UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended July 31, 2020
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ________ to ________
Commission
file number: 001-36564
Healthcare
Integrated Technologies, Inc.
(Exact
Name of Registrant as Specified in its Charter)
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Nevada
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85-1173741
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(I.R.S.
Employer
Identification
No.)
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1462
Rudder Lane
Knoxville,
TN 37919
(Address
of Principal Executive Offices)
Registrant’s
telephone number, including area code: (865) 719-8160
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 [ ]
No [X]
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
[ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X]
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 [ ] No [X]
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.
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Large
accelerated filer
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[ ]
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Accelerated
filer
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[ ]
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Non-accelerated
filer
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[ ]
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Smaller
reporting company
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[X]
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(Do
not check if a smaller reporting company)
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Emerging
growth company
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[ ]
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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 [ ] No
[X]
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, 2020 (the
last business day of the registrant’s most recently completed second quarter), as reported on the OTC Pink market, was approximately
$12,995,000. As of October 16, 2020, there were 36,637,235 shares of common stock of the registrant outstanding.
Documents
Incorporated by Reference: None.
TABLE
OF CONTENTS
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.
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, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace
includes wall mounted devices utilizing radar technology and state of the art 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
At
July 31, 2020, we had 3 employees.
At
July 31, 2019, we had 1 employee.
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. 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.
As the impact of the Coronavirus spreads to other parts of the world, similar impacts may occur with respect to affected countries.
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.
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:
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develop
and introduce functional and attractive services;
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attract
and maintain a large base of customers;
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increase
awareness of the Company brand and develop consumer loyalty;
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respond
to competitive and technological developments;
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build
an operations structure to support the Company business; and
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attract,
retain and motivate qualified personnel.
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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 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.
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:
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Our
ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses.
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Our
ability to source strong opportunities with sufficient risk adjusted returns.
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Our
ability to manage our capital and liquidity requirements based on changing market conditions generally.
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The
acceptance of the terms and conditions of our licenses and/or the acceptance of our royalties and fees.
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The
amount and timing of operating and other costs and expenses.
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The
nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment
return expectations.
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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.
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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.
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Changes
in laws, regulations, accounting, taxation, and other requirements affecting our operations and business.
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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.
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Our
independent auditors’ report for the fiscal years ended July 31, 2020 and 2019 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, 2020 and 2019 our independent auditors included a note to our financial statements 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 2021.
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 may be expected 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 ability 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 application of US GAAP and 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.
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 October 16, 2020,
there were 36,637,235 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 our 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 stock’s price. 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.
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 demanding payment of $28,007 for services rendered. We have filed our Answer and IndeLiving filed a breach of contract Counterclaim
on February 24, 2020 demanding repayment of a $7,500 retainer paid to RBSM LLP by IndeLiving for services that we allege were
not provided. Given the early state of the proceedings in this case, we currently cannot assess the probability of losses, but
we can reasonably estimate that the range of losses in this case will be immaterial since the full amount of the lawsuit has previously
been recorded in the consolidated financial statements.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
applicable.
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.
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High
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Low
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Fiscal Year 2019
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|
|
|
First quarter ended October 31, 2018
|
|
$
|
0.65
|
|
|
$
|
0.30
|
|
|
Second quarter ended January 31, 2019
|
|
$
|
0.45
|
|
|
$
|
0.30
|
|
|
Third quarter ended April 30, 2019
|
|
$
|
0.47
|
|
|
$
|
0.12
|
|
|
Fourth quarter ended July 31, 2019
|
|
$
|
0.20
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2020
|
|
|
|
|
|
|
|
|
|
First quarter ended October 31, 2019
|
|
$
|
0.42
|
|
|
$
|
0.15
|
|
|
Second quarter ended January 31, 2020
|
|
$
|
0.42
|
|
|
$
|
0.40
|
|
|
Third quarter ended April 30, 2020
|
|
$
|
0.50
|
|
|
$
|
0.18
|
|
|
Fourth quarter ended July 31, 2020
|
|
$
|
0.48
|
|
|
$
|
0.19
|
|
(b)
Holders
As
of October 16, 2020, there were 62 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, LLC located at 18 Lafayette Place, Woodmere, NY 11598.
Recent
Sales of Unregistered Securities
During
the years ended July 31, 2020 and 2019, 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.
Rule
10B-18 Transactions
During
the years ended July 31, 2020 and 2019, there were no repurchases of the Company’s common stock by the Company.
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 OPERATION 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, 2020 and 2019 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
We
are a healthcare technology company based in Knoxville, Tennessee. Our business is creating a diversified spectrum of healthcare
technology solutions to integrate and automate the continuing care, home care and professional healthcare spaces. Since the acquisition
of our IndeLiving subsidiary in March 2018, we changed our business focus to the healthcare technology sector and discontinued
the operations of our Grasshopper Colorado subsidiary in February 2019.
Our
initial product, SafeSpace, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace
includes wall mounted devices utilizing radar technology and state of the art 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.
Financial
and Operating Results
We
continue to utilize funds raised from private sales of our common stock 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. In addition, we reduced our debt obligations
by converting certain 5% Convertible Promissory Notes it into common stock. Highlighted achievements for the fiscal year ended
July 31, 2020 include:
|
|
●
|
On
October 8, 2019, Charles B. Lobetti, III was appointed CFO and entered into a three-year employment agreement with the Company.
The employment agreement provides for a base salary of $52,000 per annum (on a part-time basis), a monthly automobile allowance
of $400 and 600,000 options to purchase the Company’s common stock at an exercise price of $0.15 per share with 25%
immediately vested and exercisable on the grant date and the remaining options vesting equally over a period of three (3)
years from the grant date. The value of the options on the grant date was estimated using the Black-Scholes pricing model
and is being recognized as an expense over the vesting term. Effective May 1, 2020, Mr. Lobetti’s base salary was increased
to $104,000 to reflect an increased time commitment and he received a restricted stock grant of 500,000 shares, of which 200,000
shares vested on the date of the grant.
|
|
|
|
|
|
|
●
|
On
February 11, 2020, we completed a private placement of 1,000,000 shares of our common stock at a price of $0.10 per share
resulting in net proceeds to the Company of $100,000. We incurred no cost related to the private placement.
|
|
|
|
|
|
|
●
|
On
March 18, 2020, we completed a private placement of 200,000 shares of our common stock at a price of $0.10 per share resulting
in net proceeds to the Company of $20,000. We incurred no cost related to the private placement.
|
|
|
|
|
|
|
●
|
On
March 21, 2020, we executed an agreement with BrandMETTLE, LLC (“BrandMETTLE”) to serve as our advertising agency
for IndeLiving. Pursuant to the terms of the agreement, we issued 250,000 shares of our common stock to certain principals
of BrandMETTLE at an estimated value of $0.18 per share. BrandMETTLE focuses on providing branding, advertising, marketing
and strategy development for senior targeted healthcare technology firms, senior living communities, pharmaceutical concerns
and lifestyle brands for the age 55+ consumer.
|
|
|
|
|
|
|
●
|
On
April 22, 2020, we executed an agreement with Jurgen Vollrath to act as our outside counsel for Intellectual Property (“IP”).
Pursuant to the terms of the agreement, we issued 1,250,000 warrants to purchase the Company’s common stock at an exercise
price of $0.23 per share with 250,000 warrants immediately vested and exercisable on the grant date and the remaining options
vesting equally over a period of three (3) years from the grant date. Mr. Vollrath, who has spent the last 30 years working
with technology firms ranging from startups to Fortune 100 companies, is recognized as a leading IP strategist.
|
|
|
|
|
|
|
●
|
On
April 30, 2020, we closed an SBA guaranteed PPP loan with Mountain Commerce Bank resulting in $41,667 in loan proceeds to
the Company. We expect to use the loan proceeds as permitted under the program and apply for and receive forgiveness for the
entire loan amount. As of July 31, 2020, we are still awaiting the SBA’s issuance of final
rules for forgiveness of the loan balance prior to submitting our application for forgiveness.
|
|
|
|
|
|
|
●
|
On
June 15, 2020, Kenneth M. Greenwood was appointed CTO and entered into a three-year employment agreement with the Company.
The employment agreement provides for a base salary of $257,000 per annum (on a part-time basis), and 2,000,000 options to
purchase the Company’s common stock at an exercise price of $0.30 per share with 25% immediately vested and exercisable
on the grant date and the remaining options vesting equally over a period of three (3) years from the grant date. The value
of the options on the grant date was estimated using the Black-Scholes pricing model and is being recognized as an expense
over the vesting term.
|
|
|
|
|
|
|
●
|
On
July 8, 2020, we issued 56,048 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”)
in exchange for the Note plus accrued interest of $3,024 through the conversion date. Under the terms of the Note, the shares
were issued at a conversion price of $0.50 per share.
|
|
|
|
|
|
|
●
|
On
July 8, 2020, we completed a private placement of 1,000,000 shares of our common stock at a price of $0.10 per share resulting
in net proceeds to the Company of $100,000. We incurred no cost related to the private placement.
|
|
|
●
|
On
July 13, 2020, we completed a private placement of 250,000 shares of our common stock at a price of $0.10 per share resulting
in net proceeds to the Company of $25,000. We incurred no cost related to the private placement.
|
|
|
|
|
|
|
●
|
On
July 16, 2020, we completed two (2) private placements totaling 500,000 shares of our common stock, each at a price of $0.10
per share, resulting in net proceeds to the Company of $50,000. We incurred no cost related to the private placements.
|
|
|
|
|
|
|
●
|
On
July 16, 2020, we issued 200,000 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 $0.35 per share.
|
|
|
|
|
|
|
●
|
On
July 17, 2020, we executed an agreement with Haygood Moody Hodge PLC (“HMH”) to provide general legal services
to the Company. Pursuant to the terms of the agreement, we issued 250,000 shares of our common stock to a principal of HMH
for prepaid legal services at an estimated value of $0.20 per share.
|
|
|
|
|
|
|
●
|
On
July 24, 2020, we issued 56,176 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”)
in exchange for the Note plus accrued interest of $3,088 through the conversion date. Under the terms of the Note, the shares
were issued at a conversion price of $0.50 per share.
|
|
|
|
|
|
|
●
|
On
July 29, 2020, we issued 224,887 shares of common stock to the holder of a $100,000 5% Convertible Promissory Note (the “Note”)
in exchange for the Note plus accrued interest of $12,444 through the conversion date. Under the terms of the Note, the shares
were issued at a conversion price of $0.50 per share.
|
Results
of Operations
Revenues
Our
only source of revenue in fiscal 2019 was derived from our Grasshopper Colorado subsidiary, the operations of which were discontinued
in February 2019. We had no revenues in fiscal 2020. The net loss incurred by Grasshopper Colorado is presented separately as
discontinued operations.
Loss
from our Grasshopper Colorado subsidiary’s discontinued operations consisted of the following at July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Net revenue
|
|
$
|
-
|
|
|
$
|
27,909
|
|
|
Operating expenses
|
|
|
(719
|
)
|
|
|
(35,969
|
)
|
|
Interest expense
|
|
|
(802
|
)
|
|
|
(7,534
|
)
|
|
Loss from discontinued operations
|
|
$
|
(1,521
|
)
|
|
$
|
(15,594
|
)
|
An
analysis or discussion of our revenues does not provide any useful information since we discontinued the operations of our only
revenue source during fiscal 2019.
Selling,
General and Administrative Expenses
The
table below presents a comparison of our selling, general and administrative expenses for the years ended July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Officer’s salaries
|
|
$
|
423,371
|
|
|
$
|
336,965
|
|
|
Stock-based compensation
|
|
|
407,613
|
|
|
|
294,510
|
|
|
Advertising, marketing and product demonstration expenses
|
|
|
66,948
|
|
|
|
90,212
|
|
|
Professional fees
|
|
|
110,271
|
|
|
|
44,129
|
|
|
Other
|
|
|
7,601
|
|
|
|
18,177
|
|
|
Total selling, general and administrative expenses
|
|
$
|
1,015,804
|
|
|
$
|
783,993
|
|
Officer’s
salaries were $423,371 in fiscal 2020, representing an increase of $86,406 over the fiscal 2019 amount. The increase in Officer’s
salaries results from the hiring of our new CFO and CTO during the period.
Stock-based
compensation increased $113,103 over the prior fiscal year. The increase is a result of the addition of the expense related to
stock option and restricted stock grants to our new CFO and CTO during the period. Fiscal 2019 stock-based compensation consisted
entirely of the expense related to stock options previously granted to our CEO.
Advertising,
marketing and product demonstration expenses decreased $23,264 as compared to the fiscal 2019 amount. The net decrease is the
result of a reduction in sales force payroll expense of $54,274 and a reduction in product demonstration expense of $11,171, which
were partially offset by an increase in advertising and marketing expenses of $42,180. The increase in advertising and marketing
expense is primarily related to the BrandMETTLE agreement discussed above.
Professional
fees increased $66,142 in fiscal 2020 as compared to fiscal 2019. The increase is primarily related to the audit, legal and other
professional fees associated with the filing of our comprehensive annual report in March 2020.
Interest
Expense
Interest
expense increased $1,831 for fiscal 2020 as compared to fiscal 2019. Interest expense is primarily related our 5% Convertible
Promissory Notes. The net increase in interest expense is due to the compounding impact of the interest calculation, which was
partially offset by a decrease in the expense from the conversion of certain notes in the last month of the fiscal period.
Liquidity
and Capital Resources
Working
Capital
The
following table summarizes our working capital for the fiscal years ending July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Current assets
|
|
$
|
125,010
|
|
|
$
|
725
|
|
|
Current liabilities
|
|
|
(1,982,603
|
)
|
|
|
(1,787,413
|
)
|
|
Working capital deficiency
|
|
$
|
(1,857,593
|
)
|
|
$
|
(1,786,688
|
)
|
Current
assets for the year ended July 31, 2020 increased as compared to July 31, 2019 due to an increase in cash and prepaid legal fees
resulting from the issuance of common stock for cash and prepaid legal services.
Current
liabilities for the year ended July 31, 2020 also increased as compared to July 31, 2019. The increase is primarily due to an
increase in accrued officer’s payroll, which was partially offset by a net decrease in related party accounts payable and
accrued expenses, and a decrease in our 5% convertible promissory notes and related accrued interest expense due to conversion
of the notes into common stock.
Net
Cash Used by Operating Activities
Since
we discontinued the operations of our Grasshopper Colorado subsidiary in February 2019, we no longer 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 stock-based compensation,
which affect earnings but do not affect cash flow. Net cash used by operating activities was $188,655 for the year ended July
31, 2020 compared to $99,443 for the year ended July 31, 2019. The increase in cash used during fiscal 2020 is attributable to
cash paid for audit, legal and other professional fees associated with the filing of our comprehensive annual report in March
2020.
Net
Cash Provided by Financing Activities
Net
cash provided by financing activities was $266,022 for the year ended July 31, 2020, which represented a $332,756 increase over
the net cash used by financing activities in the prior year. During the period, we raised $295,000 from the sale of common stock
in multiple private transactions as described above. In addition, we raised $41,667 through debt issuances and $77,416 in short-term
loans from related parties. The amounts were partially offset by $147,395 in payments made for amounts owed to related parties.
In fiscal year 2019, we raised cash exclusively from short-term loans from related parties.
At
this time, we cannot provide investors with any assurance that we will be able to obtain sufficient funding from debt financing
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, 2020.
Going
Concern Qualification
We
have a history of losses, an accumulated deficit, a 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, 2020, 2019, 2018, 2017 and 2016. 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.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements and related public financial information are based on the application of accounting principles
generally accepted in the United States (“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
We
prepare our financial statements in conformity with U.S. GAAP. These principals require management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that
these estimates are reasonable and have been discussed with the Board; however, actual results could 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.
Stock-Based
Compensation
We
issue options and warrants to consultants, directors, and officers as compensation for services. These options and warrants are
valued using the Black-Scholes model, which focuses on the current stock price and the volatility of moves to predict the likelihood
of future stock moves. This method of valuation is typically used to estimate the value of stock options and warrants based on
the price of the underlying stock.
Fair
Value of Financial Instruments
Fair
value estimates used in preparation of the financial statements are based upon certain market assumptions and pertinent information
available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair
values. These financial instruments include cash, accounts payable, note payable and amounts due to related parties. Fair values
were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying
amounts approximate fair values or they are receivable or payable on demand.
Revenue
Recognition
We
adopted ASC 606 effective January 1, 2018 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 substantially unchanged as a result of
the adoption of ASC 606, and there were no significant changes in business processes or systems.
Temporary
Staffing Revenue
Prior
to the discontinuance of its operations in February 2019, Grasshopper Colorado earned revenue by providing specialized temporary
staffing solutions to the cannabis industry. We provided temporary labor at an agreed upon rate per hour. Billings were invoiced
on a per-hour basis as the temporary staffing services were delivered to the customer. Revenue from the majority of our temporary
staffing services were recognized at a point in time. We applied the practical expedient to recognize revenue for these services
at various intervals based on the number of hours completed and agreed upon rate per hour at that time.
Capital
Resources
We
had no material commitments for capital expenditures as of July 31, 2020.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements as of July 31, 2020 or 2019.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We
do not hold any derivative instruments and do not engage in any hedging activities.
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.
On
March 6, 2017, Stevenson & Company CPAs, LLP (“Stevenson”) informed the Company that Stevenson was resigning,
effective immediately, as the Company’s independent registered public accounting firm. Stevenson resigned because Stevenson
declined to stand for re-appointment.
During
the fiscal year ended July 31, 2016 and in the subsequent interim period through March 6, 2017, there were (i) no “disagreements”
(as that term is described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Stevenson
on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Stevenson, would have caused Stevenson to make reference to the subject matter of such
disagreements in its reports on the consolidated financial statements for such years, and (ii) no “reportable events”
(as that term is described in Item 304(a)(1)(v) of Regulation S-K).
Stevenson’s
reports on the consolidated financial statements of the Company for the fiscal years ended July 31, 2015 and 2014 did not contain
any adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting
principles.
On
March 7, 2017, the Board of Directors of the Company engaged RBSM, LLP (“RBSM”) as the Company’s new independent
registered public accounting firm.
During
the fiscal year ended July 31, 2016 and in the subsequent interim periods through March 7, 2017, neither the Company nor anyone
acting on its behalf consulted RBSM regarding either (i) the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be rendered with respect to the consolidated financial statements
of the Company, and neither a written report nor oral advice was provided to the Company by RBSM that RBSM concluded was an important
factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue or (ii) any
matter that was either the subject of a “disagreement” (as that term is used in Item 304(a)(1)(iv) of Regulation S-K
and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation
S-K).
On
September 13, 2018, the Company dismissed RBSM LLP, effective September 12, 2018, as our independent registered public accounting
firm. RBSM LLP audited our financial statements for the fiscal years ended July 31, 2016 and 2017. The dismissal of RBSM LLP was
approved by our Board of Directors on September 12, 2018. RBSM LLP did not resign or decline to stand for re-election.
Neither
the report of RBSM LLP dated July 18, 2017 on our consolidated balance sheet at July 31, 2016, and the related consolidated statements
of operations, changes in stockholders’ deficit, and cash flows for the year ended July 31, 2016 nor the report of RBSM
LLP dated November 14, 2017 on our consolidated balance sheets at July 31, 2017 and 2016, and the related consolidated statements
of operations, changes in stockholders’ deficit, and cash flows for the years ended July 31, 2017 and 2016 did not contain
an adverse opinion or a disclaimer of opinion, nor was either such report qualified or modified as to uncertainty, audit scope,
or accounting principles, other than each such report was qualified as to our ability to continue as going concern.
During
the fiscal year ended July 31, 2017 and July 31, 2018 and in the subsequent interim period through September 13, 2018, there were
(i) no “disagreements” (as that term is described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions)
between the Company and RBSM on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of RBSM, would have caused RBSM to make reference
to the subject matter of such disagreements in its reports on the consolidated financial statements for such years, and (ii) no
“reportable events” (as that term is described in Item 304(a)(1)(v) of Regulation S-K).
On
September 13, 2018, the Company engaged Marcum LLP as our independent registered public accounting firm.
During
our two most recent fiscal years and the subsequent interim period prior to retaining Marcum LLP (1) neither we nor anyone on
our behalf consulted Marcum LLP regarding (a) either the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (b) any matter that
was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation
S-K, and (2) Marcum LLP did not provide us with a written report or oral advice that they concluded was an important factor considered
by us in reaching a decision as to accounting, auditing or financial reporting issue.
On
January 7, 2020, the Company dismissed Marcum LLP as our independent registered public accounting firm. The dismissal of Marcum
LLP was approved by our Board of Directors. Marcum LLP did not resign or decline to stand for re-election.
During
the time that Marcum LLP served as our independent registered public accounting firm, we did not timely file financial statements
or provide information for Marcum LLP to be able to complete its audit of our financial statements dated July 31, 2018 or July
31, 2019 and the reviews of any interim financial statements for the quarterly periods of those fiscal years. As a result, no
report of Marcum LLP contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainly,
audit scope, or accounting principles, as no reports were filed.
During
our two most recent fiscal years and the subsequent interim period preceding our decision to dismiss Marcum LLP we had no disagreements
with the firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure
which disagreement if not resolved to the satisfaction of Marcum LLP would have caused it to make reference to the subject matter
of the disagreement in connection with its report.
On
January 7, 2020, the Company engaged Rodefer Moss & Co. PLLC as our independent registered public accounting firm.
During
the fiscal year ended July 31 2017 and the subsequent interim periods prior to retaining Rodefer Moss & Co. PLLC (1) neither
we nor anyone on our behalf consulted Rodefer Moss & Co. PLLC regarding (a) either the application of accounting principles
to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial
statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and
(v), respectively, of Regulation S-K, and (2) Rodefer Moss & Co. PLLC did not provide us with a written report or oral advice
that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting
issue.
The
report of Rodefer Moss & Co. PLLC dated March 20, 2020 on our consolidated balance sheets at July 31, 2019 and 2018, and the
related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years ended July
31, 2019 and 2018 did not contain an adverse opinion or a disclaimer of opinion, nor was the report qualified or modified as to
uncertainty, audit scope, or accounting principles, other than such report was qualified as to our ability to continue as going
concern.
During
the fiscal years ended July 31, 2020 and July 31, 2019 there were (i) no “disagreements” (as that term is described
in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Rodefer Moss & Co. PLLC on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Rodefer Moss & Co. PLLC, would have caused Rodefer Moss & Co. PLLC to make reference
to the subject matter of such disagreements in its reports on the consolidated financial statements for such years, and (ii) no
“reportable events” (as that term is described in Item 304(a)(1)(v) of Regulation S-K).
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, 2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of July
31, 2020 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, 2020, our internal control
over financial reporting is not effective based on these criteria. Material weaknesses noted by our management include:
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Lack
of a functioning audit committee;
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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;
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●
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Inadequate
segregation of duties consistent with control objectives and affecting the functions of authorization, recordkeeping, custody
of assets, and reconciliation;
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●
|
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.
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
|
|
57
|
|
Chief
Executive Officer, Director
|
|
Charles
B. Lobetti, III
|
|
57
|
|
Chief
Financial Officer
|
|
Kenneth
M. Greenwood
|
|
61
|
|
Chief
Technology Officer
|
|
Susan
A. Reyes
|
|
57
|
|
Chief
Medical Officer
|
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 57
Mr.
Boruff has served as our Chief Executive Officer and Sole Director since March 13, 2018. 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 57
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 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.
Kenneth
M. Greenwood, Chief Technology Officer, Age 61
Kenneth
M. Greenwood has served as our Chief Technology Officer since June 15, 2020. Mr. Greenwood brings 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 57
Susan
A. Reyes, M.D. has served as our Chief Medical Officer since September 1, 2020. Dr. Reyes brings
over 29-years of medical experience as a practicing Internal Medicine physician. 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 groundbreaking 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.
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:
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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;
|
|
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●
|
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;
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|
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|
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●
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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;
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●
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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
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●
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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, 2020 and 2019, were not timely.
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 two 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.
Board
Committees
As
we only have one board member 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
two most highly compensated executive officers other than our principal executive officer who were serving as executive officers
at July 31, 2020 and July 31, 2019 as that term is defined under Rule B-7 of the Securities Exchange Act of 1934.
|
Summary
Compensation Table (in dollars)
|
Name and Principal
|
|
Fiscal
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Non-Equity
Incentive Plan
|
|
|
Non-Qualified
Deferred
Compensation
|
|
|
All Other
|
|
|
|
|
|
Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott B. Boruff
|
|
|
2020
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
294,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,400
|
|
|
|
617,910
|
|
|
Chief Executive Officer
|
|
|
2019
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
294,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,400
|
|
|
|
617,910
|
|
|
Director (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles B. Lobetti, III
|
|
|
2020
|
|
|
|
55,355
|
|
|
|
-
|
|
|
|
92,258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,910
|
|
|
|
151,523
|
|
|
Chief Financial Officer (2)
|
|
|
2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth M. Greenwood
|
|
|
2020
|
|
|
|
32,125
|
|
|
|
-
|
|
|
|
20,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,970
|
|
|
Officer (3)
|
|
|
2019
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
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.
|
Director
Compensation
We
do not currently pay any cash fees to our directors, nor do we pay director’s expenses in attending board meetings.
Executive
Employment Agreements
Scott
M. Boruff, CEO
Scott
M. Boruff and the Company entered into an Employment Agreement dated March 13, 2018, in which Mr. Boruff agreed to serve as our
Chief Executive Officer. As compensation, we agreed to pay him an annual salary of $300,000 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 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 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.
The
Employment Agreement terminates upon the death or disability of Mr. Boruff, and may be terminated by us for cause, or by Mr. Boruff
without cause or for good reason. If the Employment Agreement is terminated for by us for cause, upon his death or disability,
at non-renewal or by Mr. Boruff without good cause, he is only entitled to receive compensation through the date of termination.
If the Employment Agreement is terminated by us without cause or by Mr. Boruff 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. Boruff’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.
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.
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 for 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 for 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.
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 for 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 October 16, 2020 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 (6)
|
|
|
Percent of
Class (7)
|
|
|
Common
|
|
Scott M. Boruff, CEO, Director (1)
1462 Rudder Lane
Knoxville, TN 37919
|
|
|
12,914,854
|
|
|
|
33.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Charles B. Lobetti, III, CFO (2)
814 Evolve Way
Knoxville, TN 37915
|
|
|
350,000
|
|
|
|
1.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Kenneth M. Greenwood, CTO (3)
404 Citrus Ridge Drive
Davenport, FL 33837
|
|
|
500,000
|
|
|
|
1.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Susan A. Reyes, CMO (4)
9901 Sierra Visa Lane
Knoxville, TN 37922
|
|
|
150,000
|
|
|
|
<1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Officers and Directors as a Group
|
|
|
14,064,854
|
|
|
|
36.21
|
%
|
|
Principal Shareholders:
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Jeremy Gindro (5)
310 Tanner Avenue
Florence, CO 81226
|
|
|
7.870,000
|
|
|
|
20.26
|
%
|
|
1)
|
The
shares owed by Mr. Boruff includes 11,664,854 shares owned by Platinum Equity Advisors, LLC, of which Mr. Boruff is the Chief
Manager. Pursuant to Mr. Boruff’s March 13, 2018 employment agreement as our Chief Executive Officer, the shares also
include options to purchase 1,250,000 shares of our common stock, which are vested and exercisable at $3.00 per share and
expire in 2023. The number of shares owned by Mr. Boruff excludes options to purchase 1,250,000 shares of our common stock
at $3.00 per share which have not yet vested and expire in 2023.
|
|
|
|
|
2)
|
Mr.
Lobetti owned 200,000 shares at July 31, 2020 and -0- shares at July 31, 2019. As of
October 8, 2019, Mr. Lobetti’s employment agreement includes an option to purchase
150,000 shares of our common stock which are vested and exercisable at $0.15 per share
on such date and expire in 2024. The remaining 450,000 options granted under the employment
agreement will vest annually in equal amounts over a three-year period, including 150,000
shares that vest within 60 days of October 16, 2020. 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.
|
|
3)
|
Mr.
Greenwood owned no shares at July 31, 2020 and 2019. As of June 15, 2020, Mr. Greenwood’s employment agreement includes
an option to purchase 500,000 shares of our common stock which are vested and exercisable at $0.30 per share on such date
and expire in 2024. The remaining 1,500,000 options granted under the employment agreement will vest annually in equal amounts
over a three-year period.
|
|
|
|
|
4)
|
Dr.
Reyes owned no shares at July 31, 2020 and 2019. As of September 1, 2020, Dr. Reyes’ employment agreement includes an
option to purchase 150,000 shares of our common stock which are vested and exercisable at $0.40 per share on such date and
expire in 2024. The remaining 850,000 options granted under the employment agreement will vest annually in equal amounts over
a three-year period.
|
|
5)
|
The
total includes 100,000 shares owned by James Gindro, the father of Jeremy Gindro.
|
|
|
|
|
6)
|
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.
|
|
|
|
|
7)
|
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 October 16, 2020
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 October 16,
2020, there were 38,837,235 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, 2020, and July 31, 2019, related parties have advanced
the Company $271,819 and $228,506, respectively. The advances are payable on demand and carry no interest.
In
addition, we have accrued expenses related to the January 15, 2016 consulting and advisory agreement with Platinum Equity Advisors,
LLC (the “Platinum Agreement”), a related party. The Platinum Agreement was terminated by on March 12, 2018 (the “Termination
Date”) when Scott M. Boruff, the Chief Manager of Platinum, was appointed Chief Executive Officer of the Company. At July
31, 2020, the amount owed under the Platinum Agreement is paid in full. At July 31, 2019, the accrued amount owed under the Platinum
Agreement was $113,292.
The
amounts and terms of the above transactions 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.
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, 2020
|
|
|
July 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
75,525
|
|
|
$
|
-
|
|
|
Audit-Related Fees
|
|
|
-
|
|
|
|
22,950
|
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
|
All Other Fees
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
75,525
|
|
|
$
|
22,950
|
|
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.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
2.1
|
|
Business Acquisition Agreement between Tomichi Creek Outfitters and Grasshopper Staffing, Inc., dated March 2, 2015 (as filed by the Company with the Securities and Exchange Commission on Form 8-K dated March 5, 2015 and incorporated herein by reference)
|
|
|
|
|
|
3.1
|
|
Articles of Incorporation (as filed by the Company with the Securities and Exchange Commission of Form S-1 dated August 20, 2013, and incorporated herein by reference)
|
|
|
|
|
|
3.2
|
|
Certificate of Amendment to Articles of Incorporation, filed November 2, 2015 (as filed with the Securities and Exchange Commission on Form 10-K dated November 23, 2016 and incorporated herein by reference)
|
|
|
|
|
|
3.3
|
|
Bylaws (as filed by the Company with the Securities and Exchange Commission of Form S-1 dated August 20, 2013, and incorporated herein by reference)
|
|
|
|
|
|
10.1
|
|
Advisory Agreement dated January 15, 2016 by and between Grasshopper Staffing, Inc. and Platinum Equity Advisors, LLC (as filed by the Company with the Securities and Exchange Commission on Form 8-K dated January 22, 2016 and incorporated herein by reference)
|
|
|
|
|
|
10.2**
|
|
Employment Agreement between the Company and Scott M. Boruff, dated March13, 2018 (as filed with the Securities and Exchange Commission on Form 8-K dated March 15, 2018 and incorporated herein by reference)
|
|
|
|
|
|
10.3**
|
|
Employment Agreement between the Company and Charles B. Lobetti, III, dated October 8, 2019 (as filed with the Securities and Exchange Commission on Form 8-K dated January 14, 2020 and incorporated herein by reference)
|
|
|
|
|
|
10.4**
|
|
Employment Agreement between the Company and Kenneth M. Greenwood, dated June 15, 2020 (as filed with the Securities and Exchange Commission on Form 8-K dated June 16, 2020 and incorporated herein by reference)
|
|
|
|
|
|
10.5**
|
|
Employment Agreement between the Company and Susan A. Reyes, M.D., dated September 1, 2020 (as filed with the Securities and Exchange Commission on Form 8-K dated September 4, 2020 and incorporated herein by reference)
|
|
|
|
|
|
31.1*
|
|
Chief Executive Officer and Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002*
|
|
|
|
|
|
32.1*
|
|
Chief Executive Officer and Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
|
*
Filed herewith
**
Executive Compensation Agreement
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:
October 16, 2020
|
|
|
|
By:
|
/s/
Scott M. Boruff
|
|
|
|
Scott
M. Boruff
|
|
|
|
President,
Chief Executive Officer (Principal Executive Officer)
|
|
|
Healthcare
Integrated Technologies, Inc.
|
|
|
|
|
Date:
October 16, 2020
|
|
|
|
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:
October 16, 2020
|
By:
|
/s/
Scott M. Boruff
|
|
|
|
Scott
M. Boruff
President,
Chief Executive Officer, Director (Principal Executive Officer)
|
|
Date:
October 16, 2020
|
By:
|
/s/
Charles B. Lobetti, III
|
|
|
|
Charles
B. Lobetti, III
|
|
|
|
Chief
Financial Officer (Principal Financial Officer)
|
INDEX
TO FINANCIAL STATEMENTS
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, 2020 and 2019, 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, 2020 and the related notes. In our opinion, the consolidated financial
statements present fairly, in all material respects, the consolidated financial position of the Company as of July 31, 2020 and
2019, 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, 2020, 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/
Rodefer Moss & Co, PLLC
|
|
|
We
have served as the Company’s auditor since 2019
|
|
|
|
|
|
Nashville,
Tennessee
|
|
|
|
|
|
October
16, 2020
|
|
HEALTHCARE
INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
78,072
|
|
|
$
|
725
|
|
|
Prepaid expenses
|
|
|
46,938
|
|
|
|
|
|
|
Total current assets
|
|
|
125,010
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
2,453
|
|
|
|
18,392
|
|
|
Other intangibles, net
|
|
|
33,958
|
|
|
|
|
|
|
Total assets
|
|
$
|
161,421
|
|
|
$
|
19,117
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
229,114
|
|
|
$
|
220,328
|
|
|
Accounts payable and accrued expenses, related party
|
|
|
271,819
|
|
|
|
341,798
|
|
|
Payroll related liabilities
|
|
|
861,019
|
|
|
|
472,078
|
|
|
Convertible notes
|
|
|
600,000
|
|
|
|
750,000
|
|
|
Current portion of long-term debt
|
|
|
20,651
|
|
|
|
3,209
|
|
|
Total current liabilities
|
|
|
1,982,603
|
|
|
|
1,787,413
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
21,016
|
|
|
|
2,625
|
|
|
Total liabilities
|
|
|
2,003,619
|
|
|
|
1,790,038
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT:
|
|
|
|
|
|
|
|
|
|
Common stock par value $0.001; 200,000,000 shares authorized; 36,474,661 and 32,487,500 shares issued and outstanding as of July 31, 2020 and July 31, 2019, respectively
|
|
|
36,475
|
|
|
|
32,488
|
|
|
Additional paid-in capital
|
|
|
9,564,989
|
|
|
|
8,582,166
|
|
|
Accumulated deficit
|
|
|
(11,443,662
|
)
|
|
|
(10,385,575
|
)
|
|
Total stockholders’ deficit
|
|
|
(1,842,198
|
)
|
|
|
(1,770,921
|
)
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
161,421
|
|
|
$
|
19,117
|
|
See
accompanying notes to the consolidated financial statements.
HEALTHCARE
INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
For the Years Ended July 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
NET REVENUES:
|
|
|
|
|
|
|
|
|
|
Contract staffing services
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Direct cost of services
|
|
|
-
|
|
|
|
-
|
|
|
Gross margin
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
1,015,804
|
|
|
|
783,993
|
|
|
Total operating expense
|
|
|
1,015,804
|
|
|
|
783,993
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(1,015,804
|
)
|
|
|
(783,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(40,762
|
)
|
|
|
(38,931
|
)
|
|
Total other expense
|
|
|
(40,762
|
)
|
|
|
(38,931
|
)
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM CONTINUING OPERATIONS
|
|
|
(1,056,566
|
)
|
|
|
(822,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM DISCONTINUED OPERATIONS
|
|
|
(1,521
|
)
|
|
|
(15,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(1,058,087
|
)
|
|
$
|
(838,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
33,375,273
|
|
|
|
32,487,500
|
|
See
accompanying notes to the consolidated financial statements.
HEALTHCARE
INTEGRATED TECHNOLOGIES, INC.
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR
THE YEARS ENDED JULY 31, 2020 AND 2019
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2018
|
|
|
32.487,500
|
|
|
$
|
32,488
|
|
|
$
|
8,287,656
|
|
|
$
|
(9,547,057
|
)
|
|
$
|
(1,226,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(838,518
|
)
|
|
|
(838,518
|
)
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
294,510
|
|
|
|
|
|
|
|
294,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2019
|
|
|
32,487,500
|
|
|
|
32,488
|
|
|
|
8,582,166
|
|
|
|
(10,385,575
|
)
|
|
|
(1,770,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,058,087
|
)
|
|
|
(1,058,087
|
)
|
|
Stock-based compensation
|
|
|
200,000
|
|
|
|
200
|
|
|
|
407,413
|
|
|
|
|
|
|
|
407,613
|
|
|
Issuance of equity for services
|
|
|
500,000
|
|
|
|
500
|
|
|
|
115,141
|
|
|
|
|
|
|
|
115,641
|
|
Issuance of common stock for
conversion of debt and related
accrued interest
|
|
|
337,111
|
|
|
|
337
|
|
|
|
168,218
|
|
|
|
|
|
|
|
168,556
|
|
|
Sale of common stock
|
|
|
2,950,000
|
|
|
|
2,950
|
|
|
|
292,050
|
|
|
|
|
|
|
|
295,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance July 31, 2020
|
|
|
36,474,611
|
|
|
$
|
36,475
|
|
|
$
|
9,564,988
|
|
|
$
|
(11,443,662
|
)
|
|
$
|
(1,842,198
|
)
|
See
accompanying notes to the consolidated financial statements.
HEALTHCARE
INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
For the Years Ended July 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,058,087
|
)
|
|
$
|
(838,518
|
)
|
|
Adjustments to reconcile loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,769
|
|
|
|
9,617
|
|
|
Stock-based compensation
|
|
|
407,613
|
|
|
|
294,510
|
|
|
Issuance of equity for services
|
|
|
48,062
|
|
|
|
-
|
|
Transfer of property and equipment and assumption of
related liability for services
|
|
|
6,022
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities (excluding effects of acquisitions):
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
14,527
|
|
|
Prepaid expenses and other current assets
|
|
|
-
|
|
|
|
648
|
|
|
Accounts payable and accrued expenses
|
|
|
27,341
|
|
|
|
61,926
|
|
|
Accounts payable, related party
|
|
|
-
|
|
|
|
32,183
|
|
|
Payroll related liabilities
|
|
|
375,624
|
|
|
|
325,664
|
|
|
NET CASH USED BY OPERATING ACTIVITIES
|
|
|
(188,656
|
)
|
|
|
(99,443
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
295,000
|
|
|
|
-
|
|
|
Principal payments of long-term debt
|
|
|
(686
|
)
|
|
|
(2,109
|
)
|
|
Proceeds from debt issuance
|
|
|
41,667
|
|
|
|
-
|
|
|
Proceeds from related party advances
|
|
|
77,416
|
|
|
|
11,155
|
|
|
Payments of amounts owed to related parties
|
|
|
(147,395
|
)
|
|
|
(75,800
|
)
|
|
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
|
|
|
266,002
|
)
|
|
|
(66,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
77,347
|
|
|
|
(166,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
725
|
|
|
|
166,922
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
78,072
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,371
|
|
|
$
|
8,262
|
|
|
|
|
|
|
|
|
|
|
|
|
SIGNIFICANT NON-CASH INVESTING AND FINACING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for prepaid services
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
Capital expenditures included in payroll related liabilities
|
|
$
|
13,317
|
|
|
$
|
-
|
|
|
Capital expenditures from non-cash compensation
|
|
$
|
20,641
|
|
|
$
|
-
|
|
|
Issuance of common stock for payment of accrued interest included in accounts payable and accrued expenses
|
|
$
|
18,555
|
|
|
$
|
-
|
|
|
Issuance of common stock for conversion of convertible debt
|
|
$
|
150,000
|
|
|
$
|
-
|
|
See
accompanying notes to the consolidated financial statements.
HEALTHCARE
INTEGRATED TECHNOLOGIES, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
July
31, 2020
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, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace
includes wall mounted devices utilizing radar technology and state of the art 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.
Reclassifications
Certain
prior period amounts have been reclassified to conform to current period presentation.
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 fully develop our product(s) and operations;
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.
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 2021.
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.
Concentration
of Credit Risk
Financial
instruments that potentially expose the Company to credit risk consist of cash and cash equivalents, and accounts receivable.
The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to
the extent account balances exceed the amount insured by the FDIC, which is $250,000. Accounts receivables potentially subject
the Company to concentrations of credit risk. Company closely monitors extensions of credit. Estimated credit losses have been
recorded in the consolidated financial statements. Recent credit losses have been within management’s expectations.
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.
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 five to seven years.
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.
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.
Revenue
Recognition
Revenue
is recognized under ASC 606 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 substantially unchanged as a result of the adoption of ASC 606, and
there were no significant changes in business processes or systems.
Prior
to the discontinuance of its operations in February 2019, our Grasshopper Staffing, Inc. subsidiary (“Grasshopper Colorado”)
earned revenue by providing specialized temporary staffing solutions to the cannabis industry. We provided temporary labor at
an agreed upon rate per hour. Billings were invoiced on a per-hour basis as the temporary staffing services were delivered to
the customer. Revenue from most of our temporary staffing services was recognized at a point in time. We applied the practical
expedient to recognize revenue for these services at various intervals based on the number of hours completed and the agreed upon
rate per hour at that time.
Advertising
Advertising
costs are expensed as incurred in accordance with ASC 720-35, “Advertising Costs.” We incurred advertising
costs of $50,927 and $8.746 for the fiscal years ended July 31, 2020 and 2019, respectively, which are included in selling, general
and administrative expenses on the consolidated financial statements.
Net
Loss Per Common Share
We
determine basic income (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 income (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.
Share-based
payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-based payment awards
issued to non-employees for services rendered have been recorded at the fair value of the share-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.
Share-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 share-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.
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 Accounting Standards Codification (“ASC”)
Topic 740, “Income Taxes”. Under this method, income tax expense is recognized for the amount of: (i) taxes
payable or refundable for the current year and (ii) 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
June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718):
Improvements to Nonemployee Share-Based Payment Accounting. Under the new standard, companies will no longer be required to
value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date
under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective for annual reporting periods beginning
after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted, but no
earlier than the Company’s adoption date of Topic 606, Revenue from Contracts with Customers (as described above
under “Revenue Recognition”). The adoption of the new standard did not have a significant impact on our consolidated
financial statements.
In
July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic
480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement
of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting
for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments
(or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current
accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible
instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part
II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence
of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite
deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain
mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This
ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted
the new standard during the year ended July 31, 2020 and the adoption did not have a material effect on the consolidated financial
statements and related disclosures.
Recent
Accounting Pronouncements
In
August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to
the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures
in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is
most important to users of each entity’s financial statements. The amendments in this update apply to all entities that
are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments
in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those
fiscal years. The Company is currently evaluating this guidance and the impact of this update on its consolidated financial statements.
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 is currently evaluating the potential impact of this guidance on its consolidated financial statements.
In
March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions to account for contracts,
hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. The amendments
of ASU No. 2020-04 are effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications
made and hedging relationships entered into on or before December 31, 2022. The Company is evaluating the impact that the amendments
of this standard would have on the Company’s consolidated financial statements
Management
has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”)
through the date these financial statements were available to be issued and found no recent accounting pronouncements issued,
but not yet effective accounting pronouncements, 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 approximately $1.1 million for the year ended July 31, 2020.
As of July 31, 2020, the Company had cash and working capital deficit of approximately $78,000 and $1.86 million, respectively.
We have a history of losses, an accumulated deficit, have negative working capital and have not generated cash from our operations
to support a meaningful and ongoing business plan. It is management’s opinion that these conditions raise substantial doubt
about the Company’s ability to continue as a going concern.
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 on financing 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 funds if necessary, 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 - DISCONTINUED OPERATIONS
In
February 2019, due to continuing operating losses, negative cash flow, limited prospects for future growth and a desire to focus
on our healthcare technology products, management elected to discontinue the operations of its Grasshopper Colorado subsidiary.
The loss from the operations from the subsidiary is presented separately on the consolidated income statement as discontinued
operations.
Discontinued
operations consisted of the following for the fiscal years ended July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Net revenue
|
|
$
|
-
|
|
|
$
|
27,909
|
|
|
Operating expenses
|
|
|
(719
|
)
|
|
|
(35,969
|
)
|
|
Interest expense
|
|
|
(802
|
)
|
|
|
(7,534
|
)
|
|
Loss from discontinued operations
|
|
$
|
(1,521
|
)
|
|
$
|
(15,594
|
)
|
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment, net consisted of the following at July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Equipment
|
|
$
|
8,923
|
|
|
$
|
23,923
|
|
|
Vehicles
|
|
|
-
|
|
|
|
14,766
|
|
|
Subtotal
|
|
|
8,923
|
|
|
|
38,689
|
|
|
Less: accumulated depreciation
|
|
|
(6,470
|
)
|
|
|
(20,297
|
)
|
|
Total property and equipment, net
|
|
$
|
2,453
|
|
|
$
|
18,392
|
|
Depreciation
expense for the fiscal years ended July 31, 2020 and 2019 was $4,769 and $7,317, respectively.
NOTE
5 – OTHER INTANGIBLES
Other
intangibles, net consisted of the following at July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Patents in process
|
|
$
|
27,299
|
|
|
$
|
-
|
|
|
Website in process
|
|
|
5,327
|
|
|
|
-
|
|
|
Internal use software in process
|
|
|
1,332
|
|
|
|
-
|
|
|
Total other intangibles, net
|
|
$
|
33,958
|
|
|
$
|
-
|
|
We
incurred no amortization expense for the fiscal year ended July 31, 2020 as the assets have not been placed in service. At July
31, 2019, there were no intangible assets.
NOTE
6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consisted of the following at July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Accounts payable
|
|
$
|
155,211
|
|
|
$
|
168,062
|
|
|
Accrued interest expense
|
|
|
73,903
|
|
|
|
52,266
|
|
|
Accounts payable and accrued expenses
|
|
|
229,114
|
|
|
|
220,328
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, related party
|
|
|
271,819
|
|
|
|
228,506
|
|
|
Accrued expenses, related party
|
|
|
-
|
|
|
|
113,292
|
|
|
Accounts payable and accrued expenses, related
party
|
|
|
271,819
|
|
|
|
341,798
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses
|
|
$
|
500,933
|
|
|
$
|
562,126
|
|
Certain
accounts payable and accrued expenses were misclassified in the prior year, which have been reclassified in the above tables.
The impact of our prior year disclosures was immaterial and there was no impact to the consolidated financial statements from
the change in classification.
NOTE
7 - PAYROLL RELATED LIABILITIES
Payroll
related liabilities consisted of the following at July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Accrued officers’ payroll
|
|
$
|
858,154
|
|
|
$
|
471,214
|
|
|
Payroll taxes payable
|
|
|
2,865
|
|
|
|
864
|
|
|
Total payroll related liabilities
|
|
$
|
861,019
|
|
|
$
|
472,078
|
|
NOTE
8 - DEBT
We
had the following debt obligations reflected at their respective carrying values on our consolidated balance sheets as of July
31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
5% Convertible promissory notes
|
|
$
|
600,000
|
|
|
$
|
750,000
|
|
|
Paycheck Protection Program loan
|
|
|
41,667
|
|
|
|
-
|
|
|
Ford Credit note
|
|
|
-
|
|
|
|
5,834
|
|
|
Total debt obligations
|
|
|
641,667
|
|
|
|
755,834
|
|
|
Less current portion
|
|
|
(620,651
|
)
|
|
|
(753,209
|
)
|
|
Long-term debt
|
|
$
|
21,016
|
|
|
$
|
2,625
|
|
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 $750,000 in net proceeds. We incurred no costs related to the issuance of the 5% Notes. The 5% Notes bear
interest at the rate of five percent (5%) per annum, compounded annually and matured one-year from the date of issuance. At July
31, 2020 and 2019, accrued but unpaid interest on the 5% Notes was $73,903 and $52,266, respectively, which is included in accounts
payable and accrued expenses on our consolidated balance sheets.
The
5% Notes are convertible into common shares of the Company at a fixed ratio of two shares of common stock per dollar amount of
the face value of the note. The principal terms under which the 5% Notes may be converted into common stock of the Company are
as follows:
|
|
●
|
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.
|
|
|
|
|
|
|
●
|
The
outstanding principal amount of the note, and any accrued but unpaid interest due, will automatically be converted into the
Company’s common stock if at any time prior to the maturity date of the note, the Company concludes a sale of equity
securities in a private offering resulting in gross proceeds to the Company of at least $1,000,000.
|
5%
Notes with a face amount of $150,000 and accrued interest expense of $18,555 were converted, at the option of the holders, into
337,111 shares of our common stock during fiscal 2020. On July 31, 2020, 5% Notes with a face amount of $275,000 and related accrued
interest expense of $33,872, which matured on various dates during March 2019 are currently in default and are not convertible
under the conversion terms. 5% Notes with a face amount of $325,000 and related accrued interest expense of $40,031 mature on
March 31, 2021 and are convertible under the conversion terms. Management continues to negotiate amendments to the remaining notes
in default to extend the maturity dates of such notes and to encourage note conversions.
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. The loans bear interest at an annual rate of one percent (1%),
are due two (2) years from the date of issuance, and all payments are deferred for the first six (6) months of the loan. Any unforgiven
balance of loan principal and accrued interest at the end of the six (6) month loan deferral period is amortized in equal monthly
installments over the remaining 18-months of the loan term. On April 30, 2020, we closed a $41,667 SBA guaranteed PPP loan with
Mountain Commerce Bank. We expect to use the loan proceeds as permitted and apply for and receive forgiveness for the entire loan
amount. As of July 31, 2020, we are still awaiting the SBA’s issuance of final rules for forgiveness of the loan balance
prior to submitting our application for forgiveness.
Ford
Credit Note
The
Ford Credit note was assumed in our acquisition of IndeLiving Holdings, Inc. on March 13, 2018. The original retail installment
contract was entered into on June 15, 2016 in the amount of $11,766. The note bears interest at the rate of 9.99% per annum and
requires sixty (60) monthly installments of $251 per month. The installment note is collateralized by a 2013 Ford pickup truck.
Effective February 21, 2020, the Company transferred the 2013 Ford pickup truck and other equipment in exchange for the transferee’s
assumption of the Ford Credit note.
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 21% as of July 31, 2020 and 2019 are as follows:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Federal income tax benefit computed at the statutory rate
|
|
$
|
(222,198
|
)
|
|
$
|
(176,089
|
)
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
(1,088
|
)
|
|
|
(6,459
|
)
|
|
Equity based compensation
|
|
|
89,933
|
|
|
|
61,847
|
|
|
Valuation allowance
|
|
|
133,113
|
|
|
|
119,019
|
|
|
Other
|
|
|
240
|
|
|
|
1,682
|
|
|
Income tax benefit, as reported
|
|
$
|
-
|
|
|
$
|
-
|
|
The
components of the net deferred tax asset as of July 31, 2020 and 2019 are as follows:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryovers
|
|
$
|
537,764
|
|
|
$
|
404,651
|
|
|
Valuation allowance
|
|
|
(537,764
|
)
|
|
|
(404,651
|
)
|
|
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, 2020 we have approximately $2.46 million in federal and state net operating loss carryovers that begin expiring in fiscal
2037.
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, 2019, 2018 and 2017 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.”
No
material interest or penalties on unpaid tax were recorded during the year ended July 31, 2020 and 2019. As of July 31, 2020 and
2019, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes
in its unrecognized tax benefits in the next year.
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, 2020 and 2019, related parties have advanced the
Company $271,819 and $228,506, respectively. The advances are payable on demand and carry no interest.
In
addition, we have accrued expenses related to the January 15, 2016 consulting and advisory agreement with Platinum Equity Advisors,
LLC (the “Platinum Agreement”), a related party. The Platinum Agreement was terminated on March 12, 2018 (the “Termination
Date”) when Scott M. Boruff, the Chief Manager of Platinum, was appointed Chief Executive Officer of the Company. As of
July 31, 2020 and 2019, the accrued amount owed under the Platinum Agreement is $-0- and $113,292, respectively.
The
amounts and terms of the above transactions 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.
NOTE
11 - COMMON STOCK
At
July 31, 2020 and 2019, we had 36,474,611 and 32,487,500 shares of common stock outstanding, respectively. We issued 3,987,111
shares during the fiscal year ended July 31, 2020, of which 2,950,000 shares were issued for cash, 500,000 shares were issued
for services, 337,111 shares were issued upon conversion of debt and 200,000 shares were issued for the vesting of an employee
stock grant. No shares were issued during the year ended July 31, 2019.
On
February 11, 2020, we completed a private placement of 1,000,000 shares of our common stock at a price of $0.10 per share resulting
in net proceeds to the Company of $100,000. We incurred no cost related to the private placement.
On
March 18, 2020, we completed a private placement of 200,000 shares of our common stock at a price of $0.10 per share resulting
in net proceeds to the Company of $20,000. We incurred no cost related to the private placement.
On
March 21, 2020, we executed an agreement with BrandMETTLE, LLC (“BrandMETTLE”) to serve as our advertising and marketing
agency. Pursuant to the terms of the agreement, we issued 250,000 shares of our common stock to certain principals of BrandMETTLE
at an estimated value of $0.18 per share.
On
July 8, 2020, we issued 56,048 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”)
in exchange for the Note plus accrued interest of $3,024 through the conversion date. Under the terms of the Note, the shares
were issued at a conversion price of $0.50 per share.
On
July 8, 2020, we completed a private placement of 1,000,000 shares of our common stock at a price of $0.10 per share resulting
in net proceeds to the Company of $100,000. We incurred no cost related to the private placement.
On
July 13, 2020, we completed a private placement of 250,000 shares of our common stock at a price of $0.10 per share resulting
in net proceeds to the Company of $25,000. We incurred no cost related to the private placement.
On
July 16, 2020, we completed two (2) private placements totaling 500,000 shares of our common stock, each at a price of $0.10 per
share, resulting in net proceeds to the Company of $50,000. We incurred no cost related to the private placements.
On
July 16, 2020, we issued 200,000 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 $0.35 per share.
On
July 17, 2020, we executed an agreement with Haygood Moody Hodge PLC (“HMH”) to provide general legal services to
the Company. Pursuant to the terms of the agreement, we issued 250,000 shares of our common stock to a principal of HMH for prepaid
legal services at an estimated value of $0.20 per share.
On
July 24, 2020, we issued 56,176 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”)
in exchange for the Note plus accrued interest of $3,088 through the conversion date. Under the terms of the Note, the shares
were issued at a conversion price of $0.50 per share.
On
July 29, 2020, we issued 224,887 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”)
in exchange for the Note plus accrued interest of $3,088 through the conversion date. Under the terms of the Note, the shares
were issued at a conversion price of $0.50 per share.
NOTE
12 - 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.
Summary
of Stock Options and Warrants
During
the year ended July 31, 2020, we recorded $334,939 of compensation expense, net of capitalized expense of $20,641, related to
stock options and warrants. During the year ended July 31, 2019, we recorded $294,510 of compensation expense related to stock
options and warrants. The grant date fair value stock options and warrants during the year ended July 31, 2020 was $808,253. No
stock options or warrants were granted during the year ended July 31, 2019.
We
estimated the grant date fair value of stock options and warrants using the Black-Scholes pricing model with the following weighted
average range of assumptions for the periods presented:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Expected volatility
|
|
|
271.37
|
%
|
|
|
-
|
|
|
Expected term (in years)
|
|
|
3.25
|
|
|
|
-
|
|
|
Risk-free interest rate
|
|
|
0.46
|
%
|
|
|
-
|
|
|
Dividend yield
|
|
|
None
|
|
|
|
-
|
|
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.
The
following table summarizes our options and warrant activity for the years ended July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
|
Options and
|
|
|
Average
|
|
|
Options and
|
|
|
Average
|
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Balance at beginning of year
|
|
|
2,500,000
|
|
|
$
|
3.00
|
|
|
|
2,500,000
|
|
|
$
|
3.00
|
|
|
Granted
|
|
|
3,850,000
|
|
|
|
0.25
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance at end of year
|
|
|
6,350,000
|
|
|
$
|
1.34
|
|
|
|
2,500,000
|
|
|
$
|
3.00
|
|
|
Options and warrants exercisable
|
|
|
2,150,000
|
|
|
$
|
1.85
|
|
|
|
625,000
|
|
|
$
|
3.00
|
|
Summary
of Restricted Stock Grants
During
the years ended July 31, 2020 and 2019, we recorded compensation expense of $72,674 and $-0-, respectively, related to restricted
stock grants. The grant date fair value of restricted stock during the year ended July 31, 2020 was $175,000. There were no restricted
stock grants during the year ended July 31, 2019.
The
following table summarizes our restricted stock activity for the years ended July 31, 2020 and 2019:
|
|
|
July 31, 2020
|
|
|
July 31, 2019
|
|
|
Balance at beginning of year
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
500,000
|
|
|
|
-
|
|
|
Released
|
|
|
(200,000
|
)
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Balance at end of year
|
|
$
|
300,000
|
|
|
$
|
-
|
|
NOTE
13 – COMMITMENTS AND CONTINGENCIES
On
March 13, 2018, in connection with the appointment of Scott M. Boruff as Chief Executive Officer of the Company, the Company and
Mr. Boruff entered into an employment agreement (the “Boruff Employment Agreement”) with an initial term of three
(3) years. As compensation for his services, the Company shall pay Mr. Boruff an annual base salary of $300,000. In the event
Mr. Boruff’s employment with the Company is terminated without cause, Mr. Boruff shall be entitled to a severance payment
equal to his base salary for one (1) full year. If Mr. Boruff is terminated without cause within two (2) years of a change in
control upon request of the acquiror, Mr. Boruff shall be entitled to a severance payment in an amount equal to 2.99 times the
annualized base salary he is then earning. In addition, Mr. Boruff is eligible for equity awards as approved by the Board of Directors
as defined in the agreement.
On
October 8, 2019, in connection with the appointment of Charles B. Lobetti, III as Chief Financial Officer of the Company, the
Company and Mr. Lobetti entered into an employment agreement (the “Lobetti Employment Agreement”) ”) with
an initial term of three (3) years. Pursuant to a modification of the Lobetti Employment Agreement effective May 1, 2020, the
Company shall pay Mr. Lobetti an annual base salary of $104,000 per year as compensation for his services. In the event Mr.
Lobetti’s employment with the Company is terminated without cause, Mr. Lobetti shall be entitled to a severance payment
equal to his base salary for one (1) full year. If Mr. Lobetti is terminated without cause within two (2) years of a change
in control upon request of the acquiror, Mr. Lobetti shall be entitled to a severance payment in an amount equal to 2.99
times the annualized base salary he is then earning. In addition, Mr. Lobetti is eligible for equity awards as approved by
the Board of Directors as defined in the agreement.
On
June 15, 2020, in connection with the appointment of Kenneth M. Greenwood as Chief Technology Officer of the Company, the Company
and Mr. Greenwood entered into an employment agreement (the “Greenwood Employment Agreement”) with an initial term
of three (3) years. As compensation for his services, the Company shall pay Mr.
Greenwood an annual base salary of $257,000. The base salary shall be accrued until the Company obtains funding of $1,000,000
in excess of funding used for inventory purchases, or has $1,000,000 in revenue, whichever occurs first. In the event Mr. Greenwood’s
employment with the Company is terminated without cause, Mr. Greenwood shall be entitled to a severance payment equal to his base
salary for one (1) full year. If Mr. Greenwood is terminated without cause within two (2) years of a change in control upon request
of the acquiror, Mr. Greenwood shall be entitled to a severance payment in an amount equal to 2.99 times the annualized base salary
he is then earning. In addition, Mr. Greenwood is eligible for equity awards as approved by the Board of Directors as defined
in the agreement.
NOTE
14 - SUBSEQUENT EVENTS
On
August 11, 2020 we agreed to repurchase 1,000,000 shares of our common stock from Acorn Management Partners, LLC (“AMP”).
As consideration for the share repurchase, we issued a $50,000 promissory note bearing interest a 6.0% per annum and due one-year
from the date of issuance (the “Note”). In the event we default under the terms of the Note, we are required to deliver
1,000,000 shares of our common stock back to AMP in full satisfaction of the obligation. Upon receipt, the acquired shares were
immediately canceled.
On
August 15, 2020, we issued 112,624 shares of common stock to the holder of a $50,000 5% Convertible Promissory Note (the “Note”)
in exchange for the Note plus accrued interest of $6,312 through the conversion date. Under the terms of the Note, the shares
were issued at a conversion price of $0.50 per share.
On
September 1, 2020, Susan A. Reyes, M.D. and the Company entered into a three-year Employment Agreement 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.
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 for 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.
On October 13, 2020, we completed two (2)
private placements totaling 1,050,000 shares of our common stock, each at a price of $0.10 per share, resulting in net proceeds
to the Company of $105,000. We incurred no cost related to the private placements.
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