Current reports

Updating information on the current situation and plans of the Medicalgorithmics Group

Current Report No. 35/2021

Date: 24/09/2021

Legal basis: Article 17(1) of MAR – inside information

With reference to current report No 31/2021 on the initiation of the review of strategic options by the Company, the Management Board of Medicalgorithmics S.A. (the “Company”, the “Issuer”) publishes a summary of the current operating status and situation of the Issuer’s companies.

Medi-Lynx, the most important revenue component in the Medicalgorithmics S.A. Capital Group, is implementing a development strategy, assuming a transformation from an out-of-network model to a model, consisting in concluding long-term service contracts directly with key private insurers (in-network). The Group assumes that ultimately it will provide access to new customers, giving an opportunity to increase the average value of provided diagnostic services and, as a consequence, will lead to a significant increase in profitability and sales volume. Until now, Medi-Lynx has signed contracts with all major nationwide insurers in the U.S., providing 91% coverage of the U.S. population in the in-network model, which ranks Medi-Lynx on an equal footing with market competitors in terms of access to the insured. Another milestone achieved by Medi-Lynx on the U.S. market is the readiness achieved in Q3 2021 to quickly integrate PocketECG system with EHR electronic health records, which allows access to large Hospital systems (Integrated Delivery Networks, IDNs) representing the greatest business potential. This was achieved thanks to the cooperation and completion of the project involving the integration of PocketECG system with a solution developed by Redox, a market leader offering middleware, cooperating with all major EHR hospital systems in the U.S. Moreover, Medi-Lynx has implemented a number of procedural and systemic improvements to efficiently exchange medical information and improvements in the field of settlements with medical facilities and insurers. This is already reflected in a more favorable, in terms of margin, mix of services provided, and has significantly reduced operating costs, including back office employment in the U.S. As next step, it is planned to increase the number of sellers and to obtain certification and commercialization of the PatchECG device (QPatch) on the U.S. market, which would enable the Company, first of all, to effectively attract new customers and increase sales.

The current financial prognoses assumed financing these changes, providing the basis for the monetary transformation of the business model, from cash flows generated by an increase in the number of research carried out. In a situation of longer than expected transformation due to, among other things, the impact of external factors related to the COVID-19 pandemic, the volume of provided diagnostic services and, consequently, the cash inflows did not reach the expected level and did not allow to achieve fully the expected improvement in the profitability and liquidity of Medi-Lynx and the entire Capital Group.

Therefore, the Management Board undertook actions aimed at obtaining additional funds to ensure the financing of the Company and the ability to continue the development strategy, as well as securing the liquidity of the Group. Simultaneously, the review of strategic options available to the Company will be continued. The funds that the Company plans to raise will be used primarily to intensify sales activities, including by hiring new sales representatives on the U.S. market. In the opinion of the Management Board, additional financing, together with simultaneous review of operating costs incurred by the Issuer’s companies, is the best way to protect the value of the Company’s assets and to monetize the transformation of the business model.

Consequently, the Management Board undertook multi-way actions, which may result in obtaining financial resources. One of the actions is to start searching for potential investors for the Company’s bonds, the issue of which could satisfy, in whole or in part, the current financing needs. The second action is to take actions aimed at convening the Extraordinary General Meeting of Shareholders, to which the Management Board will present draft resolutions enabling the increase of the Company’s initial capital by issuing up to 20% of new shares on the Warsaw Stock Exchange.

At the same time, the Management Board informs that in the course of discussions concerning the possibility to raise capital, the Management Board received statements from significant shareholders engaged in the Company from the moment of its creation, including Dr. Marek Dziubiński, co-founder of the Company, stating that in the case of a decision to issue new shares, they declare that in the case of a decision to issue new shares, the Management Board shall declare the intention to take up of a part of shares at the issue price not lower than PLN 18.00. In view of the above, in draft resolutions at the Extraordinary General Meeting of Shareholders, the Management Board shall place a draft resolution concerning the increase the Company’s initial capital with
a price no lower than PLN 18.00 per share.

The sources of financing referred to above, used in different proportions, may provide cash at the required level and the implementation of the plans on a different scale. According to the analyses conducted, the Company identifies the need to obtain an amount within the range of USD 2.0 million – 5.0 million.

The final decision on the sources of financing will depend on passing relevant resolutions or obtaining the relevant consents of the Company’s governing bodies, market conditions, on the cost of available financing and will be made in accordance with the best interest of the Company and its shareholders.

The activities of the Issuer’s Management Board are of comprehensive nature and aim at preparing the Group for various scenarios of events, both ones depending on the Group and ones of an external nature, which may have a significant impact on the Group’s activities. Therefore, the option of inability to obtain additional financing in the expected amount is also considered. In such a case, it may be necessary to change the strategy primarily on the U.S. market, limiting the possibility of target revenue increases or margin improvements. In such a case, in order to maintain the financial liquidity of the Issuer, the Management Board will consider and suggest other scenarios, including but not limited to extensive cost restructuring, and will continue reviewing strategic options.

Regardless of the process of obtaining funding, the Management Board undertakes operational activities aimed at optimization of the structure of provided diagnostic services on the U.S. market by managing the customer base and limiting cooperation with facilities providing low average research income in order to intensify cooperation and acquire new medical facilities through which the offered medical services higher average research income. Therefore, limiting the cooperation with facilities with the smallest profitability potential will not have a negative impact on the achieved results.