SGMD Salona Global Medical Device Corporation

Salona Global Medical Device Corporation (“Salona Global” or the ‎‎“Company”) (TSXV:SGMD) today posted financial results for the second quarter of 2023, ending June 30, 2023, and provided an update on its turn-around plan.

During the second quarter, the Company acquired Biodex Medical Systems, Inc. (“Biodex”), pushing revenue to $16.6 million for the three months ended June 30, 2023. The Company reported negative Adjusted EBITDA (defined below) of $819,394 for the same period.

On June 13, 2023, Michael Seckler was appointed CEO of the Company by the board of directors with a mandate to generate organic revenue growth and achieve enterprise profitability. In the time since his appointment Mr. Seckler has taken several steps to achieve this goal including:

1. Operating expense reduction of more than $1.5 million, annualized from savings on salaries and other costs related to internal accounting, legal and senior management;
2. Reduction of operating expenses at the business unit level of more than $2.5 million, annualized including the savings from the elimination of several senior management roles;
3. Reduction of Biodex acquisition liabilities of approximately US$1.5 million upon settlement of purchased nuclear medicine device inventory, and the extension of payment terms for the remaining US$6,756,525 million related to the purchase price.
4. Reorganizing the sales and marketing divisions of the entire Company with an aim to drive quarter over quarter revenue growth; and
5. A focus on launching new Biodex products into the pipeline quickly to increase revenues and profits, a project the Company is continuing to work towards.

These actions to improve efficiency began in the second quarter and have continued in the current quarter. Mr. Seckler and the entire company are laser focused on delivering positive Adjusted EBITDA beginning with the third quarter.

“I have worked with alacrity in the past 45 days to turn this business around,” said Mike Seckler, CEO of Salona Global. “I have been pleased at how quickly the organization implemented my cost cutting plan. It has given us the ability to demonstrate cash generation from our business rather than cash burn. Because of this, we have been able restructure our debt and provide space to make further investments in revenue growth through future product launches and tuning up our sales and marketing divisions.”

“To be clear, I didn’t come to Salona Global simply to implement cost cuts. This Company has some compelling new product opportunities to fill some major voids in the physical therapy market. I want to give credit to the previous management team for acquiring these companies and assets. It gives me a large revenue base to implement a turnaround plan, but also a basis for high margin profitable growth going forward.”

“The new Salona Global is built for both profit and revenue growth,” continued Mr. Seckler. “We have four new exciting Biodex products we are planning to launch. Two products will be designed to provide unique solutions and reduce costs of our therapist customers using artificial intelligence. We also have a renewed focus on leveraging our sales and marketing presence globally, a particular strength of mine given my background as head of global marketing with Ferring Pharmaceuticals. I look forward to meeting with investors and market participants in next month to explain our new products, growth plans and international sales initiatives for the near future, as well as results from our current plan to generate profits from our existing business.”

The Company previously issued calendar 2023 projections for revenues, gross margin and Adjusted EBITDA. The new management team is conducting a strategic review of the entire business as of July 1, 2023 and given the losses from the first six months of the year under the previous management team, the new team expects, therefore, to revise downward the expectations for Adjusted EBITA. 

Full Financial Statements

Unaudited Interim Condensed Consolidated Statements of Operations ‎and Comprehensive Loss and Unaudited Interim Condensed Consolidated Balance Sheets are included below. The full financial statements for the three and six months ended June 30, 2023 and related management discussion and analysis (in the form of Quarterly Report on Form 10-Q) was filed on August 14, 2023 with the United States Securities and ‎Exchange ‎Commission and is available at www.sec.gov, and with the securities regulatory authorities in certain ‎provinces of ‎Canada and available at www.sedarplus.ca.

For more information please contact:

Mike SecklerChief Executive Officer Tel: 1 (800) 760-6826 Email: Info@Salonaglobal.com

Non-GAAP Measures

This press release refers to "Adjusted EBITDA" which is a non-GAAP and non-IFRS financial measure that does ‎not have a standardized meaning prescribed by GAAP or IFRS. The Company’s presentation of this financial ‎measure may not be comparable to similarly titled measures used by other companies. This non-GAAP financial measure assists the Company’s management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete acquisition plans that are fundamentally different from the ongoing operating plans of the Company. The Company’s management also believes that presenting this measure allows investors to view the Company’s performance using the same measures that the Company uses in evaluating its financial and business performance and trends.

“Adjusted EBITDA” is defined as net loss excluding interest expense, provision for income taxes, depreciation of property and equipment, amortization of right-of-use asset, amortization of intangible asset, foreign exchange (loss) gain, other income, provision for impairment, change in fair value of contingent consideration, transaction costs, and stock-based compensation.

The following table provides reconciliation between net income (loss) and Adjusted EBITDA:

		3 months ended June 30,								6 months ended June 30,
			2023				2022				2023				2022
Net Loss		$	(1,115,843	)		$	(3,650,333	)		$	(2,778,587	)		$	(4,243,967	)
Interest Expense			454,446				114,763				732,532				235,217
Provision for income taxes			2,294				(31,607	)			38,544				(145,717	)
Depreciation of property and equipment			265,066				71,817				449,330				140,940
Amortization of right-of-use asset			540,308				83,611				922,141				170,036
Amortization of intangible asset			350,553				249,029				701,099				464,010
Foreign exchange (loss) gain			(2,990	)			(240	)			(4,518	)			3,933
Other income			(815,428	)			(3	)			(815,561	)			(48	)
Provision for impairment			-				7,391				-				5,527,913
Change in fair value of earnout consideration			(1,165,697	)			2,451,600				(1,165,697	)			2,451,600
Change in fair value of contingent consideration			77,795				459,693				273,095				(5,394,008	)
Transaction costs			75,541				369,289				534,312				1,568,409
Severance Expenses			122,989				-				229,089				-
Stock based compensation			391,572				489,089				737,096				927,658
Adjusted EBITDA		$	(819,394	)		$	614,099			$	(147,125	)		$	1,705,976

Additional Information

Unless otherwise specified, all dollar amounts in this press release are expressed in Canadian ‎dollars.‎

Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.

Certain statements contained in this press release constitute "forward-looking information" within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. These statements can be identified by the use of forward-looking terminology such as “expects” “believes”, “estimates”, "may", "would", "could", ‎‎"should", "potential", ‎‎‎‎‎"will", "seek", "intend", "plan", and "anticipate", and similar expressions as they relate ‎‎‎‎to the Company, including: annualized operating expense reductions and; and the Company planning to launch four new Biodex products.

All ‎statements ‎other than statements of ‎historical fact may be forward-looking‎ information. Such statements reflect the Company's current views and intentions with respect to future ‎events, and current information available to the Company, and are subject to certain risks, ‎uncertainties and assumptions, including: the Company is able to maintain reduced levels of personnel and expenses; and the Company is able to successfully execute on the activities required to launch four new Biodex products. Salona cautions that the forward-looking statements contained herein are qualified by important factors that could cause actual results to differ materially from those reflected by such statements. Such factors include but are not limited to the ‎‎general business and ‎‎economic ‎conditions in the regions in ‎which Salona operates; the ability of Salona to execute on key ‎‎priorities, ‎including the successful completion of acquisitions, business‎ retention, and‎‎ strategic plans and to‎‎ attract, develop ‎and retain key executives; difficulty integrating newly acquired businesses; ‎‎ongoing or new disruptions in the supply chain, the extent and scope of such supply chain disruptions, and the timing or extent of the resolution or improvement of such disruptions; the ability to‎‎‎ implement business strategies and pursue business opportunities; ‎‎disruptions in or attacks (including ‎cyber-attacks) on Salona’ s information technology, internet, network access or other ‎‎voice or data ‎communications systems or services; the evolution of various types of fraud or other ‎‎‎criminal behavior to which ‎Salona is exposed; the failure of third parties to comply with their obligations to ‎‎Salona or its ‎affiliates; the‎ impact of new and changes to, or application of, current laws and regulations; ‎granting of permits and licenses in a highly regulated business; the ‎overall difficult ‎‎‎‎‎litigation environment, including in the United States; increased competition; changes in foreign currency rates; ‎increased ‎‎‎‎funding ‎costs and market volatility due to market illiquidity and competition for funding; the ‎availability of funds ‎‎‎‎and resources to pursue operations; critical ‎accounting estimates and changes to accounting standards, policies,‎‎‎‎ and methods used by Salona; the occurrence of natural and unnatural‎‎ catastrophic ‎events ‎and claims ‎‎‎‎resulting from such events; as well as those risk factors discussed or ‎referred to ‎in the ‎Company’s disclosure ‎documents filed with United States Securities and Exchange Commission ‎and ‎available at ‎www.sec.gov, and with ‎the securities regulatory authorities in certain provinces of Canada and ‎‎available at ‎www.sedarplus.ca. Should any ‎factor affect the Company in an unexpected manner, or should ‎‎assumptions underlying ‎the forward-looking ‎information prove incorrect, the actual results or events may differ ‎‎materially from the results ‎or events predicted. ‎Any such forward-looking information is expressly qualified in its ‎‎entirety by this cautionary ‎statement. Moreover, ‎the Company does not assume responsibility for the accuracy or ‎‎completeness of such ‎forward-looking ‎information. The forward-looking information included in this press release ‎‎is made as of the ‎date of this press ‎release and the Company undertakes no obligation to publicly update or revise ‎‎any forward-‎looking information, ‎other than as required by applicable law‎.‎

SALONA GLOBAL MEDICAL DEVICE CORPORATION
Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
		3 months ended				3 months ended				6 months ended				6 months ended
		June 30				June 30				June 30				June 30
			2023				2022				2023				2022
Revenue		$	16,575,075			$	9,761,145			$	27,258,304			$	18,429,560
Cost of revenue:
Direct service personnel			1,652,004				1,443,458				3,477,759				2,874,397
Direct material costs			8,964,709				4,837,017				13,390,800				8,552,625
Other direct costs			325,947				204,513				661,471				499,521
Total cost of revenue			10,942,660				6,484,988				17,530,030				11,926,543
Gross margin			5,632,415				3,276,157				9,728,274				6,503,017
Operating expenses
Selling, general and administrative			6,966,370				3,151,147				10,841,584				5,724,699
Depreciation of property and equipment			265,066				71,817				449,330				140,940
Amortization of right-of-use assets			540,308				83,611				922,141				170,036
Amortization of intangible assets			350,553				249,029				701,099				464,010
Total operating expenses			8,122,297				3,555,604				12,914,154				6,499,685
Net operating (loss) gain			(2,489,882	)			(279,447	)			(3,185,880	)			3,332
Interest expense			(454,446	)			(114,763	)			(732,532	)			(235,217	)
Foreign currency exchange gain (loss)			2,990				240				4,518				(3,933	)
Other income			815,428				3				815,561				48
Provision for impairment			-				(7,391	)			-				(5,527,913	)
Change in fair value of earnout consideration			1,165,697				(2,451,600	)			1,165,697				(2,451,600	)
Change in fair value of contingent consideration			(77,795	)			(459,693	)			(273,095	)			5,394,008
Transaction costs			(75,541	)			(369,289	)			(534,312	)			(1,568,409	)
Net loss before taxes			(1,113,549	)			(3,681,940	)			(2,740,043	)			(4,389,684	)
Provision for income taxes			(2,294	)			31,607				(38,544	)			145,717
Net loss		$	(1,115,843	)		$	(3,650,333	)		$	(2,778,587	)		$	(4,243,967	)
Other comprehensive loss
Foreign currency translation gain (loss)			104,993				(28,965	)			62,550				668,004
Comprehensive (loss)		$	(1,010,850	)		$	(3,679,298	)		$	(2,716,037	)		$	(3,575,963	)
Net loss per share
Basic and diluted		$	(0.02	)		$	(0.07	)		$	(0.04	)		$	(0.08	)
Weighted average number of common stock and Class A shares outstanding			73,949,654				52,882,328				68,178,999				50,742,334

SALONA GLOBAL MEDICAL DEVICE CORPORATION
Unaudited Interim Condensed Consolidated Balance Sheets
		June 30,				December 31,
			2023				2022
Assets
Cash and cash equivalents		$	1,398,103			$	1,928,464
Accounts receivable, net			10,980,119				6,353,275
Inventories, net			13,348,620				8,102,626
Prepaid expenses and other receivables			1,811,923				216,489
Total current assets			27,538,765				16,600,854
Security deposit			595,857				566,198
Long-term accounts receivable			141,668				189,616
Long-term prepaid expenses and other receivables			436,614				441,025
Property and equipment, net			3,942,998				3,399,898
Right-of-use assets, net			11,668,572				7,781,300
Intangible assets, net			10,584,239				9,376,162
Goodwill			15,251,230				13,695,194
Total assets		$	70,159,943			$	52,050,247
Liabilities and stockholders' equity
Liabilities
Line of credit		$	8,434,492			$	5,162,711
Accounts payable and accrued liabilities			10,097,527				6,641,181
Current portion of debt			9,033,918				195,489
Current portion of lease liability			1,565,326				847,253
Other liabilities			4,013,413				1,807,702
Obligation for payment of earnout consideration			12,729,714				15,506,531
Total current liabilities			45,874,390				30,160,867
Debt, net of current portion			741,238				574,515
Lease liability, net of current portion			7,726,691				5,983,333
Total liabilities		$	54,342,319			$	36,718,715
Stockholders' equity
Common stock; no par value, unlimited shares authorized; 56,423,092 shares issued and outstanding as of June 30, 2023 (December 31, 2022: 53,707,780)			39,610,457				38,767,442
Class A shares; no par value, unlimited shares authorized; 21,378,799 shares issued and outstanding as of June 30, 2023 (December 31, 2022: 3,403,925)			12,542,088				1,800,064
Common stock to be issued: 368,500 shares to be issued as of June 30, 2023 (December 31, 2022: nil)			103,180				-
Class A Shares to be issued: 6,261,340 Class A shares to be issued as of June 30, 2023 (December 31, 2022: 19,019,000)			4,696,005				14,264,250
Additional paid-in-capital			9,154,765				8,072,610
Accumulated other comprehensive income			1,751,002				1,688,452
Deficit			(52,039,873	)			(49,261,286	)
Total stockholders' equity			15,817,624				15,331,532
Total liabilities and stockholders' equity		$	70,159,943			$	52,050,247