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 six months endedJanuary 31, 2023 and 2022. 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, 2022 as filed with theSEC onSeptember 23, 2022 .
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. 4
Financial and Operating Results
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
January 31,
2023 2022 $ Variance %Variance
Officers' salaries $ 124,169 $ 124,252 $ (83 ) -
Stock-based compensation 92,843 148,735 (55,892 ) (38 )%
Professional fees 27,411 33,338 (5,927 ) (18 )%
Advertising and marketing - 4,122 (4,122 ) -
Depreciation and amortization 9,776 2,860
6,916 242 %
Other 962 957 5 1 %
Total $ 255,161 $ 314,264 $ (59,103 ) (19 )%
Stock-based Compensation-- Stock-based compensation expense decreased $55,892 ,
or 38%, from the same period in the prior year. The decrease results from a 2023
reduction in the amortization of the grant date fair value of employee stock
options granted to our CEO and a restricted stock grant to our CFO, which was
partially offset by the expense related to the issuance of new shares and
restricted stock grants to outside consultants.
Professional Fees - Professional fees decreased $5,927 , or 18%, over the 2022
amount. In 2023, fees paid to outside consultants decreased by $6,870 , which was
partially offset by a small net increase in other professional fees such as
accounting, legal, transfer agent and Edgar processing fees.
Advertising and Marketing - Advertising and marketing expense decreased $4,122
over 2022. The decrease is primarily due to the elimination of a contract sales
and marketing representative in 2023.
Depreciation and Amortization - Depreciation and amortization expense increased
$6,916 over the same period in the prior year. The increase primarily results
from the abandonment of a patent in 2023 which was partially offset by declining
depreciation and amortization expense as older assets become fully expensedand/or disposed of. 5 Other Income (Expense)
The table below presents a comparison of our other income (expense) for the
three months ended
For the Three Months Ended
January 31,
2023 2022 $ Variance %Variance
Interest expense $ (119,832 ) $ (106,253 ) $ (13,579 ) 13 %
Change in fair value of derivative
liability 156,894 26,794 130,100 486 %
Total $ 37,062 $ (79,459 ) $ 116,521 (147 )%
Interest Expense - Interest expense increased $13,579 , or 13%, over the same
period in the prior year. The increase is primarily due to increased
amortization of the debt discount associated with the new AJB Note 2 and an
increase in the monthly coupon interest on the larger principal balance of the
AJB Note 2.
Change in Fair Value of Derivative Liability - The change in the fair value of
the derivative liabilities associated with our AJB Capital notes reflect a
current period gain of $156,894 as compared to a gain of $26,794 in the prior
period. The current period gain resulted from a decrease in the fair value of
the derivative liability on the new AJB Capital note during the current three
month period.
Six 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 six months ended
For the Six Months Ended
January 31,
2023 2022 $ Variance %Variance
Officers' salaries$ 248,293 $ 256,008 $ (7,715 ) (3 )% Stock-based compensation 163,912 297,470 (133,558 ) (45 )% Professional fees 58,939 76,842 (17,903 ) (23 )% Advertising and marketing 3,793 14,826 (11,033 ) (74 )% Depreciation and amortization 11,865 5,573
6,292 113 % Other 1,840 4,642 (2,802 ) (60 )% Total$ 488,642 $ 655,361 $ (166,719 ) (25 )% Officers' Salaries - Officers' salaries, net of capitalized amounts, decreased$7,715 from 2022, or 3%. The decrease resulted from a bonus being paid to our CFO in 2022. Stock-based Compensation - Stock-based compensation expense decreased$133,558 , or 45%, from the same period in the prior year. The decrease results from a 2023 reduction in the amortization of the grant date fair value of employee stock options granted to our CEO and a restricted stock grant to our CFO, which was partially offset by the expense related to the issuance of new shares and restricted stock grants to outside consultants. 6 Professional Fees - Professional fees decreased$17,903 , or 23%, over the 2022 amount. In 2023, fees paid to outside consultants decreased$16,990 and accounting fees decreased$2,305 over the same period in the prior year. The decreases in consulting and accounting fees were partially offset by small increases in legal, transfer agent and Edgar processing fees.
Advertising and Marketing - Advertising and marketing expense decreased
Depreciation and Amortization - Depreciation and amortization expense increased$6,292 over the same period in the prior year. The increase primarily results from the abandonment of a patent which was partially offset by declining depreciation expense as older assets become fully depreciated and/or disposed of.
Other - Other expense decreased
Other Income (Expense)
The table below presents a comparison of our other income (expense) for the six
months ended
For the Six Months Ended
January 31,
2023 2022 $ Variance %Variance
Interest expense $ (232,718 ) $ (212,506 ) $ (20,212 ) (10 )%
Change in fair value of derivative
liability (139,631 ) 59,091 (198,722 ) (336 )%
Total $ (372,349 ) $ (153,415 ) $ (218,934 ) 143 %
Interest Expense - Interest expense increased $20,212 , or 10%, over the same
period in the prior year. The increase is primarily due to increased
amortization of the debt discount associated with the new AJB Note 2 and an
increase in the monthly coupon interest on the larger principal balance of the
AJB Note 2.
Change in Fair Value of Derivative Liability - The change in the fair value of
the derivative liabilities associated with our AJB Capital notes reflect a
current period loss of $139,631 as compared to a gain of $59,091 in the prior
period. The current period loss resulted from an increase in the fair value of
the derivative liability on the new AJB Capital note during the six month
period.
Liquidity and Capital Resources
Working Capital
The following table summarizes our working capital for the interim period ended
January 31, 2023 July 31, 2022
Current assets $ 35,355 $ 37,667
Current liabilities (3,841,554 ) (3,153,778 )
Working capital deficiency
Current assets for the interim period ended
Current liabilities for the interim period endedJanuary 31, 2023 increased$687,776 as compared to the fiscal year endedJuly 31, 2022 . The increase is due to increases in accounts payable and accrued expenses, short-term loans from related parties to meet cash flow needs, the continuing accrual of officer's compensation, new proceeds from the AJB Note 2 and an increase in the fair value of derivative liabilities. The increases were partially offset by a decrease in convertible notes due to note conversions to common stock during the period. 7
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$60,891 for the six months endedJanuary 31, 2023 as compared to$103,868 for the six months endedJanuary 31, 2022 . The$42,977 decrease in cash used by operating activities during 2023 is primarily attributable to accrued interest expense and an overall effort by management to reduce operating costs.
Net cash used by investing activities was$5,610 and$25,022 for the six months endedJanuary 31, 2023 and 2022, respectively. The amount is comprised of cash paid for the filing of patent applications and for the development of software for our internal use.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$65,466 for the six months endedJanuary 31, 2023 , which represents a$52,109 decrease over the same period of 2022. The decrease from 2022 is primarily due to a$25,000 decline in proceeds from stock subscriptions and a net cash decrease of$27,109 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
ofJanuary 31, 2023 . 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, 2022 and 2021. 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. 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 ourJuly 31, 2022 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 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.
10
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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