Information on write-offs. Update on the Group’s current situation and plans
Current Report No. 21/2022
Legal basis: Article 17.1 MAR – confidential information
In reference to current report no. 6/2022, the Management Board of Medicalgorithmics S.A. (“Company”) informs that, having tested the assets for impairment, with the support of the Company’s Supervisory Board and after a meeting with representatives of the auditor performing the audit of the financial statements for the year 2021, it decided to make write-downs resulting in a decrease of the Company’s equity by the amount detailed in the attached tables. At the same time, the Management Board provides the impact of write-offs on the main items of assets and liabilities and their values.
In accordance with IAS (including IAS 36, IFRS 9), the Group is required to assess at each balance sheet date whether there are any group of assets, indicating whether any of the assets may be impaired. At the same time, the standard imposes an obligation to carry out an annual test checking whether the goodwill and intangible assets with an indefinite life have been impaired.
In the opinion of the Management Board of the Company, the assets of Medi-Lynx, including the acquired AMI/Spectocor customer base, constitute the smallest identifiable group of assets generating cash inflows, largely independent of cash inflows from other assets or groups of assets, and therefore constitute one a cash-generating unit. Goodwill arising from the acquisition of Medi-Lynx is allocated to this identified unit.
However, the Company’s assets related to the IP and R&D activities (mainly intangible assets in the form of costs of completed development works, development works in progress, tangible fixed assets) and activities on the global market along with services provided to Medi-Lynx and production activities constitute the second cash-generating unit, which is assessed under in terms of impairment.
Accordingly, the Group has identified two cash generating units (CGUs):
1) company Medi-Lynx with allocated goodwill recognized as a result of the acquisition of this company (CGU Medi-Lynx),
2) activities carried out at Medicalgorithmics S.A., i.e., the maintenance and development of software technology and the production of Pocket ECG devices, along with services provided to Medi-Lynx in the USA and on the global market (outside the US) (CGU MDG S.A.).
As of December 31, 2021, the Management Board of the Company identified impairment of groups of assets in both cash-generating units.
The Company indicates that both the consolidated financial statements of the Company’s capital group (the “Group”), as well as the Company’s separate financial statements, are subject to verification by an independent statutory auditor as part of the process of auditing financial statements for 2021, and consequently, the possibility of a change in the scope of the indicated amounts. In the event of significant changes in the amount of the write-offs, the Company will inform in separate current reports.
At the same time, the Management Board informs that it has verified the assumptions regarding the necessary cash needs for the continuation of the current development strategy in 2022. Taking into account the current assumptions, the Group’s cash needs are in the range of USD 4 – 6 million. Under the conservative assumptions of the Management Board, the current cash balance makes it necessary to gain the additional financing within approximately two months, in a form of debt or selling some of the assets.
The Group continues to seek debt financing or alternatively the opportunity to raise an investor for the Group or to sell Medi-Lynx or significant assets of the Group. As of the date of this report, the Group does not have details of the terms of any potential transactions. The Group is currently in discussions with several entities; however, these are not discussions regarding the terms of the transaction – only analyses of the possibility of structuring the transaction and the subject matter of the transaction are being conducted. The Group has not obtained any offers for the acquisition of Group assets or financing. No binding or non-binding documents regarding the transaction have been signed. In order to enable the potential transaction to proceed, in the event that it involves a tight timetable and the transaction proves to be justified in light of the Company’s announced plans and strategies in relation to the Group’s current operational and financial situation, the Management Board has convened an Extraordinary General Meeting of the Company for May 10, 2022.
Data related to the consolidated financial statements of the Issuer’s Group and the separate financial statements of the Issuer as at and for the year ended 31 December 2021 can be found in the tables attached to the report. The events described in the tables are events of a non-cash nature.