QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2020
Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 333-147367
HEALTHCARE SOLUTIONS MANAGEMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
38-3767357
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
387 Corona St., Suite 555, Denver, CO
80218
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code (720) 442-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange
on which registered
N/A
N/A
N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☐ Yes ☒ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☐ Yes ☒ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) Yes ☒ No ☐
The number of shares outstanding of the registrant’s common stock as of February 22, 2021, was 127,333,060 shares.
Information contained in this quarterly report on Form 10-Q contains “forward-looking statements.” These forward-looking statements are contained principally in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our ability to consummate the Merger, as such term is defined below; the continued services of the Receiver, as such term is defined below; our future financial performance; the continuation of historical trends; the sufficiency of our resources in funding our operations; our intention to engage in mergers and acquisitions; and our liquidity and capital needs. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. These risks, uncertainties and other factors include but are not limited to: the risks of limited management, labor and financial resources; our ability to establish and maintain adequate internal controls; our ability to develop and maintain a market in our securities; and our ability obtain financing, if and when needed, on terms that are acceptable. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
As used in this quarterly report on Form 10-Q, “we”, “our”, “us” and the “Company” refer to Healthcare Solutions Management Group, Inc., a Delaware corporation, and its subsidiaries unless the context requires otherwise.
Healthcare Solutions Management Group, Inc. (“the “Company”) f/k/a Verity Corporation is the parent of Verity Farms II, Inc. (“Verity Farms II”) and Aistiva Corporation (“Aistiva”) (f/k/a AquaLiv, Inc.). Verity Farms II was dedicated to providing consumers with safe, high-quality, and nutritious food sources through sustainable crop and livestock production. Aistiva has released products in the industries of water treatment, skincare, and agriculture. Aistiva was primarily known for the AquaLiv Water System product which also produces the majority of its revenue and blends well with the Verity Water systems.
In February 2016, all the Company’s officers resigned, and Company stopped substantially all operating activities. On May 16, 2016, pursuant to Case Number A-16-733815-B, Nevada’s 8th Judicial District, Business Court, appointed Robert Stevens as Receiver (“Receiver”) for Verity Corp. on May 3, 2016. Creditors were required to provide claims in writing under oath on or before November 3, 2016, or they will be barred under NRS §78.675”. Since May 16, 2016, through the date of this report, the Company has been operating under the direction of the Receiver.
On March 22, 2018, the Nevada Court approved a plan of reorganization that involved authorizing the cancellation of all preferred shares of Verity Corp, 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 Verity Corp’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.
On June 14, 2019, Healthcare Solutions Management Group, Inc., a Delaware corporation, and successor in interest to Verity Delaware Inc., a Delaware corporation which was previously a Nevada corporation named Verity Corp. (the “Company”) entered into a Merger Agreement (the “Merger Agreement”) by and between the Company, Verity Merger Corp., a wholly-owned subsidiary of the Company (“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 (the “Merger”). The closing of the Merger will 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 effectiveness of the Merger, (i) HSH’s certificate of incorporation will be the certificate of incorporation of the surviving company, and (ii) HSH’s bylaws will be the bylaws of the surviving company. In addition, upon the effectiveness of the Merger, HSH’s directors immediately prior to effectiveness of the Merger will be the directors of the surviving corporation. Accordingly, at the Closing, the Company’s current sole director will elect Justin Smith, Jonathan Loutzenhiser and Dr. Charles Balaban as members of the Company’s board of directors, and then the current sole director shall resign. Also, upon effectiveness of the Merger, HSH’s officers immediately prior to effectiveness of the Merger will be the directors of the surviving company.
The aggregate merger consideration to be paid to the holders of the HSH common stock in 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, assuming issuance of the Receiver Shares (as hereinafter defined). 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 rate 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, assuming issuance of the Receiver Shares, 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, who has acted as the court-appointed receiver for the Company and its predecessor and affiliated entities, in the Merger Agreement the Company agreed that, immediately prior to the Closing, the Company will 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.
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.
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.
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 July 30, 2019, or (iii) any law or order permanently restraining, enjoining, or otherwise prohibiting consummation of the Merger having become final and non-appealable.
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 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.
As of the date of this Report the Merger has not been consummated; and neither HSH nor the Company has exercised its termination rights. The Company is currently in discussions with HSH to extend the date provided to consummate the Merger Agreement from December 31, 2020 to a later date, however there can be no assurances that such discussions will be successful. The Company believes the Merger will be consummated, however, there can be no assurances.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.
Reclassification
Certain prior period amounts have been reclassified to conform with the current period presentation.
Use of Estimates
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of expenses during the reporting periods. These accounts and estimates include, but are not limited to liabilities and tax provisions. Actual results could differ from these estimates.
Basis of Consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions within the Company and subsidiaries have been eliminated upon consolidation.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Revenue Recognition
The Company derives revenues from the sale of agricultural products, animal feeds, consulting services, and various water units. The Company’s sales arrangements are not subject to warranty. On July 1, 2018, we adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Results for reporting periods beginning after July 1, 2018, are presented under ASC 606, while prior period amounts were reported in accordance with our historic accounting under ASC 605. The Company has not recorded any revenue since 2016 so the transition to ASC 606 had no impact on our financial statements.
Income Taxes
The Company adopts the ASC Topic 740, “Income Taxes “ regarding accounting for uncertainty in income taxes which prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. In addition, the guidance requires the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position. For tax positions that are determined to be more likely than not sustained upon audit, a company recognizes the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement in the financial statements. For tax positions that are not determined to be more likely than not sustained upon audit, a company does not recognize any portion of the benefit in the financial statements. The guidance provides for de-recognition, classification, penalties, and interest, accounting in interim periods and disclosure. For the years ended September 30, 2020, and 2019, the Company did not have any interest and penalties associated with tax positions. As of December 31, 2020, and September 30, 2020, the Company did not have any significant unrecognized uncertain tax positions.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits or that future deductibility is uncertain.
With the exception of legal fees, substantially all professional fees expensed by the Company subsequent to the appointment of the court-appointed Receiver, represent hours of work performed by him to help the Company emerge from receivership by obtaining external financing. The fees are a liability of the Company and are expensed as incurred.
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification 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; 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.
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include a). the nature of the relationship(s) involved; b). a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c). the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d). amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments and Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s consolidated financial position, consolidated results of operations or consolidated cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.
Subsequent Events
The Company adopted FASB Accounting Standards Codification 855 “Subsequent Events” (“ASC 855”) to establish general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued.
Recently issued accounting standards
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.
NOTE 3 – 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 December 31, 2020 the Company had a retained deficit of $16,172,887 and current liabilities in excess of current assets by $4,388,022. 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.
NOTE 4 – DEBT
The following tables set forth the components of the Company’s, debt as of December 31, 2020, and September 30, 2020:
December 31,
2020
September 30,
2020
Notes payable
$
215,353
$
215,353
Real estate loans
$
4,001,267
$
4,001,267
Receiver loan
$
65,000
$
65,000
The 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 December 31, 2020 and September 30, 2020, there was $18,511 and $16,877, 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 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 three months ended December 31, 2020 and December 31, 2019, the Receiver incurred $-0- and $1,355 respectively, in professional fees in managing the Company. Additionally, 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.
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 that, immediately prior to the Closing, the Company will 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 during the fiscal year ended September 30, 2020.
During the three months ended December 31, 2020, HSH advanced $3,500 to the Company on an interest free basis.
NOTE 6 – SHAREHOLDERS’ EQUITY
The Company has 1,000,000,000 common shares authorized at a par value of $0.001. As of December 31, 2020, and September 30, 2020, the were 127,333,060 and 127,333,060 common shares outstanding, respectively.
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 that, immediately prior to the Closing, the Company will 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. Based on the Company’s stock price of $0.027 on the amendment date of August 25, 2020, these shares were valued at $3,094,193.
NOTE 7 – 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 December 31, 2020. As of December 31, 2020 the Company had a retained earnings deficit of $16,172,887 however, the amount of that loss that could be carried forward to offset future taxes is indeterminable.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
As of December 31, 2020 and September 30, 2020, the Company had no contractual commitments.
NOTE 9 – SUBSEQUENT EVENTS
In accordance with ASC 855-10 management has performed an evaluation of subsequent events from December 31, 2020, through the date the financial statements were available to be issued and noted there were no subsequent events requiring disclosure.
The following discussion and analysis of the results of operations and financial condition of the Company for the quarters ended December 31, 2020 and 2019, should be read in conjunction with the other sections of this Quarterly Report, including the Financial Statements and notes thereto of the Company included in this Quarterly 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 Quarterly 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 Quarterly Report.
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.
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 Quarterly 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.
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 Quarterly Report, the Company has been operating under the direction of the Receiver.
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.
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 filed a Transition Report on Form 10-K for the three-month transition period from June 30, 2020 to September 30, 2020 on January 20, 2021.
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 new 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.
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.
On February 16, 2021, the parties to the Merger Agreement entered into amendment no.3 (the “Third Amendment”) to the Merger Agreement pursuant to which the date provided to consummate the Merger Agreement was extended from December 31, 2020 to March 31, 2021. Other than the foregoing, no other material changes were made to the Merger Agreement in the Third 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, the Second Amendment, and the Third Amendment copies of which are as Exhibit 2.1, 2.2, 2.3, and 2.4 respectively, to this Quarterly Report on Form 10-Q and incorporated herein by reference.
As of the date of this Quarterly Report the Merger has not been consummated, and 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 Quarterly Report, the Company has been operating under the direction of the Receiver.
Quarter Ended December 31, 2020 Compared to the Quarter Ended December 31, 2019
Operating expenses for the quarter ended December 31, 2020 totaled $22 compared to $1,410 for the same period in 2019. The decrease is attributable to lower professional fees during the quarter ended December 31, 2021. Cash flows used in operating activities for the quarter ended December 31, 2020 totaled $3,478 compared to $57 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 December 31, 2020, the Company had a retained deficit of $16,172,887 and current liabilities in excess of current assets by $4,388,022. 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
During the three months ended December 31, 2020, HSH advanced $3,500 to the Company on an interest free basis.
On December 31, 2020, our liquid assets consisted of cash of $3,643.
The following tables set forth the components of the Company’s debt as of September 30, 2020, and December 31, 2020:
Sept. 30,
2020
December 31,
2020
Notes payable
$
215,353
$
215,353
Real estate loans
$
4,001,267
$
4,001,267
Receiver loan
$
65,000
$
65,000
The 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 December 31, 2020, there was $16,877 and $18,511, 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 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 three months ended September 30, 2020 or the three months ended December 31, 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.
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 Quarterly 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 December 31, 2020. As of December 31, 2020, the Company had a retained earnings deficit of $16,172,887 however, the amount of that loss that could be carried forward to offset future taxes is indeterminable.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.
We carried out an evaluation as required by paragraph (b) of Rule 13a-15 and 15d-15 of the Exchange Act, under the supervision and with the participation of the Receiver, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of December 31, 2020. Based upon that evaluation, our receiver concluded that our disclosure controls and procedures were not effective as of December 31, 2020.
Report of Management on Internal Controls over Financial Reporting.
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. As of December 31, 2020, management has not completed an effective assessment of the Company’s internal control over financial reporting based on the 2013 Committee of Sponsoring Organizations (COSO) framework.
Management has concluded that as of December 31, 2020, our internal control over financial reporting was not effective to detect the inappropriate application of U.S. GAAP.
Management identified the following material weaknesses set forth below in our internal control over financial reporting:
•
We did not perform an effective risk assessment or monitor internal controls over financial reporting.
•
There are insufficient written policies and procedures to ensure the correct application of accounting and financial reporting with respect to the current requirements of generally accepted accounting principles in the United States and SEC disclosure requirements.
•
Limited segregation of duties and oversight of work performed as well as lack of compensating controls in the Company’s finance and accounting functions due to the receivership.
•
The Company lacks sufficient in-house expertise and training in complex accounting principles and SEC reporting and disclosure requirements.
•
The Company’s systems that impact financial information and disclosures have ineffective information technology controls.
•
The Company lacks a system of tracking obligations to identify and file income tax and other tax reports on a timely basis.
A control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company may be involved in certain legal proceedings that arise from time to time in the ordinary course of its business. Legal expenses associated with any contingency are expensed as incurred. The Company’s officers and directors are not aware of any threatened or pending litigation to which the Company is a party, other than the receivership as discussed below, or which any of its property is the subject and which would have any material, adverse effect on the Company.
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 Quarterly 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 it is expected the Receiver will be discharged.
Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the transition period from June 30, 2020 to September 30, 2020 (the “2020 Form 10-KT”) filed January 20, 2021 which sections are incorporated by reference into this report, as the same may be updated from time to time. Prospective investors are encouraged to consider the risks described in our 2020 Form 10-KT, and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.
As a smaller reporting company, the Company is not required to disclose material changes to the risk factors that were contained in the 2020 Form 10-KT.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HEALTHCARE SOLUTIONS MANAGEMENT GROUP, INC.
Dated: February 22, 2021
By:
/s/ Robert Stevens
Robert Stevens
Receiver
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Robert Stevens
Receiver
February 22, 2021
Robert Stevens
(principal executive officer and principal financials and accounting officer)
13
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