Evome Medical Technologies Inc. — Management Reports 2021

Jun 25, 2021

SALONA GLOBAL MEDICAL DEVICE CORP.

Management’s Discussion and Analysis For the years ended February 28, 2021 and February 29, 2020 Dated: June 25, 2021

Salona Global Medical Device Corp. Management’s Discussion and Analysis

(in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes. This discussion contains "forward-looking statements" reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forwardlooking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We assume no obligation to update any of these forward-looking statements.

Financial information presented in this MD&A is presented in Canadian dollars ("C$"), unless otherwise indicated. Unless otherwise indicated, all references to years are to our fiscal year, which ends at the end of February.

Non-GAAP Measures

Throughout this management discussion and analysis (" MD&A "), our management uses a number of financial measures to assess its performance and these are intended to provide additional information to investors concerning the Company. This year and 2021 mean the fiscal year ended February 28, 2021. Last year and 2020 mean the fiscal year ended February 29, 2020. Some of these measures, including net profit (loss) from operations and Adjusted EBITDA are not calculated in accordance with Generally Accepted Accounting Principles (GAAP), which are based on the United States Generally Accepted Accounting Principles (U.S. GAAP), are not defined by GAAP, and do not have standardized meanings that would ensure consistency and comparability between companies using these measures. Readers are cautioned that the disclosure of these items is meant to add to, and not replace, the discussion of financial results as determined in accordance with U.S. GAAP. The primary purpose of these non-GAAP measures is to provide supplemental information that may prove useful to investors who wish to consider the impact of certain non-cash or uncontrollable items on our operating performance and who wish to separate revenues and related costs associated with client acquisition that may not be ongoing.

COVID-19

Our operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak and pandemic of respiratory illness caused by COVID-19. We cannot accurately predict the impact COVID-19 will have on our operations and the ability of others to meet their obligations with the Company, or predict with any certainty the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, or the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect our operations and ability to finance our operations. In addition, the current pandemic and associated economic uncertainties could significantly adversely affect the ability of the Company to find and pursue new opportunities to grow its business. Our financial condition, liquidity and results of operations have been and will continue to be adversely impacted by these preventative actions and the disruption to our business and that of our suppliers and customers. As we cannot predict the duration or scope of the COVID-19 pandemic, the negative financial impact to our results cannot be reasonably estimated, but could be material.

Business Overview

The Company is a publicly traded company listed on the TSXV. Salona Global Medical Device Corp is an acquisition oriented, U.S. and internationally-based and revenue generating MedTech company. We aim to leverage the liquid Canadian capital markets to acquire small to midsize U.S. and internationally based medical device products and companies with the goal of expanding sales and improving operations. We also plan to focus on creating a large, broad-based medical device company with global reach.

This MD&A was approved by the board of directors on June 25[th] , 2021.

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

RESULTS OF OPERATIONS

Results of Operations for the years ended February 28, 2021 and February 29, 2020

	Year	ended	2021 vs	2020
	February 28,	February 29,
	2021	2020	$ Change	% Change
Revenues
Loan interest revenue	42,838	50,276	(7,438)	-15%
Fees and other	49,910	83,484	(33,574 )	-40%
Interest, fees, and other from provisioned
loans	43,365	145,635	(102,270)	-70%
Investment income	14,618	110,366	(95,748 )	-87%
Other income	-	18,558	(18,558)	-100%
Change in fair value of marketable
securities	(812 )	(6,480 )	(5,668 )	-87%
Impairment of other investments	(183,466)	(49,710)	(133,756)	269%

Loan interest revenue decreased period over period principally due to the recovery or provision of remaining loans outstanding. Fees and Other income are also associated with the volume of un-provisioned loans outstanding. We are not currently making additional loans and expect loan revenues to continue to decline. Interest, fees and other from provisioned loans will vary substantially between periods as this revenue item relates to the recovery of loans management considers it unlikely to recover. Management continues to attempt to collect these loans. Unrealized gain on marketable securities will vary with the market over each period. As management has not exited these positions, they remain as unrealized. Once management sells an equity the change in value over time is reflected in Realized gains. Impairment of other investments refers to changes in fair value of less liquid investment. Investment income is the result of dividends and other sources of income that do not result from the change in value from the underlying security. Other income results from a myriad of minor sources typically related to recovery of assets.

	Year	ended	2021 vs	2020
	February 28,	February 29,
	2021	2020	$ Change	% Change
Cost of revenue
Allowance for losses	-	17,760	(17,760)	-100%
Financial margin	(33,547 )	334,369	(367,916 )	-110%

Allowance for losses and financial margin both declined relative to previous year. As allowance for losses typically correlates with loan issuance and management activity, management continues to expect both to decline year over year as loans are collected on or provisioned.

	Year	ended	2021 vs	2020
	February 28,	February 29,
	2021	2020	$ Change	% Change
General and administrative	752,570	1,623,446	(870,876 )	-54%
Impairment of equipment	-	39,613	(39,613)	-100%
Share based compensation	237,714	21,962	215,752	982%

General and administrative costs decreased year over year with the decrease in operational activity. This decrease was anticipated and corresponded to reduced loan book activity. Management expects to maintain or increase operational activity over the coming periods as acquisitions, as further described the section " Business - Post-Change of Business Plan of Operation " included elsewhere in this prospectus, are completed. Impairment of equipment is anticipated to be non-recurring and was associated with the conclusion of our lease in Boca Raton, Florida. Share based compensation represents all expenses associated with the issuance of shares and stock options. Stock options

Salona Global Medical Device Corp. Management’s Discussion and Analysis

For the years ended February 28, 2021 and February 29, 2020

(in Canadian Dollars)

RESULTS OF OPERATIONS (Continued)

are a key component of our compensation plans for key employees. We expect share-based compensation to increase along with operational activity.

	Year ended	Year ended		2021 vs	2020
	February 28,	February	29,
	2021	2020		$ Change	% Change
Transaction costs including legal, audit, US
Regulatory	(1,643,592)		-	(1,643,592 )	NA

As a result of the ongoing Change of Business transaction and other regulatory, fundraising, and acquisition activities, the Company has incurred substantial expense outside the typical course of operations. These additional expenses are expected to be mostly non-recurring due to their transaction oriented nature and are expected to decrease over the coming periods as the Company completes its Change of Business and associated regulatory activity.

	Year	ended	2021 vs	2020
	February 28,	February 29,
	2021	2020	$ Change	% Change
Foreign currency translation gain (loss)	(430,428 )	160,300	(590,728 )	-369%

Since we operate in the United States, we are exposed to foreign currency risk. Management is unable to effectively predict swings in the foreign exchange value of the US Dollar against the Canadian Dollar.

	Year ended	Year ended		2021 vs	2020
	February 28,	February 29,
	2021	2020		$ Change	% Change
(Loss) income after tax from discontinued
operations	-	(573,496 )		(573,496 )	-100%

We discontinued our billing operations in August of 2019 and as such have implemented the discontinued operations treatment of these operations. We expect impact from the discontinued business to continue to decrease over the coming periods.

General and administrative

General and administrative expenses relate to sales and administration and consist of salaries and related general operational expenses.

General and Administrative Expenses	February	28,2021	February29,2020	February29,2020
Included in general and administrative:
Labor & consulting expenses	$	346,237	$	1,168,466
Professional fees		68,376		192,577
Facility leases		-		39,201
General expenses		192,628		223,202
Public companyexpenses		145,329		-
TotalGeneral and Administrative Expenses	$	752,570	$	1,623,446

Salona Global Medical Device Corp. Management’s Discussion and Analysis

(in Canadian Dollars)

For the years ended February 28, 2021 and February 29, 2020

Summary of Quarterly Results and Fourth Quarter

The following table presents a summary of unaudited quarterly financial information for the last eight consecutive quarters:

May 30, 2020 August 31, 2020 November 30, 2020 February 28, 2021 $ $ $ $	May 30, 2020 August 31, 2020 November 30, 2020 February 28, 2021 $ $ $ $	May 30, 2020 August 31, 2020 November 30, 2020 February 28, 2021 $ $ $ $	May 30, 2020 August 31, 2020 November 30, 2020 February 28, 2021 $ $ $ $	May 30, 2020 August 31, 2020 November 30, 2020 February 28, 2021 $ $ $ $
Revenue	(8,618)	78,442	(117,241)	13,870
Net income (loss) (194,846) (281,183) (775,498) (1,415,896)
Basic & diluted loss per share	(0.01 )	(0.01 )	(0.0 2)	(0.06 )
May 30, 2019 August 31, 2019 November 30, 2019 February 29, 2020
	$	$	$	$
Revenue	331,633	458,963	197,583	(636,050 )
Net income (loss) (13,010) (303,609) 57,217 (1,091,250)
Basic & diluted loss per share	(0.00 )	(0.01 )	0.00	(0.03 )

Inflation and Pricing

Inflation has impacted our operations and reduced the value derived from our loan making business. While inflation has reduced the value of all loans, by management's estimates, all loans carried interest rates sufficient to outpace inflation. Management does not anticipate advancing new loans, except those that may be of strategic importance in connection with the planned Change of Business, thereby reducing the potential impact of inflation upon pricing of debt instruments.

Liquidity and Capital Resources

For the years ended February 28, 2021 and February 29, 2020

Our primary sources of short-term liquidity are cash and marketable securities. As at February 28, 2021, the Company had $12,994,826 of cash, restricted cash and marketable securities compared to $6,488,158 of liabilities. Management is not aware of any substantial demands, commitments, events, or uncertainties in the coming 24 months that could exceed the company's available short-term liquid capital.

Cash Flows

The following table shows cash flow information for the years ended February 28, 2021 and February 29, 2020:

For the years ended	February 28, 2021	February 29, 2020
Cash provided by (used in) operating activities	(975,174 )	(197,607 )
Cash provided by (used in) investing activities 74,870 (899,410)
Cash provided by financing activities	5,443,722	-
Net (decrease) increase in cash (4,533,418) (1,097,017)

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Liquidity and Capital Resources (Continued)

Cash used in operating activities

During 2021, $975,174 was used in operating activities (in 2020 - $197,607 was used). This cash flow was mostly used to ensure continued operation of the company and to fund the ongoing change of business, fundraise, and acquisition of SDP. Cash losses were substantially lower than the book loss of the company due to an increase in accounts payable of $878,606, reflecting expenses incurred but not yet paid. The majority of these payables are due to vendors in connection with the Change of Business. The cash loss was offset slightly by the recovery of $394,091 of outstanding credit receivable.

Cash used in investing activities

During the year ended February 28, 2021, $74,870 (in 2020 - $899,410 was used) was provided by investing activities. This cash was supplied by the sale of marketable securities. The company, during the period ended February 28, 2021, spent $370,231 on new investments and recovered $445,101 from the sale of previously purchased investments.

Cash provided by financing activities

During the year ended February 28, 2021 $5,443,722 (in 2020 - $Nil) was provided by financing activities. This influx was the result of a small option exercise during the period. The option exercise by a single option holder resulted in the full amount of $5,348. In addition, $5,425,374 of subscription receipts were received, as held in trust.

Acquisition of SDP

Upon the acquisition of SDP, the Company will assume roughly US$4,802,000 of secured debt and USD$1,026,000 of current liabilities. The secured debt consists of five notes payable maturing in May 2021, October 2023, January 2024 and November 2024 with interest rates ranging from 2-9.00%. The secured debt is either guaranteed by the stockholders of SDP or secured by the assets of SDP. SDP plans to refinance the amounts outstanding under the two notes maturing in May 2021. In addition, SDP has roughly USD$2,743,000 outstanding under the Dacotah Bank Revolver. In accordance with the Dacotah Bank Revolver, SDP is subject to a financial covenant and is required to maintain a minimum debt service coverage ratio of 1.25 to 1.00 financial covenant. For the year ended December 31, 2020, SDP was in compliance with the financial covenant.

The Company intends to satisfy its short- and long-term liquidity requirements through its existing cash, current assets and cash flow from operating activities.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements during the periods covered by this MD&A.

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Subsequent Events

Completion of the Change of Business (“COB”) with South Dakota Partners, Inc. (“ SDP ”), a South Dakota corporation.

In connection with the COB, among other things, the 7,869,005 subscription receipts (the “ Salona Subscription Receipts ”) issued by the Company and 2,121,232 subscription receipts (the “ Brattle Subscription Receipts ”, and together with the Salona Subscription Receipts, the “ Subscription Receipts ”) issued by Brattle Finco B.C. Ltd. (“ Brattle Finco ”), a subsidiary of the Company, in contemplation of the COB (together, the “ Offering ”) were ultimately converted or exchanged, as applicable, for an aggregate of 9,990,237 common shares in the capital of the Company (each, a “ Common Share ”) and 2,121,232 Common Share purchase warrants of the Company (each, a “ Warrant ”), with each such Warrant exercisable for one Common Share at a price of $1.25 per share until December 18, 2022, subject to acceleration. In addition, in contemplation of the completion of the COB, the Notice of Articles and Articles of the Company (together, the “ Articles ”) were amended to create a new class of shares consisting of an unlimited number of Class “A” non-voting common shares (the “ Class A Shares ”) and restate the rights, privileges, restrictions and conditions of the Common Shares.

The COB was completed in the manner previously described in the Company’s management information circular dated January 26, 2021 (the “ Circular ”) with respect to the annual and special meeting of shareholders held on March 11, 2021 (“ Meeting” ), a copy of which is available under the Company's profile on SEDAR ( www.sedar.com ).

Pursuant to the COB, the Company acquired, indirectly through its subsidiary, Brattle Acquisition I Corp. (“ Brattle Acquireco ”), a 97% interest in SDP, which acquisition constitutes a “Change of Business” (as such term is defined by the TSX Venture Exchange (the “ TSXV ”)) of the Company. SDP operates a large state-of-the-art production facility incorporated and located in the State of South Dakota currently producing proprietary and white label medical devices for pain management, cold and hot therapy, NMES, PEMF and ultrasound. For additional information concerning SDP see the Circular.

In connection with the acquisition of SDP, the shareholders of SDP (the “ Vendors ”) were issued common shares in the capital of Brattle Acquireco (the “ Exchangeable Shares ”), which Exchangeable Shares will be exchangeable, at the option of the holder, for up to 19,162,000 Class A Shares at any time following approximately 12 months from closing of the COB, subject to downward adjustments if SDP does not achieve US$11,900,000 in revenues for the 12month period after closing and/or if the net assets of SDP 12 months following closing is less than approximately US$2,800,000. Please refer to the Circular for additional details concerning the potential downward adjustment in consideration to the Vendors and prior financial history of SDP.

As a result of the COB, the Company has become an acquisition oriented, medical device company with plans to achieve scale through both further acquisitions and organic growth. It will be operating in the recovery science market, including post-operative pain, wound care and other markets serving the ageing population in the United States.

As a condition to the completion of the COB, the Articles were amended to create a new class of shares, being the Class A Shares, and restate the rights, privileges, restrictions and conditions of the Common Shares. The Class A Shares have the same attributes as the Common Shares, except that they do not carry the right to vote and are convertible, subject to certain terms and conditions, including a provision prohibiting a holder of Class A Shares from converting Class A Shares for Common Shares if it would result in such holder holding more than 9.9% of the Common Shares, into Common Shares on a one-for-one basis. The Class A shares are not tradeable on any exchange in the US or Canada.

Concurrent with the completion of the COB, Michael Dalsin and Roger Greene, M&A advisors to the Company, entered in share exchange agreements (the “ Share Exchange Agreements ”) with the Company, pursuant to which an aggregate of 1,355,425 Common Shares (the “ Exchanged Shares ”) were exchanged for 1,355,425 Class A Shares. In accordance with the Share Exchange Agreements, the Exchanged Shares acquired by the Company in consideration for the Class A Shares issued in exchange therefor were cancelled and returned to treasury.

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Subsequent Events (Continued)

In connection with the COB, Luke Faulstick was appointed as the Company’s Chief Operating Officer. The composition of SDP’s board and management remained unchanged.

Conversion of Subscription Receipts

Further to its press release dated December 21, 2020, the Company is pleased to announce the satisfaction of the conditions to the exchange of the outstanding Subscription Receipts. The Subscription Receipts were to be exchanged on the later of (i) the satisfaction or waiver of all conditions precedent to the COB, and (ii) the date on which the United States Securities and Exchange Commission (the “ SEC ”) declares a Form S-1 Registration Statement (the “ US Registration Statement ”) of the Company effective, and certain other ancillary conditions without any further consideration on the part of the subscriber (the “ Escrow Release Date ”).

On May 21, 2021, the Company’s US Registration Statement dated May 12, 2021 was declared effective by the SEC. Accordingly, on May 21, 2021, 7,869,005 Salona Subscription Receipts were converted into an aggregate of 7,869,005 Common Shares and 2,121,232 Brattle Subscription Receipts were converted into an aggregate of 2,121,232 common shares in the capital of Brattle Finco (each, a “ Finco Share ”) and 2,121,232 Finco Share purchase warrants (each a “ Finco Warrant ”).

In connection with the Offering of Salona Subscription Receipts, registered dealers were entitled (i) cash compensation in the aggregate amount of $166,449 (50% of which was paid on closing of the Offering and the balance was payable on the Escrow Release Date), and (ii) on the Escrow Release Date, an aggregate of 876,231 non-transferable compensation options, each of which are exercisable to purchase one Common Share at a price of $0.4749 per Common Share for a period of 24 months from the closing of the Offering. In addition, in connection with the Offering of Finco Subscription Receipts, registered dealers were entitled to (i) cash compensation in the aggregate amount of $83,320 (50% of which was paid on closing of the Offering and the balance was payable on the Escrow Release Date), and (ii) on the Escrow Release Date, an aggregate of 243,675 non-transferable compensation options (the “ Finco Compensation Options ”), each of which was exercisable to purchase one Finco Share at a price of $0.8548 per share for a period of 24 months from the closing of the Offering.

Immediately following conversion of the Subscription receipts, the Company completed a “three-cornered” amalgamation whereby a wholly-owned subsidiary of the Company (“ Subco ”) amalgamated with Brattle Finco pursuant to an amalgamation agreement dated April 23, 2021 among the Company, Subco and Brattle Finco (the “ Amalgamation Agreement ”). Pursuant to terms of the Amalgamation Agreement, an aggregate of 2,121,232 Common Shares, 2,121,232 Warrants and 243,675 compensation option were issued to Brattle Finco securityholders in exchange for the 2,121,232 Finco Shares, 2,121,232 Finco Warrants and 243,675 Finco Compensation Options held by them, respectively, which replacement Warrants and compensation options have the same terms and conditions as the Finco Warrants and Finco Compensation Options for which they replaced.

Shares for Debt Transaction

Further to the Company’s press release dated September 6, 2020, the Company also announces completion of a shares for debt transaction (the “ Shares for Debt Transaction ”) pursuant to which the Company settled US$88,000 of debt through the issuance of 737,000 Common Shares at a deemed price of $0.156 per share in accordance with a debt conversion agreement dated September 6, 2020 entered into between the Company and Leslie Cross. The Shares for Debt Transaction was approved by the Company’s disinterested shareholders at the Meeting. The Company determined to undertake the Shares for Debt Transaction in order to preserve its cash. Please refer to the Circular for further details in respect of the Shares for Debt Transaction, a copy of which is available under the Company's profile on SEDAR ( www.sedar.com ).

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Subsequent Events (Continued)

Option Issuances

The Company also announces that it has granted an aggregate of 2,586,290 stock options to certain of its directors, officers, and employees. 1,922,990 of the stock options have an exercise price of $0.855 per Common Share, with the balance of 663,300 stock options having an exercise price equal to the closing price of the Common Shares on the TSXV on the fifth trading date after resumption of trading thereof following completion of the COB. In each case, the stock options will have a term of 5 years from the date of the grant.

Critical Accounting Policies and Estimates

The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP.

The following is a summary of the critical accounting policies used to prepare the consolidated financial statements:

a) Fair Value of Financial instruments

The Company's financial instruments, including cash and cash equivalents, restricted cash, marketable securities, other investments, billing receivables, credit receivables, other receivable, accounts payable, and other liabilities, the carrying amounts approximate their fair values due to their short term maturities.

FASB ASC Topic 820, Fair Value Measurements and Disclosures , requires disclosure of the fair value of financial instruments held by the Company. FASB ASC Topic 825, Financial Instruments , defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization, low risk of counterparty default and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs, other than Level 1, that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

As of February 28, 2021 and February 29, 2020, the Company did not identify any financial assets and liabilities required to be presented on the balance sheet at fair value, except for marketable securities which are carried at fair value using Level 1 inputs.

b) Revenue recognition -from Contracts

In accordance with Accounting Standards Codification 606 Revenue from Contracts with Customers ("ASC 606"), the Company recognizes revenue upon the transfer of goods or services to a customer at an amount that reflects the expected consideration to be received in exchange for those goods or services. The principles in ASC 606 are applied using the following five steps:

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Critical Accounting Policies and Estimates (Continued)

(i) Identify the contract with a customer;

(ii) Identify the performance obligation(s) in the contract;

(iii) Determine the transaction price;

(iv) Allocate the transaction price to the performance obligation(s) in the contract; and

(v) Recognize revenue when (or as) the Company satisfies our performance obligation(s).

Revenue principally comprises interest and fees from the Company's recourse and nonrecourse revolving line of credit business and billing service fees (which were discontinued in 2019 (note 18)) from the Company's medical billing business. Other revenues, such as management fees, banking fees, and standby fees, are recognized as revenue when earned.

Revenue recognition - from financial instruments

Interest and fees revenues are recognized in the consolidated statements of income and comprehensive income using the effective interest method. Interest and fees revenues include the company's share of any fees received, as well as the effect of any discount or premium on the loan. Interest revenue is calculated on the gross carrying amount for credit and loan receivable which are current and on the net carrying amount for receivable which are in default; such interest is recognized only if the Company receives or expects the interest to be received based on the financial condition of the credit and loan receivable counterparty.

The effective interest method derives the interest rate that discounts the estimated future cash receipts during the expected life of the credit and loan receivable (which is the contractual life, if a shorter period is not expected) to its carrying amount. The calculation of the effective interest rate includes all fees and transaction costs paid or received. Fees and transaction costs include incremental revenues and costs that are directly attributable to the acquisition or issuance of the credit and loan receivable.

c) Credit receivables

The Company provides asset-based revolving lines of credit to its clients, secured by their accounts receivables, assets of the company, and in most cases personal indemnifications. Credit receivables are non-derivative financial assets with fixed or determinable payments (United States prime rate plus a spread) that are not quoted in an active market and that the Company does not intend to sell immediately or in the near term. Credit receivables to clients are initially measured at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest rate method.

d) Allowances for losses

The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for specific receivables if and when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding balances as well as a review of the overall quality and age of those receivables not specifically reviewed. In determining the provision for invoices not specifically reviewed, the Company analyzes historical collection experience and current economic trends.

Salona Global Medical Device Corp. Management’s Discussion and Analysis

(in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Critical Accounting Policies and Estimates (Continued)

e) Income taxes

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes . ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.

f) Foreign subsidiaries

The Company's foreign subsidiaries functional currencies are US dollars and their functional currencies and assets and liabilities are translated into Canadian dollars at the exchange rate prevailing at the reporting date. Revenue and expenses are translated into Canadian dollars at the average exchange rate then prevailing. Resulting translation gains and losses are credited or charged to other comprehensive income or loss and presented in the accumulated other comprehensive income or loss component of equity.

g) Foreign currency transactions

Monetary assets and liabilities denominated in currencies other than the Canadian dollar for the parent company are translated into Canadian dollars at the exchange rate prevailing at the reporting date. Any non-monetary assets and liabilities denominated in foreign currencies are translated at historical rates. Revenue and expenses are translated into Canadian dollars at the prevailing average exchange rate. Translation gains and losses are credited or charged to earnings.

h) Cash and cash equivalents

Cash and cash equivalents comprise highly liquid interest-bearing securities that are readily convertible to cash and are subject to an insignificant risk of changes in value. The maturities of these securities as at the purchase date are three months or less. A variable amount of the cash is held in cash backed, liquid US money market funds with high institutional credit ratings. Most of these money market funds are composed of the United States dollar and securities issued by the United States Government.

i) Restricted Cash

Restricted cash consists of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on the Company's consolidated balance sheets.

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Critical Accounting Policies and Estimates (Continued)

j) Share-based compensation

The Company measures equity settled share-based payments based on their fair value at the grant date and recognizes compensation expense over the vesting period based on the Company's estimate of equity instruments that will eventually vest. Fair value is measured using the Black-Scholes option pricing model. Expected forfeitures are estimated at the date of grant and subsequently adjusted if further information indicates actual forfeitures may vary from the original estimate. Any revisions are recognized in profit or loss such that the cumulative expense reflects the revised estimate.

k) Offsetting

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to set off the recognized amounts and it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Revenue and expenses are presented on a net basis only when permitted under US GAAP, or for gains and losses arising from a group of similar transactions.

l) Earnings per share

Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding during the period. The dilutive effect on earnings per share is calculated presuming the exercise of outstanding options, warrants and similar instruments. It assumes that the proceeds of such exercise would be used to repurchase common shares at the average market price during the period. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be antidilutive.

m) Financial instruments

Financial instruments includes cash and cash equivalents, marketable securities, credit and other receivables, accounts payable and accrued liabilities which are all initially measured at fair value.

Marketable securities represents a non- discretionary portfolio of fixed maturity investments managed by a portfolio manager. Marketable securities include callable stock, short term bond exchange traded fund (ETF) and publicly traded common stock which are carried at fair value with changes in fair value recognized in earnings.

Dividend, interest, profit or loss on sale of marketable securities and other returns are recorded in the consolidated statements of income and comprehensive income when received from the portfolio manager.

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Critical Accounting Policies and Estimates (Continued)

n) Use of estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. This applies in particular to allowance for doubtful accounts, credit losses, impairment of other investments, valuation of stock-based compensation expense and valuation allowance for deferred tax assets. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

o) Operating segments

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company's other components. All operating segments' operating results are reviewed regularly by the Company's CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. During 2019, the Company discontinued its Billings operating segment. As at February 28, 2021, the Company has one segment, providing asset-based financial services to healthcare providers in the United States. Assets, liabilities, revenues and expense from these segments are disclosed in the statement of financial position and statement of income and comprehensive income.

p) Adoption of new standards

Adoption of ASC 842

On March 1, 2019, the Company adopted Accounting Standards Codification Topic 842, "Leases" ("ASC 842") to replace existing lease accounting guidance. This pronouncement is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet for most leases. Expenses associated with leases will continue to be recognized in a manner similar to previous accounting guidance. The Company adopted ASC 842 utilizing the transition practical expedient added by the Financial Accounting Standards Board ("FASB"), which eliminates the requirement that entities apply the new lease standard to the comparative periods presented in the year of adoption.

The Company is the lessee in a lease contract when the Company obtains the right to use the asset. Operating leases are included in the line items right-of-use asset, lease obligation, current, and lease obligation, long-term in the consolidated balance sheet.

Right-of-use ("ROU") asset represents the Company's right to use an underlying asset for the lease term and lease obligations represent the Company's obligations to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of operations and comprehensive loss. The Company determines the lease term based on the lease agreement.

Salona Global Medical Device Corp. Management’s Discussion and Analysis (in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Critical Accounting Policies and Estimates (Continued)

As the Company's lease of office space, at the commencement, had a term of less than 12 months given the lease was terminated during the fiscal year, the Company elected not to apply the recognition requirements of ASC 842 to the short-term lease. Instead lease payments are recognized in statement of operations and comprehensive loss on a straight-line basis over the lease term. The adoption of ASC 842 did not have any significant impact on the Company's consolidated financial statements.

q) Standards, amendments, and interpretations issued but not yet adopted

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for availablefor-sale debt securities and for purchased financial assets with credit deterioration since their origination. This update is effective for annual periods beginning after December 15, 2022, and interim periods within those periods, and early adoption is permitted. The Company is in the process of determining the impact the adoption will have on its Consolidated Financial Statements as well as whether to early adopt the new guidance.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies Accounting Standard Codification 740 - Income Taxes, to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions for intraperiod tax allocation, recognizing deferred taxes for investments and simplifies guidance to reduce complexity in certain areas. This update is effective for annual periods beginning after December 15, 2020, and interim periods within those periods, and early adoption is permitted.

The Company is in the process of determining the impact the adoption will have on its consolidated financial statements as well as whether to early adopt the new guidance.

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

r) Share consolidation

On December 21, 2020, the Company effected a 7.37 post consolidation common shares for 10 pre-consolidation common shares. Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented.

Salona Global Medical Device Corp. Management’s Discussion and Analysis

(in Canadian Dollars) For the years ended February 28, 2021 and February 29, 2020

Critical Accounting Policies and Estimates (Continued)

s) Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty fails to meet its contractual obligations or commitment. In the Company's case, credit risk arises with respect to its cash and cash equivalents, the lines of credit to clients and any other financial transaction with a counterparty including amounts advanced as loans.

The Company manages credit risk in respect of cash and cash equivalents, by maintaining the majority of cash and cash equivalents at high credit rated financial institutions. The carrying amount of these lines of credit represents the Company's maximum credit exposure and is the most significant measurable risk that it faces. The nature of the Company's asset-based lending business involves funding the receivables offered to it by its clients. Typically, the Company files a lien against the pledged receivables and requires either a single or double virtual lockbox arrangement.

The Company does not lend on an unsecured basis. No new asset-based loans were provided in the fiscal 2020 year. The maximum credit risk is the full value of the credit and loans receivable.

The Company monitors and controls its risks and exposures through financial, credit, legal and technology-based systems and, accordingly, believes that it has procedures in place for evaluating and limiting the credit risks to which it is subject. Credit is subject to ongoing management review. Nevertheless, for a variety of reasons, there will inevitably be defaults by clients or their customers.

The Company's billing customers have varying payment terms depending on the industries in which they operate, although most customers have payment terms of 30 to 60 days from the invoice date. Clients' receivables generally become "ineligible" for further credit when they reach a certain predetermined age, usually above 90 or 120 days from the due date.

The Company employs a 5-step client approval process to assess credit risk, which reviews, amongst other things, the financial strength of each client and the Company's underlying security. Credit risk is primarily managed by ensuring that, as far as possible, the receivables financed are of the highest quality, that being due from the US Government healthcare programs such as Medicare and Medicaid. The Company does not lend against any patient pay ("co-pay"), inventory, equipment or any other tangible asset.

The Company also minimizes credit risk by limiting the maximum amount that it will lend to any one client, enforcing strict advance rates, disallowing certain types of receivables and making receivables ineligible for lending purposes as they become older.

The Company generally mandates the use of a single or double virtual lockbox system, where the clients' receivables are flowed through bank accounts controlled by the Company, thereby allowing it to quickly identify problems as and when they arise and act promptly to minimize credit losses. The Company's credit exposure at February 28, 2021 relates to its gross credit receivables and interest and other receivables. As at February 28, 2021 and February 29, 2020 no unprovisioned receivables were outstanding.

u) Concentration

Concentration risk arises as a result of the concentration of exposures within a single client. The Company minimizes concentration risk by limiting the maximum amount that it will lend to any one client.

Concentrations of risk arises as a result in the concentration of customers. During fiscal 2021, Inspira SaaS Billing Services, Inc. had no customers (2020 - one customer) with one of those customers accounting for over 90% of revenues, which is a material concentration of risks. In August 2019, this business was discontinued