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EXHIBIT 99.2

JOTEC AG AND SUBSIDIARIES

Unaudited Condensed Consolidated Financial Statements

September 30, 2017 and 2016

 

28


JOTEC AG AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands except share data)

 

     September 30,
2017
     December 31,
2016
 
     (Unaudited)         
ASSETS      

Current assets:

     

Cash and cash equivalents

   2,234      2,910  

Trade receivables, net of allowance of €129 and €55, respectively

     10,086        8,563  

Income tax receivable

     148        186  

Inventories

     12,836        10,472  

Prepaid expenses and other current assets

     561        594  
  

 

 

    

 

 

 

Total current assets

     25,865        22,725  
  

 

 

    

 

 

 

Property, plant and equipment, net

     11,256        8,416  

Intangible assets, net

     3,290        1,200  

Deferred income taxes

     1,570        2,357  

Notes receivable

     —          1,240  
  

 

 

    

 

 

 

Total long term assets

     16,116        13,213  
  

 

 

    

 

 

 

Total assets

   41,981      35,938  
  

 

 

    

 

 

 

 

29


     September 30,
2017
    December 31,
2016
 
     (Unaudited)        

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Trade payables

   1,448     1,721  

Taxes payable

     921       848  

Other payables

     141       242  

Accrued expenses

     3,142       548  

Accrued compensation

     661       852  

Current portion of capital lease obligation

     776       735  

Current portion of long-term debt

     474       285  

Other current liabilities

     1,257       1,909  
  

 

 

   

 

 

 

Total current liabilities

     8,820       7,140  
  

 

 

   

 

 

 

Long-term debt

     25,137       27,005  

Long-term capital lease obligation

     5,565       3,257  

Retirement benefit obligation

     140       125  

Deferred income taxes

     329       21  

Government benefits

     194       239  

Other long-term liabilities

     892       1,006  
  

 

 

   

 

 

 

Total long term liabilities

     32,257       31,653  
  

 

 

   

 

 

 

Total liabilities

     41,077       38,793  
  

 

 

   

 

 

 

Shareholders’ equity:

    

Common stock, 10 CHF par value, 108,000 shares authorized, issued and outstanding as of September 30, 2017 and as of December 31, 2016

     881       881  

Capital surplus

     16,666       16,666  

Accumulated deficit

     (15,068     (18,906

Accumulated other comprehensive income

     (1,658     (1,577
  

 

 

   

 

 

 

Total JOTEC shareholders’ equity

     821       (2,936
  

 

 

   

 

 

 

Non controlling interests

     83       81  
  

 

 

   

 

 

 

Total shareholders’ equity

     904       (2,855
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   41,981     35,938  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

30


JOTEC AG AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

     Nine Months Ended
September 30,
 
     2017     2016  
     (Unaudited)  

Revenue

   33,073     29,615  

Cost of goods sold

     10,265       8,851  
  

 

 

   

 

 

 

Gross profit

     22,808       20,764  
  

 

 

   

 

 

 

General, administrative, and marketing

     15,858       13,978  

Research and development

     3,518       2,345  
  

 

 

   

 

 

 

Total operating expenses

     19,376       16,323  
  

 

 

   

 

 

 

Operating Income

     3,432       4,440  
  

 

 

   

 

 

 

Interest expense

     1,909       1,979  

Interest income

     (745     (32

Other expense, net

     (3,233     501  
  

 

 

   

 

 

 

Income before income taxes

     5,501       1,992  

Income tax expense

     1,658       1,027  
  

 

 

   

 

 

 

Net income

   3,843     965  
  

 

 

   

 

 

 

Net income allocated to non controlling interests

   (5   (3
  

 

 

   

 

 

 

Net income (loss) applicable to common stock

   3,838     962  
  

 

 

   

 

 

 

Other comprehensive income

    

Exchange differences on translation of foreign operations

     (81     23  
  

 

 

   

 

 

 

Total other comprehensive income

     (81     23  
  

 

 

   

 

 

 

Comprehensive income

   3,762     988  
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

31


JOTEC AG AND SUBSIDIARIES

CONSOLIDATED STATEMENTS SHAREHOLDERS’ EQUITY

(in thousands)

 

     Attributable to equity holders of the parent  
                                       Accumulated     Total              
     Common Stock                   Other     Equity     Non        
     Shares     

 

     Amount      Capital
Surplus
     Accumulated
Deficit
    Comprehensive
(Loss) Income
    Holders
of the Parent
    Controlling
Interests
    Total
Equity
 

Balance as of January 1, 2016

     108,000         881          16,645      (19,184   (1,420   (3,078   (9   (3,087
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     —             —          —          278       —         278       24       302  

Other comprehensive income (loss)

     —             —          —          —         (157     (157     —         (157

Contribution to the capital surplus

     —             —          21        —         —         21       —         21  

Acquisition of non controlling interests

     —             —          —          —         —         —         77       77  

Other

     —             —          —          —         —         —         (11     (11
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2016

     108,000         881      16,666      (18,906   (1,577   (2,936   81     (2,855
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Unaudited)

                      

Net income

     —             —          —          3,838       —         3,838       5       3,843  

Other comprehensive income (loss)

                   (81     (81     —         (81

Other

     —             —          —          —         —         —         (3     (3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of September 30, 2017

     108,000         881          16,666      (15,068   (1,658   821     83     904  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

32


JOTEC AG AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

(in thousands)

 

     Nine Months Ended September 30,  
     2017     2016  
     (Unaudited)  

Cash flows from operating activities:

    

Net income

   3,843     965  

Adjustments to reconcile net income to net cash provided by / used in operating activities

    

Interest income receivable

     (237     —    

Accrued interest

     1,626       1,347  

Depreciation, amortization and impairment

     1,515       1,275  

(Reversal of impairment) impairment of loans provided to equity investment

     (2,846     803  

Loss on disposal of non-current assets

     4       3  

Change in deferred taxes

     1,094       618  

Changes in operating assets and liabilities

    

Provisions, accrued expenses and compensation

     2,419       (292

Inventories

     (2,364     (2,540

Trade receivables

     (1,523     (1,837

Other assets

     32       (283

Trade payables

     (274     (416

Other liabilities

     (913     (69

Net tax receivable / payable

     112       100  
  

 

 

   

 

 

 

Cash flows provided by (used in) operating activities

     2,488       (326
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property, plant, equipment, and intangible assets

     (6,574     (580

Proceeds from disposal of assets

     111       —    

Collection of (investment in) notes receivable

     4,087       (1,256
  

 

 

   

 

 

 

Cash flows used in investing activities

     (2,376     (1,836
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Capital lease obligation

     2,829       —    

Repayment of capital lease obligations

     (543     (581

Proceeds from bank debt

     590       580  

Repayments of bank debt

     (167     (125

Repayments on shareholder loans

     (4,459     —    

Proceeds from shareholder loans

     1,200       800  
  

 

 

   

 

 

 

Cash flows (used in) provided by financing activities

     (550     674  
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

    

Net change in cash and cash equivalents

     (438     (1,488

Effect of exchange rate changes on cash and cash equivalents

     (238     (23

Cash and cash equivalents at the beginning of the period

     2,910       3,318  
  

 

 

   

 

 

 

Cash and cash equivalents at the end of the period

   2,234     1,807  
  

 

 

   

 

 

 

Supplementary information on cash flow

    

Cash paid for income taxes

   428     (309
  

 

 

   

 

 

 

Cash paid for interest

   283     (632
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

33


JOTEC AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1. Nature of Business and Corporate Information

The accompanying consolidated financial statements of JOTEC AG (the Company) and its subsidiaries (collectively, “JOTEC” or the “Group”) have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) as issued by the Financial Accounting Standards Board (FASB), and include the accounts of the Company and all of its subsidiaries in which a controlling interest is maintained. All significant inter-company accounts and transactions have been eliminated in consolidation. For those consolidated subsidiaries where JOTEC ownership is less than 100%, the outside shareholders’ interests are shown as non-controlling interests in equity.

The accompanying Summary Consolidated Balance Sheet as of December 31, 2016 has been derived from audited financial statements. The accompanying unaudited summary consolidated financial statements as of, and for the nine months ended, September 30, 2017 and 2016 have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information. Accordingly, such statements do not include all of the information and disclosures required by accounting principles generally accepted in the U.S. for a complete presentation of financial statements. In the opinion of management, all adjustments (including those of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These summary consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in JOTEC consolidated financial statements for the year ended December 31, 2016.

New Accounting Pronouncements

Recently adopted

In July 2015, the FASB issued ASU 2015-11, simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 is effective for the Company for annual periods in fiscal years beginning after December 15, 2016. The Company adopted the new standard beginning January 1, 2017, and determined that the adoption did not have a material effect on the Group’s consolidated financial statements.

Not yet effective

In July 2015, the FASB issued ASU 2015-11, simplifying the Measurement of Inventory, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 is effective for the Company for annual periods in fiscal years beginning after December 15, 2016. The Company concluded that adoption of the new standard effective January 1, 2017 did not have a material effect on the Company’s consolidated financial statements.

In February 2016, the Financial Accounting Standards Board (“FASB”) amended its Accounting Standards Codification and created a new Topic 842, Leases. The final guidance requires lessees to recognize a right-of-use asset and a lease liability for all leases (with the exception of short-term leases) at the commencement date and recognize expenses on their income statements similar to the current Topic 840, Leases. It is effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. The Group is evaluating the impact the adoption of this standard will have on its financial position, results of operations, and cash flows.

In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting as part of its simplification initiative, which involves several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Group expects that the change will not have any impact on the Group’s results of operations.

In May 2014 the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. Since ASU 2014-09 was issued, several additional ASUs have been issued to clarify various elements of the guidance. These standards provide guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Adoption of the new standard is effective for reporting periods beginning after December 15, 2017, and early adoption is permitted. The standard permits the use of either the full retrospective or modified retrospective transition method. The Group is performing its initial evaluation of its standard arrangements with customers and its arrangements specific to certain of the Group’s product lines or product offerings. The Group is continuing to evaluate the effect that ASU 2014-09 will have on its financial position, results of operations, cash flows, and related disclosures.

 

34


JOTEC AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

2. Acquisition of Non-Compete and Other Intangibles

On March 9, 2017 JOTEC AG, JOTEC do Brazil and Neomex Hospitalar LTDA., Campinas, Brazil entered in a master purchase agreement whereby the Company acquired a non-compete and other intangibles for JOTEC products in the Brazilian market from the former sales agent Neomex. The purchase price for these intangibles was €2,500,000 with an obligation for additional purchase price consideration under certain circumstances.

3. Inventories

Inventories at September 30, 2017 and December 31, 2016 are comprised of the following (in thousands):

 

     September 30,
2017
     December 31,
2016
 

Raw materials and supplies

   2,458      2,569  

Unfinished goods and work in progress

     2,217        1,243  

Finished goods

     8,161        6,660  
  

 

 

    

 

 

 

Total inventories

   12,836      10,472  
  

 

 

    

 

 

 

The Group recorded write-downs to inventory of €729,000 and €437,000 for the nine months ended September 30, 2017 and 2016, respectively. Inventory held on consignment was €2,544,000 and €2,254,000 at September 30, 2017 and December 31, 2016.

4. Property, Plant and Equipment and Intangibles

Property, plant and equipment consist of the following (in thousands):

 

     September 30,
2017
     December 31,
2016
 

Building and land improvements

   6,809      6,605  

Technical equipment and machines

     5,417        5,173  

Other equipment, furniture and fixtures

     3,664        3,659  

Software

     1,219        1,171  

Payments on account and assets under construction

     527        420  
  

 

 

    

 

 

 

Total property, plant and equipment

     17,636        17,028  
  

 

 

    

 

 

 

Less accumulated depreciation

     6,380        8,612  
  

 

 

    

 

 

 

Total property, plant and equipment, net

   11,256      8,416  
  

 

 

    

 

 

 

Intangible Assets

As of September 30, 2017 and December 31, 2016 gross carrying values, accumulated amortization, and approximate amortization periods of the Company’s definite lived intangible assets are as follows (in thousands):

 

     Gross
acquisition
cost
     Accumulated
amortization
 

September 30, 2017

     

Purchased franchises and licenses in industrial and similar rights and assets

   466      451  

Non-compete and other intangibles

     3,946        671  
  

 

 

    

 

 

 
   4,412      1,122  
  

 

 

    

 

 

 

 

35


JOTEC AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

     Gross
acquisition
cost
     Accumulated
amortization
 

December 31, 2016

     

Purchased franchises and licenses in industrial and similar rights and assets

   477      453  

Non-compete and other intangibles

     1,506        330  
  

 

 

    

 

 

 
   1,983      783  
  

 

 

    

 

 

 

Amortization Expense

Amortization expense recorded in general, administrative, and marketing expenses for the nine months ended September 30 is as follows (in thousands):

 

     Nine Months Ended
September 30,
 
     2017      2016  

Amortization expense

   341      175  

As of September 30, 2017 scheduled amortization of intangible assets is as follows (in thousands):

 

     Remainder
of 2017
     2018      2019      2020      2021      Thereafter  

Amortization expense

   99          415          415          387          387          1,565  

5. Capital Lease Obligation and Operating Lease Commitments

The Company leases buildings and equipment, primarily consisting of:

 

    the lease of two properties (land and buildings) in Lotzenäcker 23 and Lotzenäcker 25, Hechingen, Germany, which includes the company’s production facility or corporate office buildings.

 

    lease of production equipment and machinery

The Company has capital leases for one building at the Group headquarters in Hechingen (building Lotzenäcker 23) with a shareholder (see note 10) and for several production machines and equipment. These leases have renewal clause providing for annual 1 year auto renewals unless the lease is terminated, but no purchase options and escalation clauses.

Future minimum capital lease payments for buildings and equipment are as follows (in thousands):

 

     September 30,
2017
 

Up to 1 Year

   867  

1 to 2 Years

     884  

2 to 3 Years

     779  

3 to 4 Years

     712  

4 to 5 Years

     654  

More than 5 Years

     5,406  
  

 

 

 

Total

   9,302  
  

 

 

 

Less amount representing interest (at rates ranging from 2.0% to 4.0%)

     (2,961
  

 

 

 

Present value of net minimum capital lease payments

     6,341  
  

 

 

 

Less current portion of minimum lease payments

     (776
  

 

 

 

Long-term obligations under capital leases

   5,565  
  

 

 

 

 

36


JOTEC AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Building and production equipment capitalized values and accumulated amortization are as follows (in thousands):

 

     September 30,
2017
     December 31,
2016
 

Historical costs capitalized

   6,882      6,693  

Cumulative depreciation

     3,582        3,024  
  

 

 

    

 

 

 

Carrying amount

   3,300      3,669  
  

 

 

    

 

 

 

On June 19, 2017, the lease agreement for the property Lotzenäcker 23 in Hechingen was extended between the owner of the property and shareholder Lars Sunnanväder and JOTEC GmbH from June 2017 until December 31, 2030. All other terms of the lease agreement remained unchanged. Due to this modification, the accounting for the capital lease of the building Lotzenäcker 23 was adjusted in June 2017, resulting in an increase of the capital lease obligation by €2,829,000, an increase of the carrying value of the leased building asset by €3,163,000, and in income from the modification for the leased asset in the amount of €336,000.

The future minimum lease payments on non-cancellable operating lease agreements at September 30, are:

 

     2017  

Within a year

   533  

After a year but no more than five years

     1,699  

More than five years

     2,721  
  

 

 

 
   4,953  
  

 

 

 

6. Shareholder Loans

 

(in thousands)    September 30,
2017
     December 31,
2016
     Loan
Repayment
Date
     Interest
Rate
 

Original loan date

           

12/31/2007

   17,880      21,756        December 2020        2.00

12/22/2008

     220        220        December 2020        2.00

12/30/2008

     220        220        December 2020        2.00

12/31/2008

     1,340        1,340        December 2020        2.00

2/20/2014

     1,154        1,154        December 2019        3.25

2/28/2015

     466        466        December 2019        3.25

3/23/2015

     466        466        December 2019        3.25

5/28/2016

     800        800        December 2020        1.50
  

 

 

    

 

 

       

Nominal amount

   22,546      26,422        
  

 

 

    

 

 

       

Carrying value

   22,412      24,565        
  

 

 

    

 

 

       

All shareholder loans are unsecured. As of December 31, 2016, a subordination agreement was provided for €13,845,000 of the shareholder loans. The subordinated portion of the outstanding loan balance was reduced through an agreement in January 2017, resulting in a subordinated amount of CHF 8,000,000 or €7,339,000 at September 30, 2017. The shareholder loans were provided during the period 2007 to 2016 with fixed interest rates of 1.5 to 3.25%. The Group determined that the rates of the shareholder loans were less than those which the Group would have been able to negotiate with a third-party lender for debt with the same terms. Accordingly, the group has recorded the difference in the fair value of the loan, calculated using an imputed interest rate of 11%, and the stated loan contract value as additional paid in capital.

 

37


JOTEC AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

Government Supported Bank Debt

In June 2015, JOTEC GmbH obtained two loans of Sparkasse Zollernalb, which are government sponsored by the Kreditanstalt für Wiederaufbau Bank (KFW). Both KFW loans have a term of 9 years and the interest rates are 2.45% and 1.4%. These interest rates compare to a market interest rate of 3.8% for similar debt provided to the Group. The difference between the initial carrying value of the loan and the proceeds received is treated as a government grant. The benefit of the below market rate of interest was measured as the difference between the initial carrying value of the loan determined applying a market interest rate and the proceeds received.

The total government grant value for the first KFW loan is €124,000 and €249,000 for the second KFW loan. The remaining balance of this government grant was €254,000 and €299,000 as of September 30, 2017 and December 31, 2016, respectively. Other operating income for the nine months ended September 30, 2017 and 2016 includes €45,000 and €38,000, respectively from the straight-line recognition of this government grant.

 

     Nominal
Value (EUR)
September 30,
2017
     Carrying
Value (EUR)
September 30,
2017
     Nominal
Value (EUR)
December 31,
2016
     Carrying
Value (EUR)
December 31,
2016
 

Lendor

           

Sparkasse Zollernalb (KFW Loan 1)

     1,444        1,381        1,611        1,532  

Sparkasse Zollernalb (KFW Loan 2)

     2,000        1,810        1,410        1,190  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3,444        3,191        3,021        2,722  
  

 

 

    

 

 

    

 

 

    

 

 

 

The KFW loans require quarterly principal installments of €119,000, plus interest at 1.4% and 2.45% on Loan 1 and Loan 2, respectively.

7. Income Taxes

Our effective income tax rate was 30% and 48% for the nine months ended September 30, 2017 and 2016, respectively. Our income tax rate for the nine months ended September 30, 2017 was impacted by differing tax rates for certain subsidiaries and no recognition of deferred tax assets for losses incurred by JOTEC UK. Our income tax rate for the nine months ended September 30, 2016 was impacted by unrecognized deferred tax loss carryforwards of €17,000, tax effects due to differing tax rates of €337,000 and other effects of €53,000.

Deferred Income Taxes

As of September 30, 2017 we maintained a total of €241,000 in valuation allowances against deferred tax assets, related to tax loss carryforward of the JOTEC UK subsidiary, and had a net deferred tax asset of € 1,570,000. As of December 31, 2016 we had a total of €130,000 in valuation allowances against deferred tax assets, related to net operating loss carryforwards, and a net deferred tax asset of €2,336,000.

8. Other Long-Term Liabilities

Other long-term liabilities include the following obligation (in thousands):

 

     September 30,
2017
     December 31,
2016
 

Obligation Fumedica Swiss Agreement

   1,042      1,120  

Less current portion of long-term other liabilities

     (150      (114
  

 

 

    

 

 

 

Other long-term liabilities

   892      1,006  
  

 

 

    

 

 

 

Until January 2014 Fumedica AG had the exclusive right to deliver and sell JOTEC products in the Swiss market. Starting in 2014 the Group established its own office entity to perform all sales activities in the Swiss market. In January 2014 the Group terminated the sales agreement with Fumedica. As part of the agreement Fumedica provides JOTEC a non-compete agreement, customer base data, and existing inventory and future adminstrative services. In exchange, the parties agreed in January 2016 (but with retrospective date of the cancellation of the sales agreement in 2014) on a compensation payment to make by JOTEC, calculated as follows:

 

    10% of future annual sales (net of VAT and after deductions) during the period January 2015 to December 2027

 

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JOTEC AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

    maximum payment of CHF 1.8 million over the entire term

 

    minimum annual payment of CHF 125,000 (for 2017 and 2018), of CHF 150,000 (from 2019 to 2021) and of CHF 175,000 (from 2022 to 2027).

Based on this agreement the Group capitalized an intangible asset for the non-compete and other intangibles in the Swiss market and the present value of the future expected payments for the compensation is recorded as an obligation due to Fumedica AG. The intangibles are amortized over an expected useful life of 10 years. The obligation is accreted back to the nominal amount using an interest rate of 3.8% and is reduced by the annual payments (either 10% of the respective annual sales or the agreed minimum amounts, whatever is lower).

9. Sale of Investment and Notes Receivable NVT

JOTEC AG owned a 24.51% share of the common stock of NVT. The historical cost of this investment was CHF 125,000 which was subsequently reduced to a zero carrying value due to the accumulated losses of NVT exceeding the historical investment. This investment in NVT was sold to other NVT AG investors in March 2017 for CHF 539,000, resulting in a gain.

JOTEC AG extended loans to NVT during the years after initial investment, which were included in Notes receivable in the Group consolidated financial statements. The carrying value of these loans to NVT were €1,240,000 after impairment, nominal value of €4,087,000, in March 2017 when the notes receivable were sold to other NVT investors at the nominal value. The resulting gain is included in Other expense, net in the statements of operations and comprehensive income (loss).

10. Related Party Disclosures

A member of the Company’s Board of Directors and a shareholder of the Company with significant influence, Mr. Lars Sunnanväder, is the owner of the property Lotzenäcker 23 and Lotzenäcker 25 in Hechingen that is rented to JOTEC GmbH. The obligation of the Lease contract for Lotzenäcker 23, Hechingen amounts to €7,014,000 at the inception of the Lease in 2011 and the lease payment for the nine months ended September 30, 2017 and twelve months ended December 31, 2016 were €531,000 and €708,000, respectively. The obligation of the Lease contract for Lotzenäcker 25, Hechingen amounts to €3,918,000 at the inception of the Lease and the lease payment for the nine months ended September 30, 2017 and twelve months ended December 31, 2016 were €196,000 and €261,000, respectively.

JOTEC AG has outstanding shareholder loan agreements with shareholders and their close relatives. The total interest expenses paid to the shareholders and their close relatives for the nine months ended September 30, 2017 and twelve months ended December 31, 2016 were €301,000 and €538,000 respectively. For the open balance and interest rates from these shareholder loans we refer to the table in note 6.

NVT has the same shareholder as JOTEC AG. JOTEC is providing management and administration services to NVT Group. For these services the Group charged NVT Group fees for the nine months ended September 30, 2017 and twelve months ended December 31, 2016 of €259,000 and €329,000 respectively.

In January 2016 the Group agreed in the purchase of certain intangibles from Fumedica AG, Muri, Switzerland for a maximum amount of CHF 1,800,000; for further details regarding this agreement we refer to note 8. The open balance from this contractual obligation amounts to €1,042,000 and to €1,120,000 at September 30, 2017 and December 31, 2016, respectively.

 

39


JOTEC AG AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

 

11. Subsequent Events

On December 1, 2017, 100% of the outstanding shares of JOTEC AG were acquired under terms of a securities purchase agreement, dated as of October 10, 2017, by and among CryoLife, Inc., certain of its subsidiaries, and the security holders of JOTEC AG. In conjunction with the acquisition, Cryolife acquired the outstanding shareholder loans, which were reclassified as intercompany loans from CryoLife as of that date.

 

 

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