CardioComm Solutions, Inc. — Management Reports 2020

Nov 28, 2020

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CardioComm Solutions, Inc.

Management’s Discussion and Analysis For the period ending 30 September 2020

Management’s Discussion and Analysis Financial Condition and Results of Operations

Background

This discussion and analysis of financial position and results of operations is prepared as at 25 November 2020 for the period ended 30 September 2020 and should be read in conjunction with the audited financial statements of CardioComm Solutions, Inc. (“CardioComm” or the “Company”) for the year ended 31 December 2019 and the unaudited financial statements for the quarter ended 30 September 2019. The unaudited financial statements have been prepared in accordance with international Financial Reporting Standards (IFRS). Except as otherwise disclosed, all dollar figures included herein and the following Management Discussion and Analysis (MD&A) are quoted in Canadian dollars. Additional information relevant to the Company’s activities can be found on SEDAR at www.sedar.com.

The Company is a reporting issuer in British Columbia, Alberta, and Ontario, and trades on the TSX Venture Exchange under the symbol “EKG”. The content of this MD&A has been approved by the board of directors of the Company (the Board), on the recommendation of its Audit Committee.

CAUTIONARY STATEMENT ON FORWARD LOOKING INFORMATION

This Management Discussion and Analysis may include forward‐looking statements with respect to business plans, activities, prospects, opportunities and events anticipated or being pursued by the Company and the Company’s future results. Although the Company believes the assumptions underlying such statements to be reasonable, any of the assumptions may prove to be incorrect. The anticipated results or events upon which current expectations are based may differ materially from actual results or events. Therefore, undue reliance should not be placed on such forward‐looking information. A number of risks and uncertainties could cause actual results to differ materially from those expressed or implied by the forward‐looking statements, including: (1) a downturn in general economic conditions in North America and internationally; (2) the uncertainty as to product development and commercialization milestones; (3) the uncertainty as to the regulatory approval of the Company’s technology or intellectual property; (4) the risk that the Company does not execute its business plan; (5) inability to retain key employees, (6) inability to finance operations and growth; and, (7) other factors beyond the Company's control.

Forward‐looking statements speak only as of the date of this MD&A and actual results could differ materially from those anticipated in the forward‐looking statements as a result of a number of factors. Investors should not place undue reliance on forward‐looking statements as the plans, intentions or expectations upon which they are based may not occur. The Company does not assume responsibility for the accuracy and completeness of the forward‐looking statements set out in this MD&A and, subject to applicable securities laws, does not undertake any obligation to publicly revise these forward‐ looking statements to reflect subsequent events or circumstances. The forward‐looking statements contained herein are expressly qualified by this cautionary statement.

Overall Performance

Financial condition for the third quarter:

• Revenue was $185,645, a decrease of 25.5% compared to $249,180 in Q3 2019.

• Net loss and comprehensive loss were $14,051 compared to a net loss and comprehensive loss of $105,027 in Q3 2019, an improvement of $90,976 or 86.6%.

Financial condition for the nine month period ending 30 September 2020:

• Revenue was $563,089, a 15.7% decrease compared to $667,681 for the nine months ending 30 September 2019.

• Net loss and comprehensive loss were $126,913 compared to a net loss and comprehensive loss of $379,873 at 30 September 2019, an improvement of $252,960 or 66.6%.

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Company Overview

The Company was incorporated under the laws of British Columbia on 26 October 1989 and operated as a computer related consulting firm until 1991. In 1992, the Company commenced activities in research and development of advanced software and hardware related to a personal heart arrhythmia monitoring system.

Effective 7 December 1998, the Company's name was changed to CardioComm Solutions Inc. and to CardioComm Solutions, Inc. effective 26 November 2007.

The Company’s proprietary device connectivity and ECG management technologies are used in medical, consumer, clinical research and telemedicine solutions for the recording, transmission, viewing, analyzing, reporting and storage of electrocardiograms (ECGs), for arrhythmia screening, diagnosis and management of cardiac patients. The Global ECG Management Solutions (GEMS™) and GlobalCardio (Cloud based GEMS™) products are licensed worldwide to hospitals, ECG commercial reading services and physician. The Company has earned the ISO 13485:2016 under MDSAP certification, is HPB approved, HIPAA compliant, and has received FDA, Health Canada, European Union CE Mark, and Chinese SFDA market clearances for software and HeartCheck™ ECG devices. CardioComm Solutions, Inc. is headquartered in Toronto, Canada.

The Company is also the first company in North America to receive Class II medical device clearances for sales of a personal ECG monitor direct to consumers. The product is marketed under the HeartCheck™ brand. The Company developed compatibility of the HeartCheck™ device to its GEMS™ and GlobalCardio™ based software to enable use of the device for remote ECG/arrhythmia monitoring services. The Company also operates a fee‐for‐service ECG reading service named the SMART Monitoring ECG reading service through which ECGs recorded by a HeartCheck™ device may be reviewed by an ECG reading service. The Company plans to introduce new HeartCheck™ branded ECG monitoring devices and service options on an ongoing basis.

SUMMARY OF QUARTERLY RESULTS

The following is a summary of the Company’s most recent 8 quarters. This information has been prepared in accordance with IFRS and presents selected financial information for the Company.

Quarterly Results Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019	Q1 2020	Q2 2020	Q3 2020
Total revenue 284,347 216,147 202,353 249,180 207,208 198,024 179,421 185,645 Net loss and comprehensive loss (225,171) (140,569) (133,868) (105,027) (682,644) (68,177) (44,687) (14,051) Basic and diluted loss per share ($0.00) ($0.00) ($0.00) ($0.00) ($0.01) ($0.00) ($0.00) ($0.00) Total assets 1,089,796 1,050,210 990,177 961,652 323,384 437,765 416,624 381,543 Total liabilities 1,158,209 1,146,692 1,171,826 1,200,415 1,219,193 1,367,037 1,416,809 1,365,709

RESULTS OF OPERATIONS

For the three months ended 30 September 2020 compared to the three months ended 30 September 2019 and 2018.

The following table shows operating results expressed as a percentage of revenue for the three months ended 30 September:

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Operating Results	Q3 2020 Q3 2018 Q3 2019
Revenue Cost of sales Operations Sales service & support Marketing Research & development Total expenses Operating loss Other loss (income) Net loss and comprehensive loss	100.0% 100% 100%
	14.8% 86.3% 4.9% 1.6% 0.0% 19% 55% 46% 0% 15% 4% 19% 107% 7% 4%
	92.7% 116% 123%
	-7.6% 0.0% -35% 2% -42% 0%
	-7.6% -42% -33%

*Certain data has been reclassed to conform to this quarter’s presentation.

The following table shows revenue by product line expressed as a percentage of revenue for the three months ended 30 September:

Revenue by product line	Q3 2020	Q3 2019 Q3 2018
Software Hardware Support Servics	57% 21% 17% 5% 100% 0% 8% 100% 100% 19% 11% 66% 46% 15% 35%

The following table shows revenue by geographic region expressed as a percentage of revenue for the three months ended 30 September:

Revenue by geographic region	Q3 2020	Q3 2019 Q3 2018
Canada United States Other	38% 62% 0% 100% 100% 100% 11% 26% 47% 42% 42% 32%

Revenue

Revenue for the three months ended 30 September 2020 was $185,645 compared to $249,180 for the three months ended 30 September 2019, a decrease of 25.5%. This was primarily due to a 25.0% decrease in software licencing and support sales compared to the same quarter the previous year.

Cost of sales

Cost of sales for the three months ended 30 September 2020 was $27,531 which represents a 42.5% reduction in expense from $47,840 for the three months ended 30 September 2019 due to lower hardware sales compared to the prior year.

Operations

Operations expenses for the three months ended 30 September 2020 were $160,143, a slight improvement of 40.2% compared to $267,838 for the three months ended 30 September 2019, reflecting the curtailment of spending by the Company.

Sales, service and support

Sales, service and support expenses, excluding cost of sales, for the three months ended 30 September 2020 were $9,043 compared to $18,190 for the three months ended 30 September 2019, an improvement $22,046.

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Marketing

Marketing expenses for the three months ended 30 September 2020 were $2,979 compared to $10,027 for the three months ended 30 September 2019 largely related to COVID‐19 market changes.

Research and development

Research and development expenses for the three months ended 30 September 2020 were $Nil compared to $10,313 for the three months ended 30 September 2019. The reduction in research and development is due to a move from an emphasis of technological innovation to the launch of newly developed technologies.

Net loss and comprehensive loss

CardioComm recorded a net loss and comprehensive loss of $14,051 or $0.00 net loss per share for the three months ended 30 September 2020, compared to a net loss and comprehensive loss of $105,027 or $0.00 net loss per share for the three months ended 30 September 2019. The basic and fully diluted weighted average number of shares outstanding was 141,489,754 for the third quarter 2020 ended 30 September 2020 compared to 139,521,505 as at 31 December 2019 due to the issuance of shares for marketing services and for debt. The basic and fully diluted weighted average number of shares outstanding was 139,123,144 for the third quarter ended 30 September 2019.

For the nine months ended 30 September 2020 compared to the nine months ended 30 September 2019 and 2018.

The following table shows operating results expressed as a percentage of revenue for the nine months ended 30 September:

Operating Results	Q3 2020	Q3 2019 Q3 2018
Revenue Cost of sales Operations Sales service & support Marketing Research & development Total expenses Operating loss Other loss (income) Net loss and comprehensive loss	100% 100% 100%
	13% 101% 7% 2% 0% 6% 2% 5% 26% 23% 68% 115% 164% 9% 141%
	109% 134% 333%
	-23% 0% -57% -126% 0% 0%
	-23% -57% -126%

*Certain data has been reclassed to conform to this quarter’s presentation.

The following table shows revenue by product line expressed as a percentage of revenue for the nine months ended 30 September:

Revenue by product line	Q3 2020	Q3 2019 Q3 2018
Software Hardware Support Servics	59% 18% 15% 7% 100% 14% 12% 0% 9% 100% 100% 58% 42% 26% 37%

The following table shows revenue by geographic region expressed as a percentage of revenue for the nine months ended 30 September:

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Revenue by geographic region	Q3 2020	Q3 2019 Q3 2018
Canada United States Other	32% 67% 1% 1% 1% 45% 37% 54% 62%
	100% 100% 100%

Revenue

Revenue for the nine months ended 30 September 2020 was $563,089 compared to $667,681 for the nine months ended 30 September 2019, a decrease of 15.7%. This was primarily due to a hold on new HeartCheck ECG PEN hardware sales which resulted in a 31.8% drop in hardware sales compared to the same nine months the previous year. This drop in hardware sales was partially offset by stronger sales in services and support.

Cost of sales

Cost of sales for the nine months ended 30 September 2020 was $73,578 which represents a 51.6% decrease from $152,061 for the nine months ended 30 September 2019 due to lower hardware sales.

Operations

Operations expenses for the nine months ended 30 September 2020 were $566,888, a decrease of 26.1% compared to $766,831 for the nine months ended 30 September 2019, reflecting the curtailment of spending by the Company.

Sales, service and support

Sales, service and support expenses, excluding cost of sales, for the nine months ended 30 September 2020 were $37,623 compared to $59,669 for the nine months ended 30 September 2019, a decrease of 36.9%.

Marketing

Marketing expenses for the nine months ended 30 September 2020 were $11,913 compared to $39,320 for the nine months ended 30 September 2019 largely related to COVID‐19 market changes. At the end of 2018, the Company entered into an agreement for services with a marketing provider which expired in December 2019.

Research and development

Research and development expenses for the nine months ended 30 September 2020 were $Nil compared to $30,375 for the nine months ended 30 September 2019. The reduction in research and development is due to a move from an emphasis of technological innovation to the launch of newly developed technologies.

Net loss and comprehensive loss

CardioComm recorded a net loss and comprehensive loss of $126,913 or $0.00 net loss per share for the nine months ended 30 September 2020, compared to a net loss and comprehensive loss of $380,873 or $0.00 net loss per share for the nine months ended 30 September 2019. The basic and fully diluted weighted average number of shares outstanding was 141,168,154 for the nine months ended 30 September 2020 compared to 138,555,743 for the nine months ended 30 September 2019.

Liquidity

Operating activities

Cash inflows were $92,720 in the nine months ended 30 September 2020 (30 September 2019 – Cash outflow $44,328), a difference of $137,048. The nine‐month period ended 30 September 2020 had a net loss and comprehensive loss of $126,913 compared to a net loss and comprehensive loss of $379,873 in the nine months ended 30 September 2019.

Investing activities

Cash used in investing activities was $12,373 in the nine months ended 30 September 2020 (30 September 2019 ‐ $7,511). The investing activities are primarily due to purchases of computer equipment.

Financing activities

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Net cash acquired by financing activities was $23,042 in the nine months ended 30 September 2020 as the Company received a loan relating to COVID‐19 from the Canadian government, partially offset by the lease liability paid (30 September 2019 ‐ $34,375).

Cash requirements

Short‐term cash requirements are primarily related to funding of operations and marketing needs. Management has continued to take steps to position the Company’s operations to be cash flow positive. Management believes that its existing working capital, access to financing, as well as cash provided by GEMS[TM] software licensing and Heartcheck[TM] device sales will provide sufficient funds to maintain operations through the end of 2020. While there has been a loss in non‐recurring engineering services revenue to date, the Company maintains that this revenue remains a viable source for new funds and continues to seek custom engineering projects.

Management expects to continue to maintain its cost containment efforts and to see increases in revenue generation from newly released Bluetooth HeartCheck™ branded device sales, SMART Monitoring services associated with the release of a new Smartphone ECG app (GEMS™ Mobile ECG and GEMS™ Universal ECG), its hospital‐based GEMS™ WIN software licensing and soon to be released GEMS™ FLEX software. The Company also expects to continue to realize revenue from equipment / device sales under preferred distribution, original equipment manufacturer (OEM) agreements with a variety of ECG monitoring manufacturers and source code licensing agreements.

The Company has realized the risk associated with a reliance on non‐recurrent engineering (NRE) revenue which has fallen over the past 5 quarters. The Company has been working to develop larger, stable and predictable, fee‐for service, recurrent revenue streams through the planned introduction of new and wireless HeartCheck™ branded devices, that that were not available to its previously USB connected devices. Partnerships with telemedicine platforms and pharmaceutical‐ based research have begun and are expected to yield revenue from the sale of wireless HeartCheck™ Branded ECG devices, GEMS™ software licensing, GEMS™ Mobile Smartphone app downloads and from ECG paid‐for reading services. The Company secured a key FDA approval and Health Canada clearance in early 2019 for new Smartphone ECG management apps which will form the basis of many of the new revenue opportunities.

Transactions with Related Parties

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consists of members of the Company’s Board of Directors, corporate officers, including the Company’s Chief Executive Officer, Chief Financial Officer, and Vice Presidents.

Remuneration attributed to key management personnel for the nine months ended 30 September 2020 and the year ended 31 December 2019 is summarized as follows:

31 December 2019 30 September 2020	31 December 2019 30 September 2020
Share-based compensation Salaries Contractors Director's fees	6,056 13,787 150,000 300,000 62,130 40,000 26,400 35,100
	244,586 388,887

Amounts due to and from related parties as at 30 September 2020 included the following:

• Short‐term notes payable of $300,000 (2019 ‐ $300,000) are due to related parties. Interest payable of $45,123 on these notes is due to related parties.

• Other amounts due to related parties as at 30 September 2020 of $87,515 are due to the various members of management and the board of directors. As at 30 September 2020 these amounts were included in trade and other payables and accrued liabilities.

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• Included in trade and other payables at 30 September 2020 is $1,453 owed to a company controlled by the CEO.

Other than the notes payable and accrued interest, amounts due to and from related parties are non‐interest bearing with no set terms of repayment.

Capital Resources and Forward Strategies

Stock options

• On 22 January 2020, the Company issued 62,500 options at $0.05 to the CEO pursuant to his contract.

• In February 2020, 700,000 options expired.

• On 22 April 2020, the Company issued 62,500 options at $0.05 to the CEO pursuant to his employment contract.

• On 16 July 2020, the Company issued 62,500 options at $0.05 to the CEO pursuant to his employment contract.

Equity transactions

• On 12 February 2020, 650,000 shares were issued for debt settlement of $32,500.

• On 22 February 2020, 226,000 of shares to be issued for services of $11,300 to a vendor were issued.

Government assistance related to COVID‐19

• In May 2020, the Company entered into an arrangement with their principal banker for a Canada Emergency Business Account loan (CEBA) term loan agreement for $40,000.

• In May 2020, the Company opted to receive the Canada Emergency Wage Subsidy (CEWS).

COVID‐19

Since 31 December 2019, the outbreak of the novel strain of coronavirus, specifically identified as COVID‐19, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self‐imposed quarantine periods and social distancing, have caused material disruption to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID‐19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company in future periods.

Debt financing

Management continues the process of retiring the Company’s debt financing, which was $500,000 on 30 September 2020. Current debtholders have extended the loan maturity to December 2020.

Business and sales strategies

With a continued emphasis on cost containment and through the entering of new joint venture, development and co‐ marketing agreements the Company will continue to apply strategic operational cost reductions balanced to ongoing and growing revenues from software license and hardware sales, provision of fee‐for‐services, consultation and software customization to new customers. The Company continues to believe NRE custom software development opportunities, although unpredictable, represent an important revenue stream. To reduce dependency on NRE revenue for reaching profitability, the Company has executed on several co‐marketing, sales and partnership agreements with telemedicine platforms and hardware manufacturers to yield new revenue from the sale of wireless HeartCheck™ Branded ECG devices, GEMS™ software licensing, GEMS™ Mobile Smartphone app downloads and from ECG paid for reading services. The Company secured key FDA clearance in early 2019 which will form the basis of many of the new revenue opportunities.

The Company plans to launch a sales and marketing effort funded either through telemedicine platform sales or from financing efforts to generate funds required to accommodate the Company’s ongoing efforts for releasing next generation products such as its GEMS™ FLEX, the Android and iOS compatible Smartphone GEMS™ app for use with HeartCheck™ branded ECG devices, the GEMS™ Universal Smartphone app that will work with many non‐HeartCheck™ branded ECG monitoring devices sold globally as well as the Company’s branded handheld ECG devices marketed as the HeartCheck™ ECG Bluetooth PEN, the HeartCheck™ ECG Palm and the HeartCheck™ CardiBeat.

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The Company will continue to look to the addition of new consumer and prescription medical devices from third party brand manufacturers that will be compatible to the Company’s prescription and consumer use software platforms. Under these relationships device development fees will be borne by the OEM device companies. Where appropriate for the Company, CardioComm Solutions will work to secure medical device clearances (FDA and/or CE and/or Health Canada) approvals for the sale of these new devices under distributor/representation/OEM agreements which will add to GEMS™, HeartCheck™ and SMART Monitoring revenue streams with a lower associated cost of good. The Company’s goal is to earn less expensive revenue where gross sales and associated costs of goods may be lower, but earnings are maximized. While product and software enhancements are planned, these will continue to occur in step with associated new revenue or contracted services.

The Company continues to issue GEM™ WIN and GEMS™ FLEX licensing agreements to new hospital and ECG service providers. GEMS™ WIN referral sales also occur as follow‐through sales from medical device manufacturer’s efforts to sell their ECG devices with a compatible ECG management solution GEMS™ software license are sold under an annual licensing or pre‐paid multi‐year agreements which enhances uninterrupted yearly renewals for continued use of the Company’s software.

Off Balance Sheet Arrangements

The company does not have any off‐balance sheet arrangements as at 30 September 2020 and 31 December 2019.

Non‐cash transactions from investing and financing activities

During the nine months ended 30 September 2020, the Company had the following non‐cash transactions from investing and financing activities:

• 226,000 common shares that were to be issued as at 31 December 2019, for $10,000 of advertising services, and $1,300 of HST, were issued on 22 February 2020.

• 650,000 common shares were issued for settlement of debt of $32,500 were issued on 12 February 2020.

Subsequent Events

On October 1, 2020, 250,000 stock options with an exercise price of $0.08 expired.

Critical Accounting Estimates

The unaudited financial statements of the Company for the quarter ended 30 September 2020 and the audited financial statements for the year ended 31 December 2019, were prepared in accordance with IFRS applicable to a going concern which assumes that the Company will realize its assets and discharge its liabilities and meet its future obligations in the normal course of business. Accordingly, the financial statements do not include any adjustments for the recoverability and reclassification of recorded assets, or the amounts or classification of liabilities, that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material. However, there is significant doubt as to the appropriateness of the going concern presumption. There is no assurance that the Company's funding initiatives will continue to be successful.

Significant estimates made by management are, but are not limited to, revenue recognition, including the identification of separate units of accounting under multiple deliverable arrangements, the measurement of deferred revenue related to future services, valuation of stock‐based compensation, useful lives of equipment, the allowance for doubtful accounts, inventory valuation and the estimation of deferred income tax asset valuation allowances. Actual results could differ from those estimates.

Inventories

Inventories are valued at the lower of cost and net realizable value, with cost determined based on a first‐in, first‐out basis. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

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Inventories include the cost of materials purchased, the cost of conversion, as well as other costs required to bring the inventories to their present location and condition.

Revenue recognition

The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, the product has been delivered and is installed and operational at a customer's place of business or the services have been provided to the customer, the fee is fixed and determinable, and collectability is reasonably assured

In addition to this general policy, the following are the specific revenue recognition policies for each major category of revenue.

Software

Revenue from the sale of proprietary software is recognized when title is transferred to the customer. Shipping and handling costs paid by the customer to the Company are included in revenue.

Service

Revenues derived from ongoing service and maintenance contracts are recognized monthly over the term of the contract on a straight‐line basis and are net of discounts. Other service revenue is recognized at the time the service is performed.

Multiple‐element arrangements

The Company also has multiple‐element sales arrangements where software licenses, the associated post‐contract services (PCS) and ongoing services are sold together.

The Company has established vendor‐specific objective evidence (VSOE) of the fair value of PCS for specific customer classes based on the value of PCS when sold separately as an optional renewal after the expiry of the initial maintenance term or based on contracted prices for optional PCS renewals included in the original multiple element sales arrangement.

The Company uses the residual method to determine the fair value of the delivered hardware, services and software license if VSOE of the fair value of all undelivered elements exists. Under the residual method, the fair value of the undelivered elements is deferred, and the remaining portion of the arrangement fee is recognized as revenue. In such cases when vendor‐specific objective evidence of fair value exists for all of the undelivered elements (most commonly PCS), the residual amount is recognized as revenue and the PCS is recognized ratably over the PCS term, which is typically 12 months.

Income taxes

Income tax expense comprises current and deferred taxes. Current tax and deferred tax are recognized in earning or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income.

Current tax

Current taxes are the expected tax payable or recoverable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years.

Deferred Tax

The Company uses the asset and liability method of accounting for income taxes, under which deferred income tax assets and liabilities are recognized for the estimated future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred income tax assets and liabilities are measured using income tax rates in effect for the period in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in income tax rates or laws is recognized as part of the provision for income taxes in the period the changes are considered substantively enacted.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset deferred tax liabilities and assets, and they relate to income taxes levied by the same authority on the same taxable entity, or on different tax entities, but they intend to settle liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

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A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable earnings will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Stock compensation

The Company has a share‐based payments awards plan available to officers, directors, employees and consultants. All share‐based payments have been accounted for using a fair‐value‐based method of accounting. The fair value of each stock option granted is accounted for in the statements of loss and comprehensive loss, over the vesting period thereof, and the related credit is included in contributed surplus.

Equity‐settled share‐based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date using the Black‐Scholes option pricing model on the date of grant with management’s assumptions of risk‐free interest rate, dividend yield, volatility factor of expected market price of the Company’s common share, expected forfeiture and life of the options. For details regarding the determination of the fair value of equity‐settled share‐based transaction, refer to the notes to the financial statements for the year ended 31 December 2019.

Financial instruments

The fair value determined at the grant date of the equity‐settled share‐based payments is expensed over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in the statements of loss and comprehensive loss such that the expense reflects the revised estimate, with a corresponding adjustment to contributed surplus.

Equity‐settled share‐based payment transactions with parties other than employees are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the fair value of the equity instruments granted, measured at the date the Company grants the shares.

The fair value of the Company’s trade receivables, deposits, trade and other payables, short term notes payable, and amounts due to related parties’ approximate carrying value, due to their short‐term nature. The Company’s cash and cash equivalents are measured at fair value under the fair value hierarchy based on level one quoted prices in active markets for identical assets or liabilities.

The Company’s financial instruments are exposed to certain financial risks, including credit risk, liquidity risk, and market risk, which includes currency risk, interest rate risk and price risk.

a) Credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

The Company is subject to credit risk on its cash and cash equivalents and receivables. The Company limits its exposure to credit loss by placing its cash and cash equivalents with major financial institutions. The Company has no investments in asset‐backed commercial paper.

The Company’s main exposure to credit risk is from its trade receivables and is subject to the concentration of its key customers. Before allowances, the Company’s six largest receivable balances due from its customers represent 88% of trade receivables at 30 September 2020 (31 December 2019 ‐ 88%).

The Company records an allowance for credit losses related to trade receivables that are considered to be non‐ collectible. The allowance is based on the Company’s knowledge of the financial condition of its customers, the aging of the receivables, current business environment, customer and industry concentrations, and historical experience. To reduce credit risk, cash equivalents are only held at major financial institutions and management provides ongoing credit evaluations of its customers’ financial condition.

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Total trade receivables less an allowance for expected credit losses as at 30 September 2020 amounted to $90,569 (31 December 2019 ‐ $126,555), which management believes adequately reflects the Company’s credit risk. Of the reported trade receivables, 62% is determined to be past due, which is defined as amounts outstanding beyond normal credit terms and conditions for the respective customers. The significant over 90‐day trade receivable is from Shoppers Drug Mart, a Canadian reseller of the HeartCheck™ ECG PEN. This vendor continues to remit periodic payments against the outstanding balance on a timeline as determined by them. The Company has confirmed with the vendor that the liability for payment is accepted. While the Company continues to believe the trade receivables from this client are collectable, the Company has set up an allowance for expected credit losses in accordance with their policy on long overdue accounts.

b) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its short‐term financial obligations as they fall due.

The Company manages liquidity risk through its capital management as outlined in the financial statements for the quarter ended 30 September 2020. As at 30 September 2020, the Company has cash and cash equivalents, and trade receivables, net of an allowance for expected credit losses, of $264,456 to settle its trade and other payables, accrued liabilities short‐term lease liabilities and short‐term notes payable of $1,002,097.. It should be noted that the Company will need to obtain additional funds to support ongoing operating expenditures and meet its liabilities as they fall due.

c) Market Risk

Market risk is the risk of loss that may arise from changes in market factors such as foreign exchange rates, interest rates, and commodity and equity prices.

i. Currency risk

The functional currency of the Company is the Canadian dollar. The Company has sales in both Canadian and US dollars. As a result, the Company is exposed to foreign exchange rate risk with respects to the US dollar. As at 30 September 2020, the Company had net financial assets denominated in US dollars of approximately $98,886. A 10% change in Canadian dollars versus United States dollars would give rise to a gain or loss of approximately $8,990. The Company has not entered into any foreign exchange contracts to hedge this risk.

ii. Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that the Company will realize a loss as a result of interest rate risk on its notes payable is minimal, as these have a short‐term to maturity, and a fixed interest rate.

iii. Price risk

The Company is not exposed to significant price risk as it does hold investments in publicly traded securities.

Accounting Standards and Interpretations Issued and Adopted

No new IFRS were adopted with a material effect on the financial statements during this quarter.

Outstanding Share Data

The total issued and outstanding common shares of the Company at 30 September 2020, is 141,489,754 and, during the nine months ended 30 September 2020, CardioComm issued 876,000 shares.

Disclosure Controls and Procedures

The Company’s audit committee has reviewed and approved this MD&A prior to its release. CardioComm Solutions is committed to providing timely, accurate and balanced disclosure of all material information about the Company and to providing fair and equal access to such information. As at 30 September 2020, the Company’s management evaluated the effectiveness of the design and operation of its disclosure controls and procedures, as defined under the rules adopted by the Canadian securities’ regulatory authorities. In addition, the Company’s management has assessed whether there have

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been many significant changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed with securities regulatory authorities is recorded, processed, summarized and reported on a timely basis, and is accumulated and communicated to the Company’s management, including the CEO and CFO as appropriate, to allow timely decisions regarding required disclosure. Internal control over financial reporting is a process designed by, or under the supervision of, senior management to provide reasonable assurance regarding the reliability of financial reporting and preparation of the Company’s financial statements in accordance with IFRS.

The Company’s management, including the CEO and CFO, does not expect that the Company’s disclosure controls or internal control over financial reporting will prevent or detect all material misstatements due to error or fraud. Because of the inherent limitations of all control systems, an evaluation of controls can only provide reasonable, not absolute assurance, that all control issues and instances of fraud or error, if any, within the Company have been detected. The Company is continually evolving and enhancing its systems of controls and procedures. Based on the evaluation of disclosure controls, and assessment of changes in internal control over financial reporting, the CEO and CFO have concluded that, subject to the inherent limitations noted above, the Company’s disclosure controls are effective in ensuring that material information relating to the Company is made known to management on a timely basis, and is fairly presented in all material respects in this MD&A.

Internal Controls over Financial Reporting

Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the IFRS. Based on their evaluation, the CEO and CFO have concluded that the design of these internal controls over financial reporting and the preparation of financial statements for external reporting at 25 November 2020 are effective.

The Company relies on compensating controls, including substantive periodic review of the financial statements, to ensure that disclosure controls and procedures are effective. The Company continues to address requirements to strengthen audit and financial controls.

ADDITIONAL INFORMATION

Additional information relating to CardioComm Solutions, Inc. is located at www.sedar.com .

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