THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATIONS AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND RELATED NOTES TO THE FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS INVOLVE KNOWN ANDUNKNOWN RISKS , UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE RISKS AND OTHER FACTORS INCLUDE, AMONG OTHERS, THOSE LISTED UNDER "FORWARD-LOOKING STATEMENTS" AND "RISK FACTORS" AND THOSE INCLUDED ELSEWHERE IN THIS REPORT. This discussion summarizes the significant factors affecting the consolidated financial statements, financial condition, liquidity, and cash flows ofHealthcare Integrated Technologies, Inc , for the fiscal years endedJuly 31, 2021 and 2020 and the interim periods included herein. The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes included elsewhere in this Form 10-K. Executive OverviewHealthcare Integrated Technologies, Inc. and its subsidiaries is a healthcare technology company based inKnoxville, Tennessee . We are creating a diversified spectrum of healthcare technology solutions to integrate and automate the continuing care, home care and professional healthcare spaces. Our initial product, SafeSpace™ with AI Vision™, is an ambient fall detection solution designed for continuing care communities and at home use. SafeSpace includes hardware devices utilizing RGB, radar and other sensor technology coupled with our internally developed software to effectively monitor a person remotely. In continuing care communities, SafeSpace detects resident falls and generates alerts to a centralized, intelligent dashboard without the use of wearable devices or any action by the resident. In the home, SafeSpace detects falls and sends alerts directly to designated individuals. In addition to SafeSpace, we are creating a home concierge healthcare service application to provide a virtual assisted living experience for seniors, recently released postoperative patients and others. The concierge application will enable the consumer to obtain home healthcare services and health and safety monitoring equipment to improve quality of life. We are also working to develop a fully integrated solution for the professional healthcare community that integrates electronic health records, remote patient monitoring, telehealth, and other items where integration is beneficial. Strategy Our mission is to grow a profitable healthcare technology company by focusing on our core product, continuing the development of our proprietary software, and developing new uses and product lines for our technology. Our management team is focused on maintaining the financial flexibility and assembling the right complement of personnel and outside consultants required to successfully execute our mission. 12
Financial and Operating Results
We continue to utilize funds raised from the private sales of our common stock, issuance of debt, and short-term advances from related parties to provide cash for our operations, which allowed us to continue refining our initial product and readying it for pilot testing, developing our future product offerings and adding talented individuals to our management team. Highlighted achievements for the fiscal year endedJuly 31, 2021 include:
? On
stock from
delivered by AMP directly to the transfer agent on
immediately cancelled.
? On
a
plus accrued interest of
of the Note, the shares were issued at a conversion price of
? On
and entered into a three-year employment agreement with the Company. The
employment agreement provides for a base salary of
part-time basis) and 1,000,000 options to purchase the Company's common stock
at an exercise price of
exercisable on the grant date and the remaining options vesting equally over a
period of three (3) years from the grant date. The value of the options on the
grant date was estimated using the Black-Scholes pricing model and is being
recognized as an expense over the vesting term.
? On
totaling 1,050,000 shares of our common stock, each at a price of
share, resulting in net proceeds to the Company of
cost related to the private placements.
? On
shares of our common stock at a price of
proceeds to the Company of
private placement.
? On
forgave the entire principal balance of
charges of
with Mountain Commerce Bank on
? On
purchased a Promissory Note (the "AJB Note") in the principal amount of
in
finder's fee of
stock to the purchaser of the note as an origination fee.
? On
a
plus accrued interest of
of the Note, the shares were issued at a conversion price of
? On
of a
Note plus accrued interest of
terms of the Note, the shares were issued at a conversion price of
share.
? On
with an accredited investor. Under the terms of the Subscription
Agreement, the investor agreed to purchase 2,000,000 shares of our common
stock at a purchase price of
and with the initial payment of$50,000 due upon execution of the Subscription Agreement. 13
? On
plus accrued interest of
of the Note, the shares were issued at a conversion price of
? On
balance that was previously included in accounts payable. Under the terms of
the settlement, the shares were issued at a price of$0.20 per share. Results of Operations Revenues We had no revenues in fiscal 2021 or 2020. Our healthcare technology business is not currently producing revenue as we continue to develop, refine and test our products both internally and in independent senior living facilities through our Pilot Program.
Selling, General and Administrative Expenses
The table below presents a comparison of our selling, general and administrative
expenses for the years ended
For the Years Ended July 31, 2021 2020 $ Variance %Variance
Officers' salaries$ 531,342 $ 423,371 $ 107,971 26 % Equity-based compensation 621,776 407,613 214,163 53 % Professional fees 97,500 110,471 (12,971 ) (12 )% Advertising and marketing 5,297 66,948 (61,651 ) (92 )% Depreciation and amortization 8,571 4,769
3,802 80 % Other 10,148 3,351 6,797 203 % Total$ 1,274,634 $ 1,016,523 $ 258,111 25 % Officers' Salaries - Officers' salaries, net of capitalized amounts, increased$107,971 over 2020, or 26%. The increase is attributable to the uncapitalized portion of our CTO's salary for the entire period, eleven months of salary for our new CMO, and our CFO's salary at an increased rate for the entire period. In 2020, Officers' salaries only included the salary of our CEO, and our CFO's salary for approximately ten months. Stock-Based Compensation - Stock-based compensation expense increased$214,163 , or 53%, over the same period in the prior year. The increase results from amortization of the grant date fair value of additional employee stock options granted to our CTO and new CMO, as well as a restricted stock grant to our CFO. Professional Fees - Professional fees decreased$12,971 , or 12%, from 2020. Accounting fees decreased$38,725 in 2021 after the filing of ourJuly 31, 2019 Comprehensive Form 10-K that was filed inMarch 2020 . The decrease in accounting fees was partially offset by an increase in legal and consulting fees of$28,528 . Advertising and Marketing - Advertising and marketing expense decreased$61,651 from 2020, or 92%. In 2020 we engaged BrandMETTLE as our advertising agency and incurred additional advertising expense from the issuance of common stock for services under our agreement. Depreciation and Amortization - Depreciation and amortization expense increased$3,802 over the same period in the prior year. The increase results from amortization expense related to new intangible assets placed in service in 2021 partially offset by declining depreciation expense as older assets become fully depreciated and/or disposed of. 14
Other - Other expense increased
Other Income (Expense)
The table below presents a comparison of our other income (expense) for the
years ended
For the Years Ended July 31, 2021 2020 $ Variance %Variance Interest expense$ (227,900 ) $ (41,564 ) $ (186,336 ) 448 % Derivative expense (97,201 ) - (97,201 ) - Change in fair value of derivative liability 89,669 - 89,669 - Debt forgiveness 41,931 - 41,931 - Lawsuit settlement 13,110 - 13,110 - Total$ (180,391 ) $ (41,564 ) $ (138,827 ) 334 %
Interest Expense - Interest expense increased$186,336 over the same period in the prior year. The increase is primarily due to the$180,000 amortization of debt discount and related interest payments of$17,806 on theAJB Capital Investments, LLC note (the AJB Note") issued during the current period. The increase was partially offset by a reduction in outstanding 5% convertible notes for 2021 due to note conversions. Derivative Expense - Derivative expense is$97,201 for the year endedJuly 31, 2021 . The expense is attributable to the excess of the fair market value of the derivative liability associated with our new AJB Note over the net book value of the note at issuance. We incurred no derivative expense in the year endedJuly 31, 2020 .
Change in Fair Value of Derivative Liability - The change in the fair value of the derivative liability associated with our new AJB Note reflects a gain of$89,669 on the change in fair value at the date of issuance of the note to its fair value atJuly 31, 2021 . We incurred no change in derivative liabilities in the year endedJuly 31, 2020 . Debt Forgiveness - Income from debt forgiveness was$41,931 for the year endedJuly 31, 2021 . The income results from the forgiveness of our Small Business Administration Paycheck Protection Program loan, plus related accrued interest, onDecember 14, 2021 . We had no debt forgiveness income in the year endedJuly 31, 2020 . Lawsuit Settlement - Income from lawsuit settlements was$13,110 for the year endedJuly 31, 2021 . The income results from the settlement of a lawsuit with RBSM onMay 27, 2021 . We had no income from lawsuit settlements in the year endedJuly 31, 2020 .
Liquidity and Capital Resources
Working Capital The following table summarizes our working capital for the fiscal years endingJuly 31, 2021 and 2020: July 31, 2021 July 31, 2020 Current assets$ 49,018 $ 125,010 Current liabilities (2,259,432 ) (1,982,603 )
Working capital deficiency
Current assets for the year endedJuly 31, 2021 decreased as compared toJuly 31, 2020 due to a decrease in cash and cash equivalents and prepaid legal fees, primarily resulting from the payment of amounts owed to related parties and the amortization of prepaid legal fees in 2021. Current liabilities for the year endedJuly 31, 2021 increased as compared toJuly 31, 2020 . The increase is primarily due to our newAcorn Management Partners, LLC andAJB Capital Investments, LLC short-term notes payable in 2021 and the continued accrual of officer's compensation, with such increases being partially offset by a net decrease in related party accounts payable and accrued expenses, and a decrease in our outstanding 5% convertible promissory notes and related accrued interest expense from the conversion of the notes into common stock.
We currently do not have a revenue source and will continue to have negative cash flow from operations for the near future. The factors in determining operating cash flows are largely the same as those that affect net earnings, except for non-cash expenses such as depreciation and amortization, stock-based compensation, amortization of debt discount, derivative expense and changes in fair value of assets and liabilities, which affect earnings but do not affect cash flow. Net cash used by operating activities was$592,192 for the year endedJuly 31, 2021 as compared to$188,655 for the year endedJuly 31, 2020 . The$403,537 increase in cash used during 2021 is primarily attributable to an increase in cash payments of officer's compensation.
Net cash used by investing activities was$60,608 for the year endedJuly 31, 2021 . The amount is comprised of cash paid for the filing of patent and trademark applications and for the development of software for our internal use. We had no cash flows from investing activities during the year endedJuly 31, 2020 .
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$586,171 for the year endedJuly 31, 2021 , which represents a$320,169 increase over the year endedJuly 31, 2020 . During 2021, we received$355,000 from the sale of common stock in four private transactions, which is a$60,000 increase over the cash received from common stock sales in 2020. In addition, we received$300,700 in net proceeds from the issuance of promissory notes, which is a$259,033 increase in the cash received from the issuance of promissory notes in 2020. 15 At this time, we cannot provide investors with any assurance that we will be able to obtain sufficient funding from debt financings and/or the sale of our equity securities to meet our obligations over the next twelve months. We are likely to continue using short-term loans from management to meet our short-term funding needs. We have no material commitments for capital expenditures as
ofJuly 31, 2021 . Going Concern Qualification We have a history of losses, an accumulated deficit, a negative working capital and have not generated cash from operations to support a meaningful and ongoing business plan. Our Independent Registered Public Accounting Firm has included a "Going Concern Qualification" in their report for the years endedJuly 31, 2021 , 2020, 2019, 2018, 2017 and 2016. The foregoing raises substantial doubt about the Company's ability to continue as a going concern. We intend on financing our future activities and working capital needs largely from the sale of private and/or public equity securities with additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. There is no guarantee that additional capital or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to us. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The "Going Concern Qualification" might make it substantially more difficult to raise capital.
Critical Accounting Policies and Estimates
Our consolidated financial statements and related public financial information are based on the application ofU.S. GAAP.U.S. GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere toU.S. GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Our significant accounting policies are summarized in Note 1 of our consolidated financial statements.
We believe the following critical policies impact our more significant judgments and estimates used in preparation of our financial statements.
Use of Estimates The preparation of consolidated financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We base our estimates on experience and various other assumptions that are believed to be reasonable under the circumstances. We evaluate our estimates and assumptions on a regular basis and actual results may differ from those estimates.
Impairment of Long-Lived Assets
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, we estimate fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented. 16 Intangible Assets
Intangible assets consist of patents, our website and the costs of software developed for internal use. Certain payroll and stock-based compensation costs incurred are allocated to the intangible assets. We determine the amount of costs to be capitalized based on the time spent by employees or outside contractors on the projects. Intangible assets are amortized over their expected useful life on a straight-line basis. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. If the estimate of an intangible asset's remaining life is changed, the remaining carrying value of the intangible asset is amortized prospectively over the revised remaining useful life. We did not recognize any impairment losses during any of the periods presented.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and borrowings. The fair value of current financial assets and current financial liabilities approximates their carrying value because of the short-term maturity of these financial instruments. Derivative Liability Options, warrants, convertible notes, or other contracts, if any, are evaluated to determine if those contracts, or embedded components of those contracts, qualify as derivatives to be separately accounted for in accordance with paragraph 815-10-05-4 and Section 815-40-25 of theFinancial Accounting Standards Board (the "FASB") Accounting Standards Codification ("ASC"). The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. The change in fair value is recorded in the consolidated statement of operations as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise, or cancellation and then the related fair value is reclassified to equity. In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated, and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date. 17
The Company adopted Section 815-40-15 of the FASB ASC ("Section 815-40-15") to determine whether an instrument (or an embedded feature) is indexed to the Company's own stock. Section 815-40-15 provides that an entity should use a two- step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions.
We utilize a binomial option pricing model to compute the fair value of the derivative liability and to mark to market the fair value of the derivative at each balance sheet date. We record the change in the fair value of the derivative as other income or expense in the consolidated statements of operations.
Revenue Recognition Revenue is recognized under ASC 606, "Revenue from Contracts with Customers" using the modified retrospective method. Under this method, the Company follows the five-step model provided by ASC Topic 606 in order to recognize revenue in the following manner: 1) Identify the contract; 2) Identify the performance obligations of the contract; 3) Determine the transaction price of the contract; 4) Allocate the transaction price to the performance obligations; and 5) Recognize revenue. An entity recognizes revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The Company's revenue recognition policies remained substantially unchanged as a result of the adoption of ASC 606, and there were no significant changes in business processes or systems. Stock-Based Compensation The Company accounts for stock-based compensation in accordance with ASC Topic 718, "Compensation - Stock Compensation" ("ASC 718") which establishes financial accounting and reporting standards for stock-based employee compensation. It defines a fair value-based method of accounting for an employee stock option or similar equity instrument. The Company accounts for compensation cost for stock option plans, if any, in accordance with ASC 718. Share-based payments, excluding restricted stock, are valued using a Black-Scholes option pricing model. Grants of share-based payment awards issued to non-employees for services rendered have been recorded at the fair value of the share-based payment, which is the more readily determinable value. The grants are amortized on a straight-line basis over the requisite service periods, which is generally the vesting period. If an award is granted, but vesting does not occur, any previously recognized compensation cost is reversed in the period related to the termination of service. Stock-based compensation expenses are included in cost of goods sold or selling, general and administrative expenses, depending on the nature of the services provided, in the consolidated statements of operations. Share-based payments issued to placement agents are classified as a direct cost of a stock offering and are recorded as a reduction in additional paid in capital. The Company recognizes all forms of share-based payments, including stock option grants, warrants and restricted stock grants, at their fair value on the grant date, which are based on the estimated number of awards that are ultimately
expected to vest. Business Combinations We account for business combinations under the acquisition method of accounting. The acquisition method requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined on the acquisition date and that changes thereafter be reflected in income (loss). The estimation of fair values of the assets and liabilities assumed involves several estimates and assumptions that could differ materially from the actual amounts recorded. The results of the acquired businesses are included in our results from operations beginning from the day of acquisition. Capital Resources
We had no material commitments for capital expenditures as of
18
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of
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