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 three months endedOctober 31, 2021 and 2020. 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 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.
Financial and Operating Results
Highlights for the three months ended
? On
the
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.
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? On August 13, 2021 , we issued 1,250,000 shares of our common stock
pursuant to a Securities Purchase Agreement ("SPA") dated April 30, 2021 .Under the original terms of the SPA, the investor agreed to purchase
2,000,000 shares of our common stock for
share through a series of payments. After receipt of
investor, both the Company and 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
maturity date of our
November 11, 2021 . We incurred no costs related to the extension. ? OnSeptember 14, 2021 , we entered into a Settlement and Amendment Agreement (the "Agreement") withAJB Capital for a potential event of
default under the Promissory Note dated
and Securities Purchase Agreement (the "SPA") relating to subsequent
equity transactions. As part of the settlement under the Agreement, we
agreed to issue AJB Capital an additional 666,666 shares of our common
stock for payment of its
the original Note and SPA.
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 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 three months ended
For the Three Months Ended
October 31,
2021 2020 $ Variance %Variance
Officers' salaries$ 131,756 $ 121,608 $ 10,148 8 % Share-based compensation 148,735 150,779 (2,044 ) (1 )% Professional fees 43,504 40,505 2,999 7 % Advertising and marketing 10,704 1,975 8,729 442 % Depreciation and amortization 2,713 1,739
974 56 %
Other 3,685 1,740 1,945 112 %
Total $ 341,097 $ 318,346 $ 22,751 7 %
Officers' Salaries - Officers' salaries, net of capitalized amounts, increased
$10,148 over 2020, or 8%. The increase is attributable to a bonus paid in 2021
and only two months of salary paid to our CMO in 2020.
Share-Based Compensation - Share-based compensation expense decreased $2,044 , or
1%, over the same period in the prior year. The decrease results from a 2021
reduction in the expense related to a restricted stock grant to our CFO, which
was partially offset by an increase in the amortization of the grant date fair
value of employee stock options granted to our CMO.
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Professional Fees - Professional fees increased $2,999 , or 7%, over the 2020
amount. Fees to outside consultants increased $7,620 in 2021. The increase in
consulting fees was partially offset by a decrease in legal fees of $5,120 as
compared to the prior period.
Advertising and Marketing - Advertising and marketing expense increased $8,729
over 2020, primarily due to the addition of a new contract sales and marketing
representative in 2021.
Depreciation and Amortization - Depreciation and amortization expense increased
$974 over the same period in the prior year. The increase results from
amortization expense related to new intangible assets placed in service in 2021
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
October 31,
2021 2020 $ Variance %Variance
Interest expense $ (106,253 ) $ (8,497 ) $ (97,756 ) 1,150 %
Change in fair value of
derivative liability 32,297 - 32,297 -
Total $ (73,956 ) $ (8,497 ) $ (65,459 ) 770 %
Interest Expense - Interest expense increased$97,756 over the same period in the prior year. The increase is primarily due to the$90,000 amortization of debt discount and related interest payments of$10,800 on the AJB Note. The increase was partially offset by a reduction in interest expense related to our outstanding 5% convertible notes for 2021 due to note conversions. 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$32,297 for the period. We incurred no change in derivative liabilities in
the same period last year.
Liquidity and Capital Resources
Working Capital
The following table summarizes our working capital for the interim period ended
October 31, 2021 July 31, 2021
Current assets $ 39,426 $ 49,018
Current liabilities (2,574,484 ) (2,259,432 )
Working capital deficiency
Current assets for the interim period ended
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Current liabilities for the interim period endedOctober 31, 2021 increased$315,052 as compared to the fiscal year endedJuly 31, 2021 . The increase is primarily due to amortization of debt discounts related to notes payable, short-term loans from related parties, and the continuing accrual of officer's compensation. The increase was partially offset by reductions in accounts payable and a decrease in the fair value of derivative liabilities.
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$83,914 for the three months endedOctober 31, 2021 as compared to$95,065 for the three months endedOctober 31, 2020 . The$11,151 decrease in cash used during 2021 is primarily attributable to increases in accrued officer's compensation.
Net cash used by investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$95,400 for the three months endedOctober 31, 2021 , which represents a$60,429 increase over the same period of 2020. The increase over 2020 is due to a$69,529 decline in cash paid for amounts owed to related parties, which was partially offset by a$9,100 decrease in proceeds from common stock sales and short-term loans from related parties. 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
ofOctober 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 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 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. 8
Our significant accounting policies are summarized in Note 1 of our interim consolidated financial statements.
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 our
July 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. 9 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. 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 unchanged as a result of the
adoption of ASC 606, and there were no significant changes in business processes
or systems.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with ASC Topic
718, "Compensation - Stock Compensation" ("ASC 718") which establishes financial
accounting and reporting standards for share-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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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. Share-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 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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