10-Q 1 form10q.htm FORM 10-Q Salona Global Medical Device Corp.: Form 10-Q - Filed by newsfilecorp.com
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 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 333-266806

SALONA GLOBAL MEDICAL DEVICE CORPORATION

(Exact name of registrant as specified in its charter)

British Columbia  Not Applicable
(I.R.S. Employer Identification Number) (State or other jurisdiction of incorporation or organization)
   
49 Natcon Drive, Shirley, NY 11967
(Address of principal executive offices) Zip Code

(800) 760-6826

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No

As of August 10, 2023 (latest practicable date), 56,423,092 common shares, no par value, and 21,378,799 Class A shares, no par value, were outstanding.


SALONA GLOBAL MEDICAL DEVICE CORPORATION
PART I. FINANCIAL INFORMATION 2
     
ITEM 1. Condensed Consolidated Financial Statements (Unaudited) 3
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 30
ITEM 3. Quantitative And Qualitative Disclosures About Market Risk 36
ITEM 4. Controls And Procedures

36

     
PART II. OTHER INFORMATION

37

     
ITEM 1. Legal Proceedings

37

ITEM 1A. Risk Factors

37

ITEM 6. Exhibits

37

   
SIGNATURES 38

As used in this Quarterly Report on Form 10-Q, the terms "the Company," "us," "our," the "Company" and "Salona" mean Salona Global Medical Device Corporation (a corporation incorporated under the laws of the Province of British Columbia formerly known as Brattle Street Investment Corp.) and its subsidiaries (unless the context indicates a different meaning).

SALONA GLOBAL MEDICAL DEVICE CORPORATION

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended June 30, 2023, and June 30, 2022

(Expressed in Canadian Dollars, unless specified otherwise)

Unaudited Interim Condensed Consolidated Balance Sheets 3
   
Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss 4
   
Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity 5
   
Unaudited Interim Condensed Consolidated Statements of Cash Flows 6
   
Notes to the Unaudited Interim Condensed Consolidated Financial Statements 7
 

2


 

SALONA GLOBAL MEDICAL DEVICE CORPORATION
Unaudited Interim Condensed Consolidated Balance Sheets
As of June 30, 2023, (unaudited) and December 31, 2022 (audited)
(In Canadian Dollars, unless specified otherwise)

 

    Note     June 30, 2023     December 31, 2022  
Assets                  
                   
Cash and cash equivalents   16   $ 1,398,103   $ 1,928,464  
Accounts receivable, net   5     10,980,119     6,353,275  
Inventories, net   7     13,348,620     8,102,626  
Prepaid expenses and other receivables   18     1,811,923     216,489  
Total current assets         27,538,765     16,600,854  
Security deposit   12     595,857     566,198  
Long-term accounts receivable   5     141,668     189,616  
Long-term prepaid expenses and other receivables         436,614     441,025  
Property and equipment, net   8     3,942,998     3,399,898  
Right-of-use assets, net   12     11,668,572     7,781,300  
Intangible assets, net   9     10,584,239     9,376,162  
Goodwill   4     15,251,230     13,695,194  
Total assets       $ 70,159,943   $ 52,050,247  
                   
Liabilities and Stockholders' Equity                  
Liabilities                  
Line of credit   11     8,434,492     5,162,711  
Accounts payable and accrued liabilities   10     10,097,527     6,641,181  
Current portion of debt   11     9,033,918     195,489  
Current portion of lease liability   12     1,565,326     847,253  
Other liabilities   10     4,013,413     1,807,702  
Obligation for payment of earn-out consideration   4     12,729,714     15,506,531  
Total current liabilities         45,874,390     30,160,867  
Debt, net of current portion   11     741,238     574,515  
Lease liability, net of current portion   12     7,726,691     5,983,333  
Total liabilities       $ 54,342,319   $ 36,718,715  
                   
Stockholders' equity                  
Common stock; no par value, unlimited shares authorized; 56,423,092 shares issued and outstanding as of June 30, 2023 (December 31, 2022 - 53,707,780)                  
 

 13

   

39,610,457

   

38,767,442

 
Class A shares; no par value, unlimited shares authorized; 21,378,799 shares issued and outstanding as of June 30, 2023 (December 31, 2022 - 3,403,925)   13     12,542,088     1,800,064  
Common stock to be issued: 368,500 shares to be issued as of June 30, 2023 (December 31, 2022 - nil)  

13

    103,180     -  
Class A shares to be issued:  6,261,340 Class A shares to be issued as of June 30, 2023 (December 31, 2022 - 19,019,000)   13     4,696,005     14,264,250  
Additional paid-in-capital   13     9,154,765     8,072,610  
Accumulated other comprehensive income         1,751,002     1,688,452  
Deficit         (52,039,873 )   (49,261,286 )
Total stockholders' equity       $ 15,817,624   $ 15,331,532  
Total liabilities and stockholders' equity       $ 70,159,943   $ 52,050,247  
Basis of presentation and going concern (Note 2)                  
Contingencies (Note 19)                  
Subsequent events (Note 20)                  

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

3



 

SALONA GLOBAL MEDICAL DEVICE CORPORATION
Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
For the three and six months ended June 30, 2023, and 2022
(In Canadian Dollars, unless specified otherwise)

 

          For the 3 months ended     For the 6 months ended  
    Note     June 30, 2023     June 30, 2022     June 30, 2023     June 30, 2022  
Revenue   6   $ 16,575,075   $ 9,761,145   $ 27,258,304   $ 18,429,560  
Cost of revenue                              
Direct service personnel         1,652,004     1,443,458     3,477,759     2,874,397  
Direct material costs         8,964,709     4,837,017     13,390,800     8,552,625  
Other direct costs         325,947     204,513     661,471     499,521  
Total cost of revenue         10,942,660     6,484,988     17,530,030     11,926,543  
Gross margin         5,632,415     3,276,157     9,728,274     6,503,017  
Operating expenses                              
Selling, general, and administrative         6,966,370     3,151,147     10,841,584     5,724,699  
Depreciation of property and equipment   8     265,066     71,817     449,330     140,940  
Amortization of right-of-use assets   12     540,308     83,611     922,141     170,036  
Amortization of intangible assets   9     350,553     249,029     701,099     464,010  
Total operating expenses         8,122,297     3,555,604     12,914,154     6,499,685  
Net operating (loss) gain         (2,489,882 )   (279,447 )   (3,185,880 )   3,332  
Interest expense         (454,446 )   (114,763 )   (732,532 )   (235,217 )
Foreign exchange gain (loss)         2,990     240     4,518     (3,933 )
Other income   18     815,428     3     815,561     48  
Provision for impairment   4     -     (7,391 )   -     (5,527,913 )
Change in fair value of earnout consideration   4     1,165,697     (2,451,600 )   1,165,697     (2,451,600 )
Change in fair value of contingent consideration   4     (77,795 )   (459,693 )   (273,095 )   5,394,008  
Transaction costs   15     (75,541 )   (369,289 )   (534,312 )   (1,568,409 )
Net loss before taxes       $ (1,113,549 ) $ (3,681,940 ) $ (2,740,043 ) $ (4,389,684 )
Provision for income taxes   17     (2,294 )   31,607     (38,544 )   145,717  
Net loss      

 

(1,115,843 )

 

(3,650,333 )

 

(2,778,587 )

 

(4,243,967 )
Other comprehensive loss                              
Foreign currency translation gain (loss)         104,993     (28,965 )   62,550     668,004  
Comprehensive loss      

$

(1,010,850 )

$

(3,679,298 )

$

(2,716,037 )

$

(3,575,963 )
Net loss per share                              
Basic and diluted         (0.02 )   (0.07 )   (0.04 )   (0.08 )
Weighted average number of common stock and Class A shares outstanding         73,949,654     52,882,328     68,178,999     50,742,334  

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

4



 

SALONA GLOBAL MEDICAL DEVICE CORPORATION

Unaudited Interim Condensed Consolidated Statements of Stockholders' Equity
For the three and six months ended June 30, 2023, and 2022

(In Canadian Dollars, unless specified otherwise)

 

    Common stock     Common stock
to be issued
    Class A Shares     Class A shares
to be issued
          Accumulated              
                            Additional     other              
                                                    paid-in-     comprehensive              
    Number     Amount $     Number     Amount $     Number     Amount $     Number     Amount $     capital $     income $     Deficit $     Total $  
Balance - March 31, 2022   52,539,162     38,046,097     -     -     1,355,425     480,479     -     -     6,985,107     1,244,142     (33,747,209 )   13,008,616  
Stock based compensation   -     -     -     -     -     -     -     -     489,089     -     -     489,089  
Shares issued on exercise of options   28,154     8,426     -     -     -     -     -     -     (3,097 )   -     -     5,329  
Shares issued on exercise of warrants   454,817     229,598     -     -     -     -     -     -     (13,645 )   -     -     215,953  
Shares to be issued related to acquisition of SDP   -     -     -     -     -     -     19,162,000     14,371,500     -     -     -     14,371,500  
Shares issued related to acquisition of SDP   -     -     -     -     143,000     107,250     (143,000 )   (107,250 )   -     -     -     -  
Class A shares exchanged for common shares   143,000     107,250     -     -     (143,000 )   (107,250 )   -     -     -     -     -     -  
Foreign currency translation loss   -     -     -     -     -     -     -     -     -     (28,965 )   -     (28,965 )
Net loss from the period   -     -     -     -     -     -     -     -     -     -     (3,650,333 )   (3,650,333 )
Balance - June 30, 2022   53,165,133     38,391,371     -     -     1,355,425     480,479     19,019,000     14,264,250     7,457,454     1,215,177     (37,397,542 )   24,411,189  
                                                                         
Balance December 31, 2021   44,790,162     36,552,873     -     -     1,355,425     480,479     -     -     4,334,251     547,173     (33,153,575 )   8,761,201  
Stock based compensation   -     -     -     -     -     -     -     -     927,658     -     -     927,658  
Shares issued on exercise of options   28,154     8,426     -     -     -     -     -     -     (3,097 )   -     -     5,329  
Shares issued on exercise of warrants   454,817     229,598     -     -     -     -     -     -     (13,645 )   -     -     215,953  
Shares issued on financing, net   7,749,000     2,253,482     -     -     -     -     -     -     2,008,468     -     -     4,261,950  
Share issuance costs   -     (760,258 )   -     -     -     -     -     -     203,819     -     -     (556,439 )
Shares to be issued related to acquisition of SDP   -     -     -     -     -     -     19,162,000     14,371,500     -     -     -     14,371,500  
Shares issued related to acquisition of SDP   -     -     -     -     143,000     107,250     (143,000 )   (107,250 )   -     -     -     -  
Class A shares exchanged for common shares   143,000     107,250     -     -     (143,000 )   (107,250 )   -     -     -     -     -     -  
Foreign currency translation gain   -     -     -     -     -     -     -     -     -     668,004     -     668,004  
Net loss from the period   -     -     -     -     -     -     -     -     -     -     (4,243,967 )   (4,243,967 )
Balance - June 30, 2022   53,165,133     38,391,371     -     -     1,355,425     480,479     19,019,000     14,264,250     7,457,454     1,215,177     (37,397,542 )   24,411,189  
                                                                         
Balance - March 31, 2023   54,151,709     38,970,199     147,400     47,168     15,717,656     11,097,512     6,261,340     4,696,005     8,472,908     1,646,009     (50,924,030 )   14,005,771  
Share based compensation   -     -     -     -     -     -     -     -     391,572     -     -     391,572  
Shares issued on exercise of options   147,400     47,168     (147,400 )   (47,168 )   -     -     -     -     -     -     -     -  
Shares issued for settlement of liabilities   337,524     84,381     -     -     -     -     -     -    

114,714

    -     -     199,095  
Shares issued related to Simbex agreement   -     -     -     -     6,383,952     1,819,426     -     -     -     -     -     1,819,426  
Shares issued related to ALG agreement   -     -     -     -     432,150     142,610     -     -     -     -     -     142,610  
Shares issued related to Arrowhead agreement   -     -     -     -     1,000,000     270,000     -     -     -     -     -     270,000  
Class A shares exchanged for common shares   1,786,459     508,709     368,500     103,180     (2,154,959 )   (787,460 )   -     -     175,571                 -  
Foreign currency translation gain   -     -     -     -     -     -     -     -     -     104,993     -     104,993  
Net loss for the period   -     -     -     -     -     -     -     -     -     -     (1,115,843 )   (1,115,843 )
Balance - June 30, 2023   56,423,092     39,610,457     368,500     103,180     21,378,799     12,542,088     6,261,340     4,696,005     9,154,765     1,751,002     (52,039,873 )   15,817,624  
                                                                         
Balance - December 31, 2022   53,707,780     38,767,442     -     -     3,403,925     1,800,064     19,019,000     14,264,250     8,072,610     1,688,452     (49,261,286 )   15,331,532  
Share based compensation   -     -     -     -     -     -     -     -     737,096     -     -     737,096  
Shares issued on exercise of options   147,400     47,168     -     -     -     -     -     -     (13,266 )   -     -     33,902  
Shares issued related to acquisition of SDP   -     -     -     -     12,757,660     9,568,245     (12,757,660 )   (9,568,245 )   -     -     -     -  
Shares issued for settlement of liabilities   337,524     84,381     -     -     -     -     -     -     114,714     -     -     199,095  
Shares issued related to Simbex agreement   -     -     -     -     6,383,952     1,819,426     -     -     -     -     -     1,819,426  
Shares issued related to ALG agreement   -     -     -     -     432,150     142,610     -     -     -     -     -