Cautionary Note Regarding Forward-Looking Statements
Except for historical information contained herein, this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements. These statements involve known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements. These forward-looking statements are based on
various factors and were derived utilizing numerous important assumptions and
other important factors that could cause actual results to differ materially
from those in the forward-looking statements. Important assumptions and other
factors that could cause actual results to differ materially from those in the
forward-looking statements, include but are not limited to: (a) any fluctuations
in sales and operating results; (b) risks associated with international
operations; (c) regulatory, competitive and contractual risks; (d) development
risks; (e) the ability to achieve strategic initiatives, including but not
limited to the ability to achieve sales growth across the business segments
through a combination of enhanced sales force, new products, and customer
service; (f) competition in the Company's existing and potential future product
lines of business; (g) the Company's ability to obtain financing on acceptable
terms if and when needed; (h) uncertainty as to the Company's future
profitability; (i) uncertainty as to the future profitability of acquired
businesses or product lines; and (j) uncertainty as to any future expansion of
the Company. Other factors and assumptions not identified above were also
involved in the derivation of these forward-looking statements and the failure
of such assumptions to be realized as well as other factors may also cause
actual results to differ materially from those projected. The Company assumes no
obligation to update these forward-looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such
forward-looking statements, except as may be required under applicable law. Past
results are no guaranty of future performance. Any such forward-looking
statements speak only as of the dates they are made. When used in this Report,
the words "believes," "anticipates," "expects," "estimates," "plans," "intends,"
"will" and similar expressions are intended to identify forward-looking
statements.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the financial statements and
footnotes thereto included in this Quarterly Report on Form 10-Q (the "Financial
Statements").
Company Overview
Biotricity Inc. ("Company", "Biotricity", "we", "us" or "our")
Biotricity Inc. (the "Company", "Biotricity", "we", "us", "our") is a medical
technology company focused on biometric data monitoring solutions. Our aim is to
deliver innovative, remote monitoring solutions to the medical, healthcare, and
consumer markets, with a focus on diagnostic and post-diagnostic solutions for
lifestyle and chronic illnesses. We approach the diagnostic side of remote
patient monitoring by applying innovation within existing business models where
reimbursement is established. We believe this approach reduces the risk
associated with traditional medical device development and accelerates the path
to revenue. In post-diagnostic markets, we intend to apply medical grade
biometrics to enable consumers to self-manage, thereby driving patient
compliance and reducing healthcare costs. We intend to first focus on a segment
of the diagnostic mobile cardiac telemetry market, otherwise known as MCT, while
providing our chosen markets with the capability to also perform other cardiac
studies.
25
We developed our FDA-approved Bioflux® MCT technology, comprised of a monitoring
device and software components, which we made available to the market under
limited release on April 6, 2018, in order to assess, establish and develop
sales processes and market dynamics. The fiscal year ended March 31, 2021 marked
the Company's first year of expanded commercialization efforts, focused on sales
growth and expansion. We have expanded our sales efforts to 20 states, with
intention to expand further and compete in the broader US market using an
insourcing business model. Our technology has a large potential total
addressable market, which can include hospitals, clinics and physicians'
offices, as well as other Independent Diagnostic Testing Facilities ("IDTFs)".
We believe our solution's insourcing model, which empowers physicians with
state-of-the-art technology and charges technology service fees for its use, has
the benefit of a reduced operating overhead for the Company, and enables a more
efficient market penetration and distribution strategy. This, when combined with
the value the Company's solution in the diagnosis of cardiac arrhythmias,
enhancement of patient outcomes, improved patient compliance, and the
corresponding reduction of healthcare costs, is driving growth and increasing
revenues.
We are a technology company focused on earning utilization-based recurring
technology fee revenue. The Company's ability to grow this type of revenue is
predicated on the size and quality of its sales force and their ability to
penetrate the market and place devices with clinically focused, repeat users of
its cardiac study technology. The Company plans to grow its sales force in order
to address new markets and achieve sales penetration in the markets currently
served. The Company has also developed or is developing several other ancillary
technologies, which will require application for further FDA clearances, which
the Company anticipates applying for within the next to twelve months. Among
these are:
? advanced ECG analysis software that can analyze and synthesize patient ECG
monitoring data with the purpose of distilling it down to the important
information that requires clinical intervention, while reducing the amount of
human intervention necessary in the process;
? the Bioflux® 2.0, which is the next generation of our award winning Bioflux®
During the three months ended June 30, 2021, the Company announced that it
received a 510(k) clearance from the FDA for its Bioflux Software II System,
engineered to improve workflows and reduce estimated analysis time from 5
minutes to 30 seconds. ECG monitoring requires significant human oversight to
review and interpret incoming patient data to discern actionable events for
clinical intervention, highlighting the necessity of driving operational
efficiency. This improvement in analysis time reduces operational costs and
allows the company to continue to focus on excellent customer service and
industry-leading response times to physicians and their at-risk patients.
Additionally, these advances mean we can focus our resources on high-level
operations and sales to help drive greater revenue.
During this same period, the Company applied for FDA clearance of its Biotres
patch solution, which will be a novel product in the field of Holter monitoring.
The COVID-19 pandemic has highlighted the importance of telemedicine and remote
patient monitoring technologies. During the six months ended September 30, 2021,
the Company has continued to develop a telemedicine platform, with capabilities
of real-time streaming of medical devices. Telemedicine offers patients the
ability to communicate directly with their health care providers without the
need of leaving their home. The introduction of a telemedicine solution is
intended to align with the Company's Bioflux product and facilitate remote
visits and remote prescriptions for cardiac diagnostics, but it will also serve
as a means of establishing referral and other synergies across the network of
doctors and patients that use the technologies we are building within the
Biotricity ecosystem. The intention is to continue to provide improved care to
patients that may otherwise elect not to go to medical facilities and continue
to provide economic benefits and costs savings to healthcare service providers
and payers that reimburse.
26
Critical Accounting Policies
The unaudited condensed consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("US GAAP") and are expressed in United States Dollars. Significant
accounting policies are summarized below:
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Areas
involving significant estimates and assumptions include: deferred income tax
assets and related valuation allowance, accruals and valuation of derivatives,
convertible promissory notes, stock options and warrants, as well as assumptions
used by management in its assessment of liquidity. Actual results could differ
from those estimates. These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the period in
which they become known.
Earnings (Loss) Per Share
We have adopted the Financial Accounting Standards Board's ("FASB") Accounting
Standards Codification ("ASC") Topic 260-10 which provides for calculation of
"basic" and "diluted" earnings per share. Basic earnings per share includes no
dilution and is computed by dividing net income or loss available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflect the potential dilution of securities
that could share in the earnings of an entity. Diluted earnings per share
exclude all potentially dilutive shares if their effect is anti-dilutive. There
were no potentially dilutive shares outstanding as at September 30, 2021.
Fair Value of Financial Instruments
ASC 820 defines fair value, establishes a framework for measuring fair value and
expands required disclosure about fair value measurements of assets and
liabilities. ASC 820-10 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820-10 also
establishes a fair value hierarchy, which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:
? Level 1 - Valuation based on quoted market prices in active markets for
identical assets or liabilities.
? Level 2 - Valuation based on quoted market prices for similar assets and
liabilities in active markets.
? Level 3 - Valuation based on unobservable inputs that are supported by little
or no market activity, therefore requiring management's best estimate of what
market participants would use as fair value.
In instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety. The Company's assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment and considers
factors specific to the asset or liability.
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management. The respective carrying value
of certain on-balance-sheet financial instruments approximated their fair values
due to the short-term nature of these instruments or interest rates that are
comparable to market rates. These financial instruments include cash, accounts
receivable, deposits and other receivables, convertible promissory notes and
short-term loans, accounts payable and accrued liabilities, and derivative
liabilities. The Company's cash and derivative liabilities, which are carried at
fair values, are classified as a Level 1 and Level 3, respectively. The
Company's bank accounts are maintained with financial institutions of reputable
credit, therefore, bear minimal credit risk.
27
Leases
On April 1, 2019, the Company adopted Accounting Standards Codification Topic
842, "Leases" ("ASC 842") to replace existing lease accounting guidance. This
pronouncement is intended to provide enhanced transparency and comparability by
requiring lessees to record right-of-use assets and corresponding lease
liabilities on the balance sheet for most leases. Expenses associated with
leases will continue to be recognized in a manner similar to previous accounting
guidance. The Company adopted ASC 842 utilizing the transition practical
expedient added by the Financial Accounting Standards Board ("FASB"), which
eliminates the requirement that entities apply the new lease standard to the
comparative periods presented in the year of adoption.
The Company is the lessee in a lease contract when the Company obtains the right
to use the asset. Operating leases are included in the line items right-of-use
asset, lease obligation, current, and lease obligation, long-term in the
consolidated balance sheet. Right-of-use ("ROU") asset represents the Company's
right to use an underlying asset for the lease term and lease obligations
represent the Company's obligations to make lease payments arising from the
lease, both of which are recognized based on the present value of the future
minimum lease payments over the lease term at the commencement date. Leases with
a lease term of 12 months or less at inception are not recorded on the
consolidated balance sheet and are expensed on a straight-line basis over the
lease term in our consolidated statement of income. The Company determines the
lease term by agreement with lessor. As our lease does not provide an implicit
interest rate, the Company uses the Company's incremental borrowing rate based
on the information available at commencement date in determining the present
value of future payments.
Government loan
For loans received from federal government that contains certain operating
conditions and with terms over twelve month time, the Company records those
loans as long term liabilities.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit
Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments."
This pronouncement, along with subsequent ASUs issued to clarify provisions of
ASU 2016-13, changes the impairment model for most financial assets and will
require the use of an "expected loss" model for instruments measured at
amortized cost. Under this model, entities will be required to estimate the
lifetime expected credit loss on such instruments and record an allowance to
offset the amortized cost basis of the financial asset, resulting in a net
presentation of the amount expected to be collected on the financial asset. In
developing the estimate for lifetime expected credit loss, entities must
incorporate historical experience, current conditions, and reasonable and
supportable forecasts. This pronouncement is effective for fiscal years, and for
interim periods within those fiscal years, beginning after December 15, 2019. On
November 19, 2019, the FASB issued ASU No. 2019-10, Financial Instruments-Credit
Losses (Topic 326), finalized various effective date delays for private
companies, not-for-profit organizations, and certain smaller reporting companies
applying the credit losses (CECL), the revised effective date is January 2023.
In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections.
This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final
Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos.
33-10231 and 33-10442, Investment Company Reporting Modernization. One of the
changes in the ASU requires a presentation of changes in stockholders' equity in
the form of a reconciliation, either as a separate financial statement or in the
notes to the financial statements, for the current and comparative year-to-date
interim periods. The Company presented changes in stockholders' equity as
separate financial statements for the current and comparative year-to-date
interim periods beginning on April 1, 2019. The additional elements of the ASU
did not have a material impact on the Company's consolidated financial
statements.
28
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting
for Income Taxes ("ASU 2019-12"), which simplifies the accounting for income
taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies
certain aspects of the current guidance to promote consistency among reporting
entities. ASU 2019-12 is effective for fiscal years beginning after December 15,
2021. Most amendments within the standard are required to be applied on a
prospective basis, while certain amendments must be applied on a retrospective
or modified retrospective basis. The Company is currently evaluating the impacts
of the provisions of ASU 2019-12 on its financial condition, results of
operations, and cash flows.
In March 2020, the FASB issued ASU No. 2030-20 Codification Improvements to
Financial Instruments, An Amendment of the FASB Accounting Standards
Codification: a)in ASU No. 2016-01, b) in Subtopic 820-10, c) for depository and
lending institutions clarification in disclosure requirements, d) in Subtopic
470-50, e) in Subtopic 820-10, f) Interaction of Topic 842 and Topic 326, g)
Interaction of the guidance in Topic 326 and Subtopic 860-20.The amendments in
this Update represent changes to clarify or improve the Codification. The
amendments make the Codification easier to understand and easier to apply by
eliminating inconsistencies and providing clarifications. For public business
entities updates under the following paragraphs: a), b), d) and e) are effective
upon issuance of this final update. The effective date for c) is for fiscal
years beginning after December 15, 2019, including interim periods within those
fiscal years. The Company does not expect that the new guidance will
significantly impact its consolidated financial statements.
Results of Operations
The fiscal year ended March 31, 2021 marked the trailing 24-month period of full
market release of the Bioflux MCT device for commercialization, originally
launched in limited market release in April 2018, after receiving its second and
final required FDA clearance. To commence commercialization, we ordered device
inventory from our FDA-approved manufacturer and hired a small, captive sales
force, with deep experience in cardiac technology sales; we expanded on our
limited market release, which identified potential anchor clients who could be
early adopters of our technology. By increasing our sales force and geographic
footprint, we have launched sales in 23 U.S. states by March 31, 2021.
During the three months ended September 30, 2021, the Company earned combined
device sales and technology fee income totaling $1.81 million. This represents a
143% increase from the corresponding quarter of fiscal 2021, an increase of
approximately $1.1 million over the revenue earned in that quarter. Revenues for
the latest reporting period, which were 2.5% higher than the respective revenues
of the immediately preceding quarter, reflected the impact of COVID on clinic
closures in southern US states during the quarter, as compounded hurricanes that
affected that region, and the seasonally low August vacation period which is
commonly encountered during this financial reporting period. Management
anticipates that the lower than expected growth and the technology services
foregone during the quarter will result in a pent-up demand for services in the
next quarter - a trend experienced during past periods of clinic closures. This
expectation is also supported by management's acquisition of the talent to grow
its sales force by more than 33% during the intervening months. Management
expects continuous improvement in the growth trajectory of the Company's
revenues. The Company earned revenues of $3.6 million for the six months ended
September 30, 2021 compared to $1.2 million in the corresponding prior year
period - a 198% increase.
During the three months ended September 30, 2021, Biotricity incurred a net loss
of $10.8 million and a comprehensive loss of approximately $11.0 million,
compared to $3.0 million and $3.2 million in the comparative periods of fiscal
2021. This resulted in a net loss per common share of $0.256 and $0.412 cents
per share for the three and six months ended September 30, 2021, respectively
(2020: $0.085, $0.177).
For the three and six months ended September 30, 2021, Biotricity's net loss
included one-time expenses related to its pursuit of a listing on a national
exchange, including listing transactional costs of $516,503; the resultant
conversion-related expenses on its convertible notes of $4.6 million and $5.1
million; as well as combined investor relations and legal expenses of $351,370
and $413,870, respectively. Removing the impact of these one-time, non-operating
expenses, would have resulted in a normalized net loss of $5.3 million and a
normalized comprehensive loss of $5.5 million for the three months ended
September 30, 2021 (compared to the $10.3 million net loss and $10.8 million
comprehensive loss for the six months ended September 30, 2021); the normalized
net loss per common share would have been $0.128 and $0.264 cents per share for
the three and six months ended September 30, 2021, respectively. The Company has
devoted, and expects to continue to devote, significant resources in the areas
of sales and marketing and research and development costs. We also expect to
incur additional operating losses, as we build the infrastructure required to
support higher sales volume.
During the three months ended September 30, 2021, the Company experienced a
gross margin of 63%. Management expects that the cost of devices sold, as well
as cellular and other costs associated with technology fees, will become lower
as a percentage of revenues as business sales volumes expand.
29
Three and Six Months Ended September 30, 2021 and 2020
Operating Revenues and Expenses
Operating Expenses
Total operating expenses for the three and six months ended September 30, 2021
were $6.3 million and $10.5 million compared to $3.0 million and $6.8 million,
respectively, for the corresponding periods of the prior year, as further
described below.
General and administrative expenses
Our general and administrative expenses for the three and six months ended
September 30, 2021 was $5.7 million and $9.3 million, compared to $2.6 million
and $6.0 million, respectively, for the corresponding prior year periods. The
increase in general and administrative expenses was a result of investment made
by the Company in building its professional sales force, offset by more
efficient office and administrative spending activities.
Research and development expenses
During the three and six months ended September 30, 2021 we incurred research
and development expenses of $625,638 and $1.2 million, compared to $402,340 and
$826,223 in the prior year. The increase in research and development activity is
directly related the development of new technologies for our ecosystem and our
pursuit of FDA clearance of new products (including the Biotres), as well as the
development of continuous product enhancements to our existing products.
Accretion and amortization expense related to convertible notes
During the three and six months ended September 30, 2021, we incurred accretion
and amortization expense related to debt financing of $5.2 million and $7.5
million, respectively, compared to $342,103 and $342,103 in the prior year. The
increase compared to prior year's comparative periods was mainly comprised of
the conversion-related expenses of $4.6 million and $5.1 million, respectively,
on the Company's convertible notes for the three and six months ended September
31, 2021.
Change in fair value of derivative liabilities
During the three and six months ended September 30, 2021, the Company recognized
a gain of $397,594, and gain of $98,601, respectively, related to the change in
fair value of derivative liabilities related to preferred shares and convertible
notes. Similarly, the company recognized a gain of $229,337 and gain of $433,479
in corresponding prior year periods.
Translation Adjustment
Translation adjustment for the three months ended September 30, 2021 and 2020
was a gain of $11,663 and a gain of $18,223, respectively. Similarly, the
company recognized a loss of $74,540 and loss of $179,541 in corresponding prior
year periods. This translation adjustment represents gains and losses that
result from the translation of currency in the financial statements from our
functional currency of Canadian dollars to the reporting currency in U.S.
dollars over the course of the reporting period.
Liquidity and Capital Resources
The Company is in commercialization mode, while continuing to pursue the
development of its next generation MCT product as well as new products that are
being developed.
We generally require cash to:
? purchase devices that will be placed in the field for pilot projects
and to produce revenue,
? launch sales initiatives,
? fund our operations and working capital requirements,
? develop and execute our product development and market introduction
plans,
? fund research and development efforts, and
? pay any expense obligations as they come due.
30
The Company is in the early stages of commercializing its first product. It is
concurrently in development mode, operating a research and development program
in order to develop an ecosystem of medical technologies, and, where required or
deemed advisable, obtain regulatory approvals for, and commercialize other
proposed products. The Company launched its first commercial sales program as
part of a limited market release, during the year ended March 31, 2019, using an
experienced professional in-house sales team. A full market release ensued
during the year ended March 31, 2020. Management anticipates the Company will
continue on its revenue growth trajectory and improve its liquidity through
continued business development and after additional equity or debt
capitalization of the Company. The Company has incurred recurring losses from
operations, and as at September 30, 2021, has an accumulated deficit of
$79,712,541 (March 31, 2021 - $62,817,688). On August 30, 2021 the Company
completed an underwritten public offering of its common stock that concurrently
facilitated its listing on the Nasdaq Capital Market. On September 30, 2021, the
Company has a working capital surplus of $8,731,955 (March 31, 2021 - working
capital deficiency of $6,168,700). Prior to listing on the Nasdaq Capital
Market, The Company had also filed a shelf Registration Statement on Form S-3
(No. 333-255544) with the Securities and Exchange Commission on April 27, 2021,
which was declared effective on May 4, 2021. This facilitates better
transactional preparedness when the Company seeks to issue equity or debt to
potential investors, since it continues to allow the Company to offer its shares
to investors only by means of a prospectus, including a prospectus supplement,
which forms part of an effective registration statement. As such, the Company
has developed and continues to pursue sources of funding that management
believes will be sufficient to support the Company's operating plan and
alleviate any substantial doubt as to its ability to meet its obligations at
least for a period of one year from the date of these consolidated financial
statements. During the fiscal year ended March 31, 2021, the Company closed a
number of private placements offering of convertible notes, which have raised
net cash proceeds of $11,375,690. During the six months ended September 30,
2021, $9,836,500 of convertible notes issued during last fiscal year was
converted into common shares. During the fiscal quarter ended June 30, 2021, the
Company raised an additional $499,900 through government EIDL loan, and $250,000
through short term loans. During the fiscal quarter ended September 30, 2021,
the Company raised an total net proceeds of $14,545,805 through the underwritten
public offering that was concurrent with its listing onto the Nasdaq Capital
Markets.
As we proceed with the commercialization of the Bioflux product development, we
expect to continue to devote significant resources on capital expenditures, as
well as research and development costs and operations, marketing and sales
expenditures.
We expect to require additional funds to further develop our business plan,
including the continuous commercialization and expansion of the Bioflux and
other technologies that will form part of its eco-systems. Based on our current
operating plans, we will require approximately $15 million (more in order to
accelerate commercialization further and faster) to grow our sales team and
order devices that will be placed in the field to produce revenue. A portion of
these funds will also go towards the further development of Bioflux and other
technologies into their next generations, including marketing, sales, regulatory
and clinical costs. We anticipate that we will need to raise additional funds
through equity or debt offerings or otherwise in order to meet our expected
future liquidity requirements.
Based on the above facts and assumptions, we believe our existing cash and cash
equivalents, along with anticipated near-term equity financings, will be
sufficient to meet our needs for the next twelve months from the filing date of
this report. However, we will need to seek additional debt or equity capital to
respond to business opportunities and challenges, including our ongoing
operating expenses, protecting our intellectual property, developing or
acquiring new lines of business and enhancing our operating infrastructure. The
terms of our future financings may be dilutive to, or otherwise adversely
affect, holders of our common stock. We may also seek additional funds through
arrangements with collaborators or other third parties. There can be no
assurance we will be able to raise this additional capital on acceptable terms,
or at all. If we are unable to obtain additional funding on a timely basis, we
may be required to modify our operating plan and otherwise curtail or slow the
pace of development and commercialization of our proposed product lines.
Net Cash Used in Operating Activities
During the six months ended September 30, 2021, we used cash in operating
activities of $5.9 million compared to $4.5 million for the corresponding period
of the prior year. These activities involved expenditures for sales,
infrastructure and business development, as well as marketing and operating
activities, and continued research and product development.
31
Net Cash from Financing Activities
Net cash provided by financing activities was $15.4 million for the six months
ended September 30, 2021 compared to $4.2 million for the six months ended
September 30, 2020.
Net Cash Used in Investing Activities
The Company did not use any net cash in investing activities in the six month
periods ended September 30, 2021 and 2020.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
© Edgar Online, source Glimpses
BIOTRICITY, INC. 
