HEALTHCARE INTEGRATED TECHNOLOGIES, INC. THE FOLLOWING DISCUSSION OF OUR PLAN OF OPERATION 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 following discussion summarizes the significant factors affecting the interim consolidated financial statements, financial condition, liquidity, and cash flows ofHealthcare Integrated Technologies, Inc , for the nine months endedApril 30, 2022 and 2021. The discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included in our most recent Annual Report on Form 10-K for the year endedJuly 31, 2021 as filed with theSEC onOctober 28, 2021 .
Executive Overview
Healthcare 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.
Financial and Operating Results
Highlights for the nine months ended
? On
2021 (AJB Note 1) until
maturity date, the interest rate of the note increased from ten percent (10%)
per annum to twelve percent (12%) per annum during the extension period. We
incurred no costs related to the extension. On
AJB Note 1 with the proceeds from the issuance of a new promissory note to AJB
Capital.
5
? On
a Securities Purchase Agreement ("SPA") dated
original terms of the SPA, the investor agreed to purchase 2,000,000 shares of
our common stock for
of payments. After receipt of
the investor mutually agreed to settlement of the SPA for the amounts received
and the issuance of the shares at the agreed upon price per share. We incurred
no cost related to the private placement.
? On August 27, 2021 , Acorn Management Partners, LLC agreed to extend the
maturity date of our $50,000 Promissory Note from August 11, 2021 until
November 11, 2021 . We incurred no costs related to the extension.
? On
(the "Agreement") with
Promissory Note dated
Purchase Agreement (the "SPA") relating to subsequent equity transactions. As
part of the settlement under the Agreement, we agreed to issue
additional 666,666 shares of our common stock for payment of its
origination fee owed under the terms of the original Note and SPA.
? On
Capital, pursuant to which
Note 2") in the principal amount of
of
per annum and matures on
Results of Operations
Three Months Ended
Revenues
Our healthcare technology business is not currently producing revenue as we continue to develop, refine and evaluate our products.
Selling, General and Administrative Expenses
The table below presents a comparison of our selling, general and administrative
expenses for the three months ended
For the Three Months Ended
April 30,
2022 2021 $ Variance %Variance
Officers' salaries $ 126,311 $ 157,512 $ (31,201 ) (20 )%
Stock-based compensation 101,662 157,485 (55,823 ) (35 )%
Professional fees 4,618 36,817 (32,199 ) (87 )%
Advertising and marketing 9,554 3,322 6,232 188 %
Depreciation and amortization 2,821 2,277 544 24 % Other 10,346 5,477 4,869 89 % Total$ 255,312 $ 362,890 $ (107,578 ) (30 )% 6 Officers' Salaries - Officers' salaries, net of capitalized amounts, decreased$31,201 from 2021, or 20%. The decrease resulted from a bonus being paid to our CEO in 2021 and a decrease in payroll tax expense in the current period due to our CEO compensation changing from employee to contract status. Stock-based Compensation - Stock-based compensation expense decreased$55,823 , or 35%, from the same period in the prior year. The decrease results from a 2022 reduction in the amortization of the grant date fair value of employee stock options granted to our CEO and a reduction in the expense related to a restricted stock grant to our CFO. Professional Fees - Professional fees decreased$32,199 , or 87%, over the 2021 amount. In 2022, fees paid to outside consultants decreased$24,066 , which was primarily related to fees paid on financing matters. In addition, accounting fees decreased$5,300 and legal fees decreased$3,430 over the same period in the prior year. The decrease in consulting, accounting and legal fees was partially offset by a small increase in transfer agent fees.
Advertising and Marketing - Advertising and marketing expense increased
Depreciation and Amortization - Depreciation and amortization expense increased$544 over the same period in the prior year. The increase results from amortization expense related to new intangible assets placed in service in 2022 which was partially offset by declining depreciation expense as older assets become fully depreciated and/or disposed of.
Other - Other expense increased
Other Income (Expense)
The table below presents a comparison of our other income (expense) for the
three months ended
For the Three Months Ended
April 30,
2022 2021 $ Variance %Variance
Interest expense $ (117,230 ) $ (196,191 ) $ 78,961 (40 )%
Derivative expense - (97,201 ) 97,201 -
Change in fair value of
derivative liability (43,347 ) 44,710 (88,057 ) (197 )%
Total $ (160,577 ) $ (248,682 ) $ (88,105 ) (35 )%
Interest Expense - Interest expense decreased$78,961 over the same period in the prior year. The decrease is primarily due to the shorter maturity of the old AJB Note 1, which required a faster amortization of the debt discount, as compared to the longer maturity and amortization period of the debt discount on the new AJB Note 2. The decrease was partially offset by an increase in the monthly coupon interest on the larger principal balance of the AJB Note 2. Derivative Expense - Derivative expense decreased$97,201 from the same period in the prior year. 2021 derivative expense was associated with the issuance of the old AJB Note 1. The new AJB Note 2, issued in 2022, had no associated derivative expense. Change in Fair Value of Derivative Liability - The change in the fair value of the derivative liabilities associated with ourAJB Capital notes reflects a current period loss of$43,347 as compared to a gain of$44,710 in the prior period. The current period loss resulted from a$92,488 increase in the fair value of the derivative liability on the newAJB Capital note that was partially offset by a$49,141 decrease in the far value of the derivative liability from the retirement of the old AJB capital note. 7
Nine months Ended
2021
Revenues
Our healthcare technology business is not currently producing revenue as we continue to develop, refine and evaluate our products.
Selling, General and Administrative Expenses
The table below presents a comparison of our selling, general and administrative
expenses for the nine months ended
For the Nine Months Ended
April 30,
2022 2021 $ Variance %Variance
Officers' salaries $ 382,319 $ 404,418 $ (22,099 ) (5 )%
Stock-based compensation 399,132 465,749 (66,617 ) (14 )%
Professional fees 81,460 85,903 (4,443 ) (5 )%
Advertising and marketing 24,380 5,297 19,083 360 %
Depreciation and amortization 8,394 6,293 2,101 33 % Other 14,988 8,119 6,869 85 % Total$ 910,673 $ 975,779 $ (65,106 ) (7 )% Officers' Salaries - Officers' salaries, net of capitalized amounts, decreased$22,099 , or 5%, over the 2021 amount. The decrease is attributable to a bonus paid to our CEO in 2021 that was partially offset by a bonus paid to our CFO in 2022, and a decrease in payroll tax expense in the current period due to our CEO compensation changing from employee to contract status. Stock-based Compensation - Stock-based compensation expense decreased$66,617 , or 14%, over the same period in the prior year. The decrease results from a 2022 reduction in the amortization of the grant date fair value of employee stock options granted to our CEO and a reduction in the expense related to a restricted stock grant to our CFO.
Professional Fees - Professional fees decreased
Advertising and Marketing - Advertising and marketing expense increased$19,083 over 2021, primarily due to the addition of a new contract sales and marketing representative in 2022. Depreciation and Amortization - Depreciation and amortization expense increased$2,101 , or 33%, over the same period in the prior year. The increase results from amortization expense related to new intangible assets placed in service in 2022 which was partially offset by declining depreciation expense as older assets become fully depreciated and/or disposed of.
Other - Other expense increased
8 Other Income (Expense)
The table below presents a comparison of our other income (expense) for the nine
months ended
For the Nine Months Ended
April 30,
2022 2021 $ Variance %Variance
Interest expense $ (329,736 ) $ (213,187 ) $ (116,549 ) 55 %
Derivative expense - (97,201 ) 97,201 -
Change in fair value of
derivative liability 15,744 44,710 (28,966 ) (65 )%
Debt forgiveness - 41,931 (41,931 ) -
Total $ (313,992 ) $ (223,747 ) $ (90,245 ) 40 %
Interest Expense - Interest expense increased $116,549 , or 55%, over the same
period in the prior year. The increase is primarily due to the amortization of
debt discount and related interest payments on the old AJB Note 1 for six months
of 2022 as compared to only three months of 2021. The increase was partially
offset by a reduction in interest expense during the current three month period
due to the shorter maturity of the old AJB Note 1, which required a faster
amortization of the debt discount, as compared to the longer maturity and
amortization period of the debt discount on the new AJB Note 2.
Derivative Expense - Derivative expense decreased $97,201 from the same period
in the prior year. 2021 derivative expense was associated with the issuance of
the old AJB Capital note. The new AJB Capital note, issued in 2022, had no
associated derivative expense.
Change in Fair Value of Derivative Liability - The change in the fair value of
the derivative liabilities associated with our AJB Capital notes reflects a
current period gain of $15,744 as compared to a gain of $44,710 in the prior
period. The current period gain resulted from a $92,488 increase in the fair
value of the derivative liability on the new AJB Note 2 that was partially
offset by a $108,232 decrease in the far value of the derivative liability of
the old AJB note 1 that was retired during the period.
Loan Forgiveness - Income from loan forgiveness decreased $41,931 over the same
period in the prior year. In 2021, the U.S. Small Business Administration
forgave the entire principal balance of $41,667 and related accrued interest
charges of $264 then due under our Paycheck Protection Program loan.
Liquidity and Capital Resources
Working Capital
The following table summarizes our working capital for the interim period ended
April 30, 2022 July 31, 2021
Current assets $ 47,206 $ 49,018
Current liabilities (3,072,660 ) (2,259,432 )
Working capital deficiency $ (3,025,454 ) $ (2,210,414 ) Current assets for the interim period ended
Current liabilities for the interim period endedApril 30, 2022 increased$813,228 as compared to the fiscal year endedJuly 31, 2021 . The increase is primarily due to short-term loans from related parties, the continuing accrual of officer's compensation, new proceeds from the AJB Note 2 and an increase in the fair value of derivative liabilities. 9
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 and changes in fair value of assets and liabilities, which affect earnings but do not affect operating cash flow. Net cash used by operating activities was$171,472 for the nine months endedApril 30, 2022 as compared to$525,736 for the nine months endedApril 30, 2021 . The$354,264 decrease in cash used during 2022 is primarily attributable to a decrease in cash payments for officer's compensation.
Net cash used by investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$199,475 for the nine months endedApril 30, 2022 , which represents a$339,196 decrease over the same period of 2021. The decrease from 2021 is primarily due to a$280,000 decline in proceeds from the sale of common stock and stock subscriptions and a$156,700 decrease in net proceeds from the issuance of debt, which were offset by a net cash increase of$97,504 from related party loan and repayment transactions. 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
ofApril 30, 2022 . 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 and 2020. 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 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 more difficult to raise capital.
Critical Accounting Policies and Estimates
Our interim 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 interim consolidated financial statements.
10
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in ourJuly 31, 2021 Annual Report.
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.
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. 11 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 withFinancial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 815, "Derivatives and Hedging," (paragraph 815-10-05-4 and Section 815-40-25). 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 statements 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. 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
The Company's revenue recognition policy is to recognize revenue in accordance
with ASC 606, "Revenue from Contracts with Customers." 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 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.
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Stock-based payments, excluding restricted stock, are valued using a
Black-Scholes option pricing model. Grants of stock-based payment awards issued
to non-employees for services rendered have been recorded at the fair value of
the stock-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. Stock-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 stock-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 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 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
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements as of
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