Salona Global Provides Update on US$7.5M Sales Order; Expected Earnout Shares for GPO Channel Acquisition
10/05/2022 | 07:31am EST
SAN DIEGO, Oct. 05, 2022 (GLOBE NEWSWIRE) -- Salona Global Medical Device Corporation (“SGMD”, “Salona Global” or the “Company”) (TSXV:SGMD), an acquisition-oriented medical device company serving the global injury and surgery recovery (known as recovery science) market, today provided an update on the US$7,500,000 sales order (the “Sales Order”) for medical supplies it announced on July 26, 2022. The Sales came through a large customer using the GPO sales channel announced on November 30, 2021.
Through September 30, 2022, approximately 90% of the Sales Order has been delivered. The Company expects to complete delivery of the Sales Order by the end of November 2022 (the ending of the fiscal third quarter). As of August 31, 2020, the Company has received proceeds of $4.2 million. Because the nature of the order, the customer, and its supplier, the Company has determined, due to specific US GAAP accounting rules, that the transaction does not qualify for recognition as revenue, therefore net cash flow will be reflected in the statement of cash flows and the balance sheet based on the previously executed earnout agreements. The total net cash flow earned through the end of September equals approximately $850,000.
“We are always looking to be opportunistic to increase our revenue, profits and cash flow,” said Luke Faulstick, CEO of Salona Global. “While we were not able to book the proceeds as revenue due to a technical accounting rule, we nevertheless expect to increase our cash flow by approximately $1 million this fiscal year because of this opportunity. We continue to see more and more opportunities in every part of our market, from acquisitions to product IP to distribution deals. Our focus for the second quarter has been both to prepare for the integration of the upcoming large acquisition we announced August 15, 2022, as well as delivering this large sales order.”
Total Shares Outstanding Calculation
For the purposes of calculating partially diluted shares outstanding (not including warrants or options), there is a total of 95,842,767 shares.
This is a sum of (1) issued and outstanding common shares of SGMD trading on the TSXV (“Common Shares”), (2) Class “A” non-voting common shares of SGMD, convertible 1-to-1 into Common Shares (“Class “A” Shares”)*, (3) shares issued through satisfaction of earnouts, convertible 1-to-1 into Class “A” Shares, and (4) shares management expects will be issued through the satisfaction of earnouts, convertible 1-to-1 into Class “A” Shares.
The sum is as follows:
53,707,779 Common Shares;
1,355,425 Class “A” Shares;
19,019,000 shares issued to the sellers of South Dakota Partners Inc. who have already earned the right to acquire an equal amount of Class “A” Shares; and
21,760,563 shares the management expects to issue to (i) the sellers of Mio-Guard, LLC who can earn the right to acquire up to 6,300,000 Class “A” Shares assuming full satisfaction of their earnout provision, (ii) the sellers of Simbex LLC who can earn the right to acquire up to 6,383,954 Class “A” Shares assuming full satisfaction of their earnout provision, (iii) the sellers of Damar Plastics Manufacturing, Inc. who can earn the right to acquire up to 6,576,609 Class “A” Shares assuming full satisfaction of their earnout provision, and (iv) the Agent (as such term is defined in the November 30, 2021 news release) is expected to earn the right to acquire up to 2,500,000 Class “A” shares related to performance of the Sales Order. The Company does not anticipate any additional sales through its LLC subsidiary (“LLC”, as such term is defined in the November 30, 2021 news release). Accordingly, the Company does not expect to issue more than a maximum of 2,500,000 Class “A” Shares to the Agent.
* Class “A” shares have the same attributes as the Common Shares, except that they are not listed on the TSX Venture Exchange, do not carry the right to vote, and are convertible, subject to certain terms and conditions, including a provision prohibiting a holder of Class “A” Shares from converting Class “A” Shares for Common Shares if it would result in such holder holding more than 9.9% of the Common Shares, into Common Shares on a one-for-one basis.
Full financial results from the fiscal second quarter will be filed within the interim financial statements for the three and six months ended August 31, 2022, with the 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.sedar.com, on or before October 17, 2022.
On Monday, October 17, 2022, at 5:00pm (ET), Executive Chairman Les Cross, CEO Luke Faulstick, and CFO Dennis Nelson will hold an earnings call (see details below) to discuss the results, including details on organic growth for the quarter, deal flow and acquisition status and details about revenues, profits, and growth preparation in the current quarter.
There can be no assurance that any acquisition (including the large acquisition mentioned herein) will be completed or the timing of any acquisitions. Completion of any transaction will be subject to, amongst other things, negotiation and execution of definitive agreements, applicable director, shareholder and regulatory approvals.
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.
Unless otherwise specified, all dollar amounts in this press release are expressed in Canadian dollars.
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: the Company expecting to complete delivery of the Sales Order by the end of November 30, 2022; the Company filing its financial statements for the three and six months ended August 31, 2022, on October 17, 2022; the Company expecting to increase its cash flow by approximately $1 million this fiscal year because of this opportunity; the Company anticipating it won’t have any additional sales through the LLC and the Agent only having the right to acquire up to a maximum of 2.5 million Class “A” Shares; the sellers of the acquired businesses meeting their full earnout payments; and the Company closing the large acquisition disclosed herein. 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 failure of the Agent to perform in the manufacture and sale of the products covered by the Sales Order; the negotiation, execution and closing of a definitive purchase agreement for the large acquisition; and the acquired businesses performing at the level required to achieve the earnout payments. Salona Global 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 Global operates; the ability of Salona Global 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; the ability to implement business strategies and pursue business opportunities; disruptions in or attacks (including cyber-attacks) on Salona Global’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 Global is exposed; the failure of third parties to comply with their obligations to Salona Global 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 Global; the occurrence of natural and unnatural catastrophic events and claims resulting from such events; and risks related to COVID-19 including various recommendations, orders and measures of governmental authorities to try to limit the pandemic, including travel restrictions, border closures, non-essential business closures, quarantines, self-isolations, shelters-in-place and social distancing, disruptions to markets, economic activity, financing, supply chains and sales channels, and a deterioration of general economic conditions including a possible national or global recession; as well as those risk factors discussed or referred to in Salona Global’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.sedar.com. Should any factor affect Salona Global 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, Salona Global 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.
The securities referred to in this press release have not been, nor will they be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from the U.S. registration requirements. This press release does not constitute an offer for sale of securities, nor a solicitation for offers to buy any securities. Any public offering of securities in the United States must be made by means of a prospectus containing detailed information about the Company and management, as well as financial statements.
This press release contains certain pre-released 2023 second quarter financial metrics. The second quarter financial metrics contained in this press release are preliminary and represent the most current information available to the Company's management, as financial closing procedures for the second quarter ended August 31, 2022, are not yet complete. The Company's actual financial statements for such period may result in material changes to the financial metrics summarized in this press release (including by any one financial metric, or all of the financial metrics, being below or above the figures indicated) as a result of the completion of normal quarter end accounting procedures and adjustments, and also what one might expect to be in the final consolidated financial statements based on the financial metrics summarized in this press release. Although the Company believes the expectations reflected in this press release are based upon reasonable assumptions, the Company can give no assurance that actual results will not differ materially from these expectations.