Company Outlook.NEXIA HEALTH TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”) FOR THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 2016 3. Outlook See “Cautionary Note Regarding Forward-Looking Statements”.
Pursuant to the sale of its Canadian Operations on September 7, 2016, the Company has retained ownership of its V10 software technology and the licence rights it holds to its clearinghouse software technology, as well as the rights to sell this technology anywhere in the world, excluding Canada. The Corporation is restricted from competing in the United States until October 2018 as a result of agreements reached with the purchaser in connection with the previously announced sale of the Corporation’s US business which occurred in October 2015. The Company intends to monetize its residual assets, or in the alternative, seeking a transaction involving the sale of all of the Common Shares of the Company to a third party or other transactions that create shareholder value. The likelihood of such a transaction being completed is uncertain at this time. The residual assets are comprised of: • the V10 and clearinghouse software technology, with restrictions for use in Canada and the United States as described above; • potential unutilized losses for tax purposes in Canada and the United States; • public company status; and, • residual cash as the result of the sale of assets, less repayment of outstanding liabilities, if any. The Company has retired all of its former secured debt and certain liabilities as at September 30, 2016, and the Company has cash of $708,223, $2,760,599 of receivables, no debt and $2,498,108 of accounts payable and accrued liabilities.
During the remainder of the fiscal year, the Company expects that it will have no revenues and no significant fixed expenses, except for certain administrative expenses required to maintain the corporate status of the Company and monetize the value of its residual assets. 2. RECENT DEVELOPMENTS SALE OF CANADIAN BUSINESS: In November 2015, the Company began an evaluation of its strategic alternatives for the sale of its Canadian Operations. These alternatives included raising additional capital, selling the entire Company and selling the assets of the Company. On March 29, 2015, the Company decided to focus its strategic efforts on the option to sell the remaining assets of the Company and accordingly has classified all of the assets and liabilities of the Canadian Operation as net assets held for sale as at March 31, 2016 and as at June 30, 2016. During the quarter ended September 30, 2016, on September 7, 2016 (the “Closing Date”), the Company completed the sale of its Canadian assets required to serve the Company's Canadian customers (the “Purchased Assets”) to TELUS Health Solutions GP ("TELUS Health") as contemplated in an asset purchase agreement dated July 13, 2016 (the “Asset Purchase Agreement”). The transaction was an asset sale and included the assumption of certain working capital obligations under the Asset Purchase Agreement (“Assumed Net Liabilities”), including deferred revenue, certain accounts receivable and certain prepaid and account payable amounts with an initial target net working capital deficit to be assumed by TELUS Health of $4,100,000 with gross proceeds from sale for the Purchased Assets of $14,542,527. A final determination of the Assumed Net Liabilities was made during the quarter ended September 30, 2016 effective as at the Closing Date with a value of $3,491,746. Accordingly, the gross proceeds from the sale of the Purchase Assets was adjusted by $608,254 (“Additional Proceeds”) resulting in gross proceeds of $15,150,781 (the “Purchase Price”). NEXIA HEALTH TECHNOLOGIES INC. MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”) FOR THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 2016 4. The Purchase Price has been allocated as follows: $ Amount Accounts receivable 642,527 Property and equipment 625,297 Other working capital items: Prepaid expenses 292,396 Accounts payable accounts (145,298) Deferred revenues (3,638,844) Fair value of tangible assets and liabilities (2,223,922) Intangibles (Software, customer contracts, goodwill) 17,374,703 $ 15,150,781 On the Closing Date, an initial payment amount of $13,434,322 was made by TELUS Health to the Company’s legal counsel in trust and funds were disbursed in accordance with a flow of funds agreement between TELUS Health and the Company effective on the Closing Date as follows: $ Amount Repayment of principal on term loans 6,000,000 Repayment of principal on convertible debentures 4,417,000 Interest on term loans 16,967 Interest on convertible debentures 9,012 Legal and transaction fees 504,005 Cash to the Company 2,487,338 $ 13,434,322