10-Q: Innovative MedTech Reports Increased Net Loss for Q2 2025 Amid Strategic Shifts and Ongoing Legal Challenges

Innovative MedTech reports a significant increase in net loss for the quarter ended December 31, 2024, driven by higher operating expenses and strategic shifts, including the planned sale of its SarahCare subsidiaries.

Summary

• Innovative MedTech, Inc. reported a net loss of $2,007,864 for the six months ended December 31, 2024, compared to a net loss of $353,208 for the same period in 2023.
• The company's operating expenses increased significantly, rising to $1,971,672 from $191,231 year-over-year, primarily due to higher consulting fees, stock-based compensation, and general and administrative expenses.
• Revenue remained at $0 due to the reclassification of SarahCare as discontinued operations.
• The company is actively planning to sell its SarahCare subsidiaries, categorizing them as discontinued operations in the financial statements.
• Innovative MedTech faces liquidity challenges, with only $98 in cash and an accumulated deficit of $46,569,074 as of December 31, 2024.
• Management expresses substantial doubt about the company's ability to continue as a going concern without raising additional capital.
• The company is involved in several legal proceedings, including a lawsuit related to unpaid royalties from the SarahCare acquisition and a breach of contract claim related to a vacated property.
• The company has federal net operating loss carryforwards of approximately $44,933,340 available to offset future taxable income through 2040, but these are subject to limitations.
• The company's disclosure controls and procedures were deemed ineffective as of December 31, 2024, and a material weakness in internal control over financial reporting was identified.
• The company is pursuing strategic alliances and acquisitions in the wound care and healthcare technology sectors, including a potential acquisition of AI Health Technologies' CyberHealthAI system.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to increased losses, liquidity concerns, ineffective internal controls, and ongoing legal challenges. While there are some strategic initiatives, the overall financial health and operational effectiveness raise significant concerns.

Positives

• The company is actively pursuing strategic alliances and acquisitions in the wound care and healthcare technology sectors.
• The company has federal net operating loss carryforwards of approximately $44,933,340 available to offset future taxable income through 2040.
• The company entered into an Exclusive License Agreement with Shear Kershman Labs for Oral Thrush, with Texas A&M University College of Dentistry collaborating on a bioequivalency study.
• The company is expanding into the advanced wound care market with new consultants and potential acquisitions.
• The company signed an Asset Purchase Agreement with AI Health Technologies, Inc. to acquire its CyberHealthAI system.

Negatives

• The company's net loss increased significantly to $2,007,864 for the six months ended December 31, 2024.
• Operating expenses surged to $1,971,672, driven by consulting fees, stock-based compensation, and administrative costs.
• The company had only $98 in cash and an accumulated deficit of $46,569,074 as of December 31, 2024.
• The company is planning to sell its SarahCare subsidiaries.
• A distribution agreement with Near Infrared Imaging, Inc. for Vein-Eye Carry was terminated.
• The company is involved in several legal proceedings, including a lawsuit related to unpaid royalties from the SarahCare acquisition and a breach of contract claim related to a vacated property.
• The company's management expresses substantial doubt about its ability to continue as a going concern.
• The company's disclosure controls and procedures were deemed ineffective as of December 31, 2024, and a material weakness in internal control over financial reporting was identified.
• The company is in default under the majority of its outstanding legacy convertible notes.

Risks

• The company faces significant liquidity challenges and may not be able to continue as a going concern without raising additional capital.
• The company is involved in several legal proceedings that could result in material financial losses.
• The company's reliance on debt and equity financing arrangements may be insufficient to fund expenditures or other cash requirements.
• The company's internal control over financial reporting is ineffective, which could lead to misstatements in financial statements.
• The company's net operating loss carryforwards are subject to limitations under Internal Revenue Code Section 382.
• The company is in default under the majority of its outstanding legacy convertible notes, potentially leading to legal action from noteholders.
• The termination of the distribution agreement with Near Infrared Imaging, Inc. could impact the company's technology and devices division.

Future Outlook

The company intends to fund operations through debt and/or equity financing arrangements and plans to seek additional financing in a private equity offering to secure funding for operations. There is no assurance that the company will be successful in raising additional funding.

Management Comments

• Management expresses substantial doubt about the company's ability to continue as a going concern without raising additional capital.
• Management has concluded that our internal control over financial reporting had the following deficiency: We were unable to maintain any segregation of duties within our business operations due to our reliance on a single individual fulfilling the role of sole officer.

Industry Context

The company is attempting to diversify into new areas such as wound care and healthcare technology, which are growth areas in the healthcare industry. However, the company's financial condition and internal control issues may hinder its ability to compete effectively.

Comparison to Industry Standards

• Given the limited information, a direct comparison to industry standards is difficult.
• However, the company's negative cash flow and accumulated deficit are concerning and suggest it is underperforming compared to industry peers.
• The company's planned sale of SarahCare suggests a strategic shift away from adult day care services, which may be due to underperformance or a desire to focus on higher-growth areas.
• The company's expansion into wound care and healthcare technology is consistent with industry trends, but its ability to execute these strategies remains uncertain.

Legal Proceedings

• Sarah Adult Day Services, Inc. was named as a defendant in a complaint filed in the Summit County Court of Common Please, Summit County Courthouse in Akron, OH (case no.: CV-2024-10-4369), by Premier Wadsworth Property, LLC (the Plaintiff), who is the owner and landlord for the Stow Professional Center.
• The Plaintiff alleges that it is owed damages totaling at least $102,407, including all rent, utilities, and attorneys fees.
• The Company intends to vigorously defend itself in this matter and is currently in settlement negotiations while in the initial motion stages of the litigation.
• The Company was notified that a complaint had been filed against it in the United States District Court for the Northern District of Ohio, Eastern Division (case no. 5:24-cv-00687), by Merle Griff, Adam Griff and Brian Froelich (the Plaintiffs), who are the original shareholders of SarahCare.
• The Plaintiffs allege breach of breach of contract and related causes of action in connection with unpaid royalties pursuant to the Companys original purchase agreement in connection with SarahCare, and seeking $1,841,537 in damages, plus interests, costs and attorney fees.
• The Company intends to vigorously defend itself in this matter and is currently in settlement negotiations while in the initial motion stages of the litigation.
• The Company currently has thirteen (13) convertible promissory notes that are in default, and we may be subject to legal proceedings or lawsuits from any number of those convertible noteholders.
• Three note holders (Brook Hazelton, Benjamin M. Manalaysay, Jr., and Diego McDonald, the Plaintiffs), whom together invested a total principal amount of $45,000 in the form of Convertible Promissory Notes (the Notes) to the Company, together filed a Notice of Commencement of Action Subject to Mandatory Electronic Filing in the Supreme Count of the State of New York, County of New York.
• The Plaintiffs alleged that the Company breached their contracts with the Plaintiffs and included causes of action for unjust enrichment and related claims, seeking repayment of each of their respective convertible promissory notes plus interest.
• The three Plaintiffs received judgment against the Company from the court in the amounts of $33,686, $8,546 and $33,696 respectively.

Related Party Transactions

• The Company maintains its corporate address in at 2310 York Street, Suite 200, Blue Island, IL, 60406. This space is provided by the Companys Chairman, Charles Everhardt, a related party, on a rent free basis at the present time.
• On February 1, 2025, the Company, entered into a lease (the Lease Agreement or the Lease) for Suite 690, consisting of 9,500 square feet within the premises located at 11680 Great Oaks Way, Alpharetta, GA. The Companys landlord for this location is Georgia Commercial Holdings, LLC, a limited liability company which our Chairman, Charles Everhardt is a Managing Member.
• Simultaneous with the execution of the Lease, the Company entered into a sublease (the sub-Lease) of the premises to Lockwood Alpharetta Manager Inc, (the sub-Tenant), an entity which will use the premises for its medical, lab and administrative uses, and which sub-Tenant will be responsible for all fees, requirements and potential liabilities under the lease. Charles Everahrdt, the Compans Chairman is a Managing Member of the sub-Tenant.
• As of June 30, 2024, a company founded and partially owned by the Companys Chairman, Charles Everhardt, has been assigned the $3,750,000 in payables to a Company owned by Charles Everhardt for the Vitality Card, this amount included $750,000 which was included in accounts payable and accrued expenses as of June 30, 2023.

Stakeholder Impact

• Shareholders face significant risk due to the company's financial instability and potential inability to continue as a going concern.
• Employees may be affected by potential layoffs or restructuring due to the company's financial difficulties.
• Customers of SarahCare may experience disruptions in service due to the planned sale of the subsidiaries.
• Suppliers and creditors face increased risk of non-payment due to the company's liquidity challenges.
• Franchisees of SarahCare may be impacted by the strategic shift and potential changes in the franchise system.

Next Steps

• The company intends to fund operations through debt and/or equity financing arrangements.
• The company plans to seek additional financing in a private equity offering to secure funding for operations.
• The company is pursuing strategic alliances and acquisitions in the wound care and healthcare technology sectors.
• Sales and licensing agreements in connection with the CHAI system are expected to begin in the 2nd quarter of 2025 (assuming the acquisition closes).
• The Company and the Lender are working together and the Company has made partial payments while working to cure the default on the Promissory Note Agreements entered into on July 30, 2024.

Key Dates

Keywords

Financial Results, Net Loss, Operating Expenses, Going Concern, SarahCare, Discontinued Operations, Legal Proceedings, Convertible Notes, Liquidity, Capital Resources, Internal Control, Wound Care, Healthcare Technology, CyberHealthAI