10-Q 1 ueec_10q.htm FORM 10-Q ueec_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2014

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ____________ to ____________
 
Commission file number: 814-00717
 
UNITED HEALTH PRODUCTS, INC.
(Exact name of Company as specified in its charter)
 
Nevada
 
84-1517723
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

1400 Old Country Road, Suite 302
Westbury, NY
 
11021
 (Address of Company’s principal executive offices)
 
(Zip Code)
 
(516) 487-1431
 (Company’s telephone number, including area code)
 
_____________________________________________________________
 (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the 12 preceding months (or such shorter period that the registrant was required to submit and post such file). Yes o No o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer
o
Accelerated Filer
o
Accelerated Filer
o
Smaller Reporting Company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares outstanding of the Registrant’s Common Stock, as of the filing date of this Form 10-Q was 102,647,640 after giving effect to the cancellation of 2,090,000 shares that Dr. Forman has agreed to cancel.
 


 
 

 
 
UNITED HEALTH PRODUCTS, INC.
 
FORM 10-Q QUARTERLY REPORT
 
TABLE OF CONTENTS
 
 
 
 
PAGE
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
Item 1.
Financial Statements (Unaudited)
     
         
 
Condensed Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013 (audited)
    3  
           
 
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2014 and June 30, 2013 (unaudited)
    4  
           
 
Condensed Consolidated Statement of Stockholder's Equity Six Months Ended June 30, 2014 (unaudited)
    5  
           
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and June 30, 2013 (unaudited)
    6  
           
 
Notes to Condensed Consolidated Financial Statements (unaudited)
    7  
           
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
    11  
           
Item 3.
Quantitative and Qualitative Disclosures
    15  
           
Item 4.
Controls and Procedures
    15  
           
PART II. OTHER INFORMATION
       
           
Item 1.
Legal Proceedings
    16  
           
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    16  
           
Item 3.
Defaults Upon Senior Securities
    16  
           
Item 4.
Mine Safety Disclosures
    16  
           
Item 5.
Other Information
    16  
           
Item 6.
Exhibits and Reports on Form 8-K
    17  
           
SIGNATURES
    18  
 
 
2

 
 
PART I – FINANCIAL INFORMATION
 
UNITED HEALTH PRODUCTS, INC
Consolidated Balance Sheets
 
   
(Unaudited)
       
   
June 30,
2014
   
December 31,
2013
 
             
ASSETS
             
Current Assets
           
Cash and Cash Equivalents
  $ 1,534     $ 1,855  
Accounts Receivable
    5,027       0  
Prepaid expenses
    1,771       0  
Inventory
    13,029       33,651  
                 
Total current assets
    21,361       35,506  
                 
Other Assets
               
Intangible Assets, Net
    0       50,000  
                 
TOTAL ASSETS
  $ 21,361     $ 85,506  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
                 
Current Liabilities
               
Accounts payable and accrued expenses
  $ 338,260     $ 285,457  
Liability for unissued shares
    145,543       160,543  
Notes payable - related parties
    828,973       625,224  
Other current liabilities
    142,204       136,106  
                 
Total current liabilities
    1,454,980       1,207,330  
                 
Commitments and Contingencies
               
                 
Stockholders' Deficiency
               
Common Stock - $.001 par value, 150,000,000 Shares
               
Authorized, 102,647,640 and 102,260,140 Shares Issued and
               
Outstanding at June 30, 2014 and December 31, 2013, respectively
    102,648       102,260  
Additional Paid-In Capital
    6,369,728       6,299,869  
Accumulated Deficit
    (7,905,995 )     (7,523,953 )
                 
Total Stockholders' Deficiency
    (1,433,619 )     (1,121,824 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
  $ 21,361     $ 85,506  
 
See notes to consolidated financial statements.
 
 
3

 
 
UNITED HEALTH PRODUCTS, INC
Consolidated Statements of Operations
(Unaudited)
 
   
For the Three Months Ended
June 30,
   
For the Six Months Ended
June 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Revenues
  $ -     $ 1,440     $ 146,773     $ 1,440  
                                 
Cost of goods sold
    -       -       43,187       -  
                                 
Gross profit
    -       1,440       103,586       1,440  
                                 
Operating Costs and Expenses
                               
Amortization of Intangibles
    (25,000 )     (25,000 )     (50,000 )     (50,000 )
Selling, general and administrative expenses
    (173,505 )     (62,351 )     (401,277 )     (77,407 )
                                 
Total Operating Expenses
    (198,505 )     (87,351 )     (451,277 )     (127,407 )
                                 
Loss from Operations
            (85,911 )     (347,691 )     (125,967 )
                                 
Other expenses
                               
Interest Expense, Net
    (17,175 )     (17,176 )     (34,351 )     (34,351 )
                                 
Total expenses
    (17,175 )     (17,176 )     (34,351 )     (34,351 )
                                 
Net Loss
  $ (215,680 )   $ (103,087 )   $ (382,042 )   $ (160,318 )
                                 
Net Loss per common share:
                               
Basic and diluted
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
Weighted average number of shares outstanding
    102,647,640       92,448,138       102,583,057       88,546,135  
 
See notes to consolidated financial statements.
 
 
4

 
 
UNITED HEALTH PRODUCTS, INC
Consolidated Statements of Stockholders' Deficiency
For the Six Months Ended June 30, 2014
(Unaudited)
 
               
Additional
             
   
Common Stock
   
Paid-in
   
Accumulated
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
                               
Balance at January 1, 2014
    102,260,140     $ 102,260     $ 6,299,869     $ (7,523,953 )   $ (1,121,824 )
                                         
Issuance of Common Stock in connection
                                       
with services
    200,000       200       33,800               34,000  
                                         
Stock options granted in connection
                                       
with services
    -       -       21,247               21,247  
                                         
Issuance of Common Stock in connection
                                       
with settlement of note payable
    187,500       188       14,812               15,000  
                                         
Net loss
                            (382,042 )     (382,042 )
                                         
Balance at June 30, 2014
    102,647,640     $ 102,648     $ 6,369,728     $ (7,905,995 )   $ (1,433,619 )
 
See notes to consolidated financial statements.
 
 
5

 
 
UNITED HEALTH PRODUCTS, INC
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2014
(Unaudited)
 
   
2014
   
2013
 
             
Cash Flows from Operating Activities:
           
Net Loss
  $ (382,042 )   $ (160,318 )
Adjustments to Reconcile Net loss to
               
Net Cash Used In Operating Activities:
               
Depreciation and Amortization
    50,000       50,000  
Interest accrued - related party notes
    34,350       34,351  
Issuance of stock for services
    34,000       -  
Stock options expensed
    19,476       -  
Changes in assets and liabilities:
               
Accounts Receivable
    (5,027 )     -  
Inventory
    20,622       -  
Accounts Payable and Accrued Expenses
    52,803       37,417  
                 
Net Cash Used In Operating Activities
    (175,818 )     (38,550 )
                 
Cash Flows from Financing Activities:
               
Proceeds from Related Parties
    175,497       -  
Proceeds from Notes Payable
    -       40,000  
                 
Net Cash Provided By Financing Activities
    175,497       40,000  
                 
(Decrease) Increase in Cash and Cash Equivalents
    (321 )     1,450  
Cash and Cash Equivalents - Beginning of period
    1,855       32  
                 
CASH AND CASH EQUIVALENTS - END OF PERIOD
  $ 1,534     $ 1,482  
                 
Schedule of Non-Cash Financing Activities:
               
Issuance of Common Stock in connection with with settlement of note payable
  $ 15,000     $ -  
 
See notes to consolidated financial statements.
 
 
6

 
 
UNITED HEALTH PRODUCTS, INC. AND SUBSIDIARY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Note 1. Organization and Basis of Preparation

United Health Products, Inc. (formerly United EcoEnergy Corp.) (“United” or the “Company”) is a product development and solutions company focusing its growth initiatives on the expanding wound-care industry and disposable medical supplies markets. The Company produces an innovative gauze product that absorbs exudate (fluids which have been discharged from blood vessels) by forming a gel-like substance upon contact. Epic Wound Care, Inc. (“Epic”), the Company’s principal operating subsidiary, was dissolved by the State of Florida on September 23, 2011 and, accordingly, all operations are now directly in the Company.

While the Company has funded its initial operations with private placements and secured loans from a related party, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company. The Company’s ability to continue as a going concern is also dependent on many events outside of its direct control, including, among other things, improvement in the economic climate. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X, as appropriate. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period, have been included.

Operating results for the interim periods presented are not necessarily indicative of the results to be expected for a full year.
 
The condensed consolidated balance sheet at December 31, 2013 has been derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

These interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes for the period ended December 31, 2013 filed with the Securities and Exchange Commission on Form 10-K in April 2014.
 
Note 2. Significant Accounting Policies

Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its former wholly owned subsidiary, Epic Wound Care, Inc. (which was dissolved by the State of Florida on September 23, 2011), as of the dates and for the fiscal years indicated. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported period. Changes in the economic environment, financial markets, as well as in the healthcare industry, and any other parameters used in determining these estimates, could cause actual results to differ.
 
 
7

 
 
Income Taxes

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

The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year. The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof, with due consideration given to the fact that tax periods are open to examination by tax authorities. Management believes the Company is no longer subject to income examinations for years prior to 2010.
 
As of December 31, 2013, the Company has approximately $6.1 million of net operating loss carry-forwards available to affect future taxable income and has established a valuation allowance equal to the tax benefit of the net operating loss carry forwards and temporary differences as realization of the asset is not assured.

Revenue Recognition

The Company recognizes revenues when persuasive evidence of an arrangement exists, product has been delivered, the price is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of estimated sales returns and allowances.

Revenues are attributable to the sale of medical products through distributor agreements. The principal terms of the agreements provide that the distributor orders be accompanied by partial payment in advance, which at least equals 50% of total manufactured cost, as defined, for orders for distributor inventory and, in addition, an agreed portion of the distributor’s gross profit on special orders. The balance of the manufactured cost is due from the distributor at the time of shipment. The Company is also entitled to an agreed percentage of the distributor’s profit on receipt by the distributor.
 
Per Share Information

Basic earnings per share are calculated using the weighted average number of common shares outstanding for the period presented. Diluted loss per share is the same as basic loss per share, as the effect of potentially dilutive securities (2,450,000 options and 1,698,378 warrants at June 30, 2014), is anti-dilutive.
 
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
 
The Company has determined that there have been no other recently adopted or issued accounting standards that had or will have a material impact on its Consolidated Financial Statements.
 
 
8

 
 
Note 3. Related Party Transactions

The Company’s transactions with LeadDog Capital LP were as follows:
 
 
 
Quarter Ended
June 30,
 
Six Months Ended
June 30,
 
 
  2014     2013  
2014
 
2013
 
Balance at beginning of period
  $ 518,729     $ 462,225     $ 504,603     $ 448,099  
Interest accrued
    14,126       14,126       28,252       28,252  
Balance at end of period
  $ 532,855     $ 476,351     $ 532,855     $ 476,351  
 
At June 30, 2014 and 2013, notes payable – related parties includes unpaid interest of $124,700 and $181,204, respectively. In 2011, the Board authorized the issuance of 1,000,000 shares to LeadDog Capital Markets LLC to extend the maturity dates of the outstanding loans to December 2012. The notes were payable within one year of the origination date of the notes or under extensions through December 2012. These notes were not paid on December 31, 2012 and no demand has been made for payment. LeadDog has advised the Company that a discrepancy exists as to the amount of monies owed to them. In November 2013, the Company commenced a lawsuit against LeadDog Capital LP and its affiliates, among other things, seeking to cancel this indebtedness. See Note 6.

LeadDog Capital LP and its affiliates are shareholders and warrant holders; however, the group is restricted from becoming a beneficial owner (as such term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act of 1934, as amended, (the 1934 Act)), of the Company’s common stock which would exceed 9.5% of the number of shares of common stock outstanding.
 
In addition, an officer of the Company has loaned approximately $296,000 to the Company to cover operating expenses with no repayment terms or interest charge.
 
Note 4. Issuances of Securities
 
On January 18, 2014, the Company entered into a consulting agreement with Steven Z. Safran to assist the Company in the areas of corporate networking, sales, marketing and strategic planning. Pursuant to said agreement, the Company issued 200,000 shares of restricted stock and immediately upon executing the agreement granted an option to purchase an additional 300,000 shares of stock at $0.12 per share from an outside investor.
 
Note 5. Fair Value Measurements

Accounting principles generally accepted in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Additionally, the inputs used to measure fair value are prioritized based on a three-level hierarchy. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
 
Level 1 — Quoted prices in active markets for identical assets or liabilities. The Company’s investment in securities held for sale is fair valued by this method.

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

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
 
 
9

 

Note 6. Litigation

There are no legal proceedings pending or threatened against us, and we are unaware of any governmental authority initiating a proceeding against us, except as described below. On November 8, 2013, the Company filed a Complaint in the Second Judicial District Court, State of Nevada, County of Washoe, against a former officer and director of the Company, LeadDog Capital LP, a corporation which in the past has loaned money to the Company, and certain other defendants. The Company sought among other things to have LeadDog Capital LP cancel its indebtedness owed by the Company. See “Note 10” regarding a settlement of this litigation.

Note 7. Material Agreements and Other Matters
 
As discussed in Note 4, the Company entered into an agreement with Steven Z. Safran as a consultant. Pursuant to said agreement, the Company issued 200,000 shares of restricted stock and immediately upon executing the agreement granted an option to purchase an additional 300,000 shares of stock at $0.12 per share from an outside investor. This agreement shall commence January 18, 2014 and shall expire July 17, 2014.
 
Note 8. Other Current Liabilities
 
As of June 30, 2014, included in other current liabilities are four outstanding notes to various individuals aggregating approximately $142,204 in principal and accrued interest. Interest accrues at the rate of 9% - 14% per annum.
 
Note 9. Stock Option Plan
 
On August 8, 2013, the Board of Directors approved the 2013 Employee Benefit and Consulting Services Compensation Plan which has 15,000,000 shares that may be issued under said Plan. The Plan provides for the direct issuance of shares of common stock under the Plan and for the grant of non-statutory stock options on terms established by the Board of Directors or committee thereof. While the Plan does not require stockholder approval to be implemented, in the event stockholder approval is obtained on or before August 8, 2014, then incentive stock options could be granted under the Plan. In September 2013, the Company issued 6,000,000 shares of stock under said Plan to Douglas Beplate pursuant to his consulting contract.
 
In the past, the Company has granted options to officers, directors, employees and/or consultants outside of a stock option plan. The following is a summary of changes to the Company’s outstanding stock options which were not granted under the aforementioned 2013 Plan:
 
Options
     
       
Outstanding at January 1, 2014
    2,150,000  
         
Granted
    -  
         
Outstanding at June 30, 2014
    2,150,000  
 
Note 10. Subsequent Events
 
The Company’s Management has evaluated subsequent events through August 19, 2014 and there are none except as described herein. In August 2014, the Company, a former officer and director of the Company, LeadDog Capital LP and other defendants in the litigation referenced in Note 6 above, agreed to settle the litigation in order to avoid the inconvenience and expense of continued litigation. The settlement made by the parties does not constitute an admission of liability. Pursuant to the Settlement Agreement, LeadDog Capital LP agreed to cancel all principal and accrued interest thereon.
 
 
10

 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under ‘Risk Factors’ in our annual report on Form 10-K for the fiscal year ended December 31, 2013, filed with SEC on April 15, 2014.
 
OVERVIEW

The Company develops, manufactures, and markets a patented hemostatic gauze for the healthcare and wound care sectors. The product HemoStyp™, is derived from regenerated oxidized cellulose, which is all natural, and designed to absorb exudate/drainage from superficial wounds and helps control bleeding. The Company is focused on identifying new markets and applications for its product as well as ramping up sales in its current markets. The Company has received orders from the dental and medical markets and is pursuing multiple markets for HemoStyp™, including the medical, sports, dental, military and veterinary sectors, each of which represents a multi-million dollar market.

Manufacturing and Packaging of our Products

On October 1, 2013, the Company entered into an Operating Agreement with Hemo Manufacturing LLC. Hemo Manufacturing is to act as the exclusive supplier of manufactured products for the Company’s products. Hemo Manufacturing is responsible for overseeing quality control of products at our overseas (non-exclusive) manufacturer in China as well as the packaging and labeling of our products for distribution. Pursuant to said agreement, 2,000,000 restricted shares of the Company’s Common Stock were issued upon execution of the agreement. Under certain conditions, an additional 2,000,000 shares of the Company’s Common Stock would be issued in the event the Company is bought out by a third party. The Company anticipates recording all sales directly to customers and making payment for goods directly to Hemo Manufacturing. The managing member of Hemo Manufacturing will retain 100% of the profits earned by Hemo Manufacturing unless the Company is sold to a third party. In the event of such a sale, the managing member of Hemo Manufacturing and the Company would have equal share in the gross profits. While the managing member of Hemo Manufacturing LLC owns 51% of this entity and the Company owns 49% of this entity, in practicality these ownership percentages only relate to control of the entity and not to our profits and losses of being split.

Primary Strategy

The Company’s gauze products are designed for the wound care market and manufactured to our specifications by a manufacturing agent in China. The gauze can be used on any wound where bleeding is present. Upon contact with moisture, the gauze forms a gel-like substance that acts as a hemostatic agent to address bleeding quickly. The hemostatic gauze derived from regenerated oxidized/cellulose, which is all natural and designed to absorb exudate/drainage from superficial wounds and helps to control bleeding. Once bleeding has ceased and coagulation has occurred, the product can be rinsed away with saline solution or lukewarm water. After acquiring the intellectual property rights, in 2009, we have devoted our time to obtaining necessary approvals to enable the hemostatic gauze product to be sold worldwide as well as establishing an international distribution network.

In August 2012, the Company’s manufacturing agent in China of its gauze products which is registered and branded in the United States under the trademark HemoStyp™, received 510(k) approval from the U.S. Food and Drug Administration (“FDA”) to be sold as a Class I device. The Company has the ability to represent to distributors and customers that its gauze products meet all FDA requirements as a Class I device. This approval now allows us to expand our potential customer base and pursue accounts that requested a current 510(k) FDA approval, including the prescription based medical arena, retail, hospital, EMS, military, state and national governmental agencies and veterinary markets. Our gauze products can be used to stop nose bleeds and for post dialysis treatment and venipuncture.
 
 
11

 
 
The Company’s strategy is to engage distributors to market the Company’s gauze products to the various worldwide markets. In 2013, the Company laid an initial foundation for the distribution of its hemostatic gauze products by entering into agreements with our first three distributors/partners (covering the dental, U.S. military and worldwide equestrian markets and Australasia). In 2014, the Company is seeking to expand on this base and is seeking to enter the international dialysis market. No assurances can be given that the Company will be successful in expanding its distribution market on terms satisfactory to us, if at all.

Current Economic Environment
 
The U.S. economy is currently in a recession. The general economic situation, together with the limited availability of debt and equity capital, including through bank financing, will likely have a disproportionate impact on the Company. As a result, we may not be able to execute our business plan as a result of inability to raise sufficient capital and/or be able to develop a customer base for our hemostatic gauze products.

Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. Since our formation, we have not generated any significant revenues. We have not as yet attained a level of operations that allows us to meet our current overhead and may not attain profitable operations within our first few business operating cycles, nor is there any assurance that such an operating level can ever be achieved. In August 2010, the FDA found that the Company’s application for the designation of the Epic product as a Class III device was insufficient, which resulted in the temporary halt to sales by our distributor. In August 2012, our Chinese manufacturing agent received 510(k) approval from the FDA for our hemostatic gauze products to be sold as a Class I product.

We are dependent upon obtaining additional financing adequate to fund our operations. While we funded our initial operations with private placements and secured loans from a related party, there can be no assurance that adequate financing will continue to be available to us and, if available, on terms that are favorable to us. The report of our auditors on our financial statements for the year ended December 31, 2013 includes a reference to going concern risks. Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, improvement in the economic climate. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.
 
Results of Operations

Three and Six Months ended June 30, 2014 versus Three and Six Months ended June 30, 2013

During the second quarter of 2014 and 2013, the Company had $0 and $1,440 of revenues, respectively. During the six months ended June 30, 2014, the Company had $146,773 and $1,440 of revenues, respectively. The increase of $145,333 for the six months ended June 30, 2014 was due to two new distribution agreements. Total operating expenses for the second quarter of 2014 and 2013 were $198,505 and $87,351, respectively, and for the six months ended June 30, 2014 were $451,277 and $127,407, respectively. These increases related to the increase in operating activities. Our second quarter of 2014 and 2013 net loss was $(215,680) and $(103,087), respectively. Our six months ended June 30, 2014 and 2013 net loss was $(382,042) and $(160,318), respectively.

In August 2012, our Chinese manufacturing agent received 510(k) approval from the FDA to our hemostatic gauze products as a Class I device. Since then, products have been showcased in dental publications. We have obtained interest from distributors to sell our hemostatic gauze products to the U.S. Military, dental and equestrian markets and Australasia. Management believes that operating periods during the last six months of 2014 should begin to see additional sales.
 
Backlog - At June 30, 2014, the Company had a backlog of sales believed to be firm of approximately $190,000 which the Company would complete delivery of products during the third quarter.
 
 
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Financial Condition, Liquidity and Capital Resources
 
As of June 30, 2014, the Company had a negative working capital of approximately $1,433,000 and stockholders’ deficiency of approximately $1,433,000. Since inception, we generated net cash proceeds of $2.0 million from equity placements and borrowed a net of approximately $700,000 principally from related parties. The Company has not as yet attained a level of operations which allows it to meet its current overhead and may not attain profitable operations within the next few business operating cycles, nor is there any assurance that such an operating level can ever be achieved. The report of our auditors on our 2013 financial statements includes a reference to going concern risks. While the Company has in the past funded its initial operations with private placements, and secured loans from related parties, there can be no assurance that adequate financing will continue to be available to the Company and, if available, on terms that are favorable to the Company. Our ability to continue as a going concern is also dependent on many events outside of our direct control, including, among other things, our ability to achieve our business goals and objectives, as well as improvement in the economic climate.

Cash Flows

The Company’s cash on hand at June 30, 2014 and December 31, 2013 was $1,534 and $1,855, respectively.

Operating cash flows: The sales process for our gauze product, which began late in 2009 with limited sales to our sales distributor, was halted in August 2010 as we develop a new marketing strategy and further study the necessity of making application for FDA clearance, which the Company received in August 2012.

Net cash used in operating activities for the six months ended June 30, 2014 was $175,818 as compared to $38,550 in the prior year period. For the six months ended June 30, 2014, our net loss of $(382,042) was partially offset by depreciation and amortization of $50,000, interest accrued on related party notes of $34,350 and increased accounts payable and accrued expenses of $52,803. For the six months ended June 30, 2013, our net loss of $(160,318) was partially offset by depreciation and amortization of $50,000, interest accrued on related party notes of $34,351 and increased accounts payable and accrued expenses of $37,417.

Financing cash flows: Net cash generated from financing of approximated $175,497 and $40,000 in 2014 and 2013, respectively. Cash generated in 2014 and 2013 were the result of proceeds from related parties and notes payable, respectively.

Off-Balance Sheet Arrangements
 
As of June 30, 2014, we have no off-balance sheet arrangements.

Related Parties
 
Information concerning related party transactions is included in the financial statements and related notes, appearing elsewhere in this quarterly report on Form 10-Q.
 
Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
 
 
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The Company recognizes revenues when persuasive evidence of an arrangement exists, product has been delivered or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of estimated sales returns and allowances.

Revenues are attributable to the sale of medical products through distributor agreements. The principal terms of the agreements provide that the distributor orders be accompanied by partial payment in advance, which at least equals 50% of total manufactured cost, as defined, for orders for distributor inventory and, in addition, an agreed portion of the distributor’s gross profit on special orders. The balance of the manufactured cost is due from the distributor at the time of shipment. The Company is also entitled to an agreed percentage of the distributor’s profit on receipt by the distributor.
 
The Company has recorded as intangibles amounts representing the rights we have obtained to technology, know-how, trademarks and etc. based upon an appraisal of the rights obtained. In the opinion of management there has been no diminution in their value.

The Company used the Black-Scholes option pricing model to determine the fair value of stock options in connection with stock based compensation charges as well as certain finance cost charges when we issued warrants in connection with the issuance of indebtedness. The determination of the fair value of stock-based payment awards or warrants on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.
 
Due to our limited history as a public company, we have estimated expected volatility based on the historical volatility of certain companies as determined by management. The risk-free rate for the expected term of each option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on our intent not to issue a dividend as a dividend policy. Due to our limited operating history, management estimated the term to equal the contractual term.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models may not necessarily provide a reliable single measure of the fair value of its employee stock options.
 
Because federal income tax regulations differ from accounting principles generally accepted in the United States, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
 
The Company evaluates its tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are ‘‘more-likely-than-not’’ of being sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are recorded as an expense in the applicable year. The Company does not have a liability for any unrecognized tax benefits. Management’s evaluation of uncertain tax positions may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof.
 
 
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable 

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company is in the process of implementing disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports are recorded, processed, summarized, and reported within the time periods specified in rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our Chief Executive Officer to allow timely decisions regarding required disclosure.

As of June 30, 2014, the Chief Executive Officer and Chief Financial Officer carried out an assessment of the effectiveness of the design and operation of our disclosure controls and procedure and concluded that the Company’s disclosure controls and procedures were not effective as of June 30, 2014, because of the material weakness described below.
 
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness identified during management's assessment was the lack of sufficient resources with SEC, generally accepted accounting principles (GAAP) and tax accounting expertise. This control deficiency did not result in adjustments to the Company’s interim financial statements. However, this control deficiency could result in a material misstatement of significant accounts or disclosures that would result in a material misstatement to the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

The Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures in the Quarterly Report on Form 10-Q, to ensure that the Company’s Quarterly Report and the financial statements forming part thereof are in accordance with accounting principles generally accepted in the United States of America. Accordingly, management believes that the financial statements included in this Quarterly Report fairly present, in all material respects, the Company’s financial condition, results of operations, and cash flows for the periods presented.
 
Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2014, there were no changes in our system of internal controls over financial reporting. 
 
 
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PART II – OTHER INFORMATION
 
Item 1. Legal Proceedings
 
Reference is made to Notes 6 and 10 in the Notes to the Financial Statements regarding the settlement of a legal proceeding in August 2014.

Item 1A. Risk Factors
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
For the six months ended June 30, 2014, there were no sales of unregistered securities, except on January 18, 2014, the Company entered into a consulting agreement with Steven Z. Safran to assist the Company in the areas of corporate networking, sales, marketing and strategic planning. Pursuant to said agreement, the Company issued 200,000 shares of restricted stock. Exemption from registration for the aforementioned securities is under Section 4(2) of the Securities Act of 1933, as amended.

During the period January 1, 2014 through June 30, 2014, there were no repurchases of the Company’s unregistered securities.
 
Item 3. Defaults Upon Senior Securities
 
None.

Item 4. Mine Safety Disclosures
 
Not applicable.
 
Item 5. Other Information
 
Not applicable. 
 
 
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Item 6. Exhibits
 
(a) Exhibits
 
The following exhibits are filed with this report, or incorporated by reference as noted:
 
3(i)
Articles of Incorporation of the Company. (1)
   
3(ii)
Amendments to Articles of Incorporation (1)
   
3(iii)
By-laws of the Company. (1)
   
21
Subsidiaries of the Registrant (1)
   
31.1
Certification of Principal Executive Officer*
   
31.2
Certification of Principal Financial Officer*
   
32.1
Section 1350 Certificate by Chief Executive Officer*
   
32.2
Section 1350 Certificate by Chief Financial Officer*

101.SCH
Document, XBRL Taxonomy Extension (*)
   
101.CAL
Calculation Linkbase, XBRL Taxonomy Extension Definition (*)
   
101.DEF
Linkbase, XBRL Taxonomy Extension Labels (*)
   
101.LAB
Linkbase, XBRL Taxonomy Extension (*)
   
101.PRE
Presentation Linkbase (*)
___________
* Filed herewith.
(1) Previously filed.
 
 
17

 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized on August 19, 2014. 
 
 
 
United Health Products, Inc.
 
 
 
 
 
 
By:
/s/ Dr. Phillip Forman
 
 
 
Dr. Phillip Forman
Principal Executive Officer
 
 
 
By:
 /s/ Nate Knight
 
 
 
Nate Knight
 
 
 
Principal Financial Officer
 
 
 
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