Results of Operations
On November 16, 2020 Healthtech Solutions acquired all of the capital stock of
Medi-Scan, Inc. in exchange for Series A Preferred Stock representing, at that
time, 97% of the equity in Healthtech Solutions. Because the transaction is
classified as a reverse merger under GAAP, the financial results presented in
this Report for the nine months ended September 30, 2020 are the financial
results of Medi-Scan for that period.
On May 7, 2021 Healthtech Solutions acquired all of the capital stock of
Healthtech Oncology, which owned 99% of the capital stock of Varian
Biopharmaceuticals, Inc. In exchange for ownership of Varian, Healthtech
Solutions issued Series C Preferred Stock representing a 4.9% equity position in
Healthtech Solutions and a contingent right to exchange the Series C shares for
control of Healthtech Oncology. Because the transaction is classified as an
acquisition under GAAP, the financial results presented in this Report for the
three and nine months ended September 30, 2021 include the results of Varian's
operations for the period from May 7, 2021 through September 30, 2021.
The aforesaid two acquisitions, joined by a third, ground-up subsidiary
named RevHeart, form the platform on which we intend to pursue an incubator
model of operations, focused on medical technology, both therapeutic and
device-oriented. Our business model begins with the identification of target
subsidiary companies through our broad network of relationships in academia and
industry. Upon bringing a company and/or its technology into a Healthtech
subsidiary, we will provide funding and operational support to achieve value
enhancing milestones and accelerate the organization's mission. We will roll up
our sleeves and provide operational and leadership support to our portfolio
companies, increasing their chances of success and decreasing their capital
requirements. Upon achieving the targeted value inflection, we will work closely
with our subsidiaries to prepare for their independent launch and spin-out.
Through this approach, Healthtech shareholders may gain exposure to early-stage
life science technologies that are approaching the steepest portion of their
value creation curve through an investment structure that is devoid of the
"carry" typically imposed by a traditional private equity/venture capital fund.
Our cash resources at this time are early stage, as we have relied to date on
contributions by management and modest private offerings to their friends and
family. The $6,269,511 net loss that we incurred in the first nine months of
2021, therefore, entailed a use for operating activities of only $1,570,582 in
cash.
Since our only business activities during the nine months ended September 30,
2021 and 2020 were research and development activities, our expenses during
those periods were primarily salaries and consulting and service fees, including
fees relating to our development of potential acquisition targets and our
efforts at securing the financial resources necessary to fund those
acquisitions. During the three and nine months ended September 30, 2021, we
incurred $1,205,164 and $2,973,242, respectively, in operating expenses,
including, during the three month period, $523,870 in operating expenses of
Varian for the period after its acquisition by Healthtech Solutions. The greater
portion of our operating expenses were related to the market value of common
stock that we granted to attract management, research and development expertise,
and other individuals qualified to aid our projects. Of the $2,973,242 in
operating expenses incurred during the nine months ended September 30, 2021,
stock compensation represented $1,029,028 of the expense.
1
During the three and nine months ended September 30, 2020, our operating
expenses of $155,452 and $340,162, respectively, primarily reflected payments by
Medi-Scan for management services along with payments for the research and
development activities related to Medi-Scan's scanning technology.
The cash portion of our operating expenses during the three and nine months
ended September 30, 2021 was primarily attributable to administrative costs:
office expenses plus legal and accounting fees, and fees for public relations
services. Legal fees, in particular, were high during the first nine months of
2021, as we initiated negotiations of a number of prospective acquisitions,
changed the corporate name, and entered into negotiations with a number of
potential sources of finance. As we continue to implement our incubator model,
the administrative costs of our operations should continue to grow; if we plot
carefully, however, the ratio of cash used for administration to cash used in
research and development activities will reduce.
As a result of the aforesaid expenses, in the three and nine month periods
ended September 30, 2021 and 2020, we recorded losses from operations identical
to our total operating expenses. During 2021, however, the greater portion of
our net loss reflected "other expenses" related to the convertible debentures
that we sold during 2020 and the first two months of 2021. During the three
months ended September 30, 2021, we did not incur any other expense items.
During the nine months ended September 30, 2021, however, we recorded "other
expenses" consisting of
? $367,144 in interest expense, which included $351,202 in interest
expense due to accretion of the discount on the 7% Convertible Debentures; and.
? $2,933,735 attributable to the increase in the fair value of the derivative
liabilities embedded in the 7% Convertible Debentures.
We accounted for our convertible debt in accordance with ASC 815,
Derivatives and Hedging as the conversion feature embedded in the convertible
debentures could have resulted in the debenture principal and related accrued
interest being converted to a variable number of our common shares. The
conversion feature on these debentures was variable and based on trailing market
prices. It therefore contains an embedded derivative. The fair value of the
conversion feature was calculated when the debentures were issued, and we
recorded a debenture discount and derivative liability for the calculated value.
We recognized interest expense for accretion of the debenture discount over the
term of the note. The conversion liability was valued at the end of each
reporting period and would result in a gain or loss for the change in fair
value. Due to the volatile nature of our stock, the change in the derivative
liability and the resulting gain or loss could often be material to our results.
This was among the reasons why, in May 2021, we negotiated a cancellation of the
7% Convertible Debentures in exchange for common stock.
After taking into account our Other Expenses, our net loss was $1,205,164 and
$6,274,121 during the three and nine months ended September 30, 2021
respectively. During the three and nine months ended September 30, 2020, our net
loss was $158,564 and $343,274, respectively.
2
We will continue to incur losses for the immediate future. The process of making
valuable acquisitions is expensive, and our acquisitions will generally not
result in revenue until after a period of incubation, which may be lengthy.
Success in implementing our business plan, therefore, will require infusions of
capital. We are in ongoing discussions with investors, but have received no
commitments at this time.
Liquidity and Capital Resources
At December 31, 2020 Healthtech Solutions had working capital totaling $55,035,
primarily consisting of cash. At the end of September 2021, despite incurring a
$6 million net loss in the intervening nine months, we had a working capital
deficit of $1,116,852, as capital contributed by friends and family offset much
of our net loss. As noted above, however, the cash requirements of our business
plan are intense. To attract exciting additions to our portfolio, we must be
able to offer each the several million dollars of financing that is necessary to
bring a medical technology to a stage where its sponsor can function
independently. Since our ambition is to sustain a portfolio of such enterprises,
our near term capital requirements (near term being the two to three years
before we can anticipate initial returns on our investments) will be tens of
millions of dollars.
Note 3 to our consolidated financial statements discloses that the financial
condition of Healthtech Solutions - i.e. our modest cash resources and the
absence of revenue - raises substantial doubt as to the Company's ability to
continue as a going concern. Management intends to pursue one or more offerings
of securities in order to obtain the funds that will be necessary for successful
implementation of our business plan. At present, however, no commitments for
future funding have been received.
Application of Critical Accounting Policies
In preparing our financial statements we are required to formulate working
policies regarding valuation of our assets and liabilities and to develop
estimates of those values. In our preparation of the financial statements for
the three and nine months ended September 30, 2021, there was one estimates made
which was (a) subject to a high degree of uncertainty and (b) material to our
results. This was:
? Our determination of the fair value of the Class C Preferred Stock that we
issued in order to acquire ownership of Varian. Based upon the speculative
nature of the assets acquired, we determined that the fair value of the Series C
Preferred Stock was equal to the amount of cash acquired in the transaction
($1,658) plus the amount of debt in excess of that cash that was
assumed ($1,106,046).
3
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition or results
of operations.
Impact of Accounting Pronouncements
There were no recent accounting pronouncements that have or will have a
material effect on the Corporation's financial position or results of
operations.
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