ITEM 1. BUSINESS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This periodic report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management. Statements in this periodic report that are not historical facts are hereby identified as “forward-looking statements.”
Corporate History
NU-MED PLUS, INC., a Utah corporation (“NU-MED” or the “Company”) was incorporated in October 2011 in the state of Utah to develop, manufacture and market new technologies utilizing nitric oxide in the medical device field, primarily through the creation of a nitric oxide generating compound formulation and delivery systems. To date we have developed a hospital nitric oxide delivery system, a clinical nitric oxide delivery system, a mobile rechargeable device to deliver nitric oxide gas, and a nitric oxide system that can be used for research applications. NU-MED is headquartered in Salt Lake City, Utah.
EMERGING GROWTH COMPANY STATUS
As part of the Jumpstart Startups Act of 2012 (“JOBS ACT”), companies with less than $1.0 billion in gross revenue can qualify as an “emerging growth company.” We will qualify as an emerging growth company as defined in the JOBS Act, and, as such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, (ii) reduced disclosure obligations regarding executive compensation in our periodic and annual reports, (iii) not being required to comply with certain new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, and (iv) not being required to obtain stockholder approval of any golden parachute payments not previously approved. We intend to take advantage of the reduced disclosure obligations. Additionally, we qualify as a “Smaller Reporting Company” and also have the advantage of not being required to provide the same level of disclosure as larger companies. Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the Jobs Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed one billion dollars, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common units that are held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, and (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period. At this time, we expect to remain both a “Smaller Reporting Company” and “Emerging Growth Company” for the foreseeable future.
Business
NU-MED is a medical device company principally engaged in the design, innovation, development, enhancement and commercialization of beginning, early, and selective later-stage quality medical devices. The mission of NU-MED is to design, develop, and market technologies utilizing nitric oxide in the medical device field. Our technologies will focus on market niches in high growth trend areas. Our products are developed to target a current need in medical procedures by improving upon an existing technology or device or by designing a device to serve a currently unfilled need that is clearly defined and acknowledged by medical professionals. Our focus has been on the creation of a nitric oxide generating formulation, a hospital bedside nitric oxide delivery system, a clinical unit for use in medical clinics and rehabilitation centers and a mobile rechargeable device to deliver nitric oxide gas to offer solutions to hospitals, health systems and the medical community throughout the world.
Prior to the founding of NU-MED PLUS, our core team Jeff Robins, William Moon, and Dr. Craig Morrison investigated, researched, and worked on initial formulations of a conceptual product to convert nitric oxide from a proprietary formulation to a gas used in the medical field. Based on our team’s backgrounds in the field of mechanical engineering, chemistry and medicine it was determined a potential niche market existed and the conceptual proprietary product could possibly be created. From this initial research and some initial testing, our team believed we could create a mechanical device that could deliver nitric oxide to medical patients and use a new formulation of nitric oxide that, when combined with the new delivery device, could be accomplished in a more economical method than those currently in existence. NU-MED PLUS was incorporated and an initial private placement was completed to raise capital to create a small lab and purchase equipment and chemicals to start working on testing the theories of the founding team. NU-MED has, since its inception, developed and is currently ready to begin the testing phase, prototype units for a hospital delivery system, a clinical delivery device, a portable rechargeable unit, a disposable unit and a compound which generates nitric oxide on demand. This has been accomplished despite the lack of sufficient funding, which has required team members, including William Moon and Tom Tait, to work in a part-time capacity for NU-MED as they continue to work for other organizations. NU-MED has verified that all consultants and part-time employees are permitted to work on NU-MED’s project without violating other employment commitments.
The core of the initial product embodiment was the development of a delivery system to deliver a metered dose of nitric oxide to a patient. Our device differs from the delivery device currently used in that it can deliver nitric oxide gas from a compressed gas cylinder, as does the competitive system, or deliver nitric oxide generated from our proprietary nitric oxide generating compound. Compressed gas cylinders are costly, difficult and expensive to transport, and face significant shipping restrictions. The initial goal of developing a kinetically controlled proprietary chemical nitric oxide generating mixture and the concomitant delivery device has been realized. The chemical mixture is and will remain proprietary; however, the mechanical delivery device has been issued a US patent.
During research and development, additional nitric oxide generation and delivery technologies were discovered that could potentially allow a more rapid path to United States Food and Drug Administration (“FDA”) approval of final products for the market place. Nu-Med is currently researching and developing these technologies and has built and tested proof of concept prototypes and full engineering mockups. We are now engaged in producing a final unit for testing with the goal of an FDA 510(k) submission. Nu-Med has applied for a patent to protect these new technologies.
The testing and optimization may take an unknown direction that will necessitate changes in the anticipated design of the mechanical delivery apparatus. Additionally, unforeseen delays can hamper development timelines. Management believes it will take some time before a product will be finalized and testing completed. Until a final product is completed and testing done, no assurance can be given that we will be able to complete the product or achieve the costs savings for the patient.
Our initial goal for the delivery system development was to design and build a manufacturing prototype for internal
testing. This unit was designed with the objective of reducing the high cost patients and insurance companies are currently required to pay for nitric oxide delivery, and to provide an alternative source of nitric oxide through the use of a nitric oxide generating compound. Current use of nitric oxide is severely restricted, used only in the most extreme cases. Reducing the cost of delivery will greatly expand the use of nitric oxide, both for the treatment of patients and for research work.
Research has indicated the potential beneficial results of using nitric oxide in the treatment of a number of illnesses for which the FDA has not currently approved its use. These include, but are not limited to, COPD, asthma, cystic fibrosis, tuberculosis, malaria, ventilator acquired pneumonia, and the treatment of blood prior to transfusion, to name but a few. Due to the high cost of nitric oxide, research in these areas has been limited. Our system would significantly reduce the cost of nitric oxide delivery, enabling research on these and other applications.
The costs of testing and submitting products for FDA approval is substantial. However, we are planning to submit the hospital unit for FDA approval in 2020. To accomplish this, we will need to raise substantially more capital for further testing, the preparation of the 510(k) application and hire third party laboratories to perform the tests required to be completed by independent labs..
Products
Nitric oxide is an extremely important bio-mediator in the human body that is produced from the amino acid l-arginine. Nitric oxide has anti-inflammatory properties, antibacterial, antiviral and antifungal properties which make it useful in certain medical treatments. At the present time inhaled nitric oxide (INO) is used as a selective vaso-dilator in infants. The only FDA approved use of nitric oxide at this time is for the treatment of Hypoxia in premature infants and newborn babies. Management is not aware of any other potential uses of nitric oxide that have been cleared by the FDA, but this may change as new submittals are made. The heavy cost of delivering nitric oxide to patients has created limitations in its use. Discoveries that have been made since the first FDA approved use of nitric oxide in 1999 have led to a number of new potential uses, which still need FDA approval, in a wide variety of diseases and health complications, including COPD, flu viruses, bacterial infections, tuberculosis, non-healing wounds, head injuries and much more. NU-MED hopes to take advantage of the expanding medical uses of nitric oxide by developing a new method to generate nitric oxide that reduces the delivery costs and can be used in a variety of medical and research settings. Given NU-MED’s size, we do not anticipate being involved in any clinical studies on new uses of nitric oxide and will rely on other parties to continue to advance the uses of nitric oxide.
NU-MED PLUS has focused on the development of six distinct products for the delivery of nitric oxide. NU-MED products have not been fully developed; therefore we have not made any submission for FDA approval.
1.
Nitric oxide proprietary formulation. Generates nitric oxide gas on demand, eliminating the need for
compressed gas cylinders.
2. A hospital delivery device with controls and safety monitors built in that delivers inhaled nitric oxide to a patient at therapeutic dose levels. This delivery system is intended for hospitals; specifically intensive care units. The goal is to have a system that delivers a metered therapeutic dose (up to 40 ppm) of nitric oxide via a ventilator. The core technology allows dilution of nitric oxide to therapeutic levels to be accomplished without the use of injectors or valves. Safeguards such as concentration monitoring, flow and gas purity will be standard.
3. A clinical delivery unit that is designed for the treatment of patients in an office or physician’s clinic. A unit powered by a wall outlet, administration of the nitric oxide would be via cannula or non-rebreather face mask
4. A compact, mobile/portable rechargeable device to deliver inhaled nitric oxide gas. The portable system necessitates a design which can be deployed where a reliable source of power is not available or is difficult to access. The key feature is a rechargeable battery pack that powers the unit for the full duration of a therapeutic session. It can be recharged using existing electrical sources, a solar array or other alternative energy source. The
unit is designed as a low power but fully functional nitric oxide delivery system for inhalation therapy, that can be used as a transport device during the movement of a patient or as a delivery device in those remote areas of the world where electrical power is not readily available.
5. A disposable unit that will deliver a therapeutic dose of nitric oxide to a patient and will then be placed into a container to be incinerated. This unit would be used for the treatment of patients in a pandemic, where a large number of patients must be treated and there is insufficient capacity to sterilize the unit after use by each patient. The dispensing devices would be isolated and destroyed after use to ensure that another patient is not exposed to the bacteria or virus carried by the patient originally treated.
6. A unit that is one of the world’s first nitric oxide dilution systems designed specifically for research. A patent pending technology utilizes pure 100% nitric oxide from a pressurized tank source and dilutes it with air or other non-reactive diluent gas to provide a 1 to 500 ppm source of high purity nitric oxide for investigational applications.
The principal gas we aim to generate through each of our systems described above is medical grade nitric oxide, along with other various combinations of beneficial medical gases. Non-medical grade nitric oxide gas is produced and sold commercially by major gas companies as a specialty gas mixture and calibration gas. Nitrogen dioxide is present in all nitric oxide gas currently produced. Its presence limits the size of the dose of nitric oxide gas that can be administered for prospective uses in both humans and animals.
A longer-term goal is to further develop our proprietary compound formulation option that will be utilized to produce medical grade nitric oxide for use in all delivery units. Management believes that with the further refinement of our formulation, we can make and filter medical grade nitric oxide gas with minimal amounts of nitrogen dioxide, and that this process can produce medical grade nitric oxide gas in ample quantities for any current or prospective use and hopefully at a price less than that of all currently available technologies. For a number of years the only approved and available medical grade nitric oxide delivery device was a product named Inomax. Since this is a single source market there is no price competition and price is set at a "market can bear" level. We believe, given this structure, there is ample room for a competitive response from NU-MED using on site generated nitric oxide at a lower cost to penetrate the market. The cost of materials and labor for the NU-MED product is anticipated to be low, while still providing attractive margins. Our product must have a known shelf life and be available in various configurations to yield known concentrations and volumes of gas. Packaging is a critical developmental process that we will address after completion of our formulation.
We approximate that the sale of our research unit for non-clinical laboratory work could take place earlier than FDA approval. Management anticipates that selling our units earlier into the market as laboratory equipment or to international groups will pave the way for sales of our medical delivery devices, but any financial contributions from intellectual property licenses and sales and other non-medical sales will not be adequate to fund the substantial costs of the FDA approval process for human medical uses. Even with sales to laboratories or other uses, we will require additional funding, which we currently do not have in place and have no assurance that we will be able to obtain, or to obtain at acceptable rates.
All human medical uses of nitric oxide gas require FDA approval prior to initiating sales in the United States and the approval of similar international agencies in their respective countries. Approval can be a long and expensive process, with no assurance that any such approval can or will be obtained. Our products from the compound formulation for nitric oxide to our delivery machines will have to be approved by the FDA prior to any sales for human use. Although the FDA can approve “uses” for nitric oxide and such uses can be expanded, our products, both the formulations and equipment, would also have to be approved to be used in association with the treatment using nitric oxide. Accordingly, although the use of nitric oxide for the treatment of hypoxia in newborns is approved by the FDA, we still would need to have our dispensing unit and compound approved by the FDA for such treatment. In order for our dispensing unit to be used we would not have to prove the efficacy of the treatment but only that our product and compounds are “substantially equivalent” to those already approved by the FDA. Even this level of approval requires time, carries substantial costs, and creates additional uncertainty as to our ability to
bring a product to the marketplace. We currently do not have the funds to seek such an approval. We are currently working to secure funding that will enable us to submit the hospital unit for FDA approval.
Current Product Development Status
Hospital NO Unit. Our team has created an initial prototype and is nearing completion of the first production unit for use as a hospital nitric oxide gas delivery system. The device delivers a continuous intra-breath concentration of therapeutic NO to patients who are on a ventilator in a hospital setting. We are performing internal testing on the accuracy of the machine and dosage prior to moving forward with any animal or human tests. With any medical product, it will take a period of refinement and testing before the product is ready for market.
Clinical Delivery System. The clinical system is a simplified version of the hospital unit. While it can be used in a hospital setting it was designed to be operated and used in a less medically intensive environment, such as a doctor’s office or physician’s clinic and does not incorporate the alarms needed in an intensive care setting. It is a smaller and more portable unit, lending itself to clinical use on an as needed basis, rather than full-time use for which the hospital unit is designed. Administration is via nasal cannula or non-rebreather face mask. Similar to a dialysis center concept, patients would be treated with nitric oxide in a clinical setting on an as needed basis.
Portable Delivery System. Nu-Med has also developed a prototype lightweight Portable NO Delivery System that can be worn comfortably by patients outside of the hospital setting for underserved chronic therapies, and for applications within the United States and in developing nations. This product has the capability to deliver high purity NO to the patient at prescribed intervals for 24 hours per day at controlled doses by means of a nasal cannula or a face mask. As with our hospital unit, we are in the preliminary testing phase and do not anticipate any commercialization in the near future.
Reagent Delivery. During development of the Nu-Med line of medical nitric oxide delivery systems it was discovered that a system could be built that would provide the research community with a variable concentration source of nitric oxide for conducting research and experiments. A preliminary system has been built that can provide a wide range of concentrations and flow rates of NO. This was reduced to practice and a delivery system is now available for research use.
Future Product Development. Utilizing our core technology, our newest product to be investigated is a one-time Single Treatment Disposable unit which will give rapid access to short term NO treatment. The entire unit is disposed of after treatment and is unique in the market, with no competitive product available. We also are investigating a Wound Healing System which may reduce the loss of a partial or full foot for diabetics by healing diabetic wounds and sores caused by their disease.
Existing Clinical Applications of Inhaled Nitric Oxide and Potential Markets
Nitric oxide can be safely inhaled, utilizing our delivery device, thru a ventilator, face mask, by nasal cannula, or via an endotracheal tube. An ideal inhaled NO delivery device requires delivery synchronized with respiration and minimal production of NO2 and should be simple to use with full monitoring capacity (high and low alarms and precise monitoring of NO, NO2, and O2). Our delivery devices were designed with all of these requirements in mind. As a result, we believe it will be the best and most efficient delivery system available when it is commercialized.
Since the inception of the only FDA approved treatment of hypoxia in newborns with nitric oxide (INOMAX from Ikaria Holdings) initial research has shown approximately 394,000 patients have been treated worldwide over a ten-year period. Management believes the cost of a typical nitric oxide delivery system is approximately $30,000 each. Market expansion in the US will occur based on FDA approval for other medical uses of nitric oxide therapies.
Competition
Large companies with established brand names have a distinct advantage in the medical device arena. The cost of developing a product, followed by the costs of testing and licensing, favor larger, well financed and established companies. It will be difficult for NU-MED to compete in this industry and we will be required to focus on the niche products if we hope to be able to compete. The number of companies that have a product or products involving nitric oxide and free radicals is quite large and difficult to determine precisely as this is not the focus of these companies.
In addition to companies that may be working on similar solutions in the nitric oxide space but have not been public in any product offerings, NU-MED considers the following companies as direct competitors in the nitric oxide market space which they anticipate to enter. This does not preclude that additional large pharmaceutical or medical supply companies will enter the critical care market with substantially similar products or systems.
Mallinckrodt Inc. acquired the only company with an FDA approved nitric oxide (INOMAX) delivery system for use in medical facilities. The FDA approval is limited to the treatment of persistent pulmonary hypertension in newborns (PPHN). Mallinckrodt Inc. has submitted several other specific medical uses of nitric oxide to the FDA for approval. The INOMAX system consists of a pressurized tank source of nitric oxide gas and a delivery and monitoring system and is intended for non-portable hospital use.
GeNO LLC is a technology company focused on their GeNOsyl Nitrosyl system of nitric oxide generation and delivery. This is a unique patented system based on the conversion of nitrogen dioxide/dinitrogen tetroxide to pure nitric oxide. Several delivery platforms have been submitted for FDA approval. The FDA has approved the Genosyl Advanced Delivery System (ADS) for use with neonates.
Beyond Air (formerly AIT Therapeutics) (AITB) is a company that has acquired a technology that produces nitric oxide from electrical discharge through air. They are currently in clinical trials testing the product for use in the treatment of cystic fibrosis and chronic obstructive pulmonary distress.
Many of our competitors, either alone or with their strategic partners, may have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of products, and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining approval for therapies or delivery hardware and achieving widespread market acceptance. We anticipate that we will face intense and increasing competition as new drugs and advanced technologies become available.
Employees
The Company currently has two employees and relies on its officers and consultants for most of its activities.
Regulations
Our proposed products would use nitric oxide gas for use in medical treatment. Accordingly, our products will require prior FDA Class II approval. We have not submitted our products for approval and it is expected to take many years and may not be obtained, even after expending substantial resources in such efforts. Various laws and regulations govern or influence the research and development, manufacturing, safety, labeling, storage, record keeping and marketing of our products. The lengthy process of seeking these approvals and the subsequent compliance with applicable laws and regulations require the expenditure of substantial resources. Any failure by us to obtain or maintain, or any delay in obtaining or maintaining, regulatory approvals could materially adversely affect our business. Our policy will be to conduct our research and development activities in compliance with current FDA guidelines and with comparable guidelines in other countries where we may be conducting clinical trials or other developmental activities.
The following is a brief summary of applicable governmental regulations to which we may be subject in our planned business operations related to the use of our products in the medical field. It should be noted that the application for FDA regulatory approval of our devices is a long and costly pathway. As we do not currently have the capital to engage in any regulatory approval, for the foreseeable future we will be focused on the development of our technology and additional patent applications.
Clinical testing, manufacturing and marketing of human pharmaceutical products require prior approval from the FDA and comparable agencies in foreign countries. The FDA has established mandatory procedures and safety and efficacy standards that apply to the testing, manufacture and marketing of such products in the United States. In the United States, these procedures include pre-clinical studies, the filing of an Investigational New Drug Application ("IND") or equivalent, human clinical trials and approval of a New Drug Application ("NDA"). The results of pre-clinical testing, which include laboratory evaluation of product chemistry and animal studies to assess the potential safety and efficacy of the product and its formulations, must be submitted to the FDA as part of an IND that must be reviewed before clinical testing can begin.
The results of the preclinical and clinical testing are then submitted to the FDA in the form of an NDA for approval to commence commercial sales. The FDA may, in responding to an NDA, grant marketing approval, request additional information or deny the approval if it determines that the NDA does not provide an adequate basis for approval. Among the conditions for an NDA approval is the requirement that the prospective manufacturer's quality control and manufacturing procedures conform on an ongoing basis with current Good Manufacturing Practices ("GMP"). In complying with GMP, we must continue to expend time, money and effort in the areas of production and quality control to ensure full compliance or engage the services of outside contractors who are well versed in compliance with these requirements. Following approval of the NDA, we are subject to periodic inspections by the FDA. Any determination by the FDA of manufacturing deficiencies could materially adversely affect our business.
European countries generally follow the same procedures. The European Union has established a unified filing system administered by the Committee for Proprietary Medicinal Products ("CPMP") designed to reduce the administrative burden of processing applications for pharmaceutical products derived from new technologies. Following CPMP review and approval, marketing applications are submitted to member countries for final approval and pricing approval, as appropriate. In addition to obtaining regulatory approval of products, it is generally necessary to obtain regulatory approval of the facility in which the product will be manufactured. The approval process for medical devices in Europe is similar but is administered by private certification organizations known as Notified Bodies, which are accredited by each member state of the European Union. The receipt of regulatory approvals often takes several years, involves the expenditure of substantial resources and depends on a number of factors, including the severity of the disease in question, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. On occasion, regulatory authorities may require larger or additional studies, leading to unanticipated delay or expense. There can be no assurance that any approval will be granted and, even if granted, such approval may be withdrawn if compliance with regulatory standards is not maintained. In addition, the regulatory approval processes for products in the U.S., European countries and other countries around the world are undergoing or may undergo changes, and we cannot predict what effect any changes in the regulatory approval process may have on our business.
Clinical testing of an unapproved significant-risk medical device requires FDA approval in the form of an Investigational Device Exemption (IDE). The IDE application provides information to the FDA on device design and qualification, as well as on the study protocol. The FDA is mandated to respond to the IDE application within 30 days. An IDE may also be required for studies in which an approved device is used for a purpose distinct from its approved indication. This is typically the case when a trial is sponsored by a company for the purpose of expanding the indication of a device or making significant changes in the instructions for use.
Medical devices are regulated in the United States by the Center for Devices and Radiological Health (CDRH) of the FDA. The FDA/CDRH mandate is to promote and protect the public health by making safe and effective
medical devices available in a timely manner. The standard for demonstrating safety and effectiveness is determined in part by the risk associated with the device in question. Devices are classified according to their perceived risk using a 3-tiered system (Class I, II, or III).
Class I devices (lowest risk) are subject to general controls, which are published standards pertaining to labeling, manufacturing, post-market surveillance, and reporting. Devices are placed into Class I when there is reasonable assurance that general controls alone are adequate to assure safety and effectiveness. The general controls that typically apply to Class I devices include prohibitions against adulteration and misbranding, requirements for establishing registration and device listing, adverse event reporting, and good manufacturing practices. Furthermore, remedies including seizure, injunction, criminal prosecution, civil penalties, and recall authority are provided to the FDA. Formal FDA review is not required for most Class I devices before their market introduction.
Class II devices are those higher-risk devices for which general controls alone have been found to be insufficient to provide reasonable assurance of safety and effectiveness, but for which there is adequate information available to establish special controls. Special controls may include performance standards, design controls, and post-market surveillance programs. In addition, most Class II devices require FDA clearance of a premarket notification application (PMA or 510(k)) before the device may be marketed. In the 510(k) applications, the medical device manufacturer must provide data to demonstrate that the new device is “substantially equivalent” to a legally marketed device. Although substantial equivalence can usually be demonstrated on the basis of bench and animal testing alone, approximately 10% of 510(k) applications include clinical data.
Class III devices, such as heart valves, pacemakers/implantable cardioverter-defibrillators, and coronary stents, are judged to pose the highest potential risk. These devices are either life-sustaining/supporting, of substantial importance in preventing impairment of human health, or present a high risk of illness or injury. Consequently, general and special controls alone are inadequate to provide reasonable assurance of safety and effectiveness. Most Class III devices require FDA approval of a PMA before they can be legally marketed. Approval of the PMA generally requires clinical data demonstrating reasonable assurance that the device is safe and effective in the target population.
The Human Device Exemption (HDE) is a new pathway to allow for commercialization of Class III devices designed to address small markets, i.e., diseases or conditions that affect fewer than 4,000 patients in the United States each year. Approval of an HDE requires demonstration that the device is safe and the probable benefits outweigh the probable risks. Although the process may require smaller clinical trials, an HDE device must continue to operate under local IRB approval at each participating institution and must continue to collect case report forms akin to an ongoing clinical trial. The PMA process typically involves a series of studies starting with first clinical use and culminating in a multicenter, prospective randomized control trial (pivotal trial). The complexity and extent of the clinical testing program is dictated by the nature of the device and its proposed use. The clinical study program is developed by the company in conjunction with clinician investigators, all in close collaboration with the FDA/CDRH.
The first and arguably most important step in this process is the pre-IDE meeting, in which the company, often accompanied by the lead clinical investigator(s), meets with the FDA/CDRH to present data about the device, its clinical development program, and its intended use after approval. The FDA/CDRH staff reviews existing bench and animal data (as well as any outside-the-United States clinical data) and makes informal, non-binding suggestions regarding the need (if any) for additional pre-clinical data (bench and animal), as well as the study design. The sponsor then submits an IDE application to the FDA/CDRH for formal review.
Clinical development of a new Class III device is typically divided into pilot and pivotal trial phases. The purpose of the pilot phase (starting with first clinical use) is to establish safety and to assist in design of the pivotal trial. Pilot-phase testing is typically limited to fewer than 100 patients treated at a few centers. The purpose of the pivotal trial is to generate data that define patient populations in which use of the device is safe and effective. The dialogue initiated during the pre-IDE meeting continues and intensifies between the FDA/CDRH and the company over the
specifics of the pivotal trial and includes the patient population, the control group against which the new device will be evaluated, and the primary and secondary end points of the evaluation. For first-in-class devices, e.g. drug-eluting stents, where there are few data regarding short- or long-term outcomes, the FDA/CDRH requires prospective randomized controlled studies. High profile devices that require randomized data for approval are the exception rather than the rule. The vast majority of device clinical trials are case series that carefully document product performance. Still more products are approved as “tools.”
When the FDA/CDRH has substantial data on the device class metrics, comparisons may be made to historical data or objective performance criteria. When few data on existing standards are available, the FDA typically requires randomized rather than single-arm studies, in which the new device is compared against concurrent controls treated with current best medical practice. The comparison may be powered to show that the new treatment is superior to prior approaches, or that it is non-inferior (equivalent or better) compared with a previously approved device in a new area.
The specifics regarding study design may have profound impact on the time and cost of bringing a new device to market. Though the primary mission of the FDA/CDRH is to ensure safety and effectiveness of commercially available devices, when exerting regulatory oversight, the agency must balance its primary mission with the costs of introducing new technologies to the clinical marketplace. This has been codified by the FDA Modernization Act and the FDA Modernization Act-II, which require the agency to pursue the “least burdensome means” available to establish device safety and efficacy. The trial must be conducted according to good clinical practices standards, with the approval of the local IRB at each participating center.
Every clinical site is federally mandated to have an IRB responsible to ensure the protection of the rights, safety, and welfare of research subjects. Regulation of the IRB review of protocols involving medical devices is under the purview of the FDA. The Office of Protection from Research Risks (OPRR) is responsible for oversight regarding all human research and is in direct communication with the FDA/CDRH. Studies involving human subjects that do not involve products regulated by the FDA, fall under the direct purview of the OPRR. Both the FDA and the OPRR are in the Department of Health and Human Services. Each IRB must meet standards for the composition, leadership, and processes set forth by that department. IRBs are subject to periodic audits by the FDA to ensure that records and procedures are in compliance with regulations. The IRB process typically requires approximately three months, but at times can take considerably longer.
The company must also negotiate agreements with each clinical site addressing the many issues associated with the clinical trial. In addition to the study costs/reimbursement (per-patient enrolled and overhead), these agreements typically include indemnification and the assignment of ownership rights of new discoveries (intellectual property) made in the course of the study. The resources required at each center to perform the high-quality research necessary for a PMA protocol are formidable. Pivotal studies required for a PMA application are typically large multicenter randomized trials and often represent the largest commercial risk and expense in the device development process. In addition to obtaining an IDE from the FDA and formally recruiting clinical sites, it also includes engaging a contract research organization (CRO), core laboratories, formation of a data safety monitoring board (DSMB), and an executive committee.
Though there are many similarities in the regulatory process in the United States and countries within the European Union, there are important differences that impact the time and cost associated with the introduction of a new medical device. The European Union system relies heavily on notified bodies (NBs), which are independent commercial organizations to implement regulatory control over medical devices. NBs have the ability to issue the CE mark, the official marking required for certain medical devices. NBs are designated, monitored, and audited by the relevant member states via the national competent authorities. Many functions performed by the FDA/CDRH within the United States are performed by NBs, including medical device certification, device type designation, assessment and verification of quality systems, and review of design dossiers for high-risk devices. Currently, there are more than 50 active NBs within Europe. A company is free to choose any notified body designated to cover the particular class of device under review. After approval, post-market surveillance functions are the responsibility of
the member state via the competent authority. NBs typically function in a closed manner, providing little visibility on criteria required for approval. This dynamic allows for a high degree of variation as well as competition among NBs. As a result, NBs are perceived by industry to be less bureaucratic organizations that can respond more quickly and efficiently than the FDA.
Criteria for approval of high-risk devices are different in the European Union. To receive approval to market a Class III high-risk (and some Class II) device in the United States, the manufacturer must demonstrate the device to be reasonably safe and effective, which typically requires a prospective, randomized controlled clinical trial. To receive approval to market a device in the European Union, the manufacturer must demonstrate that the device is safe and that it performs in a manner consistent with the manufacturer’s intended use. This difference has a profound impact on the size and scope of the clinical studies for regulatory approval.
The demonstration of safety and efficacy for a new medical device is a long, arduous, and expensive developmental path from early concept to introduction into clinical practice.
We will be subject to environmental and other rules related to the handling of nitric oxide. We will be using very small testing quantities of nitric oxide and do not anticipate any material issues in relation to nitric oxide as it relates to environmental or other regulatory issues.
In addition to the foregoing, our present and future business may be subject to various laws and regulations relating to safe working conditions, clinical, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research, as well as national restrictions on technology transfer, and import, export and customs regulations and similar laws and regulations in foreign countries. Due to the extensive regulatory requirements, management does not anticipate any submittals for some time until the technology is more developed and tested in the lab. At such time as management feels initial submittals are warranted, significant additional capital will need to be raised to proceed with even initial submittals As such, we believe any commercialization of our product is years away and we will continue to be reliant on loans and stock sales to stay in business.
Concentration of Customers
Currently we do not have any customers and will not have any customers until our product is through the development and testing stages and receives FDA approval.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, including Duration
Presently we have 1 patent approved and 2 patents pending for our Nitric Oxide systems and we hope to file additional patents for our products which will help us build a strong IP portfolio and value for our company and our shareholders. Our approved patent covers Gas Generator #62-014866 and our patent pending covers Controlled Delivery of Medical gases using Diffusion Membrane #14529112 and a patent pending for our disposable delivery device. We are also pursuing a proprietary protection strategy of our key formulations and methods for further strengthening the overall Intellectual Property portfolio. We have no trademarks. We also have no franchises, concessions, royalty agreements or labor contracts.
Research and Development Costs During the Last Two Fiscal Years
We are currently expensing our costs under a general operating expense category instead of capitalizing any research and development expenses.
ITEM 1A.
ITEM 1A. RISK FACTORS
NU-MED’s operations are subject to a number of risks including:
Risk Factors Relating to NU-MED’ Proposed Activities
We currently do not have the capital to fund operations and are dependent on raising additional capital to stay in business.
NU-MED is a medical device development company focused on the development of systems for the delivery of nitric oxide. NU-MED is currently undercapitalized and is relying on equity and debt investments to continue operations. We have identified the products we want to develop and market. We have moved forward in the design and development stage with these products. Given that we will be producing a medical device, it may take years of testing before we are able to start selling our product and we will need more capital infusions to get the product developed and to market. Investors in NU-Med would be placing their money in a company with some developed products which are potentially years away from being able to sell and with no support for the eventual commercial application or market for the product. Given the uncertainties facing the company, investors should look to an investment in NU-MED as highly speculative and risky with a high probability of losing their entire investment.
We are still in the product development phase of our operations, so the ultimate success of our products is unknown.
NU-MED is a development-stage business. NU-MED has focused on the development of medical products which requires extensive capital investment and can be a very lengthy process subject to extensive regulatory approval. The ultimate success of NU-MED and its products is very uncertain. Investors will therefore be placing their money in an undercapitalized company with no proven operations.
Nitric oxide is a regulated chemical and is subject to extensive environmental regulations related to its handling and disposal, which may increase our costs and subject us to environmental regulations.
Although NU-MED operates as a research and development company at this time and we use only small quantities of nitric oxide, we are still subject to the environmental and other workplace rules related to the handling and disposal of nitric oxide. These rules require that we keep records of our handling and disposal of any nitric oxide. Additionally, if we mishandle or do not dispose properly of the nitric oxide, we could be subject to fines and penalties. At this time, we do not anticipate handling large quantities of nitric oxide and should not see substantial additional costs or contingencies from our use of nitric oxide. However, as we expand our operations, the environmental and workplace rules related to the handling of nitric oxide could increase our overall costs.
We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.
Certain aspects of our business are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, distribution, storage, handling, treatment and disposal of materials. For example, high-pressure gas cylinders can be regarded as hazardous materials. Although we believe our safety procedures for handling and disposing of these materials and waste products comply with these laws and regulations, we cannot eliminate the risk of accidental injury or contamination from the use, manufacture, distribution, storage, handling, treatment or disposal of hazardous materials. In the event of contamination or injury, or failure to comply with environmental, occupational health and safety and export control laws and regulations, we could be held liable for any resulting damages and any such liability could exceed our assets and resources. We do not maintain insurance for any environmental liability or toxic tort claims that may be asserted against us.
We will need additional financing, which will potentially dilute current investors, and we may not be able to obtain such financing.
NU-MED intends to engage in product development that will require substantial capitalization as we attempt to develop our products. Accordingly, NU-MED’ future success and profitability may be based on our ability to obtain additional financing on favorable terms. Any additional financing may cause dilution to current investors and there can be no assurance that any additional financing will be on terms that are favorable to NU-MED and our shareholders.
We currently have note payables that may be converted into shares of our common stock, which could result in substantial dilution to current investors.
We have note payables which may be converted into shares of our common stock. Two of the notes, with total balances of $230,100 and accrued interest of $114,231 are convertible at $0.01 per share of principal and interest. With approximately $230,100 in principal and $114,231 in accrued interest on the notes, if the notes and accrued interest are converted, over 34,433,100 additional shares would be issued. If all of the notes and accrued interest were converted into shares of our common stock, investors would suffer substantial dilution to their ownership percentage in NU-MED and to their overall value. We would expect any issuance to be very dilutive to current investors, resulting in potential loss of value to the investors.
The medical product business is highly competitive and subject to extensive regulations, making it difficult and very expensive to bring new products into the marketplace.
We face vigorous competition from companies throughout the world, including multinational companies which are better financed and have more experience in medical product design. Most of these competitors have greater resources than we do and may be able to respond to changing business and economic conditions more quickly than us. Our ability to compete with these companies will be limited. Additionally, with extensive regulation and testing of medical devices, it is extremely costly to bring a medical device to market and we may not be able to obtain the necessary capital to bring a medical device to market. As such, an investment in the Company is very risky and could result in the loss of an investor’s entire investment.
Our success will be dependent on the ability of management to develop medical devices.
Our success depends on our ability to develop medical products. With limited resources, we will be dependent on current management to be able to develop the medical devices. None of our current management members has extensive experience developing medical products or bringing them to market. As such, investors will be placing money with individuals with no proven success in developing and selling medical devices, thereby creating high risk of loss of an investor’s entire investment in the Company.
Our success depends, in part, on our key personnel.
Our success depends, in part, on our ability to retain our key personnel, including our executive officers and senior management team. Our management team has created our business model and the initial focus on our first medical device. The unexpected loss of one or more of our key executives could adversely affect our business. Our success also depends, in part, on our continuing ability to identify, hire, train and retain other highly qualified personnel. Competition for these employees can be intense. We may not be able to attract, assimilate or retain qualified personnel in the future, and our failure to do so could adversely affect our business.
Our ability to commercialize pharmaceutical products successfully may depend, in part, on the availability of reimbursement for our products from:
* Government and health administration authorities;
* Private health insurers; and
* Other third party payers, including Medicare.
We cannot predict the availability of reimbursement for health care products. Third-party payers, including Medicare, are challenging the prices charged for medical products and services. Government and other third-party payers progressively are limiting both coverage and the level of reimbursement for new drugs. Third-party insurance coverage may not be available to patients for any of our products.
The continuing efforts of government and third-party payers to contain or reduce the costs of health care may limit our commercial opportunity. If government and other third-party payers do not provide adequate coverage and reimbursement for any product we bring to market, doctors may not prescribe them or patients may ask to have their physicians prescribe competing treatments with more favorable reimbursement. In some foreign markets, pricing and profitability of prescription pharmaceuticals are subject to government control. In the United States, we expect that there will continue to be federal and state proposals for similar controls. In addition, we expect that increasing emphasis on managed care in the United States will continue to put pressure on the pricing of pharmaceutical products. Cost control initiatives could decrease the price that we receive for any products in the future. Further, cost control initiatives could impair our ability to commercialize our products and our ability to earn revenues from this commercialization.
We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell
Some of the products we manufacture and sell may expose us to product liability claims relating to personal injury or death caused by such products. Although we will maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will be available to us on economically reasonable terms, or at all.
Our auditors have indicated in their audit opinion that there is a substantial doubt about our ability to continue as a going concern, which will affect our ability to raise capital or borrow money.
Our auditors have issued an audit opinion indicating that there is a substantial doubt about our ability to continue as a going concern. As such, any potential investor or lender is unlikely to be willing to provide additional capital or loans to us. Without additional capital, we will be unable to remain in business or to execute on our business plan. Even if we are able to obtain additional capital, given the “going concern” modification, it is likely investors would suffer substantial dilution to their investment.
General Risks Relating to Investors
We intend to take advantage of the disclosure requirements of the JOBS Act provided for emerging growth companies, including not providing all of the accounting disclosure that other companies will be required to provide, which may limit an investor’s ability to compare our financial statements with other companies.
Under the JOBS Act, we can elect to not comply with new or revised accounting standards which will allow us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies. Until the standards are required for private companies, we will not be required to adopt those standards. As such, our financial statements may not be comparable to those of companies that comply with public company effective dates. This could affect an investor’s ability to evaluate our financial statements compared to other public companies. In addition to the financial statements, as we qualify as a “Smaller Reporting Company”, the JOBS Act allows us to provide less disclosure on certain issues, such as executive compensation, which could affect an investor’s ability to compare us to other companies.
We do not intend to pay dividends in the near future.
NU-MED has not paid, and does not plan to pay, dividends in the foreseeable future, even if we were profitable. Earnings, if any, are expected to be used to expand operations, for research and development and for general corporate purposes, rather than to make distributions to shareholders.
Investors will not have cumulative voting and will not be able to elect directors based on the percentages of ownership.
Holders of common stock are not entitled to accumulate their votes for the election of directors or otherwise. The present shareholders of NU-MED will be able to elect all of the directors of NU-MED and effectively control NU-MED’s affairs, making it difficult for investors to be able to change management or the direction of NU-MED. (See "DESCRIPTION OF SECURITIES.")
We may issue more stock without shareholder input or consent, which could dilute the book value of your investment.
The board of directors has authority, without action by or vote of the shareholders, to issue all or part of the authorized but unissued shares. In addition, the board of directors has authority, without action by or vote of the shareholders, to fix and determine the rights, preferences, and privileges of the preferred stock, which may be given voting rights superior to that of the common stock. Any issuance of additional shares of common stock or preferred stock will dilute the ownership percentage of shareholders and may further dilute the book value of our shares. It is likely we will seek additional capital in the future to fund operations. Any future capital will most likely reduce current shareholders’ percentage of ownership. Additionally, with the board of directors having the ability to set the rights, preferences and privileges of the preferred stock the board of directors, without shareholder approval, can create classes of stock which are superior to the common stock in both voting and preferences, including dividend and liquidation preferences. As such, current and future holders of common stock may have less voting power per share and dividend rights then subsequently issued preferred stock.
A relatively small number of stockholders and managers have significant influence over us, other stockholders will not be able to have a voice in the direction of the company, and stockholders may disagree with the decisions of management.
A small number of our stockholders and management, acting together, will be able to exert significant influence over us through their ability to influence the election of directors and all other matters that require action by our stockholders. The voting power of these individuals could have the effect of preventing or delaying a change in control of our company which they oppose, even if our other stockholders believe it is in their best interests. In addition, our executive officer has the ability to influence our day-to-day operations. These factors could negatively affect our company and our stock price, as other investors may be unwilling to invest in a company with such a consolidation of control. Additionally, if stockholders dislike the decisions of management, it will be difficult for stockholders to make changes to current management.
The departure of certain key personnel could affect the financial condition of NU-MED due to the loss of their expertise.
Our business plan was developed by our officers and will depend on their ability to design and create the initial models for our products. Without their expertise, it is unlikely we will be able to complete the development and design of initial products. We do not have the funds, at this time, to hire additional personnel, and without current management it is unlikely we would be able to obtain further funding. The loss of any member of management would severely hinder our ability to develop our proposed products. A failure on our part to retain the services of these key personnel could have a material adverse effect on our operating results and financial conditions. We do not maintain key man life insurance on any of our employees.
Employees
The Company currently has two employees and relies on its officers and consultants for most of its activities.
The outbreak of the coronavirus may negatively impact our business, results of operations and financial condition.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout China and other parts of the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020 the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and could adversely affect our business, results of operations and financial condition. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition and results of operations.
ITEM 2.
ITEM 2. PROPERTIES
NU-MED’s corporate office is at 455 E 500 S, Suite 203, Salt Lake City, Utah 84111. Our R&D facility is located at 1266 S 1380 W Orem, Utah 84058. We pay rent of $1,038.10 per month for the corporate office and $525 per month for the R&D facility. The executive office arrangement will provide us the flexibility to expand our corporate offices as needed, without being committed to long term overhead or office space we currently do not need. Our executive office lease is for a term of twelve months, which runs through August 31, 2020, and our laboratory lease is on a month to month basis. Management believes these facilities will serve our purposes for at least the next twelve months.
ITEM 3.
Item 3
Articles of Incorporation and Bylaws
3.01
Articles of Incorporation
Incorporated by reference*
3.02
Bylaws
Incorporated by reference*
Item 4
Item 4 Instruments Defining the Rights of Security Holders
4.01
Specimen Stock Certificate
Incorporated by reference*
10.01
Consulting Contract - SCS
Incorporated by reference**
10.02
Amended Promissory Note - SCS
Incorporated by reference***
10.03
Promissory Note - SCS
Incorporated by reference***
31.01
CEO certification
This Filing
31.02
CFO certification
This Filing
32.01
CEO certification
This Filing
32.02
CFO certification
This Filing
101. INS
XBRL Instance
101. XSD
XBRL Schema
101. CAL
XBRL Calculation
101. DEF
XBRL Definition
101. LAB
XBRL Label
101. PRE
XBRL Presentation
*The exhibits were filed with the original Form 10 filed by NU-MED on December 10, 2012, file number 000-54808.
**The consulting contract was filed with the Form 8-K dated January 7, 2014 and filed on January 8, 2014.
***Amended note filed with the Form 8-K dated September 27, 2013, and filed on October 1, 2013.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NU-MED PLUS, INC.
March 30, 2020
By: /s/ Jeffrey L. Robins
Jeffrey L. Robins, CEO, Principal Executive
March 30, 2020
By: /s/ Keith L. Merrell
Keith L. Merrell, CFO/Principal Accounting
Officer
In accordance with Section 12 of the Securities Exchange Act of 1934, the Registrant caused this registration statement to be signed on its behalf by the undersigned in the capacities and on the dates stated.
Signature
Title
Date
/s/ Jeffrey L. Robins
Director, CEO
March 30, 2020
Jeffrey L. Robins
/s/ William G. Moon
Director
March 30, 2020
William G. Moon
/s/ Dr. Craig Morrison
Director
March 30, 2020
Dr. Craig Morrison
/s/ Thomas A. Tait
Director
March 30, 2020
Thomas A. Tait
/s/ Dr. Brett Earl
Director
March 30, 2020
Dr. Brett Earl
Nu-Med Plus, Inc.
Financial Statements
December 31, 2019 and 2018
Page No.
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity (Deficit)
Statements of Cash Flows
Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Nu-Med Plus, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Nu-Med Plus, Inc. (“the Company”) as of December 31, 2019 and 2018, the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2019 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the company has negative working capital, net losses, negative cash flows from operating activities, and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since 2017.
Salt Lake City, UT
March 30, 2020
NU-MED PLUS, INC.
Balance Sheets
The accompanying notes are an integral part of these financial statements.
NU-MED PLUS, INC.
Statements of Operations
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
NU-MED PLUS, INC.
Notes to the Financial Statements
For the Years Ended December 31, 2019 and 2018
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Nu-Med Plus, Inc. (or “the Company”) is an emerging growth early stage medical device company principally engaged in the design, innovation, development, enhancement and commercialization of beginning, early, and selective later-stage quality medical devices. The Company's immediate focus is on the development of Nitric Oxide delivery devices, including a hospital unit, a clinical unit to be used in doctors’ offices and extended care facilities, a portable unit and a single use disposable unit. We are also developing a powder formulation to generate Nitric Oxide that is 99% pure, with a one-year shelf life, a "desktop" generator device with controls plus safety monitors built in that delivers inhaled Nitric Oxide to replace expensive pressurized canisters and a compact mobile rechargeable device to deliver inhaled Nitric Oxide gas. The Company is incorporated in Utah.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments which are necessary for a fair statement of the results for interim periods have been included.
b. Revenue Recognition
The Financial Accounting Standards Board (“FSB”) issued new guidance for the recognizing and reporting of revenue in contracts with customers. The effective date for implementation for public companies is January 1, 2018.
The new guidance established a five-step analysis to be followed when determining the recognition of revenue.
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 the performance obligations in the contract.
5.
Recognize revenue when, or as, the reporting organization satisfied a performance obligation.
While the Company is a development stage company with no revenue, at the time we begin to generate revenue the Company will recognize such revenue in conformity with the guidelines set forth by ASC 606.
c. Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
d. Cash and Cash Equivalents
The Company considers all deposit accounts and investment accounts with an original maturity of 90 days or less to be cash equivalents. The cash balance we currently have on deposit is within the limits for which the FDIC insures.
e. Property and Equipment
Property and equipment is stated at cost. Expenditure for minor repairs, maintenance, and replacement parts which do not increase the useful lives of the assets are charged to expense as incurred. Expenditures, exceeding $500, for new assets or that increase the useful life of existing assets are capitalized. Depreciation is computed using the straight-line method. The lives over which the fixed assets are depreciated are five to seven years.
f. Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB Accounting Standards Codification (“ASC”) Topic 820 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements), as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than level one inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.
All cash, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to the short-term nature of these financial instruments. Additionally, we measure certain financial instruments at fair value on a recurring basis.
g. Earnings per Share
The computation of earnings per share of common stock is based on the weighted average number of shares outstanding during the period of the financial statement. The company included shares subscribed but unissued in its calculation of earnings per share.
For the year ended December 31, 2019
For the year ended December 31, 2018
Net (loss) earnings (numerator)
$ (1,036,825)
$ (1,188,846)
Shares (denominator)
45,545,644
41,785,309
Net earnings per share amount - basic
$ (0.02)
$ (0.03)
Shares (denominator)
45,545,644
41,785,309
Net earnings per share amount - diluted
$ (0.02)
$ (0.03)
Diluted earnings per share is computed using the weighted average number of common shares plus dilutive common share equivalents outstanding during the period. As of December 31, 2019 and 2018 there were 34,433,100 and 32,795,200, respectively, potential dilutive shares that needed to be considered as common share equivalents.
As of December 31, 2019 and 2018 the dilutive shares were excluded from the calculation for diluted earnings per share as there was a net loss and their inclusion in the calculation would be anti-dilutive.
h. Concentrations and Credit Risk - The Company has relied on a small group of investors to fund its operations. If this group becomes unable or unwilling to provide additional funding, the Company may be unable to remain in business or to execute on its business plan.
i. Income Taxes
Deferred taxes are provided on an asset and liability approach whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
j. Stock-based Compensation
The Company, in accordance with ASC 718, Compensation - Stock Compensation, records all share-based payments to employees at the grant-date fair value of the equity instruments issued. In accordance with ASC 718-10-30-9, Measurement Objective - Fair Value at Grant Date, the Company uses the closing price of the stock, as quoted by NASDAQ, on the date of the grant. The Company believes this pricing method provides the best estimate of fair the fair value of the consideration given. Compensation cost is recognized over the requisite service period.
The Company, in accordance with ASC 505, Compensation - Stock Compensation, establishes the value of equity instruments issued to non-employees for goods and services by using the closing price of the stock, as quoted by NASDAQ, on the date of the grant. The Company believes this method fairly establishes the value of the goods and/or services received.
k. Recent Accounting Pronouncements
In February 2016, the Financial Standards Accounting Board (“FASB”) issued ASU 2016-02, “Leases”, which is intended to improve financial reporting for lease transactions. This ASU will require organizations that lease assets, such as real estate and manufacturing equipment, to recognize both assets and liabilities on their balance sheet for the rights to use those assets for the lease term and obligations to make the lease payments created by those leases that have terms of greater than twelve months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. This ASU will also require disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures will include qualitative and quantitative requirements, providing addition information about the amounts recorded in the financial statements. In 2019 the Company recorded an operating right-of-lease asset of $19,482 and an operating lease liability of $19,482 related to the lease of their office. Amortization of $11,086 was recorded in 2019, leaving an operating right-of-use asset at December 31, 2019 of $8,396 and an operating lease liability of $8,396. The ASU was adopted by the Company in the first quarter of 2019 and did not have a material impact on its financial statements. See Note 7.
In February 2018, the FASB issued Accounting Statement Update No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for certain income tax effects stranded in AOCI as a result of the Tax Act. The reclassification eliminates the stranded tax effects resulting from the Tax Act and is intended to improve the usefulness of information reported to financial statement users. ASU No. 2018-02 is effective for reporting periods beginning on January 1, 2019; early adoption is permitted. The Company does not currently have amounts to be reclassified under this and therefore believes it will not have an impact on its financial statements and statements of operations.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718),” (“ASU 2018-07”). ASU 2018-07 is intended to reduce cost and complexity of financial reporting for non-employee share-based payments. Currently, the accounting requirements for non-employee and employee share-based payments are significantly different. ASU 2018-07 expands the scope of Topic 718, which currently only includes share-based payments to employees, to include share-based payments to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, “Equity - Equity-Based Payments to Nonemployees”. The amendments to ASU 2018 - 07 are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of
ASU No. 2014-09, (Topic 606), “Revenue from Contracts with Customers”. The Company is currently evaluating ASU 2018-07 and its impact on its condensed financial statements or disclosures.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018. The Company is in the process of evaluating the impact of the final rule on its condensed financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes/. ASU 2019-12 removes certain exceptions to the general principles of Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. The effective date will be the first quarter of fiscal year 2021 and early adoption is permitted. Adoption of Topic 740 is not expected to have a material effect on its condensed financial statements.
The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its consolidated results of operation, financial position and cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its current or future earnings or operations.
NOTE 3 - GOING CONCERN
The Company has negative working capital, net losses, negative cash flows from operating activities, and an accumulated deficit. The Company anticipates that the funds on hand as of December 31, 2019, will not be sufficient to successfully prosecute its business plan and funding through the sale of equity capital and short-term related party and other shareholder loans in order to meet the planned expenditures for development, operations, and administrative cost over the next 12 months will be required. Planned expenditures are approximately $1,250,000 for 2020. During the year ended December 31, 2018 the Company entered into subscription agreements in the amount of $20,000, $700,000 and $400,000, drew $772,605 against those agreements during the year ended December 31, 2017 and drew $93,070 during the year ended December 31, 2018. In May 2018 the Company received $110,000 for subscription agreements. In September 2018 the Board reserved for issuance 2,400,000 shares for a private placement of up to $600,000. In 2018 we accepted stock purchase agreements of $95,000, leaving an unsubscribed balance of $505,000 at December 31, 2018. The current funds available will fund operations through March 31, 2020. The Company has begun the process of arranging for additional necessary funding and currently retains consultants for that purpose. Management will adjust any salaries and expenditures based on the need for successful continuous operations. If plans to obtain further financing prove to be insufficient to fund operations, continued viability could be at risk. These factors raise substantial doubt about the Company's ability to continue as a going concern for a period of one year from the issuance of these financial statements. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 - PROPERTY AND EQUIPMENT
Fixed assets and related accumulated depreciation consisted of the following at December 31, 2019, and December 31, 2018:
December 31, 2019
December 31, 2018
Computer and office equipment
$ 90,368
$ 90,368
Accumulated depreciation
(66,943)
(53,577)
Total Property and Equipment
$ 23,425
$ 36,791
Depreciation expense for the years ended December 31, 2019 and 2018 was $13,366 and $14,743, respectively.
NOTE 5 - PREFERRED STOCK
On October 19, 2011, the Company filed Articles of Incorporation with the State of Utah so as to authorize 10,000,000 shares of preferred stock having a par value of $0.001 per share. No preferred shares are issued or outstanding at December 31, 2019.
NOTE 6 - COMMON STOCK
Common Stock Issued for Cash and Subscription Payable:
In May 2018, the Company entered into three stock subscriptions agreements with two investors. The subscriptions gave the investors the right to purchase up to 440,000 shares of restricted common stock at $0.25 per share. The Company received $110,000 under these subscription agreements and issued the 440,000 shares of restricted stock in June to fully satisfy its obligations under the agreements.
In October and December 2018, the Company entered into four stock purchase agreements under which the buyer may purchase up to $10,000, $15,000, $20,000, and $50,000, respectively, in shares of common stock at $0.25 per share. During 2018 the buyers the buyers exercised their rights and purchased 380,000 shares of stock under those agreements for $95,000. The Company issued 340,000 shares of restricted common stock in 2018 and the remaining 40,000 shares in 2019.
In 2019 the Company issued 200,000 shares of restricted common stock for $50,000 to an unrelated investor. Also during 2019 the Company received $367,866 in proceeds from a related party (a significant shareholder and convertible note holder), pursuant to a stock purchase agreement, which is convertible at $0.25 per share.
At December 31, 2019 and 2018, the Company had $465,541 and $849,175, respectively, in stock subscriptions payable for which it is obligated to issue 1,862,164 and 3,392,950 shares of restricted common stock, respectively. Additionally, as of December 31, 2019, an agreement for a purchase of a total of 516,256 shares of common stock for $129,064 are open to be subscribed to by the related party.
Common Stock Issued to Officer:
In February 14, 2018 the Company announced that the consulting agreement with the Chief Financial Officer (Mr. Merrell) was terminated effective December 31, 2017, and that a new agreement was entered into effective January 1, 2018 under which Mr. Merrell would receive 2,000,000 shares of restricted common stock, vesting at 500,000 shares per year, for his service. The term of the agreement is for one year, which term automatically renews for one-year extensions up to four years unless terminated by either party with 30 days written notice. The Company issued all 2,000,000 shares to Mr. Merrell on August 20, 2018. Any common shares not earned during the four-year period are to be returned or cancelled. An expense of $200,000 was recorded for the year ended December 31, 2019, which represents the fair value of the stock vested. A charge will be made each quarter as the shares are earned under the provisions of the agreement until such time as all shares have been earned.
Common Stock Issued for Services:
In September 2018, the Company issued 650,000 shares of stock to two consultants. Of these shares, 150,000 were issued under a consulting contract for services rendered and vested upon issue and 500,000 shares of restricted stock were issued to a consultant for services rendered and to be rendered through June 1, 2019. The common stock was valued at $639,000, of which $432,863 was recorded during the year ended December 31, 2018. A prepaid expense for the remaining balance of $206,250 is recorded and will be amortized over the term of the consulting agreement.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Lease Obligations
The Company entered into a lease for office space in February 2017 for $950 per month. In November 2017 the Company signed a six-month extension of the lease with a lease payment of $978 per month. In March 2018 the Company extended the lease agreement through August 31, 2019 at a rate of $1,008 per month. In July 2019 the Company extended the lease agreement through August 31, 2020 at a rate of $1,038.10 per month. Obligations under this lease are as follows:
In 2018, the Company also entered into a 24-month lease for a nitric oxide analyzer, with a monthly payment of $1,014 per month. The final payment under this agreement was made in December 2019.
NOTE 8 - RELATED PARTY TRANSACTIONS
Contributed Services
During the year ended December 31, 2019 and 2018, a Company officer contributed services to the Company in the amount of $200,000 and $232,061, respectively. During the year ended December 31, 2019 and 2018, the officer received 500,000 shares and 500,000 shares, respectively of restricted common stock as compensation for those services.
NOTE 9 - CONVERTIBLE PROMISORY NOTES - RELATED PARTY
$100,000 Convertible Promissory Note
On November 12, 2012, the Company issued a $100,000 convertible promissory note to SCS, a related party and significant shareholder, as compensation for services provided and to be provided during the period April 1, 2012 through March 31, 2013. The note is due on demand, bears annual interest at 5.5%, and is convertible into shares of common stock at a conversion price to be agreed upon immediately prior to conversion. On September 27, 2013, the Company amended the note to include a conversion price which of $0.01 per share for all unpaid principal and interest. As of December 31, 2019 and December 31, 2018 interest accrued, but unpaid, was $60,953 and $55,453, respectively.
$130,100 Convertible Promissory Note
Prior to 2015, the Company entered into a convertible promissory note with SCS, a related party and significant shareholder, due on demand, bearing interest at 8% per annum, unsecured and convertible at $0.01 per share, with a price protection provision to a lower conversion price. The balance of this note was $130,100 at December 31, 2019 and December 31, 2018 with accrued interest balances of $52,557 and $42,149, respectively.
NOTE 10 - INCOME TAXES
In 2017, the U.S. enacted the Tax Cuts and Jobs Act which significantly changed U.S. tax law. The Act lowered the U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018. This had an affect on the value of the Company’s net operating loss carryover, but since the deferred tax asset is fully reserved, it had no impact on the Company’s financial statements. The impact of the change was reflected in the 2018 financial statements.
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and applicable state income tax rates to pretax income from continuing operations for the years ended December 31, 2019, and 2018, due to the following:
Net deferred tax liabilities consist of the following components as of December 31, 2019, and 2018:
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. If a change in ownership occurs, then net operating loss carryforwards may be limited as to use in future years. At December 31, 2019, the Company had net operating loss carryforward of approximately $6,028.062 that may be offset against future taxable income from the year 2019 through 2039. The availability of some of the net operating loss will extend into 2036 if not previously utilized. During 2019, the Company evaluated its deferred tax assets and concluded that none of the asset is currently realizable and that a full valuation allowance should be recorded.
Included in the balance at December 31, 2019, are no tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.
NOTE 11 - SUBSEQUENT EVENTS
On March 15, 2020 the Company entered into a service agreement with Hanover International, Inc. to provide advisory services to the Company. The contract is a one year contract, but may be cancelled with thirty days notice any time after the 91st day of the agreement. Hanover will receive a fee of $3,500 per month, from which fee it pays all of its expenses. In addition, Hanover will receive 750,000 shares of restricted common stock, earned in quarterly tranches of 187,500 shares, deemed earned and issuable after services are provided for each quarter.
In the first three months of 2020 the Company received $106,927 in funds against a subscription agreement. The subscription has a conversion rate of $0.25 per share.