Skylight Health Group Inc.
Condensed Interim Consolidated Financial Statements
June 30, 2022
(Expressed in thousands of Canadian Dollars)
(Unaudited)
Notice to Reader
The accompanying unaudited condensed interim consolidated financial statements of Skylight Health Group Inc. (the "Company") have been prepared by and are the responsibility of management. The unaudited condensed interim consolidated financial statements as at and for the three and six months ended June 30, 2022 have not been reviewed by the Company's auditors.
SKYLIGHT HEALTH GROUP INC.
Condensed Interim Consolidated Statements of Financial Position
(Expressed in thousands of Canadian dollars)
(Unaudited)
June 30, 2022 | December 31, 2021 | ||||||||||
$ | $ | ||||||||||
ASSETS | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | 2,250 | 11,653 | |||||||||
Trade and other receivables | Note 7 | 11,591 | 5,858 | ||||||||
Purchase consideration receivable | Note 13 | 4,304 | 2,708 | ||||||||
Prepaid expenses | 942 | 862 | |||||||||
Total current assets | 19,087 | 21,081 | |||||||||
Non-current | |||||||||||
Property, plant and equipment | Note 8 | 1,564 | 766 | ||||||||
Trade and other receivables | Note 7 | 1,245 | 1,043 | ||||||||
Purchase consideration receivable | Note 13 | 1,686 | 3,250 | ||||||||
Right-of-use assets | Note 9 | 21,203 | 15,695 | ||||||||
Intangible assets | Note 10 | 16,801 | 14,873 | ||||||||
Goodwill | Note 10 | 10,637 | 8,739 | ||||||||
Total assets | 72,223 | 65,447 | |||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
Current liabilities | |||||||||||
Accounts payable and accrued liabilities | Note 11 | 9,266 | 6,687 | ||||||||
Loan payable | Note 14 | 1,730 | 317 | ||||||||
Purchase consideration payable | Note 6 | 2,950 | 2,951 | ||||||||
Lease liabilities | Note 9 | 1,869 | 1,347 | ||||||||
Total current liabilities | 15,815 | 11,302 | |||||||||
Non-current | |||||||||||
Redemption liability | Note 12 | 419 | 402 | ||||||||
Loan payable | Note 14 | 8,619 | — | ||||||||
Purchase consideration payable | Note 6 | — | 608 | ||||||||
Lease liabilities | Note 9 | 19,524 | 14,528 | ||||||||
Warrant liability | Note 15 | 816 | — | ||||||||
Total liabilities | 45,193 | 26,840 | |||||||||
SHAREHOLDERS' EQUITY | |||||||||||
Common share capital | Note 15 | 62,092 | 61,450 | ||||||||
Preferred share capital | Note 15 | 6,237 | 6,237 | ||||||||
Contributed surplus | 6,320 | 6,719 | |||||||||
Accumulated other comprehensive income | 1,828 | 246 | |||||||||
Accumulated deficit | (50,247) | (36,757) | |||||||||
Non-controlling interests | 800 | 712 | |||||||||
Total shareholders' equity | 27,030 | 38,607 | |||||||||
Total liabilities and shareholders' equity | 72,223 | 65,447 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
Going concern (Note 2)
Subsequent events (Note 18)
5
SKYLIGHT HEALTH GROUP INC.
Condensed Interim Consolidated Statements of Loss and Comprehensive Loss
(Expressed in thousands of Canadian dollars, except per share amounts)
(Unaudited)
Three months ended | Six months ended | ||||||||||||||||
June 30, 2022 | June 30, 2021 (Adjusted, note 13) | June 30, 2022 | June 30, 2021 (Adjusted, note 13) | ||||||||||||||
$ | $ | $ | $ | ||||||||||||||
Revenues | |||||||||||||||||
Fee for service and other revenue | Note 17 | 8,724 | 6,877 | 16,436 | 9,051 | ||||||||||||
Capitated revenue | Note 17 | 7,353 | — | 7,353 | — | ||||||||||||
16,077 | 6,877 | 23,789 | 9,051 | ||||||||||||||
Cost of sales | 12,106 | 3,067 | 16,392 | 4,041 | |||||||||||||
Gross profit | 3,971 | 3,810 | 7,397 | 5,010 | |||||||||||||
Operating Expenses | |||||||||||||||||
Salaries and wages | 4,921 | 3,832 | 10,388 | 5,345 | |||||||||||||
Office and administration | 2,267 | 1,513 | 4,434 | 1,892 | |||||||||||||
Marketing and business development | 722 | 612 | 1,150 | 1,466 | |||||||||||||
Professional fees | 904 | 1,376 | 1,950 | 2,000 | |||||||||||||
Rent | 265 | 86 | 430 | 87 | |||||||||||||
Share-based compensation | 50 | 361 | 403 | 1,410 | |||||||||||||
Depreciation and amortization | 1,507 | 1,136 | 2,890 | 1,652 | |||||||||||||
Total operating expenses | 10,636 | 8,916 | 21,645 | 13,852 | |||||||||||||
Loss from continuing operations | (6,665) | (5,106) | (14,248) | (8,842) | |||||||||||||
Finance expenses | |||||||||||||||||
Foreign exchange (gain) loss | (1,314) | 430 | (805) | 699 | |||||||||||||
Change in fair value of financial liabilities | (1,084) | (26) | (1,177) | (63) | |||||||||||||
Accretion on purchase consideration payable and trade receivables | 12 | 69 | (47) | 133 | |||||||||||||
Interest on lease liabilities | Note 9 | 445 | 221 | 811 | 312 | ||||||||||||
Interest on long-term debt | 445 | — | 445 | — | |||||||||||||
Other income | Note 14 | — | — | — | (870) | ||||||||||||
Net loss from continuing operations | (5,169) | (5,800) | (13,475) | (9,053) | |||||||||||||
Net income from discontinued operations | Note 13 | — | 987 | — | 1,844 | ||||||||||||
Net loss | (5,169) | (4,813) | (13,475) | (7,209) | |||||||||||||
Other comprehensive loss | |||||||||||||||||
Exchange difference on translation of foreign operations, net of tax | 1,412 | 53 | 1,585 | 7 | |||||||||||||
Total comprehensive loss | (3,757) | (4,760) | (11,890) | (7,202) | |||||||||||||
Net loss from continuing operations attributable to: | |||||||||||||||||
Shareholders of the Company | (5,290) | (5,800) | (13,560) | (9,053) | |||||||||||||
Non-controlling interests | 121 | — | 85 | — | |||||||||||||
Net loss from continuing operations | (5,169) | (5,800) | (13,475) | (9,053) | |||||||||||||
Net loss attributable to: | |||||||||||||||||
Shareholders of the Company | (5,290) | (4,813) | (13,560) | (7,209) | |||||||||||||
Non-controlling interests | 121 | — | 85 | — | |||||||||||||
Net loss | (5,169) | (4,813) | (13,475) | (7,209) | |||||||||||||
Net loss from continuing operations per common share | (0.13) | (0.16) | (0.34) | (0.25) | |||||||||||||
Net income from discontinued operations per common share | — | 0.03 | — | 0.05 | |||||||||||||
Basic and diluted net loss per common share | (0.13) | (0.13) | (0.34) | (0.20) | |||||||||||||
Weighted average number of common shares outstanding - basic and diluted (in 000s) | 39,481 | 36,887 | 39,294 | 36,166 | |||||||||||||
Comprehensive loss attributable to: | |||||||||||||||||
Shareholders of the Company | (3,884) | (4,760) | (11,978) | (7,202) | |||||||||||||
Non-controlling interests | 127 | — | 88 | — | |||||||||||||
Total comprehensive loss | (3,757) | (4,760) | (11,890) | (7,202) |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
6
SKYLIGHT HEALTH GROUP INC.
Condensed Interim Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
(Unaudited)
Six months ended | June 30, 2022 | June 30, 2021 (Adjusted, note 13) | |||||||||
$ | $ | ||||||||||
Operating activities | |||||||||||
Net loss from continuing operations | (13,475) | (9,053) | |||||||||
Adjustments for items not affecting cash: | |||||||||||
Depreciation and amortization | 2,890 | 1,652 | |||||||||
Foreign exchange (gain) loss | (805) | 558 | |||||||||
Accretion on purchase consideration payable and loan payable | (47) | 133 | |||||||||
Interest on lease liabilities | 811 | 312 | |||||||||
Interest on long-term debt | 445 | — | |||||||||
Share-based compensation | 403 | 1,410 | |||||||||
Change in fair value of financial liabilities | (1,177) | (63) | |||||||||
Other income related to loan payable | — | (867) | |||||||||
Other income related to gain on disposal of furniture and equipment | — | (3) | |||||||||
Other income related to cancellation of lease | (260) | — | |||||||||
Changes in non-cash working capital items: | |||||||||||
Trade and other receivables | 2,916 | (2,130) | |||||||||
Prepaid expenses | 129 | (411) | |||||||||
Accounts payable and accrued liabilities | (1,816) | 1,827 | |||||||||
Cash used in by operating activities of continuing operations | (9,986) | (6,635) | |||||||||
Cash provided by operating activities of discontinued operations | — | 2,356 | |||||||||
Investing activities | |||||||||||
Purchase of furniture and equipment | (54) | (64) | |||||||||
Proceeds from disposal of furniture and equipment | — | 4 | |||||||||
Development of computer software | — | (146) | |||||||||
Purchase consideration received | 316 | — | |||||||||
Purchase consideration paid, net of cash acquired | (10,188) | (17,644) | |||||||||
Cash used in investing activities of continuing operations | (9,926) | (17,850) | |||||||||
Cash used in investing activities of discontinued operations | — | (116) | |||||||||
Financing activities | |||||||||||
Dividends paid on preferred shares | (403) | — | |||||||||
Shares issued and to be issued, net of transaction costs | — | 12,703 | |||||||||
Proceeds from exercise of options | 2 | 173 | |||||||||
Proceeds from exercise of warrants | 50 | 1,309 | |||||||||
Principal payment of lease liabilities | (786) | (419) | |||||||||
Interest paid on lease liabilities | (810) | (312) | |||||||||
Proceeds from loan | 12,053 | 969 | |||||||||
Principal payments on loan | (420) | — | |||||||||
Cash provided by financing activities of continuing operations | 9,686 | 14,423 | |||||||||
Cash used in financing activities of discontinued operations | — | (234) | |||||||||
Net decrease in cash during the period | (10,226) | (10,062) | |||||||||
Effect of foreign currency on cash of continuing operations | 823 | (190) | |||||||||
Cash and cash equivalents, beginning of period | 11,653 | 20,052 | |||||||||
Cash and cash equivalents, end of period | 2,250 | 9,800 | |||||||||
Cash and cash equivalents comprised of: | |||||||||||
Cash | 2,250 | 11,806 | |||||||||
Restricted cash | — | — | |||||||||
Cash and cash equivalents, end of period | 2,250 | 11,806 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
7
SKYLIGHT HEALTH GROUP INC.
Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in thousands of Canadian dollars)
(Unaudited)
Number of common shares | Share Capital | Number of preferred shares | Preferred share capital | Contributed surplus | Accumulated other comprehensive income | Deficit | Total | Non-controlling interests | Total shareholders’ equity | |||||||||||||||||||||||
# | $ | # | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Balance, December 31, 2021 | 39,133 | 61,450 | 275 | 6,237 | 6,719 | 246 | (36,757) | 37,895 | 712 | 38,607 | ||||||||||||||||||||||
Preferred shares dividends declared | — | — | — | — | — | — | (405) | (405) | — | (405) | ||||||||||||||||||||||
Shares issued on acquisition (Note 15(b)) | 635 | 590 | — | — | — | — | — | 590 | — | 590 | ||||||||||||||||||||||
Share-based compensation (Note 15) | — | — | — | — | 77 | — | — | 77 | — | 77 | ||||||||||||||||||||||
Exercise of warrants | 50 | 50 | — | — | (28) | — | 28 | 50 | — | 50 | ||||||||||||||||||||||
Exercise of stock options | 4 | 2 | — | — | (1) | — | — | 1 | — | 1 | ||||||||||||||||||||||
Warrants and stock options expired | — | — | — | — | (447) | — | 447 | — | — | — | ||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | 1,582 | — | 1,582 | 3 | 1,585 | ||||||||||||||||||||||
Net loss for the period | — | — | — | — | — | — | (13,560) | (13,560) | 85 | (13,475) | ||||||||||||||||||||||
Balance, June 30, 2022 | 39,822 | 62,092 | 275 | 6,237 | 6,320 | 1,828 | (50,247) | 26,230 | 800 | 27,030 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.
8
SKYLIGHT HEALTH GROUP INC.
Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity (continued)
(Expressed in thousands of Canadian dollars)
(Unaudited)
Number of shares | Share Capital | Contributed surplus | Shares and units to be issued | Accumulated other comprehensive income | Deficit | Total | |||||||||||||||||
# | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Balance, December 31, 2020 | 35,070 | 43,454 | 6,888 | 5 | 450 | (23,160) | 27,637 | ||||||||||||||||
Bought deal | 1,970 | 13,793 | — | — | — | — | 13,793 | ||||||||||||||||
Share issuance costs - cash | — | (1,090) | — | — | — | — | (1,090) | ||||||||||||||||
Shares issued on acquisition | 126 | 794 | — | — | — | — | 794 | ||||||||||||||||
Share-based compensation | — | — | 1,351 | — | — | — | 1,351 | ||||||||||||||||
Exercise of warrants | 965 | 2,045 | (733) | (3) | — | — | 1,309 | ||||||||||||||||
Exercise of stock options | 79 | 277 | (102) | (2) | — | — | 173 | ||||||||||||||||
Stock options expired | — | — | (28) | — | — | 28 | — | ||||||||||||||||
Foreign currency translation | — | — | — | — | 7 | — | 7 | ||||||||||||||||
Net loss for the period | — | — | — | — | — | (7,209) | (7,209) | ||||||||||||||||
Balance, June 30, 2021 | 38,210 | 59,273 | 7,376 | — | 457 | (30,341) | 36,765 |
The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements
9
SKYLIGHT HEALTH GROUP INC. Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
1. Nature of operations and Covid-19 pandemic
Skylight Health Group Inc. (“SHG” or the “Company”), is a healthcare services and technology company, working to positively impact patient health outcomes. The Company operates a US multi-state health network that comprises physical multi-disciplinary medical clinics providing a range of services from primary care, sub-specialty, allied health and diagnostic testing. The Company was incorporated on December 27, 2017 under the Canada Business Corporations Act and completed a reverse takeover ("RTO") on February 27, 2019 (the "Closing Date") with MVC Technologies Inc. (“MVC”) which was incorporated in the province of Ontario on November 3, 2014 under the Ontario Business Corporation Act (“OBCA”). Pursuant to the special meeting of the shareholders of the Company held on November 23, 2020, the name of the Company was changed from CB2 Insights Inc. to Skylight Health Group Inc. The head office of the Company is located at 5520 Explorer Drive, Unit 402, Mississauga, Ontario, Canada, L4W 5L1.
On January 5, 2021, the Company’s shares commenced trading on the TSX Venture Exchange (“TSX-V”) under the symbol “SHG” after getting voluntarily delisted from the Canadian Securities Exchange on January 4, 2021. On June 7, 2021, the Company’s shares commenced trading on the Nasdaq Capital Market (“Nasdaq”) under the symbol “SLHG”. In addition, effective June 7, 2021, the Company’s shares on the TSX-V began trading under the new symbol “SLHG”. On December 7, 2021, the Company closed on the underwritten registered offering of 275,000 9.25% Series A Cumulative Redeemable perpetual preferred shares. The Series A Preferred Shares trade on the Nasdaq Capital Market under the symbol “SLHGP” (“preferred shares”).
Due to the decrease in the common share price, the Company is no longer eligible to utilize the multi-jurisdictional disclosure system (“MJDS”). As a result, the Company will no longer be afforded the ability to prepare and file its disclosure reports and other information with the SEC incorporating (in accordance with) the disclosure requirements of Canada and will now be required to file the same reports that a non-MJDS eligible foreign private issuer (“FPI”) is required to file with the SEC, including the requirement to file an Annual Report on Form 20-F with financial statements audited under rules of the Public Company Accounting Oversight Board (“PCAOB”), the additional costs of which will be significant. The Company has not yet engaged an auditor under PCAOB standards for its December 31, 2019 or December 31, 2020 financial statements. Accordingly, the Company was not able to timely file its Annual Report on Form 20-F for the year ended December 31, 2021 (the “2021 20-F”) which was due on April 30, 2022.
On March 11, 2020, the World Health Organization declared the ongoing COVID-19 outbreak as a global health emergency. This resulted in governments worldwide enacting emergency measures to combat the spread of the virus, including the closure of certain non-essential businesses.
During the quarter ended June 30, 2022, the pandemic did not have a material impact on the Company’s operations. As at June 30, 2022, the Company did not observe any impairment of its assets or a significant change in the fair value of assets due to the COVID-19 pandemic. Due to the rapid developments and uncertainty surrounding COVID-19, it is not possible to predict the impact that COVID-19 will have on the Company’s business, financial position and operating results in the future. In addition, it is possible that estimates in the Company’s consolidated financial statements will change in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things, impairment of long-lived assets including intangibles and goodwill. The Company is closely monitoring the impact of the pandemic on all aspects of its business.
2. Basis of presentation and going concern
Basis of presentation
The Company prepares its unaudited condensed interim consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), applicable to the preparation of condensed interim consolidated financial statements, including International Accounting Standards (IAS) 34, Interim Financial Reporting. These unaudited condensed interim
10
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
consolidated financial statements are presented in Canadian dollars and should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2021, which were prepared in accordance with IFRS.
These condensed interim consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on August 11, 2022.
Going concern
These unaudited condensed interim consolidated financial statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company is subject to numerous risk factors that may impact its ability as a going concern, such as, but not limited to, governmental regulations, currency fluctuations, operational risks and extended and unforeseen issues resulting from the current COVID-19 pandemic.
As of the balance sheet date, the Company had an accumulated deficit of $50,247 and negative cash flow from continuing operations of $9,986 for the six months ended June 30, 2022. The Company has positive working capital as of the balance sheet date of $3,272 and a cash balance of $2,250. The Company has raised debt and equity financing through 2017 to 2021 in order to pursue acquisitions and platform development resulting in growth in its customer base. The Company expects that the investments it has made over this period will result in increased revenue and operating cash flow, however, the Company anticipates further investment and will require additional debt and/or equity financing in order to continue to develop its business. The Company closed a debt facility to fund an acquisition that historically produced negative cash flow from operations. See note 14 for further details. The company has also commenced a non-brokered private placement offering of convertible debenture units at $1 per Debenture Unit for total gross proceeds of up to $2,000. The closing of the offering is expected to occur on or after August 15, 2022.
Although the Company has been successful in raising funds to date, there can be no assurance that adequate or sufficient funding will be available in the future or available under terms acceptable to the Company, or that the Company will be able to generate sufficient returns from operations. The ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities and commitments when due is dependent on the Company generating positive cash flows and additional financing sufficient to fund its cash flow needs. The Company is not currently eligible to raise funds using a registration statement in the United States. These circumstances indicate the existence of a material uncertainty that may raise substantial doubt on the ability of the Company to meet its obligations as they come due, and accordingly the appropriateness of the use of the accounting principles applicable to a going concern.
The condensed interim consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis were not appropriate for these condensed interim consolidated financial statements, then adjustments would be necessary in the carrying value of the assets and liabilities, the reported revenue and expenses and the classifications used in the condensed interim consolidated statements of financial position. Such differences in amounts could be material.
The assessment of material uncertainties related to events and circumstances that may raise substantial doubt on the Company’s ability to continue as a going concern involves significant judgment. In making this assessment, management considers all relevant information, as described above.
3. Summary of significant accounting policies
The accounting policies followed in these unaudited condensed interim consolidated financial statements are consistent with the policies and method of their application used in the preparation of the audited consolidated financial statements as at and for the years ended December 31, 2021 and 2020 except for the revenue policy
11
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
which has been expanded to include a new stream of revenue arising as a result of acquisition of NMD (refer Note 5).
Revenue recognition
Capitated revenue is derived from fees for medical services provided by the Company under capitated arrangements with health maintenance organizations’ (“HMOs”) health plans and revenue is recorded as a stand-ready obligation over time. Capitated revenue consists of revenue earned through Medicare Advantage as well as through commercial and other non-Medicare governmental programs, such as Medicaid. The Company is required to deliver primary care physician services to the enrolled member population and is responsible for medical expenses related to healthcare services required by that patient group, including services not provided by the Company. Since the Company controls the primary care physician services provided to enrolled members, the Company acts as a principal. The gross fees under these contracts are reported as revenue and the cost of provider care is included in third-party medical costs. The Company reconciles with health plans and collects plan surpluses every 30 to 120 days depending on the plan. Neither the Company nor any of its affiliates is a registered insurance company because state law in the states in which they operate does not require such registration for risk-bearing providers.
The Company groups contractual terms into one portfolio because these arrangements are similar. The Company identifies a single performance obligation to stand-ready to provide healthcare services to enrolled members. Capitated revenue is recognized in the month in which the Company is obligated to provide medical care services. The transaction price for the Medicare Advantage and Medicare Direct Contracting services provided (and other programs including Accountability Care Organizations) depends upon the pricing established by the Centers for Medicare & Medicaid (“CMS”) and includes rates that are based on the cost of medical care within a local market and the average utilization of healthcare services by the members enrolled. The transaction price is variable since the rates are risk adjusted based on health status (acuity) of members and demographic characteristics of the enrolled members. MRA revenues are estimated using the "most likely amount" methodology. The amount of variable consideration recorded in the transaction price is limited to an amount that the Company believes will not result in a significant reversal of revenue based on historical results. The risk adjustment to the transaction price is presented as the Medicare Risk Adjustment (“MRA”) within accounts receivable on the accompanying consolidated balance sheets. The fees are paid on an interim basis based on submitted enrolled member data for the previous year and are adjusted in subsequent periods after the final data is compiled by CMS. Revenue is not recorded until the price can be estimated by the Company and to the extent that it is probable that a significant reversal will not occur once any uncertainty associated with the variable consideration is subsequently resolved.
New accounting standards issued but not yet effective
Certain new accounting standards and interpretations have been published that are not mandatory for the current period and have not been early adopted. These standards are not expected to have a material impact on the Company in the current or future reporting periods except the below amendments:
Amendments to IAS 1 - Presentation of financial statements (“IAS 1”)
The amendments affect only the presentation of liabilities in the consolidated statements of financial position — not the amount or timing of recognition of any asset, liability income or expenses, or the information that entities disclose about those items. They clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period and align the wording in all affected paragraphs to refer to the "right" to defer settlement by at least twelve months and make explicit that only rights in place "at the end of the reporting period" should affect the classification of a liability; clarify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability; and make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The effective date of the amendments to IAS is on or after January 1, 2023, earlier application is
12
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
permitted. The Company is currently evaluating the impact this standard will have on the Company’s consolidated financial statements.
4. Share consolidation
On May 28, 2021, the Company completed a consolidation (“Share Consolidation”) of its share capital on the basis of five existing common shares for one new common share. As a result of the Share Consolidation, the 190,802,347 common shares issued and outstanding as at that date were consolidated to 38,160,473 common shares outstanding. The Share Consolidation was previously approved by the shareholders at the Annual General Meeting held on February 22, 2021. All information in these condensed interim consolidated financial statements is presented on a post-Share Consolidation basis, including comparatives.
5. Acquisitions
a) Acquisition of RCMA
On February 3, 2021 (the "Closing Date"), the Company acquired 100% of the voting equity interests of River City Medical Associates (“RCMA”), Inc., a Florida corporation. The Company determined that the acquisition was a business combination under IFRS 3. The goodwill acquired is associated with the RCMA’s workforce and is expected to be fully deductible for tax purposes.
The aggregate purchase consideration comprised the following:
•$288 (US$225) cash paid on Closing Date.
•$139 (US$109) cash payable within 120 days after the Closing Date being the amount withheld from the purchase consideration for liabilities prior to closing date. The amount was discounted to its present value and initially recorded at $137 (US$107) on the Closing Date using an effective interest rate of 10.9%. On April 27, 2021, the Company released $135 from the escrow account (US$109).
•$2,812 (US$2,200) funds held in an escrow account to be released once the conditions stipulated in the Transition Services Agreement have been complied with within two months after the Closing Date. Subsequently, on April 22, 2021, the Company released $2,750 from the escrow account (US$2,200)
•74,833 common shares in the Company valued at 10-day VWAP of $6.39 per share amounting to $478 (US$373) to be issued on the Closing Date. The amount was recognized at the fair value of the consideration amounting to $492 (US$385) on the Closing Date.
•Variable number of common shares in the Company amounting to $1,908 (US$1,493) to be issued in five equal installments within 15 months after the Closing Date. The number of shares will be determined based on the share price on each installment date. Refer to note 15 for details on shares issued. The amount was discounted to its present value and initially recorded at $1,892 (US$1,480) on the Closing Date using an effective interest rate of 15%.
•Details of the movements in the purchase consideration payable are as follows:
Three months ended | Three months ended | Year ended | |||||||||
June 30, 2022 | March 31, 2022 | December 31, 2021 | |||||||||
Balance, beginning of period | 337 | 774 | — | ||||||||
Addition | — | — | 5,621 | ||||||||
Paid in cash | — | — | (3,173) | ||||||||
Paid in shares | (253) | (437) | (1,588) | ||||||||
Accretion | (92) | 5 | 25 | ||||||||
Foreign exchange translation gain | 8 | (5) | (111) | ||||||||
Balance, end of period | — | 337 | 774 |
13
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
b) Acquisition of Rocky Mountain
On April 5, 2021 (the "Closing Date"), the Company acquired 100% of the voting equity interests of Colorado based Primary Care Clinic Group, Rocky Mountain. The Company determined that the acquisition was a business combination under IFRS 3. The goodwill acquired is associated with Rocky Mountain’s workforce and is expected to be fully deductible for tax purposes.
The aggregate purchase consideration comprised the following:
•$10,635 (US$8,491) cash paid on Closing Date.
•$2,067 (US$1,650) cash payable in three equal installments over two years from the Closing Date. The amount was discounted to its present value and initially recorded at $1,829 (US$1,460) on the Closing Date using an effective interest rate of 11.4%.
•$641 (US$512) cash payable on account of working capital true-up.
•Details of the movements in the purchase consideration payable are as follows:
Three months ended | Three months ended | Year ended | |||||||||
June 30, 2022 | March 31, 2022 | December 31, 2021 | |||||||||
Balance, beginning of year | 2,677 | 2,654 | — | ||||||||
Addition | — | — | 13,105 | ||||||||
Paid in cash | — | — | (10,635) | ||||||||
Accretion | 57 | 54 | 153 | ||||||||
Foreign exchange translation (loss) gain | 76 | (31) | 31 | ||||||||
Balance, end of year | 2,810 | 2,677 | 2,654 |
c) Acquisition of Aspire Care
On September 16, 2021 (the "Closing Date"), the Company acquired 70% of the voting equity interests of Pennsylvania based primary care group Aspire Health Concepts, Inc. (“Aspire Care”). The Company determined that the acquisition was a business combination under IFRS 3. The goodwill acquired is associated with Aspire Care workforce and is expected to be fully deductible for tax purposes.
The aggregate purchase consideration comprised the following:
•$1,869 (US$1,475) cash paid on the Closing Date.
•$127 (US$100) cash payable within the next 9 months.
•Details of the movements in the purchase consideration payable are as follows:
Three months ended | Three months ended | Year ended | |||||||||
June 30, 2022 | March 31, 2022 | December 31, 2021 | |||||||||
Balance, beginning of year | 133 | 131 | — | ||||||||
Addition | — | — | 1,996 | ||||||||
Paid in cash | — | — | (1,869) | ||||||||
Accretion | 3 | 4 | 4 | ||||||||
Foreign exchange translation (loss) gain | 4 | (2) | — | ||||||||
Balance, end of year | 140 | 133 | 131 |
14
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
d) Acquisition of NeighborMD
On May 2, 2022 (the "Closing Date"), the Company acquired 100% of the voting equity interests of Florida based Primary Care Clinic Group, NeighborMD (“NMD”). The Company determined that the acquisition was a business combination under IFRS 3. The goodwill acquired is associated with NMD’s workforce and is expected to be fully deductible for tax purposes. Purchase consideration comprised of $10,194 (US$8,000) paid in cash at closing.
The allocated purchase price calculation is as follows:
$ | |||||
Consideration – cash | 3,538 | ||||
Lease liabilities | 4,887 | ||||
Accounts payable and accrued liabilities | 11,199 | ||||
Total consideration | 19,624 | ||||
Identifiable assets acquired | |||||
Customer relationships | 1,494 | ||||
Brand and trademarks | 1,556 | ||||
Cash | 6 | ||||
Trade receivables | 8,499 | ||||
Prepaid expenses | 200 | ||||
Furniture, equipment and software | 1,050 | ||||
Right of use assets | 5,063 | ||||
Total identifiable assets acquired | 17,868 | ||||
Total goodwill | 1,756 | ||||
Total assets | 19,624 |
Operating results have been included in these unaudited condensed interim consolidated financial statements from the Closing Date. NMD’s revenue and net loss for the period from the date of acquisition to June 30, 2022 included in the unaudited condensed interim consolidated statements of loss and comprehensive loss are $7,964 and $1,109, respectively.If the acquisition had occurred on January 1, 2022, management estimates that consolidated revenue would have increased by $15,928 and net loss would have increased by $736 for the six months ended June 30, 2022.
15
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
6. Purchase consideration payable
June 30, 2022 | December 31, 2021 | |||||||
$ | $ | |||||||
RCMA | — | 774 | ||||||
Rocky Mountain | 2,810 | 2,654 | ||||||
Aspire Care | 140 | 131 | ||||||
2,950 | 3,559 |
Allocated as: | $ | $ | ||||||
Current | 2,950 | 2,951 | ||||||
Non-current | — | 608 | ||||||
2,950 | 3,559 |
7. Trade and other receivables
June 30, 2022 | December 31, 2021 | |||||||
$ | $ | |||||||
Trade receivables | 12,435 | 6,215 | ||||||
Harmonized sales tax recoverable | 76 | 568 | ||||||
Security deposits | 325 | 118 | ||||||
12,836 | 6,901 | |||||||
Allocated as: | $ | $ | ||||||
Current | 11,591 | 5,858 | ||||||
Non-current | 1,245 | 1,043 | ||||||
12,836 | 6,901 |
The lifetime expected credit loss allowance for impairment is estimated based on the Company’s historical loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current as well as forecast direction of conditions. As at June 30, 2022, an expected credit loss of $149 has been recognized (December 31, 2021 - $887).
16
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
8. Property, plant and equipment
Furniture | Computer Hardware | Leaseholds | Equipment | Total | ||||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Cost | ||||||||||||||||||||
As at December 31, 2021 | 205 | 78 | 655 | 313 | 1,251 | |||||||||||||||
Additions | — | — | 41 | 13 | 54 | |||||||||||||||
Acquisition | 184 | — | 640 | 210 | 1,034 | |||||||||||||||
Net exchange differences | 3 | 1 | 10 | 4 | 18 | |||||||||||||||
As at June 30, 2022 | 392 | 79 | 1,346 | 540 | 2,357 | |||||||||||||||
Amortization | ||||||||||||||||||||
As at December 31, 2021 | 110 | 21 | 191 | 163 | 485 | |||||||||||||||
Depreciation | 33 | 12 | 203 | 51 | 299 | |||||||||||||||
Net exchange differences | 2 | 1 | 3 | 3 | 9 | |||||||||||||||
As at June 30, 2022 | 145 | 34 | 397 | 217 | 793 | |||||||||||||||
Net book value | ||||||||||||||||||||
As at December 31, 2021 | 95 | 57 | 464 | 150 | 766 | |||||||||||||||
As at June 30, 2022 | 247 | 45 | 949 | 323 | 1,564 |
9. Right-of-use assets and lease liabilities
Right of use assets
Premises leases | June 30, 2022 | ||||
$ | |||||
Beginning balance | 15,695 | ||||
Additions | 1,505 | ||||
Acquisition | 5,063 | ||||
Depreciation | (1,267) | ||||
Cancellation | (26) | ||||
Net exchange differences | 233 | ||||
Ending balance | 21,203 |
17
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
Lease liabilities
June 30, 2022 | |||||
$ | |||||
Beginning balance | 15,875 | ||||
Additions | 1,505 | ||||
Acquisition | 4,887 | ||||
Interest expense | 811 | ||||
Lease payments | (1,596) | ||||
Cancellation | (323) | ||||
Net exchange differences | 234 | ||||
Ending balance | 21,393 | ||||
Allocated as: | $ | ||||
Current | 1,869 | ||||
Non-current | 19,524 | ||||
21,393 |
During the six months ended June 30, 2022, the Company canceled two leases and as a result recognized a gain of $260 (US$ 205) in office and administration expenses recorded in the condensed interim consolidated statements of loss and comprehensive loss for the three and six months ended June 30, 2022.
When measuring lease liabilities, the Company discounted lease payments using its incremental borrowing rate. The weighted-average interest rate applied ranges from 8.8% to 12%.
10. Goodwill and other intangible assets
Goodwill | Customer relationships | Brand and trademarks | Non-compete clause | Computer software | Total intangible assets | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance, December 31, 2021 | 9,098 | 11,534 | 5,035 | 116 | 3,875 | 20,560 | ||||||||||||||
Acquisition | 1,756 | 1,494 | 1,556 | — | 16 | 3,066 | ||||||||||||||
Net exchange differences | 147 | 189 | 82 | 2 | 1 | 274 | ||||||||||||||
Balance, June 30, 2022 | 11,001 | 13,217 | 6,673 | 118 | 3,892 | 23,900 | ||||||||||||||
Amortization and impairment | ||||||||||||||||||||
Balance, December 31, 2021 | 359 | 2,548 | — | 42 | 3,097 | 5,687 | ||||||||||||||
Amortization | — | 1,053 | — | 10 | 290 | 1,353 | ||||||||||||||
Net exchange differences | 5 | 56 | — | 1 | 2 | 59 | ||||||||||||||
Balance, June 30, 2022 | 364 | 3,657 | — | 53 | 3,389 | 7,099 | ||||||||||||||
Net book value | ||||||||||||||||||||
As at December 31, 2021 | 8,739 | 8,986 | 5,035 | 74 | 778 | 14,873 | ||||||||||||||
As at June 30, 2022 | 10,637 | 9,560 | 6,673 | 65 | 503 | 16,801 |
As at June 30, 2022, no impairment indicators existed relating to goodwill.
18
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
11. Accounts payable and accrued liabilities
June 30, 2022 | December 31, 2021 | |||||||
$ | $ | |||||||
Accounts payable | 1,932 | 1,556 | ||||||
Accrued liabilities | 7,334 | 5,131 | ||||||
9,266 | 6,687 |
12. Redemption liability
The redemption liability of $419 as at June 30, 2022 relates to the put option of the non-controlling interests of Aspire. The put option allows the non-controlling interests of Aspire to sell their holdings to the Company. The put option was determined by discounting future earnings before income taxes, depreciation and amortization less obligations at a discount rate of 10.5%. The inputs, including the probability of certain outcomes being achieved with multiples ranging from 3 to 6, weighted probabilities ranging from 10%-70%, and an expected life of approximately 5.50 years, are classified as Level 3 in the fair value hierarchy. The fair value of the redemption liability was recognized on September 16, 2021 at $390, and as at December 31, 2021, the fair value was $402. As at June 30, 2022, the fair value was $419.
The liability is revalued at each period end, with the change in fair value recorded in the condensed interim consolidated statements of loss and comprehensive loss.
A 5% increase/decrease in the discount rate, a 5% increase/decrease to the EBITDA forecast and 5% increase/decrease in the probability factor will have the following impact on the fair value of the redemption liability as at June 30, 2022:
Original | +5% | -5% | |||||||||
$ | $ | $ | |||||||||
Discount rate | 407 | 316 | 531 | ||||||||
EBITDA forecast | 407 | 436 | 378 | ||||||||
Probability factor | 407 | 391 | 422 |
13. Discontinued operations
On December 15, 2021, the Company entered into an agreement with New Frontier Data to divest 100% of assets related to its legacy businesses Canna Care Docs, MedEval Clinic LLC (“MedEval”), Rae of Sunshine Health Services (“ROSH”) and New Jersey Alternative Medicine LLC ("NJAM") (“Legacy Business”). In accordance with the terms of the agreement, New Frontier Data purchased 100% of the Legacy Business for total cash consideration of $11,124 (US $8,628).
Payment terms included cash on closing of $5,157 (US $4,000), subject to customary working capital hold backs. The remaining balance will be paid over three installments at 12 months, 18 months and 24 months from the date of closing.
During the six months ended June 30, 2022, $316 (US $250) was received and accretion income of $128 (US $97) was recognized. Purchase consideration receivable of $5,990 has been recognized as of June 30, 2022 on the consolidated statements of financial position ($4,304 current, $1,686 non-current).
19
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
The financial performance information presented for the three and six months ended June 30, 2021 is summarized below and included in the condensed interim consolidated statements of loss and comprehensive loss as net income from discontinued operations:
Three months ended | Six months ended | |||||||
June 30, 2021 | June 30, 2021 | |||||||
$ | ||||||||
Revenue | 3,036 | 5,852 | ||||||
Cost of sales | 703 | 1,349 | ||||||
Salaries and wages | 831 | 1,614 | ||||||
Office and administration | 207 | 397 | ||||||
Marketing and business development | 33 | 82 | ||||||
Professional fees | 4 | 9 | ||||||
Rent | 20 | 45 | ||||||
Depreciation and amortization | 229 | 464 | ||||||
Interest on lease liabilities | 22 | 48 | ||||||
Net income from discontinued operations | 987 | 1,844 |
14. Loan payable
On April 27, 2020, the Company obtained a loan of $917 (US$653) from Citizens Bank N.A under the Paycheck Protection Program (PPP) offered by US Small Business Administration as part of COVID-19 relief measures. The loan carries an interest rate of 1% and the repayments would start from February 27, 2021 in equal monthly installments over eighteen months. The PPP program allows for the loan to be forgiven if the disbursed amount is spent in accordance with specific guidelines. On December 1, 2020, the Company applied for loan forgiveness, and if approved, the loan amount would be reclassified as a government grant in the condensed interim consolidated statements of loss and comprehensive loss.
The loan was measured at fair value on receipt date using effective interest rate method and the difference between the fair value and receipt amount was recorded as deferred income under accrued liabilities. This difference represents the benefit received by the Company due to reduced interest rate on the loan and over the term of the loan, this benefit will be recognized as other income in the condensed interim consolidated statements of loss and comprehensive loss.
During the three and six months ended June 30, 2021, the Company recognized an amount of $14 as other income and $20 as accretion expense on the loan. On March 30, 2021, the Company recognized $853 as other income representing the write-off of the PPP loan after receiving approval of the forgiveness application.
On June 4, 2021, the Company obtained a loan of $969 (US$782) from Aon Reed Stenhouse Inc. for Directors and Officers insurance. The amortized cost approximates fair value. The loan carries an interest rate of 3.43% and repayments started from July 4, 2021 in equal monthly payments for ten months. During the six months ended June 30, 2022, the Company made payments in principal and interest of $256 and $2, respectively.
On May 5, 2022, the Company closed a debt facility of $25,485 (US$ 20,000) with Families-Backing-Families Credit Fund I, LP (“FLC”), a New York based lender. The terms of the facility allowed for the Company to draw down $12,743 (US$ 10,000) to fund the NMD acquisition including working capital. The unutilized facility of US$ 10,000 can be utilized to fund future acquisitions, as approved by the lender. The term of the facility is 3 years, with an annual coupon of the secured overnight financing rate (SOFR) plus 11% paid in cash. The unutilized
20
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
facility is also subject to a commitment fee of 3%. The principal will be amortized quarterly and subject to certain cash sweep triggers and a final balloon payment. The interest payments including commitment fee began in June 2022 and the principal repayment will begin from October 2022. The facility is secured through the Pledge and Security Agreement.
The Company may, at its discretion, pay back the lender in part or in full at any time during the term, without premium or penalty. FLC has received additional consideration of 4.5 million warrants priced at $1.17, which is considered to be issuance cost as explained under warrant liability in Note 15.
The company also incurred transaction cost of $2,438 on the debt which will be amortized over the term of the loan using effective interest method. During the three and six months ended June 30, 2022, the Company recognized interest expense of $445, and made payments in principal and interest of $0 and $199, respectively. As of June 30, 2022, the effective interest rate was 25.70%.
As per the terms of the FLC debt agreement, the Company has to maintain a minimum cash amount of US$ 2,250 and in case of a breach, the Company has 20 working days to remedy before triggering an event of default. As of June 30, 2022, the Company was not in compliance with the minimum cash covenant which is being remedied by the issuance of a non-brokered private placement offering of convertible debenture units at $1 per Debenture Unit for total initial gross proceeds of up to $2,000 which is subsequently upsized to $2,345. The closing of the upsized offering is expected to occur on or about August 17, 2022. The Company also obtained a limited waiver from FLC on breach of covenants to complete the financing.
On June 29, 2022, the Company obtained a loan of $487 (US$381) from AFCO to finance various insurance policies including medical malpractice insurance, general liability insurance and worker's compensation insurance. The amortized cost approximates fair value. The loan carries an interest rate of 6.78% per annum and repayments start from July 4, 2022 in equal monthly payments for ten months. During the three and six months ended June 30, 2022, the Company made no principal and interest payments.
15. Shareholders' equity
a)Authorized share capital
Unlimited number of voting common shares without par value. 275,000 9.25% Series A Cumulative Redeemable perpetual preferred shares.
b)Common and preferred shares issued
Common shares
Number of common shares (000s) | Share Capital | |||||||
# | $ | |||||||
Balance, December 31, 2021 | 39,133 | 61,450 | ||||||
Shares issued on acquisition (i) | 635 | 590 | ||||||
Shares issued against exercise of warrants (ii) | 50 | 50 | ||||||
Exercise of stock options (iii) | 4 | 2 | ||||||
Balance, June 30, 2022 | 39,822 | 62,092 |
(i)During the six months ended June 30, 2022, the Company issued 317,759 shares valued at $1.05 and 318,657 shares valued at $0.81 in settlement of consideration payable for the acquisition of RCMA.
21
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
(ii)During the six months ended June 30, 2022, shareholders exercised 50,000 warrants at an exercise price with of $1.00 per share. The fair value of the warrants exercised amounting to $28 was reclassified from the Warrant reserve to Share Capital.
(iii)During the six months ended June 30, 2022, shareholders exercised 3,750 options at an exercise price with of $0.08 per share. The fair value of the options exercised amounting to $1 was reclassified from the option reserve to Share Capital.
Preferred shares
Number of preferred shares (000s) | Share Capital | |||||||
# | $ | |||||||
Balance, December 31, 2021 | 275 | 6,237 | ||||||
Balance, June 30, 2022 | 275 | 6,237 |
During the three and six months ended June 30, 2022, the Company declared and paid dividends on its preferred shares which totaled $203 and $403, respectively.
Warrants
Warrant liability
On May 5, 2022 the Company granted 4,542 warrants with an exercise price of $1.17 to the lender, FLC, as part of the closing of the $25,485 debt facility. The expiry date of the warrants is May 5, 2025, with respect to that percentage of the warrants that is equal to the percentage of the amount of principal amount of the debt facility outstanding on May 5, 2023, compared to the amount outstanding on May 5, 2022, and the expiry date will be May 5, 2023, for the remaining warrants. Half (50%) of the warrants will be held in escrow and released in proportion to the pro rata percentage of the amount of any future draw downs. 2,271 warrants have been issued to FLC as at June 30, 2022 on account of 50% of the debt facility being drawn. Furthermore, of the 2,271 warrants issued 2,100 warrants have an expiry date of May 5, 2025, while the remaining issued warrants of 170 have an expiry date of May 5, 2023.
The issued warrants also give FLC the right to exercise the warrants using a cashless exercise feature. This feature gives FLC the right to use the value of a portion of warrant shares to pay the exercise price rather than payment in cash.
The inputs utilized in determining the fair value per warrant are classified as Level 1 in the fair value hierarchy. The fair value of the warrant liability was recognized on May 5, 2022. The liability will be revalued at each period end, with the change in fair value recorded in the condensed interim consolidated statements of loss and comprehensive loss.
As at June 30, 2022, the warrants with an expiry date of May 5, 2025 and May 5, 2023 have a fair value of $0.38 and $0.12 per warrant respectively. The warrants were valued using a Black-Scholes model using an expected life ranging from 0.8 to 3 years, risk-free interest rate ranging from 2.67% to 3.09%, share price ranging from $0.63 to $1.14, volatility ranging from 88.0% to 120.0% and a dividend yield of 0%.
22
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
The table below shows the continuity of the warrant liability.:
Number of Warrants (000s) | Amount | |||||||
# | $ | |||||||
Balance, December 31, 2021 | — | — | ||||||
Granted | 2,271 | 1,727 | ||||||
Change in fair value | — | (911) | ||||||
Balance, June 30, 2022 | 2,271 | 816 |
A summary of the warrant activity for the periods ended June 30, 2022 and 2021 is as follows:
Number of Warrants (000s) | Weighted Average Exercise Price | |||||||
# | $ | |||||||
Balance, December 31, 2020 | 4,835 | 1.25 | ||||||
Exercised | 1 | 4.00 | ||||||
Expired | (965) | 1.36 | ||||||
Balance, June 30, 2021 | 3,871 | 1.23 | ||||||
Balance, December 31, 2021 | 3,719 | 1.23 | ||||||
Granted | 2,271 | 1.17 | ||||||
Exercised | (50) | 1.00 | ||||||
Expired | (133) | 3.97 | ||||||
Balance, June 30, 2022 | 5,807 | 1.15 |
At June 30, 2022, a summary of warrants outstanding and exercisable is as follows:
Range of exercise prices | Number outstanding | Weighted Average Exercise Price | Weighted Average Remaining Life | ||||||||
# | $ | Years | |||||||||
$0.70-$1.00 | 5,585 | 1.08 | 1.81 | ||||||||
$2.35-$2.50 | 88 | 2.35 | 0.39 | ||||||||
$4.00-$5.00 | 134 | 5.00 | 0.5 | ||||||||
5,807 | 1.15 | 1.77 |
23
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
Stock Options
A summary of the options activity for the periods ended June 30, 2022 and 2021 is as follows:
Number of Options (000s) | Weighted Average Exercise Price | |||||||
# | $ | |||||||
Balance, December 31, 2020 | 2,594 | 2.17 | ||||||
Granted | 289 | 7.64 | ||||||
Exercised | (79) | 1.27 | ||||||
Forfeiture | (48) | 1.79 | ||||||
Expired | (3) | 2.29 | ||||||
Balance, June 30, 2021 | 2,753 | 2.78 | ||||||
Balance, December 31, 2021 | 2,442 | 3.09 | ||||||
Exercised | (4) | 0.41 | ||||||
Forfeitures | (349) | 3.71 | ||||||
Expired | (39) | 2.50 | ||||||
Balance, June 30, 2022 | 2,050 | 3.01 |
Range of exercise prices | Number outstanding (000s) | Weighted Average Exercise Price (outstanding) | Weighted Average Remaining Life | Number exercisable (000s) | Weighted Average Exercise Price (exercisable) | ||||||||||||
# | $ | Years | # | $ | |||||||||||||
$0.41 - $2.20 | 801 | 0.76 | 2.42 | 444 | 0.69 | ||||||||||||
$2.21 - $4.70 | 921 | 3.67 | 3.02 | 761 | 3.63 | ||||||||||||
$4.71 - $6.50 | 178 | 5.80 | 1.84 | 178 | 5.80 | ||||||||||||
$6.51 - $9.00 | 150 | 7.59 | 1.22 | 150 | 7.59 | ||||||||||||
2,050 | 3.01 | 2.55 | 1,533 | 3.42 |
24
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
During the three and six months ended June 30, 2022, $nil and $244 respectively, (three and six months ended June 30, 2021 ($361 and $1,410, respectively) has been recognized as share-based compensation expense.The fair value of the granted options during the period ended June 30, 2021 was calculated using the Black-Scholes model using an expected life ranging from 1 to 4 years, risk-free interest rate ranging from 0.12% to 0.68%, share price ranging from $6.30 to $8.90, volatility ranging from 111.7% to 130.7% and a dividend yield of 0%.
DSUs
On December 13, 2021, the Company issued 93,518 DSUs at a grant price of $1.78. The DSUs vest once an independent director leaves the Company and the Company has used an estimated three year vesting period to determine the share-based compensation expense. During the three and six months ended June 30, 2022, $14 and $34, respectively, has been recognized as share-based compensation expense (three and six months ended June 30, 2021 - $nil).
16. Related party disclosures
Compensation of key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s Chief Executive Officer ("CEO"), President, Chief Financial Officer & Interim Chief Financial Officer ("CFO"), Chief Medical Officer, Chief Operating Officer, Chief Corporate Officer and members of the Company’s Board of Directors.
The amounts disclosed in the table below are the amounts recognized as an expense during the reporting period related to key management personnel.
Three months ended | Six months ended | |||||||||||||
June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||
$ | $ | $ | $ | |||||||||||
Salary and short-term employee benefits | 587 | 522 | 1,091 | 745 | ||||||||||
Share based compensation | 16 | 180 | 312 | 302 | ||||||||||
Directors’ fees | (19) | 54 | 96 | 131 | ||||||||||
584 | 756 | 1,499 | 1,178 |
In addition, accounts payable and accrued liabilities include a short-term loan from shareholder amounting to $180 (June 30, 2021: $0). The loan bears an interest rate of Bank of Canada’s prime rate plus 2.5% per annum, is unsecured and is due on demand.
17. Segmented information
The Company has two reportable segments related to its medical services and software and corporate businesses which also align with the two countries in which it operates, namely, United States and Canada. Corporate costs are included in the Canadian segment. The United States segment for the three and six months
25
SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
ended June 30, 2021 was adjusted to account for the sale of the Legacy Business, as disclosed in note 13. The disclosure with regards to the Company’s aforementioned segments and locations are listed below:
Three months ended June 30, 2022 | USA (Medical Services) | Canada (Software) | Total | ||||||||
$ | $ | $ | |||||||||
Revenue | 16,011 | 66 | 16,077 | ||||||||
Cost of Sales | 12,106 | — | 12,106 | ||||||||
Gross profit | 3,905 | 66 | 3,971 | ||||||||
Total operating expenses | 8,948 | 1,688 | 10,636 | ||||||||
Loss from continuing operations | (5,043) | (1,622) | (6,665) | ||||||||
Foreign exchange gain | (143) | (1,171) | (1,314) | ||||||||
Change in fair value of financial liabilities | (173) | (911) | (1,084) | ||||||||
Accretion on purchase consideration payable and receivable | 12 | — | 12 | ||||||||
Interest on lease liabilities | 410 | 35 | 445 | ||||||||
Interest on long term debt | 445 | — | 445 | ||||||||
Net loss from continuing operations | (5,594) | 425 | (5,169) |
Six months ended June 30, 2022 | USA (Medical Services) | Canada (Software) | Total | ||||||||
$ | $ | $ | |||||||||
Revenue | 23,663 | 126 | 23,789 | ||||||||
Cost of Sales | 16,392 | — | 16,392 | ||||||||
Gross profit | 7,271 | 126 | 7,397 | ||||||||
Total operating expenses | 17,687 | 3,958 | 21,645 | ||||||||
Loss from continuing operations | (10,416) | (3,832) | (14,248) | ||||||||
Foreign exchange gain | (143) | (662) | (805) | ||||||||
Change in fair value of financial liabilities | (266) | (911) | (1,177) | ||||||||
Accretion on purchase consideration payable and receivable | (47) | — | (47) | ||||||||
Interest on lease liabilities | 741 | 70 | 811 | ||||||||
Interest on long term debt | 445 | — | 445 | ||||||||
Net loss from continuing operations | (11,146) | (2,329) | (13,475) |
As at June 30, 2022 | USA (Medical Services) | Canada (Software) | Total | ||||||||
$ | $ | $ | |||||||||
Non-current assets | 51,468 | 1,668 | 53,136 | ||||||||
Total assets | 70,208 | 2,015 | 72,223 | ||||||||
Total liabilities | 43,066 | 2,127 | 45,193 |
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SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
Three months ended June 30, 2021 | USA (Medical Services) | Canada (Software) | Total | ||||||||
$ | $ | $ | |||||||||
Revenue | 6,836 | 41 | 6,877 | ||||||||
Cost of Sales | 3,067 | — | 3,067 | ||||||||
Gross profit | 3,769 | 41 | 3,810 | ||||||||
Total operating expenses | 6,439 | 2,477 | 8,916 | ||||||||
Loss from continuing operations | (2,670) | (2,436) | (5,106) | ||||||||
Foreign exchange loss | — | 430 | 430 | ||||||||
Net gain on debt settlement | — | ||||||||||
Change in fair value of financial liabilities | (26) | — | (26) | ||||||||
Accretion on purchase consideration payable | 69 | — | 69 | ||||||||
Interest on lease liabilities | 221 | — | 221 | ||||||||
Other income | — | ||||||||||
Net loss from continuing operations | (2,934) | (2,866) | (5,800) | ||||||||
Net income from discontinued operations | 987 | — | 987 | ||||||||
Net income (loss) | (1,947) | (2,866) | (4,813) |
Six months ended June 30, 2021 | USA (Medical Services) | Canada (Software) | Total | ||||||||
$ | $ | $ | |||||||||
Revenue | 8,948 | 103 | 9,051 | ||||||||
Cost of Sales | 4,041 | — | 4,041 | ||||||||
Gross profit | 4,907 | 103 | 5,010 | ||||||||
Total operating expenses | 8,594 | 5,258 | 13,852 | ||||||||
Loss from continuing operations | (3,687) | (5,155) | (8,842) | ||||||||
Foreign exchange loss | — | 699 | 699 | ||||||||
Change in fair value of financial liabilities | (63) | — | (63) | ||||||||
Accretion on purchase consideration payable | 133 | — | 133 | ||||||||
Interest on lease liabilities | 312 | — | 312 | ||||||||
Other income | (870) | — | (870) | ||||||||
Net loss from continuing operations | (3,199) | (5,854) | (9,053) | ||||||||
Net income from discontinued operations | 1,844 | — | 1,844 | ||||||||
Net income (loss) | (1,355) | (5,854) | (7,209) |
As at December 31, 2021 | USA (Medical Services) | Canada (Software) | Total | ||||||||
$ | $ | $ | |||||||||
Non-current assets | 42,366 | 2,000 | 44,366 | ||||||||
Total assets | 57,573 | 7,874 | 65,447 | ||||||||
Total liabilities | 24,989 | 1,851 | 26,840 |
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SKYLIGHT HEALTH GROUP INC. Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2022 and 2021 (Expressed in thousands of Canadian dollars) (Unaudited) |
18. Subsequent events
On August 8, 2022. the Company announced the offering of a non-brokered private placement (the “Offering”) of convertible debenture units (the “Debenture Units”) at C$1,000 per Debenture Unit for total gross proceeds of up to C$2 million.
Each Debenture shall be in the principal amount of C$1,000 and shall bear interest at the rate of 8% per annum, which can be paid quarterly in shares, and shall have a maturity date of February 15, 2025. Each Debenture shall be convertible into 1,111 common shares of the Company at C$0.90 (“Common Shares”). Upon issuance of the Debenture a holder shall also receive 1,111 share purchase warrants (the “Warrants”) of the Company. Each Warrant entitles the holder to purchase one Common Share (a “Warrant Share”) at a price of C$1.35 per share for a period 24 months from the date of issuance of the Debentures provided that if after the date that is four months and one day after the issuance of the Warrants, the Common Shares trade at a price of at least C$1.60 for 10 consecutive trading days on the Company’s primary stock exchange, the Company can deliver a notice and accelerate the expiry date of the Warrants to the date that is 30 days after the date on which such notice of acceleration is provided. If the Common Shares trade at C$2.00 for 10 consecutive trading day, the Company may, at its option, convert the Debenture to shares at the same conversion terms of C$0.90, upon delivery of a conversion notice to the holders. The proceeds received by the Company from the Offering will be used for general working capital purposes. The closing of the Offering is expected to occur on or about August 15, 2022 (the “Closing Date”) and is subject to regulatory approvals, including approval of the applicable Canadian securities regulatory authorities and the TSX-V.
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