CloudMD Software and Services Inc (fka DOCRF)

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CloudMD Finalizes Review and Settlement of the VisionPros Acquisition.

Source
https://finance.yahoo.com/news/cloudmd-finalizes-review-settlement-visionpros-113000045.html

July 22, 2022

CloudMD Software & Services Inc., a healthcare technology and innovative health services company transforming the delivery of care, announces that it has entered into a settlement agreement with the former owners of VisionPros following the previously announced review of the Company’s acquisition of VisionPros, its online vision care platform. The settlement reduces the purchase consideration paid for VisionPros by $14.6 million and also removes any future earnout payments.

Prior to reaching a settlement, management’s concerns on issues with VisionPros resulted in the Audit Committee undertaking the Review with the assistance of independent legal counsel and financial advisors. As a result of that review, recommendations were made to CloudMD’s Board of Directors that the Company proceed with settlement negotiations with the Sellers. The Settlement Agreement reached has been unanimously endorsed by CloudMD’s Board of Directors.

Settlement Terms
Pursuant to the terms of the Settlement Agreement, the holdback amounts of $3,000,000 and 1,090,909 common shares of the Company that were held in escrow as part of the original acquisition of VisionPros will be released to CloudMD rather than the Sellers. Additionally, another 4,909,092 of the common shares of the Company issued to the Sellers on the closing of the acquisition will be returned to CloudMD. All common shares returned to CloudMD will be cancelled upon receipt. Furthermore, the Company will not be required to make any future performance based earnout payments or other payments to the Sellers. The Company also obtained confirmation that certain trade payables of VisionPros in the approximate amount of $800,000 will now be the responsibility of the Sellers, who have indemnified CloudMD for any such payments. Finally, the Sellers have agreed to pay $350,000 in cash to the Company. The reduction in the purchase price related to the Settlement Agreement was $14.6 million.

No other payments will be made by either party to the other in connection with the acquisition of VisionPros and full releases will be exchanged by the parties.

In accordance with the acquisition agreement and as set out in the Settlement Agreement, CloudMD has confirmed to the Sellers that it will not proceed with the technology relating to online eye exams and will assign the appropriate intellectual property rights back to the Sellers, all in accordance with the terms of the acquisition agreement and at no expense to, and no future earnout payments from, CloudMD. The Company has integrated VisionPros into its Kii platform offering and will provide employers with important vision care options for their employees and their family members. CloudMD continues to develop the technology within Kii to meet the needs of its clients.

Finally, the Company is considering other avenues of recovery in connection with the VisionPros transaction.

VisionPros Platform
As previously announced (on June 15, 2022), the Company initiated product sales on its vision care platform, VisionPros, in the United States, for the first time since the fourth quarter of 2021. Since learning of supplier issues while VisionPros was being run by the Sellers, CloudMD has worked diligently with its U.S. based suppliers to rectify all issues, agree to new terms of distribution and sign new contracts. With these new agreements in place, along with a new U.S. distribution centre, VisionPros is now positioned to access the U.S. market in a more efficient and compliant manner.

CloudMD was disappointed to learn of the supplier issues and other management practices while VisionPros was owned by the Sellers. This resulted in the Company being unable to sell in the United States until recently, and necessistated the negotiation and signing of new supplier agreements. In part as a result of the issues discovered and their impact on the Company’s financial projections, the Company expects to record a non-cash goodwill and intangible asset impairment charge in the second quarter of 2022 in the range of approximately $26 to $28 million. The determination of the final amount of the impairment, which will be recorded in the Company’s Q2 2022 financial statements, is subject to a number of factors. The forecast will be reviewed by valuation experts as part of the impairment charge being finalized. The Company does not expect that the impairment charge will have any impact on its liquidity or cash flows from operating activities, but it will reduce earnings for the quarter. The Company expects that the gross margins earned in the VisionPros business will be slightly lower in the near term as a result of the margin profile of U.S. sales under its new supplier agreements, including changes in supplier rebates. The Company is focused on operational improvements to increase VisionPros margins over time.

The Company is pleased that its current employees, including those at VisionPros, were able to address and resolve these operational issues and are focused on the future. The Company remains committed to the VisionPros business. In particular, the Company will be focused on growing and expanding the VisionPros e-commerce platform and realizing acquisition synergies by integrating vision care into Kii, its Personalized and Connected Care offering.