PART
I
ITEM
1. BUSINESS.
Overview
Healthcare
Integrated Technologies, Inc. and its subsidiaries (collectively the “Company,” “we,” “our” or “us”)
is a healthcare technology company based in Knoxville, Tennessee. We are creating a diversified spectrum of healthcare technology solutions
to integrate and automate the continuing care, home care and professional healthcare spaces.
Our
initial product, SafeSpace™ with AI Vision™, is an ambient fall detection solution designed for continuing care communities
and at home use. SafeSpace includes hardware devices utilizing RGB, radar and other sensor technology coupled with our internally developed
software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts
to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects
falls and sends alerts directly to designated individuals.
In
addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience
for seniors, recently released postoperative patients and others. The concierge application will enable the consumer to obtain home healthcare
services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution
for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other
items where integration is beneficial.
Our
History
The
Company has had three distinct businesses. First, we were incorporated in the state of Nevada on June 25, 2013 as Tomichi Creek Outfitters,
aiming to provide professionally guided big game hunts in Sargents, Colorado which is approximately four hours southwest from Denver.
This area of the country is home to trophy size Elk and Mule Deer. Our secondary business included offering guided scenic tours on the
western slopes of the Rocky Mountains. Every season offers a diversified plethora of wildlife and stunning scenic views. Our Chief Executive
Officer (“CEO”) and sole director at that time was Jeremy Gindro. These operations were discontinued in 2015.
Second,
on March 2, 2015, the Company entered into a Business Acquisition Agreement and share exchange under which we acquired the business and
assets of Grasshopper Staffing, Inc. (“Grasshopper Colorado”), formed in the state of Colorado on January 13, 2015. The exchange
for $10,651 was represented by 250,000 shares of the Company’s common stock in exchange for all the outstanding shares of Grasshopper
Colorado. The assets purchased include the trademark and website, office supplies and office furniture. On November 2, 2015 we filed
a Certificate of Amendment to our Articles of Incorporation changing the name of our Company from Tomichi Creek Outfitters to Grasshopper
Staffing, Inc. Grasshopper Colorado was operating as a wholly owned subsidiary of the Company and was the primary operation of our business
until the acquisition of IndeLiving Holdings Inc., on March 13, 2018. Our management consisted of Melanie Osterman as CEO, and Jeremy
Gindro who was our sole director. The operations of Grasshopper Colorado were discontinued in February 2019.
Third,
we acquired IndeLiving Holdings, Inc. (“IndeLiving”) on March 13, 2018 and changed our name to Healthcare Integrated Technologies,
Inc. Our current operations are described above. With the acquisition of IndeLiving, we had another change in management, and Scott M.
Boruff became CEO and sole director of the Company.
Employees
and Human Capital
At
July 31, 2021, we had 4 employees.
At
July 31, 2020, we had 3 employees.
None
of our employees are represented by a union or covered by a collective bargaining agreement. We have not experienced any work stoppages
and we consider our relationship with our employees to be good.
Our
human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing
and new employees, advisors and consultants. The principal purposes of our equity incentive plan are to attract, retain and reward
personnel through the granting of stock-based compensation awards, in order to increase stockholder value and the success of our company
by motivating such individuals to perform to the best of their abilities and achieve our objectives.
Available
Information
We
electronically file certain documents with the Securities and Exchange Commission (the SEC). We file annual reports on Form 10-K; quarterly
reports on Form 10-Q; and current reports on Form 8-K (as appropriate); along with any related amendments and supplements thereto. From
time-to-time, we may also file registration statements and related documents in connection with equity or debt offerings. You may read
and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may
obtain information regarding the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet
website at www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC.
ITEM
1A. RISK FACTORS.
Risks
Related to Economic and Market Conditions
General
Economic and Financial Conditions
The
success of any investment activity is influenced by general economic and financial conditions, all of which are beyond the control of
the Company. These conditions, such as the recent global economic crisis and significant downturns in the financial markets, may materially
adversely affect our operating results, financial condition and ability to implement our business strategy and/or meet our return objectives.
The
recent global outbreak of COVID-19 (more commonly known as the Coronavirus) has disrupted economic markets and the prolonged economic
impact is uncertain, which could adversely affect our business operations and materially and adversely affect our results of operations,
cash flows and financial position. Some economists and major investment banks have expressed concern that the continued spread of the
virus globally could lead to a world-wide economic downturn. Many manufacturers of goods in China and other countries have seen a downturn
in production due to the suspension of business and temporary closure of factories in an attempt to curb the spread of the illness.
The
impacts of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business,
results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the COVID-19 pandemic
impacts us will depend on numerous evolving factors and future developments that we are not able to predict. Due to the largely unprecedented
and evolving nature of the COVID-19 pandemic, it remains very difficult to predict the extent of the impact on our industry generally
and our business in particular.
Risks
Related to Our Business
The
Company’s industry is highly competitive and we have less capital and resources than many of our competitors which may give them
an advantage in developing and marketing products similar to ours or make our products obsolete.
We
are involved in a highly competitive industry where we may compete with numerous other companies who offer alternative methods or approaches,
who may have far greater resources, more experience, and personnel perhaps more qualified than we do. Such resources may give our competitors
an advantage in developing and marketing products similar to ours or products that make our products obsolete. There can be no assurance
that we will be able to successfully compete against these other entities.
The
Company may be unable to respond to the rapid technological change in its industry and such change may increase costs and competition
that may adversely affect its business
Rapidly
changing technologies, frequent new product and service introductions and evolving industry standards characterize the Company’s
market. The continued growth of the Internet and intense competition in the Company’s industry exacerbate these market characteristics.
The Company’s future success will depend on its ability to adapt to rapidly changing technologies by continually improving the
performance features and reliability of its products and services. The Company may experience difficulties that could delay or prevent
the successful development, introduction or marketing of its products and services. In addition, any new enhancements must meet the requirements
of its current and prospective users and must achieve significant market acceptance. The Company could also incur substantial costs if
it needs to modify its products and services or infrastructures to adapt to these changes.
The
Company also expects that new competitors may introduce products, systems or services that are directly or indirectly competitive with
the Company. These competitors may succeed in developing, products, systems and services that have greater functionality or are less
costly than the Company’s products, systems and services, and may be more successful in marketing such products, systems and services.
Technological changes have lowered the cost of operating communications and computer systems and purchasing software. These changes reduce
the Company’s cost of providing services but also facilitate increased competition by reducing competitors’ costs in providing
similar services. This competition could increase price competition and reduce anticipated profit margins.
The
Company’s services are new and its industry is evolving.
You
should consider the Company’s prospects considering the risks, uncertainties and difficulties frequently encountered by companies
in their early stage of development. To be successful in this industry, the Company must, among other things:
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develop
and introduce functional and attractive services;
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attract
and maintain a large base of customers;
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increase
awareness of the Company brand and develop consumer loyalty;
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respond
to competitive and technological developments;
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build
an operations structure to support the Company business; and
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attract,
retain and motivate qualified personnel.
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The
Company cannot guarantee that it will succeed in achieving these goals, and its failure to do so would have a material adverse effect
on its business, prospects, financial condition and operating results.
The
Company’s products and services are new and are in the early stages of development. The Company is not certain that these products
and services will function as anticipated or be desirable to its intended market. Also, some of the Company’s products and services
may have limited functionalities, which may limit their appeal to consumers and put the Company at a competitive disadvantage. If the
Company’s current or future products and services fail to function properly or if the Company does not achieve or sustain market
acceptance, it could lose customers or could be subject to claims which could have a material adverse effect on the Company’s business,
financial condition and operating results.
Risks
Related to Our Company
Uncertainty
of profitability
Our
business strategy may result in increased volatility of revenues and earnings. As we will only develop a limited number of products and
services at a time, our overall success will depend on a limited number of products and services, which may cause variability and unsteady
profits and losses depending on the products and services offered.
Our
revenues and our profitability may be adversely affected by economic conditions and changes in the market. Our business is also subject
to general economic risks that could adversely impact the results of operations and financial condition.
Because
of the anticipated nature of the products and services that we will attempt to develop, it is difficult to accurately forecast revenues
and operating results and these items could fluctuate in the future due to several factors. These factors may include, among other things,
the following:
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Our
ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses.
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Our
ability to source strong opportunities with sufficient risk adjusted returns.
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Our
ability to manage our capital and liquidity requirements based on changing market conditions.
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The
acceptance of the terms and conditions of our licenses and/or the acceptance of our royalties and fees.
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The
amount and timing of operating costs and other costs and expenses.
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The
nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment
return expectations.
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Adverse
changes in the national and regional economies in which we will participate, including, but not limited to, changes in our performance,
capital availability, and market demand.
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Adverse
changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a
change in circumstances, capacity and economic impacts.
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Changes
in laws, regulations, accounting, taxation, and other requirements affecting our operations and business.
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Our
operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations
may be significant.
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Our
independent auditors’ report for the fiscal years ended July 31, 2021 and 2020 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, 2021 and 2020, 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 2022.
Management
of growth will be necessary for us to be competitive
Successful
expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders.
Specifically, we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the
general economic environment. Expansion has the potential to place significant strains on financial, management, and operational resources,
yet failure to expand will inhibit our profitability goals.
We
are entering a potentially highly competitive market
The
markets for the healthcare and senior monitoring industries are competitive and evolving. We face strong competition from larger companies
that may be in the process of offering similar products and services to ours. Many of our current and potential competitors have longer
operating histories, significantly greater financial, marketing and other resources and larger client bases than we have or expect to
have.
Given
the rapid changes affecting the global, national, and regional economies generally, and the healthcare industry specifically, we may
not be able to create and maintain a competitive advantage in the marketplace. Our success will depend on our ability to keep pace with
any market, legal and regulatory changes as well as competitive pressures. Any failure by us to anticipate or respond adequately to such
changes could have a material adverse effect on our financial condition, operating results, liquidity and cash flow.
If
we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately
or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely
impact the future trading price of our common stock.
Effective
internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed,
and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies
may adversely affect our financial condition, results of operation and access to capital.
We
currently have insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and
accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the United States Securities and
Exchange Commission (the “SEC”) disclosure requirements. Additionally, there is a lack of formal process and timeline for
closing the books and records at the end of each reporting period and such weaknesses restrict the Company’s ability to timely
gather, analyze and report information relative to the financial statements.
Because
of the Company’s limited resources, there are limited controls over information processing. There is inadequate segregation of
duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a
situation where limitations on segregation of duties exist. In order to remedy this situation, we would need to hire additional staff.
The
Company’s failure to continue to attract, train, or retain highly qualified personnel could harm the company’s business.
The
Company’s success also depends on the Company’s ability to attract, train, and retain qualified personnel, specifically those
with management and product development skills. In particular, the Company must hire additional skilled personnel to further the Company’s
research and development efforts. Competition for such personnel is intense. If the Company fails in attracting new personnel or retaining
and motivating the Company’s current personnel, the Company’s business could be harmed.
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 28, 2021, there
were 42,034,673 shares of our common stock issued and outstanding. We anticipate that all or at least some of our future funding,
if any, will be in the form of equity financing from the sale of our common stock. If we do sell more common stock, investors’
investment in our company will likely be diluted. Dilution is the difference between what you pay for your stock and the net tangible
book value per share immediately after the additional shares are sold by us. If dilution occurs, any investment in the Company’s
common stock could seriously decline in value.
Trading
in our common stock on the OTC Pink has been subject to wide fluctuations.
Our
common stock is currently quoted for public trading on the OTC Pink. The trading price of our common stock has been subject to wide fluctuations.
Trading prices of our common stock may fluctuate in response to several factors, many of which will be beyond our control. The stock
market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating
performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios
previously experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect
the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market
price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted,
could result in substantial costs for us and a diversion of management’s attention and resources.
Our
Certificate of Incorporation and By-Laws provides for indemnification of officers and directors at our expense and limit their liability
which may result in a major cost to us and hurt the interests of our shareholders because corporate resources may be expended for the
benefit of officers and/or directors.
Our
Certificate of Incorporation and By-Laws include provisions that fully eliminate the personal liability of our directors for monetary
damages to the fullest extent possible under the laws of the State of Nevada or other applicable law. These provisions eliminate the
liability of our directors and our shareholders for monetary damages arising out of any violation of a director of his fiduciary duty
of due care. Under Nevada law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director’s
duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment
of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived
an improper benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery
of damages by third parties.
We
do not intend to pay dividends on any investment in the shares of stock of our Company and any gain on an investment in our Company will
need to come through an increase in our stock’s price, which may never happen.
We
have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we
require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend.
Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the
price of our common shares. This may never occur and investors may lose all their investment in our company.
Because
our securities are subject to penny stock rules, you may have difficulty reselling your shares.
Our
shares, as penny stocks, are covered by Section 15(g) of the Securities Exchange Act of 1934 which imposes additional sales practice
requirements on broker/dealers who sell our company’s securities including the delivery of a standardized disclosure document;
disclosure and confirmation of quotation prices; disclosure of compensation the broker/dealer receives; and furnishing monthly account
statements. These rules apply to companies whose shares are not traded on a national stock exchange, trade at less than $5.00 per share,
or who do not meet certain other financial requirements specified by the Securities and Exchange Commission.
These
rules require brokers who sell “penny stocks” to persons other than established customers and “accredited investors”
to complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning
the risks of trading in such penny stocks. These rules may discourage or restrict the ability of brokers to sell our shares of common
stock and may affect the secondary market for our shares of common stock. These rules could also hamper our ability to raise funds in
the primary market for our shares of common stock.
FINRA
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”)
has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing
that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status,
investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that
speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our common shares, which may limit your ability to buy and sell our stock and have an adverse effect
on the market for our shares.
There
could be unidentified risks involved with an investment in our securities
The
foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional
risks will likely be experienced that are not presently foreseen by the Company. Prospective investors must not construe this information
provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities,
you should read this entire prospectus and consult with your own investment, legal, tax and other professional advisors. An investment
in our securities is suitable only for investors who can assume the financial risks of an investment in the Company for an indefinite
period and who can afford to lose their entire investment. The Company makes no representations or warranties of any kind with respect
to the likelihood of the success or the business of the Company, the value of our securities, any financial returns that may be generated
or any tax benefits or consequences that may result from an investment in the Company.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not
applicable.
ITEM
2. PROPERTIES.
None.
ITEM
3. LEGAL PROCEEDINGS.
The
Company is currently not involved in any litigation that the Company believes could have a materially adverse effect on the Company’s
financial condition or results of operations.
On
January 2, 2020, a sworn account lawsuit was filed against our IndeLiving Holdings, Inc. (“IndeLiving”) subsidiary and our
CEO Scott M. Boruff by our previous Certified Public Accounting Firm, RBSM LLP (“RBSM”) demanding payment of $28,007 for
services rendered. We filed our Answer with IndeLiving filing a breach of contract Counterclaim on February 24, 2020 demanding repayment
of a $7,500 retainer paid to RBSM by IndeLiving for services that we allege were not provided. On May 27, 2021, the court signed an Agreed
Order of Compromise Settlement and Dismissal with Prejudice dismissing both RBSM’s claim against us and IndeLiving’s counterclaim
against RBSM. As part of the settlement, we paid RBSM $7,500.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
applicable.
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.
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Name
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Age
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Title
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Scott
M. Boruff
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58
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Chief
Executive Officer, Director
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Charles
B. Lobetti, III
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58
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Chief
Financial Officer
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Kenneth
M. Greenwood
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63
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Chief
Technology Officer
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Susan
A. Reyes
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58
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Chief
Medical Officer
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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 58
Mr.
Boruff has served as our Chief Executive Officer and Sole Director since March 13, 2018. Since May 1, 2021, he has served in that
capacity as an outsourced, contracted Chief Executive Officer and Director. He has been the sole officer and director of IndeLiving
Holdings, Inc. since the company’s formation in 2016. He has also served as the Manager of Platinum Equity Advisors, LLC (“Platinum
Equity”) since its formation in 2016. In addition to providing consulting and advisory services, Platinum Equity has interests
in a real estate brokerage firm and a luxury real estate auction firm. Mr. Boruff is a proven executive with a diverse business background
in investment banking and real estate development. He currently serves as Manager of Own Shares, LLC, a privately held holding company
with interests in various entertainment ventures, and Managing Member of Stonewalk Companies, privately held real estate development
company. As a professional in investment banking, he specialized in consulting services and strategic planning with an emphasis on companies
in the oil and gas field. Mr. Boruff served as a member of the Board of Directors of Miller Energy Resources, Inc., a publicly traded
company, from August 2008 until March 2016, serving as Executive Chairman of the Board of Directors from September 2014 until March 2016
and Chief Executive Officer from August 2008 to September 2014. In October 2015, when it was being led by a successor management team,
Miller Energy Resources, Inc. filed a voluntary petition for reorganization under chapter 11 of title 11 of the U.S. Code in a pre-packaged
bankruptcy. It remained a debtor in possession and emerged from bankruptcy in March 2016. Mr. Boruff was a director and 49% owner of
Dimirak Securities Corporation, a broker-dealer and member of FINRA, from April 2009 until July 2012. In July 2012, Mr. Boruff sold his
interest in Dimirak. He has more than 30 years of experience in developing commercial real estate projects and from 2006 to 2007 Mr.
Boruff successfully led transactions averaging $150 to $200 million in size while serving as a director of Cresta Capital Strategies,
LLC. Mr. Boruff received a Bachelor of Science degree in Business Administration from East Tennessee State University.
Charles
B. Lobetti, III, Chief Financial Officer, Age 58
Mr.
Lobetti has served as our Chief Financial Officer since October 8, 2019. He holds both Bachelor of Science in Business Administration
(1985) and Master of Accountancy (1986) degrees from the University of Tennessee and is a licensed Certified Public Accountant (Inactive)
in the State of Tennessee. Upon graduation, Mr. Lobetti accepted a position in the tax department of the Tampa, Florida office of Ernst
& Young where he progressed to Senior Tax Consultant before he left the firm in 1989 to return to his hometown of Knoxville, Tennessee
as the Tax Manager with a progressive, local accounting firm. In 1990, Mr. Lobetti, along with two co-workers, formed the accounting
firm of Lobetti, Ideker & Reel (“LIR”) where he served as President and Director of Tax Services. LIR was a member of
the AICPA’s SEC Practice Section and served several SEC registrant clients. In 1998, Mr. Lobetti left LIR to accept a position
of Chief Financial Officer of United Petroleum Corporation (“UPET”), a small cap, SEC registrant oil and natural gas development
company and convenience store operator. Following his tenure at UPET, Mr. Lobetti served as Chief Financial Officer for a boutique investment
banking/private equity firm specializing in the placement and funding of Regulation D and Regulation S offerings. He spent the next 10-years
working in various investment banking, commercial mortgage banking and commercial banking functions before accepting the position of
Controller – Alaska Operations with Miller Energy Resources, Inc. (“Miller”), an SEC registrant oil and gas exploration
and production company. Shortly after accepting the position in 2011, Mr. Lobetti was promoted to Corporate Controller and thereafter
appointed Treasurer in 2012. Since leaving Miller in 2014, Mr. Lobetti enjoyed spending time with his family and working part-time in
commercial mortgage banking until recently accepting the position of Chief Financial Officer of Healthcare Integrated Resources, Inc.
Kenneth
M. Greenwood, Chief Technology Officer, Age 63
Kenneth
M. Greenwood has served as our Chief Technology Officer since June 15, 2020. Mr. Greenwood brings over 30-years of experience
with large-scale systems programming and implementations to our executive management team. He has provided instruction and consulting,
primarily for SAP products, in the areas of architecture, design and implementation of ABAP, big-data warehousing, business intelligence
analytics, object-orientation, cloud and systems integration, interfaces, HANA in-memory databases, data security, workflow, and archiving
to a variety of companies including Intel, World Bank, HP, Amtrak, IBM, Accenture, Wal-Mart, Home Depot, Nike and Kimberly-Clark. While
at Random House implementing a Rights Management module following two previous failed attempts by other contractors, Mr. Greenwood led
the 30-developer team to design, code and implement rights management for Random House in an SAP system using a novel approach of OO
design, which became the world’s largest SAP module at that time. Mr. Greenwood authored the best-selling Sams Teach Yourself
ABAP in 21 Days, published by Macmillan.
Susan
A. Reyes, M.D., Chief Medical Officer, Age 58
Susan
A. Reyes, M.D. has served as our Chief Medical Officer since September 1, 2020. Dr. Reyes brings extensive experience as a practicing
Internal Medicine physician in the home care environment. She earned her Doctor of Medicine degree in just six-years and was board
certified in Internal Medicine in 1994. Since then, Dr. Reyes has enjoyed expanding her skill set by working with several ground-breaking
companies. In 1997, she worked for Hospital Inpatient Management Systems, which was the first hospitalist group that transformed
the efficiencies of “length of stay” of patients in the hospital and in skilled nursing facility settings. In 2000, she was
the lead physician for MD to You in Tampa, Florida - the first organization that developed house calls for homebound geriatric patients.
In 2009, Dr. Reyes became the first physician to bring house call services to Knoxville, Tennessee and has grown her company to be the
largest mobile medical primary care practice covering East Tennessee. She has been an advisor and served as Medical Director to several
home health and hospice agencies and assisted living facilities in each community where she has resided.
Family
Relationships
There
are no family relationships among any of our directors or executive officers.
Involvement
in Certain Legal Proceedings
To
the best of the Company’s knowledge, none of the Company’s directors or executive officers has, during the past ten years,
except as set forth below:
|
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●
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been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses);
|
|
|
|
|
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●
|
had
any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business
association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years
prior to that time;
|
|
|
●
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been
the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction
or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in
any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be
associated with persons engaged in any such activity;
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|
|
|
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●
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been
found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated
a federal or state securities or commodities law, and the judgment in such civil action has not been reversed, suspended, or vacated;
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●
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been
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to (i) an alleged violation of any federal or state securities or commodities law or regulation,
(ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or
permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order,
or removal or prohibition order, or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business
entity; or
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●
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been
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange
Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons
associated with a member.
|
Mr.
Boruff served as a member of the Board of Directors, as Chief Executive Officer, and as Executive Chairman of Miller Energy Resources,
Inc. during the two years preceding Miller Energy Resources, Inc.’s filing of a bankruptcy petition in August 2015.
Mr.
Lobetti served as Treasurer of Miller Energy Resources, Inc. during the two-year period preceding Miller Energy Resources, Inc.’s
filing of a bankruptcy petition in August 2015.
Except
as set forth in the Company’s discussion below in “Certain Relationships and Related Transactions, and Director Independence”,
none of the Company’s directors or executive officers has been involved in any transactions with the Company or any of the Company’s
directors, executive officers, affiliates, or associates which are required to be disclosed pursuant to the rules and regulations of
the Commission.
Compliance
with Section 16(a) of the Exchange Act
Section
16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of
a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial
ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of
the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
Based
solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities
Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock during the fiscal
year ended July 31, 2021 and 2020, were not timely.
Term
of Office
The
Company’s directors are elected by the Company’s stockholders for a one-year term until the next annual general meeting of
the Company’s stockholders, or until removed by the stockholders in accordance with the Company’s bylaws. The Company’s
officers are appointed by the Board and hold office until removed by the Board.
Code
of Ethics
The
Company does not currently have a code of ethics, and because the Company has only limited business operations and only two officers
and one director, the Company believes that a code of ethics would have limited utility. The Company intends to adopt such a code of
ethics as the Company’s business operations expand and the Company has more employees.
Board
Committees
As
we only have one board member and given our limited operations, we do not have separate or independent audit or compensation committees.
Our Board of Directors has determined that it does not have an “audit committee financial expert,” as that term is defined
in Item 407(d)(5) of Regulation S-K. In addition, we have not adopted any procedures by which our shareholders may recommend nominees
to our Board of Directors.
ITEM
11. EXECUTIVE COMPENSATION.
The
following table summarizes all compensation recorded by us in the past two years for:
|
|
●
|
our
principal executive officer or other individual serving in a similar capacity,
|
|
|
|
|
|
|
●
|
our
three most highly compensated executive officers, other than our principal executive officer, who were serving as executive officers
at July 31, 2021 and 2020 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
|
|
2021
|
|
|
|
225,000
|
|
|
|
-
|
|
|
|
294,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,400
|
|
|
|
617,910
|
|
|
Chief
Executive Officer
|
|
2020
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
294,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,400
|
|
|
|
617,910
|
|
|
Director (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
B. Lobetti, III
|
|
2021
|
|
|
|
104,000
|
|
|
|
-
|
|
|
|
86,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,800
|
|
|
|
195,532
|
|
|
Chief
Financial Officer (2)
|
|
2020
|
|
|
|
55,355
|
|
|
|
-
|
|
|
|
92,258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,910
|
|
|
|
151,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth
M. Greenwood
|
|
2021
|
|
|
|
257,000
|
|
|
|
-
|
|
|
|
166,763
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
423,763
|
|
|
Chief
Technology Officer (3)
|
|
2020
|
|
|
|
32,125
|
|
|
|
-
|
|
|
|
20,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Susan
A. Reyes MD
|
|
2021
|
|
|
|
47,667
|
|
|
|
-
|
|
|
|
73,771
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
121,438
|
|
|
Chief
Medical Officer (4)
|
|
2020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
Mr.
Boruff has served as our Chief Executive Officer and our sole Director since March 13, 2018.
|
|
|
(2)
|
Mr.
Lobetti has served as our Chief Financial Officer since October 8, 2019.
|
|
|
(3)
|
Mr.
Greenwood has served as our Chief Technology Officer since June 15, 2020.
|
|
|
(4)
|
Ms.
Reyes has served as our Chief Medical Officer since September 1, 2020
|
Director
Compensation
We
do not currently pay any cash fees to our directors, nor do we pay director’s expenses in attending board meetings.
Executive
Compensation Agreements
Scott
M. Boruff, CEO
Effective
May 1, 2021, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with
Platinum Equity Advisors, LLC (“Platinum”) to provide the services of Scott M. Boruff as Chief Executive Officer and Chairman
of the Board of Directors of the Company for a term of three (3) years. As compensation for the services, the Company shall pay Platinum
an annual base fee of $323,400 and it is entitled to discretionary bonus fee payments as may be awarded by our Board of Directors. During
the term of the Contract CEO Agreement, Mr. Boruff is entitled to participate in any employee benefit plans, programs or arrangements
of the Company in effect during the engagement period which are generally available to other senior executives of the Company.
The
Contract CEO Agreement terminates upon the death or disability of Mr. Boruff, and may be terminated by us for cause, or by Platinum without
cause or for good reason. If the Contract CEO Agreement is terminated by us for cause, upon the death or disability of Mr. Boruff, at
non-renewal or by Platinum without good cause, Platinum is only entitled to receive compensation through the date of termination. If
the Contract CEO Agreement is terminated by us without cause or by Platinum for good reason, we are obligated to pay Platinum severance
equal to one year’s base fee and any other earned but unpaid compensation. In addition, if at any time during the term of the Contract
CEO Agreement Platinum is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days
prior the Change in Control at the request of the acquiror, we are obligated to pay Platinum an amount equal to 2.99 times the annual
base fee. “Change in Control” is defined in the Contract CEO Agreement to mean the acquisition by any person of beneficial
ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. The
Contract CEO Agreement contains customary invention assignment, non-compete and non-solicitation provisions.
Prior
to the May 1, 2021 effective date of the Contract CEO Agreement, Scott M. Boruff served as CEO of Company pursuant to an Employment Agreement
dated March 13, 2018, which was terminated on May 1, 2021. As compensation, we paid him an annual salary of $300,000 and he was entitled
to discretionary bonuses as may be awarded from time to time by our Board of Directors. As additional compensation, we granted him an
option to purchase 2,500,000 shares of the Company’s common stock at an exercise price of $3.00 per share, which exceeded the fair
market price of our common stock on the date of grant, vesting in four equal annual installments commencing on the grant date. The vesting
date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Mr. Boruff was
also entitled to paid vacation and sick leave, an automobile allowance and participation in any employee benefit plans or programs we
offered at the time.
Charles
B. Lobetti, III, CFO
Charles
B. Lobetti, III and the Company entered into a three-year Employment Agreement dated October 8, 2019, in which Mr. Lobetti agreed to
serve as our Chief Financial Officer. As compensation, we agreed to pay him an annual salary of $52,000 and he is entitled to discretionary
bonuses as may be awarded from time to time by our Board of Directors. Effective May 1, 2020, Mr. Lobetti’s base salary was increased
to $104,000 to reflect an increased time commitment. As additional compensation we granted him stock options to purchase 600,000 shares
of our common stock at an exercise price of $0.15 per share, which was the closing price of common stock as reported on the OTC Markets
on the date immediately preceding the date of the Employment Agreement. The options vested 25% immediately upon execution of the Employment
Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested options accelerates
in the event of a Change in Control (as defined in the Employment Agreement). Mr. Lobetti is also entitled to paid vacation and sick
leave, an automobile allowance and participation in any employee benefit plans or programs we may offer. The initial term of the Employment
Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.
The
Employment Agreement terminates upon the death or disability of Mr. Lobetti, and may be terminated by us for cause, or by Mr. Lobetti
for any reason. If the Employment Agreement is terminated by us for cause, upon his death or disability, at non-renewal or by Mr. Lobetti,
he is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to
death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated
by us without cause or by Mr. Lobetti for good reason, we are obligated to pay him severance equal to one year’s base salary and
any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Mr. Lobetti’s employment
is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control
at the request of the acquiror, we are obligated to pay him an amount equal to 2.99 times his annualized compensation. “Change
in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities
representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains
customary invention assignment, non-compete and non-solicitation provisions.
Kenneth
M. Greenwood, CTO
Kenneth
M. Greenwood and the Company entered into a three-year Employment Agreement dated June 15, 2020, in which Mr. Greenwood agreed to serve
as our Chief Technology Officer. As compensation, we agreed to pay him an annual salary of $257,000 and he is entitled to discretionary
bonuses as may be awarded from time to time by our Board of Directors. As additional compensation we granted him stock options to purchase
2,000,000 shares of our common stock at an exercise price of $0.30 per share, which was the closing price of common stock as reported
on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 25% immediately upon execution
of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting date of any unvested
options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Mr. Greenwood is also entitled to paid
vacation and sick leave, and participation in any employee benefit plans or programs we may offer. The initial term of the Employment
Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.
The
Employment Agreement terminates upon the death or disability of Mr. Greenwood, and may be terminated by us for cause, or by Mr. Greenwood
for any reason. If the Employment Agreement is terminated by us for cause, upon his death or disability, at non-renewal or by Mr. Greenwood,
he is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due to
death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is terminated
by us without cause or by Mr. Greenwood for good reason, we are obligated to pay him severance equal to one year’s base salary
and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Mr. Greenwood’s
employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change
in Control at the request of the acquiror, we are obligated to pay him an amount equal to 2.99 times his annualized compensation. “Change
in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities
representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains
customary invention assignment, non-compete and non-solicitation provisions.
Susan
A. Reyes, M.D., CMO
Susan
A. Reyes, M.D. and the Company entered into a three-year Employment Agreement dated September 1, 2020, in which Dr. Reyes agreed to serve
as our Chief Medical Officer. As compensation, we agreed to pay her an annual salary of $52,000 and she is entitled to discretionary
bonuses as may be awarded from time to time by our Board of Directors. As additional compensation we granted her stock options to purchase
1,000,000 shares of our common stock at an exercise price of $0.40 per share, which was the closing price of common stock as reported
on the OTC Markets on the date immediately preceding the date of the Employment Agreement. The options vested 150,000 shares immediately
upon execution of the Employment Agreement with the remaining vesting equally in annual installments over three (3) years. The vesting
date of any unvested options accelerates in the event of a Change in Control (as defined in the Employment Agreement). Dr. Reyes is also
entitled to paid vacation and sick leave, and participation in any employee benefit plans or programs we may offer. The initial term
of the Employment Agreement will automatically renew for an additional one-year term unless either party provides notice of non-renewal.
The
Employment Agreement terminates upon the death or disability of Dr. Reyes, and may be terminated by us for cause, or by Dr. Reyes for
any reason. If the Employment Agreement is terminated by us for cause, upon her death or disability, at non-renewal or by Dr. Reyes,
she is only entitled to receive base salary accrued but not paid through the date of termination, and in the case of termination due
to death or disability, a pro rata payment of the annual incentive earned for the year of termination. If the Employment Agreement is
terminated by us without cause or by Dr. Reyes for good reason, we are obligated to pay her severance equal to one year’s base
salary and any unpaid incentive compensation. In addition, if at any time during the term of the Employment Agreement Dr. Reyes’
employment is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change
in Control at the request of the acquiror, we are obligated to pay her an amount equal to 2.99 times her annualized compensation. “Change
in Control” is defined in the Employment Agreement to mean the acquisition by any person of beneficial ownership of our securities
representing greater than 50% of the combined voting power of our then outstanding voting securities. The Employment Agreement contains
customary invention assignment, non-compete and non-solicitation provisions.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth certain information as of October 28, 2021 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
|
|
|
|
13,539,854
|
|
|
|
29.57
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Charles
B. Lobetti, III, CFO (2)
814 Evolve Way
Knoxville, TN 37915
|
|
|
|
750,000
|
|
|
|
1.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Kenneth
M. Greenwood, CTO (3)
404 Citrus Ridge Drive
Davenport, FL 33837
|
|
|
|
1,000,000
|
|
|
|
2.18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Susan
A. Reyes, CMO (4)
9901 Sierra Visa Lane
Knoxville, TN 37922
|
|
|
|
433,333
|
|
|
|
<1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Officers and Directors as a Group
|
|
|
|
15,723,187
|
|
|
|
34.34
|
%
|
|
Principal
Shareholders:
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
Jeremy
Gindro (5)
310 Tanner Avenue
Florence, CO 81226
|
|
|
|
7,870,000
|
|
|
|
17.19
|
%
|
|
1)
|
The
shares owned by Mr. Boruff include 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 (which terminated May 1, 2021) as our Chief Executive Officer,
the shares also include options to purchase 1,875,000 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 625,000 shares of our common stock at $3.00
per share which have not yet vested and expire in 2023.
|
|
|
|
|
2)
|
Mr.
Lobetti owned 300,000 shares at July 31, 2021 and 200,000 shares at July 31, 2020. Pursuant to Mr. Lobetti’s employment agreement
dated October 8, 2019, the shares also include options to purchase 450,000 shares of our common stock which are vested and exercisable
at $0.15 per share and expire in 2024. The number of shares owned by Mr. Lobetti excludes options to purchase 150,000 shares of our
common stock at $0.15 per share which have not yet vested and expire in 2023. 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, 2021 and 2020. Pursuant to Mr. Greenwood’s employment agreement dated June 15, 2020,
the shares include options to purchase 1,000,000 shares of our common stock which are vested and exercisable at $0.30 per share and
expire in 2025. The number of shares owned by Mr. Greenwood excludes options to purchase 1,000,000 shares of our common stock at
$0.30 per share which have not yet vested and expire in 2025.
|
|
|
|
|
4)
|
Susan
Reyes owned no shares at July 31, 2021 and 2020. Pursuant to Susan Reyes’ employment agreement dated September 1, 2020, the
shares include options to purchase 433,333 shares of our common stock which are vested and exercisable at $0.40 per share and expire
in 2025. The number of shares owned by Ms. Reyes excludes options to purchase 566,667 shares of our common stock at $0.40 per share
which have not yet vested and expire in 2025.
|
|
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 28, 2021 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 28, 2021, there were 45,793,006
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, 2021 and 2020, related parties were owed $202,290 and $271,819, respectively. The amounts owed
are payable on demand and carry no interest. The amounts and terms of the related party advances may not necessarily be indicative of
the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
Effective
May 1, 2021, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with
Platinum Equity Advisors, LLC, a related party, to provide the services of our CEO and Chairman of the Board of Directors. Under the
terms of the Contract CEO Agreement, Platinum Equity Advisors, LLC is owed $50,150 at July 31, 2021.
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, 2021
|
|
|
July
31, 2020
|
|
|
|
|
|
|
|
|
|
|
Audit
Fees
|
|
$
|
42,500
|
|
|
$
|
75,525
|
|
|
Audit-Related
Fees
|
|
|
-
|
|
|
|
-
|
|
|
Tax
Fees
|
|
|
370
|
|
|
|
-
|
|
|
All
Other Fees
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
42,870
|
|
|
$
|
75,525
|
|
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.
HEALTHCARE
INTEGRATED TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
For
the Years Ended July 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,455,025
|
)
|
|
$
|
(1,058,087
|
)
|
|
Adjustments
to reconcile loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,571
|
|
|
|
4,769
|
|
|
Share-based
compensation
|
|
|
621,776
|
|
|
|
407,613
|
|
|
Issuance
of equity for services
|
|
|
1,690
|
|
|
|
48,062
|
|
|
Amortization
of debt discount
|
|
|
180,000
|
|
|
|
-
|
|
|
Derivative
expense
|
|
|
97,201
|
|
|
|
-
|
|
|
Change
in fair value of derivative liability
|
|
|
(89,669
|
)
|
|
|
-
|
|
|
Debt
forgiveness
|
|
|
(41,931
|
)
|
|
|
-
|
|
|
Lawsuit
settlement
|
|
|
(13,110
|
)
|
|
|
-
|
|
Transfer
of property and equipment and assumption of
related liability for services
|
|
|
-
|
|
|
|
6,022
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities (excluding effects of acquisitions):
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
9,363
|
|
|
|
-
|
|
|
Accounts
payable and accrued expenses
|
|
|
18,933
|
|
|
|
27,341
|
|
|
Accounts
payable and accrued expenses, related party
|
|
|
50,150
|
|
|
|
-
|
|
|
Payroll
related liabilities
|
|
|
19,859
|
|
|
|
375,624
|
|
|
NET
CASH USED BY OPERATING ACTIVITIES
|
|
|
(592,192
|
)
|
|
|
(188,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Cash
paid for development of intangible assets
|
|
|
(60,608
|
)
|
|
|
-
|
|
|
NET
CASH USED BY INVESTING ACTIVITIES
|
|
|
(60,608
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
255,000
|
|
|
|
295,000
|
|
|
Proceeds
from common stock subscriptions
|
|
|
100,000
|
|
|
|
-
|
|
|
Proceeds
from debt issuance
|
|
|
300,700
|
|
|
|
41,667
|
|
|
Principal
payments of long-term debt
|
|
|
-
|
|
|
|
(686
|
)
|
|
Proceeds
from related party loans
|
|
|
26,127
|
|
|
|
77,416
|
|
|
Payments
of amounts owed to related parties
|
|
|
(95,656
|
)
|
|
|
(147,395
|
)
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
586,171
|
|
|
|
266,002
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(66,629
|
)
|
|
|
77,347
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
78,072
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
11,443
|
|
|
$
|
78,072
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
17,806
|
|
|
$
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
|
SIGNIFICANT
NON-CASH INVESTING AND FINACING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Capital
expenditures included in payroll related liabilities
|
|
$
|
271,340
|
|
|
$
|
13,317
|
|
|
Capital
expenditures from share-based compensation
|
|
$
|
78,632
|
|
|
$
|
20,641
|
|
|
Capital
expenditures included in accounts payable and accrued expenses
|
|
$
|
2,710
|
|
|
$
|
-
|
|
|
Issuance
of common stock for prepaid services
|
|
$
|
-
|
|
|
$
|
50,000
|
|
|
Issuance
of common stock for payment of convertible debt
|
|
$
|
275,000
|
|
|
$
|
150,000
|
|
|
Issuance
of common stock for payment of items included in accounts payable and accrued expenses
|
|
$
|
45,841
|
|
|
$
|
18,555
|
|
|
Issuance
of common stock with debt, recorded as debt discount
|
|
$
|
200,000
|
|
|
$
|
-
|
|
|
Derivative
liability recorded as debt discount
|
|
$
|
100,700
|
|
|
$
|
-
|
|
|
Issuance
of debt for purchase and cancellation of shares
|
|
$
|
50,000
|
|
|
$
|
-
|
|
See
accompanying notes to the consolidated financial statements.
HEALTHCARE
INTEGRATED TECHNOLOGIES, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
July
31, 2021
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Healthcare
Integrated Technologies, Inc. and its subsidiaries (collectively the “Company,” “we,” “our” or “us”)
is a healthcare technology company based in Knoxville, Tennessee. We are creating a diversified spectrum of healthcare technology solutions
to integrate and automate the continuing care, home care and professional healthcare spaces.
Our
initial product, SafeSpace™ with AI Vision™, is an ambient fall detection solution designed for continuing care communities
and at home use. SafeSpace includes hardware devices utilizing RGB, radar and other sensor technology coupled with our internally developed
software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts
to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects
falls and sends alerts directly to designated individuals.
In
addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience
for seniors, recently released postoperative patients and others. The concierge application will enable the consumer to obtain home healthcare
services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution
for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other
items where integration is beneficial.
Basis
of Presentation
The
accompanying consolidated financial statements include those of Healthcare Integrated Technologies, Inc. and its subsidiaries, after
elimination of all intercompany accounts and transactions. We have prepared the accompanying consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and
regulations of the United States Securities and Exchange Commission (the “SEC”).
Reclassifications
Certain
prior period amounts have been reclassified to conform to current period presentation. On the consolidated statements of operations for
the year ended July 31, 2020, we reclassified $1,521 in loss from discontinued operations to selling, general and administrative
expense and interest expense. The reclassification had no impact on previously reported net income.
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 2022.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ
from those estimates. We base our estimates on experience and various other assumptions that are believed to be reasonable under the
circumstances. We evaluate our estimates and assumptions on a regular basis and actual results may differ from those estimates.
Concentration
of Credit Risk
Financial
instruments that potentially expose the Company to credit risk consist of demand deposits with a financial institution. The Company is
exposed to credit risk on its cash and cash equivalents in the event of default by the financial institution to the extent account balances
exceed the amount insured by the FDIC, which is $250,000.
Cash
and Cash Equivalents
We
consider all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents.
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution.
The balance at times may exceed federally insured limits. No loss has been experienced and management does not believe we are exposed
to any significant credit risk.
Accounts
Receivable
Accounts
receivable are stated at their historical carrying amount net of write-offs and allowance for uncollectible accounts. We routinely assess
the recoverability of all customer and other receivables to determine their collectability and record a reserve when, based on the judgement
of management, it is probably that a receivable will not be collected and the amount of the reserve may be reasonably estimated. When
collection is no longer pursued, we charge uncollectable accounts receivable against the reserve.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized
while minor replacements and maintenance and repairs, which do not improve or extend the life of such assets, are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in the consolidated
statement of operations. Depreciation is calculated using the straight-line method which depreciates the assets over the estimated useful
lives of the depreciable assets ranging from five to seven years.
Impairment
of Long-Lived Assets
Long-lived
assets such as property, equipment and identifiable intangibles are reviewed for impairment at least annually or whenever facts and circumstances
indicate that the carrying value may not be recoverable. When required, impairment losses on assets to be held and used are recognized
based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets,
if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable, an impairment
loss is recognized for the difference between the carrying amount and fair value of the asset. The Company did not recognize any impairment
losses for any periods presented.
Intangible
Assets
Intangible
assets consist of patents, our website and the costs of software developed for internal use. Certain payroll and stock-based compensation
costs incurred are allocated to the intangible assets. We determine the amount of costs to be capitalized based on the time spent by
employees or outside contractors on the projects. Intangible assets are amortized over their expected useful life on a straight-line
basis. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances
occur that could impact the recoverability of these assets. If the estimate of an intangible asset’s remaining life is changed,
the remaining carrying value of the intangible asset is amortized prospectively over the revised remaining useful life. We did not recognize
any impairment losses during any of the periods presented.
Fair
Value of Financial Instruments
Fair
value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between
market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices
in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:
Level
1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the
measurement date.
Level
2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets
or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as
interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market
data by correlation or other means.
Level
3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions
about the assumptions that market participants would use in pricing the assets or liabilities.
Financial
instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial
assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments.
Derivative
Liability
Options,
warrants, convertible notes, or other contracts, if any, are evaluated to determine if those contracts, or embedded components of those
contracts, qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of the
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The result of this accounting
treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset
or a liability. The change in fair value is recorded in the consolidated statement of operations as other income or expense. Upon conversion,
exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise, or cancellation
and then the related fair value is reclassified to equity.
In
circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated, and there are also other
embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments
are accounted for as a single, compound derivative instrument.
The
classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed
at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification
are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will
be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument
is expected within 12 months of the balance sheet date.
The
Company adopted Section 815-40-15 of the FASB ASC (“Section 815-40-15”) to determine whether an instrument (or an
embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two- step approach
to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the
instrument’s contingent exercise and settlement provisions.
We
utilize a binomial option pricing model to compute the fair value of the derivative liability and to mark to market the fair value of
the derivative at each balance sheet date. We record the change in the fair value of the derivative as other income or expense in the
consolidated statements of operations.
The
Company had a derivative liability of $108,232 as July 31, 2021. We had no derivative liability at July 31, 2020.
Revenue
Recognition
Revenue
is recognized under ASC 606, “Revenue from Contracts with Customers” using the modified retrospective method. Under
this method, the Company follows the five-step model provided by ASC Topic 606 in order to recognize revenue in the following manner:
1) Identify the contract; 2) Identify the performance obligations of the contract; 3) Determine the transaction price of the contract;
4) Allocate the transaction price to the performance obligations; and 5) Recognize revenue. An entity recognizes revenue for the transfer
of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in
exchange for those goods or services. The Company’s revenue recognition policies remained substantially unchanged as a result of
the adoption of ASC 606, and there were no significant changes in business processes or systems.
Advertising
Advertising
costs are expensed as incurred in accordance with ASC 720-35, “Advertising Costs.” We incurred advertising costs of
$5,297 and $50,927 for the years ended July 31, 2021 and 2020, 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. See Note 13.
Business
Combinations
We
account for business combinations under the acquisition method of accounting. The acquisition method requires that the acquired assets
and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and that changes thereafter be
reflected in income (loss). The estimation of fair values of the assets and liabilities assumed involves several estimates and assumptions
that could differ materially from the actual amounts recorded. The results of the acquired businesses are included in our results from
operations beginning from the day of acquisition.
Income
Taxes
We
use the asset and liability method of accounting for income taxes in accordance with Topic 740, “Income Taxes”. Under
this method, income tax expense is recognized for the amount of: (1) taxes payable or refundable for the current year and (2) deferred
tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements
or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance
is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is
more likely than not some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and
prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting
periods presented.
In
response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed
into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017
Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years,
which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing
corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct
interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and
2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits
instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.
In
addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property
generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any material
adjustments to our income tax provision for the reporting periods presented.
Recently
Adopted Accounting Pronouncements
In
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 adopted this guidance and the adoption
of this update did not have a material impact on the Company’s 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 adopted this guidance and the adoption of this update did not have a material
impact on the Company’s consolidated financial statements.
Recent
Accounting Pronouncements
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
August 2020, the FASB issued ASU 2020-06 Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an
Entity’s Own Equity. The amendments in Update No. 2020-06 simplify the complexity associated with applying U.S. GAAP for certain
financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for convertible
instruments and derivative scope exception for contracts in an entity’s own equity. Update No. 2020-06 is effective for fiscal
years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier
than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently in
the process of determining the effect that the adoption will have on its financial position and results of operations.
Management
has evaluated all recent accounting pronouncements as issued by the FASB in the form of Accounting Standards Updates (“ASU”)
through the date these consolidated financial statements were available to be issued and found no recent accounting pronouncements issued,
but not yet effective, that when adopted, will have a material impact on the consolidated financial statements of the Company.
NOTE
2 - GOING CONCERN
The
accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the
Company as a going concern. The Company had a net loss of $1,455,025 for its most recent fiscal year ended July 31, 2021. As of July
31, 2021, the Company has minimal cash and a significant working capital deficit. 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 to finance our future development activities and our working capital needs largely
from the sale of private and public equity securities with additional funding from other traditional financing sources, including term
notes, until such time that funds provided by operations are sufficient to fund working capital requirements. Although the Company believes
in the viability of management’s strategy to generate sufficient revenue, control costs and the ability to raise additional capital,
there can be no assurances to that effect. Therefore, the accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should
we be unable to continue as a going concern.
NOTE
3 - PROPERTY AND EQUIPMENT, NET
Property
and equipment, net consisted of the following at July 31, 2021 and 2020:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
Equipment
|
|
$
|
8,923
|
|
|
$
|
8,923
|
|
|
Less:
accumulated depreciation
|
|
|
(8,691
|
)
|
|
|
(6,470
|
)
|
|
Total
property and equipment, net
|
|
$
|
232
|
|
|
$
|
2,453
|
|
Depreciation
expense for the years ended July 31, 2021 and 2020 was $2,221 and $4,769, respectively.
NOTE
4 – INTANGIBLES, NET
Intangibles,
net consisted of the following at July 31, 2021 and 2020:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
Intangible
assets under development
|
|
|
388,523
|
|
|
|
33,958
|
|
|
Capitalized
costs of patents
|
|
|
49,939
|
|
|
|
-
|
|
|
Capitalized
costs of website
|
|
|
8,785
|
|
|
|
-
|
|
|
Less:
accumulated amortization
|
|
|
(6,350
|
)
|
|
|
-
|
|
|
Total
intangibles, net
|
|
$
|
440,897
|
|
|
$
|
33,958
|
|
Amortization
expense for the year ended July 31, 2021 was $6,350. We incurred no amortization expense for the fiscal year ended July 31, 2020.
Intangibles are amortized over their estimated useful lives of 2 to
20 years. As of July 31, 2021, the weighted average remaining useful life of intangibles being amortized was approximately seventeen
(17) years. We expect the estimated aggregate amortization expense for each of the five succeeding fiscal years to be as follows:
|
2022
|
|
$
|
6,889
|
|
|
2023
|
|
|
2,863
|
|
|
2024
|
|
|
2,497
|
|
|
2025
|
|
|
2,497
|
|
|
2026
|
|
|
2,497
|
|
|
Thereafter
|
|
|
35,131
|
|
|
Total expected amortization expense
|
|
$
|
52,374
|
|
NOTE
5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consisted of the following at July 31, 2021 and 2020:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
Accounts
payable
|
|
$
|
130,340
|
|
|
$
|
155,211
|
|
|
Accrued
interest expense
|
|
|
61,202
|
|
|
|
73,903
|
|
|
Accounts
payable and accrued expenses
|
|
|
191,542
|
|
|
|
229,114
|
|
|
Accounts
payable, related party
|
|
|
202,290
|
|
|
|
271,819
|
|
|
Accrued
expenses, related party
|
|
|
50,150
|
|
|
|
-
|
|
|
Accounts
payable and accrued expenses, related party
|
|
|
252,440
|
|
|
|
271,819
|
|
|
Total
accounts payable and accrued expenses
|
|
$
|
443,982
|
|
|
$
|
500,933
|
|
NOTE
6 - PAYROLL RELATED LIABILITIES
Payroll
related liabilities consisted of the following at July 31, 2021 and 2020:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
Accrued
officers’ payroll
|
|
$
|
1,140,148
|
|
|
$
|
858,154
|
|
|
Payroll
taxes payable
|
|
|
12,070
|
|
|
|
2,865
|
|
|
Total
payroll related liabilities
|
|
$
|
1,152,218
|
|
|
$
|
861,019
|
|
NOTE
7 - DEBT
We
had the following debt obligations reflected at their respective carrying values on our consolidated balance sheets as of July 31, 2021
and 2020:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
5%
Convertible promissory notes
|
|
$
|
325,000
|
|
|
$
|
600,000
|
|
|
Note
payable to Acorn Management Partners, LLC
|
|
|
50,000
|
|
|
|
-
|
|
|
Note
payable to AJB Capital Investments, LLC
|
|
|
360,000
|
|
|
|
-
|
|
|
Paycheck
Protection Program Loan
|
|
|
-
|
|
|
|
41,667
|
|
|
Total
debt obligations
|
|
|
735,000
|
|
|
|
641,667
|
|
|
Less
debt discount
|
|
|
(180,000
|
)
|
|
|
-
|
|
|
Less
current portion
|
|
|
(555,000
|
)
|
|
|
(620,651
|
)
|
|
Long-term
debt
|
|
$
|
-
|
|
|
$
|
21,016
|
|
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, 2021 and 2020, accrued
but unpaid interest on the 5% Notes was $61,202 and $73,903, respectively, which is included in “accounts payable and accrued expenses”
on our consolidated balance sheets.
The
5% Notes are convertible into common shares of the Company at a fixed ratio of two shares of common stock per dollar amount of the face
value of the note. The principal terms under which the 5% Notes may be converted into common stock of the Company are as follows:
|
|
●
|
At
the option of the holder, the outstanding principal amount of the note, and any accrued but unpaid interest due, may be converted
into the Company’s common stock at any time prior to the maturity date of the note.
|
|
|
|
|
|
|
●
|
The
outstanding principal amount of the note, and any accrued but unpaid interest due, will automatically be converted into the Company’s
common stock if at any time prior to the maturity date of the note, the Company concludes a sale of equity securities in a private
offering resulting in gross proceeds to the Company of at least $1,000,000.
|
5%
Notes with a face amount of $275,000 and accrued interest expense of $42,531 were converted, at the option of the holder, into 635,062
shares of our common stock during the year ended July 31, 2021. On July 31, 2021, 5% Notes with a face amount of $325,000 and related
accrued interest expense of $61,202 are currently in default and are not convertible under the conversion terms. Management is currently
negotiating amendments to the notes in default to extend the maturity dates of such notes and to encourage note conversions.
Note
Payable to Acorn Management Partners, LLC
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. The purchased shares were delivered by AMP directly to
the transfer agent on September 8, 2020 and immediately cancelled. At July 31, 2021, accrued but unpaid interest on the Note was $2,919,
which is included in “accounts payable and accrued expenses” on our consolidated balance sheets. There was no accrued interest
due on the Note at July 31, 2020.
Note
Payable to AJB Capital Investments, LLC
On
February 2, 2021, we entered into a Securities Purchase Agreement with AJB Capital Investments, LLC (“AJB Capital”), pursuant
to which AJB Capital purchased a Promissory Note (the “AJB Note”) in the principal amount of $360,000 for an aggregate purchase
price of $320,400. The AJB Note accrues interest at the rate of ten percent (10%) per annum and matures on August 2, 2021. At our option,
the maturity date of the note may be extended for six (6) months. If we extend the maturity date, the AJB Note interest rate increases
to twelve percent (12%) per annum during the extension period. The Company is required to make monthly interest payments and the principal
balance is due in a single lump sum payment on the maturity date. We recorded a debt discount of $59,300 related to original issue discount
and issuance cost of the note.
In
the event of default, the AJB Note may be converted into shares of the Company’s common stock at a conversion price equal to the
lesser of 90% (representing a 10% discount) multiplied by the lowest trading price (i) during the previous twenty (20) trading day period
ending on the issuance date of the note, or (ii) during the previous twenty (20) trading day period ending on the date of conversion
of the note. We recorded a debt discount of $100,700 related to the conversion feature of the AJB Note.
As
additional consideration for the purchase of the AJB Note, we issued AJB Capital 1,333,334 shares of our common stock as an origination
fee. The $200,000 grant date fair value of the shares was recorded as a debt discount.
Total
unamortized debt discount related to the AJB Note at July 31, 2021 was $180,000. There was no unamortized debt discount at July 31, 2020.
During the year ended July 31, 2021, we amortized $180,000 of debt discount which is included as a component of interest expense in the
consolidated statements of operations. There was no amortization of debt discount for the year ended July 31, 2020.
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 instalments 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 used the loan proceeds as permitted and applied
for forgiveness of the entire loan amount and related accrued interest. On December 14, 2020, the outstanding principal balance of the
note and related accrued interest of $264 were forgiven by the SBA, which is recorded as “Debt forgiveness” of $41,931 on
the consolidated statements of operations.
NOTE
8 - DERIVATIVE LIABILITY
On
February 2, 2021, we entered into a Securities Purchase Agreement with AJB Capital Investments, LLC (“AJB Capital”), pursuant
to which AJB Capital purchased a Promissory Note (the “AJB Note”) in the principal amount of $360,000 for an aggregate purchase
price of $320,400 (See Note 7). In the event of default, the AJB Note may be converted into shares of the Company’s common stock.
We identified certain conversion features embedded in the AJB Note that represent a derivative liability.
The
following table summarizes the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities
measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the year ended July 31, 2021:
|
|
|
Fair Value
Measurement
|
|
|
|
|
Using Level 3
Inputs
|
|
|
Balance,
July 31, 2020
|
|
$
|
-
|
|
|
Derivative
liability on issuance of AJB Note
|
|
|
197,901
|
|
|
Change
in fair value of derivative liability
|
|
|
(89,669
|
)
|
|
Balance,
July 31, 2021
|
|
$
|
108,232
|
|
During
the year ended July 31, 2021, the fair value of the derivative feature of the AJB Note was calculated using the following range of assumptions:
|
Expected
volatility of underlying stock
|
|
|
81.6%
to 177.4
|
%
|
|
Expected
term (in years)
|
|
|
.50
|
|
|
Risk-free
interest rate
|
|
|
0.04
|
%
|
|
Dividend
yield
|
|
|
None
|
|
As
of July 31, 2021, the derivative liability related to the AJB Note was $108,232. There was no derivative liability as of July 31, 2020.
For the year ended July 31, 2021, we recorded income of $89,669 related to the change in fair value of the derivative liability. There
was no change in fair value of derivative liabilities for the year ended July 31, 2020.
Upon
valuation of the derivative features of the AJB Note, we determined the total amount of debt discounts exceeded the face amount of the
note and recorded derivative expense for the excess amount. Derivative expense for the year ended July 31, 2021 was $97,201. There was
no derivative expense for the year ended July 31, 2020.
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, 2021 and 2020 are as follows:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
Federal
income tax benefit computed at the statutory rate
|
|
$
|
(305,555
|
)
|
|
$
|
(222,198
|
)
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
State
income taxes, net of federal benefit
|
|
|
750
|
|
|
|
(1,088
|
)
|
|
Stock-based
compensation
|
|
|
147,085
|
|
|
|
89,933
|
|
|
Derivatives
|
|
|
12,155
|
|
|
|
-
|
|
|
Valuation
allowance
|
|
|
144,992
|
|
|
|
133,113
|
|
|
Other
|
|
|
573
|
|
|
|
240
|
|
|
Income
tax benefit, as reported
|
|
$
|
-
|
|
|
$
|
-
|
|
The
components of the net deferred tax asset as of July 31, 2021 and 2020 are as follows:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryovers
|
|
$
|
682,756
|
|
|
$
|
537,764
|
|
|
Valuation
allowance
|
|
|
(682,756
|
)
|
|
|
(537,764
|
)
|
|
Net
deferred tax asset, as reported
|
|
$
|
-
|
|
|
$
|
-
|
|
In
assessing the realizable value of deferred tax assets, management considers whether it is more likely than not that some portion or all
the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future
taxable income during the periods in which these temporary differences become tax deductible. Based on management’s assessment
of objective and subjective evidence, we have concluded at this time it is more likely than not that all of our deferred tax asset will
not be realized and we have provided a valuation allowance for the entire amount of the deferred tax asset. At July 31, 2021, we have
approximately $3.16 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, 2021, 2020, 2019 and 2018 remain open to examination by the taxing
jurisdictions to which we are subject.
The
Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions
that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return
and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A
liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit
because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized
as a result of applying the provisions of ASC 740.
If
applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as “Other
expenses – Interest expense” in the consolidated statements of operations. Penalties would be recognized as a component of
“General and administrative.”
No
material interest or penalties on unpaid tax were recorded during the years ended July 31, 2021 and 2020. As of July 31, 2021 and 2020,
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, 2021 and 2020, related parties were owed $202,290 and $271,819, respectively, which are included
in accounts payable and accrued expenses, related party on the consolidated balance sheets - see Note 5. The amounts owed are payable
on demand and carry no interest. The amounts and terms of the related party advances may not necessarily be indicative of the amounts
and terms that would have been incurred had comparable transactions been entered into with independent third parties.
Effective
May 1, 2021, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with
Platinum Equity Advisors, LLC, a related party, to provide the services of our CEO and Chairman of the Board of Directors. Under the
terms of the Contract CEO Agreement, Platinum Equity Advisors, LLC is owed $50,150 at July 31, 2021. The amount owed is included in accounts
payable and accrued expenses, related party on the consolidated balance sheets - see Note 5.
NOTE
11 - COMMON STOCK
At
July 31, 2021 and 2020, we had 40,118,007 and 36,474,611 shares of common stock outstanding, respectively. We issued 4,643,396 shares
of common stock during the year ended July 31, 2021, of which 2,550,000 shares were issued for cash, 1,333,334 shares were issued as
part of a debt arrangement, 635,062 shares were issued upon conversion of debt and related accrued interest, 25,000 shares were issued
for the settlement of accounts payable, and 100,000 shares were issued for the vesting of an employee stock grant. In addition, we purchased
and immediately cancelled 1,000,000 shares of our common stock. During the fiscal year ended July 31, 2020 we issued 3,987,111 shares
of common stock, 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 related accrued interest, and 200,000 shares were issued for the vesting of an employee stock grant.
On
August 11, 2020, we agreed to repurchase 1,000,000 shares of our common stock from Acorn Management Partners, LLC (“AMP”).
The purchased shares were delivered by AMP directly to the transfer agent on September 8, 2020 and immediately cancelled. See Note 7.
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
October 13, 2020, we completed two (2) private placement transactions 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.
On
December 2, 2020, we completed a private placement transaction totaling 1,500,000 shares of our common stock at a price of $0.10 per
share resulting in net proceeds to the Company of $150,000. We incurred no cost related to the private placement.
On
February 3, 2021, we issued 1,333,334 shares of common stock to the purchaser of a promissory note as an origination fee of $200,000
on such note. See Note 7.
On
February 18, 2021, we issued 57,766 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 $3,883 through the conversion date. Under the terms of the Note, the shares were issued
at a conversion price of $0.50 per share.
On
February 23, 2021, we issued 231,250 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 $15,625 through the conversion date. Under the terms of the Note, the shares were issued
at a conversion price of $0.50 per share.
On
May 3, 2021, we issued 233,422 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 $16,711 through the conversion date. Under the terms of the Note, the shares were issued
at a conversion price of $0.50 per share.
On
May 13, 2021, we issued 25,000 to a vendor in settlement of a $5,000 balance that was previously included in accounts payable. Under
the terms of the settlement, the shares were issued at a price of $0.20 per share.
On
July 16, 2021, we issued 100,000 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.
NOTE
12 - COMMON STOCK SUBSCRIBED
On
April 30, 2021, we entered into a common stock Subscription Agreement with an investor. Under the terms of the Subscription Agreement,
the investor agreed to purchase 2,000,000 shares of our common stock at a purchase price of $0.10 per share through a series of payments,
and with the initial payment of $50,000 due upon execution of the Subscription Agreement. The common stock subscription was recorded
as Common stock subscribed and related Stock subscriptions receivable on our consolidated balance sheets. After receipt of the investor’s
initial $50,000 payment and an additional payment of $50,000 on June 6, 2021, stock subscriptions receivable at July 31, 2021 was $100,000
and is reflected as a contra equity item in our consolidated balance sheet until fully collected.
NOTE
13 - STOCK-BASED COMPENSATION
Our
stock-based compensation programs are long-term retention awards that are intended to attract, retain, and provide incentives for employees,
officers and directors, and to align stockholder and employee interest. We utilize grants of both stock options and warrants and restricted
stock to achieve those goals.
Summary
of Stock Options and Warrants
During
the year ended July 31, 2021, we recorded $621,776 of compensation expense, net of capitalized expense of $78,631, related to stock options
and warrants. During the year ended July 31, 2020, we recorded $407,613 of compensation expense, net of capitalized expense of $20,641,
related to stock options and warrants. The grant date fair value of stock options and warrants issued during the years ended July 31,
2021 and 2020 was $241,433 and $808,253, respectively.
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, 2021
|
|
|
July
31, 2020
|
|
|
Expected
volatility
|
|
|
271.61
|
%
|
|
|
271.37
|
%
|
|
Expected
term (in years)
|
|
|
3.25
|
|
|
|
3.25
|
|
|
Risk-free
interest rate
|
|
|
0.20
|
%
|
|
|
0.46
|
%
|
|
Dividend
yield
|
|
|
None
|
|
|
|
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, 2021 and 2020:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
|
|
Number
of
|
|
|
Weighted
|
|
|
Number
of
|
|
|
Weighted
|
|
|
|
|
Options
and
|
|
|
Average
|
|
|
Options
and
|
|
|
Average
|
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Balance
at beginning of year
|
|
|
6,350,000
|
|
|
$
|
1.34
|
|
|
|
2,500,000
|
|
|
$
|
3.00
|
|
|
Granted
|
|
|
1,000,000
|
|
|
|
0.40
|
|
|
|
3,850,000
|
|
|
|
0.25
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance
at end of period
|
|
|
7,350,000
|
|
|
$
|
1.21
|
|
|
|
6,350,000
|
|
|
$
|
1.34
|
|
|
Options
and warrants exercisable
|
|
|
3,908,334
|
|
|
$
|
1.50
|
|
|
|
2,150,000
|
|
|
$
|
1.85
|
|
Summary
of Restricted Stock Grants
During
the years ended July 31, 2021 and 2020, we recorded compensation expense related to restricted stock grants of $62,708 and $72,674, respectively.
The
following table summarizes our restricted stock activity for the years ended July 31, 2021 and 2020:
|
|
|
July
31, 2021
|
|
|
July
31, 2020
|
|
|
Balance
at beginning of period
|
|
|
300,000
|
|
|
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
500,000
|
|
|
Released
|
|
|
(100,000
|
)
|
|
|
(200,000
|
)
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Balance
at end of period
|
|
|
200,000
|
|
|
|
300,000
|
|
NOTE
14 - COMMITMENTS AND CONTINGENCIES
Effective
May 1, 2021, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with
Platinum Equity Advisors, LLC (“Platinum”) to provide the services of Scott M. Boruff as Chief Executive Officer and Chairman
of the Board of Directors of the Company for a term of three (3) years. As compensation for the services, the Company shall pay Platinum
an annual base fee of $323,400. If the Contract CEO Agreement is terminated by us without cause or by Platinum for good reason, we are
obligated to pay Platinum severance equal to one (1) year’s base fee and any other earned but unpaid compensation. In addition,
if at any time during the term of the Contract CEO Agreement Platinum is terminated by us without cause within two years after a Change
in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay Platinum
an amount equal to 2.99 times the annual base fee. “Change in Control” is defined in the Contract CEO Agreement to mean the
acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our
then outstanding voting securities. Platinum is eligible for equity awards as approved by the Board of Directors as defined in the agreement.
On
September 1, 2020, in connection with the appointment of Susan A. Reyes, M.D. as Chief Medical Officer of the Company, the Company and
Dr. Reyes entered into an employment agreement (the “Reyes Employment Agreement”) with an initial term of three (3) years.
As compensation for her services, the Company shall pay Dr. Reyes an annual base salary of $52,000. The base salary shall be accrued
until the Company obtains funding of at least $1,000,000, or has reported $10,000,000 in revenue, whichever occurs first. In the event
Dr. Reyes’ employment with the Company is terminated without cause, Dr. Reyes shall be entitled to a severance payment equal to
her base salary for one (1) full year. If Dr. Reyes is terminated without cause within two (2) years of a change in control upon request
of the acquiror, Dr. Reyes shall be entitled to a severance payment in an amount equal to 2.99 times the annualized base salary she is
then earning. In addition, Dr. Reyes 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.
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.
NOTE 15 -
SUBSEQUENT EVENTS
On
August 9, 2021, we exercised our option to extend the maturity date of the AJB Capital Investments, LLC Promissory Note (see Note 7)
from August 2, 2021 until February 2, 2022. As a result of the extension of the maturity date, the interest rate of the note increases
from ten percent (10%) per annum to twelve percent (12%) during the extension period. We incurred no costs related to the extension.
On
August 13, 2021, we issued 1,250,000 shares of our common stock pursuant to a Securities Purchase Agreement (“SPA”) dated
April 30, 2021 - see Note 12. Under the original terms of the SPA, the investor agreed to purchase 2,000,000 shares of our common stock
for $200,000 at a price of $0.10 per share through a series of payments. After receipt of $125,000 from the investor, both the
Company and the investor mutually agreed to settlement of the SPA for the amounts received and the issuance of the
shares at the agreed upon price per share. We incurred no cost related to the private placement.
On
August 27, 2021, Acorn Management Partners, LLC agreed to extend the maturity date of our $50,000 Promissory Note (see Note 7) from August
11, 2021 until November 11, 2021. We incurred no costs related to the extension.
On
September 14, 2021, we entered into a Settlement and Amendment Agreement (the “Agreement”) with AJB Capital Investments,
LLC (“AJB”) for a potential event of default under the Promissory Note dated February 2, 2021 (the “Note”) and
Securities Purchase Agreement (the “SPA”) relating to subsequent equity transactions. As part of the settlement under the
Agreement, we agreed to issue AJB an additional 666,666 shares of our common stock for payment of its $200,000 origination fee owed under
the terms of the original Note and SPA.
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