BIOTRICITY, INC. 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 OverviewBiotricity 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. We developed our FDA-cleared Bioflux® MCT technology, comprised of a monitoring device and software components, which we made available to the market under limited release onApril 6, 2018 , in order to assess, establish and develop sales processes and market dynamics. The fiscal year endedMarch 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. 34
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. Full market release of the Bioflux MCT device for commercialization launched inApril 2019 , 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 had launched sales in 31 U.S. states byDecember 31, 2022 . OnJanuary 24, 2022 the Company announced that it has received the 510(k) FDA clearance of its Biotres patch solution, which is a novel product in the field of Holter monitoring. This three-lead technology can provide connected Holter monitoring that is designed to produce more accurate arrythmia detection than is typical of competing remote patient monitoring solutions. It is also foundational, since already developed improvements to this technology will follow which are not known by the Company to be currently available in the market, for clinical and consumer patch solution applications. During 2021, the Company also 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. 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 2021 and the early part of 2022, the Company has also commercially launched its Bioheart technology, which is a consumer technology whose development was forged out of prior the development of the clinical technologies that are already part of the Company's technology ecosystem, the BioSphere. InOctober 2022 , the Company launched its Biocare Cardiac Disease Management Solution, after successfully piloting this technology in two facilities that provide cardiac care to more than 60,000 patients. This technology and other consumer technologies and applications such as theBiokit and Biocare have been developed to allow the Company to transform and use its strong cardiac footprint to expand into remote chronic care management solutions that will be part of the BioSphere. The technology puts actionable data into the hands of physicians in order to assist them in making effective treatment decisions quickly. In recognition of its product development, inNovember 2022 , the Company's Bioheart received recognition as one ofTime Magazine's Best Inventions of 2022. The COVID-19 pandemic has highlighted the importance of telemedicine and remote patient monitoring technologies. During the nine months endedDecember 31, 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 theBiotricity 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. The Company's goal is to position itself as an all-in-one cardiac diagnostic and disease management solution. The Company continue continues to grow its data set of billions of patient heartbeats, allowing it to further develop its predictive capabilities relative to atrial fibrillation and arrythmias. 35 The Company identified the importance of recent developments in accelerating its path to profitability, including the launch of important new products identified, which have a ready market through cross-selling to existing large customer clinics, and large new distribution partnerships that allow the Company to sell into large hospital networks. Additionally, inSeptember 2022 , the Company was awarded a NIH Grant from the National Heart, Blood, andLung Institute for AI-Enabled real-time monitoring, and predictive analytics for stroke due to chronic kidney failure. This is a significant achievement that broadens our technology platform's disease space demographic. The grant will focus on Bioflux-AI, as an innovative system for real-time monitoring and prediction of stroke episodes in chronic kidney disease patients. Results of Operations During the three and nine months endedDecember 31, 2022 , the Company earned combined device sales and technology fee income totaling$2.5 million and$6.9 million . This represents a 27% and a 25% increase from the corresponding comparable periods in fiscal 2021, respectively. Revenue growth has improved from recent prior reporting periods, which were affected by the impacted of COVID on customer clinic operations and closures across the US, including the Omicron variant which afflicted many of the US states that the Company operates in, and impeded the ability of company sales professionals to engage in certain in-person sales meetings with their customers. During the three months and nine months endedDecember 31, 2022 , we incurred a net loss (prior to the adjustment for preferred stock dividends) of$4.5 million and$14.0 million , respectively, as well as a comprehensive loss of approximately$4.8 million and$14.1 million , respectively. During the three months and nine months endedDecember 31, 2021 , we incurred a net loss (prior to the adjustment for preferred stock dividends) of$7.1 million and$23.5 million , respectively, as well as a comprehensive loss of approximately$7.4 million and$24.2 million , respectively. This resulted in a net loss per common share of$0.091 and$0.283 per share for the three months and nine months endedDecember 31, 2022 , respectively (2021:$0.149 and$0.554 ). For the three months and nine months endedDecember 31, 2022 ,Biotricity's net loss included one-time expenses related to convertible note conversions, one-time expenses related to deb extinguishments, as well as one-time fair value adjustments on derivative liabilities. Normalized loss per common share, adjusted for these one-time expenses, are illustrated in the EBITDA and Adjusted EBITDA section below. During the three months endedDecember 31, 2022 , the Company successfully signed agreements with two leading US medical device distributors and one Group Purchasing Organization ("GPO") as major components of its market strategy to large medical networks and hospitals. Given an established ecosystem of state-of-the-art remote cardiac solutions, and newly established large distribution relationships, management anticipates increased demand for cardiac services in the coming quarters. This expectation is reflected in management's decision to increase its inventory build and continue to focus on identifying and acquiring professional sales talent required to support continuous improvement in the growth trajectory of the Company's revenues.
Three and Nine Months Ended
Operating Revenues and Expenses
Revenue and cost of revenue
Total revenue for the three months endedDecember 31, 2022 was$2.5 million and$6.9 million , respectively, compared to$1.9 million and$5.5 million for the comparable periods in the prior year, respectively. During the three and nine months endedDecember 31, 2022 , the Company experienced a gross margin of 57% and 57%, respectively. The gross margin during the comparable prior year periods was 43% and 57%, respectively. The change in gross margin form the prior year was the result of increase of technology fee sales as a percentage of total sales, which has higher gross margins as compared to device sales. 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, which it anticipates will improve and moderate gross margins. 36 Operating Expenses Total operating expenses for the three and nine months endedDecember 31, 2022 were$5.7 million and$17.1 million , respectively, compared to$5.6 million and$16.0 million for the corresponding prior year periods, respectively, as further described below.
General and administrative expenses
Our general and administrative expenses for the three and nine months endedDecember 31, 2022 was$4.8 million and$14.5 million , respectively, compared to$4.7 million and$13.9 million for the corresponding prior year periods, respectively. The increase in general and administrative expenses during the nine month period endedDecember 31, 2022 was a result of expansion of sales force and marketing initiatives during the first half of fiscal 2023. General and administrative expenses during the three month period endedDecember 31 decreased as compared to prior year, as a result of increased monitoring of spending efficiency.
Research and development expenses
During the three and nine months endedDecember 31, 2022 , we incurred research and development expenses of$0.9 million and$2.5 million , respectively, compared to$0.9 million and$2.1 million for the corresponding prior year periods, respectively. The change in research and development activity was directly related to the timing of development activities associated with the new technologies for our ecosystem and product enhancements.
Other (expense) income, and loss upon convertible promissory notes conversion
During the three and nine months endedDecember 31, 2022 , we recognized$119,880 and$116,989 in net other expense, respectively, as compared to net other income of$40,512 and$54,558 , in the corresponding prior year periods, respectively. The change in net other expense is a result of loss upon debt extinguishments during current year.
In addition, during the three and nine months ended
Accretion and amortization expenses
During the three and nine months endedDecember 31, 2022 , we incurred accretion and amortization expense related to debt financing of$51,061 and$151,970 , respectively, compared to$1.3 million and$8.8 million during the comparable prior year periods, respectively. The decreases from the prior year comparative periods were as a result of full amortization during the quarter endingMarch 31, 2022 for the debt discount related to Series A and Series B convertible notes. Therefore, there was no amortization of Series A and Series B convertible notes debt discount during the three and nine months endedDecember 31, 2022 . The remaining amortization in the three and nine months endedDecember 31 . 2022 related to the amortization of debt discount related to the Company's term loan.
Change in fair value of derivative liabilities
During the three and nine months endedDecember 31, 2022 , the Company recognized a loss of$0.1 million and$0.5 million , respectively, related to the change in fair value of derivative liabilities associated with preferred shares and convertible notes. The Company recognized a loss of$0.8 million and$0.7 million during the comparable prior year periods, respectively. 37 EBITDA and Adjusted EBITDA Earnings before interest, taxes, depreciation and amortization expenses (EBITDA) and Adjusted EBITDA, which are presented below, are non-generally accepted accounting principles (non-GAAP) measures that we believe are useful to management, investors and other users of our financial information in evaluating operating profitability. EBITDA is calculated by adding back interest, taxes, depreciation and amortization expenses to net income. Adjusted EBITDA is calculated by excluding from EBITDA the effect of the following non-operational items: equity in earnings and losses of unconsolidated businesses and other income and expense, net, as well as the effect of special items that related to one-time, non-recurring expenditures. We believe that this measure is useful to management, investors and other users of our financial information in evaluating the effectiveness of our operations and underlying business trends in a manner that is consistent with management's evaluation of business performance. Further, the exclusion of non-operational items and special items enables comparability to prior period performance and trend analysis. See notes in the table below for additional information regarding special items. It is management's intent to provide non-GAAP financial information to enhance the understanding ofBiotricity's GAAP financial information, and it should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. We believe that providing these non-GAAP measures in addition to the GAAP measures allows management, investors and other users of our financial information to more fully and accurately assess business performance. The non-GAAP financial information presented may be determined or calculated differently by other companies and may not be directly comparable to that of other companies. EBITDA and Adjusted EBITDA 3 months 3 months ended ended 9 months 9 months December 31, December 31, ended ended 2022 2021 December 31, 2022 December 31, 2021 $ $ $ $ Net loss attributable to common stockholders (4,747,489 ) (7,342,871 ) (14,676,245 ) (24,237,723 ) Add: Provision for income taxes - - - - Interest expense 413,402 124,354 1,205,342 903,282 Depreciation expense 1,487 819 4,465 819 EBITDA (4,332,598 ) (7,217,698 ) (13,446,438 ) (23,333,622 ) Add (Less) Accretion expense related to
convertible note conversion (1) - 259,754 - 4,485,143 Other (income) expense related to convertible note conversion (2) (5,391 ) 305,246 85,537 1,155,643 Fair value change on derivative liabilities (3) 99,705 774,773 469,971 676,172 Uplisting transaction expense (4) - - - 946,763 Other expense related to debt extinguishment (5) 126,158 126,158 Adjusted EBITDA (4,112,126 ) (5,877,924 ) (12,784,772 ) (16,069,900 ) Weighted average number of common shares outstanding 52,142,669 49,168,264 51,814,972 43,747,569 Adjusted Loss per Share, Basic and Diluted (0.079 ) (0.120 ) (0.247 ) (0.367 )
(1) This relates to one-time recognition of accretion expenses relate to the remaining debt discount balances on notes that were converted.
(2) This relates to one-time recognition of expenses reflecting the difference between the book value of the convertible note and relevant unamortized discounts, and the fair value of shares that the notes were converted into.
38
(3) Fair value changes on derivative liabilities corresponds to changes in the underlying stock value and thus does not reflect our day to day operations
(4) Professional fees related to Company's uplisting from OTC market to Nasdaq
(5) This relates to one-time recognition of loss on debt extinguishment
Translation Adjustment Translation adjustment for the three and nine months endedDecember 31, 2022 was a translation adjustment loss of$72,824 and a gain of$0.6 million . The company recognized a translation adjustment loss of$20,064 and$1,841 in the corresponding prior year periods, respectively. 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 inU.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. The Company is in the early stages of commercializing its products. 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 endedMarch 31, 2019 , using an experienced professional in-house sales team. A full market release ensued during the year endedMarch 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 atDecember 31, 2022 , has an accumulated deficit of$107.7 million . OnAugust 30, 2021 the Company completed an underwritten public offering of its common stock that concurrently facilitated its listing on the Nasdaq Capital Market. OnDecember 31, 2022 , the Company has a working capital deficit of$2.5 million (March 31, 2022 - working capital surplus of$10.5 million ). 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 theSecurities and Exchange Commission onApril 27, 2021 , which was declared effective onMay 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 condensed consolidated financial statements. During the fiscal year endedMarch 31, 2021 , the Company closed a number of private placements offering of convertible notes, which have raised net cash proceeds of$11,375,690 (face value$12,525,500 ). As ofDecember 31, 2021 ,$11,048,000 face value of convertible notes issued during last fiscal year was converted into common shares. During fiscal quarter endedJune 30, 2021 , the Company raised an additional$499,900 through government EIDL loan, and$250,000 through short term loans. During the fiscal quarter endedSept 30, 2021 , the Company raised total net proceeds of$14,545,805 through the underwritten public offering that was concurrent with its listing onto theNasdaq Capital Markets . During the fiscal quarter endedDecember 31, 2021 , the Company raised additional net proceeds of$11,756,563 through a term loan transaction (Note 6) and made repayment of the previously issued promissory notes and short-term loan. In connection with this loan, the Company and Lender also entered into a Guarantee and Collateral Agreement wherein the Company agreed to secure the Credit Agreement with all of the Company's assets. The Company and Lender also entered into an Intellectual Property Security Agreement datedDecember 21, 2021 wherein the Credit Agreement is also secured by the Company's right title and interest in the Company's Intellectual Property. During the fiscal quarter endedDecember 31, 2022 , the Company raised short-term loans and promissory notes with net proceeds of 1,889,144 from various lenders. 39
As we proceed with the commercialization of the Bioflux, Biotres and Biocare products and continue their 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 technologies that will form part of its BioSphere eco-system. Based on the current known facts and assumptions, we believe our existing cash and cash equivalents, access to funding sources, along with anticipated near-term debt and equity financings, will be sufficient to meet our needs for the next twelve months from the filing date of this report. We intend to seek and opportunistically acquire 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.
During the nine months ended
Net cash used by investing activities was $Nil for the nine months endedDecember 31, 2022 . During the nine months endedDecember 31, 2021 , net cash used by investing activities was attributed to the purchase of property and equipment of$29,766 .
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Critical Accounting Policies The unaudited condensed consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted inthe United States of America ("US GAAP") and are expressed inUnited States Dollars. Significant accounting policies are summarized below: Revenue Recognition The Company adopted Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" ("ASC 606") onApril 1, 2018 . In accordance with ASC 606, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services by applying the core principles - 1) identify the contract with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to performance obligations in the contract, and 5) recognize revenue as performance obligations are satisfied. 40 Both the Bioflux mobile cardiac telemetry device, and the Biotres device are wearable devices. The cardiac data that the devices monitor and collect is curated and analyzed by the Company's proprietary algorithms and then securely communicated to a remote monitoring facility for electronic reporting and conveyance to the patient's prescribing physician or other certified cardiac medical professional. Revenues earned are comprised of device sales revenues and technology fee revenues (technology as a service). The devices, together with their licensed software, are available for sale to the medical center or physician, who is responsible for the delivery of clinical diagnosis and therapy. The remote monitoring, data collection and reporting services performed by the technology culminate in a patient study that is generally billable when it is complete and is issued to the physician. In order to recognize revenue, management considers whether or not the following criteria are met: persuasive evidence of a commercial arrangement exists, and delivery has occurred or services have been rendered. For sales of devices, which are invoiced directly, additional revenue recognition criteria include that the price is fixed and determinable and collectability is reasonably assured; for device sales contracts with terms of more than one year, the Company recognizes any significant financing component as revenue over the contractual period using the effective interest method, and the associated interest income is reflected accordingly on the statement of operations and included in other income; for revenue that is earned based on customer usage of the proprietary software to render a patient's cardiac study, the Company recognizes revenue when the study ends based on a fixed billing rate. Costs associated with providing the services are recorded as the service is provided regardless of whether or when revenue is recognized.
The Company may also earn service-related revenue from contracts with other counterparties with which it consults. This contract work is separate and distinct from services provided to clinical customers, but may be with a reseller or other counterparties that are working to establish their operations in foreign jurisdictions or ancillary products or market segments in which the Company has expertise and may eventually conduct business.
The Company recognized the following forms of revenue for the three and nine
months ended
For Three For Three For Nine For Nine
Months Ended Months Ended Months Ended Months Ended
December 31 ,December 31 ,
2022 2021 2022 2021
$ $ $ $
Technology fee sales 2,253,187 1,413,790 6,240,042 4,365,292
Device sales 205,994 266,318 656,580 886,235Service-related and other revenue 250,000
250,000
2,459,181 1,930,108 6,896,622 5,501,527
Inventory
Inventory is stated at the lower of cost and market value, cost being determined
on a weighted average cost basis. Market value of our inventory, which is all
purchased finished goods, is determined based on its estimated net realizable
value, which is generally the selling price less normally predictable costs of
disposal and transportation. The Company records write-downs of inventory that
is obsolete or in excess of anticipated demand or market value based on
consideration of product lifecycle stage, technology trends, product development
plans and assumptions about future demand and market conditions. Actual demand
may differ from forecasted demand, and such differences may have a material
effect on recorded inventory values. Inventory write-downs are charged to cost
of revenue and establish a new cost basis for the inventory.
41
Significant accounting estimates and assumptions
The preparation of the condensed consolidated financial statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. The estimates and related assumptions are based on previous experiences and other factors considered reasonable under the circumstances, the results of which form the basis for making the assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Significant accounts that require estimates as the basis for determining the stated amounts include share-based compensation, impairment analysis and fair value of warrants, structured notes, convertible debt and conversion liabilities.
? Fair value of stock options
The Company measures the cost of equity-settled transactions with employees by reference to the fair value of equity instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of such instruments, which is dependent on the terms and conditions of the grant. The estimate also requires determining the most appropriate inputs to the Black-Scholes option pricing model, including the expected life of the instrument, risk-free rate, volatility, and dividend yield. ? Fair value of warrants
In determining the fair value of the warrant issued for services and issue pursuant to financing transactions, the Company used the Black-Scholes option pricing model with the following assumptions: volatility rate, risk-free rate, and the remaining expected life of the warrants that are classified under equity.
? Fair value of derivative liabilities
In determining the fair values of the derivative liabilities from the conversion and redemption features, the Company used valuation models with the following assumptions: dividend yields, volatility, risk-free rate and the remaining expected life. Changes in those assumptions and inputs could in turn impact the fair value of the derivative liabilities and can have a material impact on the reported loss and comprehensive loss for the applicable reporting period. ? Functional currency
Determining the appropriate functional currencies for entities in the Company requires analysis of various factors, including the currencies and country-specific factors that mainly influence labor, materials, and other operating expenses.
? Useful life of property and equipment
The Company employs significant estimates to determine the estimated useful lives of property and equipment, considering industry trends such as technological advancements, past experience, expected use and review of asset useful lives. The Company makes estimates when determining depreciation methods, depreciation rates and asset useful lives, which requires considering industry trends and company-specific factors. The Company reviews depreciation methods, useful lives and residual values annually or when circumstances change and adjusts its depreciation methods and assumptions prospectively 42 ? Provisions
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a previous event, if it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the obligation. The amount recognized is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligations. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate of the expected future cash flows. ? Contingencies
Contingencies can be either possible assets or possible liabilities arising from past events, which, by their nature, will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential impact of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events. ? Inventory obsolescence
Inventories are stated at the lower of cost and market value. Market value of our inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation. The Company estimates net realizable value as the amount at which inventories are expected to be sold, taking into consideration fluctuations in retail prices less estimated costs necessary to make the sale. Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage, or declining selling prices. ? Income and other taxes The calculation of current and deferred income taxes requires the Company to make estimates and assumptions and to exercise judgment regarding the carrying values of assets and liabilities which are subject to accounting estimates inherent in those balances, the interpretation of income tax legislation across various jurisdictions, expectations about future operating results, the timing of reversal of temporary differences and possible audits of income tax filings by the tax authorities. In addition, when the Company incurs losses for income tax purposes, it assesses the probability of taxable income being available in the future based on its budgeted forecasts. These forecasts are adjusted to take into account certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses. When the forecasts indicate that sufficient future taxable income will be available to deduct the temporary differences, a deferred tax asset is recognized for all deductible temporary differences. Changes or differences in underlying estimates or assumptions may result in changes to the current or deferred income tax balances on the condensed consolidated balance sheets, a charge or credit to income tax expense included as part of net income (loss) and may result in cash payments or receipts. Judgment includes consideration of the Company's future cash requirements in its tax jurisdictions. All income, capital and commodity tax filings are subject to audits and reassessments. Changes in interpretations or judgments may result in a change in the Company's income, capital, or commodity tax provisions in the future. The amount of such a change cannot be reasonably estimated.
? Incremental borrowing rate for lease
The determination of the Company's lease obligation and right-of-use asset depends on certain assumptions, which include the selection of the discount rate. The discount rate is set by reference to the Company's incremental borrowing rate. Significant assumptions are required to be made when determining which borrowing rates to apply in this determination. Changes in the assumptions used may have a significant effect on the Company's condensed consolidated
financial statements. 43 Earnings (Loss) Per Share
The Company has adopted theFinancial 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 atDecember 31, 2022 and 2021. Cash
Cash includes cash on hand and balances with banks.
Foreign Currency Translation The functional currency of the Company's Canadian-based subsidiary is the Canadian dollar and the US-based parent is theU.S. dollar. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. All exchange gains or losses arising from translation of these foreign currency transactions are included in net income (loss) for the year. In translating the financial statements of the Company's Canadian subsidiaries from their functional currency into the Company's reporting currency ofUnited States dollars, balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the reporting period. Adjustments resulting from the translation, if any, are included in accumulated other comprehensive income (loss) in stockholders' equity. The Company has not, to the date of these condensed consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations. Accounts Receivable Accounts receivable consists of amounts due to the Company from medical facilities, which receive reimbursement from institutions and third-party government and commercial payors and their related patients, as a result of the Company's normal business activities. Accounts receivable is reported on the balance sheets net of an estimated allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts for estimated uncollectible receivables based on historical experience, assessment of specific risk, review of outstanding invoices, and various assumptions and estimates that are believed to be reasonable under the circumstances, and recognizes the provision as a component of selling, general and administrative expenses. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible.
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. 44
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, federally-guaranteed loans, term loans and accounts payable and accrued 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. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follow: Office equipment 5 years Leasehold improvement 5 years
Impairment for Long-Lived Assets
The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including right-of-use assets, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Based on its review atDecember 31, 2022 and 2021, the Company believes there was no impairment of
its long-lived assets. Leases
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
condensed 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 condensed consolidated balance
sheet and are expensed on a straight-line basis over the lease term in the
condensed consolidated statement of operations. The Company determines the lease
term by agreement with lessor. As the Company's lease does not provide 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. Refer to Note 12 for further discussion.
45
Income Taxes
The Company accounts for income taxes in accordance with ASC 740. The Company
provides for Federal, State and Provincial income taxes payable, as well as for
those deferred because of the timing differences between reporting income and
expenses for financial statement purposes versus tax purposes. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recoverable or settled. The effect of a change in
tax rates is recognized as income or expense in the period of the change. A
valuation allowance is established, when necessary, to reduce deferred income
tax assets to the amount that is more likely than not to be realized.
Research and Development
Research and development costs, which relate primarily to product and software
development, are charged to operations as incurred. Under certain research and
development arrangements with third parties, the Company may be required to make
payments that are contingent on the achievement of specific developmental,
regulatory and/or commercial milestones. Before a product receives regulatory
approval, milestone payments made to third parties are expensed when the
milestone is achieved. Milestone payments made to third parties after regulatory
approval is received are capitalized and amortized over the estimated useful
life of the approved product.
Stock Based Compensation
The Company accounts for share-based payments in accordance with the provision
of ASC 718, which requires that all share-based payments issued to acquire goods
or services, including grants of employee stock options, be recognized in the
statement of operations based on their fair values, net of estimated
forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. Compensation expense related to share-based awards is
recognized over the requisite service period, which is generally the vesting
period.
The Company accounts for stock based compensation awards issued to non-employees
for services, as prescribed by ASC 718-10, at either the fair value of the
services rendered or the instruments issued in exchange for such services,
whichever is more readily determinable, using the guidelines in ASC 505-50. The
Company issues compensatory shares for services including, but not limited to,
executive, management, accounting, operations, corporate communication,
financial and administrative consulting services.
Convertible Notes Payable and Derivative Instruments
The Company has adopted the provisions of ASU 2017-11 to account for the down round features of warrants issued with private placements effective as ofApril 1, 2017 . In doing so, warrants with a down round feature previously treated as derivative liabilities in the condensed consolidated balance sheet and measured at fair value are henceforth treated as equity, with no adjustment for changes in fair value at each reporting period. Previously, the Company accounted for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free-standing derivative financial instruments. ASC 815 provides for an exception to this rule when convertible notes, as host instruments, are deemed to be conventional, as defined by ASC 815-40. The Company accounts for convertible notes deemed conventional and conversion options embedded in non-conventional convertible notes which qualify as equity under ASC 815, in accordance with the provisions of ASC 470-20, which provides guidance on accounting for convertible securities with beneficial conversion features. Accordingly, the Company records, as a discount to convertible notes, the intrinsic value of such conversion options based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt. 46
Preferred Shares Extinguishments
The Company accounted for preferred stock redemptions and conversions in accordance to ASU-260-10-S99. For preferred stock redemptions and conversion, the difference between the fair value of consideration transferred to the holders of the preferred stock and the carrying amount of the preferred stock is accounted as deemed dividend distribution and subtracted from net income.
Recently Issued Accounting Pronouncements
Refer to "Note 3- Summary of Significant Accounting Policies" to our condensed consolidated financial statements included in "Part 1, Item 1 - Condensed Consolidated Financial Statements" in this Report for a discussion of recently issued accounting pronouncements.
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.
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