10-K 1 form10k.htm FORM 10-K Evome Medical Technologies Inc.: Form 10-K - Filed by newsfilecorp.com
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

 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 333-255642

Evome Medical Technologies, Inc.
(Exact name of registrant as specified in its charter)

British Columbia, Canada Not Applicable
(State or other jurisdiction of (IRS Employer
incorporation) Identification Number)
   
Shirley, New York, United States 11967
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: 1-800-760-6826

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No

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.
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).

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 ☐ Non-accelerated filer ☒
Smaller reporting company Emerging growth company  

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.

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No

As of December 31, 2023, the last business day of the registrant's most recently completed fiscal year, the aggregate market value of the voting stock held by non-affiliates of the registrant was $11,288,882 (based on the closing price of the common shares as reported on the TSXV of $ 0.21 per share).

As of April 9, 2024 (latest practicable date), 57,833,591 common shares, no par value, and 21,056,409 Class A shares, no par value, were outstanding.

2


EVOME MEDICAL TECHNOLOGIES, INC.AND SUBSIDIARIES

TABLE OF CONTENTS

PART I  
   
Item 1 Business 5
   
Item 1A Risk Factors 11
   
Item 1B Unresolved Staff Comments 29
   
Item 2 Properties 29
   
Item 3 Legal Proceedings 29
   
Item 4 Mine Safety Disclosures 29
   
PART II  
   
Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 30
   
Item 6 Selected Financial Data 31
   
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 31
   
Item 7A Quantitative and Qualitative Disclosures About Market Risk 40
   
Item 8 Financial Statements and Supplementary Data 41
   
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 42
   
Item 9A Controls and Procedures 42
   
Item 9B Other Information 43
   
PART III  
   
Item 10 Directors, Executive Officers and Corporate Governance 43
   
Item 11 Executive Compensation 48
   
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters 54
   
Item 13 Certain Relationships and Related Transactions, and Director Independence 55
   
Item 14 Principal Accounting Fees and Services 56
 

3


EXPLANATORY NOTE

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.

As used in this Annual Report on Form 10-K, the terms "we," "us," "our," the "Company" and "Evome" mean Evome Medical Technologies, Inc. and its subsidiaries (unless the context indicates a different meaning).

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual 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," "could", "may", "might" "will" and "would" 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, any statements relating to the future effects of the COVID-19 pandemic, the general expansion of our business, and other statements which are not statements of current or historical facts.

The forward-looking statements contained in this annual report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our 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." Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the dates on which they are made. We undertake 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. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this annual report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this annual report, those results or developments may not be indicative of results or developments in subsequent periods.

4


PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

Evome Medical Technologies Inc. (formerly Salona Global Medical Device Corporation) is a U.S.-based corporation specializing in human performance and rehabilitative solutions. We achieve this through strategic acquisitions, leveraging the intellectual properties of specialized companies under our wholly-owned subsidiaries: Biodex Medical Systems, Inc. ("Biodex"), a New York corporation, South Dakota Partners, Inc., a South Dakota corporation ("SDP"), Mio-Guard, LLC, a Michigan limited liability company ("Mio-Guard"), DaMar Plastics Manufacturing Inc., a California corporation ("DaMar"), Simbex, LLC, a New Hampshire limited liability company ("Simbex"), ALG Health Plus, LLC, a Delaware limited liability company ("Health Plus"), and Arrowhead Medical, LLC ("Arrowhead"), a Minnesota limited liability company. These acquisitions enable us to develop, manufacture, and distribute medical devices, including proprietary and white-label products.

Our product portfolio comprises various devices used for pain management and physical therapy treatments, including isokinetic dynamometers, perturbation gait trainers, balance assessment and recovery devices, neuromuscular electrical stimulation ("NMES") devices, transcutaneous electrical nerve stimulation ("TENS") devices, ultrasound treatment devices, wearable technology, and other products designed for the prevention, treatment, and rehabilitation of the human body.

To achieve scalability, our strategy involves continuous product launches targeting the Private Practice Physical Therapy segment within the Physical Medicine Market. We prioritize enhancing accessibility to cost- effective and space-efficient products and services, specifically catering to individuals aged sixty-five and above, a demographic with consistent demand due to government-sponsored medical coverage in the U.S.

While our current operations mainly focus on recovery science and technologies aiding post-surgical recovery and disease prevention, we anticipate expanding further into the human performance and rehabilitation sector. We actively seek acquisition opportunities within and adjacent to this vertical to capitalize on the projected significant growth of the U.S. occupational and physical therapy services market.

According to forecasts from fortunebusinessinsights.com, this market is expected to reach USD 92.38 billion by 2030, with a compound annual growth rate ("CAGR") of 8.2% from USD 53.08 billion in 2023. Additionally, we aim to optimize our operations by prioritizing higher-margin products and business units.

Our common shares trade on the TSX Venture Exchange ("TSXV") under the symbol "EVMT." Our registered office is Suite 200E, 1515A Bayview Avenue, East York, Ontario, and our headquarters are located at 49 Natcon Drive, Shirley, NY, 11967.

Unless otherwise noted, all figures in this report are reported in Canadian Dollars.

Plan of Operations

Our primary objective is to establish ourselves as a leading developer, manufacturer, and supplier of non- invasive medical device products through both organic growth initiatives and the introduction of new product lines. Biodex Medical Systems, known for its distinguished reputation as the foremost provider of isokinetic dynamometer machines globally, forms a core part of our strategic approach. We aim to capitalize on this strong brand recognition within institutional settings such as hospitals and universities, while simultaneously expanding into the rapidly growing field of recovery medicine, with a specific focus on the private physical therapy market.

In the short term, the company has initiated measures to enhance its financial standing by reducing acquisition debts and optimizing its balance sheet through the divestment of non-core business units, namely Arrowhead, Simbex and Mio-Guard. With a dedicated focus on revenue and profit growth, we have recently launched the Reactive Step Trainer, a groundbreaking device aimed at enhancing balance and reducing the risk of tripping and falling, particularly among elderly patients. Additionally, we are preparing to introduce the SpaceTek Knee, an innovative isokinetic device developed in collaboration with NASA. These strategic endeavors are intended to meet the increasing market demand while reinforcing our reputation as pioneers in non-invasive medical device technology.

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Our longer-term objectives encompass:

 Leveraging sales distribution networks to expand our distribution in U.S. and International channels,

 Increasing our product lines by developing, in-licensing or acquiring new intellectual property for protected devices that are synergistic with acquisitions,

 Increasing profits through debt reduction and operational efficiency to reduce supply chain risks, increase cash flow, and margins.

Growth Plan

We expect our recently introduced products in 2024 to drive organic growth and enhance profitability. The company is poised to expand its presence in the rapidly growing Private Physical Therapists market by offering affordable and space-efficient devices. Concurrently, we will sustain growth in the institutional market with our existing product line. We will continue our acquisition-oriented growth strategy leveraging the capital markets to target smaller U.S.-based private medical device companies by offering stock and cash to acquire such companies and integrate them into a large, broad-based medical device company. Through this growth strategy, we intend to increase our overall revenue and profits and therefore earnings per share by:

 Increasing revenues through international distribution networks in Europe, Australia, and other markets to increase sales for each acquired company.

 Increasing our product lines by developing, in-licensing or acquiring new intellectual property for protected devices that are synergistic with the acquisitions.

 Increasing profits through operational integration in an effort to reduce supply chain risks and increase cash flow and margin.

New Products

In 2024, we are proud to introduce two groundbreaking products: the SpaceTek Knee™ Device and the Reactive Step Trainer ("RST") by BiodexRehab. The SpaceTek Knee™ Device, developed in collaboration with NASA, is a portable, compact dynamometer isokinetic testing and rehabilitation device designed for small clinics. It offers portability, affordability, and high-quality performance, addressing joint issues at an accessible price point of approximately $25,000 (USD). The RST by BiodexRehab merges proven Gait Trainer technology with e-trip innovation to provide reproducible, task-specific step perturbation at a fraction of current machine costs, making balance training accessible to all clinicians and patients.

Looking ahead, Evome is poised for continuous growth and innovation in the expanding physical rehabilitation and recovery market. By prioritizing the creation of new IP and aiming for biannual product launches, we are committed to driving positive change in the industry. Recent acquisitions provide a solid foundation for developing cutting-edge products, offering flexibility for in-house manufacturing or strategic partnerships to optimize profitability.

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OUR OPERATIONS

Biodex Medical Systems, Inc.

Overview

Established in 1970, Biodex specializes in rehabilitation equipment within the medical device market, offering dynamometers, treadmills, and balance trainers. All products are developed, designed, and manufactured in- house. These products are distributed both domestically in the United States and internationally, with a focus on Europe and Japan. Biodex operates from a single facility located in Shirley, New York, employing approximately 60 individuals and maintaining relationships with 50 distributor groups. Additionally, under a Contract Manufacturing Agreement with Mirion Technologies, Biodex manufactures nuclear medicine products.

Customers, Sales and Marketing

Our primary customers include physical therapists, athletic trainers, orthopedic surgeons, hospitals, universities, research centers, healthcare distributors, and, in their capacity as agents, healthcare purchasing organizations or buying groups. These customers range from large multinational enterprises to independent clinicians.

We have operations in more than 25 countries and market products in more than 100 countries. We manage our operations through two major geographic segments – the Americas, which is comprised principally of the U.S. and includes other North, Central and South American markets; International which is comprised principally of Europe, the Middle East and Africa markets, Asia Pacific, which is comprised primarily of Japan and China. There is approximately a even split of sales between the America’s and International business in 2023.

We market and sell products through two principal channels: 1) direct to healthcare institutions, such as hospitals or direct channel accounts; 2) directly to healthcare distributors.  With direct channel accounts, inventory is generally consigned to sales agents or customers. With sales to stocking distributors, healthcare dealers, physical therapists’ practices and orthopedic surgeons title to product passes upon shipment or upon implantation of the product. Direct healthcare distributers represented approximately 75 percent of our net sales in 2023.

We utilize a network of sales associates, sales managers and support personnel, most of whom are employed or contracted by independent distributors and sales agencies. We invest a significant amount of time and expense in training sales associates in how to use specific products and how to best inform surgeons of product features and uses. Sales force representatives must have strong technical selling skills and medical education to provide technical support for surgeons.

In response to the different healthcare systems throughout the world, our sales and marketing strategies and organizational structures differ by region. We utilize a global approach to sales force training, marketing and medical education to provide consistent, high-quality service. Additionally, we keep current with key physical medicine developments and other issues related to physical therapy, orthopedic surgeons, and the clinical procedures they perform.

Products

Isokinetic Systems: Brands include System 4 Pro, System 4 MVP, System 4 Quick-Set, and SpaceTek Knee. Biodex's System 4 series currently dominates the market with over 60% market share. This success is attributed to a strong brand presence, continuous innovation, and favorable market conditions. With the introduction of the SpaceTek Knee, co-developed with NASA, Biodex anticipates further strengthening its market position.

Balance Testing and Training Devices: Brands include Balance System SD, BioSway, and Balance Games. Biodex holds a leading position in orthopedic, sports, and older adult balance equipment, excluding the Ear, Nose, and Throat ("ENT") sector. Versatility, innovative features like Vibrotactile feedback, and interactive rehabilitation games contribute to Biodex's competitive advantage.

Gait Trainers and Perturbation System: Brands include Gait Tainer 3, Gait Trainer Music Assisted, and Reactive Step Trainer ("RST"). While pioneering this field, Biodex has garnered attention for its innovative offerings, including the RST, which combines multiple functionalities at an affordable price point, setting it apart from competitors.

Government Regulation and Compliance

Government regulation and compliance are integral aspects of our business operations across various countries. In the United States, our activities are governed by an array of laws and regulations that oversee the entire lifecycle of medical devices from development to market entry. These regulations encompass statutes such as the Federal Food, Drug, and Cosmetic Act, alongside its corresponding regulatory framework.

Under the purview of the Food and Drug Administration (FDA), comprehensive regulations dictate the development, manufacturing, advertising, promotion, and postmarket surveillance of medical products, including devices. The FDA plays a critical role in ensuring that only safe and effective products reach the public by regulating market access through rigorous processes. On an international scale, we collaborate closely with our regional distributors to guarantee adherence to regulations, ensuring that regulatory submissions are promptly and accurately handled.

DaMar Plastics Manufacturing, Inc.

Overview

DaMar, based in El Cajon, California, was established in 1970 as a custom plastics injection molding business. Its services extend beyond injection molding to include assembly, packaging, and mold making. Acquired by the company in September 2022, DaMar complements existing services, catering to various industries, including medical devices, satellite technology, and consumer products.

Products

Specializing in injection molded parts, DaMar serves diverse sectors such as medical, construction, consumer products, and Original Equipment Manufacturer ("OEM") companies. The company offers value-added solutions such as assembly, packaging, and printing. DaMar is known for its regional leadership in utilizing sustainable materials like recycled and biodegradable plastics.

Regulatory

DaMar adheres to a Quality Management System certified by ISO 9001:2015. It is in the process of obtaining ISO 13485 certification. While not FDA registered, DaMar's customers, mainly from the medical device industry, often hold FDA registration.

Market

DaMar operates within the global plastic contract manufacturing market, which reached US$ 32.4 billion in 2021. The market is expected to grow to US$ 44.52 billion by 2027, driven by demand from consumer electronics and medical device industries. DaMar focuses on the U.S. market, emphasizing its use of recycled materials and commitment to "Made in the USA" products. (Source: Plastic Contract Manufacturing Market: Global Industry Trends, Share, Size, Growth, Opportunity and Forecast 2022-2027 (imarcgroup.com)

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Marketing Strategies

DaMar primarily relies on its reputation, word of mouth, and website for sales. It targets customers across various industries, leveraging its expertise in sustainable materials and custom molding capabilities.

South Dakota Partners, Inc.

Overview

Based in Clear Lake, South Dakota, SDP specializes in white-label medical device manufacturing, primarily focusing on pain management, cold and hot therapy, TENS, NMES, Pulsed Electromagnetic Field Technology (“PEMF”), and ultrasound therapy. The majority of SDP's revenue is derived from services related to production, production planning, shipping, and packaging and servicing products. SDP offers an end-to-end solution for the supply chain within the medical device industry. SDP not only assists in the development of medical device products but also provides the layout and design of the entire production process of a device, from sourcing to final fulfillment, which requires expertise from engineers of many different disciplines, compliance experts, and technical experts. This process often includes the production of specialized automated robotic systems for use in reducing cost and increasing efficiency and fidelity of the process.

Products

SDP offers end-to-end solutions for medical device supply chains, including production, packaging, and servicing. Its services encompass production planning, shipping, and technical support. SDP also provides repair services and manages customer interactions from order placement to final delivery.

Technologies

SDP utilizes various technologies such as TENS, PEMF, NMES, Hot/Cold Therapy, Laser Treatment, and Continuous Passive Motion ("CPM"). These technologies cater to pain management and post-surgical care needs.

Regulatory

Registered with the FDA as a contract manufacturer and importer of medical devices, SDP adheres to ISO 13485:2016 standards. It maintains quality agreements with customers and employs regulatory experts to ensure compliance with FDA regulations.

Market

SDP serves medical device companies globally, with a focus on the U.S. healthcare industry. The aging population and increasing demand for post-surgical care drive market growth. SDP mitigates risks associated with economic downturns through its diversified customer base.

Marketing Strategies

SDP's sales rely on reputation, word of mouth, and industry contacts. SDP's go-to-market strategy includes in-person interactions and participation in industry events.

Simbex, LLC

Overview

Based in Lebanon, New Hampshire, our subsidiary Simbex is a medical device and consumer health product design and development firm. Simbex offers both engineering services and commercialization strategy consulting for the Company's subsidiaries and other companies of all sizes. Simbex takes a holistic approach to product design and development to ensure any products it develops are not only engineered well but have excellent market fit. Products range from wearable technology to products for physical stability. Given the nature of its services, Simbex has been instrumental in developing and innovating IP-based assets for its customers and has agreements that generate ongoing royalties.

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Products - Engineering Expertise

Simbex offers services for mechanical & electrical design & engineering, design & human factors, software & web development, and applied research and algorithm development. Simbex approaches its services from a systems integration viewpoint with a process that starts by defining functional requirements and specifications of the design that take into consideration every step of the product life cycle. The outcome allows the final product to not only seamlessly integrate to meet functional needs, but also allows the product to integrate with external systems to meet manufacturing, distribution, packaging, and maintenance needs. By incorporating user feedback throughout development, Simbex creates products that meet human needs. Simbex has a diverse group of developers to cover the needs of users from embedded firmware to cloud based solutions. Drawing from their background in academic research and data analytics, Simbex helps drive product direction and strategy that is based on sound science and actionable data.

Quality and Regulatory

Simbex maintains a Quality Management System which is compliant to ISO 13485 and the FDA's Quality System Regulation 21 CFR 820 for the development of medical devices and meets all applicable regulatory standards. Its experienced engineering staff has developed products for many industry-leading companies and provide a detailed Design History File, Device Master Record, and Risk Analysis compliant with ISO 14971.

Commercialization Strategy

Simbex recognizes that great products require both technical implementation and well- thought-out business strategy. In collaboration with its engineering process, Simbex's commercialization strategy team helps companies understand product market fit, regulatory strategy, reimbursement opportunities, and general business requirements. In the United States, medical device manufacturers must undergo rigorous testing and registration processes. Simbex brings unique expertise to these businesses in the design, registration, and go to market strategy for businesses attempting to take novel medical devices to market.

Market

Simbex services medical device and consumer health companies with operations predominantly in the U.S. The U.S. healthcare industry continues to grow rapidly as the population of 65+ individuals continues to climb. The U.S. healthcare industry is often seen as not being acyclical or as being recession resistant due to the critical nature of its services. Simbex strives to innovate and develop products that meet the needs of the rapidly aging U.S. population and assist clients and the Company in growing revenues, improving products, and developing IP.

Marketing Strategies

Simbex is recognized as a premier product design and development firm. Its business is driven by reputation, word of mouth and contacts known within the industry.

On April 2, 2024, the Company entered into and completed a divestiture of Simbex pursuant to a membership interest purchase agreement with the acquiring company ("Simbex Purchaser") providing for the acquisition of all ownership interests of Simbex by the Simbex Purchaser.

 

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ALG Health Plus, LLC

On November 29, 2021, in connection with the acquisition of certain assets of ALG Health, LLC, the Company launched a new U.S. sales subsidiary called ALG Health Plus, LLC ("ALG Health Plus"), aimed at selling medical devices and supplies to small, independent hospitals and group purchasing organizations ("GPOs"), organizations that offer small medical offices and clinics access to devices and supplies on a larger scale creating efficiencies by aggregating purchasing volumes. As the Company continues to acquire and develop additional products, we also look to expand sales opportunities by ALG Health Plus with those products. ALG Health Plus was developed in partnership with experienced sales executives to attempt to sell medical supplies and devices to GPO's and other large businesses and systems. The sales channel for ALG Health Plus is dormant at this time.

Mio-Guard, LLC

Overview

Acquired in March 2022, Mio-Guard specializes in wholesaling sports medicine products across the U.S., with a focus on the Midwest, South and Central regions. Its clientele includes athletic training rooms, physical therapy clinics, and various sports institutions.

Products

Mio-Guard offers products for injury prevention and recovery, including capital equipment furnishings, capital equipment modalities, supplies for preventative care, and supplies for injury and rehabilitation. Its products cater to the needs of athletic trainers, physical therapists, and sports institutions.

Market

Mio-Guard targets physical therapists and athletic trainers, capitalizing on the growing demand for sports medicine products, especially in the aging U.S. population. The cyclical nature of the U.S. healthcare industry and the critical nature of its services ensure sustained demand for Mio-Guard's products.

Marketing Strategies

Mio-Guard employs a combination of contracted and employed sales representatives to target its customer base. Its sales strategy includes in-person meetings, participation in industry events, and targeted social media campaigns. Additionally, Mio-Guard offers installation and design services, setting it apart from competitors.

In March of 2024, the Management made the decision to wind-down the operations of Mio-Guard.

Arrowhead Medical LLC

Overview

Acquired in May 2023, Arrowhead specializes in providing the highest quality healthcare products to the hospitals, private practice, rehabilitation, long-term care and sports medicine markets, operating as a sales and distribution business primarily in the Midwestern United States.

Products and Services

Arrowhead provides design layout services to maximize the performance and revenue potential of its customers, creating functionality, efficient user flow, and the most appropriate mix of equipment. Arrowhead procures equipment from top brands in the rehabilitation industry and provides white glove delivery and installation. Arrowhead also provides training and support post-installation.

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Market

Arrowhead serves hospitals, clinics, long-term care facilities and sports medicine facilities in the rehabilitation market and takes a full-service approach to designing, procuring, installing and training.

Marketing Strategy

Arrowhead markets its services and products through referrals and various internet advertising activities.

Business Update

On January 15, 2024, the Company entered into and completed a divestiture of Arrowhead pursuant to a membership interest purchase agreement with the former owner of Arrowhead providing for the acquisition of all of the ownership interests of Arrowhead by the purchaser.

EMPLOYEES

As of December 31, 2023, the Company and its subsidiaries had no full-time and no part-time employees in Canada and had 195 full-time employees and 10 part-time employees in the U.S. through its subsidiaries.

AVAILABLE INFORMATION

Our investor relations website address is www.evomemedical.com. We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with the SEC on a regular basis and are required to disclose certain material events in a Current Report on Form 8-K. The SEC also maintains a website that contains reports, proxy statements, information statements and other information regarding issuers that file electronically with the SEC. The SEC's website is located at http://www.sec.gov.

1A. RISK FACTORS

Investing in our common shares involves a high degree of risk. You should carefully consider the following risks and all other information contained in this Annual Report, including our financial statements and the related notes, before investing in our securities. The risks and uncertainties described below are not the only ones we face, but include the most significant factors currently known by us that make investing in our securities speculative or risky. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our securities could decline, and you may lose some or all of your investment.

RISKS RELATED TO LIQUIDITY AND CAPITAL RESOURCES

Our financial statements have been prepared on a going concern basis; we must raise additional capital to fund our operations and meet existing obligations resulting from acquisitions in order to continue as a going concern.

SRCO Professional Corporation, our independent registered public accounting firm for the fiscal year ended December 31, 2023, has included an explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the twelve months ended December 31, 2023, indicating that our current liquidity position raises substantial doubt about our ability to continue as a going concern. If we are unable to improve our liquidity position, we may not be able to continue as a going concern. The accompanying audited consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.

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As of December 31, 2023, we had approximately $0.9 million of cash. In order to have sufficient cash to fund these obligations, we will need to raise additional equity or debt capital or restructure the payment terms for those obligations in order to continue as a going concern and we cannot provide any assurance that we will be successful in doing so. If are unable to raise sufficient capital to fund our operations, we may need to delay, reduce or eliminate certain of our operations, sell some or all of our assets or merge with another entity.

We are subject to debt instruments and restrictive covenants that may impede our ability to conduct our business.

We are subject to various restrictive covenants and events of default, including payment of interest and principal when due, under the following loans, credit facilities and forbearance agreements:

 a commercial loan agreement entered into by our subsidiary SDP with a third party financial institution on June 9, 2021 in connection with a US $5,400,000 revolving loan facility with payments due monthly, under which approximately $2.8 million is owed as of December 31, 2023;

 a secured promissory note issued by SDP in the principal amount of $1,014,000 maturing on June 1, 2024;

 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 $5,500,000;

 on September 12, 2023 we entered into a Master Credit and Security Agreement with Pathward, National Association (the "Pathward Credit Agreement") pursuant to which we obtained a secured revolving loan of up to $3.0 million in order to, among other things, satisfy certain obligations relating to our acquisitions, under which approximately US $1.4 million is owed as of December 31, 2023;

 Forbearance Agreement dated August 4, 2023 entered into by our subsidiary after our failure to make timely payments required by the acquisition agreement entered in March 2023 for the acquisition of the capital stock of Biodex Medical Systems, Inc. ("Biodex"). Pursuant to the Forbearance Agreement, the seller agreed to forbear from exercising its rights and remedies under the Biodex acquisition agreement, including certain the right to accelerate the maturity and demand immediate payment of the indebtedness, through the earlier to occur of a default thereunder; or July 31, 2025. Under the Forbearance Agreement, we are subject to certain debt service payments and covenants, including:

o All past due amounts shall accrue interest at 12% per annum;

o The payment each month commencing August 2023 of all of our cash in excess of US $2.5 million at the end of each month until late payments, including accrued interest are current with the original debt payment schedule;

o The payment of 50% of any capital raised until the late payments are current with the original debt schedule;

o Obtaining prior consent from the Biodex Seller before we can make capital expenditures in excess of US $100,000 for any reason other than repair of equipment needed for our operations;

o We cannot declare a dividend or initiate a share repurchase until such time as the obligations under the original debt schedule are current;

o We cannot engage 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

o We are required to utilize 80% of any available credit lines or such percentage as allowed by our lender(s) to access cash until the obligations under the original debt schedule are current.

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The loan and credit agreements described above contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our ability to incur debt or liens, merge or consolidate with others, dispose of assets, or make investments or pay dividends. Our credit facilities also contain financial covenants requiring us to satisfy and maintain compliance with a total leverage ratio and an interest coverage ratio. If there is an event of default under the above mentioned loans, credit facilities or forbearance agreements, the principal amount owing thereunder, plus accrued and unpaid interest, may be declared immediately due and payable. If such an event occurs, it could have a material negative financial impact on the Company. Any extended default under such loans, credit facilities or forbearance agreements could result in the loss of our entire business. In addition, the credit facilities and forbearance agreements include various conditions and covenants that require us to obtain consents prior to carrying out certain activities and entering into certain transactions. The inability to meet these conditions and covenants or obtain the required consent to carry out restricted activities could materially and adversely affect our business and results of operations.

We require additional capital in order to satisfy our obligations incurred in connection with certain of our acquisitions. If we do not obtain such additional capital, it could have a material adverse effect on our financial condition and ability to continue as a going concern.

We will need to raise debt or equity capital in the near future in order to repay outstanding obligations we incurred in connection with the Simbex and Biodex Medical Systems, Inc. acquisitions when they mature. In the case of Biodex Medical Systems, these amounts consist of (i) US $2 million due on July 1, 2023, US $3 million due on October 1, 2023 and US $2 million due on January 1, 2024 and in the case of Simbex, consist of approximately US $3.3 million in earnout payments due in April 2023. If we are unable to raise sufficient capital to repay these obligations. Furthermore, our acquisition obligations could adversely affect our financial condition and restrict us in ways that limit our flexibility in operating our business, including: requiring us to dedicate significant cash flow from operations to the payment of amounts payable on our acquisition obligations, which would reduce the funds we have available for other purposes; making it more difficult or expensive for us to obtain any necessary future financing; increasing our leverage and reducing our flexibility in planning for or reacting to changes in our industry and market conditions; making us more vulnerable in the event of a downturn in our business; and exposing us to interest rate risk given our debt obligations at variable interest rates. In addition, our ability to make scheduled payments on or to refinance our obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory, and other factors, some of which are beyond our control.

If we are unable to raise sufficient capital to repay our and acquisition obligations or debt at maturity and we are otherwise unable to extend the maturity dates, we would be in default. We cannot provide any assurances that we will be able to raise the necessary amount of capital to repay these obligations or that we will be able to extend the maturity dates. Upon a default, the lender, and the counterparty to certain of the acquisition agreements would have the right to exercise its rights and remedies to collect against us. Accordingly, a default would have a material adverse effect on our business and we may be forced to consider to seek bankruptcy protection.

We have a history of operating losses and negative cash flow and we anticipate that we will need to raise additional funds to finance operations.

We have a history of operating losses and negative cash flow. We have incurred recurring net losses, including net losses from operations before income taxes of $15.5 million and $19.0 million for the year ended December 31, 2023 and the ten months ended December 31, 2022, respectively. We used $0.9 million and $0.8 million of cash for operating activities during the year ended December 31, 2023 and the ten months ended December 31, 2022, respectively.

To fund our existing operations and business plan, we will need to raise additional capital. Our cash needs will depend on numerous factors, including our revenues, our ability to integrate companies we acquire and our ability to reduce and control costs. We expect to devote substantial capital resources to, among other things, fund operations and continue to integrate systems. If we are unable to secure such additional financing, it will have a material adverse effect on our business, and we may have to limit operations in a manner inconsistent with our development plans. If additional funds are raised through the issuance of equity securities or convertible debt securities, it will be dilutive to our stockholders and could result in a decrease in our stock price.

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We have funded our operations primarily with proceeds from public and private offerings of our common shares and secured and unsecured debt instruments. Our history of operating losses and cash uses, our projections of the level of cash that will be required for our operations to reach profitability, the terms of the private placement transactions that we completed in the past, and increasingly restricted availability of credit, may impair our ability to raise capital on terms that we consider reasonable and at the levels that we will require over the coming months. We cannot provide any assurances that we will be able to secure additional funding from public or private offerings on terms acceptable to us, if at all. If we are unable to obtain the requisite amount of financing needed to fund our planned operations, it would have a material adverse effect on our business and ability to continue as a going concern.

We may not be able to refinance, extend or repay our substantial indebtedness owed to our senior secured lender, which would have a material adverse effect on our financial condition and ability to continue as a going concern.

We anticipate that we will need to raise a significant amount of debt or equity capital in the near future in order to repay our outstanding debt obligations owed to our lenders when they mature. As of December 31, 2023, we owed our senior secured lender $9.7 million. As of December 31, 2023, no installment payment had yet been made on the balance. If we are unable to raise sufficient capital to repay these obligations at maturity and we are otherwise unable to extend the maturity dates or refinance these obligations, we would be in default. We cannot provide any assurances that we will be able to raise the necessary amount of capital to repay these obligations or that we will be able to extend the maturity dates or otherwise refinance these obligations. Upon a default, our senior secured lender would have the right to exercise its rights and remedies to collect, which would include foreclosing on our assets. Accordingly, a default would have a material adverse effect on our business and, if our senior secured lender exercises its rights and remedies, we would likely be forced to seek bankruptcy protection.

We have been operating under a forbearance agreement since August 2023 related to our failure to comply with certain required payments and covenants relating to the Biodex acquisition. We cannot provide any assurance that our lender or the Biodex Seller would provide us with a waiver should we not be in compliance in the future. A failure to maintain compliance along with our lender or the Biodex seller not agreeing to a waiver for the non- compliance would cause the outstanding borrowings to be in default and payable on demand which would have a material adverse effect on us and our ability to continue as a going concern.

Our financial condition may impair our ability to obtain credit terms with our suppliers.

Our supplier contracts typically provide us with payment terms of at least thirty (30) days. However, our financial condition may make it difficult for us to continue to receive payment terms of at least thirty (30) days or may result in one or more of our suppliers making demand for adequate assurance, which could include a demand for payment-in-advance. If we are unable to obtain reasonable payment terms or if any of our material suppliers were to successfully demand payment in advance, it could have a material adverse effect on our liquidity.

RISKS RELATED TO OUR BUSINESS

Our future growth is dependent upon our ability to develop or acquire and maintain new products and technologies that achieve market acceptance with acceptable margins.

Our future success depends on our ability to timely develop (or obtain the right to sell) competitive and innovative products and services and to market them quickly and cost-effectively. Our ability to anticipate customer needs and emerging trends and develop or acquire new products, services and technologies at competitive prices requires significant resources, including employees with the requisite skills, experience and expertise. The failure to successfully address these challenges could materially disrupt our sales and operations.

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Our failure to comply with all regulatory, permit and license requirements could result in criminal or civil sanctions or an adverse effect on our business.

We are operating in an industry that is subject to extensive federal and state regulation. Failure to comply with applicable regulations could result in severe criminal or civil sanctions or require us to make significant changes to our operations that could adversely affect our business, financial condition and operating results. Our operations are also subject to state laws governing, among other things, distribution of medical equipment and certain types of health activities, and we may be required to obtain and maintain licenses in each state to act as an equipment supplier. If we fail to obtain or maintain any required licenses and/or accreditations, it could have an impact on our business.

Increased regulatory burdens may result in significant loss of revenue, substantial out-of-pocket costs and loss of management focus on our business.

Increasing regulatory burdens, including premarketing approval delays, may result in significant loss of revenue, unpredictable costs and loss of management focus on developing and marketing products. Medical device companies are increasingly burdened with bureaucratic and regulator demands that may not be reasonably related to assuring the safety or effectiveness of the devices that they provide. Premarketing submission administrative burdens, and substantial "user fees" or notified body review fees, represent a significant non-clinical and/or non-scientific barrier to new product introduction, resulting in lack of investment or delays to revenues from new or improved devices. The risks associated with such circumstances relate not only to substantial out-of-pocket costs, including potential litigation, but also loss of business and a diversion of attention of key employees for an extended period of time from managing their normal responsibilities, particularly in new product development and routine quality assurance activities.

Healthcare reform legislation may negatively impact us.

Healthcare reform laws significantly affect the U.S. healthcare services industry. In recent years, many legislative proposals have been introduced or proposed in Congress and in some state legislatures that would affect major changes in the healthcare system, either nationally or at the state level. The ultimate content, timing or effect of any healthcare reform legislation and the impact of potential legislation on us is uncertain and difficult, if not impossible, to predict. That impact may be material to our business, financial condition or results of operations. Legislative or executive order healthcare reform in the U.S. has the potential to render the U.S. medical device marketplace unpredictable. A fully government-run healthcare system might expand demand for healthcare services to previously uninsured populations but may also reduce or eliminate healthcare consumer choice as well as commercial incentives for innovation. Although we do not collect revenue by billing insurance providers, changes in reimbursement by public or private insurance could reduce the profitability of providing physical therapy services, and indirectly decrease demand for our products or our acquisition targets.

The health care products distribution industry is highly competitive (including, without limitation, competition from third-party online commerce sites) and consolidating, and we may not be able to compete successfully.

The healthcare and medical device industry is highly competitive and dynamic and will become more competitive as new players enter the market. Certain competitors will be subsidiaries or divisions of larger, much better capitalized companies. Certain competitors will have vertically integrated production and services sectors of the market. We may have less capital and may encounter greater operational challenges in serving the market. Better capitalized competitors may be able to borrow money or raise debt to purchase equipment on more favorable terms or more easily than us. Potential competitors could have significantly greater financial, research and development, production, and sales and marketing resources than we have and could utilize their greater resources to acquire or develop new technologies or products that could effectively compete with ours. Additionally, demand for our products could be diminished by technological change or equivalent or superior products developed by competitors. Competing in these markets could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial condition and results of operations. Additionally, traditional health care supply and distribution relationships are being challenged by electronic online commerce solutions. The continued advancement of online commerce by third parties will require us to cost-effectively adapt to changing technologies, to enhance existing services and to differentiate our business (including with additional value-added services) to address changing demands of consumers and our customers on a timely basis. The emergence of such potential competition and our inability to anticipate and effectively respond to changes on a timely basis could have a material adverse effect on our business. Our ability to compete effectively depends upon our ability to distinguish ourselves from our competitors and their products, on such factors as safety and effectiveness, product pricing, compelling clinical data and quality of customer support.

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We may be unable to identify and complete acquisitions.

We may not be able to successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions in the medical technology sector, and such acquisitions could result in unforeseen operating difficulties and expenditures or require significant management resources and significant charges. As a part of our anticipated growth strategy, we are continuously exploring potential acquisitions of complementary businesses, technologies, services or products. We may be unable to find suitable acquisition candidates. Even if we identify appropriate acquisition candidates, we may be unable to complete the acquisitions on favorable terms, if at all, as a result of changes in tax laws, regulations, financial market, or other economic or market conditions. We may incur material costs in pursuing successful or unsuccessful acquisitions. Acquisition activities can be thwarted by overtures from competitors for the targeted candidates, government regulation and replacement product developments within the industry in which we are expected to operate. Competition may intensify due to the ongoing consolidation in the healthcare industry, which may increase our acquisition costs. Competition from other buyers of medical device companies may drive asset prices to levels that we do not believe are justified in the long term, which could delay our acquisition strategy. In addition, the process of integrating an acquired business, technology, service or product into existing operations could result in unforeseen difficulties and expenditures. Acquired businesses may require capital infusions for the possibility of future growth. Integrating completed acquisitions into existing operations involves numerous short-term and long-term risks, including diversion of management's attention, failure to retain key personnel, long-term value of acquired intangible assets and acquisition expenses. In addition, we may be required to comply with laws, rules and regulations that may differ from those of the states in which our operations are currently conducted. Moreover, we may not realize the anticipated financial or other benefits of an acquisition.

Future acquisitions could also involve the issuance of equity securities, the incurrence of debt, assumption of actual or contingent liabilities or amortization of expenses related to other intangible assets, any of which could adversely impact our financial condition or results of operations. The issuance of shares for an acquisition may result in dilution to our shareholders and, depending on the number of shares that may be issued, the resale of such shares could affect the trading price of our common shares. In addition, equity or debt financing required for such acquisitions may not be available. We may not be able to identify all actual or contingent liabilities associated with a particular acquisition, and representations and warranties in a purchase agreement, if any, may not be sufficient to allow for recovery of losses.

Any corporate transaction will be accompanied by certain risks including but not limited to: exposure to unknown liabilities of acquired companies and the unknown issues with any associated technologies or research; certain acquired businesses may have business models with lower operating margins, which could affect our overall operating results in future periods; higher than anticipated acquisition costs and expenses; the difficulty and expense of integrating operations, systems, and personnel of acquired companies; disruption of ongoing business; uncertainty that an acquired business will continue to maintain its pre-acquisition revenue and growth rates, or be profitable; inability to retain key customers, vendors, and other business partners of the acquired company; diversion of management's time and attention; the realization of financial and operating risks not fully anticipated; and potential challenges under antitrust laws, either before or after an acquisition is consummated, which could involve substantial legal costs and result in our having to abandon the transaction or make a divestiture. We may not be able to successfully overcome these risks and other problems associated with acquisitions and this may adversely affect our business, financial condition or results of operations.

We are dependent upon third parties for the manufacture and supply of a significant volume of our products.

We obtain a significant percentage of the products we distribute from third parties, with whom we generally do not have long-term contracts. While there is typically more than one source of supply, some key suppliers, in the aggregate, supply a significant portion of the products we sell. In the event of any interruption in supply, we would need to identify and obtain acceptable replacement sources on a timely basis. There is no guarantee that we would be able to obtain such alternative sources of supply on a timely basis, if at all, and an extended interruption in supply, particularly of a high-sales volume product, could result in a significant disruption in our sales and operations, as well as damage to our relationships with customers and our reputation. Our supply chain could be materially disrupted if our suppliers fail to comply with or are unable to satisfy our demand for products.

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Adverse changes in supplier rebates or other purchasing incentives could negatively affect our business.

The terms on which we purchase or sell products from many suppliers may entitle us to receive a rebate or other purchasing incentive based on the attainment of certain growth goals. Suppliers may reduce or eliminate rebates or incentives offered under their programs or increase the growth goals or other conditions we must meet to earn rebates or incentives to levels that we cannot achieve. Increased competition either from generic or equivalent branded products could result in us failing to earn rebates or incentives that are conditioned upon achievement of growth goals. Additionally, factors outside of our control, such as customer preferences, consolidation of suppliers or supply issues, can have a material impact on our ability to achieve the growth goals established by our suppliers, which may reduce the number of rebates or incentives we receive. The occurrence of any of these events could have an adverse impact on our business, financial condition or operating results.

Risks inherent in acquisitions, dispositions and joint ventures could offset the anticipated benefits.

One of our business strategies has been to expand our domestic and international markets in part through acquisitions and joint ventures and we expect to continue to make acquisitions and enter into joint ventures in the future. Such transactions require significant management attention, and may place significant demands on our operations, information systems, legal, regulatory, compliance-functions and financial resources. There is a risk that one or more of our acquisitions may not succeed. We cannot be sure, for example, that we will achieve the benefits of revenue growth that we expect from these acquisitions or joint ventures or that we will avoid unforeseen additional costs, taxes or expenses. Furthermore, some of our acquisitions and future acquisitions have given rise to an obligation to make contingent or earnout payments or to satisfy certain repurchase obligations, which payments have had, and could have material adverse impacts on our financial results individually or in the aggregate. For several of our acquisitions, we are in default regarding the earnout obligations owed to the sellers and have negotiated forbearance agreements regarding such outstanding obligations. The strain on our operations resulting from these forbearance arrangements could have a further material adverse effect on our financial results.

Our ability to successfully implement our acquisition and joint venture strategy depends upon, among other things, the following:

 the availability of suitable acquisition or joint venture candidates at acceptable prices;

 our ability to consummate such transactions, which could potentially be prohibited due to U.S. or foreign antitrust regulations;

 the liquidity of our investments and the availability of financing on acceptable terms;

 our ability to retain customers or product lines of the acquired businesses or joint ventures;

 our ability to retain, recruit and incentivize the management of the companies we acquire; and

 our ability to successfully integrate these companies' operations, services, products and personnel with our culture, management policies, legal, regulatory and compliance policies, cybersecurity systems and policies, internal procedures, working capital management, financial and operational controls and strategies.

Additionally, when we decide to sell assets or a business, we may encounter difficulty in finding buyers or executing alternative exit strategies on acceptable terms in a timely manner, which could delay the accomplishment of our strategic objectives. Alternatively, we may dispose of assets or a business at a price or on terms that are less than we had anticipated. Dispositions may also involve continued financial involvement in a divested business, such as through transition service agreements, indemnities or other current or contingent financial obligations. Under these arrangements, performance by the acquired or divested business, or other conditions outside our control, could affect our future financial results.

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The health care industry is experiencing changes due to political, economic and regulatory influences that could materially adversely affect our business.

The health care industry is highly regulated and subject to changing political, economic and regulatory influences. In recent years, the health care industry has undergone, and is in the process of undergoing, significant changes driven by various efforts to reduce costs, including, among other factors: trends toward managed care; collective purchasing arrangements and consolidation among office-based health care practitioners; and changes in reimbursements to customers, including increased attention to value-based payment arrangements, as well as growing enforcement activities (and related monetary recoveries) by governmental officials. Both our profitability and the profitability of our customers may be materially adversely affected by laws and regulations reducing reimbursement rates for pharmaceuticals, medical supplies and devices, and/or medical treatments or services, or changes to the methodology by which reimbursement levels are determined. If we are unable to react effectively to these and other changes in the health care industry, our business could be materially adversely affected.

Expansion of group purchasing organizations ("GPO"), or provider networks and the multi-tiered costing structure may place us at a competitive disadvantage.

The health care products industry is subject to a multi-tiered costing structure, which can vary by manufacturer and/or product. Under this structure, certain institutions can obtain more favorable prices for health care products than we are able to obtain. The multi-tiered costing structure continues to expand as many large integrated health care providers and others with significant purchasing power, such as GPOs, demand more favorable pricing terms. Additionally, the formation of provider networks, GPOs may shift purchasing decisions to entities or persons with whom we do not have a historical relationship and may threaten our ability to compete effectively, which could in turn negatively impact our financial results. Although we are seeking to obtain similar terms from manufacturers to access lower prices demanded by GPO contracts or other contracts, and to develop relationships with existing and emerging provider networks, GPOs, we cannot guarantee that such terms will be obtained, or contracts executed.

Increases in shipping costs or service issues with our third-party shippers could harm our business.

Our ability to meet our customers' expedited delivery expectations is an integral component of our business strategy for which our customers rely. Shipping is a significant expense in the operation of our business. We ship almost all of our orders through third-party delivery services, and typically bear the cost of shipment. Accordingly, any significant increase in shipping rates could have a material adverse effect on our business, financial condition or operating results. While we have recently experienced increases in the cost of shipping, we do not expect these additional expenses to be material to our results. However, it is possible that such costs could be material in the future. Similarly, strikes or other service interruptions by those shippers, including at transportation centers or shipping ports, could cause our operating expenses to rise and materially adversely affect our ability to deliver products on a timely basis.

We may be unable to achieve our growth strategy.

We may have difficulty identifying or acquiring suitable acquisition targets and in achieving organic growth, which is a significant aspect of our proposed business model. In the event that we are successful in consummating acquisitions in the future, such acquisitions may negatively impact our business, financial condition, results of operations, cash flows and prospects due to a variety of factors, including the acquired company's business not achieving the anticipated revenue, earnings or cash flows, assumption of liabilities or risks beyond our estimates or the diversion of the attention of management from our then existing business. If we are unable to continue to grow or manage our growth for any of these reasons, we may be unable to achieve our proposed expansion strategy, which could adversely impact our earnings, revenue and profits.

 

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We may fail in our efforts to manage growth.

The success of our business strategy depends, in part, on our ability to expand our operations in the future. Our anticipated growth strategy is expected to place demands on management, operational and financial information systems, and other resources. Expansion of our operations may require substantial financial resources and management attention. To accommodate anticipated future growth, and to compete effectively, we may need to improve our management, implement operational and financial information systems, and expand, train, manage, and motivate our workforce. Our personnel, systems, procedures, or controls may not be adequate to support our operations in the future. Further, focusing financial resources and diverting management's attention to the expansion of our operations may negatively impact our financial results. Any failure to improve our management, to implement operational and financial information systems, or expand, train, manage, or motivate our workforce, as required, may reduce or prevent our growth plans.

We are dependent on key distributors.

Our reliance on third party distributors in some markets may result in less predictable revenues. Distributors may have varying expertise in marketing and selling specialty medical devices and may also sell other devices that could result in less focus on our products.

We are dependent on key customers, markets and products.

We produce and offer for sale a limited number of products and have a concentration of orders from key customers, primarily in the U.S. market, from which we derive a substantial portion of our revenue. Customers may cancel or choose not to renew their contracts. Changes in economic conditions could influence future actions of our partners or other customers. To the extent that any significant agreement or agreements with our customers are canceled, including, without limitation, our supply agreements, or are not renewed or replaced with other arrangements having at least as favorable terms, our business, financial condition and results of operations could be materially adversely affected. We seek to expand our product offerings, increase the number of customers and expand our markets, but there is no assurance that this plan will succeed.

Our customers often depend on third-party coverage and reimbursements. The failure of healthcare programs to provide coverage and reimbursement, or reductions in levels of reimbursement, could have a material adverse effect on our business.

The ability of our customers to obtain reimbursements for products they purchase from us or from intermediaries, or from therapies they provide using the products they purchase from the Company, or our intermediaries is important to our business. Demand for many of our existing and new medical products is, and will continue to be, affected by the extent to which government healthcare programs and private health insurers reimburse our customers for patients' medical expenses in the countries where we do business. Any reduction in the number of reimbursements received by our customers could harm our business by reducing their selection of our products and the prices they are willing to pay.

In addition, as a result of their purchasing power, third-party payors are implementing cost-cutting measures such as seeking discounts, price reductions or other incentives from medical products suppliers and imposing limitations on coverage and reimbursements for medical technologies and procedures. These trends could compel us to reduce prices for our existing products and potential new products and could cause a decrease in the size of the market or a potential increase in competition that could have a material adverse effect on our business, results of operations, financial condition and cash flows.

We may be unable to successfully market our products and services.

We may not be successful in marketing our products and services. In order to sustain and increase revenues, our products and services must achieve a significant degree of market acceptance. If we are unable to promote, market and sell our products and services or secure relationships with customers, our business, financial condition and results of operations would be materially adversely affected. Levels of market acceptance for products and services could be impacted by several factors, many of which are not within our control, including but not limited to: safety, efficacy, convenience and cost-effectiveness of our products and services; scope of approved uses and marketing approval; difficulty in, or excessive costs to, manufacturing; infringement or alleged infringement of the patents or intellectual property rights of others; maintenance of business arrangements with healthcare providers; availability of alternative products or services from competitors; and acceptance of the price of products and services. If our competitors are able to develop and market products that are preferred over those offered by us, are able to grow service businesses that are preferred over our services or other businesses preferred over other products and services that may be developed, we may not be able to generate sufficient revenues to continue our operations. We may not be able to contend successfully with competitors. The medical device industry is highly competitive and subject to significant and rapid technological changes as new technologies, services and treatments are developed. We plan to market our products in other countries besides the U.S. We may not succeed in our marketing efforts. We may incur substantial initial costs associated with entering a new market. It may take time to meet all the legal, regulatory and economic burdens of entering a new market, and those costs may not be recouped for some time or at all, which may have an impact upon our financial performance.

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We may fail to keep pace with necessary technological changes.

The market for some of our products may be characterized by rapid change and technological improvements. Failure to respond in a timely and cost-effective way to these technological developments could result in serious harm to our business and operating results. We derive, and it is expected that we will continue to derive, a substantial portion of revenues from the development and sale of products in the medical device industry. As a result, our success will depend, in part, on our ability to develop and market product offerings that respond in a timely manner to the technological advances of our competitors, evolving industry standards and changing patient preferences. There is no assurance that we will keep up with technological improvements.

Our business, results of operations, cash flows, financial condition and liquidity may be negatively impacted by the effects of disease outbreaks, epidemics, pandemics, or similar wide-spread public health concerns and other natural disasters.

Our business, results of operations, cash flows, financial condition and liquidity may be negatively impacted by the effects of disease outbreaks, epidemics, pandemics, similar wide-spread public health concerns and other natural disasters. For example, from early 2020 until 2023, the U.S. and other world economies have experienced turmoil due to the novel coronavirus pandemic and related "shelter-in-place" orders and other governmental mandates ("COVID-19"). The COVID-19 pandemic has had, and continues to have, an unprecedented impact on society, worldwide economic activity, and the health care sector. The COVID-19 pandemic has already disrupted, and could potentially further disrupt, our supply chain or interfere with normal business operations due to the loss of employee availability. The COVID-19 pandemic and the governmental responses to it had, and may again have, a material adverse effect on our business, results of operations and cash flows and may result in a material adverse effect on our financial condition and liquidity. We may again experience material adverse impacts to our business, results of operations and cash flows as a result of, among other things, the global economic impact of the COVID-19, including any recession that may occur in the future, or a prolonged period of economic slowdown. The impact of the COVID- 19 pandemic may also exacerbate other risks discussed below, any of which could have a material adverse effect on us.

MACRO ECONOMIC AND POLITICAL RISKS

Uncertain global and domestic macro-economic and political conditions could materially adversely affect our results of operations and financial condition.

Uncertain global and domestic macro-economic and political conditions that affect the economy and the economic outlook of the U.S., Europe, Asia and other parts of the world could materially adversely affect our results of operations and financial condition. These uncertainties, include, among other things:

 election results;

 greater restrictions on imports and exports;

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 supply chain disruptions;

 changes in laws and policies governing health care or data privacy;

 tariffs and sanctions;

 changes to the relationship between the U.S. and China; • sovereign debt levels;

 the inability of political institutions to effectively resolve actual or perceived economic, currency or budgetary crises or issues;

 consumer confidence;

 unemployment levels (and a corresponding increase in the uninsured and underinsured population);

 changes in regulatory and tax regulations;

 interest rate fluctuations, and strengthening of the dollar, which have and will continue to impact our results of operations;

 availability of capital;

 increases in fuel and energy costs;

 the effect of inflation on our ability to procure products and our ability to increase prices over time and pass through to our customers price increases we may receive;

 changes in tax rates and the availability of certain tax deductions;

 increases in labor costs;

 increases in health care costs;

 our aspirations, goals and disclosures related to environmental, social and governance (ESG) matters;

 the threat or outbreak of war, terrorism or public unrest (including, without limitation, the war in Ukraine and the possibility of a wider European or global conflict); and

 changes in laws and policies governing manufacturing, development and investment in territories and countries where we do business.

Additionally, changes in government, government debt and/or budget crises may lead to reductions in government spending in certain countries, which could reduce overall health care spending, and/or higher income or corporate taxes, which could depress spending overall. Recessionary or inflationary conditions and depressed levels of consumer and commercial spending may also cause customers to reduce, modify, delay or cancel plans to purchase our products and may cause suppliers to reduce their output or change their terms of sale. We have experienced inflationary pressures, including higher freight costs and interest expense. Although inflation impacts both our revenues and costs, the depth and breadth of our product portfolio often allows us to offer lower-cost national brand solutions or corporate brand alternatives to our more price-sensitive customers who are unable to absorb price increases, thus positioning us to protect our gross profit. The strengthening of the dollar, likewise, has impacted our revenues and costs, but neither inflation nor exchange rates have materially impacted our results of operations in fiscal year 2023. We generally sell products to customers with payment terms. If customers' cash flow or operating and financial performance deteriorate, or if they are unable to make scheduled payments or obtain credit, they may not be able to, or may delay, payment to us. Likewise, for similar reasons suppliers may restrict credit or impose different payment terms.

The U.S. has imposed and may impose additional quotas, duties, tariffs, retaliatory or trade protection measures or other restrictions or regulations and may adversely adjust prevailing quota, duty or tariff levels, which can affect both the materials that we use in our products and the sale of finished products. For example, the tariffs imposed by the U.S. on materials from China are impacting materials that we import for use in packaging in the U.S. Measures to reduce the impact of tariff increases or trade restrictions, including geographical diversification of our sources of supply, adjustments in packaging design and fabrication or increased prices, could increase our costs, delay our time to market and/or decrease sales. Other governmental action related to tariffs or international trade agreements has the potential to adversely impact demand for our products and our costs, customers, suppliers and global economic conditions and cause higher volatility in financial markets. While we actively review existing and proposed measures to seek to assess the impact of them on our business, changes in tariff rates, import duties and other new or augmented trade restrictions could have a number of negative impacts on our business, including higher consumer prices and reduced demand for our products and higher input costs.

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REGULATORY AND LITIGATION RISKS

Failure to comply with existing and future regulatory requirements could materially adversely affect our business.

We strive to be compliant with the applicable laws, regulations and guidance described below in all material respects, and believe we have effective compliance programs and other controls in place to ensure substantial compliance. However, compliance is not guaranteed either now or in the future as certain laws, regulations and guidance may be subject to varying and evolving interpretations that could affect our ability to comply, as well as, future changes, additions and enforcement approaches, including in light of political changes. When we discover situations of non-compliance, we seek to remedy them and bring the affected area back into compliance. Changes with respect to the applicable laws, regulations and guidance described below may require us to update or revise our operations, services, marketing practices, and compliance programs and controls, and may impose additional and unforeseen costs on us, pose new or previously immaterial risks to us, or may otherwise have a material adverse effect on our business. There can be no assurance that current and future government regulations will not adversely affect our business, and we cannot predict new regulatory priorities, the form, content or timing of regulatory actions, and their impact on the health care industry and on our business and operations.

Our business may be subject to product liability claims or product recalls, which could be expensive and could result in a diversion of management's attention.

The medical device industry experiences significant product liability claims. As a supplier of medical devices and equipment to hospitals, group purchasing organizations and other customers, we face an inherent business risk of exposure to product liability claims in the event that our products, or the equipment into which our products are incorporated, malfunction and result in personal injury or death. We may be named in product liability claims even if there is no evidence that our systems or components caused the accidents. Product liability claims could result in significant losses as a result of expenses incurred in defending claims or the award of damages. The sale of medical devices entails a high risk of these claims. In addition, we may be required to participate in recalls involving these devices if any of our devices prove to be defective, or we may voluntarily initiate a recall or make payments related to such claims as a result of various industry or business practices or the need to maintain good customer relationships. Our other products may also be subject to product liability claims or recalls. We cannot assure you that our product liability insurance will be sufficient to cover all product liability claims, that such claims will not exceed our insurance coverage limits or that such insurance will continue to be available on commercially reasonable terms, if at all. Any product liability claim brought against us could have a material adverse effect on our reputation and business.

Our business may become subject to future product certification regulations, which may impair our ability to market our products.

We must obtain product certification from governmental agencies, such as the U.S. Environmental Protection Agency and the California Air Resources Board, to sell certain of our products in the United States and internationally. A significant portion of our future sales will depend upon sales of fuel management products that are certified to meet existing and future air quality and energy standards. We cannot assure you that our products will continue to meet these standards. The failure to comply with these certification requirements could result in the recall of our products or in civil or criminal penalties.

We anticipate that regulatory bodies will establish certification procedures and impose regulations on fuel cell enabling technologies, which may impair our ability to distribute, install and service these systems. Any new government regulation that affects our advanced fuel technologies, whether at the foreign, federal, state or local level, including any regulations relating to installation and servicing of these systems, may increase our costs and the price of our systems. As a result, these regulations may have a negative impact on our business, results of operations and financial condition.

We may be subject to certain conflicts of interest.

Certain of our directors and officers will be engaged in, and will continue to engage in, other business activities on their own behalf and on behalf of other companies and, as a result of these and other activities, such directors and officers may become subject to conflicts of interest. Our independent members of the Board will review any such transactions and report to the Audit Committee of the Board. The Business Corporations Act (British Columbia), as amended, including the regulations promulgated thereunder (the "BCBCA") provides that in the event that a director has a material interest in a contract or proposed contract or agreement that is material to an issuer, the director shall disclose his interest in such contract or agreement and shall refrain from voting on any matter in respect of such contract or agreement, subject to and in accordance with the BCBCA. To the extent that conflicts of interest arise, such conflicts will be resolved in accordance with the provisions of the BCBCA.

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We are required to comply with the Exchange Act's domestic reporting regime, which causes us to incur significant legal, accounting and other expenses.

We are required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC rules. As a result, we expect that compliance would increase our legal and financial compliance costs and is likely to make some activities highly time consuming and costly. Because we are required to comply with the rules and regulations applicable to U.S. domestic issuers, it may be more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our Board of Directors.

We may be subject to litigation.

We and/or our directors may be subject to a variety of civil or other legal proceedings, with or without merit, which may redirect substantial amounts of our resources. Our devices may be used in inherently risky situations to help physicians achieve a more positive outcome than what might otherwise be the case. In any lawsuit where an individual plaintiff suffered permanent physical injury, the possibility of a large award for damages exists whether or not a causal relationship exists. Moreover, even if we are successful in litigation, litigation can redirect significant resources including, but not limited to, our management's time and attention and our capital.

We face risks relating to our insurance coverage.

The marketing and sale of medical device products creates an inherent risk of claims for product liability. We carry product liability insurance that we consider adequate to protect us from claims. There can be no assurance that we will have resources sufficient to satisfy liability claims in excess of policy limits if required to do so. Also, if we are subject to such liability claims, there is no assurance that our insurance provider will continue to insure us or that our insurance rates will not substantially rise, resulting in increased costs to us or forcing us to either pay higher premiums or reduce our coverage amounts, which would result in increased liability to claims.

We may be unable to maintain the intellectual property rights on which our future success is dependent.

It is anticipated that our trademarks, trade secrets and other intellectual property will be a component of our success. Effective trademark, trade secret and intellectual property protection may not be available to us in every jurisdiction in which our products may be available. In addition, if any third-party confidentiality agreements in our favor are breached, there may not be an adequate remedy available to us. If our trade secrets become publicly known, it may cause us to lose competitive advantages.

We may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely to us, could subject us to significant liabilities and other costs.

Other companies, including our competitors, may obtain patents or other proprietary rights that would limit, interfere with, or otherwise circumscribe our ability to make, use, or sell products. Should there be a successful claim of infringement against us and if we could not license the alleged infringed technology at a reasonable cost, our business and operating results could be adversely affected. There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. The validity and breadth of claims covered in medical technology patents involve complex legal and factual questions for which important legal principles remain unresolved. Any litigation claims against us, independent of their validity, may result in substantial costs and the diversion of resources with no assurance of success.

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Our products may be subject to product recalls.

Our products may be subject to recall, which would harm our reputation and business. The FDA and similar governmental authorities in other countries have the authority to require the recall of medical device products in the event of material deficiencies or defects in design or manufacturing. A government mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects, including defects in labeling. Any recall would divert managerial and financial resources and could harm our reputation with customers. There can be no assurance that we will not have product recalls in the future or that such recalls will not have a material adverse effect on our business.

We face risks related to our information technology systems, and potential cyber-attacks and security breaches.

Increased sophistication and activities of perpetrators of cyber-attacks have resulted in an increase in information security risks in recent years. Hackers develop and deploy viruses, worms, and other malicious software programs that attack products and services and gain access to networks and data centers. If we were to experience difficulties maintaining existing systems or implementing new systems, we could incur significant losses due to disruptions in our operations. Additionally, these systems may contain valuable proprietary and confidential information and personal customer data. A security breach could result in disruptions of our internal systems and business applications, harm to our competitive position from the compromise of confidential business information or subject us to liability under laws that protect personal data. As cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities. Any of these consequences would adversely affect our revenue and margins.

We are subject to environmental regulations and any failure to comply may result in substantial fines and sanctions.

Our operations are subject to state, federal and international environmental laws and regulations governing, among other things, emissions to air, discharges to waters and the generation, handling, storage, transportation, treatment and disposal of raw materials, waste and other materials. Many of these laws and regulations provide for substantial fines and criminal sanctions for violations. We believe that we are operating our business and facility in a manner that complies in all material respects with environmental, health and safety laws and regulations; however, we may incur material costs or liabilities if we fail to operate in full compliance. We do not maintain environmental damage insurance coverage with respect to the products which we manufacture.

We may have to make significant expenditures in the future to comply with evolving environmental, health and safety requirements, including new requirements that may be adopted or imposed in the future. To meet changing licensing and regulatory standards, we may have to make significant additional site or operational modifications that could involve substantial expenditures or reduction or suspension of some of our operations. We cannot be certain that we have identified all environmental and health and safety matters affecting our activities, and in the future our environmental, health and safety problems, and the costs to remediate them, may be materially greater than we expect.

Our results of operations could be affected by currency fluctuations.

Our properties are all located in the U.S. and most costs associated with these properties are paid in U.S. dollars. At this time, all revenues are earned in U.S. dollars. If we are successful in marketing products to Europe and Japan, revenues may be earned in euros, yen and other diverse currencies. Marketing costs may also be incurred in such currencies. There can be significant swings in the exchange rate between these currencies and the Canadian dollar. There are no plans at this time to hedge against any exchange rate fluctuations in currencies.

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RISKS RELATED TO OUR FINANCES AND CAPITAL REQUIREMENTS

We may invest in pre-revenue and other revenue-generating medical device companies which may not be able to meet anticipated revenue targets in the future.

We may make investments in companies with no significant sources of operating cash flow and no revenue from operations, or companies that have revenues but are introducing new product lines with no revenue history and a need to fund production and marketing expenses. Our investments in such companies will be subject to risks and uncertainties that new companies with no operating history may face. In particular, there is a risk that our investment in these pre-revenue companies or new products will not be able to meet anticipated revenue targets or will generate no revenue at all. The risk is that underperforming pre-revenue companies may lead to these businesses failing, which could have a material adverse effect on our business, prospects, revenue, results of operation and financial condition.

Our sales are difficult to forecast.

As a result of recent and ongoing regulatory and policy changes in the medical device industries, the market data available is limited and may be unreliable. We must rely largely on our own market research to forecast sales, as detailed forecasts are not generally obtainable from other sources in the states in which our business operates. Additionally, any market research and our projections of estimated total retail sales, demographics, demand and similar consumer research, are based on assumptions from limited and unreliable market data. Projections are inherently subject to varying degrees of uncertainty and their achievability depends on the timing and probability of a complex series of future events. There is no assurance that the assumptions upon which these projections are based will be realized. Actual results may differ materially from projected results for several reasons including increases in operating expenses, changes or shifts in regulations or applicable laws, undiscovered or unanticipated adverse industry and economic conditions, and unanticipated competition. Accordingly, our investors should not rely on any projections to indicate the actual results we might achieve.

Changes in our customer, product or competition mix could cause our product margin to fluctuate.

From time to time, we may experience changes in our customer mix, our product mix or our competition mix. Changes in our customer mix may result from geographic expansion or contractions, legislative or enforcement priority changes affecting the products we distribute, selling activities within current geographic markets and targeted selling activities to new customer sectors. Changes in our product mix may result from marketing activities to existing customers, the needs communicated to us from existing and prospective customers and from legislative changes. Changes in our competition mix may result from well-financed competitors entering into our business segment. If customer demand for lower-margin products increases and demand for higher-margin products decreases, our business, results of operations and financial condition may suffer.

We may not achieve or maintain profitability in the future.

We intend to expend significant funds to make acquisitions and to fund our working capital. Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset higher operating expenses. We may incur significant losses in the future for a number of reasons, including as a result of unforeseen expenses, difficulties, complications and delays, the other risks described in this Annual Report and other unknown events. The amount of future net losses will depend, in part, on the growth of our future expenses and our ability to generate revenue. If we continue to incur losses in the future, the net losses and negative cash flows incurred to date, together with any such future losses, will have an adverse effect on our shareholders' equity and working capital. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. If we are unable to achieve and sustain profitability, the market price of our common shares may significantly decrease and our ability to raise capital, expand our business or continue our operations may be impaired. A decline in our value may also cause an investor to lose all or part of their investment.

RISKS RELATED TO OUR COMMON SHARES

Our common shares are a high-risk investment, as there presently is a limited market for our common shares, and the price of our common shares may continue to be volatile.

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Our common shares are publicly traded in Canada on the TSX Venture Exchange (the "TSXV") under the trading symbol "EVMT" and on the OTC Pink Sheets under the trading symbol "LNDZF." We are not listed on any U.S. national securities exchange. Consequently, there is a limited trading market for our common shares, which may affect the ability of shareholders to sell our common shares in the U.S. and the prices at which they may be able to sell our common shares. The TSXV is a smaller exchange in Canada and a U.S. broker may not facilitate trades in Canada. The market price of our common shares has been volatile and fluctuates widely in price in response to various factors which are beyond our control. This volatility may be caused by a variety of factors, including the lack of readily available quotations, the absence of consistent administrative supervision of "bid" and "ask" quotations and generally lower trading volume. In addition, factors such as quarterly variations in our operating results, changes in financial estimates by securities analysts or our failure to meet our or their projected financial and operating results, litigation involving us, factors relating to the medical device industry, actions by governmental agencies, national economic and stock market considerations as well as other events and circumstances beyond our control could have a significant impact on the future market price of our common shares and the relative volatility of such market price. The price of our common shares is not necessarily indicative of our operating performance or long-term business prospects. In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common shares.

In the U.S., our common shares are considered a "penny stock." The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks". These rules further restrict the trading activity and marketability of our common shares. As a result of the foregoing, an investment in our common shares should be considered a high-risk investment.

Additional issuances of common shares may result in further dilution.

We may issue additional common shares in the future to finance acquisitions or operations, which may dilute an existing investor's holdings. We cannot predict the size or nature of future issuances or the effect that future issuances and sales of common shares will have on the market price of our common shares. Issuances of a substantial number of additional common shares, or the perception that such issuances could occur, may adversely affect prevailing market prices for our common shares. With any additional issuance of common shares, our investors will suffer dilution to their voting power and economic interest.

Our share price may be volatile and as a result investors could lose all or part of their investment.

In addition to volatility associated with equity securities in general, the value of an investment in our common shares could decline due to the impact of any of the following factors upon the market price of our common shares:

 our ability to execute our business plan;

 period-to-period fluctuations in our financial results;

 changes in the economic performance or market valuations of companies in the industry in which we operate;

 addition or departure of our executive officers and other key personnel;

 sales or perceived sales of additional shares of our common shares;

 operating and financial performance that varies from the expectations of management, securities analysts and investors;

 regulatory changes affecting our industry generally and our business and operations both domestically and abroad;

 announcements of developments and other material events by us or our competitors;

 changes in global financial markets and global economies and general market conditions;

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 significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; and

 news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other related issues in our industry or target markets.

In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common shares.

Resales of our common shares in the U.S. must comply with state blue sky laws.

Our common shares are not "covered securities" under Section 18(a) of the Securities Act of 1933, as amended, because the common shares are not listed for trading on a U.S. national securities exchange and must be resold in compliance with applicable state blue sky laws. Applicability is based upon the residence of the purchaser. While some states may have an exemption for resale without compliance with state blue sky laws, other states will require compliance with blue sky laws. Such compliance can be costly and lengthy. Any delays could result in burdensome wait times or the termination of the resale transaction.

We do not intend to pay dividends on our common shares and, consequently, the ability of investors to achieve a return on their investment will depend on appreciation in the price of our common shares.

Because we have no near-term plans to pay cash dividends on our common shares, investors must look solely to share appreciation for a return on their investment. We anticipate retaining all available funds and any future earnings for use in the operation and expansion of our business and there is no expectation that we will declare or pay any cash dividends on our common shares in the near term. Any future determination as to the declaration and payment of cash dividends will be at the discretion of the Board and will depend on the existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects, and other factors that the Board considers relevant. Accordingly, investors will only see a return on their investment if the value of our common shares appreciates.

We are subject to the continued listing criteria of the TSXV and our failure to satisfy these criteria may result in the suspension or delisting of the common shares.

Our common shares are currently listed on the TSXV. In order to maintain the listing, we must maintain certain financial and share distribution targets, including maintaining a minimum number of public shareholders. In addition to objective standards, the TSXV may delist or suspend from trading the securities of any issuer if, in the TSXV's opinion, the issuer or its principal operating subsidiary substantially reduces or impairs its principal operating assets, ceases or discontinues a substantial portion of its operations or business for any reason, or seeks protection or is placed under the protection of any insolvency or bankruptcy laws or is placed into receivership, or if any other event occurs or any condition exists which, in the opinion of the TSXV, makes continued listing on the TSXV inadvisable or not in the public interest.

If the TSXV suspends or delists our common shares, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our common shares, reduced liquidity, decreased analyst coverage of the Company, and an inability for us to obtain additional financing to fund our operations.

We are eligible to be treated as an "emerging growth company" as defined in the JOBS Act, and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.

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As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

 have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm;

 rotate audit firms or provide a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on- frequency"; and

 disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer's compensation to median employee compensation.

We will remain an "emerging growth company" until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1.07 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period or (iv) the last day of the fiscal year in which we celebrate the fifth anniversary of our first sale of registered common equity securities pursuant to the Securities Act. Until such time, however, we cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our stock price may be more volatile.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are incorporated under the Business Corporations Act (British Columbia), as amended (BCBCA). The rights of holders of our common shares are governed by the laws of the Province of British Columbia, including the BCBCA, by the applicable laws of Canada, and by our Articles, as amended (the "Articles"), and our bylaws (the "bylaws"). These rights differ in certain respects from the rights of shareholders in typical U.S. corporations.

It may be difficult to enforce judgments or bring actions outside the U.S. against us and our directors.

We are a British Columbia corporation and, as a result, it may be difficult or impossible for an investor to enforce in courts outside the U.S. judgments obtained in U.S. courts based upon the civil liability provisions of U.S. federal securities laws against these persons and the Company; or bring in courts outside the U.S. an original action to enforce liabilities based upon U.S. federal securities laws against these persons and the Company.

GENERAL RISKS

Our future success is substantially dependent upon our senior management, and our revenues and profitability depend on our relationships with capable sales personnel as well as customers, suppliers and manufacturers of the products that we distribute.

Our future success is substantially dependent upon the efforts and abilities of members of our existing senior management, particularly Michael Seckler, our Chief Executive Officer. The loss of the services of Mr. Seckler could have a material adverse effect on our business. We do not currently have "key man" life insurance policies on any of our employees. Competition for senior management is intense, burnout and turnover rates are increasing workplace concerns during and after the COVID-19 pandemic, and we may not be successful in attracting and retaining key personnel. Additionally, our future revenues and profitability depend on our ability to maintain satisfactory relationships with qualified sales personnel as well as customers, suppliers and manufacturers. If we fail to maintain our existing relationships with such persons or fail to acquire relationships with such key persons in the future, our business may be materially adversely affected.

 

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Changes in U.S. economic conditions may negatively impact our business.

For the foreseeable future, our business is expected to be concentrated in the U.S. market. Changes in the economic conditions in the U.S. may have a substantial impact on our financial performance, business, financial condition or results of operations.

Changes in U.S. tax law may adversely affect us or our investors.

The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common shares. In recent years, many changes have been made and changes are likely to continue to occur in the future.

For example, the Tax Cuts and Jobs Act enacted in 2017 made significant changes to corporate taxation, including the reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, which is a historically low rate. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act was enacted, which included certain changes in tax law intended to stimulate the U.S. economy in light of the COVID-19 pandemic, including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations and payroll tax matters. In light of the new presidential administration, it cannot be predicted whether, when, in what form, or with what effective dates, new tax laws may be enacted, or regulations and rulings may be enacted, promulgated or issued under existing or new tax laws, which could result in an increase in our or our investors' tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable

ITEM 2. PROPERTIES.

Our corporate headquarters is in Shirley, New York. The table below provides selected information regarding the leased principal properties used in our operations.

      Lease Approximate
      Termination Square
Location   Use Date Footage
Clear Lake, South Dakota   Manufacturing facility and office space (SDP) 10/33 77,000
Lebanon, New Hampshire   Office facility (Simbex) 09/24 10,548
Holt, Michigan   Distribution facility (Mio-Guard) 10/26 18,414
El Cajon, California   Manufacturing facility and office space (DaMar) 06/26 38,960
Grand Rapids, MN   Distribution facility (Arrowhead) 05/28 10,000
Shirley, NY   Distribution Facility (Biodex) 8/30 31,305

ITEM 3. 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 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Price Information for our Common Shares

Our common shares have been traded on the TSXV under the symbol "EVMT" since January 22, 2024. From December 16, 2020, through January 21, 2024, our common shares traded on the TSXV under the symbol "SGMD". From January 15, 2020, through December 15, 2020, our common shares traded on the TSXV under the symbol "BRTL". The TSXV is the only trading market for our common shares. Our common stock is not traded on any U.S. exchange but is currently available for trading in the over-the-counter market and is quoted on the OTC Markets. Trading in stocks quoted on these markets is often thin and is characterized by wide fluctuations in trading prices due to many factors, including the requirement that brokers deliver certain risk disclosure documents and other information about the pricing and broker compensation, information that may have little to do with a company's operations or business prospects. As a result of these rules, investors may find it difficult to sell their shares in the U.S. trading market.

The Company's Class A Common Shares have the same rights as the Company's Common Shares, except that the Class A Common Shares (i) are non-voting except as required under the Business Corporations Act (British Columbia), (ii) are subject to restrictions on transfer other than in connection with conversion to Common Shares, transfer to family members and transfers for tax or estate purposes to affiliated companies or persons, and (iii) have limitations on conversion into Common Shares. The Class A Common Shares are convertible into Common Shares on a 1:1 basis, subject to a beneficial ownership limit that restricts any conversion that would result in the holder beneficially owning more than 9.9% of the outstanding number of Common Shares after giving effect to the issuance of the Common Shares upon conversion. Upon the occurrence of a Change of Control Event as defined in the terms of the Class A Common Shares, the Class A Common Shares shall be mandatorily converted 1:1 into Common Shares. Certain of the agreements covering acquisition transactions also impose limits on the conversion of Class A Shares to Common Shares, including provisions in the Simbex, Mio-Guard, DaMar and Arrowhead agreements that restrict conversion of the Class A Shares if the holder beneficially owns more than 500,000 Common Shares, and similar provisions in the SDP agreement that impose a limit of 368,500 Common Shares.

Holders

As of April 9, 2024, there were approximately 41 holders of record holding 57,833,591 common shares of the Company. This number includes an indeterminate number of shareholders whose shares are held by brokers in street name through depositaries, including CDS & Co.

The holders of our common shares are entitled to receive notice of and to attend and vote at all meetings of our shareholders and each common share shall confer the right to one vote in person or by proxy at all meetings of our shareholders. The holders of our common shares shall be entitled to receive such dividends payable in cash or property as may be declared thereon by the Board from time to time. The Board may declare no dividend payable in cash or property on our common shares unless the Board simultaneously declares a dividend payable in cash or property on our Class A Shares, in an amount per Class A Share equal to the amount of the dividend declared per common share. In the event of our liquidation, dissolution or winding-up, whether voluntary or involuntary, the holders of our common shares are entitled to receive, subject to the prior rights, if any, of the holders of any other class of our shares, our remaining property and assets pari passu with the holders of our Class A Shares, with the amount of such distribution per common share equal to the amount of such distribution per Class A Shares. Holders of our common shares and Class A Shares have no pre-emptive rights and no right to convert their common shares into any other securities. There are no redemption or sinking fund provisions applicable to our common shares.

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Dividend Policy

We have never paid cash dividends on our securities, and we do not anticipate paying any cash dividends on our common shares or Class A Shares in the foreseeable future. We intend to retain any future earnings for reinvestment in our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors, and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as our Board of Directors deems relevant.

Unregistered Sales of Securities

The information contained in Note 13 to the Company’s financial statements regarding the sale or issuance of securities during the year ended December 31, 2023 is incorporated by reference in this Item 5.  These transactions represent securities issued by the Company during the year ended December 31, 2023 which were not registered under the Securities Act. We issued all of the securities listed in Note 13 to accredited investors pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated under the Securities Act or pursuant to Regulation S promulgated under the Securities Act.

ITEM 6. [Reserved]

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

As used in this Annual Report on Form 10-K, the terms "the Company," "us," "our," the "Company" and "Evome" mean Evome Medical Technologies Inc. (formerly known as 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).

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes to those statements appearing elsewhere in this Annual Report on Form 10-K. A discussion regarding our financial condition and results of operations for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022 is presented under "Results of Operations" further below in this Item 7.

Cautionary Note Regarding Forward-Looking Statements

The following discussion and analysis should be read in conjunction with consolidated financial statements and the notes to those statements appearing elsewhere in this Annual Report on Form 10-K. This annual 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 annual 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 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, 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.

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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 earnings in a press release dated February 9, 2023 that is available at www.sedarplus.com. Since these projections were communicated, the management team of the Company has changed substantially, and the strategic direction was updated mid-year. As a result, the projections for revenue, gross margin, and earnings were not achieved.

Currency

Financial information presented in this Report is presented in Canadian dollars, unless otherwise indicated.

OVERVIEW

On March 11, 2021, we completed the 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 U.S.

On May 21, 2021, the Company acquired South Dakota Partners Inc. ("SDP") through a subsidiary. 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, PEMF and ultrasound. Results relating to SDP contained in this Report covers the period from March 1, 2022, through December 31, 2023.

On September 30, 2021, the Company acquired Simbex, LLC ("Simbex"), a medical device and consumer health product design and development firm. They offer both engineering services and commercialization strategy consulting for the Evome subsidiaries and other companies of all sizes. Results relating to Simbex contained in this Report cover the period from March 1, 2022, through December 31, 2023.

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. Results relating to ALG Health Plus contained in this Report cover the period from March 1, 2022, through December 31, 2023.

On March 11, 2022, the Company acquired Mio-Guard, LLC ("Mio-Guard"), a Michigan based company engaged in the wholesale sale of sports medicine products in the mid-western, southern and central U.S., through a wholly owned subsidiary. 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 U.S. with a focus on the Midwest, South and Central U.S. and long-standing relationships with institutions ranging from high school to college to professional athletics. Results relating to Mio-Guard contained in this Report cover the period from March 11, 2022, through December 31, 2023.

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, including but not limited to assembly, packaging and mold making. The business capability matches well with the electromedical, and assembly services offered by South Dakota Partners (SDP). Results relating to DaMar Plastics contained in this Report cover the period from September 23, 2022, through December 31, 2023.

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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. Results relating to Biodex contained in this Report cover the period from April 3, 2023, through December 31, 2023.

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. Results relating to Arrowhead contained in this Report cover the period from May 15, 2023, through December 31, 2023.

RECENT DEVELOPMENTS

On January 15, 2024, the Company entered into and completed a divestiture of Arrowhead pursuant to a membership interest purchase agreement with the former owner ("Arrowhead Purchaser") providing for the acquisition of all of the ownership interests of Arrowhead by the Arrowhead Purchaser. Pursuant to this divestiture, the Arrowhead Purchaser (i) assumed US$0.4 million of Arrowhead's debt; (ii) made a cash payment of US$0.2 million to the Company; (iii) relinquished its rights to 1,000,000 Class A shares of the Company; and (iv) relinquished any and all rights between the parties related to the original Stock purchase agreement including any obligations associated with the earnout shares thereunder.

In March of 2024, the Management made the decision to wind down the operations of Mioguard. The Company engaged the services of a strategic advisor to assist in the orderly wind-down of Mioguard, and this process commenced in March of 2024.

On March 14, 2024, 842,000 Class A shares were exchanged for 842,000 common shares in the Company at a price of $0.21 per share. No cash was received as part of this issuance.

On April 2, 2024, the Company entered into and completed a divestiture of Simbex pursuant to a membership interest purchase agreement with the acquiring company (“Simbex Purchaser”) providing for the acquisition of all ownership interests of Simbex by the Simbex Purchaser. Pursuant to this divestiture, the Simbex Purchaser (i) acquired all right, title and interest in Simbex; (ii) made a cash payment to two debtors of the Company including Pathward, National Association and Mirion Technologies (US) Inc. (refer to note 11) for US$824,441 and US$2,115,559, respectively; and (iii) made a cash payment to the Company in the amount of US$610,000.

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.

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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 agreement, intellectual property and customer base.

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 U.S. in US dollars, and its reporting currency used throughout this annual 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

    For the year     For the ten months              
    ended     ended     Change  
    December 31, 2023     December 31, 2022     $     %  
Revenue $ 62,627,451   $ 33,594,786   $ 29,032,665     86%  

Revenue increased by $29.0 million, or 86%, for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022. Sales increased $28.4 million as a result of acquisitions made since the 10 months ended December 31, 2022, and by $5.7 million as a result the additional two months reported for twelve months ended December 31, 2023 as compared to ten months ended December 31, 2022. This was offset by a decrease in the contract services and distributor businesses of $5.9 million. A favorable impact related to changes in foreign exchange rates increased sales by $0.8 million.

34


Cost of revenue

    For the year     For the ten months              
    ended     ended     Change  
    December 31, 2023     December 31, 2022     $     %  
Cost of revenue:                        
Direct service personnel $ 6,488,892   $ 5,264,246   $ 1,224,646     23%  
Direct material costs   32,352,606     16,836,194     15,516,412     92%  
Other direct costs   1,252,949     933,954     318,995     34%  
Total cost of revenue $ 40,094,447   $ 23,034,394   $ 17,060,053     74%  

Total cost of revenue increased by $17.1 million, or 74%, for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022. The increase was primarily due to an increase in the sales volume and the additional two months reported for twelve months ended December 31, 2023 as compared to ten months ended December 31, 2022.

Operating expenses

    For the year     For the ten months              
    ended     ended     Change  
    December 31, 2023     December 31, 2022     $     %  
Operating expenses:                        
Selling, general and administrative $ 23,546,026   $ 11,403,359   $ 12,142,667     106%  
Depreciation of property and equipment   1,002,627     253,490     749,137     296%  
Amortization of right-of-use assets   2,023,956     617,653     1,406,303     228%  
Amortization of intangible assets   1,482,344     937,276     545,068     58%  
Total operating expenses $ 28,054,953   $ 13,211,778   $ 14,843,175     112%  

Selling, general and administrative increased by $12.1 million, or 106%, for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022. The increase was primarily due to acquisitions made since the 10 months ended December 31, 2022 and the additional two months reported for twelve months ended December 31, 2023 as compared to ten months ended December 31, 2022.

Depreciation of property and equipment increased by $0.7 million, or 296%, for the year ended December 31, 2023, compared to the ten months ended December 31, 2022. The increase was primarily due to the addition of assets from acquired businesses within the year ending December 31, 2023, and the additional two months reported for twelve months ended December 31, 2023 as compared to ten months ended December 31, 2022.

Amortization of right-of-use assets increased by $1.4 million, or 228%, for the year ended December 31, 2023, compared to the ten months ended December 31, 2022. The increase was primarily due to the addition of building leases results from acquired businesses within year ending December 31, 2023, and the additional two months reported for twelve months ended December 31, 2023 as compared to ten months ended December 31, 2022.

Amortization of intangible assets increased by $0.5 million, or 58%, for the year ended December 31, 2023, compared to the ten months ended December 31, 2022. The increase was primarily due to addition of assets resulting from acquired businesses within the year ending December 31, 2023, and the additional two months reported for twelve months ended December 31, 2023 as compared to ten months ended December 31, 2022.

35


Interest and other income and (expense)

    For the year     For the ten months              
    ended     ended     Change  
    December 31, 2023     December 31, 2022     $     %  
Interest and other income (expense)                        
Interest expense $ (2,639,990 ) $ (590,470 ) $ (2,049,520 )   347%  
Foreign exchange gain (loss)   3,868     (190,385 )   194,253     -102%  
Other income   1,986,814     -     1,986,814     -  
Change in fair value of earnout consideration   1,165,697     (2,451,600 )   3,617,297     -148%  
Change in fair value of contingent consideration   3,581,984     (10,269,375 )   13,851,359     -135%  
Property and equipment impairment   (127,739 )   -     (127,739 )   -  
Intangible and right of use asset impairment   (3,150,814 )   -     (3,150,814 )   -  
Goodwill Impairment   (10,233,871 )   -     (10,233,871 )   -  
Transaction costs   (609,846 )   (2,877,365 )   2,267,519     -79%  
Total interest and other income (expense) net $ (10,023,897 ) $ (16,379,195 ) $ 6,355,298     -39%  

Interest expense increased by $2.0 million, or 347%, for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022. The increase was primarily due to added debt from unpaid earnout obligations and the purchase of Biodex, additional lease liabilities related to acquired businesses within the year ending December 31, 2023, and the additional two months reported for twelve months ended December 31, 2023 as compared to ten months ended December 31, 2022.

Foreign exchange gain (loss) increased by $0.2 million for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022. The increased gain is the result of the timing of when foreign vendors are paid in the functional currency of the Company.

Other income increased by $2.0 million for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022. This income is a result of refundable tax credits in accordance with the Employer Retention Credit ("ERC") program.

Change in fair value of earn-out consideration reduced expenses by $3.6 million for the year ended December 31, 2023, compared to the ten months ended December 31, 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 reduced expenses by $13.9 million for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 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.

The change in impairment expenses were the result of goodwill impairments of $1,143,514 and $9,090,357 for Mio-Guard and SDP, respectively; an impairment of intangible and right of use assets of $1,316,844 and $1,833,970 for Mio-Guard and SDP, respectively; and an impairment of property and equipment of $127,739 for Mio-Guard. These expenses resulted from changes in the anticipated financial performance of these entities.

Transaction costs decreased by $2.3 million for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022. The decrease is a result of a reduction in costs associated with acquisitions, potential acquisitions and US and Canadian regulatory activity.

36


Income Tax Provision

    For the year     For the ten              
    ended     months ended     Change  
    December 31, 2023     December 31, 2022           %  
Provision for income taxes $ (57,069 ) $ 3,134,176   $ (3,191,245 )   -102%  

The provision for income taxes changed by $3.2 million for the twelve months ended December 31, 2023, compared to the ten months ended December 31, 2022. This change is due to the utilization of losses against deferred tax liabilities in the ten months ended December 31, 2022 and the full valuation allowance against deferred tax asset as of December 31, 2023.

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.

As current borrowing sources become due, we may be required to access the capital markets for additional funding. If we are required to access the debt markets, we may or may not to be able to secure reasonable borrowing rates. 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 $0.9 million and $1.9 million as of December 31, 2023 and 2022, respectively.

Summary of Cash Flows

The following is a summary of our cash provided by (used in) operating, investing and financing activities, the effect of exchange rate changes on cash and cash equivalents, and the net change in cash and cash equivalents:

    For the year     For the ten months  
    ended     ended  
    December 31, 2023     December 31, 2022  
Net cash used in operating activities $ (918,908 ) $ (827,564 )
Net cash used in investing activities   (1,518,851 )   (5,597,102 )
Net cash provided by (used in) financing activities   824,540     388,090  
Net decrease in cash and cash equivalents $ (1,613,219 ) $ (6,036,576 )

Operating Activities

We used net cash of $0.9 million for operating activities for the twelve months ended December 31, 2023 and $0.8 million for the ten months ended December 31, 2022. This cash flow was primarily used through an increase in working capital that was driven by acquisitions. 

37


Investing Activities

We used net cash of $1.5 million for investing activities for the twelve months ended December 31, 2023. This reflects the net funds used to acquire Biodex for $1.3 million and to acquire property and equipment of $0.2 million. We used net cash of $5.6 million for investing activities for the ten months ended December 31, 2022. This reflects net funds used to acquire DaMar for $4.1 million, to acquire Mio-Guard for $0.6 million, to acquire intellectual property for $0.2 million, and to acquire property and equipment of $0.6 million.

Financing Activities

Financing activities provided net cash of $0.8 million for the twelve months ended December 31, 2023. We received net proceeds from our line of credit of $0.9 million and proceeds from the exercise of broker warrants of $34,000, partially offset by net principal payments on term debt of $0.2 million. 

Financing activities provided net cash of $0.4 million for the ten months ended December 31, 2022. We received proceeds from the exercise of broker warrants of $0.2 million and net proceeds from the ALG agreement of $1.0 million, partially offset by net repayments on our line of credit of $0.7 and net  principal payments on our term debt of $0.1 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 December 31, 2023, include debt of $10.7 million, a line of credit facility of $6.1 million, and lease obligations of $7.9 million reflecting the minimum commitments for our office and warehouse spaces. See Notes 11 and 12 to our audited 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.

There are obligations as of December 31, 2023, for future earnout consideration associated with completed acquisitions. As of December 31, 2023, these obligations are estimated to be settled with $3.2 million in stock and $5.9 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 December 31, 2023, the cash component remains unpaid. 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 consolidated financial statements included elsewhere in this report for more information regarding acquisitions.

The DaMar earnout is due to be paid with stock of the Simbex acquisition parent subsidiary and cash in the month of April 2024. As of the filing of this report, the Company does not have a plan to make the cash payment. Although management has been in discussions with the DaMar 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 DaMar 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 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 December 31, 2023, the US $2 million and US $3 million installment payments have not been paid by the Company.

38


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 US  $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 US $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 US $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 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 consolidated financial statements that substantial doubt exists as those plans are not completely within the control of management.

Off-Balance Sheet Arrangements

As of December 31, 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 consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these 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 and valuation allowance for deferred tax assets. 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 consolidated financial statements included elsewhere in this annaul report for additional details regarding the accounting policies we believe to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

39


Recent Accounting Pronouncements

See Note 3 to our consolidated financial statements included elsewhere in this report for additional details regarding recent accounting pronouncements.

ITEM 7A. 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 December 31, 2023, our cash and cash equivalents were $918,678, 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 ($6,111,867) short-term debt ($9,986,783) and long-term debt ($683,018) which could negatively impact the Company's cash position and result of operations in future periods should interest rates rise.

40


 


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

EVOME MEDICAL TECHNOLOGIES INC.

(formerly known as Salona Global Medical Device Corporation)

Consolidated Financial Statements

 


 

tmp-finxu001.jpg

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Evome Medical Technologies, Inc. (formerly Salona Global Medical Device Corporation)

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Evome Medical Technologies, Inc. (formerly Salona Global Medical Device Corporation) and its subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the year ended December 31, 2023 and for the ten-month period ended December 31, 2022, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2023 and for the ten-month period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Material Uncertainty Related to Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred recurring losses from operations, has negative cash flows from operating activities, and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

SRCO Professional Corporation 5828 /s/ SRCO Professional Corporation
We have served as the Company's auditor since 2020  
Richmond Hill, Ontario, Canada CHARTERED PROFESSIONAL ACCOUNTANTS
April 16, 2024 Authorized to practice public accounting by the
  Chartered Professional Accountants of Ontario
 

F-1


 

EVOME MEDICAL TECHNOLOGIES, INC.

Consolidated Balance Sheets

As of December 31, 2023 and 2022

(In Canadian Dollars, unless specified otherwise)

  Note   December 31, 2023     December 31, 2022  
               
Assets              
               
Cash and cash equivalents 16 $ 918,678   $ 1,928,464  
Accounts receivable, net 5   7,804,273     6,353,275  
Inventories, net 7   10,242,614     8,102,626  
Prepaid expenses and other receivables     2,037,925     216,489  
Total current assets     21,003,490     16,600,854  
Security deposit 12   595,229     566,198  
Long-term accounts receivable 5   -     189,616  
Long-term prepaid expenses and other receivables     175,963     441,025  
Property and equipment, net 8   3,417,515     3,399,898  
Operating lease right-of-use assets, net 12   9,643,815     7,781,300  
Intangible assets, net 9   7,025,157     9,376,162  
Goodwill 4   6,396,170     13,695,194  
Total assets   $ 48,257,339   $ 52,050,247  
               
Liabilities and Stockholders' Equity              
Liabilities              
Line of credit 11   6,111,867     5,162,711  
Accounts payable and accrued liabilities 10   8,659,920     6,641,181  
Current portion of debt 11   10,412,633     195,489  
Current portion of operating lease liability 12   1,482,182     847,253  
Other liabilities 10   1,790,040     1,807,702  
Obligation for payment of earn-out consideration 4   9,113,663     15,506,531  
Total current liabilities     37,570,305     30,160,867  
Debt, net of current portion 11   257,168     574,515  
Operating lease liability, net of current portion 12   6,426,608     5,983,333  
Total liabilities   $ 44,254,081   $ 36,718,715  
               
Stockholders' equity              
Common stock; no par value, unlimited shares authorized; 56,991,591 and 53,707,780 shares issued and outstanding as of December 31, 2023 and 2022, respectively 13   39,722,472     38,767,442  
Class A shares; no par value, unlimited shares authorized; 22,898,409 and 3,403,925 shares issued and outstanding as of December 31, 2023 and 2022, respectively 13   13,789,795     1,800,064  
Class A shares to be issued: 4,541,730 and 19,019,000 as of December 31, 2023 and 2022, respectively 13   3,406,298     14,264,250  
Additional paid-in-capital 13   9,739,289     8,072,610  
Accumulated other comprehensive income     2,209,605     1,688,452  
Accumulated Deficit   $ (64,864,201 ) $ (49,261,286 )
Total stockholders' equity   $ 4,003,258   $ 15,331,532  
Total liabilities and stockholders' equity   $ 48,257,339   $ 52,050,247  
Basis of presentation and going concern (Note 2)              
Contingencies (Note 18)              
Subsequent events (Note 19)              

The accompanying notes are an integral part of these consolidated financial statements.

  F-2  

EVOME MEDICAL TECHNOLOGIES, INC.

Consolidated Statements of Operations and Comprehensive Loss

For the Year ended December 31, 2023 and the ten months ended December 31, 2022

(In Canadian Dollars, unless specified otherwise)

      For the year     For the ten months  
      ended     ended  
  Note   December 31, 2023     December 31, 2022  
Revenue 6 $ 62,627,451   $ 33,594,786  
Cost of revenue              
Direct service personnel     6,488,892     5,264,246  
Direct material costs     32,352,606     16,836,194  
Other direct costs     1,252,949     933,954  
Total cost of revenue     40,094,447     23,034,394  
Gross margin     22,533,004     10,560,392  
Operating expenses              
Selling, general, and administrative     23,546,026     11,403,359  
Depreciation of property and equipment 8   1,002,627     253,490  
Amortization of right-of-use assets 12   2,023,956     617,653  
Amortization of intangible assets 9   1,482,344     937,276  
Total operating expenses     28,054,953     13,211,778  
Net operating loss     (5,521,949 )   (2,651,386 )
Interest expense     (2,639,990 )   (590,470 )
Foreign exchange gain (loss)     3,868     (190,385 )
Other income     1,986,814     -  
Change in fair value of earnout consideration 4   1,165,697     (2,451,600 )
Change in fair value of contingent consideration 4   3,581,984     (10,269,375 )
Property and equipment impairment     (127,739 )   -  
Intangible and right of use asset impairment     (3,150,814 )   -  
Goodwill Impairment     (10,233,871 )   -  
Transaction costs 15   (609,846 )   (2,877,365 )
Net loss before taxes   $ (15,545,846 ) $ (19,030,581 )
Provision for income taxes 17   (57,069 )   3,134,176  
Net loss     (15,602,915 )   (15,896,405 )
Other comprehensive income              
Foreign currency translation gain     521,153     682,091  
Comprehensive loss   $ (15,081,762 ) $ (15,214,314 )
Net loss per share              
Basic and diluted   $ (0.21 ) $ (0.29 )
Weighted average number of shares outstanding              
Basic and diluted     73,471,696     54,841,014  

The accompanying notes are an integral part of these consolidated financial statements.

  F-3  

EVOME MEDICAL TECHNOLOGIES, INC.
Consolidated Statements of Stockholders' Equity
For the twelve months ended December 31, 2023 and the ten months ended December 31, 2022
(In Canadian Dollars, unless specified otherwise)

    Common stock     Class A Shares     Class A shares to be                          
                            issued           Accumulated              
                                        Additional     other              
                                        paid-in-     comprehensive     Accumulated        
    Number     Amount $     Number     Amount $     Number     Amount $     capital $     income $     Deficit $     Total $  
Balance - February 28, 2022   52,539,162   $ 38,046,097     1,355,425   $ 480,479     -     -   $ 6,985,107   $ 1,006,361   $ (33,364,881 ) $ 13,153,163  
Share based compensation   -     -     -     -