Healthcare Integrated Technologies Inc

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2024 and 2023

NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Our initial product, SafeSpace™ with AI Vision™, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace includes hardware devices utilizing RGB, radar and other sensor technology coupled with our internally developed software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects falls and sends alerts directly to designated individuals.

We recently introduced and are currently pilot testing two additional products - SafeFace™ and SafeGuard™. SafeFace provides fully automated and ambient time and attendance reporting for facility staff, and an integrated and automatic agency invoice reconciliation feature. SafeGuard is a novel fully ambient elopement detection and alerting system based on our facial recognition technology.

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

Basis of Presentation

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

Consolidation Policy

Our consolidated financial statements are consolidated in accordance with U.S. GAAP and include our accounts and the accounts of our wholly owned subsidiaries. We eliminate all intercompany transactions from our financial results.

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.

In accordance with ASC 326,Financial Instruments – Credit Losses, we recognize an allowance for credit losses on acquired financial assets with credit deterioration since origination. The allowance of credit losses is measured based on the Current Expected Credit Loss (CECL) model, which requires an estimate of the expected credit losses over the life of the financial asset. This estimate considers historical loss information, current conditions, and reasonable and supportable forecasts. The allowance for credit losses, if any, is recorded as a reduction to the carrying amount of the financial asset, with a corresponding charge to earnings.

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 fund our operations and fully develop our product(s); 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.

Use of Estimates

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

Reclassifications

Certain prior period amounts may be reclassified to conform to current period presentation with no changes to previously reported net loss or stockholders’ deficit.

Cash and Cash Equivalents

We consider all highly liquid short-term investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. No loss has been experienced and management does not believe we are exposed to any significant credit risk.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.

Management periodically assesses the Company’s accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.

At July 31, 2024, accounts receivable was $14,000 and did not include any reserve for uncollectible accounts. We hadno accounts receivable at July 31, 2023. We recordedno bad debt expense, write-offs, or recoveries for the years ended July 31, 2024 and 2023.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to credit risk consist of demand deposits with a financial institution. The Company is exposed to credit risk on its cash and cash equivalents in the event of default by the financial institution to the extent account balances exceed the amount insured by the FDIC, which is $250,000. One (1) customer accounted for 100% of our consolidated accounts receivable at July 31, 2024 and 100% of our consolidated revenue for the year ended July 31, 2024.

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.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Expenditures for major additions and improvements are capitalized while minor replacements and maintenance and repairs, which do not improve or extend the life of such assets, are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in the consolidated statements 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 toseven years.

Intangible Assets

Intangible assets consist of patents, our website and the costs of software developed for internal use. Certain payroll and stock-based compensation costs incurred are allocated to the intangible assets. We determine the amount of costs to be capitalized based on the time spent by employees or outside contractors on the projects. Intangible assets are amortized on a straight-line basis over their expected useful lives, which approximate 20-years for patents,3-years for internally developed software and 2-years for website related cost. Intangible assets that are subject to amortization are evaluated for impairment at least annually, and additionally whenever events or changes in circumstances indicate that it is more likely than not that an asset may be impaired. The impairment test for indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset with its carrying amount. An impairment loss would be recognized for the amount by which the carrying value exceeds the fair value of the asset. The Company recognized a $140,770 intangible asset impairment charge during the year ended July 31, 2024. There wereno intangible asset impairment charges recorded during the year ended July 31, 2023. SeeNote 3 - Intangibles, Net.

Intangibles, net was $506,743 and $869,432 for the years ended July 31, 2024 and 2023, respectively.

Derivative Liability

Options, warrants, convertible notes, or other contracts, if any, are evaluated to determine if those contracts, or embedded components of those contracts, qualify as derivatives to be separately accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815,“Derivatives and Hedging,”(paragraph 815-10-05-4 and Section 815-40-25). The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. The change in fair value is recorded in the consolidated statements of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise, or cancellation and then the related fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated, and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

The Company adopted Section 815-40-15 of the FASB ASC*(“Section 815-40-15”)*to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.

We utilize a binomial option pricing model to compute the fair value of the derivative liability and to mark to market the fair value of the derivative liability at each balance sheet date. We record the change in the fair value of the derivative liability as other income or expense in the consolidated statements of operations.

We hadno derivative assets or liabilities at July 31, 2024 or 2023.

Related Parties

The Company follows subtopic ASC 850-10 for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20, the related parties include: (a) affiliates of the Company (“Affiliate” means, with respect to any specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act); (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

Contract Liabilities

The Company receives payments from customers based upon contractual billing schedules. Contract liabilities include payments received in advance of performance under the contract. Contract assets include amounts related to the Company’s contractual right to consideration for completed performance obligations not yet invoiced. Our contract assets and liabilities are reported on an individual contract basis at the end of each reporting period. Contract liabilities are classified as current or noncurrent based on the timing of when we expect to recognize revenue. The Company hadno contract liabilities at July 31, 2024 or 2023.

Contract Combination

The Company may execute more than one contract or agreement with a single customer. The Company evaluates whether the agreements were negotiated as a package with a single objective, whether the amount of consideration to be paid in one agreement depends on the price and/or performance of another agreement, or whether the goods or services promised in the agreements represent a single performance obligation. The conclusions reached can impact the allocation of the transaction price to each performance obligation and the timing of revenue recognition related to those arrangements. The Company applied the revenue model to a portfolio of contracts with similar characteristics where we expected that the financial statements would not differ materially from applying it to the individual contracts within that portfolio.

Revenue Recognition

The Company’s revenue recognition policy is to recognize revenue in accordance with ASC 606, “Revenue from Contracts with Customers.” 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.

Often contracts contain more than one performance obligation. Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. Revenue is recognized net of any taxes collected and subsequently remitted to governmental authorities. If we determine that we have not satisfied a performance obligation, we defer recognition of the revenue until the performance obligation is satisfied. The agreements are generally non-cancellable or contain significant penalties for early cancellation, although customers typically have the right to terminate their contracts for cause if we fail to perform material obligations. However, if non-standard acceptance periods, non-standard performance criteria, or cancellation or right of refund terms are required, revenue is recognized upon the satisfaction of such criteria.

Advertising and Marketing

Advertising and marketing costs are expensed as incurred in accordance with ASC 720-35, “Advertising Costs.” We incurred advertising and marketing costs of $9,919 and $6,184 for the years ended July 31, 2024 and 2023, respectively, which are included in selling, general and administrative expenses on the consolidated financial statements.

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.

Stock-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of stock-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the stock-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 expense is included in cost of goods sold or selling, general and administrative expenses, depending on the nature of the services provided, in the consolidated statements of operations. Stock-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 stock-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 expected to vest. SeeNote 10 - Stock-Based Compensation.

Income Taxes

We use the asset and liability method of accounting for income taxes in accordance with Topic 740,*“Income Taxes”.*Under this method, income tax expense is recognized for the amount of: (1) taxes payable or refundable for the current year and (2) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

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

Net Loss Per Common Share

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

Recently Adopted Accounting Standards

On August 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). ASU 2022-02 eliminates the existing troubled debt restructuring recognition and measurement guidance, and instead aligns the accounting treatment to that of other loan modifications. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The Company utilized the modified retroactive method of adoption and the adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Standards

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

NOTE 2 -GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going concern. The Company had a net loss of $702,486 for its most recent fiscal year ended July 31, 2024. As of July 31, 2024, the Company has a significant working capital deficit. We have a history of losses, an accumulated deficit, have negative working capital and have not generated cash from our operations to support a meaningful and ongoing business plan. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

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

NOTE 3 -INTANGIBLES

Intangibles consisted of the following at July 31, 2024 and 2023:

Impairment

During the year ended July 31, 2024, the Company reassessed the existence of impairment indicators on its internally developed definite-lived intangible assets. The Company determined that indicators of impairment existed and, as a result, a quantitative impairment analysis was required. Management elected to abandon certain patent applications during the year. In addition, Management analyzed certain patents that were in an office action status at year end for feasibility and probability of the success of continuing the office action process. Based on the patent abandonments and the results of the analysis, Management concluded that the carrying amount of the patents exceeding their fair value, which resulted in an impairment charge of $140,770 being recognized for the year ended July 31, 2024. The impairment charge of $140,770 includes $82,921 for the abandonment of certain patent applications, and $57,849 for the establishment of an impairment reserve against our remaining patent applications that are currently in process.

Amortization expense for the years ended July 31, 2024 and 2023 was $221,919 and $16,885, respectively.

Intangibles are amortized over their estimated useful lives of 2 to 20 years. As of July 31, 2024, the weighted average remaining useful life of intangibles being amortized was approximately six (6) years. We expect the remaining aggregate amortization expense for each of the five succeeding fiscal years to be as follows:

NOTE 4 -ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at July 31, 2024 and 2023:

NOTE 5 -ACCOUNTS PAYABLE AND ACCRUED EXPENSES, RELATED PARTY

Accounts payable and accrued expenses, related party consisted of the following at July 31, 2024 and 2023:

NOTE 6 -PAYROLL RELATED LIABILITIES

Payroll related liabilities consisted of the following at July 31, 2024 and 2023:

NOTE 7 -NOTE PAYABLE, RELATED PARTY

On June 12, 2024, we issued a Promissory Note to Platinum Equity Advisors, LLC, a related party (the “Platinum Note”), in the principal amount of $410,207. The Platinum Note is unsecured and bears interest at 10% per annum. The principal amount of the note plus accrued interest of $20,510 is due in a single lump sum payment on December 12, 2024. We incurred no issuance cost on the transaction and the proceeds were used to refinance an existing promissory note issued to Platinum Equity Advisors, LLC on December 12, 2023. At July 31, 2024, the principal balance of the Platinum Note remained $410,207 and accrued but unpaid interest on such date was $5,583. At July 31, 2023, the principal balance of the Platinum Note was $372,069 and accrued but unpaid interest on such date was $5,064. The accrued interest is included in Accounts payable and accrued expenses, related party on our consolidated balance sheets. The amounts and terms of the related party 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 8 –NOTES PAYABLE

We had the following debt obligations reflected at their respective carrying values on our consolidated balance sheets as of July 31, 2024 and 2023:

5% Convertible Promissory Notes

On various dates during the month of March 2018, we issued a series of 5% Convertible Promissory Notes (collectively, the “5% Notes”) totaling $750,000 in net proceeds. We incurred no costs related to the issuance of the 5% Notes. The 5% Notes bear interest at the rate of five percent (5%) per annum, compounded annually and matured one-year from the date of issuance. At July 31, 2024 and 2023, accrued but unpaid interest on the 5% Notes was $63,914 and $52,555, respectively, which is included in “Accounts payable and accrued expenses” on our consolidated balance sheets.

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

There were no 5% Notes converted into shares of our common stock during the year ended July 31, 2024.5% Notes with a face amount of $150,000 and related accrued interest of $37,586 were converted into shares of our common stock during the year ended July 31, 2023. At July 31, 2024,5% Notes with a face amount of $175,000 and related accrued interest expense of $63,914 are currently in default and are not convertible under the conversion terms. Management is currently attempting to negotiate amendments to the notes in default to extend the maturity dates of such notes and to encourage note conversions.

Note Payable to Acorn Management Partners, LLC

On August 11, 2020 we agreed to repurchase 1,000,000 shares of our common stock from Acorn Management Partners, LLC (“AMP”). As consideration for the share repurchase, we issued a $50,000 promissory note bearing interest a 6.0% per annum and dueone-year from the date of issuance (the “Acorn Note”). In the event we default under the terms of the Acorn Note, we are required to deliver 1,000,000 shares of our common stock back to AMP in full satisfaction of the obligation. AMP delivered the purchased shares directly to the transfer agent on September 8, 2020 and immediately cancelled. At July 31, 2024 and 2023, accrued but unpaid interest on the Acorn Note was $11,919 and $8,919, respectively, which is included in “Accounts payable and accrued expenses” on our consolidated balance sheets. At July 31, 2024, the note and related accrued interest expense is in default. Management is currently attempting to negotiate a settlement of the note, or an amendment to the note to extend the maturity date.

NOTE 9 - INCOME TAXES

A reconciliation of the provision for income taxes as reported, and the amount computed by multiplying net loss by the federal statutory rate of 21% as of July 31, 2024 and 2023 are as follows:

The components of the net deferred tax asset as of July 31, 2024 and 2023 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 July 31, 2024, we have approximately $4.94 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, 2024 through 2018 remain open to examination by the taxing jurisdictions to which we are subject.

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

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

No material interest or penalties on unpaid tax were recorded during the years ended July 31, 2024 and 2023. As of July 31, 2024 and 2023, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.

NOTE 10 -STOCK-BASED COMPENSATION

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

Summary of Stock Options and Warrants

During the year ended July 31, 2024, we recorded $76,482 of compensation expense related to stock options and warrants. During the year ended July 31, 2023, we recorded $230,834 of compensation expense, net of capitalized expense of $57,990, related to stock options and warrants. The grant date fair value of stock options and warrants during the year ended July 31, 2024 was $69,776. We grantedno stock options or warrants during the year ended July 31, 2023.

The following table summarizes our options and warrant activity for the years ended July 31, 2024 and 2023:

Summary of Restricted Stock Grants

During the years ended July 31, 2024 and 2023, we recorded compensation expense related to restricted stock grants of $55,661 and $56,182, respectively.

The following table summarizes our restricted stock activity for the years ended July 31, 2024 and 2023:

The grant date fair value of restricted stock awards during the years ended July 31, 2024 and 2023 was $172,518 and $79,422, respectively.

NOTE 11 -COMMON STOCK

At July 31, 2024 and 2023, we had 79,853,696 and 68,016,167 shares of common stock outstanding, respectively. During the year ended July 31, 2024, we issued 11,837,529 unregistered shares of our common stock, of which 5,500,000 shares were issued for cash,3,385,154 shares were issued for the payment of accrued expenses,1,282,031 were issued for compensation,1,100,000 shares were issued for services, and 570,344 shares were issued for a loan modification fee. During the year ended July 31, 2023, we issued 25,711,494 unregistered shares of our common stock, of which 19,722,260 were issued for the payment of accrued expenses,3,000,000 shares were issued for cash,1,500,000 shares were issued for payment of note extension fees,664,062 shares were issued for compensation,450,000 shares were issued for services, and 375,172 shares were issued for the conversion of debt and related accrued interest.

On August 1, 2023, we issued 211,523 unregistered shares of our common stock to a member of our Board of Directors as compensation for serving on the Board and for providing certain other business advisory services. The shares were issued upon the vesting of shares from a restricted stock award dated August 26, 2022 at an estimated grant date fair value of $0.0135 per share on such date.

On October 19, 2023, we issued 500,000 unregistered shares of our common stock to a consultant pursuant to the terms of a consulting agreement. The shares were issued upon the vesting of shares from a restricted stock award dated October 19, 2022 at an estimated grant date fair value of $0.033 per share on such date.

On October 19, 2023, we issued 500,000 unregistered shares of our common stock to a consultant pursuant to the terms of a consulting agreement. The shares were issued upon the vesting of shares from a restricted stock award dated October 19, 2022 at an estimated grant date fair value of $0.033 per share on such date.

On November 1, 2023, we issued 70,508 unregistered shares of our common stock to a member of our Board of Directors as compensation for serving on the Board and for providing certain other business advisory services. The shares were issued upon the vesting of shares from a restricted stock award dated August 26, 2022 at an estimated grant date fair value of $0.0135 per share on such date.

On November 1, 2023, we issued 100,000 unregistered shares of our common stock to a consultant pursuant to the terms of a consulting agreement. The shares were issued upon the vesting of shares from a restricted stock award dated September 1, 2023 at an estimated grant date fair value of $0.024 per share on such date.

On December 8, 2023, we issued 326,813 unregistered shares of our common stock to a previous lender pursuant to a make whole provision included as part of a loan modification fee. The shares were issued at an estimated value of $0.0665 per share.

On January 31, 2024, we completed a private placement of 1,000,000 unregistered 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 February 9, 2024, we completed a private placement of 250,000 unregistered shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $25,000. We incurred no cost related to the private placement.

On March 7, 2024, we completed a private placement of 1,000,000 unregistered 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 22, 2024, we completed a private placement of 1,000,000 unregistered 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 April 16, 2024, we issued 243,531 unregistered shares of our common stock to a previous lender pursuant to a make whole provision included as part of a loan modification fee. The shares were issued at an estimated value of $0.0665 per share.

On May 2, 2024, we completed a private placement of 250,000 unregistered shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $25,000. We incurred no cost related to the private placement.

On June 15, 2024, we issued 1,000,000 unregistered shares of our common stock to a newly appointed officer of the Company pursuant to a Non-Employee Chief Strategy Officer Engagement Agreement entered into on the same date. The shares were issued to the officer at an estimated grant date fair value of $0.055 per share.

On July 15, 2024, we completed a private placement of 2,000,000 unregistered shares of our common stock at a price of $0.10 per share resulting in net proceeds to the Company of $200,000. We incurred no cost related to the private placement.

On July 31, 2024, we issued 3,385,154 unregistered shares of our common stock for payment of accrued compensation due to officers of the company pursuant to their employment agreements. The shares were issued at an agreed upon value of approximately $0.10 per share.

NOTE 12 -RELATED PARTY TRANSACTIONS

To continue operations and meet operating cash requirements, we have periodically relied on short term loans 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 or others. Amounts loaned primarily relate to amounts paid to vendors. The loans are considered temporary in nature and have not been formalized by any written agreement. As of July 31, 2024 and 2023, related parties were owed $30,925 and $328,819, respectively, which are included in Accounts payable and accrued expenses, related party on the consolidated balance sheets (SeeNote 5 - Accounts Payable and Accrued Expenses,Related Party). The amounts owed are payable on demand and carry no interest. The amounts and terms of the related party loans 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.

For compensation after August 1, 2023, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with Platinum Equity Advisors, LLC (“Platinum Equity”), a related party, to provide the services of our CEO and Chairman of the Board of Directors. Platinum Equity Advisors, LLC is a related party, is our largest shareholder, and is owned 100% by the spouse of our CEO and Charman of our Board of Directors. At July 31, 2024 and 2023, we owed Platinum Equity $151,386 and $225,000, respectively, for amounts related to the Contract CEO Agreement. The amount owed is included in Accounts payable and accrued expenses, related party on the interim consolidated balance sheets (SeeNote 5 - Accounts Payable and Accrued Expenses, Related Party).

On June 12, 2024, we issued a Promissory Note to Platinum Equity Advisors, LLC in the principal amount of $410,207 (SeeNote 7 – Notes Payable, Related Party). The note, plus accrued interest, is due on December 12, 2024. At July 31, 2024, accrued but unpaid interest on the note was $5,583 (SeeNote 5 – Accounts Payable and Accrued Expenses,Related Party). The amount and terms of the related party loan may not necessarily be indicative of the amount and terms that would have been incurred had comparable transactions been entered into with independent third parties.

NOTE 13 -COMMITMENTS AND CONTINGENCIES

Litigation

On September 18, 2023, Apex Funding Source, LLC (the “Lender”) filed a lawsuit in the Supreme Court of the State of New York, County of New York, naming Grasshopper Staffing, Inc. and Indeliving Holdings, Inc., both of which are wholly owned subsidiaries of the Company, as defendants in the suit. The action against our wholly owned subsidiaries is due to an alleged guarantee of a loan the Lender made to Blue Earth Resources, Inc. (“BERI”), an entity related to the Company through common management control. The lawsuit is an action for BERI’s breach of a loan agreement and failure to pay $4,705,900 in principal and interest to the Lender when due. The lawsuit also named Scott M. Boruff, the CEO and Chairman of the Company’s Board of Directors, and Platinum Equity Advisors, LLC, the Company’s largest principal shareholder that is controlled by Julie Boruff, spouse of Scott M. Boruff, as defendants for their alleged guaranty of the BERI loan.

On April 18, 2024, the Lender filed a motion seeking partial summary judgment on its First Cause of Action against BERI and its Second Cause of Action against Scott M. Boruff in the amount of $4,705,900, plus their actual and reasonable attorneys’ fees. Neither the Company nor its subsidiaries were included in the motion seeking partial summary judgment.

In the event the Lender attempts to enforce the alleged guarantees against our subsidiaries, we believe we have valid defenses against such an action. In addition, both subsidiaries previously discontinued their operations and currently have no assets. In the judgement of the Company’s management, if the pending actions were adversely determined they would not have a material adverse effect on the Company.

Employment and Consulting Agreements

On January 31, 2024, we entered into a Non-Employee Chief Executive Officer Engagement Agreement (the “Contract CEO Agreement”) with Platinum Equity Advisors, LLC (“Platinum”) to provide the services of Scott M. Boruff as Chief Executive Officer and Chairman of the Board of Directors of the Company for a term of three (3) years. Effective as of August 1, 2023, the Company shall pay Platinum an annual base fee of $102,000. The initial base fee is intended to compensate Platinum for a time commitment of up to 1/3 of the CEO’s time, attention, skill and best efforts to the Company. At the discretion of the Board of Directors, the base fee may be increased to a maximum annual amount of $306,000 to better reflect the value of any future increases in the CEO’s time commitment to the Company. If the Contract CEO Agreement is terminated by us without cause or by Platinum for good reason, we are obligated to pay Platinum severance equal to three (3) months base fee and any other earned but unpaid compensation. In addition, if at any time during the term of the Contract CEO Agreement Platinum is terminated by us without cause within two years after a Change in Control of our company, or in the 90 days prior the Change in Control at the request of the acquiror, we are obligated to pay Platinum an amount equal to 2.99 times the annual base fee. “Change in Control” is defined in the Contract CEO Agreement to mean the acquisition by any person of beneficial ownership of our securities representing greater than 50% of the combined voting power of our then outstanding voting securities. Platinum is eligible for equity awards and other benefits as approved by the Board of Directors.

On January 31, 2024, in connection with the appointment of Kenneth M. Greenwood as Chief Technology Officer of the Company, the Company and Mr. Greenwood entered into an employment agreement (the “Greenwood Employment Agreement”) with an initial term of three (3) years. Effective as of August 1, 2023, the Company shall pay Mr. Greenwood a base salary at the rate of $102,000 per annum. The initial base salary is intended to compensate Mr. Greenwood for a devotion of up to forty percent (40%) of his time, attention, skill and best efforts to the Company. At the discretion of the Chief Executive Officer, the base salary may be increased to a maximum annual amount of $255,000 to better reflect the value of any future increases in Mr. Greenwood’s time commitment to the Company. In the event Mr. Greenwood’s employment with the Company is terminated without cause, Mr. Greenwood shall be entitled to a severance payment equal to his currently in effect base salary for one (1) full year. If Mr. Greenwood is terminated without cause within two (2) years of a change in control upon request of the acquiror, Mr. Greenwood shall be entitled to a severance payment in an amount equal to 2.99 times the annualized base salary he is then earning. In addition, Mr. Greenwood is eligible for equity awards and other benefits as approved by the Board of Directors.

On January 31, 2024, in connection with the appointment of Susan A. Reyes, MD as Chief Medical Officer of the Company, the Company and Dr. Reyes entered into an employment agreement (the “Reyes Employment Agreement”) with an initial term of three (3) years. Effective as of August 1, 2023, the Company shall pay Dr. Reyes a base salary at the rate of $24,000 per annum. The initial base salary is intended to compensate Dr. Reyes for a fractional devotion of her time, attention, skill and best efforts to the Company. At the discretion of the Chief Executive Officer, the base salary may be increased to a maximum annual amount of $92,000 to better reflect the value of any future increases in Dr. Reyes’ time commitment to the Company. In the event Dr. Reyes’ employment with the Company is terminated without cause, Dr. Reyes shall be entitled to a severance payment equal to her currently in effect base salary for one (1) full year. If Dr. Reyes is terminated without cause within two (2) years of a change in control upon request of the acquiror, Dr. Reyes shall be entitled to a severance payment in an amount equal to 2.99 times the annualized base salary she is then earning. In addition, Dr. Reyes is eligible for equity awards and other benefits as approved by the Board of Directors.

On June 15, 2024, we entered into a Non-Employee Chief Strategy Officer Engagement Agreement (the “Contract CSO Agreement”) with Dustin M. Hillis to provide the services of Chief Strategy Officer to the Company for a term of three (3) years. The Company shall pay Mr. Hillis an annual base fee of $100,000, to be paid in equal monthly payments, and receive a grant of 1,000,000 shares of the Company’s common stock as a signing bonus. In addition to the base fee and stock grant, Mr. Hillis will be paid a commission on certain new and recurring business sales. Mr. Hillis is also eligible for discretionary bonuses, equity awards and other benefits as approved by the Board of Directors. If the Contract CSO Agreement is terminated by us without cause, or by Mr. Hillis for good reason, we are obligated to pay Mr. Hillis a severance equal to one month of base fee and any other earned but unpaid compensation due to him under the Contract CSO Agreement.

NOTE 14 -SUBSEQUENT EVENTS

Beginning August 1, 2024 and through the issuance date of the financial statements, we completed multiple private placement transactions resulting in the issuance of 20,320,000 unregistered shares of our common stock at a price of $0.10 per share. The share issuances resulted in net proceeds to the Company of $2,032,000. We incurred no cost related to the private placements and intend to use to proceeds for working capital.

On August 23, 2024, Micheal J. Burt was appointed to our board of directors for a term of three (3) years and shall continue until canceled by the Company. Either party has the right to cancel the remaining term of the appointment on each yearly anniversary date by providing written notice to the other party at least 30 days prior to the anniversary date the cancelation is to become effective. As compensation for Mr. Burt’s service, he received a three (3) year restricted stock award of 2,000,000 shares of the Company’s common stock. The restricted stock award shall vest 1,000,000 shares on August 25, 2024,333,334 shares on August 25, 2025,333,333 shares on August 25, 2026 and 333,333 shares on August 25, 2027.

We evaluate subsequent events and transactions that occur after the balance sheet date for the period presented and up to the issuance date of the financial statements. Based on our review, we did not identify any subsequent events other than those listed above that would require adjustment to or disclosure in the consolidated financial statements.