IMTH 10-Q
AnTix Holdings, Inc. (IMTH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Not applicable. | Note applicable. | Not applicable. |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
| Emerging growth company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
As of February 18, 2025, there were
Innovative MedTech, Inc.
Form 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Unless stated otherwise or the context otherwise requires, the words “we,” “us,” “our,” the “Company,” “Innovative MedTech” or “Innovative” in this Quarterly Report on Form 10-Q collectively refers to Innovative MedTech, Inc., a Delaware corporation (the “Company”), and its subsidiaries. The information in this Quarterly Report on Form 10-Q contains “forward-looking statements” relating to the Company, within the meaning of Section 27 as 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”). In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s 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.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
This report contains information that may be deemed forward-looking, that is based largely on the Company’s current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated.
Among such risks, trends and other uncertainties, which in some instances are beyond its control, may be the Company’s ability to generate cash flows and maintain liquidity sufficient to service its debt, and comply with or obtain amendments or waivers of the financial covenants contained in its credit facilities, if necessary. Other risks and uncertainties include the impact of continuing adverse economic conditions, potential changes in the adult day care industry, energy costs, interest rates and the availability of credit, labor costs, legislative and regulatory rulings and other results of operations or financial conditions, increased capital and other costs, competition and other risks detailed from time to time in the Company’s publicly filed documents.
The words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this report. The Company does not undertake to publicly update or revise its forward-looking statements.
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| Table of Contents |
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INNOVATIVE MEDTECH, INC. (FORMERLY FRESH HARVEST PRODUCTS, INC.) AND SUBSIDIARIES | ||||||||
CONSOLIDATED BALANCE SHEETS UNAUDITED | ||||||||
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| December 31, 2024 |
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| June 30, 2024 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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Notes receivable, related party |
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Assets of discontinued operations, current |
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Total current assets |
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Deposit on business acquisition |
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Assets of discontinued operations, non-current |
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Total Assets |
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Liabilities & Stockholders' Deficit |
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Current liabilities |
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Accounts payable and accrued expenses |
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Accrued interest |
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Accrued interest, related parties |
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Notes payable, related parties, current |
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Notes payable, current |
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Convertible notes payable, current |
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Derivative liability |
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Liabilities of discontinued operations, current |
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Total current liabilities |
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Royalty liability |
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Liabilities of discontinued operations, non-current |
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Total Liabilities |
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Commitments and contingencies (Note 13) |
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Stockholders' Deficit |
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Series A Preferred stock, $ |
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Common stock, $ |
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Additional paid in capital |
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Accumulated deficit |
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Total Stockholders' Deficit |
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Total Liabilities and Stockholders' Deficit |
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See accompanying notes to unaudited consolidated financial statements.
| 4 |
| Table of Contents |
INNOVATIVE MEDTECH, INC. (FORMERLY FRESH HARVEST PRODUCTS, INC.) AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED | ||||||||||||||||
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Revenue: |
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Participant fees |
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Franchise fees |
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Operating expenses: |
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General and administrative |
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Stock-based compensation |
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Consulting fees |
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Legal and professional fees |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest expense, related parties |
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Interest expense |
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Change in fair value of derivatives |
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Amortization of debt discount |
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Total other income (expense) |
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Net loss from continuing operations |
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Discontinued operations |
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Gain (loss) from operations of discontinued operations |
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Total discontinued operations |
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Loss before tax benefit (expense) |
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Income tax benefit (expense) |
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Net loss applicable to common stockholders |
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Basic and diluted earnings per share on net loss |
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Weighted average shares outstanding - basic and diluted |
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See accompanying notes to unaudited consolidated financial statements
| 5 |
| Table of Contents |
INNOVATIVE MEDTECH, INC.
(FORMERLY FRESH HARVEST PRODUCTS, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2024
UNAUDITED
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| Series A Preferred Stock |
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| Common Stock |
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| Additional Paid-In |
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| Accumulated |
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| Stockholders’ |
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| Shares |
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| Amount |
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Balance, June 30, 2024 |
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Stock issued for services |
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Stock issued for deposit in joint venture |
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Stock-based compensation |
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Net loss |
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Balance, September 30, 2024 |
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Stock issued for services |
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Stock issued for satisfaction of accounts payable |
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Stock-based compensation |
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Net loss |
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Balance, December 31, 2024 |
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See accompanying notes to unaudited consolidated financial statements
| 6 |
| Table of Contents |
INNOVATIVE MEDTECH, INC.
(FORMERLY FRESH HARVEST PRODUCTS, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2023
UNAUDITED
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| Series A Preferred Stock |
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| Common Stock |
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| Additional Paid-In |
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| Accumulated |
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| Stockholders’ |
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| Shares |
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| Amount |
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Balance, June 30, 2023 |
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Warrants issued with notes payable |
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Net loss |
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Balance, September 30, 2023 |
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Net loss |
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Balance, December 31, 2023 |
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See accompanying notes to unaudited consolidated financial statements
| 7 |
| Table of Contents |
INNOVATIVE MEDTECH, INC. (FORMERLY FRESH HARVEST PRODUCTS, INC.) AND SUBSIDIARIES | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED | ||||||||
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| For the six months ended |
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| December 31, |
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| 2024 |
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| 2023 |
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Cash Flows from Operating Activities |
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Net Loss |
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Adjustments to reconcile net loss to net |
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cash used by operating activities: |
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Stock-based compensation |
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| ||
Stock issued for services |
|
|
|
|
|
| ||
Amortization of royalty fee liability discount |
|
|
|
|
|
| ||
Change in fair value of derivatives |
|
|
|
|
|
| ||
Amortization of debt discount |
|
|
|
|
|
| ||
Changes in operating assets & liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
|
| ||
Accrued interest, related party |
|
|
|
|
|
| ||
Accrued interest |
|
|
|
|
|
| ||
Net change in operating activities from continuing operations |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
|
|
|
|
| ||
Payments on notes payable |
|
| ( | ) |
|
|
| |
Net change in financing activities from continuing operations |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents from continuing operations |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
Net change in operating activities from discontinued operations |
|
| ( | ) |
|
|
| |
Net change in investing activities from discontinued operations |
|
|
|
|
|
| ||
Net change in financing activities from discontinued operations |
|
| ( | ) |
|
| ( | ) |
Net change in cash and cash equivalents from discontinued operations |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ |
|
| $ |
| ||
Cash paid for income taxes |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Common stock issued for deposit on business acquisition |
| $ |
|
| $ |
| ||
Common stock issued for satisfaction of accounts payable |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements
| 8 |
| Table of Contents |
INNOVATIVE MEDTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDING DECEMBER 31, 2024
(UNAUDITED)
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Innovative MedTech, Inc. (the “Company”), a Delaware corporation, is a provider of health and wellness services, and has two divisions: technology and devices and Adult Day Services. The Company’s technology and devices division has signed a distribution agreement with 2 products: a high detection vein visualization device and an Oral Thrush product, and the Company’s wholly owned subsidiary SarahCare, an adult day care franchisor with 25 centers (1 corporate and 24 franchise locations) located in 13 states. SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives.
On or about April 16, 2024, the Company entered into a distribution agreement (the "Agreement") with Near Infrared Imaging, Inc. ("NII") for Vein-Eye Carry, a patent-pending vein illumination technology which employs advanced optics and real-time imaging to precisely identify veins, reducing the need for multiple attempts and enhancing procedural accuracy. The Agreement gives the Company the non-exclusive right to distribute NII's product(s) with no limitations on the territory. NII's Vein-Eye Carry is a Class 1, 510-k exempt medical device, is TAA and FAR compliant, and is designed, engineered and manufactured in the U.S. The Vein-Eye Carry is lightweight and portable and can be successfully carried into a home, up flights of stairs, carried into a clinic nursing home, placed in an ambulance or another emergency medical vehicle. On December 15, 2024, the Company was notified by NII that NII would be exercising the thirty (30) notice for termination of the Agreement between the companies.
IMTH has recently signed consulting agreements with two highly experienced wound care specialists to manage the Company’s expansion into the burgeoning advanced wound care market. IMTH expects to utilize the biological amnionic membrane allograft which has proven to be a dramatic leap forward in wound care with a very high success rate for closing and healing infected wounds, far beyond anything that has previously been achieved. IMTH’s new consultants have contracts with two of the largest distributors for biological amnion membrane allografts. Their primary objectives are to pursue potential wound care acquisitions and partnerships for IMTH and to make IMTH an active sales representative to the largest consumers of wound care services, including wound care centers, nursing homes, assisted living centers, podiatrists, etc. IMTH is committed to becoming a major player in advanced wound care treatment.
On or about May 17, 2024, the Company entered into an Exclusive License Agreement (the “Exclusive License Agreement”) with Shear Kershman Labs, a Missouri corporation (“SKL”). SKL has developed Oral Thrush, a mouth wash that treats oral thrush, a condition in which a fungus, Candida albicans, accumulates on the lining of the mouth and sometimes overgrows and causes symptoms, such as creamy white lesions, usually on the tongue or inner cheeks.
On December 20, 2024, Texas A&M University College of Dentistry and SKL signed a Memorandum of Understanding (MOU) to collaborate on transformative healthcare initiatives in oral care, including performing a bioequivalency study for Oral Thrush.
The Company is actively planning to sell its wholly-owned subsidiaries Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. Accordingly, the Company categorized Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. as discontinued operations in our financial statements for the three and six months ended December 31, 2024 and 2023.
| 9 |
| Table of Contents |
NOTE 2. LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business.
For the six months ended December 31, 2024 and 2023, the Company reported a net loss of $
As of December 31, 2024, the Company maintained total assets of $
The Company continues to have limited capital resources and has experienced net losses and negative cash flows from operations and expects these conditions to continue for the foreseeable future. As of December 31, 2024, the Company had $
The Company believes that additional capital will be required to fund operations through June 30, 2025 and beyond, as it attempts to generate increasing revenue, and develop new products. The Company intends to attempt to raise capital through additional equity offerings and debt obligations. There can be no assurance that the Company will be successful in obtaining financing at the level needed or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the six months ended December 31, 2024 and 2023. The six months are not indicative of the year that will be ending June 30, 2025.
Principles of Consolidation
The Company has two wholly-owned operating subsidiaries; Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc., along with non-operating subsidiaries consisting of the 6 formed limited liability companies formed for the additional SarahCare location leases. The consolidated financial statements, which include the accounts of the Company and its two wholly-owned subsidiaries, are prepared in conformity with GAAP pursuant to the rules and regulations of the SEC. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements have been prepared using the accrual basis of accounting in accordance with GAAP and presented in US dollars. The fiscal year end is June 30.
Discontinued Operations
A component of an entity that is disposed of by sale or abandonment is reported as discontinued operations if the transaction represents a strategic shift that will have a major effect on an entity's operations and financial results. The results of discontinued operations are aggregated and presented separately in the Consolidated Statement of Operations. Assets and liabilities of the discontinued operations are aggregated and reported separately as assets and liabilities of discontinued operations in the Consolidated Balance Sheet, including the comparative prior year period. Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. cash flows are reflected as cash flows from discontinued operations within the Company’s Consolidated Statements of Cash Flows for each period presented.
| 10 |
| Table of Contents |
Amounts presented in discontinued operations have been derived from our consolidated financial statements and accounting records using the historical basis of assets, liabilities, and historical results of Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. The discontinued operations exclude general corporate allocations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.
Cash and Cash Equivalents
The Company maintains cash balances in a non-interest-bearing account that does not exceed $
Earnings Per Share Calculation
Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued. There are
Revenue Recognition
Revenue is recognized when a customer obtains services. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the services it provides to the customer. Once a contract is determined to be within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct.
This is now presented in the Gain (Loss) of discontinued operations on the Unaudited Consolidated Statement of Operations.
Patient Fees
Participant fee revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from participants or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Resident fee revenue is recognized as performance obligations are satisfied.
Under the Company’s day care agreements, which are generally for a contractual term of 30 days to one year, the Company provides services to participants for a stated daily or monthly fee. The Company has elected the lessor practical expedient within ASC 842, Leases (“ASC 842”) and recognizes, measures, presents, and discloses the revenue for services under the Company’s senior living residency agreements based upon the predominant component, either the lease or nonlease component, of the contracts. The Company has determined that the services included under the Company’s independent living, assisted living, and memory care residency agreements have the same timing and pattern of transfer and are performance obligations that are satisfied over time. The Company recognizes revenue under ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”) for its participants agreements for which it has estimated that the nonlease components of such agreements are the predominant component of the contract.
| 11 |
| Table of Contents |
The Company enters into contracts to provide home assisted health, and certain outpatient services. Each service provided under the contract is capable of being distinct, and thus, the services are considered individual and separate performance obligations. The performance obligations are satisfied as services are provided and revenue is recognized as services are provided.
The Company receives payment for services under various third-party payor programs which include Medicaid, Veterans Affairs and other third-party payors. Estimates for settlements with third-party payors for retroactive adjustments from estimated reimbursements due to audits, reviews, or investigations are included in the determination of the estimated transaction price for providing services. The Company estimates the transaction price based on the terms of the contract with the payor, correspondence with the payor, and historical payment trends. Changes to these estimates for retroactive adjustments are recognized in the period the change or adjustment becomes known or when final settlements are determined.
Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments from Medicaid or Veterans Affairs are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent adjustments to these accrued amounts are recorded in net revenues when known.
This is now presented in the Gain (Loss) of discontinued operations on the Unaudited Consolidated Statement of Operations.
Franchise Fees
The Company franchises a number of its locations under franchise contracts which provide periodic franchise fee payments to the Company and reimbursement for costs and expense related to such franchises. The Company’s franchisees pay a variety of royalties and fees, including an agreed upon percentage of gross revenues (as defined in the franchise agreement). The Company estimates the amount of franchise fee revenue expected to be earned, if any, during the annual contract period and revenue is recognized as services are provided. The Company’s estimate of the transaction price for the franchise services also includes the amount of reimbursement due from the franchises for services provided and related costs incurred.
SarahCare, as the franchisor, supplies the franchisee’s with initial assistance and approval with the following: (1) Providing the site selection criteria for the SARAH Business and, upon a potential franchisee’s request, provide input regarding possible sites. The Company does not own and lease any site to franchisees. After the franchise selects and the Company approves a site, the Company will designate the geographic area within which they may establish the SARAH Business; (2) Approve the signage; (3) Identify the standards and specifications for products, services, and materials that comply with the System, and, if the Company requires, the approved suppliers of these items. The Company will furnish a potential Franchisee with the listing of the package of initial franchise items as detailed in the Operations Manual. Neither the Company or its affiliate provide, deliver, or install any of these items; (4) Provide an Initial Training Program; and (5) Provide an Operations Training Program.
Once the Franchisee’s SarahCare business is operational, the Company will: (1) Issue and modify System standards for SARAH Businesses; (2) Provide access to a copy of the Company’s Operations Manual as they make available through our intranet. The Operations Manual contains mandatory and suggested specifications, standards and operating procedure; (3) Provide additional or special guidance and assistance and training as the Company deem appropriate and for which a potential Franchisee are financially responsible; (4) Inspect and observe the operation of the SARAH Business to help a potential Franchisee comply with the Franchise Agreement and all System standards; (5) Let the Franchisee use the confidential information; and, (6) Let the Franchisee use the Marks (trademarks, trade names, service marks, and logos).
| 12 |
| Table of Contents |
This is now presented in the Gain (Loss) of discontinued operations on the Unaudited Consolidated Statement of Operations.
Income Taxes
The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.
Leases
The Company accounts for leases in accordance with Accounting Standards Update (ASU) 2016-02, “Leases” (Topic 842). Based on this standard, the Company determines if an agreement is a lease at inception. Leases are included – right to use, current portion of lease liability, and operating lease liability, less current portion in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net current portion of long-term debt, net and long-term debt, less current portion and debt issuance costs in the Company’s consolidated balance sheets.
Fair value of financial instruments
The Company’s financial instruments include cash and cash equivalents, accounts payable, accrued expenses, and debt. The carrying value of these financial instruments is considered to be representative of their fair value due to the short maturity of these instruments. The carrying amount of the debt approximates fair value, because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. The Company’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses and interest, certain notes payable and notes payable – due to related parties, approximate their fair values because of the short maturity of these instruments. The Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3 (See Note 11).
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial feature.
| 13 |
| Table of Contents |
Derivative financial instruments
When the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company’s stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares.
If the conversion features within convertible debt meet the requirements to be treated as a derivative, the Company estimates the fair value of the derivative liability using the Monte Carlo Simulation Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statements of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 “Derivatives and Hedging” (provides comprehensive guidance on derivative and hedging transactions) whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Reclassification of Presentation
Certain prior year amounts have been reclassified to conform with current year presentation. These reclassifications had no effect on the reported results of operations.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, *Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures*, enhancing segment expense transparency. The update requires public entities to disclose significant segment expenses regularly provided to the chief operating decision maker and extends certain annual segment disclosures to interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, with interim period application required starting after December 15, 2024, and early adoption permitted.
The Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations for the quarter ended as of December 31, 2024 or on a going forward basis.
Subsequent Events
In accordance with ASC 855, Subsequent Events, the Company evaluated subsequent events through the date of this report; the date the consolidated financial statements were available for issue.
| 14 |
| Table of Contents |
NOTE 4. SEGMENT REPORTING
The Company operates as a single reportable segment and evaluates performance based on revenue and operating income. In accordance with ASU 2023-07, the Company discloses significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included in the reported measure of segment profit. For the period ended December 31, 2024, significant segment expenses include consulting fees and stock based compensation.
Since the Company has only one reportable segment, all required segment disclosures, including those previously presented only on an annual basis, are now provided in both annual and interim financial statements.
NOTE 5. DISCONTINUED OPERATIONS
The Company is actively planning to sell its wholly-owned subsidiaries Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. Accordingly, the Company categorized Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. as discontinued operations in our financial statements for the three and six months ended December 31, 2024 and 2023.
The operating results for discontinued operations have been presented in the accompanying consolidated statement of operations for the six months ended December 31, 2024 and 2023 as discontinued operations and are summarized below:
|
| Six Months Ended December 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Total revenue |
| $ |
|
| $ |
| ||
Operating expenses |
|
|
|
|
|
| ||
Income from operations |
|
|
|
|
| ( | ) | |
Other income (expenses) |
|
| ( | ) |
|
|
| |
Gain (loss) from operations of discontinued operations |
| $ |
|
| $ | ( | ) | |
The operating results for discontinued operations have been presented in the accompanying consolidated statement of operations for the three months ended December 31, 2024 and 2023 as discontinued operations and are summarized below:
|
| Three Months Ended December 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Total revenue |
| $ |
|
| $ |
| ||
Operating expenses |
|
|
|
|
|
| ||
Income from operations |
|
| ( | ) |
|
| ( | ) |
Other income (expenses) |
|
|
|
|
|
| ||
Gain (loss) from operations of discontinued operations |
| $ | ( | ) |
| $ | ( | ) |
| 15 |
| Table of Contents |
The assets and liabilities of the discontinued operations at December 31, 2024 and June 30, 2024 are summarized below:
|
|
|
| December 31, 2024 |
|
| June 30, 2024 |
| ||||
|
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents |
|
|
|
| $ |
|
| $ |
| |||
Accounts receivable, net |
|
|
|
|
|
|
|
|
| |||
Prepaid expenses |
|
|
|
|
|
|
|
|
| |||
Assets of discontinued operations, current |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
| |
Deposits |
|
|
|
|
|
|
|
|
| |||
Right-of-use asset |
|
| (2) |
|
|
|
|
|
| |||
Finance lease asset, net |
|
| (2) |
|
|
|
|
|
| |||
Property and equipment, net |
|
| (1) |
|
|
|
|
|
| |||
Assets of discontinued operations, non-current |
|
|
|
|
|
|
|
|
|
| ||
Total Assets |
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
| $ |
|
| $ |
| ||
Accrued interest |
|
|
|
|
|
|
|
|
|
| ||
Accrued interest, related parties |
|
|
|
|
|
|
|
|
|
| ||
Notes payable, related parties, current |
|
| (3) |
|
|
|
|
|
| |||
Notes payable, current |
|
| (4) |
|
|
|
|
|
| |||
SBA loan |
|
| (5) |
|
|
|
|
|
| |||
Line of credit |
|
|
|
|
|
|
|
|
|
| ||
Finance lease liability |
|
| (2) |
|
|
|
|
|
| |||
Operating lease liability |
|
| (2) |
|
|
|
|
|
| |||
Liabilities of discontinued operations, current |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, non-current |
|
|
|
|
|
|
|
|
|
| ||
Finance lease liability, non-current |
|
|
|
|
|
|
|
|
|
| ||
Operating lease liability, non-current |
|
|
|
|
|
|
|
|
|
| ||
SBA Loan, non-current |
|
|
|
|
|
|
|
|
|
| ||
Liabilities of discontinued operations, non-current |
|
|
|
|
|
|
|
|
|
| ||
Total Liabilities |
|
|
|
|
| $ |
|
| $ |
| ||
| 16 |
| Table of Contents |
(1) Property and equipment, net
Property and equipment, at cost, for the discontinued operations consisted of the following at December 31, 2024 and June 30, 2024:
|
| December 31, |
|
| June 30, |
| ||
|
| 2024 |
|
| 2024 |
| ||
|
|
|
|
|
|
| ||
Leasehold improvements |
| $ |
|
| $ |
| ||
Vehicles |
|
|
|
|
|
| ||
Computer equipment |
|
|
|
|
|
| ||
Furniture and fixtures |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property, plant and equipment - net |
| $ |
|
| $ |
| ||
Depreciation expense for the discontinued operations for the six months ended December 31, 2024 and 2023 was $
Depreciation expense for the discontinued operations for the three months ended December 31, 2024 and 2023 was $
(2) Leases
Operating leases
Stow Professional Lease
Sarah Adult Day Centers, Inc. has a facilities lease with
|
| Monthly Rent Payments |
| |||||||||
|
| Base Rent |
|
| Covid-19 Recoup* |
|
| Total Rent |
| |||
April 1, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
May 1, 2021 to December 31, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2022 to December 31, 2022 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2023 to December 31, 2023 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2024 to December 31, 2024 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2025 to December 31, 2025 |
| $ |
|
| $ |
|
| $ |
| |||
________
*The Company has to repay the lessor monthly payments as a result of COVID relief.
| 17 |
| Table of Contents |
Harbor Lease
Sarah Adult Day Centers, Inc. has a facilities lease with
Sarah Day Care Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with
S. Frank Professional Lease
Operating lease right-of-use asset and liability are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is the incremental borrowing rate, estimated to be
Right-of-use asset is summarized below:
|
| December 31, 2024 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| S. Frank Professional Lease |
|
| Higbee Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Right-of-use asset, net |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Right-of-use asset is summarized below:
|
| June 30, 2024 |
| |||||||||
|
| Stow Professional Center Lease |
|
| S. Frank Professional Lease |
|
| Total |
| |||
Office lease |
| $ |
|
| $ |
|
| $ |
| |||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Right-of-use asset, net |
| $ |
|
| $ |
|
| $ |
| |||
Operating lease liability is summarized below:
|
| December 31, 2024 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| S. Frank Professional Lease |
|
| Higbee Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Long term portion |
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||
| 18 |
| Table of Contents |
Operating lease liability is summarized below:
|
| June 30, 2024 |
| |||||||||
|
| Stow Professional Center Lease |
|
| S. Frank Professional Lease |
|
| Total |
| |||
Office lease |
| $ |
|
| $ |
|
| $ |
| |||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Long term portion |
| $ |
|
| $ |
|
| $ |
| |||
Maturity of the lease liability is as follows:
Finance leases
|
| December 31, 2024 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| S. Frank Professional Lease |
|
| Higbee Lease |
|
| Total |
| ||||
Year ending June 30, 2025 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Year ending June 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Year ending June 30, 2027 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Year ending June 30, 2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Year ending June 30, 2029 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total future minimum lease payments |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Present value discount |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Lease liability |
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||
Commencing during the six months ended December 31, 2024, the Company leases office equipment under two finance leases with combined monthly payments of $
Finance right of use assets are summarized below:
|
| As of |
|
| As of |
| ||
|
| December 31, |
|
| June 30, |
| ||
|
| 2024 |
|
| 2024 |
| ||
Equipment lease |
| $ |
|
| $ |
| ||
Less accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Finance right of use asset |
| $ |
|
| $ |
| ||
On October 1, 2021, the Company discontinued use of one of its copiers. As a result, the Company recorded an impairment of assets in the amount of $84,364. Amortization expense was $
| 19 |
| Table of Contents |
Finance lease liabilities are summarized below:
|
| As of |
|
| As of |
| ||
|
| December 31, |
|
| June 30, |
| ||
|
| 2024 |
|
| 2024 |
| ||
Equipment lease |
| $ |
|
| $ |
| ||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
Long term portion |
| $ |
|
| $ |
| ||
|
| Equipment |
| |
|
| Lease |
| |
Year Ended June 30, 2025 |
| $ |
| |
Year Ended June 30, 2026 |
|
|
| |
Year Ended June 30, 2027 |
|
|
| |
Total future minimum lease payments |
|
|
| |
Less imputed interest |
|
| ( | ) |
PV of payments |
| $ |
| |
(3) Notes payable, related parties
As of December 31, 2024 and June 30, 2024, the Company had $
Ref No. Note |
|
| Date of |
| Original Principal |
|
| Maturity |
| Interest |
|
| Principal |
|
| Principal |
| |||||
Issuance |
|
| Issuance |
| Rate % |
|
| Date |
| Rate % |
|
| Balance 12/31/24 |
|
| Balance 6/30/24 |
| |||||
| 1 | * |
|
|
|
|
|
|
| % |
| $ |
|
| $ |
| ||||||
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
(4) Notes payable
As of December 31, 2024 and June 30, 2024, the Company had $
|
|
|
| Original |
|
|
|
|
| Principal Balance as of |
| |||||||||||
|
|
| Date of Note |
| Principal |
|
| Maturity |
| Interest |
|
| December 31, |
|
| June 30, |
| |||||
Ref No. |
|
| Issuance |
| Balance |
|
| Date |
| Rate (%) |
|
| 2024 |
|
| 2024 |
| |||||
| 1 |
|
|
| $ |
|
|
|
|
|
| $ |
|
| $ |
| ||||||
| 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
| Total Current |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
| Total Long Term |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
(5) SBA loan
On June 25, 2020 and January 6, 2022, Sarah Day Care Centers, Inc. received proceeds of $
|
| Amount Owed |
| |
|
|
|
| |
Year Ended June 30, 2025 |
| $ |
| |
Year Ended June 30, 2026 |
|
|
| |
Year Ended June 30, 2027 |
|
|
| |
Year Ended June 30, 2028 |
|
|
| |
Year Ended June 30, 2029 |
|
|
| |
|
|
|
|
|
Payments 2030 & Thereafter |
|
|
| |
Total Payments |
| $ |
| |
| 20 |
| Table of Contents |
NOTE 6. NOTES RECEIVABLE, RELATED PARTIES
The Company has several notes receivables from a related party. They are as follows:
|
| December 31, 2024 |
|
| June 30, 2024 |
| ||
|
|
|
|
|
|
| ||
Notes receivable from related party due in three months, with no installments, no interest, and in default as of March 2022 |
|
|
|
|
|
| ||
Total notes receivable |
|
|
|
|
|
| ||
Less long-term |
|
|
|
|
|
| ||
Total short term notes receivable |
| $ |
|
| $ |
| ||
NOTE 7. NOTES PAYABLE
As of December 31, 2024 and June 30, 2024, the Company had $
|
|
|
| Original |
|
|
|
|
| Principal Balance as of |
| |||||||||||
|
|
| Date of Note |
| Principal |
|
| Maturity |
| Interest |
|
| December 31, |
|
| June 30, |
| |||||
Ref No. |
|
| Issuance |
| Balance |
|
| Date |
| Rate (%) |
|
| 2024 |
|
| 2024 |
| |||||
| 1 |
|
|
| $ |
|
| * |
|
|
|
| $ |
|
| $ |
| |||||
| 2 |
|
|
|
|
|
| * |
|
|
|
|
|
|
|
|
| |||||
| 3 |
|
|
|
|
|
| * |
|
|
|
|
|
|
|
|
| |||||
| 4 |
|
|
|
|
|
| * |
|
|
|
|
|
|
|
|
| |||||
| 5 |
|
|
|
|
|
| * |
|
|
|
|
|
|
|
| 150,000 |
| ||||
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| 8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Less: Unamortized |
|
| discount |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
| |
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
| Total Current |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
| Total Long Term |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
________
* As of December 31, 2024, these notes are in default.
| 21 |
| Table of Contents |
On December 12, 2024, the Company entered into a Promissory Note Agreement with a lender in the amount of $
On December 9, 2024, the Company entered into a Promissory Note Agreement with a lender in the amount of $
On July 30, 2024, the Company entered into a Promissory Note Agreement with a lender in the amount of $
On July 30, 2024, the Company entered into a Promissory Note Agreement with a lender in the amount of $
NOTE 8. NOTES PAYABLE, RELATED PARTIES
As of December 31, 2024 and June 30, 2024, the Company had $
Ref No. Note |
|
| Date of |
| Original Principal |
|
| Maturity |
| Interest |
|
| Principal |
|
| Principal |
| |||||
Issuance |
|
| Issuance |
| Rate % |
|
| Date |
| Rate % |
|
| Balance 12/31/24 |
|
| Balance 6/30/24 |
| |||||
| 1 | * |
|
|
|
|
|
|
| % |
| $ |
|
| $ |
| ||||||
| 2 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 4 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 5 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 6 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 7 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 8 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 9 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 10 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 11 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 12 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 13 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 14 | * |
|
|
|
|
| 11/31/23 |
|
| % |
|
|
|
|
|
| |||||
| 15 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 16 | * |
|
|
|
|
|
|
| % |
|
|
|
|
| 5,000 |
| |||||
| 17 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 18 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
| 19 | * |
|
|
|
|
|
|
| % |
|
|
|
|
|
| ||||||
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
* As of December 31, 2024, these notes are in default.
The above amounts and terms are not necessarily what third parties would agree to.
| 22 |
| Table of Contents |
NOTE 9. CONVERTIBLE NOTES PAYABLE
As of December 31, 2024 and June 30, 2024, the convertible notes payable were as follows:
Date of Note Issuance |
| Original Principal Balance |
|
| Maturity Date |
| Interest Rate % |
|
| Conversion Rate |
|
| Principal Balance 12/31/24 |
|
| Principal Balance 6/30/24 |
| |||||
|
|
|
| * |
|
| % |
| $ |
|
| $ |
|
| $ |
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
|
|
|
|
|
|
|
| |||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
|
|
|
|
|
|
|
| |||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
Total Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
| * | As of December 31, 2024, these notes are in default. |
| 23 |
| Table of Contents |
NOTE 10. DERIVATIVE FINANCIAL INSTRUMENTS
The following tables summarize the components of the Company’s derivative liabilities and linked common shares.
|
| December 31, 2024 |
| |||||
|
| Indexed |
|
| Fair |
| ||
The financings giving rise to derivative financial instruments |
| Shares |
|
| Values |
| ||
Compound embedded derivative |
|
|
|
| $ |
| ||
|
| June 30, 2024 |
| |||||
|
| Indexed |
|
| Fair |
| ||
The financings giving rise to derivative financial instruments |
| Shares |
|
| Values |
| ||
Compound embedded derivative |
|
|
|
| $ |
| ||
The following tables summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing for the three and six months ended December 31, 2024 and 2023:
The financings giving rise to derivative financial instruments and the income effects:
|
| Three Months Ended |
| |||||
|
| December 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Compound embedded derivative |
| $ | ( | ) |
| $ |
| |
Day one derivative loss |
|
|
|
|
|
| ||
Total derivative gain (loss) |
| $ | ( | ) |
| $ |
| |
|
| Six Months Ended |
| |||||
|
| December 31, |
|
| December 31, |
| ||
|
| 2024 |
|
| 2023 |
| ||
Compound embedded derivative |
| $ | ( | ) |
| $ | ( | ) |
Day one derivative loss |
|
|
|
|
|
| ||
Total derivative gain (loss) |
| $ | ( | ) |
| $ | ( | ) |
The Company’s convertible notes gave rise to derivative financial instruments. The notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.
Current accounting principles that are provided in ASC 815 – Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.
| 24 |
| Table of Contents |
Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the compound embedded derivative that has been bifurcated from the Convertible Notes and classified in liabilities:
|
| Inception |
|
| December 31, 2024 |
|
| June 30, 2024 |
| |||
Quoted market price on valuation date |
| $ |
|
| $ |
|
| $ |
| |||
Contractual conversion rate |
| $ | |
|
| $ | |
|
| $ | |
|
Range of effective contractual conversion rates |
|
| - |
|
|
|
|
|
|
| - |
|
Contractual term to maturity |
|
|
|
|
|
| ||||||
Market volatility: |
|
|
|
|
|
|
|
|
|
|
|
|
Volatility |
| % |
| % |
| % | ||||||
Contractual interest rate |
| % |
| % |
| % | ||||||
The following table reflects the issuances of compound embedded derivatives and changes in fair value inputs and assumptions related to the compound embedded derivatives during the six months ended December 31, 2024 and the year ended June 30, 2024.
|
| December 31, 2024 |
|
| June 30, 2024 |
| ||
Beginning balance |
| $ |
|
| $ |
| ||
Issuances: |
|
|
|
|
|
|
|
|
Convertible Note Financing |
|
|
|
|
| - |
| |
Removals |
|
|
|
|
| - |
| |
Changes in fair value inputs and assumptions reflected |
|
|
|
|
| ( | ) | |
Conversions |
|
|
|
|
| - |
| |
Ending balance |
| $ |
|
| $ |
| ||
The fair value of the compound embedded derivative is significantly influenced by the Company’s trading market price, the price volatility in trading and the interest components of the Monte Carlo Simulation technique.
NOTE 11. STOCKHOLDERS’ DEFICIT
On or about April 26, 2022, the Company entered into an Agreement for Share Exchange (the “Share Exchange Agreement”) to obtain
| 25 |
| Table of Contents |
Common Stock
On December 20, 2024, the Company filed a Regulation A Securities Offering (the “Offering”) in accordance with the Securities Act of 1933, consisting of equity securities, with a price range of $
On December 17, 2024, the Company issued
On December 20, 2024 the Company issued
On December 20, 2024 the Company issued
On or about September 11, 2024, the Company issued
On or about September 11, 2024, the Company issued
On or about April 12, 2024, the Company issued
On March 7, 2024, the Company issued
On August 21, 2023 the Company issued a Note (Note 7, Ref #7) which included
Conversion of Notes Payable to Common Shares
On April 4, 2024, one Noteholders converted two notes for a total of $
Series A Convertible Preferred Stock
As of June 30, 2024, the Company had
Series A Preferred Stock – Certificate of Designations
The Preferred Shares each have Certificate of Designations, which designate as follows:
Number
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Dividends
Any dividends (other than dividends on common stock payable solely in common stock or dividends on the Series A Convertible Preferred Stock payable solely in Series A Convertible Preferred Stock or dividends on the Series B Preferred Convertible Stock payable solely in Series B Convertible Preferred Stock) declared or paid in any fiscal year will be declared or paid among the holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and common stock then outstanding in proportion to the greatest whole number of shares of common stock which would be held by each such holder if all shares of Series A Preferred Stock and Series B Convertible Preferred Stock were converted into shares of common stock pursuant to the terms of the Certificate of Designations. The Parent Company’s Board of Directors is under no obligation to declare dividends on the Series A Convertible Preferred Stock or Series B Convertible Preferred Stock.
Conversion
Each share of Preferred Stock is convertible into 100 shares of the Parent Company’s common stock (the “Conversion Rate”).
Liquidation
In the event of any liquidation, dissolution or winding up of the Parent Company, the assets of the Parent Company legally available for distribution by the Parent Company would be distributed with equal priority and pro rata among the holders of the Preferred Stock and common stock in proportion to the number of shares of common stock held by them, with the shares of Preferred Stock being treated for this purpose as if they had been converted to shares of common stock at the then applicable Conversion Rate.
Voting
On any matter presented to the stockholders of the Parent Company for their action or consideration at any meeting of stockholders of the Parent Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock would be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Parent Company’s Certificate of Incorporation, holders of Preferred Stock vote together with the holders of common stock as a single class.
NOTE 12. PROVISION FOR CORPORATE INCOME TAXES
The Company provides for income taxes by the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. This also requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The valuation allowance at December 31, 2024 was $
As of December 31, 2024, the Company has federal net operating loss carry forwards of approximately $
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As of June 30, 2024 and 2023, the difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to loss before income taxes is as follows (in percentages):
Statutory federal income tax rate |
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State taxes – net of federal benefits |
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Valuation allowance |
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Income tax rate – net |
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FASB Interpretation No. 48 (Fin 48) - Accounting for Uncertain Tax Positions
The Company files income tax returns in the U.S. federal jurisdiction and various state, and local jurisdictions. The Company is no longer subject to U.S. federal income tax examination by tax authorities, with limited exception, for the quarters prior to December 31, 2014. With respect to state and local jurisdictions, with limited exception, the Company is no longer subject to income tax audits prior to December 31, 2014. In the normal course of business, the Company is subject to examination by various taxing authorities. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that may result from these open tax years.
Based on management’s review of the Company’s tax position, the Company had no significant unrecognized corporate tax liabilities as of December 31, 2024 and June 30, 2024 payable to the Internal Revenue Service due to the net operating loss carry-forward, however, the Company had yet to file its 2005 through 2009 and 2012 through 2021 Federal, New Jersey nor New York Corporate Income Tax Returns.
NOTE 13. UNPAID PAYROLL TAXES
As of December 31, 2024 and June 30, 2024, the Company owed the Internal Revenue Service and New York State payroll related taxes in the amounts of $
IRS Tax Lien
The Internal Revenue Service has placed a federal tax lien on all of the assets of the Company.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Rent
As of December 31, 2024, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space but expects to enter into a month-to-month office lease for this space.
SarahCare
The Company is currently in default under its payment obligations in connection with the acquisition of SarahCare. The Company has $
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Litigation
On or about October 2, 2024, SarahCare was notified that a complaint had been filed in the Court of Common Pleas, Summit County, Ohio, by the landlord of the Stow Professional Center, alleging breach of contract, unjust enrichment, and promissory estoppel for SarahCare vacating the Stowe property prior to the end of the lease. The plaintiff is asking for $
On or about October 2, 2024, Sarah Adult Day Services, Inc. was named as a defendant in a complaint filed in the Summit County Court of Common Please, Summit County Courthouse in Akron, OH (case no.: CV-2024-10-4369), but Premier Wadsworth Property, LLC (the “Plaintiff”), who is the owner and landlord for the Stow Professional Center, where SarahCare had a corporate center, which it closed around April 2024, approximately 1 year prior to the term of the lease. The Plaintiff alleges that it is owed damages totaling at least $
On or about April 17, 2024, the Company was notified that a complaint had been filed against it in the United States District Court for the Northern District of Ohio, Eastern Division (case no. 5:24-cv-00687), by Merle Griff, Adam Griff and Brian Froelich (the “Plaintiffs”), who are the original shareholders of SarahCare, which is wholly owned by the Company, alleging breach of breach of contract and related causes of action in connection with unpaid royalties pursuant to the Company’s original purchase agreement in connection with SarahCare, and seeking $
Additionally, we currently have thirteen (13) convertible promissory notes that are in default, and we may be subject to legal proceedings or lawsuits from any number of those convertible noteholders, including the below.
On April 7, 2013, three note holders (Brook Hazelton, Benjamin M. Manalaysay, Jr., and Diego McDonald, the “Plaintiffs”), whom together invested a total principal amount of $
NOTE 15. RELATED PARTY TRANSACTIONS
During the periods ended December 31, 2024 and 2023, related party transactions were as follows:
On February 1, 2025, the Company, entered into a lease (the “Lease Agreement” or the “Lease”) for Suite 690, consisting of
Simultaneous with the execution of the Lease, the Company entered into a sublease (the “sub-Lease”) of the premises to Lockwood Alpharetta Manager Inc, (the “sub-Tenant”), an entity which will use the premises for its medical, lab and administrative uses, and which sub-Tenant will be responsible for all fees, requirements and potential liabilities under the lease. Charles Everahrdt, the Compan’s Chairman is a Managing Member of the sub-Tenant.
As of December 31, 2024, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space but expects to enter into a month-to-month office lease for this space.
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As of June 30, 2024, a company founded and partially owned by the Company’s Chairman, Charles Everhardt, has been assigned the $
The above amounts and terms are not necessarily what third parties would agree to.
NOTE 16. SUBSEQUENT EVENTS
The Company has evaluated subsequent events for recognition and disclosure through February __, 2025 the date the financial statements were available to be issued, and determined that there were no such events requiring adjustment to, or disclosure in, the accompanying consolidated financial statements except as described below.
On February 5, 2025, the Company defaulted on the Promissory Note Agreement entered into on July 30, 2024 in the amount of $
On February 5, 2025, the Company defaulted on the Promissory Note Agreement entered into on July 30, 2024 in the amount of $
On February 1, 2025 the Company entered into Lease and sub-Lease Agreements, as described herein Note 15. Related Party Transactions.
On January 30, 2025, the Company entered into a non-binding Letter of Intent (“LOI”) for a proposed strategic alliance with Miami Sun. Miami Sun has developed an all-natural lip balm, which Miami Sun is currently selling to consumers. The LOI contemplates the Company purchasing an equity stake in Miami Sun and a royalty interest in Miami Sun’s future lip balm sales using a combination of Company cash and equity. The parties are currently in discussions regarding the transactions.
On January 28, 2025, the Company entered into a non-binding Summary of Terms with Spinal Concepts LLC (“SC”), to purchase certain neurosurgical and spine business assets of SC. The Summary of Terms contemplates the Company acquiring an equity stake in SC, issuing shares of Company common stock to SC, and securing financing for the neurosurgical and spine business. The parties are currently in discussions and believe that Craft Capital Management LLC, a registered broker, will be able to secure bridge financing and follow-on financing in the future.
On January 5, 2025, the Company signed an Asset Purchase Agreement (“APA”) with AI Health Technologies, Inc. to acquire its newly developed CyberHealthAI (“CHAI”) system. This cutting-edge technology is designed to create an all-in-one universe for healthcare providers that includes refresher training, real time measurements, and video documentation of the entire procedure. CHAI was originally developed for wound care procedures but has been found to bring added value to many other health care services as well. Sales and licensing agreements in connection with the CHAI system are expected to begin in the 2nd quarter of 2025 (assuming the acquisition closes). By its terms, the APA is not considered binding until IMTH has completed its due diligence, and there is no guarantee that the acquisition will close.
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Forward Looking Statements
Some of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words.
We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this Quarterly Report on Form 10-Q.
Unless stated otherwise, the words “we,” “us,” “our,” “the Company” or “Innovative MedTech” in this Quarterly Report on Form 10-Q collectively refers to Innovative MedTech, Inc., a Delaware corporation (the “Parent Company”), and subsidiaries.
Overview
Innovative MedTech, Inc. (the “Company”), a Delaware corporation, is a provider of health and wellness services. On March 25, 2021, the Company acquired two companies, Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. (collectively “SarahCare”), an adult day care center franchisor and provider. With 25 centers (1 corporate and 24 franchise locations) located in 13 states, SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives.
The Company is a provider of health and wellness services and has two divisions: technology and devices and Adult Day Services. The Company’s technology and devices division has signed a distribution agreement with 2 products: a high detection vein visualization device and an Oral Thrush product, and the Company’s wholly owned subsidiary SarahCare, an adult day care center franchisor with 1 corporate owned center and 24 franchise locations across the United States. SarahCare offers seniors daytime care and activities ranging from exercise and medical needs daily to nursing care and salon services.
On March 25, 2021, the Company acquired two companies, Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. (collectively “SarahCare”), an adult day care center franchisor and provider. On March 25, 2021, the Company acquired two companies, Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. (collectively “SarahCare”), an adult day care center franchisor and provider. At that time, SarahCare had 25 centers (2 corporate and 23 franchise locations) located in 13 states, SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives. The Company is currently planning to sell its wholly-owned subsidiaries Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. Accordingly, the Company categorized the operations of Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. as discontinued operations in our financial statements for the three and six months ended December 31, 2024 and 2023.
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On or about April 16, 2024, the Company entered into a distribution agreement (the "Agreement") with Near Infrared Imaging, Inc. ("NII") for Vein-Eye Carry, a patent-pending vein illumination technology which employs advanced optics and real-time imaging to precisely identify veins, reducing the need for multiple attempts and enhancing procedural accuracy. The Agreement gives the Company the non-exclusive right to distribute NII's product(s) with no limitations on the territory. NII's Vein-Eye Carry is a Class 1, 510-k exempt medical device, is TAA and FAR compliant, and is designed, engineered and manufactured in the U.S. The Vein-Eye Carry is lightweight and portable and can be successfully carried into a home, up flights of stairs, carried into a clinic nursing home, placed in an ambulance or another emergency medical vehicle. On December 15, 2024, the Company was notified by NII that NII would be exercising the thirty (30) notice for termination of the Agreement between the companies.
On or about May 17, 2024, the Company entered into an Exclusive License Agreement (the “Exclusive License Agreement”) with Shear Kershman Labs, a Missouri corporation (“SKL”). SKL has developed Oral Thrush, a mouth wash that treats oral thrush, a condition in which a fungus, Candida albicans, accumulates on the lining of the mouth and sometimes overgrows and causes symptoms, such as creamy white lesions, usually on the tongue or inner cheeks. Under the Exclusive License Agreement, SKL is to form a subsidiary to distribute Oral Thrush, the Company is to become an 80% owner of the subsidiary, and the Company was required to issue 2,000,000 shares of the Company’s Common Stock to SKL, which shares have been issued.
On or about December 20, 2024, Texas A&M University College of Dentistry and Shear-Kershman Laboratories (“SKL”) have signed a Memorandum of Understanding (MOU) to collaborate on transformative healthcare initiatives in oral care, including performing a bioequivalency study for Oral Thrush.
IMTH has recently signed consulting agreements with two highly experienced wound care specialists to manage the Company’s expansion into the burgeoning advanced wound care market. IMTH expects to utilize the biological amnionic membrane allograft which has proven to be a dramatic leap forward in wound care with a very high success rate for closing and healing infected wounds, far beyond anything that has previously been achieved. IMTH’s new consultants have contracts with two of the largest distributors for biological amnion membrane allografts. Their primary objectives are to pursue potential wound care acquisitions and partnerships for IMTH and to make IMTH an active sales representative to the largest consumers of wound care services, including wound care centers, nursing homes, assisted living centers, podiatrists, etc. IMTH is committed to becoming a major player in advanced wound care treatment.
On January 5, 2025, IMTH signed an Asset Purchase Agreement (“APA”) with AI Health Technologies, Inc. to acquire its newly developed CyberHealthAI system. This cutting-edge technology is designed to create an all-in-one universe for healthcare providers that includes refresher training, real time measurements, and video documentation of the entire procedure. CyberHealthAI was originally developed for wound care procedures but has been found to bring added value to many other health care services as well. Sales and licensing agreements in connection with the CyberHealthAI system are expected to begin in the 2nd quarter of 2025 (assuming the acquisition closes). By its terms, the APA is not considered binding until IMTH has completed its due diligence, and there is no guarantee that the acquisition will close. CyberHealthAI is focused on fusing the patient healthcare experience with a newly developed Artificial Intelligence / Virtual Reality system that creates an innovative environment for healthcare providers to deliver top level treatments / procedures to their patients. The system is designed to allow providers to access everything they need right at their fingertips, while exceeding government and commercial insurance guidelines and protocols.
The following Management Discussion and Analysis should be read in conjunction with the financial statements and accompanying notes included in this Form 10-Q.
As of December 31, 2024, the Company had current assets of $1,132,186. The Company has a limited amount of liquid cash and no other liquid assets on hand As of December 31, 2024, and this is not sufficient to fund operations for the next 12 months. Accordingly, we will be required to raise additional funds to meet our short and long-term planned goals. There can be no assurance that such funds, if available at all, can be obtained on terms reasonable to us. In this regard, we have obtained and will continue to attempt to obtain (short and long term) loans for inventory purchases, new product development, expansion, advertising and marketing. We cannot assure you that we will be successful in obtaining the aforementioned financings (either debt or equity) on terms acceptable to us, or otherwise. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared on a going concern basis, which assumes that we will be able to realize our assets and discharge our obligations in the normal course of business.
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Results of Operations for the Three months ended December 31, 2024, and December 31, 2023
For the quarter ended December 31, 2024, we recorded gross revenues of $0 versus $0 for the quarter ended December 31, 2023, as a result of the Company’s reclassification from discounted operations.
For the quarter ended December 31, 2024, operating expenses increased to $1,074,176 from $93,834, a $980,342 increase, or 1045%, over the quarter ended December 31, 2023. The increase is due to an increase in consulting expenses, stock based compensation and general and administrative expenses.
For the quarter ended December 31, 2024, other income (expense) decreased to $34,864 from $36,083 a decrease of 3% over the quarter ended December 31, 2023. This decrease is primarily due to a decrease in amortization of debt discount expense.
For the quarter ended December 31, 2024, we realized a net loss of $1,124,333 as compared to a net loss of $188,145 for the quarter ended December 31, 2023. The increase in our net loss of $1936,188 was primarily due to an increase in consulting, general and administrative expenses and stock based compensation.
Results of Operations for the Six Months Ended December 31, 2024, and December 31, 2023
For the six months ended December 31, 2024, we recorded gross revenues of $0 versus $0 for the six months ended December 31, 2023, as a result of the Company’s reclassification from discounted operations.
For the six months ended December 31, 2024, operating expenses increased to $1,971,672 from $191,231, a $1,780,441 increase, or 931%, over the six months ended December 31, 2023. The increase is due to an increase in consulting expenses, stock based compensation and general and administrative expenses.
For the six months ended December 31, 2024, other expense decreased to $78,677 from $94,307, a decrease of 17% over the six months ended December 31, 2023. This decrease is primarily due to a decrease in the change in fair value of derivatives and amortization of debt discount.
For the six months ended December 31, 2024, we realized a net loss of $2,007,864 as compared to a net loss of $353,208 for the six months ended December 31, 2023. The increase in our net loss of $1,654,656 was primarily due to an increase in consulting expenses, stock based compensation and general and administrative expenses.
Results of Discontinued Operations for the Three months ended December 31, 2024, and December 31, 2023
For the quarter ended December 31, 2024, we recorded gross revenues of $414,696 versus $432,691 for the quarter ended December 31, 2023. The decrease of $17,995 was a result of participant fees decreasing by $32,794 offset by an increase in franchise fees of $14,799.
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For the quarter ended December 31, 2024, operating expenses decreased to $435,810 from $495,612, a $59,802 decrease, or 12.07%, over the quarter ended December 31, 2023. The decrease of $59,802 is primarily due to a decrease in general and administrative expenses, consulting expenses and personnel expenses in the amount of $75,275 offset by an increase in professional fees in the amount of $15,473.
For the quarter ended December 31, 2024, other income from operations of discontinued operations increased to $5,821 from $4,693, an increase of 24,04% over the quarter ended December 31, 2023. This increase of $1,128 is primarily due to an increase in interest expense in the amount of $2,848 offset by a decrease in interest income in the amount of $3,977.
For the quarter ended December 31, 2024, loss (gain) from operations of discontinued operations decreased to ($15,293) from ($58,228), a decrease of 73,74% over the quarter ended December 31, 2023. This decrease is primarily due to an decrease in operating expenses.
For the quarter ended December 31, 2024, other income (expense) from operations of discontinued operations increased to $5,821 from $4,693, an increase of 24.04% over the quarter ended December 31, 2023. This increase is primarily due to an increase in interest expense.
For the quarter ended December 31, 2024, loss (gain) from operations of discontinued operations decreased to ($15,293) from ($58,228), a decrease of 73,74% over the quarter ended December 31, 2023. This decrease is primarily due to a decrease in operating expenses.
Results of Discontinued Operations for the Six Months Ended December 31, 2024, and December 31, 2023
For the six months ended December 31, 2024, we recorded gross revenues of $843,080 versus $913,399 for the six months ended December 31, 2023. The decrease of $70,319 was a result of participant fees decreasing by $101,713 offset by an increase in franchise fees of $31,394.
For the six months ended December 31, 2024, operating expenses decreased to $793,441 from $1,025,730, a $232,289 decrease, or 22.64%, over the six months ended December 31, 2023. The decrease of $232,289 is primarily due to a decrease in general and administrative expenses, consulting expenses and personnel expenses in the amount of $239,292 offset by an increase in professional fees in the amount of $7,003.
For the six months ended December 31, 2024, other income from operations of discontinued operations decreased to $44,661 from ($7,154), a decrease of 116% over the quarter ended December 31, 2023. This decrease of $51,815 is primarily due to a decrease in interest expense in the amount of $2,795 offset by an increase in interest income in the amount of $49,028.
For the six months ended December 31, 2024, gain (loss) from operations of discontinued operations increased to $42,485 from ($67,670), an increase of 162.79% over the six months ended December 31, 2023. This increase is primarily due to an increase in discontinued operations.
For the six months ended December 31, 2024, other income (expense) expense decreased to ($7,154) from $44,661, a decrease of 116% over the six months ended December 31, 2023. This decrease is primarily due to a decrease in other income.
For the six months ended December 31, 2024, we realized a net gain from operations of discontinued operations of $42,485 as compared to a net loss of ($67,670) for the six months ended December 31, 2024. The decrease in our net loss of $110,155 was primarily due to a decrease in operating expenses.
Liquidity and Capital Resources
Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
Derivative financial instruments
When the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company’s stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares.
If the conversion features within convertible debt meet the requirements to be treated as a derivative, the Company estimates the fair value of the derivative liability using the Monte Carlo Simulation Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statements of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 “Derivatives and Hedging” (provides comprehensive guidance on derivative and hedging transactions) whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Going Concern
The Company believes that additional capital will be required to fund operations through June 30, 2025 and beyond, as it attempts to generate increasing revenue, and develop new products. The Company intends to attempt to raise capital through additional equity offerings and debt obligations. There can be no assurance that the Company will be successful in obtaining financing at the level needed or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of December 31, 2024. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and that such information was not accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process, under the supervision of the principal executive officer and the principal financial officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with United States generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. |
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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management conducted an assessment of the effectiveness of our internal control over financial reporting As of December 31, 2024, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, which assessment identified material weaknesses in internal control over financial reporting. A material weakness is a control deficiency, or a combination of deficiencies in internal control over financial reporting that creates a reasonable possibility that a material misstatement in annual or interim financial statements will not be prevented or detected on a timely basis. Since the assessment of the effectiveness of our internal control over financial reporting did identify a material weakness, management considers its internal control over financial reporting to be ineffective.
Management has concluded that our internal control over financial reporting had the following deficiency:
| ● | We were unable to maintain any segregation of duties within our business operations due to our reliance on a single individual fulfilling the role of sole officer. This control deficiency did result in adjustments to our 2024 and 2023 interim and annual financial statements. Accordingly, we have determined that this control deficiency constitutes a material weakness. |
To the extent reasonably possible, given our limited resources, our goal is, upon sufficient operating cash flow and/or capital, to separate the responsibilities of principal executive officer and principal financial officer, intending to rely on two or more individuals. We will also seek to expand our current board of directors to include additional individuals willing to perform directorial functions. Since the recited remedial actions will require that we hire or engage additional personnel, this material weakness may not be overcome in the near term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the advice of outside professionals and consultants.
This Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this Quarterly Report on Form 10-Q.
Changes in Internal Controls over Financial Reporting
During the quarter ended December 31, 2024, there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than disclosed herein, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.
On or about October 2, 2024, Sarah Adult Day Services, Inc. was named as a defendant in a complaint filed in the Summit County Court of Common Please, Summit County Courthouse in Akron, OH (case no.: CV-2024-10-4369), by Premier Wadsworth Property, LLC (the “Plaintiff”), who is the owner and landlord for the Stow Professional Center, where SarahCare had a corporate center, which it closed around April 2024, approximately 1 year prior to the term of the lease. The Plaintiff alleges that it is owed damages totaling at least $102,407, including all rent, utilities, and attorney’s fees. The Company intends to vigorously defend itself in this matter and is currently in settlement negotiations while in the initial motion stages of the litigation.
On or about April 17, 2024, the Company was notified that a complaint had been filed against it in the United States District Court for the Northern District of Ohio, Eastern Division (case no. 5:24-cv-00687), by Merle Griff, Adam Griff and Brian Froelich (the “Plaintiffs”), who are the original shareholders of SarahCare, which is wholly owned by the Company, alleging breach of breach of contract and related causes of action in connection with unpaid royalties pursuant to the Company’s original purchase agreement in connection with SarahCare, and seeking $1,841,537 in damages, plus interests, costs and attorney fees. The Company intends to vigorously defend itself in this matter and is currently in settlement negotiations while in the initial motion stages of the litigation.
Additionally, we currently have thirteen (13) convertible promissory notes that are in default, and we may be subject to legal proceedings or lawsuits from any number of those convertible noteholders, including the below.
On April 7, 2013, three note holders (Brook Hazelton, Benjamin M. Manalaysay, Jr., and Diego McDonald, the “Plaintiffs”), whom together invested a total principal amount of $45,000 in the form of Convertible Promissory Notes (the ”Notes”) to the Company, together filed a “Notice of Commencement of Action Subject to Mandatory Electronic Filing” in the Supreme Count of the State of New York, County of New York. The Plaintiffs alleged that the Company breached their contracts with the Plaintiffs and included causes of action for unjust enrichment and related claims, seeking repayment of each of their respective convertible promissory notes plus interest. On or about February 24, 2014, the three Plaintiffs received judgment against the Company from the court in the amounts of $33,686, $8,546 and $33,696 respectively.
Our wholly owned subsidiary, SarahCare, is not involved in any legal proceedings at this time.
Except as set forth herein, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings, and management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended December 31, 2024, the Company did not have any unregistered sales of any equity securities.
Item 3. Defaults Upon Senior Securities.
During the quarter ended December 31, 2024, the Company was in default under the majority of its outstanding legacy convertible notes.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
See the Exhibit Index following the signature page of this Registration Statement, which Exhibit Index is incorporated herein by reference.
Exhibit |
| Description |
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| Bylaws (Incorporated by reference to the Company’s Form 10SB filed with the SEC on June 29, 2005) | |
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| Certificate of Merger (redomiciling from New Jersey to Delaware) | |
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| Certificate of Designation of Series A Convertible Preferred Stock | |
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| Consulting Agreement between Innovative MedTech, Inc. and Red Halo, LLC, dated May 2, 2022 | |
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101.INS* |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
______________
* | Filed herewith |
+ | Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) and/or Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Commission upon request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Innovative MedTech, Inc. (Registrant) | |
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/s/ Michael Friedman | ||
| Michael Friedman Chief Executive Officer |
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| Date: February 18, 2025 |
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