U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Mark One
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended:
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission File No.
(Exact name of registrant as specified in its charter) |
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Telephone: (
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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| Name of each exchange on which registered |
Not applicable. |
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Securities registered under Section 12(g) of the Act:
Common Stock, $0.000001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
On December 31, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $5,463,812, based upon the closing price on that date of the common stock of the registrant on the OTC Link alternative trading system (ATS) of $1.01. For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its common stock are deemed to be affiliates of the registrant.
The number of the registrant’s shares of common stock outstanding was
TABLE OF CONTENTS
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FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our financial statements for Innovative MedTech, Inc. Such discussion represents only the best present assessment from our Management.
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PART I
Item 1. Description of Business
Corporate Background
Innovative MedTech, Inc. (the “Company”) was originally formed on April 21, 2005, in New Jersey as “Serino 1, Corp.,”. On December 16, 2005, the Company merged with Fresh Harvest Products, Inc., and then changed its name to Fresh Harvest Products, Inc., and began operating as a natural and organic food and beverage company. In 2012, the Company began focusing its efforts on developing software and mobile application development and video production and developing an e-book company, and in the intervening years, expanded its technology development and development efforts, creating a revenue sharing partnership with a mobile app, TreatER (available for free on the Apple App Store) in 2017 and in 2018, focusing on building a software program for financially valuing a film concept and mapping the predicted human behavior by region to films using a combination of geographical based social sentiment and the distribution data and financial performance of historically released films. On November 4, 2017, the Company redomiciled from New Jersey to Delaware, and changed its fiscal year end from October 31st to June 30th. On March 9, 2021, the Company effectuated a 10,000:1 reverse split, changed its stock symbol from “FRHV” to “IMTH,” and changed its name to Innovative MedTech, Inc. On March 25, 2021, the Company acquired two companies, Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. (collectively “SarahCare”), an adult day care center franchisor and provider. With 26 centers (2 corporate and 24 franchise locations) located in 13 states, SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives. We are now focusing all of our efforts on our senior care operations.
The Company has also been working on launching an RX Vitality wallet digital offering and mobile app which, once implemented and live, the Company’s digital healthcare wallet will be able to be accessed by customers via mobile wallet on both the Apple iOS and Android App Stores. The Company intends to have a physical healthcare card as well.
On April 1, 2022, the Company partnered with TruCash Group of Companies Inc. (“TruCash”), a leading global payments provider, to launch an all-in-one Super Healthcare App, called RX Vitality Wallet, that will be designed to cater to consumers, patients, hospitals, seniors, and governments, with a solid platform of benefits and online banking. The RX Vitality digital healthcare wallet is being designed to offer 20%-75% pharmaceutical discounts at 65,000 pharmacies across the United States, including Walgreens and CVS. In addition, we plan to offer health and wellness discounts at 500+ online merchants, as well as earning points on our Loyalty Program. The Company intends to generate revenue from its digital wallet and mobile app in multiple ways, including but not limited to monthly recurring fees, transfer fees, and the inter-exchange rate. On June 15, 2022, the Company’s RX Vitality digital healthcare wallet became for download at the Apple iOS App store for Apple iPhone users. The Company’s app has also been approved and is available on the Google Play Store.
On April 5, 2022, the Company engaged mPulse Mobile, a leader in conversational AI and digital engagement solutions for the healthcare industry, to drive engagement with the Company’s digital app and wallet (currently under development).
On April 28, 2022, the Company entered into a share exchange agreement with RX Vitality, Inc. (“RX Vitality”), a media and finance advisory company.
On May 13, 2022, the Company entered into a partnership with VSUSA Corp. (“VSUSA”), a non-for-profit organization that empowers Veterans and Seniors by offering services designed to build successful life transitions with access to workforce and independent housing; health services; and social service programs in communities across the United States. The partnership will permit the Company to use the VSUSA logo on the back of its Vitality Debit Card. For this, the Company will give up to 1% of its revenue generated from its Vitality Debit Card to VSUSA. The Company’s Chairman is a principal and co-Founder of VSUSA.
On June 1, 2022, the Company announced that Dr. Merle Griff, SarahCare’s Founder and CEO, will also be CEO of the Company.
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General Overview
Description of Business
The Company is a provider of health and wellness services, and has two divisions: the RX Vitality digital wallet and health care app (available on both the iOS and Google Play App Stores), and the company’s wholly owned subsidiary SarahCare, an adult day care center franchisor with 2 corporate owned centers and 24 franchise locations across the United States. SarahCare offers seniors daytime care and activities ranging from exercise and medical needs daily to nursing care and salon services. On March 25, 2021, the Company acquired SarahCare for a total of $3,718,833; $2,000,110 was paid in cash and the Company assumed approximately $393,885 in debt due to sellers, and the remaining is payable through a royalty fee liability due in the amount of $1,500,000. With 26 centers (2 corporate and 24 franchise locations) located in 13 states, SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives.
On April 1, 2022, the Company partnered with TruCash Group of Companies Inc. (“TruCash”), a leading global payments provider, to launch an all-in-one Super Healthcare App, called RX Vitality Wallet, that will be designed to cater to consumers, patients, hospitals, Seniors, and governments, with a solid platform of benefits and online banking. The RX Vitality digital healthcare wallet is being designed to offer 20%-75% pharmaceutical discounts at 65,000 pharmacies across the United States, including Walgreens and CVS. In addition, we plan to offer health and wellness discounts at 500+ online merchants, as well as earning points on our Loyalty Program. The Company intends to generate revenue from its digital wallet and mobile app in multiple ways, including but not limited to monthly recurring fees, transfer fees, and the inter-exchange rate. On June 15, 2022, the Company’s RX Vitality digital healthcare wallet became available for download at the Apple iOS App store for Apple iPhone users. The Company’s app has also been approved and is available on the Google Play Store.
Overview and Mission
Our mission is to be one of the market leaders in the adult day care center market and to be a leader in related technologies in the health and wellness category. We believe that this is a fragmented market, and this is an opportune time to consolidate and grow our SarahCare brand. We have an experienced management team of adult day care industry and financial markets executives that have strong relationships in the industry.
Operational Overview – SarahCare, our wholly owned subsidiary
SarahCare provides health-care related services and companionship for older adults, aged 60 and above, and for adults aged 18-60 who are in need of health-related care and supervision (a “SARAH Business”) since February 1985. In 1985, the very first SarahCare Center opened its doors in Canton, Ohio. Originally called S.A.R.A.H. (Senior Adult Recreation and Health), the facility was one of the first intergenerational sites in the U.S. The senior adult day care center was located next to a child day care center and served as a training and research site for the development of other unique intergenerational programs across the country. Eventually, directors transitioned S.A.R.A.H.’s name to Sarah Center and, finally, to SarahCare demonstrating the philosophy of care administered to our seniors and their families.
We grant franchises for the operation of a SARAH Business. A SARAH Business provides non-medical care for elderly individuals and others in need of health-related care and supervision who desire compassionate care and stimulating activity in a secure, structured environment. We provide service that offers an effective solution for individuals who are in need of support services in order to continue living in their communities.
Currently, SarahCare operates 26 unique locations in the United States (24 franchised locations and 2 corporate owned centers) and internationally in the United Arab Emirates and Saudi Arabia. Center members who visit any one of our locations across 13 states are offered daytime care and activities ranging from exercise and health-care related needs on a daily basis to nursing care and salon services. Visitors benefit from additional services that include specialized dietary menus and engaging social activities allowing them to continue to lead active and enriched lives.
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Accreditation
SarahCare’s two corporate-owned centers have achieved accreditation through the Aging Services division of CARF, an independent, non-profit accreditor of health and human services. Through accreditation, CARF assists service providers in improving the quality of their services, demonstrating value, and meeting internationally recognized organizational and program standards. The accreditation process applies sets of standards to service areas and business practices during an on-site survey. Accreditation, however, is an ongoing process, signaling to the public that a service provider is committed to continuously improving services, encouraging feedback, and serving the center. Accreditation also demonstrates a provider’s commitment to enhance its performance, manage its risk, and distinguish its service delivery.
Who we care for
We have trained staff including nurses who specialize in caring for those with various impairments and health related problems, including but not limited to: frailty and physical dependence, memory impairment, stroke and Parkinson’s disease, chronic diseases, and isolation and depression.
Nursing assistants and other trained staff are always there to assist participants in ambulating and moving through all of our activities throughout the day. Activities are adapted for specific physical challenges so that no one ever feels left out. Yes, seniors who are wheelchair bound are very welcome in our centers. We handle a loved one’s challenging issues with care and consideration. If a loved one is wheelchair bound, multiple staff members are available at any given time if they need the assistance of more than one person. If a loved one needs help with toileting and/or bathing, we have specially trained staff to assist them. Our bathing areas are designed to give them as much privacy and dignity as possible.
Activities - Our centers offer versatile daily services and activities. Some of the benefits included in our daily fee are:
| · | NURSING - licensed nursing staff under the supervision of an RN for better care of chronic diseases |
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| · | FOOD - delicious catered meals with special diets accommodated |
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| · | ACTIVITIES - customized to your loved one’s interests and abilities |
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| · | SOCIALIZATION - be with friends, remain active, and enjoy the day |
Nursing Services - While our participants enjoy their day at SarahCare, our center nurses provide the care and monitoring they need on a regular basis. Care is provided in the privacy of our nurse’s clinic. Our centers are staffed with the qualified Registered and/or Licensed nurses. They are often specially certified and trained to work with issues related to aging and the elderly, and are passionate about caring for seniors. Nursing services that are offered include:
| · | Medication administration and oversight |
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| · | Weight and vital signs monitored and recorded regularly |
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| · | Diabetic care |
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| · | Care of feeding tubes and ostomies |
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| · | Dressing changes |
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| · | Other services needed by you or your loved one or as ordered by a physician |
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Meals – We offer delicious and nutritious meals at no extra cost. Meals are the perfect time for friends to socialize and celebrate, sharing memories and exchanging jokes. Our beautiful dining rooms and delicious food help turn each meal into a special event. A light breakfast, a delicious catered lunch, and afternoon snack are all included in the daily rate. Special diets are easily accommodated and assistance at meal time is always available.
Intergenerational - Our intergenerational program brings together seniors and children in a safe and engaging environment. ‘Grandparents’ and ‘grandchildren’ have so much to share and can be a great source of joy to each other, yet they rarely have these opportunities. SarahCare intergenerational programs bring both generations together in a structured environment where they can learn from each other – sharing their feelings, ideas, skills, and affection. Unlike other informal and casual get-togethers, our intergenerational program was scientifically designed and researched to encourage these interactions and allow our seniors to participate fully – from disabled and frail elders to sufferers of dementia and Parkinson’s.
Customized Programs - Home Care - A participant’s time with SarahCare’s specially-trained staff doesn’t have to stop at the end of the day. Some seniors who are still living independently at home may require assistance during evenings and weekends, when they can’t spend time at the center. Or, if a loved one resides with their family, occurrences may come up that require the family to be away from home during an evening or weekend when your senior requires care.
Franchisees - Our franchisees pay us a variety of royalties and fees. Typical locations are commercial or professional office locations convenient to working caregivers. The approximate size of a SARAH Business facility is 5,000-6,000 square feet. Rent is estimated to be $96,000-$140,000 annually depending on size, condition and location of leased premises.
State and Federal Licenses. Both the company owned centers and the franchise centers acquire the required licenses prior to opening in their respective states. Not all states, such as Ohio, require a license to operate an ADHC (Adult Day Health Center), while other states, such as Pennsylvania, have strict licensing regulations. If a center wants to accept Medicaid participants, then they must complete the Medicaid certification process. The VA (Veterans Affairs) has their own standards and survey process in order to obtain an agreement/contract with the VA. All of these programs are administered by individual states. Every center follows the regulations as interpreted by the VA center in the specific area in which their center is located.
The federal program the Child Adult Food Care Program (CACFP) is for the reimbursement of food, and is administered by the Department of Agriculture. If a center wants to utilize CACFP, then they must complete the Department of Agriculture’s application and survey process.
All centers are surveyed annually by their state licensing department (if applicable), Medicaid, the VA, the CACFP (if applicable) and any additional funding source they may be using. In addition, most centers are surveyed by their local Health and Fire Departments annually.
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Goods and Services One Must Acquire From An Approved Supplier Or In Accordance With Our Standards and Specifications
The trademarks, trade names, service marks, and logos must be properly depicted on any brochures, business cards and stationery, signage, forms, and public relations materials you purchase for use in your operation of the SARAH Business. These items, and other products, supply items and services, may be purchased from any source; however, we retain the right to, at any time in the future, condition the right to buy or lease goods and/or services on their meeting minimum standards and specifications and/or being acquired from suppliers we specifically designate or approve. We may issue and modify standards from time to time and enumerate them in our Operations Manual or other communications.
A Franchisee must purchase software to be used in the operation of the SARAH Business from a designated supplier. They may acquire certain pre-approved social media channels and online content for the SARAH Business only through us or our designated supplier. (Currently our System standards include Facebook, YouTube, Twitter, Instagram, Pinterest, and LinkedIn and no other channels, as approved social media outlets through which SARAH Businesses may be promoted.) A Franchisee must use the e-mail accounts we provide to you. We also currently recommend that they use our approved suppliers for: real estate site selection services; furniture, fixtures and equipment; marketing materials; computer software, and printing services. Otherwise, there currently are no goods, services, supplies, fixtures, equipment, inventory, computer hardware, real estate, or comparable items related to establishing or operating the SARAH Business that you must buy from us, our affiliate, or an approved supplier. None of our officers currently owns an interest in any supplier to SARAH Businesses.
If a Franchisee wants to purchase or lease any product, supply, item or service from a supplier or provider that we have not already approved, they must first obtain our approval. They may request our approval by providing us with a sample of the item they would like us to approve. We will use commercially reasonable efforts to notify the Franchisee within 30 days after receiving all samples and any other requested information or specifications, whether they are authorized to purchase or lease the product or service from that supplier or provider. We do not charge a fee for engaging in this approval process.
In the event we receive rebates from any suppliers to our franchisees, these funds will be used for marketing and promotional purposes. We estimate that, collectively, the purchases and leases you obtain according to our specifications or from approved or designated suppliers represent between 2.5%-7.5% of your total purchases and leases in connection with the establishment and operation of the SARAH Business. During the fiscal year ending June 30, 2022, we did not receive any rebates or other payments from suppliers based on their sales to franchisees and neither we nor our affiliates sold or leased any products or services to franchisees.
Insurance
Besides these purchases or leases, a potential Franchisee must obtain and maintain, at their own expense, the insurance coverage that we periodically require and satisfy other insurance-related obligations. They currently must obtain the following insurance: (i) comprehensive commercial general liability insurance, including bodily injury, property damage, personal injury, products and completed operations liability coverage with a combined single limit of not less than $1,000,000 per occurrence for bodily injuries, $1,000,000 per occurrence for property damage and $2,000,000 annual aggregate, (ii) workers’ compensation and employer’s liability insurance to meet statutory requirements of that of operation where the SARAH Business is located; (iii) commercial property insurance at replacement value, including fire, vandalism, and extended coverage insurance with primary and excess limits of not less than the full replacement value of the SARAH Business and its furniture, fixtures and equipment; (iv) automobile liability insurance for all owned, non-owned and hired automobiles with a single coverage limit of not less than $1,000,000; (v) other insurance as may be required by the state or locality in which the SARAH Business is located and operated; and (vi) professional liability insurance of not less than $1,000,000. All of the policies they maintain must contain the minimum coverage described above and must have deductibles not to exceed the amounts we specify. Each of the insurance policies must be issued by an insurance company of recognized responsibility and satisfactory to us. We may periodically increase the amounts of coverage required under these insurance policies and/or require different or additional insurance coverages at any time. The commercial general liability, automobile, and umbrella insurance policies must list us as additional insured parties and provide for 30 days’ prior written notice to us in the event of a policy’s material modification, cancellation, or expiration. They must furnish us with a copy of your Certificate of Insurance within 10 business days upon receipt of your Occupancy Permit for the SARAH Business. If they fail or refuse to obtain or maintain the insurance we specify, in addition to our other remedies including termination, we may obtain such insurance for you and the SARAH Business, on the potential Franchisee’s behalf, in which event they must cooperate with us and reimburse us for all premiums, costs and expenses we incur in obtaining and maintaining the insurance, plus a reasonable fee for our time incurred in obtaining such insurance.
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Advertising Materials
Before a potential Franchisee uses them, they must send to us for review samples of all advertising, promotional and marketing materials which we have not prepared or previously approved. They must not use any advertising, promotional, or marketing materials that we have not approved or have disapproved. During approximately the first 3 months of operating the SARAH Business, we will use the Marketing Deposit to pay vendors selected to provide advertising and related services for the promotion of the SARAH Business, which may include, for example, arranging online Internet advertising and marketing content, including Facebook, YouTube, Twitter, Instagram, Pinterest, LinkedIn or other social media outlets and paying click-through charges to search engines, banner advertising sources, and advertising host sites to promote the SARAH Business. We may develop certain promotional materials and/or designate or approve specific suppliers of promotional materials during the franchise term that we may require them to purchase and use. All online marketing activities you conduct for the SARAH Business must meet our then-current guidelines for franchisee use of social media that we include as part of the Operations Manual or otherwise communicate as part of our System standards.
Development of Your SARAH Business
A potential Franchisee is responsible for locating, obtaining, and developing a site for the SARAH Business within the Territory. They must submit a proposed site for the SARAH Business for our approval in a form we specify that includes detailed construction drawings and other site-specific information. After we approve a site for the SARAH Business, they are responsible for constructing and equipping the SARAH Business at that site. They may not begin developing any site or constructing or remodeling any structures or fixtures before we have approved the site. They may consult with real estate and other professionals of their choosing, and we may also assist you in the development of the SARAH Business. They must submit to us for our approval detailed plans and specifications adopting our then-current plans and specifications for SARAH Businesses.
SarahCare, as the franchisor, supplies the Franchisee’s with initial assistance and approval with the following:
| 1. | Give you our site selection criteria for the SARAH Business and, upon a potential Franchisee’s request, provide input regarding possible sites. We do not own and lease any site to franchisees. After they select and we approve a site, we will designate the geographic area within which they may establish the SARAH Business. |
| 2. | Approve the signage. |
| 3. | Identify the standards and specifications for products, services, and materials that comply with the System, and, if we require, the approved suppliers of these items. We will furnish a potential Franchisee with the listing of the package of initial franchise items as detailed in the Operations Manual. Neither we nor our affiliate provide, deliver, or install any of these items. |
| 4. | Provide an Initial Training Program. |
| 5. | Provide an Operations Training Program. |
Once the Franchisee’s SarahCare business is operational, we will:
| 1. | Issue and modify System standards for SARAH Businesses. |
| 2. | Provide access to a copy of our Operations Manual as we make available through our intranet. The Operations Manual contains mandatory and suggested specifications, standards and operating procedure. |
| 3. | Give you additional or special guidance and assistance and training as we deem appropriate and for which a potential Franchisee are financially responsible. |
| 4. | Inspect and observe the operation of the SARAH Business to help a potential Franchisee comply with the Franchise Agreement and all System standards. |
| 5. | Let you use the confidential information. |
| 6. | Let you use the Marks. |
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Opening
We estimate that a potential Franchisee will open the SARAH Business within 8 to 10 months after they sign the Franchise Agreement. The interval between signing the Franchise Agreement and opening the SARAH Business depends on the site’s location and condition, the construction schedule for the SARAH Business, the extent to which they must upgrade or remodel an existing location, the delivery schedule for equipment and supplies, securing financing arrangements, completing training, and complying with local laws and regulations.
Current Locations
Below is a list of our current franchised (24) locations:
California - 450 Marathon Dr. Campbell, CA 95008
Connecticut - 870 Burnside Avenue East Hartford, CT 06108
Florida - 1504 S. Harbor City Blvd. Melbourne, FL 32901
1200 N. University Dr. Pembroke Pines, FL 33024
754 Riverside Drive, Coral Springs, FL 33071
Georgia - 801 Oakhurst Drive Evans, GA 30808
286 SW Highway 138 Riverdale, GA 30078
Idaho - 1655 S. Vinnell Boise, ID 83709
Indiana - 2805 E. 96th Indianapolis, IN 46240
Massachusetts - 1225 Dorchester Avenue Dorchester, MA 02125
1217 Grafton St. Worcester, MA 01604
Michigan - 2211 E. Beltline Ave. NE Suites B C Grand Rapids, MI 49525
13425 19 Mile Rd., Suite 500 Sterling Heights, MI 49519
2024 Health Dr., Suite B Wyoming, MI 49519
New Jersey – 1115 Glove Avenue, Mountainside, NJ 07092
North Carolina - 2245 Gateway Access Pt. Suite 101 Raleigh, NC 27607
Ohio - 10901 Prospect Road Strongsville, OH 44149
Pennsylvania - 7010 Snowdrift Rd. Allentown, PA 18106
261 Old York Rd., Suite A51 Jenkintown, PA 19046
425 Technology Dr. Malvern, PA 19355
2030 Ardmore Blvd. Pittsburgh, PA 15221
1726 S. Broad St, Philadelphia, PA 19145
Texas - 157 Nursery Road The Woodlands, TX 77380
23972 Highway 59 N. Kingwood, TX 77339
We have two international centers in the United Arab Emirates and Saudi Arabia, that are franchised, but are not yet open. We do not have an expected date as to when they will be open, if ever.
Below is a list of our current corporate (2) locations:
SarahCare of Belden - 6199 Frank Ave NW, North Canton, OH 44720
SarahCare of Stow - 4472 Darrow Road, Stow, OH 44224
Our Growth Strategy
Our sales and marketing teams intend to leverage our value proposition and strong participant satisfaction to promote our brand and attract new participants to our centers. The size of our centers depends on the size of the addressable population within each service area. We first determine whether we can fill a center’s expected participant census, then, as a center reaches its initial capacity, we plan to increase its size through pre-planned facility expansions. Once we have reached planned capacity, we intend to expand to other locations.
Our growth strategy includes renewing our current franchised locations. Recently, SarahCare renewed its agreements regarding two SarahCare franchised locations, one in The Woodlands, Texas, and one in Kingwood, Texas. Both renewals are for five years.
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Leasing New Market Space
We plan to build new centers or lease from existing market space to enter new markets for our daycare centers into adjacent or new geographies.
The placement of our centers in attractive locations is critical to our success. We regularly conduct zip code level analyses and convene small focus groups with potential participants and caregivers to identify service areas with attractive concentrations of seniors eligible for our daycare services and select optimal sites for our centers. We prioritize service areas with populations that include more than 4,000 potential participants within a 60-minute drive of a center. Our approach to building new daycare centers or leasing space in favorable market areas is based on our experience-based specifications, with flexibility for future center expansion factored into the blueprints where possible.
On April 21, 2021, the Company, through ten newly-formed, wholly-owned limited liability companies, entered into lease agreements with entities controlled by our Chairman, Charles Everhardt, for ten additional SarahCare locations to be operated by the Company. All of the leases are for a ten-year period beginning on July 1, 2021, and ending on June 30, 2031, with a 5-year renewal option. The rent for each location is $7,500 per month. As of June 30, 2021, the Company amended the leases to delay commencement until November 1, 2021.As of November 1, 2021, the Company amended the leases to delay commencement until May 1, 2022. As of April 30, 2022, the Company amended the leases to delay commencement until November 1, 2022. On August 19, 2022, the Company and landlord mutually agreed to terminate the Austin lease.
The nine locations are as follows:
Texas – 9090 Southwest Freeway, Houston, TX 77074 – approximately 8,500 sq. ft.
Ohio – 33 East 5th Street, Dayton, OH 45402 – approximately 8,500 sq. ft.
Mississippi – 200 E Amite Street, Jackson, MS 39201 – approximately 8,500 sq. ft.
Georgia – 1775 Parkway Place SE, Marietta, GA 30067 – approximately 8,500 sq. ft.
Tennessee – 2625 Thousand Oaks, Memphis, TN 38118 – approximately 8,500 sq. ft.
Florida – 3835 McCoy Road, Orlando, FL 32812 – approximately 8,500 sq. ft.
Pennsylvania – 1741 Papermill Road, Wyomissing, PA 19610 – approximately 8,500 sq. ft.
New Jersey – 1 West Lafayette Street, Trenton, NJ 08608 – approximately 8,500 sq. ft.
Oklahoma – 7902 South Lewis Avenue, Tulsa, OK 74136 – approximately 8,500 sq. ft.
Potential Acquisitions
We believe we are the logical acquiror in a fragmented market made up of mostly small independent local operators. We are looking for potential acquisitions in new geographic markets along with existing markets that meet certain criteria. We maintain discipline in our approach in regards to purchase price for acquisitions. We consider many factors in determining the purchase price that include potential market expansion, healthcare employee base, demographics of our target market of seniors, daycare demand both future and present is also considered along with other factors before a decision is made to acquire a potential acquisition target. We work closely with key constituencies, including local governments, health systems and senior housing providers, to ensure participants continue to receive the high quality care we demand in our operations and that potential acquisition targets can achieve our important quality standards.
Reinvest in our Technology
We are continuing to examine ways to improve and enhance our technology offerings to improve efficiencies in our operations. Further, we are evaluating new software and medical device technology to use at our centers to help with our participants who are experiencing chronic conditions. We believe placing new technologies at our centers to further meet the needs of our participants will help us to stand out in the daycare market and attract further participants to our centers. As we continue to evaluate new ways of bringing new technologies and efficiencies to our operations, we believe we will be able to attract new participants and potentially reduce medical costs.
Industry Overview
Healthcare spending in the United States has grown at approximately 5% per year from 2013 to 2018, and in 2018 represented $3.6 trillion of annual spend, or 17.7% of U.S. GDP. The overall growth rate of healthcare spending is expected to accelerate due to the aging population. Furthermore, the government’s share of total healthcare spend through programs such as Medicare and Medicaid is expected to grow from approximately 37% today to more than 40% as early as 2025, indicating faster growth in government-sponsored healthcare than the overall market. There are approximately 6,000 senior daycare centers across the United States. The industry market size is approximately $6.4 billion and expected to rise 25% over the next five years. Each senior daycare center has an average of 60 participants with daily participants of 351,900 using senior daycare services.
| 11 |
| Table of Contents |
Employees
As of June 30, 2022, the Company had 40 employees. This does not include the employees of the independently owned and run franchise locations.
Intellectual Property
The Company owns the following intellectual property (trademarks): SarahCare and Sarah Adult Day Services.
Competition
There are approximately 4,600 adult day care centers (from the CDC) in the U.S. may be part of stand-alone adult centers specifically set up to provide day care to seniors, 70 percent are affiliated with or operate within senior centers, churches, medical centers or residential care facilities. Two of our larger competitors include Active Day, with approximately 100 locations, and Easter Seals, a non-profit with 69 affiliates. Programs run from several hours to a full day. Participants may attend daily, a few times a week, weekly, or just for special activities. Weekend and evening care are less common, although this is changing as demand for adult day care rises. We also compete with home care and in-home medical care professionals and enterprises.
Governmental Regulations
We will be governed by government laws and regulations governing adult day care facilities. We believe that we are currently in compliance with all laws which govern our operations and have no current liabilities thereunder. Our intent is to maintain strict compliance with all relevant laws, rules and regulations.
Reports to Security Holders
We intend to furnish our shareholders annual reports containing financial statements audited by our independent registered public accounting firm and to make available quarterly reports containing unaudited financial statements for each of the first three quarters of each year. We file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K with the Securities and Exchange Commission in order to meet our timely and continuous disclosure requirements. We may also file additional documents with the Commission if they become necessary in the course of our company’s operations.
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
Environmental Regulations
We do not believe that we are or will become subject to any environmental laws or regulations of the United States. While our products and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our products or potential customers could adversely affect us by increasing our operating costs or decreasing demand for our products or services, which could have a material adverse effect on our results of operations.
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Item 1A. Risk Factors
As a smaller reporting company, we are not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties
As of June 30, 2022, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space at this time but expects to enter into a month-to-month office lease for this space.
SarahCare leases three properties for its corporate office and its two corporate owned centers. SarahCare’s corporate office is approximately 3,470 square feet and is located at 4580 Stephen Circle NW, Canton, Ohio, 44718. The lease began in 2017 and ends in 2023.
SarahCare’s lease for its first corporate-owned SarahCare location is for approximately 5,300 square feet located at 6199 Frank Ave. NW, North Canton, Ohio, 44720. The lease began in 2018 and ends in 2026.
SarahCare’s lease for its second corporate-owned SarahCare location is for approximately 6,000 square feet located at SarahCare of Stow, 4472 Darrow Road, Stow, Ohio, 44224. The lease began in 2018 and ends in 2026.
On April 21, 2021, the Company, through ten newly-formed, wholly-owned limited liability companies, entered into lease agreements with entities controlled by our Chairman, Charles Everhardt, for ten additional SarahCare locations to be operated by the Company. All of the leases are for a ten-year period beginning on July 1, 2021, and ending on June 30, 2031, with a 5-year renewal option. The rent for each location is $7,500 per month. As of the June 30, 2021, the Company amended the leases to delay commencement until November 1, 2021. As of November 1, 2021, the Company amended the leases to delay commencement until May 1, 2022. As of April 30, 2022 the Company amended the leases to delay commencement until November 1, 2022. On August 19, 2022, the Company and landlord mutually agreed to terminate the Austin lease.
The 9 leases are in the following locations:
Texas – 9090 Southwest Freeway, Houston, TX 77074 – approximately 8,500 sq ft.
Ohio – 33 East 5th Street, Dayton, OH 45402 – approximately 8,500 sq, ft.
Mississippi – 200 E Amite Street, Jackson, MS 39201 - approximately 8,500 sq, ft.
Georgia – 1775 Parkway Place SE, Marietta, GA 30067– approximately 8,500 sq, ft.
Tennessee – 2625 Thousand Oaks, Memphis, TN 38118– approximately 8,500 sq, ft.
Florida – 3835 McCoy Road, Orlando, FL 32812– approximately 8,500 sq, ft.
Pennsylvania – 1741 Papermill Road, Wyomissing, PA 19610– approximately 8,500 sq, ft.
New Jersey – 1 West Lafayette Street, Trenton, NJ 08608– approximately 8,500 sq, ft.
Oklahoma – 7902 South Lewis Avenue, Tulsa, OK 74136– approximately 8,500 sq, ft.
13 |
Item 3. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than disclosed herein, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
As of June 30, 2022, we were not a party to any material legal proceedings. We currently have twenty (20) convertible promissory notes that are in default, and we may be subject to legal proceedings or lawsuits from any number of those convertible noteholders, including the below.
On April 7, 2013, three note holders (Brook Hazelton, Benjamin M. Manalaysay, Jr., and Diego McDonald, the “Plaintiffs”), whom together invested a total principal amount of $45,000 in the form of Convertible Promissory Notes (the ”Notes”) to the Company, together filed a “Notice of Commencement of Action Subject to Mandatory Electronic Filing” in the Supreme Count of the State of New York, County of New York. The Plaintiffs alleged that the Company breached their contracts with the Plaintiffs and included causes of action for unjust enrichment and related claims, seeking repayment of each of their respective convertible promissory notes plus interest. On or about February 24, 2014, the three Plaintiffs received judgment against the Company from the court in the amounts of $33,686.82, $8,546.87 and $33,696.69, respectively.
Our wholly owned subsidiary, SarahCare, is not involved in any legal proceedings at this time.
As of the date of this Annual Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
Item 4. Mine Safety Disclosures
Not applicable to our Company.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company’s common stock is traded on the OTC Link ATS (the alternative trading system operated by OTC Markets Group, Inc.) under the symbol “IMTH”. As of June 30, 2022, the Company’s common stock was held by 168 shareholders of record, which does not include shareholders whose shares are held in street or nominee name.
The Company’s shares commenced trading on or about May 7, 2007. On February 11, 2021, the Company filed with FINRA to effectuate a 10,000:1 reverse stock split. FINRA permitted this corporate actions on March 8, 2021. The 10,000:1 reverse split took effect at the open of business on March 9, 2021.
The following information reflects the high and low prices of the Company’s common stock, and the Company’s reverse stock split is reflected in the increase in the high and low bid prices for the fourth quarter of 2022. High and low prices are from prices reported by OTCMarkets.com.
Quarterly period |
| High |
|
| Low |
| ||
Fiscal year ended June 30, 2022: |
|
|
|
|
|
| ||
First Quarter |
| $ | 1.765 |
|
| $ | 0.35 |
|
Second Quarter |
| $ | 1.59 |
|
| $ | 0.28 |
|
Third Quarter |
| $ | 1.84 |
|
| $ | 0.53 |
|
Fourth Quarter |
| $ | 3.49 |
|
| $ | 0.80 |
|
|
|
|
|
|
|
|
|
|
Fiscal year ended June 30, 2021: |
|
|
|
|
|
|
|
|
First Quarter |
| $ | 0.0002 |
|
| $ | 0.0001 |
|
Second Quarter |
| $ | 0.0003 |
|
| $ | 0.0001 |
|
Third Quarter |
| $ | 0.0024 |
|
| $ | 0.0001 |
|
Fourth Quarter |
| $ | 4.99 |
|
| $ | 0.90 |
|
We have engaged Clear Trust Transfer as the Company’s transfer agent to serve as agent for shares of our common stock, Series A Convertible Preferred Stock, and Series B Convertible Preferred Stock. Our transfer agent’s contact information is as follows:
16540 Pointe Village Dr., Suite 205
Lutz, FL 33558
Telephone: (813) 235-4490
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Dividend Distributions
We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.
Securities authorized for issuance under equity compensation plans
The Company does not have a stock option plan.
Penny Stock
Our common stock is considered “penny stock” under the rules the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:
| · | contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading; |
| · | contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; |
| · | contains a toll-free telephone number for inquiries on disciplinary actions; |
| · | defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and |
| · | contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation. |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
| · | bid and offer quotations for the penny stock; |
| · | the compensation of the broker-dealer and its salesperson in the transaction; |
| · | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and |
| · | monthly account statements showing the market value of each penny stock held in the customer’s account. |
In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
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Related Stockholder Matters
None.
Purchase of Equity Securities
None.
Recent Sales of Unregistered Equity Securities
During the fiscal quarter ended June 30, 2022, the Company did not have any unregistered sales of any equity securities, except as described below.
On or about April 26, 2022, the Company issued the Sellers of Vitality RX, Inc. 5,500,000 common shares, par value, $0.000001 per share, valued at $5,500,000. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation, and the transaction did not involve a public offering.
On or about April 26, 2022, the Company issued the Sellers of Vitality RX, Inc. 50,000 shares of Series A Convertible Preferred Stock, par value, $0.000001 per share, valued at $5,000,000. These shares were issued pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, as there was no general solicitation, and the transaction did not involve a public offering.
Item 6. Selected Financial Data
As the Company is a “smaller reporting company,” this item is inapplicable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our financial statements and summary of selected financial data for Innovative MedTech, Inc. Such discussion represents only the best present assessment from our Management.
| 17 |
| Table of Contents |
DESCRIPTION OF COMPANY
Innovative MedTech, Inc. (the “Company”) was originally formed on April 21, 2005, in New Jersey as “Serino 1, Corp.,”. On December 16, 2005, the Company merged with Fresh Harvest Products, Inc., and then changed its name to Fresh Harvest Products, Inc., and began operating as a natural and organic food and beverage company, changing its name to “Fresh Harvest Products, Inc.” In 2012, the Company redomiciled to Delaware and began focusing its efforts on developing software and mobile application development and video production and developing an e-book company, and in the intervening years, expanded its technology development and development efforts, creating a revenue sharing partnership with a mobile app, TreatER (available for free on the Apple App Store) in 2017, and in 2018, focusing on building a software program for financially valuing a film concept and mapping the predicted human behavior by region to films using a combination of geographical based social sentiment and the distribution data and financial performance of historically released films. On November 4, 2017, the Company redomiciled from New Jersey to Delaware, and changed its fiscal year end from October 31st to June 30th. On March 9, 2021, the Company effectuated a 10,000:1 reverse split, changed its stock symbol from “FRHV” to “IMTH,” and changed its name to Innovative MedTech, Inc. On March 25, 2021, the Company acquired two companies, Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. (collectively “SarahCare”), an adult day care center franchisor and provider. On March 25, 2021, the Company acquired two companies, Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. (collectively “SarahCare”), an adult day care center franchisor and provider. With 26 centers (2 corporate and 24 franchise locations) located in 13 states, SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives. We are now focusing all of our efforts on our senior care operations.
The Company has also been working on launching an RX Vitality wallet digital offering and mobile app which, once implemented and live, the Company’s digital healthcare wallet will be able to be accessed by customers via mobile wallet on both the Apple iOS and Android App Stores. The Company intends to have a physical healthcare card as well.
On April 1, 2022, the Company partnered with TruCash Group of Companies Inc. (“TruCash”), a leading global payments provider, to launch an all-in-one Super Healthcare App, called RX Vitality Wallet, that will be designed to cater to consumers, patients, hospitals, Seniors, and governments, with a solid platform of benefits and online banking. The RX Vitality digital healthcare wallet is being designed to offer 20%-75% pharmaceutical discounts at 65,000 pharmacies across the United States, including Walgreens and CVS. In addition, we plan to offer health and wellness discounts at 500+ online merchants, as well as earning points on our Loyalty Program. The Company intends to generate revenue from its digital wallet and mobile app in multiple ways, including but not limited to monthly recurring fees, transfer fees, and the inter-exchange rate. On June 15, 2022, the Company’s RX Vitality digital healthcare wallet became available for download at the Apple iOS App store for Apple iPhone users. The Company’s app has also been approved and is available on the Google Play Store.
On April 5, 2022, the Company engaged mPulse Mobile, a leader in conversational AI and digital engagement solutions for the healthcare industry, to drive engagement with the Company’s digital app and wallet (currently under development).
On April 28, 2022, the Company entered into a share exchange agreement to acquire RX Vitality, Inc. (“RX Vitality”), a media and finance advisory company.
On May 13, 2022, the Company entered into a partnership with VSUSA Corp. (“VSUSA”), a non-for-profit organization that empowers Veterans and Seniors by offering services designed to build successful life transitions with access to workforce and independent housing; health services; and social service programs in communities across the United States. The partnership will permit the Company to use the VSUSA logo on the back of its Vitality Debit Card. For this the Company will give up to 1% of its revenue generated from its Vitality Debit Card to VSUSA. The Company’s Chairman is a principal and co-Founder of VSUSA.
On June 1, 2022, the Company announced that Dr. Merle Griff, SarahCare’s Founder and CEO, will also be CEO of the Company.
The following Management Discussion and Analysis should be read in conjunction with the financial statements and accompanying notes included in this Form 10-K.
COMPARISON OF THE YEAR ENDED JUNE 30, 2022 TO THE YEAR ENDED JUNE 30, 2021
Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto for the years ended June 30, 2022 and 2021, and related management discussion herein.
Our financial statements are stated in U.S. Dollars and are prepared in accordance with generally accepted accounting principles of the United States (“GAAP”).
Going Concern Qualification
Several conditions and events cast substantial doubt about the Company’s ability to continue as a going concern. The Company has incurred cumulative net losses of $32,903,328 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through debt or future issuances of capital stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern.
| 18 |
| Table of Contents |
Operating Results
Our operating results for the years ended June 30, 2022 and 2021, and the changes between those periods for the respective items, are summarized as follows:
|
| Year Ended |
|
|
| |||||||
|
| June 30, |
|
| Change |
| ||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
| |||
Operating loss |
| $ | (18,258,093 | ) |
| $ | (708,875 | ) |
| $ | (17,549,218 | ) |
Other income (expense) |
|
| 199,739 |
|
|
| (2,556,082 | ) |
|
| 2,755,821 |
|
Net loss |
| $ | (18,058,354 | ) |
| $ | (3,264,957 | ) |
| $ | (14,793,397 | ) |
Revenues
Our revenue increased to $1,297,613 for the year ended June 30, 2022, from revenue of $349,143 in the comparative year ended June 30, 2021, due primarily to the reduced number of closures of our SarahCare centers due to Covid-19 during the most recent fiscal year as compared to the prior fiscal year. The following table presents revenue expenses for the years ended June 30, 2022 and 2021:
|
| Year Ended |
|
|
|
| ||||||
|
| June 30, |
|
| Change |
| ||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
| |||
Patient fees |
| $ | 794,027 |
|
| $ | 196,332 |
|
| $ | 597,695 |
|
Franchise fees |
|
| 503,586 |
|
|
| 152,811 |
|
|
| 350,775 |
|
Total revenue |
| $ | 1,297,613 |
|
| $ | 349,143 |
|
| $ | 948,470 |
|
Operating Loss
Our loss from operations increased to $18,258,093 during the year ended June 30, 2022, from an operating loss of $708,875 in the comparative year ended June 30, 2021. The following table presents operating expenses for the years ended June 30, 2022 and 2021:
|
| Year Ended |
|
|
|
|
| |||||||||
|
| June 30, |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
|
| Percentage |
| ||||
General and administrative |
| $ | 933,268 |
|
| $ | 295,475 |
|
| $ | 637,793 |
|
|
| 215.85 | % |
Salaries and wages |
|
| 921,022 |
|
|
| 197,883 |
|
|
| 723,139 |
|
|
| 365.44 | % |
Licensing fees |
|
| 750,000 |
|
|
| - |
|
|
| 750,000 |
|
|
| 100 | % |
Consulting fees |
|
| 16,838,885 |
|
|
| 305,000 |
|
|
| 16,533,885 |
|
|
| 5,420.95 | % |
Legal and professional fees |
|
| 112,531 |
|
|
| 259,660 |
|
|
| (147,129 | ) |
| (56.66 | %) | |
Total operating expenses |
| $ | 19,555,706 |
|
| $ | 1,058,018 |
|
| $ | 18,497,688 |
|
|
| 1,748.33 | % |
| 19 |
| Table of Contents |
The Company recorded $933,269 in general and administrative fees during the year ended June 30, 2022, as compared to $295,475 for the prior fiscal year, with the increase primarily due to the Company’s stock exchange with Vitality RX and increased administrative expenses associated with it. We realized a decrease of $147,129 in legal and professional fees during the year ended June 30, 2022, as compared to the same period in the prior fiscal year. We realized an increase of $723,139 in salaries and wages during the year ended June 30, 2022, as compared to the same period in the prior fiscal year, primarily due to increasing operations during the most recent fiscal year as compared to the prior fiscal year. Stock-based compensation increased from $0 during the year ended June 30, 2021, to $16,628,360 during the year ended June 30, 2022, primarily due to consulting arrangements with the former principals of Vitality RX during the most recent fiscal year.
Other Income (Expense)
The following table presents other income and expenses for the year ended June 30, 2022 and 2021:
|
| Year Ended |
| |||||
|
| June 30 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Loss on extinguishment of debt |
| $ | - |
|
| $ | (1,660,797 | ) |
Loss on impairment of goodwill |
|
| - |
|
|
| (806,690 | ) |
Interest expense, related parties |
|
| (8,972 | ) |
|
| - |
|
Interest expense |
|
| (182,500 | ) |
|
| (172,286 | ) |
Impairment of ROU asset |
|
| (84,364 | ) |
|
| - |
|
Change in fair value of derivatives |
|
| 28,115 |
|
|
| (223,264 | ) |
Gain on disposal of fixed assets |
|
| - |
|
|
| 2,695 |
|
Other income |
|
| 180,820 |
|
|
| 131,740 |
|
Gain on PPP loan forgiveness |
|
| 266,640 |
|
|
| 172,520 |
|
Total other income (expense) |
| $ | 199,739 |
|
| $ | (2,556,082 | ) |
During the year ended June 30, 2022, the Company did not recognize a loss on extinguishment of debt or impairment of goodwill, but it recognized a significant loss on extinguishment of debt and impairment of goodwill during the fiscal year ended June 30, 2021. During the year ended June 30, 2022, the Company did not recognize a gain on disposal of fixed assets (but it recognized a gain of $2,695 during the prior fiscal year), but it did recognize other income of $180,820 and a gain on the PPP loan forgiveness of $266,640, as compared to smaller other income and gain on PPP loan forgiveness amounts during the prior fiscal year. During the year ended June 30, 2022, interest expense decreased to $182,500 from $172,286 for the prior fiscal year ended June 30, 2021, and interest expense, related parties, increased to $8,972 from $0 for the prior fiscal year. During the year ended June 30, 2022, there was a decrease in the fair value of derivatives declined to $28,115 from ($233,264) for the prior fiscal year ended June 30, 2021.
Net Loss
The Company incurred a $18,058,354 net loss during the year ended June 30, 2022, compared to net loss of $3,264,957 in the prior fiscal year. The increasing net loss is primarily due to the increase in the Company’s operating expenses, specifically its stock compensation expense due to consulting arrangements with the former principals of Vitality RX during the most recent fiscal year ended June 30, 2022, partially offset by increasing other income.
Liquidity and Capital Resources
Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
| 20 |
| Table of Contents |
Working Capital
The following table presents our working capital position as of June 30, 2022 and 2021:
|
| Year Ended |
|
|
|
|
| |||||||||
|
| June 30, |
|
| Change |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| Amount |
|
| Percentage |
| ||||
Cash |
| $ | 301,337 |
|
| $ | 433,435 |
|
| $ | (132,098 | ) |
| (30.48%) |
| |
Accounts receivable |
|
| 186,285 |
|
|
| 178,555 |
|
|
| 7,730 |
|
|
| 4.33 | % |
Deposits and Prepaid expenses |
|
| - |
|
|
| 1,745 |
|
|
| - |
|
|
| 0.00 | % |
Notes receivable |
|
| 27,289 |
|
|
| 48,987 |
|
|
| (21,698 | ) |
| (79.51 | %) | |
Current Assets |
|
| 514,911 |
|
|
| 662,722 |
|
|
| (147,811 | ) |
| (28,71 | %) | |
Current Liabilities |
|
| 3,852,427 |
|
|
| 2,792,271 |
|
|
| 1,060,156 |
|
|
| 37.97 | % |
Working Capital (Deficit) |
| $ | (3,337,516 | ) |
| $ | (2,129,549 | ) |
| $ | 1,207,967 |
|
|
| 56.72 | % |
The change in working capital during the year ended June 30, 2022, was primarily due to a decrease in current assets of $147,811 in conjunction with an increase in current liabilities of $1,060,157. Current assets decreased primarily due to a decrease in cash in the amount of $132,908. Current liabilities increased primarily due to the stock exchange with Vitality RX.
Cash Flow
The following tables presents our cash flow for the year ended June 30, 2022 and 2021:
|
| Year ended |
| |||||
|
| 30-June |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash from operating activities |
| $ | (582,878 | ) |
| $ | 28,100 |
|
Cash flows in investing activities |
|
| (10,199 | ) |
|
| (1,561,837 | ) |
Cash from financing activities |
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| 460,979 |
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| 1,966,406 |
|
Net change in cash for the period |
| $ | (132,098 | ) |
| $ | 432,669 |
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| 21 |
| Table of Contents |
Cash Flows from Operating Activities
For the year ended June 30, 2022, net cash flows used in operating activities decreased to ($582,878) from $28,100 for the year ended June 30, 2021, due primarily to the Company’s due to an increase in operating expenses during the most recent fiscal year.
Cash Flows from Investing Activities
For the year ended June 30, 2022, net cash flows used in investing activities decreased to ($10,199) from ($1,561,837) for the year ended June 30, 2021, due a decrease in investing activity during the most recent fiscal year.
Cash Flows from Financing Activities
For the year ended June 30, 2022, net cash flows from financing activities decreased to $460,979 from $1,966,406 for the year ended June 30, 2021, due to a decrease in proceeds from the sale of stock during the most recent fiscal year.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of 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. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the years ended June 30, 2022 and 2021.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. The ownership interest of consolidated entities not wholly-owned by the Company are presented as noncontrolling interests in the accompanying consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation, and net income (loss) is reduced by the portion of net income (loss) attributable to noncontrolling interests. The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting.
| 22 |
| Table of Contents |
The Company evaluates its potential variable interest entity (“VIE”) relationships under certain criteria as provided for in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation (“ASC 810”). ASC 810 broadly defines a VIE as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The Company performs this evaluation on an ongoing basis and consolidates any VIEs for which the Company is determined to be the primary beneficiary, as determined by the Company's power to direct the VIE's activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.
Cash and Cash Equivalents
The Company maintains cash balances in a non-interest bearing account that sometimes exceeds over $250,000 federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents. There were no cash equivalents As of June 30, 2022 and 2021.
Earnings Per Share Calculation
Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued.
Revenue Recognition
Participant Fees
Resident fee revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from participants or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Resident fee revenue is recognized as performance obligations are satisfied.
Under the Company’s day care agreements, which are generally for a contractual term of 30 days to one year, the Company provides services to participants for a stated daily or monthly fee. The Company has elected the lessor practical expedient within ASC 842, Leases (“ASC 842”) and recognizes, measures, presents, and discloses the revenue for services under the Company’s senior living residency agreements based upon the predominant component, either the lease or nonlease component, of the contracts. The Company has determined that the services included under the Company's independent living, assisted living, and memory care residency agreements have the same timing and pattern of transfer and are performance obligations that are satisfied over time. The Company recognizes revenue under ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”) for its participants agreements for which it has estimated that the nonlease components of such agreements are the predominant component of the contract.
The Company enters into contracts to provide home assisted health, and certain outpatient services. Each service provided under the contract is capable of being distinct, and thus, the services are considered individual and separate performance obligations. The performance obligations are satisfied as services are provided and revenue is recognized as services are provided.
| 23 |
| Table of Contents |
The Company receives payment for services under various third-party payor programs which include Medicaid, Veterans Affairs and other third-party payors. Estimates for settlements with third-party payors for retroactive adjustments from estimated reimbursements due to audits, reviews, or investigations are included in the determination of the estimated transaction price for providing services. The Company estimates the transaction price based on the terms of the contract with the payor, correspondence with the payor, and historical payment trends. Changes to these estimates for retroactive adjustments are recognized in the period the change or adjustment becomes known or when final settlements are determined.
Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments from Medicaid or Veterans Affairs are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent adjustments to these accrued amounts are recorded in net revenues when known.
Franchise Fees
The Company franchises a number of its locations under franchise contracts which provide periodic franchise fee payments to the Company and reimbursement for costs and expense related to such franchises. Our franchisees pay us a variety of royalties and fees, including an agreed upon percentage of gross revenues (as defined in the franchise agreement). The Company estimates the amount of franchise fee revenue expected to be earned, if any, during the annual contract period and revenue is recognized as services are provided. The Company’s estimate of the transaction price for the franchise services also includes the amount of reimbursement due from the franchises for services provided and related costs incurred. Such revenue is included in “revenues” on the consolidated statements of operations. The related costs are included in “operating expenses” on the consolidated statements of operations.
Income Taxes
The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.
Leases
In December 2018, the FASB issued ASC 842 and as ASU 2016-02, is the new lease accounting standard published by the Financial Accounting Standards Board (FASB). It replaced the previous US GAAP leasing standard, ASC 840. The purpose of the new standard is to close a major accounting loophole in ASC 840: off-balance sheet operating leases. Public companies began to implement the standard starting after December 15, 2018. Private companies will follow a year later on December 15, 2020. ASC 842 represents a significant overhaul of the accounting treatment for leases, with the most significant change being that most leases, including most operating leases, are now capitalized on the balance sheet. Under ASC 840, FASB permitted operating leases to be reported only in the footnotes of corporate financial statements. Under ASC 842, the only leases that are exempt from the capitalization requirement are short-term leases less than or equal to 12 months in length. This became effective December 1, 2019 and the Company chose to adopt it early on December 1, 2018. The adoption did not have any material impact on the Company’s consolidated financial statements as the Company has no long term leases.
| 24 |
| Table of Contents |
Fair value of financial instruments
The Company’s financial instruments include cash and cash equivalents, accounts payable, accrued liabilities, and debt. Derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs. Fair value is defined 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 on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
| · | Level 1 – Quoted prices in active markets for identical assets or liabilities. |
| · | Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| · | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. |
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable and accrued expenses, accrued interest, certain notes payable and notes payable – due to related parties, approximate their fair values because of the short maturity of these instruments.
The Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3 (See Note 6).
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial feature.
Derivative Financial Instruments
When the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company’s stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares.
If the conversion feature within convertible debt meet the requirements to be treated as a derivative, the Company estimates the fair value of the derivative liability using the Monte Carlo Simulation Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the statements of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 “Derivatives and Hedging” (provides comprehensive guidance on derivative and hedging transactions) whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
| 25 |
| Table of Contents |
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Recently Issued Accounting Pronouncements
As of and for the year ended June 30, 2022, the Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.
Seasonality
We do not expect our sales to be impacted by seasonal demands for our products and services.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
As the Company is a “smaller reporting company,” this item is inapplicable.
| 26 |
| Table of Contents |
Item 8. Financial Statements and Supplementary Data
Innovative MedTech, Inc.
Table of Contents
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Report of Independent Registered Public Accounting Firm (ID NO. |
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| F-8 |
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| F-1 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Innovative MedTech, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Innovative MedTech, Inc. (the Company) as of June 30, 2022 and 2021, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the two years then ended, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt about the Company’s ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has incurred net losses and has limited revenues. These factors, and the need for additional financing in order for the Company to meet its business plans raises substantial doubt about the Company’s ability to continue as a going concern. Our opinion is not modified with respect to that matter.
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 audits 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
3001 N. Rocky Point Dr. East, Suite 200 * Tampa, Florida 33607 * 813.367.3527 |
| F-2 |
Derivatives
As described in Note 3 to the Company’s consolidated financial statements, when the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative. If the conversion feature within convertible debt meets the requirements to be treated as a derivative, the Company estimates and records the fair value of the derivative liability using the Monte Carlo Simulation Model upon the date of issuance. The derivative liability is revalued at the end of each reporting period.
We identified the Company’s application of the accounting for convertible notes as a critical audit matter. The principal considerations for our determination of this critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative factors. Auditing these judgments and assumptions by the Company involves auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.
The primary procedures we performed to address these critical audit matters included the following:
| · | We obtained debt and warrant related agreements and performed the following procedures: |
| - | Reviewed agreements for all relevant terms. |
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| - | Tested management’s identification and treatment of agreement terms. |
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| - | Recalculated management’s fair value of each conversion feature based on the terms in the agreements. |
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| - | Assessed the terms and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of the amortization of the debt discount. |
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| - | Reviewed the work of the Company’s specialist to calculate the fair value of the derivative liability using the Monte Carlo method to determine whether the derivative liability recorded by the Company was reasonable. |
Purchase Price Allocation
As described in Note 4 to the Company’s consolidated financial statements, the Company acquired two companies during the year ended June 30, 2021, with the purchase price allocation being completed during the year ended June 30, 2022. The Company accounted for the acquisition in accordance with ASC 805, Business Combinations.
We identified the Company’s purchase price allocation for the business acquisitions as a critical audit matter. The principal considerations for our determination of this critical audit matter related to the high degree of subjectivity in the Company’s judgments in determining the qualitative factors. Auditing these judgments and assumptions by the Company involves auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.
The primary procedures we performed to address these critical audit matters included the following:
| · | We obtained the acquisition agreements and performed the following procedures: |
| - | Reviewed agreements for all relevant terms, consideration and other relevant information. |
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| - | Tested supporting documentation related to the acquired companies in determining the identifiable assets and liabilities. |
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| - | Reviewed the guidance related to ASC 805 to determine the acquisitions were appropriately accounted for by the Company. |
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| - | Reviewed the work of the Company’s specialist to allocate the purchase price to determine whether the assumptions used in the allocation were reasonable based on the circumstances. |
/s/
We have served as the Company’s auditor since 2011.
October 13, 2022
| F-3 |
| Table of Contents |
INNOVATIVE MEDTECH, INC. (FORMERLY FRESH HARVEST PRODUCTS, INC.) AND SUBSIDIARIES | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
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| June 30, 2022 |
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| June 30, 2021 |
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Assets |
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Current assets |
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Cash |
| $ |
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| $ |
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Accounts receivable, net |
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Notes receivable |
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Prepaid expenses |
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Total current assets |
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Notes receivable, non-current |
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Deposits |
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Right-of-use asset |
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Finance lease asset, net |
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Property and equipment, net of accumulated depreciation |
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Intangible assets, net |
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Goodwill |
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Total Assets |
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| $ |
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Liabilities Stockholders’ Deficit |
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Current liabilities |
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Accounts payable and accrued expenses |
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Accrued interest |
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Accrued interest, related parties |
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Notes payable, related parties, current |
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Notes payable, current |
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Convertible notes payable, current |
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Derivative liability |
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Finance lease liability |
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Operating lease liability |
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Total current liabilities |
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Royalty liability, net of discount |
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Finance lease liability, non-current |
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Operating lease liability, non-current |
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Paycheck protection loan |
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SBA Loan |
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Total Liabilities |
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Commitments and contingencies (Note 16) |
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Stockholders’ Deficit |
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Series A Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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| ( | ) |
Total Stockholders’ Deficit |
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| ( | ) |
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| ( | ) |
Total Liabilities and Stockholders’ Deficit |
| $ |
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| $ |
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See accompanying notes to consolidated financial statements
| F-4 |
| Table of Contents |
INNOVATIVE MEDTECH, INC. (FORMERLY FRESH HARVEST PRODUCTS, INC.) AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
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Revenue: |
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Patient fees |
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Franchise fees |
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Operating expenses: |
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General and administrative |
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Salaries and wages |
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Licensing fees |
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Consulting fees |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest expense, related parties |
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Interest expense |
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Loss on extinguishment of debt |
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Impairment of ROU asset |
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Impairment of goodwill |
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Change in fair value of derivatives |
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Gain on disposal of fixed assets |
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Gain on forgiveness of PPP loan |
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Other income |
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Total other income (expense) |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
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Basic and diluted earnings per share on net loss |
| $ | ( | ) |
| $ | ( | ) |
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Weighted average shares outstanding – basic and diluted |
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See accompanying notes to consolidated financial statements
| F-5 |
| Table of Contents |
INNOVATIVE MEDTECH, INC. (FORMERLY FRESH HARVEST PRODUCTS, INC.) AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT | ||||||||||||||||||||||||||||||||||||
For the years ended June 30, 2022 and 2021 | ||||||||||||||||||||||||||||||||||||
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| Additional |
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| Series A Preferred Stock |
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| Common Stock |
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| Common Stock To Be Issued |
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| Paid-in |
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| Accumulated |
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| Stockholders’ |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Deficit |
| |||||||||
Balance, June 30, 2020 |
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| $ |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | |||||||
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Common stock issued which was committed in 2020 |
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| - |
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| ( | ) |
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Sale of common stock |
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| - |
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| - |
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Sales of Series A Convertible Preferred Stock |
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| - |
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| - |
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Conversion of notes and accrued interest into common stock |
|
| - |
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| - |
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Conversion of accounts payable into common stock |
|
| - |
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| - |
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Conversion of Series Convertible Preferred Stock into common stock |
|
| ( | ) |
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| ( | ) |
|
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| - |
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Issuance of common stock for services |
|
| - |
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| - |
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Net loss |
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| - |
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| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
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Balance, June 30, 2021 |
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| $ |
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| $ |
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| - |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | ||||||
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Issuance of common stock for services |
|
| - |
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| - |
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Issuance of Series A preferred stock for services |
|
|
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|
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|
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| - |
|
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| - |
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Net loss |
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| - |
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|
| - |
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| - |
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| ( | ) |
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| ( | ) | ||||
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Balance, June 30, 2022 |
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|
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| $ |
|
|
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| $ |
|
|
| - |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | ||||||
See accompanying notes to consolidated financial statements
| F-6 |
| Table of Contents |
INNOVATIVE MEDTECH, INC. (FORMERLY FRESH HARVEST PRODUCTS, INC.) AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
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| For the years ended |
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| June 30, |
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| 2022 |
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| 2021 |
| ||
Cash Flows from Operating Activities |
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| ||
Net Loss |
| $ | ( | ) |
| $ | ( | ) |
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Adjustments to reconcile net loss to net cash from operating activities: |
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Depreciation and amortization |
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| ||
Stock compensation |
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Loss on modification of debt |
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Loss on impairment of goodwill |
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Impairment of ROU asset |
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| |
Amortization of royalty fee liability discount |
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| ||
Change in fair value of derivatives |
|
| ( | ) |
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| |
Gain on forgiveness of PPP loan |
|
| ( | ) |
|
| ( | ) |
Right-of-use |
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| ||
Expenses paid via notes payable |
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| ||
Changes in operating assets liabilities |
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Accounts receivable |
|
| ( | ) |
|
| ( | ) |
Prepaid expenses |
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| ||
Deposits |
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Accounts payable and accrued liabilities |
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Accrued interest, related party |
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Accrued interest |
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Related party advances |
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Net cash from operating activities |
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| ( | ) |
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| |
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Cash Flows from Investing Activities |
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Cash acquired in business combination |
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| ||
Collections from notes receivable |
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| ||
Purchase of subsidiary |
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|
| ( | ) | |
Purchase of fixed assets |
|
| ( | ) |
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| |
Net cash from investing activities |
|
| ( | ) |
|
| ( | ) |
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|
Cash Flows from Financing Activities |
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Proceeds from convertible notes payable |
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| ||
Proceeds from SBA loan |
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| ||
Proceeds from related party notes payable |
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| ||
Payments on notes payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from finance lease |
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| ||
Payments on finance lease |
|
| ( | ) |
|
|
| |
Proceeds from sale of common stock |
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|
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| ||
Proceeds from sale of series A convertible preferred stock |
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|
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|
| ||
Net cash used by financing activities |
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| ||
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Increase in cash |
|
| ( | ) |
|
|
| |
|
|
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Cash at beginning of period |
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|
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| ||
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Cash at end of period |
| $ |
|
| $ |
| ||
Supplemental Cash Flow Information |
|
|
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|
| ||
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for income taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Common stock issued for convertible notes payable |
| $ |
|
| $ |
| ||
Accounts payable and accrued expenses converted to convertible notes payable |
| $ |
|
| $ |
| ||
Accounts payable and accrued expenses converted to convertible notes payable, related party |
| $ |
|
| $ |
| ||
Accrued interest converted to convertible notes payable |
| $ |
|
| $ |
| ||
Finance lease asset acquired |
| $ |
|
| $ |
| ||
See accompanying notes to consolidated financial statements
| F-7 |
| Table of Contents |
INNOVATIVE MEDTECH, INC.
(FORMERLY FRESH HARVEST PRODUCTS, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2022
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Innovative MedTech, Inc. (the “Company”), a Delaware corporation, is a provider of health and wellness services. On February 1, 2021, the Company filed all required Form 10-Q’s and 10-K’s to be up to date with its filings which should have been filed before the Company filed its Form 15-12G on November 7, 2014.
On March 25, 2021, the Company acquired two companies, Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. (collectively “SarahCare”), an adult day care center franchisor and provider, for a total of $
On March 25, 2021 the Company received a $2 million investment in the form of a private investment in public equity (“PIPE”) from several investors. For the $2 million PIPE, the investors received a combination of common stock and Series A Preferred Stock which together constitute ownership of 84.11% of the Company,
On April 21, 2021, the Company formed ten wholly-owned limited liability companies which will operate ten additional SarahCare facilities. As of June 30, 2022, the newly formed entities are non-operating. Operations expect to begin in November 2022.
On April 28, 2022, the Company entered into a share exchange agreement with RX Vitality, Inc. (“RX Vitality”), a media and finance advisory company.
NOTE 2. LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business.
For the years ended June 30, 2022 and 2021, the Company reported a net loss of $
As of June 30, 2022, the Company maintained total assets of $
The Company continues to have limited capital resources and has experienced net losses and negative cash flows from operations and expects these conditions to continue for the foreseeable future. As of June 30, 2022, the Company had $
| F-8 |
| Table of Contents |
The Company believes that additional capital will be required to fund operations through June 30, 2023 and beyond, as it attempts to generate increasing revenue, and develop new products. The Company intends to attempt to raise capital through additional equity offerings and debt obligations. There can be no assurance that the Company will be successful in obtaining financing at the level needed or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the years ended June 30, 2022 and 2021.
Principles of Consolidation
The Company has two wholly-owned operating subsidiaries; Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc., along with non-operating subsidiaries consisting of RX Vitality, Inc. and the 10 newly formed limited liability companies formed for the additional SarahCare location leases. The consolidated financial statements, which include the accounts of the Company and its two wholly-owned subsidiaries, are prepared in conformity with GAAP pursuant to the rules and regulations of the SEC. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements have been prepared using the accrual basis of accounting in accordance with GAAP and presented in US dollars. The fiscal year end is June 30.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.
Cash and Cash Equivalents
The Company maintains cash balances in a non-interest-bearing account that exceeds $250,000 at June 30, 2022. For the purpose of the consolidated financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of June 30, 2022 and 2021.
Earnings Per Share Calculation
Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued.
| F-9 |
| Table of Contents |
Intangible Assets
Certain intangible assets arose from the acquisition of Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. on March 25, 2021 and consist of the following, which have been or are being amortized on a straight-line basis over the following estimated useful lives unless they have an indefinite life:
Asset |
| Estimated Useful Life |
| |
Customer Relationships |
|
|
| |
Trademarks |
|
| ||
Non-Compete Agreement |
|
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| |
CARF Accreditation |
|
|
| |
Franchise Agreements |
|
| ||
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. For the years ended June 30, 2022 and 2021, there were no impairment losses.
Revenue Recognition
Revenue is recognized when a customer obtains services. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the services it provides to the customer. Once a contract is determined to be within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct.
Patient Fees
Participant fee revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from participants or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Resident fee revenue is recognized as performance obligations are satisfied.
Under the Company’s day care agreements, which are generally for a contractual term of 30 days to one year, the Company provides services to participants for a stated daily or monthly fee. The Company has elected the lessor practical expedient within ASC 842, Leases (“ASC 842”) and recognizes, measures, presents, and discloses the revenue for services under the Company’s senior living residency agreements based upon the predominant component, either the lease or nonlease component, of the contracts. The Company has determined that the services included under the Company’s independent living, assisted living, and memory care residency agreements have the same timing and pattern of transfer and are performance obligations that are satisfied over time. The Company recognizes revenue under ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”) for its participants agreements for which it has estimated that the nonlease components of such agreements are the predominant component of the contract.
| F-10 |
| Table of Contents |
The Company enters into contracts to provide home assisted health, and certain outpatient services. Each service provided under the contract is capable of being distinct, and thus, the services are considered individual and separate performance obligations. The performance obligations are satisfied as services are provided and revenue is recognized as services are provided.
The Company receives payment for services under various third-party payor programs which include Medicaid, Veterans Affairs and other third-party payors. Estimates for settlements with third-party payors for retroactive adjustments from estimated reimbursements due to audits, reviews, or investigations are included in the determination of the estimated transaction price for providing services. The Company estimates the transaction price based on the terms of the contract with the payor, correspondence with the payor, and historical payment trends. Changes to these estimates for retroactive adjustments are recognized in the period the change or adjustment becomes known or when final settlements are determined.
Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments from Medicaid or Veterans Affairs are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent adjustments to these accrued amounts are recorded in net revenues when known.
Franchise Fees
The Company franchises a number of its locations under franchise contracts which provide periodic franchise fee payments to the Company and reimbursement for costs and expense related to such franchises. The Company’s franchisees pay a variety of royalties and fees, including an agreed upon percentage of gross revenues (as defined in the franchise agreement). The Company estimates the amount of franchise fee revenue expected to be earned, if any, during the annual contract period and revenue is recognized as services are provided. The Company’s estimate of the transaction price for the franchise services also includes the amount of reimbursement due from the franchises for services provided and related costs incurred.
SarahCare, as the franchisor, supplies the franchisee’s with initial assistance and approval with the following: (1) Providing the site selection criteria for the SARAH Business and, upon a potential franchisee’s request, provide input regarding possible sites. The Company does not own and lease any site to franchisees. After the franchise selects and the Company approves a site, the Company will designate the geographic area within which they may establish the SARAH Business; (2) Approve the signage; (3) Identify the standards and specifications for products, services, and materials that comply with the System, and, if the Company requires, the approved suppliers of these items. The Company will furnish a potential Franchisee with the listing of the package of initial franchise items as detailed in the Operations Manual. Neither the Company or its affiliate provide, deliver, or install any of these items; (4) Provide an Initial Training Program; and (5) Provide an Operations Training Program.
Once the Franchisee’s SarahCare business is operational, the Company will: (1) Issue and modify System standards for SARAH Businesses; (2) Provide access to a copy of the Company’s Operations Manual as they make available through our intranet. The Operations Manual contains mandatory and suggested specifications, standards and operating procedure; (3) Provide additional or special guidance and assistance and training as the Company deem appropriate and for which a potential Franchisee are financially responsible; (4) Inspect and observe the operation of the SARAH Business to help a potential Franchisee comply with the Franchise Agreement and all System standards; (5) Let the Franchisee use the confidential information; and, (6) Let the Franchisee use the Marks (trademarks, trade names, service marks, and logos).
Digital Healthcare Wallet Card
Revenue will be recognized when fees are collected from cardholders at the time the fees are assessed and debited from their account balances. The Company anticipates the card revenues to consist of monthly maintenance fees, new card fees, ATM fees, and other card revenues. The fees will be earned by providing account services to each cardholder over the contract term. Agreements with cardholders are considered daily services contracts.
The Company intends to earn interchange revenue from fees remitted by the merchant’s bank, which are based on rates established by the payment networks, such as Visa, when account holders make purchase transactions using the card products and services. The Company intends to recognize revenues at the point in time the transactions occurs.
Income Taxes
The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.
| F-11 |
| Table of Contents |
Leases
The Company accounts for leases in accordance with Accounting Standards Update (ASU) 2016-02, “Leases” (Topic 842). Based on this standard, the Company determines if an agreement is a lease at inception. Leases are included – right to use, current portion of lease liability, and operating lease liability, less current portion in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net current portion of long-term debt, net and long-term debt, less current portion and debt issuance costs in the Company’s consolidated balance sheets.
Fair value of financial instruments
The Company’s financial instruments include cash and cash equivalents, accounts payable, accrued expenses, and debt. The carrying value of these financial instruments is considered to be representative of their fair value due to the short maturity of these instruments. The carrying amount of the debt approximates fair value, because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. The Company’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.
Fair value is defined 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 on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses and interest, certain notes payable and notes payable – due to related parties, approximate their fair values because of the short maturity of these instruments. The Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3 (See Note 12).
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial feature.
Derivative financial instruments
When the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company’s stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares.
| F-12 |
| Table of Contents |
If the conversion features within convertible debt meet the requirements to be treated as a derivative, the Company estimates the fair value of the derivative liability using the Monte Carlo Simulation Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statements of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 “Derivatives and Hedging” (provides comprehensive guidance on derivative and hedging transactions) whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Reclassification of Presentation
Certain prior year amounts have been reclassified to conform with current year presentation. These reclassifications had no effect on the reported results of operations.
Recently Issued Accounting Pronouncements
The Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations for the year ended as of June 30, 2022 or on a going forward basis..
Subsequent Events
In accordance with ASC 855, Subsequent Events, the Company evaluated subsequent events through the date of this report; the date the consolidated financial statements were available for issue.
| F-13 |
| Table of Contents |
NOTE 4. BUSINESS ACQUISITION
SarahCare
On March 25, 2021 the Company acquired SarahCare, an adult day care center franchisor and provider. The combined purchase price was $
The Company completed its accounting for the acquisition on March 25, 2022. The purchase price allocation is as follows:
Consideration |
|
|
| |
Cash |
| $ |
| |
Legal fees |
|
| ( | ) |
Notes payable due to sellers |
|
|
| |
Royalty fee liability, net of discount |
|
|
| |
Total consideration |
| $ |
| |
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired |
|
|
|
|
Cash |
| $ |
| |
Accounts receivable |
|
|
| |
Deposits and prepaid expenses |
|
|
| |
Notes receivable |
|
|
| |
Property and equipment |
|
|
| |
Right of use asset |
|
|
| |
Total fair value of net identifiable assets |
| $ |
| |
|
|
|
|
|
Accounts payable and accrued expenses |
| $ |
| |
Notes payable, current, net of debt discount |
|
|
| |
PPP Loan |
|
|
| |
Lease liability |
|
|
| |
Total fair value of net identifiable liabilities |
| $ |
| |
|
|
|
|
|
Fair value of net identifiable assets (liabilities) acquired |
| $ | ( | ) |
|
|
|
|
|
Excess (consideration given minus fair value of identifiable net assets and liabilities) |
| $ |
| |
| F-14 |
| Table of Contents |
Intangible assets: |
|
|
| |
Customer relationships |
| $ |
| |
Trademarks |
|
|
| |
Non-Compete Agreement |
|
|
| |
CARF Accreditation |
|
|
| |
Franchise Agreements |
|
|
| |
Total intangible assets |
| $ |
| |
|
|
|
|
|
Goodwill (excess minus values assigned to intangible assets) |
| $ |
| |
Minus (goodwill impaired in prior period) |
|
| ( | ) |
Remaining Goodwill |
| $ |
| |
The Royalty fee liability has a term 3 years and is to be repaid from any new subsidiary franchisee fees.
The Company analyzed the acquisition under applicable guidance and determined that the acquisition should be accounted for as a business combination.
On June 30, 2021, the Company performed a test to determine if goodwill should be impaired. The test determined that the fair value of the reporting units was less than its carrying value. As such the Company recorded a loss on impairment of goodwill in the amount of $
On June 30, 2022, the Company performed a test to determine if goodwill should be impaired. The Company determined that the fair vale of the reporting units was greater than its carrying value. As such, no impairment was recorded for the year ended June 30, 2022.
Pro Forma Disclosures
The following unaudited pro forma financial results reflects the historical operating results of the Company, including the unaudited pro forma results of SarahCare. for the year ended June 30, 2021, as if each of these business combinations had occurred only as of July 1, 2020. The pro forma financial information set forth below reflects adjustments to the historical data of the Company to give effect to each of these acquisitions and the related equity issuances as if each had occurred on July 1, 2020 The pro forma information presented below does not purport to represent what the actual results of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of operations. The following table summarizes on an unaudited pro forma basis the Company’s results of operations for the year ended June 30, 2021:
|
| 2021 |
| |
Net revenue |
| $ |
| |
Net loss |
| $ | ( | ) |
Net loss per share- basic and diluted |
| $ | ( | ) |
|
|
|
| |
Weighted average number of shares of common stock outstanding- basic and diluted |
|
|
| |
The calculations of pro forma net revenue and pro forma net loss give effect to the business combinations for the period from July 1, 2020 until the respective closing dates for (i) the historical net revenue and net income (loss), as applicable, of the acquired businesses, (ii) incremental depreciation and amortization for each business combination based on the fair value of property, equipment and identifiable intangible assets acquired and the related estimated useful lives, and (iii) recognition of accretion of discounts on obligations with extended payment terms that were assumed in the business combinations.
| F-15 |
| Table of Contents |
NOTE 5. NOTES RECEIVABLE
The Company’s wholly-owned subsidiary Sarah Adult Day Services, Inc., has notes receivables from two franchises, which were previously converted from trade receivables. They are as follows:
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
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| ||
Notes receivable from a franchise, due in monthly installments of $5,000, no interest, maturing December 2021 |
| $ |
|
| $ |
| ||
|
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|
|
|
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|
Notes receivable from a franchise, due in monthly installments of $1,999, no interest, maturing March 2023 |
|
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| ||
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Note receivable from related party (see Note 17), due in six months, with no installments, 5% interest maturing March 2022 |
|
|
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| ||
Total notes receivable |
|
|
|
|
|
| ||
Less long-term |
|
|
|
|
| ( | ) | |
Total short term notes receivable |
| $ |
|
| $ |
| ||
Principal to be collected during the next year is as follows:
|
| As of |
| |
|
| June 30, 2022 |
| |
Year ending June 30, 2023 |
|
|
| |
Total |
| $ |
| |
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2022 and 2021:
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Leasehold improvements |
| $ |
|
| $ |
| ||
Vehicles |
|
|
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|
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| ||
Computer equipment |
|
|
|
|
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| ||
Furniture and fixtures |
|
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| ||
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| ||
Less: Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment - net |
| $ |
|
| $ |
| ||
Depreciation expense was $
| F-16 |
| Table of Contents |
NOTE 7. INTANGIBLE ASSETS
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Customer relationships |
| $ |
|
| $ |
| ||
Trademarks |
|
|
|
|
|
| ||
Non-Compete agreement |
|
|
|
|
|
| ||
CARF accreditation |
|
|
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|
|
| ||
Franchise agreements |
|
|
|
|
|
|
| |
Less: accumulated amortization |
|
| ( | ) |
|
|
| |
Intangible assets - net |
| $ |
|
| $ |
| ||
During the year ended June 30, 2022, the Company finalized the purchase accounting for the Sarah Care Acquisition as described further in Note 4. As a result, the intangible assets (i.e. customer relationships, trademarks, non-compete agreement, CARF Accreditation and Franchise Agreements) arose from the acquisition. The Company is amortizing these intangible over their respective remaining useful lives. The Company recorded amortization expense in the amount of $
NOTE 8. NOTES PAYABLE
As of June 30, 2022 and 2021, the Company had $
Ref No. |
|
| Date of Note Issuance |
| Original Principal Balance |
|
| Maturity Date |
| Interest Rate % |
|
| Principal Balance 06/30/22 |
|
| Principal Balance 6/30/2021 |
| |||||
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| |||||
| 1 |
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| $ |
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| $ |
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| $ |
| |||||||
| 2* |
|
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| |||||||
| 3* |
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| 5,000 |
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| ||||||
| 4 |
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| 5 |
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| 6 |
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| ||||||
|
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| Total Current |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
________
*These notes were assumed in connection with the acquisition on March 25, 2021.
** As of June 30, 2022, these notes are in default.
| F-17 |
| Table of Contents |
NOTE 9. NOTES PAYABLE, RELATED PARTIES, CURRENT
As of June 30, 2022 and 2021, the Company had $
Ref No. |
|
| Date of Note Issuance |
| Original Principal Balance |
|
| Maturity Date |
| Interest Rate % |
|
| Principal Balance 06/30/22 |
|
| Principal Balance 6/30/21 |
| |||||
| 1* |
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| 2* |
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| % |
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| 3* |
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| % |
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| ||||||
| 4 |
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| % |
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| 5 |
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| % |
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| ||||||
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| Total |
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|
| $ |
|
| $ |
| ||
* As of June 30, 2022, these notes are in default.
NOTE 10. CONVERTIBLE NOTES PAYABLE, CURRENT
As of June 30, 2022 and 2021, the convertible notes payable were as follows:
Date of Note Issuance |
| Original Principal Balance |
|
| Maturity Date |
| Interest Rate % |
|
| Conversion Rate |
|
| Principal Balance 6/30/22 |
|
| Principal Balance 6/30/21 |
| |||||
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| % |
| $ |
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| $ |
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| $ |
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| % |
| $ |
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| % |
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| % |
| 25% discount of previous 5 days closing price |
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| % |
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| % |
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| % |
| $ |
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| % |
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| % |
| $ |
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| % |
| $ |
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| % |
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| % |
| $ |
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| |||||||
Total Current |
|
|
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|
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|
| $ |
|
| $ |
| ||
| F-18 |
| Table of Contents |
NOTE 11. NOTES PAYABLE, LONG TERM
PPP Loans
On April 21, 2020 and February 10, 2021, the Company received loan proceeds in the amount of approximately $
The Company was granted forgiveness of $
SBA Loan
On June 25, 2020 and January 6, 2022, the Company’s wholly-owned subsidiary, Sarah Day Care Centers, Inc. received proceeds of $
NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS
The following tables summarize the components of the Company’s derivative liabilities and linked common shares As of June 30, 2022 and 2021 the amounts that were reflected in income related to derivatives for the year ended June 30, 2022 and 2021:
|
| June 30, 2022 |
| |||||
|
| Indexed |
|
| Fair |
| ||
The financings giving rise to derivative financial instruments |
| Shares |
|
| Values |
| ||
Compound embedded derivative |
|
|
|
| $ |
| ||
|
| June 30, 2021 |
| |||||
|
| Indexed |
|
| Fair |
| ||
The financings giving rise to derivative financial instruments |
| Shares |
|
| Values |
| ||
Compound embedded derivative |
|
|
|
| $ |
| ||
The following tables summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing for the years ended June 30, 2022 and 2021:
The financings giving rise to derivative financial instruments and the income effects:
|
| Years ended |
| |||||
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Compound embedded derivative |
| $ |
|
| $ | ( | ) | |
Day one derivative loss |
|
|
|
|
|
| ||
Total derivative gain (loss) |
| $ |
|
| $ | ( | ) | |
The Company’s convertible notes gave rise to derivative financial instruments. The notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.
| F-19 |
| Table of Contents |
Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.
Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the compound embedded derivative that has been bifurcated from the Convertible Notes and classified in liabilities:
|
|
|
|
| June 30, |
|
| June 30, |
| |||
|
| Inception |
|
| 2022 |
|
| 2021 |
| |||
Quoted market price on valuation date |
| $ |
|
| $ |
|
| $ |
| |||
Contractual conversion rate |
| $ |
|
| $ |
|
| $ |
| |||
Range of effective contractual conversion rates |
|
| - |
|
|
| - |
|
|
| - |
|
Contractual term to maturity |
|
|
|
|
|
| ||||||
Market volatility: |
|
|
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|
|
|
|
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|
|
|
Volatility |
| % |
| % |
| % | ||||||
Contractual interest rate |
| % |
| % |
| % | ||||||
The following table reflects the issuances of compound embedded derivatives and changes in fair value inputs and assumptions related to the compound embedded derivatives during the years ended June 30, 2022 and 2021.
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||
Beginning balance |
| $ |
|
| $ |
| ||
Issuances: |
|
|
|
|
|
|
|
|
Convertible Note Financing |
|
|
|
|
|
| ||
Removals |
|
|
|
|
|
| ||
Changes in fair value inputs and assumptions reflected |
|
| ( | ) |
|
|
| |
Conversions |
|
|
|
|
| ( | ) | |
Ending balance |
| $ |
|
| $ |
| ||
The fair value of the compound embedded derivative is significantly influenced by the Company’s trading market price, the price volatility in trading and the interest components of the Monte Carlo Simulation technique.
NOTE 13. STOCKHOLDERS’ EQUITY
On February 11, 2021, the Company filed with FINRA to effectuate a 10,000:1 reverse stock split. FINRA permitted this corporate actions on March 8, 2021. The 10,000:1 reverse split took effect at the open of business on March 9, 2021.
| F-20 |
| Table of Contents |
On or about April 26, 2022, the Company entered into an Agreement for Share Exchange (the “Share Exchange Agreement”) to obtain
Common Stock
On or about April 26, 2022, the Company issued the Vitality Shareholders 5,500,000 common shares, par value, $
On September 15, 2021 the Company issued 100,000 common stock, par value, $0.000001 per share, to a consultant for services rendered to the Company.
Conversion of Notes Payable to Common Shares
On December 31, 2020 (prior to the Company’s reverse split) the Company issued
On December 31, 2020, the Company’s two Board of Director Members converted a total of $
On February 2, 2021 eleven (
On March 19, 2021 the Company’s Board of Directors converted all 47,400,000 of their Series A Preferred Stock into 474,000 shares of Common Stock. There was no Series A Preferred Stock outstanding after these conversions, until March 25, 2021, when the Company issued
Series A Preferred Stock Series B Preferred Stock
On April 26, 2022, the Company issued the Shareholders of Vitality 50,000 shares of Series A Convertible Preferred Stock, par value, $0.000001 per share, to Vitality’s five shareholder’s for consulting services and their expertise in technology, financial services and media related to the Company’s digital healthcare wallet.
As of June 30, 2022, the Company had
On December 21, 2020, the Company increased its authorized shares to
| F-21 |
| Table of Contents |
On December 21, 2020, the Company increased its authorized Preferred Series A and Series B shares to
Series A Preferred Stock Series B Preferred Stock – Certificate of Designations
The Preferred Shares each have Certificate of Designations, which designate as follows:
Number
500,000,000 shares of the Parent Company’s Preferred Stock are designated as shares of Series A Convertible Preferred Stock, par value $
Dividends
Any dividends (other than dividends on common stock payable solely in common stock or dividends on the Series A Convertible Preferred Stock payable solely in Series A Convertible Preferred Stock or dividends on the Series B Preferred Convertible Stock payable solely in Series B Convertible Preferred Stock) declared or paid in any fiscal year will be declared or paid among the holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and common stock then outstanding in proportion to the greatest whole number of shares of common stock which would be held by each such holder if all shares of Series A Preferred Stock and Series B Convertible Preferred Stock were converted into shares of common stock pursuant to the terms of the Certificate of Designations. The Parent Company’s Board of Directors is under no obligation to declare dividends on the Series A Convertible Preferred Stock or Series B Convertible Preferred Stock.
Conversion
Each share of Preferred Stock is convertible into 100 shares of the Parent Company’s common stock (the “Conversion Rate”).
Liquidation
In the event of any liquidation, dissolution or winding up of the Parent Company, the assets of the Parent Company legally available for distribution by the Parent Company would be distributed with equal priority and pro rata among the holders of the Preferred Stock and common stock in proportion to the number of shares of common stock held by them, with the shares of Preferred Stock being treated for this purpose as if they had been converted to shares of common stock at the then applicable Conversion Rate.
Voting
On any matter presented to the stockholders of the Parent Company for their action or consideration at any meeting of stockholders of the Parent Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock would be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Parent Company’s Certificate of Incorporation, holders of Preferred Stock vote together with the holders of common stock as a single class.
NOTE 14. PROVISION FOR CORPORATE INCOME TAXES
The Company provides for income taxes by the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. This also requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
| F-22 |
| Table of Contents |
The valuation allowance at June 30, 2022 was $
As of June 30, 2022, the Company has federal net operating loss carry forwards of approximately $
As of June 30, 2022 and June 30, 2021, the difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to loss before income taxes is as follows (in percentages):
Statutory federal income tax rate |
|
| ( | )% |
State taxes – net of federal benefits |
|
| ( | )% |
Valuation allowance |
|
| % | |
Income tax rate – net |
|
| % |
FASB Interpretation No. 48 (Fin 48) - Accounting for Uncertain Tax Positions
The Company files income tax returns in the U.S. federal jurisdiction and various state, and local jurisdictions. The Company is no longer subject to U.S. federal income tax examination by tax authorities, with limited exception, for the years prior to June 30, 2014. With respect to state and local jurisdictions, with limited exception, the Company is no longer subject to income tax audits prior to June 30, 2014. In the normal course of business, the Company is subject to examination by various taxing authorities. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that may result from these open tax years.
Based on management’s review of the Company’s tax position, the Company had no significant unrecognized corporate tax liabilities as of June 30, 2022 and 2021 payable to the Internal Revenue Service due to the net operating loss carry-forward, however, the Company had yet to file its 2005 through 2009 and 2012 through 2021 Federal, New Jersey nor New York Corporate Income Tax Returns.
NOTE 15. UNPAID PAYROLL TAXES
As of June 30, 2022 and 2021, the Company owed the Internal Revenue Service and New York State payroll related taxes in the amounts of $
IRS Tax Lien
The Internal Revenue Service has placed a federal tax lien on all of the assets of the Company.
NOTE 16. COMMITMENTS AND CONTINGENCIES
Licensing Agreement
On March 31, 2022, the Company entered into a management agreement with TruCash Group of Companies, Inc. (“TruCash’) where the Company is licensing from TruCash certain VISA ICAs and BINs to be used by the Company to offer certain pre-paid cards, mobile apps, loyalty programs, and other merchant related services to its potential clients. The Agreement has a term of five (
| F-23 |
| Table of Contents |
Rent
As of June 30, 2022, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space but expects to enter into a month-to-month office lease for this space.
On April 21, 2021, the Company, through ten newly-formed, wholly-owned limited liability companies, entered into lease agreements with entities controlled by our Chairman, Charles Everhardt, for ten additional SarahCare locations to be operated by the Company.
NOTE 17. LEASES
Operating Leases
Stow Professional Lease
In connection with the acquisition of Sarah Adult Day Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with 6,000 square feet at 4472 Darrow Road, Stow, Ohio 44224. The lease expires on December 31, 2025 and the lease payments are as follows:
|
| Monthly Rent Payments |
| |||||||||
|
| Base Rent |
|
| Covid-19 Recoup* |
|
| Total Rent |
| |||
April 1, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
May 1, 2021 to December 31, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2022 to December 31, 2022 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2023 to December 31, 2023 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2024 to December 31, 2024 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2025 to December 31, 2025 |
| $ |
|
| $ |
|
| $ |
| |||
________
*The Company has to repay the lessor monthly payments as a result of COVID relief.
Harbor Lease
In connection with the acquisition of Sarah Adult Day Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with 3,469 square feet at 4580 Stephen Circle NW. Canton, OH 44718. The monthly lease payments are $
In connection with the acquisition of Sarah Day Care Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with 5,300 square feet in Jackson, Ohio. The monthly lease payments are $
| F-24 |
| Table of Contents |
S. Frank Professional Lease
Operating lease right-of-use asset and liability are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is the incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of the Company’s leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. Since the common area maintenance expenses are expenses that do not depend on an index or rate, they are excluded from the measurement of the lease liability and recognized in general and administrative expenses on the consolidated statements of operations.
Right-of-use asset is summarized below:
|
| June 30, 2022 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Right-of-use asset, net |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| June 30, 2021 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Right-of-use asset, net |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Operating lease liability is summarized below:
|
| June 30, 2022 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Long term portion |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| June 30, 2021 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Long term portion |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| F-25 |
| Table of Contents |
Maturity of the lease liability is as follows:
|
| June 30, 2022 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Year ending June 30, 2023 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Year ending June 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ending June 30, 2025 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ending June 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ending June 30, 2027 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Present value discount |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Lease liability |
| $ |
|
| $ |
|
| $ |
|
| $ | 590,417 |
| |||
|
| June 30, 2021 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Year ending June 30, 2022 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Year ending June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ending June 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ending June 30, 2025 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ending June 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ending June 30, 2027 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Present value discount |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Lease liability |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Finance leases
Commencing during the year ended June 30, 2022, the Company leases office equipment under two finance leases with combined monthly payments of $
Finance right of use assets are summarized below:
|
| As of |
|
| As of |
| ||
|
| June 30, |
|
| June 30, |
| ||
| 2022 |
| 2021 |
| ||||
Equipment lease |
| $ |
|
| $ |
| ||
Less accumulated amortization |
|
| ( | ) |
|
|
| |
Finance right of use asset |
| $ |
|
| $ |
| ||
| F-26 |
| Table of Contents |
On October 1, 2021, the Company discontinued use of one of its copiers. As a result, the Company recorded an impairment of assets in the amount of $
Finance lease liabilities are summarized below:
|
| As of |
|
| As of |
| ||
|
| June 30, |
|
| June 30, |
| ||
|
| 2022 |
| 2021 |
| |||
Equipment lease |
| $ |
|
| $ |
| ||
Less: current portion |
|
| ( | ) |
|
|
| |
Long term portion |
| $ |
|
| $ |
| ||
|
| Equipment Lease |
| |
Year Ended June 30, 2023 |
| $ |
| |
Year Ended June 30, 2024 |
|
|
| |
Year Ended June 30, 2025 |
|
|
| |
Year Ended June 30, 2026 |
|
|
| |
Year Ended June 30, 2027 |
|
|
| |
Total future minimum lease payments |
|
|
| |
Less imputed interest |
|
| ( | ) |
PV of payments |
| $ |
| |
| F-27 |
| Table of Contents |
NOTE 18. RELATED PARTY TRANSACTIONS
During the years ended June 30, 2022 and 2021, related party transactions were as follows:
As of June 30, 2022, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space but expects to enter into a month-to-month office lease for this space.
As of March 31, 2022, a company founded and partially owned by the Company’s Chairman, Charles Everhardt, has paid the Licensing Fees of $
On May 5, 2022, the Company signed a note receivable of $
On March 25, 2022, the Company signed a note receivable of $
On September 28, 2021, the Company signed a note receivable of $
On September 8, 2021 the Company signed a note receivable of $29,294 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.
On April 21, 2021, the Company, through ten newly-formed, wholly-owned limited liability companies, entered into lease agreements with entities controlled by our Chairman, Charles Everhardt, for ten additional SarahCare locations to be operated by the Company.
On March 25, 2021, the Company issued
On March 19, 2021, the Company issued
On March 19, 2021, the Company issued
On December 30, 2020, the Company issued
On December 30, 2020, the Company issued
NOTE 19. SUBSEQUENT EVENTS
The Company has evaluated subsequent events for recognition and disclosure through October 13, 2022, the date the financial statements were available to be issued, and determined that there were no such events requiring adjustment to, or disclosure in, the accompanying consolidated financial statements except as described below.
| F-28 |
| Table of Contents |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
We have had no disagreements with our accountants required to be disclosed pursuant to Item 304 of Regulation S-K.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the year ended June 30, 2022, covered by this Form 10-K. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Management’s Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for the preparation of the financial statements and related financial information appearing in this Annual Report on Form 10-K. The financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America. The management of the Company is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. A company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
| Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
| ||
| Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and the board of directors of the Company; and | |
| ||
| Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Management, including the Chief Executive Officer and Chief Financial officer, does not expect that the Company’s disclosure controls and internal controls will prevent all error and all fraud. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met and may not prevent or detect misstatements. Further, over time, control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.
With the participation of the Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the Company’s internal control over financial reporting As of June 30, 2022, based upon the framework in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on that evaluation, our management has concluded that, as of June 30, 2022, the Company had material weaknesses in its internal control over financial reporting and the Company’s internal control over financial reporting were not effective. Specifically, management identified the following material weaknesses at June 30, 2022:
| 1. | Lack of oversight by independent directors in the establishment and monitoring of required internal controls and procedures; |
| 2. | Lack of functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; |
| 3. | Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting and to allow for proper monitoring controls over accounting; |
| 4. | Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes. |
| 27 |
| Table of Contents |
To remediate our internal control weaknesses, management intends to implement the following measures:
| · | The Company will add sufficient number of independent directors to the board and appoint an audit committee. |
|
|
|
| · | The Company will add sufficient knowledgeable accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements. |
|
|
|
| · | Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures. |
The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt for its continued operational activities and corporate expenses. Management provides no assurances that it will be able to do so.
We understand that remediation of material weaknesses and deficiencies in internal controls are a continuing work in progress due to the issuance of new standards and promulgations. However, remediation of any known deficiency is among our highest priorities. Our management will periodically assess the progress and sufficiency of our ongoing initiatives and make adjustments as and when necessary.
As a smaller reporting company, we are not required to provide, and this annual report does not include, an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control over Financial Reporting
Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Item 9B. Other Information.
None.
| 28 |
| Table of Contents |
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth information with respect to persons who are serving as directors and officers of the Company. Each director holds office until the next annual meeting of shareholders or until his successor has been elected and qualified.
Name |
| Age |
| Positions |
Charles Everhardt |
| 61 |
| Chairman of the Board (1) |
Michael Friedman |
| 44 |
| Director (1)(3), President Interim Chief Financial Officer (2) |
Merle Griff, Ph.D. |
| 73 |
| Chief Executive Officer (4) |
__________
(1) | All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. |
(2) | Michael Friedman has been the Interim CEO, Interim CFO and Interim President since March 25, 2021, and on May 24, 2022, resigned as Interim CEO and became President (and remaining as Interim CFO). |
(3) | Michael Friedman was Chairman of the Board from December 16, 2005, until March 25, 2021, when he became a Director. |
(4) | On May 24, 2022, Merle Griff, Ph.D. became Chief Executive Officer. |
Biographies of Directors and Officers
The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of our company, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Mr. Everhardt, appointed as Chairman of our Board of Directors on March 25, 2021, has been active in many aspects of real estate, brokerage, development, construction, lending, banking, and purchasing of distressed assets, for over two decades. Mr. Everhardt created and became a partner with Infinity Cards and founded Spindeltop Ventures, LLC, which had a world-wide relationship with MasterCard and Google Wallet, for its affinity prepaid debit cards. Mr. Everhardt has been a partner in Lockwood Development partners, Inc., since 2015. Mr. Everhardt is a partner in Lockwood Development Partners, a real estate investment and development company. The Company believes that Mr. Everhardt’s extensive real estate and development experience makes him a valuable member of the Company’s Board of Directors.
Michael Friedman, LLM, JD, served as the Company’s President, Chief Executive Officer, Chief Financial Officer and Chairman of the Board of Directors from December 2005, until March 25, 2021, when he became our Interim CEO, Interim CFO and Interim President. On May 24, 2022, Mr. Friedman resigned as Interim CEO and became President of the Company, and remaining as the Company’s Interim CFO. Mr. Friedman has continued as President and has remained a Director of the Company. Since 2014, Mr. Friedman has been an advisor, Board of Director Member, and chief financial officer for multiple companies in several industries, primarily focusing in media and technology. Mr. Friedman is co-Founder and CEO of Treat Holdings, LLC which developed the TreatER mobile application which is available on the Apple App Store and directs users to the nearest urgent care or emergency room. The Company previously had a relationship with Treat Holdings, which was terminated on March 25, 2021. On October 1, 2021, Mr. Friedman became President, CEO and a Director of Trident Brands Incorporated (OTC Pink: TDNT). Mr. Friedman received a Master of Laws in Taxation (LL.M.) and a Juris Doctor (JD) from New York Law School. The Company believes that Mr. Friedman’s extensive business experience and legal expertise makes him a valuable member of the Company’s Board of Directors.
| 29 |
| Table of Contents |
Merle Griff, Ph.D., has served as the Chief Executive Officer since May 24, 2022. Dr. Griff is the Founder and has been the CEO of SarahCare (a wholly owned subsidiary of the Company) since its inception approximately 35 years ago, and she is one of the leading authorities on the care of seniors in the United States. Dr. Griff has served on numerous national boards and task forces including being the past Chairperson of the Board of Directors for NADSA (National Adult Day Services Association), member of the International Advisory Board for CARF (Commission on the Accreditation for Rehabilitation Facilities) and a task force member for the study of adult day care in the US for the Assistant Secretary of Program and Evaluation in the Department of Aging. Dr. Griff began her professional career working with children and youth as a play therapist. She developed therapeutic techniques that have been published and used throughout the world, namely Family Play Therapy and Intergenerational Play Therapy. As Director of the McKinley Center Intergenerational Project, she developed many programs that brought together children from babies through college-age with seniors. Dr. Griff is the author of Linkages, a book based on research intergenerational programs, and numerous book chapters and journal articles on topics such as the role of grandparents in family systems. Dr. Griff’s vast knowledge and deep experience in healthcare and adult day care made her a valuable member of the Company’s executive team.
There are no family relationships among any of our directors and executive officers.
Our directors are elected at the annual meeting of the shareholders, with vacancies filled by the Board of Directors, and serve until their successors are elected and qualified, or their earlier resignation or removal. Officers are appointed by the board of directors and serve at the discretion of the board of directors or until their earlier resignation or removal. Any action required can be taken at any annual or special meeting of stockholders of the corporation which may be taken without a meeting, without prior notice and without a vote, if consent of consents in writing setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office, its principle place of business, or an officer or agent of the corporation having custody of the book in which the proceedings of meetings are recorded.
Indemnification of Directors and Officers
Pursuant to Section 145 of the General Corporation Law of the State of Delaware, we have the power to indemnify any person made a party to any lawsuit by reason of being a director or officer of the Company, or serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Our articles of incorporation provide that the Company shall indemnify its directors and officers to the fullest extent permitted by Delaware law.
Insofar as indemnification by us for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling the company pursuant to provisions of our articles of incorporation and bylaws, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification by such director, officer or controlling person of us in the successful defense of any action, suit or proceeding is asserted by such director, officer or controlling person in connection with the securities being offered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
| 30 |
| Table of Contents |
Involvement on Certain Material Legal Proceedings During the Last Five Years
None of our Officers and/or Directors have filed any bankruptcy petition, been convicted of or been the subject of any criminal proceedings or the subject of any order, judgment or decree involving the violation of any state or federal securities laws within the past ten (10) years.
No director, nominee for director, or executive officer has appeared as a party in any legal proceeding material to an evaluation of his ability or integrity during the past ten (10) years.
Directors’ and Officers’ Liability Insurance
The Company does not have directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers.
Code of Ethics
We have adopted a code of ethics that applies to our officers, directors and employees, including our principal executive officer and principal accounting officer.
Corporate Governance and Board Independence
Our Board of Directors consists of two directors and has not established a Nominating or Governance Committees as standing committees. The Board does not have an executive committee or any committees performing a similar function. We are not currently listed on a national securities exchange or in an inter-dealer quotation system that has requirements that a majority of the board of directors be independent.
Due to our lack of operations and size, and since we are not currently listed on a national securities exchange, we are not subject to any listing requirements mandating the establishment of any particular committees; all functions of a nominating/governance committee were performed by our whole board of directors. Our board of directors intends to appoint such persons and form such committees as are required to meet the corporate governance requirements imposed by the national securities exchanges as necessary. Our board of directors does not believe that it is necessary to have such committees at the early stage of the company’s development, and our board of directors believes that the functions of such committees can be adequately performed by the members of our board of directors.
We believe that our board of directors is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. We believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any material revenues to date.
Board Leadership Structure and the Board’s Role in Risk Oversight.
The Board of Directors is led by our Chairman. At this time, the Board believes that the most effective leadership structure at this time is to separate the roles of Chairman and Chief Executive Officer.
The Board of Directors does not have a specific role in risk oversight of the Company. The President and Chief Executive Officer and other executive officers and employees of the Company provide the Board of Directors with information regarding the Company’s risks.
| 31 |
| Table of Contents |
Item 11. Executive Compensation
The following table sets forth, for the fiscal years ended June 30, 2022, 2021, and 2020, certain information regarding the compensation earned by the Company’s named executive officers.
Summary Compensation Table
Name and |
|
|
|
|
|
| Stock |
|
| Option |
|
| All Other |
|
|
| ||||||||||
Principal |
| Fiscal |
| Salary |
|
| Bonus |
|
| Awards |
|
| Awards |
|
| Compensation |
|
| Total |
| ||||||
Position |
| Year |
|
| (1) |
|
|
| (2) |
|
|
| (3) |
|
|
| (4) |
|
|
| (5) |
|
| ($) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Michael Friedman President |
| 2022 |
| $ | 150,000 | (6) |
| $ | - |
|
| $ | - |
|
| $ | 156,000 | (7) |
| $ | - |
|
| $ | 306,000 |
|
President CEO |
| 2021 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
President CEO |
| 2020 |
| $ | 144,000 |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 144,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merle Griff, Ph.D. |
| 2022 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | 156,000 | (8) |
| $ | - |
|
| $ | 156,000 |
|
CEO |
| 2021 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
CEO |
| 2020 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
________
(1) | The dollar value of salary (cash and non-cash) earned and accrued as of the end of each fiscal year. |
(2) | The dollar value of bonus (cash and non-cash) earned and accrued as of the end of each fiscal year. |
(3) | The value of the shares of restricted stock issued as compensation for services computed in accordance with ASC 718 on the date of grant. |
(4) | The value of all stock options computed in accordance with ASC 718 on the date of grant. |
(5) | All other compensation received that could not be properly reported in any other column of the table. |
(6) | This includes earned and paid salary of $65,000 and accrued salary of $85,000 for 2022 and $144,000 of accrued salary for 2020. |
(7) | Options awards granted include 50,000 options at $1.56 exercise price, for a signing bonus and 50,000 options at $1.56 exercise price for achieving revenue growth of 12% or greater. |
(8) | Options awards granted include 50,000 options at $1.56 exercise price, for a signing bonus and 50,000 options at $1.56 exercise price for achieving revenue growth of 12% or greater. |
Long-Term Incentive Plans. The Company does not provide its officers or employees with pension, stock appreciation rights, long-term incentive or other plans, nor does it provide non-qualified deferred compensation to its officers or employees, and therefore, the Summary Compensation Table above does not include columns for nonequity incentive plan compensation and nonqualified deferred compensation earnings, since there were none.
Employee Pension, Profit Sharing or other Retirement Plans. The Company does not have a defined benefit, pension plan, profit sharing or other retirement plan, although it may adopt one or more of such plans in the future.
Executive Compensation.
The Company does not have a director agreement with Mr. Friedman. Through June 30, 2020, Mr. Friedman accrued $144,000 in salary per year pursuant to an employment contract which expired on October 31, 2010, and then an oral agreement with the Company, which was then terminated, and $24,000 in director fees per year pursuant to an oral agreement with the Company, which was then terminated.
In connection with Dr. Griff’s appointment and Mr. Friedman’s resignation, on May 24, 2022, the Company entered into an employment agreement with Dr. Griff (the “Employment Agreement”), as well as a consulting agreement with Mr. Friedman’s entity, Red Halo, LLC (the “Consulting Agreement”), with both agreements considered effective as of May 2, 2022.
| 32 |
| Table of Contents |
Under the Employment Agreement, Dr. Griff will serve as the Chief Executive Officer of the Company on an “at-will” basis and will be compensated as follows: (i) Dr. Griff will receive a signing bonus consisting of non-qualified, cashless-exercise stock options to purchase 50,000 shares of Company common stock at an exercise price of $1.56/share, with a term of 7 years; (ii) Dr. Griff will be paid an annual salary of $200,000 per year, and such annual salary shall increase by an additional $50,000 per year for each $10,000,000 increase in the Company’s gross revenues over $1,000,000; (iii) within 30 days after the end of each fiscal year beginning June 30, 2022, Dr. Griff will receive an annual cash bonus of at least $60,000 (the precise amount to be determined by the Company); (iv) within 30 days after the end of each fiscal year beginning June 30, 2022, Dr. Griff will receive an equity bonus consisting of non-qualified, cashless-exercise stock options to purchase 50,000 shares of Company common stock at an exercise price of $1.56/share, with a term of 7 years; and (v) Dr. Griff shall be eligible to receive the following 7-year, non-qualified, cashless-exercise stock options for each fiscal year determined by reference to the Company’s gross revenue for such fiscal year as set forth below:
Gross Revenue |
|
| Number of Options |
|
| Strike Price |
| |||
| $ | 5,000,000 |
|
|
| 100,000 |
|
| $ | 1.56 |
|
| $ | 10,000,000 |
|
|
| 150,000 |
|
| $ | 2.00 |
|
| $ | 20,000,000 |
|
|
| 200,000 |
|
| $ | 3.00 |
|
| $ | 40,000,000 |
|
|
| 250,000 |
|
| $ | 4.00 |
|
| $ | 75,000,000 |
|
|
| 300,000 |
|
| $ | 5.00 |
|
| $ | 100,000,000 |
|
|
| 350,000 |
|
| $ | 6.00 |
|
Under the Consulting Agreement, Mr. Friedman will provide management, financial and operational services to the Company and continue to act as the Company’s President, and will be compensated as follows: (i) Mr. Friedman’s entity, Red Halo, LLC (the “Consultant”) will receive a signing bonus consisting of non-qualified, cashless-exercise stock options to purchase 50,000 shares of Company common stock at an exercise price of $1.56/share, with a term of 7 years; (ii) the Consultant will be paid $150,000 in cash fees per year, upon completion of a $6,600,000 capital raise by the Company, such annual cash fee shall increase to $200,000 per year, and such annual cash fee shall increase by an additional $50,000 per year for each $10,000,000 increase in the Company’s gross revenues over $1,000,000; (iii) within 90 days after the end of each fiscal year beginning June 30, 2022, the Consultant will receive an annual cash bonus of at least $60,000 (the precise amount to be determined by the Company) if the Company’s net income (specifically excluding any extraordinary major shareholder-related expenses) is at or greater than $600,000 for such fiscal year; (iv) within 90 days after the end of each fiscal year beginning June 30, 2022, if the Company’s total revenue has grown at least 12% from its prior fiscal year, the Consultant will receive an equity bonus consisting of non-qualified, cashless-exercise stock options to purchase a minimum of 50,000 shares of Company common stock at an exercise price of $1.56/share, with a term of 7 years; and (v) the Consultant shall be eligible to receive the following 7-year, non-qualified, cashless-exercise stock options for each fiscal year determined by reference to the Company’s gross revenue for such fiscal year as set forth below:
Gross Revenue |
|
| Number of Options |
|
| Strike Price |
| |||
| $ | 5,000,000 |
|
|
| 100,000 |
|
| $ | 1.56 |
|
| $ | 10,000,000 |
|
|
| 150,000 |
|
| $ | 2.00 |
|
| $ | 20,000,000 |
|
|
| 200,000 |
|
| $ | 3.00 |
|
| $ | 40,000,000 |
|
|
| 250,000 |
|
| $ | 4.00 |
|
| $ | 75,000,000 |
|
|
| 300,000 |
|
| $ | 5.00 |
|
| $ | 100,000,000 |
|
|
| 350,000 |
|
| $ | 6.00 |
|
Both the Employment Agreement and the Consulting Agreement prohibit Dr. Griff and Mr. Friedman from engaging in competitive activity during the terms of their agreements with the Company, and each of the agreements can be terminated by either the Company or the counterparties, Dr. Griff and Mr. Friedman, provided that if the agreements are terminated by the Company without “cause” or by the counterparties for “good reason,” as such terms are defined in each respective agreement, the Company is obligated to make additional payments to Dr. Griff and Mr. Friedman as specified in the agreements.
| 33 |
| Table of Contents |
Compensation Committee Interlocks and Insider Participation. During the year ended June 30, 2020, none of the Company’s officers was also a member of the compensation committee or a director of another entity, which other entity had one of its executive officers serving as one of the Company’s directors.
Outstanding Equity Awards. Our directors and officers do not have unexercised options, stock that has not vested, or equity incentive plan awards.
Director Independence
During the fiscal year ended June 30, 2022 and 2021, we did not have an independent director.
Director Compensation Table
|
| Fiscal |
| Fees Earned or |
|
|
|
|
|
|
|
|
| |||||||||
Name |
| Year Ending June 30 |
| Paid in Cash (1) |
|
| Stock Awards |
|
| Option Awards |
|
| All Other Compensation |
|
| Total ($) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Charles Evehardt (2) |
| 2022 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
| 2021 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Friedman (3) |
| 2022 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
| 2021 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jay Odintz (4) |
| 2022 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
| 2021 |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
________
(1) | All cash fees were accrued to the directors. |
(2) | Appointed as Chairman of the Board on March 25, 2021 |
(3) | Chairman of the Board through March 25, 2021, and Member of the Board of Directors thereafter. |
(4) | Resigned from the Board of Directors on March 25, 2021. |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table lists, as of September 28, 2022, the number of shares of voting capital stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding class of stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using beneficial ownership concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
| 34 |
| Table of Contents |
The percentages below are calculated based on 21,157,327 shares of our common stock issued and outstanding as of September 28, 2022, and 367,500 shares of Series B Convertible Preferred Stock issued and outstanding as of September 28, 2022. Each share of Series B Convertible Preferred Stock is convertible at the election of the holder into 100 shares of common stock, and each share entitles the holder to 100 stockholder votes. We do not have any other outstanding options, warrants exercisable for, or other securities convertible into shares of our common stock within the next 60 days. Unless otherwise indicated, the address of each person listed below is care of Innovative MedTech, Inc. 2310 York St., Suite 200, Blue Island, IL 60406.
Name of Beneficial Owner |
| Title of Class |
| Amount and Nature of Beneficial Ownership |
|
| Percent of Class |
| ||
Charles Everhardt (1) |
| Common Stock |
|
| 12,548,834 | (2) |
|
| 59.31 | % |
Michael Friedman (3) |
| Common Stock |
|
| 3,418,607 |
|
|
| 16.16 | % |
Edward Dovner |
| Common Stock |
|
| 12,548,834 | (4) |
|
| 59.31 | % |
Martin Herskowitz (5) |
| Common Stock |
|
| 1,987,500 | (6) |
|
| 9.39 | % |
Kova Trading, LLC (7) |
| Common Stock |
|
| 3,180,000 | (8) |
|
| 15.03 | % |
Beverly and Leonard Mezei (9) |
| Common Stock |
|
| 9,407,432 | (10) |
|
| 44.46 | % |
Raymond Irni (11) |
| Common Stock |
|
| 1,101,686 |
|
|
| 5.21 | % |
Merle Griff, PhD |
| Common Stock |
|
| - |
|
|
| 0.00 | % |
Len Morales |
| Common Stock |
|
| 807,295 |
|
|
| 3.82 | % |
All Officers and Directors as a Group |
| Common Stock |
|
| 15,967,441 |
|
|
| 75.47 | % |
|
|
|
|
|
|
|
|
|
|
|
Charles Everhardt (12) |
| Series B Convertible Preferred Stock |
|
| 100,542 |
|
|
| 27.36 | % |
Edward Dovner (13) |
| Series B Convertible Preferred Stock |
|
| 100,542 |
|
|
| 27.36 | % |
Martin Herskovitz (14) |
| Series B Convertible Preferred Stock |
|
| 15,875 |
|
|
| 4.32 | % |
Kova Trading, LLC (15) |
| Series B Convertible Preferred Stock |
|
| 25,400 |
|
|
| 6.91 | % |
Beverly and Leonard Mezei (16) |
| Series B Convertible Preferred Stock |
|
| 75,141 |
|
|
| 20.45 | % |
VC Bin, LLC (17) |
| Series B Convertible Preferred Stock |
|
| 50,000 |
|
|
| 13.61 | % |
All Officers and Directors as a Group |
| Series B Convertible Preferred Stock |
|
| 100,542 |
|
|
| 27.36 | % |
| 35 |
| Table of Contents |
________
(1) | Chairman of the Board of Directors. |
|
|
(2) | Includes (i) 2,460,012 shares of common stock held in the name of EF Trust, LLC, which is managed by Mr. Everhardt’s son, Maximillian Everhardt, with Mr. Everhardt having voting and dispositive power with respect to the shares held in the name of EF Trust, LLC; (ii) 10,054,200 shares of common stock issuable upon conversion of 100,542 shares of Series B Convertible Preferred Stock held in the name of EF Trust, LLC; and (iii) 114,244 shares of common stock held in the name of DE Holdings 20, LLC, which is owned 50% by Mr. Everhardt, with Mr. Everhardt sharing voting and dispositive power for shares held in the name of entity. |
|
|
(3) | President and Director. Held in the name of Red Halo, LLC. Mr. Friedman has voting and dispositive power with respect to the shares held in the name of Red Halo, LLC. |
|
|
(4) | Includes (i) 2,460,012 shares of common stock held in the name of Clear Financial Group, LLC, with Mr. Dovner having voting and dispositive power with respect to the shares held in the name of Clear Financial Group, LLC; (ii) 10,054,200 shares of common stock issuable upon conversion of 100,542 shares of Series B Convertible Preferred Stock held in the name of Clear Financial Group, LLC; and (iii) 114,244 shares of common stock held in the name of DE Holdings 20, LLC, which is owned 50% by Mr. Dovner, with Mr. Dovner sharing voting and dispositive power for shares held in the name of entity. |
|
|
(5) | Held in the name of BH Madison, LLC. Mr. Herskowitz has voting and dispositive power with respect to the shares held in the name of BH Madison, LLC. |
|
|
(6) | Includes 400,000 shares of common stock and 1,587,500 shares of common stock issuable upon conversion of 15,875 shares of Series B Convertible Preferred Stock held in the name BH Madison, LLC. |
|
|
(7) | Upon information and belief, Amy Friedman (no relationship with Michael Friedman, an officer and director of the Company), Miriam Abrahams and Andrew Mezei share voting and dispositive power with respect to the shares held in the name of Kova Trading, LLC. |
|
|
(8) | Includes 640,000 shares of common stock and 2,540,000 shares of common stock issuable upon conversion of 25,400 shares of Series B Convertible Preferred Stock held in the name of Kova Trading, LLC. |
|
|
(9) | Spouses. |
| 36 |
| Table of Contents |
(10) | Includes (i) 640,000 shares of common stock held in the name of Grosvenor Ventures, LLC, with Beverly Mezei having voting and dispositive power with respect to the shares held in the name of Grosvenor Ventures, LLC; (ii) 2,540,000 shares of common stock issuable upon conversion of 25,400 shares of Series B Convertible Preferred Stock held in the name of Grosvenor Ventures, LLC; (iii) 640,000 shares of common stock held in the name of Hutton Holdings, LLC, with Leonard Mezei having voting and dispositive power with respect to the shares held in the name of Hutton Holdings, LLC; (iv) 2,540,000 shares of common stock issuable upon conversion of 25,400 shares of Series B Convertible Preferred Stock held in the name of Hutton Holdings, LLC; (v) 613,332 shares of common stock held in the name of the 2010 Mezei GST Trust, with Beverly Mezei having voting and dispositive power with respect to the shares held in the name of the 2010 Mezei GST Trust; and (vi) 2,434,100 shares of common stock issuable upon conversion of 24,341 shares of Series B Convertible Preferred Stock held in the name of the 2010 Mezei GST Trust. |
|
|
(11) | Held in the name of Green Silver, LLC. Mr. Irni has voting and dispositive power with respect to the shares held in the name of Green Silver, LLC. |
|
|
(12) | Chairman of the Board of Directors. Held in the name of EF Trust, LLC, which is managed by Mr. Everhardt’s son, Maximillian Everhardt. Mr. Everhardt has voting and dispositive power with respect to the shares held in the name of EF Trust, LLC. |
|
|
(13) | Held in the name of Clear Financial Group, LLC. Mr. Dovner has voting and dispositive power with respect to the shares held in the name of Clear Financial Group, LLC. |
|
|
(14) | Held in the name of BH Madison, LLC. Mr. Herskowitz has voting and dispositive power with respect to the shares held in the name of BH Madison, LLC. |
|
|
(15) | Upon information and belief, Amy Friedman (no relationship with Michael Friedman, an officer and director of the Company), Miriam Abrahams and Andrew Mezei have voting and dispositive power with respect to the shares held in the name of Kova Trading, LLC. |
|
|
(16) | Includes (i) 25,400 shares of Series B Convertible Preferred Stock held in the name of Grosvenor Ventures, LLC, with Beverly Mezei having voting and dispositive power with respect to the shares held in the name of Grosvenor Ventures, LLC; (ii) 25,400 shares of Series B Convertible Preferred Stock held in the name of Hutton Holdings, LLC, with Leonard Mezei having voting and dispositive power with respect to the shares held in the name of Hutton Holdings, LLC; and (iii) 24,341 shares of Series B Convertible Preferred Stock held in the name of the 2010 Mezei GST Trust, with Beverly Mezei having voting and dispositive power with respect to the shares held in the name of the 2010 Mezei GST Trust. |
|
|
(17) | Upon information and belief, Diana Fletcher has voting and dispositive power with respect to the shares held in the name of VC Bin, LLC. |
Item 13. Certain Relationships and Related Transactions, and Director Independence
During the fiscal years ended June 30, 2022 and 2021, there were no relationships or related party transactions requiring disclosure, except for the following:
As of June 30, 2022, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space at this time but expects to enter into a month-to-month office lease for this space.
As of March 31, 2022, a company founded and partially owned by the Company’s Chairman, Charles Everhardt, has paid the Licensing Fees of $750,000 on behalf of the Company, which is include in accounts payable and accrued liabilities.
On May 5, 2022, the Company signed a note receivable of $179,124 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.
On March 25, 2022, the Company signed a note receivable of $39,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.
| 37 |
| Table of Contents |
On September 28, 2021, the Company signed a note receivable of $50,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.
On September 8, 2021 the Company signed a note receivable of $29,294 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.
On April 21, 2021, the Company, through ten newly-formed, wholly-owned limited liability companies, entered into lease agreements with entities controlled by our Chairman, Charles Everhardt, for ten additional SarahCare locations to be operated by the Company. All of the leases are for a ten-year period beginning on July 1, 2021, and ending on June 30, 2031, with a 5-year renewal option. The rent for each location is $7,500 per month. As of the July, 2021, the Company has amended the leases to delay commencement until November 1, 2021. On August 19, 2022 the Company and landlord mutually agreed to terminate the Austin lease.
On March 25, 2021, the Company issued 2,476,212 shares of restricted common stock in exchange for $250,000 which were issued at $0.0503 per share and the Company issued 100,542 shares of Series A Preferred Stock in exchange for $508,834, which were issued at $5.06 per share, to an investor, the son of Charles Everhardt, the Company’s Chairman. Additionally, Mr. Everhardt owns 50% of DE Holdings 20, LLC which converted $114,244 in convertible notes and accrued interest for 114,244 shares of restricted common shares, at a price of $1.00 per share. On that same day, Mr. Everhardt became Chairman of the Board of the Company.
On March 19, 2021, the Company issued 426,000 shares of restricted common stock to the Company’s then CEO and Chairman, Michael J Friedman, for the conversion 42,600,000 shares of Series A Convertible Preferred Stock.
On March 19, 2021, the Company issued 48,000 shares of restricted common stock to Jay Odintz, a Member of the Company’s Board of Directors, for the conversion 4,800,000 shares of Series A Convertible Preferred Stock.
On December 30, 2020, the Company issued 29,749,125,000 shares of restricted common stock for the conversion of notes payable in the amount of $1,427,958, to the Company’s then CEO and Chairman, Michael J. Friedman. These shares were valued by the Company at $0.000048 per share
On December 30, 2020, the Company issued 4,518,062,500 shares of restricted common stock for the conversion of notes payable in the amount of $216,867, to a Board of Director Member, Jay Odintz. These shares were valued by the Company at $0.000048 per share.
As of June 30, 2020, the Company maintains a mailing address in New York, New York, but no longer maintains its offices in New York, New York. The rent was approximately $1,350 per month for the office during the year. The Company rents its office space from the father of the Company’s former President and Chief Executive Officer, and current Interim President, CEO and CFO and current Director, Michael Friedman. The Company terminated this agreement on June 30, 2020.
As of June 30, 2020 and 2019, the total amount owed to related party, the father of the Company’s former President and Chief Executive Officer, and current Interim President, CEO and CFO and current Director, Michael Friedman was $0 and $101,850, including $0 and $101,850, respectively, for accumulated rent.
Director Independence
Our board of directors has undertaken a review of the independence of each director and considered whether any director has a material relationship with us that could compromise his ability to exercise independent judgment in carrying out his responsibilities. As a result of this review, our board of directors determined that our directors do not meet the independence requirements, according to the applicable rules and regulations of the SEC.
| 38 |
| Table of Contents |
Item 14. Principal Accounting Fees and Services.
The following table sets forth the fees billed by our principal independent accountants for the fiscal years ended June 30, 2022 and 2021, for the categories of services indicated.
|
| Years Ended June 30, |
| |||||
Category |
| 2022 |
|
| 2021 |
| ||
Audit Fees |
| $ | 30,000 |
|
| $ | 20,000 |
|
Audit Related Fees |
|
| - |
|
|
| - |
|
Tax Fees |
|
| - |
|
|
| - |
|
All Other Fees |
|
| - |
|
|
| - |
|
Total |
| $ | 30,000 |
|
| $ | 20,000 |
|
On August 12, 2021, the Company engaged Accell Audit Compliance, PA as its independent registered public accounting firm for the year ended June 30, 2021.
On or about November 5, 2021, the Company engaged Accell Audit Compliance, PA as its independent registered public accounting firm for the year ended June 30, 2022.
Audit fees. Consists of fees billed for the audit of our annual financial statements and review of our interim financial information and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees billed for services relating to review of other regulatory filings including registration statements, periodic reports and audit related consulting.
Tax fees. Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
Other fees. Other services provided by our accountants.
| 39 |
| Table of Contents |
PART IV.
Item 15. Exhibits, Financial Statement Schedules
See the Exhibit Index following the signature page of this Registration Statement, which Exhibit Index is incorporated herein by reference.
________
* Filed herewith
+ Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) and/or Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Commission upon request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.
| 40 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| Innovative MedTech, Inc. |
| |
|
|
|
|
| By: | /s/ Michael Friedman |
|
|
| Michael Friedman |
|
|
| President Interim CFO |
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Name |
| Title |
| Date | |
|
|
|
|
|
|
/s/ Charles Everhardt |
| Chairman of the Board |
| October __, 2022 | |
Charles Everhardt |
|
|
| ||
|
|
|
|
|
|
/s/ Michael Friedman |
| Director, President Interim CFO |
| October __, 2022 |
|
Michael Friedman |
|
|
|
| |
|
|
|
|
|
|
/s/ Dr. Merle Griff |
| CEO |
| October __, 2022 |
|
Dr. Merle Griff |
|
|
|
|
|
| 41 |