Exhibit 99.1
Quipt Home Medical Corp.
(Formerly, Protech Home Medical Corp.)
Condensed Consolidated Interim Financial Statements
2022 Third Quarter
For the three and nine months ended
June 30, 2022 and 2021
(UNAUDITED)
(Expressed in US Dollars)
Quipt Home Medical Corp. (formerly, Protech Home Medical Corp.)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
(Expressed in thousands of US Dollars, except per share amounts)
| | | | | | | | |
| | | | As at | | As at | ||
| | | | June 30, | | September 30, | ||
|
| Notes |
| 2022 |
| 2021 | ||
ASSETS |
|
|
| |
|
| |
|
Current Assets |
|
|
| |
|
| |
|
Cash | | | | $ | 18,538 | | $ | 34,612 |
Accounts receivable, net |
| 4 | |
| 14,864 | |
| 11,938 |
Inventory |
| | |
| 13,239 | |
| 9,253 |
Prepaid and other current assets | | | |
| 694 | |
| 1,430 |
Total current assets | | | |
| 47,335 | |
| 57,233 |
Long-term assets |
|
| |
|
| |
|
|
Property, equipment, and right of use assets, net |
| 5 | |
| 29,666 | |
| 23,506 |
Goodwill |
| 6 | |
| 34,576 | |
| 12,456 |
Intangible assets, net |
| 6 | |
| 18,498 | |
| 14,874 |
Other assets |
| 9 | |
| 403 | |
| 504 |
Total long-term assets | | | |
| 83,143 | |
| 51,340 |
TOTAL ASSETS | | | | $ | 130,478 | | $ | 108,573 |
| | | | | | | | |
LIABILITIES |
|
| |
|
| |
|
|
Current Liabilities |
|
| |
|
| |
|
|
Accounts payable | | | | $ | 13,191 | | $ | 9,842 |
Accrued liabilities | | | |
| 2,520 | |
| 3,202 |
Current portion of equipment loans |
| 9 | |
| 5,158 | |
| 6,992 |
Current portion of lease liabilities |
| 9 | |
| 3,348 | |
| 2,981 |
Government grant |
| 6 | |
| 631 | |
| 4,885 |
Revolving credit facility | | 9 | | | 12,000 | | | — |
Deferred revenue |
| | |
| 2,758 | |
| 2,452 |
Purchase price payable |
| 3 | |
| 6,873 | |
| 2,383 |
Total current liabilities | | | |
| 46,479 | |
| 32,737 |
Long-term Liabilities |
|
| |
|
| |
|
|
Debentures |
| 9 | |
| 9,648 | |
| 11,784 |
Equipment loans |
| 9 | |
| 323 | |
| 392 |
Lease liabilities |
| 9 | |
| 6,183 | |
| 4,784 |
SBA Loan |
| 9 | |
| 120 | |
| 121 |
Long-term purchase price payable |
| 3 | |
| — | |
| 133 |
TOTAL LIABILITIES | | | |
| 62,753 | |
| 49,951 |
| | | | | | | | |
SHAREHOLDERS' EQUITY |
|
| |
|
| |
|
|
Capital stock |
| 10 | |
| 204,443 | |
| 202,827 |
Contributed surplus | | | |
| 25,419 | |
| 21,001 |
Shares to be issued |
| 3 | |
| 657 | |
| 657 |
Accumulated deficit | | | |
| (162,794) | |
| (165,863) |
TOTAL SHAREHOLDERS' EQUITY | | | |
| 67,725 | |
| 58,622 |
TOTAL LIABILITIES AND EQUITY | | | | $ | 130,478 | | $ | 108,573 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
Page | 1 |
Quipt Home Medical Corp. (formerly, Protech Home Medical Corp.)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME (LOSS) AND
(UNAUDITED)
(Expressed in thousands of US Dollars, except per share amounts)
| | | | | | | | | | | | | | |
|
| |
| Three Months |
| Three Months |
| Nine Months |
| Nine Months | ||||
| | | | Ended June 30, | | Ended June 30, | | Ended June 30, | | Ended June 30, | ||||
| | Notes | | 2022 | | 2021 | | 2022 | | 2021 | ||||
Revenue | | | | | | | | | | | | | | |
Rentals of medical equipment |
|
| | $ | 18,106 | | $ | 13,751 | | $ | 50,953 | | $ | 39,942 |
Sales of medical equipment and supplies |
|
| |
| 18,586 | |
| 12,487 | |
| 48,816 | |
| 33,291 |
Total revenues |
|
| |
| 36,692 | |
| 26,238 | |
| 99,770 | |
| 73,233 |
Cost of inventory sold |
|
| |
| 8,906 | |
| 7,747 | | | 23,919 | | | 19,938 |
Operating expenses |
| 12 | |
| 16,926 | |
| 11,502 | | | 46,597 | | | 31,477 |
Bad debt expense | | | | | 3,404 | | | 1,682 | | | 8,983 | | | 5,970 |
Depreciation |
| | |
| 4,602 | |
| 4,313 | | | 14,159 | | | 11,282 |
Amortization of intangible assets |
| 6 | |
| 761 | |
| 455 | | | 1,676 | | | 1,107 |
Stock-based compensation |
| 10 | |
| 1,325 | |
| 1,597 | | | 4,596 | | | 1,624 |
Acquisition-related costs |
| 3 | |
| 156 | |
| 92 | | | 223 | | | 164 |
(Gain) loss on disposal of property and equipment |
|
| |
| (7) | |
| (37) | | | (10) | | | (65) |
Other income from government grant | | 7 | | | — | | | — | | | (4,254) | | | — |
Operating income (loss) from continuing operations |
|
| |
| 619 | |
| (1,113) | |
| 3,881 | |
| 1,736 |
Financing expenses |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense on convertible debenture |
|
| |
| 159 | |
| 190 | | | 499 | | | 655 |
Interest expense on leases and loans |
| 9 | |
| 270 | |
| 236 | | | 798 | | | 672 |
Other interest expense, net | | | | | 93 | | | 53 | | | 210 | | | 153 |
Loss on foreign currency transactions |
|
| |
| (44) | |
| 36 | | | 82 | | | 170 |
Change in fair value of warrants |
| | |
| — | |
| (4,127) | | | — | | | 2,110 |
Change in fair value of debentures |
| 9 | |
| (177) | |
| (3,295) | | | (1,235) | | | 4,594 |
Income (loss) before taxes from continuing operations |
|
| |
| 318 | |
| 5,794 | |
| 3,527 | |
| (6,618) |
Provision (benefit) for income taxes |
|
| |
| 155 | |
| (535) | |
| 458 | |
| (1,941) |
Net income (loss) |
|
| | $ | 163 | | $ | 6,329 | | $ | 3,069 | | $ | (4,677) |
| | | | | | | | | | | | | | |
Net income (loss) per share (Note 13) |
|
| |
|
| |
|
| |
|
| |
|
|
Basic earnings (loss) per share |
|
| | $ | 0.00 | | $ | 0.20 | | $ | 0.09 | | $ | (0.16) |
Diluted earnings (loss) per share |
|
| | $ | 0.00 | | $ | 0.19 | | $ | 0.08 | | $ | (0.16) |
Weighted average number of common shares outstanding in thousands: |
|
| |
|
| |
|
| |
|
| |
|
|
Basic |
|
| |
| 33,559 | |
| 30,893 | | | 33,449 | | | 29,500 |
Diluted |
|
| |
| 37,863 | |
| 33,754 | | | 38,109 | | | 29,500 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
Page | 2 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY (UNAUDITED)
(Expressed in thousands of US Dollars, except per share amounts)
| | | | | | | | | | | | | | | | | | | |
|
| |
| Number of |
| | |
| | |
| | |
| | |
| Total | |
| | | | Shares | | Capital | | Contributed | | Shares to | | Accumulated | | shareholders' | |||||
| | Notes | | (000’s) | | stock | | surplus | | be Issued | | Deficit | | equity | |||||
Balance September 30, 2020 |
|
|
| 28,069 | | $ | 171,405 | | $ | 16,519 | | $ | — | | $ | (159,689) | | $ | 28,235 |
Net loss |
|
|
| — | | | | | | | | | | | | (4,677) | |
| (4,677) |
Stock-based compensation |
| 10 |
| — | | | | | | 1,624 | | | | | | | |
| 1,624 |
Exercise of warrants, including transfer of derivative warrant liability of $4,140 |
| 10 |
| 3,390 | | | 21,614 | | | | | | | | | | |
| 21,614 |
Shares to be issued for acquisition | | | | — | | | | | | | | | 3,033 | | | | | | 3,033 |
Issuance of stock to be issued | | | | 629 | | | 2,376 | | | | | | (2,376) | | | | | | — |
Conversion of debentures | | | | 663 | | | 4,714 | | | | | | | | | | | | 4,714 |
Stock options exercised |
| 10 |
| 92 | | | 239 | | | (65) | | | | | | | |
| 174 |
Compensation options exercised |
| 10 |
| 368 | | | 1,717 | | | (316) | | | | | | | |
| 1,401 |
Balance June 30, 2021 |
|
|
| 33,211 | | $ | 202,065 | | $ | 17,762 | | $ | 657 | | $ | (164,366) | | $ | 56,118 |
| | | | | | | | | | | | | | | | | | | |
Balance September 30, 2021 |
|
|
| 33,350 | | $ | 202,827 | | $ | 21,001 | | $ | 657 | | $ | (165,863) | | $ | 58,622 |
Net income |
|
|
| — | | | | | | | | | | | | 3,069 | |
| 3,069 |
Conversion of debentures | | 9 | | 160 | | | 884 | | | | | | | | | | | | 884 |
Stock options exercised |
| 10 |
| 22 | | | 204 | | | (25) | | | | | | | |
| 179 |
Compensation options exercised | | 10 | | 115 | | | 528 | | | (153) | | | | | | | | | 375 |
Stock-based compensation |
| 10 |
| — | | | | | | 4,596 | | | | | | | |
| 4,596 |
Balance June 30, 2022 | | |
| 33,647 | | $ | 204,443 | | $ | 25,419 | | $ | 657 | | $ | (162,794) | | $ | 67,725 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
Page | 3 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)
(Expressed in thousands of US Dollars, except per share amounts)
| | | | | | | | |
|
| |
| Nine months |
| Nine months | ||
| | | | ended June 30, | | ended June 30, | ||
| | Notes | | 2022 | | 2021 | ||
Operating activities | | | | | | | | |
Net income (loss) | | | | $ | 3,069 | | $ | (4,677) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| | |
| |
Depreciation and amortization |
| | |
| 15,835 | |
| 12,389 |
Amortization of financing costs |
| 9 | |
| 105 | |
| 105 |
Accretion of purchase price payable |
| 3 | |
| 63 | |
| 19 |
Interest expense, net of amortization and accretion |
| | |
| 1,339 | |
| 1,356 |
Cash paid for interest | | | | | (1,520) | | | (1,593) |
Loss on foreign currency transactions | | | |
| 82 | |
| 170 |
Loss on fair value of warrants |
| 8 | |
| — | |
| 2,110 |
(Gain) loss on fair value of convertible debentures |
| 9 | |
| (1,235) | |
| 4,594 |
Gain on disposal of property and equipment | | | |
| (10) | |
| (65) |
Stock-based compensation |
| 10 | |
| 4,596 | |
| 1,624 |
Other income from government grant | | 7 | | | (4,254) | | | — |
Provision (benefit) for income taxes | | | | | 458 | | | (1,941) |
Cash paid for income taxes | | | | | (468) | | | (343) |
Change in working capital net of assets acquired and liabilities assumed: | | | |
| | |
| |
(Increase) decrease in accounts receivable | | | |
| 497 | |
| (529) |
Increase in inventory | | | |
| (1,081) | |
| (2,308) |
(Increase) decrease in prepaid and other current assets | | | |
| 801 | |
| (1,077) |
Increase (decrease) in deferred revenue | | | |
| (117) | |
| 317 |
Increase (decrease) in accounts payables and accrued liabilities | | | |
| 1,273 | |
| 1,098 |
Net cash flow provided by operating activities | | | |
| 19,433 | |
| 11,249 |
Investing activities |
|
| |
|
| |
|
|
Purchase of property and equipment |
| 5 | |
| (6,020) | | | (2,254) |
Cash proceeds from sale of property and equipment | | | |
| 283 | | | 638 |
Cash paid for acquisitions |
| 3 | |
| (28,687) | | | (10,963) |
Net cash flow used in investing activities | | | |
| (34,424) | |
| (12,579) |
Financing activities |
|
| |
|
| |
|
|
Repayments of loans |
| 9 | |
| (9,214) | | | (7,337) |
Repayments of leases | | 9 | | | (2,857) | | | (2,377) |
Payments of purchase price payable |
| 3 | |
| (1,468) | | | (783) |
Proceeds from borrowings on the revolving credit facility | | 9 | | | 12,000 | | | — |
Proceeds from exercise of warrants |
| 10 | |
| — | | | 10,633 |
Proceeds from exercise of compensation options | | 10 | | | 375 | | | — |
Proceeds from exercise of options |
| 10 | |
| 179 | | | 1,575 |
Net cash flow (used in) provided by financing activities | | | |
| (985) | |
| 1,711 |
| | | | | | | | |
Net (decrease) increase in cash | | | |
| (15,976) | |
| 381 |
| | | | | | | | |
Effect of exchange rate changes on cash held in foreign currencies | | | |
| (98) | |
| 986 |
| | | | | | | | |
Cash, beginning of period | | | |
| 34,612 | |
| 29,227 |
Cash, end of period | | | | $ | 18,538 | | $ | 30,594 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
Page | 4 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
1. |
Reporting entity
Quipt Home Medical Corp. (“Quipt” or the “Company”) was incorporated under the Business Corporations Act (Alberta) on March 5, 1993. On December 30, 2013, the Company was continued into British Columbia, Canada. The address of the registered office is 666 Burrard St, Vancouver, British Columbia, V6C 2Z7. The head office is located at 1019 Town Drive, Wilder, Kentucky, United States. The Company is a participating Medicare provider that provides i) nebulizers, oxygen concentrators, and CPAP and BiPAP units; ii) traditional and non-traditional durable medical respiratory equipment and services; and iii) non-invasive ventilation equipment, supplies and services. The Company has embarked on an acquisition strategy for additional revenue and profit growth.
The Company changed its name from Protech Home Medical Corp. to Quipt Home Medical Corp. on May 13, 2021.
The Company’s shares are traded on the TSX Venture Exchange under the symbol QIPT. On May 27, 2021, the stock began trading on NASDAQ in the United States under the symbol QIPT. Effective May 13, 2021, the Company consolidated its issued and outstanding common shares based on one post-consolidation common share for every four pre-consolidation common shares. Unless otherwise stated, the share, options and warrants along with corresponding exercise prices and per-share amounts have been restated retrospectively to reflect this share consolidation.
Basis of measurement
These consolidated financial statements have been prepared on a going concern basis that assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations.
Reclassifications
Certain reclassifications have been made to the prior period presentation in order to conform to the current presentation.
2. | Summary of significant accounting policies |
Unreserved statement of compliance
These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, “Interim Financial Reporting”, using accounting policies consistent with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. These condensed consolidated interim financial statements do not include all the disclosures required in annual consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the years ended September 30, 2021 and 2020.
The Company has followed the same basis of presentation, accounting policies and method of computation for these condensed consolidated interim financial statements as disclosed in the annual audited consolidated financial statements for the years ended September 30, 2021 and 2020.
The unaudited consolidated financial statements were approved and authorized for issue by the Board of Directors on August 15, 2022.
Page | 5 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
3. | Acquisition of businesses and purchase accounting |
Acquisition of Thrift Home Care, Inc.
On October 1, 2021, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Thrift Home Care, Inc. (“Thrift”), a Mississippi-based company in the same industry as the Company. The purchase price was $2,169,000 of which $1,804,000 was paid in cash at closing, with remaining holdbacks due on the six- and twelve-month anniversaries of the acquisition discounted at 3.31% for a fair value of $365,000. 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 $26,000 of professional fees in conjunction with the acquisition.
The revenues and net loss for Thrift for the nine months ended June 30, 2022 was approximately $1,600,000 and $(30,000), respectively.
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to: property and equipment, intangible assets acquired, deferred tax liabilities, working capital adjustments, and purchase price. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could be affected. The fair value of the acquired assets that is provisional pending final valuations of the assets and liabilities is as follows:
| | | |
Cash |
| $ | 452 |
Accounts receivable | |
| 165 |
Inventory | |
| 107 |
Property and equipment | |
| 270 |
Right of use assets | |
| 888 |
Goodwill | |
| 540 |
Intangibles | | | 770 |
Accounts payable | |
| (140) |
Accrued liabilities | |
| (33) |
Deferred revenue | |
| (40) |
Lease liabilities | |
| (810) |
Net assets acquired | | $ | 2,169 |
Cash paid at closing | | $ | 1,804 |
Cash to be paid after closing, included in purchase price payable | |
| 365 |
Consideration paid or payable | | $ | 2,169 |
The goodwill is attributable to expected synergies from the combined operations. None of the goodwill is deductible for income tax purposes.
Page | 6 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
Acquisition of Heckman Healthcare Services & Supplies, Inc.
On November 1, 2021, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Heckman Healthcare Services & Supplies, Inc (“Heckman”). Heckman is an Illinois-based company in the same industry as the Company. The purchase price was $2,435,000, of which $2,103,000 was paid in cash at closing, with remaining holdbacks due on the six- and twelve-month anniversaries of the acquisition discounted at 3.31% for a fair value of $332,000. 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 $28,000 of professional fees in conjunction with the acquisition.
The pro forma revenues and net income for Heckman for the nine months ended June 30, 2022 as if the acquisition had occurred on October 1, 2021 was approximately $1,700,000 and $150,000, respectively, of which approximately $1,500,000 and $140,000 were recognized in the period from November 1, 2021 to June 30, 2022.
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to property and equipment, working capital adjustments, and purchase price. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could be affected. The fair value of the acquired assets is provisional pending final valuations of the assets and liabilities is as follows:
| | | |
Cash |
| $ | 169 |
Accounts receivable | |
| 170 |
Inventory | |
| 280 |
Property and equipment | |
| 1,111 |
Right of use assets | |
| 54 |
Goodwill | |
| 843 |
Intangibles | | | 90 |
Accounts payable | |
| (159) |
Accrued liabilities | |
| (96) |
Deferred revenue | |
| (27) |
Net assets acquired | | $ | 2,435 |
Cash paid at closing | | $ | 2,103 |
Cash to be paid after closing, included in purchase price payable | |
| 332 |
Consideration paid or payable | | $ | 2,435 |
The goodwill is attributable to expected synergies from the combining operations. None of the goodwill is deductible for income tax purposes.
Acquisition of Southeastern Biomedical Services, LLC
On November 9, 2021, the Company, through newly-created entity SE Biomedical Holdco, LLC (“Southeastern Bio”), a Kentucky limited liability company, entered into a purchase agreement to acquire substantially all of the assets of Southeastern Biomedical Services, LLC. Southeastern Bio provides repair parts and service, calibration, and electrical safety for the durable medical equipment industry, and was a vendor of the Company. The purchase price was $697,000, of which $600,000 was paid in cash at closing, with remaining holdbacks payable on the six- and twelve-month
Page | 7 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
anniversaries of the acquisition at a fair value of $97,000. 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 $18,000 of professional fees in conjunction with the acquisition.
The pro forma revenues and net loss for Southeastern Bio for the nine months ended June 30, 2022 as if the acquisition had occurred on October 1, 2021 was approximately $1,600,000 and $(140,000), respectively, of which approximately $1,400,000 and $(120,000) were recognized in the period from November 9, 2021 to June 30, 2022.
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to: property and equipment, intangible assets acquired, deferred tax liabilities, working capital adjustments, and purchase price. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could be affected. The fair value of the acquired assets is provisional pending final valuations of the assets and liabilities and is as follows:
| | | |
Accounts receivable | | $ | 112 |
Inventory | |
| 53 |
Property and equipment | |
| 14 |
Right of use assets | |
| 292 |
Goodwill | |
| 225 |
Intangibles | | | 270 |
Accounts payable | |
| (131) |
Lease liabilities | |
| (138) |
Net assets acquired | | $ | 697 |
Cash paid at closing | | $ | 600 |
Cash to be paid after closing, included in purchase price payable | |
| 97 |
Consideration paid or payable | | $ | 697 |
The goodwill is attributable to expected synergies from the combining operations. All of the goodwill is deductible for income tax purposes.
Acquisition of At Home Health Equipment, LLC
On January 1, 2022, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of At Home Health Equipment, LLC (“At Home”). At Home is an Indiana-based company in the same industry as the Company. The purchase price was $13,266,000, of which $11,978,000 was paid in cash at closing, with remaining holdbacks due on the six- and twelve-month anniversaries of the acquisition discounted at 3.41% for a fair value of $1,288,000. 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 $31,000 of professional fees in conjunction with the acquisition.
The pro forma revenues and net income for At Home for the nine months ended June 30, 2022 as if the acquisition had occurred on October 1, 2021 was approximately $9,700,000 and $700,000, respectively, of which approximately $6,300,000 and $700,000 were recognized in the period from January 1, 2022 to June 30, 2022.
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to property and equipment, working capital adjustments, and purchase price. The Company expects to continue to obtain information to assist in
Page | 8 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could be affected. The fair value of the acquired assets is provisional pending final valuations of the assets and liabilities is as follows:
| | | |
Cash | | $ | 495 |
Accounts receivable | | | 1,346 |
Inventory | |
| 1,211 |
Prepaid expenses | | | 71 |
Property and equipment | |
| 775 |
Right of use assets | |
| 1,310 |
Goodwill | |
| 6,035 |
Intangibles | | | 4,170 |
Accounts payable | |
| (600) |
Accrued liabilities | | | (345) |
Deferred revenue | | | (135) |
Lease liabilities | |
| (1,067) |
Net assets acquired | | $ | 13,266 |
Cash paid at closing | | $ | 11,978 |
Cash to be paid after closing, included in purchase price payable | |
| 1,288 |
Consideration paid or payable | | $ | 13,266 |
The goodwill is attributable to expected synergies from the combining operations. All of the goodwill is deductible for income tax purposes.
Acquisition of Good Night Medical, LLC
On April 1, 2022, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Good Night Medical, LLC (“Good Night”) and its subsidiaries. Good Night is an Ohio-based company in the same industry as the Company. The purchase price was $6,168,000, of which $4,361,000 was paid in cash at closing, with remaining holdbacks due on the six- and twelve-month anniversaries of the acquisition discounted at 3.41% for a fair value of $1,807,000. 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 $34,000 of professional fees in conjunction with the acquisition.
The pro forma revenues and net income for Good Night for the nine months ended June 30, 2022 as if the acquisition had occurred on October 1, 2021 was approximately $6,900,000 and $300,000, respectively, of which approximately $1,700,000 and $30,000 were recognized in the period from April 1, 2022 to June 30, 2022.
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to property and equipment, working capital adjustments, and purchase price. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods
Page | 9 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
subsequent to the period of acquisition could be affected. The fair value of the acquired assets is provisional pending final valuations of the assets and liabilities is as follows:
| | | |
Cash | | $ | 42 |
Accounts receivable | | | 730 |
Inventory | |
| 369 |
Property and equipment | |
| 250 |
Right of use assets | |
| 261 |
Goodwill (provisional) | |
| 6,838 |
Accounts payable | |
| (1,100) |
Accrued liabilities | | | (166) |
Deferred revenue | | | (39) |
Equipment loans | | | (756) |
Lease liabilities | |
| (261) |
Net assets acquired | | $ | 6,168 |
Cash paid at closing | | $ | 4,361 |
Cash to be paid after closing, included in purchase price payable | |
| 1,807 |
Consideration paid or payable | | $ | 6,168 |
The goodwill is attributable to expected synergies from the combining operations. All of the goodwill is deductible for income tax purposes.
Acquisition of Access Respiratory Home Care, LLC
On June 1, 2022, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of Access Respiratory Home Care, LLC (“Access”). Access is a Louisiana-based company in the same industry as the Company. The purchase price was $6,616,000, of which $5,347,000 was paid in cash at closing, with remaining holdbacks due on the six- and twelve-month anniversaries of the acquisition discounted at 3.41% for a fair value of $1,269,000. 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 $75,000 of professional fees in conjunction with the acquisition.
The pro forma revenues and net income for Access for the nine months ended June 30, 2022 as if the acquisition had occurred on October 1, 2021 was approximately $4,900,000 and $700,000, respectively, of which approximately $600,000 and $150,000 were recognized in the period from June 1, 2022 to June 30, 2022.
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to property and equipment, working capital adjustments, and purchase price. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could be affected. The fair value of the acquired assets is provisional pending final valuations of the assets and liabilities is as follows:
Page | 10 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
| | | |
Cash | | $ | 417 |
Accounts receivable | | | 600 |
Inventory | |
| 393 |
Property and equipment | |
| 200 |
Right of use assets | | | 561 |
Goodwill (provisional) | |
| 5,811 |
Accounts payable | |
| (330) |
Accrued liabilities | | | (475) |
Deferred revenue | | | (90) |
Equipment loans | | | (10) |
Lease liabilities | |
| (461) |
Net assets acquired | | $ | 6,616 |
Cash paid at closing | | $ | 5,347 |
Cash to be paid after closing, included in purchase price payable | |
| 1,269 |
Consideration paid or payable | | $ | 6,616 |
The goodwill is attributable to expected synergies from the combining operations. All of the goodwill is deductible for income tax purposes.
Acquisition of NorCal Respiratory, Inc.
On June 3, 2022, the Company, through PHM Logistics Corporation, entered into a purchase agreement to acquire all the shares of NorCal Respiratory, Inc (“NorCal”). NorCal is a California-based company in the same industry as the Company. The purchase price was $3,098,000, of which $2,494,000 was paid in cash at closing, with remaining holdbacks due on the six- and twelve-month anniversaries of the acquisition discounted at 3.41% for a fair value of $604,000. 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 $10,000 of professional fees in conjunction with the acquisition.
The pro forma revenues and net loss for NorCal for the nine months ended June 30, 2022 as if the acquisition had occurred on October 1, 2021 was approximately $2,100,000 and $(200,000), respectively, of which approximately $200,000 and $(20,000) were recognized in the period from June 3, 2022 to June 30, 2022.
The primary areas of the preliminary purchase price allocation that are not yet finalized relate to property and equipment, working capital adjustments, and purchase price. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that the Company determines to be material will be applied retrospectively to the period of acquisition in the Company’s consolidated financial statements and, depending on the nature of the adjustments, other periods subsequent to the period of acquisition could be affected. The fair value of the acquired assets is provisional pending final valuations of the assets and liabilities is as follows:
The goodwill is attributable to expected synergies from the combining operations. All of the goodwill is deductible for income tax purposes.
| | | |
Cash | | $ | 503 |
Accounts receivable | | | 300 |
Inventory | |
| 492 |
Property and equipment | |
| 360 |
Page | 11 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
Right of use assets | | | 481 |
Goodwill (provisional) | |
| 1,921 |
Accounts payable | |
| (100) |
Accrued liabilities | | | (83) |
Deferred revenue | | | (93) |
Equipment loans | | | (335) |
Lease liabilities | |
| (348) |
Net assets acquired | | $ | 3,098 |
Cash paid at closing | | $ | 2,494 |
Cash to be paid after closing, included in purchase price payable | |
| 604 |
Consideration paid or payable | | $ | 3,098 |
Purchase Price Payable
The purchase price payable included on the statements of financial position consists of amounts related to prior period acquisitions in addition to the three fiscal year 2022 acquisitions less payments made to date. Below is the movement in purchase price payable for the nine months ended June 30, 2022 and 2021, respectively:
| | | |
|
| | |
| | | |
| | | |
Balance September 30, 2020 (current $857 plus long-term $560) | | $ | 1,417 |
Additions from acquisitions | | | 1,900 |
Accretion of interest | | | 19 |
Payments on prior period acquisitions | | | (783) |
Balance June 30, 2021 (current $2,420 plus long-term $133) | | $ | 2,553 |
| | | |
Balance September 30, 2021 (current $2,383 plus long-term $133) | | $ | 2,516 |
Additions from acquisitions | |
| 5,762 |
Accretion of interest | |
| 63 |
Payments on prior period acquisitions | |
| (1,468) |
Balance June 30, 2022 (current $6,873) | | $ | 6,873 |
4. | Accounts Receivable |
Accounts receivable represents amounts due from insurance companies and patients. As of June 30, 2022, the Company has approximately 8% of the Company’s receivables due from Medicare:
| | | | | | |
|
| As at |
| As at | ||
| | June 30, 2022 | | September 30, 2021 | ||
Gross receivable | | $ | 22,263 | | $ | 15,413 |
Reserve for expected credit losses | |
| (7,399) | |
| (3,475) |
Total | | $ | 14,864 | | $ | 11,938 |
5. | Property and equipment and right of use assets |
As of June 30, 2022, property and equipment and right of use assets was comprised of the following:
| | | | | | |
|
| As at |
| As at |
Page | 12 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
| | June 30, 2022 | | September 30, 2021 | ||
Property and equipment, net | | $ | 21,070 | | $ | 15,893 |
Right of use assets, net | |
| 8,596 | |
| 7,613 |
Total | | $ | 29,666 | | $ | 23,506 |
Rental equipment transferred from inventory during the nine months ended June 30, 2022 and 2021 was $12,029,000 and $9,415,000. For the nine months ended June 30, 2022 and 2021, the Company obtained equipment loans (Note 9) of $6,183,000 and $7,237,000, respectively, with the balance of $5,846,000 and $2,178,000 paid in cash. respectively.
6. | Goodwill and Intangible Assets |
The following is the activity in goodwill and intangible assets for the nine moths ended June 30, 2022 and 2021:
| | | | | | | | | |
|
| | |
| |
| | | |
| | | | | | | | | |
| | | | | | | | | |
Cost | | Goodwill | | Intangible Assets | | Total | |||
Balance September 30, 2020 | | $ | 3,895 | | $ | 18,135 | | $ | 22,030 |
Acquisitions | |
| 7,541 | | | 8,241 | |
| 15,782 |
Disposals | |
| — | | | (149) | |
| (149) |
Balance June 30, 2021 | | $ | 11,436 | | $ | 26,227 | | $ | 37,663 |
| | | | | | | | | |
Balance September 30, 2021 | | $ | 12,456 | | $ | 28,799 | | $ | 41,255 |
Acquisitions | |
| 22,120 | | | 5,300 | |
| 27,420 |
Disposals | |
| — | | | (2) | |
| (2) |
Balance June 30, 2022 | | $ | 34,576 | | $ | 34,097 | | $ | 68,673 |
| | | | | | | | | |
|
| | |
| |
| | | |
| | | | | | | | | |
| | | | | | | | | |
Accumulation amortization | | Goodwill | | Intangibles | | Total | |||
Balance September 30, 2020 | | $ | — | | $ | 12,556 | | $ | 12,556 |
Amortization | |
| — | | | 1,107 | |
| 1,107 |
Disposals | |
| — | | | (149) | |
| (149) |
Balance June 30, 2021 | | $ | — | | $ | 13,514 | | $ | 13,514 |
| | | | | | | | | |
Balance September 30, 2021 | | $ | — | | $ | 13,925 | | $ | 13,925 |
Amortization | |
| — | | | 1,676 | |
| 1,676 |
Disposals | |
| — | | | (2) | |
| (2) |
Balance June 30, 2022 | | $ | — | | $ | 15,599 | | $ | 15,599 |
| | | | | | | | | |
|
| | |
| |
| | | |
| | | | | | | | | |
| | | | | | | | | |
Net carrying amount | | Goodwill | | Intangibles | | Total | |||
Balance September 30, 2020 | | $ | 3,895 | | $ | 5,579 | | $ | 9,474 |
Balance June 30, 2021 | | $ | 11,436 | | $ | 12,713 | | $ | 24,149 |
Balance September 30, 2021 | | $ | 12,456 | | $ | 14,874 | | $ | 27,330 |
Balance June 30, 2022 | | $ | 34,576 | | $ | 18,498 | | $ | 53,074 |
Page | 13 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
7. | Government Grant |
During the year ended September 30, 2020, the Company received payments related to the two separate provisions of the US CARES Act.
Payroll Protection Plan (“PPP’)
On April 16, 2020, the Company received $4,254,000 related to the PPP, which was to assist companies in maintaining their workforce. The PPP provided for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses. The loans and accrued interest were forgivable if the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent, and utilities for up to twenty-four weeks, and maintains certain payroll levels. On March 23, 2022, the loan was forgiven, and other income in the amount of $4,254,000 has been recorded on the condensed consolidated interim statements of income (loss) for the nine months ended June 30, 2022.
Public Health and Social Services Emergency Fund (“Relief Fund”)
During the year ended September 30, 2020, the Company received $1,797,000 from the Relief Fund, which was established to support healthcare providers to prevent, prepare for, and respond to coronavirus, including health care related expenses or lost revenues, subject to certain terms and conditions. If those terms and conditions are met, payments do not need to be repaid. No expenses related to the PPP can be used to meet the terms and conditions for the Relief Fund.
In September 2021, the Company submitted its filing with the Health and Human Services (“HHS”) supporting the use of the funds under the terms and conditions of the Relief Fund. The HHS has not indicated whether any formal notification of acceptance will be provided. The Company has accounted for the proceeds under IAS 20. The cash inflow has been reported as a financing activity. The original proceeds were recognized as a liability, which was reduced based on certain related costs incurred. During the year ended September 30, 2020, the Company reduced the liability by $1,166,000, which was included in other income in the consolidated statements of income (loss) and comprehensive income (loss). No reduction was recorded in the nine months ended June 30, 2022 or 2021.
| | | | | | | | | |
|
| Current |
| Long-term |
| Total | |||
Balance September 30, 2020 | | $ | 2,599 | | $ | 2,286 | | $ | 4,885 |
Change in current and long-term portions | | | 2,286 | | | (2,286) | | | — |
Balance June 30, 2021 | | $ | 4,885 | | $ | — | | $ | 4,885 |
| | | | | | | | | |
Balance September 30, 2021 | | $ | 4,885 | | $ | — | | $ | 4,885 |
Loan forgiveness recognized as Other income | |
| (4,254) | | | — | |
| (4,254) |
Balance June 30, 2022 | | $ | 631 | | $ | — | | $ | 631 |
8. | Derivative warrant liability |
On June 29, 2020, the Company completed a bought deal public offering, a concurrent brokered private placement, and a non-brokered private placement to the Company’s Chief Executive Officer and a director of the Company. Each unit consisted of one common share and one-half of one common share purchase warrant (each whole warrant, a “Warrant”), Each Warrant was exercisable to acquire one common share for a period of 12 months following the closing at an exercise
Page | 14 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
price of C$6.40 per share. During the nine months ended June 30, 2021, 13,559,300 Warrants for 3,389,825 common shares were exercised, and the remaining 280,113 Warrants for 70,028 common shares expired on June 29, 2021. The Warrants were recorded as a liability since they are denominated in Canadian Dollars and the Company’s functional currency is US dollars. A revaluation was performed each period end, with the change in fair value recorded in the caption “Change in fair value of warrants.” Upon exercise, the warrant liability was derecognized and transferred to equity.
Warrant activity for the nine months ended June 30, 2021 is provided below:
| | |
| | For the Nine |
| | months ended |
| June 30, 2021 | |
Beginning balance | $ | 1,855 |
Exercised at weighted average Black-Scholes fair value of $0.31 |
| (4,140) |
Change in fair value | | 2,110 |
Change in foreign exchange rate |
| 175 |
Ending balance | $ | — |
9. | Long-term Debt |
Debentures
On March 7, 2019, the Company issued C$15,000,000 ($12,000,000) in 8.0% Convertible Unsecured Debentures due March 7, 2024, with interest payable semi-annually on June 30 and December 31. Each C$1,000 ($776) debenture is convertible at the option of the holder into 192.31 common shares. As of September 30, 2021, C$4,041,000 ($3,172,000) of debentures had been converted into common shares, leaving C$10,959,000 ($8,601,000) of face value debentures remaining. During the nine months ended June 30, 2022, C$834,000 ($660,000) of debentures were converted into common shares, leaving C$10,125,000 ($7,857,000) of face value of the debentures remaining. The fair value of the debentures on the dates of conversion totaled C$1,121,000 ($884,000). The Company can force conversion of the outstanding principal at a conversion price of C$5.20, if the daily volume weighted average price of the common shares exceeds C$6.48 per share for twenty consecutive trading days. On August 9, 2022, the Company exercised its right to convert the outstanding debentures into common stock on September 8, 2022.
The debentures contain multiple embedded derivatives including conversion right, forced conversion option and payment in lieu of common shares. Since the Company is unable to measure the fair value of embedded derivatives reliably, it has elected to designate the convertible debentures in their entirety (including conversion right, forced conversion option and payment in lieu of common shares) to be subsequently measured at fair value through profit or loss (FVTPL).
The debentures are valued at fair value using the current trading price of C$123 ($96) and C$148 ($119) as of June 30, 2022 and June 30, 2021, respectively, per unit. A gain of $177,000 and $1,235,000 was recorded for the three and nine months ended June 30, 2022, respectively. A gain of $3,295,000 and a loss of $4,594,000 was recorded for the three and nine months ended June 30, 2021, respectively. Following is the movement in these debentures:
| | | | | | |
|
| Nine months ended |
| Nine months ended | ||
| | June 30, 2022 | | June 30, 2021 | ||
Beginning balance | | $ | 11,784 | | $ | 12,930 |
Conversion to common shares | |
| (884) | |
| (4,714) |
Change in fair value | |
| (1,235) | |
| 4,594 |
Page | 15 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
Change in foreign exchange rate | |
| (17) | |
| 982 |
Ending balance | | $ | 9,648 | | $ | 13,792 |
In conjunction with issuance of the debentures, the Company issued compensation options to the underwriters for 129,808 shares of the Company at an exercise price of C$5.20 for a period of two years from the closing of the transaction. The fair value of the options has been valued at $1.02 per option for a total of $133,000 using the Black-Scholes pricing model.
Compensation options activity for the nine months ended June 30, 2021 is provided below:
| | | | | |
|
| Number |
| Weighted | |
| | (000s) | | average exercise price | |
Balance September 30, 2020 | | 130 | | C$ | 5.20 |
Exercised | | (130) | |
| 5.20 |
Balance June 30, 2021 | | — | | C$ | — |
Equipment Loans
The Company is offered financing arrangements from the Company’s suppliers and the suppliers’ designated financial institutions, under which payments for certain invoices or products can be financed and paid over an extended period. The financial institution pays the supplier when the original invoice becomes due, and the Company pays the third-party financial institution over a period of time. In some cases, the supplier accepts a discounted amount from the financial institution and the Company repays the financial institution the face amount of the invoice with no stated interest, in twelve equal monthly installments. The Company uses a 6% incremental borrowing rate to impute interest on these arrangements. In other cases, the supplier receives the full invoice price and Company pays a stated interest rate to the financial institution, ranging from 5.6% to 8.0%, with the terms of the financing ranging from 12 to 48 months. There are no covenants with the loans and the carrying value of the equipment that is pledged as security against the loans is $12,691,000 and $5,808,000 as of June 30, 2022 and 2021, respectively.
Following is the activity in equipment loans for the nine months ended June 30, 2022 and 2021:
| | | | | | |
|
| Nine months ended |
| Nine months ended | ||
| | June 30, 2022 | | June 30, 2021 | ||
Beginning balance | | $ | 7,384 | | $ | 4,750 |
Additions: | |
| | |
| |
Acquisitions | |
| 1,128 | |
| 3,001 |
Operations | |
| 6,183 | |
| 7,237 |
Interest expense | |
| 262 | |
| 268 |
Repayments | |
| (9,476) | |
| (7,605) |
Ending balance | |
| 5,481 | |
| 7,651 |
Current portion, less than 1 year | |
| 5,158 | |
| 7,003 |
Long-term portion, due between 1 and 5 years | | $ | 323 | | $ | 648 |
Leases Liabilities
The Company enters into leases for real estate and vehicles. Real estate leases are valued at the net present value of the future lease payments at an 8% incremental borrowing rate. Vehicle leases are recorded at rate implicit in the lease based on the current value and the estimated residual value of the vehicle, equating to rates ranging from 1.7% to 10.4%.
Page | 16 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
Below is the movement in lease liabilities for the nine months ended June 30, 2022 and 2021:
| | | | | | | | | |
|
| | |
| Real |
| | | |
| | Vehicles | | estate | | Total | |||
Balance September 30, 2020 | | $ | 1,627 | | $ | 3,640 | | $ | 5,267 |
Additions during the period: | | | | | | | | | |
Acquisitions | | | 109 | | | 540 | | | 649 |
Operations | | | 704 | | | 1,750 | | | 2,454 |
Interest | | | 110 | | | 294 | | | 404 |
Repayments | | | (549) | | | (2,232) | | | (2,781) |
Balance June 30, 2021 | | $ | 2,001 | | $ | 3,992 | | $ | 5,993 |
| | | | | | | | | |
Balance September 30, 2021 | | $ | 2,414 | | $ | 5,351 | | $ | 7,765 |
Additions during the period: | |
| | | | | |
| |
Acquisitions | |
| 571 | | | 2,489 | |
| 3,060 |
Operations | |
| 340 | | | 1,303 | |
| 1,643 |
Interest | |
| 157 | | | 379 | |
| 536 |
Change in lease terms | | | — | | | (80) | | | (80) |
Repayments | |
| (1,295) | | | (2,098) | |
| (3,393) |
Balance June 30, 2022 | | $ | 2,187 | | $ | 7,344 | | $ | 9,531 |
Future payments pursuant to lease liabilities are as follows:
| | | | | | |
|
| As at |
| As at | ||
| | June 30, 2022 | | September 30, 2021 | ||
Less than 1 year | | $ | 3,964 | | $ | 3,491 |
Between 1 and 5 years | |
| 6,424 | |
| 5,367 |
More than five years | |
| 651 | |
| 38 |
Gross lease payments | |
| 11,039 | |
| 8,896 |
Less: finance charges | |
| (1,508) | |
| (1,131) |
Net lease liabilities | | $ | 9,531 | | $ | 7,765 |
SBA Loan
In conjunction with an acquisition on February 1, 2021, the Company assumed an SBA Loan. The face amount of the loan is $150,000 and bears interest at stated interest rate of 3.75%. Due to the below-market interest rate, the Company valued the loan at the net present value of the payments using its incremental borrowing rate of 6%, resulting in a fair value on the acquisition date of $122,000. The loan is payable in 360 monthly installments of $731 beginning June 2021 and is secured by substantially all the assets of the acquired subsidiary.
Revolving Credit Facility
In September 2020, the Company entered a $20,000,000 asset-based revolving credit facility with a US bank. The facility matures in September 2024 and bears interest at floating rate of LIBOR plus 2.0% to 2.5%, with a LIBOR floor of 0.5% and has an unused commitment fee of 0.3%. The Company has borrowings of $12,000,000 and $0 from this facility as at June 30, 2022 and September 30, 2021, respectively. Average borrowings for the three and nine months ended June 30, 2022 was $468,000 and $158,000, respectively. Interest expense for the facility primarily related to the unused
Page | 17 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
commitment fee and totaled $21,000 and $13,000 for the three months ended June 30, 2022 and 2021, respectively. Interest expense for the facility for the nine months ended June 30, 2022 and 2021 totaled $46,000 and $38,000, respectively. The facility is subject to a borrowing base based on a percentage of eligible accounts receivable and expected future revenues from existing customer rentals. Issuance costs are recorded in “other assets” on the consolidated statements of financial position and are being amortized on a straight-line over the four-year term of the facility for a total of $35,000 and $105,000 for each of the three and nine months ended June 30, 2022 and 2021, respectively.
10. | Share capital |
The Company considers its capital to be shareholders’ equity, which is comprised of capital stock, contributed surplus, shares to be issued, and accumulated deficit, in the amount of $67,725,000 and $58,622,000 as at June 30, 2022 and September 30, 2021, respectively.
Issued share capital
The Company has only one class of common stock outstanding. Effective May 13, 2021, the Company consolidated its issued and outstanding common shares based on one post-consolidation common share for every four pre-consolidation common shares. Unless otherwise stated, the share, options and warrants along with corresponding exercise prices and per-share amounts have been restated retrospectively to reflect this share consolidation.
Common shares are classified as equity. Incremental costs directly attributable to the issuance of common shares are recognized as a reduction of equity, net of any income tax effects.
Accumulated other comprehensive income represents items such as cumulative, foreign currency translation adjustments, the change in equity arising from unrealized gains and losses from financial instruments designated as available-for-sale, and changes in fair value of derivatives designated as cash flow hedges and is presented as a separate component of shareholders’ equity on the consolidated statements of financial position.
Bought deals and private placements
On June 29, 2020, the Company completed a bought deal public offering, a concurrent brokered private placement, and a non-brokered private placement to the Company’s Chief Executive Officer and a director of the Company. Each unit and consisted of one pre-consolidation common share and one-half of one common share purchase warrant (each whole warrant, a “Warrant”) for a total of 13,839,413 Warrants.
Following the consolidation, for every four Warrants exercised in accordance with its terms, the holder will be entitled to acquire one common share for a period of twelve months following the closing at an exercise price of C$6.40 per share. During the nine months ended June 30, 13,559,300 Warrants for 3,389,825 common shares were exercised, for total proceeds of C$21,695,000, or $17,473,000.
Common share activity related to the Warrants for the nine months ended June 30, 2021 is provided below:
| | | | | |
|
| Number of shares |
| Weighted | |
| | (000s) | | average exercise price | |
Balance September 30, 2020 |
| 3,460 | | C$ | 6.40 |
Exercised |
| (3,390) | |
| 6.40 |
Expired | | (70) | | | 6.40 |
Balance June 30, 2021 |
| — | | C$ | — |
Page | 18 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
The Company issued compensation options to the underwriter for 367,826 shares at the issue price of C$4.60 for a period of two years from the closing of the offering. The fair value of the options has been valued at $1.24 for a total of $456,000.
Activity for the June 2020 compensation options for the nine months ended June 30, 2022 and 2021 is as follows:
| | | | | |
|
| Number |
| Weighted | |
| | (000s) | | average exercise price | |
Balance September 30, 2020 |
| 353 | | C$ | 4.60 |
Exercised |
| (238) | |
| 4.60 |
Balance June 30, 2021 |
| 115 | | C$ | 4.60 |
| | | | | |
Balance September 30, 2021 |
| 115 | | C$ | 4.60 |
Exercised |
| (115) | |
| 4.60 |
Balance June 30, 2022 |
| — | | C$ | — |
Shares to be issued
In conjunction with an acquisition on October 23, 2020, a portion of the purchase price is payable in shares. $2,376,000 (629,000 shares at a fair value of $3.78 per share) was issued in January 2021, and $657,000 (246,000 shares at a fair value of $2.67) is expected to be issued in August 2022. The fair value of the stock has been discounted by 15% and 25%, respectively, using the Black-Scholes pricing model for put options, to reflect the inability to sell the stock for a period and for the time between the date of the acquisition and the dates the stock is to be issued.
Stock options and grants
The Company has a stock option plan, which it uses for grants to directors, officers, employees, and consultants. Options granted under the plan are non-assignable and may be granted for a term not exceeding ten years. Stock options having varying vesting periods and the options granted during the nine months ended June 30, 2022 vest quarterly over quarterly over eight or twelve quarters.
A summary of stock options is provided below:
| | | | | |
|
| |
| Weighted | |
| | Number of options (000’s) | | average exercise price | |
Balance September 30, 2020 | | 2,626 | | C$ | 1.92 |
Granted | | 1,396 | | | 8.40 |
Exercised when weighted average share price was C$8.47 | | (92) | | | 2.39 |
Expired | | (56) | | | 3.97 |
Forfeited | | (15) | | | 8.12 |
Balance June 30, 2021 | | 3,859 | | C$ | 4.17 |
| | | | | |
Balance September 30, 2021 |
| 3,786 | | C$ | 4.15 |
Issued | | 195 | | | 6.69 |
Exercised when weighted average share price was C$6.50 |
| (22) | |
| 1.50 |
Expired |
| (21) | |
| 6.18 |
Forfeited |
| (115) | |
| 8.48 |
Balance June 30, 2022 |
| 3,823 | | C$ | 4.15 |
Page | 19 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
At June 30, 2022, the Company had 2,842,000 vested stock options with a weighted average exercise price of C$2.80.
The fair value of the stock options granted used the Black-Scholes option pricing model calculated using the following assumptions:
| | | | |
|
| Nine months Ended |
| Nine months Ended |
|
| June 30, |
| June 30, |
|
| 2022 | | 2021 |
Share price at grant date |
| C$6.20 - C$6.75 | | C$6.16 - C$8.48 |
Risk-free interest rate | | 1.78 - 3.33% | | 0.92 - 1.63% |
Expected volatility based on most recent 3 years' trading prices | | 54.54 - 55.67% | | 48.97 - 55.08% |
Expected life of option | | 10 years | | 4 - 10 years |
Expected dividend yield |
| Nil | | Nil |
Restricted stock units
On May 20, 2021, there were 953,750 restricted stock units granted to officers and directors. Each unit represents the right to receive one common share, and vests over a period of two years from the grant date at the rate of one-eighth every three months commencing three months after the grant date, with 340,156 restricted stock units being vested as of June 30, 2022. The shares are to be issued in the calendar year subsequent to the calendar year in which the units vested, or earlier upon a Change in Control, as defined.
On February 1, 2022, there were 81,340 restricted stock units granted to officers. Each unit represents the right to receive one common share, and vests in four installments on the last day of each calendar quarter of 2022, resulting in 40,670 restricted stock units being vested as of June 30, 2022. The shares are to be issued on December 31, 2022.
The fair value of the units on the date of grant are discounted to reflect the difference between the vesting dates and the issuance dates, resulting in compensation expense of C$7,586,000 ($6,285,000) and C$529,000 ($417,000) to be expensed over the vesting period with an increase to contributed surplus.
A summary of restricted stock units:
| | | | | |
|
| |
| Weighted | |
| | Number of units (000’s) | | average grant-date price | |
Balance September 30, 2020 | | — | | C$ | — |
Granted | | 954 | | | 8.48 |
Balance June 30, 2021 |
| 954 | | C$ | 8.48 |
| | | | | |
Balance September 30, 2021 | | 954 | | C$ | 8.48 |
Forfeited | | (105) | | | 8.48 |
Issued | | 81 | | | 6.83 |
Balance June 30, 2022 |
| 930 | | C$ | 8.34 |
Stock-based compensation
The Company accounts for stock-based compensation using the fair value method as prescribed by IFRS 2. Under this method, the fair value of stock options and restricted stock units at the date of grant is expensed over the vesting period
Page | 20 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
and the offsetting credit is recorded as an increase in contributed surplus. Awards with graded vesting are considered to be multiple awards for fair value measurement. An estimate of the number of awards that are expected to be forfeited is also made at the time of grant and revised periodically if actual forfeitures differ from those estimates.
For the three and nine months ended June 30, 2022 and 2021, the Company recorded stock-based compensation expense as follows:
| | | | | | | | | | | | |
|
| Three Months |
| Three Months |
| Nine Months |
| Nine Months | ||||
| | Ended June 30, | | Ended June 30, | | Ended June 30, | | Ended June 30, | ||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
Restricted stock units | | $ | 600 | | $ | 971 | | $ | 2,250 | | $ | 971 |
Stock options | | | 725 | | | 626 | | | 2,346 | | | 653 |
Stock-based compensation expense | | $ | 1,325 | | $ | 1,597 | | $ | 4,596 | | $ | 1,624 |
11. | Commitments and contingencies |
Commitments
The Company leases certain facilities with terms of less than a year that are classified as operating leases. Future payments pursuant to these leases are $56,000 and $28,000 as of June 30, 2022 and September 30, 2021, respectively, which are all due in less than one year.
Contingencies
The Company was in litigation with Lightwater Long Short Fund (“Lightwater”) during the years ended September 30, 2020 and 2021. The litigation was settled in December 2021 for approximately $150,000, which was recorded in operating expenses for the year ended September 30, 2021.
From time to time, the Company is involved in various legal proceedings arising from the ordinary course of business. None of the matters in which the Company is currently involved, either individually, or in the aggregate, is expected to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
12. Operating expenses
| | | | | | | | | | | | |
|
| Three months |
| Three months |
| Nine months |
| Nine months | ||||
| | ended June 30, | | ended June 30, | | ended June 30, | | ended June 30, | ||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
Payroll and employee benefits | | $ | 10,418 | | $ | 7,257 | | $ | 29,002 | | $ | 20,693 |
Facilities | |
| 906 | |
| 522 | |
| 2,403 | |
| 1,540 |
Billing | |
| 1,656 | |
| 1,077 | |
| 4,501 | |
| 2,686 |
Professional fees | |
| 787 | |
| 824 | |
| 2,758 | |
| 1,824 |
Marketing costs | |
| 492 | |
| 234 | |
| 1,106 | |
| 577 |
Outbound freight | |
| 570 | |
| 384 | |
| 1,486 | |
| 967 |
All other | |
| 2,097 | |
| 1,204 | |
| 5,341 | |
| 3,190 |
Total operating expenses | | $ | 16,926 | | $ | 11,502 | | $ | 46,597 | | $ | 31,477 |
Page | 21 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
13. | Income (loss) per share |
Income (loss) per common share is calculated using the weighted average number of common shares outstanding during the period. Diluted loss per share amounts are calculated giving effect to the potential dilution that would occur from the incremental shares issued if in-the-money securities or other contracts to issue common shares were exercised or converted to common shares by assuming the proceeds received from the exercise of stock options and warrants are used to purchase common shares at the prevailing market price. For periods with a net loss, the potential dilutive shares were excluded because their effect is anti-dilutive.
The following reflects the earnings and share data used in the basic and diluted income (loss) per share computations:
| | | | | | | | | | | | |
|
| Three months |
| Three months |
| Nine months |
| Nine months | ||||
| | ended June 30, | | ended June 30, | | ended June 30, | | ended June 30, | ||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
Net income (loss) from continuing operations | | $ | 163 | | $ | 6,329 | | $ | 3,069 | | $ | (4,677) |
Basic weighted average number of shares | |
| 33,559 | |
| 30,893 | |
| 33,449 | |
| 29,500 |
Diluted weighted average number of shares | |
| 37,863 | |
| 33,754 | |
| 38,109 | |
| 29,500 |
Total - Basic | | $ | 0.00 | | $ | 0.20 | | $ | 0.09 | | $ | (0.16) |
Total - Diluted | | $ | 0.00 | | $ | 0.19 | | $ | 0.08 | | $ | (0.16) |
The effect of instruments exercisable or convertible to common shares for the three and nine months ended June 30, 2021 were excluded from the calculation of diluted loss per share because their effect is anti-dilutive.
14. | Related party transactions |
The Company has six market rate leases for office, warehouse, and retail space with a rental Company affiliated with the Company’s Chief Executive Officer, the majority of which were entered into in 2015. The leases have a combined area of 74,520 square feet. Lease payments under these leases are approximately $52,000 per month, plus taxes, utilities, and maintenance.
Expense for Board of Directors’ fees were $89,000 and $53,000 for the three months ended June 30, 2022 and 2021, respectively. Fees were $230,000 and $150,000 for the nine months ended June 30, 2022 and 2021, respectively. Stock-based compensation for the Board of Directors was $303,000 and $387,000 for the three months ended June 30, 2022 and 2021, respectively, and $540,000 and $408,000 for the nine months ended June 30, 2022 and 2021, respectively.
Key management personnel also participate in the Company’s share option program (see Note 1). The Company recorded compensation to key management personnel the following:
| | | | | | | | | | | | |
|
| Three months |
| Three months |
| Nine months |
| Nine months | ||||
| | ended June 30, | | ended June 30, | | ended June 30, | | ended June 30, | ||||
| | 2022 | | 2021 | | 2022 | | 2021 | ||||
Salaries and benefits | | $ | 240 | | $ | 224 | | $ | 751 | | $ | 707 |
Stock-based compensation | |
| 1,183 | |
| 746 | |
| 2,851 | |
| 746 |
Total | | $ | 1,423 | | $ | 970 | | $ | 3,602 | | $ | 1,453 |
15. | Subsequent events |
Page | 22 |
Quipt Home Medical Corp. (Formerly, Protech Home Medical Corp.)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) JUNE 30, 2022 AND 2021
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
Acquisition of Hometown Medical LLC
On July 1, 2022, the Company, through one of its indirect wholly-owned subsidiaries, entered into a purchase agreement to acquire Hometown Medical LLC (“Hometown”), a Mississippi-based company. The purchase price was $5,668,000, of which $4,568,000 was paid in cash at closing, a $1,100,000 holdback payable on the six and twelve-month anniversary of the acquisition. The holdbacks are subject to normal post-closing adjustments, if any.
Pro forma nine-month revenues and net income of Hometown had the acquisition occurred on October 1, 2021 are approximately $6,000,000 and $450,000, respectively. The Company is in the process of gathering the information required to allocate the purchase price to the acquired tangible and intangible assets and assumed liabilities as of the acquisition date.
Proposed Senior Credit Facilities
On August 12, 2022, the Company received a commitment to enter into an agreement to amend and restate the revolving credit facility dated September 18, 2020. The new credit facility will be up to $80,000,000, to be comprised of a term loan facility in an aggregate principal amount of up to $5,000,000, a delayed draw term loan facility in an aggregate principal amount of up to $55,000,000 and a revolving credit facility in an aggregate principal amount of up to $20,000,000. The primary use of proceeds of the loans made under the Proposed Senior Credit Facilities will be used to finance potential future acquisitions and general working capital purposes. Closing is anticipated to occur within 30 days.
Page | 23 |