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Covalon Technologies Ltd is an incorporated public company. Its principal business is to research, develop, and manufacture various patent-protected medical products that heals or improves infections, tissue repair, wound care, and surgical procedures; This industry has a low level concentration, without the monopoly of any big firm (Government of Canada). Besides this, Covalon is marketing and selling its products nationally and worldwide. The Company generates its revenues through development contracts, licensing agreements, distribution contracts, and sales of two major product categories: patented products labeled with the Companys name, and medical products for other medical companies under development and license contracts.

The global market projects the increase of the demand for those products due to the aging population, and the profits will reach over USD 75 billion by 2026. In 2020, North America accounted for the largest share of the infection control and wound care markets (Cision, 2021)(Fortune Business insights, 2020). However, one of the biggest issues is the ability of Canadian companies to compete with other countries because of factors like cost, availability of skilled employees, and market attractiveness. Adding the reliance to the overseas suppliers which makes the supply chain vulnerable to disruptions risk. Recently, Covalon started expanding its contracts to the Middle East and Latin America where legislation encourages foreign businesses to enter their markets, especially the medical device one (Government of Canada).

The company invests in R&D and acquires new technologies to stay competitive. Covalon Technologies Ltd. is ISO 13485: 2016^[1], MDSAP^[2] and FDA QSR^[3] certified, and follows strict GMP processes to support product development from concept to scalable market release (Covalon, 20210. The federal government funds health-related research programs and offers The Canadian Scientific Research and Experimental Development (SR&ED) tax incentive program to encourage Canadian businesses to conduct R&D in Canada by providing claimants with cash refunds and/or tax credits for their expenditures on R&D (Government of Canada).

QUESTION

Please select 3 different balance sheet account balances from the picture and Discuss the key risk(s) with each account and for each risk, provide a procedure on how you would address that risk.

Covalon Technologies Ltd. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF FINANCIAL POSITION (UNAUDITED) Expressed in Canadian Dollars March 31, 2021 September 30, 2020 $3,794,509 4,171,235 6,349,545 629,647 14,944,936 $3,506,991 3,333,437 7,199,774 809,404 14,849,606 Assets Current assets Cash and cash equivalents Accounts receivable Inventories (Note 4) Prepaid expenses Total current assets Non-current assets Restricted cash Property, plant and equipment (Note 6) Intangible assets (Note 5) Right-of-use assets (Note 8) Goodwill (Note 5) Total non-current assets 37,027 1,619,902 1,921,518 2,400,432 12,272,482 18,251,361 $33,196,297 37,309 1,824,959 2,151,274 2,815,724 13,018,102 19,847,368 Total assets $34,696,974 Liabilities and shareholders' equity Current liabilities Accounts payable and accrued liabilities Short-term debt (Note 7) Lease liabilities (Note 9) Acquisition note payable (Note 2) Deferred revenue Total current liabilities $3,924,432 8,057,066 518,471 9,497,017 378,728 22,375,714 $3,899,266 7,649,027 516,372 10,074,013 498,149 22,636,827 Non-current liabilities Deferred revenue Lease liabilities (Note 9) Total non-current liabilities Total liabilities 216,919 2,308,281 2,525,200 290,123 2,663,346 2,953,469 25,590,296 24,900,914 Shareholders' equity Share capital (Note 10) Contributed surplus (Note 10) Foreign exchange translation reserve Accumulated deficit Total shareholders' equity Total liabilities and shareholders' equity 44,607,119 11,857,327 (499,466) (47,669,597) 8,295,383 44,607,119 11,652,765 565,772 (47,718,978) 9,106,678 $34,696,974 $33,196,297