We have changed our fiscal year-end from June 30 to September 30. Accordingly,
in this Transition Report on Form 10-K, we have reported the 3-month transition
period from June 30, 2020 to September 30, 2020. The following discussion and
analysis of the results of operations and financial condition of the Company for
the period from June 30, 2020 to September 30, 2020, should be read in
conjunction with the other sections of this Transition Report, including
"Description of Business" and the Financial Statements and notes thereto of the
Company included in this Transition Report. The various sections of this
discussion contain forward-looking statements, all of which are based on our
current expectations and could be affected by the uncertainties and risk factors
described throughout this Transition Report as well as other matters over which
we have no control. See "Cautionary Note Regarding Forward-Looking Statements."
Our actual results may differ materially. The Company does not undertake any
obligation to update forward-looking statements to reflect events or
circumstances occurring after the date of this Transition Report.
Change in Fiscal Year End
On November 5, 2020, the Company's court appointed receiver, acting under
judicial order on behalf of the Board of Directors of the Company, in accordance
with the Company's Bylaws, acted by written consent to change the Company's
Fiscal Year End from June 30 to September 30. As a result of this change, we are
filing this Transition Report on Form 10-K for the three-month transition period
from June 30, 2020 to September 30, 2020. References to any of our previous
fiscal years mean the fiscal years ending on June 30.
Organizational History of the Company and Overview
On December 31, 2012, AquaLiv Technologies, Inc. ("ALTI") and Verity Farms II,
Inc. ("Verity Farms"), a South Dakota corporation, entered into a Share Exchange
Agreement. Pursuant to the Share Exchange Agreement, ALTI acquired 100% of the
authorized and issued shares of Verity Farms in exchange (the "Exchange") for
4,850,000 shares of Series B Convertible Preferred Stock, par value $0.001, of
ALTI, representing approximately 86% of the outstanding shares of ALTI, on a
fully-diluted basis, assuming conversion into common stock. As a result of the
Exchange and the other transactions contemplated thereunder, Verity Farms became
a wholly-owned subsidiary of ALTI and ALTI acquired Verity Farms' business
operations. ALTI was formed under the laws of the State of Nevada on April 11,
2006 originally under the name of Infrared Systems International "ISI" as a
wholly-owned subsidiary of China Sxan Biotech, Inc. ("CSBI") (then known as
Advance Technologies, Inc.) to pursue a narrowly defined business objective
called infrared security systems.
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On April 1, 2013, the Company changed its name from AquaLiv Technologies Inc. to
Verity Corp. and our stock symbol changed to VRTY.
The Company was the parent of Verity Farms and Aistiva Corporation ("Aistiva")
(f/k/a AquaLiv, Inc.). Verity Farms was dedicated to providing consumers with
safe, high-quality and nutritious food sources through sustainable crop and
livestock production. Aistiva previously released products in the industries of
water treatment, skincare, and agriculture. Verity Farms was administratively
dissolved in the State of South Dakota on May 4, 2018. Aistiva was
administratively dissolved on April 9, 2015 in the State of Washington.
In February 2016, all of the Company's officers and directors resigned, and the
Company stopped substantially all operating activities. Since such time, and
currently, the Company is a "shell company," as such term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
Receivership
The Company is currently in receivership. On May 16, 2016, pursuant to Case
Number A16-733815-B, Nevada's 8th Judicial District, Business Court, appointed
Robert Stevens as receiver (the "Receiver") for the Company. Creditors were
required to provide claims in writing under oath on or before November 3, 2016,
or they would be barred under Nevada Revised Statute §78.675. Since May 16,
2016, through the date of this Transition Report, the Company has been operating
under the direction of the Receiver.
On March 22, 2018, the District Court in Clark County, Nevada approved a plan of
reorganization that involved authorizing the cancellation of all preferred
shares of the Company, the cancellation of certain insider shares, a reverse
stock split up to a maximum of 200-1, and a reorganization that would place the
liquidation of the Company's assets under a liquidating trustee while
maintaining the public, purchasers for value with equity in the surviving
entity. Once the reorganization is completed the Receiver will be discharged.
Change of Domicile and Plan of Conversion
On March 15, 2019, Healthcare Solutions Management Group, Inc. was incorporated
in the State of Delaware. Verity Delaware, Inc. was incorporated in the State of
Delaware on March 11, 2019. Verity Merger Corp. was incorporated in the State of
Delaware on March 15, 2019. On March 11, 2019, pursuant to an Agreement and Plan
of Conversion, the Company, then a Nevada corporation named Verity Corp.,
converted into and became Verity Delaware, Inc., a Delaware corporation in
Delaware and on May 30, 2019, the conversion was completed in Nevada. As a
result of the foregoing, Verity Corp. a Nevada corporation converted into and
became Verity Delaware, Inc., a Delaware corporation. On May 8, 2019, pursuant
to a Plan of Merger, Verity Delaware, Inc. was merged with and into Verity
Merger Corp., with Verity Merger Corp. surviving, and with Healthcare Solutions
Management Group, Inc. becoming a successor in interest to Verity Delaware Inc.
and the parent company of Verity Merger Corp.
Name and Trading Symbol Change
Since Healthcare Solutions Management Group, Inc. became the successor in
interest to Verity Delaware Inc. a Delaware corporation which was previously a
Nevada corporation named Verity Corp., the Company's current name is Healthcare
Solutions Management Group, Inc. The Company plans to submit an Issuer
Company-Related Action Notification Form (the "Name Change") to the Financial
Industry Regulatory Authority ("FINRA") to request that the Company's name be
updated to its current name and to change the Company's trading symbol
accordingly. The Company has not yet submitted the Name Change to FINRA and
there can be no assurance that FINRA will process the Name Change as planned, or
at all.
No Current Operations
In February 2016, all of the Company's officers and directors resigned, and the
Company stopped substantially all operating activities. Since such time, and
currently, the Company is a "shell company," as such term is defined in Rule
12b-2 under the Exchange Act. Since May 16, 2016, through the date of this
Transition Report, the Company has been operating under the direction of the
Receiver.
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The Company has no operations at this time, and currently does not have any
principal products or services, customers or intellectual property. As the
Company has no current operations, it also currently is not subject to any
competitive business conditions. Further, the Company is not subject to any
government approvals at this time, other than those related to the receivership
and those applicable to it as a "shell company," as such term is defined in Rule
12b-2 under the Exchange Act.
Merger Agreement with Healthcare Solutions Holdings, Inc.
On June 14, 2019, the Company (the successor in interest to Verity Delaware
Inc., a Delaware corporation which was previously a Nevada corporation named
Verity Corp.) entered into a Merger Agreement (the "Merger Agreement") by and
between the Company, Verity Merger Corp., a wholly-owned subsidiary of the
Company (the "Merger Sub"), and Healthcare Solutions Holdings, Inc. ("HSH").
Pursuant to the terms of the Merger Agreement, the parties agreed that Merger
Sub would merge with and into HSH, with HSH being the surviving entity and
becoming a wholly-owned subsidiary of the Company (the "Merger").
The closing of the Merger is planned to take place on the third business day
following the satisfaction or waiver (by the party for whose benefit the
condition exists) of the closing conditions in the Merger Agreement or on such
other date and at such other time and place as the parties agree in writing.
Upon the effective time of the Merger, (i) HSH's certificate of incorporation
will be the certificate of incorporation of the surviving company, (ii) HSH's
bylaws will be the bylaws of the surviving company, (iii) HSH's directors
immediately prior to the effectiveness of the Merger will be the directors of
the surviving company and (iv) HSH's officers immediately prior to the
effectiveness of the Merger will be the officers of the surviving company.
At the closing of the Merger, it is planned that the Receiver will elect Justin
Smith, Jonathan Loutzenhiser and Dr. Charles Balaban as members of the Company's
board of directors, and then resign.
The aggregate Merger consideration to be paid to the holders of the HSH common
stock at the effective time of the Merger will be an aggregate number of shares
of the Company's common stock constituting 90% of the issued and outstanding
shares of Company common stock immediately following the closing.
At the effective time of the Merger, each share of HSH common stock issued and
outstanding immediately prior to the effective time (other than shares canceled
as provided in the Merger Agreement, if any), will be converted into shares of
Company common stock, at an exchange ratio as required to cause the number of
shares of Company common stock issued to the holders of the HSH common stock to
be 90% of the issued and outstanding shares of the Company common stock
immediately following the closing, which is currently expected to result in an
exchange ratio of 127.33306 shares of Company common stock per share of HSH
common stock (as ultimately so determined, the "Exchange Ratio"), with any
fractional shares of Company common stock being rounded to the nearest whole
share of Company common stock. The Exchange Ratio will be finally determined by
the parties to the Merger Agreement prior to the closing.
As consideration for the services of Robert Stevens and his team, for acting as
the court-appointed receiver for the Company and its predecessor and affiliated
entities and pursuant the Merger Agreement, the Company agreed to issue to
certain parties as directed by Mr. Stevens shares of Company common stock equal
to 90% of the issued and outstanding shares of Company common stock prior to the
closing, which will therefore constitute 9% of the issued and outstanding shares
of Company common stock immediately following the closing (the "Receiver
Shares").
The completion of the Merger is subject to certain customary closing conditions,
including that HSH will have provided to the Company, HSH's audited and
unaudited financial statements as required to be included in the Company's
filings with the Securities and Exchange Commission.
The Merger Agreement is not subject to a financing condition. The parties have
made customary representations, warranties, and covenants in the Merger
Agreement. The Merger Agreement also contains a customary "no-shop" covenant
prohibiting the Company from soliciting proposals for alternative acquisition or
providing information or participating in any discussions in connection with any
such proposals.
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The Merger Agreement contains certain termination rights that may be exercised
by the Company or HSH, as applicable, including in the event that (i) both
parties agree by mutual written consent to terminate the Merger Agreement, (ii)
the Merger is not consummated by December 31, 2020 (as set forth in the "Second
Amendment" discussed below), or (iii) any law or order permanently restraining,
enjoining or otherwise prohibiting consummation of the Merger having become
final and non-appealable.
The Merger is intended to be a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
Merger Agreement is intended to be a "plan of reorganization" within the meaning
of the regulations promulgated under Section 368(a) of the Code and for the
purpose of qualifying as a tax-free transaction for federal income tax purposes.
On August 25, 2020, the parties to the merger agreement entered into amendment
no. 1 (the "Amendment") to the Merger Agreement pursuant to which the date
provided to consummate the Merger Agreement was extended from July 30, 2019 to
September 30, 2020. Further, pursuant to the Amendment, the Company and HSH
agreed to reasonably cooperate to terminate the engagement of the Company's
prior registered agent in Nevada, with the costs related thereto to be paid by
HSH. Further, pursuant to the Amendment, the Company agreed to issue the
Receiver Shares as required by the Merger Agreement, with the shares to be
issued in book entry within 10 days of August 25, 2020. The Receiver Shares were
issued on August 27, 2020 and consisted of a total of 114,599,754 shares of
Company common stock.
Further, pursuant to the Amendment, HSH agreed to pay the costs and expenses of
the Company resulting from the Company's engagement of professional service
providers, including, but not limited to, those of the transfer agent, legal
counsel and auditors, until the earlier of the closing or the termination of the
Merger Agreement.
Further, pursuant to the Amendment, the parties acknowledged that the Company
and HSH are represented by the same legal counsel and that counsel has advised
each of the parties to retain separate counsel to review the terms of the Merger
Agreement and the Amendment, and that each party waived such right and waived
any related conflicts of interests and confirmed that the parties have
previously negotiated the material terms of the Merger Agreement and the
Amendment. Further, pursuant to the Amendment, the prior notice person for the
Company was removed.
Other than the foregoing, no other material changes were made to the Merger
Agreement in the Amendment.
On November 5, 2020, the parties to the Merger Agreement entered into amendment
no. 2 (the "Second Amendment") to the Merger Agreement pursuant to which the
date provided to consummate the Merger Agreement was extended from September 30,
2020 to December 31, 2020. Further, pursuant to the Second Amendment, it was
agreed that the Company and HSH were in the process of amending their respective
fiscal year ends so that the fiscal year-end for each would be September 30.
Other than the foregoing, no other material changes were made to the Merger
Agreement in the Second Amendment.
The foregoing description of the Merger Agreement, the Amendment and the Second
Amendment, and the transactions contemplated thereby does not purport to be
complete and is qualified in its entirety by the Merger Agreement, the Amendment
and the Second Amendment, copies of which are as Exhibit 2.1, 2.2 and 2.3,
respectively, to this Transition Report on Form 10-K and incorporated herein by
reference.
As of the date of this Transition Report the Merger has not been consummated,
and neither HSH nor the Company has exercised its terminations rights. The
Company believes the Merger will be consummated, however, there can be no
assurances.
Results of Operations
In February 2016, all of the Company's officers and directors resigned, and the
Company stopped substantially all operating activities. Since such time, and
currently, the Company is a "shell company," as such term is defined in Rule
12b-2 under the Exchange Act. The Company has not recorded any revenue since
2016. Since May 16, 2016, through the date of this Transition Report, the
Company has been operating under the direction of the Receiver.
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Period from June 30, 2020 to September 30, 2020
Operating expenses for the period from June 30, 2020 to September 30, 2020
totaled $3,094,193 compared to $3,457 for the same period in 2019. The increase
is attributable to $3,094,193 in stock based compensation attributable to the
issuance of the Receiver Shares which were issued on August 27, 2020 and
consisted of a total of 114,599,754 shares of Company common stock. Cash flows
used in operating activities for the period from June 30, 2020 to September 30,
2020 totaled $46 compared to $46 in 2019.
Going Concern
The Company is currently in receivership. The Company's financial statements
have been presented on the basis that it is a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. On September 30, 2020, the Company had a retained deficit of
$16,171,231 and current liabilities in excess of current assets by $4,386,366.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
The Company's continuation as a going concern is solely dependent upon the
Receiver's ability to raise financing from third parties. There is no assurance
that the Company will be successful in doing so.
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak
to be a global pandemic which continues to spread throughout the U.S. and the
globe. In addition to the devastating effects on human life, the pandemic is
having a negative ripple effect on the global economy, leading to disruptions
and volatility in the global financial markets. Most U.S. states and many
countries have issued policies intended to stop or slow the further spread of
the disease such as issuing temporary Executive Orders that, among other
stipulations, effectively prohibit in-person work activities for most industries
and businesses, having the effect of suspending or severely curtailing
operations. COVID-19 and the U.S's response to the pandemic are significantly
affecting the economy. There are no comparable events that provide guidance as
to the effect the COVID-19 pandemic may have, and, as a result, the ultimate
effect of the pandemic is highly uncertain and subject to change. The extent of
the ultimate impact of the pandemic on the Company's operational and financial
performance will depend on various developments, including the duration and
spread of the outbreak, which cannot be reasonably predicted at this time.
Accordingly, while management reasonably expects the COVID-19 outbreak to
negatively impact the Company, the related consequences and duration are highly
uncertain and cannot be predicted at this time.
Liquidity and Capital Resources
On September 30, 2020, our liquid assets consisted of cash of $165.
The following tables set forth the components of the Company's debt as of
September 30, 2020, and June 30, 2020:
Sept. 30, June 30,
2020 2020
Notes payable $ 215,353 $ 215,353
Real estate loans $ 4,001,267 $ 4,001,267
Receiver loan $ 65,000 $ 65,000The Notes payable and the real estate loans are unsecured and due to a former
director and officer of the Company. As a result of the court order in Nevada in
March 2018, no interest can be accrued on this debt. In February 2018, the
Company obtained a Receiver's Note for $65,000 which accrues interest at a rate
of 10%. As of September 30, 2020 and June 30, 2020, there was $16,877 and
$15,261, respectively in accrued interest due and payable on the Receiver Note.
The Receiver expects to discharge the Notes Payable and Real Estate Loans with
no further liability to the Company, prior to consummating the Merger Agreement
referenced throughout this Transition Report. There can be no assurance the
Receiver will be successful in discharging this debt.
The Company is under the control of the court-appointed Receiver who is
considered a related party. During the years ended June 30, 2020 and June 30,
2019, the Receiver incurred $3,555 and $8,838, respectively, in professional
fees in managing the Company. The Receiver did not incur any professional fees
during the period from June 30, 2020 to September 30, 2020. Additionally, as
noted above the Receiver has extended a $65,000 loan to the Company which bears
interest at 10%. The Company believes these services and loans are at market
rate.
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As consideration for the services of Robert Stevens and his team, who has acted
as the court-appointed receiver for the Company and its predecessor and
affiliated entities, in the Merger Agreement the Company agreed to issue to
certain parties as directed by Mr. Stevens a total number of shares of Company
common stock equal to 90% of the issued and outstanding shares of Company common
stock immediately prior to the Closing, which will therefore constitute 9% of
the issued and outstanding shares of Company common stock immediately following
the Closing (the "Receiver Shares"). The Receiver Shares were issued on August
27, 2020 and consisted of a total of 114,599,754 shares of Company common stock.
These shares were valued at $3,094,193 and were recorded as "stock-based
compensation- related parties on the Company's Statement of Operations for the
three month ended September 30, 2020. 38,199,918 of the Receiver Shares were
issued to Thistle Investments LLC of which Jodi Stevens is the Manager and has
the power to vote and dispose of the shares held by Thistle Investments LLC.
Jodi Stevens is the spouse of the Receiver, Robert Stevens and as such is
considered a related party. After the closing of the Merger, we expect there to
be 1.27 billion shares of our common stock outstanding, of which the Receiver
Shares will constitute 9%.
We estimate that we will need approximately $100,000 to $150,000 to fully
effectuate our business development plans, including to close the Merger as
contemplated by the Merger Agreement. There can be no assurance that the Merger
can occur as planner, or at all. Further, we are subject to the continued impact
of COVID-19, as further discussed above. We are dependent on capital raised from
third parties to fund our operating expenses. We cannot assure that additional
funding will be available on a timely basis, on terms acceptable to us, or at
all. We currently have no agreement with any third party to provide us this
additional financing and there can be no assurances that we will obtain this
financing, either debt or equity or both, on favorable terms, or at all. Our
inability to receive additional financing may have a significant negative impact
on our continued development and results of our operations. COVID-19 has also
caused significant disruptions to the global financial markets, which impacts
our ability to raise additional capital. If the Company is unable to obtain
adequate capital due to the continued spread of COVID-19, or otherwise, the
Company may be required to reduce the scope, delay, or eliminate some or all of
its planned operations.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles, or
"GAAP." The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reported period. In accordance with GAAP, we base our estimates on
historical experience and on various other assumptions that we believe are
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.
Our significant accounting policies are fully described in Note 2 to our
consolidated financial statements appearing elsewhere in this Transition Report,
and we believe those accounting policies are critical to the process of making
significant judgments and estimates in the preparation of our consolidated
financial statements.
Income Taxes
Due to the historical operating losses, the inability to recognize an income tax
benefit, and the failure to file tax returns for numerous years, there is no
provision for current or deferred federal or state income taxes for the period
from inception through the period ended September 30, 2020. As of September 30,
2020, the Company had a retained earnings deficit of $16,171,231 however, the
amount of that loss that could be carried forward to offset future taxes is
indeterminable.
Off-Balance Sheet Arrangements
None.
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