given the substantial changes and modifications that we have identified
for our device, the Company will seek to file provisional patents at the
earliest possible date.
ASC 730-10-25-2(c), Intangible Assets Purchased From Others, requires a company
to evaluate the technology acquired, and the applicable guidance for the
determination of alternative future uses. mPathix determined, at the date of the
acquisition of the technology, that it was acquiring an asset that represented a
research and development (R&D) project that was still in the process of
experimentation. The technology has additional potential future benefits
including hyperhidrosis, stress bladder incontinence, and cosmetic indications.
Therefore, the acquisition represented an asset by the Company.
The Intellectual Property License Agreement will expire in April 2022. mPathix
recorded $1,110,000 as an intangible asset and is being amortized on a
straight-line basis thru the end of the licensing agreement of April 2022.
Based on the Company's analysis of the Solace medical device, as of December 31,
2021, the Company reassessed the value of the Preliminary License Agreement with
LCMD. Related to this assessment, management determined that the intellectual
property used in the Solace device is different from the intellectual property
in the Preliminary License Agreement with LCMD. Therefore, the Company recorded
an impairment of intangible assets of $143,226 for the year ended December 31,
2021 and is classified in other expenses in the consolidated Statement of
Operations.
Common Stock
On October 3, 2022, the Company entered into an Independent Contractor Services
Agreement ("Agreement") with a third party to provide professional services to
the Company. The Agreement terminates January 3, 2023. Under this Agreement, the
contractor will be entitled to a monthly consulting fee of $6,000 and a total of
36,000 common shares, valued at $18,000 (based on the estimated fair value of
the stock on the date of grant) for services rendered.
On July 20, 2022, the Company issued 200,000 common shares to an affiliate for
aggregate gross proceeds of $100,000.
In July 2021, the Company issued 250,000 common shares to a related party valued
at $125,000 (based on the estimated fair value of the stock on the date of
grant) for services rendered.
In July 2021, the Company issued 5,000 common shares to a third party valued at
$2,500 (based on the estimated fair value of the stock on the date of grant) for
services rendered.
In June 2021, the Company issued 300,000 common shares to a third party for
aggregate gross proceeds of $150,000.
In June 2021, the Company issued 200,000 common shares to a related party for
aggregate gross proceeds of $100,000.
36
On June 28, 2021, the Company entered into a Share Exchange Agreement ("Exchange
Agreement") by and among mPathix Health, Inc. (formerly EMF Medical Devices,
Inc., a Delaware corporation) ("mPathix") and Qualis. The closing of the
transaction (the "Closing") took place on June 29, 2021 (the "Closing Date"). On
the Closing Date, pursuant to the terms of the Exchange Agreement, the Company
acquired all of the outstanding shares (the "Shares") of mPathix. In exchange,
the Company issued to the mPathix shareholder's, their designees or assigns, an
aggregate of 6,988,300 shares of Company common stock (the "Shares Component")
or 93.36% of the shares of common stock of the Company issued and outstanding
after the Closing (the "Share Exchange"), at a valuation of $0.50 per share, and
the Company issued warrants to purchase an additional 1,098,830 shares (698,830
warrants issued to the Company's previous CEO and 400,000 to CreoMed which is
beneficially owned by Dr. Joseph Pergolizzi, the Company's acting CEO and
chairman of the board) of the Company's common stock, exercisable for 10 years
at a $0.50 per share exercise price, subject to adjustment. In connection with
the closing of the mPathix acquisition, the officers and directors of mPathix
were appointed as the officers and directors of the Company.
The acquisition will be accounted for as a "reverse merger" and recapitalization
since the stockholders of mPathix will own a majority of the outstanding shares
of the common stock immediately following the completion of the transaction
assuming that holders of 10% of the Public Shares exercise their conversion
rights. mPathix will be deemed to be the accounting acquirer in the transaction
and, consequently, the transaction is treated as a recapitalization of mPathix.
As a result, Qualis is considered to be the continuation of the predecessor
mPathix. Accordingly, the assets and liabilities and the historical operations
that are reflected in the consolidated financial statements are those of mPathix
and are recorded at the historical cost basis of mPathix. Qualis's assets,
liabilities and results of operations will be consolidated with the assets,
liabilities and results of operations of mPathix after consummation of the
acquisition.
On June 29, 2021, the Company issued 900,000 common shares to Echo Resources LLP
in conjunction with share agreement.
On June 29, 2021, the Company issued 496,650 common shares for the
recapitalization of Qualis in conjunction with the reverse acquisition.
On February 14, 2021, the Company issued a total of 30,000 restricted common
shares to members of its Board of Directors, valued at $15,000 (based on the
estimated fair value of the stock on the date of grant) for services to be
rendered in FY 2021.
On February 11, 2021, the Company issued 2,000,000 common shares to third
parties for aggregate gross proceeds of $1,000,000.
Warrants
On February 14, 2021, the Company granted 400,000 warrants to purchase 400,000
of the Company's common stock to CreoMed (controlled by Dr. Joseph Pergolizzi,
Acting CEO and Chairman of the Board) for consulting services, valued at
$109,512 (based on the Black Scholes valuation model on the date of grant). The
warrants are exercisable for a period of seven years at $0.50 per share in whole
or in part, as either a cash exercise or as a cashless exercise, and fully vest
at grant date.
On March 16, 2021, the Company granted 698,830 warrants to purchase 698,830
shares of the Company's common stock to Ahmet Demir Bingol, valued at $166,141
(based on the Black Scholes valuation model on the date of grant), pursuant to
his Employment Agreement. The warrants are exercisable for a period of ten years
at $0.50 per share in whole or in part, as either a cash exercise or as a
cashless exercise, and fully vest at grant date.
On June 29, 2021, the Qualis Innovations, Inc. has cancelled previous warrants
agreement and regranted warrants to purchase an additional 1,098,830 shares
(698,830 warrants issued to the Ahmet Demir Bingol, Company's previous CEO and
400,000 to CreoMed which is beneficially owned by Dr. Joseph Pergolizzi, the
Company's acting CEO and chairman of the board) of the Company's common stock,
exercisable for 10 years at a $0.50 per share exercise price, subject to
adjustment in conjunction with the share exchange agreement.
On September 9, 2021, the Board of Directors approved a modified Employment
Agreement for Mr. Bingol which was subsequently signed on October 1, 2021. The
modification resulted in changing Mr. Bingol's position from CEO to President.
Further, on October 1, 2021, Mr. Bingol's previously issued warrants were
modified such that he will receive 300,000 warrants that vest immediately at an
exercise price of $0.50 and 398,830 warrants that vest over a period of three
years with an exercise price of $0.50. As a result, in accordance with ASC
718-20-35-2A and 718-20-35-3, immediately prior to the modification, the Company
calculated the fair value of the warrants and determined that there was no
change to the fair value. Subsequent to the modification, the Company will
recognize a loss of $9,155 over the remaining three-year vesting period.
On February 24, 2022, Mr. Bingol entered into a separation agreement whereby he
will terminate his employment effective April 15, 2022. He received no severance
payment and there were no disagreements between he or the Company. A total of
300,000 warrants have vested with the remaining 398,830 unvested warrants
expiring. As a result of Mr. Bingol's termination, the Company reversed the
remaining warrant modification balance of $94,101 during the nine months ended
September 30, 2022.
37
On February 1, 2022, the Company granted 30,000 warrants to purchase 30,000 of
the Company's common stock to a third party for consulting services, valued at
$13,547 (based on the Black Scholes valuation model on the date of grant). The
options are exercisable for a period of three years at $1.00 per share in whole
or in part.
On March 29, 2022, the Board of Directors approved the granting of 400,000
warrants, with effect from April 1, 2022, convertible to the Company's common
shares with an exercise price of $1.10, valued at $290,276 (based on the Black
Scholes valuation model on the date of grant), to our acting CEO and Chairman
Joseph V. Pergolizzi Jr., MD through his company, CreoMed Inc with an expiration
period of 10 years. These warrants were issued as compensation for the first
quarter to Joseph V. Pergolizzi Jr., MD.
On August 1, 2022, the Company granted 60,000 warrants to purchase 60,000 of the
Company's common stock to a third party for consulting services, valued at
$7,632 (based on the Black Scholes valuation model on the date of grant). The
options are exercisable for a period of three years at $1.10 per share in whole
or in part, and fully vest at grant date.
On September 1, 2022, the Company granted 300,000 warrants to purchase 300,000
of the Company's common stock to a third party for consulting services, valued
at $60,916 (based on the Black Scholes valuation model on the date of grant).
The options are exercisable for a period of four years at $1.10 per share in
whole or in part and vest 50% in six months and the remaining 50% in twelve
months from the grant date.
Options
On June 7, 2021, the Company granted 20,000 options to purchase 20,000 of the
Company's common stock to a third party for consulting services, valued at
$5,040 (based on the Black Scholes valuation model on the date of grant). The
options are exercisable for a period of five years at $0.50 per share in whole
or in part and vest 50% in six months and the remaining 50% in twelve months
from the grant date.
In July 2021, the Company granted a total of 100,000 options to purchase 100,000
of the Company's common stock to third parties for consulting services, valued
at $25,077 (based on the Black Scholes valuation model on the date of grant).
The options are exercisable for a period of five years at $0.50 per share in
whole or in part and vest 50% in six months and the remaining 50% in twelve
months from the grant date.
Insurance Financing Agreement
On July 20, 2022, the Company entered into a loan to finance its directors and
officer's insurance policy effective June 28, 2022. The loan has a principal
balance of $90,225, bears interest at 8.83% per annum, and is due and payable in
nine monthly payments of $10,397. During the three and nine months ended
September 30, 2022, the Company made repayments of $31,192 and has a balance of
$62,385 at September 30, 2022.
Capital Expenditures
Other Capital Expenditures
We expect to purchase approximately $30,000 of equipment in connection with the
expansion of our business during the next twelve months.
Fiscal year end
Our fiscal year end is December 31.
Critical Accounting Policies
Refer to Note 3 in the accompanying notes to the unaudited condensed
consolidated financial statements for critical accounting policies.
Recent Accounting Pronouncements
Refer to Note 3 in the accompanying notes to the condensed consolidated
financial statements.
38
Going Concern
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the normal
course of business. The Company had an accumulated deficit of $3,437,033 at
September 30, 2022, had working capital of $327,622 and $714,055 at September
30, 2022 and December 31, 2021, respectively, had a net loss of $732,261 and
$1,345,674 for the nine months ended September 30, 2022 and 2021, respectively,
and net cash used in operating activities of $456,332 and $617,207 for nine
months ended September 30, 2022 and 2021, respectively, with no revenue earned
since inception, and a lack of operational history. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
While the Company is attempting to expand operations and generate revenues from
product sales, we have not yet finalized development or produced our planned
medical device, nor have we generated any cash flow from operations, and the
Company's cash position may not be significant enough to support the Company's
daily operations. Management intends to raise additional funds by way of a
private offering. Management believes that the actions presently being taken to
further implement its business plan and generate revenues provide the
opportunity for the Company to continue as a going concern. While management
believes in the viability of its strategy to generate revenues and in its
ability to raise additional funds or transact an asset sale, there can be no
assurances to that effect or on terms acceptable to the Company. The ability of
the Company to continue as a going concern is dependent upon the Company's
ability to raise capital, further implement its business plan, and generate
revenues.
The consolidated financial statements do not include any adjustments that might
be necessary if we are unable to continue as a going concern.
The Commission has defined a company's critical accounting policies as the ones
that are most important to the portrayal of our financial condition and results
of operations and which require us to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. Based on this definition, we have identified the critical
accounting policies and judgments addressed below. We also have other key
accounting policies that are significant to understanding our results.
Contractual Obligations and Off-Balance Sheet Arrangements
We do not have any contractual obligations or off balance sheet arrangements.
Inflation
We do not believe that inflation has had a material effect on our results of
operations.
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