Healthtech Solutions, Inc./UT - Quarter Report: 2022 March (Form 10-Q)

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q

☑    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022     

☐       TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File No. 0-51012

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

Indicate  by check mark  whether the  Registrant  (1) has filed all reports required to be filed by Sections 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, 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. (Check One)

Large accelerated filer ☐ Accelerated filer ☐  Non-accelerated filer ☑ Smaller reporting company  ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:

May 20, 2022

Common Voting Stock: 66,965,933

  HEALTHTECH SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE FISCAL QUARTER ENDED MARCH 31, 2022

TABLE OF CONTENTS

The accompanying notes are an integral part of these consolidated financial statements 

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

The accompanying notes are an integral part of these consolidated financial statements

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

Healthtech Solutions, Inc. (the “Company”) was incorporated in Utah on October 18, 1985. Since November 16, 2020, when the Company acquired all of the outstanding capital stock of Medi-Scan Inc., Healthtech Solutions has been pursuing a business plan in which the Company will acquire and/or invest in cutting edge healthcare technology in the medical device, biopharma and pharmaceutical fields. The goal will be to nurture these early stage ventures with financial support and administrative and technological assistance until their respective medical solutions are ready to enter the market. At the present time, the Company’s portfolio consists of three subsidiaries: 100% of Medi-Scan, Inc. and RevHeart, Inc. and 70% of Healthtech Wound Care, Inc.

Acquisition of Medi-Scan Inc.

Medi-Scan Inc. was organized in the State of Florida on September 25, 2018. In December 2018, Medi-Scan acquired a portfolio of intellectual property relating to medical imaging. Since December 2018, Medi-Scan has been engaged in developing practical applications for the medical imaging technology as well as related medical technology. In 2020 Medi-Scan applied for two patents based on the technology developed in the prior two years.

On November 12, 2020, Healthtech Solutions, Inc. entered into an exchange agreement with Medi-Scan, Inc. ("Medi-Scan") and all of the shareholders of Medi-Scan, pursuant to which the shareholders of Medi-Scan agreed to transfer all of the issued and outstanding stock of Medi-Scan to Healthtech Solutions, Inc., and Healthtech Solutions, Inc. agreed to issue to the shareholders of Medi-Scan, Inc. 156,837 shares of its Series A Preferred Stock, which at that time represented 97% of the equity in Healthtech Solutions. The exchange of equity (the "Share Exchange") was completed on November 16, 2020.

As a result of the Share Exchange, the Medi-Scan shareholders become the majority shareholders and had control of Healthtech Solutions. On November 12, 2020, when the Share Exchange Agreement was executed, the three members of the Healthtech Solutions Board of Directors were also the three managing members of Medi-Scan, entities under their control owned a majority of the outstanding capital stock of Medi-Scan, and an entity under the control of one of them owned a majority of the outstanding capital stock of Healthtech Solutions. Therefore, the Share Exchange was accounted for as a business combination of entities under common control in accordance with ASC 805-50-30-5. Accordingly, the assets and liabilities of Medi-Scan are presented at their carrying values as of the date of the Share Exchange.

Organization of RevHeart, Inc.

Healthtech Solutions organized RevHeart, Inc. in March 2021. RevHeart is focused on novel approaches to correct cardiac rhythm abnormalities using electromagnetic waveforms in an innovative approach called entrainment. Entrainment, which is currently used in tachycardia (rapid heartbeat), works by linking the patient’s abnormal heart rhythm together with a normal heart rhythm, and gently encouraging the abnormal rhythm to revert to a more normal rhythm. As part of these efforts, RevHeart is developing software technology that compares a healthy heart rhythm electronic signal with a damaged heart’s signal, and subsequently derives an electronic signal representing the potentially curative waveform.

Acquisition of Wound Care Business

In January 2022 Healthtech Solutions organized Healthtech Wound Care, Inc. (“HWC”), which then acquired the business carried on by Predictive Biotech, Inc. (“PBI”) relating to of the development of novel wound care products for acute and chronic wounds. PBI transferred all of its assets related to that business to HWC in exchange for 30% of the equity in HWC, a commitment by HLTT to pay $517,432 to PBI and its parent as prepaid commissions, and the conditional commitment by Healthtech Solutions to provide up to $3.5 million in funding for development of HWC’s business.

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

Acquisition of Wound Care Business (continued)

HWC’s plan is to use the business acquired from PBI as the foundation for HWC’s program of identifying and developing a pipeline of human cell and tissue product (HCT/Ps) candidates that we believe have novel mechanisms of action and immediate clinical potential in accordance with applicable federal regulations.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying unaudited 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 (the “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 financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2022, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the Form 10-K for the year ended December 31, 2021, filed with the SEC on April 15, 2022.

The accompanying consolidated financial statements reflect the accounts of Healthtech Solutions, Inc. and its subsidiaries, Medi-Scan, RevHeart and Healthtech Wound Care, All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ from those estimates. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.

Concentrations of Credit Risk

We maintain our cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. We continually monitor our banking relationships and have not experienced any losses in our accounts. We believe we are not exposed to any significant credit risk on cash.

Software Development Costs

In accordance with ASC 985-20, the Company expenses software development costs, including costs to develop software products or the software component of products to be sold, leased, or marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products. Software development costs also include costs to develop software to be used solely to meet internal needs and cloud-based applications used to deliver our services. The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed, and the software will be used to perform the function intended. Capitalization ends, and amortization begins when the product is available for general release to customers.

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Research and Development

Research and development costs are expensed when incurred. Research and development costs include costs of research, engineering, and technical activities to develop a new product or service or make significant improvement to an existing product or manufacturing process. Research and development costs also include pre-approval regulatory and clinical trial expenses.

 Intangible Assets

The Company reviews goodwill and intangible assets with indefinite lives for impairment according to the provisions of ASC Topic 350:  "Intangibles - Goodwill and Other" at least annually and when events or changes in circumstances indicate the carrying amount may not be recoverable. The Company measures recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows that the assets or the asset group are expected to generate. If the carrying value of the assets are not recoverable, the impairment recognized is measured as the amount by which the carrying value of the asset exceeds its fair value. Management has determined that no impairment exists as of March 31, 2022.

Convertible Instruments

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities.

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of this note transaction and the effective conversion price embedded in this note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

The Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

Share-Based Compensation

The Company follows the provisions of FASB ASC 718 requiring employee equity awards to be accounted for under the fair value method. Accordingly, share-based compensation is measured at grant date, based on the fair value of the award and recognized over its vesting period. No equity instruments were granted to employees during the quarter ending March 31, 2022 and no compensation expense is required to be recognized under provisions of ASC 718 with respect to employees.

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments

The Company follows ASC 825-10-50-10 with respect to disclosures about fair value of its financial instruments and ASC 820-10-35-37 to measure the fair value of its financial instruments. ASC 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

Financial assets and liabilities of the Company primarily consist of cash, prepaid expenses, accounts payable and accrued liabilities, other payables and convertible debentures. As of March 31, 2022, the carrying values of these financial instruments (other than convertible debentures) approximated their fair values due to the short-term nature of these instruments.

See: Note 10, "Derivative Financial Instruments", for fair value disclosures regarding the convertible debentures issued by the Company in November 2020 and exchanged for Common Stock on May 6, 2021. The derivative liability is classified as a Level 3 liability, and is the only financial liability measure at fair value on a recurring basis.

There were no transfers between level 1, level 2 or level 3 measurements during the quarter ending March 31, 2022.

Earnings Per Share

The Company calculates earnings per share (“EPS”) as required by ASC 260, Earnings Per Share. Basic EPS is calculated by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period, excluding common stock equivalents. Diluted EPS is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period, plus the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For periods with a net loss, the dilutive common stock equivalents are excluded from the diluted EPS calculation. For purposes of this calculation, common stock subject to repurchase by the Company, options, and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.

Income Taxes

The Company follows ASC Topic 740, Income Taxes, which requires the recognition of deferred income taxes for the differences between the basis of assets and liabilities for financial statements and income tax purposes. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes (continued)

Deferred tax assets are also recognized for operating losses and for tax credit carryforwards. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC 740-10-30 requires income tax positions to meet a more-likely-than-not recognition threshold to be recognized in the financial statements. Under ASC 740-10-30, tax positions that previously failed to meet the more-likely-than-not threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Under ASC 740-10-40, previously recognized tax positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company had no material uncertain tax positions as of March 31, 2022 or December 31, 2021.

The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations and court rulings. Therefore, the actual liability may be materially different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously recorded tax liabilities or the deferred tax asset valuation allowance.

Recently Adopted Accounting Standards

The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any recently issued pronouncements to have an impact on its results of operations or financial position.

NOTE 3 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenue since inception, and has an accumulated deficit of $11,218,346 as of March 31, 2022. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Management anticipates that the Company will be dependent, for the near future, on additional investment capital or debt to fund operating expenses until its planned operations generate sufficient revenue to offset the Company’s expenses. Management, therefore, is actively pursuing sources of investment capital, including both investment into Healthtech Solutions and investment into one or more of its subsidiaries. At present, the Company has received no firm commitment of investment capital. The Company is financing its current operations, therefore, by means of loans from its shareholders and a third party. None of these parties, however, has any contractual or other commitment to continue to lend money to the Company.

 NOTE 4 – INTANGIBLE ASSETS

The Company’s intangible assets as of March 31, 2022 consisted of two patents pending that were acquired by Healthtech Wound Care, Inc. on January 31, 2022 and valued on that date at $137,432. The two patents pending are being amortized over a period of three years. Amortization expense relating to the patents pending totaled $7,635 in the quarter ended March 31, 2022 and $0 in the quarter ended March 31, 2021.

The Company’s intangible assets during the quarter ended March 31, 2021 consisted of the intellectual property relating to medical imaging contributed to Medi-Scan in 2018 as a capital contribution. The intangible assets were amortized over three years. Amortization expense relating to the intangible assets totaled $0 in the quarter ended March 31, 2022, and $29,166 in the quarter ended March 31, 2021.

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 5 – INVESTMENT IN AND ADVANCE TO NON-CONSOLIDATED SUBSIDIARY

On May 7, 2021 the Company acquired ownership of Varian Biopharmaceuticals, Inc. (“Varian”) from its original shareholders (the “Varian Shareholders”) in exchange for 29,737.184 shares of Series C Preferred Stock issued by Healthtech Solutions. The Company determined that the fair value of the Series C Preferred Stock was equal to the amount of cash acquired in the transaction plus the amount of debt in excess of that cash that was assumed, and allocated the fair value accordingly between the assets acquired and the liabilities assumed.

The parties subsequently agreed that the relationship between Healthtech Solutions and Varian was not achieving its intended results. Therefore, on November 9, 2021, the Company entered into a Share Exchange Agreement (the "SEA") with the Varian Shareholders. in order to unwind its acquisition of Varian. Pursuant to the SEA, (a) the Varian Shareholders returned to Healthtech all of the outstanding shares of Healthtech Series C Preferred Stock and (b) Healthtech caused all of the outstanding shares of Varian common stock to be returned to the Varian Shareholders. Immediate subsequently, Varian issued to Healthtech Varian shares that represent 5.5% of the outstanding shares of Varian.

The Company has valued its 5.5% interest in Varian at $60,000, which represents 5.5% of the value of Varian on the Company’s books prior to the transfer pursuant to the SEA. That asset has been combined on the Company’s balance sheet with a $50,000 receivable from Varian provided for in the SEA, and the combination is classified as “investment in and advance to non-consolidated affiliate”

NOTE 6 – ACQUISITION OF WOUND CARE BUSINESS

On January 31, 2022, pursuant to the Asset Purchase Agreement dated January 18, 2022 among the Company and its newly-organized subsidiary, Healthtech Wound Care, Inc. (“HWC”), Predictive Technology Group, Inc. (“PTG”) and its subsidiary, Predictive Biotech, Inc. (“Biotech”), HWC acquired the assets of Biotech that were related to Biotech’s wound care business and entered into an Operations Agreement with Biotech and PTG containing terms of their future relationship. The Company received from PTG three year options to purchase Biotech and/or Cellsure, LLC, another subsidiary of PTG, each for a purchase price of $10. During the three year term of the options, the Company will be entitled to exercise exclusive managerial control over the operations of Cellsure and over the operations of Biotech related to wound care.

In consideration of the transfer of its wound care business to HWC, HWC issued preferred shares to Biotech and the Company paid Biotech and PTG $517,432. Until HWC achieves positive cash flow or $3.5 million in capital has been contributed to HWC, the preferred shares held by Biotech will represent 30% of HWC’s equity and voting power. The Operations Agreement commits the Company to provide working capital to HWC and Biotech until HWC achieves positive cash flow or the Company contributes $3.5 million or the Company determines that market conditions make it unlikely that HWC will be financially successful.

The Company accounted for the acquisition as a business combination. The Company determined that the consideration for the business was the sum of $517,432 that the Company paid to PTG. No liabilities were assumed in connection with the acquisition. The assets acquired were recognized at their fair values as of the effective acquisition date, January 31, 2022, as determined by the Company’s management.

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 6 – ACQUISITION OF WOUND CARE BUSINESS (continued)

The following table summarizes the fair values assigned to the assets acquired:

NOTE 7 – RELATED PARTIES

David Rubin was a managing member of Medi-Scan commencing in May 2020 and served as Chairman and CEO of Healthtech Solutions from September 2020 through July 19, 2021. In May 2020 David Rubin, through his personal holding company, Storm Funding LLC, agreed to contribute $250,000 to Medi-Scan in exchange for a 25% equity interest in Medi-Scan. During January 2021 Mr. Rubin completed that commitment with a final contribution of $4,558. As of March 31, 2022, Mr. Rubin loaned (net of payments) $435,250 to the Company and contributed services of employees of Storm Funding LLC, a company owned by David Rubin, valued at (net of payments) $5,598. In the 1^st quarter of 2022, Mr. Rubin and Storm Funding LLC loaned an additional $348,250 in cash and $3,677 in employee services to the Company. These loans of cash and services are included in Loans from Shareholders on the Company’s balance sheets.

On May 4, 2021 the Company entered into an Advisory Agreement with Kleinfeld Legal Services P.A., which is owned by Denis Kleinfeld. Mr. Kleinfeld was, until April 24, 2021, a member of the Company's Board of Directors. Pursuant to the Advisory Agreement, Kleinfeld Legal Services P.A. will provide legal and advisory services to Medi-Scan Inc. during the two years ended May 4, 2023. In consideration of the services, the Company agreed to pay Kleinfeld Legal Services a $100,000 signing fee plus a services fee of $150,000 per year. The Company also assigned to Kleinfeld Legal Services 19.9% of the capital stock of Medi-Scan, Inc.  During the year ended December 31, 2021, the Company recorded expenses for advisory services from Kleinfeld Legal Services totaling $200,000. During the 1^st quarter of 2022, the Company recorded expenses for advisory services from Kleinfeld Legal Services totaling $37,500.

During the first quarter of 2022, the Company borrowed $500,177 from 3 of its shareholders. The loans are unsecured, payable on demand and bear no interest.

NOTE 8 – SHAREHOLDERS EQUITY

Authorized Capital Stock

The following table sets forth information, as of March 31, 2022, regarding the classes of capital stock that are authorized by the Articles of Incorporation of Healthtech Solutions, Inc.

Series A Preferred Stock. The Series A Preferred Stock was authorized on November 16, 2020. When first authorized, each share of Series A Preferred Stock was convertible by the holder at any time into two thousand (2,000) shares of Common Stock and had voting rights equivalent to the voting rights of 2,000 shares of common stock. On November 12, 2021, after a vote of the Board of Directors, the Company’s shareholders and the holders of the outstanding Series A Preferred Stock voting as a class, Articles of Amendment of the Company’s Articles of Incorporation were filed which modified the terms of the Series A Preferred Stock such that each share of Series A Preferred Stock is now convertible by the holder into fifty (50) shares of Common Stock at any time after May 31, 2024 and entitles a stockholder to voting rights equivalent to those of 50 shares of Common Stock on all matters upon which stockholders are permitted to vote. In the event of our liquidation, dissolution or winding up, after payment of all creditors, holders of our Series A Preferred Stock are entitled to receive, ratably, a preferential payment of $.01 per share, then to share pro rate in the net assets available to stockholders on an as-converted basis.

Undesignated Preferred Stock. The Board of Directors has authority, without shareholder approval and by resolution of the Board of Directors, to amend the Corporation's Articles of Incorporation to divide the class of undesignated Preferred Stock into series, to designate each such series by a distinguishing letter, number or title so as to distinguish the shares thereof from the shares of all other series and classes, and to fix and determine the following relative rights and preferences of the shares of each series so established.

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 8 – SHAREHOLDERS EQUITY (continued)

Capital Contributions

Medi-Scan's founders contributed $0 during the three months ended March 31,2022, and $4,558 to the Company during the three months ended March 31, 2021.

NOTE 9 – EXCHANGEABLE NOTES AND CONVERTIBLE DEBENTURES

In August and September of 2020, Medi-Scan issued four 7% Exchangeable Promissory Notes in the aggregate principal amount of $375,000. Principal and interest were payable on the Notes on January 31, 2021. The Notes provided that, in the event that Medi-Scan was acquired by a corporation whose common stock was registered with the SEC, the Notes would be automatically exchanged for 7% convertible debentures issued by that acquirer.

In November of 2020, by reason of the Share Exchange, the four 7% Exchangeable Promissory Notes were automatically exchanged for 7% Convertible Debentures issued by Healthtech Solutions in a principal amount of $381,505, which was equal to the principal of and accrued interest on the Notes. Then, during December of 2020, Healthtech Solutions issued four additional 7% Convertible Debentures in the aggregate principal amount of $250,000 in exchange for payment of cash in that amount. On February 4, 2021 an additional debenture was issued in the amount $50,000.

The 7% Convertible Debentures were convertible into common stock, at the holders’ option, at a 30% discount to the market price of the Company’s common stock. The Company determined that the conversion feature represented a derivative financial instrument embedded in the Debentures. The accounting treatment of derivative financial instruments requires that the Company record the fair value of that derivative financial instrument as a discount to the value of the Debentures as of the inception date of each Debenture. Accordingly, the Company recorded an aggregate initial discount of $349,202 for the fair value of the derivative liability at inception of each convertible debenture. During the year ending December 31, 2021, the Company amortized $27,303 and $351,202 as interest expense.

On May 6, 2021, by agreement with the holders of the 7% Convertible Debentures, the Company issued 3,507,164 shares of common shares in exchange for surrender of the convertible debentures.

NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company determined that the conversion feature of the 7% Convertible Debentures represented an embedded derivative since the Debentures were convertible into a variable number of shares upon conversion. Accordingly, the Debentures are not considered to be conventional debt under ASC 815 and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability.

The fair value of the derivatives embedded in the 7% Convertible Debentures as of December 31, 2020 was determined using the Monte Carlo simulation method based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 167%, (3) weighted average risk-free interest rate of 9.0%, (4) expected life until January 31, 2024, and (5) the quoted market price of the Company’s common stock at each valuation date.

At March 31, 2021, the Company marked to market the fair value of the nine derivatives and determined a fair value of $359,608. The Company recorded a gain resulting from change in fair value of debt derivatives by $7,215 for the three months ending March 31, 2021.

 HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 10 – DERIVATIVE FINANCIAL INSTRUMENTS (continued)

A summary of changes in Convertible Debentures for the period ending March 31, 2021 was as follows:

NOTE 11 – INCOME TAX

The provision (benefit) for income taxes consisted of the following for the three month periods ended March 31, 2022 and 2021:    

The following table reconciles the effective income tax rates with the statutory rates for the three month periods ended March 31, 2022 and 2021:

Deferred tax assets are comprised of the following:  

At March 31, 2022, the Company had approximately $11,218,346 of federal net operating losses that may be available to offset future taxable income. Through 2036, the amount and utilization of any future net operating loss carry-forwards may be subject to limitations set forth by the Internal Revenue Code. Based upon an analysis of the Company’s stock ownership activity through March 31, 2022, a change of ownership was deemed to have occurred in the 2020 fiscal year. This change of ownership created an annual limitation of substantially all of the Company’s net operating losses which are available through 2036. 

HEALTHTECH SOLUTIONS, INC.

Notes To Consolidated Financial Statements

(Unaudited)

NOTE 11 – INCOME TAX (continued)

The Company assesses the likelihood that deferred tax assets will be realized. To the extent that realization is not likely, a valuation allowance is established. Based upon the Company’s losses since inception, management believes that it is more likely than not that future benefit of the deferred tax asset will not be realized principally due to the continuing losses from operations and the change of ownership limitations and has therefore established a full valuation allowance.

The tax years ending December 31, 2020 and 2021 remain open to examination by the taxing authorities.

NOTE 12 – SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company’s management has performed subsequent events procedures through the date these financial statements were issued and determined that there are no reportable subsequent events.   

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

At the end of January 2022 we acquired from Predictive Biotech, Inc. all of the assets related to its business of developing and producing wound care treatments, including AmnioBind, which is a placental membrane allograft designed to act as a covering or barrier for the protection of burns and non-healing wounds such as diabetic foot ulcers. Since acquiring those assets in our newly organized subsidiary, Healthtech Wound Care, Inc. (“HWC”), we have focused our immediate attention on achieving the regulatory approvals necessary for HWC to bring AmnioBind to market. $385,195 (i.e. 95.5%) of the $403,415 that we devoted to research and development during the first quarter of 2022 was attributable to efforts of HWC to complete and test a market-ready version of AmnioBind.

The other significant contributor to our loss from operations in the first quarter of 2022 was general and administrative expenses of $383,628 (including $45,000 payable to related parties). These expenses primarily involve insurance premiums, office expenses, legal and accounting expenses, compensation of consultants, and other expenses incurred in developing Healthtech Solutions into a viable incubator of development stage medical companies. In total, our operating expenses for the first quarter of 2022 were $794,265, which amounted to our loss from operations as we had no revenue. By comparison, our loss from operations during the first quarter of 2021 was $262,493, most of which was attributable to research and development by our MediScan subsidiary and the expenses we incurred in searching for promising additions to our portfolio of development-stage enterprises.

We expect that our research and development expenses will rise significantly if we obtain the capital resources necessary to fully implement our business plan. In particular, the effort to bring MediScan’s and RevHeart’s technology to market will require several million dollars of capital investment.

In the fall of 2020, prior to the reverse merger of Healthtech Solutions into MediScan, MediScan sold 7% Convertible Debentures to obtain capital. In connection with the reverse merger, the MediScan debentures were exchanged for 7% Convertible Debentures issued by Healthtech Solutions. Healthtech Solutions then sold additional Debentures, with the result that by spring of 2021 the principal and accrued interest on the Debentures totaled $803,715. In May 2021 we exchanged common stock with the holders of the Debentures to fully satisfy the Debentures.

We accounted for our convertible debt in accordance with ASC 815, Derivatives and Hedging as the conversion feature embedded in the convertible debentures could have resulted in the debenture principal and related accrued interest being converted to a variable number of our common shares. The conversion feature on these debentures was variable and based on trailing market prices. It therefore contained an embedded derivative. The fair value of the conversion feature was calculated when the debentures were issued, and we recorded a debenture discount and derivative liability for the calculated value. We recognized interest expense for accretion of the debenture discount over the term of the note. The conversion liability was valued at the end of the reporting period and resulted in income for the reduction in fair value. Among the reasons why we negotiated a cancellation of the Debentures in exchange for common stock was that the volatile price of our stock meant that the gain or loss realized due to the Debentures could often be material to our results.

Accounting for the Convertible Debentures, as described above, we realized income of $7,215 from the derivative during the first quarter of 2021. We also recorded $38,600 in interest expense in that quarter, most of which was attributable to the debentures. Because the Convertible Debentures were exchanged from common stock in May 2021, we recorded neither derivative income/expense nor interest expense during the first quarter of 2022.

After taking these Other Expenses (Income) into account, we realized a net loss of $801,345 ($0.01 per share) in the first quarter of 2022 and a net loss of $293,878 ($.03 per share) during the first quarter of 2021. However, of the $801,345 net loss recorded for the first quarter of 2022, $419,891 resulted from the operations of HWC. Because 30% of the equity in HWC is owned by Predictive Biotech, Inc., we allocated 30% of HWC’s net loss – i.e. $125,967 - to the non-controlling interest owned by Predictive Biotech, Inc. Therefore our net loss attributable to controlling interest was $675,378 for the first quarter of 2022. During the first quarter of 2021, there was no non-controlling interest and so our net loss attributable to controlling interest equaled our net loss: $293,878.

Liquidity and Capital Resources

Our company is designed to function as an incubator for development stage medical technology enterprises. During 2021 and 2020 our statements of cash flows reflected that design: in each year we raised capital from the sale of securities and used approximately the amount of cash raised to fund medical research. Our administrative expenses, albeit representing a large portion of our loss in each year, were primarily paid for by issuance of common stock.

During the first quarter of 2022 we modified the funding process. For the funds needed to sustain our operations in the first quarter of 2022, particularly the funds required by HWC to complete development of AmnioBind, we relied on loans from shareholders and from non-affiliated parties. During that quarter, we borrowed $500,177 from shareholders and $507,500 from a non-affiliated party. From that sum, we advanced $349,432 to Predictive Biotech, Inc. and its parent as a prepayment of future commissions pursuant to the terms under which we purchased their wound care business. (We also reclassified to prepaid commissions a loan of $168,000 that we made to Predictive Biotech, Inc. in December 2021.) That left net loan proceeds of $658,245, from which we funded the $565,655 in net cash that we used in our operating activities during the first quarter of 2022.

In the first quarter of 2021, our sources and uses of funds differed somewhat from the first quarter of 2022. We entered 2021 with $128,996 in the bank (proceeds from the sale of convertible debentures). We added to that $54,558 in capital and $49,119 in debenture proceeds. That combination enabled us to fund the $226,380 that we used in operating activities.

At December 31, 2022 Healthtech Solutions had a working capital deficit of $757,563. During the first quarter of 2022, we increased the working capital deficit by $1,044,475 to $1,802,038. The increase in the working capital deficit occurred primarily because we borrowed funds on a short-term basis and used the funds to pay our present expenses and prepay future expenses.

We anticipate realizing revenue from the wound care business of HWC beginning in the second quarter of 2022, which will alleviate some of the cash flow burden of that business. That revenue, occurring shortly after our acquisition of the wound care business, will likely be the exception to the norm for our portfolio companies. Our business plan contemplates that, to attract exciting additions to our portfolio, we will offer most the several million dollars of financing that is necessary to bring a medical technology to a stage where its sponsor can function independently. Since our ambition is to sustain a portfolio of such enterprises, our near term capital requirements (near term being the two to three years before we can anticipate initial returns on most of our investments) will be tens of millions of dollars.  

Note 3 to our consolidated financial statements discloses that the financial condition of Healthtech Solutions raises substantial doubt as to the Company's ability to continue as a going concern. Management intends to pursue one or more offerings of securities in order to obtain the funds that will be necessary for successful implementation of our business plan. At present, however, no commitments for future funding have been received.

Application of Critical Accounting Policies

In preparing our financial statements we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values.  In our preparation of the financial statements for the three month period ended March 31, 2022, there were two estimates made which was (a) subject to a high degree of uncertainty and (b) material to our results. These were:

Impact of Accounting Pronouncements

 There were no recent accounting pronouncements that have or will have a material effect on the Corporation’s financial position or results of operations.

Off-Balance Sheet Arrangements

 We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.  As of March 31, 2022, our Chief Executive Officer and Chief Financial Officer carried out an evaluation 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. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures have the following material weaknesses:

●    Substantial portions of our accounting functions are outsourced, thus reducing the ability of senior management to supervise those functions.

●    The relatively small number of our employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. 

●    Our internal financial staff lack expertise in identifying and addressing complex accounting issues under U.S. Generally Accepted Accounting Principles.

●    We have not developed sufficient documentation concerning our existing financial processes, risk assessment and internal controls.

Based on his evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of March 31, 2022 for the purposes described in this paragraph.

 Changes in Internal Controls.  There was no change in internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described above that occurred during Healthtech Solutions' first fiscal quarter that has materially affected or is reasonably likely to materially affect Healthtech Solutions' internal control over financial reporting.

PART II   -   OTHER INFORMATION

 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.