| Acquisition of businesses and purchase accounting | 3. Acquisition of businesses and purchase accounting Acquisition of Sleepwell, LLC Effective October 23, 2020, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Sleepwell, Inc. (Sleepwell), Georgia company in the same industry as the Company. The purchase price was $9,976,000 of which $6,623,000 was paid in cash at closing, $2,376,000 (629,000 shares at a fair value of $3.78 per share) was paid through the issuance of stock in January 2021, a holdback paid in March 2021 discounted at 3.46% for a fair value of $320,000, and $657,000 (246,000 shares at a fair value of $2.67) to be paid in stock in August 2022. The fair value of the stock has been discounted by 15% and 25%, respectively, using the Black-Scholes pricing model for put options, to reflect the inability to sell the stock for a period and for the time between the date of the acquisition and the dates the stock is to be issued. The Company has determined that the transaction is an acquisition of a business under IFRS 3, and it has been accounted for by applying the acquisition method. The Company expensed $81,000 of professional fees in conjunction with the acquisition. The pro forma revenues and net income for Sleepwell for the year ended September 30, 2021 was approximately $11,100,000 and $2,800,000, respectively, of which approximately $10,400,000 and $2,700,000 were recognized in the period from October 23, 2020 through September 30, 2021. The fair value of the acquired assets was as follows: Cash $ 378 Accounts receivable 780 Inventory 769 Prepaid expenses and other current assets 2 Property and equipment 960 Right of use real estate ($390 net of unfavorable lease) 313 Goodwill 4,641 Intangible asset – Non-compete agreements 220 Intangible asset – Brand 520 Intangible asset – Customer relationships 4,670 Accounts payable (640) Accrued liabilities (166) Deferred revenue (100) Lease liabilities (390) Deferred tax liability (1,981) Net assets acquired $ 9,976 Cash paid at closing $ 6,623 Stock issued in January 2021 2,376 Cash to be paid after closing 320 Stock to be issued after closing, included in shares to be issued 657 Consideration paid or payable $ 9,976 The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is deductible for tax purposes. Subsequent to the acquisition date, the deferred tax liability on the purchase price allocation of $1,981,000 was offset by the deferred tax asset from tax loss carry forwards and recorded as recovery of income taxes. Acquisition of Mayhugh Drugs, Inc. Effective February 1, 2021, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Mayhugh Drugs, Inc, dba Mayhugh Medical Equipment (Mayhugh). Mayhugh is a Florida based company in the same industry as the Company. The purchase price was $1,959,000, of which $1,047,000 was paid in cash at closing, holdbacks due on the six- and twelve-month anniversary of the acquisition discounted at 2.39% for a fair value of $662,000, and an earnout valued at $250,000. The earnout could be as high as $750,000 ($250,000 for each of the first three twelve-month periods following the acquisition), and the fair value was based on a Monte Carlo simulation. The Company has determined that the transaction is an acquisition of a business under IFRS 3 and it has been accounted for by applying the acquisition method. The Company expensed $53,000 of professional fees in conjunction with the acquisition. The pro forma revenues and net income for Mayhugh for the year ended September 30, 2021 was approximately $6,300,000 and $700,000, respectively, of which approximately $4,300,000 and $700,000 were recognized in the period from February 1, 2021 to September 30, 2021. The fair value of the acquired assets was as follows: Cash $ 180 Accounts receivable, net of expected credit loss of $1,142 474 Inventory 487 Prepaid expenses and other current assets 7 Property and equipment 1,357 Right of use real estate 61 Goodwill 1,587 Intangible asset – Non-compete agreements 40 Intangible asset – Brand 290 Intangible asset – Customer relationships 2,500 Accounts payable (880) Accrued liabilities (14) Deferred revenue (84) Equipment loans (2,846) US Small Business Association (“SBA”) loan (119) Lease liabilities (134) Deferred tax liability (947) Net assets acquired $ 1,959 Cash paid at closing $ 1,047 Cash to be paid after closing, included in purchase price payable 912 Consideration paid or payable $ 1,959 The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is deductible for income tax purposes. Subsequent to the acquisition date, the deferred tax liability on the purchase price allocation of $947,000 was offset by the deferred tax asset from tax loss carry forwards and recorded as recovery of income taxes. Acquisition of Med Supply Center, Inc. On June 21, 2021, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Med Supply Center, Inc. (“Med Supply”). Med Supply is a Mississippi based company in the same industry as the Company. The purchase price was $1,601,000, of which $1,279,000 was paid in cash at closing, $10,000 to be paid within two months of the acquisition, and holdbacks payable on the six- and twelve-month anniversaries of the acquisition discounted at 2.39% for a fair value of $312,000. The Company has determined that the transaction is an acquisition of a business under IFRS 3, and it has been accounted for by applying the acquisition method. The Company expensed $25,000 of professional fees in conjunction with the acquisition. The pro forma revenues and net income for Med Supply for the year ended September 30, 2021 was approximately $2,400,000 and $60,000, respectively, of which approximately $900,000 and $40,000 were recognized in the period from June 21, 2021 to September 30, 2021. The fair value of the acquired assets was as follows: Cash $ 48 Accounts receivable 180 Inventory 597 Property and equipment 263 Right of use real estate 88 Goodwill 766 Intangible asset – Non-compete agreements 140 Intangible asset – Brand 20 Intangible asset – Customer relationships 210 Accounts payable (190) Accrued liabilities (40) Deferred revenue (53) Deferred tax liability (304) Lease liabilities (124) Net assets acquired $ 1,601 Cash paid at closing $ 1,279 Cash to be paid after closing, included in purchase price payable 322 Consideration paid or payable $ 1,601 The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is deductible for tax purposes. Subsequent to the acquisition date, the deferred tax liability on the purchase price allocation of $304,000 was offset by the deferred tax asset from tax loss carry forwards and recorded as recovery of income taxes. Acquisition of Semo Drug-Care Plus of Mo. Inc On June 23, 2021, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Semo Drug-Care Plus of Mo. Inc, dba Care Plus Home Oxygen Therapy (“Care Plus”). Care Plus is a Missouri based company in the same industry as the Company. The purchase price was $1,626,000, of which $1,440,000 was paid in cash at closing, $10,000 to be paid within two months of the acquisition, and holdbacks payable on the six- and twelve-month anniversaries of the acquisition discounted at 2.39% for a fair value of $176,000. The Company has determined that the transaction is an acquisition of a business under IFRS 3, and it has been accounted for by applying the acquisition method. The Company expensed $25,000 of professional fees in conjunction with the acquisition. The pro forma revenues and net income for Care Plus Oxygen for the year ended September 30, 2021 was approximately $2,200,000 and $300,000, respectively, of which approximately $700,000 and $40,000 were recognized in the period from June 23, 2021 to September 30, 2021. The fair value of the acquired assets was as follows: Cash $ 47 Accounts receivable 292 Inventory 475 Property and equipment 373 Goodwill 482 Intangible asset – Non-compete agreements 60 Intangible asset – Brand 100 Intangible asset – Customer relationships 370 Accounts payable (94) Accrued liabilities (51) Deferred tax liability (377) Deferred revenue (51) Net assets acquired $ 1,626 Cash paid at closing $ 1,440 Cash to be paid after closing, included in purchase price payable 186 Consideration paid or payable $ 1,626 The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is deductible for tax purposes. Subsequent to the acquisition date, the deferred tax liability on the purchase price allocation of $377,000 was offset by the deferred tax asset from tax loss carry forwards and recorded as recovery of income taxes. Acquisition of Oxygen Plus, Inc. On June 29, 2021, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Oxygen Plus, Inc. Oxygen Plus is a California based company in the same industry as the Company. The purchase price was $730,000, of which $574,000 was paid in cash at closing and a holdback due on the six- and twelve-month anniversaries of the acquisition discounted at 2.39% for a fair value of $156,000. The Company has determined that the transaction is an acquisition of a business under IFRS 3, and it has been accounted for by applying the acquisition method. The Company expensed $24,000 of professional fees in conjunction with the acquisition. The pro forma revenues and net income (loss) for Oxygen Plus for the year ended September 30, 2021 was approximately $1,100,000 and $40,000, respectively, of which approximately $300,000 and $(90,000) were recognized in the period from June 29, 2021 to September 30, 2021. The fair value of the acquired assets is as follows: Cash $ 114 Accounts receivable 60 Inventory 39 Property and equipment 88 Goodwill 327 Intangible asset – Non-compete agreements 10 Intangible asset – Brand 50 Intangible asset – Customer relationships 500 Accounts payable (98) Accrued liabilities (13) Deferred tax liability (180) Deferred revenue (12) Equipment loans (155) Net assets acquired $ 730 Cash paid at closing $ 574 Cash to be paid after closing, included in purchase price payable 156 Consideration paid or payable $ 730 The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is deductible for tax purposes. Subsequent to the acquisition date, the deferred tax liability on the purchase price allocation of $180,000 was offset by the deferred tax asset from tax loss carry forwards and recorded as recovery of income taxes. Acquisition of Medical West Healthcare. On August 20, 2021, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Medical West Healthcare Center. Medical West is a Missouri based company in the same industry as the Company. The purchase price was $2,366,000, of which $1,927,000 was paid in cash at closing and a holdback due on the six- and twelve-month anniversaries of the acquisition discounted at 2.39% for a fair value of $439,000. The Company has determined that the transaction is an acquisition of a business under IFRS 3, and it has been accounted for by applying the acquisition method. The Company expensed $25,000 of professional fees in conjunction with the acquisition. The pro forma revenues and net income for Medical West for the year ended September 30, 2021 was approximately $5,700,000 and $400,000, respectively, of which approximately $600,000 and $40,000 were recognized in the period from August 21, 2021 to September 30, 2021. The fair value of the acquired assets was as follows: Cash $ 234 Accounts receivable 195 Inventory 382 Prepaid expenses and other current assets 10 Property and equipment 1,121 Goodwill 758 Intangible asset – Non-compete agreements 20 Intangible asset – Brand 270 Intangible asset – Customer relationships 880 Deposits 2 Accounts payable (309) Accrued liabilities (107) Deferred tax liability (11) Deferred revenue (16) Equipment loans (1,063) Net assets acquired $ 2,366 Cash paid at closing $ 1,927 Cash to be paid after closing, included in purchase price payable 439 Consideration paid or payable $ 2,366 The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is deductible for tax purposes. Subsequent to the acquisition date, the deferred tax liability on the purchase price allocation of $11,000 was offset by the deferred tax asset from tax loss carry forwards and recorded as recovery of income taxes. Prior year acquisitions Acquisition of Cooley Medical Equipment, Inc. Effective October 1, 2019, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Cooley Medical Equipment, Inc. (Cooley), a Kentucky company in the same industry as the Company. The purchase price was $2,732,000, of which $2,333,000 was paid in cash at closing , and the balance of $399,000 to be paid on the 18-month anniversary of the acquisition discounted at 3.86%. Of the cash portion of the purchase price, $1,824,000 was paid to the US Department of Justice to pay off a settlement agreement into which Cooley had entered. The Company has determined that the transaction is an acquisition of a business under IFRS 3 and it has been accounted for by applying the acquisition method. The Company expensed $41,000 of legal expenses, included in acquisition-related costs, during the year ended September 30, 2020 in conjunction with the acquisition. During the year ended September 30, 2021, the Company settled the purchase price payable, resulting in income of $123,000, which is included as a reduction of operating expenses on the statement of income (loss) and comprehensive income (loss) for the year ended September 30, 2021. The fair value of the acquired assets was as follows: Cash $ 80 Accounts receivable 605 Inventory 769 Prepaid expenses and other current assets 42 Property and equipment 1,842 Right of use assets 1,080 Intangible asset – Brand 80 Intangible asset – Non-compete agreements 20 Intangible asset – Customer relationships 330 Goodwill 422 Accounts payable and accrued liabilities (815) Deferred revenue (204) Equipment loans (509) Lease liabilities (1,010) Net assets acquired $ 2,732 Cash paid at closing $ 2,333 Cash to be paid after closing, included in purchase price payable 399 Consideration paid or payable $ 2,732 The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is expected to be deductible for tax purposes. Acquisition of Acadia Medical Supply, Inc. Effective December 1, 2019, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Acadia Medical Supply, Inc. (Acadia), a Maine company in the same industry as the Company. The purchase price was $1,476,000, of which $1,004,000 was paid in cash at closing, and the balance of $472,000 to be paid on the one- and two-year anniversaries of the acquisition discounted at 3.86%. The Company has determined that the transaction is an acquisition of a business under IFRS 3 and it has been accounted for by applying the acquisition method. The Company expensed $22,000 of legal expenses included in operating expenses in conjunction with the acquisition. Pro forma revenues and net income for Acadia for the year ended September 30, 2020 were approximately $3,300,000 and $400,000, respectively. Of those amounts, revenues of approximately $2,800,000 and net income of approximately $300,000 contributed to the Company’s results for the period from December 1, 2019 through September 30, 2020. The fair value of the acquired assets was as follows: Cash $ 59 Accounts receivable 143 Inventory 246 Property and equipment 387 Right of use assets 243 Other assets 8 Intangible asset – Brand 130 Intangible asset – Non-compete agreements 30 Intangible asset – Customer relationships 460 Goodwill 375 Accounts payable and accrued liabilities (278) Deferred revenue (44) Equipment loans (136) Lease liabilities (147) Net assets acquired $ 1,476 Cash paid at closing $ 1,004 Cash to be paid after closing, indcluded in accrued liabilities 228 Cash to be paid after closing, included in other long-term liabilities 244 Consideration paid or payable $ 1,476 The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is expected to be deductible for tax purposes. Acquisition of Health Technology Resources, L.L.C. Effective August 17, 2020, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Health Technology Resources, L.L.C. (“HTR”), an Illinois company in the same industry as the Company. The purchase price was $5,347,000, of which $4,819,000 was paid in cash at closing, and the balance of $528,000 to be paid after closing. The $528,000 is comprised of (a) a holdback due on the two-year anniversary of the acquisition discounted at 3.86% for a value of $184,000, (b) Payroll Protection Plan funds of $207,000 to be paid on upon forgiveness, and (c) an earnout valued at $137,000. The earnout could be as high as $500,000 and the fair value was based on a Monte Carlo simulation. As of September 30, 2021, the earnout was revalued to $65,000, and a reduction to operating expenses of $72,000 was recorded in the statement of income (loss) and comprehensive income (loss for the year ended September 30, 2021 Operating expenses on the income statement. The Company has determined that the transaction is an acquisition of a business under IFRS 3 and it has been accounted for by applying the acquisition method. The Company expensed $26,000 of legal expenses, included in acquisition-related expenses, during the year ended September 30, 2020 in conjunction with the acquisition. Pro forma revenues and net income for HTR for the year ended September 30, 2020 were approximately $4,100,000 and $1,500,000, respectively. Of those amounts, revenues of approximately $450,000 and net income of approximately $110,000 contributed to the Company’s results for the period from August 17, 2020 through September 30, 2020. The fair value of the acquired assets was as follows: Cash $ 140 Accounts receivable 400 Inventory 77 Property and equipment 216 Prepaid assets 15 Intangible asset – Brand 330 Intangible asset – Non-compete agreements 70 Intangible asset – Customer relationships 2,610 Goodwill 1,678 Accounts payable and accrued liabilities (107) Deferred revenue (82) Net assets acquired $ 5,347 Cash paid at closing $ 4,819 Cash to be paid after closing, indcluded in accrued liabilities 207 Cash to be paid after closing, included in other long-term liabilities 321 Consideration paid or payable $ 5,347 The goodwill is attributable to expected synergies from the combining operations. The goodwill is expected to be deductible for tax purposes. Acquistion Related Costs The acquisition related costs included on the consoldiated statements of loss and comprehensive loss consists of amounts related to professional expenses for acquisitions in addition to prior period acquisition related costs. The reconciliation of this expense is as follows for the year ended September 30, 2021: As at As at Acquisition Professional Fees: September 30, 2021 September 30, 2020 Cooley — 41 Acadia — 22 Health Technology Resources — 26 Sleepwell 81 — Mayhugh 53 — Med Supply 25 — Care Plus 25 — Oxygen Plus 24 — Medical West 25 — Balance, September 30, 2021 $ 233 $ 89 Purchase Price Payable The purchase price payable included on the consolidated statements of financial position consists of amounts related to prior period acquisitions as well as current fiscal year 2021 acquisitions less payments made to date. Below is the movement in Purchase Price Payable for the year ended September 30, 2021: Year Ended September 30, 2021 Balance, September 30, 2020 (current $857 plus long-term $560) $ 1,417 Addition from acquisitions 2,335 Accretion of interest 38 Payments (1,274) Balance, September 30, 2021 (current $2,383 plus long-term $133) $ 2,516 |
