UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT
REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 5, 2014
Cynosure, Inc.
(Exact
Name of Registrant as Specified in Charter)
|
|
|
|
|
Delaware |
|
000-51623 |
|
04-3125110 |
(State or Other Jurisdiction
of Incorporation |
|
(Commission
File Number) |
|
(IRS Employer
Identification No.) |
|
|
|
5 Carlisle Road, Westford, MA |
|
01886 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
Registrants telephone number, including area code: (978) 256-4200
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any
of the following provisions (see General Instruction A.2. below):
|
¨ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
|
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
|
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
On September 8, 2014, Cynosure, Inc. (Cynosure) filed with the Securities and Exchange Commission a Current Report on Form 8-K ( the Original Form 8-K) in connection with the consummation on September 5, 2014 of Cynosures acquisition of substantially all of
the assets of Ellman International, Inc. (Ellman). This Current Report on Form 8-K/A amends Item 9.01 of the Original Form 8-K to present certain financial statements of Ellman and to
present certain unaudited pro forma financial information in connection with Cynosures acquisition of substantially all of the assets of Ellman, which financial statements and unaudited pro forma financial information are filed as exhibits
hereto. These financial statements and pro forma financial information were intentionally omitted from the Original Form 8-K because Cynosure did not have all necessary information to file such
information on the initial filing date.
Item 9.01. |
Financial Statements and Exhibits |
(a) |
Financial Statements of Business Acquired |
The Independent Auditors Report, the audited
consolidated balance sheets of Ellman as of December 31, 2013 and 2012, the audited consolidated statements of operations, stockholders equity and cash flows for the years ended December 31, 2013, 2012 and 2011, and the notes to
consolidated financial statements are filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference.
The consolidated balance sheets of Ellman as of June 30, 2014 (unaudited) and December 31, 2013 (audited), the unaudited
consolidated statements of operations and cash flows for the six months ended June 30, 2014 and 2013, and the notes to consolidated financial statements are filed as Exhibit 99.2 to this Current Report on
Form 8-K/A and are incorporated herein by reference.
(b) |
Pro Forma Financial Information |
The unaudited pro forma combined balance sheet as of
June 30, 2014 as if Cynosures acquisition of substantially all of the assets of Ellman occurred on June 30, 2014, and the unaudited pro forma combined statements of operations for the six months ended June 30, 2014 and the year
ended December 31, 2013 as if Cynosures acquisition of substantially all of the assets of Ellman occurred on January 1, 2013, are filed as Exhibit 99.3 to this Current Report on Form 8-K/A
and are incorporated herein by reference.
See the Exhibit Index attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
Cynosure, Inc. |
|
|
|
|
Date: November 7, 2014 |
|
|
|
By: |
|
/S/ Timothy W.
Baker |
|
|
|
|
|
|
|
|
|
|
Timothy W. Baker |
|
|
|
|
|
|
|
|
|
|
President, Chief Financial Officer and Treasurer |
|
|
|
Exhibit No. |
|
Description |
|
|
23.1 |
|
Consent of Independent Auditors |
|
|
99.1 |
|
Independent Auditors Report, audited consolidated balance sheets of Ellman as of December 31, 2013 and 2012, the audited consolidated statements of operations, stockholders equity and cash flows for the years ended
December 31, 2013, 2012 and 2011, and the notes to consolidated financial statements. |
|
|
99.2 |
|
Consolidated balance sheets of Ellman as of June 30, 2014 (unaudited) and December 31, 2013 (audited), the unaudited consolidated statements of operations and cash flows for the six months ended June 30, 2014 and 2013, and the notes
to consolidated financial statements. |
|
|
99.3 |
|
Unaudited pro forma combined balance sheet as of June 30, 2014 as if Cynosures acquisition of substantially all of the assets of Ellman occurred on June 30, 2014, and the unaudited pro forma combined statements of operations
for the six months ended June 30, 2014 and the year ended December 31, 2013 as if Cynosures acquisition of substantially all of the assets of Ellman occurred on January 1, 2013. |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We
consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-184216) and Form S-8 (Nos. 333-130237, 333-157945, 333-164569, 333-171984, 333-179452, 333-186398 and 333-189797) of Cynosure, Inc. of our report dated
November 4, 2014, with respect to the consolidated financial statements of Ellman Holding Corporation and Subsidiaries as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011, included in this Current
Report on Form 8-K/A.
/s/ BAKER TILLY VIRCHOW KRAUSE, LLP
Minneapolis, Minnesota
November 7, 2014
Exhibit 99.1
INDEPENDENT AUDITORS REPORT
To the Board
of Directors and Stockholders of Cynosure, Inc.; and
To the Former Stockholders and Board of Directors of
Ellman Holding Corporation and Subsidiaries
Report on the
Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Ellman Holding Corporation and
Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders equity and cash flows for the years ended December 31, 2013, 2012 and
2011, and the related notes to the consolidated financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ellman Holding
Corporation and Subsidiaries as of December 31, 2013 and 2012 and the results of its operations for the years ended December 31, 2013, 2012 and 2011 in accordance with accounting principles generally accepted in the United States of
America.
Emphasis of Matter
As discussed in Note 18 to the consolidated financial statements, on September 5, 2014 the Company sold substantially all assets and as part of the asset
sale the buyer assumed certain liabilities as defined in the Asset Purchase Agreement. Our opinion is not modified with respect to this matter.
/s/ BAKER
TILLY VIRCHOW KRAUSE, LLP
Minneapolis, Minnesota
November 4, 2014
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
December 31, 2013 and 2012
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
ASSETS |
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
570 |
|
|
$ |
845 |
|
Accounts receivable, net |
|
|
4,193 |
|
|
|
4,152 |
|
Inventories, net |
|
|
4,392 |
|
|
|
3,595 |
|
Prepaid expenses and other current assets |
|
|
241 |
|
|
|
825 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
9,396 |
|
|
|
9,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET |
|
|
803 |
|
|
|
502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
12,802 |
|
|
|
14,846 |
|
Goodwill |
|
|
2,806 |
|
|
|
2,806 |
|
Deferred financing costs |
|
|
53 |
|
|
|
179 |
|
Other assets |
|
|
142 |
|
|
|
86 |
|
|
|
|
|
|
|
|
|
|
Total Other Assets |
|
|
15,803 |
|
|
|
17,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
26,002 |
|
|
$ |
27,836 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Line of credit, bank |
|
$ |
1,000 |
|
|
$ |
500 |
|
Current portion of senior term note payable |
|
|
4,101 |
|
|
|
150 |
|
Subordinated note payable - Majority stockholder |
|
|
1,500 |
|
|
|
|
|
SBA term note payable |
|
|
1,000 |
|
|
|
|
|
Accounts payable |
|
|
2,505 |
|
|
|
3,701 |
|
Accrued expenses |
|
|
5,387 |
|
|
|
5,118 |
|
Deferred revenue |
|
|
571 |
|
|
|
536 |
|
Subordinated note payable - Sandstone acquisition |
|
|
1,100 |
|
|
|
|
|
Promissory note - Sandstone acquisition |
|
|
683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
17,847 |
|
|
|
10,005 |
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Senior term note payable, long term |
|
|
|
|
|
|
4,101 |
|
Subordinated note payable - Sandstone acquisition |
|
|
|
|
|
|
1,100 |
|
Promissory note - Sandstone acquisition |
|
|
|
|
|
|
631 |
|
Accrued royalty commitment - Long Term |
|
|
3,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Liabilities |
|
|
3,934 |
|
|
|
5,832 |
|
|
|
|
Total Liabilities |
|
|
21,781 |
|
|
|
15,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, series B |
|
|
|
|
|
|
|
|
Preferred stock, series A |
|
|
|
|
|
|
|
|
Common stock |
|
|
37 |
|
|
|
37 |
|
Additional paid-in capital |
|
|
40,723 |
|
|
|
40,468 |
|
Stock subscription receivable |
|
|
(12 |
) |
|
|
(12 |
) |
Accumulated deficit |
|
|
(36,527 |
) |
|
|
(28,494 |
) |
|
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
4,221 |
|
|
|
11,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
26,002 |
|
|
$ |
27,836 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
NET SALES |
|
$ |
29,254 |
|
|
$ |
25,314 |
|
|
$ |
21,851 |
|
|
|
|
|
COST OF GOODS SOLD |
|
|
12,224 |
|
|
|
7,984 |
|
|
|
5,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
17,030 |
|
|
|
17,330 |
|
|
|
16,041 |
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
21,727 |
|
|
|
17,082 |
|
|
|
14,898 |
|
Depreciation |
|
|
209 |
|
|
|
582 |
|
|
|
562 |
|
Amortization of intangibles |
|
|
2,044 |
|
|
|
1,823 |
|
|
|
2,492 |
|
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
11,520 |
|
Intangibles impairment |
|
|
|
|
|
|
|
|
|
|
7,758 |
|
Loss on natural disasters, net |
|
|
|
|
|
|
2,602 |
|
|
|
|
|
Gain on settlement of arbitration, net |
|
|
|
|
|
|
|
|
|
|
(8,979 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
23,980 |
|
|
|
22,089 |
|
|
|
28,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(6,950 |
) |
|
|
(4,759 |
) |
|
|
(12,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
(1,083 |
) |
|
|
(680 |
) |
|
|
(797 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Before Income Taxes |
|
|
(8,033 |
) |
|
|
(5,439 |
) |
|
|
(13,007 |
) |
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
(3,426 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(8,033 |
) |
|
$ |
(5,439 |
) |
|
$ |
(16,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series Preferred B |
|
|
Series Preferred A |
|
|
Common |
|
|
Series Preferred B |
|
|
Series Preferred A |
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
|
Stock Subscription Receivable |
|
|
Accumulated Deficit |
|
|
Total Stockholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2010 |
|
|
|
|
|
|
33,495 |
|
|
|
3,716,918 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
37 |
|
|
$ |
37,492 |
|
|
$ |
(70 |
) |
|
$ |
(6,622 |
) |
|
$ |
30,837 |
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of stock subscription |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,433 |
) |
|
|
(16,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2011 |
|
|
|
|
|
|
33,495 |
|
|
|
3,716,918 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
37 |
|
|
$ |
37,767 |
|
|
$ |
(12 |
) |
|
$ |
(23,055 |
) |
|
$ |
14,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred Stock issuance |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Stock redemption |
|
|
|
|
|
|
(225 |
) |
|
|
(25,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,439 |
) |
|
|
(5,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2012 |
|
|
2,500 |
|
|
|
33,270 |
|
|
|
3,691,918 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
37 |
|
|
$ |
40,468 |
|
|
$ |
(12 |
) |
|
$ |
(28,494 |
) |
|
$ |
11,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
255 |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,033 |
) |
|
|
(8,033 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES, December 31, 2013 |
|
|
2,500 |
|
|
|
33,270 |
|
|
|
3,691,918 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
37 |
|
|
$ |
40,723 |
|
|
$ |
(12 |
) |
|
$ |
(36,527 |
) |
|
$ |
4,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,033 |
) |
|
$ |
(5,439 |
) |
|
$ |
(16,433 |
) |
Adjustments to reconcile net loss to net cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill |
|
|
|
|
|
|
|
|
|
|
11,520 |
|
Impairment of intangible assets |
|
|
|
|
|
|
|
|
|
|
7,758 |
|
Gain on arbitration settlement |
|
|
|
|
|
|
|
|
|
|
(8,979 |
) |
Depreciation and amortization |
|
|
184 |
|
|
|
514 |
|
|
|
490 |
|
Amortization of intangibles and other assets |
|
|
2,044 |
|
|
|
1,823 |
|
|
|
2,564 |
|
Loss on natural disaster |
|
|
|
|
|
|
2,697 |
|
|
|
|
|
Amortization of deferred financing costs |
|
|
157 |
|
|
|
118 |
|
|
|
178 |
|
Interest accrued on promissory note |
|
|
52 |
|
|
|
21 |
|
|
|
|
|
Provision for doubtful accounts |
|
|
(8 |
) |
|
|
(295 |
) |
|
|
(74 |
) |
Stock-based compensation |
|
|
255 |
|
|
|
276 |
|
|
|
275 |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
|
3,426 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(33 |
) |
|
|
(503 |
) |
|
|
(40 |
) |
Inventory |
|
|
(797 |
) |
|
|
(3,087 |
) |
|
|
(600 |
) |
Prepaid expense and other current assets |
|
|
584 |
|
|
|
(78 |
) |
|
|
(444 |
) |
Other assets |
|
|
(56 |
) |
|
|
18 |
|
|
|
(26 |
) |
Accounts payable and accrued expenses |
|
|
3,007 |
|
|
|
4,173 |
|
|
|
316 |
|
Deferred revenue |
|
|
35 |
|
|
|
(68 |
) |
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from Operating Activities |
|
|
(2,609 |
) |
|
|
170 |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(485 |
) |
|
|
(387 |
) |
|
|
(246 |
) |
Purchase of Sandstone Medical Technologies |
|
|
|
|
|
|
(2,201 |
) |
|
|
|
|
Deferred payments related to the Ellman Acquisition |
|
|
|
|
|
|
|
|
|
|
(127 |
) |
Investment in patents |
|
|
|
|
|
|
(57 |
) |
|
|
|
|
Proceeds from settlement of arbitration, net of expenses |
|
|
|
|
|
|
|
|
|
|
3,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from Investing Activities |
|
|
(485 |
) |
|
|
(2,645 |
) |
|
|
2,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net change on line of credit, bank |
|
|
500 |
|
|
|
500 |
|
|
|
|
|
Proceeds from long-term debt |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
Repayment on long-term debt |
|
|
(150 |
) |
|
|
(150 |
) |
|
|
(3,252 |
) |
Proceeds from stock subscription receivable |
|
|
|
|
|
|
|
|
|
|
58 |
|
Issuance of Series B Preferred Stock |
|
|
|
|
|
|
2,500 |
|
|
|
|
|
Stock redemption |
|
|
|
|
|
|
(75 |
) |
|
|
|
|
Payment of deferred financing fees |
|
|
(31 |
) |
|
|
(100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from Financing Activities |
|
|
2,819 |
|
|
|
2,675 |
|
|
|
(3,194 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
(275 |
) |
|
|
200 |
|
|
|
(214 |
) |
|
|
|
|
CASH AND CASH EQUIVALENTS - Beginning of Year |
|
|
845 |
|
|
|
645 |
|
|
|
859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - END OF YEAR |
|
$ |
570 |
|
|
$ |
845 |
|
|
$ |
645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 1 - Summary of Significant Accounting
Policies
Description of
Business
Ellman Holding Corporation (the Company), a Delaware corporation, was incorporated on January 31, 2008 to acquire the stock
of Ellman International, Inc., a company principally engaged in the manufacturing and distribution of equipment for medical, dental and veterinary professionals, both domestically and internationally.
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Ellman Holdings, Inc., Ellman International, Inc. and Ellman Enterprises LLC. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (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. Additionally,
these estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions.
Fair Value of Financial Instruments
Carrying amounts of the Companys financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, approximate their fair values due to their short maturities. Based on the borrowing rates available to the Company for loans with similar terms, the carrying value of the borrowings approximates their fair value. The carrying amounts of
other assets and liabilities approximate their fair values based upon their nature and size.
Fair value is a
market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A fair value hierarchy prioritizes the inputs used in measuring fair value
as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly and (Level 3) unobservable inputs in which there is
little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
Financial assets that are measured at fair value on a recurring basis have been segregated into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the measurement dates. The following table represents Ellmans fair value hierarchy for its financial assets (cash equivalents) measured at fair value as of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
570 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
570 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of the Companys non-financial assets and liabilities are not required to be carried at fair value on a
recurring basis. However, the Company is required on a nonrecurring basis to use fair value measurements when analyzing asset impairment as it relates to goodwill and other indefinite-lived intangible assets and long-lived assets. For its annual
goodwill impairment testing, the Company utilized a combination of income and market approaches (Level 3 inputs).
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Cash and Cash Equivalents
The Company includes as cash equivalents certificates of deposit and all other investments with maturities of three months or less when purchased which are
readily convertible into known amounts of cash. Cash on deposit in excess of FDIC and other similar insurance coverages is subject to the usual banking risks of funds in excess of those limits.
Accounts Receivable
Accounts receivable
are generally due in 30 days and are stated at amounts due from customers, net of an allowance for doubtful accounts and an estimate for sales returns. Accounts outstanding longer than the contractual terms, are considered to be past due. The
Company maintains an allowance for doubtful accounts based on trade receivables that are not probable of collection after evaluating the aging of receivables and the current economic environment. The allowance for doubtful accounts is based on
managements evaluation of outstanding accounts receivable at the end of the year. When the Company becomes aware of a customers inability to meet its financial obligations, it writes off that customers account against the
allowance. Accounts receivable are shown net of an allowance for doubtful accounts of $408 and $416 as of December 31, 2013 and 2012, respectively.
Inventories
Inventories consist of raw
materials and finished goods and are stated at the lower of cost or market with cost determined on an average cost basis, which approximates the first-in, first-out
inventory costing method. The Companys finished goods include materials, labor, and manufacturing overhead. Market is determined as the lower of replacement cost or net realizable value. The Company records a reserve for inventory obsolescence
commensurate with known or estimated exposures.
Property and Equipment
Property and equipment are recorded at cost. Costs incurred to maintain property and equipment that do not comprise major improvements or extend the life of
the asset are expensed as repairs and maintenance as incurred. Leasehold improvements are amortized over the shorter of the estimated useful lives or the remaining lease term. Upon sale or retirement of assets, the costs and related accumulated
depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations. Depreciation is computed using the straight-line method over the following estimated
useful lives:
|
|
|
|
|
Years |
Machinery and equipment |
|
7 |
Furniture and fixtures |
|
7 |
Vehicles |
|
5 |
Leasehold improvements |
|
3-5 |
Computers and software |
|
3-5 |
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Goodwill
Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. Goodwill is not amortized but is tested for
impairment on an annual basis and more frequently if an event occurs or circumstances indicate that the carrying amount of goodwill may not be recoverable. If the fair value of the Company is less than the carrying value, goodwill may be impaired,
and will be written down to its estimated fair market value, if necessary. The Company evaluates the carrying value of goodwill as of October 31st of each year or between annual evaluations if events occur or circumstances change that would
more likely than not reduce the fair value of the reporting unit below its carrying amount.
The Company determined there was no goodwill impairment for
the years ended December 31, 2013 and 2012. The Company recorded a non-cash charge of $11,520 for goodwill impairment, during the year ended December 31, 2011.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and intangible assets, for impairment whenever
events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset or
asset group is expected to generate. If an asset or asset group is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds its fair value. If estimated fair value is less than
the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.
If the Company determines that the carrying
amount of long-lived assets, including intangible assets, may not be recoverable, the Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by our
management to be commensurate with the risk inherent in our current business model or another valuation technique. Considerable management judgment is necessary in estimating future cash flows and other factors affecting the valuation of long-lived assets, including intangible assets, including the operating and macroeconomic factors that may affect them. The Company uses historical financial information, internal plans, and projections and industry
information in making such estimates.
The Company determined there was no impairment for the years ended December 31, 2013 and 2012. The Company
recognized impairment charges of $7,758 to intangible assets, during the year ended December 31, 2011.
Deferred Financing Costs
Costs incurred in conjunction with the incurrence of indebtedness are capitalized and subsequently amortized to interest expense over the related
period of the obligation using the straight-line method over the remaining life of the debt agreement. Amortization of deferred financing costs aggregated $157, $118 and $178 as of December 31, 2013, 2012
and 2011, respectively.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Revenue Recognition
The Company recognizes revenues from product sales at the time of passage of title and risk of loss to the customer either at FOB Shipping Point or FOB
Destination based upon terms established with the customer. The Companys selling prices to its customers is a fixed amount that is not subject to adjustment or contingent upon additional rebates. There are no further obligations on the part of
the Company subsequent to revenue recognition except for product returns for the Companys customers. The Company does accept product returns, if properly requested, authorized, and approved by the Company. The Company records an estimate of
product returns by its customers and records the provision for the estimated amount of future returns at point of sale, based on historical experience and any notification the Company receives of pending returns. Revenues are presented net of sales
taxes.
Shipping and Handling
The
Company includes all costs incurred for shipping and handling as cost of sales and all amounts billed to customers as revenue.
Product
Warranty and General Liability
The Company sells most of its products with a basic one year warranty. Historical warranty claims received by the
Company and warranty costs incurred have not been significant, thus the Company has not recorded a reserve for warranty claims as of December 31, 2013, 2012 and 2011. In addition, extended warranty coverage is offered at the time of purchase
and as a stand-alone item after the sale. Revenue on the extended warranty is deferred and recognized over the life of the warranty period, generally ranging from 1 to 3 years. For the years ended
December 31, 2013, 2012 and 2011, approximately $244, $217 and $153 was recognized as revenues on extended warranty contracts, respectively. As of December 31, 2013 and 2012, deferred revenue on extended warranty contracts was
approximately $571 and $536, respectively.
Advertising
Advertising costs are included in selling, general and administrative and are expensed as incurred. Advertising costs for the years ended December 31,
2013, 2012 and 2011 were $978, $731 and $722, respectively.
Research and Development Costs
Research and development costs are included in selling, general and administrative and are expensed as incurred. Research and development costs for the years
ended December 31, 2013,2012 and 2011 were approximately $1,474, $975 and $846, respectively.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 1 - Summary of Significant Accounting Policies (cont.)
Income Taxes
The Company accounts for income taxes using the asset and liability approach, which requires that deferred tax assets and liabilities to be recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. 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.
The Company recognizes accrued interest and penalties related to uncertain tax positions
in the provision for income taxes. As of December 31, 2013, the Company had accrued zero for the payment of tax related interest and penalties and there were no uncertain tax positions recognized in the statements of operations. The
Companys federal tax returns are open to examination for fiscal years 2010 through 2013 and state tax returns for the fiscal years 2010 through 2013. The Company does not expect any material changes to the estimated amounts associated with its
uncertain tax positions and related accruals for interest and penalties through December 31, 2013.
Stock-Based Compensation
The Companys share-based payments to employees, including grants of employee stock options and restricted stock
awards, are recognized in the financial statements based on their fair value. The Company measures the cost of equity-based service awards based on the grant-date fair
value of the award and recognizes the cost of such award over the period during which the employee is required to provide service in exchange for the award (vesting period).
The Company uses the Black-Scholes-Merton option pricing model to estimate
fair value, which requires the Company to estimate key assumptions such as expected term, volatility, and risk-free interest rates to determine the fair value of stock options, based on both historical
information and management judgment regarding market factors and trends. The Company amortizes compensation expense over the service period of the award, net of estimated forfeiture rates. If actual forfeitures differ from management estimates,
additional adjustments to compensation expense may be required in future periods.
Reclassification
For comparability, certain 2012 and 2011 amounts have been reclassified to conform with classifications adopted in 2013. The reclassification had no impact on
net loss or stockholders equity.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 2 - Ellman Acquisition and Subsequent Arbitration Award
Ellman Acquisition
On February 8, 2008, Ellman Holding Corporation entered into a stock purchase agreement to purchase all of the outstanding voting stock of Ellman
International, Inc. (the Ellman Acquisition), a privately held medical device company owned by two individuals (Sellers). Aggregate consideration at the time of sale was $45,688 (including payment of the Sellers direct
transaction costs of $215 and estimated fair value of warrants issued to the Sellers of $160).
Additional consideration may be given to the Sellers under
a license agreement in the form of contingent deferred royalty payments for select granted patents and pending patents for periods of up to 20 years in order to protect the Companys rights to sell certain products into non-medical facilities. Since the date of the Ellman Acquisition, the Company has not sold any of the related products to non-medical facilities. However, the Company has
elected to continue to protect its rights to do so. Pursuant to the license agreement, the products carry a royalty rate ranging from 3-10% dependent on the product, and a minimum deferred royalty is payable
annually if the royalty based on revenues does not exceed the minimum deferred royalty. In addition, the Sellers are required to reimburse the Company for a portion of the costs associated with maintaining the patents.
A dispute over the historical amounts paid and invoiced between the Company and the Sellers had arisen over the amount of the minimum deferred royalty
payments due and the patent maintenance costs. The Company believed it was owed a net payment from the Sellers and the Sellers claimed a net payment from the Company.
On July 31, 2014 (Settlement Date), the Company and the Seller agreed on a binding settlement of the dispute. The Company agreed to pay $70 on the
Settlement Date and $200 on October 1, 2014 to satisfy all payments between the parties under the license agreement up and through December 31, 2013. In addition, as a means to satisfy all future obligations, the Company agreed to pay to a
future minimum payment commitment of ($300 at December 31, 2014 and 2015 and $400 each year from December 31, 2016 to December 31, 2028). The Company determined that the entire financial commitment should be accrued and expensed for
at its present value back at December 31, 2013 as the settlement is not dependent upon any future product sales. The present value of the financial commitment using an interest rate of 4.75% was $4,308, the current portion of $374 was included
with accrued expenses at December 31, 2013, and the remainder is classified as a long term liability at December 31, 2013.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 3 - Sandstone Medical Technologies Acquisition
On July 17, 2012, the Company acquired
certain assets and liabilities of Sandstone Medical Technologies, LLC (Sandstone Acquisition). The total purchase price was $4,279, which included transaction fees of $368 that were expensed upon acquisition. The total purchase price
included a working capital true up based on the difference between actual working capital purchased and a working capital target. The working capital true up of $50 was due to the Company subsequent to December 31, 2012 and is reflected as a
current asset in the accompanying consolidated balance sheet. The purchase was financed by a combination of $2,201 of cash, a $1,100 Subordinated Promissory Note, and an $800 promissory note of contingent consideration that the Company expects will
be earned and has been recorded at its present value of $610. These notes were paid as part of the asset sale on September 5, 2014 (note 18).
The Company completed the Sandstone Acquisition to add a full line of FDA cleared value-priced lasers to compliment
the Companys current offerings to the aesthetic marketplace domestically and internationally. The Company considered the acquisition as an acquisition of a business. Goodwill represents the excess of purchase price over the fair value of the
net assets of businesses acquired. The Company recognized goodwill as the Company expects synergies from combining operations and intangible assets that do not qualify for separate recognition.
The Company accounted for this transaction under the purchase method of accounting and, accordingly, the purchase price was allocated to assets acquired and
liabilities assumed based on the estimated fair value as of the acquisition date. Goodwill is deductible for tax purposes. The following is an allocation of assets acquired and liabilities assumed:
|
|
|
|
|
Fair value of net assets acquired: |
|
|
|
|
Accounts receivable |
|
$ |
503 |
|
Inventories |
|
|
181 |
|
Prepaid expenses |
|
|
26 |
|
Goodwill |
|
|
2,806 |
|
Intangible assets |
|
|
560 |
|
|
|
|
|
|
Fair value of assets acquired |
|
|
4,076 |
|
Customer deposits |
|
|
(76 |
) |
Accrued expenses |
|
|
(89 |
) |
|
|
|
|
|
Fair value of liabilities assumed |
|
|
(165 |
) |
|
|
Fair value of net assets acquired |
|
$ |
3,911 |
|
|
|
|
|
|
|
|
Sources used to finance acquisition: |
|
|
|
|
Subordinated promissory note payable |
|
$ |
1,100 |
|
Promissory note payable |
|
|
610 |
|
Proceeds from Series B stock issuance |
|
|
2,500 |
|
Cash paid |
|
|
69 |
|
Less transaction costs |
|
|
(368 |
) |
|
|
|
|
|
Purchase price, net of transaction costs |
|
$ |
3,911 |
|
|
|
|
|
|
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 4 - Inventories, net
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
|
|
Raw Materials |
|
$ |
1,434 |
|
|
$ |
1,062 |
|
Finished Goods |
|
|
3,664 |
|
|
|
2,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,098 |
|
|
|
3,797 |
|
Less: valuation allowance |
|
|
(706 |
) |
|
|
(202 |
) |
|
|
|
|
|
|
|
|
|
Inventories, net |
|
$ |
4,392 |
|
|
$ |
3,595 |
|
|
|
|
|
|
|
|
|
|
NOTE 5 - Property and Equipment, Net
The major categories of property and equipment consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
|
|
Machinery and equipment |
|
$ |
293 |
|
|
$ |
210 |
|
Furniture and fixtures |
|
|
309 |
|
|
|
221 |
|
Vehicles |
|
|
13 |
|
|
|
13 |
|
Leasehold improvements |
|
|
246 |
|
|
|
729 |
|
Computers and Software |
|
|
862 |
|
|
|
794 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,723 |
|
|
|
1,967 |
|
Less: accumulated depreciation and amortization |
|
|
(920 |
) |
|
|
(1,465 |
) |
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
803 |
|
|
$ |
502 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $184, $514 and $490 for the years ended December 31, 2013, 2012 and 2011,
respectively.
NOTE 6 - Intangible Assets
Intangible assets are amortized on a straight-line basis over the life of the assets based on the following useful
lives:
|
|
|
Distributor and customer relationships |
|
15 years |
Patents |
|
9.1 - 13.5 years (based on legal life) |
Trademarks |
|
20 years |
Non-compete agreements |
|
1 - 5 years |
Other Intangibles |
|
3 years |
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 6 - Intangible Assets (cont.)
A summary of intangible assets as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Impairment |
|
|
Net Book Value |
|
|
|
|
|
|
Distributor and customer relationships |
|
$ |
14,188 |
|
|
$ |
(6,732 |
) |
|
$ |
|
|
|
$ |
7,456 |
|
Patents |
|
|
5,869 |
|
|
|
(3,261 |
) |
|
|
|
|
|
|
2,608 |
|
Trademarks |
|
|
4,255 |
|
|
|
(1,564 |
) |
|
|
|
|
|
|
2,691 |
|
Non-compete agreements |
|
|
2,305 |
|
|
|
(2,258 |
) |
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,617 |
|
|
$ |
(13,815 |
) |
|
$ |
|
|
|
$ |
12,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
Cost |
|
|
Accumulated Amortization |
|
|
Impairment |
|
|
Net Book Value |
|
|
|
|
|
|
Distributor and customer relationships |
|
$ |
14,188 |
|
|
$ |
(5,916 |
) |
|
$ |
|
|
|
$ |
8,272 |
|
Patents |
|
|
5,869 |
|
|
|
(2,331 |
) |
|
|
|
|
|
|
3,538 |
|
Trademarks |
|
|
4,255 |
|
|
|
(1,377 |
) |
|
|
|
|
|
|
2,878 |
|
Non-compete agreements |
|
|
2,305 |
|
|
|
(2,147 |
) |
|
|
|
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
26,617 |
|
|
$ |
(11,771 |
) |
|
$ |
|
|
|
$ |
14,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets amounted to $2,044, $1,823 and $2,564 for the years ended December 31, 2013,
2012 and 2011, respectively. During 2011, the Company contracted an independent appraisal firm to complete an appraisal of goodwill and other intangibles. Due to reduced growth expectations resulting from weakened economic conditions the Company
recognized an impairment charge of $7,758 to intangible assets.
The total expected future amortization expense for the intangible assets is as follows
for the years ending December 31:
|
|
|
|
|
2014 |
|
$ |
1,479 |
|
2015 |
|
|
1,432 |
|
2016 |
|
|
1,432 |
|
2017 |
|
|
1,432 |
|
2018 |
|
|
1,432 |
|
Thereafter |
|
|
5,595 |
|
|
|
|
|
|
Total |
|
$ |
12,802 |
|
|
|
|
|
|
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 7 - Accrued Expenses
Accrued expenses consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
Accrued management fees |
|
$ |
1,653 |
|
|
$ |
1,339 |
|
Accrued royalties |
|
|
1,047 |
|
|
|
555 |
|
Accrued other |
|
|
931 |
|
|
|
1,494 |
|
Sales tax payable |
|
|
584 |
|
|
|
447 |
|
Accrued commissions |
|
|
505 |
|
|
|
461 |
|
Accrued compensation and bonus |
|
|
504 |
|
|
|
764 |
|
Accrued interest |
|
|
163 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
Total Accrued Expenses |
|
$ |
5,387 |
|
|
$ |
5,118 |
|
|
|
|
|
|
|
|
|
|
Sales Tax Payable
During 2014 the Company completed several voluntary disclosures for sales tax liabilities accrued in the accompanying balance sheets. The filings remain
open for audit, and the accompanying December 31, 2013 financial statements include managements best estimate of any potential liability.
NOTE 8 -
Long-Term Debt
The Companys long-term debt consists of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
|
|
Senior Term Loan |
|
$ |
4,101 |
|
|
$ |
4,251 |
|
Subordinated Note Payable - Majority Stockholder |
|
|
1,500 |
|
|
|
|
|
SBA Note Payable |
|
|
1,000 |
|
|
|
|
|
Subordinated Note Payable - Sandstone Acquisition |
|
|
1,100 |
|
|
|
1,100 |
|
Promissory Note Payable - Sandstone Acquisition |
|
|
683 |
|
|
|
631 |
|
Accrued royalty commitement (note 2) |
|
|
3,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
12,318 |
|
|
|
5,982 |
|
Less: current portion |
|
|
(8,384 |
) |
|
|
(150 |
) |
|
|
|
|
|
|
|
|
|
Long-Term debt |
|
$ |
3,934 |
|
|
$ |
5,832 |
|
|
|
|
|
|
|
|
|
|
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 8 - Long-Term Debt (cont.)
Future maturities of long-term debt are as follows:
|
|
|
|
|
2014 |
|
$ |
8,384 |
|
2015 |
|
|
109 |
|
2016 |
|
|
214 |
|
2017 |
|
|
225 |
|
2018 |
|
|
247 |
|
Thereafter |
|
|
3,139 |
|
|
|
|
|
|
|
|
Total |
|
$ |
12,318 |
|
|
|
|
|
|
Senior Term Loan and Revolving Line of Credit
The Company had a Credit Agreement which provided the Company with a Term Loan and a Revolving Credit facility. At December 31, 2013 the Credit Agreement,
as amended, provided for a Term loan in the aggregate principal of $4,251 and a $2,500 Revolving Loan.
The Term Loan was payable in quarterly
installments of $37.5 through the February 28, 2014 maturity date of the Credit and Guarantee Agreement, at which date the remaining principal balance of the Term Loan and Revolver are due. The balance on the Revolving Loan was $1,000 and $500
as of December 31, 2013 and 2012, respectively. Both loans were paid in full as part of the sale on September 5, 2014 (note 18).
Both the Term
Loan and Revolver beared interest based on (1) the higher of LIBOR or 1.50% plus an applicable margin of 7.5% per annum, or (2) a base rate plus an applicable margin of 6.5%. The base rate means for any day a fluctuating rate per
annum equal to the highest of (a) the Federal Funds Rate plus 0.5%, (b) 2.5% or (c) the per annum rate published from time to time by the Wall Street Journal as the prime rate in effect for such date. The weighted average
interest rate of the Companys outstanding borrowings under the credit facilities was approximately 9.0% as of December 31, 2013 and 8.0% as of December 31, 2012.
The credit facilities required mandatory prepayments in amounts equal to (1) the net proceeds from the sale or other disposition of property (other than
in the ordinary course of business and subject to other exceptions) by the Company or its subsidiaries, unless the Company intends and expects to use all or a portion of the proceeds to purchase assets used in the business or make capital
expenditures, (2) half of the net cash proceeds from the issuance of any equity securities after the initial capitalization, (3) the net proceeds on any additional indebtedness after the initial borrowings, (4) 75% of excess cash flow
as defined in the amended Credit and Guaranty Agreement, and (5) the net proceeds from any payment in respect of any purchase price adjustment in favor of the Company, other than an adjustment related to working capital or any indemnification
costs or payments. The required pre-payment of Excess Cash Flow was $0 for the years ended December 31, 2013, 2012 and 2011.
The Credit Agreement allowed the Company to voluntarily prepay loans under its credit facilities, in whole or in part, without premium or penalty. Any
voluntary prepayment of loans would be subject to reimbursement of the lenders breakage costs in the case of a prepayment of LIBOR rate borrowings other than on the last day of the relevant interest period.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 8 - Long-Term Debt (cont.)
All borrowings and other extensions of credit under the credit facilities were subject to the satisfaction of
customary conditions, including absence of defaults and accuracy in material respects of representations and warranties.
The credit facilities contained
customary restrictive covenants for facilities and transactions of this type, including, among others, certain limitations on: incurrence of additional debt and guarantees of indebtedness; creation of liens; mergers, consolidations or sales of
substantially all of the Companys assets; sales or other dispositions of assets; distributions or dividends and repurchases of its common stock; restricted payments, including without limitation, certain restricted investments; engaging in
transactions with the Companys affiliates; and, sale and leaseback transactions. Substantially all of the Companys assets were pledged as collateral and to secure the indebtedness under the credit facilities. The credit facilities also
contained certain financial covenants that if not met would be considered an event of default that could result in acceleration of the obligations under the agreement.
SBA Secured Business Disaster Loan
In
July 2013, the Company obtained a business disaster loan from the U.S. Small Business Administration (SBA) in the amount of $1,000. The note accrued interest at 6% until the first payment was due July 2014. The note was payable in six annual
installments of $17,286 of principal and accrued interest beginning July 2014. On the seventh anniversary of the note, July 2020, all unpaid principal and interest was due. The note had been guaranteed by the majority stockholder of the Company as
well as a personal guarantee of an officer of the Company. This note was paid in full upon as part of the asset sale on September 5, 2014.
Subordinated Promissory Note Payable - Majority Stockholder
During 2013 the majority stockholders collectively loaned the Company $1,500. The note accrued interest at 10% until the maturity date of May 30, 2014,
when all accrued interest and principal was due. The note is subordinated to the senior credit agreement.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 8 - Long-Term Debt (cont.)
Subordinated Note Payable - Sandstone Acquisition
In connection with the Sandstone Acquisition (Note 3), the Company entered into a $1,100 note payable with the seller which was subordinated to the
Credit and Guarantee Agreement (Subordinated Promissory Note). The Subordinated Promissory Note was due the earlier of February 8, 2016 or upon the sale of the Company, provided that a portion of the Subordinated Promissory Note may
become due along with accrued interest on March 15, 2014 and February 28, 2015 if sales of the products added from the Sandstone Acquisition exceeds defined levels for the calendar years ended 2013 and 2014. The Company did not achieve the
defined level of sales for 2013. Interest is due at a rate of 5%, which will increase to 8% if any payments due as described above are not made as a result of the limitations of the Credit and Guarantee Agreement. This note was paid in full upon as
part of the asset sale on September 5, 2014.
Promissory Note Payable - Sandstone
Acquisition
In connection with the Sandstone Acquisition (Note 3), the Company agreed to pay $800 of contingent consideration to the seller that the
Company expected it would be earned and payable in 2015. The note is non-interest bearing, and accordingly the Company discounted the $800 to the present value of $610 using an imputed interest rate of 8%. The
Company was amortizomg the discount through the maturity date. The note balance as of December 31, 2013 and 2012 was $683 and $631, respectively and is presented net of an unamortized discount of $117 and $169, respectively. This note was paid
in full upon as part of the asset sale on September 5, 2014.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 9 - Income Taxes
The components of the (provision) benefit for income taxes for the years ended December 31, 2013, 2012 and 2011 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
Current tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
State and Local |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax expense |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
|
|
|
|
|
|
(3,367 |
) |
State and local |
|
|
|
|
|
|
|
|
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax (expense) benefit |
|
|
|
|
|
|
|
|
|
|
(3,425 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (expense) benefit for income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
(3,426 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of the significant temporary differences and carryforwards giving rise to deferred taxes at December 31,
2013 and 2012 are presented below:
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
|
|
Allowance for doubtful accounts |
|
$ |
117 |
|
|
$ |
121 |
|
Accrued expenses |
|
|
276 |
|
|
|
457 |
|
Amortization |
|
|
3,005 |
|
|
|
3,479 |
|
Inventory - UNICAP |
|
|
316 |
|
|
|
155 |
|
Federal and State net operating losses and tax credit carryforwards |
|
|
6,402 |
|
|
|
5,181 |
|
Stock option expense |
|
|
386 |
|
|
|
299 |
|
Other |
|
|
107 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
10,609 |
|
|
|
9,869 |
|
Less valuation allowances |
|
|
(10,571 |
) |
|
|
(9,797 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax asset |
|
|
38 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
(38 |
) |
|
|
(72 |
) |
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability |
|
|
(38 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
Net Deferred tax asset |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 9 - Income Taxes (cont.)
Rate Reconciliation
The reconciliation of the Companys effective income tax rate, which differed from the Federal statutory rate for the years ended December 31, 2013,
2012 and 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
Income from operations before taxes computed at the statutory rate |
|
|
34.0 |
|
|
|
34.0 |
|
|
|
34.0 |
|
Nondeductible items |
|
|
(0.3 |
) |
|
|
(0.4 |
) |
|
|
(0.2 |
) |
State and local taxes, net of Federal benefit |
|
|
0.4 |
|
|
|
0.4 |
|
|
|
0.4 |
|
Other |
|
|
0.8 |
|
|
|
0.6 |
|
|
|
0.2 |
|
Valuation allowances |
|
|
(34.9 |
) |
|
|
(34.6 |
) |
|
|
(60.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
|
|
|
|
|
|
|
|
(26.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Federal net operating loss (NOL) was $22,590, $14,779 and $10,501 as of December 31, 2013, 2012 and 2011,
respectively. The New York State NOL is $137, $87 and $61 as of December 31, 2013, 2012 and 2011, respectively. The Company is evaluating the impact the asset sale (Note 18) had on the amount of NOL available to be carried forward to future
years. The NOLs will expire at various times through 2033. Management has determined that it is more likely than not that the Company will not recognize these losses as well as the other deferred tax assets shown above, and accordingly, has
recorded a valuation allowance against the related deferred tax assets.
As of December 31, 2013, there are no material unrecognized tax benefits.
The tax years that are still subject to examination by taxing authorities include tax years between 2010 through 2013 for both Federal and State jurisdictions.
NOTE 10 - Commitments and Contingencies
Leases
The Company leases certain manufacturing facilities and office equipment that are accounted for as operating leases. Certain of these operating leases have
renewal and adjusted payment terms and have lease payments that are adjusted for changes in the consumer price index during the lease term.
The following
is a schedule of the future minimum lease payments for the years ending December 31, 2013:
|
|
|
|
|
2014 |
|
$ |
646 |
|
2015 |
|
|
543 |
|
2016 |
|
|
501 |
|
2017 |
|
|
516 |
|
2018 |
|
|
525 |
|
Thereafter |
|
|
816 |
|
|
|
|
|
|
|
|
Total Future Minimum Lease Payments |
|
$ |
3,547 |
|
|
|
|
|
|
Total rent expense was approximately $549, $563 and $534 during the years ended December 31, 2013, 2012 and 2011,
respectively.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 10 - Commitments and Contingencies (cont.)
Litigation and Other
After the date of the Ellman Acquisition management discovered that prior to the Ellman Acquisition the Company had made unlicensed exports of medical
equipment to Iran and Syria. The Company has disclosed these apparent violations to the Iranian Transactions Regulations and the Export Administration Regulations to the U.S. Department of the Treasury and the U.S. Department of Commerce. During
2012, the U.S. Department of Treasury concluded the investigation and imposed a fine of $191 that the Company, as a result of successor liability, had recorded as a liability at December 31, 2012. The Company is making monthly payments against
the liability and the remaining balance was $117 as of December 31, 2013.
Certain conditions may exist as of the date the financial statements are
issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Companys management and its legal counsel assess such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Companys legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then
the estimated liability is accrued in the Companys financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which
case the nature of the guarantee would be disclosed.
NOTE 11 - Loss on Natural Disasters
During 2012, the Company experienced significant flood damage as a result of Superstorm Sandy. The Companys December 31, 2013 financial statements
reflect the preliminary loss, net of the maximum $500 insurance reimbursement, as follows:
|
|
|
|
|
Inventory |
|
$ |
2,365 |
|
Property, plant, and equipment, net |
|
|
327 |
|
Remediation costs |
|
|
139 |
|
Consulting, duplicate facility and other related costs |
|
|
271 |
|
|
|
|
|
|
Total loss |
|
|
3,102 |
|
Insurance reimbursement received |
|
|
(500 |
) |
|
|
|
|
|
Net loss |
|
$ |
2,602 |
|
|
|
|
|
|
NOTE 12 - Shareholders Equity
The Companys Common Stock has one voting right per share and the Series A Preferred Stock and Series B Preferred Stock is nonvoting. The Series A
Preferred Stock is entitled to receive dividends of 8% per share per annum and the Series B Preferred Stock is entitled to receive dividends of 25% per share per annum. Dividends are payable quarterly only if declared by the Board of
Directors. The Series B Preferred Stock has liquidation preference in the event of any liquidation, dissolution or winding up of the Company, followed by Series A Preferred Stock, both equal to the sum of (1) $1,000 for each outstanding share
of Preferred Stock and (2) all accrued but unpaid dividends. The amount of accrued, undeclared dividends was approximately $19,202, $14,520 as of December 31, 2013 and 2012, respectively.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 12 - Shareholders Equity
Each shareholder of the outstanding Common Stock has a preemptive right to purchase shares of any new securities that the Company may issue. The preemptive
rights allow the shareholder to purchase its pro rata share of new securities issued in order to maintain its pro rata share percentage in existence prior to the issue of new shares.
If the Companys majority shareholder approves a sale of the Company, all other shareholders shall vote for, consent to and raise no objections to the
sale.
Pursuant to the shareholders agreement, if a shareholder who is also an executive or director of the Company ceases to be employed by the
Company, the shares will be subject to repurchase by the Company or the Companys majority shareholder, at a value as defined in the shareholders agreement. These executives collectively hold 92,594 shares of Common Stock, 833 shares of
Series A Preferred Stock, and 70 shares of Series B Preferred Stock as of December 31, 2013, respectively.
On February 8, 2008, the Company
issued 161,665 Common Stock warrants to the sellers in connection with the Ellman Acquisition. The warrants are exercisable for $.01 per share in the case of a vesting event. A vesting event is defined as defined as any event where the
Companys majority shareholder receives minimum net cash proceeds and a minimum rate of return, as defined in the warrant agreements. The Company valued the warrants using the
Black-Scholes-Merton model to calculate the grant date fair value using similar assumptions used for pricing stock options. The grant date fair value of the warrants was
approximately $160 and was included as a component of the Ellman Acquisition related transaction costs (Note 2) and additional paid in capital in the consolidated statement of shareholders equity.
On June 25, 2009 as part of a capital contribution, 86 shares of Series A Preferred stock and 9,534 shares of Common Stock were pledged as collateral for
notes receivable from two executives with an initial value of $128, which was included as a stock subscription receivable in the consolidated statement of shareholders equity. As of December 31, 2013 there are 27.19 shares of Series A
Preferred Stock and 3,000 shares of Common Stock pledged as collateral by one executive.
On July 10, 2012, the Company repurchased 25,000 shares of
common stock and 225 shares of Series A Preferred Stock from the senior lender for aggregate consideration of $75.
On July 17, 2012, in order to
complete the Sandstone Acquisition (Note 3) the Company issued 2,500 shares of Series B Preferred Stock and 250,000 warrants to purchase the Companys common stock at $1 per share for aggregate consideration of $2,500. The warrants are
immediately exercisable at any time until the earlier of (i) sale of the Company or (ii) the expiration date of July 17, 2022. The securities are subject to the provisions set forth in the Stockholders Agreement dated February 8,
2008 as amended on July 17, 2012.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 13 - Stock-Based Compensation
Effective February 8, 2008, the Board of
Directors established the Ellman Holding Corporation Management Equity Compensation Plan (the Plan), to grant options to officers, directors and employees of the Company. Under the Plan, the Company may issue nonqualified stock options
at the sole discretion of the Board. Options issued under the Plan prior to April 19, 2010 typically had a 10 year life and in general, 50% of the options issued to an individual would vest over 4 years, and the remaining 50% of the options
were subject to performance-based vesting provisions. Certain officers of the Company also received additional performance options with higher performance thresholds. Effective April 19, 2010 the Board of
Directors approved a modification to convert all issued and outstanding performance based options, except for those issued to the Companys Chief Executive Officer, to time vesting options. The incremental compensation cost as a result of the
modifications was recognized over the remaining vesting period of approximately 3 years. As of December 31, 2012, the remaining performance-based options that were issued April 19, 2010 have been
cancelled.
Most options issued after April 19, 2010 have a 10 year life and vest over 4 years. Any
performance-based options will vest and become exercisable upon the occurrence of a qualified change in control or liquidity event defined as a sale of the company or a public offering that achieves minimum
net cash proceeds and a minimum rate of return to the Companys majority shareholder as defined in the agreement. Recognition of compensation cost for an award with a performance condition is based on whether the performance condition is
probable of achievement. Since such condition was not considered probable, no compensation cost has been recorded related to the performance-based options. Unrecognized cost for performance vesting options was
not significant at December 31, 2013.
In connection with the Sandstone Acquisition (Note 3), the seller was awarded 37,200 options of which half
vest over 4 years, and half are performance-based options that vest and become exercisable as described above.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 13 - Stock-Based Compensation (cont.)
As of December 31, 2013 and 2012, approximately 121,596 authorized and unissued options to purchase
shares of Common Stock were reserved for issuance under the Plan.
A summary of activity and changes related to stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Fair Value |
|
|
Weighted Average remaining contractual term (years) |
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2010 |
|
|
749,019 |
|
|
$ |
1.00 |
|
|
$ |
1.02 |
|
|
|
7.9 |
|
|
$ |
|
|
Granted |
|
|
214,550 |
|
|
|
1.00 |
|
|
|
2.31 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(245,825 |
) |
|
|
1.00 |
|
|
|
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2011 |
|
|
717,744 |
|
|
$ |
1.00 |
|
|
$ |
1.63 |
|
|
|
7.8 |
|
|
|
|
|
Granted |
|
|
114,700 |
|
|
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
(160,279 |
) |
|
|
1.00 |
|
|
|
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2012 |
|
|
672,165 |
|
|
$ |
1.00 |
|
|
$ |
1.64 |
|
|
|
7.1 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2013 |
|
|
672,165 |
|
|
$ |
1.00 |
|
|
$ |
1.64 |
|
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2013 |
|
|
475,740 |
|
|
$ |
1.00 |
|
|
$ |
1.54 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2013, 2012 and 2011, the Company recognized approximately $255, $276 and $275,
respectively, as stock based compensation expense related to stock options, which is included as a component of selling, general and administrative expenses in the consolidated statement of operations. There was no tax benefit related to stock-based compensation for the years ended December 31, 2013 and 2012, as no options were exercised during the period. As of December 31, 2013, nonvested stock based compensation for time-vested options totaled approximately $213 which will be recognized over the remaining weighted average vesting period of approximately 5 years. Compensation costs for
time-vested awards with graded vesting are amortized using a straight-line model.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 13 - Stock-Based Compensation (cont.)
The fair value of options is estimated using the Black-Scholes-Merton model with the following assumptions:
Dividend yield No
dividends were assumed in the grant date fair value calculations as the Company does not intend to pay cash dividends on common stock for the foreseeable future.
Expected term The expected term, which represents the period of time that options granted are expected to be outstanding, is
estimated using the simplified method whereby the expected term equals 50% of the sum of the vesting term plus the original contractual term.
Expected average volatility The Company uses an average of historical volatility of similar publicly traded companies over the
expected term.
Risk-free interest rate The
risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve.
The fair
value of options is estimated using the Black-Scholes-Merton model with the following assumptions:
|
|
|
|
|
|
|
2012 |
|
|
|
Expected life of options granted |
|
|
60 months |
|
Dividend yield |
|
|
0 |
% |
Risk-free interest rate |
|
|
1.17 |
% |
Volatility |
|
|
57 |
% |
Forfeiture rate |
|
|
0 |
% |
NOTE 14 - Related Party Transactions
The Company has agreements with Baird Capital Partners (Baird), the general partner of the Company, and Baird Asia Ltd. (BAL) an
affiliated company, under which Baird and BAL provide operational and financial management services. Fees recorded, but unpaid, for such services for the years ended December 31, 2013, 2012 and 2011 were $314, $353 and $320, respectively. Total
cumulative unpaid fees included in accrued expenses were $1,653, $1,339 and $986 as of December 31, 2013, 2012 and 2011, respectively.
During 2013,
Baird collectively loaned the Company $1,500. The note accrues interest at 10% until the maturity date of May 30, 2014, when all accrued interest and principal is due. The note is subordinated to the senior credit agreement.
The Companys senior lender was also a minority stockholder in the Company until the securities were $3 repurchased in 2012 (Note 12). Cash paid to
the lender for interest as well as financing costs aggregated $489 during the year ended December 31, 2012.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2013 and 2012 and for the Years Ended December 31, 2013, 2012 and 2011
(amounts in thousands)
NOTE 15 - Profit Sharing Plan
The Company has a 401(k) plan which is available to eligible employees. The plan is qualified under Section 401(k) of the Internal Revenue Code. The
401(k) plan provides that eligible participants may elect to contribute to the plan, subject to Internal Revenue Code restrictions, and also requires the Company to match, on a dollar for dollar basis, up to the first $0.50 of an employees
annual contribution. The Companys contributions to the plan for the years ended December 31, 2013, 2012 and 2011 were approximately $34, $19 and $34, respectively.
NOTE 16 - Concentration of Credit Risk and Other
Risks and Uncertainties
Sales to
customers outside the United States of America were approximate 49% of net sales for each of the years ended December 31, 2013 and 2012, respectively and 54% for the year ended December 31, 2011. One customer accounted for 17% of accounts
receivable as of December 31, 2013 and 11% of accounts receivable as of December 31, 2012 and 2011, respectively. One customer individually accounted 10% of consolidated revenues for each of the years ended December 31, 2013 and 2012,
respectively.
The Company is subject to risks common to companies in the medical device industry including, but not limited to, new technological
innovations, dependence on key personnel, dependence on key suppliers, protection of proprietary technology, product liability and compliance with government regulations. To achieve sustained profitable operations, the Company must successfully
design, develop, manufacture and market its products. There can be no assurance that current products will continue to be accepted in the marketplace. Nor can there be any assurance that any future products can be developed or manufactured at an
acceptable cost and with appropriate performance characteristics, or that such products will be successfully marketed, if at all. These factors could have a material adverse effect on the Companys future financial results, financial position
and cash flows.
Future products developed by the Company may require clearances from the U.S. Food and Drug Administration or other international
regulatory agencies prior to commercial sales. There can be no assurance that the Companys products will continue to meet the necessary regulatory requirements. If the Company was denied such clearances or such clearances were delayed, it may
have a materially adverse impact on the Company.
NOTE 17 - Supplemental Disclosure of Cash Flow Information
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
2012 |
|
|
2011 |
|
Cash paid for interest |
|
$ |
821 |
|
|
$ |
489 |
|
|
$ |
640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in patents included in accrued expenses |
|
$ |
|
|
|
$ |
500 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated notes payable and accrued interest canceled from Arbitration Award |
|
$ |
|
|
|
$ |
|
|
|
$ |
5,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTE 18 - Subsequent Events
Subsequent Events
The Company has
evaluated, for potential recognition and disclosure, events that occurred prior to the filing of the consolidated financial statements for the year ended December 31, 2013 on November 4, 2014, the date on which these consolidated financial
statements were available to be issued.
The Companys Credit Agreement matured on February 28, 2014 and the Company was unable to refinance the
Credit Agreement with the existing lender with terms favorable to the Company. The Company and the lender entered into a forbearance agreement whereby the bank would not call the debt for a period of time whereby the Company could seek refinancing
of the Credit Agreement with different lender. However, the Company was unsuccessful at refinancing the Credit Agreement with a different lender with terms favorable to the Company. Accordingly, prior to the lender calling the debt and forcing the
Company into bankruptcy, the Company sold substantially all assets and liabilities of the Company to a third party, Cynosure, Inc.
On September 5,
2014, Cynosure, Inc., acquired substantially all of the assets of the Company, for a cash purchase price of approximately $13,200. In addition, Cynosure assumed certain contractual and current liabilities associated with normal working capital. The
purchase price was based primarily on the net working capital on the date of purchase plus an amount required to retire all the of the Companys long term debt on the date of sale. Cynosure also assumed the royalty commitment (Note 2) liability
as part of the purchase.
See accompanying notes to consolidated financial statements.
Exhibit 99.2
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of
June 30, 2014 and December 31, 2013
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
Unaudited 2014 |
|
|
Audited 2013 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,342 |
|
|
$ |
570 |
|
Accounts receivable, less allowance for doubtful accounts of $408 at June 30, 2014 and December 31, 2013 |
|
|
3,483 |
|
|
|
4,193 |
|
Inventories, net |
|
|
3,614 |
|
|
|
4,392 |
|
Prepaid expenses and other current assets |
|
|
570 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
9,009 |
|
|
|
9,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET |
|
|
713 |
|
|
|
803 |
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
26,617 |
|
|
|
26,617 |
|
Accumulated amortization, net |
|
|
(14,574 |
) |
|
|
(13,815 |
) |
|
|
|
|
|
|
|
|
|
Net intangible assets |
|
|
12,043 |
|
|
|
12,802 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
2,806 |
|
|
|
2,806 |
|
Deferred financing costs, net |
|
|
28 |
|
|
|
53 |
|
Other assets |
|
|
174 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
Total Other Assets |
|
|
15,051 |
|
|
|
15,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
24,773 |
|
|
$ |
26,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Line of credit, bank |
|
$ |
2,500 |
|
|
$ |
1,000 |
|
Current portion of senior term note payable |
|
|
4,101 |
|
|
|
4,101 |
|
Subordinated note payable (majority stockholder) |
|
|
1,500 |
|
|
|
1,500 |
|
SBA term note payable |
|
|
964 |
|
|
|
1,000 |
|
Accounts payable |
|
|
1,939 |
|
|
|
2,505 |
|
Accrued expenses |
|
|
5,321 |
|
|
|
5,387 |
|
Deferred revenue |
|
|
592 |
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
16,917 |
|
|
|
16,064 |
|
|
|
|
LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
Subordinated note payable - Sandstone |
|
|
1,100 |
|
|
|
1,100 |
|
Promissory note - Sandstone |
|
|
711 |
|
|
|
683 |
|
Accrued royalty commitment - Long Term |
|
|
4,029 |
|
|
|
3,934 |
|
|
|
|
|
|
|
|
|
|
Total Long-Term Liabilities |
|
|
5,840 |
|
|
|
5,717 |
|
|
|
|
Total Liabilities |
|
|
22,757 |
|
|
|
21,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, series B |
|
|
|
|
|
|
|
|
Preferred stock, series A |
|
|
|
|
|
|
|
|
Common stock |
|
|
37 |
|
|
|
37 |
|
Additional paid-in capital |
|
|
40,851 |
|
|
|
40,723 |
|
Stock subscription receivable |
|
|
(12 |
) |
|
|
(12 |
) |
Retained earnings |
|
|
(38,860 |
) |
|
|
(36,527 |
) |
|
|
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
2,016 |
|
|
|
4,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
24,773 |
|
|
$ |
26,002 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2014 and 2013
(unaudited, amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
|
|
|
NET SALES |
|
$ |
12,890 |
|
|
$ |
13,425 |
|
|
|
|
COST OF GOODS SOLD |
|
|
4,714 |
|
|
|
5,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
8,176 |
|
|
|
8,258 |
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
8,588 |
|
|
|
8,696 |
|
Depreciation |
|
|
121 |
|
|
|
150 |
|
Amortization of intangibles |
|
|
759 |
|
|
|
823 |
|
Loss on natural disasters, net |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
9,468 |
|
|
|
9,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(1,292 |
) |
|
|
(1,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(1,041 |
) |
|
|
(429 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS |
|
$ |
(2,333 |
) |
|
$ |
(1,844 |
) |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2014 and 2013
(unaudited, amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
|
2013 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(2,333 |
) |
|
$ |
(1,844 |
) |
Adjustments to reconcile net loss to net cash flows from operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
171 |
|
|
|
125 |
|
Amortization of intangibles and other assets |
|
|
759 |
|
|
|
823 |
|
Amortization of deferred financing costs |
|
|
25 |
|
|
|
14 |
|
Interest accrued on promissory note |
|
|
28 |
|
|
|
80 |
|
Provision for doubtful accounts |
|
|
(58 |
) |
|
|
|
|
Stock-based compensation |
|
|
128 |
|
|
|
128 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
768 |
|
|
|
225 |
|
Inventory |
|
|
778 |
|
|
|
(1,081 |
) |
Prepaid expense and other current assets |
|
|
(262 |
) |
|
|
152 |
|
Other assets |
|
|
(155 |
) |
|
|
(329 |
) |
Accounts payable and accrued expenses |
|
|
(537 |
) |
|
|
(477 |
) |
Deferred revenue |
|
|
21 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
Net Cash Flows from Operating Activities |
|
|
(667 |
) |
|
|
(2,203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(25 |
) |
|
|
(155 |
) |
|
|
|
|
|
|
|
|
|
Net Cash Flows from Investing Activities |
|
|
(25 |
) |
|
|
(155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net change on line of credit, bank |
|
|
1,500 |
|
|
|
2,000 |
|
Repayment on long-term debt |
|
|
(36 |
) |
|
|
(75 |
) |
Issuance of Series B Preferred Stock |
|
|
|
|
|
|
|
|
Stock redemption |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows from Financing Activities |
|
|
1,464 |
|
|
|
1,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents |
|
|
772 |
|
|
|
(433 |
) |
|
|
|
CASH AND CASH EQUIVALENTS - Beginning of Year |
|
|
570 |
|
|
|
845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS - END OF YEAR |
|
$ |
1,342 |
|
|
$ |
412 |
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2014 and December 31, 2013 and for the Six Months Ended June 30, 2014 and 2013
(amounts in thousands)
NOTE 1 - General
Nature of Operations
Ellman Holding Corporation (the
Company), a Delaware corporation, was incorporated on January 31, 2008 to acquire the stock of Ellman International, Inc., a company principally engaged in the manufacturing and distribution of equipment for medical, dental and
veterinary professionals, both domestically and internationally.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with U.S.generally accepted accounting principles (GAAP) for interim financial
information. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations applicable to interim
financial statements. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments (including normally recurring accruals) necessary to present fairly the Companys financial position at June 30,
2014, its results of operations and its cash flows for the six months ended June 30, 2014 and 2013. The accompanying financial statements should be read in conjunction with the Companys audited financial statements as of and for the year
ended December 31, 2013, incorporated by reference within this document.
Fair Value of Financial Instruments
Carrying amounts of the Companys financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, approximate their fair values due to their short maturities. Based on the borrowing rates available to the Company for loans with similar terms, the carrying value of the borrowings approximates their fair value. The carrying amounts of
other assets and liabilities approximate their fair values based upon their nature and size.
Fair value is a
market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. A fair value hierarchy prioritizes the inputs used in measuring fair value
as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly and (Level 3) unobservable inputs in which there is
little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
Financial assets that are measured at fair value on a recurring basis have been segregated into the most appropriate level within the fair value hierarchy
based on the inputs used to determine the fair value at the measurement dates. The following table represents Ellmans fair value hierarchy for its financial assets (cash equivalents) measured at fair value as of June 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Cash and cash equivalents |
|
$ |
1,342 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,342 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The majority of the Companys non-financial assets and liabilities are not required to be carried at fair value on a
recurring basis. However, the Company is required on a nonrecurring basis to use fair value measurements when analyzing asset impairment as it relates to goodwill and other indefinite-lived intangible assets and long-lived assets. For its annual
goodwill impairment testing, the Company utilized a combination of income and market approaches (Level 3 inputs).
ELLMAN HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2014 and December 31, 2013 and for the Six Months Ended June 30, 2014 and 2013
(amounts in thousands)
Subsequent Events
The Company has evaluated subsequent events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in
the financial statements.
NOTE 2 - Inventories, net
Ellman states al inventories at the lower of cost or market with cost determined on an average cost basis, which approximates the first-in first-out inventory
costing method. Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014 |
|
|
December 31, |
|
|
|
|
|
|
2013 (audited) |
|
|
|
|
Raw Materials |
|
$ |
1,424 |
|
|
$ |
1,434 |
|
Finished Goods |
|
|
2,896 |
|
|
|
3,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,320 |
|
|
|
5,098 |
|
Less: valuation allowance |
|
|
(706 |
) |
|
|
(706 |
) |
|
|
|
|
|
|
|
|
|
Inventories, net |
|
$ |
3,614 |
|
|
$ |
4,392 |
|
|
|
|
|
|
|
|
|
|
NOTE 3 - Stock-Based Compensation
Ellman recorded stock-based compensation expense of $128 and $128 for the six months ended June 30, 2014 and 2013, respectively. There were no exercises
of stock options for the six months period ended June 30, 2014.
NOTE 4 - Income Taxes
The Company files income tax returns in the
federal jurisdiction, and various state jurisdictions. The Company has not been audited for federal or state purposes, and as a result of its carryforwards, all years are effectively open to adjustment.
NOTE 5 - Subsequent Events
On September 5, 2014, Cynosure, Inc., acquired (the Acquisition) substantially all of the assets of the Company, for a cash purchase price of
approximately $13,200. In addition, Cynosure assumed certain contractual and current liabilities associated with normal working capital. The purchase price was based primarily on the net working capital on the date of purchase plus an amount
required to retire all the of the Companys long term debt on the date of sale.
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On
September 5, 2014, Cynosure, Inc. (Cynosure) acquired substantially all of the assets of Ellman International, Inc. (Ellman) for a cash purchase price of approximately $13.2 million. In addition, Cynosure assumed certain
contractual and current liabilities. The purchase price was based primarily on the net working capital on the date of purchase plus an amount to retire all of Ellmans long term debt on the date of sale. Cynosure also assumed a license transfer
agreement as part of the purchase valued at $4.2 million. The acquisition was completed pursuant to the Asset Purchase Agreement (the Agreement), dated as of September 5, 2014, among Cynosure, Ellman, Ellman Holdings, Inc. and
Ellman Holding Corporation, which contains customary representations, warranties and indemnification obligations of Cynosure and Ellman.
Ellmans
product line encompasses multiple radiofrequency (RF) generators and single-use electrodes for aesthetic and multi-specialty surgical indications such as facial plastic and general surgery, gynecology, ear, nose and throat procedures,
ophthalmology, oral and maxillofacial surgery, podiatry and proctology. Ellmans proprietary high frequency, low-temperature RF technology is optimized for achieving surgical precision and controlled hemostasis.
The unaudited pro forma combined financial information that follows combines the historical accounts of Cynosure and Ellman. The unaudited pro forma combined
balance sheet as of June 30, 2014 shows the combined financial position of Cynosure and Ellman as if the acquisition had occurred on that date. The unaudited pro forma combined statements of operations for the six months ended June 30,
2014 and the year ended December 31, 2013 reflect the companies combined results as if the acquisition had occurred as of January 1, 2013. The historical combined financial information has been adjusted to reflect factually
supportable items that are directly attributable to the acquisition, and with respect to the unaudited pro forma combined statements of operations only, are expected to have a continuing impact on combined results of operations.
This pro forma financial information should be read in conjunction with:
|
|
|
The accompanying notes to the unaudited pro forma combined financial statements; and |
|
|
|
Cynosures separate unaudited historical consolidated financial statements and notes as of and for the six months ended June 30, 2014 included in its Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2014, and Cynosures separate audited historical consolidated financial statements and notes as of and for the year ended December 31, 2013 included in its Annual Report on Form 10-K for the year ended December 31,
2013; and |
|
|
|
Ellmans separate unaudited historical consolidated financial statements and notes as of and for the six months ended June 30, 2014 included in this Form 8-K/A at Exhibit 99.2, and Ellmans separate
audited historical consolidated financial statements and notes as of and for the year ended December 31, 2013 included in this Form 8-K/A at Exhibit 99.1. |
This information is for illustrative purposes only and does not give effect to any cost savings, revenue synergies or restructuring costs that may result from
the integration of Cynosures and Ellmans operations. You should not rely on this information as being indicative of Cynosures future consolidated results or future financial position after the acquisition. The determination of the
final allocation of the purchase price has not been completed as Cynosure continues to determine the fair value of certain assets acquired and liabilities assumed and has retained an independent valuation firm to assess the fair value of the assets
acquired and liabilities assumed. Accordingly, the purchase accounting adjustments made in the preparation of the unaudited pro forma combined financial information are preliminary and subject to adjustment. Such adjustments may be material.
The unaudited pro forma combined financial information has been prepared using the acquisition method of accounting with Cynosure treated as the accounting
acquirer. Accordingly, the assets and liabilities of Ellman, the accounting acquiree, are adjusted to their estimated June 30, 2014 fair values. The estimates of fair value are preliminary and are dependent upon certain valuations and other
studies that have not progressed to a stage where there is sufficient information to make a definitive valuation.
CYNOSURE, INC.
Unaudited Pro Forma Combined Balance Sheet
As of June 30, 2014
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cynosure |
|
|
Ellman |
|
|
Pro Forma Adjustments |
|
|
Pro Forma |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
65,939 |
|
|
$ |
1,342 |
|
|
$ |
(13,235 |
)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,342 |
)(2) |
|
$ |
52,704 |
|
Short-term marketable securities |
|
|
36,384 |
|
|
|
|
|
|
|
|
|
|
|
36,384 |
|
Accounts receivable, net |
|
|
47,688 |
|
|
|
3,483 |
|
|
|
|
|
|
|
51,171 |
|
Inventories |
|
|
52,379 |
|
|
|
3,614 |
|
|
|
309 |
(3) |
|
|
56,302 |
|
Prepaid expenses and other current assets |
|
|
10,291 |
|
|
|
570 |
|
|
|
|
|
|
|
10,861 |
|
Deferred income taxes |
|
|
9,462 |
|
|
|
|
|
|
|
|
|
|
|
9,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
222,143 |
|
|
|
9,009 |
|
|
|
(14,268 |
) |
|
|
216,884 |
|
Property and equipment, net |
|
|
32,304 |
|
|
|
713 |
|
|
|
(139 |
)(4) |
|
|
32,878 |
|
Long-term marketable securities |
|
|
20,627 |
|
|
|
|
|
|
|
|
|
|
|
20,627 |
|
Goodwill |
|
|
99,281 |
|
|
|
2,806 |
|
|
|
9,336 |
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,806 |
)(6) |
|
|
108,617 |
|
Intangibles, net |
|
|
51,245 |
|
|
|
12,043 |
|
|
|
6,800 |
(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,043 |
)(6) |
|
|
58,045 |
|
Other assets |
|
|
1,722 |
|
|
|
202 |
|
|
|
|
|
|
|
1,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
427,322 |
|
|
$ |
24,773 |
|
|
$ |
(13,120 |
) |
|
$ |
438,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
20,780 |
|
|
$ |
1,939 |
|
|
|
|
|
|
$ |
22,719 |
|
Accrued expenses |
|
|
30,420 |
|
|
|
5,321 |
|
|
|
(36 |
)(8) |
|
|
35,705 |
|
Deferred revenue |
|
|
10,047 |
|
|
|
296 |
|
|
|
(96 |
)(9) |
|
|
10,247 |
|
Capital lease obligations |
|
|
213 |
|
|
|
|
|
|
|
|
|
|
|
213 |
|
Line of credit, bank |
|
|
|
|
|
|
2,500 |
|
|
|
(2,500 |
)(10) |
|
|
|
|
Current portion of senior note term payable |
|
|
|
|
|
|
4,101 |
|
|
|
(4,101 |
)(10) |
|
|
|
|
Subordinated note payable |
|
|
|
|
|
|
1,500 |
|
|
|
(1,500 |
)(10) |
|
|
|
|
SBA term note payable |
|
|
|
|
|
|
964 |
|
|
|
(964 |
)(10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
61,460 |
|
|
|
16,621 |
|
|
|
(9,197 |
) |
|
|
68,884 |
|
Capital lease obligations, net of current portion |
|
|
15,272 |
|
|
|
|
|
|
|
|
|
|
|
15,272 |
|
Deferred revenue, net of current portion |
|
|
650 |
|
|
|
296 |
|
|
|
(96 |
)(9) |
|
|
850 |
|
Other noncurrent liability |
|
|
11,820 |
|
|
|
|
|
|
|
|
|
|
|
11,820 |
|
Subordinated note payable - sandstone |
|
|
|
|
|
|
1,100 |
|
|
|
(1,100 |
)(10) |
|
|
|
|
Promissory note - Sandstone |
|
|
|
|
|
|
711 |
|
|
|
(711 |
)(10) |
|
|
|
|
Accrued royalty commitment long-term |
|
|
|
|
|
|
4,029 |
|
|
|
|
|
|
|
4,029 |
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
23 |
|
|
|
37 |
|
|
|
(37 |
)(11) |
|
|
23 |
|
Additional paid-in capital |
|
|
352,041 |
|
|
|
40,851 |
|
|
|
(40,851 |
)(11) |
|
|
352,041 |
|
Retained earnings (accumulated deficit) |
|
|
13,900 |
|
|
|
(38,860 |
) |
|
|
38,860 |
(11) |
|
|
13,900 |
|
Stock subscription receivable |
|
|
|
|
|
|
(12 |
) |
|
|
12 |
(11) |
|
|
|
|
Accumulated other comprehensive loss |
|
|
(1,323 |
) |
|
|
|
|
|
|
|
|
|
|
(1,323 |
) |
Treasury stock |
|
|
(26,521 |
) |
|
|
|
|
|
|
|
|
|
|
(26,521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
338,120 |
|
|
|
2,016 |
|
|
|
(2,016 |
) |
|
|
338,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
427,322 |
|
|
$ |
24,773 |
|
|
$ |
(13,120 |
) |
|
$ |
438,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cynosure, Inc.
Unaudited Pro Forma Combined Statements of Operations
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|
|
|
Cynosure |
|
|
Ellman |
|
|
Pro Forma Adjustments |
|
|
Pro Forma |
|
Product revenues |
|
$ |
109,297 |
|
|
$ |
12,890 |
|
|
$ |
|
|
|
$ |
122,187 |
|
Parts, accessories and service revenues |
|
|
25,280 |
|
|
|
|
|
|
|
(99 |
)(12) |
|
|
25,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
134,577 |
|
|
|
12,890 |
|
|
|
(99 |
) |
|
|
147,368 |
|
Cost of revenues |
|
|
58,489 |
|
|
|
4,714 |
|
|
|
103 |
(13) |
|
|
63,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
76,088 |
|
|
|
8,176 |
|
|
|
(202 |
) |
|
|
84,062 |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
40,989 |
|
|
|
5,378 |
|
|
|
|
|
|
|
46,367 |
|
Research and development |
|
|
10,573 |
|
|
|
1,118 |
|
|
|
|
|
|
|
11,691 |
|
Amortization of intangible assets acquired |
|
|
1,426 |
|
|
|
759 |
|
|
|
(590 |
)(14) |
|
|
1,595 |
|
General and administrative |
|
|
15,356 |
|
|
|
2,213 |
|
|
|
(22 |
)(15) |
|
|
17,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
68,344 |
|
|
|
9,468 |
|
|
|
(612 |
) |
|
|
77,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
7,744 |
|
|
|
(1,292 |
) |
|
|
410 |
|
|
|
6,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(692 |
) |
|
|
(1,041 |
) |
|
|
944 |
(16) |
|
|
(789 |
) |
Other income, net |
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
7,331 |
|
|
|
(2,333 |
) |
|
|
1,354 |
|
|
|
6,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
2,067 |
|
|
|
|
|
|
|
(297 |
)(17) |
|
|
1,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
5,264 |
|
|
$ |
(2,333 |
) |
|
$ |
1,651 |
|
|
$ |
4,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share |
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
|
22,033 |
|
|
|
|
|
|
|
|
|
|
|
22,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares outstanding |
|
|
22,470 |
|
|
|
|
|
|
|
|
|
|
|
22,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CYNOSURE, INC.
Unaudited Pro Forma Combined Statements of Operations
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 |
|
|
|
Cynosure |
|
|
Ellman |
|
|
Pro Forma Adjustments |
|
|
Pro Forma |
|
Product revenues |
|
$ |
188,271 |
|
|
$ |
29,254 |
|
|
$ |
|
|
|
$ |
217,525 |
|
Parts, accessories and service revenues |
|
|
37,739 |
|
|
|
|
|
|
|
(77 |
)(12) |
|
|
37,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
226,010 |
|
|
|
29,254 |
|
|
|
(77 |
) |
|
|
255,187 |
|
Cost of revenues |
|
|
95,730 |
|
|
|
12,224 |
|
|
|
292 |
(13) |
|
|
108,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
130,280 |
|
|
|
17,030 |
|
|
|
(369 |
) |
|
|
146,941 |
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
64,347 |
|
|
|
10,451 |
|
|
|
|
|
|
|
74,798 |
|
Research and development |
|
|
17,473 |
|
|
|
6,377 |
|
|
|
|
|
|
|
23,850 |
|
Amortization of intangible assets acquired |
|
|
2,114 |
|
|
|
2,044 |
|
|
|
(1,706 |
)(14) |
|
|
2,452 |
|
General and administrative |
|
|
52,173 |
|
|
|
5,108 |
|
|
|
(44 |
)(15) |
|
|
57,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
136,107 |
|
|
|
23,980 |
|
|
|
(1,750 |
) |
|
|
158,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(5,827 |
) |
|
|
(6,950 |
) |
|
|
1,381 |
|
|
|
(11,396 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(23 |
) |
|
|
(1,083 |
) |
|
|
1,083 |
(16) |
|
|
(23 |
) |
Other income, net |
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before benefit for income taxes |
|
|
(5,537 |
) |
|
|
(8,033 |
) |
|
|
2,464 |
|
|
|
(11,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes |
|
|
(3,890 |
) |
|
|
|
|
|
|
(339 |
)(17) |
|
|
(4,229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,647 |
) |
|
$ |
(8,033 |
) |
|
$ |
2,803 |
|
|
$ |
(6,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share |
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
$ |
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share |
|
$ |
(0.09 |
) |
|
|
|
|
|
|
|
|
|
$ |
(0.36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
|
19,325 |
|
|
|
|
|
|
|
|
|
|
|
19,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares outstanding |
|
|
19,325 |
|
|
|
|
|
|
|
|
|
|
|
19,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Pro Forma Combined Financial Statements
Basis of Presentation
On
September 5, 2014, Cynosure completed its acquisition of substantially all of the assets of Ellman. The accompanying unaudited pro forma combined financial statements present the pro forma combined financial position and results of operations
of the combined company based upon the historical financial statements of Cynosure and Ellman, after giving effect to the acquisition and adjustments described in these notes, and are intended to reflect the impact of the acquisition on Cynosure.
The accompanying unaudited pro forma combined financial statements are presented for illustrative purposes only and do not give effect to
any cost savings, revenue synergies or restructuring costs that may result from the integration of Cynosures and Ellmans operations.
The unaudited pro forma combined balance sheet reflects the acquisition as if it was completed on June 30, 2014 and includes pro forma
adjustments for Cynosures preliminary valuations of certain assets and liabilities. These adjustments are subject to further adjustment as additional information becomes available and additional analyses are performed. The unaudited pro forma
combined statements of operations reflect the acquisition as if it had been completed on January 1, 2013.
The pro forma combined
balance sheet has been adjusted to reflect the allocation of the purchase price to identifiable net assets acquired.
Pro Forma Adjustments (amounts in
thousands unless otherwise noted)
(1) |
Pursuant to the Agreement, Cynosure paid $13.2 million to purchase substantially all of the assets and assume certain liabilities of Ellman. The following table summarizes the preliminary allocation of the purchase
price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of September 5, 2014, as if the acquisition had occurred on June 30, 2014: |
|
|
|
|
|
Purchase price: |
|
|
|
|
Cash paid per Agreement |
|
$ |
13,235 |
|
|
|
|
|
|
Total |
|
$ |
13,235 |
|
|
|
|
|
|
Assets (liabilities) acquired: |
|
|
|
|
Accounts receivable |
|
$ |
3,483 |
|
Inventory |
|
|
3,923 |
|
Prepaid expense and other current assets |
|
|
570 |
|
Property and equipment |
|
|
574 |
|
Goodwill |
|
|
9,336 |
|
Intangible assets |
|
|
6,800 |
|
Other assets |
|
|
202 |
|
Accounts payable |
|
|
(1,939 |
) |
Accrued expenses |
|
|
(5,285 |
) |
Deferred revenue |
|
|
(400 |
) |
Accrued royalty commitment LT |
|
|
(4,029 |
) |
|
|
|
|
|
TOTAL |
|
$ |
13,235 |
|
|
|
|
|
|
(2) |
Elimination of cash not acquired in acquisition. |
(3) |
To adjust inventory to its estimated fair value as of June 30, 2014. |
(4) |
To adjust property and equipment to estimated fair value as of June 30, 2014. |
(5) |
To record the preliminary estimated fair value of goodwill generated from the acquisition. The determination of the final allocation of the purchase price has not been completed as Cynosure continues to determine the
fair value of certain assets and liabilities acquired and has retained an independent valuation firm to assess the fair value of the assets acquired and liabilities assumed. |
Notes to Unaudited Pro Forma Combined Financial Statements (cont.)
(6) |
To eliminate the historical cost of goodwill and intangible assets held by Ellman and not acquired in the acquisition. |
(7) |
Adjustment to record the estimated definite-lived intangible assets acquired as follows: |
|
|
|
|
|
Trademarks and trade-names |
|
$ |
1,460 |
|
Customer relationships |
|
|
3,610 |
|
Developed technology |
|
|
1,730 |
|
|
|
|
|
|
TOTAL |
|
$ |
6,800 |
|
|
|
|
|
|
(8) |
To eliminate the accrued royalty recorded by Ellman payable to Cynosure. |
(9) |
Adjustment to reduce the current and noncurrent portions of Ellmans deferred revenue to their estimated fair value at June 30, 2014. |
(10) |
Elimination of debt not acquired in the acquisition. |
(11) |
Elimination of equity not acquired in the acquisition. |
(12) |
To eliminate royalty revenue recorded by Cynosure due from Ellman |
(13) |
To record the following adjustments to cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|
|
Year Ended December 31, 2013 |
|
Eliminate royalty expense due to Cynosure recorded by Ellman |
|
|
(71 |
) |
|
|
(98 |
) |
Adjust royalty expense recorded by Cynosure |
|
|
(11 |
) |
|
|
9 |
|
Amortization of acquired developed technology |
|
|
185 |
|
|
|
381 |
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
103 |
|
|
$ |
292 |
|
|
|
|
|
|
|
|
|
|
(14) |
To record the following adjustments to amortization of intangible assets acquired (excluding developed technology, which is expensed to cost of revenues): |
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014 |
|
|
Year Ended December 31, 2013 |
|
Amortization of acquired intangible assets |
|
$ |
169 |
|
|
$ |
338 |
|
Eliminate amortization expense on Ellmans intangible assets |
|
|
(759 |
) |
|
|
(2,044 |
) |
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
(590 |
) |
|
$ |
(1,706 |
) |
|
|
|
|
|
|
|
|
|
Notes to Unaudited Pro Forma Combined Financial Statements (cont.)
Pro forma amortization expense for all of the identifiable intangible assets acquired was
recorded based on the pattern in which the economic benefits of the intangible assets are consumed.
Amortization expense (including
amortization recognized within cost of revenues), based on the pattern in which the economic benefits of the intangible assets are consumed, for each of the succeeding five years and thereafter at December 31, 2012, would approximate:
|
|
|
|
|
2013 |
|
$ |
719 |
|
2014 |
|
|
707 |
|
2015 |
|
|
699 |
|
2016 |
|
|
648 |
|
2017 |
|
|
587 |
|
Thereafter |
|
|
3,440 |
|
|
|
|
|
|
TOTAL |
|
$ |
6,800 |
|
|
|
|
|
|
(15) |
To eliminate depreciation expense impact of property, plant and equipment fair value adjustment. |
(16) |
To eliminate the interest expense recorded by Ellman on debt settled at the acquisition date. |
(17) |
To adjust income tax to include the results of Ellman and the effect of the proforma adjustments on pre-tax income (loss), using Cynosures income tax provision (benefit) calculation for the periods presented.
|
Cynosure (NASDAQ:CYNO)
Historical Stock Chart
From Jun 2024 to Jul 2024
Cynosure (NASDAQ:CYNO)
Historical Stock Chart
From Jul 2023 to Jul 2024