SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 19, 1999
REHABILICARE INC.
----------------------------
(Exact name of registrant as specified in its charter)
Minnesota (No. 0-9407) 41-0985318
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(State or other jurisdiction of Commission File No. (I.R.S. Employer
incorporation or organization) Identification No.)
1811 Old Highway 8
New Brighton, MN 55112
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(Address of principal executive offices) (Zip Code)
(651) 631-0590
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(Registrant=s telephone number, including area code)
This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by
Rehabilicare Inc. (the "Company") on August 3, 1999 (the "Initial 8-K") to
include certain financial information omitted from the Initial Report
pursuant to Item 7(a)(4) of Form 8-K and the consent of independent certified
accountants with respect to the audited financial statements included herein.
CERTAIN STATEMENTS IN THIS CURRENT REPORT ON FORM 8-K/A REGARDING THE
EXPECTATIONS AND BELIEFS OF THE COMPANY ARE NOT STATEMENTS OF HISTORICAL FACT
AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, INCLUDING THE RISKS
INHERENT IN INTEGRATING AN ACQUIRED BUSINESS, THE RISKS RELATED TO OPERATION
OF BUSINESSES OVERSEAS, THE RISKS OF NEW PRODUCT ACCEPTANCE AND DISTRIBUTION,
AND THE RISKS OF EMPLOYEE RETENTION AND COMMUNICATION.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial statements of the business aquired
Consolidated balance sheets as of December 31, 1998 and 1997
Consolidated statements of income for the years ended
December 31, 1998 and 1997
Consolidated statements of cash flows for the years ended
December 31, 1998 and 1997
Notes to the consolidated financial statements
b) Pro forma financial information
Combined Balance Sheet as of June 30, 1999
Notes to combined Balance Sheet as of June 30, 1999
Combined Statements of Operations for the year ended
June 30, 1999
Notes to combined Statements of Operations for the year
ended June 30, 1999
c) Exhibits
Exhibit Number Description
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*2.1 Share Purchase Agreement dated July 19, 1999 between the Shareholders of
Compex SA and Rehabilicare Inc.
*4.1 Credit Agreement dated July 14, 1999 between Rehabilicare Inc. and U.S.
Bank National Association.
*4.2 Security Agreement dated July 14, 1999 between Rehabilicare Inc. and U.S.
Bank National Association.
*4.3 Stock Pledge Agreement dated July 19, 1999 between Rehabilicare Inc. and
U.S. Bank National Association covering all shares of capital stock in
Compex SA owned by Rehabilicare Inc.
*4.4 Guarantee dated July 19, 1999 executed by Compex SA in favor of U.S. Bank
National Association.
4.5 Consent of Independent Public Accountants.
_____
*Filed with the first filing of this Form 8-K
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders,
We have examined the accompanying consolidated balance sheets of Compex SA
and its subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of income, of changes in financial position
(cash flow) and of changes in capital stock, and unappropriated earnings
(shareholders' equity) for each of the years then ended, all expressed in
Swiss Francs. Our examinations of these statements were made in accordance
with auditing standards generally accepted in the United States and
accordingly included such tests of the accounting records and such other
auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above
present fairly the financial position of Compex SA and its subsidiaries as of
December 31, 1998 and 1997, and the results of their operations and the
changes in their financial position (cash flow) for each of the years then
ended, in conformity with accounting principles generally accepted in
Switzerland.
Accounting principles generally accepted in Switzerland vary in certain
significant respects from accounting principles generally accepted in the
United States. The application of the latter would have affected the
determination of consolidated net income expressed in Swiss Francs for each
of the two years ended December 31, 1998 and 1997 and the determination of
consolidated shareholders' equity and consolidated financial position also
expressed in Swiss Francs as at December 31, 1998 and 1997 to the extent
summarized in Note 9 to the consolidated financial statements.
Fiduciaire Michel Favre SA
COMPEX SA, ECUBLENS
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CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31,
(IN SWISS FRANCS - "CHF")
1998 1997
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS
Cash 1 331 533
Cash in bank 845 515 411 457
---------- ---------
846 846 411 990
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RECEIVABLES RESULTING FROM SALES
Trade receivables 2 101 838 1 274 783
OTHER RECEIVABLES AND CURRENT ASSETS
Other receivables 185 255 75 973
Other current assets 61 985 111 165
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247 240 187 138
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INVENTORY
Inventory held for resale 1 048 276 622 142
Inventory held for rental 254 326 198 180
Brain Box Sarl inventory 0 91 458
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1 302 602 911 780
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TOTAL CURRENT ASSETS 4 498 526 2 785 691
----------- ---------
NON-CURRENT ASSETS
Equity holding in MediCompex
Iberica, S.I., Spain 48 637 0
Funds deposited as a guarantee 54 261 41 327
----------- ---------
102 898 41 327
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PROPERTY, PLANT AND EQUIPMENT
(net of accumulated depreciation
amounting to CHF000 1,015 and 736
in 1998 and 1997 respectively)
Plant, machinery and vehicles 123 279 66 163
Computer equipment 186 993 65 139
Tooling and machine moulds 236 371 175 256
Fixtures and fittings 268 965 62 496
Marketing material 26 170 48 691
----------- ---------
841 778 417 745
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INTANGIBLE ASSETS
Research & development net of
accumulated depreciation amounting
to CHF000 1,367 and 1,103 in 1998
and 1997 respectively 244 162 60 000
Restructuring costs 398 6 092
----------- ---------
244 560 66 092
----------- ---------
TOTAL NON-CURRENT ASSETS 1 189 236 525 164
----------- ---------
TOTAL ASSETS 5 687 762 3 310 855
----------- ---------
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2
COMPEX SA, ECUBLENS
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CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31,
(IN SWISS FRANCS - "CHF")
1998 1997
LIABILITIES AND SHAREHOLDERS' FUNDS
LIABILITIES
PAYABLES RESULTING FROM OPERATING ACTIVITIES
Trade payables 1 482 826 602 891
OTHER CURRENT LIABILITIES
Bank-current account overdraft 153 433 264 201
Other payables 604 443 295 821
Accrued liabilities 636 767 230 309
--------- ---------
1 394 643 790 331
--------- ---------
LONG TERM LIABILITIES
Shareholders loans 867 516 1 117 516
PROVISIONS
Provision for bad and doubtful debts 53 509 41 757
Provision for inventory 205 650 72 000
--------- ---------
259 159 113 757
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TOTAL LIABILITIES 4 004 144 2 624 495
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MINORITY INTEREST
At start of year 18 586 (27 353)
Current year (8 413) 45 939
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TOTAL MINORITY INTEREST 10 173 18 586
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SHAREHOLDERS FUNDS
SHARE CAPITAL
Share capital (Common stock - 600 shares
authorised, issued and outstanding with a
par value of CHF 1,000 per share) 600 000 600 000
RESERVES
Retained earnings (loss) 67 774 (426 242)
Cumulative translation adjustment (5 405) (8 041)
Current year earnings 1 011 076 502 057
--------- ---------
1 073 445 67 774
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TOTAL SHAREHOLDERS' FUNDS 1 673 445 667 774
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' FUNDS 5 687 762 3 310 855
--------- ---------
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3
COMPEX SA, ECUBLENS
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CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
(IN SWISS FRANCS - "CHF")
1998 1997
SALES
Gross sales revenue 11 110 330 7 179 838
Gross rental income 1 523 075 1 162 080
After sales 0 7 407
Transport expenses (212 374) (37 429)
Discounts (295 890) (277 423)
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12 125 141 8 034 473
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COST OF SALES (3 806 879) (2 259 868)
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8 318 262 5 774 605
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Other revenues 3 199 31 035
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GROSS PROFIT 8 321 461 5 805 640
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EXPENDITURES
PERSONNEL EXPENDITURES
Salaries (2 548 066) (1 570 996)
Employers' contributions (648 891) (432 278)
Management bonus payments (202 796) (200 000)
Part time salaries (43 075) (14 255)
Sales commissions (249 646) (242 417)
Training (40 914) (37 680)
Other staff expenses (247 584) (64 556)
----------- -----------
(3 980 972) (2 562 182)
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GENERAL EXPENDITURES
Rent and heating (239 973) (190 373)
Maintenance (25 478) (18 278)
Insurance (27 629) (28 491)
Telephone & Communication (214 569) (153 628)
IT expenditure (32 545) (23 302)
Office expenditures (269 887) (354 432)
Postage (98 428) (98 236)
Marketing expenses (1 489 280) (1 064 836)
Research and development (34 437) (13 372)
Bad debts (60 962) (16 272)
Other expenditures (2 849) (194)
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(2 496 037) (1 961 414)
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PROFIT BEFORE INTEREST, PROVISIONS,
DEPRECIATION AND TAXES 1 844 452 1 282 044
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4
COMPEX SA, ECUBLENS
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CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31,
(IN SWISS FRANCS - "CHF")
1998 1997
INTEREST CHARGES
Exchange rate losses (19 149) (35 167)
Interest expense & bank charges (38 950) (45 945)
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(58 099) (81 112)
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MOVEMENTS IN PROVISIONS
Receivables (11 752) 3 369
Inventory (133 650) (30 000)
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(145 402) (26 631)
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DEPRECIATION & AMORTISATION
Inventory (28 128) (75 287)
Plant & machinery (46 942) (62 982)
Computers (66 967) (52 174)
Tools (85 732) (63 327)
Marketing materials (26 410) (74 534)
Fixtures & fittings (50 923) (29 812)
Research & development-1st generation 0 (150 000)
Research & development-2nd generation (40 000) (40 000)
Research & development-"Compex Sport" (224 163) 0
Restructuring costs (5 697) (6 210)
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(574 962) (554 326)
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PROFIT BEFORE EXTRAORDINARY ITEMS AND TAXES 1 065 989 619 975
EXTRAORDINARY ITEMS
Research & development capitalised 448 325 0
Brain Box Sarl closure costs (62 983) 0
Tax fines & penalties (165 170) 0
Professional advisory fees (188 771) 0
Other 0 (40 889)
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PROFIT BEFORE TAX 1 097 390 579 086
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Tax (94 727) (31 090)
------------- -------------
PROFIT BEFORE MINORITY INTEREST 1 002 663 547 996
Minority interest 8 413 (45 939)
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NET PROFIT 1 011 076 502 057
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5
COMPEX SA, ECUBLENS
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CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(IN SWISS FRANCS - "CHF")
1998 1997
OPERATING ACTIVITIES
Net income 1 011 076 502 057
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortisation 574 962 554 326
Research & development expenditure 0 337 700
Change in minority interests (8 413) 45 939
Provisions 145 402 26 631
Extraordinary professional advisory fees 188 771 0
Changes in current assets and liabilities
Increase in trade and other receivables (936 338) (37 799)
Increase in inventories (418 950) (139 887)
Decrease in other current assets 49 180 60 788
Increase in trade and other payables 1 188 558 225 928
Increase in accrued liabilities 406 458 (181 208)
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Net cash provided by operating activities 2 200 706 1 394 475
------------- ------------
INVESTING ACTIVITIES
Purchase of property and equipment (701 006) (223 244)
Investment in research & development (448 325) (337 700)
Investment in subsidiaries (48 637) 0
Extraordinary professional advisory fees (188 771) 0
Increase (decrease) in other assets (12 938) 4 078
------------- ------------
Net cash used in investing activities (1 399 677) (556 866)
------------- ------------
FINANCING ACTIVITIES
Principal payments of shareholders loan (250 000) 0
Receipt/(Repayment) of overdraft facility (110 768) (96 429)
Proceeds from (payments on) line of credit, net 0 (500 000)
------------- ------------
Net cash used in financing activities (360 768) (596 429)
------------- ------------
Increase in cash and cash equivalents 440 261 241 180
Translation adjustments (5 405) (8 041)
------------- ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 434 856 233 139
------------- ------------
CASH AND CASH EQUIVALENTS AT BEGINNINGS
OF YEAR 411 990 178 851
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CASH AND CASH EQUIVALENTS AT END OF YEAR 846 846 411 990
------------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 38 950 45 945
Income tax paid 0 0
6
COMPEX SA, ECUBLENS
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
1997 AND 1998
NUMBER OF COMMON SHARES RETAINED TOTAL
COMMON SHARES PAR VALUE EARNINGS/(DEFICIT)
CHF CHF CHF
------------------------------------------------------------------------
Balance at Dec. 31, 1996 600 600 000 (426 242) 173 758
Net profit 1997 0 0 502 057 502 057
Foreign currency
translation adjustment 0 0 (8 041) (8 041)
----------- ------------ ------------- -----------
Balance at Dec. 31, 1997 600 600 000 67 774 667 774
Net profit 1998 0 0 1 011 076 1 011 076
Foreing currency
translation adjustment 0 0 (5 405) (5 405)
----------- ------------ ------------- -----------
Balance at Dec. 31, 1998 600 600 000 1 073 445 1 673 445
----------- ------------ ------------- -----------
----------- ------------ ------------- -----------
1. CHANGE IN ACCOUNTING PRINCIPLES
Salaries of persons involved in the development of the Compex Sport
range were capitalised in 1998. The effects of the aforementioned has been
annulled in the US GAAP reconciliation set out in Note 9.
2. GROUP COMPANIES CONSOLIDATED
Compex SA, Ecublens, Suisse
(previously Medicompex SA) 100% 100%
Compex France Sarl, Nanterre, France 100% 100%
Brain Box Sarl, Nanterre, France 55% 55%
3. UNCONSOLIDATED SUBSIDIARIES
MediCompex, Iberica, S.L., 100% -
Barcelone, Espagne
This entity was consolidated due to the absence of standalone financial
statements as at December 31, 1998. The entity was founded in October 1998
and commenced trading in 1999. The entity will be consolidated in
subsequent periods.
4. METHOD OF CONSOLIDATION
All material entities were consolidated using a global integration method.
5. FUNCTIONAL CURRENCY AND EXCHANGE RATES
The accounts are prepared in Swiss Francs ("CHF").
Balance sheet items were translated using the rate applicable at the
balance sheet date. As at December 31, 1998, the exchange rate was Swiss
Franc 1 = French Franc 4.08. As at December 31, 1997, the exchange rate was
Swiss Franc 1 = French Franc 4.12.
7
COMPEX SA, ECUBLENS
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Items included within the Statement of income were translated using the
average exchange rate for the year. The average exchange rate applied was
CHF 1 = French Fr 4.12 and 3.88 for 1998 and 1997 respectively.
The translation of balance sheet items resulted in an exchange rate
difference of CHF 5,405 and Swiss Fr 8,041 in 1998 and 1997 respectively.
Such differences were included within foreign currency translation
adjustment in the relevant years. The cumulative translation adjustment for
periods prior to January 1, 1997 are included within retained earnings.
6. NON CURRENT ASSETS - VALUATION PRINCIPLES
Property, plant & equipment and intangible assets are valued at cost less
accumulated depreciation. All assets are depreciated or amortised on a
straight line basis with the exception of research and development costs
relating to 2nd Generation products which are amortised using a reducing
balance method.
Any variation in depreciation and amortisation rates used by individual
Group entities was not adjusted for as the amounts of such variation are
not considered material for Group reporting purposes.
Set out below are the depreciation and amortisation rates applied by the
Group:
PROPERTY, PLANT & EQUIPMENT
1998 1997
ANNUAL ANNUAL
DEPRECIATION RATE DEPRECIATION RATE
% %
Plant & machinery and vehicles 20-33 20-33
Computer equipment 20-33 20-33
Tooling and machine moulds 20-33 20-33
Fixtures and fittings 20-33 20-33
Marketing materials 20-50 20-50
INTANGIBLE ASSETS
Research & development
-2nd generation products 66 40
Research & development
-generation "Compex Sport" 50 0
Restructuring costs 20 20
Furthermore, rental equipment, classified as inventory, is depreciated over 5
year by one of the subsidiaries within the Group (Brain Box Sarl, France).
8
COMPEX SA, ECUBLENS
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1998 1997
CHF CHF
7. Amount of pledged assets
(receivables) 2 101 838 1 274 783
8. Fire insurance value of assets 456 500 332 000
9
COMPEX SA, ECUBLENS
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9. SUMMARY OF DIFFERENCES BETWEEN SWISS LAW AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (US GAAP)
The Group's consolidated financial statements are prepared in accordance
with generally accepted accounting principles under Swiss Law. The
accounting principles used differ in certain respects from those accepted
under US GAAP. Differences, which have a significant effect on the
consolidated net income and shareholders' equity of the Group, are set out
below. While this is not a comprehensive summary of all differences between
Swiss Law and US GAAP, other differences would not have a significant
effect on the consolidated net income or shareholders' equity of the Group.
ACCOUNTING POLICIES
INVENTORY
Inventory is accounted for in accordance with Swiss Law using an average
cost basis. Under Swiss Law, in the event the current cost of inventory is
deemed to be lower than the average cost, an impairment provision is
required. Under US GAAP inventory is recorded at the lower of cost and net
realisable value. Accordingly, adjustments have been made to reflect these
differences.
The Group's accounting policy, under Swiss Law, requires certain of the
Group's assets (finished goods), listed below, to be recorded in inventory.
- Rental equipment;
- After sales replacement equipment; and
- Demonstration equipment.
Under US GAAP such assets would be treated as property, plant and
equipment and depreciated on a straight-line basis over their useful
economic life of 5 years. Accordingly, adjustments have been made to
reflect these differences.
MARKETING EXPENDITURE
The Group's accounting policy, under Swiss Law, requires certain
marketing expenditure to be capitalised and amortised. Under US GAAP all
such expenditure should be expensed in the period incurred. Accordingly,
adjustments have been made to reflect these differences.
10
COMPEX SA, ECUBLENS
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RESEARCH & DEVELOPMENT EXPENDITURE
The Group's accounting policy, under Swiss Law, requires certain
research and development expenditure to be capitalised and amortised over
the economic life of the product range developed. Under US GAAP, the Group,
in order to be consistent with its parent's accounting policy, expenses in
the period incurred all research and development expenditure. Accordingly,
adjustments have been made to reflect these differences.
DEFERRED TAXES
Under Swiss Law deferred taxes are not accounted for. Under US GAAP
deferred taxes are accounted for on all timing differences and a valuation
allowance is established in respect of those deferred taxes where it is
more likely than not some portion will remain unrealised. A calculation of
the effect of accounting for deferred tax is included within the
reconciliation set out in this footnote.
INTEREST FREE LOAN (RELATED PARTY)
Under Swiss Law the interest free loan provided to the Group by its
shareholders is recorded at nominal value. Under US GAAP an imputed
interest charge should be calculated using average interest rates
prevailing at the time the loan was received. The effective premium
obtained by the Group should be recorded directly to shareholders' equity.
The effective premium is amortised over the period of the loan by recording
an interest charge. An adjustment is included within the reconciliation set
out in this footnote.
PENSION OBLIGATIONS
Under Swiss law the Group's pension plan, which is administered by an
independent pension fund, is considered to be a defined contribution plan.
Under US GAAP, due to the hybrid nature of the plan whereby participants
are entitled to a defined rate of interest on contributions made, the plan
is considered a defined benefit plan. Due to the absence of information
relating to 1997, the funded status has only been assessed as at
December 31, 1998. Therefore, no effect has been recorded in the
reconciliation of net income. Any adjustment that may have been required is
considered not to have had a material impact on the Group's financial
position and results of operations.
NET INCOME RECONCILIATION
The effect on net income of differences identified between Swiss Law and US
GAAP for the years ended December 31, 1997 and 1998 is set out below:
YEAR ENDED YEAR ENDED
DEC. 31, 1998 DEC. 31, 1997
CHF CHF
--------------- ---------------
Net income in accordance with Swiss Law 1 011 076 502 057
Reversal of inventory provision 70 000 -
11
COMPEX SA, ECUBLENS
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Inventory reclassification - Accumulated depreciation (33 756) (47 214)
Marketing expenditure 22 521 56 391
Research and development expenditure (184 162) 190 000
Deferred taxes (128 944) (192 031)
Interest free loan (40 815) (51 330)
--------------- -------------
NET INCOME IN ACCORDANCE WITH US GAAP 715 920 457 873
--------------- -------------
--------------- -------------
12
COMPEX SA, ECUBLENS
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SHAREHOLDERS' EQUITY RECONCILIATION
The cumulative effect on shareholders' equity, as at December 31, 1997 and 1998:
YEAR ENDED YEAR ENDED
DEC. 31, 1998 DEC. 31, 1997
CHF CHF
------------- -------------
Shareholders' equity in accordance with
Swiss Law 1 673 445 667 774
Inventory provision 70 000 -
Inventory reclassification - Accumulated depreciation (266 368) (204 021)
Marketing expenditure (26 170) (48 691)
Research and development expenditure (244 162) (60 000)
Deferred taxes 347 001 475 945
Interest free loan 20 407 76 944
------------- --------------
SHAREHOLDERS' EQUITY IN ACCORDANCE
WITH US GAAP 1 574 153 907 951
------------- -------------
------------- -------------
ADDITIONAL US GAAP DISCLOSURES
The following additional disclosures are required under US GAAP:
DEC. 31, 1998 DEC. 31, 1997
CHF CHF
------------- -------------
OTHER RECEIVABLES
VAT receivable 64 282 41 805
Loans to employees 33 777 1 928
Advances to suppliers 86 875 15 738
Other 321 16 502
------------- -------------
185 255 75 973
------------- -------------
------------- -------------
DEC. 31, 1998 DEC. 31, 1997
CHF CHF
------------- -------------
OTHER CURRENT ASSETS
Goods delivered and not invoiced 38 911 68 850
Other 23 074 42 314
------------- -------------
61 985 111 164
------------- -------------
------------- -------------
13
COMPEX SA, ECUBLENS
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DEC. 31, 1998 DEC. 31, 1997
CHF CHF
------------- -------------
OTHER PAYABLES
VAT payable 39 491 19 579
Employers contributions 122 263 79 584
Shareholder loan 35 363 43 997
Other 407 326 152 661
------------- -------------
604 443 295 821
------------- -------------
------------- -------------
DEC. 31, 1998 DEC. 31, 1997
CHF CHF
------------- -------------
ACCRUED LIABILITIES
Taxes (including fines & penalties) 156 563 3 572
Salaries 57 082 30 963
Employers contributions 193 179 118 898
Other 229 943 76 876
------------- -------------
636 767 230 309
------------- -------------
------------- -------------
DEFERRED TAX
The Components of the estimated deferred tax asset that would be recognised
under US GAAP comprise the following:
DEC. 31, 1998 DEC. 31, 1997
CHF CHF
------------- -------------
DEFERRED TAX LIABILITIES
Impairment provision (Compex France) 163 186 111 756
Inventory impairment provision 19 460 -
------------- -------------
182 646 111 756
------------- -------------
------------- -------------
DEFERRED TAX ASSETS
US GAAP adjustment - Inventory reclassification
and depreciation 74 051 56 718
US GAAP adjustment - Marketing
expenditure 7 275 13 536
US GAAP adjustment - Research and
development expenditure capitalised 67 877 16 680
14
COMPEX SA, ECUBLENS
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Other (France) 16 028 34 210
Statutory revaluation of inventory (France) 201 990 -
Depreciation (France) 54 370 28 879
Net operating losses (Swiss & France) 108 056 437 678
------------- -------------
529 647 587 701
------------- -------------
------------- -------------
Management considers that CHF'000 25 of the net operating losses, incurred by
the Swiss Company, referred to above will be offset against future taxable
income generated in the fiscal year ending December 31, 1999. The remaining
net operating losses, which were predominantly incurred by the Group's French
subsidiaries, is required to be offset against taxable income to be generated
within a maximum period of 5 years.
Of the amounts set out above CHF'000 170 and 0 are considered to be current
deferred tax liabilities and assets respectively as at December 31, 1998. The
remainder is considered to be non-current.
A reconciliation, ignoring the effects of US GAAP adjustments referred to above,
of the theoretical income tax expense and that actually recorded is set out
below:
YEAR ENDED YEAR ENDED
DEC. 31, 1998 DEC. 31, 1997
CHF CHF
------------- -------------
Statutory rate applied to income
before tax (27.8%) 305 074 (160 985)
Net operating losses used (305 074) (160 985)
Other taxes other than income tax 94 726 31 089
------------- -------------
Taxes per Swiss law 94 726 31 089
------------- -------------
------------- -------------
PENSION OBLIGATIONS
The tables set out below set forth the plan's funded status and net periodic
pension cost as of December 31, 1998. Due to the absence of information as at
December 31, 1997 it is assumed that 1998 is a transitional period and that the
unamortised net obligation would be amortised over 15 years.
DEC. 31, 1998
CHF
-------------
Projected benefit obligation for service rendered
15
COMPEX SA, ECUBLENS
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to date 648 577
Plan assets at fair value (627 826)
-------------
Projected benefit obligation in excess of fair value 20 751
-------------
-------------
YEAR ENDED
DEC. 31, 1998
CHF
-------------
Service cost 151 363
Interest cost 29 186
Return on plan assets (34 530)
Net amortization 1 383
-------------
Net periodic pension cost 147 402
-------------
-------------
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 1.5% and 4.5% respectively. The expected long term rate of
return on assets was 5.5%.
DISTRIBUTABLE RESERVES
Reserves available for distribution from the individual entities within the
Group are based on statutory accounts prepared in accordance with general
accepted accounting principles within the country of incorporation. Statutory
accounting principles differ from those applied under US GAAP. Distributable
reserves, of the Company, were CHF'000 1,590 and 207 as at December 31, 1998 and
1997 respectively.
CREDIT LINE FACILITY
As at December 31, 1998 the Group had, in addition to an agreed overdraft
facility of CHF'000 483 of which CHF'000 153 was drawn down. The interest rate
is 5.5% p.a.
An additional credit line facility amounting to CHF'000 517 was also available
to the Group. As at December 31, 1998 CHF'000 74 of the aforementioned facility
had been drawn down. The interest rate is a floating rate.
RELATED PARTY TRANSACTIONS
The Company effected payments amounting to CHF'000 150 and CHF'000 50, in 1997
and 1998 respectively, to companies controlled by its former shareholders. These
payments were made in respect of services provided by those entities to the
Company.
The Company settled professional services invoices amounting to CHF'000 189,
with respect to the acquisition of the Group by Rehabilicare, for and on behalf
of its former shareholder.
Furthermore, the Company received an interest free loan from its former
shareholders the balance of which amounted to CHF'000 868 and 1,118 as at
December 31, 1998 and 1997 respectively. Title to the loan transferred to
Rehabilicare. The loan has not been repaid to date.
COMMITMENTS & CONTINGENCIES
The Group had contractual commitments to suppliers outstanding as at December
31, 1998 which amounted to CHF'000 2,720.
16
Item 7(b) Pro forma financial information:
Rehabilicare, Inc. and COMPEX SA
Pro Forma Financial Information - Narrative Overview
(Unaudited)
The following unaudited pro forma combined balance sheet as of June 30, 1999
and statements of operations for the year ended June 30, 1999, give effect to
the acquisition of COMPEX SA by Rehabilicare, Inc. ("the Company") using the
purchase method of accounting. The unaudited pro forma combined financial
statements combine the historical consolidated balance sheet and statement of
operations of the Company and the historical consolidated balance sheet and
statement of income of COMPEX SA, adjusted for presentation in accordance
with generally accepted accounting principles in the United States
(Collectively "the Entities"). The unaudited pro forma combined balance sheet
as of June 30, 1999, assumes the Entities were combined as of June 30, 1999.
The unaudited pro forma combined statement of income for the year ended June
30, 1999, assume the Entities were combined effective July 1, 1998.
The unaudited pro forma combined financial statements give effect to (i) the
acquisition of COPMEX SA, (ii) the payment of $11.0 million in cash in
connection with the acquisition of COMPEX SA, and (iii) other adjustments
described in the accompanying notes.
The fair value of the consideration will be allocated to the assets and
liabilities acquired based upon the fair values of such assets and
liabilities at the acquisition date and may be revised for a period of up to
one year thereafter. The preliminary estimates and assumptions as to the fair
value of the assets and liabilities acquired is based upon information
available at the date of preparation of these unaudited pro forma condensed
consolidated financial statements and will be adjusted upon the final
determination of such fair values.
The unaudited pro forma combined financial statements are not necessarily
indicative of the financial position or results of operations of
Rehabilicare, Inc. as they may be in the future or as they might have been
for the periods presented had the Entities actually been combined effective
July 1, 1998 or as of the date of the unaudited pro forma balance sheet. The
unaudited pro forma combined financial statements and accompanying notes
should be read in conjunction with the historical financial statements of
Rehabilicare, Inc. as filed on Form 10-KSB for the year ended June 30, 1999,
and the historical financial statements of COMPEX SA, including the notes to
such financial statements, for the years ended December 31, 1998 and 1997, as
set forth in this Form 8-K.
REHABILICARE INC.
PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
(UNAUDITED)
Pro Forma Pro Forma
Rehabilicare(1) COMPEX SA(2) Adjustments Combined
---------------- ------------- ----------------- --------------
ASSETS
Current assets:
Cash $ 561,207 $ 514,770 $ - $ 1,075,977
Receivables, net 17,233,469 1,607,230 - 18,840,699
Inventories 8,912,783 967,734 645,156 (4) 10,525,673
Deferred income tax benefit 2,587,686 - - 2,587,686
Prepaid expenses 584,330 584,819 - 1,169,149
-------------- -------------- -------------- --------------
Total current assets 29,879,475 3,674,553 645,156 34,199,184
Property and equipment, net 4,618,114 748,337 - 5,366,451
Intangible assets 1,150,009 - 9,508,516 (5) 10,658,525
Deferred income taxes 40,121 171,581 - 211,702
Other assets 11,995 35,754 - 47,749
-------------- -------------- -------------- --------------
$ 35,699,714 $ 4,630,225 $ 10,153,672 $ 50,483,611
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
LIABILITIES AND STOCKHOLDERS
EQUITY
Current liabilities:
Note payable $ 2,400,000 $ - $ - $ 2,400,000
Current maturities of long-term debt 1,241,037 - - 1,241,037
Accounts payable 2,038,732 1,509,097 - 3,547,829
Accrued liabilities 2,627,713 1,233,697 - 3,861,410
Deferred tax liabilities 179,353 (6) 179,353
Minority interest 24,681 - - 24,681
-------------- -------------- -------------- --------------
Total current liabilities 8,332,163 2,742,794 179,353 11,254,310
Long-term liabilities
Long-term debt 4,066,914 - 11,000,000 (3) 15,066,914
Shareholder Loans 495,172 (495,172) (3) -
Deferred tax liabilities 247,328 83,350 778,400 (6) 1,109,078
-------------- -------------- -------------- --------------
Total liabilities 12,646,405 3,321,316 11,462,581 27,430,302
Stockholders equity:
Common stock 1,049,491 387,097 (387,097) (7) 1,049,491
Additional paid-in-capital 20,740,650 - - 20,740,650
Less note receivable from officer/stockholder (237,500) - - (237,500)
Accumulated other non-owner changes to equity (1,637) (1,637)
Retained earnings 1,502,305 921,812 (921,812) 1,502,305
-------------- -------------- -------------- --------------
Total stockholders' equity 23,053,309 1,308,909 (1,308,909) 23,053,309
-------------- -------------- -------------- --------------
$ 35,699,714 $ 4,630,225 $ 10,153,672 $ 50,483,611
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
REHABILICARE INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1999
(UNAUDITED)
(1) Reflects the historical balance sheet of Rehabilicare Inc. as derived from
the Company's audited balance sheet as of June 30, 1999 as filed on Form
10-KSB.
(2) Reflects the historical balance sheet of COMPEX SA as derived from the
historical unaudited balance sheet of COMPEX SA as of June 30, 1999,
adjusted for presentation in accordance with generally accepted accounting
principles in the United States. The financial position and results of
operations of COMPEX SA are measured using the local currency as the
functional currency. Assets and liabilities of COMPEX SA are translated at
the exchange rate in effect at June 30, 1999.
(3) Adjustment reflects $11.0 million of debt incurred to finance the cash
consideration paid for the purchase of COMPEX SA common stock and repayment
of debt to shareholders.
(4) Adjustment to record the COMPEX SA assets and liabilities at estimated fair
value at the acquistion date.
(5) Represents the excess of purchase consideration over the assigned values of
tangible net assets. The amount is comprised of the following:
Goodwill $6,709
Existing technology 1,400
Workforce 1,400
------
Total $9,509
------
------
(6) Represents the estimated tax impact of differences between the historical
tax bases and assigned value of assets acquired and liabilities assumed.
The adjustment was derived using a tax rate of 27.8%, the statutory rate in
Switzerland.
(7) Adjustment reflects the elimination of COMPEX SA's historical stockholders'
equity.
REHABILICARE INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
(UNAUDITED)
Pro Forma Pro Forma
Rehabilicare (1) COMPEX SA (2) Adjustments Combined
---------------- -------------- -------------- --------------
Net sales & rental revenue $ 41,795,373 $ 9,582,419 $ -- $ 51,377,792
Cost of sales and rentals 11,948,304 3,132,046 -- (6) 15,080,350
---------------- -------------- -------------- --------------
Gross profit 29,847,069 6,450,373 -- 36,297,442
Operating expenses:
Selling, general and admin. 23,961,728 5,568,108 790,426 (4) 30,320,262
Research and development 866,698 178,650 -- 1,045,348
Merger expense (108,619) -- -- (108,619)
---------------- -------------- -------------- --------------
Total operating expenses 24,719,807 5,746,758 790,426 31,256,991
Income from operations 5,127,262 703,615 (790,426) 5,040,451
Interest income (expense) (499,297) (67,485) (895,400)(3) (1,462,182)
Other income (expense) 6,550 (143,729) (137,179)
Minority interest (24,681) -- -- (24,681)
---------------- -------------- -------------- --------------
(517,428) (211,214) (895,400) (1,624,042)
Income before taxes 4,609,834 492,401 (1,685,826) 3,416,409
Provision (benefit) for income taxes 1,750,000 134,800 (466,742)(5) 1,418,058
---------------- -------------- -------------- --------------
Net income $ 2,859,834 $ 357,601 $ (1,219,084) $ 1,998,351
---------------- -------------- -------------- --------------
---------------- -------------- -------------- --------------
Net income per common share
and common equivalent share
Basic $ 0.27 $ 0.19
---------------- --------------
---------------- --------------
Diluted $ 0.27 $ 0.19
---------------- --------------
---------------- --------------
Weighted average number of shares
outstanding
Basic 10,471,807 10,471,807
---------------- --------------
---------------- --------------
Diluted 10,529,422 10,529,422
---------------- --------------
---------------- --------------
REHABILICARE INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
(UNAUDITED)
(1) Reflects the historical results of operations of Rehabilicare Inc. as
derived from the Company's audited statement of operations for the year
ended June 30, 1999 as filed on Form 10-KSB.
(2) Reflects the historical results of operations of COMPEX SA as derived
from the historical unaudited statement of income of COMPEX SA for the
year ended June 30, 1999, adjusted for presentation in accordance with
generally accepted accounting principles in the United States. The results
of operations of COMPEX SA are measured using the local currency as the
functional currency. Income statement accounts are translated at the
average rates of exchange prevailing during the year ended June 30, 1999.
(3) Reflects the annual interest charge on $11.0 million of debt at 8.14%
incurred to finance the acquisition of COMPEX SA.
(4) Reflects the annual amortization charge of goodwill on a straight-line
basis over 20 years and other intangible assets (existing technology and
workforce) over 8 and 5 years, respectively.
(5) Adjustment reflects the estimated income tax impact of the above
adjustments (note that the amortization of the goodwill is not deductible
for income tax reporting purposes).
(6) The pro forma combined statement of income excludes the impact of the
$645,000 adjustment to record COMPEX SA inventory at estimated fair value
at the acquisition date. This adjustment will be recorded as cost of sales
upon the sale of the inventory, which is expected to occur within the 12
months succeeding the transaction.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
REHABILICARE INC.
By /s/ DAVID B. KAYSEN
---------------------------------
David B. Kaysen, Chief Executive
Officer and President
Dated: September 28, 1999