Pathway Health Corp. Reports First Quarter 2023 Financial Results

• Adjusted EBITDA loss improved by 10% to $1.2 million compared to $1.3 million in Q4 2022 and by 23% compared to $1.5 million in Q1 2022
• Entered into a definitive agreement whereby Pathway will acquire all of the issued and outstanding common shares in the capital of HEAL and The Newly from their respective shareholders in exchange for common shares in the capital of Pathway
• Subsequent to quarter end, entered into a $1.0 million bridge loan to support ongoing transaction costs and working capital

TORONTO, May 30, 2023 /CNW/ - Pathway Health Corp. (TSXV: PHC) (Frankfurt: KL1) ("Pathway" or the "Company"), a Canadian leader in chronic pain management solutions, is pleased to report its financial results for the three-month period ended March 31, 2023 and anticipated continued advancement towards building a strong health and wellness platform with scale. Unless otherwise noted, all amounts are in Canadian dollars and are prepared in accordance with International Financial Reporting Standards ("IFRS").

"We are excited about the strategic combination (plan of arrangement) with The Newly and HEAL and believe it sets a strong foundation for the expansion of service offerings and clinical presence. The Newly is recognized as a leading solutions provider in mental health, successfully obtaining municipal, provincial and national contracts, helping Canadians recover and return to the workplace. Following the anticipated plan of arrangement, we believe the combined entities will be exceptionally well positioned to meet the growing demand from Canadian patients for a holistic suite of scientifically supported medical services and products," said Ken Yoon, Pathway's Chief Executive Officer. 

Recent Highlights

• Adjusted EBITDA loss improved by 10% to $1.2 million compared to $1.3 million in the previous quarter, and by 23% compared to $1.5 million in Q1 2022, reflecting management's continued focus on streamlining operations and cash conservation measures
• On February 3, 2023, the Company announced a $1.25 million private placement of a secured convertible promissory note with HEAL Global Holdings Corp. ("HEAL") to support the Company's operations and for growth
• On March 31, 2023, the Company entered into a definitive plan of arrangement agreement whereby Pathway will acquire all of the issued and outstanding common shares in the capital of HEAL and The Newly Institute Inc. ("The Newly") from their respective shareholders in exchange for common shares in the capital of Pathway (the "Arrangement")
• Concurrent with the signing of the Arrangement agreement, the Company entered into a debt restructuring transaction with Avonlea-Drewry Holdings Inc. ("ADH") whereby approximately $4 million of debt (including principal amount, all accrued and unpaid interest and fees) owing to ADH, and debt restructuring advisory fee will be converted into Pathway shares concurrently with the completion of the Arrangement
• Completion of the Arrangement is subject to certain conditions including using reasonable commercial efforts to carry out one or more equity, debt or convertible debt financings for aggregate gross proceeds of not less than $10,000,000
• Subsequent to quarter end, the Company entered into a $1.0 million bridge loan to support ongoing Arrangement transaction costs and working capital

Summary of the Results for the Three Months Ended March 31, 2023 (Q1 2023) compared to the Three Months Ended March 31, 2022 (Q1 2022), unless otherwise noted

Revenues were $2.3 million and $2.5 million for the three months ended March 31, 2023 and 2022, respectively. The decline in revenue reflects the continued downward trend in the Canadian medical cannabis market. However, the Company hopes to offset this by focusing on specialty group markets and offering more comprehensive services to these targeted markets. Similarly, the revenue related to provincially insured physician services for the medical cannabis division was impacted as the number of cannabis patients seen declined from prior year and as the Company has been shifting patients to nurse practitioners to provide greater accessibility to patients across the country and streamline operations. 

Gross margins were $1.2 million and $1.2 million for the three months ended March 31, 2023, and 2022, which represented 53% and 49% of gross revenues, respectively. The improvement in gross margins is mainly a result of previously classified obsolete inventory being sold during the period. Adjusting for this, gross margins as a percentage of net revenue would have been 51% for the three months ended March 31, 2023. 

Selling, general and administrative expenses ("SG&A") were $3.0 million and $2.9 million for the three months ended March 31, 2023, and 2022, respectively. The combined decrease in wages and benefits, marketing, public company costs and office expenses totaled $0.4 million as a result of continued cost cutting and streamlining measures taken by management.  Professional and consulting fees increased by $0.4 million, mainly due to transaction costs related to the Arrangement transaction.

The Company incurred a net loss of $2.6 million and had a basic and diluted loss per share of $0.03 for the three months ended March 31, 2023, compared to a net loss of $1.9 million and a basic and diluted loss per share of $0.02 for the same period prior year.

Earnings before interest, tax, depreciation, and amortization ("EBITDA")¹ was a loss of $1.7 million and adjusted EBITDA¹ was a loss of $1.2 million for the three months ended March 31, 2023, compared to an EBITDA and adjusted EBITDA loss of $1.6 million and $1.5 million respectively in the prior year.

Cash as of March 31, 2023, was $0.4 million compared with $0.4 million on December 31, 2022.

Plan of arrangement

On March 31, 2023, the Company announced it had entered into a definitive plan of arrangement agreement with The Newly, a premier operator of inter-disciplinary mental health clinics in Canada and one of the pioneers in intensive bio-psycho-social treatment models in Canada, and HEAL, a private Alberta company established with the goal of becoming a global leader in personalized-curated healthcare.  In accordance with the terms and conditions of the Arrangement definitive agreement, Pathway will acquire all of the issued and outstanding common shares in the capital of HEAL and The Newly from their respective shareholders (other than those Newly Shares held by HEAL) in exchange for common shares in the capital of Pathway.  Pursuant to the Transaction, Pathway expects to change its name to "Global Healthcare Holdings Corp." (https://globalhealthcareholdings.com/) or such other name as the future Pathway board may determine.

Upon the completion of the plan of arrangement, the Credit Facility from ADH with a principal balance of $3.5 million and the Convertible Note from HEAL with a principal balance of $1.25 million will convert into common shares of the resulting issuer.

The proposed Arrangement transaction is subject to shareholder approval as part of the Company's Annual and Special Meeting held on May 30, 2023.  During the Annual and Special Meeting, the shareholders voted 93.4% in favour of approving the special resolution regarding the plan of arrangement. 

About Pathway Health

Pathway Health is an integrated healthcare company that provides products and services to patients suffering from chronic pain and related conditions. The Company owns and operates eleven community-based clinics across five provinces where its team of health professionals work together to help patients through a variety of evidence-based approaches and products, including medical cannabis. Pathway Health's patient care programs utilize an interdisciplinary approach that is guided by trained pain specialists, physical and occupational therapists, psychologists, nurses, and other healthcare providers. Pathway is also the leading provider of medical cannabis services in Canada and has established itself as the leading partner with national and regional pharmacy companies for the delivery of medical cannabis services to their customers. The Company is working with several pharmacy companies on the development of Cannabis Health Products (CHPs) for OTC product distribution through retail pharmacy locations across the country following anticipated changes to the Cannabis Act.

For more information, visit Pathway Health's website: www.pathwayhealth.ca 

¹Non-IFRS financial measures
The non-IFRS measures included in this MD&A are not recognized measures under IFRS, and do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. When used, these measures are defined in such terms as to allow the reconciliation to the closest IFRS measure. These measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company's results of operations from its perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. Despite the importance of these measures to management in goal setting and performance measurement, these are non-IFRS measures that may be limited in their usefulness to investors.

Management uses non-IFRS measures, such as EBITDA and Adjusted EBITDA to provide investors with a supplemental measure of the Company's operating performance and thus highlight trends in the Company's core business that may not otherwise be apparent when relying solely on IFRS financial measures. Management also believes that securities analysts, investors, and other interested parties frequently use non-IFRS measures in the valuation of issuers. Management also uses non-IFRS measures to facilitate operating performance comparisons from period to period, prepare annual operating budgets, and to assess the Company's ability to meet its future debt service, capital expenditure and working capital requirements. The definition and reconciliation of EBITDA and Adjusted EBITDA used and presented by the Company to the most directly comparable IFRS measures follows below:

EBITDA and Adjusted EBITDA

EBITDA is defined as net (loss)/income adjusted for income tax, depreciation of property and equipment, amortization of intangible assets, interest on long-term debt and other financing costs, interest income, and changes in fair values of derivative financial instruments. Management uses EBITDA to assess the Company's operating performance. Adjusted EBITDA is defined as EBITDA adjusted for, as applicable, share-based compensation, amortization of deferred costs and transaction costs related to the plan of arrangement. We use Adjusted EBITDA as a key metric in assessing our business performance when we compare results to budgets, forecasts, and prior years. Management believes Adjusted EBITDA is a good alternative measure of cash flow generation from operations as it removes cash flow fluctuations caused by non-cash expenses, or extraordinary and non-recurring items, including changes in working capital. A reconciliation of net (loss)/income to EBITDA (and Adjusted EBITDA) is set out below:

		For the three months ended March 31,
		2023	2022
Net (loss) attributable to shareholders		$    (2,645,608)	$    (1,938,841)
Adjustments:
Amortization of intangible assets		39,729	35,490
Depreciation on property and equipment		175,966	187,027
Finance expense*		711,905	70,466
EBITDA		$    (1,718,008)	$    (1,645,858)
Share-based compensation		67,907	132,134
Amortization of deferred cost		30,546	6,108
Transaction costs related to the plan of arranagement		466,000	-
Adjusted EBITDA		$    (1,153,555)	$    (1,507,616)
*this figure includes interest expense, financing expense, fair value of financing facilities and accretion expense.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This news release includes certain "forward-looking statements" under applicable Canadian securities legislation. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: the Company's ability to continue as a going concern, general business, economic, competitive, political, and social uncertainties; delay or failure to receive applicable approvals; and the results of operations. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Pathway disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

NEITHER THE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS PRESS RELEASE. THE TSX VENTURE EXCHANGE INC. HAS IN NO WAY PASSED UPON THE MERITS OF THE PROPOSED TRANSACTION AND HAS NEITHER APPROVED NOR DISAPPROVED THE CONTENTS OF THIS PRESS RELEASE.

Pathway Health Corp.
Interim Condensed Consolidated Statements of Financial Position
As at March 31, 2023
(Unaudited)
	March 31, 2023		December 31, 2022
Assets
Current
Cash	$             446,749		$             445,148
Restricted cash	75,000		75,000
Accounts and other receivables	748,084		758,877
Deferred cost	-		30,546
Inventory	333,843		305,871
Prepaids	139,484		176,340
	1,743,160		1,791,782
Due from related parties	277,895		159,974
Property and equipment	2,075,324		2,251,290
Intangible assets	512,494		552,223
Goodwill	279,855		279,855
	3,145,568		3,243,342
Total assets	$          4,888,728		$          5,035,124
Liabilities and Shareholders' deficit
Current
Accounts payable and accrued liabilities	$          2,611,859		$          2,237,010
Credit facility	3,908,425		3,758,936
Promissory note	252,055		-
Convertible note	760,556		-
Current portion of lease liability	538,419		625,513
Due to related parties	162,291		106,062
Government loan payable	80,000		80,000
Derivative financial instrument - warrants	692,946		-
	9,006,551		6,807,521
Lease liability	1,685,382		1,749,398
	1,685,382		1,749,398
Total liabilities	10,691,933		8,556,919
Shareholders' deficit
Share capital	42,644,224		42,644,224
Equity component of convertible debt	296,291		-
Warrants	1,866,866		1,866,866
Contributed deficiency	(30,373,571)		(30,441,478)
Shareholders' deficit	(20,237,015)		(17,591,407)
	(5,803,205)		(3,521,795)
Total liabilities and shareholders' deficit	$          4,888,728		$          5,035,124

Pathway Health Corp.
Interim Condensed Consolidated Statements of Loss and Comprehensive Loss
For the three months ended March 31, 2023 and 2022
(Unaudited)
		For the three months ended March 31,
		2023	2022
Revenue		$       2,262,355	$       2,538,154
Cost of sales
Consultants		780,351	991,322
Cost of goods sold		163,612	192,183
Clinic and medical supplies		115,083	122,045
Total cost of sales		1,059,046	1,305,550
Gross margin		1,203,309	1,232,604
Selling, general and administrative expenses		2,998,830	2,873,987
Loss before other items		(1,795,521)	(1,641,383)
Other expenses (income)
Finance expense		711,905	70,466
Share-based compensation		67,907	132,134
Amortization of intangible assets		39,729	35,490
Share of loss of equity-accounting investment		-	53,260
Amortization of deferred cost		30,546	6,108
		850,087	297,458
Net loss and comprehensive loss		$     (2,645,608)	$     (1,938,841)
Basic and diluted loss per share		$              (0.03)	$              (0.02)
Weighted average shares outstanding
Basic and diluted		93,722,085	93,708,752

SOURCE Pathway Health Corp.

Robin Cook, Corporate Development, [phone], [email protected]