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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/14/23 Salona Global Medical Device Corp 10-Q 6/30/23 85:10M Newsfile Corp./FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report -- form10q HTML 1.87M
2: EX-2.1 Plan of Acquisition, Reorganization, Arrangement, HTML 126K
Liquidation or Succession -- exhibit2-1
3: EX-31.1 Certification -- §302 - SOA'02 -- exhibit31-1 HTML 25K
4: EX-31.2 Certification -- §302 - SOA'02 -- exhibit31-2 HTML 25K
5: EX-32.1 Certification -- §906 - SOA'02 -- exhibit32-1 HTML 23K
6: EX-32.2 Certification -- §906 - SOA'02 -- exhibit32-2 HTML 23K
12: R1 Document and Entity Information HTML 72K
13: R2 Unaudited Interim Condensed Consolidated Balance HTML 134K
Sheets
14: R3 Unaudited Interim Condensed Consolidated Balance HTML 37K
Sheets (Parentheticals)
15: R4 Unaudited Interim Condensed Consolidated HTML 135K
Statements of Operations and Comprehensive Loss
16: R5 Unaudited Interim Condensed Consolidated HTML 135K
Statements of Stockholders' Equity
17: R6 Unaudited Interim Condensed Consolidated HTML 128K
Statements of Cash Flows
18: R7 Description of the business HTML 31K
19: R8 Basis of presentation and going concern HTML 30K
20: R9 Significant accounting policies HTML 80K
21: R10 Acquisitions HTML 137K
22: R11 Accounts receivable HTML 30K
23: R12 Disaggregation of revenues HTML 25K
24: R13 Inventories HTML 31K
25: R14 Property and equipment HTML 89K
26: R15 Intangible assets HTML 69K
27: R16 Accounts payable and accrued liabilities HTML 31K
28: R17 Line of credit and debt HTML 59K
29: R18 Leases HTML 56K
30: R19 Stockholders' equity HTML 105K
31: R20 Related party transactions HTML 33K
32: R21 Transaction costs HTML 34K
33: R22 Cash and cash equivalents HTML 25K
34: R23 Income taxes HTML 29K
35: R24 Other income HTML 27K
36: R25 Contingencies HTML 27K
37: R26 Subsequent events HTML 27K
38: R27 Significant accounting policies (Policies) HTML 134K
39: R28 Significant accounting policies (Tables) HTML 32K
40: R29 Acquisitions (Tables) HTML 129K
41: R30 Accounts receivable (Tables) HTML 30K
42: R31 Inventories (Tables) HTML 31K
43: R32 Property and equipment (Tables) HTML 88K
44: R33 Intangible assets (Tables) HTML 69K
45: R34 Accounts payable and accrued liabilities (Tables) HTML 31K
46: R35 Line of credit and debt (Tables) HTML 45K
47: R36 Leases (Tables) HTML 52K
48: R37 Stockholders' equity (Tables) HTML 98K
49: R38 Transaction costs (Tables) HTML 33K
50: R39 Description of the business (Narrative) (Details) HTML 46K
51: R40 Significant accounting policies (Narrative) HTML 32K
(Details)
52: R41 Significant accounting policies - Schedule of HTML 47K
estimated useful lives of property and equipment
(Details)
53: R42 Significant accounting policies - Schedule of HTML 33K
estimated useful lives of Intangible asset
(Details)
54: R43 Acquisitions (Narrative) (Details) HTML 195K
55: R44 Acquisitions - Schedule of allocation of purchase HTML 132K
price (Details)
56: R45 Acquisitions - Schedule of goodwill and other HTML 66K
intangible assets (Details)
57: R46 Acquisitions - Schedule of value of total HTML 84K
consideration (Details)
58: R47 Accounts receivable - Schedule of accounts HTML 34K
receivable (Details)
59: R48 Disaggregation of revenues (Narrative) (Details) HTML 27K
60: R49 Inventories - Schedule of inventories (Details) HTML 33K
61: R50 Property and equipment - Schedule of property and HTML 129K
equipment (Details)
62: R51 Intangible assets - Schedule of intangible assets HTML 87K
(Details)
63: R52 Accounts payable and accrued liabilities HTML 26K
(Narrative) (Details)
64: R53 Accounts payable and accrued liabilities - HTML 32K
Schedule of accounts payable and accrued
liabilities (Details)
65: R54 Line of credit and debt (Narrative) (Details) HTML 177K
66: R55 Line of credit and debt - Schedule of debt HTML 69K
(Details)
67: R56 Leases (Narrative) (Details) HTML 102K
68: R57 Leases - Schedule of right-of-use assets and lease HTML 50K
liabilities (Details)
69: R58 Leases - Schedule of future minimum lease payments HTML 49K
payable (Details)
70: R59 Stockholders' equity (Narrative) (Details) HTML 255K
71: R60 Stockholders' equity - Schedule of outstanding HTML 106K
stock options (Details)
72: R61 Stockholders' equity - Schedule of changes to HTML 44K
stock options (Details)
73: R62 Stockholders' equity - Schedule of outstanding HTML 40K
warrants (Details)
74: R63 Stockholders' equity - Schedule of summary of HTML 41K
warrants (Details)
75: R64 Related party transactions (Narrative) (Details) HTML 48K
76: R65 Transaction costs - Schedule of transaction costs HTML 31K
including legal, audit and US regulatory (Details)
77: R66 Cash and cash equivalents (Narrative) (Details) HTML 25K
78: R67 Income taxes (Narrative) (Details) HTML 27K
79: R68 Other income (Narrative) (Details) HTML 30K
80: R69 Subsequent events (Narrative) (Details) HTML 44K
83: XML IDEA XML File -- Filing Summary XML 151K
81: XML XBRL Instance -- form10q_htm XML 2.46M
82: EXCEL IDEA Workbook of Financial Report Info XLSX 224K
8: EX-101.CAL XBRL Calculations -- sgmd-20230630_cal XML 154K
9: EX-101.DEF XBRL Definitions -- sgmd-20230630_def XML 839K
10: EX-101.LAB XBRL Labels -- sgmd-20230630_lab XML 3.72M
11: EX-101.PRE XBRL Presentations -- sgmd-20230630_pre XML 1.21M
7: EX-101.SCH XBRL Schema -- sgmd-20230630 XSD 383K
84: JSON XBRL Instance as JSON Data -- MetaLinks 554± 821K
85: ZIP XBRL Zipped Folder -- 0001062993-23-016445-xbrl Zip 455K
| Salona Global Medical Device Corp.: Form 10-Q - Filed by newsfilecorp.com |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i June 30, i 2023 /
OR
i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number i 333-266806
i SALONA GLOBAL MEDICAL DEVICE CORPORATION
(Exact name of registrant as specified in its charter)
| i British Columbia | Not Applicable |
| (I.R.S. Employer Identification Number) | (State or other jurisdiction of incorporation or organization) |
| i 49 Natcon Drive, i Shirley, i NY | i 11967 |
| (Address of principal executive offices) | Zip Code |
( i 800) i 760-6826
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer ☐ | Accelerated filer ☐ | i Non-accelerated filer ☐ |
| Smaller reporting company i ☒ | Emerging growth company i ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No i ☒
As of August 10, 2023 (latest practicable date), i 56,423,092 common shares, no par value, and 21,378,799 Class A shares, no par value, were outstanding.
As used in this Quarterly Report on Form 10-Q, the terms "the Company," "us," "our," the "Company" and "Salona" mean Salona Global Medical Device Corporation (a corporation incorporated under the laws of the Province of British Columbia formerly known as Brattle Street Investment Corp.) and its subsidiaries (unless the context indicates a different meaning).
SALONA GLOBAL MEDICAL DEVICE CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
For the Three and Six Months Ended June 30, 2023, and June 30, 2022
(Expressed in Canadian Dollars, unless specified otherwise)
2
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
| Note | June 30, 2023 | December 31, 2022 | |||||||
| Assets | |||||||||
| Cash and cash equivalents | 16 | $ | i 1,398,103 | $ | i 1,928,464 | ||||
| Accounts receivable, net | 5 | i 10,980,119 | i 6,353,275 | ||||||
| Inventories, net | 7 | i 13,348,620 | i 8,102,626 | ||||||
| Prepaid expenses and other receivables | 18 | i 1,811,923 | i 216,489 | ||||||
| Total current assets | i 27,538,765 | i 16,600,854 | |||||||
| Security deposit | 12 | i 595,857 | i 566,198 | ||||||
| Long-term accounts receivable | 5 | i 141,668 | i 189,616 | ||||||
| Long-term prepaid expenses and other receivables | i 436,614 | i 441,025 | |||||||
| Property and equipment, net | 8 | i 3,942,998 | i 3,399,898 | ||||||
| Right-of-use assets, net | 12 | i 11,668,572 | i 7,781,300 | ||||||
| Intangible assets, net | 9 | i 10,584,239 | i 9,376,162 | ||||||
| Goodwill | 4 | i 15,251,230 | i 13,695,194 | ||||||
| Total assets | $ | i 70,159,943 | $ | i 52,050,247 | |||||
| Liabilities and Stockholders' Equity | |||||||||
| Liabilities | |||||||||
| Line of credit | 11 | i 8,434,492 | i 5,162,711 | ||||||
| Accounts payable and accrued liabilities | 10 | i 10,097,527 | i 6,641,181 | ||||||
| Current portion of debt | 11 | i 9,033,918 | i 195,489 | ||||||
| Current portion of lease liability | 12 | i 1,565,326 | i 847,253 | ||||||
| Other liabilities | 10 | i 4,013,413 | i 1,807,702 | ||||||
| Obligation for payment of earn-out consideration | 4 | i 12,729,714 | i 15,506,531 | ||||||
| Total current liabilities | i 45,874,390 | i 30,160,867 | |||||||
| Debt, net of current portion | 11 | i 741,238 | i 574,515 | ||||||
| Lease liability, net of current portion | 12 | i 7,726,691 | i 5,983,333 | ||||||
| Total liabilities | $ | i 54,342,319 | $ | i 36,718,715 | |||||
| Stockholders' equity | |||||||||
| Common stock; i i no / par value, unlimited shares authorized; i i 56,423,092 / shares issued and outstanding as of June 30, 2023 (December 31, 2022 - i i 53,707,780 / ) | |||||||||
|
13 |
i 39,610,457 |
i 38,767,442 |
|||||||
| Class A shares; i i no / par value, unlimited shares authorized; i i 21,378,799 / shares issued and outstanding as of June 30, 2023 (December 31, 2022 - i i 3,403,925 / ) | 13 | i 12,542,088 | i 1,800,064 | ||||||
| Common stock to be issued: i 368,500 shares to be issued as of June 30, 2023 (December 31, 2022 - i nil) |
13 |
i 103,180 | i - | ||||||
| Class A shares to be issued: i 6,261,340 Class A shares to be issued as of June 30, 2023 (December 31, 2022 - i 19,019,000) | 13 | i 4,696,005 | i 14,264,250 | ||||||
| Additional paid-in-capital | 13 | i 9,154,765 | i 8,072,610 | ||||||
| Accumulated other comprehensive income | i 1,751,002 | i 1,688,452 | |||||||
| Deficit | ( i 52,039,873 | ) | ( i 49,261,286 | ) | |||||
| Total stockholders' equity | $ | i 15,817,624 | $ | i 15,331,532 | |||||
| Total liabilities and stockholders' equity | $ | i 70,159,943 | $ | i 52,050,247 | |||||
| Basis of presentation and going concern (Note 2) | |||||||||
| Contingencies (Note 19) | |||||||||
| Subsequent events (Note 20) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
| For the 3 months ended | For the 6 months ended | ||||||||||||||
| Note | June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||
| Revenue | 6 | $ | i 16,575,075 | $ | i 9,761,145 | $ | i 27,258,304 | $ | i 18,429,560 | ||||||
| Cost of revenue | |||||||||||||||
| Direct service personnel | i 1,652,004 | i 1,443,458 | i 3,477,759 | i 2,874,397 | |||||||||||
| Direct material costs | i 8,964,709 | i 4,837,017 | i 13,390,800 | i 8,552,625 | |||||||||||
| Other direct costs | i 325,947 | i 204,513 | i 661,471 | i 499,521 | |||||||||||
| Total cost of revenue | i 10,942,660 | i 6,484,988 | i 17,530,030 | i 11,926,543 | |||||||||||
| Gross margin | i 5,632,415 | i 3,276,157 | i 9,728,274 | i 6,503,017 | |||||||||||
| Operating expenses | |||||||||||||||
| Selling, general, and administrative | i 6,966,370 | i 3,151,147 | i 10,841,584 | i 5,724,699 | |||||||||||
| Depreciation of property and equipment | 8 | i 265,066 | i 71,817 | i 449,330 | i 140,940 | ||||||||||
| Amortization of right-of-use assets | 12 | i 540,308 | i 83,611 | i 922,141 | i 170,036 | ||||||||||
| Amortization of intangible assets | 9 | i 350,553 | i 249,029 | i 701,099 | i 464,010 | ||||||||||
| Total operating expenses | i 8,122,297 | i 3,555,604 | i 12,914,154 | i 6,499,685 | |||||||||||
| Net operating (loss) gain | ( i 2,489,882 | ) | ( i 279,447 | ) | ( i 3,185,880 | ) | i 3,332 | ||||||||
| Interest expense | ( i 454,446 | ) | ( i 114,763 | ) | ( i 732,532 | ) | ( i 235,217 | ) | |||||||
| Foreign exchange gain (loss) | i 2,990 | i 240 | i 4,518 | ( i 3,933 | ) | ||||||||||
| Other income | 18 | i 815,428 | i 3 | i 815,561 | i 48 | ||||||||||
| Provision for impairment | 4 | i - | ( i 7,391 | ) | i - | ( i 5,527,913 | ) | ||||||||
| Change in fair value of earnout consideration | 4 | i 1,165,697 | ( i 2,451,600 | ) | i 1,165,697 | ( i 2,451,600 | ) | ||||||||
| Change in fair value of contingent consideration | 4 | ( i 77,795 | ) | ( i 459,693 | ) | ( i 273,095 | ) | i 5,394,008 | |||||||
| Transaction costs | 15 | ( i 75,541 | ) | ( i 369,289 | ) | ( i 534,312 | ) | ( i 1,568,409 | ) | ||||||
| Net loss before taxes | $ | ( i 1,113,549 | ) | $ | ( i 3,681,940 | ) | $ | ( i 2,740,043 | ) | $ | ( i 4,389,684 | ) | |||
| Provision for income taxes | 17 | ( i 2,294 | ) | i 31,607 | ( i 38,544 | ) | i 145,717 | ||||||||
| Net loss |
|
( i 1,115,843 | ) |
|
( i 3,650,333 | ) |
|
( i 2,778,587 | ) |
|
( i 4,243,967 | ) | |||
| Other comprehensive loss | |||||||||||||||
| Foreign currency translation gain (loss) | i 104,993 | ( i 28,965 | ) | i 62,550 | i 668,004 | ||||||||||
| Comprehensive loss |
$ |
( i 1,010,850 | ) |
$ |
( i 3,679,298 | ) |
$ |
( i 2,716,037 | ) |
$ |
( i 3,575,963 | ) | |||
| Net loss per share | |||||||||||||||
| Basic and diluted | ( i i 0.02 / | ) | ( i i 0.07 / | ) | ( i i 0.04 / | ) | ( i i 0.08 / | ) | |||||||
| Weighted average number of common stock and Class A shares outstanding | i i 73,949,654 / | i i 52,882,328 / | i i 68,178,999 / | i i 50,742,334 / | |||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity (In Canadian Dollars, unless specified otherwise) |
| Common stock | Common stock to be issued |
Class A Shares | Class A shares to be issued |
Accumulated | ||||||||||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||||||||||||||
| paid-in- | comprehensive | |||||||||||||||||||||||||||||||||||
| Number | Amount $ | Number | Amount $ | Number | Amount $ | Number | Amount $ | capital $ | income $ | Deficit $ | Total $ | |||||||||||||||||||||||||
| Balance - March 31, 2022 | i 52,539,162 | i 38,046,097 | i - | i - | i 1,355,425 | i 480,479 | i - | i - | i 6,985,107 | i 1,244,142 | ( i 33,747,209 | ) | i 13,008,616 | |||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | - | - | i 489,089 | - | - | i 489,089 | ||||||||||||||||||||||||
| Shares issued on exercise of options | i 28,154 | i 8,426 | - | - | - | - | - | - | ( i 3,097 | ) | - | - | i 5,329 | |||||||||||||||||||||||
| Shares issued on exercise of warrants | i 454,817 | i 229,598 | - | - | - | - | - | - | ( i 13,645 | ) | - | - | i 215,953 | |||||||||||||||||||||||
| Shares to be issued related to acquisition of SDP | - | - | - | - | - | - | i 19,162,000 | i 14,371,500 | - | - | - | i 14,371,500 | ||||||||||||||||||||||||
| Shares issued related to acquisition of SDP | - | - | - | - | i 143,000 | i 107,250 | ( i 143,000 | ) | ( i 107,250 | ) | - | - | - | - | ||||||||||||||||||||||
| Class A shares exchanged for common shares | i 143,000 | i 107,250 | - | - | ( i 143,000 | ) | ( i 107,250 | ) | - | - | - | - | - | - | ||||||||||||||||||||||
| Foreign currency translation loss | - | - | - | - | - | - | - | - | - | ( i 28,965 | ) | - | ( i 28,965 | ) | ||||||||||||||||||||||
| Net loss from the period | - | - | - | - | - | - | - | - | - | - | ( i 3,650,333 | ) | ( i 3,650,333 | ) | ||||||||||||||||||||||
| Balance - June 30, 2022 | i 53,165,133 | i 38,391,371 | i - | i - | i 1,355,425 | i 480,479 | i 19,019,000 | i 14,264,250 | i 7,457,454 | i 1,215,177 | ( i 37,397,542 | ) | i 24,411,189 | |||||||||||||||||||||||
| Balance December 31, 2021 | i 44,790,162 | i 36,552,873 | i - | i - | i 1,355,425 | i 480,479 | i - | i - | i 4,334,251 | i 547,173 | ( i 33,153,575 | ) | i 8,761,201 | |||||||||||||||||||||||
| Stock based compensation | - | - | - | - | - | - | - | - | i 927,658 | - | - | i 927,658 | ||||||||||||||||||||||||
| Shares issued on exercise of options | i 28,154 | i 8,426 | - | - | - | - | - | - | ( i 3,097 | ) | - | - | i 5,329 | |||||||||||||||||||||||
| Shares issued on exercise of warrants | i 454,817 | i 229,598 | - | - | - | - | - | - | ( i 13,645 | ) | - | - | i 215,953 | |||||||||||||||||||||||
| Shares issued on financing, net | i 7,749,000 | i 2,253,482 | - | - | - | - | - | - | i 2,008,468 | - | - | i 4,261,950 | ||||||||||||||||||||||||
| Share issuance costs | - | ( i 760,258 | ) | - | - | - | - | - | - | i 203,819 | - | - | ( i 556,439 | ) | ||||||||||||||||||||||
| Shares to be issued related to acquisition of SDP | - | - | - | - | - | - | i 19,162,000 | i 14,371,500 | - | - | - | i 14,371,500 | ||||||||||||||||||||||||
| Shares issued related to acquisition of SDP | - | - | - | - | i 143,000 | i 107,250 | ( i 143,000 | ) | ( i 107,250 | ) | - | - | - | - | ||||||||||||||||||||||
| Class A shares exchanged for common shares | i 143,000 | i 107,250 | - | - | ( i 143,000 | ) | ( i 107,250 | ) | - | - | - | - | - | - | ||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | - | - | - | - | - | i 668,004 | - | i 668,004 | ||||||||||||||||||||||||
| Net loss from the period | - | - | - | - | - | - | - | - | - | - | ( i 4,243,967 | ) | ( i 4,243,967 | ) | ||||||||||||||||||||||
| Balance - June 30, 2022 | i 53,165,133 | i 38,391,371 | i - | i - | i 1,355,425 | i 480,479 | i 19,019,000 | i 14,264,250 | i 7,457,454 | i 1,215,177 | ( i 37,397,542 | ) | i 24,411,189 | |||||||||||||||||||||||
| Balance - March 31, 2023 | i 54,151,709 | i 38,970,199 | i 147,400 | i 47,168 | i 15,717,656 | i 11,097,512 | i 6,261,340 | i 4,696,005 | i 8,472,908 | i 1,646,009 | ( i 50,924,030 | ) | i 14,005,771 | |||||||||||||||||||||||
| Share based compensation | - | - | - | - | - | - | - | - | i 391,572 | - | - | i 391,572 | ||||||||||||||||||||||||
| Shares issued on exercise of options | i 147,400 | i 47,168 | ( i 147,400 | ) | ( i 47,168 | ) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||
| Shares issued for settlement of liabilities | i 337,524 | i 84,381 | - | - | - | - | - | - |
i 114,714 |
- | - | i 199,095 | ||||||||||||||||||||||||
| Shares issued related to Simbex agreement | - | - | - | - | i 6,383,952 | i 1,819,426 | - | - | - | - | - | i 1,819,426 | ||||||||||||||||||||||||
| Shares issued related to ALG agreement | - | - | - | - | i 432,150 | i 142,610 | - | - | - | - | - | i 142,610 | ||||||||||||||||||||||||
| Shares issued related to Arrowhead agreement | - | - | - | - | i 1,000,000 | i 270,000 | - | - | - | - | - | i 270,000 | ||||||||||||||||||||||||
| Class A shares exchanged for common shares | i 1,786,459 | i 508,709 | i 368,500 | i 103,180 | ( i 2,154,959 | ) | ( i 787,460 | ) | - | - | i 175,571 | - | ||||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | - | - | - | - | - | i 104,993 | - | i 104,993 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | ( i 1,115,843 | ) | ( i 1,115,843 | ) | ||||||||||||||||||||||
| Balance - June 30, 2023 | i 56,423,092 | i 39,610,457 | i 368,500 | i 103,180 | i 21,378,799 | i 12,542,088 | i 6,261,340 | i 4,696,005 | i 9,154,765 | i 1,751,002 | ( i 52,039,873 | ) | i 15,817,624 | |||||||||||||||||||||||
| Balance - December 31, 2022 | i 53,707,780 | i 38,767,442 | i - | i - | i 3,403,925 | i 1,800,064 | i 19,019,000 | i 14,264,250 | i 8,072,610 | i 1,688,452 | ( i 49,261,286 | ) | i 15,331,532 | |||||||||||||||||||||||
| Share based compensation | - | - | - | - | - | - | - | - | i 737,096 | - | - | i 737,096 | ||||||||||||||||||||||||
| Shares issued on exercise of options | i 147,400 | i 47,168 | - | - | - | - | - | - | ( i 13,266 | ) | - | - | i 33,902 | |||||||||||||||||||||||
| Shares issued related to acquisition of SDP | - | - | - | - | i 12,757,660 | i 9,568,245 | ( i 12,757,660 | ) | ( i 9,568,245 | ) | - | - | - | - | ||||||||||||||||||||||
| Shares issued for settlement of liabilities | i 337,524 | i 84,381 | - | - | - | - | - | - | i 114,714 | - | - | i 199,095 | ||||||||||||||||||||||||
| Shares issued related to Simbex agreement | - | - | - | - | i 6,383,952 | i 1,819,426 | - | - | - | - | - | i 1,819,426 | ||||||||||||||||||||||||
| Shares issued related to ALG agreement | - | - | - | - | i 432,150 | i 142,610 | - | - | - | - | - | i 142,610 | ||||||||||||||||||||||||
| Shares issued related to Arrowhead agreement | - | - | - | - | i 1,000,000 | i 270,000 | - | - | - | - | - | i 270,000 | ||||||||||||||||||||||||
| Class A shares exchanged for common shares | i 2,230,388 | i 711,466 | i 368,500 | i 103,180 | ( i 2,598,888 | ) | ( i 1,058,257 | ) | - | - | i 243,611 | - | - | - | ||||||||||||||||||||||
| Foreign currency translation gain | - | - | - | - | - | - | - | - | - | i 62,550 | - | i 62,550 | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | - | - | - | - | - | - | - | ( i 2,778,587 | ) | ( i 2,778,587 | ) | ||||||||||||||||||||||
| Balance - June 30, 2023 | i 56,423,092 | i 39,610,457 | i 368,500 | i 103,180 | i 21,378,799 | i 12,542,088 | i 6,261,340 | i 4,696,005 | i 9,154,765 | i 1,751,002 | ( i 52,039,873 | ) | i 15,817,624 | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
| (In Canadian Dollars, unless specified otherwise)
|
| For the six months ended | |||||||
| Note | June 30, 2023 | June 30, 2022 | |||||
| Operating activities | |||||||
| Net loss | $ | ( i 2,778,587 | ) | $ | ( i 4,243,967 | ) | |
| Non-cash items: | |||||||
| Depreciation and amortization | 8,9,12 | i 2,072,570 | i 774,986 | ||||
| Interest accretion on lease liability | 12 | i 276,810 | i 118,498 | ||||
| Stock based compensation | 13 | i 737,096 | i 927,658 | ||||
| Change in fair value of contingent consideration | 4 | i 273,095 | ( i 5,394,008 | ) | |||
| Change in fair value of earn-out consideration | 4 | ( i 1,165,697 | ) | i 2,451,600 | |||
| Loss on disposal of property and equipment | 8 | i 23,127 | i - | ||||
|
Deferred income tax recovery |
17 |
i - |
( i 145,717 |
) |
|||
| Provision for impairment | i - | i 5,527,913 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | ( i 4,386,591 | ) | i 492,481 | ||||
| Prepaid expenses and other receivables | ( i 1,337,822 | ) | ( i 366,756 | ) | |||
| Inventories | i 2,026,942 | ( i 1,726,096 | ) | ||||
| Long-term accounts receivable | i 47,948 | i - | |||||
| Long-term prepaid expenses and other receivables | i 4,411 | i - | |||||
| Accounts payable and accrued liabilities | i 2,384,861 | i 1,179,609 | |||||
| Other liabilities | ( i 98,999 | ) | i 1,111,764 | ||||
| Net cash (used in) provided by operating activities | ( i 1,920,836 | ) | i 707,965 | ||||
| Investing activities | |||||||
| Cash received on acquisition of Mio-Guard | 4 | i - | i 3,363 | ||||
| Cash received on acquisition of Arrowhead | 4 | i 28,217 | i - | ||||
| Acquisition of property and equipment | 8 | ( i 135,710 | ) | ( i 65,366 | ) | ||
| Acquisition of intellectual property | 9 | i - | ( i 235,228 | ) | |||
| Acquisition of Mio-Guard | 4 | i - | ( i 572,400 | ) | |||
| Acquisition of Biode | 4 | ( i 1,343,800 | ) | i - | |||
| Net cash used in investing activities | ( i 1,451,293 | ) | ( i 869,631 | ) | |||
| Financing activities | |||||||
| Proceeds from term debt, net | 11 | i 193,202 | ( i 83,207 | ) | |||
| Proceeds from line of credit, net | 11 | i 2,944,678 | i 111,801 | ||||
| Proceeds from exercise of broker warrants | i - | i 215,953 | |||||
| Proceeds from issuance of shares | i - | i 4,261,950 | |||||
| Share issuance costs | i - | ( i 556,439 | ) | ||||
| Proceeds from exercise of stock options | 13 | i 33,902 | i 5,329 | ||||
| Lease payments | 12 | ( i 824,092 | ) | ( i 259,190 | ) | ||
| Net cash provided by financing activities | i 2,347,690 | i 3,696,197 | |||||
| Effect of foreign exchange rates on cash and cash equivalents | i 494,078 | i 11,043 | |||||
| (Decrease) increase in cash and cash equivalents | ( i 1,024,439 | ) | i 3,534,531 | ||||
| Cash and cash equivalents, opening | i 1,928,464 | i 4,466,230 | |||||
| Cash and cash equivalents, closing | $ | i 1,398,103 | $ | i 8,011,804 | |||
| Supplementary information: | |||||||
| Interest paid | i 455,722 | i 116,719 | |||||
| Income taxes paid | i 38,544 | i 29,753 | |||||
|
Shares issued for settlement of liabilities |
i 199,095 |
i - |
|||||
|
Promissory note issued for acquisition |
i 8,717,133 |
i - |
|||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
1. Description of the business
Salona Global Medical Device Corporation (formerly known as Brattle Street Investment Corp.) ("the Company," "us," "our," "Salona," "Salona Global," or the "Company"), is a publicly traded company listed on the TSX Venture Exchange (the "Exchange" or "TSXV"). The Company is an acquisition oriented, US-based and revenue generating medical device technology company focused on human performance and rehabilitative solutions. The Company aims to acquire small to midsize US and internationally based medical device products and companies with the goal of expanding sales and improving operations. The Company's aim is to create a large, broad-based medical device company with global reach.
The Company was incorporated under the Canada Business Corporations Act on September 17, 2013. The common shares trade on the TSXV under the symbol "SGMD." The registered office is Suite 200E - 1515A Bayview Avenue, East York, Ontario and the headquarters are located at 49 Natcon Drive, Shirley, NY, 11967.
On May 21, 2021, the Company acquired South Dakota Partners Inc. ("SDP").
On September 30, 2021, the Company acquired Simbex, LLC ("Simbex").
On November 28, 2021, the Company launched a new U.S. sales subsidiary called ALG Health Plus, LLC ("Health Plus").
On March 11, 2022, the Company acquired Mio-Guard, LLC ("Mio-Guard").
On September 23, 2022, the Company acquired DaMar Plastics Manufacturing Inc. ("DaMar").
On December 14, 2022, the Board of Directors of the Company approved a change to its fiscal year from February 28 to December 31. The Company's fiscal year now begins on January 1 and ends on December 31 of each year, starting on January 1, 2023.
On March 15, 2023, the Company entered into a stock purchase agreement providing for the acquisition of all of the capital stock of Biodex Medical Systems, Inc. ("Biodex"), which consists principally of the Biodex Physical Medicine business. The Purchase Agreement replaced the previously disclosed asset purchase agreement covering the same business that was first announced on August 15, 2022. The Company completed the Acquisition on April 3, 2023. The purchase agreement provided for the purchase of all of the capital stock of Biodex in consideration for a total of US $ i 8 million in cash, minus indebtedness, transaction expenses and plus or minus a working capital adjustment, payable as follows: i (i) a closing payment to the Sellers of US $1,000,000 in cash, and (ii) three installment payments totaling US $7 million, plus or minus the post-closing adjustment, as follows: US $2 million on July 1, 2023, US $3 million on October 1, 2023, plus or minus the Post-Closing Adjustment, and US $2 million on January 1, 2024. The payment of the installment payments is secured by the pledge of the Biodex capital stock as security to Seller, pursuant to the terms of a promissory note described in Note 11 and the subsequent events.
On May 15, 2023, the Company entered into and completed the acquisition pursuant to a Stock Purchase Agreement with the owner of Arrowhead Medical, LLC ("Arrowhead") providing for the acquisition of all of the ownership interests of Arrowhead. The purchase price consideration consisted of the issuance at closing of one million ( i 1,000,000) shares of the Company's i Class A common stock, which is convertible into the Company's Common Shares, subject to limitations on conversion which prevent conversion of Class A shares if the holder owns more than 500,000 shares of the Company's Common Shares, or if the holder owns more than 9.9% of the outstanding Common Shares of the Company. The purchase price also included the assumption by the Company of approximately $ i 444,930 (US $ i 329,896) in bank debt under Arrowhead's asset-based line of credit, and i a contingent earnout payment equal to one share of Class A common stock for each one dollar (US $1.00) of EBITDA generated by the Arrowhead business over the two-year period following the closing date, up to a maximum of 2 million Class A shares.
2. Basis of presentation and going concern
The accompanying unaudited interim condensed consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The information furnished herein reflects all adjustments, consisting only of normal recurring adjustments, which in the opinion of management, are necessary to fairly state the Company's financial position, the results of its operations, and cash flows for the periods presented. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with U.S. GAAP were omitted pursuant to such rules and regulations.
The financial information contained in this report should be read in conjunction with the Company's Transition Report on Form 10-KT for the transition period ended December 31, 2022, that the Company filed on April 3, 2023.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
Functional and presentation currency
These unaudited interim condensed consolidated financial statements are expressed in Canadian dollars unless otherwise stated. The functional currency of the Company is Canadian dollars, and the functional currency of its subsidiaries Inspira Financial Company, Inspira SaaS Billing, Inc. (inactive), 1077863 B.C., Ltd, Simbex, LLC, ALG Health Plus, LLC, SDP, DaMar Plastics Manufacturing, Inc., Mio-Guard, LLC, Biodex Medical Systems, Inc., Arrowhead Medical, LLC, and the wholly owned holding company subsidiaries noted below is US dollars.
Going Concern
The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the unaudited interim condensed consolidated financial statements are issued. The Company has incurred recurring losses from operations, has negative cash flows from operating activities, and has an accumulated deficit as of June 30, 2023. The Company believes that its cash and other available resources may not be sufficient to meet its operating needs and the payment of obligations related to various business acquisitions as they come due within one year after the date the unaudited interim condensed consolidated financial statements are issued.
To alleviate these conditions, the Company is currently in the process of potentially raising funds through a debt financing and a subsequent public offering in the United States. As the Company's funding activities are ongoing, there can be no assurances that the Company will be able to secure funding on terms that are acceptable to the Company or at all. These conditions, along with the matters noted above, raise substantial doubt about the Company's ability to continue as a going concern within one year after the date the unaudited interim condensed consolidated financial statements are issued. While management has developed and is in process to implement plans that management believes could alleviate in the future the substantial doubt that was raised, management concluded at the date of the issuance of the unaudited interim condensed consolidated financial statements that substantial doubt exists as those plans are not completely within the control of management. These unaudited interim condensed consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and condensed consolidated balance sheets classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
3. Significant accounting policies
a) Basis of consolidation
These statements consolidate the accounts of the Company and its wholly owned operating subsidiaries, namely, Simbex, LLC ("Simbex"), ALG Health Plus, LLC ("Health Plus"), South Dakota Partners Inc. ("SDP"), Inspira Financial Company, Mio-Guard, LLC ("Mio-Guard"), DaMar Plastics Manufacturing, Inc. ("DaMar"), Biodex Medical Systems, Inc. (“Biodex”), Arrowhead Medical, LLC (“Arrowhead”) and 1077863 B.C., Ltd. Additionally, these statements consolidate the Company's wholly owned holding company subsidiaries, namely, Pan Novus Hospital Sales Group, LLC, Brattle Acquisition I Corp., Simbex Parent Acquisition I Corporation, Simbex Acquisition I Corporation, Mio-Tech Parent LLC, DaMar Acquisition Company, and Biodex Rehab Systems, LLC. The Company owns i 100% of all its subsidiaries. Intercompany balances and transactions are eliminated upon consolidation.
b) Basis of measurement
The unaudited interim condensed consolidated financial statements of the Company have been prepared on a historical cost basis except contingent consideration and earnout consideration which are carried at fair value.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
c) Use of estimates
The preparation of unaudited interim condensed consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. This applies to useful lives of non-current assets, impairment of non-current assets, including goodwill and intangible assets, valuation of stock-based compensation, current expected credit loss provision, provisions for inventory, valuation allowance for deferred tax assets, the purchase price accounting of the businesses that the Company has acquired, including the acquisition date fair value of the identifiable assets and liabilities acquired, the fair value of contingent consideration as well as the associated remeasurement of earnouts, and assessment of going concern. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
d) Operating segments
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company's other components. The segment operating results are reviewed regularly by the Company's CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. As of June 30, 2023, the Company has one segment, healthcare operations, which includes production, design, development, and sale of medical devices to businesses in the United States. Assets, liabilities, revenues and expenses from this segment are disclosed in the unaudited interim condensed consolidated balance sheets and statements of operations and comprehensive loss.
e) Fair value of financial instruments
The Company's financial instruments consist principally of cash and cash equivalents, accounts receivable, security deposit, accounts payable and accrued liabilities, line of credit, debt, obligation for payment of earn-out consideration, lease liability and other liabilities.
Financial Accounting Standards Board ("FASB") Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.
The carrying amounts reported in the unaudited interim condensed consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization, low risk of counterparty default and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| Level 1 - | Quoted prices in active markets for identical assets or liabilities. | ||
| Level 2 - | Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | ||
| Level 3 - | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. | ||
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the periods presented.
As of June 30, 2023, and December 31, 2022, respectively, the Company did not identify any financial assets and liabilities other than obligation for payment of earnout consideration resulting from the Simbex, ALG, DaMar, Arrowhead and Mio-Guard acquisitions, that would be required to be presented on the unaudited interim condensed consolidated balance sheet at fair value.
f) Revenue recognition
Revenue comprises goods and services provided to the Company's contracted customers and sales-based royalties charged by the Company to licensees of the Intellectual Property (IP) developed by the Company.
In accordance with ASC 606 - Revenue from Contracts with Customers, the Company recognizes revenue upon the transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company accounts for a customer contract when the rights of the parties, including the payment terms, are identified, the contract has commercial substance, collection of consideration is probable, and the contract has been signed and agreed to by both parties. Revenue is recognized when, or as, performance obligations are satisfied by transferring control or economic benefit of the service to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for its services. Revenue excludes sales tax and is recorded net of discounts and an allowance for estimated returns unless the terms of the sales are final.
The principles in ASC 606 are applied using the following five steps:
1. Identify the contract with a customer;
2. Identify the performance obligation(s) in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligation(s) in the contract; and
5. Recognize revenue when (or as) the performance obligation(s) are satisfied.
SDP, Mio-Guard, DaMar, Health Plus, Biodex and Arrowhead recognize revenue at a point-in-time upon transfer of control of goods to customers, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract, at an amount that reflects the consideration the Company received or expects to receive in exchange for the goods. Simbex recognizes its revenue over time as it meets its milestones and performs its obligations as agreed upon in its contracts with its customers. Payment received prior to the delivery of service is classified as "unearned customer deposits," and "unearned revenues."
For 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 unaudited interim condensed consolidated statements of operations and comprehensive loss and included in other income. Provisions for discounts, returns and other adjustments are provided for the period in which the related sales are recorded. The Company has concluded that it is the principal in its revenue arrangements because it controls the goods or services before transferring them to the customer.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
The Company typically provides warranties for general repairs of defects that existed at the time of sale. These assurance-type warranties are accounted for as warranty provisions, if any.
g) Research and development costs
Research and development costs are generally expensed as incurred. These costs primarily consist of personnel and related expenses and are classified as part of the selling, general, and administrative expenses on the unaudited interim condensed consolidated statements of operations and comprehensive loss.
h) Cash and cash equivalents
Cash and cash equivalents comprise of highly liquid interest-bearing securities that are readily convertible to cash and are subject to an insignificant risk of changes in value. The maturities of these securities as at the purchase date are 90 days or less.
i) Inventories
Inventories are comprised of raw material, work-in-progress, trading goods, and finished goods, which consist principally of electrodes, electronic components, subassemblies, steel, plastic, hardware, fasteners, and purchased sports medicine products and are stated at the lower of cost (first-in, first-out) and net realizable value and include direct labor, materials, and other related costs. The Company periodically reviews inventory for evidence of slow-moving or obsolete items, and writes inventory down to net realizable value, as needed.
This write-down is based on management's review of inventories on hand, compared to estimated future usage and sales, shelf-life assumptions, and assumptions about the likelihood of obsolescence. If actual market conditions are less favorable than those projected by the Company, additional write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable.
j) Goodwill
Goodwill represents the excess of costs over fair value of net assets acquired from the Company's business combinations. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the FASB issued Accounting Standards Update ("ASU") No. 2017-04 Intangibles-Goodwill and Other (Topic 350). Because an assembled workforce cannot be sold or transferred separately from the other assets in the business, any value attributed to it is subsumed into goodwill. The Company evaluates the carrying value of goodwill annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.
When evaluating whether the goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. The Company identifies the reporting unit on a basis that is similar to its method for identifying operating segments as defined by the Segment Reporting Topic of the FASB ASC. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. This evaluation is applied annually.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
k) Property and equipment
Property and equipment are carried at cost less accumulated depreciation and impairment, if any. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
i| Asset | Life |
| Machinery and equipment | i 3 - i 10 years |
| Computer equipment and software | i 3 - i 5 years |
| Furniture and fixtures | i 7 - i 10 years |
| Leasehold improvements | i Over the lease period |
| Land improvements | i Over the lease period |
| Tooling | i 5 - i 7 years |
| Vehicles | i 4 - i 5 years |
l) Right-of-use asset
The Company's right-of-use assets consist of leased assets recognized in accordance with ASC 842, Leases which requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liability represents the Company's obligation 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 unaudited interim condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term in the unaudited interim condensed consolidated statement of operations and comprehensive loss. The Company determines the lease term by agreement with the lessor. In cases where the lease does not provide an implicit interest rate, the Company uses the Company's incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
m) Intangible assets
Intangible assets consist of trademarks, intellectual property, customer base and non-competes (Note 4). Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are measured at cost less accumulated amortization and accumulated impairment losses per the table below:
i| Intangible asset | Life |
| Tradename - Trademarks | i 5 years |
| Non-competes | i 5 years |
| Intellectual Property | i 5 years |
| Customer Base | i 15 years |
The intangible assets with finite useful lives are reviewed for impairment 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. The next assessment of useful lives will be performed as of December 31, 2023.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
n) 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 on June 30, 2023, the Company believes there was no impairment of its long-lived assets.
o) Business Combination and Contingent consideration
A business combination is a transaction or other event in which control over one or more businesses is obtained. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits. A business consists of inputs and processes applied to those inputs that have the ability to create outputs that provide a return to the Company and its shareholders. A business need not include all of the inputs and processes that were used by the acquiree to produce outputs if the business can be integrated with the inputs and processes of the Company to continue to produce outputs. The Company considers several factors to determine whether the set of activities and assets is a business.
Business acquisitions are accounted for using the acquisition method whereby acquired assets and liabilities are recorded at fair value as of the date of acquisition with the excess of the purchase consideration over such fair value being recorded as goodwill and allocated to reporting units. If the fair value of the net assets acquired exceeds the purchase consideration, the difference is recognized immediately as a gain in the unaudited interim condensed consolidated statements of operations and comprehensive loss. Acquisition-related costs are expensed during the period in which they are incurred, except for the cost of debt or equity instruments issued in relation to the acquisition which is included in the carrying amount of the related instrument. Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they are adjusted retrospectively in subsequent periods. However, the measurement period will not exceed one year from the acquisition date. The determination of the value of goodwill and intangible assets arising from business combinations requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired.
p) Stock-Based Compensation
The Company records stock-based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation. FASB ASC Topic 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the requisite service period. The Company recognizes in the unaudited interim condensed consolidated statements of operations and comprehensive loss the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
q) Basic and Diluted Earnings Per Share
The Company has adopted the ASC 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 stockholders by the weighted average number of common shares and Class A shares outstanding for the period. Except for voting rights, the Company's common stock and Class A shares have the same dividend rights, are equal in all respects, and are otherwise treated as if they were one class of shares, including the treatment for the earnings per share calculations. 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 of June 30, 2023.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
r) Foreign Currency Transactions and Comprehensive Income
U.S. GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company's subsidiaries is the US dollar. Translation gains (losses) are classified as an item of other comprehensive income in the stockholders' equity section of the unaudited interim condensed consolidated balance sheet.
s) Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes, which requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not changed it methodology for estimating the valuation allowance. A change in valuation allowance affects earnings in the period the adjustments are made and could be significant due to the large valuation allowance currently established.
Under ASC 740, a tax position is recognized as a benefit only if it is 'more likely than not' that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the 'more likely than not' test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
t) Employee Retention Credit
In accordance with the ERC program, a company is eligible for an ERC if, due to the COVID-19 pandemic, there has been a significant decline in gross receipts in the current year as compared with 2019 gross receipts, or a full or partial shutdown based on a governmental order. The ERC is computed based on a percentage of qualified wages (including qualified health insurance expenses) incurred during the year, with a maximum annual credit per employee.
Since there are no generally accepted accounting principles for for-profit business entities that receive government assistance that is not in the form of loan, an income tax credit or revenue from a contract with a customer, the Company determined the appropriate accounting treatment by analogy to other guidance. The Company’s policy is to account for the ERC as a grant using guidance analogous to government grants found in International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, the ERC is recognized and recorded as other income in the unaudited interim condensed consolidated statements of operations and comprehensive loss when there is reasonable assurance that the Company will comply with the conditions attached to the grant and the ERC will be received.
u) Share purchase warrants
The Company accounts for the share purchase warrants issued to investor and brokers pursuant to equity financing as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. The assessment considers whether the Warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the Warrants are indexed to the Company's own shares and whether the holders of the warrants could potentially require "net cash settlement" in a circumstance outside of the Company's control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the Warrants and as of each subsequent reporting period end date while the warrants are outstanding. For issued investor warrants and broker warrants that meet all of the criteria for equity classification, such warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued investor warrants and broker warrants that do not meet all the criteria for equity classification, liability-classified warrants are required to be recorded at their initial fair value on the date of issuance, and each unaudited interim condensed consolidated balance sheet date thereafter. Changes in the estimated fair value of such warrants are recognized as a non-cash gain or loss on the unaudited interim condensed consolidated statements of operations and comprehensive loss.
For the periods ended June 30, 2023, and December 31, 2022, respectively, the Company concluded based on the above mentioned that the issued investor warrants, and broker warrants met the criteria for equity classification in accordance with ASC 815-40 and therefore were classified under equity. The fair value of those warrants is determined by using Black Scholes valuation model on the date of issuance. The relative fair value method is applied to allocate gross proceeds from equity financing into its shares and warrants portion respectively. Those costs directly contributable to equity financing are accounted for as a reduction under stockholders' equity.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
v) Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
w) Recently issued pronouncements
In September 2022, the FASB issued Accounting Standards Update (ASU) No. 2022-04 that requires additional qualitative and quantitative disclosures surrounding supplier finance programs intended to help investors better consider the effect of these programs on a company's working capital, liquidity, and cash flows over time. This update is effective for fiscal years beginning after December 15, 2022, including interim periods, except for the disclosure of roll forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact this update will have on its disclosures in future unaudited interim condensed consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"), which (1) clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity security. Under current guidance, stakeholders have observed diversity in practice related to whether contractual sale restrictions should be considered in the measurement of the fair value of equity securities that are subject to such restrictions. On the basis of interpretations of existing guidance and the current illustrative example in ASC 820-10-55-52 of a restriction on the sale of an equity instrument, some entities use a discount for contractual sale restrictions when measuring fair value, while others view the application of such a discount to be inconsistent with the principles of ASC 820. To reduce the diversity in practice and increase the comparability of reported financial information, ASU 2022-03 clarifies this guidance and amends the illustrative example. ASU No. 2022-03 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is in the process of determining the impact the adoption will have on its unaudited interim condensed consolidated financial statements as well as whether to early adopt the new guidance.
In March 2022, the FASB issued ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance on troubled debt restructurings for creditors in ASC Topic 310 and amends the guidance on "vintage disclosures" to require disclosure of current-period gross write-offs by year of origination. ASU 2022-02 also updates the requirements related to accounting for credit losses under ASC Topic 326 and adds enhanced disclosures for creditors with respect to loan re-financings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the extent of the impact of this ASU, but do not expect the adoption of this standard to have a significant impact on its unaudited interim condensed consolidated financial statements.
In October 2021 FASB, issued ASU No. 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity (acquirer) to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company has elected to early adopt this standard. However, it did not have a material impact on the Company's unaudited interim condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. This update is effective for annual periods beginning after December 15, 2022, as amended by ASU No. 2019-10, and interim periods within those periods, and early adoption is permitted. The Company adopted ASU 2016-13 as of January 1, 2023, and the adoption did not have a material effect on the unaudited interim condensed consolidated financial statements.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
In March 2020, the FASB issued ASU No. 2020-04 providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance, which became effective on March 12, 2020, could be applied through December 31, 2022. In December 2022, the FASB issued No 2022-06 extending the sunset date of the relief provided under ASU No. 2020-04 to December 31, 2024. The ASU has not impacted the unaudited interim condensed consolidated financial statements. The Company has various contracts that reference LIBOR and is assessing how this standard may be applied to specific contract modifications through December 31, 2024.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying unaudited interim condensed consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
4. Acquisitions
South Dakota Partners Inc. ("SDP") Purchase Price
The Company completed the purchase of all of the capital stock of South Dakota Partners Inc. (SDP), under the Purchase Agreement dated May 21, 2021. Under the Purchase Agreement, Salona acquired the manufacturer specializing in medical devices, full electronics box builds, printed circuit board assemblies, electrodes, drug delivery and many other products involving electronics, electro-mechanical assemblies, and various types of material conversion. The acquisition included all of the current customers, contract rights, inventory, equipment, workforce, and manufacturing infrastructure. At the time of the transaction, there were no material relationships between the seller and Salona or any of its affiliates, or any director or officer of Salona, or any associate of any such officer or director. As consideration, the Company agreed to issue i 19,162,000 non-voting class "A" shares of common stock valued at $ i 12,340,570 subject to earn-out adjustments, including revenue shortfall adjustment and adjusted net assets adjustments. The Company assumed all of the assets and liabilities of SDP.
In accordance with ASC 805 "Business Combinations" the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition is as follows:
| Cash | $ | i 255 | |||
| Security deposit | i 461,066 | ||||
| Accounts receivable | i 2,763,621 | ||||
| Inventories | i 4,958,833 | ||||
| Prepaid expenses | i 21,651 | ||||
| Property and equipment | i 1,409,421 | ||||
| Right-of-use assets | i 2,343,947 | ||||
| Intangible assets | i 2,199,444 | ||||
| Goodwill | i 9,090,357 | ||||
| Accounts payable | ( i 821,244 | ) | |||
| Accrued expenses | ( i 201,733 | ) | |||
| Customer deposits | ( i 221,290 | ) | |||
| Line of credit | ( i 3,732,414 | ) | |||
| Debt | ( i 2,971,350 | ) | |||
| Lease liability | ( i 2,498,095 | ) | |||
| Deferred tax liability | ( i 557,559 | ) | |||
| Other liabilities | ( i 163,130 | ) | |||
| Total adjusted purchase price | i 12,081,780 | ||||
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
| Goodwill | $ | i 9,090,357 | |
| Tradename - Trademarks | i 341,929 | ||
| Intellectual Property | i 320,823 | ||
| Customer Base | i 1,266,405 | ||
| Non-Competes | i 270,287 | ||
| Total identifiable intangible assets including goodwill | $ | i 11,289,801 |
The table below summarizes the value of the total consideration given in the transaction:
i| Stock (Parent Special Stock) | i 12,340,570 | ||
| Floor Guarantee/Contingent Liability | i 1,139,910 | ||
| Earn-out /Contingent Consideration (Revenue) | ( i 21,924 |
) |
|
| Earn-out /Contingent Consideration (Net Assets) | ( i 1,376,776 | ) | |
| Total Consideration | $ | i 12,081,780 |
As of May 31, 2022, SDP concluded its earn-out period and met both the revenue and adjusted net asset threshold requirements to receive its full i 19,162,000 non-voting "Class A" shares of common stock. As such, this obligation has been removed from the liability section of the consolidated balance sheet as a contingent liability (as shown on the February 28, 2022, Consolidated Balance Sheet) and has been moved to the equity section as Class A shares to be issued. As of May 31, 2022, the date of issuance, the fair value of the i 19,162,000 shares was $ i 14,371,500 (fair value as of December 31, 2022, was $ i 11,919,900).
On December 31, 2022, the Company reviewed its assessment of the fair value of goodwill from the SDP acquisition and noted no impairment to Goodwill.
Assets Acquired from ALG-Health, LLC:
On November 29, 2021, the Company consummated the acquisition of the customer lists, sales orders and supply agreements and related sales channel and intellectual property assets of ALG-Health, LLC ("ALG"), a business engaged in the selling medical devices and supplies to small, independent hospitals, group purchasing organizations, medical offices and clinics, in exchange for non-voting securities of Health Plus which are exchangeable for up to a maximum of i 21,000,000 nonvoting Class A shares of the Company subject to the achievement of certain revenue and EBITDA targets. In connection with the transaction, our subsidiary ALG Health Plus, LLC entered into an exclusive supply agreement with ALG.
In accordance with ASC 805 "Business Combinations" the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. The identified assets acquired, the customer list, has nominal value based on future cash flows which are dependent on a future, yet-to-be established business, and therefore no value has been assigned to it.
The contingent consideration liability represents potential future earnout payments to the Company that are contingent on Health Plus's and ALG's business arrangement achieving certain milestones. The fair value of the contingent consideration liability on November 29, 2021, and February 28, 2022, was estimated to be nil and as such, no contingent liability was recorded on the date of the agreement was executed. As of June 30, 2023, as a result of new arrangements, the fair value of the contingent consideration liability is estimated to be $ i 155,574.
On November 21, 2022, i 1,048,500 Class A shares were issued to i two key individuals at ALG at a fair market price of $ i 0.61 per share for achieving certain EBITDA milestones. On November 28, 2022, i 1,000,000 Class A shares were issued to i one key individual at ALG at a fair market price of $ i 0.68 per share for achieving a revenue milestone as described in the agreement. $ i 693,365 in cash was provided as consideration for these shares.
On April 11, 2023, i 388,935 Class A shares were issued to i one key individual at ALG at a fair market price of $ i 0.33 per share for achieving a revenue milestone as described in the agreement. No cash was received as consideration for these shares.
On April 11, 2023, i 43,215 Class A shares were issued to i one key individual at ALG at a fair market price of $ i 0.33 per share for achieving a revenue milestone as described in the agreement. No cash was received as consideration for these shares.
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
Simbex, LLC ("Simbex") Purchase Price:
The Company completed the purchase of all the capital stock of Simbex, LLC (Simbex), under the Purchase Agreement dated September 30, 2021. Under the Purchase Agreement, Salona acquired the company which provides mechanical and electrical design and engineering services as well as consultancy services in the field of biomechanical systems and medical devices. The acquisition includes all its current customers, contract rights, work-in-process, equipment, workforce, as well as its consulting, design, and engineering infrastructure. At the time of the transaction, there were no material relationships between the seller and Salona or any of its affiliates, or any director or officer of Salona, or any associate of any such officer or director. As consideration, the Company provided $ i 5,691,759 cash as well as issuing i 6,383,954 shares of non-voting class "A" common stock valued at $ i 6,769,769 subject to earn-out adjustments, including revenue shortfall adjustment and adjusted net assets adjustments. The Company assumed all the assets and liabilities of Simbex. In accordance with ASC 805 "Business Combinations" the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
| Cash | $ | i 632,697 | |
| Accounts Receivable | i 1,402,315 | ||
| Work-in-process | i 301,180 | ||
| Prepaid expenses | i 34,992 | ||
| Property and equipment | i 122,916 | ||
| Other receivables | i 6,395 | ||
| Intangible Assets | i 5,175,486 | ||
| Goodwill | i 6,263,204 | ||
| Accounts payable and accrued liabilities | ( i 33,560 | ) | |
| Accrued expenses | ( i 1,095 | ) | |
| Unearned revenue | ( i 131,016 | ) | |
| Deferred tax liability | ( i 1,311,986 | ) | |
| Total adjusted purchase price | $ | i 12,461,528 |
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC Topic 350 "Goodwill and Other Intangible Assets".
| Goodwill | $ | i 6,263,204 | |
| Tradename - Trademarks | i 933,865 | ||
| Customer Base | i 3,648,148 | ||
| Non-Competes | i 593,473 | ||
| Total identifiable intangible assets including goodwill | $ | i 11,438,690 |
The table below summarizes the value of the total consideration given in the transaction:
i| Cash | $ | i 4,428,900 | |||
| Working Capital Adjustment | i 1,262,859 | ||||
| Value of Escrowed Stock | i 126,540 | ||||
| Value of Earnout / Contingent Consideration | i 6,643,229 | ||||
| Total Consideration | $ | i 12,461,528 | |||
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
On December 31, 2022, Simbex concluded the earn-out period and met the requirements to receive its full earnout consideration consisting of cash and i 6,383,952 Class A shares valued at $ i 0.45/share on the commencement of the earnout period. On May 19, 2023, the i 6,383,952 Class A shares were issued to the former owners of Simbex at a fair market price of $ i 0.29 per share fulfilling the Company’s stock earnout obligation. The $ i 1,165,697 change in fair value of the Class A shares was taken as income on the unaudited interim condensed consolidated statement of operations and comprehensive loss. The number of shares were allocated to the previous owners based on their percentage of ownership on the date of sale. As of June 30, 2023, the $ i 4,303,000 cash component remains unpaid and is still outstanding on the unaudited interim condensed consolidated balance sheet as obligation for payment of earnout consideration and accrues interest.
On February 28, 2022, the Company updated its assessment of the fair value of goodwill from the Simbex LLC acquisition, in conjunction with the Company's third-party valuation experts based on updated year to date results of the acquired entity, intangible assets, and other factors resulting in an impairment to goodwill of $ i 5,520,522. As of December 31, 2022, there was no further goodwill impairment and thus, no additional goodwill was impaired.
Mio-Guard LLC ("Mio-Guard")
On March 11, 2022, the Company acquired i 100% of the units of Mio-Guard for consideration which is comprised of the following:
| Cash | $ | i 572,400 | |
| i 1,300,000 Class B units issued at closing | i 702,000 | ||
| Quarterly Earnout payments (Maximum of i 2,700,000 Class B Units) | i 1,166,464 | ||
| Total Consideration | $ | i 2,440,864 |
In accordance with ASC 805 "Business Combinations" the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
i| Cash | $ | i 3,363 | |
| Accounts receivable | i 531,602 | ||
| Inventory | i 498,897 | ||
| Property and equipment | i 73,445 | ||
| Right-of-use assets | i 476,955 | ||
| Intangible assets and goodwill | i 2,329,018 | ||
| Accounts payable | ( i 764,225 | ) | |
| Due to related parties | ( i 2,307 | ) | |
| Lease liability | ( i 471,926 | ) | |
| Deferred tax liability | ( i 233,958 | ) | |
| Total adjusted purchase price | $ | i 2,440,864 |
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC Topic 350 "Goodwill and Other Intangible Assets".
| Goodwill (including workforce) | $ | i 1,143,514 | |||
| Tradename | i 356,160 | ||||
| Customer Relationships | i 774,648 | ||||
| Non-Competes | i 54,696 | ||||
| Total identifiable intangible assets including goodwill | $ | i 2,329,018 | |||
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
The contingent consideration liability represents potential future earnout payments to the sellers of Mio-Guard that are contingent on Mio-Guard's business achieving certain milestones. Certain Mio-Guard management was retained post-acquisition and will receive a portion of the potential future earnout payments as earned. The fair value of the contingent consideration liability of $ i 1,166,465 was recognized on the acquisition date and was measured using unobservable (Level 3) inputs. As of June 30, 2023, the fair value of the contingent consideration liability is $ i 1,198,999. The change in the fair value of the contingent consideration liability from December 31, 2022, has been taken as an expense on the unaudited interim condensed consolidated statements of operations and comprehensive loss.
On December 31, 2022, the Company reviewed its assessment of the fair value of goodwill from the Mio-Guard acquisition and noted no impairment to Goodwill.
DaMar Plastics Manufacturing, Inc. ("DaMar")
On September 23, 2022, the Company acquired i 100% of the shares of DaMar for a consideration which comprised of cash, and special parent stock at closing, and future contingent consideration during the earnout period.
| Cash | $ | i 4,071,000 | |
| Working capital adjustment | i 274,375 | ||
| Stock (in Salona Global Buyer exchangeable for Class A shares in the Company) | i 967,650 | ||
| Value of earnout/contingent consideration | i 2,656,635 | ||
| Total Consideration | $ | i 7,969,660 |
In accordance with ASC 805 "Business Combinations" the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
| Cash | $ | i 199,982 | |||
| Accounts receivable | i 731,640 | ||||
| Inventory | i 791,552 | ||||
| Property and equipment | i 1,390,121 | ||||
| Right-of-use assets | i 3,061,590 | ||||
| Prepaid and other | i 158,696 | ||||
| Intangible assets and goodwill | i 4,677,092 | ||||
| Accounts payable and other assumed liabilities | ( i 177,232 | ) | |||
| Other liabilities | ( i 3,972 | ) | |||
| Unearned revenues | ( i 104,401 | ) | |||
| Lease liability | ( i 1,568,820 | ) | |||
| Deferred tax liability | ( i 1,186,588 | ) | |||
| Total adjusted purchase price | $ | i 7,969,660 | |||
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SALONA GLOBAL MEDICAL DEVICE CORPORATION |
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC Topic 350 "Goodwill and Other Intangible Assets".
| Goodwill (including workforce) | $ | i 2,718,941 | |
| Tradename | i 169,625 | ||
| Customer Relationships | i 1,316,290 | ||
| Non-Competes | i 472,236 | ||
| Total identifiable intangible assets including goodwill | $ | i 4,677,092 |
The contingent consideration liability represents potential future earnout payments to the sellers of DaMar that are contingent on DaMar's business achieving certain milestones. Certain DaMar management was retained post-acquisition and will receive a portion of the potential future earnout payments if earned. The fair value of the contingent consideration liability of $ i 3,624,286 was recognized on the acquisition date and was measured using unobservable (Level 3) inputs. As of June 30, 2023, the fair value of the contingent consideration liability is $ i 6,994,321. The change in the fair value of the contingent consideration liability from December 31, 2022, has been taken as an expense on the unaudited interim condensed consolidated statements of operations and comprehensive loss.
On December 31, 2022, the Company reviewed its assessment of the fair value of goodwill from the DaMar acquisition and noted no impairment to Goodwill.
Biodex Medical Systems, Inc. ("Biodex")
On March 15, 2023, the Company entered into a stock purchase agreement providing for the acquisition of all of the capital stock of Biodex Medical Systems, Inc., which consists principally of the Biodex Physical Medicine business. The Company completed the Acquisition on April 3, 2023. The purchase agreement provided for the purchase of all of the capital stock of Biodex in consideration for a total of $ i 10,060,933 (US $ i 8 million) in cash, minus indebtedness, transaction expenses and plus or minus a working capital adjustment. The following was paid as consideration on the date of acquisition:
i| Cash consideration | $ | i 1,343,800 | |
| Promissory note | i 8,717,133 | ||
| Total Consideration | $ | i 10,060,933 |
In accordance with ASC 805 "Business Combinations" the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
| Security deposit | $ | i 43,002 | |
| Prepaids and other receivables | i 257,610 | ||
| Inventory | i 7,008,337 | ||
| Property and equipment, net | i 907,544 | ||
| Right-of-use assets, net | i 3,307,975 | ||
| Intangible assets and goodwill | i 2,498,883 | ||
| Accounts payable and other assumed liabilities | ( i 542,911 | ) | |
| Other liabilities | ( i 1,948,775 | ) | |
| Lease liability | ( i 1,470,732 | ) | |
| Total adjusted purchase price | $ | i 10,060,933 |
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC Topic 350 "Goodwill and Other Intangible Assets".
i| Goodwill (including workforce) | $ | i 859,447 | |
| Brand and Trademarks | i 806,280 | ||
| Customer Relationships | i 833,156 | ||
| Total identifiable intangible assets including goodwill | $ | i 2,498,883 |
Since acquisition, Biodex has generated $ i 6,014,838 of revenue and has generated a loss before tax of $ i 1,006,280. These amounts are included in the unaudited interim condensed consolidated statements of operations and comprehensive loss. If the combination had taken place at the beginning of the year, Biodex’s revenue would have been $ i 10,561,247 and loss before tax would have been $ i 1,885,074. If the combination had taken place at the beginning of the year, consolidated revenues would have been $ i 37,819,551 and consolidated losses before tax would have been $ i 4,625,117. The pro forma unaudited results include estimates and assumptions which management believes are reasonable. The pro forma results do not include any cost savings or other effects of the planned integration of these entities and may not be fully indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.
Arrowhead Medical, LLC ("Arrowhead")
On May 15, 2023, the Company entered into and completed the acquisition pursuant to a Stock Purchase Agreement with the owner of Arrowhead Medical, LLC ("Arrowhead") providing for the acquisition of all of the ownership interests of Arrowhead. The purchase price consideration consists of the issuance at closing of one million ( i 1,000,000) shares of the Company's i Class A common stock, which is convertible into the Company's Common Shares, subject to limitations on conversion which prevent conversion of Class A shares if the holder owns more than 500,000 shares of the Company's Common Shares, or if the holder owns more than 9.9% of the outstanding Common Shares of the Company. The purchase price also includes the assumption by the Company of approximately $ i 444,930 (US $ i 329,896) in bank debt under Arrowhead's asset-based line of credit, and i a contingent earnout payment equal to one share of Class A common stock for each one dollar (US $1.00) of EBITDA generated by the Arrowhead business over the two-year period following the closing date, up to a maximum of 2 million Class A shares.
i| Stock issued at closing ( i 1,000,000 Class A Shares in the Company) | $ | i 269,794 | |
| Contingent earnout consideration | i 77,820 | ||
| Total Consideration | $ | i 347,614 |
In accordance with ASC 805 "Business Combinations" the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
i| Cash | $ | i 28,217 | |
| Accounts receivable | i 240,255 | ||
| Inventory | i 264,600 | ||
| Property and equipment | i 59,698 | ||
| Right-of-use assets | i 822,558 | ||
| Intangible assets and goodwill | i 966,029 | ||
| Accounts payable and other assumed liabilities | ( i 503,588 | ) | |
| Other liabilities | ( i 262,667 | ) | |
| Bank loan | ( i 444,930 | ) | |
| Lease liability | ( i 822,558 | ) | |
| Total adjusted purchase price | $ | i 347,614 |
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC Topic 350 "Goodwill and Other Intangible Assets".
i| Goodwill (including workforce) | $ | i 696,289 | |
| Non-Competes | i 269,740 | ||
| Total identifiable intangible assets including goodwill | $ | i 966,029 |
The contingent consideration liability represents potential future earnout payments to the sellers of Arrowhead that are contingent on Arrowhead’s business achieving certain milestones. Certain Arrowhead management was retained post-acquisition and will receive a portion of the potential future earnout payments as earned. The fair value of the contingent consideration liability of $ i 77,820 was recognized on the acquisition date and was measured using unobservable (Level 3) inputs. As of June 30, 2023, the fair value of the contingent consideration liability is $ i 77,820.
Since acquisition, Arrowhead has generated $ i 677,508 of revenue and has generated net earnings before tax of $ i 18,248. These amounts are included in the unaudited interim condensed consolidated statements of operations and comprehensive loss. If the combination had taken place at the beginning of the year, Arrowhead’s revenue would have been $ i 2,048,907 and profit before tax would have been $ i 11,595. If the combination had taken place at the beginning of the year, consolidated revenues would have been $ i 29,307,211 and consolidated losses before tax would have been $ i 2,728,448. The pro forma unaudited results include estimates and assumptions which management believes are reasonable. Additionally, the pro forma results do not include any cost savings or other effects of the planned integration of these entities and may not be fully indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.
5. Accounts receivable
| June 30, 2023 | December 31, 2022 | |||||
| Trade accounts receivable | i 11,173,067 | i 6,426,616 | ||||
| Allowance for doubtful accounts | ( i 192,948 | ) | ( i 73,341 | ) | ||
| Long-term accounts receivable | i 141,668 | i 189,616 | ||||
| Total accounts receivable | i 11,121,787 | i 6,542,891 |
6. Disaggregation of revenues
During the three and six months ended June 30, 2023, $ i 14,405,275 and $ i 22,540,467 of the sales revenue were earned from "point-in-time" revenue respectively ($ i 6,878,727, and $ i 12,286,232 for the three and six months ended June 30, 2022) and $ i 2,169,800 and $ i 4,717,837 of the sales revenue were earned "over-a-period" of time respectively ($ i 2,882,418 and $ i 6,143,328 for the three and six months ended June 30, 2022).
7. Inventories
The Company tracks inventory for manufactured goods as it progresses through the production process. The Company allocates inventory into four major buckets: Raw material, work in progress, trading goods, and finished goods. Purchased finished goods are classified as trading goods.
| 21 |
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
| June 30, 2023 | December 31, 2022 | |||||
| Raw materials | $ | i 11,124,622 | $ | i 6,414,482 | ||
| Work in progress | i 526,236 | i 771,507 | ||||
| Finished goods | i 495,600 | i 170,198 | ||||
| Trading goods | i 1,202,162 | i 746,439 | ||||
| Total | $ | i 13,348,620 | $ | i 8,102,626 |
8. Property and equipment
| Cost | Acquired April 3, 2023 and May 15, 2023 |
Total | Additions | Disposal | Translation | June 30, 2023 | |||||||||||||||
| Machinery and equipment | $ | i 3,371,161 | $ | i 415,344 | $ | i 3,786,505 | $ | i 135,710 | $ | i - | $ | ( i 84,208 | ) | $ | i 3,838,007 | ||||||
| Computer equipment and software | i 272,031 | i 6,323 | i 278,354 | i - | ( i 2,457 | ) | ( i 6,156 | ) | i 269,741 | ||||||||||||
| Furniture and fixtures | i 63,672 | i 1,050 | i 64,722 | i - | ( i 23,254 | ) | ( i 1,035 | ) | i 40,433 | ||||||||||||
| Land improvements | i 24,186 | i - | i 24,186 | i - | i - | ( i 543 | ) | i 23,643 | |||||||||||||
| Leasehold improvements | i 146,451 | i 415,561 | i 562,012 | i - | i - | ( i 9,409 | ) | i 552,603 | |||||||||||||
| Tooling | i - | i 78,981 | i 78,981 | i - | i - | ( i 1,164 | ) | i 77,817 | |||||||||||||
| Vehicles | i - | i 49,983 | i 49,983 | i - | i - | ( i 915 | ) | i 49,068 | |||||||||||||
| Total | $ | i 3,877,501 | $ | i 967,242 | $ | i 4,844,743 | $ | i 135,710 | $ | ( i 25,711 | ) | $ | ( i 103,430 | ) | $ | i 4,851,312 | |||||
| Accumulated depreciation | Acquired April 3, 2023 and May 15, 2023 |
Total | Additions | Disposal | Translation | June 30, 2023 | |||||||||||||||
| Machinery and equipment | $ | i 411,654 | $ | i - | $ | i 411,654 | $ | i 359,018 | $ | i - | $ | ( i 15,553 | ) | $ | i 755,119 | ||||||
| Computer equipment and software | i 38,092 | i - | i 38,092 | i 32,535 | ( i 369 | ) | ( i 1,058 | ) | i 69,200 | ||||||||||||
| Furniture and fixtures | i 2,868 | i - | i 2,868 | i 3,271 | ( i 2,215 | ) | i 2,094 | i 6,018 | |||||||||||||
| Land improvements | i 1,209 | i - | i 1,209 | i 1,143 | i - | ( i 47 | ) | i 2,305 | |||||||||||||
| Leasehold improvements | i 23,780 | i - | i 23,780 | i 7,512 | i - | ( i 665 | ) | i 30,627 | |||||||||||||
| Tooling | i - | i - | i - | i 10,076 | i - | ( i 177 | ) | i 9,899 | |||||||||||||
| Vehicles | i - | i - | i - | i 35,775 | i - | ( i 629 | ) | i 35,146 | |||||||||||||
| Total | $ | i 477,603 | $ | i - | $ | i 477,603 | $ | i 449,330 | $ | ( i 2,584 | ) | $ | ( i 16,035 | ) | $ | i 908,314 | |||||
| Net Book Value | $ | i 3,399,898 | $ | i 3,942,998 |
9. Intangible assets
| Cost |
Acquired April 3,
2023 and
|
Total | Additions | Disposal | June 30, 2023 | |||||||||||||
| Tradename - Trademarks | $ | i 1,801,579 | $ | i 806,280 | $ | i 2,607,859 | $ | i - | $ | i - | $ | i 2,607,859 | ||||||
| Intellectual Property | i 564,024 | i - | i 564,024 | i - | i - | i 564,024 | ||||||||||||
| Customer Base | i 7,005,491 | i 833,156 | i 7,838,647 | i - | i - | i 7,838,647 | ||||||||||||
| Non-Competes | i 1,390,692 | i 269,740 | i 1,660,432 | i - | i - | i 1,660,432 | ||||||||||||
| Total | $ | i 10,761,786 | $ | i 1,909,176 | $ | i 12,670,962 | $ | i - | $ | i - | $ | i 12,670,962 | ||||||
| Accumulated Amortization |
Acquired April 3,
2023 and
|
Total | Additions | Disposal | June 30, 2023 | |||||||||||||
| Tradename - Trademarks | $ | i 427,176 | i - | $ | i 427,176 | $ | i 229,917 | $ | i - | $ | i 657,093 | |||||||
| Intellectual Property | i 151,378 | i - | i 151,378 | i 60,282 | i - | i 211,660 | ||||||||||||
| Customer Base | i 525,925 | i - | i 525,925 | i 259,106 | i - | i 785,031 | ||||||||||||
| Non-Competes | i 281,145 | i - | i 281,145 | i 151,794 | i - | i 432,939 | ||||||||||||
| Total | $ | i 1,385,624 | $ | i - | $ | i 1,385,624 | $ | i 701,099 | $ | i - | $ | i 2,086,723 | ||||||
| Net Book Value | $ | i 9,376,162 | $ | i 10,584,239 |
| 22 |
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
10. Accounts payable and accrued liabilities
| June 30, 2023 | December 31, 2022 | |||||
| Accounts payable | $ | i 8,182,527 | $ | i 5,269,323 | ||
| Accrued liabilities | i 1,915,000 | i 1,371,858 | ||||
| Other liabilities | i 4,013,413 | i 1,807,702 | ||||
| Total | $ | i 14,110,940 | $ | i 8,448,883 |
Other liabilities include unearned customer deposits and unearned revenues totaling $ i 1,964,802 (December 31, 2022: $1,549,729). Additional other liabilities include $ i 1,949,788 for amounts owed in connection with the Biodex acquisition that are payable at different times through 2023 based on the nature of the amount owed ($ i nil as of December 31, 2022).
11. Line of credit and debt
On June 9, 2021, the Company through SDP entered into a Loan and Security Agreement. The line of credit facility, is with Pathward National Association ("Pathward") (formerly, Crestmark), whereby the Company, through SDP, may borrow up to US$ i 5,400,000. i Borrowings bear interest at 4% or prime +0.75% per annum, whichever is greater, and any accrued unpaid interest is due on a monthly basis. The balance is secured by its entire $ i 4,684,783 (US $ i 3,538,325) of inventory and $ i 4,535,527 (US $ i 3,425,625) of accounts receivable of SDP and not the Parent or any other subsidiary. As of June 30, 2023, the balance outstanding under the agreement was $ i 6,021,767 (US $ i 4,548,161) (December 31, 2022 - $ i 5,162,711 (US $ i 3,811,807)).
In accordance with the agreement, the Company is subject to a financial covenant. i The balance of the line of credit may not exceed the lesser of US $ i 5,400,000 or the sum of 90% of accounts receivable, 50% of raw materials, 60% of finished inventory (up to US $2,500,000) and an amortizing borrowing base of $ i 400,000 (which shall be reduced $ i 16,667 each month), which must be met on a monthly basis. Additionally, the Company cannot make any loans, advances, or intercompany transfers of cash flow at any time. Since the execution of the debt line on June 9, 2021, to June 30, 2023, the Company was in compliance with the financial covenant. /
On January 13, 2023, three operating subsidiaries of the Company, DaMar, Mio-Guard, and Simbex entered into a Loan and Security Agreement and related Schedule with Pathward National Association to increase the Company's aggregate credit line availability by up to US $ i 5,500,000 (the "Agreement"). The Agreement complements an existing credit facility with Pathward through the Company's SDP subsidiary. The Agreement has a i variable interest rate of the greater of 6% or 0.75% in excess of the rate shown in the Wall Street Journal as the prime rate per annum, is payable on demand and is secured by all of the assets of Simbex, Mio-Guard and DaMar (the "Borrowers"). In connection with execution of the Agreement, the Company and several of its intermediate holding company subsidiaries entered into a Guaranty of the obligations of the Borrowers (the "Guaranty"). As of June 30, 2023, the balance outstanding under the agreement was $ i 2,085,623 (US $ i 1,575,244).
On May 15, 2023, the Company through Arrowhead assumed a Loan and Security Agreement. The line of credit facility is with Woodland Bank, whereby the Company, through Arrowhead, may borrow up to $ i 398,656 (US$ i 301,100). i Borrowings bear interest at 7.5% per annum and any accrued unpaid interest is due on a monthly basis. The balance is secured by Arrowhead assets and is personally guaranteed by the seller of Arrowhead. There can be no additional withdrawals from the line of credit and the balance will be repaid by the Company. As of June 30, 2023, the balance outstanding under the agreement was $ i 327,102 (US $ i 247,056) (December 31, 2022 - $ i nil (US $ i nil)).
In accordance with the agreement, the Company is subject to a financial covenant. i The balance of the line of credit may not exceed the lesser of US $ i 300,000 or the sum of 75% of accounts receivable <90 days aged and 75% of accounts receivable >90 days aged where a 50% deposit was received by the customer. Since the execution of the debt line on April 3, 2020, to June 30, 2023, the Company was in compliance with the financial covenant. /
| Pathward term loan |
Equipment loan |
Woodland vehicle |
Woodland vehicle loan |
Mirion promissory note |
Total | |||||||||||||
| Balance, December 31, 2022 | i 770,004 | i - | i - | i - | i - | i 770,004 | ||||||||||||
| Additions | i - | i 307,505 | i 12,140 | i 82,677 | i 8,717,133 | i 9,119,455 | ||||||||||||
| Principal repayments | ( i 73,996 | ) | ( i 13,017 | ) | ( i 2,076 | ) | ( i 2,363 | ) | i - | ( i 91,452 | ) | |||||||
| Translation | ( i 15,981 | ) | ( i 5,179 | ) | ( i 201 | ) | ( i 1,490 | ) | i - | ( i 22,851 | ) | |||||||
| Balance, June 30, 2023 | i 680,027 | i 289,309 | i 9,863 | i 78,824 | i 8,717,133 | i 9,775,156 | ||||||||||||
| Less: current portion | ( i 180,622 | ) | ( i 47,476 | ) | ( i 9,863 | ) | ( i 78,824 | ) | ( i 8,717,133 | ) | ( i 9,033,918 | ) | ||||||
| Long-term portion | i 499,405 | i 241,833 | i - | i - | i - | i 741,238 |
| 23 |
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
As of June 30, 2023, the Company's total debt is $ i 9,775,156 (December 31, 2022 - $ i 770,004), of which $ i 9,033,918 is considered current, (December 31, 2022, $ i 195,489) and $ i 741,238 is considered long-term (December 31, 2022, $ i 574,515).
Term Notes
On June 9, 2021, the Company borrowed $ i 993,000 (US$ i 750,000) from Pathward National Association (formerly Crestmark). The loan is secured by a loan and security agreement and may not exceed 92% of the net book value of SDP's machinery and equipment, which on June 30, 2023, was $ i 1,511,792 (US $ i 1,141,837). The debt accrues interest at i 2.75% in excess of Wall Street Journal Prime rate with a minimum of i 6% per annum with monthly payments of principal and interest in the amount of $ i 19,198 (US$ i 14,500) beginning on the first day of the first full month following the initial funding and maturing on June 1, 2024. As of June 30, 2023, the balance of the note was $ i 680,026 (US$ i 513,615) (December 31, 2022, $770,004 (US $568,520).
On April 3, 2023, in connection with the acquisition of Biodex, the Company entered into a seller secured promissory note with Mirion Technologies (US) Inc. The amount of the initial loan was $ i 9,268,000 (US $ i 7,000,000) to be repaid in i three installments as follows: $ i 2,648,000 (US $ i 2,000,000) due on July 1, 2023, $ i 3,972,000 (US $ i 3,000,000) due on October 1, 2023, and $ i 2,648,000 (US $ i 2,000,000) due on the maturity date, which is January 1, 2024. The loan is secured by the pledged stock of Biodex Medical Systems Inc. The debt does not accrue interest unless the installment payment is made after the due date. As of June 30, 2023, no installment payment had yet been made on the balance. However, no payments were past due and thus no interest had accrued on the balance. The balance as of June 30, 2023, was $ i 8,717,133 (US $ i 7,000,000).
Equipment Loans
On April 6, 2023, the Company borrowed $ i 307,505 (US$ i 228,170) with Dacotah Bank. The loan is secured by a commercial security agreement and collateral consisting of equipment with a net carrying value of $ i 409,634 (US $ i 309,391) that has been purchased with the proceeds. The debt accrues interest at i 7.950% per annum with monthly payments of principal and interest in the amount of $ i 6,129 (US$ i 4,629) beginning on the first day of the first full month following the initial funding and maturing on April 1, 2028. As of June 30, 2023, the balance of the note was $ i 289,310 (US$ i 182,653).
Vehicle Loans
On May 15, 2023, the Company assumed a $ i 81,163 (US$ i 61,301) vehicle loan with Woodland Bank. The loan is secured by a Business Loan Agreement and collateralized by two vehicles (2020 Chevrolet Silverado LTZ with a net carrying value of $ i 22,832 (US $ i 17,245) and 2020 Chevrolet Silverado LT with a net carrying value of $ i 44,607 (US $ i 33,691)). The debt accrues interest at i 5.504% per annum with monthly payments of principal and interest in the amount of $ i 2,249 (US$ i 1,699) beginning on September 27, 2021, and maturing on August 27, 2026. As of June 30, 2023, the balance of the note was $ i 78,824 (US$ i 59,534).
On May 15, 2023, the Company assumed a $ i 11,917 (US$ i 9,001) vehicle loan with Woodland Bank. The loan is secured by a Business Loan Agreement and collateralized by all inventory, equipment, receivables, and intangible assets of Arrowhead. The debt accrues interest at i 5.975% per annum with monthly payments of principal and interest in the amount of $ i 2,019 (US$ i 1,525) beginning on the first day of the first full month following the initial funding and maturing on September 27, 2023. As of June 30, 2023, the balance of the note was $ i 9,863 (US$ i 7,449).
12. Leases
Set out below are the carrying amount of right of use assets and the movements during the period:
| Right-of-use assets | |||||||||
| Balance, December 31, 2022 | $ | i 7,781,300 | |||||||
| Acquired | i 5,046,759 | ||||||||
| Amortization | ( i 922,141 | ) | |||||||
| Impact of modification | i - | ||||||||
| Translation | ( i 237,346 | ) | |||||||
| Balance, June 30, 2023 | $ | i 11,668,572 | |||||||
| Lease liability | Current | Long-term | |||||||
| Balance, December 31, 2022 | $ | i 6,830,586 | $ | i 847,253 | $ | i 5,983,333 | |||
| Acquired | i 3,209,517 | ||||||||
| Interest lease expense | i 276,810 | ||||||||
| Lease payments | ( i 824,092 | ) | |||||||
| Impact of modification | i - | ||||||||
| Translation | ( i 200,804 | ) | |||||||
| Balance, June 30, 2023 | $ | i 9,292,017 | $ | i 1,565,326 | $ | i 7,726,691 |
Future minimum lease payments payable are as follows:
i| Twelve months ending June 30, 2024 | $ | i 2,020,828 | |
| Twelve months ending June 30, 2025 | i 2,063,536 | ||
| Twelve months ending June 30, 2026 | i 1,992,059 | ||
| Twelve months ending June 30, 2027 | i 1,170,379 | ||
| Twelve months ending June 30, 2028 | i 1,067,960 | ||
| 2029 and thereafter | i 3,881,807 | ||
| Total future minimum lease payments | i 12,196,569 | ||
| Less: Interest on lease liabilities | ( i 2,904,552 | ) | |
| Total present value of minimum lease payments | i 9,292,017 | ||
| Less: current portion | i 1,565,326 | ||
| Non-current portion | $ | i 7,726,691 |
| 24 |
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
As of June 30, 2023, the weighted average remaining lease terms were i 7.85 years (December 31, 2022 - i 9.32 years) and the weighted average discount rate was i 7.06% (December 31, 2022 - i 6.15%).
In October 2018, SDP sold its facility in Clear Lake, South Dakota for US$ i 2,182,461. In connection with the sale, SDP entered into a lease agreement for the facility with an initial lease term of i 15 years for a base annual rent of $ i 252,838 (US$ i 190,965), with four extension options of i five years each. i The base rental amount increases annually on the first day of the lease year at the lesser of 2% or 1.25 times the change in the price index, as defined. Per the lease agreement, the Company delivered a letter of credit in the amount of $ i 505,675 (US$ i 381,930), to be renewed annually for the duration of the lease agreement. The letter of credit is secured by a guaranteed investment certificate, which is recorded as a security deposit on the unaudited interim condensed consolidated balance sheet.
On October 1, 2021, Simbex entered into a lease agreement for an office space located in Lebanon, NH with an initial lease term of i 3 years for a base annual rent of $ i 208,451 (US$ i 157,440), with an option to extend for i five years. i The base rental amount increases annually on the first day of the lease year based on the change in the rolling average of the cost-of-living index for the prior six reporting periods. Per the lease agreement, the Company is also responsible to pay a prorated share of the building overhead monthly as additional rent. The annual amount for this additional rent is $ i 123,679 (US $ i 93,413).
On September 21, 2022, Inspira Financial Company entered into a lease agreement for its corporate headquarters and distribution center located in Carlsbad, CA for a base annual rent of $ i 106,105 (US $ i 80,140). The lease began on October 1, 2022, with an initial lease term of i 4 years and 2 months, which will end on November 30, 2026. The initial lease agreement includes an option to renew for an additional i 5 years. The base rental amount increases annually as per the base rent schedule included in the lease agreement.
On January 1, 2022, Mio-Guard LLC entered into a lease agreement for an office space located in Holt, MI with an initial lease term of i 5 years for a base annual rent of $ i 113,409 (US$ i 85,656). i The base rental amount increases annually on the first day of the lease year at the lesser of 2.27% or 1.25 times the change in the price index, as defined.
On July 1, 2012, DaMar entered into a lease agreement for an industrial and office space located in El Cajon, CA with an initial lease term of i 7 years. The lease was automatically extended for an additional i 7 years on July 1, 2019, for a base annual rent of $ i 434,314 (US$ i 328,032). The lease is currently set to terminate on June 30, 2026. i The base rental amount increases annually on the first day of the lease year by 3% of the proceeding month's lease payment as defined in the agreement.
On January 9, 2023, DaMar entered into a capital equipment lease agreement with an initial lease term of i 3 years for an annual lease payment of $ i 137,179 (US$ i 103,610). On February 27, 2023, DaMar entered into a capital equipment lease agreement with an initial lease term of i 3 years for an annual lease payment of $ i 29,130 (US$ i 22,002).
On May 23, 2023, DaMar entered into a capital equipment lease agreement with an initial lease term of i 3 years for an annual lease payment of $ i 177,162 (US$ i 133,808).
On September 1, 2020, Biodex entered into a lease agreement for an industrial and office space located in Shirley, NY with an initial lease term of i 5 years for a base annual rent of $ i 259,699 (US$ i 192,000), with an option to extend for an additional i 5 years. i The base rental amount does not increase during the initial rental period but increases 3% annually on the first day of the lease year if the lease extension is utilized.
On May 15, 2023, Mio-Guard, LLC entered into a lease agreement for a warehouse and office space located in Grand Rapids, MN with an initial lease term of i 5.083 years for a base annual rent of $ i 205,390 (US$ i 152,400). i The base rental amount does not increase over the initial rental period.
13. Stockholders' equity
a. Share capital
Unlimited voting common shares without par value
Unlimited non-voting convertible Class A shares without par value
Issuances
| 25 |
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
As of June 30, 2023, and December 31, 2022, the Company had i 56,423,092 and i 53,707,780 common shares outstanding, respectively, with a value of $ i 39,610,457 and $ i 38,767,442, respectively.
As of June 30, 2023, and December 31, 2022, the Company had i 21,378,799 and i 3,403,925 Class A shares outstanding, respectively, with a value of $ i 12,542,088 and $ i 1,800,064, respectively.
On January 10, 2023, i 104,850 Class A shares were exchanged for i 104,850 common shares in the Company at a price of $ i 0.43 per share. No cash was received as part of this issuance.
On February 7, 2023, i 339,079 Class A shares were exchanged for i 339,079 common shares in the Company at a price of $ i 0.47 per share. No cash was received as part of this issuance.
On February 21, 2023, i 1,275,770 Class A shares were issued to a former owner of SDP at a price of $ i 0.75 per share. These shares were issued upon completion of SDP's earn-out period. No cash was required to be received as consideration for these shares.
On February 23, 2023, i 11,481,890 Class A shares were issued to former owner of SDP at a price of $ i 0.75 per share. These shares were issued upon completion of SDP's earn-out period. No cash was required to be received as consideration for these shares.
On March 2, 2023, i 147,400 stock options were exercised for i 147,400 shares of common stock for total proceeds of $ i 33,902. i 73,700 of these options were exercised at a price of $ i 0.27 per share and i 73,700 of these options were exercised at a price of $ i 0.19 per share. The i 147,400 shares that were issued in connection with this exercise were released on April 11, 2023.
On April 11, 2023, i 388,935 Class A shares were issued to i one key individual at ALG at a fair market price of $ i 0.33 per share for achieving a revenue milestone as described in the agreement. No cash was received as consideration for these shares.
On April 11, 2023, i 43,215 Class A shares were issued to i one key individual at ALG at a fair market price of $ i 0.33 per share for achieving a revenue milestone as described in the agreement. No cash was received as consideration for these shares.
On May 15, 2023, i 1,000,000 Class A shares were issued to the former owner of Arrowhead in connection with its acquisition at a fair market price of $ i 0.27 per share. No cash was received as consideration for these shares.
On May 19, 2023, i 6,383,952 Class A shares were issued to various former owners of Simbex in connection with the conclusion of its earnout period at a fair market price of $ i 0.29 per share. The number of shares were allocated to the previous owners based on their percentage of ownership on the date of sale.
On May 19, 2023, i 1,743,244 Class A shares were exchanged for i 1,743,244 common shares in the Company at a price of $ i 0.29 per share. No cash was received as part of this issuance.
On June 5, 2023, i 337,524 common shares were issued to a former employee of the Company at a fair market price of $ i 0.25 per share in connection for the settlement of liabilities. No cash was received as consideration for these shares.
On June 26, 2023, i 368,500 Class A shares were exchanged for i 368,500 common shares in the Company at a price of $ i 0.28 per share. No cash was received as part of this issuance. As of June 30, 2023, these shares had not yet been issued and are presented as "common stock to be issued" on the unaudited interim condensed consolidated balance sheets and unaudited interim condensed consolidated statements of stockholders' equity.
On June 27, 2023, i 43,215 Class A shares were exchanged for i 43,215 common shares in the Company at a price of $ i 0.28 per share. No cash was received as part of this issuance.
a. Class A shares to be issued
On May 31, 2022, SDP concluded its earn-out period and achieved its milestones allowing SDP to receive its full earn-out compensation of i 19,162,000 Class A shares (as described in detail in Note 4). These shares were allocated to the previous owners of SDP based on their percentage of ownership on the date of sale. As of June 30, 2023, the fair value of the shares to be issued is $ i 4,686,005. As of June 30, 2023, i 12,900,660 Class A shares have been issued to SDP sellers and i 6,261,340 Class A shares are yet to be issued.
b. Stock based compensation
The Company's Board of Directors determines, among other things, the eligibility of individuals to participate in the Option Plan and the term, vesting periods, and the exercise price of options granted under the Option Plan. The stock option vesting ranges over a i 1 year to i 10-year period.
The outstanding stock options as of June 30, 2023, are as follows:
| Grant date |
Exercise |
|
|
Number of |
|
|
Number of vested options |
|
|
Weighted |
||
| March 28, 2014 | i 2.13 | i 5,103 | i 5,103 | i 0.75 | ||||||||
| September 23, 2019 | i 0.19 | i 28,155 | i 28,155 | i 1.24 | ||||||||
| June 8, 2021 | i 0.99 | i 663,300 | i 221,100 | i 2.92 | ||||||||
| June 8, 2021 | i 0.86 | i 1,444,520 | i 481,507 | i 2.92 | ||||||||
| June 8, 2021 | i 0.86 | i 225,000 | i 225,000 | i 2.92 | ||||||||
| July 7, 2021 | i 1.39 | i 400,000 | i 133,333 | i 3.13 | ||||||||
| December 6, 2021 | i 0.65 | i 1,049,230 | i 263,179 | i 3.44 | ||||||||
| January 19, 2022 | i 0.65 | i 150,000 | i 50,000 | i 3.56 | ||||||||
| March 9, 2022 | i 0.54 | i 230,000 | i 46,000 | i 3.69 | ||||||||
| April 13, 2022 | i 0.78 | i 236,700 | i 78,900 | i 3.79 | ||||||||
| April 26, 2022 | i 0.90 | i 150,000 | i 50,000 | i 3.82 | ||||||||
| July 18, 2022 | i 0.79 | i 306,100 | i - | i 4.05 | ||||||||
| August 29, 2022 | i 0.69 | i 200,000 | i - | i 4.17 | ||||||||
| December 12, 2022 | i 0.50 | i 40,000 | i - | i 4.45 | ||||||||
| February 10, 2023 | i 0.47 | i 780,000 | i - | i 4.62 | ||||||||
| April 19, 2023 | i 0.30 | i 350,000 | i - | i 4.81 | ||||||||
| May 24, 2023 | i 0.29 | i 1,000,000 | i - | i 4.90 | ||||||||
| June 13, 2023 | i 0.25 | i 250,000 | i - | i 4.96 | ||||||||
| Total | i 0.68 | i 7,508,108 | i 1,582,277 | i 3.76 |
| 26 |
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
A summary of the Company's changes to stock options are as follows:
i|
Number of |
Weighted |
|||||
| Balance as of February 28, 2022 | i 4,277,032 | i 0.78 | ||||
| Options exercised | ( i 28,154 | ) | i 0.19 | |||
| Options expired | ( i 101,290 | ) | ( i 0.34 | ) | ||
| Options issued | i 1,525,350 | i 0.12 | ||||
| Balance as of December 31, 2022 | i 5,672,938 | i 0.81 | ||||
| Options exercised | ( i 147,400 | ) | i 0.23 | |||
| Options expired | ( i 397,430 | ) | ( i 0.24 | ) | ||
| Options issued | i 2,380,000 | i 0.11 | ||||
| Balance as of June 30, 2023 | i 7,508,108 | $ | i 0.68 |
The Company recognized $ i 391,572 and $737,096 of stock-based compensation for the three and six months ended June 30, 2023, respectively ($ i 489,089 and $927,658 for the three and six months ended June 30, 2022).
On February 10, 2023, the Company issued i 780,000 options to two officers and three employees of the Company. The options vest over three years and are exercisable for a period of i five years at an exercise price of $ i 0.47 per option. The fair value of the options was estimated on the date of the grant at $ i 0.46 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of i 204%; expected dividend yield of i 0%; risk-free interest rate of i 3.17%; stock price of $ i 0.47; and expected life of i 5 years.
On April 19, 2023, the Company issued i 350,000 options to four employees of the Company. The options vest over three years and are exercisable for a period of i five years at an exercise price of $ i 0.30 per option. The fair value of the options was estimated on the date of the grant at $ i 0.29 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of i 197%; expected dividend yield of i 0%; risk-free interest rate of i 3.14%; stock price of $ i 0.30; and expected life of i 5 years.
On May 24, 2023, the Company issued i 1,000,000 options to one director of the Company. The options vest over three years and are exercisable for a period of i five years at an exercise price of $ i 0.29 per option. The fair value of the options was estimated on the date of the grant at $ i 0.28 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of i 197%; expected dividend yield of i 0%; risk-free interest rate of i 3.34%; stock price of $ i 0.29; and expected life of i 5 years.
On June 13, 2023, the Company issued i 250,000 options to one officer of the Company. The options vest over three years and are exercisable for a period of i five years at an exercise price of $ i 0.25 per option. The fair value of the options was estimated on the date of the grant at $ i 0.24 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of i 196%; expected dividend yield of i 0%; risk-free interest rate of i 3.61%; stock price of $ i 0.25; and expected life of i 5 years.
The outstanding warrants as of June 30, 2023, are as follows:
| Grant date |
|
|
|
Number of warrants |
|
|
Number of |
|
|
Weighted |
||
| November 11, 2021 | i 0.86 | i 199,804 | i 199,804 | i 0.37 | ||||||||
| February 15, 2022 | i 0.55 | i 542,431 | i 542,431 | i 1.63 | ||||||||
| February 15, 2022 | i 0.70 | i 7,749,000 | i 7,749,000 | i 1.63 | ||||||||
| Total | $ | i 0.70 | i 8,491,235 | i 8,491,235 | i 1.60 |
A summary of the Company's warrants are as follows:
i|
Number of Warrants |
|
|
Weighted Avg. Exercise |
||||||
| Balance as of February 28, 2022 | i 11,732,373 | i 0.79 | |||||||
| Warrants issued as part of finance deal | i - | i - | |||||||
| Broker warrants issued as part of finance deal | i - | i - | |||||||
| Warrants exercised and forfeited | ( i 3,241,138 | ) | ( i 0.09 | ) | |||||
| Balance as of December 31, 2022 | i 8,491,235 | i 0.70 | |||||||
| Warrants issued as part of finance deal | i - | i - | |||||||
| Broker warrants issued as part of finance deal | i - | i - | |||||||
| Warrants exercised and forfeited | i - | i - | |||||||
| Balance as of June 30, 2023 | i 8,491,235 | i 0.70 | |||||||
| 27 |
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
14. Related party transactions
The Company's transactions with related parties were carried out on normal commercial terms and in the course of the Company's business. Other than disclosed elsewhere in the Company's unaudited interim condensed consolidated financial statements, related party transactions are as follows.
During the three and six months ended June 30, 2023, and 2022, the Company made payments to Advanced Strategic Associates, LLC ("Advanced"), a company owned and controlled by Michael Dalsin, a beneficial holder of more than 5% of our Common Shares, and Michael Dalsin individually. During the three months ended June 30, 2023, and 2022, the Company made payments to Michael Dalsin individually in the amount of $ i 5,581 (US $ i 4,141) and $ i 15,765 (US $ i 12,399), respectively. During the six months ended June 30, 2023, the Company made payments to Michael Dalsin individually in the amount of $ i 12,241 (US $ i 9,083), and for the six months ended June 30, 2022, the Company made payments to Advanced and Michael Dalsin individually in the amount of $ i 577,897 (US $ i 454,500) and $ i 24,754 (US $ i 19,798), respectively, for an aggregate amount of $ i 602,651 (US $ i 474,298). The consideration for Advanced and Mr. Dalsin providing services is related to acquisition structuring, due diligence, capital structuring, and corporate transactional advisory services. This expense was included within transaction costs.
During the three and six months ended June 30, 2023, and 2022, the Company made payments to Marquette Partners, Inc. ("Marquette"), a company owned and controlled by Roger Greene, a beneficial holder of more than 5% of our Common Shares, and Roger Greene individually. During the three months ended June 30, 2023, and 2022, the Company made payments to Roger Greene individually in the amount of $ i 12,020 (US $ i 8,919) and $ i 20,589 (US $ i 16,193), respectively. During the six months ended June 30, 2023 the Company made payments to Roger Greene individually in the amount of an amount of $ i 25,334 (US $ i 18,798), and for the six months ended June 30, 2022, the Company made payments to Marquette and Roger Green individually in the amount of and $ i 83,919 (US $ i 66,000) and $ i 40,491 (US $ i 32,385), respectively, for an aggregate amount of $ i 124,410 (US $ i 98,385). The consideration is for Marquette and Mr. Greene providing advisory services related to strategic business acquisitions. This expense was included within transaction costs.
During the three and six months ended June 30, 2023, and 2022, the Company made payments to Hedgehog Financial Corporation ("Hedgehog"), a company owned and controlled by Andrew Cross, the son of Leslie Cross, our Chairman of the Board and former Interim Chief Executive Officer, and a former employee of the Company. During the three and six months ended June 30, 2022 the Company made payments in the aggregate sum of $ i 59,220 (US $ i 46,575) and $ i 190,855 (US $ i 151,150), respectively in consideration for Hedgehog providing services related to acquisitions, due diligence, accounting, finance and other corporate support services. This expense was included within transaction costs. Additionally, during the three and six months ended, June 30, 2023, the Company issued shares to Mr. Cross personally in connection with a settlement of liabilities valuing $ i i 199,095 / (US $ i i 150,374 / ) ($ i i nil / for the three and six months ended June 30, 2022). This amount has been included in the unaudited interim condensed consolidated statement of stockholders’ equity.
The Company incurred substantial costs associated with the Change of Business transaction, due diligence of acquisition targets, financing costs, US regulatory costs and the associated accounting and regulatory costs. While these costs are crucial to future operations, they do not represent regular operational costs of the business. The Company presents these costs separately to better allow investors to evaluate the operational status of the Company independently of financing, regulatory and other transaction focused expenses, which were as follows:
i| For the three months ended | For the six months ended | |||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||
| Consulting and professional fees | $ | i 20,896 | $ | i 265,043 | $ | i 194,745 | $ | i 1,354,545 | ||||
| General expenses | i 54,645 | i 104,246 | i 339,567 | i 213,864 | ||||||||
| Transaction costs | $ | i 75,541 | $ | 369,289 | $ | i 534,312 | $ | i 1,568,409 | ||||
16. Cash and cash equivalents
Cash represents bank deposits at reputable banking institutions. Cash equivalents represent short-term, highly liquid investments, which are readily convertible to cash and have maturities of 90 days or less at the time of purchase. Cash equivalents, which are carried at fair value or amortized cost, as applicable, consist of holdings in a money market fund and in treasury bills. As of June 30, 2023, there are no cash equivalents presented on the unaudited interim condensed consolidated balance sheets (December 31, 2022 - $ i i nil / ).
| 28 |
|
SALONA GLOBAL MEDICAL DEVICE CORPORATION |
17. Income taxes
The Company has accounted for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as net operating loss carryforwards and research and development credits. Valuation allowances are provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. For the three and six months ended June 30, 2023, the Company recorded a current income tax provision of $ i 2,294 and $ i 38,544 respectively for anticipated state income tax obligations and recognized no deferred income tax liability or recovery. For the three and six months ended June 30, 2022, the Company recorded a deferred income tax recovery of $ i 31,607 and $ i 145,717, respectively.
The primary factors impacting current tax provision for three and six months ended June 30, 2023, are the expected utilization of net operating losses to offset any current year tax liabilities, and a full valuation allowance against any associated net deferred tax assets.
18. Other income
Other income consists of income not incurred in the ordinary course of business including interest income, and other types of nonoperating income.
In 2023, the Company received $ i 815,363 of refundable tax credits in accordance with the Employer Retention Credit (ERC) program, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended by subsequent legislative changes. The Company has presented $ i 815,363 of grant income, net of consulting fee, in the other income section of the unaudited interim condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023. Included in prepaid expenses and other receivables section of the balance sheet as of June 30, 2023, the Company has an ERC receivable in the amount of $ i 1,068,032, reflective of that portion of the ERC that had not yet been received at the unaudited interim condensed consolidated balance sheet date, and an accrued liability for $ i 267,008 representing the amount due for the consulting fee.
19. Contingencies
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of June 30, 2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company's operations. There are also no proceedings in which any of the Company's directors, officers or affiliates is an adverse party or has a material interest adverse to the Company's interest.
Outside of the line of credit and debt disclosed in Note 11, the Company does not have any other financial commitments or contingencies.
20. Subsequent events
In connection with entering into a stock purchase agreement on March 15, 2023 for the acquisition of the Biodex Physical Medicine business, on August 4, 2023, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) pursuant to which the seller of this business has agreed to forbear from exercising its rights and remedies against the Company, including the Acceleration Right, through the earlier to occur of the Company’s default under the Forbearance Agreement; or July 31, 2025, subject to, among other things, the following: (i) all past due amounts under the Debt shall accrue interest at i 12% per annum; (ii) the payment by the Company on or prior to October 31, 2023 of approximately $ i 1.5 million; (iii) the payment by the Company each month commencing August 2023 of all of Salona’s (together with its subsidiaries’) cash in excess of $ i 2.5 million at the end of each month until late payments, including accrued interest (the “Late Payments”), are current with the original Debt payment schedule (“Original Debt Schedule”); (iv) the payment by the Company of i 50% of any capital raised by the Company until the Late Payments are current with the Original Debt Schedule; (v) the Company obtaining prior consent from the Seller before it can make capital expenditures in excess of $ i 100,000 for any reason other than repair of equipment needed for its operations; (vi) the Company not declaring a dividend or initiating a share repurchase until such time as the obligations under the Original Debt Schedule are current; (vii) the Company not engaging in any merger or acquisition activities until such time as the obligations under the Original Debt Schedule are current or are brought current as a result of the merger or acquisition; and (viii) i the Company being required to utilize 80% of any available credit lines or such percentage as allowed by its respective lender to access cash until the obligations under the Original Debt Schedule are current.
29
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used in this Quarterly Report on Form 10-Q, the terms "the Company," "us," "our," the "Company" and "Salona" mean Salona Global Medical Device Corporation (a corporation incorporated under the laws of the Province of British Columbia formerly known as Brattle Street Investment Corp.) and its subsidiaries (unless the context indicates a different meaning).
Cautionary Note Regarding Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the unaudited interim condensed consolidated financial statements and related notes. This quarterly report, including, without limitation, statements under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). These forward-looking statements can be identified by the use of forward-looking terminology, including the words "believes," "estimates," "anticipates," "expects," "intends," "plans," "may," "will," "potential," "projects," "predicts," "continue," or "should," or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, economic and competitive conditions, the successful integration of its acquisitions and realization of the expected benefits of such acquisitions, regulatory changes and other uncertainties, the general expansion of its business, and other statements which are not statements of current or historical facts.
The forward-looking statements contained in this quarterly report are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. Future developments affecting us may not be those that the Company have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond its control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading "Risk Factors" in this Report as well as in the Company's Transition Report on Form 10-KT for the transition period ended December 31, 2022, all of which are difficult to predict. Should one or more of these risks or uncertainties materialize or should any of these assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under "Risk Factors" may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions you that forward-looking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity, and developments in the industry in which it operates may differ materially from those made in or suggested by the forward-looking statements contained in this Report. In addition, even if the Company's results or operations, financial condition and liquidity, and developments in the industry in which it operates are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods.
The Company previously issued full year 2023 projections for revenues, gross margin, and Adjusted EBITDA. Since these projections were communicated, the management team of the Company has changed substantially. The current management team is in the process of conducting a strategic review of the business, and given the losses sustained for the six months ended June 30, 2023, the Company expects to adjust its projection for Adjusted EBITDA downward.
Currency
Financial information presented in this Report is presented in Canadian dollars, unless otherwise indicated. Unless otherwise indicated, all references to years are to the Company's year ended on the last calendar day of December.
OVERVIEW
On March 11, 2021, the Company completed a Change of Business, as defined by the TSX Venture Exchange, to become an acquisition-oriented business focused on human performance and rehabilitative solutions with plans to achieve scale through further acquisitions and organic growth. We presently intend to operate in the recovery science market, including postoperative pain, wound care and other markets serving the aging population in the United States.
On May 21, 2021, the Company acquired South Dakota Partners Inc. ("SDP"). SDP operates a large state-of-the-art production facility located in the State of South Dakota currently producing proprietary and white label medical devices for pain management, cold and hot therapy, NMES treatment, and PEMF and ultrasound therapy.
On September 30, 2021, the Company acquired Simbex, LLC ("Simbex"), a medical device and consumer health product design and development firm. Simbex offers both engineering services and commercialization strategy consulting for the Salona subsidiaries and other companies of all sizes.
On November 29, 2021, the Company acquired the customer lists, sales orders and supply agreements, and related sales channel and intellectual property assets of ALG-Health, LLC ("ALG"), a business engaged in the selling medical devices and supplies to small, independent hospitals, group purchasing organizations, medical offices and clinics, in exchange for non-voting securities of ALG Health Plus which are exchangeable for up to a maximum of 21,000,000 nonvoting Class A shares of the Company subject to the achievement of certain revenue and EBITDA targets. In connection with the transaction, our subsidiary ALG Health Plus entered into an exclusive supply agreement with ALG.
On March 11, 2022, the Company acquired Mio-Guard, LLC, a Michigan based company engaged in the wholesale sale of sports medicine products in the mid-western, southern and central United States. Since 2009, the team at Mio-Guard has sold into the athletic training, physical therapy and orthopedics markets for sports medicine products. Mio-Guard has over 50 sales representatives in the United States with a focus on the Midwest, South and Central United States and long-standing relationships with institutions ranging from high school to college to professional athletics.
On September 23, 2022, the Company acquired DaMar Plastics, Inc, a California based company that manufactures custom plastics. In addition to providing plastic injection molding parts to their customers, DaMar Plastics also offers several ancillary services, including but not limited to assembly, packaging and mold making. This business capability matches well with the electromedical, and assembly services offered by South Dakota Partners (SDP).
On March 15, 2023, the Company entered into a stock purchase agreement providing for the acquisition of all of the capital stock of Biodex Medical Systems, Inc. ("Biodex"), which consists principally of the Biodex Physical Medicine business. The Purchase Agreement replaced the previously disclosed asset purchase agreement covering the same business that was first announced on August 15, 2022. The Company completed the Acquisition on April 3, 2023. The purchase agreement provided for the purchase of all of the capital stock of Biodex in consideration for a total of US $8 million in cash, minus indebtedness, transaction expenses and plus or minus a working capital adjustment, payable as follows: (i) a closing payment to the Sellers of US $1,000,000 in cash, and (ii) three installment payments totaling US $7 million, plus or minus the post-closing adjustment, as follows: US $2 million on July 1, 2023, US $3 million on October 1, 2023, plus or minus the Post-Closing Adjustment, and US $2 million on January 1, 2024. The payment of the installment payments is secured by the pledge of the Biodex capital stock as security to Seller, pursuant to the terms of a promissory note. On August 4, 2023 the Company entered into a Forbearance Agreement which is described in “Debt and Commitment” below.
On May 15, 2023, the Company entered into and completed the acquisition pursuant to a Stock Purchase Agreement with the owner of Arrowhead Medical, LLC ("Arrowhead") providing for the acquisition of all of the ownership interests of Arrowhead. The purchase price consideration consisted of the issuance at closing of one million (1,000,000) shares of the Company's Class A common stock, which is convertible into the Company's Common Shares, subject to limitations on conversion which prevent conversion of Class A shares if the holder owns more than 500,000 shares of the Company's Common Shares, or if the holder owns more than 9.9% of the outstanding Common Shares of the Company. The purchase price also included the assumption by the Company of approximately $444,930 (US $329,896) in bank debt under Arrowhead's asset-based line of credit, and a contingent earnout payment equal to one share of Class A common stock for each one dollar (US $1.00) of EBITDA generated by the Arrowhead business over the two-year period following the closing date, up to a maximum of 2 million Class A shares.
30
REVENUE AND EXPENSE COMPONENTS
The following is a description of the primary components of our revenue and expenses:
Revenue. We derive our revenue primarily from the sale of goods and services provided to the Company's contracted customers and sales-based royalties charged by the Company to licensees of the Intellectual Property (IP) developed by the Company. Currently, most of our business is conducted with customers within markets in which we have experience, and with payment terms that are customary to our business.
Cost of revenue. Cost of revenue consists primarily of direct labor expended in the manufacturing of products and the delivery of services, the cost of raw materials and finished goods, and other overhead costs attributable to the manufacture of products or delivery of services.
Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of salaries and related employee benefits, sales commissions, stock-based compensation, insurance expense, professional service fees, information technology expenses and other administrative expenses.
Depreciation of property and equipment. Depreciation of property and equipment consists primarily of manufacturing equipment and information technology assets expensed over their useful lives.
Amortization of right-of-use assets. The right-of-use asset is a lessee's right to use an asset and is amortized over the life of the lease.
Amortization of acquired intangible assets. Amortization of acquired intangible assets reflects the amortization of intangible assets such as trademarks, non-compete agreements, intellectual property and customer base.
31
Interest expense. Interest expense consists primarily of the interest charged in connection with the line of credit facility, the term note, and the finance leases.
Foreign exchange gains and losses. Foreign exchange gains and losses result from the currency fluctuations as the Company's operations are primarily in the United States in US dollars, and its reporting currency used throughout this report is in Canadian dollars.
Change in fair value of earn-out and contingent consideration. The change in fair value of earn-out and contingent consideration represents the change in earned and potential future obligations that are contingent on an acquired entity's business achieving certain milestones.
Transaction-related expenses. Transaction-related expenses include legal, financial, audit, US and Canadian regulatory expenses and other fees incurred in connection with the Change of Business transaction, the multiple acquisitions, due diligence of acquisition targets, financing costs, US regulatory costs, and associated accounting and other costs. While these costs are necessary to the change of our line of business, they are not operational expenses of the business.
Income tax provision. The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes, which requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences.
RESULTS OF OPERATIONS
Revenue
| Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||
| Revenue | $ | 16,575,075 | $ | 9,761,145 | $ | 6,813,930 | 70% | $ | 27,258,304 | $ | 18,429,560 | $ | 8,828,744 | 48% | ||||||||||
Revenue increased by $6.8 million, or 70%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. Sales increased $8.3 million as a result of acquisitions made since the three months ended June 30, 2022, and was offset by a decrease in in the contract services businesses of $2.0 million. A favorable impact related to changes in foreign exchange rates increased sales by $0.5 million.
Revenue increased by $8.8 million, or 48%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. Sales increased $11.1 million as a result of acquisitions made since the six months ended June 30, 2022, and was offset by a decrease in sales in the ALG sales channel of $0.4 million and a reduction in the contract services businesses of $3.0 million. A favorable impact related to changes in foreign exchange rates increased sales by $1.1 million.
Cost of revenue
| Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||
| Cost of revenue: | ||||||||||||||||||||||||
| Direct service personnel | 1,652,004 | 1,443,458 | 208,546 | 14% | 3,477,759 | 2,874,397 | 603,362 | 21% | ||||||||||||||||
| Direct material costs | 8,964,709 | 4,837,017 | 4,127,692 | 85% | 13,390,800 | 8,552,625 | 4,838,175 | 57% | ||||||||||||||||
| Other direct costs | 325,947 | 204,513 | 121,434 | 59% | 661,471 | 499,521 | 161,950 | 32% | ||||||||||||||||
| Total cost of revenue | 10,942,660 | 6,484,988 | 4,457,672 | 69% | 17,530,030 | 11,926,543 | 5,603,487 | 47% | ||||||||||||||||
Total cost of revenue increased by $4.5 million, or 69%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. The increase was primarily due to an increase in the sales volume driven by acquisitions made since the three months ended June 30, 2022.
Total cost of revenue increased by $5.6 million, or 47%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The increase was primarily due to an increase in the sales volume driven by acquisitions made since the six months ended June 30, 2022.
Operating expenses
|
Three months ended |
Change |
Six |
Change |
||||||||||||||||||||||
|
Operating expenses: |
2023 |
2022 |
$ |
% |
2023 |
2022 |
$ |
% |
|||||||||||||||||
| Selling, general and administrative | 6,966,370 | 3,151,147 | 3,815,223 | 121% | 10,841,584 | 5,724,699 | 5,116,885 | 89% | |||||||||||||||||
| Depreciation of property and equipment | 265,066 | 71,817 | 193,249 | 269% | 449,330 | 140,940 | 308,390 | 219% | |||||||||||||||||
| Amortization of right-of-use assets | 540,308 | 83,611 | 456,697 | 546% | 922,141 | 170,036 | 752,105 | 442% | |||||||||||||||||
| Amortization of intangible assets | 350,553 | 249,029 | 101,524 | 41% | 701,099 | 464,010 | 237,089 | 51% | |||||||||||||||||
| Total operating expenses | 8,122,297 | 3,555,604 | 4,566,693 | 128% | 12,914,154 | 6,499,685 | 6,414,469 | 99% |
32
Selling, general and administrative increased by $3.8 million, or 121%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022. Expenses increased $3.2 million due to acquisitions made since the three months ended June 30, 2022, $0.5 million for an increase in infrastructure for the consolidated business operations, and $0.1 million for severance expense.
Selling, general and administrative increased by $5.1 million, or 89%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. Expenses increased $3.9 million due to acquisitions made since the six months ended June 30, 2022, $1.0 million for an increase in infrastructure for the consolidated business operations, and $0.2 million for severance expense.
Depreciation of property and equipment increased by $0.2 million, or 269%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and by $0.3 million, or 219%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The increase was primarily due to the addition of assets from acquired businesses.
Amortization of right-of-use assets increased by $0.5 million, or 546%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and by $0.8 million, or 442%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The increase was primarily due to the addition of building leases resulting from acquired businesses.
Amortization of intangible assets increased by $0.1 million, or 41%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and by $0.2 million, or 51%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The increase was primarily due to the addition of assets resulting from acquired businesses.
Interest and other income and (expense)
| Three months ended June 30, |
Change | Six months ended June 30, | Change | |||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||||
| Interest expense | (454,446 | ) | (114,763 | ) | (339,683 | ) | 296% | (732,532 | ) | (235,217 | ) | (497,315 | ) | 211% | ||||||||||||
| Foreign exchange gain (loss) | 2,990 | 240 | 2,750 | 1146% | 4,518 | (3,933 | ) | 8,451 | -215% | |||||||||||||||||
| Other income | 815,428 | 3 | 815,425 | -% | 815,561 | 48 | 815,513 | -% | ||||||||||||||||||
| Provision for impairment | - | (7,391 | ) | 7,391 | -100% | - | (5,527,913 | ) | 5,527,913 | -100% | ||||||||||||||||
| Change in fair value of earnout consideration | 1,165,697 | (2,451,600 | ) | 3,617,297 | -148% | 1,165,697 | (2,451,600 | ) | 3,617,297 | -148% | ||||||||||||||||
| Change in fair value of contingent consideration | (77,795 | ) | (459,693 | ) | 381,898 | -83% | (273,095 | ) | 5,394,008 | (5,667,103 | ) | -105% | ||||||||||||||
| Transaction costs | (75,541 | ) | (369,289 | ) | 293,748 | -80% | (534,312 | ) | (1,568,409 | ) | 1,034,097 | -66% | ||||||||||||||
Interest expense increased by $0.3 million, or 296%, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022 and increased by $0.5 million, or 211%, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The increase was primarily due to additional lease liabilities related to acquired businesses.
Foreign exchange gain increased by $0.0 million and decreased by $0.0 million for the three and six months ended June 30, 2023, respectively compared to the three and six months ended June 30, 2022.
Other income increased by $0.8 million for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022. This income is a result of refundable tax credits in accordance with the Employer Retention Credit (ERC) program.
Provision for impairment decreased by $0.0 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and by $5.5 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. There was no provision for impairment in the three or six months ended June 30, 2023.
Change in fair value of earnout consideration decreased by $3.6 million for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022. The decrease is due to changes in the likelihood of the acquisitions achieving certain earnout milestones and changes in the stock price for the stock component of the earnout payments.
Change in fair value of contingent consideration decreased by $0.4 million for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, and by $5.7 million for the six months ended June 30, 2023, compared to the six months ended June 30, 2022. The decrease is due to changes in the likelihood of the acquisitions achieving certain earnout milestones and changes in the stock price for the stock component of the earnout payments.
Transaction costs decreased by $0.3 million or 80% and $1.0 million or 66% for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, respectively. The decrease is a result of a reduction in costs associated with acquisitions, potential acquisitions and US and Canadian regulatory activity.
Income Tax Provision
| Three months ended June 30, | Change | Six months ended June 30, | Change | |||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | |||||||||||||||||
| Income tax (provision) recovery | $ | (2,294 | ) | $ | 31,607 | $ | (33,901 | ) | (107%) | $ | (38,544 | ) | $ | 145,717 | $ | (184,261 | ) | (126%) | ||||||
The income tax benefit decreased by $0.0 million and $0.2 million for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022. The provision for the six months ended June 30, 2023, represents the anticipated state income tax obligations for the Company for the 2023 tax year.
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Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents, our line of credit facility, and cash from operations. Our liquidity and capital structure are evaluated regularly within the context of our annual operating and strategic planning process. We consider the liquidity necessary to fund our operations, which includes working capital needs. Our future capital requirements will depend on many factors including our rate of revenue growth, property and equipment to expand manufacturing capacity, the timing and extent of spending to support development efforts, the expansion of sales and administrative activities, the timing of introductions of new products and enhancements to existing products, and the satisfaction of earn-outs and other contingent liabilities related to acquisitions.
If we are required to access the debt markets, we expect to be able to secure borrowing rates consistent with the market at that time. As part of our liquidity strategy, we will continue to monitor our current level of spending and cash use as well as our ability to secure additional credit facilities, term loans, or other similar arrangements in light of our spending levels and general financial market conditions.
Cash and cash equivalents were $1.4 million and $1.9 million as of June 30, 2023, and December 31, 2022, respectively.
Summary of Cash Flows
The following is a summary of our cash provided by (used in) operating, investing and financing activities, and the net change in cash and cash equivalents:
| For the six months ended June 30, | ||||||
| 2023 | 2022 | |||||
|
Net cash (used in) provided by operating activities |
$ | (1,920,836 | ) | $ | 707,965 | |
| Net cash used in investing activities | (1,451,293 | ) | (869,631 | ) | ||
| Net cash provided by financing activities | 2,347,690 | 3,696,197 | ||||
|
Net (decrease) increase in cash and cash equivalents |
$ | (1,024,439 | ) | $ | 3,534,531 | |
Operating Activities
We used net cash of $1.9 million for operating activities for the six months ended June 30, 2023. This cash flow was primarily used through an increase in working capital that was driven by acquisitions.
Investing Activities
We used net cash of $1.5 million for investing activities for the six months ended June 30, 2023. The Biodex acquisition consumed $1.3 million.
Financing Activities
We generated net cash of $2.3 million from financing activities for the six months ended June 30, 2023. The increase in cash was from net debt and line of credit proceeds of $3.0 million, offset by lease payments of $0.8 million.
We have never paid a cash dividend on our capital stock. Any future determination to pay cash dividends will be at the discretion of our Board of Directors (the "Board") and will depend upon our financial condition, operating results, capital requirements and such other factors as our Board deems relevant.
Debt and Commitments
Our contractual obligations as of June 30, 2023, include debt of $9.8 million, a line of credit facilities of $8.4 million, and lease obligations of $9.3 million reflecting the minimum commitments for our office and warehouse spaces. See Notes 11 and 12 to our unaudited interim condensed consolidated financial statements included elsewhere in this report for more information on our debt and lease obligations, respectively, including the scheduled maturities and timing of cash payments related to these obligations.
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There are obligations as of June 30, 2023, for future earnout consideration associated with completed acquisitions. As of June 30, 2023, these obligations are estimated to be settled with $4,982,902 million in stock and $7,746,812 million in cash payments. The Simbex earnout was due to be paid with stock of the Simbex acquisition parent subsidiary and cash in the month of April 2023. On May 19, 2023, 6,383,952 Class A shares were issued to the former owners of Simbex in connection with the conclusion of its earnout period at a fair market price of $0.29 per share fulfilling the Company’s stock earnout obligation. The number of shares were allocated to the previous owners based on their percentage of ownership on the date of sale. On May 19, 2023, 1,743,244 of these Class A shares were then converted to 1,743,244 common shares. As of June 30, 2023, the $4,303,000 cash component remains unpaid and is still outstanding on the unaudited interim condensed consolidated balance sheets as a current liability and accrues interest. Under the terms of the Simbex acquisition agreement, the unpaid cash earnout payment accrues interest at the rate of 8% per annum. Although management has been in discussions with the Simbex sellers to modify and extend the payment date for the cash earnout payment, there can be no assurances that any agreement will be reached in this regard or that the Simbex sellers may not take legal action to collect this obligation, which could result in significant legal costs and efforts to defend such claims. See Note 4 to our unaudited interim condensed consolidated financial statements included elsewhere in this report for more information regarding acquisitions.
On March 15, 2023, the Company entered into a stock purchase agreement providing for the acquisition of Biodex Medical Systems, Inc., which consists principally of the Biodex Physical Medicine business. The purchase agreement provided for the purchase of all of the capital stock of Biodex in consideration for a total of US $8 million in cash, minus indebtedness, transaction expenses and plus or minus a working capital adjustment, payable as follows: (i) the closing payment to the Sellers of US $1 million in cash was made on April 3, 2023, and (ii) three installment payments totaling US $7 million, plus or minus the post-closing adjustment, as follows: US $2 million on July 1, 2023, US $3 million on October 1, 2023, plus or minus the Post-Closing Adjustment, and US $2 million on January 1, 2024. The payment of the installment payments is secured by the pledge of the Biodex capital stock as security to Seller, pursuant to the terms of a promissory note. As of July 1, 2023, the $2 million installment payment has not been paid by the Company.
On August 4, 2023, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) pursuant to which the seller of this business has agreed to forbear from exercising its rights and remedies against the Company, including the Acceleration Right, through the earlier to occur of the Company’s default under the Forbearance Agreement; or July 31, 2025, subject to, among other things, the following: (i) all past due amounts under the Debt shall accrue interest at 12% per annum; (ii) the payment by the Company on or prior to October 31, 2023 of approximately $1.5 million; (iii) the payment by the Company each month commencing August 2023 of all of Salona’s (together with its subsidiaries’) cash in excess of $2.5 million at the end of each month until late payments, including accrued interest (the “Late Payments”), are current with the original Debt payment schedule (“Original Debt Schedule”); (iv) the payment by the Company of 50% of any capital raised by the Company until the Late Payments are current with the Original Debt Schedule; (v) the Company obtaining prior consent from the Seller before it can make capital expenditures in excess of $100,000 for any reason other than repair of equipment needed for its operations; (vi) the Company not declaring a dividend or initiating a share repurchase until such time as the obligations under the Original Debt Schedule are current; (vii) the Company not engaging in any merger or acquisition activities until such time as the obligations under the Original Debt Schedule are current or are brought current as a result of the merger or acquisition; and (viii) the Company being required to utilize 80% of any available credit lines or such percentage as allowed by its respective lender to access cash until the obligations under the Original Debt Schedule are current.
The Company has been in discussions to raise funds through equity and debt financings. As the Company’s funding activities are ongoing, there can be no assurances that the Company will be able to secure funding on terms that are acceptable to the Company or at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the unaudited interim condensed consolidated financial statements are issued. While management has developed and is in process to implement plans that management believes could alleviate in the future the substantial doubt that was raised, management concluded at the date of the issuance of the unaudited interim condensed consolidated financial statements that substantial doubt exists as those plans are not completely within the control of management.
Off-Balance Sheet Arrangements
As of June 30, 2023, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited interim condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including those related to useful lives of non-current assets, impairment of non-current assets, including goodwill and intangible assets, valuation of stock-based compensation, allowance for doubtful accounts, provisions for inventory, valuation allowance for deferred tax assets, and the purchase price accounting of the businesses that the Company has acquired, including the acquisition date fair value of the identifiable assets and liabilities acquired, the fair value of contingent consideration as well as the associated remeasurement of earnouts, and assessment of going concern. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumption conditions.
See Note 3 to our unaudited interim condensed consolidated financial statements included elsewhere in this report for additional details regarding the accounting policies we believe to be critical to the judgments and estimates used in the preparation of our unaudited interim condensed consolidated financial statements.
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Recent Accounting Pronouncements
See Note 3 to our unaudited interim condensed consolidated financial statements included elsewhere in this report for additional details regarding recent accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential economic loss arising from adverse changes in market rates and prices, such as interest rates, foreign exchange rates, raw material and other commodity prices.
Currency Risk. Our operating results and financial position are reported in Canadian dollars. The majority of our financial transactions are denominated in the U.S. dollar. The reported results of our operations are subject to currency transaction risks. We have no hedging agreements in place with respect to foreign exchange rates. We have not entered into any agreements or purchased any instruments to hedge possible currency risks at this time.
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. Cash and cash equivalents bear interest at market rates. As of June 30, 2023, our cash and cash equivalents were $1,398,103 as compared to $1,928,464 as of December 31, 2022. Our financial debts have variable fixed rates of interest and as a result, the Company is exposed to interest rate risk on the line of credit ($8,434,492), short-term debt ($9,033,918) and long-term debt ($741,238) which could negatively impact the Company's cash position and result of operations in future periods should interest rates rise.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed with the U.S. Securities and Exchange Commission (the "SEC") is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of June 30, 2023, an evaluation was performed under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934). Based on that evaluation, management, including our Chief Executive Officer concluded as of June 30, 2023, the Company's disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Changes in Internal Control Over Financial Reporting
During the period covered by this Report, the Company has not made any change to its internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial conditions. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors included in "Part I. Item 1A. Risk Factors" in our Transition Report on Form 10-KT for the transition period ended December 31, 2022.
ITEM 6. EXHIBITS
The following exhibits are filed with this Report:
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SALONA GLOBAL MEDICAL DEVICE CORPORATION | |
| By: /s/ Michael Seckler | |
| Name: Michael Seckler Title: Chief Executive Officer (principal executive officer and duly authorized signatory for the registrant) |
|
| Date: August 14, 2023 | |
| SALONA GLOBAL MEDICAL DEVICE CORPORATION | |
| By: /s/ Dennis Nelson | |
| Name: Dennis Nelson Title: Chief Financial Officer (principal financial officer and duly authorized signatory for the registrant) |
|
| Date: August 14, 2023 |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
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| Filed on: | 8/14/23 | |||
| 8/10/23 | 8-K | |||
| 8/4/23 | 8-K | |||
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| For Period end: | 6/30/23 | |||
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| 3/31/23 | 10-KT, 10-Q | |||
| 3/15/23 | 8-K, UPLOAD | |||
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| List all Filings | ||||