Item
1 – Condensed Consolidated Financial Statements
BIOTRICITY
INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS
AT JUNE 30, 2022 (unaudited) AND MARCH 31, 2022 (audited)
(Expressed
in US Dollars)
| |
As
at June 30, 2022 | | |
As
at March 31, 2022 | |
| |
$ | | |
$ | |
CURRENT ASSETS | |
| | | |
| | |
Cash | |
| 7,207,974 | | |
| 12,066,929 | |
Accounts receivable, net | |
| 1,826,920 | | |
| 2,006,678 | |
Inventory | |
| 1,431,054 | | |
| 842,924 | |
Deposits and other receivables | |
| 380,592 | | |
| 406,280 | |
Total current assets | |
| 10,846,540 | | |
| 15,322,811 | |
| |
| | | |
| | |
Deposits | |
| 85,000 | | |
| 85,000 | |
Long-term accounts receivable | |
| - | | |
| - | |
Property and equipment [Note 11] | |
| 25,970 | | |
| 27,459 | |
Operating right-of-use
lease asset [Note 10] | |
| 1,192,169 | | |
| 1,242,700 | |
TOTAL
ASSETS | |
| 12,149,679 | | |
| 16,677,970 | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable and accrued
liabilities [Note 4] | |
| 2,701,077 | | |
| 2,595,747 | |
Convertible promissory notes
and short term loans [Note 5] | |
| 1,238,000 | | |
| 1,540,000 | |
Derivative liabilities [Note 8] | |
| 419,332 | | |
| 520,747 | |
Operating lease liability
[Note 10] | |
| 219,033 | | |
| 210,320 | |
Total current liabilities | |
| 4,577,442 | | |
| 4,866,814 | |
| |
| | | |
| | |
Federally guaranteed loans [Note 7] | |
| 870,800 | | |
| 870,800 | |
Term loan [Note 6] | |
| 11,662,742 | | |
| 11,612,672 | |
Derivative liabilities [Note 8] | |
| 537,318 | | |
| 352,402 | |
Operating lease liability
[Note 10] | |
| 1,061,795 | | |
| 1,120,018 | |
TOTAL
LIABILITIES | |
| 18,710,097 | | |
| 18,822,706 | |
| |
| | | |
| | |
STOCKHOLDERS’ DEFICIENCY | |
| | | |
| | |
Preferred stock, $0.001
par value, 10,000,000
authorized as at June 30, 2022 and March 31, 2022, respectively,
1 share
issued and outstanding as at June 30, 2022 and March 31, 2022, respectively [Note 9] | |
| 1 | | |
| 1 | |
Preferred stock, $0.001
par value, 20,000
authorized as at June 30, 2022 and March 31, 2022, respectively,
6,872
and 7,201
preferred shares issued and outstanding as at June 30, 2022
and as at March 31, 2022, respectively [Note 9] | |
| 7 | | |
| 7 | |
Preferred stock | |
| 1 | | |
| 1 | |
Common stock, $0.001
par value, 125,000,000
authorized as at June 30, 2022 and March 31, 2022, respectively.
Issued and outstanding common shares: 50,219,034
and 49,810,322
as at June 30, 2022 and March 31, 2022, respectively, and
exchangeable shares of 1,466,718
and 1,466,718
outstanding as at June 30, 2022 and March 31, 2022, respectively
[Note 9] | |
| 51,686 | | |
| 51,277 | |
Shares to be issued 95,515
and 123,817
shares of common stock as at June 30, 2022 and March 31, 2022,
respectively) [Note 9] | |
| 72,299 | | |
| 102,299 | |
Additional paid-in-capital | |
| 91,912,772 | | |
| 91,507,478 | |
Accumulated other comprehensive loss | |
| (535,652 | ) | |
| (768,656 | ) |
Accumulated deficit | |
| (98,061,531 | ) | |
| (93,037,142 | ) |
Total
stockholders’ equity (deficiency) | |
| (6,560,418 | ) | |
| (2,144,736 | ) |
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | |
| 12,149,679 | | |
| 16,677,970 | |
See
accompanying notes to unaudited condensed consolidated interim financial statements
BIOTRICITY
INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR
THE THREE MONTHS ENDED JUNE 31, 2022 AND 2021 (unaudited)
(Expressed
in US Dollars)
See
accompanying notes to unaudited condensed consolidated interim financial statements
BIOTRICITY
INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
FOR
THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021 (unaudited)
| |
Preferred
stock | | |
Common
stock and
exchangeable common shares | | |
Shares
to be Issued | | |
Additional
paid in capital | | |
Accumulated
other comprehensive loss | | |
Accumulated
deficit | | |
Total | |
| |
Shares | | |
$ | | |
Shares | | |
$ | | |
Shares | | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | |
Balance,
March 31, 2021 (audited) | |
| 8,046 | | |
| 9 | | |
| 39,014,942 | | |
| 39,015 | | |
| 268,402 | | |
| 280,960 | | |
| 56,298,726 | | |
| (634,186 | ) | |
| (62,817,688 | ) | |
| (6,833,164 | ) |
Conversion
of convertible notes into common shares | |
| - | | |
| - | | |
| 201,604 | | |
| 202 | | |
| 327,274 | | |
| 1,190,502 | | |
| 479,558 | | |
| - | | |
| - | | |
| 1,670,262 | |
Exercise
of warrants for cash | |
| - | | |
| - | | |
| 100,236 | | |
| 100 | | |
| 37,736 | | |
| 40,000 | | |
| 106,150 | | |
| - | | |
| - | | |
| 146,250 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of warrants for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 151,897 | | |
| - | | |
| - | | |
| 151,897 | |
Stock
based compensation - ESOP | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 155,851 | | |
| - | | |
| - | | |
| 155,851 | |
Translation
adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,560 | | |
| - | | |
| 6,560 | |
Net
loss before dividends for the period | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (5,656,099 | ) | |
| (5,656,099 | ) |
Preferred
stock dividends | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (241,264 | ) | |
| (241,264 | ) |
Balance,
June 30, 2021 (unaudited) | |
| 8,046 | | |
| 9 | | |
| 39,316,782 | | |
| 39,317 | | |
| 633,412 | | |
| 1,511,462 | | |
| 57,192,182 | | |
| (627,626 | ) | |
| (68,715,051 | ) | |
| (10,599,707 | ) |
See
accompanying notes to unaudited condensed consolidated interim financial statements
BIOTRICITY
INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021 (UNAUDITED)
(Expressed
in US Dollars)
See
accompanying notes to unaudited condensed consolidated interim financial statements
BIOTRICITY
INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2022 (Unaudited)
(Expressed
in US dollars)
1.
NATURE OF OPERATIONS
Biotricity
Inc. (formerly MetaSolutions, Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on August 29,
2012. iMedical Innovations Inc. (“iMedical”) was incorporated on July 3, 2014 under the laws of the Province of Ontario,
Canada and became a wholly-owned subsidiary of Biotricity through reverse take-over on February 2, 2016.
Both
the Company and iMedical are engaged in research and development activities within the remote monitoring segment of preventative care.
They are focused on a realizable healthcare business model that has an existing market and commercialization pathway. As such, its efforts
to date have been devoted to building and commercializing an ecosystem of technologies that enable access to this market.
2.
BASIS OF PRESENTATION, MEASUREMENT AND CONSOLIDATION
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (“US GAAP”) for interim financial information and the Securities and Exchange Commission (“SEC”)
instructions to Form 10-Q and Article 8 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete consolidated financial statements and should be read in conjunction
with Biotricity’s audited consolidated financial statements for the years ended March 31, 2022 and 2021 and their accompanying
notes.
The
accompanying unaudited condensed consolidated financial statements are expressed in United States dollars (“USD”). In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial
position and results of operations for the interim periods presented have been reflected herein. Operating results for the interim periods
presented herein are not necessarily indicative of the results that may be expected for the year ending March 31, 2023. The Company’s
fiscal year-end is March 31.
The
unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. Significant
intercompany accounts and transactions have been eliminated.
Certain
prior year amounts have been reclassified to conform to the current year’s presentation.
Liquidity
and Basis of Presentation
The
Company is in the early stages of commercializing its first product and is concurrently in development mode, operating a research and
development program in order to develop, obtain regulatory clearance for, and commercialize other proposed products. The Company has
incurred recurring losses from operations, and as at June 30, 2022, had an accumulated deficit of $98,061,531
and a working capital surplus of $6,269,098.
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. 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. 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 quarter ended June 30, 2021, the Company raised $499,900
through government EIDL loan. In addition, during
the fiscal quarter ended September 30, 2021, the Company raised total net proceeds of $14,545,805
through the underwritten public offering that
was concurrent with its listing onto the Nasdaq Capital Markets. Furthermore, during the fiscal quarter ended December 31, 2021, the
Company raised an additional net proceeds of $11,756,563
through a term loan transaction (Note 6).
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.
Based
on the above facts and assumptions, we believe our existing cash, 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.
In
December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely
concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections
have been reported globally.
On
March 17, 2020, as a result of COVID-19 infections having been reported throughout both Canada and the United States, certain national,
provincial, state and local governmental issued proclamations and/or directives aimed at minimizing the spread of COVID-19. Accordingly,
on March 17, 2020, the Company closed all corporate clinics for all in-clinic non-essential services to protect the health and safety
of its employees, partners and patients. On March 20, 2020, the Company announced the precautionary measures taken as well as announcing
the business impact related to the coronavirus (COVID-19) pandemic.
The
ultimate impact of the COVID-19 pandemic on the Company’s operations remains unclear and will depend on future developments, which
are highly uncertain and cannot be predicted with confidence, including the duration of any future ongoing COVID-19 outbreaks, new information
which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments,
or the Company, may direct, which may result in an extended period of continued business disruption, reduced patient traffic and reduced
operations. The full long-term financial impact cannot be reasonably estimated at this time but it has until recently had a material
adverse impact on our business, financial condition, and results of operations.
The
measures taken to date may impact the Company’s fiscal year 2023 business and potentially beyond. Management expects that all of
its business segments, across all of its geographies, may be impacted to some degree, but the significance of the full impact of the
COVID-19 outbreak on the Company’s business and the duration for which it may have an impact cannot be determined at this time.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
The
Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”)
on April 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.
The
Bioflux mobile cardiac telemetry device, a wearable device, is worn by patients for a monitoring period up to 30 days. The cardiac data
that the device monitors and collects 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 with respect to this device are comprised of device sales revenues and technology fee revenues
(technology as a service). The device, together with its licensed software, is 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 months ended June 30, 2022 and 2021:
SCHEDULE
OF REVENUE RECOGNITION
| |
For
Three Months Ended June 30, 2022 $ | | |
For
Three Months Ended June 30, 2021 $ | |
Technology fee sales | |
| 1,889,982 | | |
| 1,464,937 | |
Device sales | |
| 166,070 | | |
| 299,173 | |
Revenue | |
| 2,056,052 | | |
| 1,764,110 | |
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.
Significant
accounting estimates and assumptions
The
preparation of the 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.
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.
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
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
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.
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.
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 consolidated statements of financial position, 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 consolidated financial statements.
Earnings
(Loss) Per Share
The
Company has 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 June 30, 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 the U.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 of United 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 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.
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:
SCHEDULE
OF PROPERTY AND EQUIPMENT ESTIMATED USEFUL LIVES
|
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 at March 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 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 the 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.
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 of April 1, 2017. In doing so, warrants with a down round feature previously treated as derivative liabilities in the 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.
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
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.
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.
In
April 2021, The FASB issued ASU 2021-04 to codify the final consensus reached by the Emerging Issues Task Force (EITF) on how an issuer
should account for modifications made to equity-classified written call options (hereafter referred to as a warrant to purchase the issuer’s
common stock). The guidance in the ASU requires the issuer to treat a modification of an equity-classified warrant that does not cause
the warrant to become liability-classified as an exchange of the original warrant for a new warrant. This guidance applies whether the
modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance
of a new warrant. The Company does not expect that the new guidance will significantly impact its consolidated financial statements.
The
Company continue to evaluate the impact of the new accounting pronouncement, including enhanced disclosure requirements, on our business
processes, controls and systems.
4.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| |
| | |
| |
| |
As
at June 30, 2022 $ | | |
As
at March 31, 2022 $ | |
Accounts payable and deferred revenue | |
| 1,457,901 | | |
| 1,159,477 | |
Accrued liabilities | |
| 1,243,176 | | |
| 1,436,270 | |
Accounts payable and
accrued liabilities | |
| 2,701,077 | | |
| 2,595,747 | |
Accounts
payable as at June 30, 2022 included $20,300
current account with a shareholder and executive
(March 31, 2022: $2,851
due to shareholder and executive) of the Company, primarily
as a result of that individual’s role as an employee. These amounts are unsecured, non-interest bearing and payable on demand.
5.
CONVERTIBLE PROMISSORY NOTES AND SHORT TERM LOANS
a) |
As at June 30 and March 31,
2022, the Company had a promissory note balance of nil and a short term loan balance of nil. Consequently, general and administrative
expenses for the three months ended June 30, 2022 and 2021 included interest expense for those items of nil
and $56,220,
respectively). |
b) |
During the year ended March
31, 2021, the Company issued $11,275,500
(face value) in two series of convertible promissory
notes (the “Series A Notes”) sold under subscription agreements to accredited investors. The Notes mature one year from
the final closing date of the offering and accrue interest at 12%
per annum. |
For
first series of Series A Notes, commencing six months following the Issuance Date, and at any time thereafter (provided the Holder has
not received notice of the Company’s intent to prepay the note), at the sole election of the Holder, any amount of the outstanding
principal and accrued interest of this note (the “Outstanding Balance”) could be converted into that number of shares of
Common Stock equal to: (i) the Outstanding Balance divided by (ii) 75% of the volume weighted average price of the Common Stock for the
5 trading days prior to the Conversion Date (the conversion price).
For
the first series of Series A Notes, the
notes would automatically convert into common stock (in each case, subject to the trading volume of the Company’s common stock
being a minimum of $500,000 for each trading day in the 20 consecutive trading days immediately preceding the conversion date), upon
the earlier to occur of (i) the Company’s common stock being listed on a national securities exchange, in which event the conversion
price would be equal to 75% of the volume weighted average price of the common stock for the 20 trading days prior to the conversion
date, or (ii) upon the closing of the Company’s next equity round of financing for gross proceeds of greater than $5,000,000, in
which event the conversion price would be equal to 75% of the price per share of the common stock (or of the conversion price in the
event of the sale of securities convertible into common stock) sold in such financing. The Company could, at its discretion redeem the
notes for 115% of their face value plus accrued interest.
For
second series of Series A Notes, the notes could be converted into shares of common stock, at the option of the holder, commencing six
months from issuance, at a conversion price equal to the lower of $4.00
per share or 75% of the volume weighted average
price of the common stock for the five trading days prior to the conversion date
For
the second series of Series A Notes, the
notes would automatically convert into common stock (in each case, subject to the trading volume of the Company’s common stock
being a minimum of $500,000 for each trading day in the 20 consecutive trading days immediately preceding the conversion date), upon
the earlier to occur of (i) the Company’s common stock being listed on a national securities exchange, in which event the conversion
price would be equal to the lower of $4.00 per share or 75% of the volume weighted average price of the common stock for the 20 trading
days prior to the conversion date, or (ii) upon the closing of the Company’s next equity round of financing for gross proceeds
of greater than $5,000,000, in which event the conversion price would be equal to the lower of $4.00 per share or 75% of the price per
share of the common stock (or of the conversion price in the event of the sale of securities convertible into common stock) sold in such
financing. The Company could, at its discretion redeem the notes for 115% of their face value plus accrued interest.
The
Company was obligated to issue warrants that accompany the convertible notes and provide 50% warrant coverage. The warrants have a 3-year
term from date of issuance and an exercise price that is 120% of the 20-day volume weighted average price of the Company’s common
shares at the time final closing.
The
Company was obligated to pay the placement agent of the first series of Series A Notes a 12% cash fee for $8,925,550 (face value) of
the notes and 2.5% cash fee and other sundry expenses for the remaining $2,350,000 (face value) of the notes.
Net
proceeds to the Company from Series A Notes issuance up to March 31, 2021 amounted to $10,135,690
after payment of the relevant financing related
fees.
The
Company was also obligated to issue warrants to the placement agent that have a 10-year term and cover 12% of funds raised for $8,925,550
(face value) of the notes (first series) and 2.5% of funds raised for the remaining $2,350,000 (face value) of notes (second series),
with an exercise price that is 120% of the 20-day volume weighted average price of the Company’s common shares at the time final
closing. On final closing, which occurred on January 8, 2021, the warrants’ exercise price was struck at $1.06 per share.
Prior
to January 8, 2021 (final closing date), the Company determined that the conversion and redemption features, investor warrants and placement
agent warrants contained in those Notes represented a single compound derivative liability that meets the requirements for liability
classification under ASC 815. The Company accounted for these obligations by determining the fair value of the related derivative liabilities
associated with the embedded conversion and redemption features, as well as investor warrants and placement agent warrants.
Subsequently,
the exercise price of all warrants was concluded and locked to $1.06
as of January 8, 2021. Since the exercise price
was no longer a variable, the Company concluded that the noteholder and placement agent warrants should no longer be accounted for as
a derivative liability in accordance with ASC 815 guidelines related to equity indexation and classification. The derivative liabilities
related to those warrants were therefore marked to market as of January 8, 2021 and then transferred to equity (collectively, “End
of warrants derivative treatment”). Therefore, the remaining derivative liabilities only related to the conversion and redemption
features of the convertible notes.
For
the Series A Notes, The Company recognized debt issuance costs in the amount of $2,301,854
and treated these as a deduction from the convertible
note liabilities directly, as a contra-liability, and amortized the debt issuance cost over the term of the Notes. The Company also recognized
initial debt discount in the amount of $8,088,003
and accreted the interest over the remaining
lives of those Notes. The debt issuance costs were fully amortized as of March 31, 2022.
As
at March 31, 2022, $700,000
of Series A Notes remained unconverted and outstanding,
which was equal to the face value of the relevant convertible notes.
There
was no conversion of Series A Notes during the three months ended June 30, 2022.
At
June 30, 2022, the Company recorded $129,699
of interest accruals for the Series A Notes.
In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities
Act of 1933, as amended, for transactions not involving a public offering.
In
addition, during the year ended March 31, 2021, the Company also issued $1,312,500
(face value) of convertible promissory notes
(“Series B Notes”) to various accredited investors.
Commencing
six months following the issuance date, and at any time thereafter, subject to the Company’s Conversion Buyout clause, at the sole
election of the holder, any amount of the outstanding principal and accrued interest of the note (the “outstanding balance”)
could be converted into that number of shares of Common Stock equal to: (i) the outstanding balance divided by (ii) the Conversion Price.
Partial conversions of the note shall have the effect of lowering the outstanding principal amount of the note. The
holder may exercise such conversion right by providing written notice to the Company of such exercise in a form reasonably acceptable
to the Company (a “conversion notice”). Conversion price means (subject in all cases to proportionate adjustment for stock
splits, stock dividends, and similar transactions), seventy-five percent (75%) multiplied by the average of the three (3) lowest closing
prices during the previous ten (10) trading days prior to the receipt of the conversion notice.
The
Series B Notes will automatically convert into common stock upon a merger, consolidation, exchange of shares, recapitalization, reorganization,
as a result of which the Company’s common stock shall be changed into another class or classes of stock of the Company or another
entity, or in the case of the sale of all or substantially all of the assets of the Company other than a complete liquidation of the
Company. Within the first 180 days after the issuance date, the Company may, at its discretion redeem the notes for 115% of their face
value plus accrued interest. The Company is obligated to issue warrants that accompany the convertible notes and provide 50% warrant
coverage. The warrants have a 3-year
term from date of issuance and an exercise price that is $1.06
per share for 100,000
warrant shares and $1.5
per share for 212,500
warrant shares.
Net
proceeds to the Company from convertible note issuances to March 31, 2021 amounted to $1,240,000
after the original issuance discount as well
as payment of the financing related fees. The Company determined that the conversion and redemption features contained in the Series
B Notes represented a single compound derivative liability that meets the requirements for liability classification under ASC 815. The
Company accounted for these obligations by determining the fair value of the related derivative liability associated with the embedded
conversion and redemption features.
The
Company recognized debt issuance costs in the amount of $10,000
and treated these as a deduction from the convertible
note liabilities directly, as a contra-liability, and amortized the debt issuance cost over the term of the Series B Notes. The Company
recognized initial debt discount in the amount of $1,312,500
and accreted the interest over the remaining
lives of those notes. The debt issuance costs were fully amortized as of March 31, 2022.
As
at March 31, 2022, $840,000
of Series B Notes remained unconverted and outstanding,
which was equal to the face value of the relevant convertible notes.
During
the three months ended June 30, 2022, $302,000 (face
value) of Series B Notes were converted into 390,464
common shares (Note 9 c).
At
June 30, 2022, the Company recorded $74,550
of interest accruals for the Series B Notes.
In connection with the foregoing, the Company relied upon the exemption from registration provided by Section 4(a)(2) under the Securities
Act of 1933, as amended, for transactions not involving a public offering.
SCHEDULE
OF CONVERTIBLE PROMISSORY NOTES AND SHORT TERM LOANS
| |
Total | |
| |
$ | |
Balance at
March 31, 2022 | |
| 1,540,000 | |
| |
| | |
Three months ended June
30, 2022 | |
| | |
Conversion to common
shares (Note 9) | |
| (302,000 | ) |
| |
| | |
Balance
at June 30, 2022 | |
| 1,238,000 | |
In
total, at June 30, 2022, the Company had issued $1,238,000
in convertible notes that remained outstanding
to several noteholders beyond their contractual maturity date. These continued to accrue interest, and no repayment demands were received
from noteholders, notwithstanding the fact that these noteholders have continued to convert portions of these notes subsequently, and
it is management’s expectation that all of these notes will eventually convert. In connection with the foregoing, the Company relied
upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, for transactions not involving
a public offering.
General
and administrative expenses include interest expense on the above debt instruments of $31,414
and $265,658
for the three months ended June 30, 2022 and
2021, respectively.
6.
TERM LOAN
On
December 21, 2021, the Company entered into a Credit Agreement (“Credit Agreement”) with SWK Funding LLC (“Lender’),
wherein the Company has borrowed $12,000,000,
with a maturity date of December 21, 2026.
The principal will accrue interest at the LIBOR Rate plus 10.5% (subject to adjustment as set forth in the Credit Agreement). Interest
payments are due on each February, May, August and November commencing February
15, 2022. Pursuant
to the Credit Agreement, the Company will be required to make interest only payments for the first 24 months (which may be extended to
36 months under prescribed circumstances), after which payments will include principal amortization that accommodates a 40% balloon principal
payment at maturity. Prepayment of amounts owing under the Credit Agreement are allowed under prescribed circumstances.
Pursuant to the Credit Agreement the Company is subject to an Origination Fee in the amount of $120,000.
Upon Termination of the Credit Agreement, the Company shall pay an Exit Fee of $600,000.
The
Company and Lender also entered into a Guarantee and Collateral Agreement (“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 dated December 21, 2021 (the “IP Security Agreement”) wherein the Credit Agreement is also secured by
the Company’s right title and interest in the Company’s Intellectual Property.
In
connection with the Credit Agreement, the Company issued 57,536
warrants to the Lender, which were fair-valued
at $198,713
(Note 9). The warrants are accounted as a deduction
from liability as well as a credit into additional paid-in capital, and amortized using the effective interest method.
As
part of the loan transaction, the Company paid legal and professional costs directly in connection to the debt financing in the amount
of $50,000
in cash.
Total
costs directly in connection to the debt financing in the amount of $193,437
(professional fee $48,484;
lender’s origination fee, due diligence fee, and other expenses in the amount of $144,953)
was deduced from the gross proceeds in the amount of $12,000,000.
The
Company also repaid $1,574,068
of existing short-term loan and promissory notes and relevant
accrued interests by using the proceeds from the loan.
Total
costs directly in connection to the loan and fair value of warrants was in the amount of $1,042,149.
And such costs were accounted as debt discount, and amortized using the effective interest method. For three months ended June 30, 2022,
the amortization of debt discount expense was in the amount of $50,070
and included in the accretion and amortization
expenses.
Total
interest expense on the term loan for the 3 months ended June 30, 2022 was $348,833.
7.
FEDERALLY GUARANTEED LOANS
Economic
Injury Disaster Loan (“EIDL”)
In
April 2020, the Company received $370,900
from the U.S. Small Business Administration (SBA)
under the captioned program. The loan has a term of 30 years and an interest rate of 3.75%, without the requirement for payment in its first 12 months.
The Company may prepay the loan without penalty at will.
In
May 2021, the Company received an additional $499,900
from the SBA under the same terms.
Payment
Protection Program (“PPP”) Loan
In
May 2020, Biotricity received loan proceeds of $1,200,000
(the “PPP Loan”) under the Paycheck
Protection Program established by the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) administered by
the U.S. Small Business Administration (“SBA”). The Company met the criteria for the loan forgiveness and applied for the
loan forgiveness in March 2021. For the year ended March 31, 2021, the Company recognized the loan forgiveness as a reduction to payroll
expense in the amount of $1,156,453
and a reduction to the rent expense of $43,547.
The loan forgiveness was granted by the SBA in May 2021. As at June 30, 2022, the balance of outstanding PPP loan is NIL
(March 31, 2022: NIL).
8.
DERIVATIVE LIABILITIES
On
December 19, 2019 and January 9, 2020, the Company issued 7,830
Series A preferred shares; 6,000
of these were issued for cash proceeds of $6,000,000
and 1,830
of these were issued on conversion of $1,830,000
of promissory notes that had previously been
issued for cash proceeds in October 2019.
On
May 22, 2020, another 215
Series A preferred shares were issued as a result
of a combined transaction that included the conversion of $100,000
in promissory notes (Note 5(a)) and $15,000
(Note 5(a)) in accrued interest for 115
preferred shares, as well as a purchase of 100
preferred shares for cash proceeds of $100,000.
During
the three months ended September 30, 2021, an additional 100
Series A preferred shares were issued for cash
proceeds of $100,000
(Note 9 c).
During
the three months ended December 31, 2021, the Company redeemed $230,000
preferred shares through cash. The total amount
of the preferred shares redeemed and derivative liabilities derecognized was $225,919.
The difference of redemption value of $230,000
and the carrying value of preferred shares on
the day of redemption was $4,081
was recognized as a deemed dividend distribution.
In
addition, during the three months ended December 31, 2021, the Company converted $715,000
preferred shares into 288,756
common shares (Note 9(c)). The difference between
the total amount of the preferred shares converted, derivative liabilities derecognized and unpaid interests at the time of conversion
($1,076,513),
and the fair value of the common shares converted ($1,226,406)
was $149,893
and was recognized as deemed dividend distribution.
During
the three months ended June 30, 2022, the Company redeemed $328,904
preferred shares through cash. The total amount
of the preferred shares redeemed and derivative liabilities derecognized was $296,032.
The difference of redemption value of $328,904
and the carrying value of preferred shares on
the day of redemption was $32,872
and was recognized as a deemed dividend distribution
The
Company analyzed the compound features of variable conversion and redemption embedded in the preferred shares instrument, for potential
derivative accounting treatment on the basis of ASC 820 (Fair Value in Financial Instruments), ASC 815 (Accounting for Derivative Instruments
and Hedging Activities), Emerging Issues Task Force (“EITF”) Issue No. 00–19 and EITF 07–05, and determined that
the embedded derivatives should be bundled and valued as a single, compound embedded derivative, bifurcated from the underlying equity
instrument, treated as a derivative liability, and measured at fair value.
SCHEDULE
OF DERIVATIVE LIABILITIES
| |
Total
$ | |
Derivative liabilities as at March
31, 2022 | |
| 352,402 | |
Change in fair value of derivatives during
the period | |
| 195,521 | |
Reduction due to preferred
shares redeemed | |
| (10,605 | ) |
Derivative liabilities as at June 30, 2022 | |
| 537,318 | |
The
lattice methodology was used to value the derivative components, using the following assumptions for the three months ended June 30,
2022:
SCHEDULE
OF DERIVATIVE COMPONENTS VALUATION ASSUMPTIONS
| |
Assumptions | |
Dividend yield | |
| 12 | % |
Risk-free rate for term | |
| 2.13%
- 2.54 | % |
Volatility | |
| 94.4%
- 101.9 | % |
Remaining terms (Years) | |
| 1.50
to 3.01 | |
Stock price ($ per share) | |
$ | 1.23
to $1.77 | |
In
addition, the Company recorded derivative liabilities related to the conversion and redemption features of the convertible notes, as
well as warrants that were issued in connection with the convertible notes, during the year ended March 31, 2021 (Note 5). As the warrant
exercise price became final and locked, the derivative liabilities related to those warrants were marked to market and transferred to
equity (Note 5). Any noteholder and placement agent warrants that were issued after the finalization of exercise price was accounted
for as equity.
SCHEDULE
OF DERIVATIVE LIABILITIES
| |
Total | |
| |
$ | |
| |
| |
Balance at
March 31, 2022 | |
| 520,747 | |
| |
| | |
For the three months ended
June 30, 2022 | |
| | |
Conversion to common shares | |
| (104,118 | ) |
Change in fair value
of derivative liabilities | |
| 2,703 | |
| |
| | |
Balance
at June 30, 2022 | |
| 419,332 | |
The
monte-carlo methodology was used to value the convertible note and warrant derivative components, using the following assumptions for
the three months ended June 30 2022:
SCHEDULE
OF WARRANT DERIVATIVE COMPONENTS VALUATION ASSUMPTIONS
| |
| Conversion
and
redemption
features | |
Risk-free rate for term (%) | |
| 1.82
–
2.37 | |
Volatility (%) | |
| 87.6
–
95.5 | |
Remaining terms (Years) | |
| 0.50
–
0.63 | |
Stock price ($ per share) | |
| 1.10
–
1.77 | |
9.
STOCKHOLDERS’ EQUITY (DEFICIENCY)
a)
Authorized stock
As
at June 30, 2022, the Company is authorized to issue 125,000,000
(March 31, 2022 – 125,000,000)
shares of common stock ($0.001
par value) and 10,000,000
(March 31, 2022 – 10,000,000)
shares of preferred stock ($0.001
par value), 20,000
of which (March 31, 2022 – 20,000)
are designated shares of Series A preferred stock ($0.001
par value).
At
June 30, 2022, common shares and shares directly exchangeable into equivalent common shares that were issued and outstanding totaled
51,685,752
(March 31, 2022 – 51,277,040);
these were comprised of 50,219,034 (March
31, 2022 – 49,810,322)
shares of common stock and 1,466,718
(March 31, 2022 – 1,466,718)
exchangeable shares. There is currently one share of the Special Voting Preferred Stock issued and outstanding, held by one holder of
record, which is the Trustee in accordance with the terms of the Trust Agreement. The Company has also issued a Series A preferred stock,
$0.001
par value; 20,000
shares have been designated as authorized (as
at June 30 and March 31, 2022); 6,872
Series A preferred shares were issued and outstanding
as at June 30, 2022 (March 31, 2022: 7,201).
b)
Exchange Agreement
On
February 2, 2016, the Company was formed through reverse-take-over:
|
● |
The
Company issued approximately 1.197
shares of its common stock in exchange for each common share of iMedical held by the iMedical shareholders who in general terms,
are not residents of Canada (for the purposes of the Income Tax Act (Canada). Accordingly, the Company issued 13,376,947 shares; |
|
● |
Shareholders
of iMedical who in general terms, are Canadian residents (for the purposes of the Income Tax Act (Canada)) received approximately
1.197
Exchangeable Shares in the capital of Exchangeco in exchange for each common share of iMedical held. Accordingly, the Company issued
9,123,031
Exchangeable
Shares; |
|
● |
Each
outstanding option to purchase common shares in iMedical (whether vested or unvested) was exchanged, without any further action or
consideration on the part of the holder of such option, for approximately 1.197
economically equivalent replacement options with an inverse adjustment to the exercise price of the replacement option to reflect
the exchange ratio of approximately 1.197:1; |
|
● |
Each
outstanding warrant to purchase common shares in iMedical was adjusted, in accordance with the terms thereof, such that it entitles
the holder to receive approximately 1.197
shares of the common stock of the Company for each warrant, with an inverse adjustment to the exercise price of the warrants to reflect
the exchange ratio of approximately 1.197:1 |
|
● |
Each
outstanding advisor warrant to purchase common shares in iMedical was adjusted, in accordance with the terms thereof, such that it
entitles the holder to receive approximately 1.197
shares of the common stock of the Company for each advisor warrant, with an inverse adjustment to the exercise price of the Advisor
Warrants to reflect the exchange ratio of approximately 1.197:1;
and |
|
● |
The
outstanding 11% secured convertible promissory notes of iMedical were adjusted, in accordance with the adjustment provisions thereof,
as and from closing, so as to permit the holders to convert (and in some circumstances permit the Company to force the conversion
of) the convertible promissory notes into shares of the common stock of the Company at a 25%
discount to purchase price per share in Biotricity’s next offering. |
Issuance
of common stock, exchangeable shares and cancellation of shares in connection with the reverse takeover transaction as explained above
represents recapitalization of capital retroactively adjusting the accounting acquirer’s legal capital to reflect the legal capital
of the accounting acquiree.
c)
Share issuances
Share
issuances during the year ended March 31, 2022
During
the year ended March 31, 2022, the Company issued 4,696,083
common shares (not including 19,263
shares that were part of to be issued shares
from prior year conversions) were issued in connection with conversion of convertible notes (Note 5(b)). The total amounts of debts settled
is in amount of $14,522,812
that composed of face value of convertible promissory
notes in amount of $10,309,000
(Note 5(b)), carrying amount of conversion and
redemption feature derived from notes in amount of $3,398,557
(Note 8) and unpaid interest in amount of $815,255.
The fair value of the shares issued was determined based on the market price upon conversion and was in the amount of $15,678,454.
The difference between amounts of debts settled and fair value of common shares issued was in the amount of $1,155,642
and was recorded as loss on conversion of convertible
promissory notes in statement of operations.
During
the year ended March 31, 2022, the Company issued 658,355
common shares in connection with warrant exercises
for cash, and 446,370
common shares in connection with cashless warrant
exercises (Note 9(e)). In addition, the Company issued 451,688
common shares for services provided (not including
250,000
that were part of to be issued shares from prior year commitment).
The fair value of common shares issued for services provided was $1,414,449.
The fair value of common shares was determined based on the fair value on the date of approval of common share issuance.
During
the year ended March 31, 2022, the Company issued 69,252
common shares for cash proceeds of $250,000,
which were initially received as a promissory note, and paid through the issuance common shares within the same quarter.
During
the year ended March 31, 2022, the Company issued 5,382,331
common shares in connection with the equity financing
that was concurrent with its listing on the Nasdaq Capital Market, for total net cash proceeds of $14,545,805.
During
the year ended March 31, 2022, an additional Series A preferred shares were issued for cash
proceeds of $100,000.
The Company issued 288,756
common shares as a result of preferred share
conversions (Note 8).
During
the year ended March 31, 2022, the Company also issued an aggregate of 1,423,260
shares of its common stock to investors as part
of the one-for-one exchange of previously issued exchangeable shares into the Company’s Common Stock, which is a non-cash transaction.
Share
issuances during the three months ended June 30, 2022
During
the three months ended June 30, 2022, the Company issued 404,545
common shares in connection with conversion of
convertible notes (Note 5). The total amounts of debts settled is in amount of $406,118
that composed of face value of convertible promissory
notes in amount of $302,000
(Note 5), carrying amount of conversion and redemption
feature derived from notes in amount of $104,118.
The fair value of the shares issued and to be issued was determined based on the market price upon conversion and was in the amount of
$457,026.
The difference, that represented a loss on conversion, between amounts of debts settled and fair value of common shares issued was in
the amount of $50,908
and was recorded as loss on conversion of convertible
promissory notes in statement of operations.
d)
Shares to be issued
During
the three months ended June 30, 2022, the Company removed 40,094
of previously to be issued shares, in connection
with cancellation of warrant exercises from certain warrant holders. In addition, the Company recognized additional 11,792
shares to be issued for warrant exercise request
received but not processed as of quarter end. As a result of the cancellation of to be issued shares, $42,500
was reduced from balance of shares to be issued,
and the Company increased the balance of the shares to be issued by $12,500
upon the warrants exercise.
e)
Warrant issuances and exercises
Warrant exercises and issuances during the year ended March 31,
2022
During
the year ended March 31, 2022, 658,355
warrants were exercised (2021 – 97,500)
pursuant to receipt of exercise proceeds of $872,292.
446,370 warrants
were exercised pursuant to cashless warrant exercise. In addition, $103,950
warrant exercise proceeds receivable was recorded
as part of deposit and other receivables as of March 31, 2022.
During
the year ended March 31, 2022, the Company issued 212,594
warrants, including 25,000
as compensation for advisor and consultant services,
and 187,594
as compensation to an executive of the Company
who was not part of the Company stock options plan. The warrant expenses were fair valued at $541,443,
and recognized as general and administrative expenses, with a corresponding credit to additional paid-in capital.
During
the year ended March 31, 2022, the Company issued 57,536
share purchase warrants to lenders in connection
with the term loan (Note 6). The fair value of these warrants, in the amount of $198,713,
was recorded as part of the discount of the loan, with a corresponding credit to additional paid-in capital. The warrants were not considered
as derivative instruments. The fair value of these warrants was determined by using the Black Scholes model, based on the following key
inputs and assumptions: expiry date December
21, 2028, exercise price $6.26,
rate of return 1.40%,
and volatility 121.71%.
During
the year ended March 31, 2022, the Company issued 373,404
share purchase warrants to underwriter. The warrants
were not considered as a derivative instrument and was accounted as additional paid-in capital along with the uplisting transaction.
The warrants were fair valued at $900,371.
The fair value of these warrants was determined by using Black Scholes model, based on the following key inputs and assumptions: expiry
date August
26, 2026, exercise price $3.75,
rate of returns 0.77%,
and volatility 111.9%.
Warrant
exercises and issuances during the three months ended June 30, 2022
During
the three months ended June 30, 2022, the Company issued 53,827
warrants as compensation to an executive of the
Company who was not part of the Company stock options plan. The warrant expenses were fair valued at $77,414,
and recognized as general and administrative expenses, with a corresponding credit to additional paid-in capital.
Warrant
issuances, exercises and expirations or cancellations during the three months ended June 30, 2022 and preceding periods resulted in warrants
outstanding at the end of those respective periods as follows:
SCHEDULE
OF WARRANTS OUTSTANDING
| |
Broker
and Other Warrants (1) | | |
Consultant
Warrants | | |
Warrants
Issued on Conversion of Convertible Notes | | |
Private
Placement Warrants | | |
Total | |
As at March 31, 2021 | |
| 1,258,495 | | |
| 2,130,555 | | |
| 7,454,152 | | |
| - | | |
| 10,843,202 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Less: Expired/cancelled | |
| (150,841 | ) | |
| (298,333 | ) | |
| - | | |
| - | | |
| (449,174 | ) |
Less: Exercised | |
| (662,389 | ) | |
| (242,500 | ) | |
| (555,029 | ) | |
| - | | |
| (1,459,918 | ) |
Add: Issued | |
| 430,940 | | |
| 212,594 | | |
| - | | |
| - | | |
| 643,534 | |
As at March 31, 2022 | |
| 876,205 | | |
| 1,802,316 | | |
| 6,899,123 | | |
| - | | |
| 9,577,644 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Less: Expired/cancelled | |
| - | | |
| - | | |
| (1,563,980 | ) | |
| - | | |
| (1,563,980 | ) |
Less: Exercised | |
| - | | |
| - | | |
| (11,792 | ) | |
| - | | |
| (11,792 | ) |
Add: Issued | |
| - | | |
| 53,827 | | |
| - | | |
| - | | |
| 53,827- | |
As at June 30, 2022 | |
| 876,205 | | |
| 1,856,143 | | |
| 5,323,351 | | |
| - | | |
| 8,055,698 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Exercise Price | |
| 1.06
to 6.26 | | |
| 0.48
to 3.15 | | |
| 1.06
to 2.00 | | |
| | | |
| | |
Expiration Date | |
| July
2022 to January 2031 | | |
| July
2022 to June 2032 | | |
| January
2024 to February 2024 | | |
| | | |
| | |
(1) | | This
includes 57,536
warrants
issued to the term loan Lender (see Note 6, above). |
f)
Stock-based compensation
On
February 2, 2016, the Board of Directors of the Company approved the Company’s 2016 Equity Incentive Plan (the “Plan”).
The purpose of the Plan is to advance the interests of the Company and its stockholders by providing an incentive to attract, retain
and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of
the Company. The Plan seeks to achieve this purpose by providing for awards in the form of options, stock appreciation rights, restricted
stock purchase rights, restricted stock bonuses, restricted stock units, performance shares, performance units and other stock-based
awards.
The
Plan shall continue in effect until its termination by the board of directors or committee formed by the board; provided, however, that
all awards shall be granted, if at all, on or before the day immediately preceding the tenth (10th) anniversary of the effective date.
The maximum number of shares of stock that may be issued under the Plan shall be equal to 3,750,000
shares; provided that the maximum number
of shares of stock that may be issued under the Plan pursuant to awards shall automatically and without any further Company or shareholder
approval, increase on January 1 of each year for not more than 10 years from the effective date, so the number of shares that may be
issued is an amount no greater than 20% of the Company’s outstanding shares of stock and shares of stock underlying any outstanding
exchangeable shares as of such January 1; provided further that no such increase shall be effective if it would violate any applicable
law or stock exchange rule or regulation, or result in adverse tax consequences to the Company or any participant that would not otherwise
result but for the increase.
Based
on the 2016 Option Plan, the Company is authorized to issue employee options with a 10-year
term. On March 31, 2020, the Company’s Board of Directors approved the amendment of certain prior options grants, issued to current
employees, previously issued with a 3-year
term, such that the respective options issued under these agreements would have their term extended to 10
years. The Company revalued these options using
a lattice model with an expected life of 10
years, risk free rates of 0.46%
to 0.75%,
stock price of $0.974
and expected volatility of 132.2%,
in order to recognize the additional expense associated with the longer term and recognized a one-time charge of $1,600,515
in share-based compensation, with a corresponding
adjustment to adjusted paid in capital.
During
the three months ended June 30, 2022, the Company granted 10,180
of options with a weighted average remaining
contractual life of 10
years. The Company recorded stock-based compensation
of $149,190
in connection with ESOP 2016 Plan (June 30, 2021
- $155,851),
under general and administrative expenses with corresponding credit to additional paid in capital.
The
following table summarizes the stock option activities of the Company to June 30, 2022:
SCHEDULE
OF STOCK OPTION ACTIVITIES
| |
Number
of options | | |
Weighted
Average exercise price ($) | |
Granted | |
| 4,147,498 | | |
| 3.2306 | |
Exercised | |
| - | | |
| - | |
Outstanding as of March
31, 2018 | |
| 4,147,498 | | |
| 3.2306 | |
Granted | |
| 270,521 | | |
| 1.8096 | |
Exercised | |
| - | | |
| - | |
Outstanding as of March 31, 2019 | |
| 4,418,019 | | |
| 3.1436 | |
Granted | |
| 88,100 | | |
| 0.7763 | |
Expired | |
| (112,509 | ) | |
| 2.723 | |
Outstanding as of March 31, 2020 | |
| 4,393,610 | | |
| 3.1069 | |
Granted | |
| 2,610,647 | | |
| 1.0072 | |
Exercised | |
| - | | |
| - | |
Outstanding as of March 31, 2021 | |
| 7,004,256 | | |
| 2.3268 | |
Granted | |
| 596,458 | | |
| 1.5272 | |
Expired | |
| (56,433 | ) | |
| 1.5937 | |
Forfeited | |
| (134,567 | ) | |
| 1.5124 | |
Exercised | |
| - | | |
| - | |
Outstanding as of March 31, 2022 | |
| 7,409,714 | | |
| 2.3466 | |
Granted | |
| 10,180 | | |
| 1.7700 | |
Exercised | |
| - | | |
| - | |
Outstanding as of June
30, 2022 | |
| 7,419,894 | | |
| 2.3458 | |
The
fair value of each option granted is estimated at the time of grant using the Black Scholes model using the following assumptions, for
each of the respective fiscal year:
SCHEDULE
OF FAIR VALUE OF OPTION GRANTED USING VALUATION ASSUMPTIONS
| |
2023 | | |
2022 | | |
2021 | | |
2020 | |
Exercise price ($) | |
| 1.77 | | |
| 2.40
–
3.98 | | |
| 0.74-2.89 | | |
| 1.40-2.00 | |
Risk free interest rate (%) | |
| 3.00
–
3.01 | | |
| 0.34
–
2.32 | | |
| 0.18
–
1.72 | | |
| 0.52-2.81 | |
Expected term (Years) | |
| 5.5
–
6.5 | | |
| 2.0
–
10.0 | | |
| 2.0
–
10.0 | | |
| 2.0-3.0 | |
Expected volatility (%) | |
| 109.3
–
119.5 | | |
| 106.6
–
129.9 | | |
| 106.8
–
129.9 | | |
| 97.8-141.1 | |
Expected dividend yield (%) | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
Fair value of option ($) | |
| 1.438
–
1.565 | | |
| 1.19
–
3.52 | | |
| 0.72
- 1.72 | | |
| 0.76 | |
Expected forfeiture (attrition) rate (%) | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | | |
| 0.00 | |
10.
OPERATING LEASE RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS
The
Company has one operating lease primarily for office and administration.
As
of December 1, 2021, the Company entered into a new lease agreement. The Company paid $85,000
deposit that would be returned at the end of
the lease.
When
measuring the lease obligations, the Company discounted lease payments using its incremental borrowing rate. The weighted-average-rate
applied is 11.4%.
SCHEDULE
OF OPERATING LEASES OBLIGATIONS
| |
$ | |
Balance at March 31, 2022 | |
| 1,242,700 | |
Amortization | |
| (50,531 | ) |
Balance at June 30, 2022 | |
| 1,192,169 | |
| |
| | |
Balance at March 31, 2022 | |
| 1,330,338 | |
Repayment and interest
accretion | |
| (49,510 | ) |
Balance at June 30, 2022 | |
| 1,280,828 | |
| |
| | |
Current portion of operating lease obligation | |
| 219,033 | |
Noncurrent portion of operating lease obligation | |
| 1,061,795 | |
The
operating lease expense was $121,735
for the three months ended June 30, 2022
(June 30, 2021: $67,607)
was included in the general and administrative expenses.
The
following table represents the contractual undiscounted cash flows for lease obligations as at June 30, 2022
SCHEDULE
OF CONTRACTUAL UNDISCOUNTED CASH FLOWS FOR LEASE OBLIGATION
Less than one year | |
| 351,154 | |
Beyond one year | |
| 1,279,787 | |
Total undiscounted lease
obligations | |
| 1,630,941 | |
11.
PROPERTY AND EQUIPMENT
During
the year-ended March 31, 2022, the Company purchased leasehold improvements of $12,928
(useful life: 5
years) as well as furniture & fixtures of
$16,839 (useful
life: 5
years). The Company recognized depreciation expense
for these assets in the amount of $1,489 during
the three months ended June 30, 2022.
SCHEDULE
OF PROPERTY AND EQUIPMENT
Cost | |
Office
equipment | | |
Leasehold
improvement | | |
Total |
| |
| $ | | |
| $ | | |
| $ | |
Balance at March 31, 2022 | |
| 16,839 | | |
| 12,928 | | |
| 29,767 | |
Additions | |
| - | | |
| - | | |
| - | |
Balance at June 30, 2022 | |
| 16,839 | | |
| 12,928 | | |
| 29,767 | |
Accumulated
depreciation | |
Office
equipment | | |
Leasehold
improvement | | |
Total | |
| |
| $ | | |
| $ | | |
| $ | |
Balance at March 31, 2022 | |
| 1,308 | | |
| 1,000 | | |
| 2,308 | |
Depreciation for the
quarter | |
| 842 | | |
| 647 | | |
| 1,489 | |
Balance at June 30,
2022 | |
| 2,150 | | |
| 1,647 | | |
| 3,797 | |
| |
| | | |
| | | |
| | |
Net book value | |
| | | |
| | | |
| | |
Balance at March 31, 2022 | |
| 15,531 | | |
| 11,928 | | |
| 27,459 | |
Balance at June 30,
2022 | |
| 14,689 | | |
| 11,281 | | |
| 25,970 | |
12.
CONTINGENCIES
There
are no unrecognized claims against the Company that were assessed as significant, which were outstanding as at June 30, 2022 and, consequently,
no additional provision for such has been recognized in the consolidated financial statements during the three and nine months then ended.
13.
SUBSEQUENT EVENTS
The
Company’s management has evaluated subsequent events up to August 15, 2022, the date the condensed consolidated financial statements
were issued, pursuant to the requirements of ASC 855, and has determined the following material subsequent events:
The Company issued 117,647
shares in connection with Series B convertible Note conversion request received subsequent to June 30, 2022. During the same period,
the Company issued 22,772
shares to an advisor for contractual services rendered; it also issued 71,792
shares, which were part of the Company’s obligation of shares to be issued at of June 30, 2022, in connection with warrant
exercise requests.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
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 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.
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 in April 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 29 U.S. states by June 30, 2022.
On
January 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 is 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 to help drive greater revenue.
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. This technology and other consumer technologies and applications such as the Biokit 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
COVID-19 pandemic has highlighted the importance of telemedicine and remote patient monitoring technologies. During the nine months ended
December 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 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.
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:
Revenue
Recognition
The
Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”)
on April 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.
The
Bioflux mobile cardiac telemetry device, a wearable device, is worn by patients for a monitoring period up to 30 days. The cardiac data
that the device monitors and collects 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 with respect to this device are comprised of device sales revenues and technology fee revenues
(technology as a service). The device, together with its licensed software, is 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 months ended June 30, 2022 and 2021:
| |
For Three Months Ended June 30,
2022 $ | | |
For Three Months Ended June 30,
2021 $ | |
Technology fee sales | |
| 1,889,982 | | |
| 1,464,937 | |
Device sales | |
| 166,070 | | |
| 299,173 | |
| |
| 2,056,052 | | |
| 1,764,110 | |
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.
Significant
accounting estimates and assumptions
The
preparation of the 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.
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.
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 labour, 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
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
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.
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.
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 consolidated statements of financial position, 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 consolidated financial statements.
Earnings
(Loss) Per Share
The
Company has 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 June 30, 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 the U.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 of United 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 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.
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 at March 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 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 the 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.
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 of April 1, 2017. In doing so, warrants with a down round feature previously treated as derivative liabilities in the 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.
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
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.
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.
In
April 2021, The FASB issued ASU 2021-04 to codify the final consensus reached by the Emerging Issues Task Force (EITF) on how an issuer
should account for modifications made to equity-classified written call options (hereafter referred to as a warrant to purchase the issuer’s
common stock). The guidance in the ASU requires the issuer to treat a modification of an equity-classified warrant that does not cause
the warrant to become liability-classified as an exchange of the original warrant for a new warrant. This guidance applies whether the
modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance
of a new warrant. The Company does not expect that the new guidance will significantly impact its consolidated financial statements.
The
Company continue to evaluate the impact of the new accounting pronouncement, including enhanced disclosure requirements, on our business
processes, controls and systems.
Results
of Operations
The
Company earned revenues of $2.1 million for the three months ended June 30, 2022 compared to $1.8 million in the corresponding prior
year period – a 17% increase.
During the three months ended June 30, 2022,
the Company earned combined device sales and technology fee income totaling $2.1 million. This represents a 17% increase from the corresponding
quarter of fiscal 2021. Although total gross revenues were flat compared to the immediately preceding three months ended March 31, 2022,
when gross revenues were also $2.1 million, technology fees comprised a larger percentage of total revenues, at 91.9%; this represents
a $425,000 increase in technology fees in the latest quarter compared to the corresponding prior year quarter, which is a 30% increase,
and reflects increased technology fee revenue-producing activity. Revenues for the recent prior reporting periods reflected the continued
impact of COVID on customer clinic operations and closures across the US. The Omicron variant afflicted many of the US states that the
Company operates in. It also impeded the ability of company sales professionals from engaging in in-person sales meetings with their
customers; and closures were compounded by the seasonally low vacation periods, and exacerbated by hurricanes that affected the southern
US. Management anticipates increased demand for cardiac services in the coming quarters and this expectation is reflected in management’s
decision to acquire additional professional sales talent and grow its sales force in order to support the continuous improvement in the
growth trajectory of the Company’s revenues.
During
the three months ended June 30, 2022, Biotricity incurred a net loss of $5.0 million and a comprehensive loss of approximately $4.8 million,
compared to $5.9 million in the comparative period of fiscal 2021. This resulted in a net loss per common share of $0.098 per share for
the three months ended June 30, 2022 (2021: $0.151).
For
the three months ended June 30, 2022, Biotricity’s net loss included one-time expenses related to convertible note conversions,
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 ended June 30, 2022, the Company experienced a gross margin of 60%. This is a lower percentage from the respective prior
year quarter percentage of 66%, as a result of increased raw material costs and sales discounts provided to customers in order to generate
increased volumes of 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.
Three
Months Ended June 30, 2022
Operating
Revenues and Expenses
Operating
Expenses
Total
operating expenses for the three months ended June 30, 2022 were $5.7 million compared to $4.2 million respectively, for the corresponding
period of the prior year, as further described below.
General
and administrative expenses
Our
general and administrative expenses for the three months ended June 30, 2022 was $4.9 million, compared to $3.6 million for the corresponding
prior year period. The increase in general and administrative expenses was a result of investment made by the Company in building its
professional sales force.
Research
and development expenses
During
the three months ended June 30, 2022 we incurred research and development expenses of $0.8 million, compared to $0.6 million for the
corresponding prior year period. The increase in research and development activity is directly related to the development of new technologies
for our ecosystem, as well as the development of continuous product enhancements to our existing products.
Other income, and loss upon convertible promissory
notes conversion
During the three months ended June 30. 2022, we incurred
Nil other income as compared to $8,782 other income in the corresponding prior year period.
In addition, we incurred loss of $0.05 million upon
conversion of convertible notes, as compared to $0.03 million in the corresponding prior year period.
Accretion
and amortization expense related to convertible notes and the term loan
During
the three months ended June 30, 2022, we incurred accretion and amortization expense related to debt financing of $0.05 million, compared
to $2.3 million in the prior year. The decrease compared to prior year’s comparative periods was a result of full amortization
during the quarter ending March 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 months ended June 30, 2022. The remaining amortization
in the three months ended June 30. 2022 related to the amortization of debt discount related to the SWK term loan.
Change
in fair value of derivative liabilities
During
the three months ended June 30, 2022, the Company recognized a loss of $0.2 million related to the change in fair value of derivative
liabilities related to preferred shares and convertible notes. The company recognized a loss of $0.3 million in corresponding prior year
period.
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 of Biotricity’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
| |
Three
months ended June 30, 2022 | | |
Three
months ended June 30, 2021 | |
| |
$ | | |
$ | |
Net loss attributable to common
stockholders | |
| (5,024,389 | ) | |
| (5,897,363 | ) |
Add: | |
| | | |
| | |
Provision for income taxes | |
| - | | |
| - | |
Interest expense | |
| 388,388 | | |
| 395,685 | |
Depreciation expense | |
| 1,488 | | |
| - | |
EBITDA | |
| (4,634,512 | ) | |
| (5,501,678 | ) |
| |
| | | |
| | |
Add (Less) | |
| | | |
| | |
Accretion expense related to convertible note
conversion (1) | |
| - | | |
| 488,731 | |
Other (income) expense related to convertible
note conversion (2) | |
| 50,908 | | |
| 28,215 | |
Fair value change on
derivative liabilities (3) | |
| 198,224 | | |
| 298,983 | |
| |
| | | |
| | |
Adjusted
EBITDA | |
| (4,385,381 | ) | |
| (4,685,749 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding | |
| 51,440,944 | | |
| 39,095,637 | |
| |
| | | |
| | |
Adjusted Loss per Share,
Basic and Diluted | |
| (0.085 | ) | |
| (0.120 | ) |
(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.
(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
Translation
Adjustment
Translation
adjustment for the three months ended June 30, 2022 was a loss of $0.2 million. The company recognized a loss of $0.07 million in the
corresponding prior year period. 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. |
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 June 30, 2022, has an accumulated deficit of $98,061,531 (March 31, 2022 - $93,037,142).
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 June 30, 2022, the Company has a working capital surplus of $6,269,098 (March 31, 2022 – working
capital deficiency of $10,455,997). 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 (face value $12,525,500). As of December 31, 2021, $11,048,000 face value of convertible notes issued during last fiscal
year was converted into common shares. During 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 Sept 30, 2021, the Company raised total net proceeds
of $14,545,805 through the underwritten public offering that was concurrent with its listing onto the Nasdaq Capital Markets. During
the fiscal quarter ended December 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 dated December 21,
2021 wherein the Credit Agreement is also secured by the Company’s right title and interest in the Company’s Intellectual
Property.
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 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, 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 three months ended June 30, 2022, we used cash in operating activities of $4.0 million compared to $2.7 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.
Net
Cash from Financing Activities
Net
cash used by financing activities was $0.8 million for the three months ended June 30, 2022, compared to $0.6 million net cash provided
by financing activities for the three months ended June 30, 2021.
Net
Cash Used in Investing Activities
Net
cash used by investing activities was $Nil for the three months ended June 30, 2022 (June 30, 2021: Nil).
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.