Interim Consolidated Financials Statements

Transcription

Patient Home Monitoring Corp.
Consolidated Financial Statements
2015 Second Quarter
For the periods ended
March 31, 2015 and 2014
(Expressed in Canadian dollars)
TABLE OF CONTENTS
Consolidated Balance Sheets
Page 3
Consolidated Statements of Operations
Page 4
Consolidated Statements of Changes in
Shareholders’ Equity
Page 5
Consolidated Statements of Comprehensive Loss Page 6
Consolidated Statements of Cash Flows
Page 7
Notes to Consolidated Financial Statements
Pages 8-34
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3 (3)(a), if an auditor has not performed a review of the
interim financial statements, they must be accompanied by a notice indicating that the financial statements have not
been reviewed by an auditor.
The accompanying unaudited interim financial statements of the Company have been prepared by and are the
responsibility of the Company’s management and approved by the Board of Directors of the Company.
The Company’s independent auditor has not performed a review of these financial statements in accordance with
standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements
by an entity’s auditor.
PATIENT HOME MONITORING CORP.
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian Dollars)
As of
3/31/2015
09/30/2014
ASSETS
03/31/2014
restated (Note 19)
Current
Cash and cash equivalents
Accounts receivable (Note 3)
$
Inventory
28,686,721
12,377,256
$
14,050,436
7,441,611
$
7,100,426
4,028,100
3,284,684
1,300,074
852,691
712,869
111,328
37,595
Total current assets
45,061,530
22,903,449
12,085,874
Property and equipment, net (Note 4)
14,451,914
9,442,624
3,470,436
Prepaid expenses and other current assets
Goodwill (Note 9)
4,097,864
-
1,104,703
-
7,008,582
-
6,823,641
-
5,348,928
145,091
94,949
59,419
Intangible assets, net (Note 9)
8,280,813
Unallocated Purchase Price
Deposits
$
78,860,853
$
40,554,307
$
20,964,657
$
9,923,331
$
6,318,952
$
3,846,523
LIABILITIES
Current
Trade and accrued liabilities
-
Current tax liability
1,201,614
1,094,200
Current portion of long-term debt (Note 7)
1,123,945
993,623
-
-
442,136
448,038
9,622,882
5,293,484
25,393,950
6,645,611
5,011,876
47,265,722
20,788,006
9,306,437
-
-
-
Long-term debt (Note 7)
8,173,158
4,850,940
-
Deferred tax liability (Note 6)
1,081,908
811,913
9,255,066
5,662,853
-
36,024,988
17,803,334
15,527,790
(11,623,433)
4,391,699
728 ,072
11,185,124
79,959
192,357
(13,246,614)
(8,171,544)
(4,789,999)
22,340,065
14,103,448
11,658,220
Convertible notes (Note 16)
Accounting fair value derivatives on equity conversion
options
Exchangeable shares of subsidiary (Note 16)
Conversion liability warrants (Note 14)
-
Long-Term
Convertible notes (Note 14)
SHAREHOLDERS’ EQUITY
Share capital (Note 5)
Contributed surplus
Accumulated other comprehensive income (loss)
Deficit
$
78,860,853
signed “Michael Dalsin”
$
40,554,307
$
20,964,657
signed “Roger Greene”
The accompanying notes are an integral part of these consolidated financial statements.
Page 3
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited)
Three Months
Ended
03/31/15
Revenue
$
Three Months
Ended
03/31/14
Year to
Date
2015
Year To
Date
2014
13,036,088
$ 3,664,897
$23,203,753
$ 6,028,119
Cost of revenue
4,493,886
1,335,457
7,487,190
2,663,237
Gross margin
8,542,202
2,329,440
15,716,563
3,364,882
6,651,041
1,707,885
12,252,991
2,574,523
1,891,161
621,555
3,463,572
790,359
420,146
246,859
911,118
375,768
-
3,857
2,268
3,857
1,471,015
370,839
2,550,186
410,734
-
23,669
-
49,736
161,718
-
323,436
-
110,899
-
208,779
-
3,446,508
(1,493,557)
7,093,041
(1,493,557)
(2,248,110)
1,840,727
(5,075,070)
1,854,555
-
37,401
-
37,401
1,803,326
(5,075,070)
1,817,154
Operating Expenses
General and administrative
Net Profit (Loss) from Operations
Stock-based compensation (Note 5(e))
Loss on disposal of property and equipment
Net Profit (Loss) before Financing Expenses
Financing Expenses
Interest on Convertible notes (Note 13)
Interest on subordinated debentures
Other Interest Expense
(Gain) loss on derivative financial liability
(Note 14,15)
Net Profit / (Loss) Before Taxes
Provision for Income Taxes
Net Profit / (Loss) after Taxes
(2,248,110)
Earnings (Loss) per common share
Basic and diluted
($
.012)
$
.014
($
.028)
$
.016
Weighted average number of common shares
outstanding:
Basic and diluted
203,084,354
128,752,044
181,975,044
114,678,064
Page 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Shares
Capital
Stock
Contributed
Surplus
Balance September 30, 2012
64,419,076
$4,602,866
Issuance of shares – private placement
Deficit
$677,524
($4,060,759)
Accumulated
other
comprehensive
income(loss)
Total
Shareholders
Equity
($107,188)
$1,112,443
30,273,236
3,529,119
-
-
-
Issuance cost
-
(498,845)
216,272
-
-
(282,573)
Warrants issued
-
(1,706,859)
-
-
-
(1,706,859)
Issuance of shares – debt conversion
Issuance of shares – acquisition of HHC
Options and Warrant exercise
Stock-based compensation
Net (loss) and comprehensive income
(loss)
3,529,119
326,668
49,000
-
-
49,000
2,771,853
900,852
-
-
900,852
281,600
89,704
(34,965)
-
-
54,739
-
63,214
-
-
63,214
-
-
-
(2,546,394)
(1,397)
(2,547,791)
$98,072,433
$6,965,837
$922,045
($6,607,153)
($108,585)
$1,172,144
25,000,000
5,750,000
-
-
-
5,750,000
Issuance cost
-
(143,188)
-
-
-
(143,188)
Broker warrants issuance cost
-
(74,094)
352,365
-
-
278,271
Broker warrants issued on debt
-
-
1,906,398
-
-
1,906,398
Issuance of shares – private placement
Warrants issued
-
-
(4,540,917)
-
-
-
(4,540,917)
Issuance of shares – debt conversion
2,408,077
874,330
-
-
-
874,330
Issuance of shares – option exercise
2,650,000
435,608
(102,108)
-
-
333,500
Issuance of shares – warrant exercise
Issuance of shares – RHI share
conversion
19,456,786
6,951,944
(163,289)
-
-
6,788,655
609,918
198,223
-
-
-
198,223
Issuance of shares – CMP acquisition
5,655,475
1,385,591
-
-
-
1,385,591
(loss)
-
-
1,476,288
-
-
1,476,288
-
-
-
(1,564,391)
188,544
(1,375,847)
153,852,689
$17,803,334
$4,391,699
($8,171,544)
$79,959
$14,103,448
Issuance of shares – Convertible Debt
Issuance of Shares - Conversion of Class
A Shares
2,746,674
1,610,138
(1,198,137)
6,084,460
1,947,027
2,283,300
1,354,324
(800,652)
553,672
24,907,275
14,010,164
(5,407,444)
8,602,720
6,196,911
2,602,703
Issuance of shares – Acquisition
Issuance Cost
1,947,027
2,602,703
(189,053)
(loss)
Balance December 31, 2014
Issuance of Shares - Conversion of Class
A Shares
412,001
(189,053)
491,042
196,071,309
$39,138,636
($2,523,492)
491,042
(2,826,960)
1,590,966
(1,235,994)
($10,998,504)
$1,670,925
27,287,565
-
Warrants Issued
(20,155,566)
(20,155,566)
1,711,840
2,071,326
(1,743,458)
327,868
9,969,250
12,062,792
(7,776,629)
4,286,163
Issuance of shares – Acquisition
2,345,000
2,907,800
2,907,800
Issuance Cost
(loss)
Balance March 31, 2014
420,146
210,097,399
$36,024,988 ($11,623,433)
420,146
(2,248,110)
9,514,199
7,266,089
($13,246,614)
$11,185,124
22,340,065
Page 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE GAIN OR LOSS
Net Income (Loss)
Six Months Ended
Si x Months Ended
March 31, 2015
March 31, 2014
$
(5,075,070)
$
1,817,154
Other comprehensive income (loss)
Cumulative translation adjustment
Comprehensive Profit / (Loss)
11,105,165
$
6,030,095
300,942
$
2,118,096
Page 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
Six Months Ended
Six Months Ended
March 31, 2015
March 31, 2015
March 31, 2014
Operating Activities
Net income /
(loss)
$
Items not affecting cash
Amortization
Accretion
Change in value of derivative financial liability
Loss on disposal of property and equipment
Transaction cost related to financial liability
Bad debt expense
5
(2,248,110)
$
(5,075,070)
$
1,817,154
966,918
161,718
3,446,508
800,766
420,146
3,547,946
1,733,098
323,436
7,093,041
2,268
(1,909,156)
(198,806)
(474,359)
3,340,429
170,371
4,476,785
(1,546,722)
(682,012)
(515,319)
1,588,303
217,835
5,566,241
(1,193,006)
(245,496)
(99,290)
(202,104)
692,289
264,829
Investing Activities
Purchase of property and equipment
Cash obtained from Acquisitions
Property and equipment from Acquisitions
Acquisition and closing cost of Acquisitions
(2,988,290)
245,549
(2,007,108)
(505,000)
(4,777,120)
245,549
(2,007,108)
(505,000)
(832,580)
(11,223)
(2,388,194)
Cash flow used in investing activities
(5,255,849)
(7,043,679)
(3,231,997)
(31,788)
4,286,163
327,868
4,582,243
182,884
7,018,002
(566,949)
(63,576)
12,888,883
881,540
412,001
(189,053)
14,112,679
6,451,053
3,803,179
1,750,074
23,133,468
28,686,721
12,635,241
2,001,044
14,050,436
28,686,721
3,483,885
255,718
3,360,823
7,100,426
Net changes in non-cash working capital
Accounts receivable
Inventory
Prepaid expenses and other assets
Unallocated purchase price
Trade and accrued liabilities
Current tax liability
Cash flow generated from/(used in) operating activities
$
Financing Activities
Proceeds from issues of common shares,
net of share issuance costs
Transaction cost related to financial liability
Proceeds from Equipment Financing
Repayment of Debt
Warrants exercised
Options exercised
Convertible Debt exercised
Issuance Costs
Cash flow provided by financing activities
Net change in cash
Unrealized foreign exchange on cash
Cash, beginning of period
Cash, end of period
$
289,635
23,669
(1,493,557)
299,938
375,597
1,312,436
1,475,835
911,548
6,504,156
$
-
$
Page 7
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
1.
Nature of Operations
Patient Home Monitoring Corp. ("PHM Corp" or the "Company") was incorporated under the Business Corporations Act
(Alberta) on March 5th, 1993. On December 30, 2013, the Company was continued into British Columbia, Canada. The
address of the registered office is 5626 Larch St. Suite 202, Vancouver, BC V6M 4E1. The head office is located at
14724 Ventura Blvd. Suite 1250, Sherman Oaks, CA 91403. The Company’s main revenue source is in providing inhome monitoring equipment, supplies and services to patients in the United States. The Company has also embarked on
an acquisition strategy for additional revenue and profit growth.
•
•
•
•
•
•
2.
On September 20, 2013, the Company acquired Hollywood Healthcare, Corporation, a provider of diabetic testing supplies and
other medications covered under Medicare Part B.
On January 14, 2014 the Company acquired Resource Medical Group, Palmetto Medical Holdings, LLC (which was
subsequently amalgamated), and Resource Medical – Charleston, providers of respiratory and durable medical equipment.
On June 1, 2014, the Company acquired Care Medical Partners, a provider of respiratory, durable medical and power mobility
equipment.
On October 1, 2014, the Company acquired 0891532 B.C. Ltd., a company focused upon the use of the internet and social
media to generate acquisition target leads and to acquire patients with the need of recurring health care services.
On January 26, 2015, the Company acquired Black Bear Medical, a profitable Maine-based company focused on providing
home-based healthcare services, including mobility solutions, through several retail locations in Maine and New Hampshire.
On March 1, 2015, the Company acquired West Home Health, a profitable Virginia-based company focused on providing
respiratory, durable medical and power mobility equipment to Central and Southside Virginia
Summary of Significant Accounting Policies
The significant accounting policies used in the preparation of the consolidated financial statements are as follows:
Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). They have been authorized for
issuance by the Board of Directors on April 13, 2015.
The consolidated financial statements, which are presented in Canadian dollars, have been prepared under the historical cost
convention, as modified by the measurement at fair values of certain financial assets and financial liabilities.
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany transactions have been eliminated. The Company’s consolidated subsidiaries are as follows:
Entity
PHM Home Monitoring Corp.
Stancap Holdings I Limited
Healthcare Logistics Corporation
Patient Home Monitoring, Inc.
Hollywood Healthcare Corporation
Resource Health Investors, Inc.
Resource Medical Group, LLC *
Resource Health Investors Charleston, Inc.
Resource Medical Group Charleston, LLC *
Care Medical Partners, LLC
Care Medical of Athens, Inc.
Care Medical Atlanta, LLC
PHM Health Management
Care Medical of Augusta, LLC
Care Medical of Gainesville, LLC
Care Medical Savannah, LLC
PHM DME Healthcare, Inc.
0891532 B.C. Ltd.
PHM Logistics Corporation
BBM Health Investors, Inc.*
BBMN Health Investors, Inc.*
BBMNH Health Investors, Inc.*
West Home Healthcare, Inc.
Functional Currency
Ownership
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
100%
100%
100%
100%
100%
100%*
100%
100%*
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
*These entities have exchangeable non-voting Class A shares
issued to other parties that have been presented as derivative
financial liabilities of the Company (Note 17)
Page 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Periods ended March 31, 2015 and 2014
2.
Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ from those
estimates.
The following are the most significant estimates that the Company has made in preparing the consolidated financial statements.
Useful Lives of Property and Equipment and Intangible Assets
Property and equipment are amortized on a straight-line basis over their estimated useful lives. Intangible assets with a definite useful
life are amortized on a straight-line basis over their estimated period of future benefit. The Company reviews these estimates on an
annual basis, or more frequently if events during the year indicate that a change may be required, with consideration given to
technological obsolescence and other relevant business factors.
A change in managements’ estimate could impact amortization
expense and the carrying value of property and equipment and intangible assets.
Valuation of Accounts Receivable
The Company estimates that a certain portion of receivables from customers may not be collected, and maintains an allowance for
doubtful accounts. The Company performs analyses to evaluate the net realizable value of accounts receivable as of the balance sheet
date. Specifically, the Company considers historical realization data including current and historical cash collections, accounts receivable
aging trends, other operating trends and relevant business conditions. Because of continuing changes in the health care industry and
third party reimbursement, it is possible that our estimates could change, which could have a material impact on our operations and cash
flows. If circumstances related to certain customers change or actual results differ from expectations, the Company’s estimate of the
recoverability of receivables could fluctuate from that provided for in the consolidated financial statements. A change in estimate could
impact expenses and accounts receivable.
Income Taxes
The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for
income taxes and the Company’s income tax provisions reflect management’s interpretation of country and state specific tax law. There
are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business and
may remain uncertain for several years after their occurrence. The Company recognizes assets and liabilities for taxation when it is
probable that the relevant taxation authority will require the Company to receive or pay taxes.
Where the final outcome of the
determination of tax assets and liabilities is different from the amounts that were initially recorded, such differences will impact the current
and deferred income taxes provision in the period in which such determination is made. Changes in tax law or changes in the way tax
law is interpreted may also impact the Company’s effective tax rate as well as its business and operations.
Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to temporary differences
between the financial statement carrying value of assets and liabilities and their respective income tax bases. Deferred income tax
assets or liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The calculation of current and deferred income
taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment concerning the carrying
value of assets and liabilities. The current and deferred income tax assets and liabilities are also impacted by expectations about future
operating results and the timing of reversal of temporary differences as well as possible audits of tax filings by regulatory agencies.
Changes or differences in these estimates or assumptions may result in changes to the current and deferred tax assets and liabilities on
the consolidated statements of financial position and a charge to or recovery of income tax expense.
Acquisition accounting
Accounting for business combinations requires the allocation of the Company’s purchase price to the various assets and liabilities of the
acquired business at their respective fair values. The Company uses all available information to make these fair value determinations.
In some instances, assumptions with respect to the timing and amount of future revenues and expenses associated with an asset or
group of assets may be used to determine fair value. Actual timing and amount of net cash flows from revenues and expenses related
to that asset over time may differ materially from those initial estimates, and if the timing is delayed significantly or if the net cash flows
decline significantly, the asset could become impaired.
Page 9
2.
Significant Accounting Judgments
The following are the critical judgments, apart from those involving estimations, that have been made in the process of applying the
Company's accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial
statements.
Acquisition accounting
Management exercised judgment in determining that the acquisitions of Resource Medical Group LLC and Palmetto Medical Holdings
LLC represented a single business acquisition. Management considered the guidance and definitions per IFRS 3 in making this
determination and the two entities were amalgamated shortly after acquisition.
Management also applied judgment in the recognition and measurement of the intangible assets acquired in the business combinations.
These transactions have been recorded in the consolidated financial statements based on management’s assessment of fair value for
the acquired assets and liabilities.
Functional currency
Management has exercised judgment in selecting the functional currency of each of the entities that it consolidates based on the primary
economic environment in which the entity operates and in reference to the various indicators including the currency that primarily
influences or determines the selling prices of goods and services and the cost of production, including labor, material and other costs and
the currency whose competitive forces and regulations mainly determine selling prices. The consolidated financial statements of the
Company are presented in Canadian dollars, which is the parent company’s presentation currency but which differs from its functional
currency, the US dollar, which was determined using managements assumption that the primary economic environment from which it will
derive its revenues and the expenses incurred to generate those revenues is the US.
Cash generating units
For purposes of the assets impairment testing, the Company identifies cash generating units as the smallest identifiable groups of assets
that generate independent cash inflows. Impairment testing is performed on these groups of assets on an annual basis or when events
or circumstances indicate that the cash generating unit may become impaired taking into account the assessed and projected
recoverable values of the cash generating unit.
Segmented reporting
Management has assessed the information that is provided to the chief operating decision maker and how the business is monitored and
has exercised judgment in determining that there is only one operating segment.
Exchangeable Class A shares of certain subsidiaries
Management has exercised judgment in determining that the non-voting Class A shares of certain subsidiaries which are exchangeable
for shares of the Company on a one-to-one basis do not represent a minority interest but rather are a complex compound instrument that
management has elected to measure at fair value. Management has exercised judgment in considering these shares as being converted
in the measurement of earnings per share.
Valuation of derivative instruments
Management has exercised judgment in the determination of the fair value of the derivative instruments. Estimating fair value for the
derivatives requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the instrument.
This estimate also requires the judgment in the determination of the most appropriate inputs to the valuation model including the
expected life of the option or warrant, volatility and dividend yield and making assumptions about them.
Recognition of leases
Management has exercised judgment in the determination of whether or not a contract to rent equipment represents a lease. Using
historical returns and other operational data management has determined that in cases where the Company is the lessor no rental
agreements represent financing leases.
Goodwill impairment
Management has evaluated the recoverable amount of cash generating units and applied judgment in the discount rate and other
underlying assumptions used in impairment analysis of goodwill.
Page 10
2.
Cash and cash equivalents
Cash consists of cash and temporary investments that are redeemable on demand or with an original maturity of three
months or less that are readily convertible to known amounts of cash that are subject to insignificant risk or change.
Accounts receivable
Accounts receivable are recorded at the time revenue is recognized and are presented on the balance sheet net of an
allowance for doubtful accounts. It is possible that our estimates of the allowance for doubtful accounts could change,
which could have a material impact on our operations and cash flows.
The Company will write-off receivables when the likelihood for collection is remote, the receivables have been fully
reserved, and when the Company believes collection efforts have been fully exhausted and it does not intend to devote
additional resources in attempting to collect.
Inventory
Inventory consists primarily of testing strips, pharmaceutical drugs, respiratory, durable medical and power mobility
equipment and supplies. The Company values inventory at the lower of cost and net realizable value. Historical cost is
determined using the first-in first-out, cost basis. Obsolete and unserviceable inventories are valued at estimated net
realizable value.
Certain testing strips are placed in the patient’s home and used over a 4 month period. Until they are used, the inventory
remains the property of the Company and is returnable. The value of the unused strips are included in the Company’s
year end inventory.
Property and equipment
Property and equipment is stated at cost less accumulated amortization. Major renewals and improvements are charged
to the property accounts, while replacements, maintenance, and repairs, which do not extend the useful life of the
respective assets, are expensed as incurred.
Amortization is computed using the straight-line method over the estimated useful lives of the respective assets. The
estimated useful lives of the assets are as follows:
Description
Monitoring Equipment
Computer Equipment
Vehicles
Office Furniture & Fixtures
Leasehold Improvements
Estimated Useful Lives
5 Years
5 Years
5 Years
7 Years
Life of Lease
Amortization of monitoring equipment commences once it has been deployed to a patient’s address and put in use.
Property and equipment and other non-current assets with definite useful lives are tested for impairment whenever events
or changes in circumstances indicate that their carrying amount may not be recoverable.
Page 11
2. Summary of Significant Accounting Policies (continued)
Patient Acquisition Costs
Patient acquisition costs are comprised of sales salaries and commissions, advisory fees, recruiting, marketing and travel
costs.
Long-lived Assets Impairment
Recoverable amount is the higher of fair value less costs to sell and value in use. Fair value (less costs to sell) is the
amount obtainable from the sale of the asset or group of assets in an arm’s length transaction between knowledgeable
and willing parties, less costs to sell. Value in use is equal to the present value of future cash flows expected to be
derived from the use and sale of the asset. For impairment testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of
the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”).
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.
Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill
allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (Company of units) on a prorated basis. Impairment losses may be reversed in a subsequent period where the impairment no longer exists or has
decreased. The carrying amount after a reversal must not exceed the carrying amount (net of amortization) that would
have been determined had no impairment loss been recognized.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in
a business combination is its fair value at the date of acquisition. Following initial recognition, intangible assets are carried
at cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets
are assessed as either finite or indefinite. Intangible assets with finite useful lives are amortized over the useful economic
life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The
amortization method and amortization period of an intangible asset with a finite useful life is reviewed at least annually.
Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the
asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in
accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statement of
operations in the expense category consistent with the function of the intangible assets. Finite life intangible assets are
amortized on a straight-line basis over the estimated useful lives of the related assets as follows:
Customer list
Referral base
Distribution network
Software
2 years
10 years
10 years
5 years
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and are recognized in the statement of operations when the asset
is derecognized.
Financial Instruments
Financial assets are classified as fair value through profit and loss (“FVTPL”), available for sale, held to maturity or loans
and receivables. Financial liabilities are classified as either FVTPL or other liabilities. Initially, all financial assets and
financial liabilities must be recorded on the balance sheet at fair value with subsequent measurement determined by the
classification of each financial asset and liability. Transaction costs related to FVTPL securities are expensed as incurred.
Transaction costs related to other financial instruments are included in the carrying value of the instrument and then
amortized using the effective interest method over the expected life of the instrument. Financial assets held to maturity,
loans and receivables and financial liabilities other than FVTPL assets and liabilities are measured at amortized cost using
the effective interest rate method. Available for sale financial assets are measured at fair value with changes in fair value
reported in other comprehensive income until the financial asset is disposed of, or becomes impaired.
Page 12
2.
The Company’s financial instruments include cash and cash equivalents, accounts receivable, trade and accrued
liabilities, convertible notes, long term debt (excluding financing leases), conversion liability warrants and exchangeable
shares of a subsidiary. The Company has classified its accounts receivable as loans and receivables, cash, conversion
liability warrants and exchangeable shares of a subsidiary as FVTPL, and trade and accrued liabilities, convertible notes
and long-term debt (excluding financing leases) non-convertible as other financial liabilities. Financial assets and
liabilities are recorded net only when a legally enforceable right to offset exists and the Company intends to settle on a net
basis while realizing the asset and settling the liability simultaneously.
Derivative financial liability
Warrants and options with an exercise price denominated in a foreign currency and conversion features denominated in a
foreign currency are recorded at fair value and classified as a derivative financial liability. The liability is initially measured
at estimated fair value with subsequent in fair value recorded as a gain or loss in the consolidated statement of
operations. As the warrants are exercised or debt converted, the value of the recorded liability will be included in share
capital along with the proceeds from the exercise. If these warrants expire, the related liability is reversed through the
consolidated statement of operations.
Exchangeable Class A shares of certain subsidiaries
The non-voting Class A shares of certain subsidiaries which are exchangeable for shares of the Company on a one-toone basis have been determined to contain an embedded derivative. The entire hybrid contract has been elected to be
measured as a single instrument at fair value through profit and loss at initial recognition and is re-measured at each
reporting period at fair value.
Fair value
Fair value represents the amount at which a financial instrument could be exchanged between willing parties, based on
current markets for instruments with the same risk, principal and remaining maturity. Fair value estimates are based on
quoted market values and other valuation methods.
The fair value measurement disclosures include the classification of financial instrument fair values in a hierarchy
comprising three levels reflecting the significance of the inputs used in making the measurements, described as follows:
Level 1:
Level 2:
Level 3:
Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Valuations based on directly or indirectly observable inputs in active markets for similar assets or liabilities
other than Level 1 prices, such as quoted interest or currency exchange rates; and
Valuations based on significant inputs that are not derived from observable market data, such as discounted
cash flow methodologies based on internal cash flow forecasts.
The fair market value of cash and cash equivalents are determined based on “level 1” inputs, which consist of quoted
prices in active markets for identical assets. The fair value of accounts receivable, the convertible notes, conversion
liability warrants and exchangeable shares of a subsidiary are based on “level 2” inputs. The fair value of the
exchangeable shares of a subsidiary approximates a carrying value because of its measurement using market rates. The
fair values of accounts receivable and trade and accrued liabilities, approximate their carrying values because of their
short term nature. The fair values of the convertible notes and the long-term debt (excluding finance leases) approximate
their carrying value due to the effective interest rates being comparable to market interest rates.
Revenue recognition
Revenue consists of sale and rental of medical equipment along with patient monitoring services. Revenues are billed to
and collections received from Medicare, third-party insurers, co-insurance and patient-pay. Net patient service revenue is
recognized at the time services are provided net of contractual adjustments based on an evaluation of expected
collections resulting from the analysis of current and past due accounts, past collection experience in relation to amounts
billed and other relevant information. Contractual adjustments result from the differences between the rates charged for
services and reimbursements by government-sponsored healthcare programs and insurance companies for such
services. Interest revenue is recognized as earned.
Page 13
The Company follows guidance provided by IFRS 2, which requires that a fair value based method of accounting be
applied to all share-based payments. The Company applies the fair-value based method to all stock options granted and
warrants issued. Accordingly, compensation cost is measured at fair value at the date of grant for awards to employees
and at the earlier of the date of performance completion or vesting of awards to non-employees. The costs are expensed
on a graded basis over the vesting or service period for each tranche, with the related credit included in contributed
surplus. The applicable contributed surplus is transferred to share capital, if and when stock options are exercised. Any
consideration paid on the exercise of stock options and warrants are credited to share capital. The Company uses the
Black-Scholes option pricing model to determine the value of all issued options and warrants. Transaction costs of an
equity transaction are accounted for as a deduction from equity.
Income taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, current income
taxes are recognized for the estimated income taxes payable for the current year. Deferred income tax assets and
liabilities are recognized for temporary differences between the tax and accounting basis of assets and liabilities as well
as for the benefit of losses available to be carried forward to future years for tax purposes are measured using the current
or substantively enacted tax rates expected to apply when the differences reverse. A deferred tax asset is recognized to
the extent that the recoverability of deferred income tax assets is considered probable.
Income (loss) per share
Income (loss) per common share is calculated using the weighted average number of common shares outstanding during
the year. Diluted income (loss) per share amounts are calculated giving effect to the potential dilution that would occur if
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 rate. There is no impact on diluted income (loss) per share because it is antidilutive. For the purpose of income
(loss) per common share calculations, the exchangeable Class A common shares of a subsidiary are treated as though
they were exchanged.
Comprehensive income (loss)
Comprehensive income (loss) consists of two components, net income (loss) and other comprehensive income (loss).
Other comprehensive income (loss) refers to revenue, expenses, gains and losses that under IFRS are recorded as an
element of shareholders’ equity but are excluded from net income (loss). The Company’s other comprehensive income
(loss) consists of foreign currency translation adjustments from translation of the functional currency to Canadian dollars.
Foreign currency transactions
The functional currency of each of the Company’s wholly-owned subsidiaries is measured using the currency of the
primary economic environment in which the subsidiary operates. Each entity in the Company determines its own
functional currency and items included in the financial statements of each entity are measured using that functional
currency. Transactions in foreign currencies are initially recorded by the Company’s entities in their respective functional
currency at rates prevailing at the date of the transaction. The functional currency of the Company and its subsidiaries is
the US dollar and the reporting currency is the Canadian dollar.
Monetary items are translated at the functional currency spot rate as of the reporting date. Exchange differences from
monetary items are recognized in profit or loss. Non-monetary items that are not carried at fair value are translated using
the exchange rates at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value is determined.
The assets and liabilities of foreign operations are translated into Canadian dollars at the rate of exchange prevailing at
the reporting date and their statements of operations are translated at the average monthly rates of exchange. The
exchange differences arising on the translation are recognized in other comprehensive income. On disposal of a foreign
operation, the component of other comprehensive income relating to that particular foreign operation is recognized in the
statement of operations.
Page 14
Recent accounting pronouncements
Certain pronouncements were issued by the IASB or the International Financial Reporting Interpretation Committee
(“IFRIC”). The following have not yet been adopted and are being evaluated to determine their impact on the Company.
(i)
IFRS 9 Financial instruments (“IFRS 9”) was issued by the IASB in October 2010 and will replace IAS 39 Financial
Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a
financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in
IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the
contractual cash flow characteristics of financial assets. Most of the requirements of IAS 39 for classification and
measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard also requires a
single impairment method to be used, replacing the multiple impairment methods used in IAS 39. The effective date
of IFRS 9 is January 1, 2018.
(ii) IFRS 15 Revenue from Contracts with Customers - establishes principles for reporting useful information to users of
financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an
entity’s contracts with customers. IFRS 15 is effective for annual periods beginning on or after January 1, 2017.
Earlier application is permitted.
(iii) IFRIC 21 Levies provides guidance on accounting for levies in accordance with the requirements of IAS 37
Provisions, Contingent Liabilities and Contingent Assets. This Interpretation is effective for annual periods
commencing on or after January 1, 2014 and is applied retrospectively.
Adoption of New Accounting Standards
Effective October 1, 2013, the Company adopted all of the following standards noted below. The adoption of these
standards did not have a material impact on the consolidated financial statements
(i)
IFRS 10 Consolidated financial statements – establishes principles for the presentation and preparation of
consolidated financial statements when an entity controls one or more entities.
(ii) IFRS 11 requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint
ventures will be accounted for using the equity method of accounting whereas for a joint operation the venture will
recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS,
entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11
superseded IAS 31, Interests in Joint Ventures, and SIC-13 Jointly Controlled Entities Non-monetary Contributions
by Venturers.
(iii) IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates,
special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also
introduces significant additional disclosure requirements that address the nature of, and risks associated with, an
entity’s interest in other entities.
(iv) IFRS 13 Fair value measurement – provided the guidance on the measurement of fair value and related disclosures
through a fair value hierarchy.
Page 15
3)
Financial instrument risk exposure
The Company’s activities expose it to a variety of financial risks: market risk (including price risk, currency risk and interest
rate risk), credit risk and liquidity risk. These risks arise from the normal course of operations and all transactions are
undertaken to support the Company’s ability to continue as a going concern. Risk management is carried out by
management under policies approved by the Board of Directors. Management identifies and evaluates the financial risks
in co-operation with the Company’s operating units. The Company’s overall risk management program seeks to minimize
potential adverse effects on the Company’s financial performance.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to
incur a financial loss. Financial instruments that potentially subject the Company to credit risk are primarily cash and
accounts receivable. Each subsidiary places its cash with one major financial institution. At times, the cash in the financial
institution is temporarily in excess of the amount insured by the Federal Deposit Insurance Corporation. Substantially all
accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and
government-sponsored healthcare programs, directly from patients or for rebates due from manufacturers. Receivables
generally are collected within industry norms for third-party payors and from manufacturers. The Company continuously
monitors collections from its clients and maintains an allowance for bad debts based upon any specific payor collection
issues that are identified and historical experience.
The Company recorded bad debt expense of $ 800,766 for the three month period ended March 31, 2015 (2014 $54,483). Year to date, the Company recorded bad debt expense of $ 1,475,835 for the six month period ended March
31, 2015 (2014 - $ 299,938)
Accounts receivable aging neither impaired nor past due
0 – 30 days
$ 5,142,749
31 – 60 days
2,859,146
61 – 90 days
1,477,844
Over 90 days
2,897,517
________________________
Total
$12,377,256
As of March 31, 2015 no one customer represented more than 10% of outstanding accounts receivable.
Currency risk
Currency risk is the risk that the Company will be subject to foreign currency fluctuations in satisfying obligations related to
its foreign activities.
The Company realizes approximately 95% of its sales and makes a significant amount of its purchases in US dollars.
Consequently, assets and liabilities are exposed to foreign exchange fluctuations.
The Company’s objective in managing its foreign currency risk is to minimize its net exposures to foreign currency cash
flows by holding approximately 90% of its cash and cash equivalents in US dollars. The Company monitors and forecasts
the values of net foreign currency cash flow and statement of financial position exposures and from time to time could
authorize the use of derivative financial instruments such as forward foreign exchange contracts to economically hedge a
portion of foreign currency fluctuations.
Based on the above net exposure at for the six months ended March 31, 2015, a 10% depreciation or appreciation of the
US dollar against the Canadian dollar would result in an approximately $507,507 decrease or increase respectively in
both net loss and comprehensive loss (2014 – $185,455). The Company has not employed any currency hedging
programs during the quarters ended December 31, 2014 and 2013.
Page 16
3)
Financial Instrument Risk Exposure (cont.)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The
Company’s approach in managing liquidity is to ensure, to the extent possible, that it will have sufficient liquidity to meet
its liabilities when due, under both normal conditions, by continuously monitoring actual and budgeted cash flows.
As of March 31, 2015, the Company faces no material liquidity risk and is able to meet all of its current financial
obligations as they become due and payable. The Company has $12,248,890 of liabilities that are due within one year but
has in excess of $45 million of current assets to meet those obligations.
Trade Accounts Payable Aging
0 – 30 days
31 – 60 days
61 – 90 days
Over 90 days
$ 5,313,971
$ 949,635
$ 325,399
$
51,798
________________________
Total
Other Liabilities Aging
Less than one year
Between one and two years
Between two and five years
$ 6,640,803
$
$
40,624,919
236,010
9,019,056
56,520,788
Liabilities due in less than one year include $35,016,832 of conversion liability warrants and exchangeable shares of
subsidiary. The conversion or exchange of warrants or shares will result in the liability moving to the Shareholders’ equity
section of the Balance Sheet and will not adversely affect the cash position of the Company.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. Interest rate risk is limited to potential decreases on the interest rate offered on cash and cash equivalents
held with Chartered Canadian and registered US financial institutions. The Company considers this risk to be immaterial.
The interest on the convertible notes is not subject to cash flow interest rate risk as these instruments bear interest at
fixed rates.
Page 17
4.
Property and Equipment, net
At March 31, 2015
Accumulated
Amortization
Cost
Computer Equipment
Monitoring Equipment Not Yet Placed in Service
Vehicles
$
$
At March 31, 2014
21,876,858
559,159
256,330
316,639
13,948
368,197
23,391,131
$
8,716,790
91,301
28,540
9,831
92,755
8,939,217
$
$
4,842,637
103,012
62,849
8,350
12,164
551,019
5,580,031
$
$
$
Accumulated
Amortization
Cost
Computer Equipment
Monitoring Equipment Not Yet Placed in Service
Software
Net
$
Net
1,780,510
43,480
19,628
5,846
260,131
2,109,595
$
13,160,068
467,858
227,790
306,808
13,948
275,442
14,451,914
$
$
3,062,126
59,532
43,222
2,504
12,164
290,888
3,470,436
March 31, 2015 Continuity Schedule
At March 31, 2015
Beginning
9/30/14
$
Additions
$
Business
acquisitions
$
Foreign
exchange
$
Ending
03/31/15
$
9,974,841
6,662,519
1,381,044
3,859,552
21,876,858
Computer Equipment
195,834
18,830
304,360
40,135
559,159
92,955
3,492
157,470
2,413
256,330
38,562
13,526
234,234
30,317
316,639
Monitoring equipment not yet in
service
12,319
-
531
13,948
Vehicles
262,640
90,361
-
15,196
368,197
10,577,151
6,788,728
2,077,108
3,948,144
23,391,131
For the six months ended March 31, 2015, amortization expense associated with property and equipment was $1,773,098.
(2014 - $289,635).
Page 18
5.
Share capital
(a) Authorized share capital
The Company’s authorized share capital consists of an unlimited number of common shares and an unlimited number of
preferred shares issuable in series. The preferred shares issuable in series will have the rights, privileges, restrictions,
and conditions assigned to the particular series upon the Board of Directors approving their issuance.
(b) Issued share capital
On December 23, 2013, the Company completed a brokered private placement consisting of the issue and sale of
25,000,000 units at a price of $0.23 per unit. Each unit consists of one common share and one warrant which entitles the
holder to purchase one common share of the Company at a price of $0.23 until December 23, 2015.
In connection with the private placement on December 23, 2013, the Company issued broker warrants to purchase
1,750,000 common shares. Each warrant entitles the holder to purchase one common share of the Company at a price of
$0.23 until December 23, 2015. As of March 31, 2015, all of the broker warrants have been exercised.
In addition to the previously noted issuances, share capital transactions were included in certain of the business
acquisition transactions during the year (Note 11).
In connection with the new debt issued on August 27, 2014, the Company issued broker warrants to purchase 5,744,250
common shares. Each warrant entitles the holder to purchase one common share of the Company at a price of $0.45 until
August 27, 2019. As of March 31, 2015, all of the broker warrants have been exercised.
The fair value of the outstanding warrants was calculated using the Black-Scholes option pricing model with the following
assumptions:
Risk-free interest rate
Expected volatility
Expected life of warrants
Expected dividend yield
1.48%
123.71%
4.42 years
Nil
The outstanding and exercisable warrants at March 31, 2015, are comprised as follows:
Date of Expiry
Type
August 27, 2019
August 27, 2019
August 27, 2019
August 27, 2019
Warrants
Warrants
Warrants
Warrants
Total
Number of Warrants
Average
Exercise Price
Per Warrant $
5,744,250
10,303,089
2,345,000
2,096,775
0.450
1.350
1.350
1.350
19,282,364
1.140
Page 19
5.
Share capital (continued)
(c) Warrants
Balance, September 30, 2011
Issued
Issued
Exercised
Number of Warrants
1,761,041
243,200
2,004,241
17,012,121
(31,600)
Exercise Price
Per Warrant $
0.200
0.150
0.195
0.140
0.150
Issued
Exercised
Expired
18,984,762
40,257,250
(19,456,768)
(1,702,134)
0.145
0.385
0.201
0.187
Issued
Exercised
Expired
Balance, March 31, 2015
38,083,110
15,744,864
34,545,610
19,282,364
0.385
1.280
0.350
1.140
(d) Options
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
generally either vest immediately or annually over a three year period.
A summary of stock option activity at March 31, 2015 and the changes for the year then ended are as follows:
Issued
Cancelled/forfeited
Expired
Issued
Cancelled/forfeited
Exercised
Issued
Cancelled/forfeited
Exercised
Issued
Cancelled/forfeited
Exercised
Number
10,227,000
3,835,000
(2,500,000)
(442,000)
11,120,000
835,000
(2,965,000)
(250,000)
Weighted
Average
Exercise Price
Per Share $
0.140
0.160
0.140
0.200
0.140
0.150
0.150
0.200
8,740,000
0.140
14,796,667
(1,250,000)
(2,650,000)
0.257
0.250
0.126
19,636,667
0.206
12,225,009
(2,856,082)
(3,995,140)
0.495
0.198
0..157
25,010,454
0.336
Page 20
5.
Share Capital (continued)
The following table summarizes information about the stock options outstanding at March 31, 2015:
Number
Outstanding
1,800,000
180,000
500,000
2,600,000
335,000
3,100,000
225,000
2,855,000
4,500,000
100,000
-
19,636,667
Issued
1,525,000
7,490,000
1,260,000
40,000
10,000
1,830,009
70,000
12,225,009
Exercised
Forfeited/
Cancelled/
250,000
150,000
61,840
600,000
25,000
83,300
-
54,415
221,483
1,753,517
-
3,995,140
200,000
10,000
2,856,082
Number
Number
Outstanding
1,550,000
30,000
383,745
2,000,000
310,000
2,795,217
225,000
2,855,000
2,746,483
100,000
1,525,000
7,490,000
1,060,000
30,000
10,000
1,830,009
70,000
25,010,454
Weighted
Average
Exercise
Price Per
0.100
0.200
0.200
0.200
0.140
0.150
0.170
0.284
0.170
0.265
0.365
0.365
0.380
0.380
0.980
1.180
1.400
0.336
Date of Expiry
June 1, 2020
March 4, 2016
December 13, 2016
January 1, 2022
August 8, 2018
November 1, 2018
December 20, 2023
April 25, 2019
April 25, 2019
August 7, 2019
November 3, 2019
December 1, 2019
November 14, 2019
December 17, 2019
January 19, 2020
February 24, 2020
March 20, 2020
At March 31, 2015, 25,010,454 stock options were exercisable with a weighted average exercise price of $ 0.336.
(e) Stock-Based Compensation
The Company accounts for stock-based compensation, including stock options and warrants, using the fair value method
as prescribed by IFRS 2. Under this method, the fair value of stock options and warrants at the date of grant is amortized
over the vesting period and the offsetting credit is recorded as an increase in contributed surplus. The Company accounts
for forfeitures as they happen.
For the quarter ended March 31, 2015, the Company recorded stock-based compensation expense of $420,146
(2014 - $246,859). For the six month period ended March 31, 2015, the Company recorded stock-based compensation
expense of $ 911,188 (2014 – 375,768).
The fair value of the vested stock options have been charged to the statement of operations and deficit and credited to
contributed surplus for the fiscal year ended March 31, 2015, using the Black-Scholes option pricing model with the
following assumptions:
Share price
Expected volatility
$0.10 - $1.40
1.0 – 2.77%
59.45% - 145.54%
Between 2 and 10 years
Nil
Page 21
6. Income Taxes
The Company's provision for (recovery of) income taxes differs from the amount that is computed by applying the
combined federal and state statutory income tax rate of 38% (2013 - 42%) in the United States to the Company's net
income (loss) before income taxes as follows:
Six Months Ended
March 31,
2015
Net income (loss) before income taxes
$
(5,075,070)
Statutory income tax rate
Computed provision for (recovery of) income taxes
Non-deductible stock-based compensation expense
Other non-deductible expenses
Share issue costs
Changes in tax rates and other
Deferred tax assets not recognized in the year
$
1,817,154
38%
42%
(1,928,526)
911,118
1,017,408
-
763,204
157,823
(921,027)
-
-
-
Deferred tax assets recognized in the year
Provision for (recovery of) income taxes
Six Months Ended
March 31,
2014
$
-
$
-
The Company’s deferred income tax assets (liabilities) are comprised of the following:
Net operating losses
Intangible assets
Accounts receivable
Financing costs
Convertible notes and derivative financial liabilities
Less deferred tax assets not recognized
$
Net deferred tax asset (liability)
$
March 31,
2015
1,413,000
(626,500)
(1,528,100)
490,600
294,800
(1,125,708)
(1,081,908)
March 31,
2014
$
-
$
-
The Company has Canadian loss carry-forwards with expiry dates as follows:
Expiring in 2030
Expiring in 2031
Expiring in 2032
Expiring in 2033
Expiring in 2034
$
$
March 31,
2015
164,000
224,000
367,000
420,000
977,000
2,152,000
$
$
March 31,
2014
164,000
224,000
367,000
420,000
1,175,000
Page 22
6. Income Taxes (cont.)
The Company has United States loss carry-forwards with expiry dates as follows:
$
Expiring in 2027
Expiring in 2028
Expiring in 2030
Expiring in 2031
Expiring in 2032
Expiring in 2034
03/31/15
669,000
47,800
504,000
486,400
539,200
$
7.
2,246,400
03/31/14
$
$
2,671,399
Long-term debt and finance leases
Long-term debt [a]
Finance lease obligations [b]
Unsecured subordinate debentures [c]
$
03/31/15
276,196
4,126,693
4,894,223
9,297,112
$
$
(159,642)
(964,345)
(1,123,954)
8,173,158
$
Less:
Current portion of long-term debt
Current portion of finance lease obligations
03/31/14
-
(a) Various loans bearing interest at fixed rates between 4.24% - 10.99%, payable in blended monthly payments, secured
by equipment, due between 2014 and 2017.
(b) Various finance leases for equipment bearing interest at fixed rates between 0% - 13.69%, due between 2014 and
2017.
(c) Unsecured subordinate debentures bearing interest at 7.5% due December 31, 2019.
Minimum principal payments required over the next five years are as follows:
Less than one year
Between one and two years
Between two and five years
$
$
Long-term debt
159,642
97,467
19,087
276,196
$
$
Finance lease
obligations
964,345
3,162,348
4,126,693
Unsecured
subordinate
debentures
$
4,894,223
$ 4,894,223
Page 23
8.
Commitments
(a) Operating Leases
The Company leases certain facilities under the terms of non-cancelable operating leases. Future payments pursuant to
these commitments are as follows:
Less than 1 year
$
452,270
387,442
Total
$
839,712
(b) Other Commitments
Effective December 1, 2013, a five year agreement was negotiated with a corporate shareholder. Under the terms of the
agreement, the shareholder will receive monthly payments starting at US $2,500 for a five year period and increasing as
revenue increases. In addition, the Company committed to paying numerous success fees provided the Company
reaches certain performance thresholds, as defined in the advisory agreement, during the term of the agreement, as
previously disclosed. The success fees range from US $25,000, for acquiring a target company, to US $500,000, for
listing the Company on a major US stock exchange. Additional success fees may be earned based on the EBITDA of an
acquired target and the increase in EBITDA of the target over a two year period.
Minimum future payments in US dollars pursuant to these agreements are as follows:
Less than 1 year
$
US $
30,000
80,000
Total
$
110,000
Page 24
9.
Intangible assets
Cost
Acquired through business combination
Additions
Impairment
Effect of changes in exchange rates
Accumulated amortization
Additions
Effect of changes in exchange rates
Balance, end of year
Net carrying amount
Goodwill
Intangibles
with finite
lives
Total
1,104,703
2,498,703
494,458
4,097,864
8,751,328
1,200,854
9,952,182
9,856,031
2,498,703
1,695,312
14,050,046
$
-
1,469,698
201,671
1,671,369
1,469,698
201,671
1,671,369
$
4,097,864
8,280,813
12,378,677
$
$
$
Intangible assets with finite useful lives include software, customer lists, referral basis and distribution networks.
The purchase price allocation was finalized for HHC during the fourth quarter of 2014. The purchase price allocations of
RMG, RMGC and 0891532 B.C. Ltd. will be finalized during 2015. The purchase price allocations for Black Bear Medical
and West Home Health will be finalized during 2016.
10. Related Party Transactions
Key management personnel are comprised of the Company’s directors and executive officers. In addition to their salaries,
key management personnel also participate in the Company’s share option program, the total of which is disclosed below.
A portion of this amount is attributed to Related Parties.
6 Months Ended
03/31/15
$
911,118
6 Months Ended
03/31/14
$
375,768
Page 25
11. Acquisition Of Businesses
Acquisitions in 2014
a) Resource Medical Group, LLC and Palmetto Medical Holdings, LLC
On January 14, 2014, the Company, through its subsidiary Resource Health Investors, Inc. (“RHI”), acquired 100% of
the outstanding equity interests of Resource Medical Group, LLC (“RMG”), a supplier of home durable medical
equipment and respiratory services, located in South Carolina. As part of a concurrent transaction, RHI acquired
100% of the outstanding equity interests of Palmetto Medical Holdings, LLC from the same vendors. The purchase
price was satisfied through the issuance of 7,623,984 Class A non-voting shares of RHI. The holder of a Class A
share of RHI is entitled to dividends equal to the dividends paid to the voting shareholders of the company. Each
Class A share is exchangeable, at the option of the holder, for one common share of the Company for up to five
years and are mandatorily exchanged after six years. Half of the Class A shares are subject to a six month hold
period and the other half are subject to a twelve month hold period before being exchanged. The Company has the
right to settle the exchange in cash, the amount being equal to the 20 day weighted average trading price of the
common shares of the Company. The Company has classified the Class A shares as a financial liability and their fair
value at acquisition date was $2,439,675 based on the closing price of common shares of the Company ($0.32 per
common share). The Company additionally made cash payments totaling $1,112,911 for an aggregate purchase
price of $3,552,586. The following is a summary of the identified assets and liabilities acquired at their fair values:
Total
Accounts receivable
Inventory
Other assets
Intangibles
Goodwill
Bank indebtedness
Accounts payable
Deferred income taxes
Total
$186,377
10,131
67,567
712,009
3,369,553
641,873
(8,045)
(358,535)
(1,068,344)
3,552,586
The Company applied the acquisition method in accounting for the transaction in accordance with IFRS 3, which
allows one year to finalize the purchase price allocation. Over the next year, the Company will analyze the acquired
assets and liabilities and make any necessary revisions.
The goodwill recognized in the transaction is made up of expected synergies from the combination of operations of
the Company and RMG including the application of billing processes and the ability to cross sell to patient databases.
The expected tax basis of the goodwill is nil. The goodwill recognized on the transaction was assessed for
impairment on the acquisition date by applying discounted cash flows with a discount rate of 12%. An impairment
charge of $82,110, representing the difference between these amounts and the carrying value of the goodwill
reduced its carrying value to $559,763.
Had the Company owned RMG for a full twelve month period, the Company would have reported additional revenues
of $1,000,000 and additional net income of $150,000. The acquisition costs related to the transaction were $nil.
Page 26
11. Acquisition Of Businesses (continued)
b) Resource Medical Group, Charleston LLC
On January 14, 2014, the Company, through its subsidiary Resource Health Investors, Charleston Inc. (“RHIC”),
acquired 100% of the outstanding equity interests of Resource Medical Group, Charleston LLC (“RMGC”), a supplier
of home durable medical equipment and respiratory services, located in South Carolina. The purchase price was
satisfied through the issuance of 5,154,862 Class A non-voting shares of RHIC. The holder of a Class A share of
RHIC is entitled to dividends equal to the dividends paid to the voting shareholders. Each Class A share is
exchangeable, at the option of the holder, for one common share of the Company for up to five years and are
mandatorily exchanged after six years. Half of the Class A shares are subject to a six month hold period and the
other half are subject to a twelve month hold period before being exchanged. The Company has the right to settle the
exchange in cash, the amount being equal to the 20 day weighted average trading price of the common shares of
The Company. The Company has classified the Class A shares as a financial liability and their fair value at
acquisition date was $1,649,556 based on the closing price of common shares of the Company ($0.32 per common
share). The Company additionally made cash payments totaling $715,212 for an aggregate purchase price of
$2,364,768. The following is a summary of the identified assets and liabilities acquired at their fair values:
Total
Accounts receivable
Inventory
Intangibles
Goodwill
Bank indebtedness
Accounts payable
Deferred income taxes
Long-term debt
Total
$210,726
20,385
765,390
2,501,642
878,609
(3,086)
(964,256)
(942,794)
(101,848)
2,364,768
assets and liabilities and make any necessary revisions.
The goodwill recognized in the transaction is made up of expected synergies from the combination of operations of
the Company and RMGC including the application of billing processes and the ability to cross sell to patient
databases. The expected tax basis of the goodwill is nil. The goodwill recognized on the transaction was assessed for
impairment on the acquisition date by applying discounted cash flows with a discount rate of 11%. An impairment
charge of $588,484, representing the difference between these amounts and the carrying value of the goodwill
reduced its carrying value to $290,125.
Had the Company owned RMGC for a full twelve month period, the Company would have reported additional
revenues of $890,000 and additional net income of $20,000. The acquisition costs related to the transaction were
$nil.
Page 27
11. Acquisition Of Businesses (continued)
c) Care Medical Partners, LLC
On May 31, 2014, the Company acquired all of the issued and outstanding shares Care Medical Partners, LLC
(“CMP”), a participating Medicare provider that provides home durable medical equipment and respiratory services.
The initial aggregate purchase price was $1,545,748 of which $156,753 was paid in cash and $1,388,995 was settled
by the issuance of 5,655,475 Common Shares of the Company valued at the closing price on the transaction date of
$0.245 per common share. The following is a summary of the identified assets and liabilities acquired at their fair
values:
Total
Cash
Inventory
Prepaid expenses
Intangibles
Bank indebtedness
Accounts payable
Long-term debt
Total
$1,029,178
388,473
17,724
5,450,560
1,198,805
(99,011)
(2,539,488)
(3,900,493)
1,545,748
assets and liabilities and make any necessary revisions. No goodwill was recognized on the acquisition.
Had the Company owned CMP for a full twelve month period, the Company would have reported additional revenues
of $8,950,000 and additional net loss of $380,000. The acquisition costs related to the transaction were $180,540
included in general and administrative expenses.
d) 0891532 B.C. Ltd.
On October 1, 2014 upon the satisfaction of all conditions the Company completed its previously approved
acquisition of and amalgamation with 0891532 B.C. Ltd., a British Columbia incorporated company.
Details of the transaction were disclosed in the year-end audited financials
e) Class A Shares
On October 1, 2014, the Company issued 6,084,460 common shares to satisfy the exchange of the same number of
exchangeable Class A shares of subsidiaries.
Page 28
Acquisitions in 2015
a)
Black Bear Medical, Inc.
On February 5, 2015, the Company, through its subsidiary BBM Health Investors, Inc. (“BBMHI”), acquired 100% of
the outstanding equity interests of Black Bear Medical, Inc. (“BBM”), a supplier of home durable medical equipment
and respiratory services, located in Maine. The purchase price was satisfied through the issuance of 4,748,247
Class A non-voting shares of RHIC. The holder of a Class A share of RHIC is entitled to dividends equal to the
dividends paid to the voting shareholders. Each Class A share is exchangeable, at the option of the holder, for one
common share of the Company for up to five years and are mandatorily exchanged after six years. 2,096,775 Class A
shares are not subject to a hold period. 900,000 of the Class A shares are subject to a six month hold period and the
other half are subject to an additional twelve month hold period before being exchanged. The Company has the right
to settle the exchange in cash, the amount being equal to the 20 day weighted average trading price of the common
shares of The Company. The Company has classified the Class A shares as a financial liability and their fair value at
acquisition date was $4,985,659 based on the closing price of common shares of the Company ($ 1.05 per common
share). The Company additionally made cash payments totaling $90,000 for an aggregate purchase price of
$5,075,659.
b)
Black Bear Medical North, Inc.
On February 5, 2015, the Company, through its subsidiary BBMN Health Investors, Inc. (“BBMNHI”), acquired 100%
of the outstanding equity interests of Black Bear Medical North, Inc. (“BBM”), a supplier of home durable medical
equipment and respiratory services, located in Maine. The purchase price was satisfied through the issuance of
1,935,846 Class A non-voting shares of BBMNHI. The holder of a Class A share of BBMNHI is entitled to dividends
equal to the dividends paid to the voting shareholders. Each Class A share is exchangeable, at the option of the
holder, for one common share of the Company for up to five years and are mandatorily exchanged after six years.
764,011 of the Class A shares are subject to a six month hold period and the remainder are subject to a 16 month
hold period before being exchanged. The Company has the right to settle the exchange in cash, the amount being
equal to the 20 day weighted average trading price of the common shares of The Company. The Company has
classified the Class A shares as a financial liability and their fair value at acquisition date was $2,032,638 based on
the closing price of common shares of the Company ($ 1.05 per common share). The Company additionally made
cash payments totaling $337,000 for an aggregate purchase price of $2,369,638.
c)
Black Bear Medical NH, Inc.
On February 5, 2015, the Company, through its subsidiary BBMNH Health Investors, Inc. (“BBMNHHI”), acquired
100% of the outstanding equity interests of Black Bear Medical NH, Inc. (“BBMNH”), a supplier of home durable
medical equipment and respiratory services, located in Maine. The purchase price was satisfied through the
issuance of 388,839 Class A non-voting shares of BBMNHHI The holder of a Class A share of BBMNHHI is entitled
to dividends equal to the dividends paid to the voting shareholders. Each Class A share is exchangeable, at the
option of the holder, for one common share of the Company for up to five years and are mandatorily exchanged after
six years. 155,105 of the Class A shares are subject to a six month hold period and the remainder are subject to a 16
month hold period before being exchanged. The Company has the right to settle the exchange in cash, the amount
being equal to the 20 day weighted average trading price of the common shares of The Company. The Company has
classified the Class A shares as a financial liability and their fair value at acquisition date was $407,808 based on the
closing price of common shares of the Company ($ 1.05 per common share). The Company additionally made cash
payments totaling $78,000 for an aggregate purchase price of $485,808.
The Company has determined that the above acquisitions are a business combination under IFRS 3 and will be
accounted for by applying the acquisition method. Certain disclosures required under IFRS 3 related to the
acquisitions are not made in these consolidated financial statements because gathering the information is impractical
given the short period between the completion of the acquisition transaction and the date the financial statements are
approved. Disclosures related to the fair value of assets and liabilities acquired, as determined through the purchase
price allocations have not been made in these consolidated financial statements. The purchase price allocations
between assets and liabilities acquired, including goodwill and deferred taxes, will be finalized in a subsequent
period.
Page 29
Acquisitions in 2015 (cont.)
d)
West Home Healthcare, Inc.
On March 9, 2015, the Company acquired all of the issued and outstanding shares West Home Healthcare, Inc.
(“WHH”), a supplier of home durable medical equipment and respiratory services. The initial aggregate purchase
price was $2,790,550 which was settled by the issuance of 2,345,000 Common Shares of the Company valued at the
closing price on the transaction date ($ 1.19)
assets and liabilities and make any necessary revisions. No goodwill was recognized on the acquisition.
12. Capital
The Company considers its capital to be shareholders’ equity, which is comprised of share capital, contributed surplus,
accumulated other comprehensive loss and deficit, which totaled at $22,340,065 on March 31, 2015.
(2014 - $11,658,220).
The Company raises capital, as necessary, to meet its needs and take advantage of perceived opportunities and,
therefore, does not have a numeric target for its capital structure. Funds are primarily secured through equity capital and
convertible debentures raised by way of private placements. There can be no assurance that the Company will be able to
continue raising equity capital in this manner.
On August 27, 2014, the Company issued non-convertible unsecured subordinated debentures .The debentures are
limited to an aggregate principal amount of $8,625,000 with an annual interest rate of 7.5%, payable in arrears on June 30
and December 31 or each year. The debentures mature on December 31, 2019 and will not be redeemable before June
30, 2016, except in the event of the satisfaction of certain conditions after a Change of Control has occurred as outlined in
the debenture indenture agreement. The purpose of this funding is to assure the Company has funds necessary for future
strategic acquisitions.
Management reviews its capital management approach on an ongoing basis and believes that this approach, given the
relative size of the Company, is reasonable.
The Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly rated
financial instruments, such as cash, and short-term guarantee deposits, held with major Canadian and US financial
institutions
13. . Subsequent Events
No subsequent events noted between March 31, 2015 and the issuance of this report.
Page 30
14. Accounting Fair Value Derivatives on Equity Conversion Options
The Convertible Notes and Warrants conversion feature is denominated in Canadian dollars which is different from the
functional currency of the Company (US dollars). The conversion feature is treated, per IFRS Fair Value Measurement
requirements, as a derivative financial liability and the fair value movement during the period is recognized in the
consolidated statement of operations. While the gain resulting from fair value measurement has no effect on (1) the cash
position of the Company; (2) management’s analysis and decision making in execution and strategy of the business; (3)
the financial health of the Company; (4) the future potential for revenue and profit growth and ability to finance that growth,
IFRS rules dictate that these items be included in the year-end financial statements. The change in the value of the
conversion feature of convertible notes and the change in value of warrants has been recorded as a gain on derivative
financial liability in the Consolidated Statement of Operations.
As the convertible notes are either repaid or converted to Common Stock, the loan balance and derivative financial liability
will be eliminated, with the appropriate entries made to the Balance Sheet and Consolidated Statement of Operations.
The same will be true as warrants are exercised or expire.
Convertible notes
Balance, beginning of period
Issued during the period
Value associated to conversion feature
Conversion of note in the period
Accretion
Balance, end of period
$
$
03/31/15
442,136
(442,136)
-
Unsecured subordinated debenture
Issued during the period
Value associated to conversion feature
Transaction costs
Accretion
$
$
03/31/2015
4,570,787
323,436
4,894,223
Conversion liability warrants
Balance, beginning of year
Exercised warrants
Loss (gain) in value
$
$
12/31/14
6,645,611
(4,036,162)
3,788,426
6,397,875
Page 31
14. Accounting Fair Value Derivatives on Equity Conversion Options (continued)
Convertible notes issued in 2012
In 2012, the Company issued a series of convertible notes to finance the purchase of revenue generating in-home
monitoring equipment for patients enrolling into the Company’s cardiology home monitoring services. IFRS requires that
the convertible notes separated into their liability and equity components for purposes of accounting.
The convertible notes bear interest at a rate of 12% per annum, payable quarterly, and mature three years from closing
($489,000 matures in December 2014 and $294,000 in January 2015). At the option of the convertible note holder,
principal may be convertible into common shares of the Company at a conversion price of $0.15 up until the first business
day following the date the Company files its audited financial statements for the year ended September 30, 2014,
whereupon, and only for convertible notes still outstanding, the conversion price will be (i) increased to $0.23 in the event
2014 revenue is more than $11,000,000, or (ii) decreased to $0.115 in the event 2014 revenue is less than $7,000,000. If
neither trigger is met, then the conversion price will remain $0.15. As part of the agreement, the Company is restricted
from paying out dividends until the principal along with any accrued interest has been repaid to convertible debt holders.
The loan has both an equity component (representing the conversion feature) and a debt component. Upon issuance, the
value of the conversion feature was estimated at $296,316 and the value of the debt component was estimated at
$486,684 less transaction costs.
The debt was extinguished as of December 31, 2014.
Convertible notes issued in 2013
In 2013, the Company issued a total of $150,000 of convertible notes with net proceeds of $150,000 USD. The
convertible notes bear interest at a rate of 8% per annum, payable quarterly, and matures on September 1, 2016. At the
option of the convertible note holder, principal may be convertible into common shares of the Company at a conversion
price of $0.26. As part of the agreement, the Company is restricted from paying out dividends until the principal along
with any accrued interest has been repaid to the convertible debt holders.
The loan has both an equity component (representing the conversion feature) and a debt component. Since the
conversion feature is denominated in Canadian dollars which is different from the functional currency of the Company (US
dollars), the conversion feature is treated as a derivative financial liability and the fair value movement during the period is
recognized in the Consolidated Statement of Operations. Upon issuance, the value of the conversion feature was
estimated at $114,677 and the value of the debt component was estimated at $35,323.
The debt was extinguished as of September 30, 2014.
Page 32
Issuance of debt with detachable warrants – 2014
In 2014, the Company issued a total of $8,625,000 of unsecured subordinated debt with detachable warrants. The
debentures bear interest at a rate of 7.5% per annum, payable semi-annually, and mature on December 31, 2019. At the
option of the debt holder, the detachable warrants may be converted into common shares of the Company at a conversion
price of $0.45.
The loan has both an equity component (representing the detachable warrants) and a debt component. Since the
warrants are denominated in Canadian dollars which is different from the functional currency of the Company (US dollars),
the warrants are treated as a derivative financial liability and the fair value movement during the period is recognized in
the consolidated statement of operations. Upon issuance, the value of the detachable warrants was estimated at
$2,576,214 and the value of the debt component was estimated at $6,048,786 less transaction costs.
The fair value of the detachable warrants on issuance was determined using the following assumptions:
Share price
Expected volatility – based on historical volatility
$0.40
1.48%
123.71%
4.625 years
Nil
Page 33
Fair Value at March 31, 2015
The fair value of the derivative liability at March 31, 2015 of $25,393,950 was calculated using the Black-Scholes option
pricing model with the following assumptions:
Share price
$0.435
Expected volatility – based on historical volatility
0.96 – 1.59%
53.60 – 1.25%
0.23 – 4.91 years
Nil
16. Exchangeable shares of subsidiary
Additions
Conversion
Balance, end of period
$
$
03/31/15
5,293,484
6,276,425
(1,947,027)
9,622,882
17. Earnings (loss) per share
Earnings (loss) per share is based on the consolidated earnings (loss) for the year divided by the weighted average
number of shares outstanding during the year. Diluted earnings (loss) per share is computed in accordance with the
treasury stock method and based on the weighted average number of shares and dilutive share equivalents.
The following reflects the earnings and share data used in the basic and diluted earnings (loss) per share computations:
Net income (loss) attributable to shareholders
Basic weighted average number of shares
Basic and diluted loss per share
$
$
6 Months
Ended
03/31/15
(5,075,070)
181,975,044
(.028)
$
$
6 Months
Ended
03/31/14
1,817,154
114,678,064
.016
The outstanding stock options and warrants were excluded from the calculation of the above diluted loss per share
because their effect is anti-dilutive.
Page 34

Interim Consolidated Financials Statements

Transcription

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