ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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This section of the report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions. All funds are reflected in United States dollars unless otherwise indicated.
There is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have generated no revenues from our operations during the last seven years. We have been able to remain in business as a result of investments, in debt or equity securities, by our officers and directors and by other unrelated parties. We expect to incur operating losses in the foreseeable future and our ability to continue as a going concern is dependent upon our ability to raise additional money through investments by others and achieve profitable operations. There is no assurance that we will be able to raise additional money or that additional money or that additional financing will be available to us on satisfactory terms or that we will be able to achieve profitable operations. The consolidated statements were prepared under the assumption that the Company will continue as a going concern, however, there can be no assurance that such financial support shall be ongoing or available on terms or conditions acceptable to the Company. This raises substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
For the last five fiscal years, starting January 2010, our management and board of directors have raised funds through a personal and professional network of investors. This has enabled product and business development, continued operations, and generation of customer interest. In order to continue operations, management has contemplated several options to raise capital and sustain operations in the next 12 months. These options include, debt and equity offers to existing shareholders, debt and equity offers to independent investment professionals and through various other financing alternatives. Management's opinion is that the combination of the three options along with the forecasted closing of at least one project will enable continued operations for the next 12 months. There is no assurance that we will receive additional money from these options and our existing shareholders are under no legal duty to provide us with additional financing nor have our shareholders committed to provide us with additional financing. Management believes that the Company can be generating sufficient cash flow from operation from the several potential projects as detailed below within the next 3 months and any additional funding can be met through one of the three options mentioned.
On December 24, 2015, we received a purchase request from Chrispod Limited in response to a proposal we submitted to Chrispod Limited on December 1, 2015, for medical equipment for the Ministry of Health in Ghana for regional hospital use. Chrispod Limited was awarded the contract on December 27
th
, 2012 and it was recently reapproved by the Minister of Health for delivery in 2016. Chrispod Limited has subcontracted Kallo for the delivery of the equipment as stated in our proposal and is currently awaiting final approval for the financing offer that was presented to the Minister of Finance. The full contract is approved for $60,058,000 US dollars, of which the Kallo proposed component will be $21,753,801 US dollars. The contract is in the final approval stage with the Minister of Finance. Under this contract, Kallo will supply medical equipment and accessories and other essential hospital equipment. Installation of the medical equipment is not included in the project scope. There is no assurance any equipment will be sold to Chirspod Limited.
On January 23, 2014, we announced the signing of a US$200,000,925 (Two Hundred million nine hundred and twenty-five US dollars) Supply Contract with the Ministry of Health and Public Hygiene of the Republic Of Guinea. On April 14, 2015, the Minister of Health and Public Hygiene, in a letter confirmed the selection of Kallo Inc., as supplier pursuant to the MobilCare
TM
Supply Contract, to design and build specialized hospitals in the regions of Conakry, Kindia, Labe, Kankan and Nzerekore, and asked Kallo to mobilize its technical teams for site visits to engage in preliminary studies for the construction of these hospitals. No equipment has been sold under the terms of this supply contract. There is no assurance any equipment will be purchased under this supply contract.
On October 11, 2015, the Republic of Guinea held their presidential election and the incumbent Prof. Alpha Conde was re-elected as affirmed by the National Electoral Commission on October 17, 2015. His formal inauguration occurred on December 14, 2015. With his re-election, there have been a number of cabinet changes, including the appointment of Dr. Abdou Diallo as the Minister of Health in early January. All of the project material has been provided to Dr. Diallo.
Under the Supply Contract, Kallo will implement an integrated healthcare delivery solution for the Republic of Guinea. The components of the solution include, MobileCare, RuralCare, Hospital Information Systems, Telehealth Systems, Pharmacy Information, disaster management, air and surface patient transportation systems and clinical training.
The Government of Guinea has been looking into securing funding for the Kallo Integrated Delivery System ("KIDS") for US$ 200,000,925 and a financial institution has come to the stage of agreeing on the terms requested by the Government of Guinea based on their acceptable economic framework for such projects. We continue to be in contact with the newly appointed Minister of Health and expect to finalize the health strategy and implementation schedules between the financial institution and the Government of Guinea in the next 6 months. Once this process is complete, it would trigger the release of Kallo's down payment for the project initiation and production
. There is no assurance that the down payment will ever be made to us.
In anticipation of the start of the Supply Contract, Kallo has built a Clinical Command Centre and other infrastructure at its Head Office as well as hiring a team focused on building out the project and delivery plan for the Contract.
MobileCare™ supply contract includes:
2.
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Clinical Command Centre - (1)
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3.
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Administration Centre -
(1)
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4.
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Utility vehicles - (2)
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5.
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User training - (5 years)
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6.
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Professional and clinical training - (5 years)
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7.
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Hardware and software maintenance - (5years)
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8.
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Operations & management support - (5 years)
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9.
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Maintenance and continued educational support - (5 years)
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10.
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Supply chain management of medical equipment, consumables and spare parts - (5 years)
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11.
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Advanced and integrated software systems, including telehealth - (1 full system)
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12.
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Fixed Medical Hospital - (1)
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14.
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Medical Helicopter - (1)
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In addition to the primary supply contract, on April 6, 2015, the Government of Guinea signed an addendum to the agreement expanding the project by $54,916,600 to include the addition of the following:
3.
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Clinical, Pharmaceutical and Laboratory Equipment
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4.
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Networking & Communications Infrastructure
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6.
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5-Year Service & Maintenance
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7.
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5-Year Education & Training by Kallo University
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On November 5, 2014, the Minister of Health of Ghana, Hon. Dr. Kwaku Agyeman Mensah in an official letter to Kallo Inc. conveyed a confirmed acceptance and prioritization of Kallo MobileCare; Kallo RuralCare and Kallo DialysisCare programs for Ghana.
During the first quarter of 2015, the office of the Minister of Finance – Ghana has been presented an offer to finance healthcare projects in Ghana valued at Euros 850 million. 250 million euros is to be utilized for a nation-wide malaria vector larviciding program, and the balance 600 million euros is for the Nation wide deployment of Kallo MobileCare, RuralCare and DialysisCare programs from Kallo Inc. The office of the Minister of Finance – Ghana is reviewing the offer and as of the date of this report, no further updates on financing were available.
The Ministry has identified project sites for this project as follows:
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Polyclinic Urban-Urban
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Polyclinic Rural- Rural
|
Total
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CHPS
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Greater Accra
|
3
|
1
|
4
|
0
|
Ashanti Region
|
2
|
1
|
3
|
0
|
Central Region
|
2
|
1
|
3
|
2
|
Northern Region
|
2
|
2
|
4
|
2
|
Upper East Region
|
1
|
2
|
3
|
2
|
Upper West Region
|
0
|
0
|
0
|
1
|
Western Region
|
2
|
3
|
5
|
0
|
Volta Region
|
1
|
1
|
2
|
2
|
Eastern Region
|
1
|
1
|
2
|
0
|
Brong-Ahafo Region
|
1
|
0
|
1
|
1
|
|
15
|
12
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27
|
10
|
There is no assurance that any of the foregoing projects will ever be initiated.
Plan of Operation
The following plan of operation contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this document. Because of the speculative nature of our operations and the nature of the African countries we are attempting to do business with, there is no assurance that any of the planned operations will occur.
Kallo Integrated Delivery System
Kallo's healthcare mission is to "reach the unreached". The end to end solution includes the following
:
·
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MobileCare
TM
– a mobile trailer that opens into a state of the art clinical setup in a vehicle equipped with the latest technology in healthcare. More than just a facility, MobileCare
TM
can instantly connect the onboard physician with specialists for on-demand consultation via satellite through its Telehealth system. This is truly a holistic approach to delivering healthcare to the remotely located. For many rural communities, the nearest hospital, doctor or nurse may be hundreds of kilometers away. In many cases, this gap can be bridged using Telehealth technology that allows patients, nurses and doctors to talk as if they were in the same room.
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·
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RuralCare
TM
– prefabricated modular healthcare units focused in rural areas where no roads infrastructure is available. They are equipped to provide primary healthcare including X-Ray, ultrasound, surgery, pharmacy and lab services. Ranging from 1,200 to 3,800 square feet, these clinics can be up and running in disaster zones or rural areas in as little as one week. Similar to the MobileCare
TM
product, RuralCare
TM
also utilizes satellite communications to access the Telehealth system.
|
·
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Global response center – located in the Kallo headquarters in Canada, this is the escalation point for the coordination of delivery of Telehealth and eHealth support. It consists of both the Clinical Command Center and the Administrative Command Center.
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·
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Regional response centers, Clinical and Administrative Command centers – located in the urban area hospitals and connected with satellite communications, these centers coordinate all aspects of the healthcare delivery solution with the Mobile clinics and Rural clinics including clinical services, Telehealth services, pharmacy and medical consumable coordination as well as escalations to the Global response center.
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·
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Kallo University – provides education, training and development of local resources for all aspects of the healthcare delivery which includes clinical, engineering and administration.
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·
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Emergency Services – provides ground and air ambulance vehicles for emergency transport.
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Our end to end delivery solution is equipped with necessary medical equipment as per regional healthcare requirements. We also install our copyrighted software and third party software as required along with a 5 year support agreement renewable after the 5 year initial term that includes the medical equipment, software licenses, installation implementation and training. This generates an ongoing revenue stream for service, maintenance, spare-parts, and consumables.
Sales Go-To-Market Strategy
Our Sales Go-To-Market Strategy is segmented based on the varying needs of our customers in the following three categories:
1.
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Full solution with Kallo Integrated Delivery System (KIDS) – typically longer sales cycle and includes the end to end solution of Mobile Clinics, Rural Poly Clinics, Global and Regional response centers, Clinical and Administrative command centers, telehealth support, Kallo University training, pharmacy and medical consumable support and Emergency services with ground and air ambulance vehicles. This solution is focused on the end to end healthcare needs of developing countries.
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2.
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Component Solutions – typically mid-term sales cycle and includes any of the components of the KIDS implementation without the full support structure. This strategy is focused on augmenting healthcare support where needed, such as, disaster management, North American First Nations, medical equipment supply, installation and testing.
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3.
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Technology Solutions – typically short-term sales cycle and includes elements of the KIDS program that can enhance existing healthcare solutions. These would include our Hospital Management System, Consulting services, Bio Medical support, Mobile or Fixed Clinic manufacturing, etc. This strategy is focused on enhancing existing healthcare environments globally.
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Our milestones during the next twelve months are:
1.
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Develop our sales and marketing organization for the Component Solutions segment and expand the existing pipeline by building relationships with Government disaster recovery agencies as well as First Nations Leaders. We are utilizing existing resources to execute this strategy and will expand as operational financing permits.
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2.
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Perform a market analysis of the demand for individual components of the solution and targeted audience for each of the components. We are utilizing the expertise of existing resources to execute this strategy and will expand as operational financing permits.
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3.
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Continue to develop a pipeline of qualified opportunities for the full delivery solution with target to close and begin execution of the solution within the next 12 months.
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Delivery Plan
Our plans for delivery of projects are unique to each opportunity but the core process can be emulated and specifics added based on the customers' requirements.
For a component delivery project such as our contract with Chrispod Limited for Ghana, the requirement is for the delivery of medical equipment, as well as other essential hospital equipment; beds, generators and elevator lifts. Of which only the generators and elevator lifts require installation services. With this solution, the delivery plan is focused around the coordination of manufacturer lead times, transportation offers and the management of importation and duties. Installation services are coordinated between the manufacturer and the Kallo engineering team. All of which are managed with detailed timeline reporting.
Our integrated healthcare delivery implementation plan for our full KIDS solution, such as for Guinea, begins with the detailed schedule for the delivery and training as agreed with the Government. We are currently developing a full 36 month roll out strategy for all aspects of the delivery, highlighting any risks and mitigation plans for those risks. Once the purchase order and payment are confirmed, the delivery plan includes a lead time of six months for production and landing of the first two mobile clinics.
In this period of six months from the date of purchase order confirmation to us the following will be completed for go live of the Healthcare Solution.
1.
|
Establish geographical coverage for Mobile Clinics based on hospitals to population ratio in specific rural areas of Guinea
|
2.
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Establish the specialists support from teaching hospitals
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3.
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Finalize all in country support contracts
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4.
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Establish in country leadership for operational and administrative support
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5.
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Establish governance councils for operations, education and training
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Our healthcare delivery solution with mobile clinics, clinical and administrative command centers deployed in an integrated model with the current healthcare delivery services will produce demonstrable impact in the community in terms of improved healthcare delivery within 12 months of implementation that would contribute to the flagship achievement by the current government to its merit.
Our plan and focus during the next twelve months include the delivery of our proposed project with Chrispod Limited and the Government of Ghana, beginning the first phase of implementation of our KIDS solution in Guinea and building out our go to market strategy as described in the Go-To-Market Strategy section.
New Business Developments
Ghana – In addition to the sub-contract from Chrispod Limited provided on December 24, 2015 and the direct Memorandum of Understanding signed on November 20, 2012, we are actively perusing the following opportunity:
·
|
Currently in discussions with Minister of Health to determine scope of a direct add on to the Chrispod Limited contract for medical equipment expansion for existing healthcare facilities across Ghana. Request for proposal and decision is expected by end of May 2016.
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Cameroon – From the proposal submitted on August 12, 2015, The Memorandum of Understanding process has been completed and approved by the Minister of Health and the Prime Minister's office. On Wednesday April 27
th
, 2016 the MOU was signed between Kallo and the Government of Cameroon. The next step includes a detailed analysis of the healthcare infrastructure currently in place. As part of the MOU, there is an immediate need for support of a sporting event taking place in Cameroon in late 2016.
Chad – Two alternative proposals both submitted on August 16, 2015 for either 12 Mobile Clinics or 1 Rural clinic to the Minister of National Security. The proposals are currently in the review phase with the Government of Chad with a follow up meeting still to be determined.
There is no assurance any of the foregoing will materialize.
Need for additional capital
We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a business enterprise, including limited capital resources and possible cost overruns due to price increases in services and products.
To become profitable and competitive, we have to sell our products and services.
We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Equity financing could result in additional dilution to existing shareholders.
Results of operations
Revenues
We did not generate any revenues during the three months ended March 31, 2016 or 2015.
Expenses
During the three months ended March 31, 2016 we incurred total expenses of $807,632, including $441,998 in salaries, compensation and payroll expenses, $15,767 in depreciation, $55,571 in professional fees, $408 in selling and marketing expenses, $65,414 in interest and financing costs, $42,429 in change in fair value on derivative liabilities and $186,045 as other expenses whereas during the three months ended March 31, 2015 we incurred total expenses of $1,531,415, including $440,734 in salaries and compensation, $8,654 in depreciation, $503,814 in professional fees, $45,114 in selling and marketing expenses, $173,609 in interest and finance costs, $292,010 in change in fair value derivative liabilities and $67,480 as other expenses. Our professional fees consist of legal, consulting, accounting and auditing fees.
The decrease in our total expenses for the three months ended March 31, 2016 from the comparative period is mainly due to the reduction in professional fees of $448,243, selling and marketing expenses of $44,706 and interest and financing costs of $108,195. With the limited funding that we have received, a cost containment strategy has been in place throughout the quarter.
Net Loss
During the three months ended March 31, 2016 we did not generate any revenues and incurred a net loss of $807,632 compared to a net loss of $1,531,415 during the same period in 2015.
Liquidity
and capital resources
As at March 31, 2016, the Company had current assets of $124,415 and current liabilities of $2,676,284, indicating working capital deficiency of $2,551,869. As of March 31, 2016, our total assets were $244,200 in cash, other receivables, prepaid expenses, deferred project costs, equipment, long term deposit and our total liabilities were $2,717,982 comprised of $1,642,015 in accounts payable and accrued liabilities, $212,283 in derivative liabilities, $199,102 in convertible promissory notes, $593,509 in convertible loans, short term loans of $16,765, and deferred lease inducement of $12,610.
Cash used in operating activities amounted to $170,595 during the three months ended March 31, 2016, primarily as a result of the net loss adjusted for non-cash items and various changes in operating assets and liabilities.
Cash used in investing activities during the current three months period ended March 31, 2016 was $0.
Cash provided by financing activities during the three months ended March 31, 2016 amounted to $180,556 and represented proceeds from issuance of convertible loans.