UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended July 31, 2020

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission file number: 001-36564

 

 

 

Healthcare Integrated Technologies, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   85-1173741

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

1462 Rudder Lane

Knoxville, TN 37919

(Address of Principal Executive Offices)

 

Registrant’s telephone number, including area code: (865) 719-8160

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to section 12(g) of the Act:

 

Common Stock, $0.001 par value

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [  ] No [X]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
(Do not check if a smaller reporting company) Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

The aggregate market value of the outstanding common stock, other than shares held by persons who may be deemed affiliates of the registrant, computed by reference to the closing sales price for the registrant’s common stock on January 31, 2020 (the last business day of the registrant’s most recently completed second quarter), as reported on the OTC Pink market, was approximately $12,995,000. As of October 16, 2020, there were 36,637,235 shares of common stock of the registrant outstanding.

 

Documents Incorporated by Reference: None.

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I 4
ITEM 1. BUSINESS. 4
ITEM 1A. RISK FACTORS. 5
ITEM 1B. UNRESOLVED STAFF COMMENTS. 10
ITEM 2. PROPERTIES. 10
ITEM 3. LEGAL PROCEEDINGS. 10
ITEM 4. MINE SAFETY DISCLOSURES. 10
PART II 10
ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. 10
ITEM 6. SELECTED FINANCIAL DATA. 11
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 18
ITEM 9A. CONTROLS AND PROCEDURES. 20
ITEM 9B. OTHER INFORMATION 21
PART III 21
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. 21
ITEM 11. EXECUTIVE COMPENSATION. 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. 28
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. 29
PART IV 30
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 30
SIGNATURES 31

 

2

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue”, negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Annual Report and include information concerning: possible or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results; and any other statements that are not historical facts.

 

From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all the forward-looking statements included in this Annual Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

For discussion of factors that we believe could cause our actual results to differ materially from expected and historical results see “Item 1A - Risk Factors” below.

 

3

 

 

PART I

 

ITEM 1. BUSINESS.

 

Overview

 

Healthcare Integrated Technologies, Inc. and its subsidiaries (collectively the “Company,” “we,” “our” or “us”) is a healthcare technology company based in Knoxville, Tennessee. We are creating a diversified spectrum of healthcare technology solutions to integrate and automate the continuing care, home care and professional healthcare spaces.

 

Our initial product, SafeSpace, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace includes wall mounted devices utilizing radar technology and state of the art software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects falls and sends alerts directly to designated individuals.

 

In addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience for seniors, recently released postoperative patients and others. The concierge application will enable the consumer to obtain home healthcare services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other items where integration is beneficial.

 

Our History

 

The Company has had three distinct businesses. First, we were incorporated in the state of Nevada on June 25, 2013 as Tomichi Creek Outfitters, aiming to provide professionally guided big game hunts in Sargents, Colorado which is approximately four hours southwest from Denver. This area of the country is home to trophy size Elk and Mule Deer. Our secondary business included offering guided scenic tours on the western slopes of the Rocky Mountains. Every season offers a diversified plethora of wildlife and stunning scenic views. Our Chief Executive Officer (“CEO”) and sole director at that time was Jeremy Gindro. These operations were discontinued in 2015.

 

Second, on March 2, 2015, the Company entered into a Business Acquisition Agreement and share exchange under which we acquired the business and assets of Grasshopper Staffing, Inc. (“Grasshopper Colorado”), formed in the state of Colorado on January 13, 2015. The exchange for $10,651 was represented by 250,000 shares of the Company’s common stock in exchange for all the outstanding shares of Grasshopper Colorado. The assets purchased include the trademark and website, office supplies and office furniture. On November 2, 2015 we filed a Certificate of Amendment to our Articles of Incorporation changing the name of our Company from Tomichi Creek Outfitters to Grasshopper Staffing, Inc. Grasshopper Colorado was operating as a wholly-owned subsidiary of the Company and was the primary operation of our business until the acquisition of IndeLiving Holdings Inc., on March 13, 2018. Our management consisted of Melanie Osterman as CEO, and Jeremy Gindro who was our sole director. The operations of Grasshopper Colorado were discontinued in February 2019.

 

Third, we acquired IndeLiving Holdings, Inc. (“IndeLiving”) on March 13, 2018 and changed our name to Healthcare Integrated Technologies, Inc. Our current operations are described above. With the acquisition of IndeLiving, we had another change in management, and Scott M. Boruff became CEO and sole director of the Company.

 

Employees

 

At July 31, 2020, we had 3 employees.

 

At July 31, 2019, we had 1 employee.

 

4

 

 

Available Information

 

We electronically file certain documents with the Securities and Exchange Commission (the SEC). We file annual reports on Form 10-K; quarterly reports on Form 10-Q; and current reports on Form 8-K (as appropriate); along with any related amendments and supplements thereto. From time-to-time, we may also file registration statements and related documents in connection with equity or debt offerings. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet website at www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC.

 

ITEM 1A. RISK FACTORS.

 

Risks Related to Economic and Market Conditions

 

General Economic and Financial Conditions

 

The success of any investment activity is influenced by general economic and financial conditions, all of which are beyond the control of the Company. These conditions, such as the recent global economic crisis and significant downturns in the financial markets, may materially adversely affect our operating results, financial condition and ability to implement our business strategy and/or meet our return objectives.

 

The recent global outbreak of COVID-19 (more commonly known as the Coronavirus) has disrupted economic markets and the prolonged economic impact is uncertain. Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn. Many manufacturers of goods in China and other countries have seen a downturn in production due to the suspension of business and temporary closure of factories in an attempt to curb the spread of the illness. As the impact of the Coronavirus spreads to other parts of the world, similar impacts may occur with respect to affected countries.

 

Risks Related to Our Business

 

The Company’s industry is highly competitive and we have less capital and resources than many of our competitors which may give them an advantage in developing and marketing products similar to ours or make our products obsolete.

 

We are involved in a highly competitive industry where we may compete with numerous other companies who offer alternative methods or approaches, who may have far greater resources, more experience, and personnel perhaps more qualified than we do. Such resources may give our competitors an advantage in developing and marketing products similar to ours or products that make our products obsolete. There can be no assurance that we will be able to successfully compete against these other entities.

 

The Company may be unable to respond to the rapid technological change in its industry and such change may increase costs and competition that may adversely affect its business

 

Rapidly changing technologies, frequent new product and service introductions and evolving industry standards characterize the Company’s market. The continued growth of the Internet and intense competition in the Company’s industry exacerbate these market characteristics. The Company’s future success will depend on its ability to adapt to rapidly changing technologies by continually improving the performance features and reliability of its products and services. The Company may experience difficulties that could delay or prevent the successful development, introduction or marketing of its products and services. In addition, any new enhancements must meet the requirements of its current and prospective users and must achieve significant market acceptance. The Company could also incur substantial costs if it needs to modify its products and services or infrastructures to adapt to these changes.

 

The Company also expects that new competitors may introduce products, systems or services that are directly or indirectly competitive with the Company. These competitors may succeed in developing, products, systems and services that have greater functionality or are less costly than the Company’s products, systems and services, and may be more successful in marketing such products, systems and services. Technological changes have lowered the cost of operating communications and computer systems and purchasing software. These changes reduce the Company’s cost of providing services but also facilitate increased competition by reducing competitors’ costs in providing similar services. This competition could increase price competition and reduce anticipated profit margins.

 

5

 

 

The Company’s services are new and its industry is evolving.

 

You should consider the Company’s prospects considering the risks, uncertainties and difficulties frequently encountered by companies in their early stage of development. To be successful in this industry, the Company must, among other things:

 

  develop and introduce functional and attractive services;
     
  attract and maintain a large base of customers;
     
  increase awareness of the Company brand and develop consumer loyalty;
     
  respond to competitive and technological developments;
     
  build an operations structure to support the Company business; and
     
  attract, retain and motivate qualified personnel.

 

The Company cannot guarantee that it will succeed in achieving these goals, and its failure to do so would have a material adverse effect on its business, prospects, financial condition and operating results.

 

The Company’s products and services are new and are in the early stages of development. The Company is not certain that these products and services will function as anticipated or be desirable to its intended market. Also, some of the Company’s products and services may have limited functionalities, which may limit their appeal to consumers and put the Company at a competitive disadvantage. If the Company’s current or future products and services fail to function properly or if the Company does not achieve or sustain market acceptance, it could lose customers or could be subject to claims which could have a material adverse effect on the Company business, financial condition and operating results.

 

Risks Related to Our Company

 

Uncertainty of profitability

 

Our business strategy may result in increased volatility of revenues and earnings. As we will only develop a limited number of products and services at a time, our overall success will depend on a limited number of products and services, which may cause variability and unsteady profits and losses depending on the products and services offered.

 

Our revenues and our profitability may be adversely affected by economic conditions and changes in the market. Our business is also subject to general economic risks that could adversely impact the results of operations and financial condition.

 

Because of the anticipated nature of the products and services that we will attempt to develop, it is difficult to accurately forecast revenues and operating results and these items could fluctuate in the future due to several factors. These factors may include, among other things, the following:

 

  Our ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses.
     
  Our ability to source strong opportunities with sufficient risk adjusted returns.
     
  Our ability to manage our capital and liquidity requirements based on changing market conditions generally.

 

6

 

 

  The acceptance of the terms and conditions of our licenses and/or the acceptance of our royalties and fees.
     
  The amount and timing of operating and other costs and expenses.
     
  The nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment return expectations.
     
  Adverse changes in the national and regional economies in which we will participate, including, but not limited to, changes in our performance, capital availability, and market demand.
     
  Adverse changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a change in circumstances, capacity and economic impacts.
     
  Changes in laws, regulations, accounting, taxation, and other requirements affecting our operations and business.
     
  Our operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations may be significant.

 

Our independent auditors’ report for the fiscal years ended July 31, 2020 and 2019 have expressed doubts about our ability to continue as a going concern

 

Due to the uncertainty of our ability to meet our current operating and capital expenses, in our audited annual financial statements as of and for the years ended July 31, 2020 and 2019 our independent auditors included a note to our financial statements regarding concerns about our ability to continue as a going concern. We have incurred recurring losses and have generated limited revenue since inception. These factors and our need for additional financing to effectively execute our business plan, raise substantial doubt about our ability to continue as a going concern. The presence of the going concern note to our financial statements may have an adverse impact on the relationships we are developing and plan to develop with third parties as we continue the commercialization of our products and could make it challenging and difficult for us to raise additional financing, all of which could have a material adverse impact on our business and prospects and result in a significant or complete loss of your investment.

 

COVID-19 could adversely impact our business

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s future financial condition, liquidity, and results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021.

 

Management of growth will be necessary for us to be competitive

 

Successful expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically, we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the general economic environment. Expansion has the potential to place significant strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability goals.

 

7

 

 

We are entering a potentially highly competitive market

 

The markets for the healthcare and senior monitoring industries are competitive and evolving. We face strong competition from larger companies that may be in the process of offering similar products and services to ours. Many of our current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources and larger client bases than we have (or may be expected to have).

 

Given the rapid changes affecting the global, national, and regional economies generally, and the healthcare industry specifically, we may not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to keep pace with any market, legal and regulatory changes as well as competitive pressures. Any failure by us to anticipate or respond adequately to such changes could have a material adverse effect on our financial condition, operating results, liquidity and cash flow.

 

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any ability to report and file our financial results accurately and timely could harm our reputation and adversely impact the future trading price of our common stock.

 

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital.

 

We currently have insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements. Additionally, there is a lack of formal process and timeline for closing the books and records at the end of each reporting period and such weaknesses restrict the Company’s ability to timely gather, analyze and report information relative to the financial statements.

 

Because of the Company’s limited resources, there are limited controls over information processing. There is inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation, we would need to hire additional staff.

 

The Company’s failure to continue to attract, train, or retain highly qualified personnel could harm the company’s business.

 

The Company’s success also depends on the Company’s ability to attract, train, and retain qualified personnel, specifically those with management and product development skills. In particular, the Company must hire additional skilled personnel to further the Company’s research and development efforts. Competition for such personnel is intense. If the Company fails in attracting new personnel or retaining and motivating the Company’s current personnel, the Company’s business could be harmed.

 

Risks Related to Our Common Stock

 

Because we will likely issue additional shares of our common stock, investment in our Company could be subject to substantial dilution.

 

Investors’ interests in our company will be diluted and investors may suffer dilution in their net book value per share when we issue additional shares. We are authorized to issue 200,000,000 shares of common stock, $0.001 par value per share. As of October 16, 2020, there were 36,637,235 shares of our common stock issued and outstanding. We anticipate that all or at least some of our future funding, if any, will be in the form of equity financing from the sale of our common stock. If we do sell more common stock, investors’ investment in our company will likely be diluted. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after the additional shares are sold by us. If dilution occurs, any investment in our company’s common stock could seriously decline in value.

 

8

 

 

Trading in our common stock on the OTC Pink has been subject to wide fluctuations.

 

Our common stock is currently quoted for public trading on the OTC Pink. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to several factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s attention and resources.

 

Our Certificate of Incorporation and by-laws provides for indemnification of officers and directors at our expense and limit their liability which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the benefit of officers and/or directors.

 

Our Certificate of Incorporation and By-Laws include provisions that fully eliminate the personal liability of our directors for monetary damages to the fullest extent possible under the laws of the State of Nevada or other applicable law. These provisions eliminate the liability of our directors and our shareholders for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Nevada law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery of damages by third parties.

 

We do not intend to pay dividends on any investment in the shares of stock of our Company and any gain on an investment in our Company will need to come through an increase in our stock’s price, which may never happen.

 

We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never occur and investors may lose all their investment in our company.

 

Because our securities are subject to penny stock rules, you may have difficulty reselling your shares.

 

Our shares as penny stocks, are covered by Section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice requirements on broker/dealers who sell our company’s securities including the delivery of a standardized disclosure document; disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and, furnishing monthly account statements. These rules apply to companies whose shares are not traded on a national stock exchange, trade at less than $5.00 per share, or who do not meet certain other financial requirements specified by the Securities and Exchange Commission.

 

These rules require brokers who sell “penny stocks” to persons other than established customers and “accredited investors” to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of common stock and may affect the secondary market for our shares of common stock. These rules could also hamper our ability to raise funds in the primary market for our shares of common stock.

 

9

 

 

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

There could be unidentified risks involved with an investment in our securities

 

The foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are not presently foreseen by the Company. Prospective investors must not construe this information provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this entire prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite period and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind with respect to the likelihood of the success or the business of the Company, the value of our securities, any financial returns that may be generated or any tax benefits or consequences that may result from an investment in the Company.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not applicable.

 

ITEM 2. PROPERTIES.

 

None.

 

ITEM 3. LEGAL PROCEEDINGS.

 

The Company is currently not involved in any litigation that the Company believes could have a materially adverse effect on the Company’s financial condition or results of operations. On January 2, 2020, a sworn account lawsuit was filed against our IndeLiving Holdings, Inc. (“IndeLiving”) subsidiary and our CEO Scott M. Boruff by our previous Certified Public Accounting Firm, RBSM LLP demanding payment of $28,007 for services rendered. We have filed our Answer and IndeLiving filed a breach of contract Counterclaim on February 24, 2020 demanding repayment of a $7,500 retainer paid to RBSM LLP by IndeLiving for services that we allege were not provided. Given the early state of the proceedings in this case, we currently cannot assess the probability of losses, but we can reasonably estimate that the range of losses in this case will be immaterial since the full amount of the lawsuit has previously been recorded in the consolidated financial statements.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

(a) Market Information

 

Our common stock is quoted on the OTC Pink under the symbol “HITC”. The OTC Pink is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities.

 

The following table shows, for the periods indicated, the high and low bid prices per share of the Company’s common Stock as reported by the OTC Pink quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions.

 

10

 

 

    High     Low  
Fiscal Year 2019                
First quarter ended October 31, 2018   $ 0.65     $ 0.30  
Second quarter ended January 31, 2019   $ 0.45     $ 0.30  
Third quarter ended April 30, 2019   $ 0.47     $ 0.12  
Fourth quarter ended July 31, 2019   $ 0.20     $ 0.12  
                 
Fiscal Year 2020                
First quarter ended October 31, 2019   $ 0.42     $ 0.15  
Second quarter ended January 31, 2020   $ 0.42     $ 0.40  
Third quarter ended April 30, 2020   $ 0.50     $ 0.18  
Fourth quarter ended July 31, 2020   $ 0.48     $ 0.19  

 

(b) Holders

 

As of October 16, 2020, there were 62 stockholders of record. Because shares of the Company’s common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of the Company’s shares is larger than the number of stockholders of record.

 

(c) Dividends

 

We have never declared or paid dividends on our common stock. We do not intend to declare dividends in the foreseeable future because we anticipate that we will reinvest any future earnings into the development and growth of our business. Any decision as to the future payment of dividends will depend on our results of operations and financial position and such other factors as our Board of Directors in its discretion deems relevant.

 

(d) Securities Authorized for Issuance under Equity Compensation Plan

 

The Company does not have in effect any compensation plans under which the Company’s equity securities are authorized for issuance.

 

Transfer Agent

 

Our transfer agent is VStock, LLC located at 18 Lafayette Place, Woodmere, NY 11598.

 

Recent Sales of Unregistered Securities

 

During the years ended July 31, 2020 and 2019, we have not issued any securities which were not registered under the Securities Act and not previously disclosed in the Company’s Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.

 

Rule 10B-18 Transactions

 

During the years ended July 31, 2020 and 2019, there were no repurchases of the Company’s common stock by the Company.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

Not applicable

 

11

 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER “FORWARD-LOOKING STATEMENTS” AND “RISK FACTORS” AND THOSE INCLUDED ELSEWHERE IN THIS REPORT.

 

This discussion summarizes the significant factors affecting the consolidated financial statements, financial condition, liquidity, and cash flows of Healthcare Integrated Technologies, Inc, for the fiscal years ended July 31, 2020 and 2019 and the interim periods included herein. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes included elsewhere in this Form 10-K.

 

Executive Overview

 

We are a healthcare technology company based in Knoxville, Tennessee. Our business is creating a diversified spectrum of healthcare technology solutions to integrate and automate the continuing care, home care and professional healthcare spaces. Since the acquisition of our IndeLiving subsidiary in March 2018, we changed our business focus to the healthcare technology sector and discontinued the operations of our Grasshopper Colorado subsidiary in February 2019.

 

Our initial product, SafeSpace, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace includes wall mounted devices utilizing radar technology and state of the art software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects falls and sends alerts directly to designated individuals.

 

In addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience for seniors, recently released postoperative patients and others. The concierge application will enable the consumer to obtain home healthcare services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other items where integration is beneficial.

 

Strategy

 

Our mission is to grow a profitable healthcare technology company by focusing on our core product, continuing the development of our proprietary software and developing new uses and product lines for our technology. Our management team is focused on maintaining the financial flexibility and assembling the right complement of personnel and outside consultants required to successfully execute our mission.

 

Financial and Operating Results

 

We continue to utilize funds raised from private sales of our common stock and short-term advances from related parties to provide cash for our operations, which allowed us to continue refining our initial product and readying it for pilot testing, developing our future product offerings and adding talented individuals to our management team. In addition, we reduced our debt obligations by converting certain 5% Convertible Promissory Notes it into common stock. Highlighted achievements for the fiscal year ended July 31, 2020 include:

 

12

 

 

  On October 8, 2019, Charles B. Lobetti, III was appointed CFO and entered into a three-year employment agreement with the Company. The employment agreement provides for a base salary of $52,000 per annum (on a part-time basis), a monthly automobile allowance of $400 and 600,000 options to purchase the Company’s common stock at an exercise price of $0.15 per share with 25% immediately vested and exercisable on the grant date and the remaining options vesting equally over a period of three (3) years from the grant date. The value of the options on the grant date was estimated using the Black-Scholes pricing model and is being recognized as an expense over the vesting term. Effective May 1, 2020, Mr. Lobetti’s base salary was increased to $104,000 to reflect an increased time commitment and he received a restricted stock grant of 500,000 shares, of which 200,000 shares vested on the date of the grant.
     
  On February 11, 2020, we completed a private placement of 1,000,000 shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $100,000. We incurred no cost related to the private placement.
     
  On March 18, 2020, we completed a private placement of 200,000 shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $20,000. We incurred no cost related to the private placement.
     
  On March 21, 2020, we executed an agreement with BrandMETTLE, LLC (“BrandMETTLE”) to serve as our advertising agency for IndeLiving. Pursuant to the terms of the agreement, we issued 250,000 shares of our common stock to certain principals of BrandMETTLE at an estimated value of $0.18 per share. BrandMETTLE focuses on providing branding, advertising, marketing and strategy development for senior targeted healthcare technology firms, senior living communities, pharmaceutical concerns and lifestyle brands for the age 55+ consumer.
     
  On April 22, 2020, we executed an agreement with Jurgen Vollrath to act as our outside counsel for Intellectual Property (“IP”). Pursuant to the terms of the agreement, we issued 1,250,000 warrants to purchase the Company’s common stock at an exercise price of $0.23 per share with 250,000 warrants immediately vested and exercisable on the grant date and the remaining options vesting equally over a period of three (3) years from the grant date. Mr. Vollrath, who has spent the last 30 years working with technology firms ranging from startups to Fortune 100 companies, is recognized as a leading IP strategist.
     
  On April 30, 2020, we closed an SBA guaranteed PPP loan with Mountain Commerce Bank resulting in $41,667 in loan proceeds to the Company. We expect to use the loan proceeds as permitted under the program and apply for and receive forgiveness for the entire loan amount. As of July 31, 2020, we are still awaiting the SBA’s issuance of final rules for forgiveness of the loan balance prior to submitting our application for forgiveness.
     
  On June 15, 2020, Kenneth M. Greenwood was appointed CTO and entered into a three-year employment agreement with the Company. The employment agreement provides for a base salary of $257,000 per annum (on a part-time basis), and 2,000,000 options to purchase the Company’s common stock at an exercise price of $0.30 per share with 25% immediately vested and exercisable on the grant date and the remaining options vesting equally over a period of three (3) years from the grant date. The value of the options on the grant date was estimated using the Black-Scholes pricing model and is being recognized as an expense over the vesting term.
     
  On July 8, 2020, we issued 56,048 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”) in exchange for the Note plus accrued interest of $3,024 through the conversion date. Under the terms of the Note, the shares were issued at a conversion price of $0.50 per share.
     
  On July 8, 2020, we completed a private placement of 1,000,000 shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $100,000. We incurred no cost related to the private placement.

 

13

 

 

  On July 13, 2020, we completed a private placement of 250,000 shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $25,000. We incurred no cost related to the private placement.
     
  On July 16, 2020, we completed two (2) private placements totaling 500,000 shares of our common stock, each at a price of $0.10 per share, resulting in net proceeds to the Company of $50,000. We incurred no cost related to the private placements.
     
  On July 16, 2020, we issued 200,000 shares of common stock to an employee upon the vesting of a portion of a restricted stock grant. The grant date fair value of the shares issued was $0.35 per share.
     
  On July 17, 2020, we executed an agreement with Haygood Moody Hodge PLC (“HMH”) to provide general legal services to the Company. Pursuant to the terms of the agreement, we issued 250,000 shares of our common stock to a principal of HMH for prepaid legal services at an estimated value of $0.20 per share.
     
  On July 24, 2020, we issued 56,176 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”) in exchange for the Note plus accrued interest of $3,088 through the conversion date. Under the terms of the Note, the shares were issued at a conversion price of $0.50 per share.
     
  On July 29, 2020, we issued 224,887 shares of common stock to the holder of a $100,000 5% Convertible Promissory Note (the “Note”) in exchange for the Note plus accrued interest of $12,444 through the conversion date. Under the terms of the Note, the shares were issued at a conversion price of $0.50 per share.

 

Results of Operations

 

Revenues

 

Our only source of revenue in fiscal 2019 was derived from our Grasshopper Colorado subsidiary, the operations of which were discontinued in February 2019. We had no revenues in fiscal 2020. The net loss incurred by Grasshopper Colorado is presented separately as discontinued operations.

 

Loss from our Grasshopper Colorado subsidiary’s discontinued operations consisted of the following at July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Net revenue   $ -     $ 27,909  
Operating expenses     (719 )     (35,969 )
Interest expense     (802 )     (7,534 )
Loss from discontinued operations   $ (1,521 )   $ (15,594 )

 

An analysis or discussion of our revenues does not provide any useful information since we discontinued the operations of our only revenue source during fiscal 2019.

 

Selling, General and Administrative Expenses

 

The table below presents a comparison of our selling, general and administrative expenses for the years ended July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Officer’s salaries   $ 423,371     $ 336,965  
Stock-based compensation     407,613       294,510  
Advertising, marketing and product demonstration expenses     66,948       90,212  
Professional fees     110,271       44,129  
Other     7,601       18,177  
Total selling, general and administrative expenses   $ 1,015,804     $ 783,993  

 

14

 

 

Officer’s salaries were $423,371 in fiscal 2020, representing an increase of $86,406 over the fiscal 2019 amount. The increase in Officer’s salaries results from the hiring of our new CFO and CTO during the period.

 

Stock-based compensation increased $113,103 over the prior fiscal year. The increase is a result of the addition of the expense related to stock option and restricted stock grants to our new CFO and CTO during the period. Fiscal 2019 stock-based compensation consisted entirely of the expense related to stock options previously granted to our CEO.

 

Advertising, marketing and product demonstration expenses decreased $23,264 as compared to the fiscal 2019 amount. The net decrease is the result of a reduction in sales force payroll expense of $54,274 and a reduction in product demonstration expense of $11,171, which were partially offset by an increase in advertising and marketing expenses of $42,180. The increase in advertising and marketing expense is primarily related to the BrandMETTLE agreement discussed above.

 

Professional fees increased $66,142 in fiscal 2020 as compared to fiscal 2019. The increase is primarily related to the audit, legal and other professional fees associated with the filing of our comprehensive annual report in March 2020.

 

Interest Expense

 

Interest expense increased $1,831 for fiscal 2020 as compared to fiscal 2019. Interest expense is primarily related our 5% Convertible Promissory Notes. The net increase in interest expense is due to the compounding impact of the interest calculation, which was partially offset by a decrease in the expense from the conversion of certain notes in the last month of the fiscal period.

 

Liquidity and Capital Resources

 

Working Capital

 

The following table summarizes our working capital for the fiscal years ending July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Current assets   $ 125,010     $ 725  
Current liabilities     (1,982,603 )     (1,787,413 )
Working capital deficiency   $ (1,857,593 )   $ (1,786,688 )

 

Current assets for the year ended July 31, 2020 increased as compared to July 31, 2019 due to an increase in cash and prepaid legal fees resulting from the issuance of common stock for cash and prepaid legal services.

 

Current liabilities for the year ended July 31, 2020 also increased as compared to July 31, 2019. The increase is primarily due to an increase in accrued officer’s payroll, which was partially offset by a net decrease in related party accounts payable and accrued expenses, and a decrease in our 5% convertible promissory notes and related accrued interest expense due to conversion of the notes into common stock.

 

Net Cash Used by Operating Activities

 

Since we discontinued the operations of our Grasshopper Colorado subsidiary in February 2019, we no longer have a revenue source and will continue to have negative cash flow from operations for the near future. The factors in determining operating cash flows are largely the same as those that affect net earnings, except for non-cash expenses such as depreciation and stock-based compensation, which affect earnings but do not affect cash flow. Net cash used by operating activities was $188,655 for the year ended July 31, 2020 compared to $99,443 for the year ended July 31, 2019. The increase in cash used during fiscal 2020 is attributable to cash paid for audit, legal and other professional fees associated with the filing of our comprehensive annual report in March 2020.

 

15

 

 

Net Cash Provided by Financing Activities

 

Net cash provided by financing activities was $266,022 for the year ended July 31, 2020, which represented a $332,756 increase over the net cash used by financing activities in the prior year. During the period, we raised $295,000 from the sale of common stock in multiple private transactions as described above. In addition, we raised $41,667 through debt issuances and $77,416 in short-term loans from related parties. The amounts were partially offset by $147,395 in payments made for amounts owed to related parties. In fiscal year 2019, we raised cash exclusively from short-term loans from related parties.

 

At this time, we cannot provide investors with any assurance that we will be able to obtain sufficient funding from debt financing and/or the sale of our equity securities to meet our obligations over the next twelve months. We are likely to continue using short-term loans from management to meet our short-term funding needs. We have no material commitments for capital expenditures as of July 31, 2020.

 

Going Concern Qualification

 

We have a history of losses, an accumulated deficit, a negative working capital and have not generated cash from operations to support a meaningful and ongoing business plan. Our Independent Registered Public Accounting Firm has included a “Going Concern Qualification” in their report for the years ended July 31, 2020, 2019, 2018, 2017 and 2016. The foregoing raises substantial doubt about the Company’s ability to continue as a going concern. We intend on financing our future activities and working capital needs largely from the sale of private and/or public equity securities with additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. There is no guarantee that additional capital or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to us. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” might make it substantially more difficult to raise capital.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“U.S. GAAP”). U.S. GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to U.S. GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

Our significant accounting policies are summarized in Note 1 of our consolidated financial statements.

 

We believe the following critical policies impact our more significant judgments and estimates used in preparation of our financial statements.

 

Use of Estimates

 

We prepare our financial statements in conformity with U.S. GAAP. These principals require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with the Board; however, actual results could differ from those estimates.

 

16

 

 

Impairment of Long-Lived Assets

 

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.

 

Stock-Based Compensation

 

We issue options and warrants to consultants, directors, and officers as compensation for services. These options and warrants are valued using the Black-Scholes model, which focuses on the current stock price and the volatility of moves to predict the likelihood of future stock moves. This method of valuation is typically used to estimate the value of stock options and warrants based on the price of the underlying stock.

 

Fair Value of Financial Instruments

 

Fair value estimates used in preparation of the financial statements are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts payable, note payable and amounts due to related parties. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand.

 

Revenue Recognition

 

We adopted ASC 606 effective January 1, 2018 using the modified retrospective method. Under this method, the Company follows the five-step model provided by ASC Topic 606 in order to recognize revenue in the following manner: 1) Identify the contract; 2) Identify the performance obligations of the contract; 3) Determine the transaction price of the contract; 4) Allocate the transaction price to the performance obligations; and 5) Recognize revenue. An entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company’s revenue recognition policies remained substantially unchanged as a result of the adoption of ASC 606, and there were no significant changes in business processes or systems.

 

Temporary Staffing Revenue

 

Prior to the discontinuance of its operations in February 2019, Grasshopper Colorado earned revenue by providing specialized temporary staffing solutions to the cannabis industry. We provided temporary labor at an agreed upon rate per hour. Billings were invoiced on a per-hour basis as the temporary staffing services were delivered to the customer. Revenue from the majority of our temporary staffing services were recognized at a point in time. We applied the practical expedient to recognize revenue for these services at various intervals based on the number of hours completed and agreed upon rate per hour at that time.

 

Capital Resources

 

We had no material commitments for capital expenditures as of July 31, 2020.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements as of July 31, 2020 or 2019.

 

17

 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

The financial statements and supplementary financial information required to be filed under this Item 8 are presented in Part IV, Item 15 of this Form 10-K and are incorporated herein by reference.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

On March 6, 2017, Stevenson & Company CPAs, LLP (“Stevenson”) informed the Company that Stevenson was resigning, effective immediately, as the Company’s independent registered public accounting firm. Stevenson resigned because Stevenson declined to stand for re-appointment.

 

During the fiscal year ended July 31, 2016 and in the subsequent interim period through March 6, 2017, there were (i) no “disagreements” (as that term is described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Stevenson on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Stevenson, would have caused Stevenson to make reference to the subject matter of such disagreements in its reports on the consolidated financial statements for such years, and (ii) no “reportable events” (as that term is described in Item 304(a)(1)(v) of Regulation S-K).

 

Stevenson’s reports on the consolidated financial statements of the Company for the fiscal years ended July 31, 2015 and 2014 did not contain any adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

 

On March 7, 2017, the Board of Directors of the Company engaged RBSM, LLP (“RBSM”) as the Company’s new independent registered public accounting firm.

 

During the fiscal year ended July 31, 2016 and in the subsequent interim periods through March 7, 2017, neither the Company nor anyone acting on its behalf consulted RBSM regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered with respect to the consolidated financial statements of the Company, and neither a written report nor oral advice was provided to the Company by RBSM that RBSM concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a “disagreement” (as that term is used in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K).

 

On September 13, 2018, the Company dismissed RBSM LLP, effective September 12, 2018, as our independent registered public accounting firm. RBSM LLP audited our financial statements for the fiscal years ended July 31, 2016 and 2017. The dismissal of RBSM LLP was approved by our Board of Directors on September 12, 2018. RBSM LLP did not resign or decline to stand for re-election.

 

Neither the report of RBSM LLP dated July 18, 2017 on our consolidated balance sheet at July 31, 2016, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year ended July 31, 2016 nor the report of RBSM LLP dated November 14, 2017 on our consolidated balance sheets at July 31, 2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years ended July 31, 2017 and 2016 did not contain an adverse opinion or a disclaimer of opinion, nor was either such report qualified or modified as to uncertainty, audit scope, or accounting principles, other than each such report was qualified as to our ability to continue as going concern.

 

18

 

 

During the fiscal year ended July 31, 2017 and July 31, 2018 and in the subsequent interim period through September 13, 2018, there were (i) no “disagreements” (as that term is described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and RBSM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of RBSM, would have caused RBSM to make reference to the subject matter of such disagreements in its reports on the consolidated financial statements for such years, and (ii) no “reportable events” (as that term is described in Item 304(a)(1)(v) of Regulation S-K).

 

On September 13, 2018, the Company engaged Marcum LLP as our independent registered public accounting firm.

 

During our two most recent fiscal years and the subsequent interim period prior to retaining Marcum LLP (1) neither we nor anyone on our behalf consulted Marcum LLP regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K, and (2) Marcum LLP did not provide us with a written report or oral advice that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issue.

 

On January 7, 2020, the Company dismissed Marcum LLP as our independent registered public accounting firm. The dismissal of Marcum LLP was approved by our Board of Directors. Marcum LLP did not resign or decline to stand for re-election.

 

During the time that Marcum LLP served as our independent registered public accounting firm, we did not timely file financial statements or provide information for Marcum LLP to be able to complete its audit of our financial statements dated July 31, 2018 or July 31, 2019 and the reviews of any interim financial statements for the quarterly periods of those fiscal years. As a result, no report of Marcum LLP contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainly, audit scope, or accounting principles, as no reports were filed.

 

During our two most recent fiscal years and the subsequent interim period preceding our decision to dismiss Marcum LLP we had no disagreements with the firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved to the satisfaction of Marcum LLP would have caused it to make reference to the subject matter of the disagreement in connection with its report.

 

On January 7, 2020, the Company engaged Rodefer Moss & Co. PLLC as our independent registered public accounting firm.

 

During the fiscal year ended July 31 2017 and the subsequent interim periods prior to retaining Rodefer Moss & Co. PLLC (1) neither we nor anyone on our behalf consulted Rodefer Moss & Co. PLLC regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K, and (2) Rodefer Moss & Co. PLLC did not provide us with a written report or oral advice that they concluded was an important factor considered by us in reaching a decision as to accounting, auditing or financial reporting issue.

 

The report of Rodefer Moss & Co. PLLC dated March 20, 2020 on our consolidated balance sheets at July 31, 2019 and 2018, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years ended July 31, 2019 and 2018 did not contain an adverse opinion or a disclaimer of opinion, nor was the report qualified or modified as to uncertainty, audit scope, or accounting principles, other than such report was qualified as to our ability to continue as going concern.

 

During the fiscal years ended July 31, 2020 and July 31, 2019 there were (i) no “disagreements” (as that term is described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Rodefer Moss & Co. PLLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Rodefer Moss & Co. PLLC, would have caused Rodefer Moss & Co. PLLC to make reference to the subject matter of such disagreements in its reports on the consolidated financial statements for such years, and (ii) no “reportable events” (as that term is described in Item 304(a)(1)(v) of Regulation S-K).

 

19

 

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended, at the end of the period covered by this report (the “Evaluation Date”). In conducting its evaluation, management considered the material weaknesses described below in Management’s Report on Internal Control over Financial Reporting.

 

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date we did not maintain disclosure controls and procedures that were effective in providing reasonable assurances that information required to be disclosed in our reports filed under the Securities Exchange act of 1934 was recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information was accumulated and communicated to our management to allow timely decisions regarding required disclosure.

 

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of July 31, 2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of July 31, 2020 our internal controls over financial reporting were not effective.

 

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Our management has concluded that, as of July 31, 2020, our internal control over financial reporting is not effective based on these criteria. Material weaknesses noted by our management include:

 

  Lack of a functioning audit committee;
  Lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
  Inadequate segregation of duties consistent with control objectives and affecting the functions of authorization, recordkeeping, custody of assets, and reconciliation;
  Management dominated by a single individual/small group without adequate compensating controls.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.”

 

20

 

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following table sets forth information concerning our officers and directors as of the dates indicated. The directors of the Company serve until their successors are elected and shall qualify. Executive officers are elected by the Board of Directors and serve at the discretion of the directors.

 

Name   Age   Title
Scott M. Boruff   57   Chief Executive Officer, Director
Charles B. Lobetti, III   57   Chief Financial Officer
Kenneth M. Greenwood   61   Chief Technology Officer
Susan A. Reyes   57   Chief Medical Officer

 

Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.

 

Scott M. Boruff, Chief Executive Officer, Director, Age 57

 

Mr. Boruff has served as our Chief Executive Officer and Sole Director since March 13, 2018. He has been the sole officer and director of IndeLiving Holdings, Inc. since the company’s formation in 2016. He has also served as the Manager of Platinum Equity Advisors, LLC (“Platinum Equity”) since its formation in 2016. In addition to providing consulting and advisory services, Platinum Equity has interests in a real estate brokerage firm and a luxury real estate auction firm. Mr. Boruff is a proven executive with a diverse business background in investment banking and real estate development. He currently serves as Manager of Own Shares, LLC, a privately held holding company with interests in various entertainment ventures, and Managing Member of Stonewalk Companies, privately held real estate development company. As a professional in investment banking, he specialized in consulting services and strategic planning with an emphasis on companies in the oil and gas field. Mr. Boruff served as a member of the Board of Directors of Miller Energy Resources, Inc., a publicly traded company, from August 2008 until March 2016, serving as Executive Chairman of the Board of Directors from September 2014 until March 2016 and Chief Executive Officer from August 2008 to September 2014. In October 2015, when it was being led by a successor management team, Miller Energy Resources, Inc. filed a voluntary petition for reorganization under chapter 11 of title 11 of the U.S. Code in a pre-packaged bankruptcy. It remained a debtor in possession and emerged from bankruptcy in March 2016. Mr. Boruff was a director and 49% owner of Dimirak Securities Corporation, a broker-dealer and member of FINRA, from April 2009 until July 2012. In July 2012, Mr. Boruff sold his interest in Dimirak. He has more than 30 years of experience in developing commercial real estate projects and from 2006 to 2007 Mr. Boruff successfully led transactions averaging $150 to $200 million in size while serving as a director of Cresta Capital Strategies, LLC. Mr. Boruff received a Bachelor of Science degree in Business Administration from East Tennessee State University.

 

21

 

 

Charles B. Lobetti, III, Chief Financial Officer, Age 57

 

Mr. Lobetti has served as our Chief Financial Officer since October 8, 2019. He holds both Bachelor of Science in Business Administration (1985) and Master of Accountancy (1986) degrees from the University of Tennessee and is a licensed Certified Public Accountant (Inactive) in the State of Tennessee. Upon graduation, Mr. Lobetti accepted a position in the tax department of the Tampa, Florida office of Ernst & Young where he progressed to Senior Tax Consultant before he left the firm in 1989 to return to his hometown of Knoxville, Tennessee as the Tax Manager with a progressive, local accounting firm. In 1990, Mr. Lobetti, along with two co-workers, formed the accounting firm of Lobetti, Ideker & Reel (“LIR”) where he served as President and Director of Tax Services. LIR was a member of the AICPA’s SEC Practice Section and served several SEC registrant clients. In 1998, Mr. Lobetti left LIR to accept a position of Chief Financial Officer of United Petroleum Corporation (“UPET”), a small cap, SEC registrant oil and natural gas development company and convenience store operator. Following his tenure at UPET, Mr. Lobetti served as Chief Financial Officer for boutique investment banking/private equity firm specializing in the placement and funding of Regulation D and Regulation S offerings. He spent the next 10-years working in various investment banking, commercial mortgage banking and commercial banking functions before accepting the position of Controller – Alaska Operations with Miller Energy Resources, Inc.(“Miller”), an SEC registrant oil and gas exploration and production company. Shortly after accepting the position in 2011, Mr. Lobetti was promoted to Corporate Controller and thereafter appointed Treasurer in 2012. Since leaving Miller in 2014, Mr. Lobetti enjoyed spending time with his family and working part-time in commercial mortgage banking until recently accepting the position of Chief Financial Officer of Healthcare Integrated Resources, Inc.

 

Kenneth M. Greenwood, Chief Technology Officer, Age 61

 

Kenneth M. Greenwood has served as our Chief Technology Officer since June 15, 2020. Mr. Greenwood brings 30-years of experience with large-scale systems programming and implementations to our executive management team. He has provided instruction and consulting, primarily for SAP products, in the areas of architecture, design and implementation of ABAP, big-data warehousing, business intelligence analytics, object-orientation, cloud and systems integration, interfaces, HANA in-memory databases, data security, workflow, and archiving to a variety of companies including Intel, World Bank, HP, Amtrak, IBM, Accenture, Wal-Mart, Home Depot, Nike and Kimberly-Clark. While at Random House implementing a Rights Management module following two previous failed attempts by other contractors, Mr. Greenwood led the 30-developer team to design, code and implement rights management for Random House in an SAP system using a novel approach of OO design, which became the world’s largest SAP module at that time. Mr. Greenwood authored the best-selling Sams Teach Yourself ABAP in 21 Days, published by Macmillan.

 

Susan A. Reyes, M.D., Chief Medical Officer, Age 57

 

Susan A. Reyes, M.D. has served as our Chief Medical Officer since September 1, 2020. Dr. Reyes brings over 29-years of medical experience as a practicing Internal Medicine physician. She earned her Doctor of Medicine degree in just six-years and was board certified in Internal Medicine in 1994. Since then, Dr. Reyes has enjoyed expanding her skill set by working with several groundbreaking companies. In 1997, she worked for Hospital Inpatient Management Systems, which was the first hospitalist group that transformed the efficiencies of “length of stay” of patients in the hospital and in skilled nursing facility settings. In 2000, she was the lead physician for MD to You in Tampa, Florida - the first organization that developed house calls for homebound geriatric patients. In 2009, Dr. Reyes became the first physician to bring house call services to Knoxville, Tennessee and has grown her company to be the largest mobile medical primary care practice covering East Tennessee. She has been an advisor and served as Medical Director to several home health and hospice agencies and assisted living facilities in each community where she has resided.

 

Family Relationships

 

There are no family relationships among any of our directors or executive officers.

 

Involvement in Certain Legal Proceedings

 

To the best of the Company’s knowledge, none of the Company’s directors or executive officers has, during the past ten years, except as set forth below:

 

  been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
  had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

 

22

 

 

  been the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
     
  been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment in such civil action has not been reversed, suspended, or vacated;
     
  been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to (i) an alleged violation of any federal or state securities or commodities law or regulation, (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
     
  been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Mr. Boruff served as a member of the Board of Directors, as Chief Executive Officer, and as Executive Chairman of Miller Energy Resources, Inc. during the two years preceding Miller Energy Resources, Inc.’s filing of a bankruptcy petition in August 2015.

 

Mr. Lobetti served as Treasurer of Miller Energy Resources, Inc. during the two-year period preceding Miller Energy Resources, Inc.’s filing of a bankruptcy petition in August 2015.

 

Except as set forth in the Company’s discussion below in “Certain Relationships and Related Transactions, and Director Independence”, none of the Company’s directors or executive officers has been involved in any transactions with the Company or any of the Company’s directors, executive officers, affiliates, or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).

 

Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the fiscal year ended July 31, 2020 and 2019, were not timely.

 

Term of Office

 

The Company’s directors are elected by the Company’s stockholders for a one-year term until the next annual general meeting of the Company’s stockholders, or until removed by the stockholders in accordance with the Company’s bylaws. The Company’s officers are appointed by the Board and hold office until removed by the Board.

 

23

 

 

Code of Ethics

 

The Company does not currently have a code of ethics, and because the Company has only limited business operations and only two officers and one director, the Company believes that a code of ethics would have limited utility. The Company intends to adopt such a code of ethics as the Company’s business operations expand and the Company has more employees.

 

Board Committees

 

As we only have one board member and given our limited operations, we do not have separate or independent audit or compensation committees. Our Board of Directors has determined that it does not have an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K. In addition, we have not adopted any procedures by which our shareholders may recommend nominees to our Board of Directors.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

The following table summarizes all compensation recorded by us in the past two years for:

 

  our principal executive officer or other individual serving in a similar capacity,
     
  our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at July 31, 2020 and July 31, 2019 as that term is defined under Rule B-7 of the Securities Exchange Act of 1934.

 

Summary Compensation Table (in dollars)

 

Name and Principal   Fiscal                 Stock    

Non-Equity

Incentive Plan

    Non-Qualified
Deferred
Compensation
    All Other        
Position   Year     Salary     Bonus     Awards     Compensation     Earnings     Compensation     Total  
                                                 
Scott B. Boruff     2020       300,000       -       294,510       -       -       23,400       617,910  
Chief Executive Officer     2019       300,000       -       294,510       -       -       23,400       617,910  
Director (1)                                                                
                                                                 
Charles B. Lobetti, III     2020       55,355       -       92,258       -       -       3,910       151,523  
Chief Financial Officer (2)     2019       -       -       -       -       -       -       -  
                                                                 
Kenneth M. Greenwood     2020       32,125       -       20,845       -       -       -       52,970  
Officer (3)     2019       -       -       -       -       -       -       -  

 

 

 

  1) Mr. Boruff has served as our Chief Executive Officer and our sole Director since March 13, 2018.
  2) Mr. Lobetti has served as our Chief Financial Officer since October 8, 2019.
  3) Mr. Greenwood has served as our Chief Technology Officer since June 15, 2020.

 

Director Compensation

 

We do not currently pay any cash fees to our directors, nor do we pay director’s expenses in attending board meetings.

 

24

 

 

Executive Employment Agreements

 

Scott M. Boruff, CEO

 

Scott M. Boruff and the Company entered into an Employment Agreement dated March 13, 2018, in which Mr. Boruff agreed to serve as our Chief Executive Officer. As compensation, we agreed to pay him an annual salary of $300,000 and he is entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. As additional compensation we granted him an option to purchase 2,500,000 shares of the Company’s common stock at an exercise price of $3.00 per share, which exceeded the fair market price of our common stock on the date of grant, vesting in four equal annual installments commencing on the grant date. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Mr. Boruff is also entitled to paid vacation and sick leave, an automobile allowance and participation in any employee benefit plans or programs we may offer. The initial term of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.

 

The Employment Agreement terminates upon the death or disability of Mr. Boruff, and may be terminated by us for cause, or by Mr. Boruff without cause or for good reason. If the Employment Agreement is terminated for by us for cause, upon his death or disability, at non-renewal or by Mr. Boruff without good cause, he is only entitled to receive compensation through the date of termination. If the Employment Agreement is terminated by us without cause or by Mr. Boruff for good reason, we are obligated to pay him severance equal to one year’s base salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Mr. Boruff’s employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay him an amount equal to 2.99 times his annualized compensation. “Change in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains customary invention assignment, non-compete and non-solicitation provisions.

 

Charles B. Lobetti, III, CFO

 

Charles B. Lobetti, III and the Company entered into a three-year Employment Agreement dated October 8, 2019, in which Mr. Lobetti agreed to serve as our Chief Financial Officer. As compensation, we agreed to pay him an annual salary of $52,000 and he is entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. Effective May 1, 2020, Mr. Lobetti’s base salary was increased to $104,000 to reflect an increased time commitment. As additional compensation we granted him stock options to purchase 600,000 shares of our common stock at an exercise price of $0.15 per share, which was the closing price of common stock as reported on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 25% immediately upon execution of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Mr. Lobetti is also entitled to paid vacation and sick leave, an automobile allowance and participation in any employee benefit plans or programs we may offer. The initial term of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.

 

The Employment Agreement terminates upon the death or disability of Mr. Lobetti, and may be terminated by us for cause, or by Mr. Lobetti for any reason. If the Employment Agreement is terminated for by us for cause, upon his death or disability, at non-renewal or by Mr. Lobetti, he is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated by us without cause or by Mr. Lobetti for good reason, we are obligated to pay him severance equal to one year’s base salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Mr. Lobetti’s employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay him an amount equal to 2.99 times his annualized compensation. “Change in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains customary invention assignment, non-compete and non-solicitation provisions.

 

25

 

 

Kenneth M. Greenwood, CTO

 

Kenneth M. Greenwood and the Company entered into a three-year Employment Agreement dated June 15, 2020, in which Mr. Greenwood agreed to serve as our Chief Technology Officer. As compensation, we agreed to pay him an annual salary of $257,000 and he is entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. As additional compensation we granted him stock options to purchase 2,000,000 shares of our common stock at an exercise price of $0.30 per share, which was the closing price of common stock as reported on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 25% immediately upon execution of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Mr. Greenwood is also entitled to paid vacation and sick leave, and participation in any employee benefit plans or programs we may offer. The initial term of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.

 

The Employment Agreement terminates upon the death or disability of Mr. Greenwood, and may be terminated by us for cause, or by Mr. Greenwood for any reason. If the Employment Agreement is terminated for by us for cause, upon his death or disability, at non-renewal or by Mr. Greenwood, he is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated by us without cause or by Mr. Greenwood for good reason, we are obligated to pay him severance equal to one year’s base salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Mr. Greenwood’s employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay him an amount equal to 2.99 times his annualized compensation. “Change in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains customary invention assignment, non-compete and non-solicitation provisions.

 

Susan A. Reyes, M.D., CMO

 

Susan A. Reyes, M.D. and the Company entered into a three-year Employment Agreement dated September 1, 2020, in which Dr. Reyes agreed to serve as our Chief Medical Officer. As compensation, we agreed to pay her an annual salary of $52,000 and she is entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. As additional compensation we granted her stock options to purchase 1,000,000 shares of our common stock at an exercise price of $0.40 per share, which was the closing price of common stock as reported on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 150,000 shares immediately upon execution of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Dr. Reyes is also entitled to paid vacation and sick leave, and participation in any employee benefit plans or programs we may offer. The initial term of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.

 

The Employment Agreement terminates upon the death or disability of Dr. Reyes, and may be terminated by us for cause, or by Dr. Reyes for any reason. If the Employment Agreement is terminated for by us for cause, upon her death or disability, at non-renewal or by Dr. Reyes, she is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated by us without cause or by Dr. Reyes for good reason, we are obligated to pay her severance equal to one year’s base salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Dr. Reyes’ employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay her an amount equal to 2.99 times her annualized compensation. “Change in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains customary invention assignment, non-compete and non-solicitation provisions.

 

26

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table sets forth certain information as of October 16, 2020 regarding the number and percentage of our Common Stock (being our only voting securities) beneficially owned by each officer, director, each person (including any “group” as that term is used in Section 13(d)(3) of the Exchange Act) known by us to own 5% or more of our Common Stock, and all officers and directors as a group.

 

Title of Class  

Name, Title and Address of

Beneficial Owner of Shares

  Amount of Beneficial Ownership (6)     Percent of
Class (7)
 
Common   Scott M. Boruff, CEO, Director (1)
1462 Rudder Lane
Knoxville, TN 37919
    12,914,854       33.25 %
                     
Common   Charles B. Lobetti, III, CFO (2)
814 Evolve Way
Knoxville, TN 37915
    350,000       1.29 %
                     
Common   Kenneth M. Greenwood, CTO (3)
404 Citrus Ridge Drive
Davenport, FL 33837
    500,000       1.29 %
                     
Common   Susan A. Reyes, CMO (4)
9901 Sierra Visa Lane
Knoxville, TN 37922
    150,000       <1 %
                     
    All Officers and Directors as a Group     14,064,854       36.21 %

 

Principal Shareholders:                
Common Stock   Jeremy Gindro (5)
310 Tanner Avenue
Florence, CO 81226
    7.870,000       20.26 %

 

1) The shares owed by Mr. Boruff includes 11,664,854 shares owned by Platinum Equity Advisors, LLC, of which Mr. Boruff is the Chief Manager. Pursuant to Mr. Boruff’s March 13, 2018 employment agreement as our Chief Executive Officer, the shares also include options to purchase 1,250,000 shares of our common stock, which are vested and exercisable at $3.00 per share and expire in 2023. The number of shares owned by Mr. Boruff excludes options to purchase 1,250,000 shares of our common stock at $3.00 per share which have not yet vested and expire in 2023.
   
2)

Mr. Lobetti owned 200,000 shares at July 31, 2020 and -0- shares at July 31, 2019. As of October 8, 2019, Mr. Lobetti’s employment agreement includes an option to purchase 150,000 shares of our common stock which are vested and exercisable at $0.15 per share on such date and expire in 2024. The remaining 450,000 options granted under the employment agreement will vest annually in equal amounts over a three-year period, including 150,000 shares that vest within 60 days of October 16, 2020. Mr. Lobetti received a restricted stock grant of 500,000 shares on July 16, 2020. Under the terms of the grant, 200,000 shares vested immediately with the remaining shares vesting equally over a three-year period.

 

3)

 

Mr. Greenwood owned no shares at July 31, 2020 and 2019. As of June 15, 2020, Mr. Greenwood’s employment agreement includes an option to purchase 500,000 shares of our common stock which are vested and exercisable at $0.30 per share on such date and expire in 2024. The remaining 1,500,000 options granted under the employment agreement will vest annually in equal amounts over a three-year period.
   
4) Dr. Reyes owned no shares at July 31, 2020 and 2019. As of September 1, 2020, Dr. Reyes’ employment agreement includes an option to purchase 150,000 shares of our common stock which are vested and exercisable at $0.40 per share on such date and expire in 2024. The remaining 850,000 options granted under the employment agreement will vest annually in equal amounts over a three-year period.

 

27

 

 

5) The total includes 100,000 shares owned by James Gindro, the father of Jeremy Gindro.
   
6) As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security). The inclusion of any shares as deemed beneficially owned does not constitute an admission of beneficial ownership by the named stockholder.
   
7) Unless otherwise indicated, we have been advised that all individuals or entities listed have the sole power to vote and dispose of the number of shares set forth opposite their names. For purposes of computing the number and percentage of shares beneficially owned by a security holder, any shares which such person has the right to acquire within 60 days of October 16, 2020 are deemed to be outstanding, but those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other security holder. We currently do not maintain any equity compensation plans. As of October 16, 2020, there were 38,837,235 shares beneficially owned.

 

Changes in Control

 

We are not aware of any arrangements that may result in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Other than compensation arrangements, the following is a description of transactions to which we were a participant or will be a participant to, in which:

 

  the amounts involved exceeded or will exceed the lesser of 1% of our total assets or $120,000; and
     
  any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

 

To continue operations and meet operating cash requirements, we have periodically relied on advances from related parties, primarily shareholders, until such time as our cash flow from operations meets our cash requirements or we are able to obtain adequate financing through sales of our equity securities and/or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts advanced primarily relate to amounts paid to vendors. The advances are considered temporary in nature and have not been formalized by any written agreement. As of July 31, 2020, and July 31, 2019, related parties have advanced the Company $271,819 and $228,506, respectively. The advances are payable on demand and carry no interest.

 

In addition, we have accrued expenses related to the January 15, 2016 consulting and advisory agreement with Platinum Equity Advisors, LLC (the “Platinum Agreement”), a related party. The Platinum Agreement was terminated by on March 12, 2018 (the “Termination Date”) when Scott M. Boruff, the Chief Manager of Platinum, was appointed Chief Executive Officer of the Company. At July 31, 2020, the amount owed under the Platinum Agreement is paid in full. At July 31, 2019, the accrued amount owed under the Platinum Agreement was $113,292.

 

The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.

 

28

 

 Director Independence

 

We currently have no independent directors. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship that, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

 

  the director is, or at any time during the past three years was, an employee of the Company;
     
  the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
     
  a family member of the director is, or at any time during the past three years was, an executive officer of the Company;
     
  the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
     
  the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or
     
  The director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the Company’s audit.

 

The Company does not currently have a separately designated audit, nominating, or compensation committee.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

The following table sets forth the aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.

 

    July 31, 2020     July 31, 2019  
             
Audit Fees   $ 75,525     $ -  
Audit-Related Fees     -       22,950  
Tax Fees     -       -  
All Other Fees     -       -  
Total   $ 75,525     $ 22,950  

 

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

 

Given the small size of our Board as well as the limited activities of our Company, our Board of Directors acts as our Audit Committee. Our Board pre-approves all audit and permissible non-audit services. These services may include audit services, audit-related services, tax services, and other services. Our Board approves these services on a case-by-case basis.

 

29

 

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

Exhibit

No.

  Description
     
2.1   Business Acquisition Agreement between Tomichi Creek Outfitters and Grasshopper Staffing, Inc., dated March 2, 2015 (as filed by the Company with the Securities and Exchange Commission on Form 8-K dated March 5, 2015 and incorporated herein by reference)
     
3.1   Articles of Incorporation (as filed by the Company with the Securities and Exchange Commission of Form S-1 dated August 20, 2013, and incorporated herein by reference)
     
3.2   Certificate of Amendment to Articles of Incorporation, filed November 2, 2015 (as filed with the Securities and Exchange Commission on Form 10-K dated November 23, 2016 and incorporated herein by reference)
     
3.3   Bylaws (as filed by the Company with the Securities and Exchange Commission of Form S-1 dated August 20, 2013, and incorporated herein by reference)
     
10.1   Advisory Agreement dated January 15, 2016 by and between Grasshopper Staffing, Inc. and Platinum Equity Advisors, LLC (as filed by the Company with the Securities and Exchange Commission on Form 8-K dated January 22, 2016 and incorporated herein by reference)
     
10.2**   Employment Agreement between the Company and Scott M. Boruff, dated March13, 2018 (as filed with the Securities and Exchange Commission on Form 8-K dated March 15, 2018 and incorporated herein by reference)
     
10.3**   Employment Agreement between the Company and Charles B. Lobetti, III, dated October 8, 2019 (as filed with the Securities and Exchange Commission on Form 8-K dated January 14, 2020 and incorporated herein by reference)
     
10.4**   Employment Agreement between the Company and Kenneth M. Greenwood, dated June 15, 2020 (as filed with the Securities and Exchange Commission on Form 8-K dated June 16, 2020 and incorporated herein by reference)
     
10.5**   Employment Agreement between the Company and Susan A. Reyes, M.D., dated September 1, 2020 (as filed with the Securities and Exchange Commission on Form 8-K dated September 4, 2020 and incorporated herein by reference)
     
31.1*   Chief Executive Officer and Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002*
     
32.1*   Chief Executive Officer and Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002*

 

* Filed herewith

** Executive Compensation Agreement

 

30

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Healthcare Integrated Technologies, Inc.
   
Date: October 16, 2020  
  By: /s/ Scott M. Boruff
    Scott M. Boruff
    President, Chief Executive Officer (Principal Executive Officer)

 

  Healthcare Integrated Technologies, Inc.
   
Date: October 16, 2020  
  By: /s/ Charles B. Lobetti, III
    Charles B. Lobetti, III
    Chief Financial Officer (Principal Financial Officer)

 

In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Date: October 16, 2020 By: /s/ Scott M. Boruff
   

Scott M. Boruff

President, Chief Executive Officer, Director (Principal Executive Officer)

 

Date: October 16, 2020 By: /s/ Charles B. Lobetti, III
    Charles B. Lobetti, III
    Chief Financial Officer (Principal Financial Officer)

 

31

 

 

INDEX TO FINANCIAL STATEMENTS

 

  Page
Fiscal Years Ended July 31, 2020 and 2019  
   
Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets F-2
   
Consolidated Statements of Operations F-3
   
Consolidated Statements of Changes in Stockholders’ Deficit F-4
   
Consolidated Statements of Cash Flows F-5
   
Notes to Consolidated Financial Statements F-6 - F-18

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

Healthcare Integrated Technologies, Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of Healthcare Integrated Technologies, Inc. (the “Company”) as of July 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended July 31, 2020 and the related notes. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of July 31, 2020 and 2019, and the results of its consolidated operations and its consolidated cash flows for each of the years in the two-year period ended July 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a history of losses, an accumulated deficit, has negative working capital and has not generated cash from operations to support a meaningful and ongoing business plan. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

 

/s/ Rodefer Moss & Co, PLLC  

 

We have served as the Company’s auditor since 2019

 
   

Nashville, Tennessee

 
   

October 16, 2020

 

 

F- 1

 

 

HEALTHCARE INTEGRATED TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

 

    July 31, 2020     July 31, 2019  
ASSETS                
                 
CURRENT ASSETS                
Cash and cash equivalents   $ 78,072     $ 725  
Prepaid expenses     46,938          
Total current assets     125,010       725  
                 
OTHER ASSETS:                
Property and equipment, net     2,453       18,392  
Other intangibles, net     33,958          
Total assets   $ 161,421     $ 19,117  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES:                
Accounts payable and accrued expenses   $ 229,114     $ 220,328  
Accounts payable and accrued expenses, related party     271,819       341,798  
Payroll related liabilities     861,019       472,078  
Convertible notes     600,000       750,000  
Current portion of long-term debt     20,651       3,209  
Total current liabilities     1,982,603       1,787,413  
                 
OTHER LIABILITIES:                
Long-term debt     21,016       2,625  
Total liabilities     2,003,619       1,790,038  
                 
STOCKHOLDERS’ DEFICIT:                
Common stock par value $0.001; 200,000,000 shares authorized; 36,474,661 and 32,487,500 shares issued and outstanding as of July 31, 2020 and July 31, 2019, respectively     36,475       32,488  
Additional paid-in capital     9,564,989       8,582,166  
Accumulated deficit     (11,443,662 )     (10,385,575 )
Total stockholders’ deficit     (1,842,198 )     (1,770,921 )
Total liabilities and stockholders’ deficit   $ 161,421     $ 19,117  

 

See accompanying notes to the consolidated financial statements.

 

F- 2

 

 

HEALTHCARE INTEGRATED TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    For the Years Ended July 31,  
    2020     2019  
             
NET REVENUES:                
Contract staffing services   $ -     $ -  
Direct cost of services     -       -  
Gross margin     -       -  
                 
OPERATING EXPENSES:                
Selling, general and administrative     1,015,804       783,993  
Total operating expense     1,015,804       783,993  
                 
OPERATING LOSS     (1,015,804 )     (783,993 )
                 
OTHER EXPENSE:                
Interest expense     (40,762 )     (38,931 )
Total other expense     (40,762 )     (38,931 )
                 
LOSS FROM CONTINUING OPERATIONS     (1,056,566 )     (822,924 )
                 
LOSS FROM DISCONTINUED OPERATIONS     (1,521 )     (15,594 )
                 
NET LOSS   $ (1,058,087 )   $ (838,518 )
                 
NET LOSS PER COMMON SHARE                
Basic and diluted   $ (0.03 )   $ (0.03 )
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING                
Basic and diluted     33,375,273       32,487,500  

 

See accompanying notes to the consolidated financial statements.

 

F- 3

 

 

HEALTHCARE INTEGRATED TECHNOLOGIES, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED JULY 31, 2020 AND 2019

 

                Additional           Total  
    Common Stock     Paid-In     Accumulated     Stockholders’  
    Shares     Amount     Capital     Deficit     Deficit  
                               
Balance July 31, 2018     32.487,500     $ 32,488     $ 8,287,656     $ (9,547,057 )   $ (1,226,913 )
                                         
Net loss                             (838,518 )     (838,518 )
Stock-based compensation                     294,510               294,510  
                                         
Balance July 31, 2019     32,487,500       32,488       8,582,166       (10,385,575 )     (1,770,921 )
                                         
Net loss                             (1,058,087 )     (1,058,087 )
Stock-based compensation     200,000       200       407,413               407,613  
Issuance of equity for services     500,000       500       115,141               115,641  
Issuance of common stock for
conversion of debt and related
accrued interest
    337,111       337       168,218               168,556  
Sale of common stock     2,950,000       2,950       292,050               295,000  
                                         
Balance July 31, 2020     36,474,611     $ 36,475     $ 9,564,988     $ (11,443,662 )   $ (1,842,198 )

 

See accompanying notes to the consolidated financial statements.

 

F- 4

 

 

HEALTHCARE INTEGRATED TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    For the Years Ended July 31,  
    2020     2019  
             
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (1,058,087 )   $ (838,518 )
Adjustments to reconcile loss to net cash used in operating activities:                
Depreciation and amortization     4,769       9,617  
Stock-based compensation     407,613       294,510  
Issuance of equity for services     48,062       -  
Transfer of property and equipment and assumption of
related liability for services
    6,022       -  
                 
Changes in operating assets and liabilities (excluding effects of acquisitions):                
Accounts receivable, net     -       14,527  
Prepaid expenses and other current assets     -       648  
Accounts payable and accrued expenses     27,341       61,926  
Accounts payable, related party     -       32,183  
Payroll related liabilities     375,624       325,664  
NET CASH USED BY OPERATING ACTIVITIES     (188,656 )     (99,443 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from sale of common stock     295,000       -  
Principal payments of long-term debt     (686 )     (2,109 )
Proceeds from debt issuance     41,667       -  
Proceeds from related party advances     77,416       11,155  
Payments of amounts owed to related parties     (147,395 )     (75,800 )
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES     266,002 )     (66,754 )
                 
Net change in cash and cash equivalents     77,347       (166,197 )
                 
Cash and cash equivalents, beginning of period     725       166,922  
                 
Cash and cash equivalents, end of period   $ 78,072     $ 725  
                 
SUPPLEMENTAL CASH FLOW INFORMATION                
Cash paid for interest   $ 1,371     $ 8,262  
                 
SIGNIFICANT NON-CASH INVESTING AND FINACING ACTIVITIES                
Issuance of common stock for prepaid services   $ 50,000     $ -  
Capital expenditures included in payroll related liabilities   $ 13,317     $ -  
Capital expenditures from non-cash compensation   $ 20,641     $ -  
Issuance of common stock for payment of accrued interest included in accounts payable and accrued expenses   $ 18,555     $ -  
Issuance of common stock for conversion of convertible debt   $ 150,000     $ -  

 

See accompanying notes to the consolidated financial statements.

 

F- 5

 

 

HEALTHCARE INTEGRATED TECHNOLOGIES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2020

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Healthcare Integrated Technologies, Inc. and its subsidiaries (collectively the “Company,” “we,” “our” or “us”) is a healthcare technology company based in Knoxville, Tennessee. We are creating a diversified spectrum of healthcare technology solutions to integrate and automate the continuing care, home care and professional healthcare spaces.

 

Our initial product, SafeSpace, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace includes wall mounted devices utilizing radar technology and state of the art software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects falls and sends alerts directly to designated individuals.

 

In addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience for seniors, recently released postoperative patients and others. The concierge application will enable the consumer to obtain home healthcare services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other items where integration is beneficial.

 

Basis of Presentation

 

The accompanying consolidated financial statements include those of Healthcare Integrated Technologies, Inc. and its subsidiaries, after elimination of all intercompany accounts and transactions. We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission.

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to current period presentation.

 

Risk and Uncertainties

 

Factors that could affect our future operating results and cause actual results to vary materially from management’s expectation include, but are not limited to: our ability to maintain and secure adequate capital to fully develop our product(s) and operations; our ability to source strong opportunities with sufficient risk adjusted returns; acceptance of the terms and conditions of our licenses and/or the acceptance of our royalties and fees; the nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment return expectations; changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a change in circumstances, capacity and economic impacts; changes in laws, regulations, accounting, taxation, and other requirements affecting our operations and business. Negative developments in these or other risk factors could have a significant adverse effect on our financial position, results of operations and cash flows.

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s future financial condition, liquidity, and results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021.

 

F- 6

 

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We base our estimates on experience and various other assumptions that are believed to be reasonable under the circumstances. We evaluate our estimates and assumptions on a regular basis and actual results may differ from those estimates.

 

Concentration of Credit Risk

 

Financial instruments that potentially expose the Company to credit risk consist of cash and cash equivalents, and accounts receivable. The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institutions to the extent account balances exceed the amount insured by the FDIC, which is $250,000. Accounts receivables potentially subject the Company to concentrations of credit risk. Company closely monitors extensions of credit. Estimated credit losses have been recorded in the consolidated financial statements. Recent credit losses have been within management’s expectations.

 

Cash and Cash Equivalents

 

We consider all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.

 

Accounts Receivable

 

Accounts receivable are stated at their historical carrying amount net of write-offs and allowance for uncollectible accounts. We routinely assess the recoverability of all customer and other receivables to determine their collectability and record a reserve when, based on the judgement of management, it is probably that a receivable will not be collected and the amount of the reserve may be reasonably estimated. When collection is no longer pursued, we charge uncollectable accounts receivable against the reserve.

 

Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized while minor replacements and maintenance and repairs, which do not improve or extend the life of such assets, are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in the consolidated statement of operations. Depreciation is calculated using the straight-line method which depreciates the assets over the estimated useful lives of the depreciable assets ranging from five to seven years.

 

Impairment of Long-Lived Assets

 

Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment at least annually or whenever facts and circumstances indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. The Company did not recognize any impairment losses for any periods presented.

 

F- 7

 

 

Intangible Assets

 

Intangible assets consist of patents, our website and the costs of software developed for internal use. Certain payroll and stock-based compensation costs incurred are allocated to the intangible assets. We determine the amount of costs to be capitalized based on the time spent by employees or outside contractors on the projects. Intangible assets are amortized over their expected useful life on a straight-line basis. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. If the estimate of an intangible asset’s remaining life is changed, the remaining carrying value of the intangible asset is amortized prospectively over the revised remaining useful life. We did not recognize any impairment losses during any of the periods presented.

 

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

 

Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

 

Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

 

Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

 

Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.

 

Revenue Recognition

 

Revenue is recognized under ASC 606 using the modified retrospective method. Under this method, the Company follows the five-step model provided by ASC Topic 606 in order to recognize revenue in the following manner: 1) Identify the contract; 2) Identify the performance obligations of the contract; 3) Determine the transaction price of the contract; 4) Allocate the transaction price to the performance obligations; and 5) Recognize revenue. An entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company’s revenue recognition policies remained substantially unchanged as a result of the adoption of ASC 606, and there were no significant changes in business processes or systems.

 

Prior to the discontinuance of its operations in February 2019, our Grasshopper Staffing, Inc. subsidiary (“Grasshopper Colorado”) earned revenue by providing specialized temporary staffing solutions to the cannabis industry. We provided temporary labor at an agreed upon rate per hour. Billings were invoiced on a per-hour basis as the temporary staffing services were delivered to the customer. Revenue from most of our temporary staffing services was recognized at a point in time. We applied the practical expedient to recognize revenue for these services at various intervals based on the number of hours completed and the agreed upon rate per hour at that time.

 

F- 8

 

 

Advertising

 

Advertising costs are expensed as incurred in accordance with ASC 720-35, “Advertising Costs.” We incurred advertising costs of $50,927 and $8.746 for the fiscal years ended July 31, 2020 and 2019, respectively, which are included in selling, general and administrative expenses on the consolidated financial statements.

 

Net Loss Per Common Share

 

We determine basic income (loss) per share and diluted income (loss) per share in accordance with the provisions of ASC 260, “Earnings Per Share.” Basic loss per share excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. The calculation of diluted income (loss) per share is similar to that of basic earnings per share, except the denominator is increased, if the earnings are positive, to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares had been exercised.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”) which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans, if any, in accordance with ASC 718.

 

Share-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-based payment, which is the more readily determinable value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock-based compensation expenses are included in cost of goods sold or selling, general and administrative expenses, depending on the nature of the services provided, in the consolidated statements of operations. Share-based payments issued to placement agents are classified as a direct cost of a stock offering and are recorded as a reduction in additional paid in capital.

 

The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately expected to vest.

 

Business Combinations

 

We account for business combinations under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and that changes thereafter be reflected in income (loss). The estimation of fair values of the assets and liabilities assumed involves several estimates and assumptions that could differ materially from the actual amounts recorded. The results of the acquired businesses are included in our results from operations beginning from the day of acquisition.

 

Income Taxes

 

We use the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes”. Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

F- 9

 

 

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

 

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the reporting periods presented.

 

Recently Adopted Accounting Pronouncements

 

In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. Companies will value all equity classified awards at their grant-date under ASC 718 and forgo revaluing the award after the grant date. ASU 2018-07 is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within that reporting period. Early adoption is permitted, but no earlier than the Company’s adoption date of Topic 606, Revenue from Contracts with Customers (as described above under “Revenue Recognition”). The adoption of the new standard did not have a significant impact on our consolidated financial statements.

 

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company adopted the new standard during the year ended July 31, 2020 and the adoption did not have a material effect on the consolidated financial statements and related disclosures.

 

F- 10

 

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. This update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating this guidance and the impact of this update on its consolidated financial statements.

 

In December 2019, the FASB issued authoritative guidance intended to simplify the accounting for income taxes (ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”). This guidance eliminates certain exceptions to the general approach to the income tax accounting model and adds new guidance to reduce the complexity in accounting for income taxes. This guidance is effective for annual periods after December 15, 2020, including interim periods within those annual periods. The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.

 

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference LIBOR or another reference rate if certain criteria are met. The amendments of ASU No. 2020-04 are effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. The Company is evaluating the impact that the amendments of this standard would have on the Company’s consolidated financial statements

 

Management has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”) through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective accounting pronouncements, when adopted, will have a material impact on the consolidated financial statements of the Company.

 

NOTE 2 - GOING CONCERN

 

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going concern. The Company had a net loss of approximately $1.1 million for the year ended July 31, 2020. As of July 31, 2020, the Company had cash and working capital deficit of approximately $78,000 and $1.86 million, respectively. We have a history of losses, an accumulated deficit, have negative working capital and have not generated cash from our operations to support a meaningful and ongoing business plan. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

In view of these matters, our ability to continue as a going concern is dependent upon the development, marketing and sales of a viable product to achieve a level of profitability. We intend on financing our future development activities and our working capital needs largely from the sale of private and public equity securities with additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. Although the Company believes in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional funds if necessary, there can be no assurances to that effect. Therefore, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.

 

F- 11

 

 

NOTE 3 - DISCONTINUED OPERATIONS

 

In February 2019, due to continuing operating losses, negative cash flow, limited prospects for future growth and a desire to focus on our healthcare technology products, management elected to discontinue the operations of its Grasshopper Colorado subsidiary. The loss from the operations from the subsidiary is presented separately on the consolidated income statement as discontinued operations.

 

Discontinued operations consisted of the following for the fiscal years ended July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Net revenue   $ -     $ 27,909  
Operating expenses     (719 )     (35,969 )
Interest expense     (802 )     (7,534 )
Loss from discontinued operations   $ (1,521 )   $ (15,594 )

 

NOTE 4 - PROPERTY AND EQUIPMENT

 

Property and equipment, net consisted of the following at July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Equipment   $ 8,923     $ 23,923  
Vehicles     -       14,766  
Subtotal     8,923       38,689  
Less: accumulated depreciation     (6,470 )     (20,297 )
Total property and equipment, net   $ 2,453     $ 18,392  

 

Depreciation expense for the fiscal years ended July 31, 2020 and 2019 was $4,769 and $7,317, respectively.

 

NOTE 5 – OTHER INTANGIBLES

 

Other intangibles, net consisted of the following at July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Patents in process   $ 27,299     $ -  
Website in process     5,327       -  
Internal use software in process     1,332       -  
Total other intangibles, net   $ 33,958     $ -  

 

We incurred no amortization expense for the fiscal year ended July 31, 2020 as the assets have not been placed in service. At July 31, 2019, there were no intangible assets.

 

F- 12

 

 

NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following at July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Accounts payable   $ 155,211     $ 168,062  
Accrued interest expense     73,903       52,266  
Accounts payable and accrued expenses     229,114       220,328  
                 
Accounts payable, related party     271,819       228,506  
Accrued expenses, related party     -       113,292  
Accounts payable and accrued expenses, related party     271,819       341,798  
                 
Total accounts payable and accrued expenses   $ 500,933     $ 562,126  

  

Certain accounts payable and accrued expenses were misclassified in the prior year, which have been reclassified in the above tables. The impact of our prior year disclosures was immaterial and there was no impact to the consolidated financial statements from the change in classification.

 

NOTE 7 - PAYROLL RELATED LIABILITIES

 

Payroll related liabilities consisted of the following at July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Accrued officers’ payroll   $ 858,154     $ 471,214  
Payroll taxes payable     2,865       864  
Total payroll related liabilities   $ 861,019     $ 472,078  

 

NOTE 8 - DEBT

 

We had the following debt obligations reflected at their respective carrying values on our consolidated balance sheets as of July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
5% Convertible promissory notes   $ 600,000     $ 750,000  
Paycheck Protection Program loan     41,667       -  
Ford Credit note     -       5,834  
Total debt obligations     641,667       755,834  
Less current portion     (620,651 )     (753,209 )
Long-term debt   $ 21,016     $ 2,625  

 

5% Convertible Promissory Notes

 

On various dates during the month of March 2018 we issued a series of 5% Convertible Promissory Notes (collectively, the “5% Notes”) totaling $750,000 in net proceeds. We incurred no costs related to the issuance of the 5% Notes. The 5% Notes bear interest at the rate of five percent (5%) per annum, compounded annually and matured one-year from the date of issuance. At July 31, 2020 and 2019, accrued but unpaid interest on the 5% Notes was $73,903 and $52,266, respectively, which is included in accounts payable and accrued expenses on our consolidated balance sheets.

 

The 5% Notes are convertible into common shares of the Company at a fixed ratio of two shares of common stock per dollar amount of the face value of the note. The principal terms under which the 5% Notes may be converted into common stock of the Company are as follows:

 

  At the option of the holder, the outstanding principal amount of the note, and any accrued but unpaid interest due, may be converted into the Company’s common stock at any time prior to the maturity date of the note.
     
  The outstanding principal amount of the note, and any accrued but unpaid interest due, will automatically be converted into the Company’s common stock if at any time prior to the maturity date of the note, the Company concludes a sale of equity securities in a private offering resulting in gross proceeds to the Company of at least $1,000,000.

 

F- 13

 

 

5% Notes with a face amount of $150,000 and accrued interest expense of $18,555 were converted, at the option of the holders, into 337,111 shares of our common stock during fiscal 2020. On July 31, 2020, 5% Notes with a face amount of $275,000 and related accrued interest expense of $33,872, which matured on various dates during March 2019 are currently in default and are not convertible under the conversion terms. 5% Notes with a face amount of $325,000 and related accrued interest expense of $40,031 mature on March 31, 2021 and are convertible under the conversion terms. Management continues to negotiate amendments to the remaining notes in default to extend the maturity dates of such notes and to encourage note conversions.

 

Paycheck Protection Program Loan

 

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and included a provision for the Small Business Administration (“SBA”) to implement its Paycheck Protection Program (“PPP”). The PPP provides small businesses with funds to pay up to eight (8) weeks of payroll costs, including benefits. Funds received under the PPP may also be used to pay interest on mortgages, rent, and utilities. Subject to certain criteria being met, all or a portion of the loan may be forgiven. The loans bear interest at an annual rate of one percent (1%), are due two (2) years from the date of issuance, and all payments are deferred for the first six (6) months of the loan. Any unforgiven balance of loan principal and accrued interest at the end of the six (6) month loan deferral period is amortized in equal monthly installments over the remaining 18-months of the loan term. On April 30, 2020, we closed a $41,667 SBA guaranteed PPP loan with Mountain Commerce Bank. We expect to use the loan proceeds as permitted and apply for and receive forgiveness for the entire loan amount. As of July 31, 2020, we are still awaiting the SBA’s issuance of final rules for forgiveness of the loan balance prior to submitting our application for forgiveness.

 

Ford Credit Note

 

The Ford Credit note was assumed in our acquisition of IndeLiving Holdings, Inc. on March 13, 2018. The original retail installment contract was entered into on June 15, 2016 in the amount of $11,766. The note bears interest at the rate of 9.99% per annum and requires sixty (60) monthly installments of $251 per month. The installment note is collateralized by a 2013 Ford pickup truck. Effective February 21, 2020, the Company transferred the 2013 Ford pickup truck and other equipment in exchange for the transferee’s assumption of the Ford Credit note.

 

NOTE 9 - INCOME TAXES

 

A reconciliation of the provision for income taxes as reported, and the amount computed by multiplying net loss by the federal statutory rate of 21% as of July 31, 2020 and 2019 are as follows:

 

    July 31, 2020     July 31, 2019  
Federal income tax benefit computed at the statutory rate   $ (222,198 )   $ (176,089 )
Increase (decrease) resulting from:                
State income taxes, net of federal benefit     (1,088 )     (6,459 )
Equity based compensation     89,933       61,847  
Valuation allowance     133,113       119,019  
Other     240       1,682  
Income tax benefit, as reported   $ -     $ -  

 

The components of the net deferred tax asset as of July 31, 2020 and 2019 are as follows:

 

    July 31, 2020     July 31, 2019  
Deferred tax assets:                
Net operating loss carryovers   $ 537,764     $ 404,651  
Valuation allowance     (537,764 )     (404,651 )
Net deferred tax asset, as reported   $ -     $ -  

 

F- 14

 

 

In assessing the realizable value of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which these temporary differences become tax deductible. Based on management’s assessment of objective and subjective evidence, we have concluded at this time it is more likely than not that all of our deferred tax asset will not be realized and we have provided a valuation allowance for the entire amount of the deferred tax asset. At July 31, 2020 we have approximately $2.46 million in federal and state net operating loss carryovers that begin expiring in fiscal 2037.

 

We conduct business solely in the United States and file income tax returns in the United States federal jurisdiction as well as in the states of Tennessee and Colorado. The taxable years ended July 31, 2019, 2018 and 2017 remain open to examination by the taxing jurisdictions to which we are subject.

 

The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.

 

If applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other expenses – Interest expense” in the consolidated statements of operations. Penalties would be recognized as a component of “General and administrative.”

 

No material interest or penalties on unpaid tax were recorded during the year ended July 31, 2020 and 2019. As of July 31, 2020 and 2019, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.

 

NOTE 10 - RELATED PARTY TRANSACTIONS

 

To continue operations and meet operating cash requirements, we have periodically relied on advances from related parties, primarily shareholders, until such time as our cash flow from operations meets our cash requirements or we are able to obtain adequate financing through sales of our equity securities and/or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts advanced primarily relate to amounts paid to vendors. The advances are considered temporary in nature and have not been formalized by any written agreement. As of July 31, 2020 and 2019, related parties have advanced the Company $271,819 and $228,506, respectively. The advances are payable on demand and carry no interest.

 

In addition, we have accrued expenses related to the January 15, 2016 consulting and advisory agreement with Platinum Equity Advisors, LLC (the “Platinum Agreement”), a related party. The Platinum Agreement was terminated on March 12, 2018 (the “Termination Date”) when Scott M. Boruff, the Chief Manager of Platinum, was appointed Chief Executive Officer of the Company. As of July 31, 2020 and 2019, the accrued amount owed under the Platinum Agreement is $-0- and $113,292, respectively.

 

The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.

 

NOTE 11 - COMMON STOCK

 

At July 31, 2020 and 2019, we had 36,474,611 and 32,487,500 shares of common stock outstanding, respectively. We issued 3,987,111 shares during the fiscal year ended July 31, 2020, of which 2,950,000 shares were issued for cash, 500,000 shares were issued for services, 337,111 shares were issued upon conversion of debt and 200,000 shares were issued for the vesting of an employee stock grant. No shares were issued during the year ended July 31, 2019.

 

F- 15

 

 

On February 11, 2020, we completed a private placement of 1,000,000 shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $100,000. We incurred no cost related to the private placement.

 

On March 18, 2020, we completed a private placement of 200,000 shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $20,000. We incurred no cost related to the private placement.

 

On March 21, 2020, we executed an agreement with BrandMETTLE, LLC (“BrandMETTLE”) to serve as our advertising and marketing agency. Pursuant to the terms of the agreement, we issued 250,000 shares of our common stock to certain principals of BrandMETTLE at an estimated value of $0.18 per share.

 

On July 8, 2020, we issued 56,048 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”) in exchange for the Note plus accrued interest of $3,024 through the conversion date. Under the terms of the Note, the shares were issued at a conversion price of $0.50 per share.

 

On July 8, 2020, we completed a private placement of 1,000,000 shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $100,000. We incurred no cost related to the private placement.

 

On July 13, 2020, we completed a private placement of 250,000 shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $25,000. We incurred no cost related to the private placement.

 

On July 16, 2020, we completed two (2) private placements totaling 500,000 shares of our common stock, each at a price of $0.10 per share, resulting in net proceeds to the Company of $50,000. We incurred no cost related to the private placements.

 

On July 16, 2020, we issued 200,000 shares of common stock to an employee upon the vesting of a portion of a restricted stock grant. The grant date fair value of the shares issued was $0.35 per share.

 

On July 17, 2020, we executed an agreement with Haygood Moody Hodge PLC (“HMH”) to provide general legal services to the Company. Pursuant to the terms of the agreement, we issued 250,000 shares of our common stock to a principal of HMH for prepaid legal services at an estimated value of $0.20 per share.

 

On July 24, 2020, we issued 56,176 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”) in exchange for the Note plus accrued interest of $3,088 through the conversion date. Under the terms of the Note, the shares were issued at a conversion price of $0.50 per share.

 

On July 29, 2020, we issued 224,887 shares of common stock to the holder of a $25,000 5% Convertible Promissory Note (the “Note”) in exchange for the Note plus accrued interest of $3,088 through the conversion date. Under the terms of the Note, the shares were issued at a conversion price of $0.50 per share.

 

NOTE 12 - STOCK-BASED COMPENSATION

 

Our stock-based compensation programs are long-term retention awards that are intended to attract, retain, and provide incentives for employees, officers and directors, and to align stockholder and employee interest. We utilize grants of both stock options and warrants and restricted stock to achieve those goals.

 

Summary of Stock Options and Warrants

 

During the year ended July 31, 2020, we recorded $334,939 of compensation expense, net of capitalized expense of $20,641, related to stock options and warrants. During the year ended July 31, 2019, we recorded $294,510 of compensation expense related to stock options and warrants. The grant date fair value stock options and warrants during the year ended July 31, 2020 was $808,253. No stock options or warrants were granted during the year ended July 31, 2019.

 

F- 16

 

 

We estimated the grant date fair value of stock options and warrants using the Black-Scholes pricing model with the following weighted average range of assumptions for the periods presented:

 

    July 31, 2020     July 31, 2019  
Expected volatility     271.37 %     -  
Expected term (in years)     3.25       -  
Risk-free interest rate     0.46 %     -  
Dividend yield     None       -  

 

Expected Volatility

 

Due to the fact we do not consider historical volatility is the best indicator of future volatility, we use implied volatility of our options to estimate future volatility.

 

Expected Term

 

Where possible, we use the simplified method to estimate the expected term of employee stock options. Where we are unable to use the simplified method due to the terms of a stock option, we may use a modified simplified method to estimate the expected term. We do not have adequate historical exercise data to provide a reasonable basis for estimating the expected term for the current share options granted. The simplified method assumes that employees will exercise share options evenly between the period when the share options are vested and ending on the date when the options would expire.

 

Risk-Free Interest Rate

 

The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.

 

Dividend Yield

 

We have not estimated any dividend yield as we currently do not pay a dividend and do not anticipate paying a dividend over the expected term.

 

The following table summarizes our options and warrant activity for the years ended July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
    Number of     Weighted     Number of     Weighted  
    Options and     Average     Options and     Average  
    Warrants     Exercise Price     Warrants     Exercise Price  
Balance at beginning of year     2,500,000     $ 3.00       2,500,000     $ 3.00  
Granted     3,850,000       0.25       -       -  
Exercised     -       -       -       -  
Balance at end of year     6,350,000     $ 1.34       2,500,000     $ 3.00  
Options and warrants exercisable     2,150,000     $ 1.85       625,000     $ 3.00  

 

Summary of Restricted Stock Grants

 

During the years ended July 31, 2020 and 2019, we recorded compensation expense of $72,674 and $-0-, respectively, related to restricted stock grants. The grant date fair value of restricted stock during the year ended July 31, 2020 was $175,000. There were no restricted stock grants during the year ended July 31, 2019.

 

The following table summarizes our restricted stock activity for the years ended July 31, 2020 and 2019:

 

    July 31, 2020     July 31, 2019  
Balance at beginning of year   $ -     $ -  
Granted     500,000       -  
Released     (200,000 )     -  
Forfeited     -       -  
Balance at end of year   $ 300,000     $ -  

 

F- 17

 

 

NOTE 13 – COMMITMENTS AND CONTINGENCIES

 

On March 13, 2018, in connection with the appointment of Scott M. Boruff as Chief Executive Officer of the Company, the Company and Mr. Boruff entered into an employment agreement (the “Boruff Employment Agreement”) with an initial term of three (3) years. As compensation for his services, the Company shall pay Mr. Boruff an annual base salary of $300,000. In the event Mr. Boruff’s employment with the Company is terminated without cause, Mr. Boruff shall be entitled to a severance payment equal to his base salary for one (1) full year. If Mr. Boruff is terminated without cause within two (2) years of a change in control upon request of the acquiror, Mr. Boruff shall be entitled to a severance payment in an amount equal to 2.99 times the annualized base salary he is then earning. In addition, Mr. Boruff is eligible for equity awards as approved by the Board of Directors as defined in the agreement.

 

On October 8, 2019, in connection with the appointment of Charles B. Lobetti, III as Chief Financial Officer of the Company, the Company and Mr. Lobetti entered into an employment agreement (the “Lobetti Employment Agreement”) ”) with an initial term of three (3) years. Pursuant to a modification of the Lobetti Employment Agreement effective May 1, 2020, the Company shall pay Mr. Lobetti an annual base salary of $104,000 per year as compensation for his services. In the event Mr. Lobetti’s employment with the Company is terminated without cause, Mr. Lobetti shall be entitled to a severance payment equal to his base salary for one (1) full year. If Mr. Lobetti is terminated without cause within two (2) years of a change in control upon request of the acquiror, Mr. Lobetti shall be entitled to a severance payment in an amount equal to 2.99 times the annualized base salary he is then earning. In addition, Mr. Lobetti is eligible for equity awards as approved by the Board of Directors as defined in the agreement.

 

On June 15, 2020, in connection with the appointment of Kenneth M. Greenwood as Chief Technology Officer of the Company, the Company and Mr. Greenwood entered into an employment agreement (the “Greenwood Employment Agreement”) with an initial term of three (3) years. As compensation for his services, the Company shall pay Mr.
Greenwood an annual base salary of $257,000. The base salary shall be accrued until the Company obtains funding of $1,000,000 in excess of funding used for inventory purchases, or has $1,000,000 in revenue, whichever occurs first. In the event Mr. Greenwood’s employment with the Company is terminated without cause, Mr. Greenwood shall be entitled to a severance payment equal to his base salary for one (1) full year. If Mr. Greenwood is terminated without cause within two (2) years of a change in control upon request of the acquiror, Mr. Greenwood shall be entitled to a severance payment in an amount equal to 2.99 times the annualized base salary he is then earning. In addition, Mr. Greenwood is eligible for equity awards as approved by the Board of Directors as defined in the agreement.

 

NOTE 14 - SUBSEQUENT EVENTS

 

On August 11, 2020 we agreed to repurchase 1,000,000 shares of our common stock from Acorn Management Partners, LLC (“AMP”). As consideration for the share repurchase, we issued a $50,000 promissory note bearing interest a 6.0% per annum and due one-year from the date of issuance (the “Note”). In the event we default under the terms of the Note, we are required to deliver 1,000,000 shares of our common stock back to AMP in full satisfaction of the obligation. Upon receipt, the acquired shares were immediately canceled.

 

On August 15, 2020, we issued 112,624 shares of common stock to the holder of a $50,000 5% Convertible Promissory Note (the “Note”) in exchange for the Note plus accrued interest of $6,312 through the conversion date. Under the terms of the Note, the shares were issued at a conversion price of $0.50 per share.

 

On September 1, 2020, Susan A. Reyes, M.D. and the Company entered into a three-year Employment Agreement in which Dr. Reyes agreed to serve as our Chief Medical Officer. As compensation, we agreed to pay her an annual salary of $52,000 and she is entitled to discretionary bonuses as may be awarded from time to time by our Board of Directors. As additional compensation we granted her stock options to purchase 1,000,000 shares of our common stock at an exercise price of $0.40 per share, which was the closing price of common stock as reported on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 150,000 shares immediately upon execution of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Dr. Reyes is also entitled to paid vacation and sick leave, and participation in any employee benefit plans or programs we may offer. The initial term of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.

 

The Employment Agreement terminates upon the death or disability of Dr. Reyes, and may be terminated by us for cause, or by Dr. Reyes for any reason. If the Employment Agreement is terminated for by us for cause, upon her death or disability, at non-renewal or by Dr. Reyes, she is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated by us without cause or by Dr. Reyes for good reason, we are obligated to pay her severance equal to one year’s base salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Dr. Reyes’ employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay her an amount equal to 2.99 times her annualized compensation. “Change in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains customary invention assignment, non-compete and non-solicitation provisions.

 

On October 13, 2020, we completed two (2) private placements totaling 1,050,000 shares of our common stock, each at a price of $0.10 per share, resulting in net proceeds to the Company of $105,000. We incurred no cost related to the private placements.

 

 

F- 18

 

Healthcare Integrated Te... (PK) (USOTC:HITC)
Historical Stock Chart
From Nov 2020 to Dec 2020 Click Here for more Healthcare Integrated Te... (PK) Charts.
Healthcare Integrated Te... (PK) (USOTC:HITC)
Historical Stock Chart
From Dec 2019 to Dec 2020 Click Here for more Healthcare Integrated Te... (PK) Charts.