10-Q 1 imth_10q.htm FORM 10-Q imth_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2024

 

Or

 

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

 

For the transition period from __________ to __________

 

Commission File Number: 000-51390

 

INNOVATIVE MEDTECH, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

33-1130446

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

2310 York St., Suite 200 Blue Island, IL

 

60406

(Address of principal executive offices)

 

(Zip Code)

 

(708) 925-9424

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Not applicable.

Note applicable.

Not applicable.

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

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

 

As of May 20, 2024, there were 23,882,297 shares of Common Stock, $0.000001 par value per share, issued and outstanding.

 

 

 

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Unless stated otherwise or the context otherwise requires, the words “we,” “us,” “our,” the “Company,” “Innovative MedTech” or “Innovative” in this Quarterly Report on Form 10-Q collectively refers to Innovative MedTech, Inc., a Delaware corporation (the “Company”), and its subsidiaries. The information in this Quarterly Report on Form 10-Q contains “forward-looking statements” relating to the Company, within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

This report contains information that may be deemed forward-looking, that is based largely on the Company’s current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated.

 

Among such risks, trends and other uncertainties, which in some instances are beyond its control, may be the Company’s ability to generate cash flows and maintain liquidity sufficient to service its debt, and comply with or obtain amendments or waivers of the financial covenants contained in its credit facilities, if necessary. Other risks and uncertainties include the impact of continuing adverse economic conditions, potential changes in the adult day care industry, energy costs, interest rates and the availability of credit, labor costs, legislative and regulatory rulings and other results of operations or financial conditions, increased capital and other costs, competition and other risks detailed from time to time in the Company’s publicly filed documents.

 

The words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this report. The Company does not undertake to publicly update or revise its forward-looking statements.

 

 
2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

INNOVATIVE MEDTECH, INC. 

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31, 2024

 

 

June 30, 2023

 

 

 

Unaudited

 

 

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$104,280

 

 

$157,589

 

Accounts receivable, net

 

 

220,691

 

 

 

224,641

 

Notes receivable, related party

 

 

9,294

 

 

 

9,294

 

Prepaid expenses

 

 

353,378

 

 

 

2,250

 

Total current assets

 

 

687,643

 

 

 

393,774

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

7,961

 

 

 

6,716

 

Right-of-use asset

 

 

279,944

 

 

 

403,889

 

Finance lease asset, net

 

 

12,622

 

 

 

16,065

 

Property, plant and equipment, net of accumulated depreciation

 

 

365,841

 

 

 

307,997

 

Intangible assets, net of accumulated amortization

 

 

3,126,850

 

 

 

3,143,369

 

Goodwill

 

 

177,777

 

 

 

177,777

 

Total Assets

 

$4,658,638

 

 

$4,449,587

 

 

 

 

 

 

 

 

 

 

Liabilities & Stockholders' Deficit

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$1,302,495

 

 

$1,164,708

 

Accrued interest

 

 

651,946

 

 

 

605,335

 

Accrued interest, related parties

 

 

150,707

 

 

 

107,206

 

Notes payable, related parties, current

 

 

824,063

 

 

 

802,063

 

Notes payable, current

 

 

305,581

 

 

 

146,992

 

Convertible notes payable, current

 

 

266,900

 

 

 

266,900

 

SBA Loan, current

 

 

5,359

 

 

 

20,952

 

Line of credit

 

 

59,418

 

 

 

43,077

 

Derivative liability

 

 

190,396

 

 

 

201,607

 

Finance lease liability

 

 

27,294

 

 

 

53,707

 

Operating lease liability

 

 

162,004

 

 

 

163,169

 

Total current liabilities

 

 

3,946,163

 

 

 

3,575,716

 

 

 

 

 

 

 

 

 

 

Royalty liability

 

 

1,500,000

 

 

 

1,499,849

 

Finance lease liability, non-current

 

 

52,963

 

 

 

73,623

 

Operating lease liability, non-current

 

 

119,014

 

 

 

242,065

 

Notes payable, non-current

 

 

89,167

 

 

 

38,572

 

SBA Loan, non-current

 

 

328,027

 

 

 

328,148

 

Total Liabilities

 

 

6,035,334

 

 

 

5,757,973

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies  (Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit

 

 

 

 

 

 

 

 

Series A Preferred stock, $0.000001 par value; 500,000,000 authorized: 367,500 shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock, $0.000001 par value; 130,000,000 shares authorized; 22,748,055 and 21,157,327 shares issued and outstanding as of March 31, 2024 and June 30, 2023, respectively

 

 

23

 

 

 

21

 

Additional paid in capital

 

 

36,508,673

 

 

 

35,313,906

 

Accumulated deficit

 

 

(37,885,392 )

 

 

(36,622,313 )

Total Stockholders' Deficit

 

 

(1,376,696 )

 

 

(1,308,386 )

Total Liabilities and Stockholders' Deficit

 

$4,658,638

 

 

$4,449,587

 

 

 See accompanying notes to unaudited consolidated financial statements.  

 

 
3

 

 

INNOVATIVE MEDTECH, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

 

For the three months ended

 

 

For the nine months ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Participant fees

 

$299,621

 

 

$277,158

 

 

$895,825

 

 

$801,605

 

Franchise fees

 

 

155,543

 

 

 

199,959

 

 

 

472,739

 

 

 

480,014

 

 

 

 

455,164

 

 

 

477,117

 

 

 

1,368,564

 

 

 

1,281,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

218,633

 

 

 

278,719

 

 

 

655,018

 

 

 

792,261

 

Salaries and wages

 

 

268,726

 

 

 

274,946

 

 

 

833,464

 

 

 

805,181

 

Licensing fees

 

 

-

 

 

 

750,000

 

 

 

-

 

 

 

2,250,000

 

Consulting fees

 

 

841,042

 

 

 

37,500

 

 

 

937,116

 

 

 

112,500

 

Legal and professional fees

 

 

28,769

 

 

 

58,055

 

 

 

148,533

 

 

 

139,190

 

Total operating expenses

 

 

1,357,170

 

 

 

1,399,220

 

 

 

2,574,131

 

 

 

4,099,132

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(902,006)

 

 

(922,103)

 

 

(1,205,567)

 

 

(2,817,513)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, related parties

 

 

-

 

 

 

8,972

 

 

 

(33,040)

 

 

-

 

Interest expense

 

 

(38,644)

 

 

(45,226)

 

 

(83,521)

 

 

(147,726)

Change in fair value of derivatives

 

 

30,779

 

 

 

(1,615)

 

 

11,211

 

 

 

26,524

 

Amortization of debt discount

 

 

-

 

 

 

-

 

 

 

(22,849)

 

 

-

 

Other income

 

 

-

 

 

 

160,382

 

 

 

70,687

 

 

 

161,561

 

Total other income (expense)

 

 

(7,865)

 

 

122,513

 

 

 

(57,512)

 

 

40,359

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(909,871)

 

$(799,590)

 

$(1,263,079)

 

$(2,777,154)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share on net loss

 

$(0.04)

 

$(0.04)

 

$(0.06)

 

$(0.13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

21,157,327

 

 

 

21,157,327

 

 

 

22,752,982

 

 

 

21,157,327

 

 

See accompanying notes to unaudited consolidated financial statements

 

 
4

 

 

INNOVATIVE MEDTECH, INC.

AND SUBSIDIARIES
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2024
(UNAUDITED)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Series A Preferred Stock

 

 

Common Stock

 

 

Unearned

 

 

Paid-in

 

 

Accumulated

 

 

Total 

 

 

 

 Shares

 

 

 Amount

 

 

Shares

 

 

Amount

 

 

Compensation

 

 

Capital

 

 

 Deficit

 

 

Deficit

 

Balance, June 30, 2023 (Audited)

 

 

417,500

 

 

$-

 

 

 

21,157,327

 

 

$21

 

 

$-

 

 

$35,313,906

 

 

$(36,622,313)

 

$(1,308,386)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued with notes payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

22,849

 

 

 

-

 

 

 

22,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(165,063)

 

 

(165,063)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2023

 

 

417,500

 

 

 

-

 

 

 

21,157,327

 

 

 

21

 

 

 

-

 

 

 

35,336,755

 

 

 

(36,787,376)

 

 

(1,450,600)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(188,145)

 

 

(188,145)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2023

 

 

417,500

 

 

 

-

 

 

 

21,157,327

 

 

 

21

 

 

 

-

 

 

 

35,336,755

 

 

 

(36,975,521)

 

 

(1,638,745)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for services

 

 

-

 

 

 

-

 

 

 

1,590,728

 

 

 

2

 

 

 

(1,171,920)

 

 

1,171,918

 

 

 

-

 

 

 

1,171,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(909,871)

 

 

(909,871)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2024

 

 

417,500

 

 

$-

 

 

 

22,748,055

 

 

$23

 

 

$(353,378)

 

$36,508,673

 

 

$(37,885,392)

 

$

(1,376,696

)

 

See accompanying notes to unaudited consolidated financial statements

 

 
5

 

 

INNOVATIVE MEDTECH, INC.

AND SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2023
(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

Series A Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Total 

 

 

 

 Shares

 

 

 Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

 Deficit

 

 

Deficit

 

Balance, June 30, 2022 (Audited)

 

 

367,500

 

 

$-

 

 

 

21,157,327

 

 

$21

 

 

$31,563,906

 

 

$(32,974,366)

 

$(1,410,439)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,000,490)

 

 

(1,000,490)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2022

 

 

367,500

 

 

 

-

 

 

 

21,157,327

 

 

 

21

 

 

 

31,563,906

 

 

 

(33,974,856)

 

 

(2,410,929)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(977,074)

 

 

(977,074)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

367,500

 

 

 

-

 

 

 

21,157,327

 

 

 

21

 

 

 

31,563,906

 

 

 

(34,951,930)

 

 

(3,388,003)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(799,590)

 

 

(799,590)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2023

 

 

367,500

 

 

$-

 

 

 

21,157,327

 

 

$21

 

 

$31,563,906

 

 

$(35,751,520)

 

$(4,187,593)

    

See accompanying notes to unaudited consolidated financial statements

 

 
6

 

 

INNOVATIVE MEDTECH, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For the nine months ended

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net Loss

 

$(1,263,079)

 

$(1,977,564)

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net loss to net

 

 

 

 

 

 

 

 

cash used by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

57,354

 

 

 

17,869

 

Amortization of royalty fee liability discount

 

 

151

 

 

 

27,693

 

Amortization of debt discount

 

 

22,849

 

 

 

-

 

Change in fair value of derivatives

 

 

(11,211)

 

 

(28,139)

Amortization of right-of-use

 

 

(271)

 

 

(26,215)

Amortization of unearned compensation

 

 

818,542

 

 

 

 -

 

Changes in operating assets & liabilities

 

 

 

 

 

 

Accounts receivable

 

 

3,950

 

 

 

(12,744)

Prepaid expenses

 

 

2,250

 

 

 

(23,218)

Deposits

 

 

(1,245)

 

 

1,734,268

 

Accounts payable and accrued liabilities

 

 

137,785

 

 

 

-

 

Accrued interest, related party

 

 

43,501

 

 

 

24,798

 

Accrued interest

 

 

42,362

 

 

 

32,184

 

Net cash used by operating activities

 

 

(147,062)

 

 

(231,068)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Collections from notes receivable

 

 

-

 

 

 

11,996

 

Acquisition of fixed assets

 

 

(95,235)

 

 

-

 

Net cash used by investing activities

 

 

(95,235)

 

 

11,996

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

237,329

 

 

 

-

 

Proceeds from notes payable, related party

 

 

22,000

 

 

 

24,500

 

Payments on SBA loan

 

 

(15,715)

 

 

(1,746)

Payments on notes payable

 

 

(23,894)

 

 

(16,531)

Proceeds from line of credit

 

 

20,000

 

 

 

-

 

Payments on line of credit

 

 

(3,659)

 

 

-

 

Payments on finance lease

 

 

(47,073)

 

 

-

 

Net cash provided by financing activities

 

 

188,988

 

 

 

6,223

 

 

 

 

 

 

 

 

 

 

Decrease in Cash and cash equivalents

 

 

(53,309)

 

 

(212,849)

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

157,589

 

 

 

301,337

 

 

 

 

 

 

 

 

 

 

Cash and equivalents at end of period

 

$104,280

 

 

$88,488

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$-

 

 

$4,028

 

Cash paid for income taxes

 

$-

 

 

$-

 

 

See accompanying notes to unaudited consolidated financial statements.  

 

 
7

 

 

INNOVATIVE MEDTECH, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDING MARCH 31, 2024

(UNAUDITED)

 

NOTE 1. GENERAL ORGANIZATION AND BUSINESS

 

Innovative MedTech, Inc. (the “Company”), a Delaware corporation, is a provider of health and wellness services, primarily through its wholly owned subsidiaries Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. SarahCare (“SarahCare”), an adult day care franchisor with 25 centers (2 corporate and 23 franchise locations) located in 13 states. SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives.

 

On April 1, 2022, the Company partnered with TruCash Group of Companies Inc. (“TruCash”), a leading global payments provider, to launch an all-in-one Super Healthcare App, called RX Vitality Wallet, that was being designed to cater to consumers, patients, hospitals, Seniors, and governments, with a solid platform of benefits and online banking. On June 30, 2023 this agreement was canceled.

 

On April 5, 2022, the Company engaged mPulse Mobile, a leader in conversational AI and digital engagement solutions for the healthcare industry, to drive engagement with the Company’s digital app and wallet.

 

On April 28, 2022, the Company entered into a share exchange agreement to acquire RX Vitality, Inc. (“RX Vitality”), a media and finance advisory company.

 

On May 13, 2022, the Company entered into a partnership with VSUSA Corp. (“VSUSA”), a non-for-profit organization that empowers Veterans and Seniors by offering services designed to build successful life transitions with access to workforce and independent housing; health services; and social service programs in communities across the United States. The Company’s Chairman is a principal and co-Founder of VSUSA. On June 30, 2023 this agreement was canceled.

 

NOTE 2. LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

 

The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the continuation of operations, realization of assets and liquidation of liabilities in the ordinary course of business.

 

For the nine months ended March 31, 2024 and 2023, the Company reported a net loss of $1,263,079 and $2,777,154, respectively.

 

As of March 31, 2024, the Company maintained total assets of $4,658,638, total liabilities including long-term debt of $6,035,334 along with an accumulated deficit of $37,885,392.

 

The Company continues to have limited capital resources and has experienced net losses and negative cash flows from operations and expects these conditions to continue for the foreseeable future. As of March 31, 2024, the Company had $44,280 cash available for operations and had an accumulated deficit of $37,885,392. Management believes that cash on hand as of March 31, 2024 is not sufficient to fund operations through December 31, 2024. The Company will be required to raise additional funds to meet its short and long-term planned goals. There can be no assurance that such funds, if available at all, can be obtained on terms reasonable to the Company.

 

The Company believes that additional capital will be required to fund operations through March 31, 2025 and beyond, as it attempts to generate increasing revenue, and develop new products. The Company intends to attempt to raise capital through additional equity offerings and debt obligations. There can be no assurance that the Company will be successful in obtaining financing at the level needed or on terms acceptable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 
8

 

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the three and nine months ended March 31, 2024 and 2023.

 

Principles of Consolidation

The Company has two wholly-owned operating subsidiaries; Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc., along with non-operating subsidiaries consisting of RX Vitality, Inc. and the 10 formed limited liability companies formed for the additional SarahCare location leases.  The consolidated financial statements, which include the accounts of the Company and its two wholly-owned subsidiaries, are prepared in conformity with GAAP pursuant to the rules and regulations of the SEC. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements have been prepared using the accrual basis of accounting in accordance with GAAP and presented in US dollars. The fiscal year end is June 30.

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.

 

Cash and Cash Equivalents

The Company maintains cash balances in a non-interest-bearing account that does not exceeds $250,000 at March 31, 2024. For the purpose of the consolidated financial statements, all highly liquid investments with a maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of March 31, 2024 and 2023.

 

Earnings Per Share Calculation

Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued.

 

Intangible Assets

Certain intangible assets arose from the acquisition of Sarah Adult Day Services, Inc., and Sarah Day Care Centers, Inc. on March 25, 2021 and consist of the following, which have been or are being amortized on a straight-line basis over the following estimated useful lives unless they have an indefinite life:

 

Asset

 

Estimated Useful Life

 

Customer Relationships

 

3

 

Trademarks

 

Indefinite

 

Non-Compete Agreement

 

3

 

CARF Accreditation

 

3

 

Franchise Agreements

 

Indefinite

 

 

 
9

 

 

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted. For the three and nine months ended March 31, 2024 and 2023, there were no impairment losses.

 

Revenue Recognition

Revenue is recognized when a customer obtains services. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

 

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the services it provides to the customer. Once a contract is determined to be within the scope of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct.

 

Patient Fees

Participant fee revenue is reported at the amount that reflects the consideration the Company expects to receive in exchange for the services provided. These amounts are due from participants or third-party payors and include variable consideration for retroactive adjustments from estimated reimbursements, if any, under reimbursement programs. Performance obligations are determined based on the nature of the services provided. Resident fee revenue is recognized as performance obligations are satisfied.

 

Under the Company’s day care agreements, which are generally for a contractual term of 30 days to one year, the Company provides services to participants for a stated daily or monthly fee. The Company has elected the lessor practical expedient within ASC 842, Leases (“ASC 842”) and recognizes, measures, presents, and discloses the revenue for services under the Company’s senior living residency agreements based upon the predominant component, either the lease or nonlease component, of the contracts. The Company has determined that the services included under the Company’s independent living, assisted living, and memory care residency agreements have the same timing and pattern of transfer and are performance obligations that are satisfied over time. The Company recognizes revenue under ASC 606, Revenue Recognition from Contracts with Customers (“ASC 606”) for its participants agreements for which it has estimated that the nonlease components of such agreements are the predominant component of the contract.

 

The Company enters into contracts to provide home assisted health, and certain outpatient services. Each service provided under the contract is capable of being distinct, and thus, the services are considered individual and separate performance obligations. The performance obligations are satisfied as services are provided and revenue is recognized as services are provided.

 

The Company receives payment for services under various third-party payor programs which include Medicaid, Veterans Affairs and other third-party payors. Estimates for settlements with third-party payors for retroactive adjustments from estimated reimbursements due to audits, reviews, or investigations are included in the determination of the estimated transaction price for providing services. The Company estimates the transaction price based on the terms of the contract with the payor, correspondence with the payor, and historical payment trends. Changes to these estimates for retroactive adjustments are recognized in the period the change or adjustment becomes known or when final settlements are determined.

 

 
10

 

 

Billings for services under third-party payor programs are recorded net of estimated retroactive adjustments, if any. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods or as final settlements are determined. Contractual or cost related adjustments from Medicaid or Veterans Affairs are accrued when assessed (without regard to when the assessment is paid or withheld). Subsequent adjustments to these accrued amounts are recorded in net revenues when known.

 

Franchise Fees

The Company franchises a number of its locations under franchise contracts which provide periodic franchise fee payments to the Company and reimbursement for costs and expense related to such franchises. The Company’s franchisees pay a variety of royalties and fees, including an agreed upon percentage of gross revenues (as defined in the franchise agreement). The Company estimates the amount of franchise fee revenue expected to be earned, if any, during the annual contract period and revenue is recognized as services are provided. The Company’s estimate of the transaction price for the franchise services also includes the amount of reimbursement due from the franchises for services provided and related costs incurred.

 

SarahCare, as the franchisor, supplies the franchisee’s with initial assistance and approval with the following: (1) Providing the site selection criteria for the SARAH Business and, upon a potential franchisee’s request, provide input regarding possible sites. The Company does not own and lease any site to franchisees. After the franchise selects and the Company approves a site, the Company will designate the geographic area within which they may establish the SARAH Business; (2) Approve the signage; (3) Identify the standards and specifications for products, services, and materials that comply with the System, and, if the Company requires, the approved suppliers of these items. The Company will furnish a potential Franchisee with the listing of the package of initial franchise items as detailed in the Operations Manual. Neither the Company or its affiliate provide, deliver, or install any of these items; (4) Provide an Initial Training Program; and (5) Provide an Operations Training Program.

 

Once the Franchisee’s SarahCare business is operational, the Company will: (1) Issue and modify System standards for SARAH Businesses; (2) Provide access to a copy of the Company’s Operations Manual as they make available through our intranet. The Operations Manual contains mandatory and suggested specifications, standards and operating procedure; (3) Provide additional or special guidance and assistance and training as the Company deem appropriate and for which a potential Franchisee are financially responsible; (4) Inspect and observe the operation of the SARAH Business to help a potential Franchisee comply with the Franchise Agreement and all System standards; (5) Let the Franchisee use the confidential information; and, (6) Let the Franchisee use the Marks (trademarks, trade names, service marks, and logos).

 

Income Taxes

The provision for income taxes is the total of the current taxes payable and the net of the change in the deferred income taxes. Provision is made for the deferred income taxes where differences exist between the period in which transactions affect current taxable income and the period in which they enter into the determination of net income in the financial statements.

 

Leases

The Company accounts for leases in accordance with Accounting Standards Update (ASU) 2016-02, “Leases” (Topic 842). Based on this standard, the Company determines if an agreement is a lease at inception. Leases are included – right to use, current portion of lease liability, and operating lease liability, less current portion in the Company’s consolidated balance sheets. Finance leases are included in property, plant and equipment, net current portion of long-term debt, net and long-term debt, less current portion and debt issuance costs in the Company’s consolidated balance sheets.

 

Fair value of financial instruments

 

The Company’s financial instruments include cash and cash equivalents, accounts payable, accrued expenses, and debt. The carrying value of these financial instruments is considered to be representative of their fair value due to the short maturity of these instruments. The carrying amount of the debt approximates fair value, because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. The Company’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.

 

 
11

 

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable, accrued expenses and interest, certain notes payable and notes payable – due to related parties, approximate their fair values because of the short maturity of these instruments. The Company accounts for its derivative liabilities, at fair value, on a recurring basis under Level 3 (See Note 11).

 

Embedded Conversion Features

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial feature.

 

Derivative financial instruments

 

When the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company’s stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares. 

 

If the conversion features within convertible debt meet the requirements to be treated as a derivative, the Company estimates the fair value of the derivative liability using the Monte Carlo Simulation Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statements of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.

 

 
12

 

 

The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 “Derivatives and Hedging” (provides comprehensive guidance on derivative and hedging transactions) whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.

 

Debt Issue Costs and Debt Discount

The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

Reclassification of Presentation

Certain prior year amounts have been reclassified to conform with current year presentation. These reclassifications had no effect on the reported results of operations.

 

Recently Issued Accounting Pronouncements

The Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations for the quarter ended as of March 31, 2024 or on a going forward basis.

 

Subsequent Events

In accordance with ASC 855, Subsequent Events, the Company evaluated subsequent events through the date of this report; the date the consolidated financial statements were available for issue.

 

NOTE 4. NOTES RECEIVABLE, RELATED PARTIES

 

The Company has several notes receivables from a related party.  They are as follows:

 

 

 

March 31,

2024

 

 

June 30,

2023

 

 

 

 

 

 

 

 

Notes receivable from related party (see Note 17), due in nine months, with no installments, no interest, and in default as of March 2022

 

 

9,294

 

 

 

9,294

 

Total notes receivable

 

 

9,294

 

 

 

9,294

 

Less long-term

 

 

-

 

 

 

-

 

Total short term notes receivable

 

$9,294

 

 

$9,294

 

 

 
13

 

 

NOTE 5. PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following at March 31, 2024 and June 30, 2023:

 

 

 

March 31,

 

 

June 30,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Leasehold improvements

 

$294,864

 

 

$294,864

 

Vehicles

 

 

162,351

 

 

 

67,116

 

Computer equipment

 

 

14,354

 

 

 

14,354

 

Furniture and fixtures

 

 

5,455

 

 

 

5,455

 

 

 

 

477,024

 

 

 

381,789

 

Less: Accumulated depreciation

 

 

(111,183 )

 

 

(73,792 )

Property, plant and equipment – net

 

$365,841

 

 

$307,997

 

 

Depreciation expense was $16,568 and $5,319 for the three months ended March 31, 2024 and 2023, respectively.  Depreciation expense was $36,583 and $27,454 for the nine months ended March 31, 2024 and 2023, respectively.

 

NOTE 6. INTANGIBLE ASSETS

 

 

 

March 31,

 

 

June 30,

 

 

 

2024

 

 

2023

 

Customer relationships

 

$40,000

 

 

$40,000

 

Trademarks

 

 

410,000

 

 

 

410,000

 

Non-Compete Agreement

 

 

1,000

 

 

 

1,000

 

CARF Accreditation

 

 

23,000

 

 

 

23,000

 

Franchise Agreements

 

 

2,710,000

 

 

 

2,710,000

 

Website development

 

 

12,592

 

 

 

12,592

 

Less: accumulated amortization

 

 

(69,742 )

 

 

(53,223 )

Intangible assets - net

 

$3,126,850

 

 

$3,143,369

 

 

The Company is amortizing these intangible over their respective remaining useful lives. The Company recorded amortization expense in the amount of $1,148 and $5,881 for the three months ended March 31, 2024, and 2023, respectively.  The Company recorded amortization expense in the amount of $11,785 and $16,517 for the nine months ended March 31, 2024, and 2023, respectively.

 

NOTE 7. NOTES PAYABLE

 

As of March 31, 2024 and June 30, 2023, the Company had $394,748 and $185,564, respectively, in outstanding notes payable, as following:

 

 

 

 

 

 

Original 

 

 

 

 

 

 

 

Principal Balance as of

 

 

 

 

Date of Note

 

Principal

 

 

 

 

Interest

 

 

March 31,

 

 

June 30,

 

Ref No.

 

 

Issuance

 

Balance

 

 

Maturity Date

 

Rate (%)

 

 

2024

 

 

2023

 

 

1

 

 

9/16/06

 

 $

100,000

 

 

*

 

 

12

 

 

$

38,000

 

 

$

38,000

 

 

2

 

 

12/25/20

 

146,021

 

 

8/15/25

 

 

10

 

 

 

46,838

 

 

 

71,633

 

 

3

 

 

2/24/14

 

 

5,000

 

 

*

 

 

9

 

 

 

8,547

 

 

 

8,547

 

 

4

 

 

2/24/14

 

 

39,000

 

 

*

 

 

9

 

 

 

33,687

 

 

 

33,687

 

 

5

 

 

2/24/14

 

 

179,124

 

 

*

 

 

9

 

 

 

33,697

 

 

 

33,697

 

 

6

 

 

7/1/23

 

 

90,985

 

 

5/5/28

 

 

9

 

 

 

86,360

 

 

 

-

 

 

7

 

 

8/21/23

 

 

150,000

 

 

*

 

 

12

 

 

 

150,000

 

 

 

-

 

 

8

 

 

1/29/24

 

 

1,350

 

 

7/29/24

 

 

9

 

 

 

1,350

 

 

 

-

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

$

394,748

 

 

$

185,564

 

 

 

 

 

Total Current

 

 

 

 

 

 

 

 

 

 

 

$

305,581

 

 

$

146,992

 

 

 

 

 

Total Long Term

 

 

 

 

 

 

 

 

 

 

 

$

89,167

 

 

$

38,572

 

________ 

* As of March 31, 2024, these notes are in default.

 

 
14

 

 

 

 

Amount Owed

 

 

 

 

 

Year Ended June 30, 2024

 

 

263,931

 

Year Ended June 30, 2025

 

 

48,188

 

Year Ended June 30, 2026

 

 

-

 

Year Ended June 30, 2027

 

 

-

 

Year Ended June 30, 2028

 

 

82,629

 

Total future payments

 

 

394,748

 

 

NOTE 8. NOTES PAYABLE, RELATED PARTIES

 

As of March 31, 2024 and June 30, 2023, the Company had $824,063 and $802,063 respectively, in outstanding notes payable, related parties. As of March 31, 2024 and June 30, 2023, the Company had $150,707 and $107,206, respectively, in accrued interest related to these notes. Some of these notes were assumed in connection with the acquisition on March 25, 2021.

 

Ref No.

 

Date of

 

Original Principal

 

 

Maturity Date

 

Interest

 

 

Principal

 

 

 

 

Note Issuance

 

Balance

 

Rate %

 

 

 

Rate %

 

 

Balance 3/31/24

 

 

Principal Balance 6/30/23

 

 

1*

 

3/25/21

 

 

308,500

 

 

6/3/21

 

 

10

%

 

$

308,500

 

 

$

308,500

 

 

2*

 

3/25/21

 

 

47,436

 

 

6/3/21

 

 

10

%

 

 

47,436

 

 

 

47,436

 

 

3*

 

3/25/21

 

 

158,503

 

 

6/3/21

 

 

10

%

 

 

158,502

 

 

 

158,502

 

 

4*

 

3/24/22

 

 

39,000

 

 

9/24/22

 

 

6

%

 

 

39,000

 

 

 

39,000

 

 

5*

 

5/5/22

 

 

179,124

 

 

11/5/22

 

 

6

%

 

 

179,124

 

 

 

179,124

 

 

6*

 

10/5/22

 

 

20,000

 

 

4/5/23

 

 

6

%

 

 

20,000

 

 

 

20,000

 

 

7*

 

11/9/22

 

 

500

 

 

5/9/23

 

 

6

%

 

 

500

 

 

 

500

 

 

8*

 

11/18/22

 

 

4,000

 

 

5/18/23

 

 

6

%

 

 

4,000

 

 

 

4,000

 

 

9*

 

1/17/23

 

 

18,000

 

 

7/17/23

 

 

6

%

 

 

18,000

 

 

 

18,000

 

 

10*

 

2/8/23

 

 

27,000

 

 

8/8/23

 

 

6

%

 

 

27,000

 

 

 

27,000

 

 

11

 

1/12/24

 

 

5,000

 

 

7/12/24

 

 

6

%

 

 

5,000

 

 

 

-

 

 

12

 

1/16/24

 

 

7,000

 

 

7/16/24

 

 

6

%

 

 

7,000

 

 

 

-

 

 

13

 

2/21/24

 

 

10,000

 

 

8/21/24

 

 

6

%

 

 

10,000

 

 

 

-

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

$

824,063

 

 

$

802,062

 

 

* As of March 31, 2024, these notes are in default.

 

 
15

 

 

NOTE 9. CONVERTIBLE NOTES PAYABLE

 

As of March 31, 2024 and June 30, 2023, the convertible notes payable were as follows:

 

Date of Note

Issuance

 

 Original Principal Balance

 

 

Maturity Date

 

Interest Rate %

 

 

Conversion Rate

 

 

Principal

Balance 3/31/24

 

 

Principal

Balance 6/30/23

 

8/26/14

 

 

50,000

 

 

*

 

 

10

%

 

$

0.0001

 

 

$

50,000

 

 

$

50,000

 

6/15/12

 

 

8,000

 

 

*

 

 

10

%

 

$

0.000350

 

 

 

8,000

 

 

 

8,000

 

10/18/11

 

 

1,900

 

 

*

 

 

8

%

 

25% discount to market

 

 

 

6,900

 

 

 

6,900

 

10/3/10

 

 

20,000

 

 

*

 

 

10

%

 

 lesser $0.01 or 20% discount to market

 

 

 

20,000

 

 

 

20,000

 

10/31/09

 

 

4,000

 

 

*

 

 

8

%

 

25% discount of previous 5 days closing price

 

 

 

4,000

 

 

 

4,000

 

2/26/07

 

 

30,000

 

 

*

 

 

12

%

 

 lesser $0.50 or 35% discount to market

 

 

 

30,000

 

 

 

30,000

 

4/17/07

 

 

20,000

 

 

*

 

 

10

%

 

 lesser $0.45 or 35% discount to market

 

 

 

20,000

 

 

 

20,000

 

6/14/07

 

 

15,000

 

 

*

 

 

10

%

 

 lesser $0.50 or 25% discount to market

 

 

 

15,000

 

 

 

15,000

 

1/29/07

 

 

15,000

 

 

*

 

 

10

%

 

$

0.95

 

 

 

15,000

 

 

 

15,000

 

4/17/07

 

 

15,000

 

 

*

 

 

10

%

 

 lesser $0.45 or 35% discount to market

 

 

 

15,000

 

 

 

15,000

 

12/23/06

 

 

18,000

 

 

*

 

 

10

%

 

$

0.95

 

 

 

18,000

 

 

 

18,000

 

11/30/06

 

 

50,000

 

 

*

 

 

10

%

 

$

0.85

 

 

 

50,000

 

 

 

50,000

 

10/1/05

 

 

15,000

 

 

*

 

 

10

%

 

$

0.50

 

 

 

15,000

 

 

 

15,000

 

Total Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

266,900

 

 

$

266,900

 

 

*

 As of March 31, 2024, these notes are in default.

 

NOTE 10. SBA LOAN

 

On June 25, 2020 and January 6, 2022, the Company’s wholly-owned subsidiary, Sarah Day Care Centers, Inc. received proceeds of $150,000 and $200,000, respectively, in the form of an SBA loan. Installment payments, including principal and interest of $1,746 are due monthly beginning on December 22, 2021. The balance of principal and interest is payable thirty years from the promissory note date. The interest accrues at a rate of 3.75% per annum. During the three months ended March 31, 2024 and 2023, the Company recorded $3,130 and $0 in accrued interest related to the SBA loan. During the nine months ended March 31, 2024 and 2023, the Company recorded $9,597 and $0 in accrued interest related to the SBA loan.

 

 

 

Amount Owed

 

 

Year Ended June 30, 2024

 

 

5,238

 

Year Ended June 30, 2025

 

 

20,952

 

Year Ended June 30, 2026

 

 

20,952

 

Year Ended June 30, 2027

 

 

20,952

 

Year Ended June 30, 2028

 

 

20,952

 

 

 

 

 

 

Payments 2029 & Thereafter

 

 

244,340

 

Total Payments

 

 

333,386

 

 

 
16

 

 

NOTE 11. DERIVATIVE FINANCIAL INSTRUMENTS

 

The following tables summarize the components of the Company’s derivative liabilities and linked common shares.

 

 

 

March 31, 2024

 

 

 

Indexed

 

 

Fair

 

The financings giving rise to derivative financial instruments

 

Shares

 

 

Values

 

Compound embedded derivative

 

 

818,753

 

 

$190,396

 

 

 

 

June 30, 2023

 

 

 

Indexed

 

 

Fair

 

The financings giving rise to derivative financial instruments

 

Shares

 

 

Values

 

Compound embedded derivative

 

 

780,619

 

 

$201,607

 

 

The following tables summarizes the effects on the Company’s gain (loss) associated with changes in the fair values of the derivative financial instruments by type of financing for the three and nine months ended March 31, 2024 and 2023:

 

The financings giving rise to derivative financial instruments and the income effects:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2024

 

 

2023

 

Compound embedded derivative

 

$30,779

 

 

$(1,615)

Day one derivative loss

 

 

-

 

 

 

-

 

Total derivative gain (loss)

 

$30,779

 

 

$(1,615)

 

 

 

Nine months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2024

 

 

2023

 

Compound embedded derivative

 

$11,211

 

 

$26,524

 

Day one derivative loss

 

 

-

 

 

 

-

 

Total derivative gain (loss)

 

$11,211

 

 

$26,524

 

 

The Company’s convertible notes gave rise to derivative financial instruments. The notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.

 

 
17

 

 

Current accounting principles that are provided in ASC 815 – Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be bundled together and fair valued as a single, compound embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.

 

Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the compound embedded derivative that has been bifurcated from the Convertible Notes and classified in liabilities:

 

 

 

Inception

 

 

March 31,2024

 

 

June 30, 2023

 

Quoted market price on valuation date

 

$0.01

 

 

$0.75

 

 

$0.55

 

Contractual conversion rate

 

$ 0.0054 - $0.0081

 

 

$ 0.338 - 0.556

 

 

$ 0.3575 - 0.44

 

Range of effective contractual conversion rates

 

-

 

 

-

 

 

-

 

Contractual term to maturity

 

1.00 Year

 

 

0.25 Years

 

 

0.25 Years

 

Market volatility:

 

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

138.28%-238.13%

 

 

138.28%-238.13%

 

 

138.28%-238.13%

 

Contractual interest rate

 

5%-12%

 

 

5%-12%

 

 

5%-12%

 

 

The following table reflects the issuances of compound embedded derivatives and changes in fair value inputs and assumptions related to the compound embedded derivatives during the nine months ended March 31, 2024 and June 30, 2023.

 

 

 

March 31,

2024

 

 

June 30,

2023

 

Beginning balance

 

$201,607

 

 

$226,585

 

Issuances:

 

 

 

 

 

 

 

 

Convertible Note Financing

 

 

-

 

 

 

-

 

Removals

 

 

-

 

 

 

-

 

Changes in fair value inputs and assumptions reflected

 

 

(11,211 )

 

 

(24,978 )

Conversions

 

 

-

 

 

 

-

 

Ending balance

 

$190,396

 

 

$201,607

 

 

The fair value of the compound embedded derivative is significantly influenced by the Company’s trading market price, the price volatility in trading and the interest components of the Monte Carlo Simulation technique.

 

 
18

 

 

NOTE 12. STOCKHOLDERS’ DEFICIT

 

On or about April 26, 2022, the Company entered into an Agreement for Share Exchange (the “Share Exchange Agreement”) to obtain 10,500,000 shares of common stock of Vitality RX, Inc., a Delaware corporation (“Vitality”), representing 100% ownership of Vitality, from Vitality’s five shareholders identified in the Share Exchange Agreement (the “Vitality Shareholders”), in consideration of the issuance by the Company to the Vitality Shareholders of 5,500,000 shares of Innovative common stock, and 50,000 shares of Series A Convertible Preferred Stock (which preferred stock is convertible into 5,000,000 shares of common stock) (such shares of common stock and preferred stock collectively the “Shares”).  On or about April 28, 2022, the transaction closed, Innovative received the stock of Vitality from the Vitality Shareholders, and issued the Shares to the Vitality Shareholders. The Company determined that Vitality did not meet the definition of a business under Accounting Standards Codification (“ASC”) 805 Business Combinations, as such, the issuance of shares was treated as stock-based compensation expense.

 

Common Stock

 

On March 7, 2024, the Company issued 1,590,728 restricted common shares, par value, $0.000001 per share, to 6 Board of Advisor Members and 7 consultants to the Company.

 

On August 21, 2023 the Company issued a Note (Note 7, Ref #7) which included 100,000 warrants to purchase common stock at a strike price of $0.10 per share, par value, $0.000001 per share. The warrants have an expiration date of August 21, 2028.

 

Series A Preferred Stock & Series B Preferred Stock

 

On April 26, 2022, the Company issued the Shareholders of Vitality 50,000 shares of Series A Convertible Preferred Stock, par value, $0.000001 per share, to Vitality’s five shareholder’s for consulting services and their expertise in technology, financial services and media related to the Company’s digital healthcare wallet.

 

As of March 31, 2024, the Company had 500,000,000 authorized shares of Series A Convertible Preferred Stock, par value, $0.000001 per share. Each share of Series A Convertible Preferred Stock is convertible into 100 shares of the Company’s common stock. The Company no longer authorized any Series B Convertible Preferred Stock.

 

Series A Preferred Stock & Series B Preferred Stock – Certificate of Designations

 

The Preferred Shares each have Certificate of Designations, which designate as follows:

 

Number

 

500,000,000 shares of the Parent Company’s Preferred Stock are designated as shares of Series A Convertible Preferred Stock, par value $0.000001 per share.

 

Dividends

 

Any dividends (other than dividends on common stock payable solely in common stock or dividends on the Series A Convertible Preferred Stock payable solely in Series A Convertible Preferred Stock or dividends on the Series B Preferred Convertible Stock payable solely in Series B Convertible Preferred Stock) declared or paid in any fiscal year will be declared or paid among the holders of the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and common stock then outstanding in proportion to the greatest whole number of shares of common stock which would be held by each such holder if all shares of Series A Preferred Stock and Series B Convertible Preferred Stock were converted into shares of common stock pursuant to the terms of the Certificate of Designations. The Parent Company’s Board of Directors is under no obligation to declare dividends on the Series A Convertible Preferred Stock or Series B Convertible Preferred Stock.

 

Conversion

Each share of Preferred Stock is convertible into 100 shares of the Parent Company’s common stock (the “Conversion Rate”).

 

 
19

 

 

Liquidation

In the event of any liquidation, dissolution or winding up of the Parent Company, the assets of the Parent Company legally available for distribution by the Parent Company would be distributed with equal priority and pro rata among the holders of the Preferred Stock and common stock in proportion to the number of shares of common stock held by them, with the shares of Preferred Stock being treated for this purpose as if they had been converted to shares of common stock at the then applicable Conversion Rate.

 

Voting

On any matter presented to the stockholders of the Parent Company for their action or consideration at any meeting of stockholders of the Parent Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock would be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Parent Company’s Certificate of Incorporation, holders of Preferred Stock vote together with the holders of common stock as a single class.

 

NOTE 13. PROVISION FOR CORPORATE INCOME TAXES

 

The Company provides for income taxes by the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. This also requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

The valuation allowance at March 31, 2024 was $7,614,646 and as of June 30, 2023 was $7,350,393. The net change in allowance during the quarters ended March 31, 2024 and 2023 was $820,218 and $583,202, respectively.  The net change in allowance during the quarter ended March 31, 2024 and 2023 was $190,079 and $167,914, respectively.

 

As of March 31, 2024, the Company has federal net operating loss carry forwards of approximately $36,260,000 available to offset future taxable income through 2040. The Company may be able to utilize its NOLs to reduce future federal and state income tax liabilities. However, these NOLs are subject to various limitations under Internal Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership change of more than 50 percentage points. In addition, the NOL carry-forwards are subject to examination by the taxing authority and could be adjusted or disallowed due to such exams. Although the Company has not undergone an IRC Section 382 analysis, it is possible that the utilization of the NOLs could be substantially limited. The Company has no tax provision for the nine months ended March 31, 2024 and 2023 due to losses and full valuation allowances against net deferred tax assets.

 

As of March 31, 2024 and 2023, the difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to loss before income taxes is as follows (in percentages):

 

Statutory federal income tax rate

 

 

(21 )%

State taxes – net of federal benefits

 

 

(5 )%

Valuation allowance

 

 

26%

Income tax rate – net

 

 

0%

 

FASB Interpretation No. 48 (Fin 48) - Accounting for Uncertain Tax Positions

The Company files income tax returns in the U.S. federal jurisdiction and various state, and local jurisdictions. The Company is no longer subject to U.S. federal income tax examination by tax authorities, with limited exception, for the quarters prior to December 31, 2014. With respect to state and local jurisdictions, with limited exception, the Company is no longer subject to income tax audits prior to December 31, 2014. In the normal course of business, the Company is subject to examination by various taxing authorities. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been provided for any adjustments that may result from these open tax years.

 

 
20

 

 

Based on management’s review of the Company’s tax position, the Company had no significant unrecognized corporate tax liabilities as of March 31, 2024 and June 30, 2023 payable to the Internal Revenue Service due to the net operating loss carry-forward, however, the Company had yet to file its 2005 through 2009 and 2012 through 2021 Federal, New Jersey nor New York Corporate Income Tax Returns.

 

NOTE 14. UNPAID PAYROLL TAXES

 

As of March 31, 2024 and June 30, 2023, the Company owed the Internal Revenue Service and New York State payroll related taxes in the amounts of $60,402 and $17,401, respectively, subject to further interest and penalties. The total amount due to both taxing authorities including penalties and interest as of March 31, 2024 and June 30, 2023 was approximately $77,803 subject to further penalties and interest. This is included in accounts payable and accrued expenses on the Company’s consolidated balance sheets.

 

IRS Tax Lien

The Internal Revenue Service has placed a federal tax lien on all of the assets of the Company.

 

NOTE 15. COMMITMENTS AND CONTINGENCIES

 

Licensing Agreement

On March 31, 2022, the Company entered into a management agreement with TruCash Group of Companies, Inc. (“TruCash’) where the Company is licensing from TruCash certain VISA ICAs and BINs to be used by the Company to offer certain pre-paid cards, mobile apps, loyalty programs, and other merchant related services to its potential clients.  The Agreement has a term of five (5) years and monthly payments due to TruCash of $250,000 (the “Licensing Fee”). On June 30, 2023, the Company and TruCash cancelled the management agreement.

 

Rent

As of March 31, 2024, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space but expects to enter into a month-to-month office lease for this space.

 

SarahCare leases two properties for its corporate office and its two corporate owned centers. SarahCare’s lease for its first corporate-owned SarahCare location is for approximately 5,300 square feet located at 6199 Frank Ave. NW, North Canton, Ohio, 44720. The lease began in 2018 and ends in 2026.

 

SarahCare’s lease for its second corporate-owned SarahCare location is for approximately 6,000 square feet located at SarahCare of Stow, 4472 Darrow Road, Stow, Ohio, 44224. The lease began in 2018 and ends in 2026.

 

On April 21, 2021, the Company, through ten wholly-owned limited liability companies, entered into lease agreements with entities controlled by our Chairman, Charles Everhardt, for ten additional SarahCare locations to be operated by the Company. All of the leases are for a ten-year period beginning on July 1, 2021, and ending on June 30, 2031, with a 5-year renewal option. The rent for each location is $7,500 per month. On April 29, 2022, the Company amended the leases to delay commencement until November 1, 2022.  On August 19, 2022, the Company and landlord mutually agreed to terminate four of the leases formed on April 21, 2021.

 

SarahCare

The Company is currently in default under its payment obligations in connection with the acquisition of SarahCare.  Such default has made the entire balance of the Notes due and payable and has increased the interest rate to 10%, which has caused the original Shareholders of SarahCare to file a complaint against the Company seeking $1,841,537 in damages, plus interests, costs and attorney fees. The Company intends to vigorously defend itself in this matter. As of March 31, 2024 the original amount of the Royalty Liability has been accrued in the financial statements. These notes are guaranteed by the Company’s Chairman, Charles Everhardt.

 

 
21

 

 

NOTE 16. LEASES

 

Operating Leases

 

Stow Professional Lease

 

In connection with the acquisition of Sarah Adult Day Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with 6,000 square feet at 4472 Darrow Road, Stow, Ohio 44224. The lease expires on December 31, 2025 and the lease payments are as follows:

 

 

 

Monthly Rent Payments

 

 

 

Base Rent

 

 

Covid-19

Recoup*

 

 

Total Rent

 

April 1, 2021

 

$6,369

 

 

$983

 

 

$7,352

 

May 1, 2021 to December 31, 2021

 

$6,369

 

 

$621

 

 

$6,990

 

January 1, 2022 to December 31, 2022

 

$6,433

 

 

$621

 

 

$7,054

 

January 1, 2023 to December 31, 2023

 

$6,497

 

 

$621

 

 

$7,118

 

January 1, 2024 to December 31, 2024

 

$6,562

 

 

$621

 

 

$7,183

 

January 1, 2025 to December 31, 2025

 

$6,628

 

 

$621

 

 

$7,249

 

________ 

*The Company has to repay the lessor monthly payments as a result of COVID relief.

 

Harbor Lease

 

In connection with the acquisition of Sarah Adult Day Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with 3,469 square feet at 4580 Stephen Circle NW. Canton, OH 44718. The monthly lease payments are $4,500 and the lease expires on December 31, 2023.

 

In connection with the acquisition of Sarah Day Care Centers, Inc. on March 25, 2021, the Company acquired a facilities lease with 5,300 square feet in Jackson, Ohio. The monthly lease payments are $7,910, which includes monthly payments of $603 as repayments for COVID relief. The lease expires on July 1, 2026.

 

S. Frank Professional Lease

 

Operating lease right-of-use asset and liability are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is the incremental borrowing rate, estimated to be 10%, as the interest rate implicit in most of the Company’s leases is not readily determinable. Operating lease expense is recognized on a straight-line basis over the lease term. Since the common area maintenance expenses are expenses that do not depend on an index or rate, they are excluded from the measurement of the lease liability and recognized in general and administrative expenses on the consolidated statements of operations.

 

Right-of-use asset is summarized below:

 

 

 

March 31, 2024

 

 

 

Stow Professional Center Lease

 

 

S. Frank Professional Lease

 

 

Total

 

Office lease

 

$282,371

 

 

$412,770

 

 

$695,141

 

Less: accumulated amortization

 

 

(200,885)

 

 

(214,312)

 

 

(415,197)

Right-of-use asset, net

 

$81,486

 

 

$198,458

 

 

$297,944

 

 

 
22

 

 

Operating lease liability is summarized below:

 

 

 

 March 31, 2024

 

 

 

 Stow Professional Center Lease

 

 

 S. Frank Professional Lease

 

 

 Total

 

Office lease

 

$82,560

 

 

$198,458

 

 

$281,018

 

Less: current portion

 

 

(82,560)

 

 

(79,444)

 

 

(162,004)

Long term portion

 

$-

 

 

$119,014

 

 

$119,014

 

 

Maturity of the lease liability is as follows:

 

Finance leases

 

 

 

 March 31, 2024

 

 

 

 Stow Professional Center Lease

 

 

 S. Frank Professional Lease

 

 

 Total

 

Year ending June 30, 2024

 

 

21,548

 

 

 

23,731

 

 

 

45,279

 

Year ending June 30, 2025

 

 

64,840

 

 

 

94,923

 

 

 

159,763

 

Year ending June 30, 2026

 

 

-

 

 

 

94,923

 

 

 

94,923

 

Year ending June 30, 2027

 

 

-

 

 

 

7,910

 

 

 

7,910

 

Present value discount

 

 

(3,828)

 

 

(23,029)

 

 

(26,857)

Lease liability

 

$82,560

 

 

$198,458

 

 

$281,018

 

 

Commencing during the quarter ended March 31, 2024, the Company leases office equipment under two finance leases with combined monthly payments of $5,897. The leases mature on March 1, 2024 and December 1, 2026.

 

Finance right of use assets are summarized below:

 

 

 

As of

 

 

As of

 

 

 

March 31,

 

 

June 30,

 

 

 

2024

 

 

2023

 

Equipment lease

 

$24,097

 

 

$24,097

 

Less accumulated amortization

 

 

(11,475 )

 

 

(8,032 )

Finance right of use asset

 

$12,622

 

 

$16,065

 

 

 
23

 

 

On October 1, 2021, the Company discontinued use of one of its copiers. As a result, the Company recorded an impairment of assets in the amount of $84,364. Amortization expense was $3,443 and $3,443 for the nine months ended March 31, 2024 and 2023, respectively.

 

Finance lease liabilities are summarized below:

 

 

 

As of

 

 

As of

 

 

 

March 31,

 

 

June 30,

 

 

 

2024

 

 

2022

 

Equipment lease

 

$80,257

 

 

$127,329

 

Less: current portion

 

 

(27,294)

 

 

(53,707)

Long term portion

 

$52,963

 

 

$73,622

 

 

 

 

Equipment

 

 

Lease

Year Ended June 30, 2024

 

 

8,097

 

Year Ended June 30, 2025

 

 

32,388

 

Year Ended June 30, 2026

 

 

32,388

 

Year Ended June 30, 2027

 

 

16,194

 

Total future minimum lease payments

 

 

89,067

 

Less imputed interest

 

 

(8,810)

   PV of payments

 

$80,257

 

 

NOTE 17. RELATED PARTY TRANSACTIONS

 

During the quarters ended March 31, 2024 and 2023, related party transactions were as follows:

 

As of March 31, 2024, the Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Company’s Chairman, Charles Everhardt, a related party, on a rent free basis at the present time. The Company does not currently have a lease for this space but expects to enter into a month-to-month office lease for this space.

 

On February 21, 2024, the Company signed a note receivable of $10,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

On January 16, 2024, the Company signed a note receivable of $7,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

 
24

 

 

On January 12, 2024, the Company signed a note receivable of $5,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

As of June 30, 2023, a company founded and partially owned by the Company’s Chairman, Charles Everhardt, has been assigned the $3,750,000 in payables to a Company owned by Charles Everhardt for the Vitality Card, this amount included $750,000 which was included in accounts payable and accrued expenses as of June 30, 2022.

 

On January 17, 2023, the Company signed a note receivable of $18,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

On February 8, 2023, the Company signed a note receivable of $27,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

On May 5, 2022, the Company signed a note receivable of $179,124 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

On March 25, 2022, the Company signed a note receivable of $39,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

On September 28, 2021, the Company signed a note receivable of $50,000 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

On September 8, 2021 the Company signed a note receivable of $29,294 from a company founded and partially owned by the Company’s Chairman, Charles Everhardt.

 

NOTE 18. SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events for recognition and disclosure through May 20, 2024, the date the financial statements were available to be issued, and determined that there were no such events requiring adjustment to, or disclosure in, the accompanying consolidated financial statements except as described below.

 

On or about May 17, 2024, Innovative MedTech, Inc. (“Innovative” or the “Company”) entered into an Exclusive License Agreement (the “Exclusive License Agreement”) with Shear Kershman Labs, a Missouri corporation (“SKL”).  SKL has developed Oral Thrush, a mouth wash that treats oral thrush, a condition in which a fungus, Candida albicans, accumulates on the lining of the mouth and sometimes overgrows and causes symptoms, such as creamy white lesions, usually on the tongue or inner cheeks. Under the Exclusive License Agreement, SKL will form a subsidiary to distribute Oral Thrush, the Company shall become an 80% owner of the subsidiary, and the Company will issue 2,000,000 shares of the Company’s Common Stock to SKL

 

On April 18, 2024, Innovative MedTech, Inc. (the “Company”) terminated Merle Griff, PhD., as the Company’s CEO, and Michael Friedman, the Company’s President and CFO, was appointed as CEO of the Company. 

 

On or about April 17, 2024, the Company was notified that a complaint had been filed against it in the United States District Court for the Northern District of Ohio, Eastern Division (case no. 5:24-cv-00687), by Merle Griff, Adam Griff and Brian Froelich (the “Plaintiffs”), who are the original shareholders of SarahCare, which is wholly owned by the Company, alleging breach of contract and related causes of action in connection with unpaid royalties pursuant to the Company’s original purchase agreement in connection with SarahCare, and seeking $1,841,537 in damages, plus interests, costs and attorney fees. The Company intends to vigorously defend itself in this matter. As of March 31, 2024 the original amount of the Royalty Liability has  been accrued in the financial statements. 

 

On March 25, 2024, SarahCare began removing its property from one of its Stowe corporate locations and chose to close down this corporate location on April 30, 2024.

 

 
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

Some of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words.

 

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this Quarterly Report on Form 10-Q.

 

Unless stated otherwise, the words “we,” “us,” “our,” “the Company” or “Innovative MedTech” in this Quarterly Report on Form 10-Q collectively refers to Innovative MedTech, Inc., a Delaware corporation (the “Parent Company”), and subsidiaries.

 

Overview

 

Innovative MedTech, Inc. (the “Company”), a Delaware corporation, is a provider of health and wellness services. On March 25, 2021, the Company acquired SarahCare for a total of $3,718,833; $2,000,110 was paid in cash and the Company assumed approximately $393,885 in debt due to sellers, and the remaining is payable through a royalty fee liability due in the amount of $1,500,000. With 25 centers (2 corporate and 23 franchise locations) located in 13 states, SarahCare offers seniors daytime care and activities focusing on meeting their physical and medical needs on a daily basis, and ranging from nursing care to salon services and providing meals, to offering engaging and enriching activities to allow them to continue to lead active and engaged lives.

 

The Company has also been working on launching an RX Vitality wallet digital offering and mobile app. Once implemented and live, the Company’s digital healthcare wallet will be accessible by customers via mobile wallet on both the Apple iOS and Android App Stores. The Company intends to have a physical healthcare card as well.

 

On April 1, 2022, the Company partnered with TruCash Group of Companies Inc. (“TruCash”), a leading global payments provider, to launch an all-in-one Super Healthcare App, called RX Vitality Wallet, that will be designed to cater to consumers, patients, hospitals, Seniors, and governments, with a solid platform of benefits and online banking.  On June 30, 2023 this agreement was canceled.

 

On April 5, 2022, the Company engaged mPulse Mobile, a leader in conversational AI and digital engagement solutions for the healthcare industry, to drive engagement with the Company’s digital app and wallet (currently under development).

 

On April 28, 2022, the Company entered into a share exchange agreement to acquire RX Vitality, Inc. (“RX Vitality”), a media and finance advisory company.

 

On May 13, 2022, the Company entered into a partnership with VSUSA Corp. (“VSUSA”), a non-for-profit organization that empowers Veterans and Seniors by offering services designed to build successful life transitions with access to workforce and independent housing; health services; and social service programs in communities across the United States.  The Company’s Chairman is a principal and co-Founder of VSUSA. On June 30, 2023 this agreement was canceled.

 

On June 1, 2022, the Company announced that Dr. Merle Griff, SarahCare’s Founder and CEO, would also be CEO of the Company.

 

 
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As of March 31, 2024, the Company had current assets of $274,265. The Company has a limited amount of liquid cash and no other liquid assets on hand a of March 31, 2024, and this is not sufficient to fund operations for the next 12 months. Accordingly, we will be required to raise additional funds to meet our short and long-term planned goals. There can be no assurance that such funds, if available at all, can be obtained on terms reasonable to us. In this regard, we have obtained and will continue to attempt to obtain (short and long term) loans for inventory purchases, new product development, expansion, advertising and marketing. We cannot assure you that we will be successful in obtaining the aforementioned financings (either debt or equity) on terms acceptable to us, or otherwise.

 

Our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared on a going concern basis, which assumes that we will be able to realize our assets and discharge our obligations in the normal course of business.

 

Results of Operations for the Three Months Ended March 31, 2024, and March 31, 2023

 

For the quarter ended March 31, 2024, we recorded gross revenues of $455,164 versus $477,117 for the quarter ended March 31, 2023, as a result of the Company’s ability to close some of the centers for limited amounts of time, and fewer participants coming to the centers.

 

For the quarter ended March 31, 2024, operating expenses decreased to $1,357,170 from $1,399,220, a $42,050 decrease, or (3.10%), over the quarter ended March 31, 2023.  The decrease is due to a decrease in expenses related to the Company’s licensing and general and administrative expenses.

 

For the quarter ended March 31, 2024, interest expense decreased to $38,644 from $45,226 a decrease of 17.03% over the quarter ended March 31, 2023. This decrease is primarily due to a decrease in interest expense.

 

For the quarter ended March 31, 2024, we realized a net loss of $909,871 as compared to a net loss of $799,590 for the quarter ended March 31, 2023.  The decrease in our net loss of $110,281 was primarily due to a decrease in licensing and general and administrative expenses.

 

Results of Operations for the Nine months Ended March 31, 2024, and March 31, 2023

 

For the nine months ended March 31, 2024, we recorded gross revenues of $1,368,564 versus $1,281,619 for the nine months ended March 31, 2023, as a result of the Company’s ability to keep centers open for longer periods of time, and more participants coming to the center more often.

 

For the nine months ended March 31, 2024, operating expenses decreased to $2,574,131 from $4,099,132, a $1,525,001 decrease, or 59.24%, over the nine months ended March 31, 2023. The decrease is due to a decrease in expenses related to the Company’s licensing and general and administrative expenses.

 

For the nine months ended March 31, 2024, interest expense decreased to $83,521 from $147,726, a decrease of 76.87% over the nine months ended March 31, 2023. This decrease is primarily due to a decrease in interest expense.

 

For the nine months ended March 31, 2024, we realized a net loss of $1,263,079 as compared to a net loss of $2,777,154 for the nine months ended March 31, 2023. The decrease in our net loss of $1,514,075 was primarily due to a decrease in licensing and general and administrative expenses.

 

Liquidity and Capital Resources

 

Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

 
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Off Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

 

Inflation

 

We do not believe that inflation had a significant impact on our results of operations for the periods presented.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the principal executive officer and the principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of March 31, 2024. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

 

Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded, as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the Commission’s rules and forms, and that such information was not accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosures.

 

 
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Management’s Report on Internal Control over Financial Reporting

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process, under the supervision of the principal executive officer and the principal financial officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with United States generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that:

 

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

 

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the board of directors; and

 

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. 

 

The Company’s management conducted an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2024, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, which assessment identified material weaknesses in internal control over financial reporting. A material weakness is a control deficiency, or a combination of deficiencies in internal control over financial reporting that creates a reasonable possibility that a material misstatement in annual or interim financial statements will not be prevented or detected on a timely basis. Since the assessment of the effectiveness of our internal control over financial reporting did identify a material weakness, management considers its internal control over financial reporting to be ineffective.

 

Management has concluded that our internal control over financial reporting had the following deficiency:

 

 

We were unable to maintain any segregation of duties within our business operations due to our reliance on just two individuals fulfilling the role of officers. This control deficiency did result in adjustments to our interim and annual financial statements. Accordingly, we have determined that this control deficiency constitutes a material weakness.

 

To the extent reasonably possible, given our limited resources, our goal is, upon sufficient operating cash flow and/or capital, to separate the responsibilities of principal executive officer and principal financial officer, intending to rely on two or more individuals. We will also seek to expand our current board of directors to include additional individuals willing to perform directorial functions. Since the recited remedial actions will require that we hire or engage additional personnel, this material weakness may not be overcome in the near term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the advice of outside professionals and consultants.

 

This Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this Quarterly Report on Form 10-Q.

 

Changes in Internal Controls over Financial Reporting

 

During the quarter ended March 31, 2024, there has been no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 

 
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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than disclosed herein, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

 

On or about April 17, 2024, the Company was notified that a complaint had been filed against it in the United States District Court for the Northern District of Ohio, Eastern Division (case no. 5:24-cv-00687), by Merle Griff, Adam Griff and Brian Froelich (the “Plaintiffs”), who are the original shareholders of SarahCare, which is wholly owned by the Company, alleging breach of breach of contract and related causes of action in connection with unpaid royalties pursuant to the Company’s original purchase agreement in connection with SarahCare, and seeking $1,841,537.01 in damages, plus interests, costs and attorney fees. The Company intends to vigorously defend itself in this matter. The Company has not yet been properly served and is currently in settlement negotiations with the Plaintiffs.

 

As of March 31, 2024, we were not a party to any material legal proceedings. We currently have thirteen (13) convertible promissory notes that are in default, and we may be subject to legal proceedings or lawsuits from any number of those convertible noteholders, including the below.

 

On April 7, 2013, three note holders (Brook Hazelton, Benjamin M. Manalaysay, Jr., and Diego McDonald, the “Plaintiffs”), whom together invested a total principal amount of $45,000 in the form of Convertible Promissory Notes (the ”Notes”) to the Company, together filed a “Notice of Commencement of Action Subject to Mandatory Electronic Filing” in the Supreme Count of the State of New York, County of New York. The Plaintiffs alleged that the Company breached their contracts with the Plaintiffs and included causes of action for unjust enrichment and related claims, seeking repayment of each of their respective convertible promissory notes plus interest. On or about February 24, 2014, the three Plaintiffs received judgment against the Company from the court in the amounts of $33,686.82, $8,546.87 and $33,696.69, respectively. 

 

On or about April 17, 2024, the Company was notified that a complaint had been filed against it in the United States District Court for the Northern District of Ohio, Eastern Division (case no. 5:24-cv-00687), by Merle Griff, Adam Griff and Brian Froelich (the “Plaintiffs”), who are the original shareholders of SarahCare, which is wholly owned by the Company, alleging breach of breach of contract and related causes of action in connection with unpaid royalties pursuant to the Company’s original purchase agreement in connection with SarahCare, and seeking $1,841,537.01 in damages, plus interests, costs and attorney fees. The Company intends to vigorously defend itself in this matter.

 

Our wholly owned subsidiary, SarahCare, is not involved in any legal proceedings at this time.

 

Except as set forth herein, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings, and management is not aware of any other legal proceedings pending or that have been threatened against us or our properties. 

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the quarter ended March 31, 2024, the Company did not have any unregistered sales of any equity securities.

 

 
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Item 3. Defaults Upon Senior Securities.

 

During the quarter ended March 31, 2024, the Company was in default under the majority of its outstanding legacy convertible notes.

 

Item 4. Mine Safety Disclosure

 

Not applicable.

 

Item 5. Other Information.

 

 On or about May 20, 2024, Innovative MedTech, Inc. (“Innovative” or the “Company”) entered into an Exclusive License Agreement (the “Exclusive License Agreement”) with Shear Kershman Labs, a Missouri corporation (“SKL”).  SKL has developed Oral Thrush, a mouth wash that treats oral thrush, a condition in which a fungus, Candida albicans, accumulates on the lining of the mouth and sometimes overgrows and causes symptoms, such as creamy white lesions, usually on the tongue or inner cheeks.   Under the Exclusive License Agreement, SKL will form a subsidiary to distribute Oral Thrush, the Company shall become an 80% owner of the subsidiary, and the Company will issue 2,000,000 shares of the Company’s Common Stock to SKL. 

 

The foregoing description of the Exclusive License Agreement does not purport to be complete and is qualified in its entirety by reference to the Exclusive License Agreement, a copy of which is filed as Exhibit 10.8 to this Current Report on Form 10-Q and incorporated in this Item 5 by reference.

 

 
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Item 6. Exhibits.

 

Exhibit

 

Description

3.1

 

Certificate of Incorporation (New Jersey) (Incorporated by reference to the Company’s Form 10SB filed with the SEC on June 29, 2005)

3.2

 

Bylaws (Incorporated by reference to the Company’s Form 10SB filed with the SEC on June 29, 2005)

3.3

 

Certificate of Amendment of Certificate of Incorporation (Incorporated by reference to the Company’s Current Report on Form 8 K filed with the SEC on January 27, 2006)

3.4

 

Certificate of Incorporation (Delaware)

3.5

 

Certificate of Merger (redomiciling from New Jersey to Delaware)

3.6

 

Certificate of Amendment to Certificate of Incorporation

3.7

 

Certificate of Designation of Series A Convertible Preferred Stock

10.1+

 

Standard Office Lease by and between DeVille Developments, LLC, and Sarah Adult Day Services, Inc., dated June 2, 2017

10.2+

 

Lease by and between Stow Professional Center, LLC, and Sarah Day Care Centers, Inc., dated September 4, 2014

10.3+

 

Lease Agreement by and between S. Frank Prof. Bldg., LLC, and Sarah Day Care Centers, Inc., dated March 20, 2018

10.4+

 

Stock Purchase Agreement by and among Innovative MedTech, Inc., Sarah Adult Day Services, Inc., Sarah Day Care Centers, Inc., The Sellers Named Herein, Dr. Merle Griff, as the Seller Representative, and Veteran Services LLC, dated as of March 25, 2021

10.5

 

Share Exchange Agreement, by and between Innovative MedTech, Inc., VC Bin, LLC, Webb Media, LLC, Melides Capital, LLC, Ronald Schreiber, and Dovner Holdings, LLC, dated April 26, 2022

10.6

 

Executive Employment Agreement between Innovative MedTech, Inc. and Dr. Merle Griff, dated May 2, 2022

10.7

 

Consulting Agreement between Innovative MedTech, Inc.  and Red Halo, LLC, dated May 2, 2022

10.8 *

 

Exclusive License Agreement by and between Innovative MedTech, Inc. and Shearson Kershman Labs, dated May 17, 2024.

14.1

 

Code of Ethics (Incorporated by reference to the Company’s Form SB-2 filed with the SEC on May 12, 2006)

31.1 *

 

Certification by the Principal Executive Officer

31.2 *

 

Certification by the Principal Accounting Officer

32.1 *

 

Certification by the Principal Executive Officer

32.2 *

 

Certification by the Principal Accounting Officer

101.INS*

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH*

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

 

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE*

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104*

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

* Filed herewith

+ Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) and/or Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Commission upon request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.

 

 
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Innovative MedTech, Inc.

(Registrant)

 

 

 

/s/ Michael Friedman

 

Michael Friedman

Chief Executive Officer

 

 

 

 

 

Date: May 20, 2024

 

 

 
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