EDGAR 10-K Filing

Company CIK: 1617765
Filing Year: 2024
Filename: 1617765_10-K_2024_0001062993-24-008449.json

---

ITEM 1. BUSINESS
Item 1 Business

---

ITEM 1A. RISK FACTORS
Item 1A Risk Factors

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable

---

ITEM 2. PROPERTIES
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
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 DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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.
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. SELECTED FINANCIAL DATA
ITEM 6. [Reserved]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
EVOME MEDICAL TECHNOLOGIES INC.
(formerly known as Salona Global Medical Device Corporation)
Consolidated Financial Statements
Contents
Page
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022
Consolidated Statements of Operations and Comprehensive Loss for the Year Ended December 31, 2023 and the Ten-Months Ended December 2022
Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 2023 and the Ten-Months Ended December 2022
Consolidated Statements of Cash Flows for the Year Ended December 31, 2023 and the Ten-Months Ended December 2022
Notes to the Consolidated Financial Statements
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
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 $ 918,678
$ 1,928,464
Accounts receivable, net
7,804,273
6,353,275
Inventories, net
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
595,229
566,198
Long-term accounts receivable
-
189,616
Long-term prepaid expenses and other receivables
175,963
441,025
Property and equipment, net
3,417,515
3,399,898
Operating lease right-of-use assets, net
9,643,815
7,781,300
Intangible assets, net
7,025,157
9,376,162
Goodwill
6,396,170
13,695,194
Total assets
$ 48,257,339
$ 52,050,247
Liabilities and Stockholders' Equity
Liabilities
Line of credit
6,111,867
5,162,711
Accounts payable and accrued liabilities
8,659,920
6,641,181
Current portion of debt
10,412,633
195,489
Current portion of operating lease liability
1,482,182
847,253
Other liabilities
1,790,040
1,807,702
Obligation for payment of earn-out consideration
9,113,663
15,506,531
Total current liabilities
37,570,305
30,160,867
Debt, net of current portion
257,168
574,515
Operating lease liability, net of current portion
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
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
13,789,795
1,800,064
Class A shares to be issued: 4,541,730 and 19,019,000 as of December 31, 2023 and 2022, respectively
3,406,298
14,264,250
Additional paid-in-capital
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.
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 $ 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
1,002,627
253,490
Amortization of right-of-use assets
2,023,956
617,653
Amortization of intangible assets
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
1,165,697
(2,451,600 )
Change in fair value of contingent consideration
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
(609,846 )
(2,877,365 )
Net loss before taxes
$ (15,545,846 ) $ (19,030,581 )
Provision for income taxes
(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.
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
-
-
-
-
-
-
1,278,915
-
-
1,278,915
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 for debt settlement
260,921
201,401
-
-
-
-
-
-
-
201,401
Shares issued on financing, net
281,726
174,670
-
-
-
-
(174,670 )
-
-
-
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 )
-
-
-
-
-
-
Shares issued related to ALG agreement
-
-
2,048,500
1,319,585
-
-
-
-
-
1,319,585
Foreign currency translation loss
-
-
-
-
-
-
-
682,091
-
682,091
Net loss from the period
-
-
-
-
-
-
-
-
(15,896,405 )
(15,896,405 )
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
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
-
-
-
-
-
-
1,288,455
-
-
1,288,455
Shares issued on exercise of options
147,400
47,168
-
-
-
-
(13,266 )
-
-
33,902
Shares to be issued related to acquisition of SDP
-
-
14,477,270
10,857,952
(14,477,270 )
(10,857,952 )
-
-
-
-
Shares 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
2,798,887
823,481
(2,798,888 )
(1,100,257 )
-
-
276,776
-
-
-
Foreign currency translation gain
-
-
-
-
-
-
-
521,153
-
521,153
Net loss from the period
-
-
-
-
-
-
-
-
(15,602,915 )
(15,602,915 )
Balance - December 31, 2023
56,991,591
$ 39,722,472
22,898,409
$ 13,789,795
4,541,730
$ 3,406,298
$ 9,739,289
$ 2,209,605
$ (64,864,201 ) $ 4,003,258
The accompanying notes are an integral part of these consolidated financial statements.
EVOME MEDICAL TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
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
Operating activities
Net loss
$ (15,602,915 ) $ (15,896,405 )
Non-cash items:
Depreciation of property and equipment
1,002,627
253,490
Allowance for credit losses
690,802
-
Operating lease expense
2,620,107
865,780
Amortization of intangible assets
1,482,344
937,276
Property and equipment impairment
127,739
-
Intangible and right of use asset impairment
3,150,814
-
Goodwill Impairment
10,233,871
-
Stock based compensation
1,288,455
1,278,915
Change in fair value of contingent consideration
(3,581,984 )
10,269,375
Change in fair value of earn-out consideration
(1,165,697 )
2,451,600
Gain on lease termination
(265,840 )
-
Loss on disposal of property and equipment
25,673
-
Changes in operating assets and liabilities:
Accounts receivable
(1,901,546 )
1,662,114
Deferred income tax recovery
-
(3,176,134 )
Prepaid expenses and other receivables
(1,549,853 )
(36,505 )
Inventories
4,646,307
(1,782,778 )
Long-term prepaids and other receivables
454,678
-
Accounts payable and accrued liabilities
(972,450 )
1,878,879
Other liabilities
(280,330 )
1,075,080
Operating lease liabilities
(1,321,710 )
(608,251 )
Net cash used in operating activities
(918,908 )
(827,564 )
Investing activities
Cash received on acquisition of Mio-Guard
-
3,363
Cash received on acquisition of Arrowhead
28,217
-
Cash received on acquisition of DaMar
-
199,982
Acquisition of property and equipment
(203,268 )
(639,471 )
Acquisition of intellectual property
-
(243,201 )
Acquisition of Mio-Guard
-
(572,400 )
Acquisition of Biodex
(1,343,800 )
-
Acquisition of DaMar
-
(4,345,375 )
Net cash used in investing activities
(1,518,851 )
(5,597,102 )
Financing activities
Principal payments on term debt, net
(158,518 )
(138,946 )
Proceeds from line of credit, net
949,156
(680,196 )
Proceeds from exercise of broker warrants
-
215,953
Proceeds from ALG agreement
-
985,950
Proceeds from exercise of stock options
33,902
5,329
Net cash provided by (used in) financing activities
824,540
388,090
Effect of foreign exchange rates on cash
603,433
(92,060 )
Decrease in cash and cash equivalents and restricted cash
(1,613,219 )
(6,036,576 )
Cash and cash equivalents and restricted cash, opening
1,928,464
8,057,100
Cash and cash equivalents and restricted cash, closing
$ 918,678
$ 1,928,464
Supplementary information:
Interest paid
2,043,839
342,343
Income taxes paid
57,069
41,958
Shares issed for settlement of liabilities
199,095
201,401
Promissory note issued for acquisition
$ 9,160,160
$ -
The accompanying notes are an integral part of these consolidated financial statements.
Evome Medical Technologies, Inc.
(formerly known as Salona Global Medical Device Corporation)
Notes to the Consolidated Financial Statements
(in Canadian Dollars, unless specified otherwise)
1. Description of the business
Evome Medical Technologies, Inc. (formerly known as Salona Global Medical Device Corporation and also formerly known as Brattle Street Investment Corp.) ("the Company," "us," "our," "Evome," or the "Company"), is a publicly traded company listed on the TSX Venture Exchange (the "Exchange" or "TSXV"). The Company specializes in human performance and rehabilitative solutions achieved through strategic acquisitions and leveraging the intellectual properties of specialized companies under our wholly-owned subsidiaries. The Company's aim is to create a large, broad-based medical device company with global reach.
The Company was incorporated under the Canada Business Corporations Act on September 17, 2013. The Company's common shares have been traded on the TSXV under the symbol "EVMT" since January 22, 2024. From December 16, 2020, through January 21, 2024, the Company's common shares traded on the TSXV under the symbol "SGMD". From January 15, 2020, through December 15, 2020, the Company's common shares traded on the TSXV under the symbol "BRTL". The registered office is Suite 200E - 1515A Bayview Avenue, East York, Ontario.
On May 21, 2021, the Company acquired South Dakota Partners Inc. ("SDP").
On September 30, 2021, the Company acquired Simbex, LLC ("Simbex").
On November 28, 2021, the Company launched a new U.S. sales subsidiary called ALG Health Plus, LLC ("Health Plus").
On March 11, 2022, the Company acquired Mio-Guard, LLC ("Mio-Guard").
On September 23, 2022, the Company acquired DaMar Plastics Manufacturing Inc. ("DaMar").
On December 14, 2022, the Board of Directors of the Company approved a change to its fiscal year from February 28 to December 31. The Company's fiscal year now begins on January 1 and ends on December 31 of each year, starting on January 1, 2023.
On March 15, 2023, the Company entered into a stock purchase agreement providing for the acquisition of all of the capital stock of Biodex Medical Systems, Inc. ("Biodex"), which consists principally of the Biodex Physical Medicine business. The Purchase Agreement replaced the previously disclosed asset purchase agreement covering the same business that was first announced on August 15, 2022. The Company completed the Acquisition on April 3, 2023. The purchase agreement provided for the purchase of all of the capital stock of Biodex in consideration for a total of US $8 million in cash, minus indebtedness, transaction expenses and plus or minus a working capital adjustment, payable as follows: (i) a closing payment to the Sellers of US $1,000,000 in cash, and (ii) three installment payments totaling US $7 million, plus or minus the post-closing adjustment, as follows: US $2 million on July 1, 2023, US $3 million on October 1, 2023, plus or minus the Post-Closing Adjustment, and US $2 million on January 1, 2024. As of December 31, 2023, no installment payment had yet been made on the balance. The payment of the installment payments is secured by the pledge of the Biodex capital stock as security to Seller, pursuant to the terms of a promissory note described in Note 11.
On May 15, 2023, the Company entered into and completed the acquisition pursuant to a Stock Purchase Agreement with the owner of Arrowhead Medical, LLC ("Arrowhead") providing for the acquisition of all of the
ownership interests of Arrowhead. The purchase price consideration consisted of the issuance at closing of one million (1,000,000) shares of the Company's Class A common stock, which is convertible into the Company's Common Shares, subject to limitations on conversion which prevent conversion of Class A shares if the holder owns more than 500,000 shares of the Company's Common Shares, or if the holder owns more than 9.9% of the outstanding Common Shares of the Company. The purchase price also included the assumption by the Company of approximately $444,930 (US $329,896) in bank debt under Arrowhead's asset-based line of credit, and a contingent earnout payment equal to one share of Class A common stock for each one dollar (US $1.00) of EBITDA generated by the Arrowhead business over the two-year period following the closing date, up to a maximum of 2 million Class A shares.
2. Basis of presentation
The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the U.S. ("U.S. GAAP").
Functional and presentation currency
These consolidated financial statements are expressed in Canadian dollars unless otherwise stated. The functional currency of the Company is Canadian dollars, and the functional currency of its subsidiaries Inspira Financial Company, Inspira SaaS Billing, Inc., 1077863 B.C., Ltd, Simbex, LLC, ALG Health Plus, LLC, SDP, DaMar Plastics Manufacturing, Inc., Mio-Guard, LLC, Biodex Medical Systems Inc., Arrowhead Medical, LLC and the wholly owned holding company subsidiaries noted below is US dollars.
Going Concern
The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the consolidated financial statements are issued. The Company has incurred recurring losses from operations, has negative cash flows from operating activities, and has an accumulated deficit as of December 31, 2023. The Company believes that its cash and other available resources may not be sufficient to meet its operating needs and the payment of obligations related to various business acquisitions as they come due within one year after the date the consolidated financial statements are issued.
As the Company's funding activities are ongoing, there can be no assurances that the Company will be able to secure funding on terms that are acceptable to the Company or at all. These conditions, along with the matters noted above, raise substantial doubt about the Company's ability to continue as a going concern within one year after the date the financial statements are issued. While management has developed and is in the process of implementing plans that management believes could alleviate in the future the substantial doubt that was raised including the evaluation of raising funds from debt and/or equity financing, management concluded at the date of the issuance of the financial statements that substantial doubt exists as those plans are not completely within the control of management. These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and consolidated balance sheets classifications that would be necessary if the Company were unable to realize its assets and settle its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
3. Significant accounting policies
a) Basis of consolidation
These statements consolidate the accounts of the Company and its wholly owned operating subsidiaries, namely, Simbex, Health Plus, SDP, Mio-Guard, DaMar, Biodex, Arrowhead, and 1077863 B.C., Ltd. Additionally, these statements consolidate the Company's wholly owned holding company subsidiaries, namely, Pan Novus Hospital Sales Group, LLC, Brattle Acquisition I Corp., Simbex Acquisition Parent I Corporation, Simbex Acquisition Parent Corporation, Mio-Tech Parent LLC, and DaMar Acquisition Corporation. The Company owns 100% of all of its subsidiaries. Intercompany balances and transactions are eliminated upon consolidation.
b) Basis of measurement
The consolidated financial statements of the Company have been prepared on a historical cost basis except contingent considerations, which are carried at fair value.
c) Use of estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. This applies to useful lives of non-current assets, impairment of non-current assets, including goodwill and intangible assets, valuation of stock-based compensation, expected credit loss provision, provisions for inventory, valuation allowance for deferred tax assets, the purchase price accounting of the businesses that the Company has acquired, including the acquisition date fair value of the identifiable assets and liabilities acquired, the fair value of contingent consideration as well as the associated remeasurement of earnouts, and assessment of going concern. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
d) Operating segments
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company's other components. The segment operating results are reviewed regularly by the Company's Chief Operating Decision Maker, the CEO, to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. As of December 31, 2023, the Company has one segment, healthcare operations, which includes production, design, development, and sale of medical devices to businesses in the U.S. Assets, liabilities, revenues and expense from this segment are disclosed in the consolidated balance sheets and statements of operations and comprehensive loss.
e) Fair value of financial instruments
The Company's financial instruments consist principally of cash and cash equivalents, accounts receivable, security deposits, accounts payable and accrued liabilities, line of credit, debt, contingent consideration payable, lease liabilities and other liabilities.
Financial Accounting Standards Board ("FASB") Accounting Standards Codification (ASC) Topic 825, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.
The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization, low risk of counterparty default and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between the levels of the fair value measurement hierarchy during the years presented.
As of December 31, 2023 and 2022, the Company did not identify any financial assets and liabilities other than contingent considerations resulting from the Simbex, ALG, DaMar, Mio-Guard and Arrowhead acquisitions, that would be required to be presented on the consolidated balance sheet at fair value.
f) Revenue recognition
Revenue comprises goods and services provided to the Company's contracted customers and sales-based royalties charged by the Company to licensees of the Intellectual Property ("IP") developed by the Company.
In accordance with ASC Topic 606 - Revenue from Contracts with Customers (ASC 606), the Company recognizes revenue upon the transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. The Company accounts for a customer contract when the rights of the parties, including the payment terms, are identified, the contract has commercial substance, collection of consideration is probable, and the contract has been signed and agreed to by both parties. Revenue is recognized when, or as, performance obligations are satisfied by transferring control or economic benefit of the service to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for its services. Revenue excludes sales tax and is recorded net of discounts and an allowance for estimated returns unless the terms of the sales are final.
The principles in ASC 606 are applied using the following five steps:
1. Identify the contract with a customer;
2. Identify the performance obligation(s) in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligation(s) in the contract; and
5. Recognize revenue when (or as) the performance obligation(s) are satisfied.
SDP, Mio-Guard, DaMar, Arrowhead and Biodex recognize revenue at a point-in-time upon transfer of control of goods to customers, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract, at an amount that reflects the consideration the Company received or expects to receive in exchange for the goods. Simbex recognizes its revenue over time as it meets its milestones and performs its obligations as agreed upon in its contracts with its customers. Payment received prior to the delivery of service is classified as "other liabilities."
For sales contracts with terms of more than one year, the Company recognizes any significant financing component as revenue over the contractual period using the effective interest method, and the associated interest income is reflected accordingly on the consolidated statements of operations and comprehensive loss and included in other income.
Provisions for discounts, returns and other adjustments are provided for the period in which the related sales are recorded. The Company has concluded that it is the principal in its revenue arrangements because it controls the goods or services before transferring them to the customer.
The Company typically provides warranties for general repairs of defects that existed at the time of sale. These assurance-type warranties are accounted for as warranty provisions.
g) Research and development costs
Research and development costs are generally expensed as incurred. These costs primarily consist of personnel and related expenses and are classified as part of the selling, general, and administrative expenses on the consolidated statements of operations and comprehensive loss.
h) Cash and cash equivalents
Cash and cash equivalents comprise of highly liquid interest-bearing securities that are readily convertible to cash and are subject to an insignificant risk of changes in value.
i) Accounts Receivable
The Company's accounts receivable are non-interest bearing trade receivables resulting from the sale of products and services. The Company provides an allowance for doubtful accounts at the point when collection is considered doubtful. Once all collection efforts have been exhausted, the Company charges-off the receivable with the allowance for doubtful accounts.
j) Inventories
Inventories are comprised of raw material, work-in-progress, trading goods, and finished goods, which consist principally of electrodes, electronic components, subassemblies, steel, plastic, hardware, fasteners, and purchased sports medicine products and are stated at the lower of cost (first-in, first-out) and net realizable value and include direct labor, materials, and other related costs. The Company periodically reviews inventory for evidence of slow-moving or obsolete items, and writes inventory down to net realizable value, as needed.
This write-down is based on management's review of inventories on hand, compared to estimated future usage and sales, shelf-life assumptions, and assumptions about the likelihood of obsolescence. If actual market conditions are less favorable than those projected by the Company, additional write-downs may be required. Inventory impairment charges establish a new cost basis for inventory and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable.
k) Goodwill
Goodwill represents the excess of costs over fair value of net assets acquired from the Company's business combinations. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the FASB issued Accounting Standards Update ("ASU") No. 2017-04 Intangibles-Goodwill and Other (Topic 350). Because an assembled workforce cannot be sold or transferred separately from the other assets in the business, any value attributed to it is subsumed into goodwill. The Company evaluates the carrying value of goodwill annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.
When evaluating whether the goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. The Company identifies the reporting unit on a basis that is similar to its method for identifying operating segments as defined by the Segment Reporting Topic of the FASB ASC. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. This evaluation is applied annually.
l) Property and equipment
Property and equipment are carried at cost less accumulated depreciation and impairment, if any. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Asset Life
Machinery and equipment
3 - 10 years
Computer equipment and software
3 - 5 years
Furniture and fixtures
7 - 10 years
Leasehold improvements Over the lease period
Land improvements Over the lease period
Tooling
5 - 7 years
Vehicles
4 - 5 years
m) Right-of-use asset
The Company's right-of-use assets consist of leased assets recognized in accordance with ASC 842, Leases which requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liability represents the Company's obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the consolidated balance sheets and are expensed on a straight-line basis over the lease term in the consolidated statement of operations and comprehensive loss. The Company determines the lease term based on the lease commencement date including any options to renew that are reasonably certain to be exercised. In cases where the lease does not provide an implicit interest rate, the Company uses the Company's incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.
n) Intangible assets
Intangible assets consist of trademarks, intellectual property, customer base and non-competes (Note 4 and Note 9). Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are measured at cost less accumulated amortization and accumulated impairment losses per the table below:
Intangible asset Life
Tradename - Trademarks
5 years
Non-competes
4-5 years
Intellectual Property
5 years
Customer Base
7-15 years
The intangible assets with finite useful lives are reviewed for impairment at least annually or when indicators of impairment are present. In the event that the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets.
o) Impairment for Long-Lived Assets
The Company applies the provisions of ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets, including right-of-use assets, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. This evaluation is applied annually.
p) Business Combination and Contingent consideration
A business combination is a transaction or other event in which control over one or more businesses is obtained. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits. A business consists of inputs and processes applied to those inputs that have the ability to create outputs. A business need not include all of the inputs and processes that were used by the acquiree to produce outputs if the business can be integrated with the inputs and processes of the Company to continue to produce outputs. The Company considers several factors to determine whether the set of activities and assets is a business.
Business combinations are accounted for using the acquisition method whereby acquired assets and liabilities are recorded at fair value as of the date of acquisition with the excess of the purchase consideration over such fair value being recorded as goodwill and allocated to reporting units. If the fair value of the net assets acquired exceeds the purchase consideration, the difference is recognized immediately as a gain in the consolidated statements of operations and comprehensive loss. Acquisition-related costs are expensed during the period in which they are incurred, except for the cost of debt or equity instruments issued in relation to the acquisition which is included in the carrying amount of the related instrument. Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they are adjusted retrospectively in subsequent periods. However, the measurement period will not exceed one year from the acquisition date. The determination of the value of goodwill and intangible assets arising from business combinations requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired.
q) Stock-Based Compensation
The Company records stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation (ASC 718). ASC 718 requires companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the expense over the requisite service period. The Company recognizes in the consolidated statements of operations and comprehensive loss the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
r) Basic and Diluted Earnings Per Share
The Company applies ASC Topic 260, Earnings per share, which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to stockholders by the weighted average number of common shares and Class A shares outstanding for the period. Except for voting rights, the Company's common stock and Class A shares have the same dividend rights, are equal in all respects, and are otherwise treated as if they were one class of shares, including the treatment for the earnings per share calculations. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. Diluted earnings per share exclude all potentially dilutive shares if their effect is anti- dilutive. There were 9,903,364 potentially dilutive shares outstanding as of December 31, 2023. Due to the net loss incurred potentially dilutive instruments would be anti-dilutive. Basic and diluted shares are the same for all periods presented.
s) Foreign Currency Transactions and Comprehensive Income
U.S. GAAP generally requires recognized revenue, expenses, gains and losses be included in net loss. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net loss, are components of comprehensive loss. The functional currency of the Company's subsidiaries is the US dollar. Translation gains (losses) are classified as an item of other comprehensive income in the stockholders' equity section of the consolidated balance sheet.
t) Employee Retention Credit
In accordance with the ERC program, a company is eligible for an ERC if, due to the COVID-19 pandemic, there has been a significant decline in gross receipts in the current year as compared with 2019 gross receipts, or a full or partial shutdown based on a governmental order. The ERC is computed based on a percentage of qualified wages (including qualified health insurance expenses) incurred during the year, with a maximum annual credit per employee.
Since there are no generally accepted accounting principles for for-profit business entities that receive government assistance that is not in the form of loan, an income tax credit or revenue from a contract with a customer, the Company determined the appropriate accounting treatment by analogy to other guidance. The Company's policy is to account for the ERC as a grant using guidance analogous to government grants found in International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, the ERC is recognized and recorded as other income in the consolidated statements of operations and comprehensive loss when there is reasonable assurance that the Company will comply with the conditions attached to the grant and the ERC will be received.
u) Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes (ASC 740), which requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The Company has not changed its methodology for estimating the valuation allowance. A change in valuation allowance affects earnings in the period the adjustments are made and could be significant due to the large valuation allowance currently established.
Under ASC 740, a tax position is recognized as a benefit only if it is 'more likely than not' that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the 'more likely than not' test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
v) Share purchase warrants
The Company accounts for the share purchase warrants issued to investor and brokers pursuant to equity financing as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in ASC Topic 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the Warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the Warrants are indexed to the Company's own shares and whether the holders of the warrants could potentially require "net cash settlement" in a circumstance outside of the Company's control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the Warrants and as of each subsequent reporting period end date while the warrants are outstanding. For issued investor warrants and broker warrants that meet all of the criteria for equity classification, such warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued investor warrants and broker warrants that do not meet all the criteria for equity classification, liability-classified warrants are required to be recorded at their initial fair value on the date of issuance, and each consolidated balance sheet date thereafter. Changes in the estimated fair value of such warrants are recognized as a non-cash gain or loss on the consolidated statements of operations and comprehensive loss.
For all outstanding warrants, the Company concluded based on the above mentioned that the issued investor warrants, and broker warrants met the criteria for equity classification in accordance with ASC 815 and therefore were classified as equity. The fair value of those warrants was determined by using Black Scholes valuation model on the date of issuance. The relative fair value method was applied to allocate gross proceeds from the equity financing into its shares and warrants portion respectively. Those costs directly contributable to an equity financing are accounted for as a reduction of stockholders' equity.
w) Reclassification
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
x) Recently issued pronouncements
In September 2022, the FASB issued Accounting Standards Update (ASU) No. 2022-04 that requires additional qualitative and quantitative disclosures surrounding supplier finance programs intended to help investors better consider the effect of these programs on a company's working capital, liquidity, and cash flows over time. This update is effective for fiscal years beginning after December 15, 2022, including interim periods, except for the disclosure of roll forward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company adopted this ASU, and it did not have a significant impact on its consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions ("ASU 2022-03"), which (1) clarifies the guidance in ASC 820 on the fair value measurement of an equity security that is subject to a contractual sale restriction and (2) requires specific disclosures related to such an equity security. Under current guidance, stakeholders have observed diversity in practice related to whether contractual sale restrictions should be considered in the measurement of the fair value of equity securities that are subject to such restrictions. To reduce the diversity in practice and increase the comparability of reported financial information, ASU 2022-03 clarifies this guidance and amends the illustrative example. ASU No. 2022-03 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the extent of the impact of this ASU but does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance on troubled debt restructurings for creditors in ASC Topic 310 and amends the guidance on "vintage disclosures" to require disclosure of current-period gross write-offs by year of origination. ASU 2022-02 also updates the requirements related to accounting for credit losses under ASC Topic 326 and adds enhanced disclosures for creditors with respect to loan re-financings and restructurings for borrowers experiencing financial difficulty. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted this ASU, and it did not have a significant impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. This update is effective for annual periods beginning after December 15, 2022, as amended by ASU No. 2019-10, and interim periods within those periods, and early adoption is permitted. The Company adopted this ASU, and it did not have a significant impact on its consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04 providing optional expedients and exceptions to account for the effects of reference rate reform to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The optional guidance, which became effective on March 12, 2020, could be applied through December 31, 2022. In December 2022, the FASB issued No 2022-06 extending the sunset date of the relief provided under ASU No. 2020-04 to December 31, 2024. The Company has various contracts that reference LIBOR and is assessing how this standard may be applied to specific contract modifications through December 31, 2024.
4. Acquisitions
South Dakota Partners Inc. ("SDP") Purchase Price
The Company completed the purchase of all of the capital stock of South Dakota Partners Inc. (SDP), under the Purchase Agreement dated May 21, 2021. Under the Purchase Agreement, the Company acquired the manufacturer specializing in medical devices, full electronics box builds, printed circuit board assemblies, electrodes, drug delivery and many other products involving electronics, electro-mechanical assemblies, and various types of material conversion. The acquisition included all of the current customers, contract rights, inventory, equipment, workforce, and manufacturing infrastructure. At the time of the transaction, there were no material relationships between the seller and the Company or any of its affiliates, or any director or officer of the Company, or any associate of any such officer or director. As consideration, the Company agreed to issue 19,162,000 non-voting class "A" shares of common stock valued at $12,340,570 subject to earn-out adjustments, including revenue shortfall adjustment and adjusted net assets adjustments. The Company assumed all of the assets and liabilities of SDP.
In accordance with ASC Topic 805 Business Combinations ("ASC 805"), the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date.
The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition is as follows:
Cash $
Security deposit
461,066
Accounts receivable
2,763,621
Inventories
4,958,833
Prepaid expenses
21,651
Property and equipment
1,409,421
Right-of-use assets
2,343,947
Intangible assets
2,199,444
Goodwill
9,090,357
Accounts payable
(821,244 )
Accrued expenses
(201,733 )
Customer deposits
(221,290 )
Line of credit
(3,732,414 )
Debt
(2,971,350 )
Lease liability
(2,498,095 )
Deferred tax liability
(557,559 )
Other liabilities
(163,130 )
Total adjusted purchase price $ 12,081,780
Goodwill $ 9,090,357
Tradename - Trademarks
341,929
Intellectual Property
320,823
Customer Base
1,266,405
Non-Competes
270,287
Total identifiable intangible assets including goodwill $ 11,289,801
The table below summarizes the value of the total consideration given in the transaction:
Stock (Parent Special Stock)
12,340,570
Floor Guarantee/Contingent Liability
1,139,910
Earn-out /Contingent Consideration (Revenue)
(21,924 )
Earn-out /Contingent Consideration (Net Assets)
(1,376,776 )
Total Consideration $ 12,081,780
As of May 31, 2022, SDP has concluded its earn-out period and has met both the revenue and adjusted net asset threshold requirements to receive its full 19,162,000 non-voting "Class A" shares of common stock. As such, this obligation is presented in the equity section as Class A shares to be issued. As of May 31, 2022, the date of issuance, the fair value of the 19,162,000 shares was $14,371,500. The Company issued 14,477,270 and 143,000 Class A shares from this pool of Class A shares to be issued for the periods ended December 31, 2023 and 2022, respectively.
The Company performed its annual goodwill impairment assessment as of December 31, 2023, which included both qualitative and quantitative evaluations. The Company determined that SDP experienced a triggering qualitative event during December of 2023 including reduced future cash flows and a diminished financial outlook for future periods. The Company assessed SDP further by comparing the carrying value of the entity's net assets to an estimated fair value of the entity using an income-based approach utilizing estimated cash flows attributable to the entity. Based on this assessment, the Company concluded that the fair value of SDP was below the carrying value primarily due to changes in the anticipated financial performance of the entity. As a result of this annual assessment, during the year ended December 31, 2023, the Company recorded goodwill impairment of $9,090,357 for SDP. Through further assessment, during the year ended December 31, 2023, the Company recorded an impairment of intangible assets of $1,833,970 for SDP due to the reduced ability of these assets to generate cash flows. The Company evaluated the property and equipment of SDP for impairment in light of these events. As a result of this assessment, during the year ended December 31, 2023, the Company determined that no impairment of property and equipment was needed.
Assets Acquired from ALG-Health, LLC:
On November 29, 2021, the Company consummated the acquisition of the customer lists, sales orders and supply agreements and related sales channel and intellectual property assets of ALG-Health, LLC ("ALG"), a business engaged in the selling medical devices and supplies to small, independent hospitals, group purchasing organizations, medical offices and clinics, in exchange for non-voting securities of Health Plus which are exchangeable for up to a maximum of 21,000,000 nonvoting Class A shares of the Company subject to the achievement of certain revenue and EBITDA targets. In connection with the transaction, our subsidiary ALG Health Plus, LLC entered into an exclusive supply agreement with ALG.
In accordance with ASC 805, the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. The identified assets acquired, the customer list, has nominal value based on future cash flows which are dependent on a future, yet-to-be established business, and therefore no value has been assigned to it.
The contingent consideration liability represents potential future earnout payments to the Company that are contingent on Health Plus's and ALG's business arrangement achieving certain milestones. As a result of new arrangements, the fair value of the contingent consideration liability is estimated to be $155,574 and $298,183 as of December 31, 2023, and 2022, respectively.
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC Topic 350, Goodwill and Other Intangible Assets (ASC 350).
On November 21, 2022, 1,048,500 Class A shares were issued to two key individuals at ALG at a fair market price of $0.61 per share for achieving certain EBITDA milestones. On November 28, 2022, 1,000,000 Class A shares were issued to one key individual at ALG at a fair market price of $0.68 per share for achieving a revenue milestone as described in the agreement. $693,365 in cash was provided as consideration for these shares.
On April 11, 2023, 388,935 Class A shares were issued to one key individual at ALG at a fair market price of $0.33 per share for achieving a revenue milestone as described in the agreement. No cash was received as consideration for these shares.
On April 11, 2023, 43,215 Class A shares were issued to one key individual at ALG at a fair market price of $0.33 per share for achieving a revenue milestone as described in the agreement. No cash was received as consideration for these shares.
Simbex, LLC ("Simbex") Purchase Price:
The Company completed the purchase of all the capital stock of Simbex, LLC ("Simbex"), under the Purchase Agreement dated September 30, 2021. Under the Purchase Agreement, Evome acquired the company which provides mechanical and electrical design and engineering services as well as consultancy services in the field of biomechanical systems and medical devices. The acquisition includes all its current customers, contract rights, work-in-process, equipment, workforce, as well as its consulting, design, and engineering infrastructure. At the time of the transaction, there were no material relationships between the seller and Evome or any of its affiliates, or any director or officer of Evome, or any associate of any such officer or director. As consideration, the Company provided $5,691,759 cash and issued 6,383,954 shares of non-voting class "A" common stock valued at $6,769,769 subject to earn-out adjustments, including a revenue shortfall adjustment and adjusted net assets adjustments. The Company assumed all the assets and liabilities of Simbex.
In accordance with ASC 805, the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date.
The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
Cash $ 632,697
Accounts Receivable
1,402,315
Work-in-process
301,180
Prepaid expenses
34,992
Property and equipment
122,916
Other receivables
6,395
Intangible Assets
5,175,486
Goodwill
6,263,204
Accounts payable and accrued liabilities
(33,560 )
Accrued expenses
(1,095 )
Unearned revenue
(131,016 )
Deferred tax liability
(1,311,986 )
Total adjusted purchase price $ 12,461,528
Goodwill $ 6,263,204
Tradename - Trademarks
933,865
Customer Base
3,648,148
Non-Competes
593,473
Total identifiable intangible assets including goodwill $ 11,438,690
The table below summarizes the value of the total consideration given in the transaction:
Cash $ 4,428,900
Working Capital Adjustment
1,262,859
Value of Escrowed Stock
126,540
Value of Earnout / Contingent Consideration
6,643,229
Total Consideration $ 12,461,528
On December 31, 2022, Simbex concluded the earn-out period and met the requirements to receive its full earnout consideration consisting of cash and 6,383,952 Class A shares valued at $0.45/share on the commencement of the earnout period. On May 19, 2023, the 6,383,952 Class A shares were issued to the former owners of Simbex at a fair market price of $0.29 per share fulfilling the Company's stock earnout obligation. The $1,165,697 change in fair value of the Class A shares was recognized as a change in fair value of earnout considerations in the consolidated statements of operations and comprehensive loss. The number of shares were allocated to the previous owners based on their percentage of ownership on the date of sale. As of December 31, 2023, the $4,542,029 cash component remains unpaid and is still outstanding on the consolidated balance sheet as an obligation for payment of earnout consideration and accrues interest at a rate of 8.00%. Interest expense under this obligation was $248,570 for the twelve months ended December 31, 2023 and $0 for the ten months ended December 31, 2022.
On February 28, 2022, the Company updated its assessment of the fair value of goodwill from the Simbex acquisition, in conjunction with the Company's third-party valuation experts based on updated year to date results of the acquired entity, intangible assets, and other factors resulting in an impairment to goodwill of $5,520,522. As of both December 31, 2023 and 2022, there was no further goodwill impairment necessary.
Mio-Guard LLC ("Mio-Guard")
On March 11, 2022, the Company acquired 100% of the units of Mio-Guard for consideration which is comprised of the following:
Cash $ 572,400
1,300,000 Class B units issued at closing
702,000
Quarterly Earnout payments (Maximum of 2,700,000 Class B Units)
1,166,464
Total Consideration $ 2,440,864
In accordance with ASC 805, the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date.
The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
Cash $ 3,363
Accounts receivable
531,602
Inventory
498,897
Property and equipment
73,445
Right-of-use assets
476,955
Intangible assets and goodwill
2,329,018
Accounts payable
(764,225 )
Due to related parties
(2,307 )
Lease liability
(471,926 )
Deferred tax liability
(233,958 )
Total adjusted purchase price $ 2,440,864
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in ASC 350.
Goodwill (including workforce) $ 1,143,514
Tradename
356,160
Customer Relationships
774,648
Non-Competes
54,696
Total identifiable intangible assets including goodwill $ 2,329,018
The contingent consideration liability represents potential future earnout payments to the sellers of Mio- Guard that are contingent on Mio-Guard's business achieving certain milestones. Certain Mio-Guard management was retained post-acquisition and will receive a portion of the potential future earnout payments as earned. The fair value of the contingent consideration liability of $1,166,465 was recognized on the acquisition date and was measured using unobservable (Level 3) inputs. As of December 31, 2023, the fair value of the contingent consideration liability is $956,520. The change in the fair value of the contingent consideration liability from the date of acquisition has been reflected as an expense on the consolidated statements of operations and comprehensive loss.
The Company performed its annual goodwill impairment assessment as of December 31, 2023, which included both qualitative and quantitative evaluations. The Company determined that Mio-Guard experienced a triggering qualitative event during December of 2023 including reduced future cash flows and a diminished financial outlook for future periods. The Company assessed Mio-Guard further by comparing the carrying value of the entity's net assets to an estimated fair value of the entity using an income-based approach utilizing estimated cash flows attributable to the entity. Based on this assessment, the Company concluded that the fair value of Mio-Guard was below the carrying value primarily due to changes in the anticipated financial performance of the entity. As a result of this annual assessment, during the year ended December 31, 2023, the Company recorded goodwill impairment of $1,143,514 for Mio-Guard. Through further assessment, during the year ended December 31, 2023, the Company recorded impairments of intangible assets of $1,000,785 and right of use asset of $316,059 for Mio- Guard due to the reduced ability of these assets to generate cash flows. Upon additional assessment of these triggering events as they relate to the property and equipment of this entity, the Company evaluated the long-lived assets of the entity for impairment. As a result of this assessment, during the year ended December 31, 2023, the Company recorded an impairment of property and equipment of $127,739 for Mio-Guard.
DaMar Plastics Manufacturing, Inc. ("DaMar")
On September 23, 2022, the Company acquired 100% of the shares of DaMar for a consideration which comprised of cash, and special parent stock at closing, and future contingent consideration during the earnout period.
Cash $ 4,071,000
Working capital adjustment
274,375
Stock (in Salona Global Buyer exchangeable for Class A shares in the Company)
967,650
Value of earnout/contingent consideration
2,656,635
Total Consideration $ 7,969,660
In accordance with ASC 805, the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date.
The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
Cash $ 199,982
Accounts receivable
731,640
Inventory
791,552
Property and equipment
1,390,121
Right-of-use assets
3,061,590
Prepaid and other
158,696
Intangible assets and goodwill
4,677,092
Accounts payable and other assumed liabilities
(177,232 )
Other liabilities
(3,972 )
Unearned revenues
(104,401 )
Lease liability
(1,568,820 )
Deferred tax liability
(1,186,588 )
Total adjusted purchase price $ 7,969,660
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC 350.
Goodwill (including workforce) $ 2,718,941
Tradename
169,625
Customer Relationships
1,316,290
Non-Competes
472,236
Total identifiable intangible assets including goodwill $ 4,677,092
The contingent consideration liability represents potential future earnout payments to the sellers of DaMar that are contingent on DaMar's business achieving certain milestones. Certain DaMar management was retained post- acquisition and will receive a portion of the potential future earnout payments if earned. The fair value of the contingent consideration liability of $3,624,286 was recognized on the acquisition date and was measured using unobservable (Level 3) inputs. As of December 31, 2023, the fair value of the contingent consideration liability is $3,441,640. The change in the fair value of the contingent consideration liability from December 31, 2022, has been reflected as an expense on the consolidated statements of operations and comprehensive loss.
On December 31, 2023, the Company reviewed its assessment of the fair value of goodwill from the DaMar acquisition and noted no impairment to Goodwill.
Biodex Medical Systems, Inc. ("Biodex")
On March 15, 2023, the Company entered into a stock purchase agreement providing for the acquisition of all of the capital stock of Biodex Medical Systems, Inc., which consists principally of the Biodex Physical Medicine business. The Company completed the Acquisition on April 3, 2023. The purchase agreement provided for the purchase of all of the capital stock of Biodex in consideration for a total of $10,423,218 (US $8,000,000) in cash, minus indebtedness, transaction expenses and plus or minus a working capital adjustment. The following was paid as consideration on the date of acquisition:
Cash consideration $ 1,343,800
Promissory note
9,079,418
Total Consideration $ 10,423,218
In accordance with ASC 805, the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date.
The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
Security deposit $ 43,002
Prepaids and other receivables
257,610
Inventory
7,008,337
Property and equipment, net
907,544
Right-of-use assets, net
3,307,975
Intangible assets and goodwill
3,391,051
Trade and other payables
(3,021,568 )
Lease liability
(1,470,733 )
Total adjusted purchase price $ 10,423,218
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC Topic 350 "Goodwill and Other Intangible Assets".
Goodwill (including workforce) $ 1,751,615
Brand and Trademarks
806,280
Customer Relationships
833,156
Total identifiable intangible assets including goodwill $ 3,391,051
Since acquisition, Biodex has generated $18,341,613 of revenue and has generated a loss before tax of $1,100,960. These amounts are included in the consolidated statements of operations and comprehensive loss. If the combination had taken place at the beginning of the year, Biodex's revenue would have been $22,888,022 and loss before tax would have been $1,979,753. If the combination had taken place at the beginning of the year, consolidated revenues would have been $67,173,860 and consolidated losses before tax would have been $17,576,801. The pro forma unaudited results include estimates and assumptions which management believes are reasonable. The pro forma results do not include any cost savings or other effects of the planned integration of these entities and may not be fully indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.
On December 31, 2023, the Company reviewed its assessment of the fair value of goodwill from the Biodex acquisition and noted no impairment to Goodwill.
Arrowhead Medical, LLC ("Arrowhead")
On May 15, 2023, the Company entered into and completed the acquisition pursuant to a Stock Purchase Agreement with the owner of Arrowhead Medical, LLC ("Arrowhead") providing for the acquisition of all of the ownership interests of Arrowhead. The purchase price consideration consists of the issuance at closing of one million (1,000,000) shares of the Company's Class A common stock, which was convertible into the Company's Common Shares, subject to limitations on conversion which prevent conversion of Class A shares if the holder owns more than 500,000 shares of the Company's Common Shares, or if the holder owns more than 9.9% of the outstanding Common Shares of the Company. The purchase price also included the assumption by the Company of approximately $444,930 (US $329,896) in bank debt under Arrowhead's asset-based line of credit, and a contingent earnout payment equal to one share of Class A common stock for each one dollar (US $1.00) of EBITDA generated by the Arrowhead business over the two-year period following the closing date, up to a maximum of 2,000,000 Class A shares.
Stock issued at closing (1,000,000 Class A Shares in the Company) $ 269,794
Contingent earnout consideration
77,820
Total Consideration $ 347,614
In accordance with ASC 805, the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date.
The allocation of the purchase price to the assets acquired and liabilities assumed based on an estimate of fair values at the date of acquisition as follows:
Cash $ 28,217
Accounts receivable
240,255
Inventory
264,600
Property and equipment
59,698
Right-of-use assets
822,558
Intangible assets and goodwill
966,029
Accounts payable and other assumed liabilities
(503,588 )
Other liabilities
(262,667 )
Bank loan
(444,930 )
Lease liability
(822,558 )
Total adjusted purchase price $ 347,614
The amount allocated to identifiable intangible assets was determined by the Company's management. Other intangible assets are being amortized over their useful life in accordance with the guidance contained in the FASB issued ASC Topic 350 "Goodwill and Other Intangible Assets".
Goodwill (including workforce) $ 696,289
Non-Competes
269,740
Total identifiable intangible assets including goodwill $ 966,029
The contingent consideration liability represents potential future earnout payments to the sellers of Arrowhead that are contingent on Arrowhead's business achieving certain milestones. Certain Arrowhead management was retained post-acquisition and will receive a portion of the potential future earnout payments as earned. The fair value of the contingent consideration liability of $77,820 was recognized on the acquisition date and was measured using unobservable (Level 3) inputs. As of December 31, 2023, the fair value of the contingent consideration liability was $17,901.
Since acquisition, Arrowhead has generated $3,348,342 of revenue and has generated a loss before tax of $73,423. These amounts are included in the consolidated statements of operations and comprehensive loss. If the combination had taken place at the beginning of the year, Arrowhead's revenue would have been $4,719,741 and a loss before tax would have been $80,075. If the combination had taken place at the beginning of the year, consolidated revenues would have been $63,998,850 and consolidated net earnings before tax would have been $16,704,660. The pro forma unaudited results include estimates and assumptions which management believes are reasonable. Additionally, the pro forma results do not include any cost savings or other effects of the planned integration of these entities and may not be fully indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.
On December 31, 2023, the Company reviewed its assessment of the fair value of goodwill from the Arrowhead acquisition and noted no impairment to Goodwill.
5. Accounts receivable and other receivable
Our accounts receivable balance primarily includes balances from trade sales to distributors and retail customers. The allowance for credit losses is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance for credit losses based primarily on current trends and estimates. The Company provided for a percentage of trade receivable balance based on collection history and current economic trends that the Company expects will impact the level of credit losses over the life of the receivables. These reserves are re-evaluated on a regular basis and adjusted as needed. Once a receivable is deemed to be uncollectable, such balance is charged against the provision. Allowances for credit losses of approximately $804,532 and $73,341 as of December 31, 2023 and 2022, respectively are netted against accounts receivable. Changes in accounts receivable are primarily due to the timing and magnitude of orders of products, the timing of when control of products is transferred to distributors, and the timing of cash collections.
Activity in the allowance for credit losses consists of the following for the years ended December 31:
December 31, 2023
December 31, 2022
Balance, beginning of year $ 73,341
$ 73,341
Allowance for credit losses assumed in acquisitions
138,712
-
Net provision for bad debt expense
690,802
Write-offs
(98,323 )
(644 )
Balance, end of year $ 804,532
$ 73,341
During the twelve months ended December 31, 2023, SDP had three customers accounting for 77% of revenues and as of December 31, 2023, those three customers accounted for 80% of accounts receivable which is a material concentration of risks. During December 31, 2023 SDP's revenue makes up 28% of total revenues. During the ten months ended December 31, 2022, SDP had three customers accounting for 83% of revenues and as of December 31, 2022, those three customers accounted for 88% of accounts receivable, which is a material concentration of risks. During December 31, 2022, SDP's revenue makes up 49% of total revenues.
During the twelve months ended December 31, 2023, Biodex had three customers accounting for 44% of revenues and as of December 31, 2023, those three customers accounted for 50% of accounts receivable which is a material concentration of risk. During December 31, 2023 Biodex's revenue makes up 29% of total revenues.
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law, providing numerous tax provisions and other stimulus measures, including employee retention tax credits ("ERTC"). The ERTC is a refundable tax credit against certain employment taxes for qualifying businesses retaining employees on their payroll during the COVID-19 pandemic and allows eligible employers to claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees, initially from March 27, 2020 until June 30, 2021, and extended through September 30, 2021. During 2023, the Company filed with the Internal Revenue Service ("IRS") credits totaling $1,036,532 million. This credit was included in Other income for the twelve months ended December 31, 2023 on the Consolidated Statement of Operations and Comprehensive Loss. As of December 31, 2023, the Company has not yet received this refund from the IRS, and the refund receivable is included in Prepaid expenses and other receivables on the Consolidated Balance Sheet as of December 31, 2023.
6. Disaggregation of revenues
During the twelve months ended December 31, 2023, $53,964,736 of the sales revenue was earned from "point-in-time" revenue and $8,662,715 of the sales revenue was earned "over-a-period" of time.
During the ten months ended December 31, 2022, $24,449,504 of the sales revenue was earned from "point- in-time" revenue and $9,145,282 of the sales revenue was earned "over-a-period" of time.
7. Inventories
The Company tracks inventory for manufactured goods as it progresses through the production process. The Company allocates inventory into four major categories: Raw material, work in progress, trading goods, and finished goods. Purchased finished goods are classified as trading goods.
December 31, 2023
December 31, 2022
Raw materials $ 9,011,654
$ 6,807,258
Work in progress
484,418
771,507
Finished goods
641,993
170,198
Trading goods
779,224
746,439
Provision for obsolete and slow moving inventory
(674,675 )
(392,776 )
Total $ 10,242,614
$ 8,102,626
8. Property and equipment
Cost
December 31, 2022
Acquired April
3, 2023 and
May 15, 2023
Total
Additions
Disposal
Impairment
Translation
December 31, 2023
Machinery and equipment $ 3,371,161
$ 415,344
$ 3,786,505
$ 201,492
$ -
$ -
$ (2,420 ) $ 3,985,577
Computer equipment and software
272,031
6,323
278,354
-
(2,454 )
-
(455 )
275,445
Funiture and fixtures
63,672
1,050
64,722
-
(23,219 )
-
(215 )
41,288
Land improvements
24,186
-
24,186
-
-
-
(43 )
24,143
Leasehold improvements
146,451
415,561
562,012
-
-
-
2,277
564,289
Tooling
-
78,981
78,981
1,776
(1,746 )
-
79,501
Vehicles
-
49,983
49,983
-
-
-
50,105
Total $ 3,877,501
$ 967,242
$ 4,844,743
$ 203,268
$ (27,419 ) $ -
$ (244 ) $ 5,020,348
Accumulated amortization
December 31, 2022
Acquired April
3, 2023 and
May 15, 2023
Total
Additions
Disposal
Impairment
Translation
December 31, 2023
Machinery and equipment $ 411,654
$ -
$ 411,654
$ 829,318
$ -
$ 14,048
$ (3,940 ) $ 1,251,080
Computer equipment and software
38,092
-
38,092
80,198
(368 )
105,794
224,366
Furniture and fixtures
2,868
-
2,868
8,942
(2,211 )
-
2,245
11,844
Land improvements
1,209
-
1,209
2,273
-
-
3,488
Leasehold improvements
23,780
-
23,780
40,642
-
7,897
72,391
Tooling
-
-
-
27,653
(1,746 )
-
25,999
Vehicles
-
-
-
13,601
-
-
13,665
Total $ 477,603
$ -
$ 477,603
$ 1,002,627
$ (4,325 ) $ 127,739
$ (810 ) $ 1,602,833
Net Book Value $ 3,399,898
$ 3,417,515
Cost
February 28,
Acquired
March 11,
2022 and
September
23, 2022
Total
Additions
Disposal
Translation
December 31,
Machinery and equipment $ 1,444,616
$ 1,387,142
$ 2,831,758
$ 447,342
$ -
$ 92,061
$ 3,371,161
Computer equipment and software
73,728
45,848
119,576
144,573
-
7,882
272,031
Furniture and fixtures
10,235
27,597
37,832
23,370
-
2,470
63,672
Land improvements
-
-
-
24,186
-
-
24,186
Leasehold improvements
134,516
2,979
137,495
-
-
8,956
146,451
Total $ 1,663,095
$ 1,463,566
$ 3,126,661
$ 639,471
$ -
$ 111,369
$ 3,877,501
Accumulated amortization
February 28,
Acquired
March 11,
2022 and
September 23,
Total
Additions
Disposal
Translation
December 31,
Machinery and equipment $ 178,244
$ -
$ 178,244
$ 215,025
$ 18,385
$ 411,654
Computer equipment and software
15,269
-
15,269
21,165
1,658
38,092
Furniture and fixtures
1,292
-
1,292
1,446
2,868
Land improvements
-
-
-
1,174
1,209
Leasehold improvements
8,115
-
8,115
14,680
23,780
Total $ 202,920
$ -
$ 202,920
$ 253,490
$ -
$ 21,193
$ 477,603
Net Book Value $ 1,460,175
$ 3,399,898
9. Intangible assets
Cost
December 31, 2022
Acquired April 3,
2023 and May 15,
Total
Additions
Impairment
Translation
December 31,
Tradename - Trademarks $ 1,801,579
$ 806,280
$ 2,607,859
$ -
$ -
$ -
$ 2,607,859
Intellectual Property
564,024
-
564,024
-
-
-
564,024
Customer Base
7,005,491
833,156
7,838,647
-
-
-
7,838,647
Non-Completes
1,390,692
269,740
1,660,432
-
-
-
1,660,432
Total $ 10,761,786
$ 1,909,176
$ 12,670,962
-
$ -
$ -
$ 12,670,962
Accumulated Amortization
and Impairment
December 31, 2022
Acquired April 3,
2023 and May 15,
Total
Additions
Impairment
Translation
December 31,
Tradename - Trademarks $ 427,176
$ -
$ 427,176
$ 505,531
$ 423,447
$ (8,502 ) $ 1,347,652
Intellectual Property
151,378
-
151,378
113,396
337,384
(6,774 )
595,384
Customer Base
525,925
-
525,925
536,954
1,892,718
(38,005 )
2,917,592
Non-Completes
281,145
-
281,145
326,463
181,207
(3,638 )
785,177
Total $ 1,385,624
$ -
$ 1,385,624
$ 1,482,344
$ 2,834,756
$ (56,919 ) $ 5,645,805
Net Book Value $ 9,376,162
$ 7,025,157
Cost
February 28, 2022
Acquired March
11, 2022 and
September 23,
Total
Additions
Impairment
December 31, 2022
Tradename - Trademarks $ 1,275,794
$ 525,785
$ 1,801,579
$ -
$ -
$ 1,801,579
Intellectual Property
320,823
-
320,823
243,201
-
564,024
Customer Base
4,914,553
2,090,938
7,005,491
-
-
7,005,491
Non-Completes
863,760
526,932
1,390,692
-
-
1,390,692
Total $ 7,374,930
$ 3,143,655
$ 10,518,585
$ 243,201
$ -
$ 10,761,786
Accumulated Amortization
February 28, 2022
Acquired March
11, 2022 and
September 23,
Total
Additions
Impairment
December 31, 2022
Tradename - Trademarks $ 133,260
$ -
$ 133,260
$ 293,916
$ -
$ 427,176
Intellectual Property
51,968
-
51,968
99,410
-
151,378
Customer Base
169,783
-
169,783
356,142
-
525,925
Non-Completes
93,337
-
93,337
187,808
-
281,145
Total $ 448,348
$ -
$ 448,348
$ 937,276
$ -
$ 1,385,624
Net Book Value $ 6,926,582
$ 9,376,162
10. Accounts payable, accrued liabilities and other liabilities
December 31, 2023
December 31, 2022
Accounts payable $ 6,910,583
$ 5,269,323
Accrued liabilities
1,749,337
1,371,858
Other liabilities
1,790,040
1,807,702
Total $ 10,449,960
$ 8,448,883
As of December 31, 2023 and 2022, other liabilities are primarily composed of unearned revenue.
11. Line of credit and debt
Line of Credit
On June 9, 2021, the Company through SDP entered into a Loan and Security Agreement. The line of credit facility is with Pathward National Association ("Pathward") (formerly, Crestmark), whereby the Company, through SDP, may borrow up to US$5,400,000. Borrowings bear interest at 4% or prime +0.75% per annum, whichever is greater, and any accrued unpaid interest is due on a monthly basis. The average interest rate applicable to the loan during the twelve months ended December 31, 2023 was 8.95%. The balance is secured by its entire $3,638,549 (US $2,751,058) of inventory and $2,037,707 (US $1,540,682) of accounts receivable of SDP and not the Parent or any other subsidiary. As of December 31, 2023, the balance outstanding under the agreement was $2,824,514 (US $2,135,577) (December 31, 2022 - $5,162,711 (US $3,811,807)).
In accordance with the agreement, the Company is subject to a financial covenant. The balance of the line of credit may not exceed the lesser of US $5,400,000 or the sum of 90% of accounts receivable, 50% of raw materials, 60% of finished inventory (up to US $2,500,000) and an amortizing borrowing base of $400,000 (which shall be reduced $16,667 each month), which must be met on a monthly basis. Additionally, the Company cannot make any loans, advances, or intercompany transfers of cash flow at any time. Since the execution of the debt line on June 9, 2021, to December 31, 2023, the Company was in compliance with the financial covenant.
On January 13, 2023, three operating subsidiaries of the Company, DaMar, Mio-Guard, and Simbex entered into a Loan and Security Agreement and related Schedule with Pathward National Association to increase the Company's aggregate credit line availability by up to US $5,500,000 (the "Agreement"). The Agreement complements an existing credit facility with Pathward through the Company's SDP subsidiary. The Agreement has a variable interest rate of the greater of 6% or 0.75% in excess of the rate shown in the Wall Street Journal as the prime rate per annum, is payable on demand and is secured by all of the assets of Simbex, Mio-Guard and DaMar (the "Borrowers"). In connection with execution of the Agreement, the Company and several of its intermediate holding company subsidiaries entered into a Guaranty of the obligations of the Borrowers (the "Guaranty"). As of December 31, 2023, the balance outstanding under the agreement was $1,061,638 (US $802,690).
On May 15, 2023, the Company through Arrowhead assumed a Loan and Security Agreement. The line of credit facility is with Woodland Bank, whereby the Company, through Arrowhead, may borrow up to $407,087 (US$301,100). Borrowings bear interest at 7.5% per annum and any accrued unpaid interest is due on a monthly basis. The balance is secured by Arrowhead assets and is personally guaranteed by the seller of Arrowhead. There can be no additional withdrawals from the line of credit and the balance will be repaid by the Company. As of December 31, 2023, the balance outstanding under the agreement was $326,757 (US $247,056) (December 31, 2022 - $0 (US $0)).
In accordance with the agreement, the Company is subject to a financial covenant. The balance of the line of credit may not exceed the lesser of US $300,000 or the sum of 75% of accounts receivable <90 days aged and 75% of accounts receivable >90 days aged where a 50% deposit was received by the customer. Since the execution of the debt line on April 3, 2020, to December 31, 2023, the Company was in compliance with the financial covenant.
On September 12, 2023, an operating subsidiary of the Company, Biodex ("Borrower"), entered into a Master Credit and Security Agreement and related Schedule with Pathward, National Association ("Lender") to receive financing accommodations in the form of a secured revolving loan of up to $4,056,000 (US $3,000,000) million (the "Agreement"). The Agreement has a variable interest rate of the greater of 6.00% per annum or 0.75% in excess of the rate shown in the Wall Street Journal as the prime rate, is payable on demand and is secured by all personal property of Borrower, Company, Inspira Financial Company, Mio-Tech Parent, LLC, Simbex Parent Acquisition I Corporation, Simbex Acquisition I Corporation, and DaMar Acquisition Company (collectively, "Guarantors"). The Company is subject to a financial covenant of maintaining a minimum tangible net worth of at least $2M for this loan. In connection with execution of the Agreement, the Guarantors entered into a Guaranty of the obligations of the Borrowers. As of December 31, 2023, the balance outstanding under the agreement was $1,898,958 (US $1,435,776) (December 31, 2022 - $0 (US $0)).
Term Notes
On June 9, 2021, the Company borrowed $1,014,000 (US$750,000) from Pathward National Association. The loan is secured by a loan and security agreement and may not exceed 92% of the net book value of SDP's machinery and equipment, which on December 31, 2023, was $1,340,194 (US $1,013,303). The debt accrues interest at 2.75% in excess of Wall Street Journal Prime rate with a minimum of 6% per annum with monthly payments of principal and interest in the amount of $19,604 (US$14,500) beginning on the first day of the first full month following the initial funding and maturing on June 1, 2024. As of December 31, 2023, the balance of the note was $596,506 (US $451,010) (December 31, 2022, $770,004 (US $568,520).
On April 3, 2023, in connection with the acquisition of Biodex, the Company entered into a seller secured promissory note with Mirion Technologies (US) Inc. The amount of the initial loan was $9,134,822 (US $6,756,525) to be repaid in three installments as follows: $2,704,000 (US $2,000,000) due on July 1, 2023, $4,056,000 (US $3,000,000) due on October 1, 2023, and $2,374,822 (US $1,756,525) due on the maturity date, which is January 1, 2024. The loan is secured by the pledged stock of Biodex Medical Systems Inc. The debt does not accrue interest unless the installment payment is made after the due date. As of December 31, 2023, no installment payment had yet been made on the balance. As per the agreement, $802,053 (US $606,421) of interest has been accrued on the overdue balance. As of December 31, 2023, the balance of the loan (including accrued interest) was $9,738,233 (US $7,362,947).
On August 4, 2023, the Company entered into a Forbearance Agreement (the "Forbearance Agreement") pursuant to which the seller of Biodex 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 the Company'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.
Equipment Loans
On April 6, 2023, the Company borrowed $308,486 (US$228,170) with Dacotah Bank. The loan is secured by a commercial security agreement and collateral consisting of equipment with a net carrying value of $409,201 (US $309,391) that has been purchased with the proceeds. The debt accrues interest at 7.950% per annum with monthly payments of principal and interest in the amount of $6,258 (US$4,629) beginning on the first day of the first full month following the initial funding and maturing on April 1, 2028. As of December 31, 2023, the balance of the note was $267,926 (US$202,575).
Vehicle Loans
On May 15, 2023, the Company assumed a $82,879 (US$61,301) vehicle loan with Woodland Bank. The loan is secured by a Business Loan Agreement and collateralized by two vehicles (2020 Chevrolet Silverado LTZ with a net carrying value of $22,808 (US $17,245) and 2020 Chevrolet Silverado LT with a net carrying value of $44,560 (US $33,691)). The debt accrues interest at 5.504% per annum with monthly payments of principal and interest in the amount of $ 2,297 (US$1,699) beginning on September 27, 2021, and maturing on August 27, 2026. As of December 31, 2023, the balance of the note was $67,135 (US$50,760).
On May 15, 2023, the Company assumed a $12,170 (US$9,001) vehicle loan with Woodland Bank. The loan is secured by a Business Loan Agreement and collateralized by all inventory, equipment, receivables, and intangible assets of Arrowhead. The debt accrues interest at 5.975% per annum with monthly payments of principal and interest in the amount of $ 2,062 (US$1,525) beginning on the first day of the first full month following the initial funding and maturing on September 27, 2023. As of December 31, 2023, the balance of the note was $0 (US $0).
Following is a schedule of the borrowings of the Company:
Pathward
term loan
Equipment
loan
Woodland
vehicle loan
Woodland
vehicle loan
Mirion
promissory
note
Total
Balance, February 28, 2022 $ 856,119
$ -
$ -
$ -
$ -
$ 856,119
Additions
-
-
-
-
-
-
Principal repayments
(138,946 )
-
-
-
-
(138,946 )
Interest accrued
-
-
-
-
-
-
Translation
52,831
-
-
-
-
52,831
Balance, December 31, 2022
770,004
-
-
-
-
770,004
Additions
-
308,486
12,170
82,879
9,079,418
9,482,953
Principal repayments
(158,603 )
(34,546 )
(12,149 )
(14,227 )
-
(219,525 )
Interest accrued
-
-
-
-
806,590
806,590
Translation
(14,895 )
(6,014 )
(21 )
(1,516 )
(147,775 )
(170,221 )
Balance, December 31, 2023
596,506
267,926
-
67,136
9,738,233
10,669,801
Less: current portion
(596,506 )
(53,780 )
-
(24,114 )
(9,738,233 )
(10,412,633 )
Long-term portion $ -
$ 214,146
$ -
$ 43,022
$ -
$ 257,168
12. Leases
Set out below are the carrying amount of right of use assets and lease liabilities and the movements within these balances during the period:
Right-of-use assets
Balance, December 31, 2022 $ 7,781,300
Acquired
5,147,129
Amortization
(2,023,956 )
Impact of modification/termination
(777,586 )
Impairment
(316,058
)
Translation
(167,014 )
Balance, December 31, 2023 $ 9,643,815
Lease liability
Current
Long-term
Balance, December 31, 2022 $ 6,830,586
$ 847,253
$ 5,983,333
Acquired
3,304,126
Interest lease expense
596,151
Lease payments
(1,872,083 )
Impact of modification/termination
(762,331 )
Translation
(187,659 )
Balance, December 31, 2023 $ 7,908,790
$ 1,482,182
$ 6,426,608
Future minimum lease payments payable are as follows:
Twelve months ending December 31, 2024 $ 1,911,920
Twelve months ending December 31, 2025
1,955,422
Twelve months ending December 31, 2026
1,432,696
Twelve months ending December 31, 2027
1,064,205
Twelve months ending December 31, 2028
981,081
2029 and thereafter
3,454,075
Total future minimum lease payments
10,799,399
Less: Interest on lease liabilities
(2,890,609 )
Total present value of minimum lease payments
7,908,790
Less: current portion
1,482,182
Non-current portion $ 6,426,608
As of December 31, 2023, the weighted average remaining lease terms were 7.40 years (December 31, 2022 - 9.32 years) and the weighted average discount rate was 7.09 % (December 31, 2022 - 6.15%).
In October 2018, SDP sold its facility in Clear Lake, South Dakota for $2,955,925 (US$2,182,461). In connection with the sale, SDP entered into a lease agreement for the facility with an initial lease term of 15 years for a base annual rent of $258,185 (US$190,965), with four extension options of five years each. The base rental amount increases annually on the first day of the lease year at the lesser of 2% or 1.25 times the change in the price index, as defined. Per the lease agreement, the Company delivered a letter of credit in the amount of $516,369 (US$381,930), to be renewed annually for the duration of the lease agreement. The letter of credit is secured by a guaranteed investment certificate, which is recorded as a security deposit on the consolidated balance sheet. In the determination of the right of use asset and the corresponding lease liability for this property, the Company originally determined that the company would utilize one option to extend the lease term for an additional five year period beyond the original 15-year lease term. During December of 2023, the Company determined that it was probable that the Company would not utilize this additional lease term. Accordingly, the Company adjusted the right of use asset and corresponding lease liability by $795,711 to remove this optional five-year renewal period.
On October 1, 2021, Simbex entered into a lease agreement for an office space located in Lebanon, NH with an initial lease term of 3 years for a base annual rent of $212,859 (US$157,440), with an option to extend for five years. The base rental amount increases annually on the first day of the lease year based on the change in the rolling average of the cost-of-living index for the prior six reporting periods. Per the lease agreement, the Company is also responsible to pay a prorated share of the building overhead monthly as additional rent. The annual amount for this additional rent is $126,294 (US $93,413).
On September 21, 2022, Inspira Financial Company entered into a lease agreement for its former corporate headquarters and distribution center located in Carlsbad, CA for a base annual rent of $108,349 (US $80,140). The lease began on October 1, 2022, with an initial lease term of 4 years and 2 months, with a contractual end date of November 30, 2026. The initial lease agreement included an option to renew for an additional 5 years. The base rental amount increased annually as per the base rent schedule included in the lease agreement. During 2023, the Company chose to terminate this lease.
On January 1, 2022, Mio-Guard LLC entered into a lease agreement for an office space located in Holt, MI with an initial lease term of 5 years for a base annual rent of $115,807 (US$85,656). The base rental amount increases annually on the first day of the lease year at the lesser of 2.27% or 1.25 times the change in the price index, as defined. During December of 2023, the Company stopped paying rent at the Mio-Guard facility. In December of 2023, the Company fully impaired the Mio-Guard right of use asset associated with this lease of $309,713 as the Company did not expect to receive a future benefit from this asset.
On July 1, 2012, DaMar entered into a lease agreement for an industrial and office space located in El Cajon, CA with an initial lease term of 7 years. The lease was automatically extended for an additional 7 years on July 1, 2019, for a base annual rent of $443,499 (US$328,032). The lease is currently set to terminate on June 30, 2026. The base rental amount increases annually on the first day of the lease year by 3% of the preceding month's lease payment as defined in the agreement.
On January 9, 2023, DaMar entered into a capital equipment lease agreement with an initial lease term of 3 years for an annual lease payment of $140,081 (US$103,610).
On February 27, 2023, DaMar entered into a capital equipment lease agreement with an initial lease term of 3 years for an annual lease payment of $29,747 (US$22,002).
On May 23, 2023, DaMar entered into a capital equipment lease agreement with an initial lease term of 3 years for an annual lease payment of $180,908 (US$133,808).
On September 1, 2020, Biodex entered into a lease agreement for an industrial and office space located in Shirley, NY with an initial lease term of 5 years for a base annual rent of $259,584 (US$192,000), with an option to extend for an additional 5 years. The base rental amount does not increase during the initial rental period but increases 3% annually on the first day of the lease year if the lease extension is utilized.
On May 15, 2023, Mio-Guard, LLC entered into a lease agreement for a warehouse and office space located in Grand Rapids, MN with an initial lease term of 5 years and 1 month for a base annual rent of $206,045 (US$152,400). The base rental amount does not increase over the initial rental period.
On July 25, 2023, DaMar entered into a capital equipment lease agreement with an initial lease term of 3 years for an annual lease payment of $38,932 (US$28,796).
13. Stockholders' Equity
Share capital
The Company maintains voting common shares and non-voting convertible Class A shares both of which have no par value and have an unlimited amount of shares authorized.
Issuances
As of December 31, 2023 and 2022, the Company had 56,991,591 and 53,707,780 common shares outstanding, respectively, with a value of $39,722,472 and $38,767,442, respectively.
As of December 31, 2023 and 2022, the Company had 22,898,409 and 3,403,925 Class A shares outstanding, respectively, with a value of $13,789,795 and $1,800,064, respectively.
On February 15, 2022, 7,749,000 shares of common stock and 7,749,000 share purchase warrants to purchase 7,749,000 shares were issued in connection with financing for a total of $4,261,950 in proceeds. The 7,749,000 shares of common stock were issued at a price of $0.55 per common share. Each warrant has an exercise price of $0.70 which can be exercised for 36 months. The total fair value of the warrants was estimated on the date of the grant to be $3,591,369 at a price of $0.46 per unit using the Black- Scholes option pricing model with the following assumptions: expected volatility of 192%; expected dividend yield of 0%; risk-free interest rate of 1.7%; stock price of $0.52; and expected life of 3 years.
Additionally, as part of the financing, the Company incurred share issuance costs totaling $665,113, which included paying cash of $410,284 and issuing 542,431 broker warrants as finders' commissions. Each broker warrant entitles the holder to acquire one common at an exercise price of $0.55 for a 36-month period. The total fair value of the broker warrants was estimated on the date of the grant to be $254,829 at a price of $0.47 per unit using the Black- Scholes option pricing model with the following assumptions: expected volatility of 192%; expected dividend yield of 0%; risk-free interest rate of 1.7%; stock price of $0.52; and expected life of 3 years.
On May 4, 2022, 454,817 shares of common stock were issued on the exercise of 454,817 broker share purchase warrants at an exercise price of $0.4749 per share. Proceeds received from this exercise totaled $215,953.
On May 25, 2022, 28,154 shares of common stock were issued on the exercise of 28,154 stock options at an exercise price of $0.19 per share. Proceeds received from this exercise totaled $5,329.
On May 31, 2022, 143,000 Class A shares were issued to former owner of SDP at a fair market price of $0.75 per share These shares were issued upon completion of SDP's earn-out period. No cash was required to be received as consideration for these shares. Immediately following the issuance, the 143,000 Class A shares were exchanged for 143,000 common shares of the Company.
On July 22, 2022, the Company entered into a share for debt agreement, pursuant to which it issued an aggregate of 260,921 shares of common stock in satisfaction of $201,401 (US$156,553) of indebtedness owed to a service provider. The 260,921 shares of common stock were valued at $201,401 (US $156,553) based on a share price on the date of issuance.
In connection with the closing of the February 15, 2022, Private Offering, the Company entered into a Registration Rights Agreement with the purchasers and the Underwriters (the "Registration Rights Agreement") providing for the filing of a registration statement (the "Registration Statement") with the Securities and Exchange Commission registering the resale of the common shares issued and issuable in connection with the Private Offering (collectively, the "Securities"). Under the Registration Rights Agreement, the Company was obligated to file the Registration Statement no later than April 1, 2022, and to use commercially reasonable efforts to cause the Registration Statement to be declared effective no later than 180 days after February 15, 2022. As a result of the Company's delay in filing and causing the Registration Statement to become effective timely, the liquidated damages to the purchasers and the Underwriters was an aggregate amount of 281,726 additional common shares. On September 14, 2022, these 281,726 common shares were issued for a fair value of $174,670 based on a share price on the date of issuance.
In connection with the acquisition of ALG Health's customer lists, sales orders and supply agreements and related sales channel and intellectual property assets on November 29, 2021, Class A shares are to be issued based on achieving certain EBITDA and revenue milestones. On November 21, 2022, 1,048,500 Class A shares were issued to two key individuals at ALG at a fair market price of $0.61 per share for achieving certain EBITDA milestones. No cash was required to be received as consideration for these shares. On November 28, 2022, 1,000,000 Class A shares were issued to one key individual at ALG at a fair market price of $0.68 per share for achieving a revenue milestone as described in the agreement. $693,365 in cash was given as consideration for these shares.
On January 10, 2023, 104,850 Class A shares were exchanged for 104,850 common shares in the Company at a price of $0.43 per share. No cash was received as part of this issuance.
On February 7, 2023, 339,079 Class A shares were exchanged for 339,079 common shares in the Company at a price of $0.47 per share. No cash was received as part of this issuance.
On February 21, 2023, 1,275,770 Class A shares were issued to a former owner of SDP at a price of $0.75 per share. These shares were issued upon completion of SDP's earn-out period. No cash was required to be received as consideration for these shares.
On February 23, 2023, 11,481,890 Class A shares were issued to former owner of SDP at a price of $0.75 per share. These shares were issued upon completion of SDP's earn-out period. No cash was required to be received as consideration for these shares.
On March 2, 2023, 147,400 stock options were exercised for 147,400 shares of common stock for total proceeds of $33,902. 73,700 of these options were exercised at a price of $0.27 per share and 73,700 of these options were exercised at a price of $0.19 per share. The 147,400 shares that were issued in connection with this exercise were released on April 11, 2023.
On April 11, 2023, 388,935 Class A shares were issued to one key individual at ALG at a fair market price of $0.33 per share for achieving a revenue milestone as described in the agreement. No cash was received as consideration for these shares.
On April 11, 2023, 43,215 Class A shares were issued to one key individual at ALG at a fair market price of $0.33 per share for achieving a revenue milestone as described in the agreement. No cash was received as consideration for these shares.
On May 15, 2023, 1,000,000 Class A shares were issued to the former owner of Arrowhead in connection with its acquisition at a fair market price of $0.27 per share. No cash was received as consideration for these shares.
On May 19, 2023, 6,383,952 Class A shares were issued to various former owners of Simbex in connection with the conclusion of its earnout period at a fair market price of $0.29 per share. The number of shares were allocated to the previous owners based on their percentage of ownership on the date of sale.
On May 19, 2023, 1,743,244 Class A shares were exchanged for 1,743,244 common shares in the Company at a price of $0.29 per share. No cash was received as part of this issuance.
On June 5, 2023, 337,524 common shares were issued to a former employee of the Company at a fair market price of $0.25 per share in connection for the settlement of liabilities. No cash was received as consideration for these shares.
On June 26, 2023, 368,500 Class A shares were exchanged for 368,500 common shares in the Company at a price of $0.28 per share. No cash was received as part of this issuance. On August 17, 2023, these shares were issued at a price of $0.19 per share.
On June 27, 2023, 43,215 Class A shares were exchanged for 43,215 common shares in the Company at a price of $0.28 per share. No cash was received as part of this issuance.
On October 31, 2023, 1,719,610 Class A shares were issued to former owners of SDP at a price of $0.75 per share. These shares were issued upon completion of SDP's earn-out period. No cash was required to be received as consideration for these shares.
On November 2, 2023, 200,000 Class A shares were exchanged for 200,000 common shares in the Company at a price of $0.21 per share. No cash was received as part of this issuance.
Shares to be issued
On May 31, 2022, SDP concluded its earn-out period and achieved its milestones allowing SDP to receive its full earn-out compensation of 19,162,000 Class A shares (as described in detail in Note 4). These shares were allocated to the previous owners of SDP based on their percentage of ownership on the date of sale. As of December 31, 2023, 14,620,270 Class A shares have been issued to SDP sellers and 4,541,730 Class A shares are yet to be issued.
Stock based compensation
The Company's Board of Directors determines, among other things, the eligibility of individuals to participate in the Option Plan and the term, vesting periods, and the exercise price of options granted under the Option Plan. The stock option vesting ranges over a 1 year to 10-year period.
The outstanding stock options as of December 31, 2023, are as follows:
Grant date
Exercise price
Number of
options
Number of vested options
Weighted
average
remaining life
(years)
June 8, 2021 $ 0.86
1,444,520
963,013
2.42
July 7, 2021 $ 1.39
250,000
166,666
2.63
December 6, 2021 $ 0.65
715,828
399,580
2.93
March 9, 2022 $ 0.54
230,000
46,000
3.19
July 18, 2022 $ 0.79
43,350
14,450
3.55
August 29, 2022 $ 0.69
66,666
22,222
3.66
February 10, 2023 $ 0.47
100,000
-
4.12
April 19, 2023 $ 0.30
275,000
-
4.30
May 24, 2023 $ 0.29
1,000,000
-
4.40
June 13, 2023 $ 0.25
250,000
-
4.45
July 24,2023 $ 0.29
750,000
-
4.57
August 16, 2023 $ 0.21
1,290,000
-
4.63
December 1, 2023 $ 0.27
150,000
-
4.92
Total $ 0.50
6,565,364
1,611,931
3.75
A summary of the Company's changes to stock options are as follows:
Weighted
Number of
average
options
exercise price
Balance as at February 28, 2022
4,277,032
$ 0.78
Options exercised
(28,154 ) $ 0.19
Options expired
(101,290 ) $ (0.34 )
Options issued
1,525,350
$ 0.12
Balance as at December 31, 2022
5,672,938
$ 0.81
Options exercised
(147,400 ) $ 0.23
Options expired
(3,570,174 ) $ (0.72 )
Options issued
4,610,000
$ 0.25
Balance as at December 31, 2023
6,565,364
$ 0.50
The Company recognized $1,288,455 of stock-based compensation for the year ended December 31, 2023 ($1,278,915 for the ten-months ended December 31, 2022).
On January 19, 2022, the Company issued 150,000 options to an officer of the Company. The options are exercisable for a period of five years at an exercise price of $0.65 per option. The fair value of the options was estimated on the date of the grant at $0.63 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 192%; expected dividend yield of 0%; risk-free interest rate of 1.68%; stock price of $0.65; and expected life of 5 years.
On March 9, 2022, the Company issued 240,000 options to ten employees of SDP. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.54 per option. The fair value of the options was estimated on the date of the grant at $0.53 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 201%; expected dividend yield of 0%; risk-free interest rate of 1.50%; stock price of $0.54; and expected life of 5 years.
On April 13, 2022, the Company issued 236,700 options to an officer of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.78 per option. The fair value of the options was estimated on the date of the grant at $0.77 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 210%; expected dividend yield of 0%; risk-free interest rate of 1.54%; stock price of $0.78; and expected life of 5 years.
On April 26, 2022, the Company issued 350,000 options to two employees of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.90 per option. The fair value of the options was estimated on the date of the grant at $0.86 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 214%; expected dividend yield of 0%; risk-free interest rate of 2.58%; stock price of $0.87; and expected life of 5 years.
On July 18, 2022, the Company issued 100,000 options to one employee of SDP, 58,650 options to eleven employees of Simbex, and 150,000 options to two outside consultants of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.79 per option. The fair value of the options was estimated on the date of the grant at $0.78 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 214%; expected dividend yield of 0%; risk-free interest rate of 1.21%; stock price of $0.79; and expected life of 5 years.
On August 29, 2022, the Company issued 200,000 options to an officer of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.69 per option. The fair value of the options was estimated on the date of the grant at $0.67 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 209%; expected dividend yield of 0%; risk-free interest rate of 1.40%; stock price of $0.68; and expected life of 5 years.
On December 12, 2022, the Company issued 190,000 options to two employees of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.50 per option. The fair value of the options was estimated on the date of the grant at $0.49 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 204%; expected dividend yield of 0%; risk-free interest rate of 2.98%; stock price of $0.50; and expected life of 5 years.
On February 10, 2023, the Company issued 780,000 options to two officers and three employees of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.47 per option. The fair value of the options was estimated on the date of the grant at $0.46 per option using the Black- Scholes option pricing model with the following assumptions: expected volatility of 204%; expected dividend yield of 0%; risk-free interest rate of 3.17%; stock price of $0.47; and expected life of 5 years.
On April 19, 2023, the Company issued 350,000 options to four employees of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.30 per option. The fair value of the options was estimated on the date of the grant at $0.29 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 197%; expected dividend yield of 0%; risk-free interest rate of 3.14%; stock price of $0.30; and expected life of 5 years.
On May 24, 2023, the Company issued 1,000,000 options to one director of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.29 per option. The fair value of the options was estimated on the date of the grant at $0.28 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 197%; expected dividend yield of 0%; risk-free interest rate of 3.34%; stock price of $0.29; and expected life of 5 years.
On June 13, 2023, the Company issued 250,000 options to one officer of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.25 per option. The fair value of the options was estimated on the date of the grant at $0.24 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 196%; expected dividend yield of 0%; risk-free interest rate of 3.61%; stock price of $0.25; and expected life of 5 years.
On July 24, 2023, the Company issued 750,000 options to one officer of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.29 per option. The fair value of the options was estimated on the date of the grant at $0.28 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 197%; expected dividend yield of 0%; risk-free interest rate of 3.72%; stock price of $0.29; and expected life of 5 years.
On August 16, 2023, the Company issued 1,330,000 options to fifty-one employees of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.21 per option. The fair value of the options was estimated on the date of the grant at $0.20 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 196%; expected dividend yield of 0%; risk-free interest rate of 3.94%; stock price of $0.21; and expected life of 5 years.
On October 1, 2023, the Company issued 150,000 options to an employee of the Company. The options vest over three years and are exercisable for a period of five years at an exercise price of $0.27 per option. The fair value of the options was estimated on the date of the grant at $0.20 per option using the Black-Scholes option pricing model with the following assumptions: expected volatility of 218%; expected dividend yield of 0%; risk-free interest rate of 5.14%; stock price of $0.20; and expected life of 5 years.
The outstanding warrants as of December 31, 2023, are as follows:
Grant date
Exercise price
Number of warrants
Number of vested
Remaining Life (years)
warrants
February 15, 2022 $ 0.55
542,431
542,431
1.13
February 15, 2022 $ 0.70
7,749,000
7,749,000
1.13
Total
8,291,431
8,291,431
1.13
A summary of the Company's warrants are as follows:
Number of Warrants
Weighted Avg.
Exercise Price
Balance as at February 28, 2022
11,732,373
$ 0.79
Warrants issued as part of finance deal
-
Broker warrants issued as part of finance deal
-
Warrants exercised and forfeited
(3,241,138 ) $ (0.09 )
Balance as at December 31, 2022
8,491,235
$ 0.70
Warrants issued as part of finance deal
-
Broker warrants issued as part of finance deal
-
Warrants exercised and forfeited
(199,804 ) $ (0.86 )
Balance as at December 31, 2023
8,291,431
$ 0.69
14. Related party transactions
The Company's transactions with related parties were carried out on normal commercial terms and in the course of the Company's business. Other than disclosed in Part III of this annual report under the headings Executive Compensation and Director Compensation and as included elsewhere in the Company's consolidated financial statements, related party transactions are as follows.
During the year ended December 31, 2023 and the ten months ended December 31, 2022, we paid to Advanced Strategic Associates, LLC ("Advanced"), a company owned and controlled by a beneficial holder of more than 5% of our Common Shares, and Michael Dalsin individually, an amount for each period of $147,732 and $227,002, respectively. The consideration was for Advanced and Mr. Dalsin providing services related to acquisition structuring, due diligence, capital structuring, and corporate transactional advisory services. The amounts paid include both compensation and consulting costs.
During the year ended December 31, 2023 and the ten months ended December 31, 2022, we paid to Marquette Partners, Inc. ("Marquette"), a company owned and controlled by Roger Greene, a beneficial holder of more than 5% of our Common Shares, and Roger Greene individually an amount of $72,730 and $157,056, respectively. The consideration was for Marquette and Mr. Greene providing advisory services related to strategic business acquisitions. The amounts paid include both compensation and consulting costs.
During the year ended December 31, 2023 and the ten months ended December 2022, we paid to Hedgehog Financial Corporation ("Hedgehog"), a company owned and controlled by a relative of the Chairman of the Board and former Interim Chief Executive Officer, and an employee, an amount for each period of $0 and $78,876, respectively in consideration for Hedgehog providing services related to acquisitions, due diligence, accounting, finance and other corporate support services. Additionally, during the year ended December 31, 2023, the Company issued shares to the employee personally in connection with a settlement of liabilities valuing $199,095.
15. Transaction costs
The Company incurred costs associated with the change of business transaction, due diligence of acquisition targets, financing costs, US regulatory costs and the associated accounting and regulatory costs. While these costs are crucial to future operations, they do not represent regular operational costs of the business. The Company presents these costs separately in the non-operating section of the consolidated statements of operations and comprehensive loss to better allow investors to evaluate the operational status of the Company independently of financing, regulatory and other transaction focused expenses, which were as follows:
For the year
For the ten months
ended
ended
December 31, 2023
December 31, 2022
Consulting and professional fees $ 233,749
$ 1,645,028
General expenses
376,097
1,232,337
Transaction costs $ 609,846
$ 2,877,365
16. Cash and cash equivalents
Cash represents bank deposits at reputable banking institutions. Cash equivalents represent short-term, highly liquid investments, which are readily convertible to cash and have maturities of 90 days or less at the time of purchase. Cash equivalents, which are carried at fair value or amortized cost, as applicable, consist of holdings in a money market fund and in treasury bills. As of December 31, 2023 and 2022, there are no cash equivalents presented on the balance sheet. Bank deposits are held by accredited financial institutions and these deposits may at times be in excess of insured limits. The Company limits its credit risk associated with cash and cash equivalents by placing them with financial institutions it believes are of high quality. The Company has not experienced any losses on its deposits of cash or cash equivalents as of December 31, 2023.
17. Income taxes
As of December 31, 2023, the Company has US non-capital loss carry-forwards of approximately $12,493,832 ($12,714,909 as of December 31, 2022), which can be used to reduce taxable income of future years. The benefit from the non-capital loss carry-forward balance has not been recorded in the consolidated financial statements. $459,000 of these losses expire from 2036 to 2037.
As of December 31, 2023, the Company has Canadian non-capital loss carry-forwards of approximately $6,978,719 ($4,300,831 as of December 31, 2022), which can be used to reduce taxable income of future years. The benefit from the non-capital loss carry-forward balance has not been recorded in the consolidated financial statements. These losses expire from 2032 to 2043.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A full valuation allowance is established against all net deferred tax assets as of December 31, 2023 and December 31, 2022, based on estimates of recoverability. While the Company has optimistic plans for its business strategy, it determined that such a valuation allowance was necessary given the current and expected near term losses and the uncertainty with respect to its ability to generate sufficient profits from its business model.
The following table summarizes the components of deferred tax:
Deferred Tax Assets
December 31, 2023
December 31, 2022
Operating Lease Liabilities $ 2,111,444
$ 1,775,952
Finance costs
666,535
165,922
Reserves
46,349
41,787
Operating tax losses carried forward - US
3,173,434
3,148,084
Operating tax losses carried forward - Canada
1,884,254
1,161,224
Intangible assets
1,061,471
(570,642 )
Other
-
Valuation Allowance
(5,704,059 )
(2,857,799 )
Subtotal of Assets $ 3,239,428
$ 2,864,979
Deferred Tax Liabilities
Property, plant and equipment $ (789,899 ) $ (841,841 )
Right of use assets
(2,449,529 )
(2,023,138 )
Subtotal of Liabilities $ (3,239,428 ) $ (2,864,979 )
Net deferred tax liability $ -
$ -
Movement in net deferred tax liabilities:
Balance at the beginning of the period / year $ -
$ (1,755,889 )
Recognized in profit/loss
-
3,176,134
Goodwill
-
(1,420,245 )
Balance at the end of the period / year $ -
$ -
The Company's provision for (recovery of) income taxes differs from the amount that is computed by applying the combined Federal and state statutory income tax rate of 27.00% for the twelve months ended December 31, 2023 and 26.00% for the ten months ended December 31, 2022 in the U.S. to the Company's net loss before income taxes as follows:
December 31, 2023
December 31, 2022
Net Loss before recovery of income taxes $ (15,545,846 ) $ (19,030,581 )
Expected income tax (recovery)
(4,197,378 )
(4,947,951 )
Tax rate changes and other adjustments
(22,892 )
(60,726 )
Share based compensation and non-deductible expenses
2,026,880
3,644,410
Adjustments in respect of prior periods
(652,869 )
(620,011 )
State taxes
57,069
-
Utilization of losses not previously recognized
-
(1,755,889 )
Change in tax benefits not recognized
2,846,259
605,991
Income tax (recovery) $ 57,069
$ (3,134,176 )
The Company's income tax (recovery) is allocated as follows:
Current tax (recovery) expense $ 57,069
$ 41,958
Deferred tax (recovery) expense
-
(3,176,134 )
$ 57,069
$ (3,134,176 )
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.
18. Contingencies
From time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business. As of December 31, 2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company's operations. There are also no proceedings in which any of the Company's directors, officers or affiliates is an adverse party or has a material interest adverse to the Company's interest.
The Company does not have any unrecorded commitments or contingencies.
19. Subsequent events
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 Mio-Guard. The Company engaged the services of a strategic advisor to assist in the orderly wind-down of Mio-Guard, 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.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, management performed, with the participation of our principal executive and financial officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act"). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, to allow timely decisions regarding required disclosures.
Based upon this evaluation, our Chief Executive Officer has concluded that, as of December 31, 2023, our disclosure controls and procedures (a) are ineffective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.
Deficiencies existed in the design or operation of our disclosure controls and procedures due to the rapid growth through acquisition which has made it impractical to implement and evaluate disclosure controls quickly enough at newly acquired operations. The Company continues to evaluate and implement procedures as deemed appropriate to remediate these deficiencies.
Management's Annual Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company's management, under the supervision and with the participation of our principal executive and financial officer, evaluated the effectiveness of the Company's internal control over financial reporting as of the end of the period covered by this report. The Company's management evaluation the internal control over financial reporting was based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Our internal control over financial reporting includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the controls system are met. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Under the supervision and with the participation of management, we assessed the effectiveness of our internal control over financial reporting based on the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the Company's evaluation under the criteria in Internal Control - Integrated Framework (2013), we concluded that our internal control over financial reporting was not effective as of December 31, 2023 based on such criteria.
Deficiencies existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls. The rapid growth through acquisition has made it impractical to implement and evaluate internal controls quickly enough at newly acquired operations, and as a result, there is a lack of segregation of duties throughout our accounting group as a result of our limited resources and staff, and the lack of written documentation of our internal control policies and procedures.
The Company continues to evaluate and implement procedures as deemed appropriate to remediate these weaknesses. In addition, the Company intends to undertake the remediation measures, to include updating the documentation of its internal control processes, including formal risk assessment of its financial reporting processes; and the implementation of procedures pursuant to which the Company can ensure segregation of duties and hire additional resources to ensure appropriate review and oversight.

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
None.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table sets forth the individuals who are our directors and executive officers and their respective positions as of March 31, 2024.
Name Age Position
Michael Seckler Chief Executive Officer and Director
Kenneth Kashkin, M.D. Director; Chairman of the Board
Lana Newishy Director; Vice Chair of the Board
Wayne Anderson Director
Bill Garbarini Director
Michael Seckler - Chief Executive Officer and Director of the Company
Michael Seckler was appointed Interim Chief Executive Officer of the Company effective as of June 13, 2023, and was appointed Chief Executive Officer and Director on July 24, 2023. From October 2022 through May 2023, Mr. Seckler served as Chief Operating Officer, and from January 2020 through September 2022, Mr. Seckler served as Senior Vice President, of FerGene, a gene therapy company affiliated with Ferring International Center, SA, a Swiss multinational biopharmaceutical company ("Ferring"). From January 2017 through December 2019, Mr. Seckler was Vice President of Global Marketing and Corporate Communications at Ferring. He currently serves on the Board of Directors of K2 Biotechnology and has previously served on the Boards of Glypharma Inc. Mr. Seckler holds a Bachelor in Science and Masters of Business Administration from The Pennsylvania State University.
Kenneth Kashkin, M.D. - Director; Chairman of the Board
Kenneth Kashkin. M.D. has been a director of the Company since September 2020. In March 2024, Dr. Kashkin was appointed Chairman of the Board. Dr. Kashkin trained and served on the faculties of the University of California, Los Angeles (UCLA) and Yale University School of Medicine followed by a career as a healthcare business senior executive and biotechnology investor. In 2017, Dr. Kashkin co-founded K2 Biotechnology Ventures, engaged in developing and commercializing portfolios of university and medical center innovations in partnership with venture capital, health care corporations and philanthropic health care foundation partners. From 2014 to 2020, Dr. Kashkin served as the Chief Operating Officer and Head of Therapeutics for Chromocell Corporation where he coordinated a series of organizational changes to improve cost structures as well as oversaw the negotiation of key license and research agreements for emerging therapeutics. From 2011 to 2014, Dr. Kashkin served as the President & CEO of Catholic Health Initiatives (CHI, now CommonSpirit Health), Institute for Research and Innovation (CIRI) where he was responsible for CHI's Centers for Translational Research, Clinical Research, Healthcare Innovation (Venture Arm of CHI). Prior to that, from 2008 to 2011, Dr. Kashkin held the position of Vice President, Research & Development, Intravenous Therapies (IVT) at Baxter Healthcare Corporation. From 2002-2008 Dr Kashkin was an executive at Ferring Pharmaceuticals serving as Senior Vice President, Global Clinical R&D and Chief Medical Officer. He served as Executive Vice President and Chief Medical Officer of Genaissance Pharmaceuticals from 2000-2002 and was key to their successful IPO. From 1997-2000 he was Vice President, R&D Clinical Development and Medical Affairs at Knoll Pharmaceutical Company/BASF Pharma where he was responsible for the successful FDA NDA submission of Humira, the most successful biological in the history of the Pharmaceutical Industry. He was Director, Pharmaceutical Ventures at Abbott Laboratories 1992-1997. He began his industry career in the CND Division of Bayer AG in 1990. Dr. Kashkin's experience as a professor at Yale University and UCLA School of Medicine and leadership of R&D life science companies commercializing novel medical technologies make him an expert board member in evaluating the value of proposed acquisition targets and their portfolios of medical products. Dr. Kashkin's years of expertise in the financial management of health sciences organization operations benefit the Company.
Lana Newishy - Director; Vice Chair of the Board
Lana Newishy has been a director of the company and Vice chairman of the board since May 2023. Ms. Newishy is a senior executive with over 20 years of cross-functional leadership experience in transformation, operations, strategy and finance with Fortune 500 companies. Her expertise extends to collaborating with top-notch consulting and M&A firms, where she's worked on transformation and acquisition or divestment deals and has had her own practice in the field. Lana is also an accomplished entrepreneur, having launched and operated two startups, and has a passion for the not-for-profit world where she served as a COO of a global organization. Outside of her career, Lana enjoys mentoring entrepreneurs at different stages of their business lifecycle and participating in the Alumnae Network for Harvard Women as a steering committee member. Ms. Newishy holds an MBA from Harvard Business School.
Wayne Anderson - Director
Wayne Anderson was appointed as a director of the Company in February 2024. From May 1998 to December 2013, Mr. Anderson served as the President/CEO of Ferring Pharmaceuticals, a Swiss based multi-national manufacturer of peptide pharmaceuticals focusing on infertility, urology, female health and gastroenterology. Prior to this, Mr. Anderson served in senior roles at Schering-Plough and Biotransplant. Mr. Anderson holds a Bachelor of Science from Ohio University and an MBA from the University of Cincinnati.
Bill Garbarini - Director
Bill Garbarini was appointed as a director of the Company in February 2024. In 2018, Mr. Garbarini was the founding employee and Chief of Global Clinical and Commercial Operations of TMRW Life Sciences Inc., a company dedicated to serving the IVF market with the first robotic, automated system to store vitrified embryos, eggs and sperm. In 2022, he became a founding employee and Chief Operating Officer of Conceivable Life Sciences Inc. Conceivable is creating the first fully automated and robotic embryology system for the IVF laboratory. Mr. Garbarini is the former Chief Operating Officer of Reproductive Medicine Associates of New Jersey, where he helped consummate a transaction in 2017 that created the largest IVF network in the world, IVI/RMA. Mr. Garbarini holds a Bachelor of Arts from The College of New Jersey, and a Masters in Business Administration from Fairleigh Dickinson University.
The Articles of the Company (the "Articles") filed under the British Columbia Business Corporations Act, as amended, including the regulations promulgated thereunder (the "BCBCA"), provide that our Board of Directors shall consist of at least three directors and that each director shall hold office until the close of the next annual general meeting of our shareholders, or until his or her successor is duly elected or appointed, unless his or her office is earlier vacated. Our Board of Directors currently consists of five directors, of whom three are considered to be independent persons. See Item 13 - "Certain Relationships and Related Transactions, and Director Independence - Director Independence" for details on the independence of our directors. The Articles provide that the directors may, from time to time, appoint such officers as the directors determine. The directors may, at any time, terminate any such appointment.
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 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.
Significant Employees
There are no other significant employees than those already discussed herein.
Family Relationships
There are no family relationships among the directors or executive officers of the Company.
Arrangements between Officers and Directors
To the Company's knowledge, there are no arrangements or understandings between any of our officers or directors and any other person pursuant to which such officer or director was selected to serve as an officer or director of the Company.
Corporate Governance
Director Independence - The directors have determined that Dr. Kenneth Kashkin, Wayne Anderson and Bill Garbarini, three of our five current members of the Board, are independent as such term is defined in Canada's National Instrument 58-101 - Disclosure of Corporate Governance Practices ("NI 58-101") and in Rule 5605 of the Nasdaq Stock Market.
Board Leadership - The Board operates through the leadership of a Chairman and three committees of the Board, each made up of a majority of independent directors.
Position Descriptions - The Board has not adopted a written description for the Chairman of the Board and the Chairman of each Board committee. The Chairman of the Board is responsible for the administration, development and efficient operation of the Board. The Chairman assists in overseeing the operational aspects involved in managing the Company. In addition, the Chairman ensures that the Board adequately discharges its mandate and that the Board's responsibilities and lines of delineation between the Board and management are well understood by the directors. The Chairman of each committee is appointed to manage his or her respective committee. Each committee Chairman must ensure that the committee adequately discharges its mandate pursuant to its charter. Committee Chairmen must report regularly to the Board on the business of their committee. The Board has not developed a written position description for the Chief Executive Officer. The Board expects the Chief Executive Officer and the Company's senior management team to be responsible for the management of the Company's strategic and operational agenda and for the execution of the decisions of the Board and its committees.
Orientation and Continuing Education - While the Company does not currently have a formal orientation and education program for new members of the Board, the Company provides such orientation and education on an ad hoc and informal basis. The Board is responsible for coordinating the continuing education programs for directors in order to maintain or enhance their skills and abilities as directors, as well as ensuring that their knowledge and understanding of the Company and its business remains current. Directors are encouraged to communicate with management, auditors and technical consultants; and to keep themselves current with industry trends and developments and changes in legislation with management's assistance. Directors have full access to the Company's records.
Ethical Business Conduct - The directors maintain that the Company must conduct and be seen to conduct its business dealings in accordance with all applicable laws and the highest ethical standards. The Company's reputation for honesty and integrity amongst its shareholders and other stakeholders is key to the success of its business. No employee or director will be permitted to achieve results through violation of laws or regulations, or through unscrupulous dealings. Any director with a conflict of interest or who is capable of being perceived as being in conflict of interest with respect to the Company must abstain from discussion and voting by the Board or any committee of the Board on any motion to recommend or approve the relevant agreement or transaction. The Board must comply with the conflict of interest provisions of the BCBCA.
Assessments - The Board, in consultation with the Chairman of the Board, is responsible for ensuring that an appropriate system is in place to evaluate the effectiveness of the Board, the Board committees and individual directors, with a view to ensuring that they are fulfilling their respective responsibilities and duties and working effectively together as a unit. The Board informally monitors director performance throughout the year (noting particularly any directors who have had a change in their primary job responsibilities or who have assumed additional directorships since their last assessment) to ensure that the Board, the Board committees and individual directors are performing effectively. From time to time the Board may also choose to complete a formal assessment process consisting of completion of a written survey by each member of the Board, on request, conducting one-on-one discussions in order to assess such matters as the composition of the Board, the conduct of and agendas for meetings of the Board and its committees, and the role and impact of the Board. The results of such surveys and interviews will then be summarized to identify strengths, opportunities and further suggestions with respect to each area of discussion and the Chairman of the Board is to report on such a summary to the rest of the Board.
Term of Office - Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board and hold office until removed by the Board.
Board Committees
Audit Committee - Canada's National Instrument 52-110 - Audit Committees ("NI 52-110") requires the Company, as a venture issuer, to disclose annually in its circular certain information concerning the constitution of its Audit Committee and its relationship with its independent auditor. The Company's Audit Committee is governed by an audit committee charter and is comprised of three directors, Dr. Kenneth Kashkin, Wayne Anderson and Bill Garbarini. Each member of the Audit Committee is financially literate, as such term is defined in NI 52-110, and each is independent, as such term is defined in NI 52-110 and in the BCBCA. Wayne Anderson serves as Chairman of the Audit Committee. The Audit Committee was established on September 16, 2020. As a "venture issuer" as defined in NI 52-110 the Company is relying on the exemption contained in Section 6.1 of NI 52- 110, which exempts the Company from the requirements of Part 3 (Composition of the Audit Committee) and Part 5 (Reporting Obligations) of NI 52-110.
Corporate Governance and Nominating Committee - The Corporate Governance & Nominating Committee was dissolved on August 11, 2023.
Compensation Committee - The members of the Compensation Committee are: Kenneth Kashkin, MD (Chairman) and Lana Newishy. Kenneth Kashkin, MD is independent, as such term is defined in NI 52-110. The Board has adopted a written charter for the Compensation Committee setting out its responsibilities for compensation matters. The Compensation Committee was established on September 16, 2020. It is responsible for administering the Company's executive compensation program, which, prior to its establishment, was previously administered by the Board.
The Compensation Committee assists the Board in discharging the directors' oversight responsibilities relating to the compensation and retention of key senior management employees, and in particular the Chief Executive Officer. In determining the total compensation of any member of senior management, the Compensation Committee will consider all elements of compensation in total rather than one element in isolation. The Compensation Committee is also responsible for examining the competitive positioning of total compensation and the mix of fixed, incentive and share-based compensation.
Pursuant to the charter of the Compensation Committee, the Compensation Committee is responsible for assisting the Board in fulfilling its oversight responsibilities with respect to: setting policies for senior officers' compensation; reviewing and approving and then recommending to the Board salary, bonus, and other benefits, direct or indirect, and any change-of-control packages of the Chief Executive Officer; considering the recommendations of the Chief Executive Officer and setting the terms and conditions of employment including, approving the salary, bonus, and other benefits, direct or indirect, and any change-of-control packages, of the key executives of the Company; undertaking an annual review of the Chief Executive Officer goals for the coming year and reviewing progress in achieving those goals; reviewing compensation of the Board on at least an annual basis; overseeing the administration of the Company's compensation plans, including stock option plans, compensation plans for outside directors, and such other compensation plans or structures as are adopted by the Company from time to time; reviewing and approving executive compensation disclosure to be made in the proxy circular prepared in connection with each annual meeting of shareholders of the Company; and undertaking on behalf of the Board such other compensation initiatives as may be necessary or desirable to contribute to the success of the Company and enhance shareholder value.
Shareholder Communications to the Board
Shareholders who are interested in communicating directly with members of the Board, or the Board as a group, may do so by writing directly to the individual Board member c/o Secretary, Evome Medical Technologies Inc., 49 Natcom Drive, Shirley, NY 11967. The Company's Secretary will forward communications directly to the appropriate Board member. If the correspondence is not addressed to the particular member, the communication will be forwarded to a Board member to bring to the attention of the Board. The Company's Secretary will review all communications before forwarding them to the appropriate Board member.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
Set forth below is the information regarding the compensation paid, distributed or accrued by us for the twelve months ended December 31, 2023 and the ten months ended December 31, 2022 to every individual who served as Chief Executive Officer (principal executive officer) during the fiscal year ended December 31, 2023 (Messrs. Seckler and Faulstick), the two other most highly compensated executive officers serving at the end of the twelve month period ended December 31, 2023 (Ms. Vakhitova), and up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer of the Company at the end of the twelve month period ended December 31, 2023 (Mr. Nelson) and whose compensation exceeded $100,000 (the "Named Executive Officers"). This section provides information in accordance with the scaled SEC disclosure rules available to "smaller reporting companies" and "emerging growth companies."
Summary Compensation Table
Name and
principal
position Period Salary
($) Option
Awards(1)
($) All Other
Compensation
($) Total
Compensation
($)
Michael Seckler Chief Executive Officer (2) Fiscal year
ended
December 31,
100,758 273,047 - 373,047
Natalia Vakhitova,
Former Chief
Financial Officer (3) Fiscal year
ended
December 31,
39,931 - 1,597(7) 39,931
Dennis Nelson
Former Chief
Financial Officer (4) Fiscal year
ended
December 31,
264,740 92,000 - 356,740
Ten months
ended
December 31,
126,530 133,458 - 259,988
Luke Faulstick
Former Chief
Executive Officer (5) Fiscal year
ended
December 31,
122,067 - 11,922 133,989
Ten months
ended
December 31, 2022 331,403 181,371 32,044 (6) 544,818
_______________
Notes:
(1) The amounts reported in this column reflect aggregate grant date fair value computed in accordance with ASC Topic 718, Compensation-Stock Compensation, using the Black-Scholes options pricing model. For more detail on the assumptions used in the calculation of these amounts, see Note 13 to our consolidated financial statements for the year ended December 31, 2023, and transition period December 31, 2022, which are included elsewhere in this Annual Report.
(2) Mr. Seckler was appointed Interim Chief Executive Officer of the Company effective as of June 13, 2023, and was appointed Chief Executive Officer and Director on July 24, 2023. Mr. Seckler receives no additional compensation for serving as a director.
(3) Ms. Vakhitova was appointed as Chief Financial Officer on October 18, 2023 and resigned as Chief Financial Officer on January 22, 2024.
(4) Mr. Nelson was appointed Chief Financial Officer, Principal Accounting Officer and Treasurer on August 29, 2022 and resigned those positions and ended his employment with the Company on October 17, 2023.
(5) Mr. Faulstick's employment and positions as President and Chief Executive Officer terminated on June 13, 2023.
(6) Other compensation includes $4,708 of employer 401(k) contributions, $281 of employer paid dental insurance premiums, $6,466 of employer paid health insurance premiums, $251 of short-term disability insurance premiums, and $216 of employer paid group life insurance premiums.
(7) Other compensation includes $1,597 of employer 401(k) contributions.
Executive Compensation
Overview
During the fiscal year ended December 31, 2023, and the ten-month transition period ended December 31, 2022, the Company's executive compensation program was administered by the Board and the Compensation Committee. The Compensation Committee was established, and its charter adopted on September 16, 2020. The Company's executive compensation program has the objective of attracting and retaining a qualified and cohesive group of executives, motivating team performance and the aligning of the interests of executives with the interests of shareholders through a package of compensation that is simple and easy to understand and implement. Compensation under the program was designed to achieve both current and longer-term goals of the Company and to optimize returns to shareholders. In addition, in order to further align the interests of executives with the interests of shareholders, the Company has implemented share ownership incentives through the grant of stock options.
In determining the total compensation of any member of senior management, the directors of the Company consider all elements of compensation in total rather than one element in isolation. The directors of the Company also examine the competitive positioning of total compensation and the mix of fixed, incentive and share-based compensation.
Base Salary
While there is no official set of benchmarks that the Company relies on and there is not a defined list of issuers that the Company uses as a benchmark, the Company makes itself aware of, and is cognizant of, how comparable issuers in its business compensate their executives. The base salary for each executive officer is reviewed and established near the end of the fiscal year. Base salaries are established taking into consideration the executive officer's personal performance and seniority, comparability within industry norms, and contribution to the Company's growth and profitability. The Company believes that a competitive base salary is an imperative element of any compensation program that is designed to attract talented and experienced executives.
Bonus Framework
At the discretion of the Board, and, if applicable, at the recommendation of management, executives are provided with annual cash incentive bonuses based on annual financial performance. Also at its discretion, the Board may tie annual cash bonuses to the achievement of other financial and non-financial goals.
Group Benefits
The Company offers a group benefits plan, which includes medical benefits. The benefits plan is available to all full-time employees who choose to enroll, including officers of the Company.
Perquisites and Personal Benefits
While the Company reimburses its Named Executive Officers for expenses incurred in the course of performing their duties as executive officers of the Company, the Company did not provide any compensation that would be considered a perquisite or personal benefit to its Named Executive Officers.
Option-Based Awards
An important part of the Company's compensation program is to offer the opportunity and incentive for executives and staff to own the Company's common shares. The directors of the Company believe that ownership of the Company's shares will align the interests of executives and future staff with the interests of shareholders.
Stock options are not granted on a regular schedule but rather as the compensation is reviewed by the directors of the Company from time to time. When reviewing stock option grants, consideration is given to the total compensation package of the executives and staff and a weighting of appropriate incentives groupings at the senior, mid and junior levels of the staff, including past grants. At the time of any stock option grant, consideration is also given to the available stock option pool remaining for new positions being contemplated by the Company.
Stock options may be granted under the 2023 Equity Incentive Plan, approved by the shareholders at the Company's Annual General and Special Shareholders Meeting held on August 11, 2023 (the "2023 Option Plan"). Pursuant to the 2023 Option Plan, the Board may from time to time, in its discretion and in accordance with the TSXV requirements, grant to directors, officers and employees of the Company as well as "Management Company Employees" and "Consultants" (as such terms are defined in Policy 4.4 of the TSXV, as amended from time to time), non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 11,208,470 common shares unless disinterested shareholder approval is obtained, exercisable for a period of up to ten (10) years from the date of the grant. The number of common shares reserved for issuance to any individual director or officer of the Company will not exceed 5% of the issued and outstanding common shares (2% in the case of optionees providing investor relations services to the Company) unless disinterested shareholder approval is obtained. Options granted pursuant to the 2023 Option Plan are non-assignable, except by means of a will or pursuant to the laws of descent and distribution.
Under the 2023 Plan, the options may be exercised no later than 90 days following the date the optionee ceases to be a director, officer or consultant of the Company. However, if the employment of an employee or consultant is terminated for cause or as a result of an order of any regulatory body, no option held by such optionee may be exercised following the date upon which termination occurred.
The Company has granted stock options to its Named Executive Officers, as follows:
On August 29, 2022, the Company granted 200,000 options to purchase common shares to Dennis Nelson following his appointment as Chief Financial Officer of the Company.
On June 13, 2023, the Company granted 250,000 options to purchase common shares to Michael Seckler following his appointment as Interim Chief Executive Officer.
On July 24, 2023, the Company granted 750,000 options to purchase common shares to Michael Seckler following his appointment as Chief Executive Officer.
Employment Agreements
The Company does not have any employment or consulting agreements with any Named Executive Officers.
Outstanding Equity Awards at Fiscal Year-End
The following table presents information regarding outstanding equity awards held by our Named Executive Officers as of December 31, 2023.
Option Awards
Name Number of securities
underlying
unexercised options
(#) exercisable
(1) Number of securities
underlying unexercised
options
(#) unexercisable
(2) Option exercise
price
($) Option
expiration
date
Michael Seckler - 250,000 $0.25 June 13, 2033
- 750,000 $0.29 July 24, 2033
Natalia Vakhitova - - - -
Dennis Nelson 66,667 - $0.69 August 29, 2027
Notes:
(1) These amounts reflect the number of shares underlying the stock options that are vested and exercisable pursuant to the options granted on August 29, 2022 and February 10, 2023 to Mr. Nelson.
(2) These amounts reflect the number of shares underlying the stock options that are not vested and not exercisable which were granted on June 13, 2023 and July 24, 2023 to Mr. Seckler, and on August 29, 2022 and February 10, 2023 to Mr. Nelson. One-third of the original options vest on the following dates: Mr. Nelson's 2022 options: August 29, 2023; and Mr. Seckler's June 2023 options: June 13, 2024, June 13, 2025, and June 13, 2026; Mr. Seckler's July 2023 options: July 24, 2024, July 24, 2025 and July 24, 2026.
Pension Plan Benefits
The Company does not have a pension plan, defined benefit plan, defined contribution plan or deferred compensation plan that provides for payments or benefits to the Officers at, following, or in connection with retirement.
Termination and Change of Control Benefits
As of December 31, 2023, the Company had not entered into any contract, agreement, plan or arrangement that provides for payments to a Named Executive Officer at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change in control of the Company or a change in a Named Executive Officer's responsibilities.
Director Compensation
In September 2022, the Board of Directors approved the payment of $2,500 per month in directors fees to the Company's directors who are not employed or engaged as consultants by the Company. The Company typically compensates directors for services rendered in a combination of cash payments and by granting stock options to purchase the Company's common shares.
The following table sets forth all compensation provided to each of the directors of the Company for the fiscal year ended December 31, 2023:
Name Fees
earned or
paid in
cash
($) Share-
based
awards
($) Option
awards(1)
($) Non-equity
incentive
plan
compensation
($) All other
compensation
($) Total
($)
Kenneth Kashkin(2) 30,000 - - - - 30,000
Lana Newishy(3) 39,712 - 282,789 - - 322,501
Kyle Wilks(4) 30,000 - - - - -
Les Cross(5) - - - - - -
_______________________
Notes:
(1) As of December 31, 2022, (i) Dr. Kashkin had 228,470 stock options outstanding (grant date fair values: June 2021 grant: $135,407), (ii) Ms. Newishy had 1,000,000 stock options outstanding (grant date fair values: May 2023 grant: $282,789)
(2) Mr. Kashkin was appointed as a director of the Company on September 16, 2020.
(3) Ms. Newishy was appointed as a director of the Company on May 24, 2023. Ms. Newishy was paid a fixed fee of $16,667 per month for consulting services pursuant to a consulting agreement, dated May 24, 2023. The consulting agreement was amended effective August 2023 to provide that she would be compensated for her consulting services at an agreed hourly rate.
(4) Mr. Wilks resigned as a director of the Company on January 10, 2024.
(5) Mr. Cross resigned as a director of the Company on January 17, 2024.
Pension Plan Benefits for Directors
The Company does not have a pension plan, defined benefit plan, defined contribution plan or deferred compensation plan that provides for payments or benefits to the directors at, following, or in connection with retirement.
Equity Compensation Plan Information
On August 11, 2023, the Company adopted the 2023 Equity Incentive Plan (the "2023 Option Plan"), which provides that the number of common shares reserved for issuance will not exceed 11,208,470 common shares.
The granting of awards under the 2023 Option Plan is intended to promote our interests and our shareholders' interest by aiding us in attracting and retaining persons capable of assuring our future success, to offer such persons incentives to put forth maximum efforts for the success of our business and to compensate such persons through various stock and cash-based arrangements and provide them with opportunities for stock ownership in Salona, thereby aligning the interests of such persons with our shareholders. Eligible participants under the 2023 Option Plan include non-employee directors, officers (including the named executive officers), employees, consultants, independent contractors and advisors of Salona and its subsidiaries. The 2023 Option Plan is administered by the Compensation Committee, or such other committee appointed by our board of directors.
Pursuant to the 2023 Option Plan, we may issue equity-based compensation (denominated in common shares) in the form of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, performance units and dividend equivalent awards to eligible participants. The Compensation Committee or its permitted delegates has the power and discretionary authority to determine the amount, terms and conditions of the 2023 Option Plan awards, including, without limitation, (i) the exercise price of any stock options or stock appreciation rights, (ii) the method of payment for shares purchased pursuant to any award, (iii) the method for satisfying any tax withholding obligation arising in connection with any award, including by net exercise or the withholding or delivery of shares, (iv) the timing, terms and conditions of the exercisability, vesting or payout of any award or any shares acquired pursuant thereto, (v) the performance criteria, if any, applicable to any award and the extent to which such performance criteria have been attained, (vi) the time of the expiration of any award, (vii) the effect of the participant's termination of service on any of the foregoing, and (viii) all other terms, conditions and restrictions applicable to any award or shares acquired pursuant thereto as our Board of Directors shall consider to be appropriate and not inconsistent with the terms of the 2023 Option Plan.
The following table sets forth securities authorized for issuance under the 2023 Option Plan as of December 31, 2023.
Number of securities
Number of securities
to be issued upon
Weighted-average
remaining available for
exercise of
exercise price of
future issuance under
outstanding options,
outstanding options,
equity compensation
Plan Category
warrants, and rights
warrants, and rights
plans
Equity compensation plans approved by
security holders
14,856,795
$ 0.61
4,643,106
Equity compensation plans not approved
by security holders
-
-
-
Total
14,856,795
$ 0.61
4,643,106
There are no assurances that the Company Options described above will be exercised in whole or in part. There are no options outstanding or being granted to insiders other than as detailed above.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information with respect to the beneficial ownership of our common shares as of March 31, 2024:
• each of our executive officers and directors;
• all of our executive officers and directors as a group; and
• each person known to us to own beneficially more than 5% of our common shares.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days of the date of this Annual Report. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all common shares beneficially owned by them. The percentage ownership of each individual or entity is based on 57,833,591 common shares outstanding as of March 31, 2024. Unless otherwise indicated, the address for each director and executive officer is c/o Evome Medical Technologies Inc., 49 Natcon Drive, Shirley, NY 11967.
Amount and
nature of
beneficial Percent of
Name and Address of Beneficial Owner ownership Class%
Directors, Executive Officers
Michael Seckler, Chief Executive Officer 83,333 (1) *
Lana Newishy, Vice Chair and Director 333,333 (2) *
Luke Faulstick, Former Chief Executive Officer 368,500 (3) *
Dennis Nelson, Former Chief Financial Officer 66,667 *
Kenneth Kashkin, MD, Director 275,940 (4) *
Wayne Anderson, Director - -
Bill Garbarini, Director - -
All Directors and Executive Officers as a Group (5 Individuals)
692,606
1%
Five Percent Holders:
GundyCo. TR MMCAP
International Inc. SPC
199 Bay Street
Toronto, ON M5L 1G9 3,635,000 6%
Michael Dalsin 5,347,227 (5) 9.74%
Roger Greene 4,955,746 (6) 9.05%
__________________
Notes:
* Less than 1%
(1) Includes options for 83,333 Common Shares which are exercisable or will be exercisable in 60 days.
(2) Includes options for 333,333 Common Shares which are exercisable or will be exercisable in 60 days.
(3) Includes 20,841 Common Shares that are presently issuable upon conversion of 20,841 shares of Class A Common Stock, but excludes 5,546,275 Common Shares that would be issuable on conversion of an additional 5,546,275 shares of Class A Common Stock, but are subject to a limit on conversion if the holder owns more than 368,500 Common Shares at any given time. Mr. Faulstick is a 50% owner of GAP Partners which owns these Class A Common Shares and he is attributed with 50% of the Class A Common Shares owned by GAP Partners.
(4) Includes options for 228,470 Common Shares which are exercisable or will become exercisable in 60 days.
(5) Includes 755,425 Common Shares that are presently issuable upon conversion of 755,425 shares of Class A Common Stock.
(6) Includes 600,000 Common Shares that are presently issuable upon conversion of 600,000 shares of Class A Common Stock.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
During the course of our fiscal years ended December 31, 2023 and December 31, 2022 (the "Two Fiscal Year Period"), other than employment and executive and director compensation matters described under "Executive Compensation" and "Director Compensation" and the transactions described below, there have been no related party transactions.
Transactions with Related Persons
During the year ended December 31, 2023 and the ten months ended December 31, 2022, we paid to Advanced Strategic Associates, LLC ("Advanced"), a company owned and controlled by a beneficial holder of more than 5% of our Common Shares, and Michael Dalsin individually, an amount for each period of $147,732 and $227,002, respectively. The consideration was for Advanced and Mr. Dalsin providing services related to acquisition structuring, due diligence, capital structuring, and corporate transactional advisory services. The amounts paid include both compensation and consulting costs.
During the year ended December 31, 2023 and the ten months ended December 31, 2022, we paid to Marquette Partners, Inc. ("Marquette"), a company owned and controlled by Roger Greene, a beneficial holder of more than 5% of our Common Shares, and Roger Greene individually an amount of $72,730 and $157,056, respectively. The consideration was for Marquette and Mr. Greene providing advisory services related to strategic business acquisitions. The amounts paid include both compensation and consulting costs.
During the year ended December 31, 2023 and the ten months ended December 2022, we paid to Hedgehog Financial Corporation ("Hedgehog"), a company owned and controlled by a relative of the Chairman of the Board and former Interim Chief Executive Officer, and an employee, an amount for each period of $0 and $78,876, respectively in consideration for Hedgehog providing services related to acquisitions, due diligence, accounting, finance and other corporate support services. Additionally, during the year ended December 31, 2023, the Company issued shares to the employee personally in connection with a settlement of liabilities valuing $199,095.
Conflicts of Interest
There are potential conflicts of interest to which our directors and executive officers may be subject in connection with the operations of the Company. In particular, certain of the directors and executive officers may be involved in managerial or director positions with issuers or businesses whose operations may, from time to time, be in direct competition with those of the Company or with entities which may, from time to time, provide financing to, or make equity investments in, competitors of the Company.
Conflicts, if any, will be subject to the procedures and remedies available under the BCBCA. The BCBCA provides that in the event that a director has an interest in a contract or proposed contract or agreement, 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 unless otherwise provided by the BCBCA.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
SRCO Professional Corporation, an independent registered public accounting firm ("SRCO"), billed the Company the following fees for the twelve month period ended December 31, 2023 and for the ten month period ended December 31, 2022:
For the Twelve Months Ended
For the Ten Months Ended
December 31, 2023
December 31, 2022
Audit fees(1) $ 178,551
$ 87,765
Audit related fees
-
-
Tax fees
-
-
All other fees
-
-
Total fees $ 178,551
$ 87,765
__________________
(1) Audit Fees - These are fees for professional services performed by SRCO in connection with the audit of annual financial statements of the Company and its subsidiaries. This category also includes reviews of registration statements and services normally provided in connection with statutory and regulatory filings or engagements.
These services are actively monitored (as to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity and independence in SRCO's core work, which is the audit of the Company's consolidated financial statement. The Audit Committee pre-approves each engagement of the Company's principal accountants for audit and non-audit related services and associated projected fees in advance of such engagement.
Services Provided by SRCO
All services rendered by SRCO are permissible under applicable laws and regulations and were pre-approved by the Audit Committee, or by the Chairman of the Audit Committee by delegated authority as required by law. The fees paid to SRCO for services are described in the above table.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)(1) Financial Statements
See Part II, Item 8, "Financial Statements and Supplementary Data" for Financial Statements included with this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
All other schedules have been omitted because the required information is not applicable, or the information is included in the consolidated financial statements or the Notes thereto.
(a)(3) Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report.
Incorporated by Reference
Filed
Exhibit # Exhibit Description Form Date Number Herewith
3.1 Certificate of Incorporation of Chrysalis Capital IX Corporation, dated September 17, 2013. S-1 April 30, 2021 333-255642
3.2 Chrysalis Capital IX Corporation By-Law No. 1., dated September 17, 2013. S-1 April 30, 2021 333-255642
3.3 Certificate of Amendment of Chrysalis Capital IX Corporation, dated February 21, 2014. S-1 April 30, 2021 333-255642
3.4 Notice of Articles and Certificate of Amalgamation of 1040096 B.C. Ltd. and Inspira Financial Inc., dated July 7, 2015. S-1 April 30, 2021 333-255642
3.5 Notice of Articles and Certificate of Amalgamation of 1042000 B.C. Ltd. and Inspira Financial Inc., dated July 7, 2015. S-1 April 30, 2021 333-255642
3.6 Certificate of Change of Name of 104200 B.C. Ltd., dated July 7, 2015. S-1 April 30, 2021 333-255642
3.7 Certificate of Amendment of Chrysalis Capital IX Corporation, dated July 7, 2015. S-1 April 30, 2021 333-255642
3.8 Notice of Articles and Certificate of Change of Name of Inspira Financial Inc., dated January 5, 2020. S-1 April 30, 2021 333-255642
3.9 Notice of Alteration, Notice of Articles and Certificate of Change of Name of Brattle Street Investment Corp., dated December 14, 2020. S-1 April 30, 2021 333-255642
3.10 Notice of Alteration, Notice of Articles and Certificate of Name Change of Evome Medical Technologies Inc. dated January 22, 2022. 8-K January 23,
3.11 Articles of Evome Medical Technologies Inc. dated January 22, 2024. 8-K January 23,
4.1 Specimen Certificate of Evome Medical Technologies Inc.
X
4.2 Form of Subscription Agreement for U.S. Subscribers of Subscription Receipts for Shares of Brattle Street Investment Corp. S-1 April 30, 2021 333-255642
4.3 Form of Subscription Agreement for Non- U.S. Subscribers of Subscription Receipts for Shares of Brattle Street Investment Corp. S-1 April 30, 2021 333-255642
4.4 Form of Subscription Agreement for U.S. Subscribers of Subscription Receipts for Units of Brattle Finco B.C. Ltd. S-1 April 30, 2021 333-255642
4.5 Form of Subscription Agreement for Non- U.S. Subscribers of Subscription Receipts for Units of Brattle Finco B.C. Ltd. S-1 April 30, 2021 333-255642
4.6 Form of Warrant to purchase Common Shares. 8-K February 22, 2022
4.7 Registration Rights Agreement dated as of February 15, 2022 by and among the Company, Purchasers in the Offering and Beacon Securities Limited, Canaccord Genuity Corp. and Leede Jones Gable Inc. 8-K February 22, 2022
4.8 Form of Compensation Option 8-K February 22, 2022
10.1* Stock Option Plan of Inspira Financial Inc. S-1 April 30, 2021 333-255642
10.2*
2021 Amended and Restated Stock Option Plan of Salona Global Medical Device Corporation
S-1
April 30, 2021
333-255642
10.3*
2023 Equity Incentive Plan
8-K
August 23, 2023
10.4 Supply Agreement between DJO, LLC and South Dakota Partners Inc., dated May 4, 2016. S-1 April 30, 2021 333-255642
10.5 Lease Agreement between Store Capital Acquisitions, LLC and South Dakota Partners, Inc., dated October 19, 2018. S-1 April 30, 2021 333-255642
10.6 Promissory Note of South Dakota Partners to Dacotah Bank, dated February 1, 2019. S-1 April 30, 2021 333-255642
10.7 Business Loan Agreement between South Dakota Partners and Dacotah Bank, dated December 3, 2019. S-1 April 30, 2021 333-255642
10.8 Commercial Security Agreement between South Dakota Partners and Dacotah Bank, dated December 3, 2019. S-1 April 30, 2021 333-255642
10.9 Promissory Note of South Dakota Partners to Dacotah Bank, dated February 1, 2019. S-1 April 30, 2021 333-255642
10.10 Supply Agreement between Compass Richmar, LLC and South Dakota Partners, Inc., dated February 5, 2020. S-1 April 30, 2021 333-255642
10.11 Change in Terms Agreement between South Dakota Partners Inc. and Dacotah Bank, dated April 20, 2020. S-1 April 30, 2021 333-255642
10.12 Change in Terms Agreement between South Dakota Partners Inc. and Dacotah Bank, dated July 10, 2020. S-1 April 30, 2021 333-255642
10.13 Business Loan Agreement between South Dakota Partners Inc. and Dacotah Bank, dated August 31, 2020. S-1 April 30, 2021 333-255642
10.14 Promissory Note of South Dakota Partners Inc. to Dacotah Bank, dated August 31, 2020. S-1 April 30, 2021 333-255642
10.15 Membership Interest Purchase Agreement, dated as of September 30, 2021, by and among Salona Global Medical Device Corporation, Inspira Financial Company, Simbex Parent Acquisition I Corp., Simbex Acquisition I Corp., Simbex, LLC, Richard Greenwald, and the additional equity holders referenced therein. 8-K October 7, 2021
10.16 Contribution Agreement dated as of November 29, 2021 by and among the Company, ALG Health Plus, LLC, Adam Harmon, ALG-Health LLC and other the parties named therein. 8-K December 3, 2021
10.17 Limited Liability Company Agreement of ALG Health Plus, LLC dated as of November 29, 2021 by and between Inspira Financial Company and Adam Harmon. 8-K December 3, 2021
10.18 Contribution and Exchange Agreement dated as of November 29, 2021 by and between Salona Global Medical Device Corp and Adam Harmon 8-K December 3, 2021
10.19 Agreement and Plan of Merger dated as of February 18, 2022 by and among Salona Global Medical Device Corporation, Inspira Financial Company, Miotech Parent, LLC, Miotech Merger Subsidiary, LLC, Mio-Guard LLC, and Kenneth M. Zisholz 8-K February 25, 2022
10.20 Stock Purchase Agreement, dated as of August 15, 2022, by and among Salona Global Medical Device Corporation, Inspira Financial Company, Damar Acquisition Company, Damar Plastics Manufacturing, Inc., and William P. Dickinson and Elizabeth H. Dickinson 8-K August 19, 2022
10.21 Loan and Security Agreement, dated as of January 13, 2023, by and among Pathward, National Association, Damar Plastics Manufacturing, Inc. Mio-Guard, LLC, Simbex, LLC, Salona Global Medical Device Corporation, Inspira Financial Company, Mio-Tech Parent LLC, Simbex Parent Acquisition I Corporation, Simbex Acquisition I Corporation, and DaMar Acquisition Company 8-K January 17, 2023
10.22 Guaranty, dated January 13, 2023, by and among Salona Global Medical Device Corporation, Inspira Financial Company, Mio-Tech Parent LLC, Simbex Parent Acquisition I Corporation, Simbex Acquisition I Corporation, and DaMar Acquisition Company in favor of Pathward, National Association 8-K January 17, 2023
10.23 Stock Purchase Agreement, dated March 15, 2023, by and among Mirion Technologies (US), Inc. and Biodex Rehab Systems, LLC. 8-K March 21, 2023
10.24 Stock Purchase Agreement, dated as of May 15, 2023, between Adam Glorvigen, Mio-Guard, LLC, and Salona Global Medical Device Corporation.
10-Q August 14, 2023
10.25 Forbearance Agreement, dated as of August 4, 2023, by and among Salona Global Medical Device Corporation, Biodex Rehab Systems, LLC and Mirion Technologies (US), Inc. 8-K August 10, 2023
10.26 Master Credit and Security Agreement among Lender and Borrower, dated September 12, 2023* 8-K September 18, 2023
10.27 Guaranty, dated September 12, 2023, by Guarantors 8-K September 18, 2023
10.28
Membership Interest Purchase Agreement, dated April 2, 2024, by and between Simbex Acquisition I Corporation, Evome Medical Technologies, Inc. and EB Sports Corp.
8-K April 4, 2024
21.1 List of Subsidiaries
X
23.1 Consent of Independent Registered Public Accounting Firm
X
31.1 Certification of Principal Executive and Financial Officer
X
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
X
101.INS Inline XBRL Instance Document-the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
X
101.SCH Inline XBRL Taxonomy Extension Schema Document
X
101.CAL Inline XBRLTaxonomyExtension Calculation Linkbase Document
X
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
X
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
X
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
X
____________________
*Constitutes management contract or compensatory arrangement