SGMD Salona Global Medical Device Corporation

Salona Global Medical Device Corporation (“Salona Global”, “SGMD” or the ‎‎“Company”) (TSXV:SGMD) today announced it closed its acquisition of Arrowhead Medical, LLC (“Arrowhead”), a recovery science medical device sales and distribution business expected to add $4.0 million in annual revenue to the Company, with an estimated 32% in gross profit. The Company also reported financial highlights for the first quarter of 2023, ending March 31, 2023, and provided details for its earnings call scheduled for 5pm EST today.

Acquisition of Arrowhead and Biodex Integration Update

The Company closed its acquisition of Arrowhead, a recovery science medical device sales and distribution business, on May 15, 2023. This addition to Salona Global is projected to add $4.0 million in revenue annually with an estimated 32% in gross profit. Based on its unaudited financial results, Arrowhead’s sales in calendar year 2022 were approximately $3.5 million, with gross profit of approximately 32%. The terms of this transaction are described in more detail below. Since the Company’s acquisition of its Mio-Guard business in March 2022, Mio-Guard has generated strong revenues and has grown its sales by more than 25% in calendar year 2022 compared to calendar year 2021.The Company intends to integrate Arrowhead with the Mio-Guard business unit in an effort to leverage the portions of the businesses that are differentiating and expand the portions that are complimentary. We expect to utilize customer lists for all products in the Salona Global family of companies, including Biodex Medical Systems, Inc. (“Biodex”), and leverage pricing from common suppliers.

The Company closed its acquisition of Biodex, consisting of its physical medicine (rehabilitation) business, on April 3, 2023. The integration plan of Biodex is on track and management has initiated a cross-selling strategy to offer Biodex products to the Mio-Guard database of customers and vice versa. The operational integration of the Biodex business remains on track as management focuses on back-office functions and begins to vertically integrate Salona Global manufacturing capabilities.

Q1 2023 Financial Highlights

• Generated revenues of $10.7 million for the three months ended March 31, 2023,
  • 23% increase as compared to the same period last year.
  • 1% increase over the most recently reported three months ended November 30, 2022.
• Generated gross profits of $4.1 million for the three months ended March 31, 2023,
  • 27% increase as compared to the same period last year.
  • 17% increase over the most recently reported three months ended November 30, 2022.
• Increased gross profits to 38.3% as a percentage of revenue for the three months ended March 31, 2023, up from 33.1% for the most recently reported three months ended November 30, 2022.
• Net Loss of $1.7 million for the three months ended March 31, 2023, as compared to Net Loss of $0.6 million for the same period last year.
• Adjusted EBITDA (defined below) of $642,269 for the three months ended March 31, 2023, represents an increase of $801,986 over the most recently reported three months ended November 30, 2022.

The Company’s order book continues to be strong and has grown with the addition of the Biodex and the Arrowhead Medical businesses. The Company’s current order book backlog (defined below) is approximately $25 million.

“This quarter’s results reflect an improvement in profitability and gross margin from the previous quarters,” said Les Cross, Chairman. “We saw a slight increase in sequential revenues for the quarter as our focus was on closing the Biodex acquisition and preparing for the cross-selling initiatives between Biodex and Mio-Guard. In the current quarter ending June 30, 2023, we expect to see an increase in revenues as we add the Biodex products to our Salona family of products. I want to commend the team on a job well done with this transformative acquisition.”

“We are pleased to welcome the staff and customers of both Biodex and Arrowhead to the Salona Global family,” said Luke Faulstick, CEO. “We have ambitious plans to grow the Arrowhead Medical business in a similar fashion to how we have grown our Mio-Guard business. We plan to leverage the well-known global Biodex brand in the rehabilitation market and take advantage of the developed Biodex international and domestic sales and distribution channels to sell new Salona Global products in late stages of development, and to accelerate the sales of our broad existing product portfolio through a focus on cross-selling and improved customer service and sales approach. We look forward to finalizing our integration of these businesses and moving on to further acquisitions. We also continue to work to replace our current short-term debt with the goal of extending the maturity dates for such debt.”

Terms of Arrowhead Acquisition

Pursuant to the Stock Purchase Agreement entered into on May 15, 2023 (“SPA”), the purchase price for the ownership interests in Arrowhead Medical, LLC consisted of the issuance of 1 million shares of its Class A common stock to the seller, the assumption of approximately $250,000 in bank debt under Arrowhead’s existing asset based line of credit, and an agreement to pay the seller a contingent earn-out equal to one share of Class A common stock for each $1 of EBITDA generated by the Arrowhead business over the two year period following the closing date, not to exceed a maximum of 2 million Class A shares. The Class A shares are convertible into the Company’s Common Shares on a 1 for 1 basis, subject to a) an agreement by the seller not to convert Class A shares to Common Shares if at any time the seller owns more than 500,000 Common Shares, and b) a restriction in the terms of the Class A shares that restricts the seller from converting the Class A shares to Common Shares if at any time the seller owns more than 9.9% of the outstanding Common Shares.

Earnings Call

On Tuesday, May 16, 2023, at 5:00 p.m. (Eastern Time), Executive Chairman Les Cross, CEO Luke Faulstick, and CFO Dennis Nelson will hold an earnings call (see details below) to discuss the first quarter financial results and provide a business update.

First Quarter 2023 Earnings CallToll Free Dial In: +1 (800) 245-3047Direct Dial/International: +1 (203) 518-9765Conference ID: SALONA

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 months ended March 31, 2023 and related management discussion and analysis (in the form of Quarterly Report on Form 10-Q) was filed on May 15, 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.sedar.com.

For more information please contact:

Luke Faulstick Chief Executive Officer Tel: 1 (800) 760-6826 Email: Info@Salonaglobal.com

Currency

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

Non-GAAP Measures

This press release refers to “order book backlog” and “Adjusted EBITDA” which are non-GAAP and non-IFRS financial measures that do ‎not have standardized meanings prescribed by GAAP or IFRS. The Company’s presentation of these financial ‎measures may not be comparable to similarly titled measures used by other companies. These non-GAAP financial measures assist 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 these measures 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.

“Order book backlog” as used in this press release is calculated as committed customer orders to deliver products and services at a future date.

“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 March 31,
			2023				2022
Net Loss		$	(1,662,744	)		$	(593,634	)
Interest Expense			278,086				120,454
Provision for income taxes			36,250				(114,110	)
Depreciation of property and equipment			184,264				69,123
Amortization of right-of-use asset			381,833				86,425
Amortization of intangible asset			350,546				214,981
Foreign exchange gain (loss)			(1,528	)			4,173
Other income			(133	)			(45	)
Provision for impairment			-				5,520,522
Change in fair value of contingent consideration			195,300				(5,853,701	)
Transaction costs			458,771				1,199,120
Severance Expense			106,100				-
Stock based compensation			315,524				438,569
Adjusted EBITDA		$	642,269			$	1,091,877

Additional Information

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.

Readers are cautioned that the financial information regarding Arrowhead disclosed herein is unaudited and derived as a result of unaudited financial information as well as the Company’s due diligence.

There can be no assurance that any further acquisitions by the Company will be completed as proposed or at all and no definitive agreements have been executed. Completion of any transaction will be subject to applicable director, shareholder, and regulatory approvals.

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 expected revenue and gross margins of the Arrowhead business post-closing; the expected success of the Company’s cross-selling initiatives involving the Arrowhead, Biodex, Mio-Guard and other Company products; the success of the integration of the Biodex and Arrowhead businesses into the Company’s other businesses and operational processes; the expected addition of customers from the Arrowhead and Biodex businesses; the Company expecting an increase in revenues in the quarter ending June 30, 2023; the Company completing additional acquisitions; and the Company successfully replacing its current short-term debt with an extended maturity date.

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 Arrowhead business achieving results at least as good as historical performances; the financial information regarding the Arrowhead business being verified when included in the Company’s consolidated financial statements prepared in accordance with generally accepted accounting principles in Canada; and the Company successfully identifying, negotiating and completing additional acquisitions. 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; 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 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 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
		March 31				March 31
			2023				2022
Revenue		$	10,683,229			$	8,668,415
Cost of revenue:
Direct service personnel			1,825,755				1,430,939
Direct material costs			4,426,091				3,715,608
Other direct costs			335,524				295,008
Total cost of revenue			6,587,370				5,441,555
Gross profit			4,095,859				3,226,860
Operating expenses
Selling, general and administrative			3,875,214				2,573,552
Depreciation of property and equipment			184,264				69,123
Amortization of right-of-use assets			381,833				86,425
Amortization of intangible assets			350,546				214,981
Total operating expenses			4,791,857				2,944,081
Net operating (loss) gain			(695,998	)			282,779
Interest expense			(278,086	)			(120,454	)
Foreign currency exchange gain (loss)			1,528				(4,173	)
Other income			133				45
Provision for impairment			-				(5,520,522	)
Change in fair value of contingent consideration			(195,300	)			5,853,701
Transaction costs			(458,771	)			(1,199,120	)
Net loss before taxes			(1,626,494	)			(707,744	)
Provision for income taxes			(36,250	)			114,110
Net loss		$	(1,662,744	)		$	(593,634	)
Other comprehensive loss
Foreign currency translation (loss) gain			(42,443	)			696,969
Comprehensive (loss) gain		$	(1,705,187	)		$	103,335
Net loss per share
Basic and diluted		$	(0.03	)		$	(0.01	)
Weighted average number of common stock and Class A shares outstanding			62,384,871				50,020,087

SALONA GLOBAL MEDICAL DEVICE CORPORATION
Unaudited Interim Condensed Consolidated Balance Sheets
		March 31				March 31,
			2023				2022
Assets
Cash and cash equivalents		$	2,343,417			$	1,928,464
Restricted Cash			1,353,300				-
Accounts receivable, net			7,435,154				6,353,275
Inventories, net			6,693,780				8,102,626
Prepaid expenses and other receivables			321,423				216,489
Total current assets			18,147,074				16,600,854
Security deposit			565,739				566,198
Long-term accounts receivable			171,869				189,616
Long-term prepaid expenses and other receivables			273,602				441,025
Property and equipment, net			3,306,006				3,399,898
Right-of-use assets, net			7,763,724				7,781,300
Intangible assets, net			9,025,616				9,376,162
Goodwill			13,695,194				13,695,194
Total assets		$	52,948,824			$	52,050,247
Liabilities and stockholders’ equity
Liabilities
Line of credit		$	8,081,745			$	5,162,711
Accounts payable and accrued liabilities			6,122,494				6,641,181
Current portion of debt			198,274				195,489
Current portion of lease liability			964,971				847,253
Other liabilities			1,335,175				1,807,702
Obligation for payment of earn-out consideration			15,701,831				15,506,531
Total current liabilities			32,404,490				30,160,867
Debt, net of current portion			531,621				574,515
Lease liability, net of current portion			6,006,942				5,983,333
Total liabilities		$	38,943,053			$	36,718,715
Stockholders’ equity
Common stock; no par value, unlimited shares authorized; 54,151,709 shares issued and outstanding as of March 31, 2023 (December 31, 2022: 53,707,780)			38,970,199				38,767,442
Class A shares; no par value, unlimited shares authorized; 15,717,656 shares issued and outstanding as of March 31, 2023 (December 31, 2022: 3,403,925)			11,097,512				1,800,064
Common stock to be issued: 147,400 shares to be issued as of March 31, 2023 (December 31, 2022: nil)			47,168				-
Class A Shares to be issued: 6,261,340 shares to be issued as of March 31, 2023 (December 31, 2022: 19,019,000)			4,696,005				14,264,250
Additional paid-in-capital			8,472,908				8,072,610
Accumulated other comprehensive income			1,646,009				1,688,452
Deficit			(50,924,030	)			(49,261,286	)
Total stockholders’ equity		$	14,005,771			$	15,331,532
Total liabilities and stockholders’ equity		$	52,948,824			$	52,050,247