Healthcare Integrated Technologies Inc. - Quarter Report: 2020 April (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended April 30, 2020

OR

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

For the transition period from ________ to ________

Commission file number: 001-36564

Healthcare Integrated Technologies, Inc.

(Exact Name of Registrant as Specified in its Charter)

1462 Rudder Lane

Knoxville, TN 37919

(Address of Principal Executive Offices)

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

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

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

Common Stock, $0.001 par value

(Title of class)

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

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

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

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

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

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

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

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

As of June 11, 2020, there were 33,937,500 shares of common stock of the registrant outstanding.

Documents Incorporated by Reference: None.

TABLE OF CONTENTS

Unless the context clearly indicates otherwise, when used in this report “we,” “us,” “our,” “Healthcare Integrated Technologies,” “Company,” or “our Company” refers to Healthcare Integrated Technologies, Inc. and our subsidiary IndeLiving Holdings, Inc. (“Inde” or “IndeLiving”).

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

Index to Financial Statements

HEALTHCARE INTEGRATED TECHNOLOGIES, INC.

INTERIM CONSOLIDATED BALANCE SHEETS

See accompanying notes to the interim consolidated financial statements.

HEALTHCARE INTEGRATED TECHNOLOGIES, INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to the interim consolidated financial statements.

HEALTHCARE INTEGRATED TECHNOLIGIES, INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

(Unaudited)

See accompanying notes to the interim consolidated financial statements. 

HEALTHCARE INTEGRATED TECHNOLOGIES, INC. 

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to the interim consolidated financial statements.

HEALTHCARE INTEGRATED TECHNOLOGIES, INC.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We are a healthcare technology company whose primary operations are through our IndeLiving subsidiary, which we acquired in March 2018. With the acquisition of IndeLiving, our core focus changed, and our operations through our Grasshopper Colorado subsidiary ceased in February 2019. We also changed our name to Healthcare Integrated Technologies, Inc. (the “Company”), to better reflect our new operations. As a result, our operations, management and board of directors, and our business in general have undergone a substantial change and we have experienced a change in control since the closing of the IndeLiving acquisition.

Founded in 2016 and based in Knoxville, Tennessee, IndeLiving has developed a health monitoring system for assisted living centers and private homes. IndeLiving is a development stage company that uses proprietary technology to monitor seniors in real time by both caregivers and family without the need for the senior to wear any type of monitoring device. The monitoring system is customized to the needs of the individual senior and, if applicable, to assisted living facility requirements. It provides real-time information to monitoring stations at the assisted living facilities. It also can be set up to provide real time information via text, voice, email, and a mobile phone application to family members or other caregivers. The residential model called “Inde Companion” is a monitoring concept with custom modifications that can be applied to individual seniors in a variety of applications including seniors living independently in their own home, with family members, or in an assisted living or retirement community.

The accounting policies used by us and our subsidiaries reflect industry practices and conform to U.S. generally accepted accounting principles (“GAAP”). Significant policies are discussed below.

Basis of Presentation

The accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited interim consolidated financial statements contain all of the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of April 30, 2020 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended April 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited interim consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 31, 2019 filed with the SEC on March 20, 2020.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Healthcare Integrated Technologies, Inc. and our subsidiaries (collectively, the “Company”). All intercompany balances and transactions are eliminated in the consolidation.

Reclassifications

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

Risk and Uncertainties

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

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s future financial condition, liquidity, and results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity1 for fiscal year 2020.

Use of Estimates

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

Cash and Cash Equivalents

We consider all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. The Company held no cash equivalents at April 30, 2020 and July 31, 2019. 

Accounts Receivable

Accounts receivable are stated at their historical carrying amount net of write-offs and allowance for uncollectible accounts. We routinely assess the recoverability of all customer and other receivables to determine their collectability and record a reserve when, based on the judgement of management, it is probable that a receivable will not be collected and the amount of the reserve may be reasonably estimated. When collection is no longer pursued, we charge uncollectable accounts receivable against the reserve. All our accounts receivable relates to our Grasshopper Staffing, Inc. subsidiary which eased operations in February 2019. At April 30, 2020 and July 31, 2019, all accounts receivable were deemed uncollectable and are fully reserved.

Property and Equipment

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

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

Fair Value of Financial Instruments

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

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

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

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

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

Revenue Recognition

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

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

Advertising

Advertising costs are expensed as incurred in accordance with ASC 720-35, “Advertising Costs.” We incurred advertising costs of $50,300 and $8,746 for the nine months ended April 30, 2020 and 2019, respectively, which are included in selling, general and administrative expenses on the interim consolidated financial statements.

Net Loss Per Common Share

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

Stock Based Compensation

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

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

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

Business Combinations

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

Income Taxes

Under ASC 740, “Income Taxes,” deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that some or all the deferred tax assets will not be realized. As of April 30, 2020 and July 31, 2019, there were no deferred taxes due to the uncertainty of the realization of net operating loss carry forwards prior to their expiration.

Recently Adopted Accounting Pronouncements

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

Recent Accounting Pronouncements

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

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

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.

NOTE 2 - GOING CONCERN

The accompanying interim consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern. We have a history of losses, an accumulated deficit, have negative working capital and have not generated cash from our operations to support a meaningful and ongoing business plan. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In view of these matters, our ability to continue as a going concern is dependent upon the development, marketing and sales of a viable product to achieve a level of profitability. We intend on financing our future development activities and our working capital needs largely from the sale of private and public equity securities with additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should we be unable to continue as a going concern.

NOTE 3 - DISCONTINUED OPERATIONS

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

Discontinued operations consisted of the following for the nine months ended April 30, 2020 and 2019:

NOTE 4 - ACCOUNTS RECEIVABLE

Accounts receivable, net consisted of the following at April 30, 2020 and July 31, 2019:

There was no bad debt expense recorded for the nine months ended April 30, 2020 and 2019.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following at April 30, 2020 and July 31, 2019:

Depreciation expense for the nine months ended April 30, 2020 and 2019 was $4,214 and $6,204, respectively.

NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at April 30, 2020 and July 31, 2019:

NOTE 7 - PAYROLL RELATED LIABILITIES

Payroll related liabilities consisted of the following at April 30, 2020 and July 31, 2019:

NOTE 8 - DEBT

We had the following debt obligations reflected at their respective carrying values on our interim consolidated balance sheets as of April 30, 2020 and July 31, 2019:

5% Convertible Promissory Notes

On various dates during the month of March 2018 we issued a series of 5% Convertible Promissory Notes (collectively, the “5% Notes”) totaling $750,000 in net proceeds to the Company. We incurred no costs related to the issuance of the 5% Notes. The 5% Notes bear interest at the rate of five percent (5%) per annum, compounded annually, and the notes matured one-year from the date of issuance. At April 30, 2020 and July 31, 2019, accrued but unpaid interest on the 5% Notes was $82,044 and $52,266, respectively.

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

The 5% Notes with a face amount of $300,000 that matured on various dates during March 2019 and are currently in default and are not convertible under the conversion terms. The 5% Notes with face amounts totaling $450,000 mature on March 31, 2021 and are convertible under the conversion terms. Management continues to negotiate amendments to the remaining notes in default to extend the maturity dates of such notes.

Paycheck Protection Program Loan

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

Ford Credit Note

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

NOTE 9 - INCOME TAXES 

A reconciliation of the provision for income taxes as reported, and the amount computed by multiplying net loss by the federal statutory rate of 21% as of April 30, 2020 and July 31, 2019 are as follows:

The components of the net deferred tax asset as of April 30, 2020 and July 31, 2019 are as follows:

In assessing the realizable value of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which these temporary differences become tax deductible. Based on management’s assessment of objective and subjective evidence, we have concluded at this time it is more likely than not that all of our deferred tax asset will not be realized and we have provided a valuation allowance for the entire amount of the deferred tax asset. At April 30, 2020 we have approximately $2.3 million in federal and state net operating loss carryovers that begin expiring in fiscal 2037.

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

NOTE 10 - RELATED PARTY TRANSACTIONS

To continue operations and meet operating cash requirements, we have periodically relied on advances from related parties, primarily shareholders, until such time as our cash flow from operations meets our cash requirements or we are able to obtain adequate financing through sales of our equity securities and/or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts advanced primarily relate to amounts paid to vendors. The advances are considered temporary in nature and have not been formalized by any written agreement. As of April 30, 2020, and July 31, 2019, related parties have advanced the Company $201,859 and $203,581, respectively. The advances are payable on demand and carry no interest.

In addition, we have accrued expenses related to the January 15, 2016 consulting and advisory agreement with Platinum Equity Advisors, LLC (the “Platinum Agreement”), a related party. The Platinum Agreement was terminated on March 12, 2018 (the “Termination Date”) when Scott M. Boruff, the Chief Manager of Platinum, was appointed Chief Executive Officer of the Company. As of April 30, 2020 and July 31, 2019, the accrued amount owed under the Platinum Agreement is $132,285 and $138,216, respectively.

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

NOTE 11 - COMMON STOCK

At April 30, 2020 and July 31, 2019, we had 33,937,500 and 32,487,500 shares of common stock outstanding, respectively. We issued 1,450,000 shares during the nine months ended April 30, 2020, of which 1,200,000 shares were issued for cash and 250,000 shares were issued for services. No shares were issued during the year ended July 31, 2019.

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

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

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

On April 22, 2020, we executed an agreement with Jurgen Vollrath to act as our outside counsel for Intellectual Property (“IP”). Pursuant to the terms of the agreement, we issued 1,250,000 warrants to purchase the Company’s common stock at an exercise price of $0.23 per share with 250,000 warrants immediately vested and exercisable on the grant date and the remaining options vesting equally over a period of three (3) years from the grant date.

NOTE 12 - STOCK-BASED COMPENSATION

During the nine months ended April 30, 2020 and 2019, we recorded $235,444  and $220,882, respectively, of compensation expense related to stock options and warrants. The grant date fair value of stock options and warrants granted during the nine months ended April 30, 2020 was $307,965. No stock options or warrants were granted during the nine months ended April 30, 2019. We estimated the grant date fair value of stock options and warrants using the Black-Scholes pricing model with the following weighted average range of assumptions for the periods presented:

Expected Volatility

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

Expected Term

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

Risk-Free Interest Rate

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

Dividend Yield

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

The following table summarizes our stock-based compensation activities for the nine months ended April 30, 2020 and fiscal year ended July 31, 2019: 

Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

The following discussion and analysis should be read in conjunction with the interim consolidated financial statements and accompanying notes included herein and the consolidated financial statements and accompanying notes included in our most recent Annual Report on Form 10-K.

Executive Overview

We are healthcare technology company whose primary operations are through our IndeLiving subsidiary, which we acquired in March 2018. With the acquisition of IndeLiving, we revised our operational focus and we changed our name to Healthcare Integrated Technologies, Inc. to better reflect our core business strategy.

Strategy

Our mission is to grow a profitable healthcare technology company through our IndeLiving subsidiary for the long-term benefit of our shareholders by focusing on our relationship with our primary hardware supplier, further development of our proprietary software and developing new uses and product lines for the technology. Our management team is focused on maintaining the financial flexibility and assembling the right complement of personnel and outside consultants required to successfully execute our mission.

Financial and Operating Results

Highlights for the nine months ended April 30, 2020 include:

Results of Operations

Three Months Ended April 30, 2020 Compared To Three Months Ended April 30, 2019

Selling, General and Administrative Expenses

Officer’s Salaries – Officer’s salaries increased $15,422 from fiscal 2019, or 18%, primarily due to the addition of our new Chief Financial Officer hired in October 2019.

Stock-Based Compensation – Stock-based compensation expense increased $6,989, or 9%, over the same period in the prior year. The increase results from amortization of the grant date fair value of employee stock options granted to our new Chief Financial Officer hired in October 2019.

Advertising and Marketing – Advertising and marketing costs increased $60,418 from 2019. During fiscal 2020 we engaged BrandMETTLE as our advertising agency and incurred additional advertising expense for issuance of common stock for services related to our agreement. We had little activity during fiscal 2019.

Professional Fees – Professional fees increased $34,409 from fiscal 2019. The increase was primarily related to the increased accounting, legal and filing fees associated with the filing of our Comprehensive Form 10-K in March 2020.

Interest Expense

Interest expense increased $687 over the same period in the prior year. The increase is primarily due to the compounding effect of the accrued interest expense on our outstanding 5% Convertible Notes.

Loss from Discontinued Operations

During the three-month periods ending April 30, 2020 and 2019, the operations of our Grasshopper Colorado subsidiary were discontinued. We earned no revenue from the discontinued operations during these periods as we incurred minimal expenses.

Nine Months Ended April 30, 2020 Compared To Nine Months Ended April 30, 2019

Selling, General and Administrative Expenses

Officer’s Salaries – Officer’s salaries increased $35,104 from fiscal 2019, or 14%, primarily due to the addition of our new Chief Financial Officer hired in October 2019.

Stock-Based Compensation – Stock-based compensation expense increased $14,562, or 7%, over the same period in the prior year. The increase results from amortization of the grant date fair value of employee stock options granted to our new Chief Financial Officer hired in October 2019.

Advertising and Marketing – Advertising and marketing costs decreased $23,893 from fiscal 2019, or 26%. The total decrease resulted from an approximately $65,000 decrease in our sales staff and product demonstration costs that was offset by an approximately $41,000 increase in advertising expense. The increase in advertising expense resulted from the issuance of common stock for services related to our engagement of BrandMETTLE as our advertising agency.

Professional Fees – Professional fees increased $40,022 from fiscal 2019. The increase was primarily related to the increased accounting, legal and filing fees associated with the filing of our Comprehensive Form 10-K in March 2020.

Interest Expense

Interest expense increased $1,418 over the same period in the prior year. The increase is primarily due to the compounding effect of the accrued interest expense on our outstanding 5% Convertible Notes.

Loss from Discontinued Operations

In February 2019 we discontinued the operations of our Grasshopper Colorado subsidiary. Loss from discontinued operations consisted of the following at April 30, 2020 and 2019:

Liquidity and Capital Resources

Working Capital

The following table summarizes our working capital for the interim period ended April 30, 2020 and fiscal year ended July 31, 2019:

Current assets for the period ended April 30, 2020 increased as compared to the year ended July 31, 2019 due to the cash proceeds received from the closing of our SBA PPP loan on April 30, 2020.

Current liabilities for the period ended April 30, 2020 increased as compared to the year ended July 31, 2018 primarily due to the continued accrual of unpaid officer’s compensation.

Net Cash Used by Operating Activities

Since we discontinued the operations of our Grasshopper Colorado subsidiary in February 2019, we no longer have a revenue source and will continue to have negative cash flow from operations for the near future. The factors in determining operating cash flows are largely the same as those that affect net earnings, except for non-cash expenses such as depreciation and stock-based compensation, which affect earnings but do not affect cash flow. Net cash used by operating activities decreased $19,167  for the nine months ended April 30, 2020 compared to the nine months ended April 30, 2019. The decrease in cash used during fiscal 2020 is attributable to less activity in the early months of 2020 as compared to 2019.

Net Cash Provided (Used) by Financing Activities

Net cash provided by financing activities increased $188,903  for the nine months ended April 30, 2020 over the same period in fiscal 2019. During 2019, we raised cash exclusively from short-term loans from management. During 2020, we raised $120,000 from the private placements of our common stock and received $41,667 in proceeds from the closing of our SBA PPP loan. The remaining increase resulted from a lesser amount of net cash used to repay shareholder advances in 2020 as compared to 2019.

At this time, we cannot provide investors with any assurance that we will be able to obtain sufficient funding from debt financing and/or the sale of our equity securities to meet our obligations over the next twelve months. We are likely to continue using short-term loans from management to meet our short-term funding needs.

Going Concern Qualification

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

Critical Accounting Policies and Estimates 

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

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

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our July 31, 2019 Annual Report.

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

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

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

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

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

Business Combinations

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

The results of the acquired businesses are included in our results from operations beginning from the day of acquisition.

Revenue Recognition

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

Temporary Staffing Revenue

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

Capital Resources

We had no material commitments for capital expenditures as of April 30, 2020. On August 7, 2019, our wholly owned subsidiary, IndeLiving Holdings, Inc., a Florida corporation (“Inde Living”), as buyer and licensee, and Vayyar Imaging, Ltd. (“Vayyar”), as seller and licensor, entered into a Walabot Home Reseller Agreement, dated as of July 31, 2019 (the “Agreement”). Under the terms of the Agreement, among other things, Inde Living has agreed to purchase from Vayyar Walabot home hardware devices, used in the monitoring of residents and patients under care in assisted living and similar facilities (the “Products”). The Company is required to order a minimum of $2,000,000 in Products by July 31, 2020 (exclusive of shipping costs and taxes).

The agreement also provides, among other terms, Inde Living with a non-exclusive, revocable license to sell the Products within the United States during the term of the Agreement, which has an initial term extending until July 31, 2020 and which automatically extends year-to-year afterwards unless either party elects to terminate the Agreement. The agreement provides a client becomes exclusive when we sell 20 units or more to the client.

Although the Agreement is dated as of July 31, 2019, signature pages were executed and delivered between both parties on August 7, 2019, and so it became legally binding on the parties on that date. 

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements as of April 30, 2020.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

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

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

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

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

Changes in Internal Control over Financial Reporting

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

Not required for smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 11, 2020, we issued 1,000,000 shares of our common stock at a price of $0.10 per share to an accredited investor resulting in net proceeds to the Company of $100,000. We incurred no cost related to the private transaction. The issuance of the shares was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(a)2 of that act.

On March 18, 2020, we issued 200,000 shares of our common stock at a price of $0.10 per share to an accredited investor resulting in net proceeds to the Company of $100,000. We incurred no cost related to the private transaction. The issuance of the shares was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(a)2 of that act.

On March 21, 2020, we issued 250,000 shares of our common stock valued at $45,000 to two (2) individuals as compensation for services rendered. The issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(a)1 and Rule 144.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

On various dates during the month of March 2018 we issued a series of 5% Convertible Promissory Notes (collectively, the “5% Notes”) totaling $750,000 in face amount. The 5% Notes bear interest at the rate of five percent (5%) per annum, compounded annually, and matured one-year from the date of issuance. 5% Notes with face amounts totaling $450,000 have been previously amended to extend their maturity date to March 31, 2021. 5% Notes with face amounts totaling $300,000 matured on various dates during March 2019 and are currently in default for non-payment of principal and interest. As of June 11, 2020, Principal and accrued interest of approximately $34,500 are due on the notes in default.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

** Executive Compensation Agreement

SIGNATURES

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