UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the fiscal year ended
OR
For the transition period from ________ to ________
Commission
file number:
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by 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 Exchange 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 and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.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). Yes ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☐ | Smaller reporting company | ||
| (Do not check if a smaller reporting company) | Emerging growth company | ||
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 7(a)(2)(B) of the Securities Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The
aggregate market value of the outstanding common stock, other than shares held by persons who may be deemed affiliates of the registrant,
computed by reference to the closing sales price for the registrant’s common stock on January 31, 2022 (the last business day of
the registrant’s most recently completed second quarter), as reported on the OTC Pink market, was approximately $
Documents
Incorporated by Reference:
TABLE OF CONTENTS
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue”, negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Annual Report and include information concerning: possible or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results; and any other statements that are not historical facts.
From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all the forward-looking statements included in this Annual Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
For discussion of factors that we believe could cause our actual results to differ materially from expected and historical results see “Item 1A - Risk Factors” below.
| 3 |
PART I
ITEM 1. BUSINESS.
Overview
Healthcare Integrated Technologies, Inc. and its subsidiaries (collectively the “Company,” “we,” “our” or “us”) is a healthcare technology company based in Knoxville, Tennessee. We are creating a diversified spectrum of healthcare technology solutions to integrate and automate the continuing care, home care and professional healthcare spaces.
Our initial product, SafeSpace™ with AI Vision™, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace includes hardware devices utilizing RGB, radar and other sensor technology coupled with our internally developed software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects falls and sends alerts directly to designated individuals.
In addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience for seniors, recently released postoperative patients, and others. The concierge application will enable the consumer to obtain home healthcare services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other items where integration is beneficial.
Our History
The Company has had three distinct businesses. First, we were incorporated in the state of Nevada on June 25, 2013 as Tomichi Creek Outfitters, aiming to provide professionally guided big game hunts in Sargents, Colorado which is approximately four hours southwest from Denver. This area of the country is home to trophy size Elk and Mule Deer. Our secondary business included offering guided scenic tours on the western slopes of the Rocky Mountains. Every season offers a diversified plethora of wildlife and stunning scenic views. Our Chief Executive Officer (“CEO”) and sole director at that time was Jeremy Gindro. These operations were discontinued in 2015.
Second, on March 2, 2015, the Company entered into a Business Acquisition Agreement and share exchange under which we acquired the business and assets of Grasshopper Staffing, Inc. (“Grasshopper Colorado”), formed in the state of Colorado on January 13, 2015. The exchange for $10,651 was represented by 250,000 shares of the Company’s common stock in exchange for all the outstanding shares of Grasshopper Colorado. The assets purchased include the trademark and website, office supplies and office furniture. On November 2, 2015 we filed a Certificate of Amendment to our Articles of Incorporation changing the name of our Company from Tomichi Creek Outfitters to Grasshopper Staffing, Inc. Grasshopper Colorado was operating as a wholly owned subsidiary of the Company and was the primary operation of our business until the acquisition of IndeLiving Holdings Inc., on March 13, 2018. Our management consisted of Melanie Osterman as CEO, and Jeremy Gindro who was our sole director. The operations of Grasshopper Colorado were discontinued in February 2019.
Third, we acquired IndeLiving Holdings, Inc. (“IndeLiving”) on March 13, 2018 and changed our name to Healthcare Integrated Technologies, Inc. Our current operations are described above. With the acquisition of IndeLiving, we had another change in management, and Scott M. Boruff became CEO and sole director of the Company.
Employees and Human Capital
At July 31, 2022, we had 3 employees.
At July 31, 2021, we had 4 employees.
None of our employees are represented by a union or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.
| 4 |
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. The principal purposes of our equity incentive plan are to attract, retain and reward personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Available Information
We electronically file certain documents with the Securities and Exchange Commission (the SEC). We file annual reports on Form 10-K; quarterly reports on Form 10-Q; and current reports on Form 8-K (as appropriate); along with any related amendments and supplements thereto. From time-to-time, we may also file registration statements and related documents in connection with equity or debt offerings. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC.
ITEM 1A. RISK FACTORS.
Risks Related to Economic and Market Conditions
General Economic and Financial Conditions
The success of any investment activity is influenced by general economic and financial conditions, all of which are beyond the control of the Company. These conditions, such as the recent global economic crisis and significant downturns in the financial markets, may materially adversely affect our operating results, financial condition and ability to implement our business strategy and/or meet our return objectives.
The recent global outbreak of COVID-19 (more commonly known as the Coronavirus) has disrupted economic markets and the prolonged economic impact is uncertain, which could adversely affect our business operations and materially and adversely affect our results of operations, cash flows and financial position. Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn. Many manufacturers of goods in China and other countries have seen a downturn in production due to the suspension of business and temporary closure of factories in an attempt to curb the spread of the illness.
The impacts of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict. Due to the largely unprecedented and evolving nature of the COVID-19 pandemic, it remains very difficult to predict the extent of the impact on our industry generally and our business in particular.
Risks Related to Our Business
The Company’s industry is highly competitive and we have less capital and resources than many of our competitors which may give them an advantage in developing and marketing products similar to ours or make our products obsolete.
We are involved in a highly competitive industry where we may compete with numerous other companies who offer alternative methods or approaches, who may have far greater resources, more experience, and personnel perhaps more qualified than we do. Such resources may give our competitors an advantage in developing and marketing products similar to ours or products that make our products obsolete. There can be no assurance that we will be able to successfully compete against these other entities.
| 5 |
The Company may be unable to respond to the rapid technological change in its industry and such change may increase costs and competition that may adversely affect its business
Rapidly changing technologies, frequent new product and service introductions and evolving industry standards characterize the Company’s market. The continued growth of the Internet and intense competition in the Company’s industry exacerbate these market characteristics. The Company’s future success will depend on its ability to adapt to rapidly changing technologies by continually improving the performance features and reliability of its products and services. The Company may experience difficulties that could delay or prevent the successful development, introduction or marketing of its products and services. In addition, any new enhancements must meet the requirements of its current and prospective users and must achieve significant market acceptance. The Company could also incur substantial costs if it needs to modify its products and services or infrastructures to adapt to these changes.
The Company also expects that new competitors may introduce products, systems or services that are directly or indirectly competitive with the Company. These competitors may succeed in developing, products, systems and services that have greater functionality or are less costly than the Company’s products, systems and services, and may be more successful in marketing such products, systems and services. Technological changes have lowered the cost of operating communications and computer systems and purchasing software. These changes reduce the Company’s cost of providing services but also facilitate increased competition by reducing competitors’ costs in providing similar services. This competition could increase price competition and reduce anticipated profit margins.
The Company’s services are new and its industry is evolving.
You should consider the Company’s prospects considering the risks, uncertainties and difficulties frequently encountered by companies in their early stage of development. To be successful in this industry, the Company must, among other things:
| ● | develop and introduce functional and attractive services; | |
| ● | attract and maintain a large base of customers; | |
| ● | increase awareness of the Company brand and develop consumer loyalty; | |
| ● | respond to competitive and technological developments; | |
| ● | build an operations structure to support the Company business; and | |
| ● | attract, retain and motivate qualified personnel. |
The Company cannot guarantee that it will succeed in achieving these goals, and its failure to do so would have a material adverse effect on its business, prospects, financial condition and operating results.
The Company’s products and services are new and are in the early stages of development. The Company is not certain that these products and services will function as anticipated or be desirable to its intended market. Also, some of the Company’s products and services may have limited functionalities, which may limit their appeal to consumers and put the Company at a competitive disadvantage. If the Company’s current or future products and services fail to function properly or if the Company does not achieve or sustain market acceptance, it could lose customers or could be subject to claims which could have a material adverse effect on the Company’s business, financial condition and operating results.
Risks Related to Our Company
Uncertainty of profitability
Our business strategy may result in increased volatility of revenues and earnings. As we will only develop a limited number of products and services at a time, our overall success will depend on a limited number of products and services, which may cause variability and unsteady profits and losses depending on the products and services offered.
| 6 |
Our revenues and our profitability may be adversely affected by economic conditions and changes in the market. Our business is also subject to general economic risks that could adversely impact the results of operations and financial condition.
Because of the anticipated nature of the products and services that we will attempt to develop, it is difficult to accurately forecast revenues and operating results and these items could fluctuate in the future due to several factors. These factors may include, among other things, the following:
| ● | Our ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses. | |
| ● | Our ability to source strong opportunities with sufficient risk adjusted returns. | |
| ● | Our ability to manage our capital and liquidity requirements based on changing market conditions. | |
| ● | The acceptance of the terms and conditions of our licenses and/or the acceptance of our royalties and fees. | |
| ● | The amount and timing of operating costs and other costs and expenses. | |
| ● | The nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment return expectations. | |
| ● | Adverse changes in the national and regional economies in which we will participate, including, but not limited to, changes in our performance, capital availability, and market demand. | |
| ● | Adverse changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a change in circumstances, capacity and economic impacts. | |
| ● | Changes in laws, regulations, accounting, taxation, and other requirements affecting our operations and business. | |
| ● | Our operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations may be significant. |
Our independent auditors’ report for the fiscal years ended July 31, 2022 and 2021 have expressed doubts about our ability to continue as a going concern
Due to the uncertainty of our ability to meet our current operating and capital expenses, in our audited annual financial statements as of and for the years ended July 31, 2022 and 2021, our independent auditors included a going concern qualification in their report regarding concerns about our ability to continue as a going concern. We have incurred recurring losses and have generated limited revenue since inception. These factors and our need for additional financing to effectively execute our business plan, raise substantial doubt about our ability to continue as a going concern. The presence of the going concern note to our financial statements may have an adverse impact on the relationships we are developing and plan to develop with third parties as we continue the commercialization of our products and could make it challenging and difficult for us to raise additional financing, all of which could have a material adverse impact on our business and prospects and result in a significant or complete loss of your investment.
COVID-19 could adversely impact our business
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s future financial condition, liquidity, and results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2023.
| 7 |
Management of growth will be necessary for us to be competitive
Successful expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically, we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the general economic environment. Expansion has the potential to place significant strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability goals.
We are entering a potentially highly competitive market
The markets for the healthcare and senior monitoring industries are competitive and evolving. We face strong competition from larger companies that may be in the process of offering similar products and services to ours. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources and larger client bases than we have or expect to have.
Given the rapid changes affecting the global, national, and regional economies generally, and the healthcare industry specifically, we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to keep pace with any market, legal and regulatory changes as well as competitive pressures. Any failure by us to anticipate or respond adequately to such changes could have a material adverse effect on our financial condition, operating results, liquidity and cash flow.
If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the future trading price of our common stock.
Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital.
We currently have insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the United States Securities and Exchange Commission (the “SEC”) disclosure requirements. Additionally, there is a lack of formal process and timeline for closing the books and records at the end of each reporting period and such weaknesses restrict the Company’s ability to timely gather, analyze and report information relative to the financial statements.
Because of the Company’s limited resources, there are limited controls over information processing. There is inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation, we would need to hire additional staff.
The Company’s failure to continue to attract, train, or retain highly qualified personnel could harm the Company’s business.
The Company’s success also depends on the Company’s ability to attract, train, and retain qualified personnel, specifically those with management and product development skills. In particular, the Company must hire additional skilled personnel to further the Company’s research and development efforts. Competition for such personnel is intense. If the Company fails in attracting new personnel or retaining and motivating the Company’s current personnel, the Company’s business could be harmed.
| 8 |
Risks Related to Our Common Stock
Because we will likely issue additional shares of our common stock, investment in our Company could be subject to substantial dilution.
Investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share when we issue additional shares. We are authorized to issue 200,000,000 shares of common stock, $0.001 par value per share. As of September 23, 2022, there were 42,304,673 shares of our common stock issued and outstanding. We anticipate that all or at least some of our future funding, if any, will be in the form of equity financing from the sale of our common stock. If we do sell more common stock, investors’ investment in our company will likely be diluted. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after the additional shares are sold by us. If dilution occurs, any investment in the Company’s common stock could seriously decline in value.
Trading in our common stock on the OTC Pink has been subject to wide fluctuations.
Our common stock is currently quoted for public trading on the OTC Pink. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to several factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s attention and resources.
Our Certificate of Incorporation and By-Laws provides for indemnification of officers and directors at our expense and limit their liability which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.
Our Certificate of Incorporation and By-Laws include provisions that fully eliminate the personal liability of our directors for monetary damages to the fullest extent possible under the laws of the State of Nevada or other applicable law. These provisions eliminate the liability of our directors and our shareholders for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Nevada law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery of damages by third parties.
We do not intend to pay dividends on any investment in the shares of stock of our Company and any gain on an investment in our Company will need to come through an increase in our stock’s price, which may never happen.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the price of our common shares. This may never occur and investors may lose all their investment in our company.
Because our securities are subject to penny stock rules, you may have difficulty reselling your shares.
Our shares, as penny stocks, are covered by Section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers who sell our company’s securities including the delivery of a standardized disclosure document; disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and furnishing monthly account statements. These rules apply to companies whose shares are not traded on a national stock exchange, trade at less than $5.00 per share, or who do not meet certain other financial requirements specified by the Securities and Exchange Commission.
| 9 |
These rules require brokers who sell “penny stocks” to persons other than established customers and “accredited investors” to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of common stock and may affect the secondary market for our shares of common stock. These rules could also hamper our ability to raise funds in the primary market for our shares of common stock.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
There could be unidentified risks involved with an investment in our securities
The foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are not presently foreseen by the Company. Prospective investors must not construe this information provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this entire prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite period and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind with respect to the likelihood of the success or the business of the Company, the value of our securities, any financial returns that may be generated or any tax benefits or consequences that may result from an investment in the Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM 2. PROPERTIES.
None.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently not involved in any litigation that the Company believes could have a materially adverse effect on the Company’s financial condition or results of operations.
On January 2, 2020, a sworn account lawsuit was filed against our IndeLiving Holdings, Inc. (“IndeLiving”) subsidiary and our CEO Scott M. Boruff by our previous Certified Public Accounting Firm, RBSM LLP (“RBSM”) demanding payment of $28,007 for services rendered. We filed our Answer with IndeLiving filing a breach of contract Counterclaim on February 24, 2020 demanding repayment of a $7,500 retainer paid to RBSM by IndeLiving for services that we allege were not provided. On May 27, 2021, the court signed an Agreed Order of Compromise Settlement and Dismissal with Prejudice dismissing both RBSM’s claim against us and IndeLiving’s counterclaim against RBSM. As part of the settlement, we paid RBSM $7,500.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
| 10 |
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) Market Information
Our common stock is quoted on the OTC Pink under the symbol “HITC”. The OTC Pink is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities.
The following table shows, for the periods indicated, the high and low bid prices per share of the Company’s common Stock as reported by the OTC Pink quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions.
| High | Low | |||||||
| Fiscal Year 2021 | ||||||||
| First quarter ended October 31, 2020 | $ | 0.60 | $ | 0.30 | ||||
| Second quarter ended January 31, 2021 | $ | 0.60 | $ | 0.25 | ||||
| Third quarter ended April 30, 2021 | $ | 0.47 | $ | 0.25 | ||||
| Fourth quarter ended July 31, 2021 | $ | 0.51 | $ | 0.30 | ||||
| Fiscal Year 2022 | ||||||||
| First quarter ended October 31, 2021 | $ | 0.48 | $ | 0.17 | ||||
| Second quarter ended January 31, 2022 | $ | 0.16 | $ | 0.09 | ||||
| Third quarter ended April 30, 2022 | $ | 0.12 | $ | 0.08 | ||||
| Fourth quarter ended July 31, 2022 | $ | 0.12 | $ | 0.05 | ||||
(b) Holders
As of September 23, 2022, there were 63 stockholders of record. Because shares of the Company’s common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of the Company’s shares is larger than the number of stockholders of record.
(c) Dividends
We have never declared or paid dividends on our common stock. We do not intend to declare dividends in the foreseeable future because we anticipate that we will reinvest any future earnings into the development and growth of our business. Any decision as to the future payment of dividends will depend on our results of operations and financial position and such other factors as our Board of Directors in its discretion deems relevant.
(d) Securities Authorized for Issuance under Equity Compensation Plan
The Company does not have in effect any compensation plans under which the Company’s equity securities are authorized for issuance.
Transfer Agent
Our transfer agent is VStock Transfer, LLC located at 18 Lafayette Place, Woodmere, NY 11598.
Recent Sales of Unregistered Securities
During the years ended July 31, 2022 and 2021, we have not issued any securities which were not registered under the Securities Act and not previously disclosed in the Company’s Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.
| 11 |
Rule 10B-18 Transactions
None.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATIONS AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.
This discussion summarizes the significant factors affecting the consolidated financial statements, financial condition, liquidity, and cash flows of Healthcare Integrated Technologies, Inc, for the fiscal years ended July 31, 2022 and 2021 and the interim periods included herein. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes included elsewhere in this Form 10-K.
Executive Overview
Healthcare Integrated Technologies, Inc. and its subsidiaries is a healthcare technology company based in Knoxville, Tennessee. We are creating a diversified spectrum of healthcare technology solutions to integrate and automate the continuing care, home care and professional healthcare spaces.
Our initial product, SafeSpace™ with AI Vision™, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace includes hardware devices utilizing RGB, radar and other sensor technology coupled with our internally developed software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects falls and sends alerts directly to designated individuals.
In addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience for seniors, recently released postoperative patients, and others. The concierge application will enable the consumer to obtain home healthcare services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other items where integration is beneficial.
Strategy
Our mission is to grow a profitable healthcare technology company by focusing on our core product, continuing the development of our proprietary software, and developing new uses and product lines for our technology. Our management team is focused on maintaining the financial flexibility and assembling the right complement of personnel and outside consultants required to successfully execute our mission.
| 12 |
Financial and Operating Results
We continue to utilize funds raised from the private sales of our common stock, issuance of debt, and short-term advances from related parties to provide cash for our operations, which allowed us to continue refining our initial product and readying it for pilot testing, developing our future product offerings and adding talented individuals to our management team. Highlighted achievements for the fiscal year ended July 31, 2022 include:
| ● | On August 9, 2021, we exercised our option to extend the maturity date of the AJB Capital Investments, LLC (“AJB Capital”) Promissory Note from August 2, 2021 (AJB Note 1) until February 2, 2022. As a result of the extension of the maturity date, the interest rate of the note increased from ten percent (10%) per annum to twelve percent (12%) per annum during the extension period. We incurred no costs related to the extension. On February 9, 2022, we repaid the AJB Note 1 with the proceeds from the issuance of a new promissory note to AJB Capital. | |
| ● | On August 10, 2021, we issued 1,250,000 shares of our common stock pursuant to a Securities Purchase Agreement (“SPA”) dated April 30, 2021. Under the original terms of the SPA, the investor agreed to purchase 2,000,000 shares of our common stock for $200,000 at a price of $0.10 per share through a series of payments. After receipt of $125,000 from the investor, both the Company and the investor mutually agreed to settlement of the SPA for the amounts received and the issuance of the shares at the agreed upon price per share. We incurred no cost related to the private placement. | |
| ● | On September 14, 2021, we entered into a Settlement and Amendment Agreement (the “Agreement”) with AJB Capital for a potential event of default under the Promissory Note dated February 2, 2021 (the “AJB Note”) and Securities Purchase Agreement (the “SPA”) relating to subsequent equity transactions. As part of the settlement under the Agreement, we agreed to issue AJB Capital an additional 666,666 shares of our common stock for payment of its $200,000 origination fee owed under the terms of the original Note and SPA. | |
| ● | On February 9, 2022, we entered into a Securities Purchase Agreement with AJB Capital, pursuant to which AJB Capital purchased a Promissory Note (the “AJB Note 2”) in the principal amount of $600,000 for an aggregate purchase price of $534,000. The AJB Note 2 accrues interest at the rate of ten percent (10%) per annum and matures on February 9, 2023. |
Results of Operations
Revenues
We had no revenues in fiscal 2022 or 2021. Our healthcare technology business is not currently producing revenue as we continue to develop, refine and evaluate our products.
Selling, General and Administrative Expenses
The table below presents a comparison of our selling, general and administrative expenses for the years ended July 31, 2022 and 2021:
| For the Years Ended July 31, | ||||||||||||||||
| 2022 | 2021 | $ Variance | %Variance | |||||||||||||
| Officers’ salaries | $ | 506,443 | $ | 531,342 | $ | (24,899 | ) | (5 | )% | |||||||
| Stock-based compensation | 473,511 | 621,776 | (148,265 | ) | (24 | )% | ||||||||||
| Professional fees | 94,051 | 97,500 | (3,449 | ) | (4 | )% | ||||||||||
| Advertising and marketing | 36,535 | 5,297 | 31,238 | 590 | % | |||||||||||
| Depreciation and amortization | 11,215 | 8,571 | 2,644 | 31 | % | |||||||||||
| Other | 16,310 | 10,148 | 6,162 | 61 | % | |||||||||||
| Total | $ | 1,138,065 | $ | 1,274,634 | $ | (136,569 | ) | (11 | )% | |||||||
| 13 |
Officers’ Salaries - Officers’ salaries, net of capitalized amounts, decreased $24,899 in 2022, or 5%. The decrease resulted from a bonus being paid to our CEO in 2021 and a decrease in payroll tax expense in 2022 due to our CEO compensation changing from employee to contract status.
Stock-based Compensation - Stock-based compensation expense decreased $148,265, or 24%, from the prior year. The decrease results from a 2022 reduction in the amortization of the grant date fair value of employee stock options granted to our CEO and a reduction in the expense related to a restricted stock grant to our CFO.
Professional Fees - Professional fees decreased $3,449, or 4%, over the 2021 amount. In 2022, legal fees decreased $11,594 and transfer agent and filing fees decreased $1,797. The decrease in legal fees, transfer agent and filing fees was partially offset by a $7,174 increase in fees paid to outside consultants, primarily relating to marketing and branding matters, and a $3,827 increase in accounting fees over 2021.
Advertising and Marketing - Advertising and marketing expense increased $31,238 over 2021. The increase is due to the addition of a new contract sales and marketing representatives in 2022.
Depreciation and Amortization - Depreciation and amortization expense increased $2,644, or 31%, over the prior year. The increase results from amortization expense related to new intangible assets placed in service in 2022, which was partially offset by declining depreciation expense as older assets become fully depreciated and/or disposed of.
Other - Other expense increased $6,162, or 61%, over 2021. The increase primarily relates to higher travel and office expenses in 2022.
Other Income (Expense)
The table below presents a comparison of our other income (expense) for the years ended July 31, 2022 and 2021:
| For the Years Ended July 31, | ||||||||||||||||
| 2022 | 2021 | $ Variance | %Variance | |||||||||||||
| Interest expense | $ | (447,623 | ) | $ | (227,900 | ) | $ | (219,723 | ) | 96 | % | |||||
| Change in fair value of derivative liability | 224,667 | 89,669 | 134,998 | 151 | % | |||||||||||
| Derivative expense | - | (97,201 | ) | 97,201 | 100 | % | ||||||||||
| Debt forgiveness | - | 41,931 | (41,931 | ) | 100 | % | ||||||||||
| Lawsuit settlement | - | 13,110 | (13,110 | ) | 100 | % | ||||||||||
| Total | $ | (222,956 | ) | $ | (180,391 | ) | $ | (42,565 | ) | 24 | % | |||||
Interest Expense - Interest expense increased $219,723, or 96%, over the 2021 amount. The increase is primarily due to the amortization of debt discount and related interest payments on the AJB Note 2 which was issued and outstanding for six months in 2022.
Change in Fair Value of Derivative Liability - The change in the fair value of the derivative liabilities associated with our AJB Capital notes reflects a current year gain of $224,667 as compared to a gain of $89,669 in 2021. The current period gain resulted from a $116,435 decrease in the fair value of the derivative liability on the new AJB Note 2 and a $108,232 decrease in the far value of the derivative liability of the old AJB note 1 that was retired during the period.
Derivative Expense – Derivative expense decreased $97,201 from the same period in the prior year. 2021 derivative expense was associated with the issuance of the old AJB Note 1. The new AJB Note 2, issued in 2022, had no associated derivative expense.
Debt Forgiveness - Income from debt forgiveness was $41,931 for the year ended July 31, 2021. The income results from the forgiveness of our Small Business Administration Paycheck Protection Program loan, plus related accrued interest, on December 14, 2021. We had no debt forgiveness income in the year ended July 31, 2022.
| 14 |
Lawsuit Settlement - Income from lawsuit settlements was $13,110 for the year ended July 31, 2021. The income results from the settlement of a lawsuit with RBSM on May 27, 2021. We had no income from lawsuit settlements in the year ended July 31, 2022.
Liquidity and Capital Resources
Working Capital
The following table summarizes our working capital for the fiscal years ending July 31, 2022 and 2021:
| July 31, 2022 | July 31, 2021 | |||||||
| Current assets | $ | 37,667 | $ | 49,018 | ||||
| Current liabilities | (3,153,778 | ) | (2,259,432 | ) | ||||
| Working capital deficiency | $ | (3,116,111 | ) | $ | (2,210,414 | ) | ||
Current assets for the year ended July 31, 2022 decreased $11,351 as compared to the year ended July 31, 2021. The decrease is due to a decrease in cash and cash equivalents and the amortization of prepaid legal fees.
Current liabilities for the year ended July 31, 2022 increased $894,346 as compared to the fiscal year ended July 31, 2021. The increase is primarily due to related party accrued expenses for services under our Contract CEO Agreement, the continuing accrual of officer’s compensation and new proceeds from the AJB Note 2.
Net Cash Used by Operating Activities
We currently do not have a revenue source and will continue to have negative cash flow from operations for the near future. The factors in determining operating cash flows are largely the same as those that affect net earnings, except for non-cash expenses such as depreciation and amortization, stock-based compensation, amortization of debt discount and changes in fair value of assets and liabilities, which affect earnings but do not affect operating cash flow. Net cash used by operating activities was $212,177 for the year ended July 31, 2022 as compared to $592,192 for the year ended July 31, 2021. The $380,015 decrease in cash used during 2022 is primarily attributable to a decrease in cash payments for officer’s compensation.
Net Cash Used by Investing Activities
Net cash used by investing activities was $32,690 and $60,608 for the years ended July 31, 2022 and 2021, respectively. The amount is comprised of cash paid for the filing of patent applications and for the development of software for our internal use.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $234,475 for the year ended July 31, 2022, which represents a $351,696 decrease from the 2021 amount. The decrease from 2021 is attributable to a $330,000 decrease in proceeds from the sale of common stock and stock subscriptions and a $156,700 decrease in net proceeds from the issuance of debt, which were offset by a net cash increase of $135,004 from related party loan and repayment transactions.
At this time, we cannot provide investors with any assurance that we will be able to obtain sufficient funding from debt financings and/or the sale of our equity securities to meet our obligations over the next twelve months. We are likely to continue using short-term loans from management to meet our short-term funding needs. We have no material commitments for capital expenditures as of July 31, 2022.
Going Concern Qualification
We have a history of losses, an accumulated deficit, negative working capital and have not generated cash from operations to support a meaningful and ongoing business plan. Our Independent Registered Public Accounting Firm has included a “Going Concern Qualification” in their report for the years ended July 31, 2022 and 2021. The foregoing raises substantial doubt about the Company’s ability to continue as a going concern. We intend on financing our future activities and working capital needs largely from the sale of private and/or public equity securities with additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. There is no guarantee that additional capital or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to us. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” might make it substantially more difficult to raise capital.
| 15 |
Critical Accounting Policies and Estimates
Our consolidated financial statements and related public financial information are based on the application of U.S. GAAP. U.S. GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to U.S. GAAP and are consistently and conservatively applied. We base our estimates on historical experience 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 or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 1 of our consolidated financial statements.
We believe the following critical policies impact our more significant judgments and estimates used in preparation of our financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We base our estimates on experience and various other assumptions that are believed to be reasonable under the circumstances. We evaluate our estimates and assumptions on a regular basis and actual results may differ from those estimates.
Impairment of Long-Lived Assets
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
Intangible Assets
Intangible assets consist of patents, our website and the costs of software developed for internal use. Certain payroll and stock-based compensation costs incurred are allocated to the intangible assets. We determine the amount of costs to be capitalized based on the time spent by employees or outside contractors on the projects. Intangible assets are amortized over their expected useful life on a straight-line basis. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. If the estimate of an intangible asset’s remaining life is changed, the remaining carrying value of the intangible asset is amortized prospectively over the revised remaining useful life. We did not recognize any impairment losses during any of the periods presented.
| 16 |
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.
Derivative Liability
Options, warrants, convertible notes, or other contracts, if any, are evaluated to determine if those contracts, or embedded components of those contracts, qualify as derivatives to be separately accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging,” (paragraph 815-10-05-4 and Section 815-40-25). The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. The change in fair value is recorded in the consolidated statements of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise, or cancellation and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated, and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.
The Company adopted Section 815-40-15 of the FASB ASC (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two- step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
We utilize a binomial option pricing model to compute the fair value of the derivative liability and to mark to market the fair value of the derivative at each balance sheet date. We record the change in the fair value of the derivative as other income or expense in the consolidated statements of operations.
| 17 |
Revenue Recognition
The Company’s revenue recognition policy is to recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers.” The Company follows the five-step model provided by ASC Topic 606 in order to recognize revenue in the following manner: 1) Identify the contract; 2) Identify the performance obligations of the contract; 3) Determine the transaction price of the contract; 4) Allocate the transaction price to the performance obligations; and 5) Recognize revenue. An entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company’s revenue recognition policies remained unchanged as a result of the adoption of ASC 606, and there were no significant changes in business processes or systems.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”) which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans, if any, in accordance with ASC 718.
Stock-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of stock-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the stock-based payment, which is the more readily determinable value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock-based compensation expenses are included in cost of goods sold or selling, general and administrative expenses, depending on the nature of the services provided, in the consolidated statements of operations. Stock-based payments issued to placement agents are classified as a direct cost of a stock offering and are recorded as a reduction in additional paid in capital.
The Company recognizes all forms of stock-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are expected to vest.
Business Combinations
We account for business combinations under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and that changes thereafter be reflected in income (loss). The estimation of fair values of the assets and liabilities assumed involves estimates and assumptions that could differ materially from the actual amounts recorded. The results of the acquired businesses are included in our results from operations beginning from the day of acquisition.
Capital Resources
We had no material commitments for capital expenditures as of July 31, 2022.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of July 31, 2022 or 2021.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not hold any market risk sensitive instruments. We consider our interest rate risk exposure to be minimal as a result of fixing interest rates on 100% of our debt. At July 31, 2022, there was no floating rate debt that would expose us to market fluctuations in interest rates.
| 18 |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary financial information required to be filed under this Item 8 are presented in Part IV, Item 15 of this Form 10-K and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended, at the end of the period covered by this report (the “Evaluation Date”). In conducting its evaluation, management considered the material weaknesses described below in Management’s Report on Internal Control over Financial Reporting.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date we did not maintain disclosure controls and procedures that were effective in providing reasonable assurances that information required to be disclosed in our reports filed under the Securities Exchange act of 1934 was recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information was accumulated and communicated to our management to allow timely decisions regarding required disclosure.
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors 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 a control system must reflect the fact that there are resource constraints, and the benefits of controls 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, 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. The design of any system of controls is based in part upon 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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2022. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of July 31, 2022, our internal controls over financial reporting were not effective.
In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Our management has concluded that, as of July 31, 2022, our internal control over financial reporting is not effective based on these criteria. Material weaknesses noted by our management include:
| ● | Lack of a functioning audit committee; | |
| ● | Lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; | |
| ● | Inadequate segregation of duties consistent with control objectives and affecting the functions of authorization, recordkeeping, custody of assets, and reconciliation; | |
| ● | Management dominated by a single individual/small group without adequate compensating controls. |
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
| 19 |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth information concerning our officers and directors as of the dates indicated. The directors of the Company serve until their successors are elected and shall qualify. Executive officers are elected by the Board of Directors and serve at the discretion of the directors.
| Name | Age | Title | ||
| Scott M. Boruff | 59 | Chief Executive Officer, Director | ||
| Charles B. Lobetti, III | 59 | Chief Financial Officer | ||
| Kenneth M. Greenwood | 64 | Chief Technology Officer | ||
| Susan A. Reyes | 59 | Chief Medical Officer | ||
| G. Shayne Bench | 49 | Director |
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Scott M. Boruff, Chief Executive Officer, Director, Age 59
Mr. Boruff has served as our Chief Executive Officer and Sole Director since March 13, 2018. Since May 1, 2021, he has served in that capacity as an outsourced, contracted Chief Executive Officer and Director. He has been the sole officer and director of IndeLiving Holdings, Inc. since the company’s formation in 2016. He has also served as the Manager of Platinum Equity Advisors, LLC (“Platinum Equity”) since its formation in 2016. In addition to providing consulting and advisory services, Platinum Equity has interests in a real estate brokerage firm and a luxury real estate auction firm. Mr. Boruff is a proven executive with a diverse business background in investment banking and real estate development. He currently serves as Manager of Own Shares, LLC, a privately held holding company with interests in various entertainment ventures, and Managing Member of Stonewalk Companies, privately held real estate development company. As a professional in investment banking, he specialized in consulting services and strategic planning with an emphasis on companies in the oil and gas field. Mr. Boruff served as a member of the Board of Directors of Miller Energy Resources, Inc., a publicly traded company, from August 2008 until March 2016, serving as Executive Chairman of the Board of Directors from September 2014 until March 2016 and Chief Executive Officer from August 2008 to September 2014. In October 2015, when it was being led by a successor management team, Miller Energy Resources, Inc. filed a voluntary petition for reorganization under chapter 11 of title 11 of the U.S. Code in a pre-packaged bankruptcy. It remained a debtor in possession and emerged from bankruptcy in March 2016. Mr. Boruff was a director and 49% owner of Dimirak Securities Corporation, a broker-dealer and member of FINRA, from April 2009 until July 2012. In July 2012, Mr. Boruff sold his interest in Dimirak. He has more than 30 years of experience in developing commercial real estate projects and from 2006 to 2007 Mr. Boruff successfully led transactions averaging $150 to $200 million in size while serving as a director of Cresta Capital Strategies, LLC. Mr. Boruff received a Bachelor of Science degree in Business Administration from East Tennessee State University.
Charles B. Lobetti, III, Chief Financial Officer, Age 59
Mr. Lobetti has served as our Chief Financial Officer since October 8, 2019. He holds both Bachelor of Science in Business Administration (1985) and Master of Accountancy (1986) degrees from the University of Tennessee and is a licensed Certified Public Accountant (Inactive) in the State of Tennessee. Upon graduation, Mr. Lobetti accepted a position in the tax department of the Tampa, Florida office of Ernst Young where he progressed to Senior Tax Consultant before he left the firm in 1989 to return to his hometown of Knoxville, Tennessee as the Tax Manager with a progressive, local accounting firm. In 1990, Mr. Lobetti, along with two co-workers, formed the accounting firm of Lobetti, Ideker Reel (“LIR”) where he served as President and Director of Tax Services. LIR was a member of the AICPA’s SEC Practice Section and served several SEC registrant clients. In 1998, Mr. Lobetti left LIR to accept a position of Chief Financial Officer of United Petroleum Corporation (“UPET”), a small cap, SEC registrant oil and natural gas development company and convenience store operator. Following his tenure at UPET, Mr. Lobetti served as Chief Financial Officer for a boutique investment banking/private equity firm specializing in the placement and funding of Regulation D and Regulation S offerings. He spent the next 10-years working in various investment banking, commercial mortgage banking and commercial banking functions before accepting the position of Controller – Alaska Operations with Miller Energy Resources, Inc. (“Miller”), an SEC registrant oil and gas exploration and production company. Shortly after accepting the position in 2011, Mr. Lobetti was promoted to Corporate Controller and thereafter appointed Treasurer in 2012. Since leaving Miller in 2014, Mr. Lobetti enjoyed spending time with his family and working part-time in commercial mortgage banking until recently accepting the position of Chief Financial Officer of Healthcare Integrated Resources, Inc.
| 20 |
Kenneth M. Greenwood, Chief Technology Officer, Age 64
Kenneth M. Greenwood has served as our Chief Technology Officer since June 15, 2020. Mr. Greenwood brings over 30-years of experience with large-scale systems programming and implementations to our executive management team. He has provided instruction and consulting, primarily for SAP products, in the areas of architecture, design and implementation of ABAP, big-data warehousing, business intelligence analytics, object-orientation, cloud and systems integration, interfaces, HANA in-memory databases, data security, workflow, and archiving to a variety of companies including Intel, World Bank, HP, Amtrak, IBM, Accenture, Wal-Mart, Home Depot, Nike and Kimberly-Clark. While at Random House implementing a Rights Management module following two previous failed attempts by other contractors, Mr. Greenwood led the 30-developer team to design, code and implement rights management for Random House in an SAP system using a novel approach of OO design, which became the world’s largest SAP module at that time. Mr. Greenwood authored the best-selling Sams Teach Yourself ABAP in 21 Days, published by Macmillan.
Susan A. Reyes, M.D., Chief Medical Officer, Age 59
Susan A. Reyes, M.D. has served as our Chief Medical Officer since September 1, 2020. Dr. Reyes brings extensive experience as a practicing Internal Medicine physician in the home care environment. She earned her Doctor of Medicine degree in just six-years and was board certified in Internal Medicine in 1994. Since then, Dr. Reyes has enjoyed expanding her skill set by working with several ground-breaking companies. In 1997, she worked for Hospital Inpatient Management Systems, which was the first hospitalist group that transformed the efficiencies of “length of stay” of patients in the hospital and in skilled nursing facility settings. In 2000, she was the lead physician for MD to You in Tampa, Florida - the first organization that developed house calls for homebound geriatric patients. In 2009, Dr. Reyes became the first physician to bring house call services to Knoxville, Tennessee and has grown her company to be the largest mobile medical primary care practice covering East Tennessee. She has been an advisor and served as Medical Director to several home health and hospice agencies and assisted living facilities in each community where she has resided.
G. Shayne Bench, Director, Age 49
G. Shayne Bench is co-founder and Chief Financial Officer of Trillium Healthcare Consulting. Mr. Bench began his professional career in 1994 with Beverly Enterprises where he held various leadership roles, including Vice President of Finance for all 53 Skilled Nursing Facilities in the state of Florida. In 2001, Mr. Bench joined an executive team to start up Genoa Healthcare Group. As Senior Vice President and Treasurer, he successfully managed the cash flow while the organization grew to 135 Skilled Nursing Facilities in 17 states with nearly one billion dollars in revenue. He managed all aspects of strategic capitalization, established creditor and banking relationships, and managed financial reporting to investors. Mr. Bench is originally from Louisiana and received his Bachelor of Science in Business Administration with a major in accounting from Northeastern State University. He currently resides in Sarasota, Florida where he enjoys golfing, boating, and Saints football.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Involvement in Certain Legal Proceedings
To the best of the Company’s knowledge, none of the Company’s directors or executive officers has, during the past ten years, except as set forth below:
| ● | been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
| ● | had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
| ● | been the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity; |
| 21 |
| ● | been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment in such civil action has not been reversed, suspended, or vacated; |
| ● | been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to (i) an alleged violation of any federal or state securities or commodities law or regulation, (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or | |
| ● | been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Mr. Boruff served as a member of the Board of Directors, as Chief Executive Officer, and as Executive Chairman of Miller Energy Resources, Inc. during the two years preceding Miller Energy Resources, Inc.’s filing of a bankruptcy petition in August 2015.
Mr. Lobetti served as Treasurer of Miller Energy Resources, Inc. during the two-year period preceding Miller Energy Resources, Inc.’s filing of a bankruptcy petition in August 2015.
Except as set forth in the Company’s discussion below in “Certain Relationships and Related Transactions, and Director Independence”, none of the Company’s directors or executive officers has been involved in any transactions with the Company or any of the Company’s directors, executive officers, affiliates, or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the fiscal year ended July 31, 2022 and 2021, were timely filed.
Term of Office
The Company’s directors are elected by the Company’s stockholders for a one-year term until the next annual general meeting of the Company’s stockholders, or until removed by the stockholders in accordance with the Company’s bylaws. The Company’s officers are appointed by the Board and hold office until removed by the Board.
Code of Ethics
The Company does not currently have a code of ethics, and because the Company has only limited business operations and only four officers and one director, the Company believes that a code of ethics would have limited utility. The Company intends to adopt such a code of ethics as the Company’s business operations expand and the Company has more employees.
| 22 |
Board Committees
As we only have two board members and given our limited operations, we do not have separate or independent audit or compensation committees. Our Board of Directors has determined that it does not have an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K. In addition, we have not adopted any procedures by which our shareholders may recommend nominees to our Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes all compensation recorded by us in the past two years for:
| ● | our principal executive officer or other individual serving in a similar capacity, | |
| ● | our three most highly compensated executive officers, other than our principal executive officer, who were serving as executive officers at July 31, 2022 and 2021 as that term is defined under Rule B-7 of the Securities Exchange Act of 1934. |
Summary Compensation Table (in dollars)
| Fiscal | Stock | Non-Equity Incentive Plan | Non-Qualified Deferred Compensation | All Other | ||||||||||||||||||||||||||||
| Name and Principal Position | Year | Salary | Bonus | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||||
| Scott B. Boruff | 2022 | - | - | 173,809 | - | - | 323,400 | 497,209 | ||||||||||||||||||||||||
| Chief Executive Officer | 2021 | 225,000 | - | 294,510 | - | - | 98,400 | 617,910 | ||||||||||||||||||||||||
| Director (1) | ||||||||||||||||||||||||||||||||
| Charles B. Lobetti, III | 2022 | 104,000 | 8,855 | 52,461 | - | - | 4,800 | 170,116 | ||||||||||||||||||||||||
| Chief Financial Officer (2) | 2021 | 104,000 | - | 86,732 | - | - | 4,800 | 195,532 | ||||||||||||||||||||||||
| Kenneth M. Greenwood | 2022 | 141,350 | - | 166,763 | - | - | - | 308,113 | ||||||||||||||||||||||||
| Chief Technology Officer (3) | 2021 | 257,000 | - | 166,763 | - | - | - | 423,763 | ||||||||||||||||||||||||
| Susan A. Reyes MD | 2022 | 52,000 | - | 80,478 | - | - | - | 132,478 | ||||||||||||||||||||||||
| Chief Medical Officer (4) | 2021 | 47,667 | - | 73,771 | - | - | - | 121,438 | ||||||||||||||||||||||||
| (1) | Mr. Boruff has served as our Chief Executive Officer and our sole Director since March 13, 2018. | |
| (2) | Mr. Lobetti has served as our Chief Financial Officer since October 8, 2019. | |
| (3) | Mr. Greenwood has served as our Chief Technology Officer since June 15, 2020. | |
| (4) | Ms. Reyes has served as our Chief Medical Officer since September 1, 2020 |
Director Compensation
Director compensation is determined on a case by case basis. On September 8, 2022, G. Shayne Bench was appointed to our board of directors for a term of one (1) year. As compensation for Mr. Bench’s service, he received a one (1) year restricted stock grant of 846,093 shares of the Company’s common stock. The restricted stock grant shall vest ratably, on a monthly basis, at the end of each month of completed service, and any vested shares shall be issued quarterly in conjunction with the ending of the Company’s normal quarterly reporting periods.
We do not currently pay any cash fees to our directors, nor do we pay director’s expenses to attend board meetings.
| 23 |
Executive Compensation Agreements
Scott M. Boruff, CEO
Effective May 1, 2021, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with Platinum Equity Advisors, LLC (“Platinum”) to provide the services of Scott M. Boruff as Chief Executive Officer and Chairman of the Board of Directors of the Company for a term of three (3) years. As compensation for the services, the Company shall pay Platinum an annual base fee of $323,400 and it is entitled to discretionary bonus fee payments as may be awarded by our Board of Directors. During the term of the Contract CEO Agreement, Mr. Boruff is entitled to participate in any employee benefit plans, programs or arrangements of the Company in effect during the engagement period which are generally available to other senior executives of the Company.
The Contract CEO Agreement terminates upon the death or disability of Mr. Boruff, and may be terminated by us for cause, or by Platinum without cause or for good reason. If the Contract CEO Agreement is terminated by us for cause, upon the death or disability of Mr. Boruff, at non-renewal or by Platinum without good cause, Platinum is only entitled to receive compensation through the date of termination. If the Contract CEO Agreement is terminated by us without cause or by Platinum for good reason, we are obligated to pay Platinum severance equal to one year’s base fee and any other earned but unpaid compensation. In addition, if at any time during the term of the Contract CEO Agreement Platinum is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay Platinum an amount equal to 2.99 times the annual base fee. “Change in Control” is defined in the Contract CEO Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Contract CEO Agreement contains customary invention assignment, non-compete and non-solicitation provisions.
Prior to the May 1, 2021 effective date of the Contract CEO Agreement, Scott M. Boruff served as CEO of Company pursuant to an Employment Agreement dated March 13, 2018, which was terminated on May 1, 2021. As compensation, we paid him an annual salary of $300,000 and he was entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. As additional compensation, we granted him an option to purchase 2,500,000 shares of the Company’s common stock at an exercise price of $3.00 per share, which exceeded the fair market price of our common stock on the date of grant, vesting in four equal annual installments commencing on the grant date. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Mr. Boruff was also entitled to paid vacation and sick leave, an automobile allowance and participation in any employee benefit plans or programs we offered at the time.
Charles B. Lobetti, III, CFO
Charles B. Lobetti, III and the Company entered into a three-year Employment Agreement dated October 8, 2019, in which Mr. Lobetti agreed to serve as our Chief Financial Officer. As compensation, we agreed to pay him an annual salary of $52,000 and he is entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. Effective May 1, 2020, Mr. Lobetti’s base salary was increased to $104,000 to reflect an increased time commitment. As additional compensation we granted him stock options to purchase 600,000 shares of our common stock at an exercise price of $0.15 per share, which was the closing price of common stock as reported on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 25% immediately upon execution of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Mr. Lobetti is also entitled to paid vacation and sick leave, an automobile allowance and participation in any employee benefit plans or programs we may offer. The initial term of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.
| 24 |
The Employment Agreement terminates upon the death or disability of Mr. Lobetti, and may be terminated by us for cause, or by Mr. Lobetti for any reason. If the Employment Agreement is terminated by us for cause, upon his death or disability, at non-renewal or by Mr. Lobetti, he is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated by us without cause or by Mr. Lobetti for good reason, we are obligated to pay him severance equal to one year’s base salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Mr. Lobetti’s employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay him an amount equal to 2.99 times his annualized compensation. “Change in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains customary invention assignment, non-compete and non-solicitation provisions.
Kenneth M. Greenwood, CTO
Kenneth M. Greenwood and the Company entered into a three-year Employment Agreement dated June 15, 2020, in which Mr. Greenwood agreed to serve as our Chief Technology Officer. As compensation, we agreed to pay him an annual salary of $257,000 and he is entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. As additional compensation we granted him stock options to purchase 2,000,000 shares of our common stock at an exercise price of $0.30 per share, which was the closing price of common stock as reported on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 25% immediately upon execution of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Mr. Greenwood is also entitled to paid vacation and sick leave, and participation in any employee benefit plans or programs we may offer. The initial term of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.
The Employment Agreement terminates upon the death or disability of Mr. Greenwood, and may be terminated by us for cause, or by Mr. Greenwood for any reason. If the Employment Agreement is terminated by us for cause, upon his death or disability, at non-renewal or by Mr. Greenwood, he is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated by us without cause or by Mr. Greenwood for good reason, we are obligated to pay him severance equal to one year’s base salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Mr. Greenwood’s employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay him an amount equal to 2.99 times his annualized compensation. “Change in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains customary invention assignment, non-compete and non-solicitation provisions.
Susan A. Reyes, M.D., CMO
Susan A. Reyes, M.D. and the Company entered into a three-year Employment Agreement dated September 1, 2020, in which Dr. Reyes agreed to serve as our Chief Medical Officer. As compensation, we agreed to pay her an annual salary of $52,000 and she is entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. As additional compensation we granted her stock options to purchase 1,000,000 shares of our common stock at an exercise price of $0.40 per share, which was the closing price of common stock as reported on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 150,000 shares immediately upon execution of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Dr. Reyes is also entitled to paid vacation and sick leave, and participation in any employee benefit plans or programs we may offer. The initial term of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.
| 25 |
The Employment Agreement terminates upon the death or disability of Dr. Reyes, and may be terminated by us for cause, or by Dr. Reyes for any reason. If the Employment Agreement is terminated by us for cause, upon her death or disability, at non-renewal or by Dr. Reyes, she is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated by us without cause or by Dr. Reyes for good reason, we are obligated to pay her severance equal to one year’s base salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Dr. Reyes’ employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay her an amount equal to 2.99 times her annualized compensation. “Change in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains customary invention assignment, non-compete and non-solicitation provisions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information as of September 23, 2022 regarding the number and percentage of our Common Stock (being our only voting securities) beneficially owned by each officer, director, each person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) known by us to own 5% or more of our Common Stock, and all officers and directors as a group.
Title of Class | Name, Title and Address of Beneficial Owner of Shares | Amount of Beneficial Ownership (10) | Percent of Class (11) | |||||||||
| Common | Scott M. Boruff, CEO, Director (1) 1462 Rudder Lane Knoxville, TN 37919 | 14,164,854 | 31.61 | % | ||||||||
| Common | Charles B. Lobetti, III, CFO (2) 814 Evolve Way, Knoxville, TN 37915 | 1,000,000 | 2.33 | % | ||||||||
| Common | Kenneth M. Greenwood, CTO (3) 404 Citrus Ridge Drive, Davenport, FL 33837 | 1,500,000 | 3.42 | % | ||||||||
| Common | Susan A. Reyes, CMO (4) 9901 Sierra Vista Lane, Knoxville, TN 37922 | 716,666 | 1.67 | % | ||||||||
| Common | G. Shayne Bench, Director (5) 309 Ringling Point Dr., Sarasota, FL 34234 | 141,016 | 0.33 | % | ||||||||
| All Officers and Directors as a Group | 17,522,536 | 36.69 | % | |||||||||
Principal Shareholders: | ||||||||||||
| Common | Julie Boruff (6) 1462 Rudder Lane, Knoxville, TN 37919 | 11,664,854 | 27.57 | % | ||||||||
| Common | Platinum Equity Advisors, LLC (7) 1462 Rudder Lane, Knoxville, TN 37919 | 11,664,854 | 27.57 | % | ||||||||
| Common | Jeremy Gindro (8) 310 Tanner Avenue, Florence, CO 81226 | 7,870,000 | 16.48 | % | ||||||||
All Principal Shareholders as a Group (9) | 7,870,000 | 16.48 | ||||||||||
| 1) | The shares owned by Mr. Boruff include 11,664,854 shares beneficially owned by Julie Boruff, who is the spouse of Mr. Boruff. Pursuant to Mr. Boruff’s March 13, 2018 employment agreement (which terminated May 1, 2021) as our Chief Executive Officer, the shares also include options to purchase 2,500,000 shares of our common stock, which are fully vested and exercisable at $3.00 per share and expire in 2023. |
| 2) | Mr. Lobetti owned 400,000 shares at July 31, 2022 and 300,000 shares at July 31, 2021. Pursuant to Mr. Lobetti’s employment agreement dated October 8, 2019, the shares also include options to purchase 450,000 shares of our common stock which are vested and exercisable at $0.15 per share and expire in 2024. The number of shares owned by Mr. Lobetti also includes options to purchase 150,000 shares of our common stock at $0.15 per share which have not yet vested, but vest within 60-days of the filing of this report and expire in 2024. Mr. Lobetti received a restricted stock grant of 500,000 shares on July 16, 2020. Under the terms of the grant, 200,000 shares vested immediately with the remaining shares vesting equally over a three-year period. |
| 26 |
3)
|
Mr. Greenwood owned no shares at July 31, 2022 and 2021. Pursuant to Mr. Greenwood’s employment agreement dated June 15, 2020, the shares include options to purchase 1,500,000 shares of our common stock which are vested and exercisable at $0.30 per share and expire in 2025. The number of shares owned by Mr. Greenwood excludes options to purchase 500,000 shares of our common stock at $0.30 per share which have not yet vested and expire in 2025. |
| 4) | Susan Reyes owned no shares at July 31, 2022 and 2021. Pursuant to Susan Reyes’ employment agreement dated September 1, 2020, the shares include options to purchase 716,666 shares of our common stock which are vested and exercisable at $0.40 per share and expire in 2025. The number of shares owned by Ms. Reyes excludes options to purchase 283,334 shares of our common stock at $0.40 per share which have not yet vested and expire in 2025. |
| 5) | G. Shayne Bench owned no shares at July 31, 2022 and 2021. Upon Mr. Bench’s appointment as a director of the Company on September 12, 2022, he received a one (1) year restricted stock grant of 846,093 shares of the Company’s common stock. The restricted stock grant vest ratably, on a monthly basis, at the end of each month of completed service. |
| 6) | Includes shares owned by Platinum Equity Advisors, LLC, which is owned 100% and controlled by Julie Boruff. |
| 7) | Owned 100% and controlled by Julie Boruff. |
| 8) | The total includes 100,000 shares owned by James Gindro, the father of Jeremy Gindro. |
| 9) | Only includes those shares not included in officers and directors as a group. |
| 10) | As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security). The inclusion of any shares as deemed beneficially owned does not constitute an admission of beneficial ownership by the named stockholder. |
| 11) | Unless otherwise indicated, we have been advised that all individuals or entities listed have the sole power to vote and dispose of the number of shares set forth opposite their names. For purposes of computing the number and percentage of shares beneficially owned by a security holder, any shares which such person has the right to acquire within 60 days of September 23, 2022 are deemed to be outstanding, but those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other security holder. We currently do not maintain any equity compensation plans. As of September 23, 2022, there were 47,762,355 shares beneficially owned. |
Changes in Control
We are not aware of any arrangements that may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Other than compensation arrangements, the following is a description of transactions to which we were a participant or will be a participant to, in which:
| ● | the amounts involved exceeded or will exceed the lesser of 1% of our total assets or $120,000; and | |
| ● | any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. |
To continue operations and meet operating cash requirements, we have periodically relied on advances from related parties, primarily shareholders, until such time as our cash flow from operations meets our cash requirements or we are able to obtain adequate financing through sales of our equity securities and/or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts advanced primarily relate to amounts paid to vendors. The advances are considered temporary in nature and have not been formalized by any written agreement. As of July 31, 2022 and 2021, related parties were owed $267,765 and $202,290, respectively. The amounts owed are payable on demand and carry no interest. The amounts and terms of the related party advances may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
| 27 |
Effective May 1, 2021, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with Platinum Equity Advisors, LLC, a related party, to provide the services of our CEO and Chairman of the Board of Directors. Under the terms of the Contract CEO Agreement, Platinum Equity Advisors, LLC was owed $373,550 and $50,150 at July 31, 2022 and 2021, respectively.
Director Independence
We currently have no independent directors. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship that, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
| ● | the director is, or at any time during the past three years was, an employee of the Company; | |
| ● | the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service); | |
| ● | a family member of the director is, or at any time during the past three years was, an executive officer of the Company; | |
| ● | the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); | |
| ● | the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or | |
| ● | The director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the Company’s audit. |
The Company does not currently have a separately designated audit, nominating, or compensation committee.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table sets forth the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
| July 31, 2022 | July 31, 2021 | |||||||
| Audit Fees | $ | 45,900 | $ | 42,500 | ||||
| Audit-Related Fees | - | - | ||||||
| Tax Fees | - | - | ||||||
| All Other Fees | - | - | ||||||
| Total | $ | 45,900 | $ | 42,500 | ||||
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Given the small size of our Board as well as the limited activities of our Company, our Board of Directors acts as our Audit Committee. Our Board pre-approves all audit and permissible non-audit services. These services may include audit services, audit-related services, tax services, and other services. Our Board approves these services on a case-by-case basis.
| 28 |
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| * Filed Herewith | **Executive Compensation Agreement |
| 29 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Healthcare Integrated Technologies, Inc. | ||
| Date: September 23, 2022 | ||
| By: | /s/ Scott M. Boruff | |
| Scott M. Boruff | ||
| President, Chief Executive Officer (Principal Executive Officer) | ||
| Healthcare Integrated Technologies, Inc. | ||
| Date: September 23, 2022 | ||
| By: | /s/ Charles B. Lobetti, III | |
| Charles B. Lobetti, III | ||
| Chief Financial Officer (Principal Financial Officer) | ||
In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: September 23, 2022 | By: | /s/ Scott M. Boruff |
Scott M. Boruff President, Chief Executive Officer, Director (Principal Executive Officer) |
| Date: September 23, 2022 | By: | /s/ Charles B. Lobetti, III |
| Charles B. Lobetti, III | ||
| Chief Financial Officer (Principal Financial Officer) |
| 30 |
INDEX TO FINANCIAL STATEMENTS
| Page | |
| Fiscal Years Ended July 31, 2022 and 2021 | |
| Report
of Independent Registered Public Accounting Firm (PCAOB ID: |
F-2 |
| Consolidated Balance Sheets | F-3 |
| Consolidated Statements of Operations | F-4 |
| Consolidated Statements of Changes in Stockholders’ Deficit | F-5 |
| Consolidated Statements of Cash Flows | F-6 |
| Notes to Consolidated Financial Statements | F-7 - F-20 |
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Healthcare Integrated Technologies, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Healthcare Integrated Technologies, Inc. (the “Company”) as of July 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended July 31, 2022 and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of July 31, 2022 and 2021, and the results of its consolidated operations and its consolidated cash flows for each of the years in the two-year period ended July 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a history of losses, an accumulated deficit, has negative working capital and has not generated cash from operations to support a meaningful and ongoing business plan. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
| /s/
|
| We have served as the Company’s auditor since 2019 | |
| September 23, 2022 |
| F-2 |
HEALTHCARE INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
| July 31, 2022 | July 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| OTHER ASSETS: | ||||||||
| Property and equipment, net | ||||||||
| Intangibles, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable and accrued expenses, related party | ||||||||
| Payroll related liabilities | ||||||||
| Convertible notes | ||||||||
| Notes payable, net | ||||||||
| Derivative liability | ||||||||
| Total current and total liabilities | ||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||
| Common stock par value $; shares authorized; and shares issued and outstanding as of July 31, 2022 and 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Common stock subscribed | ||||||||
| Stock subscription receivable | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
| F-3 |
HEALTHCARE INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Years Ended July 31, | ||||||||
| 2022 | 2021 | |||||||
| OPERATING EXPENSES: | ||||||||
| Selling, general and administrative | $ | $ | ||||||
| Total operating expenses | ||||||||
| OPERATING LOSS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ||||||||
| Derivative expense | ( | ) | ||||||
| Debt forgiveness | ||||||||
| Lawsuit settlement | ||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| NET LOSS PER COMMON SHARE | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||
| Basic and diluted | ||||||||
See accompanying notes to the consolidated financial statements.
| F-4 |
HEALTHCARE INTEGRATED TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED JULY 31, 2022 AND 2021
| Common Stock | Additional Paid-In | Common Stock | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Subscribed | Deficit | Deficit | |||||||||||||||||||
| Balances at July 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of shares for cash | ||||||||||||||||||||||||
| Purchase and cancellation of shares | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Issuance of shares with debt recorded as debt discount | ||||||||||||||||||||||||
| Issuance of shares upon the conversion of debt and related accrued interest | ||||||||||||||||||||||||
| Issuance of shares for payment of accounts payable | ||||||||||||||||||||||||
| Stock subscriptions | ||||||||||||||||||||||||
| Stock subscription receivable | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Balances at July 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||
| Receipt of cash under stock subscription agreement | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of shares for services | ||||||||||||||||||||||||
| Issuance of shares and settlement of stock subscription | ( | ) | ||||||||||||||||||||||
| Issuance of shares under debt settlement and amendment agreement | ( | ) | ||||||||||||||||||||||
| Issuance of warrants with debt recorded as debt discount | ||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Balances at July 31, 2022 | | $ | $ | | $ | $ | ( | ) | $ | ( | ) | |||||||||||||
See accompanying notes to the consolidated financial statements.
| F-5 |
HEALTHCARE INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended July 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Issuance of equity for services | ||||||||
| Amortization of debt discount | ||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Derivative expense | ||||||||
| Debt forgiveness | ( | ) | ||||||
| Lawsuit settlement | ( | ) | ||||||
| Changes in operating assets and liabilities (excluding effects of acquisitions): | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses, related party | ||||||||
| Payroll related liabilities | ||||||||
| NET CASH USED BY OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash paid for development of intangible assets | ( | ) | ( | ) | ||||
| NET CASH USED BY INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from common stock subscriptions | ||||||||
| Proceeds from debt issuance | ||||||||
| Principal payments of short-term debt | ( | ) | ||||||
| Proceeds from related party loans | ||||||||
| Payments of amounts owed to related parties | ( | ) | ( | ) | ||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||
| Cash paid for interest | $ | $ | ||||||
| SIGNIFICANT NON-CASH INVESTING AND FINACING ACTIVITIES | ||||||||
| Capital expenditures included in payroll related liabilities | $ | $ | ||||||
| Capital expenditures from stock-based compensation | $ | $ | ||||||
| Derivative liability recorded as debt discount | $ | $ | ||||||
| Issuance of warrants with debt, recorded as debt discount | $ | $ | ||||||
| Capital expenditures included in accounts payable and accrued expenses | $ | $ | ||||||
| Issuance of common stock with debt, recorded as debt discount | $ | $ | ||||||
| Issuance of common stock for payment of convertible debt | $ | $ | ||||||
| Issuance of common stock for payment of items included in accounts payable and accrued expenses | $ | $ | ||||||
| Issuance of debt for purchase and cancellation of shares | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
| F-6 |
HEALTHCARE INTEGRATED TECHNOLOGIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2022 and 2021
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Healthcare Integrated Technologies, Inc. and its subsidiaries (collectively the “Company,” “we,” “our” or “us”) is a healthcare technology company based in Knoxville, Tennessee. We are creating a diversified spectrum of healthcare technology solutions to integrate and automate the continuing care, home care and professional healthcare spaces.
Our initial product, SafeSpace™ with AI Vision™, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace includes hardware devices utilizing RGB, radar and other sensor technology coupled with our internally developed software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects falls and sends alerts directly to designated individuals.
In addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience for seniors, recently released postoperative patients and others. The concierge application will enable the consumer to obtain home healthcare services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other items where integration is beneficial.
Basis of Presentation
The accompanying consolidated financial statements include those of Healthcare Integrated Technologies, Inc. and its subsidiaries, after elimination of all intercompany accounts and transactions. We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”).
Reclassifications
Certain prior period amounts have been reclassified to conform to current period presentation with no changes to previously reported net loss or stockholders’ deficit.
Risk and Uncertainties
Factors that could affect our future operating results and cause actual results to vary materially from management’s expectation include, but are not limited to: our ability to maintain and secure adequate capital to fund our operations and fully develop our product(s); our ability to source strong opportunities with sufficient risk adjusted returns; acceptance of the terms and conditions of our licenses and/or the acceptance of our royalties and fees; the nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment return expectations; changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a change in circumstances, capacity and economic impacts; changes in laws, regulations, accounting, taxation, and other requirements affecting our operations and business. Negative developments in these or other risk factors could have a significant adverse effect on our financial position, results of operations and cash flows.
| F-7 |
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s future financial condition, liquidity, and results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2023.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. We base our estimates on experience and various other assumptions that are believed to be reasonable under the circumstances. We evaluate our estimates and assumptions on a regular basis and actual results may differ from those estimates.
Concentration of Credit Risk
Financial
instruments that potentially expose the Company to credit risk consist of demand deposits with a financial institution. The Company is
exposed to credit risk on its cash and cash equivalents in the event of default by the financial institution to the extent account balances
exceed the amount insured by the FDIC, which is $
Cash and Cash Equivalents
We consider all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. No loss has been experienced and management does not believe we are exposed to any significant credit risk.
Accounts Receivable
Accounts receivable are stated at their historical carrying amount net of write-offs and allowance for uncollectible accounts. We routinely assess the recoverability of all customer and other receivables to determine their collectability and record a reserve when, based on the judgement of management, it is probably that a receivable will not be collected and the amount of the reserve may be reasonably estimated. When collection is no longer pursued, we charge uncollectable accounts receivable against the reserve.
Property and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized
while minor replacements and maintenance and repairs, which do not improve or extend the life of such assets, are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in the consolidated
statement of operations. Depreciation is calculated using the straight-line method which depreciates the assets over the estimated useful
lives of the depreciable assets ranging from to
Impairment of Long-Lived Assets
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment at least annually or whenever facts and circumstances indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. The Company did not recognize any impairment losses for any periods presented.
| F-8 |
Intangible Assets
Intangible assets consist of patents, our website and the costs of software developed for internal use. Certain payroll and stock-based compensation costs incurred are allocated to the intangible assets. We determine the amount of costs to be capitalized based on the time spent by employees or outside contractors on the projects. Intangible assets are amortized over their expected useful life on a straight-line basis. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. If the estimate of an intangible asset’s remaining life is changed, the remaining carrying value of the intangible asset is amortized prospectively over the revised remaining useful life. We did not recognize any impairment losses during any of the periods presented.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.
Derivative Liability
Options, warrants, convertible notes, or other contracts, if any, are evaluated to determine if those contracts, or embedded components of those contracts, qualify as derivatives to be separately accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, “Derivatives and Hedging,” (paragraph 815-10-05-4 and Section 815-40-25). The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. The change in fair value is recorded in the consolidated statements of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise, or cancellation and then the related fair value is reclassified to equity.
In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated, and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.
| F-9 |
The Company adopted Section 815-40-15 of the FASB ASC (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two- step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.
We utilize a binomial option pricing model to compute the fair value of the derivative liability and to mark to market the fair value of the derivative liability at each balance sheet date. We record the change in the fair value of the derivative liability as other income or expense in the consolidated statements of operations.
The
Company had a derivative liability of $
Revenue Recognition
Revenue is recognized under ASC 606, “Revenue from Contracts with Customers” using the modified retrospective method. Under this method, the Company follows the five-step model provided by ASC Topic 606 in order to recognize revenue in the following manner: 1) Identify the contract; 2) Identify the performance obligations of the contract; 3) Determine the transaction price of the contract; 4) Allocate the transaction price to the performance obligations; and 5) Recognize revenue. An entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company’s revenue recognition policies remained unchanged as a result of the adoption of ASC 606, and there were no significant changes in business processes or systems.
Advertising and Marketing
Advertising
and marketing costs are expensed as incurred in accordance with ASC 720-35, “Advertising Costs.” We incurred advertising
and marketing costs of $
We determine basic loss per share and diluted income (loss) per share in accordance with the provisions of ASC 260, “Earnings Per Share.” Basic loss per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. The calculation of diluted loss per share is similar to that of basic earnings per share, except the denominator is increased, if the earnings are positive, to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares had been exercised.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”) which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans, if any, in accordance with ASC 718.
Stock-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of stock-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the stock-based payment, which is the more readily determinable value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock-based compensation expenses are included in cost of goods sold or selling, general and administrative expenses, depending on the nature of the services provided, in the consolidated statements of operations. Stock-based payments issued to placement agents are classified as a direct cost of a stock offering and are recorded as a reduction in additional paid in capital.
| F-10 |
The Company recognizes all forms of stock-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest. See Note 13.
Business Combinations
We account for business combinations under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and that changes thereafter be reflected in income (loss). The estimation of fair values of the assets and liabilities assumed involves several estimates and assumptions that could differ materially from the actual amounts recorded. The results of the acquired businesses are included in our results from operations beginning from the day of acquisition.
Income Taxes
We use the asset and liability method of accounting for income taxes in accordance with Topic 740, “Income Taxes”. Under this method, income tax expense is recognized for the amount of: (1) taxes payable or refundable for the current year and (2) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the reporting periods presented.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company adopted this guidance and the adoption of this update did not have a material impact on the Company’s consolidated financial statements.
| F-11 |
In August 2020, the FASB issued ASU 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in Update No. 2020-06 simplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exception for contracts in an entity’s own equity. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted this guidance and the adoption of this update did not have a material impact on the Company’s consolidated financial statements.
Recent Accounting Pronouncements
Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these consolidated financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective, that when adopted, will have a material impact on the consolidated financial statements of the Company.
NOTE 2 - GOING CONCERN
The
accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the
Company as a going concern. The Company had a net loss of $
In view of these matters, our ability to continue as a going concern is dependent upon the development, marketing and sales of a viable product to achieve a level of profitability. We intend to finance our future development activities and our working capital needs largely from the sale of private and public equity securities with additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. Although the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional capital, there can be no assurances to that effect. Therefore, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.
NOTE 3 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following at July 31, 2022 and 2021:
| July 31, 2022 | July 31, 2021 | |||||||
| Equipment | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the years ended July 31, 2022 and 2021 was $
| F-12 |
NOTE 4 – INTANGIBLES, NET
Intangibles, net consisted of the following at July 31, 2022 and 2021:
| July 31, 2022 | July 31, 2021 | |||||||
| Intangible assets under development | ||||||||
| Capitalized costs of patents | ||||||||
| Capitalized costs of website | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Total intangibles, net | $ | $ | ||||||
Amortization
expense for the years ended July 31, 2022 and 2021 was $
Intangibles
are amortized over their estimated useful lives of
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total expected amortization expense | $ |
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at July 31, 2022 and 2021:
| July 31, 2022 | July 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued interest expense | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable, related party | ||||||||
| Accrued expenses, related party | ||||||||
| Accounts payable and accrued expenses, related party | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
NOTE 6 - PAYROLL RELATED LIABILITIES
Payroll related liabilities consisted of the following at July 31, 2022 and 2021:
| July 31, 2022 | July 31, 2021 | |||||||
| Accrued officers’ payroll | $ | $ | ||||||
| Payroll taxes payable | ||||||||
| Total payroll related liabilities | $ | $ | ||||||
| F-13 |
NOTE 7 - DEBT
We had the following debt obligations reflected at their respective carrying values on our consolidated balance sheets as of July 31, 2022 and 2021:
| July 31, 2022 | July 31, 2021 | |||||||
| 5% Convertible promissory notes | $ | $ | ||||||
| Note payable to Acorn Management Partners, LLC | ||||||||
| Note payable to AJB Capital Investments, LLC | ||||||||
| Total debt obligations | ||||||||
| Less debt discount | ( | ) | ( | ) | ||||
| Less current portion | ( | ) | ( | ) | ||||
| Long-term debt | $ | $ | ||||||
5% Convertible Promissory Notes
On
various dates during the month of March 2018, we issued a series of 5% Convertible Promissory Notes (collectively, the “5% Notes”)
totaling $
| ● | At the option of the holder, the outstanding principal amount of the note, and any accrued but unpaid interest due, may be converted into the Company’s common stock at any time prior to the maturity date of the note. | |
| ● |
No
5% Notes were converted into shares of our common stock during the year ended July 31, 2022. During the year ended July 31, 2021, 5%
Notes with a face amount of $
Note Payable to Acorn Management Partners, LLC
On
August 11, 2020 we agreed to repurchase shares of our common stock from Acorn Management Partners, LLC (“AMP”).
As consideration for the share repurchase, we issued a $
| F-14 |
Note Payable to AJB Capital Investments, LLC
On
February 2, 2021, we entered into a Securities Purchase Agreement with AJB Capital Investments, LLC (“AJB Capital”), pursuant
to which AJB Capital purchased a Promissory Note (the “AJB Note 1”) in the principal amount of $
On
February 9, 2022, we entered into a Securities Purchase Agreement with AJB Capital, pursuant to which AJB Capital purchased a Promissory
Note (the “AJB Note 2”) in the principal amount of $
As
additional consideration for the purchase of the AJB Note 2, we issued AJB Capital
Total
unamortized debt discount related to the AJB Capital notes at July 31, 2022 and 2021 was $
Paycheck Protection Program Loan
On
March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and included a provision
for the Small Business Administration (“SBA”) to implement its Paycheck Protection Program (“PPP”). The PPP provides
small businesses with funds to pay up to eight (8) weeks of payroll costs, including benefits. Funds received under the PPP may also
be used to pay interest on mortgages, rent, and utilities. Subject to certain criteria being met, all or a portion of the loan may be
forgiven.
| F-15 |
NOTE 8 - DERIVATIVE LIABILITY
On
February 2, 2021, we entered into a Securities Purchase Agreement with AJB Capital Investments, LLC (“AJB Capital”), pursuant
to which AJB Capital purchased a Promissory Note (the “AJB Note 1”) in the principal amount of $
On
February 9, 2022, we entered into a new Securities Purchase Agreement with AJB Capital, pursuant to which AJB Capital purchased a Promissory
Note (the “AJB Note 2”) in the principal amount of $
In the event of default, the AJB Capital notes may be converted into shares of the Company’s common stock. We identified certain conversion features embedded in the AJB Capital notes that represent derivative liabilities.
The following table summarizes the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended July 31, 2022 and 2021:
| July 31, 2022 | July 31, 2021 | |||||||
| Balance at beginning of period | $ | $ | ||||||
| Derivative liability on issuance of notes | ||||||||
| Change in fair value of derivative liability | ( | ) | ( | ) | ||||
| Balance at end of period | $ | $ | ||||||
During the years ended July 31, 2022 and 2021, the fair value of the derivative feature of the AJB Capital notes were calculated using the following range of assumptions:
| July 31, 2022 | July 31, 2021 | |||||||
| Expected volatility | % | % | ||||||
| Expected term (in years) | ||||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | ||||||||
On
July 31, 2022 and 2021, the derivative liability related to the AJB Capital notes was $
There
was no derivative expense recorded in the year ended July 31, 2022. Upon the initial valuation of the derivative feature of the AJB Note
1 during the year ended July 31, 2021, we determined the total amount of debt discounts exceeded the face amount of the note and recorded
derivative expense of $
NOTE 9 - INCOME TAXES
A
reconciliation of the provision for income taxes as reported, and the amount computed by multiplying net loss by the federal statutory
rate of
| July 31, 2022 | July 31, 2021 | |||||||
| Federal income tax benefit computed at the statutory rate | $ | ( | ) | $ | ( | ) | ||
| Increase (decrease) resulting from: | ||||||||
| State income taxes, net of federal benefit | ||||||||
| Stock-based compensation | ||||||||
| Derivatives | ||||||||
| Valuation allowance | ||||||||
| Other | ||||||||
| Income tax benefit, as reported | $ | $ | ||||||
| F-16 |
The components of the net deferred tax asset as of July 31, 2022 and 2021 are as follows:
| July 31, 2022 | July 31, 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryovers | $ | $ | ||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset, as reported | $ | $ | ||||||
In
assessing the realizable value of deferred tax assets, management considers whether it is more likely than not that some portion or all
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future
taxable income during the periods in which these temporary differences become tax deductible. Based on management’s assessment
of objective and subjective evidence, we have concluded at this time it is more likely than not that all of our deferred tax asset will
not be realized and we have provided a valuation allowance for the entire amount of the deferred tax asset. At July 31, 2022, we have
approximately $
We conduct business solely in the United States and file income tax returns in the United States federal jurisdiction as well as in the states of Tennessee and Colorado. The taxable years ended July 31, 2022, 2021, 2020, 2019 and 2018 remain open to examination by the taxing jurisdictions to which we are subject.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other expenses – Interest expense” in the consolidated statements of operations. Penalties would be recognized as a component of “General and administrative.”
NOTE 10 - RELATED PARTY TRANSACTIONS
To
continue operations and meet operating cash requirements, we have periodically relied on advances from related parties, primarily shareholders,
until such time as our cash flow from operations meets our cash requirements or we are able to obtain adequate financing through sales
of our equity securities and/or traditional debt financing. There is no formal written commitment for continued support by shareholders.
Amounts advanced primarily relate to amounts paid to vendors. The advances are considered temporary in nature and have not been formalized
by any written agreement. As of July 31, 2022 and 2021, related parties were owed $
| F-17 |
Effective
May 1, 2021, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with
Platinum Equity Advisors, LLC, a related party, to provide the services of our CEO and Chairman of the Board of Directors. Under the
terms of the Contract CEO Agreement, Platinum Equity Advisors, LLC was owed $
NOTE 11 - COMMON STOCK
At July 31, 2022 and 2021, we had and shares of common stock outstanding, respectively. We issued shares of common stock during the year ended July 31, 2022, of which shares were issued upon final settlement of a securities purchase agreement, shares were issued pursuant to a debt settlement and amendment agreement, shares were issued for services, and shares were issued for the vesting of an employee stock grant. During the year ended July 31, 2021, we issued shares of common stock, of which shares were issued for cash, shares were issued as part of a debt arrangement, shares were issued upon conversion of debt and related accrued interest, shares were issued for the settlement of accounts payable, and shares were issued for the vesting of an employee stock grant. In addition, we purchased and immediately cancelled shares of our common stock.
On
August 10, 2021, we issued shares of our common stock pursuant to a Securities Purchase Agreement (“SPA”) dated
April 30, 2021. Under the original terms of the SPA, the investor agreed to purchase shares of our common stock for $
On
September 14, 2021, we entered into a Settlement and Amendment Agreement (the “Agreement”) with AJB Capital Investments,
LLC (“AJB”) for a potential event of default under the Promissory Note dated February 2, 2021 (the “Note”) and
Securities Purchase Agreement (the “SPA”) relating to subsequent equity transactions. As part of the settlement under the
Agreement, we agreed to issue AJB an additional shares of our common stock for payment of its $
On December 23, 2021, we executed a consulting agreement with Ludlow Business Services, Inc. (“Ludlow”) to establish, expand and maintain corporate awareness. Pursuant to the terms of the agreement, we issued shares of our common stock to Ludlow at an estimated value of $ per share.
On
July 16, 2022, we issued shares of common stock to an employee upon the vesting of a portion of a restricted stock grant. The
grant date fair value of the shares issued was $
NOTE 12 - COMMON STOCK SUBSCRIBED
On
April 30, 2021, we entered into a common stock Subscription Agreement (the “SPA”) with an investor. Under the terms of the
SPA, the investor agreed to purchase shares of our common stock at a purchase price of $ per share through a series of
payments. The common stock subscription was recorded as Common stock subscribed and related Stock subscriptions receivable on our consolidated
balance sheets. After receipt of $
NOTE 13 - STOCK-BASED COMPENSATION
Our stock-based compensation programs are long-term retention awards that are intended to attract, retain, and provide incentives for employees, officers and directors, and to align stockholder and employee interest. We utilize grants of both stock options and warrants and restricted stock to achieve those goals.
| F-18 |
Summary of Stock Options and Warrants
During the year ended July 31, 2022, we recorded $ of compensation expense, net of capitalized expense of $, related to stock options and warrants. During the year ended July 31, 2021, we recorded $ of compensation expense, net of capitalized expense of $, related to stock options and warrants. There were no stock options or warrants issued during the year ended July 31, 2022. The grant date fair value of stock options and warrants issued during the year ended July 31, 2021 was $.
| July 31, 2022 | July 31, 2021 | |||||||
| Expected volatility | % | |||||||
| Expected term (in years) | ||||||||
| Risk-free interest rate | % | |||||||
| Dividend yield | ||||||||
Expected Volatility
Due to the fact we do not consider historical volatility is the best indicator of future volatility, we use implied volatility of our options to estimate future volatility.
Expected Term
Where possible, we use the simplified method to estimate the expected term of employee stock options. Where we are unable to use the simplified method due to the terms of a stock option, we may use a modified simplified method to estimate the expected term. We do not have adequate historical exercise data to provide a reasonable basis for estimating the expected term for the current share options granted. The simplified method assumes that employees will exercise share options evenly between the period when the share options are vested and ending on the date when the options would expire.
Risk-Free Interest Rate
The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.
Dividend Yield
We have not estimated any dividend yield as we currently do not pay a dividend and do not anticipate paying a dividend over the expected term.
| July 31, 2022 | July 31, 2021 | |||||||||||||||
| Number of | Weighted | Number of | Weighted | |||||||||||||
| Options and | Average | Options and | Average | |||||||||||||
| Warrants | Exercise Price | Warrants | Exercise Price | |||||||||||||
| Balance at beginning of year | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Balance at end of period | $ | $ | ||||||||||||||
| Options and warrants exercisable | $ | $ | ||||||||||||||
| F-19 |
Summary of Restricted Stock Grants
During the years ended July 31, 2022 and 2021, we recorded compensation expense related to restricted stock grants of $ and $, respectively.
| July 31, 2022 | July 31, 2021 | |||||||
| Balance at beginning of period | ||||||||
| Granted | ||||||||
| Released | ( | ) | ( | ) | ||||
| Forfeited | ||||||||
| Balance at end of period | ||||||||
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Employment and Consulting Agreements
Effective
May 1, 2021,
On
September 1, 2020,
On
June 15, 2020,
On
October 8, 2019,
Litigation
From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business. There are no claims or actions pending or threatened against the Company that, if adversely determined, would in the Company’s management’s judgment have a material adverse effect on the Company.
NOTE 15 - SUBSEQUENT EVENTS
On August 26, 2022, we entered into a Consulting Agreement with G. Shayne Bench, individually, and Bucuti Investments, LLC. Pursuant to the Consulting Agreement, Mr. Bench was appointed to the Board of Directors of the Company on September 8, 2022. In connection with the appointment to the board, he received a restricted stock grant of shares of the Company’s common stock. The restricted stock grant vest ratably, on a monthly basis, at the end of each month of completed service, and any vested shares shall be issued quarterly in conjunction with the ending of the Company’s normal quarterly reporting periods.
We evaluate subsequent events and transactions that occur after the balance sheet date for the period presented and up to the issuance date of the financial statements. Based on our review, we did not identify any subsequent events other than those listed above that would require adjustment to or disclosure in the consolidated financial statements.
| F-20 |