10-Q: MedWellAI Reports Q1 Loss Amid Strategic Shift to AI Healthcare

MedWellAI, Inc. reported a reduced net loss for Q1 2026, driven by new commission revenue in healthcare, but faces significant liquidity challenges and a going concern warning.

Summary

• Net loss decreased to $653,607 for the three months ended September 30, 2025, from $1,243,249 in the prior year.
• Total revenue significantly increased to $96,094, primarily from new commission revenues of $94,887, compared to $1,148 in the prior year.
• The company has transitioned its business focus from digital asset mining to AI-driven healthcare and wellness solutions, operating a B2B e-commerce platform for pharmaceutical products.
• Current liabilities exceeded current assets by $7,292,726 as of September 30, 2025, and the company had an accumulated deficit of $89,325,758.
• A $500,000 promissory note with BHP Capital NY, Inc. remains in default due to nonpayment before its maturity date of January 15, 2023.
• Series C and D preferred stock were consolidated into a single Series C Convertible Preferred Stock, resulting in a $241,918 loss on exchange, but retiring $2,133,081 in accrued and unpaid dividends.
• Material weaknesses in internal control over financial reporting were identified, including a lack of independent board members, no audit committee financial expert, and issues with segregation of duties.

Sentiment

Score: 2

Explanation: While the net loss decreased and new commission revenue emerged, the company faces severe liquidity issues, a significant increase in current liabilities, a going concern warning, and a defaulted note. The strategic shift is positive, but the financial foundation is highly precarious.

Positives

• Net loss significantly reduced to $653,607 for the three months ended September 30, 2025, from $1,243,249 in the prior year.
• Total revenue increased substantially to $96,094, primarily due to new commission revenues of $94,887 from health and wellness product sales.
• Net loss from continuing operations improved to $(580,888) from $(658,931) year-over-year.
• Net loss from discontinued operations improved to $(72,719) from $(584,318) year-over-year, reflecting the successful exit from digital asset mining.
• Accrued and unpaid dividends of $2,133,081 on preferred stock were retired as part of a share exchange agreement.
• Cash used in operating activities decreased to $170,781 from $244,885 in the prior year.

Negatives

• Current liabilities significantly increased to $7,534,367 as of September 30, 2025, from $3,055,910 as of June 30, 2025.
• Current liabilities exceeded current assets by $7,292,726 as of September 30, 2025.
• An accumulated deficit of $89,325,758 raises substantial doubt about the company's ability to continue as a going concern.
• A $500,000 promissory note with BHP Capital NY, Inc. is in default due to nonpayment before its maturity date of January 15, 2023.
• A loss on exchange of Series C & D preferred shares of $241,918 was recognized.
• Cash balance decreased to $223,221 as of September 30, 2025, from $401,310 as of June 30, 2025.
• Online sales, a previous revenue stream, are no longer being pursued due to regulatory hurdles.
• Accrued salary to CEO Steve Rubakh increased to $323,372 as of September 30, 2025, from $209,419 as of June 30, 2025.

Risks

• Substantial doubt about the company's ability to continue as a going concern due to recurring net losses, negative cash flow from operations, and current liabilities exceeding current assets by $7,292,726.
• Dependence on raising capital through debt and/or equity markets to fund operations until profitability is achieved.
• Inability to realize assets at carrying values if the company cannot continue as a going concern.
• A $500,000 promissory note is in default, potentially leading to further financial and legal repercussions.
• Material weaknesses in internal control over financial reporting, including a lack of independent board members, no audit committee financial expert, and issues with segregation of duties, which could lead to material misstatements.
• The company's online sales business was discontinued due to regulatory hurdles, indicating potential regulatory risks in its new healthcare focus.
• Increased costs associated with being a publicly traded company, including legal, accounting, and compliance expenses.
• Difficulty attracting and retaining qualified board members or executive officers due to increased public company compliance requirements and inability to afford director and officer liability insurance.

Future Outlook

The company's ability to achieve and maintain a successful level of operations is dependent on executing management's plans, including raising capital through debt and/or equity markets, until operations generate sufficient funds. Management plans to address the structure of the Board of Directors and discuss adding an audit committee during the fiscal year ending June 30, 2026.

Management Comments

• "We are a diversified holdings company that develops, acquires, operates, and invests in unique and profitable businesses. Our business focus is on AI-driven healthcare and wellness solutions."
• "Currently, the company operates through their subsidiary MedWell USA, a B2B e-commerce platform for distributing pharmaceutical products, particularly GLP medications for weight loss and diabetes management. It features an AI-powered ordering system with real-time inventory tracking, smart suggestions, and dedicated support for healthcare providers like wellness clinics, med spas, and corporate wellness facilities."
• "We believe that it is important to communicate our future expectations to our security holders and to the public."
• "Management plans to address the structure of the Board of Directors and discuss adding an audit committee during the fiscal year ending June 30, 2026."

Industry Context

MedWellAI is strategically shifting its focus to the rapidly growing AI-driven healthcare and wellness sector, specifically targeting the B2B distribution of pharmaceutical products like GLP medications for weight loss and diabetes. This move positions the company in a high-growth market, leveraging AI for operational efficiency. However, the discontinuation of previous online sales due to regulatory hurdles highlights the complex and evolving regulatory landscape within the healthcare industry, which could pose challenges for its new ventures.

Comparison to Industry Standards

• NA The filing does not provide specific comparable companies, projects, or results to assess against global industry benchmarks.

Corporate Governance

Legal Proceedings

• No pending or threatened lawsuits that are believed to have a material adverse effect on financial condition or results of operations.

Related Party Transactions

• Accrued salary to Steve Rubakh, the sole executive officer and Board member, totaled $323,372 as of September 30, 2025, an increase from $209,419 as of June 30, 2025. His annual salary is $250,000 with quarterly cash bonuses of $100,000.

Stakeholder Impact

• Shareholders: Significant dilution risk from potential future capital raises (debt/equity) and the conversion features of Series C Convertible Preferred Stock. The going concern warning indicates a high risk of value erosion.
• Creditors: The $500,000 note in default and the overall precarious financial position increase credit risk.
• Employees: The company's financial instability and going concern warning could impact job security and future compensation, although only one full-time employee (CEO) is mentioned.
• Customers (Healthcare Providers): Potential risk to the continuity of the B2B e-commerce platform for pharmaceutical distribution if the company cannot secure adequate funding.

Next Steps

• Raise capital through debt and/or equity markets to fund operations.
• Address the structure of the Board of Directors.
• Discuss adding an audit committee during the fiscal year ending June 30, 2026.
• Continue developing and operating the B2B e-commerce platform for pharmaceutical products.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a substantial working capital deficit of over $7.2 million, an accumulated deficit exceeding $89 million, and an explicit 'going concern' warning. A $500,000 promissory note is in default, and while net losses have decreased, the overall financial position is highly precarious. The strategic shift to AI-driven healthcare is positive in theory, but the company's inability to fund operations without external capital, coupled with significant internal control weaknesses and a lack of independent board oversight, presents an extremely high-risk investment profile. The potential for significant dilution from future capital raises or preferred stock conversions, alongside the risk of asset realization at lower values, makes this a strong sell for any investor.

Keywords

MedWellAI, 10-Q, Healthcare AI, GLP medications, Weight Loss, Diabetes Management, B2B e-commerce, Financial Results, Going Concern, SEC Filing, Quarterly Report, Pharmaceutical Distribution, Corporate Governance, Internal Controls, Preferred Stock, Convertible Debt