IMTH 10-Q
AnTix Holdings, Inc. (IMTH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
Or
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) |
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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 17, 2023, there were
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 “Parent 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 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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.
| 2 |
INNOVATIVE MEDTECH, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED BALANCE SHEETS |
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| December 31, 2022 |
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| June 30, 2022 |
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| Unaudited |
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Assets |
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Current assets |
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Cash and cash equivalents |
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Accounts receivable, net |
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Notes receivable |
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Prepaid expenses |
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Total current assets |
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Deposits |
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Right-of-use asset |
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Finance lease asset, net |
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Property, plant and equipment, net of accumulated depreciation |
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Intangible assets |
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Goodwill |
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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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| $ |
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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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SBA Loan, current |
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Derivative liability |
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Finance lease liability |
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Operating lease liability |
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Total current liabilities |
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Royalty liability |
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Finance lease liability, non-current |
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Operating lease liability, non-current |
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Notes payable, non-current |
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SBA Loan |
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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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| $ |
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See accompanying notes to unaudited consolidated financial statements
| 3 |
INNOVATIVE MEDTECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
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| For the three months ended |
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| December 31, |
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| 2022 |
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| 2021 |
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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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Salaries and wages |
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Licensing fees |
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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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Other income |
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Total other income (expense) |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Basic and diluted earnings per share on net loss |
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| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
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Weighted average shares outstanding - basic and diluted |
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See accompanying notes to unaudited consolidated financial statements
| 4 |
INNOVATIVE MEDTECH, INC. AND SUBSIDIARIES UNAUDITED | |||||||||||||||||||||||||||||||||||
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT | |||||||||||||||||||||||||||||||||||
For the six months ended December 31, 2022 |
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| Additional |
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| Series A Preferred Stock |
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| Common Stock |
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| Paid-in |
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| Shares |
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| Deficit |
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Balance, June 30, 2022 (Audited) |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
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Net income |
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| - |
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| - |
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Balance, September 30, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
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Net income |
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| - |
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| - |
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Balance, December 31, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | |||||
See accompanying notes to unaudited consolidated financial statements |
| 5 |
INNOVATIVE MEDTECH, INC. AND SUBSIDIARIES UNAUDITED | |||||||||||||||||||
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT | |||||||||||||||||||
For the three and six months ended December 31, 2021 | |||||||||||||||||||
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| Additional |
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| Series A Preferred Stock |
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| Common Stock |
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| Paid-in |
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| Accumulated |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Deficit |
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Balance, June 30, 2021 (Audited) |
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| $ |
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| $ |
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Issuance of common stock for services |
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Net loss |
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| - |
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| - |
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Balance, September 30, 2021 |
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Net loss |
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Balance, December 31, 2021 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | |||||
See accompanying notes to unaudited consolidated financial statements | |||||||||||||||||||
| 6 |
INNOVATIVE MEDTECH, 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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| 2022 |
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| 2021 |
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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 from operating activities: |
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Depreciation and amortization |
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Stock issued for services |
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Impairment of ROU asset |
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Amortization of royalty fee liability discount |
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Change in fair value of derivatives |
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Right-of-use |
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Changes in operating assets and liabilities |
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Accounts receivable |
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Prepaid expenses |
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Deposits |
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Accounts payable and accrued liabilities |
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Accrued interest, related party |
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Accrued interest |
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Net cash from operating activities |
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Cash Flows from Investing Activities |
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Collections from notes receivable |
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Issuance of notes receivable |
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Acquisition of fixed assets |
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Net cash from investing activities |
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Cash Flows from Financing Activities |
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Proceeds from convertible notes payable |
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Proceeds from SBA loan |
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Proceeds from notes payable, related party |
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Payments on notes payable |
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Net cash from financing activities |
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Change in Cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and equivalents at end of period |
| $ |
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Supplemental Cash Flow Information |
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Cash paid for interest |
| $ |
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| $ |
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Cash paid for income taxes |
| $ |
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| $ |
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See accompanying notes to unaudited consolidated financial statements |
| 7 |
INNOVATIVE MEDTECH, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDING DECEMBER 31, 2022
NOTE 1. GENERAL ORGANIZATION AND BUSINESS
Innovative MedTech, Inc. (the “Company”), a Delaware corporation, is a provider of health and wellness services, primarily through its wholly owned subsidiaries Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. SarahCare (“SarahCare”), an adult day care franchisor with 26 centers (2 corporate and 24 franchise locations) located in 13 states. SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives.
On April 1, 2022, the Company partnered with TruCash Group of Companies Inc. (“TruCash”), a leading global payments provider, to launch an all-in-one Super Healthcare App, called RX Vitality Wallet, that was being designed to cater to consumers, patients, hospitals, Seniors, and governments, with a solid platform of benefits and online banking.
On April 5, 2022, the Company engaged mPulse Mobile, a leader in conversational AI and digital engagement solutions for the healthcare industry, to drive engagement with the Company’s digital app and wallet.
On April 28, 2022, the Company entered into a share exchange agreement to acquire RX Vitality, Inc. (“RX Vitality”), a media and finance advisory company.
On May 13, 2022, the Company entered into a partnership with VSUSA Corp. (“VSUSA”), a non-for-profit organization that empowers Veterans and Seniors by offering services designed to build successful life transitions with access to workforce and independent housing; health services; and social service programs in communities across the United States. The partnership permits the Company to use the VSUSA logo on the back of its Vitality Debit Card. For this, the Company is obligated to give up to 1% of its revenue generated from its Vitality Debit Card to VSUSA. The Company’s Chairman is a principal and co-Founder of VSUSA.
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, 2022 and 2021, the Company reported a net loss of $
As of December 31, 2022, the Company had a working capital deficit of $
| 8 |
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, 2022, the Company had $
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, 2022 and 2021.
Principles of Consolidation
The Company has two wholly-owned operating subsidiaries; Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc., along with non-operating subsidiaries consisting of RX Vitality, Inc. and the 10 newly formed limited liability companies formed for the additional SarahCare location leases. The consolidated financial statements, which include the accounts of the Company and its two wholly-owned subsidiaries, are prepared in conformity with GAAP pursuant to the rules and regulations of the SEC. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements have been prepared using the accrual basis of accounting in accordance with GAAP and presented in US dollars. The fiscal year end is June 30.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.
Cash and Cash Equivalents
The Company maintains cash balances in a non-interest-bearing account that does not exceed $250,000 at December 31, 2022. For the purpose of the consolidated financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31 and June 30, 2022.
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.
Intangible Assets
Certain intangible assets arose from the acquisition of Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. on March 25, 2021 and consist of the following, which have been or are being amortized on a straight-line basis over the following estimated useful lives, unless they have an indefinite life:
| 9 |
Asset |
| Estimated Useful Life |
| |
Customer Relationships |
|
|
| |
Trademarks |
|
| ||
Non-Compete Agreement |
|
|
| |
CARF Accreditation |
|
|
| |
Franchise Agreements |
|
| ||
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. For the periods ended December 31, 2022 and 2021, there were no impairment losses.
Revenue Recognition
Revenue is recognized when a customer obtains services. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the services it provides to the customer. Once a contract is determined to be within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct.
Patient Fees
Participant fee revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from participants or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Resident fee revenue is recognized as performance obligations are satisfied.
Under the Company’s day care agreements, which are generally for a contractual term of 30 days to one year, the Company provides services to participants for a stated daily or monthly fee. The Company has elected the lessor practical expedient within ASC 842, Leases (“ASC 842”) and recognizes, measures, presents, and discloses the revenue for services under the Company’s senior living residency agreements based upon the predominant component, either the lease or nonlease component, of the contracts. The Company has determined that the services included under the Company’s independent living, assisted living, and memory care residency agreements have the same timing and pattern of transfer and are performance obligations that are satisfied over time. The Company recognizes revenue under ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”) for its participants agreements for which it has estimated that the nonlease components of such agreements are the predominant component of the contract.
| 10 |
The Company enters into contracts to provide home assisted health, and certain outpatient services. Each service provided under the contract is capable of being distinct, and thus, the services are considered individual and separate performance obligations. The performance obligations are satisfied as services are provided and revenue is recognized as services are provided.
The Company receives payment for services under various third-party payor programs which include Medicaid, Veterans Affairs and other third-party payors. Estimates for settlements with third-party payors for retroactive adjustments from estimated reimbursements due to audits, reviews, or investigations are included in the determination of the estimated transaction price for providing services. The Company estimates the transaction price based on the terms of the contract with the payor, correspondence with the payor, and historical payment trends. Changes to these estimates for retroactive adjustments are recognized in the period the change or adjustment becomes known or when final settlements are determined.
Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments from Medicaid or Veterans Affairs are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent adjustments to these accrued amounts are recorded in net revenues when known.
Franchise Fees
The Company franchises a number of its locations under franchise contracts which provide periodic franchise fee payments to the Company and reimbursement for costs and expense related to such franchises. The Company’s franchisees pay a variety of royalties and fees, including an agreed upon percentage of gross revenues (as defined in the franchise agreement). The Company estimates the amount of franchise fee revenue expected to be earned, if any, during the annual contract period and revenue is recognized as services are provided. The Company’s estimate of the transaction price for the franchise services also includes the amount of reimbursement due from the franchises for services provided and related costs incurred.
SarahCare, as the franchisor, supplies the franchisee’s with initial assistance and approval with the following: (1) Providing the site selection criteria for the SARAH Business and, upon a potential franchisee’s request, provide input regarding possible sites. The Company does not own and lease any site to franchisees. After the franchise selects and the Company approves a site, the Company will designate the geographic area within which they may establish the SARAH Business; (2) Approve the signage; (3) Identify the standards and specifications for products, services, and materials that comply with the System, and, if the Company requires, the approved suppliers of these items. The Company will furnish a potential Franchisee with the listing of the package of initial franchise items as detailed in the Operations Manual. Neither the Company or its affiliate provide, deliver, or install any of these items; (4) Provide an Initial Training Program; and (5) Provide an Operations Training Program.
Once the Franchisee’s SarahCare business is operational, the Company will: (1) Issue and modify System standards for SARAH Businesses; (2) Provide access to a copy of the Company’s Operations Manual as they make available through our intranet. The Operations Manual contains mandatory and suggested specifications, standards and operating procedure; (3) Provide additional or special guidance and assistance and training as the Company deem appropriate and for which a potential Franchisee are financially responsible; (4) Inspect and observe the operation of the SARAH Business to help a potential Franchisee comply with the Franchise Agreement and all System standards; (5) Let the Franchisee use the confidential information; and, (6) Let the Franchisee use the Marks (trademarks, trade names, service marks, and logos).
Digital Healthcare Wallet & Card
Revenue will be recognized when fees are collected from cardholders at the time the fees are assessed and debited from their account balances. The Company anticipates the card revenues to consist of monthly maintenance fees, new card fees, ATM fees, and other card revenues. The fees will be earned by providing account services to each cardholder over the contract term. Agreements with cardholders are considered daily services contracts.
| 11 |
The Company intends to earn interchange revenue from fees remitted by the merchant’s bank, which are based on rates established by the payment networks, such as Visa, when account holders make purchase transactions using the card products and services. The Company intends to recognize revenues at the point in time the transactions occurs.
Income Taxes
The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.
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 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.
| 12 |
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
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 period ended as of December 31, 2022 or on a going forward basis.
Subsequent Events
In accordance with ASC 855, Subsequent Events, the Company evaluated subsequent events through the date of this report; the date the consolidated financial statements were available for issue.
| 13 |
NOTE 4. NOTES RECEIVABLE
The Company’s wholly-owned subsidiary Sarah Adult Day Services, Inc., has notes receivables from two franchises, which were previously converted from trade receivables. They are as follows:
|
| December 31, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Notes receivable from a franchise, due in monthly installments of $1,999, no interest, maturing March 2023 |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Note receivable from related party (see Note 17), due in six months, with no installments, 5% interest maturing March 2022 |
|
|
|
|
|
| ||
Total notes receivable |
|
|
|
|
|
| ||
Less long-term |
|
|
|
|
|
| ||
Total short term notes receivable |
| $ |
|
| $ |
| ||
| 14 |
Principal to be collected during the next year is as follows:
|
| As of |
| |
|
| December 31, 2022 |
| |
Year ending June 30, 2023 |
| $ |
| |
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2022 and June 30, 2022:
|
| December 31, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Leasehold improvements |
| $ |
|
| $ |
| ||
Vehicles |
|
|
|
|
|
| ||
Computer equipment |
|
|
|
|
|
| ||
Furniture and fixtures |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated depreciation |
|
| ( | ) |
|
| ( | ) |
Property and equipment – net |
| $ |
|
| $ |
| ||
Depreciation expense was $
NOTE 6. INTANGIBLE ASSETS
|
| December 31, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2022 |
| ||
Customer relationships |
| $ |
|
| $ |
| ||
Trademarks |
|
|
|
|
|
| ||
Non-Compete Agreement |
|
|
|
|
|
| ||
CARF Accreditation |
|
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|
|
| ||
Franchise Agreements |
|
|
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| ||
|
|
|
|
|
|
| ||
Less: Accumulated Amortization |
|
| ( | ) |
|
| ( | ) |
Intangible assets - net |
| $ |
|
| $ |
| ||
The Company recorded amortization expense in the amount of $
| 15 |
NOTE 7. NOTES PAYABLE
As of December 31, 2022 and June 30, 2022, the Company had notes payable, as follows:
Ref No. | Date of Note Issuance | Original Principal Balance | Maturity Date | Principal Balance as of | |||||||||||||
Interest | December 31, | June 30, | |||||||||||||||
Rate % | 2022 | 2022 | |||||||||||||||
1 | ** | $ | | $ | | ||||||||||||
| 2 |
|
| $ |
|
|
|
|
| |
|
| | ||||
3 | ** | | | ||||||||||||||
| 4 |
|
|
|
| ** |
|
|
|
| |
|
| | |||
5 | ** |
| |
| | ||||||||||||
|
|
| Total |
|
|
|
|
|
|
|
|
| $ | |
| $ | |
Less: Current | $ | | $ | ||||||||||||||
|
| Long Term |
|
|
|
|
|
|
|
| $ | |
| $ | | ||
________
* As of December 31, 2022, these notes are in default.
|
| Amount Due |
| |
Year Ended June 30, 2023 |
| $ |
| |
Year Ended June 30, 2024 |
|
|
| |
Year Ended June 30, 2025 |
|
|
| |
Year Ended June 30, 2026 |
|
|
| |
Total future payments |
| $ |
| |
NOTE 8. NOTES PAYABLE, RELATED PARTIES
As of December 31 and June 30, 2022, the Company had notes payable, related parties as follows:
Ref No. |
|
| Date of Note Issuance |
| Original Principal Balance |
|
| Maturity Date |
| Interest Rate % |
|
| Principal Balance 09/30/22 |
|
| Principal Balance 6/30/22 |
| |||||
| 1 |
|
|
|
|
|
| * |
|
| % |
| $ |
|
|
|
| |||||
| 2 |
|
|
|
|
|
| * |
|
| % |
|
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| |||||
| 3 |
|
|
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| * |
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| % |
|
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|
|
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| |||||
| 4 |
|
|
|
|
|
| * |
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| % |
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|
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| |||||
| 5 |
|
|
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|
|
| * |
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| % |
|
|
|
|
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| |||||
| 6 |
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|
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|
|
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| % |
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|
|
| ||||||
| 7 |
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|
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|
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|
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| % |
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|
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| ||||||
| 8 |
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|
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|
| % |
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|
|
|
| ||||||
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
| Less Current |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
|
|
|
| Long term |
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
* As of December 31, 2022, these notes are in default.
|
|
| Amount Due |
| ||
| ||||||
Year Ended June 30, 2023 |
|
| $ |
| ||
Total future payments |
|
| $ |
| ||
| 16 |
NOTE 9. CONVERTIBLE NOTES PAYABLE, IN DEFAULT
As of December 31 and June 30, 2022, the convertible notes payable were as follows:
Date of Note Issuance |
| Original Principal Balance |
|
| Maturity Date |
| Interest Rate % |
|
| Conversion Rate |
|
| Principal Balance 6/30/22 |
|
| Principal Balance 6/30/21 |
| |||||
|
|
|
| * |
|
| % |
| $ |
|
| $ |
|
| $ |
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
|
|
|
|
|
|
|
| |||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
|
|
|
|
|
|
|
| |||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
|
|
|
| * |
|
| % |
| $ |
|
|
|
|
|
|
| ||||||
Total Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
Less Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
Long Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
| ||
* As of December 31, 2022, these notes are in default.
|
| Amount Due |
| |
| ||||
Year Ended June 30, 2023 |
| $ |
| |
Total future payments |
| $ |
| |
NOTE 10. SBA LOAN
SBA Loan
On June 25, 2020 and January 6, 2022, the Company’s wholly-owned subsidiary, Sarah Day Care Centers, Inc. received proceeds of $
|
| Amount Due |
| |
|
|
|
| |
Year Ended June 30, 2023 |
| $ |
| |
Year Ended June 30, 2024 |
|
|
| |
Year Ended June 30, 2025 |
|
|
| |
Year Ended June 30, 2026 |
|
|
| |
Year Ended June 30, 2027 |
|
|
| |
Thereafter |
|
| ||
Total Payments |
| $ |
| |
| 17 |
NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS
The following tables summarize the components of the Company’s derivative liabilities and linked common shares As of December 31, 2022 and June 30, 2022 the amounts that were reflected in income related to derivatives were:
|
| December 31, 2022 |
| |||||
|
| Indexed |
|
| Fair |
| ||
The financings giving rise to derivative financial instruments |
| Shares |
|
| Values |
| ||
Compound embedded derivative |
|
|
|
| $ |
| ||
|
| June 30, 2022 |
| |||||
|
| 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 quarters ending December 31, 2022 and 2021:
The financings giving rise to derivative financial instruments and the income effects:
|
| Three Months Ended |
| |||||
|
| December 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Compound embedded derivative |
| $ |
|
| $ | ( | ) | |
Day one derivative loss |
|
|
|
|
|
| ||
Total derivative gain (loss) |
| $ |
|
| $ | ( | ) | |
|
| Six Months Ended |
| |||||
|
| December 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Compound embedded derivative |
| $ |
|
| $ | ( | ) | |
Day one derivative loss |
|
|
|
|
|
| ||
Total derivative gain (loss) |
| $ |
|
| $ | ( | ) | |
The Company’s convertible notes gave rise to derivative financial instruments. The notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.
| 18 |
Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.
Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the compound embedded derivative that has been bifurcated from the Convertible Notes and classified in liabilities:
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| December 31, |
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| June 30, |
| |||
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| Inception |
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| 2022 |
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| 2022 |
| |||
Quoted market price on valuation date |
| $ |
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| $ |
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| $ |
| |||
Contractual conversion rate |
| $ | |
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| $ | |
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| $ | |
|
Range of effective contractual conversion rates |
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| - |
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| - |
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| - |
|
Contractual term to maturity |
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| ||||||
Market volatility: |
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Volatility |
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| ||||||
Contractual interest rate |
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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 periods ended December 31, 2022 and June 30, 2022.
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| December 31, 2022 |
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| June 30, 2022 |
| ||
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Beginning balance |
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| ||||
Issuances: |
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Convertible Note Financing |
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Removals |
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Changes in fair value inputs and assumptions reflected |
|
| ( | ) |
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| ( | ) |
Conversions |
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Ending balance |
| $ |
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| $ |
| ||
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.
| 19 |
NOTE 12. STOCKHOLDERS’ DEFICIT
On or about April 26, 2022, the Company entered into an Agreement for Share Exchange (the “Share Exchange Agreement”) to obtain
Common Stock
On or about April 26, 2022, the Company issued the Vitality Shareholders
Series A Preferred Stock & Series B Preferred Stock
On April 26, 2022, the Company issued the Shareholders of Vitality
As of December 31, 2022, the Company had
Series A Preferred Stock & Series B Preferred Stock – Certificate of Designations
The Preferred Shares each have Certificate of Designations, which designate as follows:
Number
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”).
| 20 |
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 13. 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, 2022 was $
As of December 31, 2022, the Company has federal net operating loss carry forwards of approximately $
As of December 31, 2022 and June 30, 2022, the difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to loss before income taxes is as follows (in percentages):
Statutory federal income tax rate |
|
| ( | )% |
State taxes – net of federal benefits |
|
| ( | )% |
Valuation allowance |
|
| % | |
Income tax rate – net |
|
| % |
FASB Interpretation No. 48 (Fin 48) - Accounting for Uncertain Tax Positions
The Company files income tax returns in the U.S. federal jurisdiction and various state, and local jurisdictions. The Company is no longer subject to U.S. federal income tax examination by tax authorities, with limited exception, for the years prior to June 30, 2014. With respect to state and local jurisdictions, with limited exception, the Company is no longer subject to income tax audits prior to June 30, 2014. In the normal course of business, the Company is subject to examination by various taxing authorities. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that may result from these open tax years.
| 21 |
Based on management’s review of the Company’s tax position, the Company had no significant unrecognized corporate tax liabilities as of December 31, 2022 and June 30, 2022 and 2021 payable to the Internal Revenue Service due to the net operating loss carry-forward, however, the Company had yet to file its 2005 through 2009 and 2012 through 2021 Federal, New Jersey nor New York Corporate Income Tax Returns.
NOTE 14. UNPAID PAYROLL TAXES
As of December 31 and June 30, 2022, 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 15. COMMITMENTS AND CONTINGENCIES
Licensing Agreement
On March 31, 2022, the Company entered into a management agreement with TruCash Group of Companies, Inc. (“TruCash’) where the Company is licensing from TruCash certain VISA ICAs and BINs to be used by the Company to offer certain pre-paid cards, mobile apps, loyalty programs, and other merchant related services to its potential clients. The Agreement has a term of five (5) years and monthly payments due to TruCash of $250,000 (the “Licensing Fee”).
Rent
As of December 31, 2022, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space but expects to enter into a month-to-month office lease for this space.
SarahCare leases three properties for its corporate office and its two corporate owned centers.
SarahCare’s lease for its second corporate-owned
On April 21, 2021, the Company, through ten newly-formed, wholly-owned limited liability companies, entered into lease agreements with entities controlled by our Chairman, Charles Everhardt, for ten additional SarahCare locations to be operated by the Company.
| 22 |
NOTE 16. LEASES
Operating Leases
Stow Professional Lease
In connection with the acquisition of Sarah Adult Day Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with
|
| Monthly Rent Payments |
| |||||||||
|
| Base Rent |
|
| Covid-19 Recoup* |
|
| Total Rent |
| |||
April 1, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
May 1, 2021 to December 31, 2021 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2022 to December 31, 2022 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2023 to December 31, 2023 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2024 to December 31, 2024 |
| $ |
|
| $ |
|
| $ |
| |||
January 1, 2025 to December 31, 2025 |
| $ |
|
| $ |
|
| $ |
| |||
________
*The Company has to repay the lessor monthly payments as a result of COVID relief.
Harbor Lease
In connection with the acquisition of Sarah Adult Day Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with
In connection with the acquisition of 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 10%, as the interest rate implicit in most of the Company’s leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. Since the common area maintenance expenses are expenses that do not depend on an index or rate, they are excluded from the measurement of the lease liability and recognized in general and administrative expenses on the consolidated statements of operations.
Right-of-use asset is summarized below:
|
| December 31, 2022 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
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| $ |
| ||||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Right-of-use asset, net |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 23 |
|
| June 30, 2022 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
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| $ |
| ||||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Right-of-use asset, net |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Operating lease liability is summarized below:
|
| December 31, 2022 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Long term portion |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
|
| June 30, 2022 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Office lease |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Long term portion |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 24 |
Maturity of the lease liability is as follows:
|
| December 31, 2022 |
| |||||||||||||
|
| Stow Professional Center Lease |
|
| Harbor Lease |
|
| S. Frank Professional Lease |
|
| Total |
| ||||
Year ending June 30, 2023 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Year ending June 30, 2024 |
|
|
|
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| ||||
Year ending June 30, 2025 |
|
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| ||||
Year ending June 30, 2026 |
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Year ending June 30, 2027 |
|
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|
| ||||
Present value discount |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Lease liability |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Finance leases
Commencing during the quarter ended December 31, 2022, the Company leases office equipment under two finance leases with combined monthly payments of $
Finance right of use assets are summarized below:
|
| As of |
|
| As of |
| ||
|
| December 31, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2022 |
| ||
Equipment lease |
| $ |
|
| $ |
| ||
Less accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Finance right of use asset |
| $ |
|
| $ |
| ||
| 25 |
On October 1, 2021, the Company discontinued use of one of its copiers. As a result, the Company recorded an impairment of assets in the amount of $
Finance lease liabilities are summarized below:
|
| As of |
|
| As of |
| ||
|
| December 31, |
|
| June 30, |
| ||
|
| 2022 |
|
| 2022 |
| ||
Equipment lease |
| $ |
|
| $ |
| ||
Less: current portion |
|
| ( | ) |
|
| ( | ) |
Long term portion |
| $ |
|
| $ |
| ||
|
| Equipment |
| |
|
| Lease As of December 31, 2022 |
| |
Year Ended June 30, 2023 |
| $ |
| |
Year Ended June 30, 2024 |
|
|
| |
Year Ended June 30, 2025 |
|
|
| |
Year Ended June 30, 2026 |
|
|
| |
Year Ended June 30, 2027 |
|
|
| |
Total future minimum lease payments |
|
|
| |
Less imputed interest |
|
| ( | ) |
PV of payments |
| $ |
| |
| 26 |
NOTE 17. RELATED PARTY TRANSACTIONS
During the periods ended December 31, 2022 and 2021, related party transactions were as follows:
As of December 31, 2022, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space but expects to enter into a month-to-month office lease for this space.
As of December 31, 2022, a company founded and partially owned by the Company’s Chairman, Charles Everhardt, has paid the Licensing Fees of $
As of December 31, 2022, the President of the Company, Michael Friedman, had accrued salary of $
On December 21, 2022, a company founded and partially owned by the Company’s Chairman, Charles Everhardt, advanced the Company a total of $
On December 19, 2022, a company founded and partially owned by the Company’s Chairman, Charles Everhardt, advanced the Company a total of $
On November 9, 2022, the Company signed a note payable of $
On November 18, 2022, the Company signed a note payable of $
On October 31, 2022, a company founded and partially owned by the Company’s Chairman, Charles Everhardt, advanced the Company a total of $
On October 5, 2022, the Company signed a note payable of $
On May 5, 2022, the Company signed a note payable of $
On March 25, 2022, the Company signed a note payable of $
On March 25, 2021 the Company signed a note payable of $
On March 25, 2021 the Company signed a note payable of $
On September 28, 2021, the Company signed a note payable of $
On September 8, 2021 the Company signed a note payable of $
NOTE 18. SUBSEQUENT EVENTS
The Company has evaluated subsequent events for recognition and disclosure through February 21, 2023, 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 January 17, 2023, the Company signed a note receivable of $
| 27 |
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 SarahCare for a total of $3,718,833; $2,000,110 was paid in cash and the Company assumed approximately $393,885 in debt due to sellers, and the remaining is payable through a royalty fee liability due in the amount of $1,500,000. With 26 centers (2 corporate and 24 franchise locations) located in 13 states, SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives.
On April 1, 2022, the Company partnered with TruCash Group of Companies Inc. (“TruCash”), a leading global payments provider, to launch an all-in-one Super Healthcare App, called RX Vitality Wallet, that was being designed to cater to consumers, patients, hospitals, Seniors, and governments, with a solid platform of benefits and online banking. The RX Vitality digital healthcare wallet was being designed to offer 20%-75% pharmaceutical discounts at 65,000 pharmacies across the United States, including Walgreens and CVS. In addition, we plan to offer health and wellness discounts at 500+ online merchants, as well as earning points on our Loyalty Program. The Company intends to generate revenue from its digital wallet and mobile app in multiple ways, including but not limited to monthly recurring fees, transfer fees, and the inter-exchange rate. On June 15, 2022, the Company’s RX Vitality digital healthcare wallet became available for download at the Apple iOS App store for Apple iPhone users. The Company’s app has also been approved and is available on the Google Play Store. The Company’s digital healthcare wallet should be accessible by customers via mobile wallet on both the Apple iOS and Android App Stores. The Company intends to have a physical healthcare card as well.
On April 5, 2022, the Company engaged mPulse Mobile, a leader in conversational AI and digital engagement solutions for the healthcare industry, to drive engagement with the Company’s digital app and wallet (currently under development).
On April 28, 2022, the Company entered into a share exchange agreement to acquire RX Vitality, Inc. (“RX Vitality”), a media and finance advisory company.
On May 13, 2022, the Company entered into a partnership with VSUSA Corp. (“VSUSA”), a non-for-profit organization that empowers Veterans and Seniors by offering services designed to build successful life transitions with access to workforce and independent housing; health services; and social service programs in communities across the United States. The partnership permits the Company to use the VSUSA logo on the back of its Vitality Debit Card. For this the Company is obligated to give up to 1% of its revenue generated from its Vitality Debit Card to VSUSA. The Company’s Chairman is a principal and co-Founder of VSUSA.
As of December 31, 2022, the Company had current assets of $326,028. The Company has a limited amount of liquid cash and no other liquid assets on hand as of December 31, 2022, 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.
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.
| 28 |
Results of Operations for the Three Months Ended December 31, 2022, and December 31, 2021
For the quarter ended December 31, 2022, we recorded gross revenues of $420,352 versus $330,708 for the quarter ended December 31, 2021, as a result of the Company’s ability to keep centers open for longer periods of time, and more participants coming to the center more often.
For the quarter ended December 31, 2022, operating expenses increased to $1,352,754 from $476,579, a $876,175 increase, or 184%, over the quarter ended December 31, 2021. The increase is due to an increase in expenses due to the Company’s development of its RX Vitality Wallet and debit card.
For the quarter ended December 31, 2022, interest expense on our convertible notes payable increased to $63,803 from $32,534, an increase of 96% over the quarter ended December 31, 2021. This increase is primarily due to an increase in notes.
For the quarter ended December 31, 2022, we realized a net loss of $977,074 as compared to a net loss of $198,856 for the quarter ended December 31, 2021. The increase in our net loss of $778,218 was primarily due to an increase in licensing expenses due to the development of its RX Vitality Wallet and debit card.
Results of Operations for the Six Months Ended December 31, 2022, and December 31, 2021
For the six months ended December 31, 2022, we recorded gross revenues of $804,502 versus $647,274 for the six months ended December 31, 2021, as a result of the Company’s ability to keep centers open for longer periods of time, and more participants coming to the center more often.
For the six months ended December 31, 2022, operating expenses increased to $2,699,912 from $1,091,302, a $1,608,610 increase, or 147%, over the six months ended December 31, 2021. The increase is due to an increase in expenses due to the development of its RX Vitality Wallet and debit card.
For the six months ended December 31, 2022, interest expense on our convertible notes payable increased to $111,472 from $49,875, an increase of 124% over the six months ended December 31, 2021. This increase is primarily due to an increase in notes.
For the six months ended December 31, 2022, we realized a net loss of $1,977,564 as compared to a net loss of $458,174 for the six months ended December 31, 2021. The increase in our net loss of $1,519,390 was primarily due to an increase in licensing expenses due to the development of its RX Vitality Wallet and debit card.
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.
Off Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
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.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented.
| 29 |
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, 2022. 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. |
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, 2022, 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.
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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 2012 and 2013 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, 2022, 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.
As of December 31, 2022, we were not a party to any material legal proceedings. We currently have fourteen (14) convertible promissory notes that are in default, and we may be subject to legal proceedings or lawsuits from any number of those convertible noteholders, including the below.
On April 7, 2013, three note holders (Brook Hazelton, Benjamin M. Manalaysay, Jr., and Diego McDonald, the “Plaintiffs”), whom together invested a total principal amount of $45,000 in the form of Convertible Promissory Notes (the “Notes”) to the Company, together filed a “Notice of Commencement of Action Subject to Mandatory Electronic Filing” in the Supreme Count of the State of New York, County of New York. The Plaintiffs alleged that the Company breached their contracts with the Plaintiffs and included causes of action for unjust enrichment and related claims, seeking repayment of each of their respective convertible promissory notes plus interest. On or about February 24, 2014, the three Plaintiffs received judgment against the Company from the court in the amounts of $33,686.82, $8,546.87 and $33,696.69, respectively.
Our wholly owned subsidiary, SarahCare, is not involved in any legal proceedings at this time.
As of the date of this quarterly report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.
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Item 1A. Risk Factors.
As a smaller reporting company, we are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the fiscal quarter ended December 31, 2022, the Company did not have any unregistered sales of any equity securities.
Item 3. Defaults Upon Senior Securities.
During the fiscal quarter ended December 31, 2022, 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.
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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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
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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/ Merle Griff | ||
| Merle Griff Chief Executive Officer |
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| Date: February 21, 2023 |
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