Attached files
file | filename |
---|---|
EX-99.3 - EX-99.3 - SURGALIGN HOLDINGS, INC. | d102898dex993.htm |
EX-99.1 - EX-99.1 - SURGALIGN HOLDINGS, INC. | d102898dex991.htm |
EX-23.1 - EX-23.1 - SURGALIGN HOLDINGS, INC. | d102898dex231.htm |
8-K/A - 8-K/A - SURGALIGN HOLDINGS, INC. | d102898d8ka.htm |
Exhibit 99.2
Independent Accountants Review Report
To the Stockholders and Board of Directors of
Holo Surgical Inc. and Subsidiaries
We have reviewed the accompanying financial statements of Holo Surgical Inc. and its subsidiaries (the Company), which comprise the balance sheets as of September 30, 2020 and 2019 and the related statements of operations, stockholders equity, and cash flows for the nine-month periods then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to managements financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatement whether due to fraud or error.
Accountants Responsibility
Our responsibility is to conduct the reviews engagements in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion.
Accountants Conclusion
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America.
/s/ BAKER TILLY US, LLP
Chicago, Illinois
December 22, 2020
Holo Surgical Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 30, 2020 and 2019
(In dollars)
September 30, 2020 |
September 30, 2019 |
|||||||
Assets |
||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 10,405 | $ | | ||||
|
|
|
|
|||||
Total current assets |
10,405 | | ||||||
Other intangible assets - net |
13,593 | 17,733 | ||||||
|
|
|
|
|||||
Total assets |
$ | 23,998 | $ | 17,733 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Stockholders equity: |
||||||||
Common stock |
1 | 1 | ||||||
.0001 par value |
||||||||
10,000 shares authorized |
||||||||
10,000 shares issued and outstanding |
||||||||
Additional paid-in capital |
2,974,630 | 2,079,306 | ||||||
Accumulated deficit |
(2,950,633 | ) | (2,061,574 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
23,998 | 17,733 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 23,998 | $ | 17,733 | ||||
|
|
|
|
See notes to unaudited financial statements.
Holo Surgical Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
For the Nine Months Ended September 30, 2020 and 2019
(In dollars)
For the Nine Months Ended September 30, |
||||||||
2020 | 2019 | |||||||
Revenues |
$ | | $ | | ||||
Cost of goods sold |
| | ||||||
|
|
|
|
|||||
Gross profit |
| | ||||||
|
|
|
|
|||||
Operating Expenses |
||||||||
General and administrative |
| | ||||||
Research and development costs |
622,890 | 482,053 | ||||||
Amortization of intangible assets |
1,516 | 7,871 | ||||||
|
|
|
|
|||||
Total expenses |
624,406 | 489,924 | ||||||
|
|
|
|
|||||
Total operating loss |
(624,406 | ) | (489,924 | ) | ||||
|
|
|
|
|||||
Net loss |
$ | (624,406 | ) | $ | (489,924 | ) | ||
|
|
|
|
See notes to unaudited financial statements.
Holo Surgical Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders Equity
For the Nine Months Ended September 30, 2020 and 2019
(In dollars)
Total | ||||||||||||||||
Common | Additional | Accumulated | Stockholders | |||||||||||||
Stock | Paid-in Capital | Deficit | Equity | |||||||||||||
Balance at January 1, 2019 |
1 | 1,597,253 | (1,571,650 | ) | 25,604 | |||||||||||
Q3 2019 YTD net loss |
| | (489,924 | ) | (489,924 | ) | ||||||||||
Stockholders contributions |
| 482,053 | | 482,053 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2019 |
$ | 1 | $ | 2,079,306 | $ | (2,061,574 | ) | $ | 17,733 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at January 1, 2020 |
1 | 2,341,335 | (2,326,227 | ) | 15,109 | |||||||||||
Q3 2020 YTD net loss |
| | (624,406 | ) | (624,406 | ) | ||||||||||
Stockholders contributions |
| 633,295 | | 633,295 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at September 30, 2020 |
$ | 1 | $ | 2,974,630 | $ | (2,950,633 | ) | $ | 23,998 | |||||||
|
|
|
|
|
|
|
|
See notes to unaudited financial statements.
Holo Surgical Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2020 and 2019
(In dollars)
For the Nine Months Ended September 30, |
||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (624,406 | ) | $ | (489,924 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Amortization of intangibles |
1,516 | 7,871 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
(622,890 | ) | (482,053 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Contributions by stockholders |
633,295 | 482,053 | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
633,295 | 482,053 | ||||||
|
|
|
|
|||||
Net change in cash and cash equivalents |
10,405 | | ||||||
Cash and cash equivalents, beginning of period |
| | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 10,405 | $ | | ||||
|
|
|
|
See notes to unaudited financial statements.
Holo Surgical Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2020 and 2019
(In dollars)
1. Summary of Significant Accounting Policies
Nature of Operations
Holo Surgical Inc. and its subsidiaries (collectively, the Company) is a digital surgery company focused on improving patient outcomes by bringing Augmented Reality and Artificial Intelligence to the operating room.
Principles of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its directly or indirectly wholly owned subsidiaries HoloSurgical Technology Inc. and HoloSurgical Technology Polska sp. Zoo. Significant intercompany accounts and transactions have been eliminated. Prior to the Transaction (defined below) Holo Surgical Inc. was a direct or indirect wholly owned subsidiary of Roboticine Inc. through its subsidiary Holo Surgical S.A. (collectively Parent).
Foreign Currency Translation
The local currency is the functional currency for the Companys foreign subsidiaries. Expenses allocated to the Company by the Parent are translated at the weighted-average exchange rates for the period.
Cash and Cash Equivalents
The Company defines cash and cash equivalents as highly liquid, short-term investments with a maturity at the date of acquisition of three months or less.
Intangible Assets
Internally-developed intangibles are carried at cost of expenses incurred. Internally-developed patents are amortized over their estimated useful life.
Impairment of Long-Lived Assets
The Company reviews 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 impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. To date, there have been no such losses.
Research and Development Costs
Research and development costs are expensed in the period incurred. These costs, representing raw materials, engineering salaries, fringe benefits, other direct expenses, and a portion of the Companys overhead, are included in the accompanying consolidated statement of operations, within operating expenses. Research and development expenses were $622,890 and $482,053 for the periods ended September 30, 2020 and 2019, respectively.
Note Payable - Related Party
In August 2020, the Company obtained a related-party promissory note with Parent for approximately $120,000. The note is payable on December 31, 2021. On October 19, 2020, Parent contributed the promissory note to the Company, and immediately thereafter, the promissory note was terminated.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes.
Temporary differences arise principally from the use of the allowance method of bad debt recognition for financial reporting purposes and the direct write-off method for income tax purposes; differences in depreciation methods used for book and tax purposes; capitalization of certain handling, storage and administrative expenses for income tax purposes only; differences in required methods for reporting pension expense; timing of deductions of contracts payable to former officers; and recognition of an allowance for obsolete inventory for financial reporting purposes only. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
During February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). ASU No. 2016-02 requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements, which provides entities with an additional (and optional) transition method whereby an entity initially applies the new lease standard at the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Due to the deferred required implementation date set forth by the FASB in June 2020, Topic 842 (as amended) is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. The Company is currently assessing the effect that Topic 842 (as amended) will have on its results of operations, financial position and cash flows but plans to elect the transitional method noted in ASU 2018-11.
Subsequent Events
The Company has evaluated subsequent events through December 22, 2020, which is the date the consolidated financial statements were made available for issuance, and has concluded that no such events or transactions took place which would require disclosure herein.
COVID-19
In December 2019, a novel strain of coronavirus was reported in Wuhan, Hubei province, China. In the first several months of 2020, the virus, SARS-CoV-2 and resulting disease, COVID-19, spread to the United States, including to geographic locations in which the Company operates. As of the date above, the Companys evaluation of the effects of these events is ongoing.
The extent of the impact of COVID-19 on the Companys operational and financial performance will depend on future developments, including the duration and spread of the outbreak and related governmental or other regulatory actions.
Stock Purchase Agreement
The Company is dependent on cash flows from financing to fund research and development operations. As of December 31, 2019, the Company did not have adequate liquidity to operate for at least twelve months. However, in September 2020, the Company entered into a stock purchase agreement whereby all issued and outstanding shares of common stock were acquired by Surgalign Holdings, Inc. in October 2020 (the Transaction).
2. Income Taxes
The provision (benefit) for income tax expense and the related components are as follows for the nine-month periods ended September 30:
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Current: |
||||||||
Federal |
$ | | $ | | ||||
State |
| | ||||||
|
|
|
|
|||||
Total deferred |
| | ||||||
|
|
|
|
|||||
Deferred: |
||||||||
Federal |
| | ||||||
State |
| | ||||||
|
|
|
|
|||||
Total deferred |
| | ||||||
|
|
|
|
|||||
Total income tax provision (benefit) |
| | ||||||
|
|
|
|
|||||
Valuation allowance |
| | ||||||
|
|
|
|
|||||
Total income tax provision, net |
$ | | $ | | ||||
|
|
|
|
The valuation allowance has been established because, based on the weight of available evidence, the Company has determined that it is more likely than not that the deferred tax assets will not be realized. The components of deferred income tax assets and liabilities are as follows as of September 30:
Nine Months Ended September 30, | ||||||||
2020 | 2019 | |||||||
Deferred tax assets: |
||||||||
Net operating losses - Federal |
$ | 424,557 | $ | 239,275 | ||||
Net operating losses - state |
151,728 | 85,512 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
576,285 | 324,787 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Amortizable intangibles |
6,118 | 5,055 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
6,118 | 5,055 | ||||||
|
|
|
|
|||||
Total deferred tax assets, net |
570,167 | 319,732 | ||||||
|
|
|
|
|||||
Valuation allowance |
(570,167 | ) | (319,732 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets, net |
$ | | $ | | ||||
|
|
|
|
As of September 30, 2020, the Company has not recorded any reserve related to uncertain tax positions. There were no interest and penalty amounts included in the uncertain tax positions as of December 31, 2019. The Company does not expect any changes in its uncertain tax positions during the next 12 months that will have a significant impact on the Companys financial position or results of operations. Tax years 2018 - 2016 for Federal and state taxes remain open to statute.
At September 30, 2020, the Company has $2,021,699 of Federal and $2,021,699 of state net operating losses to carryforward. The state net operating loss carryforwards will begin to expire in 2030.
The Company currently has a valuation allowance against its net deferred tax assets it is expected that the company will not be able to utilize the assets in future years.