true 0001350653 0001350653 2021-05-13 2021-05-13

 

 

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): May 13, 2021

 

ALPHATEC HOLDINGS, INC.

(Exact Name of Registrant as Specified in Charter)

 

 

Delaware

 

000-52024

 

20-2463898

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

1950 Camino Vida Roble

Carlsbad, California 92008

(Address of Principal Executive Offices)

 

(760) 431-9286

(Registrant’s telephone number, including area code)

 

Not applicable

(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:

 

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 240.14.a-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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $.0001 per share

ATEC

The NASDAQ Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

 


 

 

Item 2.01

Completion of Acquisition or Disposition of Assets

As previously announced, on December 16, 2020, Alphatec Holdings, Inc. (“ATEC” or the “Company”), entered into a Tender Offer Agreement (the “Tender Offer Agreement”) with EOS imaging S.A., a société anonyme organized and existing under the laws of France (“EOS”), pursuant to which ATEC or one of its affiliates would commence a public tender offer (the “Offer”) to purchase all of the issued and outstanding ordinary shares, nominal value €0.01 per share (collectively, the “EOS Shares”), and outstanding convertible bonds (“OCEANEs”), of EOS. Additional information about the Tender Offer Agreement and the Offer are provided in the Company’s Current Report on Form 8-K filed on December 17, 2020.

On May 13, 2021, Alphatec Holdings, Inc. (“ATEC” or the “Company”) substantially completed the Offer, pursuant to which the Company ultimately purchased 100% of the issued and outstanding EOS Shares, and 57% of the outstanding OCEANEs of EOS. The Offer consisted of a cash tender offer price of €2.45 (or approximately $2.99) per EOS Share and €7.01 (or approximately $8.55) per OCEANE, for a total purchase price of $100.0 million.

The Company previously reported the substantial purchase of outstanding shares of EOS, pursuant to the Tender Offer Agreement, on its Current Report on Form 8-K filed with the Securities and Exchange Commission on May 18, 2021 (the “Initial 8-K”). This Amendment Number 1 to Current Report on Form 8-K/A (this “Form 8-K/A”) amends the Initial 8-K to include the financial statements and pro forma financial information required to be filed in connection with the acquisition of EOS pursuant to Item 9.01(a) and (b) of Form 8-K. The information previously reported under Item 2.01 in the Initial 8-K filed on May 18, 2021 is hereby incorporated by reference into this Form 8-K/A.

 


 

 

Item 9.01

 

Financial Statements and Exhibits

 

(a)

 

Financial Statements of Businesses Acquired

 

 

 

 

 

In connection with the closing of the Offer, the Company is filing with this Current Report on Form 8-K the audited financial statements of EOS as of December 31, 2020, and for the year ended December 31, 2020, and the related notes to the financial statements, which are included as Exhibit 99.1 and incorporated herein by reference

 

 

 

(b)

 

Pro Forma Financial Information

 

 

 

 

 

In connection with the closing of the Offer, the Company is filing with this Current Report on Form 8-K the unaudited pro forma combined balance sheet for the Company as of March 31, 2021, the related unaudited pro forma combined statements of operations for the three months ended March 31, 2021, and the fiscal year ended December 31, 2020, and the related notes to the unaudited pro forma combined financial information, which are included as Exhibit 99.2 and incorporated herein by reference.

 

 

 

(d)

 

Exhibits

 

 

 

23.1

 

Consent of Independent Registered Public Accounting Firm

99.1

 

EOS Audited Financial Statements as of December 31, 2020

99.2

 

Company Unaudited Pro Forma Statements as of December 31, 2020 and March 31, 2021

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 


 

 

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.

 

Date: July 23, 2021

ALPHATEC HOLDINGS, INC.

 

 

 

By:

 

/s/ J. Todd Koning

 

Name:

 

J. Todd Koning

 

Its:

 

Chief Financial Officer

 

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

We consent to the incorporation by reference in Registration Statement Nos. 333-200869, 333-217444, 333-221085, 333-224304, 333-222664, 333-239546, 333-241677, and 333-254915 on Form S-3 and Registration Statement Nos. 333-144293, 333-147212, 333-187189, 333-187190, 333-195604, 333-196616, 333-196617, 333-202504, 333-202505, 333-211182, 333-213981, 333-215036, 333-217055, 333-217907, 333-221084, 333-225080, 333-232661 and 333-239556 on Form S-8 of Alphatec Holdings, Inc. of our report dated July 22, 2021, relating to the consolidated financial statements of EOS Imaging S.A. appearing in this Current Report on Form 8-K/A dated July 23, 2021.

 

 

Deloitte & Associés
/s/ Géraldine SEGOND

Paris-La Défense, July 23, 2021

 

 

 

Exhibit 99.1

 

 

 

 

 

 

A French Public Limited Company (Société Anonyme), with share capital of €266 599,46

 

Registered office: 10 rue Mercœur 75011 Paris

 

Paris Trade & Companies Registry No. 349 694 893

 

 

 

 

 

 

I-2020 CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

EOS imaging

Société anonyme

10, rue Mercoeur

75011 Paris 

_____________________________________________

Report of one of the Statutory Auditors
on the Audit of the Consolidated Financial Statements

Years ended December 31, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 


 

 

 

EOS Imaging

Société anonyme

10, rue Mercoeur

75011 Paris 

_____________________________________________

Report of one of the Statutory Auditors
on the Audit of the Consolidated Financial Statements

Years ended December 31, 2020 and 2019

________________________________________

We have audited the accompanying consolidated financial statements of EOS imaging and its subsidiaries (the "Company"), which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated statements of operations, consolidated statements of change in equity, and consolidated statements of cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (“IFRS”); 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.

Auditor’s 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 audit 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 auditor’s 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 Company's 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 Company's 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 EOS imaging and its subsidiaries as of December 31, 2020 and 2019, and the results of

 

3

 


 

 

their operations and their cash flows for the years then ended in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (“IFRS”).

 

Paris-La Défense, July 22, 2021

One of the Statutory Auditors

Deloitte & Associés
Géraldine SEGOND

 

 

4

 


 

 

 

CONSOLIDATED BALANCE SHEETS

(in thousands of euros)

ASSETS

Note

12/31/20

 

12/31/19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

5

 

5,131

 

 

5,131

 

Intangible assets

6

 

8,487

 

 

8,488

 

Rights of use

7

 

3,671

 

 

4,386

 

Property, plant, and equipment

8

 

1,535

 

 

2,068

 

Financial assets

9

 

155

 

 

197

 

 

 

 

 

 

 

 

 

Total non-current assets

 

 

18,979

 

 

20,271

 

 

 

 

 

 

 

 

 

Inventories and work in progress

10

 

13,377

 

 

13,513

 

Trade receivables

11.1

 

9,822

 

 

17,698

 

Other current assets

11.2

 

3,191

 

 

5,215

 

Cash and cash equivalents

12

 

9,717

 

 

8,186

 

 

 

 

 

 

 

 

 

Total current assets

 

 

36,108

 

 

44,613

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

55,087

 

64,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

12/31/20

 

12/31/19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

 

 

267

 

 

266

 

Treasury shares

 

 

(443

)

 

(448

)

Share premiums

 

 

166

 

 

6,916

 

Reserves

 

 

11,199

 

 

22,782

 

Translation reserves

 

 

406

 

 

991

 

Consolidated income attributable to the parent

 

 

(11,179

)

 

(18,429

)

 

 

 

 

 

 

 

 

Total equity

13

 

416

 

 

12,078

 

 

 

 

 

 

 

 

 

Provisions

14

 

685

 

 

1,144

 

Financial liabilities

15

 

24,473

 

 

24,646

 

Lease liabilities

7

 

3,247

 

 

3,912

 

 

 

 

 

 

 

 

 

Total non-current liabilities

 

 

28,405

 

 

29,702

 

 

 

 

 

 

 

 

 

Financial liabilities

15

 

1,551

 

 

1,738

 

Lease liabilities

7

 

527

 

 

531

 

Trade payables

16.1

 

3,434

 

 

3,969

 

Other current liabilities

16.2

 

20,754

 

 

16,866

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

26,266

 

 

23,104

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

55,087

 

64,884

 

 

 

 

 

 

 

 

 

5

 


 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of euros)

 

 

Note

Fiscal Year End

 

 

 

12/31/20

 

12/31/19

 

 

 

 

 

 

 

 

 

Revenue from ordinary activities

 

 

 

 

 

 

 

Revenue

 

 

23,829

 

 

20,087

 

Other income

 

 

2,192

 

 

2,129

 

 

 

 

 

 

 

 

 

Total revenue

17

 

26,021

 

 

22,467

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

Direct cost of sales

20.1

 

(11,223

)

 

(10,962

)

Indirect costs of production and service

20.2

 

(4,587

)

 

(4,402

)

Research and development

20.3

 

(5,597

)

 

(4,799

)

Sales, clinical and marketing

20.4

 

(7,390

)

 

(11,168

)

Regulatory

20.5

 

(804

)

 

(911

)

Administrative costs

20.6

 

(5,972

)

 

(5,924

)

Share-based payments

19

 

(38

)

 

(743

)

 

 

 

 

 

 

 

 

Total expenses

 

 

(35,611

)

 

(38,908

)

 

 

 

 

 

 

 

 

OPERATING PROFIT (LOSS)

 

 

(9,591

)

 

(16,693

)

 

 

 

 

 

 

 

 

Financial expenses

21

 

(2,746

)

 

(1,904

)

Financial revenue

21

 

1,163

 

 

168

 

 

 

 

 

 

 

 

 

PROFIT (LOSS) FROM ORDINARY ACTIVITIES BEFORE INCOME TAXES

 

 

(11,173

)

 

(18,429

)

 

 

 

 

 

 

 

 

Income tax expense

22

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

NET PROFIT (LOSS) FOR THE PERIOD - Attributable to the parent

 

 

(11,179

)

 

(18,429

)

 

 

 

 

 

 

 

 

Translation differences on foreign entities

 

 

(585

)

 

349

 

Actuarial differences on pension commitments

 

 

(8

)

 

114

 

 

 

 

 

 

 

 

 

TOTAL PROFIT (LOSS) FOR THE PERIOD

 

 

(11,772

)

 

(17,966

)

 

 

 

 

 

 

 

 

Earnings per share (in €)

 

 

(0.42

)

 

(0.7

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 


 

 

 

CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY

(in thousands of euros)

 

CHANGES IN

EQUITY

Capital

 

Primes liées

au capital

 

Actions

propres

 

Réserves

consolidées

 

Ecarts de

conversion

 

Résultat

consolidé

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/31/2019

 

266

 

 

6,916

 

 

(448

)

 

22,782

 

 

991

 

 

(18,429

)

 

12,078

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appropriation of profit (loss) N-1

 

 

 

 

 

 

 

 

 

 

(18,429

)

 

 

 

 

18,429

 

 

 

 

Capital Increase

 

1

 

 

66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

67

 

Allocation of loss carry-forward to issue premium

 

 

 

 

(6,816

)

 

 

 

 

6,816

 

 

 

 

 

 

 

 

 

 

Change in translation differences

 

 

 

 

 

 

 

 

 

 

 

 

 

(585

)

 

 

 

 

(585

)

Change in actuarial differences

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

 

 

(8

)

Profit (loss) N

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,179

)

 

(11,179

)

Paiements in shares

 

 

 

 

 

 

 

 

 

 

38

 

 

 

 

 

 

 

 

38

 

Treasury shares

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12/31/2020

 

267

 

 

166

 

 

(443

)

 

11,199

 

 

406

 

 

(11,179

)

 

416

 

 

 

7

 


 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of euros)

 

 

2020

 

2019

 

 

12 mois

 

12 mois

 

 

 

 

 

 

 

 

CASH FLOWS RELATING TO OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Net profit/(loss)

 

(11,179

)

 

(18,429

)

Elimination of depreciation, amortisation and provisions

 

2,716

 

 

2,174

 

Calculated expenses and income linked to share-based payments

 

38

 

 

743

 

 

 

 

 

 

 

 

Financial expenses - Lease liabilities

 

124

 

 

134

 

Financial expenses - Bond borrowings

 

 

 

 

 

 

Financial expenses - OCEANE convertible bonds

 

(306

)

 

(180

)

Financial expenses - Repayable advances

 

3

 

 

6

 

Sub-total (“capacité d'autofinancement”)

 

(8,604

)

 

(15,552

)

 

 

 

 

 

 

 

Inventories and work in progress

 

136

 

 

(4,734

)

Trade receivables

 

7,111

 

 

15,376

 

Other current assets

 

2,008

 

 

(947

)

Trade payables

 

(428

)

 

(3,129

)

Other current liabilities

 

4,482

 

 

1,432

 

Change in WCR

 

13,308

 

 

7,998

 

 

 

 

 

 

 

 

Net cash from/(used in) operating activities

 

4,704

 

 

(7,554

)

 

 

 

 

 

 

 

CASH FLOWS RELATING TO INVESTMENT ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of property, plant, and equipment and intangible assets

 

(2,677

)

 

(3,318

)

Acquisition of property, plant, and equipment and intangible assets

 

393

 

 

461

 

Change in financial assets

 

42

 

 

111

 

 

 

 

 

 

 

 

Net cash from/(used in) investing activities

 

(2,241

)

 

(2,746

)

 

 

 

 

 

 

 

CASH FLOWS RELATING TO FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital increase

 

67

 

 

127

 

Loan US and Canada

 

691

 

 

 

 

Forgiven Loan US and Canada

 

(672

)

 

 

 

Repayments of advances and interest-free loans

 

(76

)

 

(655

)

Lease liabilities

 

(793

)

 

(699

)

Acquisition/disposal of treasury stock

 

5

 

 

(36

)

 

 

 

 

 

 

 

Net cash from/(used in) financing activities

 

(777

)

 

(1,263

)

 

 

 

 

 

 

 

Impact of exchange rate fluctuations

 

(154

)

 

31

 

 

 

 

 

 

 

 

Change in cash

 

1,531

 

 

(11,532

)

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of the year

 

8,186

 

 

19,718

 

Cash and cash equivalents at year-end

 

9,717

 

 

8,186

 

 

 

 

 

 

 

 

CHANGE IN CASH

 

1,531

 

 

(11,532

)

 

 

8

 


 

 

 

Notes to THE CONSOLIDATED financial statements

Note 1 :the Company

Founded in 1989, EOS Imaging SA develops an innovative medical imaging device dedicated to osteoarticular pathologies and orthopaedics as well as associated applications.

As part of its international development, the company has created four subsidiaries:

- EOS Imaging Inc. in the United States in June 2006,

- EOS Image Inc. in Canada in August 2000,

- EOS Imaging Gmbh in Germany in May 2008,

- EOS Imaging Pte Ltd in Singapore in May 2015.

In November 2013, the Company acquired 100% of the shares of OneFit Médical, a publisher of planning software for knee and hip surgery and manufacturer of customised cutting guides for orthopaedics.

Since 15 February 2012, the company has been listed on the regulated market of NYSE Euronext in Paris.

Note 2 :significant events

Agreement for Alphatec Holdings Inc. to make a public offer for EOS

On 28 February 2020, the Board of Directors approved the signing of an agreement to file a proposed public offer with Alphatec Holdings, Inc. (Nasdaq: ATEC), a medical device company specialising in innovative solutions for spine surgery. Under the terms of this agreement, ATEC would launch a public offer for all the shares and OCEANEs issued by EOS.

The Offer would have consisted of a cash tender offer on a principal basis at a price of €2.80 per EOS share and on a subsidiary basis a public exchange offer with an exchange ratio of 1 ATEC ordinary share for 2 EOS shares.

The transaction was supported by the main EOS shareholders.

The Offeror informed the Company on 24 April 2020 of its termination of the agreement to file the proposed public offer due to its assessment of the impact of the COVID-19 epidemic on the Company. The Company informed the market by press release dated 27 April 2020 and a disagreement arose between the two companies. The Company filed a lawsuit against the Offeror before the Paris Commercial Court on 9 September 2020.

The uncertainties created by COVID-19 having been overcome, Alphatec renewed its interest in a combination with the Company in the form of a public offer for the Company's Securities, formalised by a letter of intent dated 30 October 2020.

At its meeting on 15 December 2020, the Board of Directors of the Company welcomed the principle of the Offer and unanimously approved the signing of a new tender offer agreement relating to the filing of a proposed tender offer by Alphatec Holdings, Inc.

 

9

 


 

 

At its meeting, the EOS Board of Directors also set up an ad hoc committee composed of two independent members and appointed an independent expert, Accuracy (represented by Mr. Henri Philippe), to draw up a fairness opinion on the financial conditions of the Offer.

The transaction is supported by the main EOS shareholders. On 16 December 2020, ATEC received commitments to tender to the Offer from Fosun Pharmaceutical AG and Bpifrance Investissement, as well as from the Founder and the Chief Executive Officer of EOS, for all of their EOS shares (i.e. approximately 23% of the capital and voting rights of EOS).

The Offer Agreement was signed on 16 December 2020.

ATEC and EOS are both pioneers in their respective fields, providing innovative solutions for orthopaedic surgery. This transaction would strengthen their position in the global orthopaedic market.

-ATEC has developed a highly differentiated solution that provides the surgeon with information in the operating room, combining the surgical approach, specific implants, a nerve pathway monitoring system and the Informatix platform.

-EOS provides a unique, clinically recognised solution to provide the surgeon with 3D biomechanical measurements from biplane images in a functional position, at low dose, which are used, among other things, to analyse the patient's sagittal balance, plan the operation and evaluate the postoperative result.

The combination of the two companies' offerings would improve patient management, from diagnosis to surgical planning, post-operative monitoring and long-term follow-up. The complementary expertise would help improve surgical planning by integrating the implant's specific characteristics, providing the surgeon with essential information before and during surgery.

Product integration would begin in the United States, the largest orthopaedic market, where ATEC has a proven track record and where the combined company could significantly expand its presence through the existing networks and locations of both companies, and gradually expand globally. Meanwhile, outside the US, EOS is expected to continue to strengthen the roll-out of its current offering.

- EOS shareholders would receive a price of 2.45 euros per EOS share. The Offer price reflects a premium of 41% over the EOS share price at the close of business on 16 December 2020 and of 43%, 56% and 63% respectively over the volume weighted average price of the EOS share over the last one, three and six months.

- The Offer would be made for all the outstanding OCEANEs issued by EOS for a price of (i) 7.01 euros per OCEANE (coupon attached due on 31 May 2021) or (ii) 6.81 euros per OCEANE (coupon detached due on 31 May 2021).

The transaction will remain subject to the fulfilment of conditions precedent

The undertakings to tender to the Offer will lapse in the event of a competing offer made at a higher price than the Offer and declared compliant by the AMF, unless ATEC decides to outbid the competing offer in accordance with the conditions set out in the AMF's General Regulations.

In addition, under the terms of the tender offer agreement, EOS has accepted a customary non-solicitation undertaking. In addition, EOS has undertaken to waive its legal action against ATEC in

 

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relation to the termination of the first agreement concluded between the two parties on 28 February 2020

In accordance with the terms of the tender offer agreement, EOS will have to pay, in certain circumstances, a break-up fee equal to 2% of the maximum amount of the Offer price (i.e. '2 million) to ATEC and ATEC will have to pay, in other circumstances, a reverse break-up fee of an identical amount to EOS.

This indemnity will be payable by EOS if its Board of Directors decides not to recommend that the shareholders tender to the Offer or in the event of a competing offer.

The Offer will be subject, in addition to the 50% lapse threshold, to the acceptance threshold of two thirds of the capital and voting rights of EOS (on a diluted basis) in view of the results of the offer.

ATEC intends to implement a squeeze-out at the end of the Offer at the Offer price ('2.45 per EOS share) if the conditions for doing so are met.

The AMF has published a notice announcing the start of a pre-bid period on 17 December 2020.

COVID-19 health crisis

The various regions where the Company operates were progressively affected during the first quarter by the COVID-19 health crisis. The initial commercial impact was seen in Asia in early January, with a spread in mid-March to Europe and North America. In all regions, the focus was on employee and customer safety. The Company has implemented appropriate protective measures for its employees in line with the recommendations and guidelines issued by the French government and the governments of the countries where the company operates, such as remote working and travel restrictions.

As the number of patients with COVID-19 continues to increase, healthcare systems have taken steps to address the increase in admissions of these patients. Some hospitals and private imaging centres have suspended their orthopaedic activity for several weeks in the first half of 2020.

Facilities that had been planned during the containment period were delayed, only to be rescheduled after decontamination. This resulted in a temporary delay in deliveries and the corresponding turnover.

Equipment order intake was hampered by the limited access of sales staff to hospitals, and by the postponement of investment decisions by our customers in the absence of visibility.

Maintenance activities were limited to emergency rooms for facilities open during the containment period, and gradually resumed with the resumption of imaging activities. However, the Company has signed annual fixed-price service contracts with the majority of its customers, including annual maintenance and preventive monitoring.  Maintenance revenues were therefore not impacted by the pandemic.

In the second half of the year, the company's installation and marketing activities gradually resumed their rhythm.

With regard to installations, client projects were delayed due to the level of work involved in preparing the rooms or to the possibility of EOS teams travelling to certain regions. Nevertheless, the projects continued.

 

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Sales staff were able to make progress with their customers and prospects on new imaging platform acquisition projects, many of which resulted in a strong upturn in orders in the third and especially the fourth quarter.

The Company has flexibly implemented all the adjustment possibilities at its disposal in order to preserve its financial resources, while continuing to promote its technologies.

The Company reduced the activity of its European and North American employees between March and June 2020 through short-time working and partial leave.

The Company has adapted its production programme to the shift in its installation schedule and reviewed its supply schedule with its suppliers. It should be noted that as the Company's key suppliers are mainly based in France, Canada and Europe, the Company has not identified any specific supply risks.

The Company has also used measures to alleviate short-term cash pressure: deferring the payment of employer social security contributions; accelerating the payment of the research tax credit; obtaining partially forgivable employment support loans: in the United States, in the amount of $816,000, and in Canada, in the amount of $40,000 Canadian; obtaining employment subsidies in Singapore and Australia.

EOS imaging has also implemented a major cost reduction plan: reduction in the number of external consultants and speakers, freezing of hiring, reduction in travel. The professional conferences, cancelled or postponed in the first half of the year, were then held virtually, which significantly reduced costs, without any major impact on our ability to communicate with our market.

All these elements contributed to the improvement of EOS imaging's cash position.

First installations of the new eosedge system

As a reminder, the EOSedge received 510(k) clearance from the U.S. Food and Drug Administration ("FDA") in 2019 and regulatory approvals in Europe (CE Mark), Canada (Health approval), and Australia (TGA). The global commercial launch was achieved at the end of November 2019, at the RSNA conference in Chicago (USA).

This system completed the EOS imaging product range alongside the first generation of EOS® systems. It combines the latest innovations in X-ray detection with low radiation dose and high image resolution. In particular, the system incorporates the new Flex Dose™ technology, allowing the radiation dose to be modulated and thus optimised throughout the patient scan, as well as photon counting detection technology for high-resolution musculoskeletal X-ray examinations. With its open cabin and motorised lifting platform, EOSedge facilitates patient entry and positioning, which, combined with faster acquisition, reduces examination time. This new system will allow for a wider range of musculoskeletal pathologies to be treated. Continued installation of the new EOSedge platform, and first installation in the US

Following the two pilot installations of EOSedge in 2019, at the Créqui Imaging Centre in Lyon (France) and at the Centre Hospitalier Universitaire Mère-Enfant in Montreal (Canada), the Company completed 10 commercial start-ups of its new EOSedge system during 2020, representing 23% of these imaging system start-ups.

 

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These installations were performed :

in Europe: Polyclinique de Bordeaux Nord (France), Clinique Asklepios in Hamburg (Germany), Centre Médical de la Madonuccia, Ajaccio (France), Hospital San Francisco de Asis in Madrid (Spain), Groupement Hospitalier Régional de Mulhouse (France) and Samodzielny Hospital in Otwok (Poland)

- in the United States: Gillette Children's Specialty Healthcare in St Paul, Minnesota and University Hospital in Cleveland, Ohio; and

- in Australia: Macquarie Hospital in Gladsville, Children Hospital in Westmead, and

In addition, orders for EOSedge accounted for 50% of orders for the year 2020, and 85% of orders in countries where this imaging platform is marketed.

Increase in the installed base of EOS imaging platforms

In December 2020, EOS imaging installed its 400th imaging platform worldwide. In the same month, the company also passed the milestone of the 150th system installed in North America.

Note 3 :APPROVAL OF FINANCIAL STATEMENTS

The consolidated annual accounts of EOS Imaging as at 31 December 2020 were approved by the Board of Directors on July 22, 2021.

Note 4 :ACCOUNTING PRINCIPLES AND POLICIES

4.1 Basis of preparation of the financial statements

The consolidated financial statements for the year ended 31 December 2019 were approved by the Board of Directors on July 22, 2021. EOS imaging is a company resident in France. The consolidated financial statements for the year ended 31 December 2020 show the financial position and results of the Company and its subsidiaries. They are drawn up in euros, the Company’s functional currency.

The Group’s consolidated financial statements for the 2020 financial year were prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board, with a comparison against the 2019 consolidated financial statements prepared by reference to the same standards. International standards comprise IFRS (International Financial Reporting Standards), IAS (International Accounting Standards), interpretations of the IFRS IC (International Financial Reporting Standards Interpretation Committee) and the SIC (Standard Interpretations Committee).

The accounting principles used to prepare the annual consolidated financial statements for the financial year ended 31 December 2020 are identical to those used for the financial year ended 31 December 2019, except in relation to the new applicable standards described below.

4.2 Changes in accounting rules and methods

The new standards, amendments and interpretations of standards adopted by the European Union and which must be mandatorily applied by the Company from 1 January 2020 are as follows:

 

Amendments to IFRS 3 - Business Combinations: Definition of a Business, effective for annual periods beginning on or before 1 January 2020;

 

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Amendments to IAS 1 - Presentation of Financial Statements and IAS 1 - Amendments to the Definition of Materiality, effective for annual periods beginning on or before 1 January 2020;

 

Amendments to IFRS 10 - Consolidated Financial Statements and IAS 28 - Investments in Associates and Joint Ventures;

 

Amendments to IAS 39, IFRS 7 and IFRS 9 - Reform of Interbank Offered Rates which deals with the impact, in particular on hedging, of the reform of IORs (disappearance of EURIBOR, EONIA, etc.);  

 

The IFRS 16 amendment "Rent relief related to COVID-19" adopted by the European Union in October 2020 and applicable on 1 June 2020 for financial years starting on or after 1 January 2020;

The new standards did not have a material impact on the Group’s consolidated financial statements for the year ended 31 December 2020.

Standards adopted by the European Union but not yet mandatory as at 31 December 2020 are as follows:

 

Amendments to IAS 1 - Presentation of Financial Statements - Classification of liabilities as current or non-current

 

Amendment to IAS 16 - Property, Plant and Equipment - Recognition of Revenue Generated Before In-Service Use

 

IAS 37 - Provisions, Contingent Liabilities and Contingent Assets - Onerous contracts, concept of costs directly associated with the contract

 

IFRS 17 Insurance Contracts including amendments to IFRS 17

 

Amendments to IFRS 3 "Definition of a Business".

The Group has, moreover, chosen not to apply those standards and interpretations for which application is not mandatory at 31 December 2020.

Management does not expect application of these standards to have a material impact on the consolidated financial statements

4.3 Consolidation methods

A subsidiary is any entity whose financial and operating policies may be controlled by the Company, a power that derives from ownership of more than half the voting rights. Subsidiaries are fully consolidated from the date on which the Company acquires control of them. They are deconsolidated from the date on which control is no longer exercised.

Inter-company transactions and balances are eliminated. The accounting methods of the subsidiaries match those of the Company.

On the date on which these consolidated financial statements are published, EOS Imaging SA (the parent company) has five fully consolidated subsidiaries:

 

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▪ EOS Imaging Inc.

▪ EOS Image Inc.

▪ EOS Imaging GmbH

▪ Onefit Medical

▪ Eos Imaging Pte Ltd.

4.4 Critical accounting estimates and judgements

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses and the disclosures in the notes to the financial statements. Management reviews these estimates and assumptions on a regular basis to ensure that they are appropriate in the light of past experience and the current economic situation. Depending on the evolution of these assumptions, the items included in future financial statements may differ from current estimates. In addition to the use of estimates, the Group's management exercises judgment in determining and implementing the appropriate accounting treatment for certain transactions and activities. The estimates and judgements made by management in preparing the financial statements relate primarily to

 

The useful lives of operating assets (see Note 4.8);

 

The assessment of the recoverable amounts of goodwill and other intangible assets, as well as property, plant and equipment (see notes 5, 6, 8);

 

The assessment of the rights of use of assets and lease commitments retained in the context of the application of IFRS 16 - Leases (see note 7);

 

The assessment of the recoverable amounts of current assets (see notes 10, 11).

 

The capitalization of development costs (see note 18)

 

The valuation of provisions for risks and other provisions related to the activity (see notes 3.4.8);

 

The assumptions used to calculate pension commitments (see Note 3.3);

4.5 Net investments abroad

Receivables from consolidated foreign subsidiaries for which settlement is not foreseeable are deemed to represent a net investment in foreign currencies. To this end and pursuant to IAS 21, foreign currency gains and losses on these receivables in functional currencies translated into euros for consolidation purposes were recognized under “other comprehensive income”.

4.6 Regroupements d’entreprises

In accordance with IFRS 3, as revised, the identifiable assets, liabilities, off-balance sheet items and contingent liabilities of the acquired entities are recognized at fair value on the acquisition date.

 

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The consideration transferred is measured at fair value and includes the fair value of contingent items, if any.

The associated costs of an acquisition are recognized as an expense for the period in which they were incurred.

The positive difference, measured at the date control is acquired, between the acquisition cost of the entity and the share of the net financial position acquired is recognized as "Goodwill" on the asset side of the consolidated statement of financial position. When the difference is negative, it is recognized directly through profit and loss.

Goodwill is not amortized but its value is tested at least once a year and at any time there appears to be some indication of impairment.

4.7 Intangible assets

Under the criteria set out in IAS 38, acquired intangible assets are recognized as assets at acquisition cost in the statement of financial position.

4.7.1Research and development expenses

The Company develops innovative medical imaging devices dedicated to osteo-articular conditions and orthopaedics, as well as associated applications, with new versions being regularly released on the market.

Research costs are systematically recognized as expenses.

Under IAS 38, intangible assets resulting from development are recognized as intangible assets only if all the following criteria are met:

(a) technical feasibility necessary to complete the development project;

(b) the Company intends to complete the project and put it to use;

(c) ability to use the intangible asset;

(d) demonstration of the likelihood of future economic benefits flowing from the asset;

(e) availability of technical, financial and other resources to complete the project; and

(f) reliable measurement of development expenses.

This standard has been applied since 1 January 2008, with expenses related to developing new features for products and software applications capitalised as assets. However, the cost of research and the cost of improving existing features continues to be expensed as incurred.

Capitalised development costs, which primarily comprise employee benefit expenses, are amortized on a straight-line basis:

-

over one to five years for EOS products, estimated on the basis of the average lifespan of new features;

 

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-

over three years for sterEOS products. This is the estimated average lifespan of the new features offered by each new version released.

 

4.7.2Patents

Costs relating to the filing of currently valid patents, incurred by the Company up until the point at which they are granted, are recognized as intangible assets since they meet the capitalization criteria set out in IAS 38. They are amortized on a straight-line basis from issuance of the patents over their lifetime, namely 20 years.

4.7.3Software

Software licence acquisition costs are recognized as assets based on the costs incurred in acquiring and commissioning the software in question. They are amortized on a straight-line basis over a period of one year or three years.

4.8 Property, plant, and equipment

Items of property, plant and equipment are recognized at acquisition cost. Major improvements and refurbishments are capitalised, while repair and maintenance expenses and the cost of other refurbishment work are recorded as expenses as and when they are incurred.

Items of property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of their own useful lives or the length of the lease.

The following depreciation periods are used:

 

Industrial and lab equipment

3 to 5 years

Fixtures and furnishings

10 years

Office and computer equipment

3 years

Office furniture

5 years

 

4.9 Financial assets

Financial assets consist of:

 

-

non-current financial assets: guarantees and security deposits given

 

-

current financial assets: cash and cash equivalents (marketable securities).

In accordance with IFRS 9, financial assets are classified in one of the following three categories:

 

-

financial assets recognized at amortized cost;

 

-

financial assets recognized at fair value in other comprehensive income;

 

-

financial assets recognized at fair value in income.

Their measurement and recognition comply with the following principles:

 

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-

financial assets are initially measured at fair value, which is generally equal to the acquisition cost.

 

-

loans and receivables are recognized on the balance sheet at amortized cost.

 

-

trade receivables are recognized on the balance sheet at amortized cost. An impairment provision is recognized for the expected losses over the life of the receivable.

4.9.1Available-for-sale financial assets

Available-for-sale financial assets principally comprise investment securities that do not meet the definition of other categories of financial assets. They are measured at fair value and changes in value are recognized in equity.

The fair value represents the market price of listed securities or an estimate of the value in use for unlisted securities, determined using the most appropriate financial criteria for each individual security. Where there is an objective indication of the impairment of these securities, the cumulative loss that had been recognized in equity is taken to profit or loss.

4.9.2Held-to-maturity investments

These securities are exclusively securities with fixed or determinable payments and with fixed maturities, other than loans and receivables, which the Company has the intention and ability to hold to maturity. After their initial recognition at fair value, they are valued and recognized at amortized cost on the basis of the effective interest rate ("EIR") method. The EIR is the rate that equates the expected future cash outflows to the net present carrying value of the financial liability in order to calculate its amortized cost.

Held-to-maturity investments are monitored for objective indications of impairment. Financial assets are impaired when the carrying value exceeds the recoverable amount estimated during impairment testing. Any impairment loss is recognized through profit or loss.

4.9.3Loans and receivables

This category includes receivables from equity interests, other loans and receivables and trade receivables.

These instruments are initially recognized at fair value and subsequently at amortized cost calculated using the EIR method. Short-term receivables without declared interest rates are measured at the amount of the original invoice provided the application of an implied interest rate would not be material.

For variable-rate loans and receivables, periodic cash flow re-estimations, to reflect changes in market interest rates, change the effective interest rate and accordingly the valuation of the loan or receivable.

Loans and receivables are monitored for objective indications of impairment. Financial assets are impaired when the carrying amount exceeds the recoverable amount estimated during impairment testing. Any impairment loss is recognized through profit or loss.

Loans and receivables also include deposits and guarantees, classified as long-term investments in the balance sheet.

 

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4.9.4 Financial assets at fair value through profit or loss

Assets held for trading purposes comprise assets that the Company intends to resell in the short term to realise a capital gain, belonging to a portfolio of financial instruments managed as a whole in respect of which there is a pattern of short-term disposals. Trading assets may also include assets voluntarily placed in this category, regardless of the above criteria (the “fair value option”).

4.10 Recoverable amount of non-current assets

Property, plant and equipment and intangible assets with definite useful lives are tested for impairment when the company identifies indications of impairment likely to affect the recoverability of their carrying amount. An impairment loss is recognized equal to the amount by which the carrying value exceeds the recoverable amount of the asset. The recoverable amount of an asset is the greater of its fair value less selling costs and its value in use.

For intangible assets in progress an impairment test is carried out every year even if there are no indications of loss of value. In relation to the Group's intangible assets, there is no market data available to calculate the fair value net of disposal costs other than through an estimate of future cash flows. As such, the recoverable amount is, in substance, equal to the value in use. The value in use is calculated every year in accordance with IAS 36: it corresponds to the discounted value of estimated future cash flows expected from the continued use of the assets and their disposal at the end of their planned use by the company. It does not reflect the impact of the financing structure, the effect of taxes or restructurings that have not been committed to. The valuation method is based on the discounted cash flow valuation method using the flows for the years 2019 to 2028 taken from the company’s forecasts.

The principal parameters used are set out below:

 

-

10-year forecast horizon;

 

-

The discount rate used is the Group’s weighted average cost of capital of 12% and a perpetual growth rate of 2%. These rates are consistent with the average rates used by financial analysts of the business sector who report on the value.

 

-

The assumptions used by the Group to calculate the recoverable amount of its assets are based on assumed future growth rates.

IAS 36.134(f) requires sensitivity analysis to be carried out on the key assumptions used in impairment tests.

The principal sensitivity parameters used are set out below:

 

-

One percentage point change (+ or - 1 point) in the weighted average cost of capital,

 

-

One percentage point change (+ or - 1 point) in the growth rate to perpetuity.

In 2020, the sensitivity of the recoverable amount to a change of one percentage point in the discount rate or the growth rate to infinity would have no impact on the valuation of assets or the profits for the financial year.

4.11 Inventories and work in progress

 

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Inventories are recognized at the lower of cost or net realisable value. In the latter case, the impairment loss is expensed.

Inventories are valued using the weighted average unit cost method.

4.12 Cash, cash equivalents and financial instruments

Cash and cash equivalents are held to meet short-term cash commitments rather than for investment or other purposes. They are readily convertible into a known amount of cash and are subject to an insignificant risk of a change in value under the criteria set out in IAS 7 (Statement of cash flows). Cash and cash equivalents comprise immediately available liquid assets, readily realisable term investments and short-term investments.

The new rules in IFRS 9 do not have a material impact on the Group's financial statements insofar as all transactions that were categorised as hedging transactions under IAS 39 continue to be so categorised under IFRS 9.

Bank overdrafts are excluded from the definition of cash and cash equivalents and are recognized as current financial liabilities.

4.13 Going concern

At 31 December 2020, the Group's cash and cash equivalents amounted to €9.7m.

In 2019, the Company implemented a new business cycle to optimise its supply and production flow, and achieve a substantial reduction in working capital of -€21.0m over 2019 and 2020.  The Group expects to further reduce its working capital in 2021, to a lesser extent.

As at 31 December 2020, the company has a trade receivable, net of provisions, of €9.8m, and an order book, net of advance payments already received, of €11.3m

The company has a good ability to forecast and manage its cash flow due to its good forecasting of equipment installations that trigger customer payments.

Based on the updated budget forecasts, the company believes that its cash position will be sufficient for at least the 12 months following the publication of this report.

The cash flow forecast incorporates a number of key business and funding assumptions as described below

The impact of the COVID pandemic is mainly reflected in :

- A delay in installations due to the restrictions imposed on travel and access to customer sites, which results in a delay in deliveries and the corresponding revenue

- Equipment orders slowed by restricted access to hospitals by sales staff and by the postponement of investment decisions by our customers due to economic uncertainty.

Measures implemented include:

- Adapting the production and supply programme to accommodate the expected delay in deliveries to customers

 

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- Continuing its working capital reduction programme

- The implementation of a major cost reduction plan;

- The implementation of a major cost-cutting plan; - The implementation of short-time working or leave for staff whose activity is impacted,

- The use of short-term support mechanisms put in place by governments: deferral of social security charges, early reimbursement of research tax credits, ....

- Obtaining a €0.7m forgivable loan from the Small Business Association as part of the support measures taken in the United States in response to the health crisis;

- The application for State Guaranteed Loans as part of the support measures taken in France in response to the health crisis. The group received a €0.4m state-guaranteed loan from Crédit Mutuel on 19 March 2021 and a loan from a banking syndicate consisting of BNP Paribas, Bpifrance and Société Générale on 14 April 2021 for €4.3m.

In this context, the accounts have been closed on a going concern basis. Beyond the next 12 months, the company may need to structure its financing in order to meet its cash flow needs beyond that period. In this respect, the company is considering several options which may include

- Development of factoring, for which it already has a contract, which could represent financing of an average value of around 1 million euros.

- 2.5 million, as authorised in the Océanes contract.

- The implementation of a long-term refinancing which could take the form of a strategic partnership or a fund raising depending on market conditions

4.14 Capital

Ordinary shares are classified as equity. Costs of capital transactions directly attributable to the issue of new shares or options are recognized in equity as a deduction from the issue proceeds.

4.15 Share-based payments

Since being established, the Company has implemented a number of compensation plans using equity instruments in the form of stock options granted to employees of EOS Imaging in France. It has also awarded bonus shares to employees, as well as stock warrants to directors.

The Company has applied IFRS 2 to all equity instruments granted to employees and directors since 2007.

Pursuant to IFRS 2, the cost of transactions settled in equity instruments is expensed, offset by an increase in equity over the period in which the rights to receive equity instruments vest.

For the 2007 to 2011 plans, since all options issued vest when an employee leaves, there is no vesting period and the fair value of plans was fully recognized as of the reporting date of the financial year in which the plan was granted.

 

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Since 2012, the fair value of stock options and bonus shares awarded to employees and that of the stock warrants awarded to directors have been determined by applying the Black-Scholes option valuation model, as described in Note 19.

4.16 Valuation and recognition of financial liabilities

4.16.1Financial liabilities at amortized cost

Borrowings and other financial liabilities are initially measured at fair value and subsequently at amortized cost, calculated using the effective interest rate.

Transaction costs that are directly attributable to the acquisition or issue of a financial liability are deducted from that financial liability. These costs are subsequently amortized on an actuarial basis over the lifetime of the liability, on the basis of the effective interest rate.

4.16.2Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are measured at fair value.

4.17 Conditional subsidies and advances

The Group has received a certain amount of financial aid, in the form of grants and regulated government subsidies. Detailed information on this financial aid is provided in note 14.

They are recognized in accordance with IAS 20; financial advances granted at interest rates that are below market rates are measured at amortized cost, in accordance with IAS 39, if the impact is material.

The amount derived from the interest rate advantage obtained on the granting of non-interest bearing repayable advances is considered to be a grant. This benefit is calculated by applying a discount rate corresponding to a market rate at the date of grant.

A loan that is not repayable under certain conditions is treated like a government subsidy where there is reasonable certainty that the Company will satisfy the conditions for the loan being waived. In other cases, it is recognized as a liability.

These advances are recognized in “non-current financial liabilities” and in “current financial liabilities”, depending on their maturity date. Where the project is recognized as a failure, the waiver of receivable is recognized as a grant.

4.18 Provisions

4.18.1Provisions for liabilities and charges

Provisions for liabilities and charges represent commitments arising from miscellaneous risks and disputes, the timing and amount of which are uncertain, that the Company may face in the course of its business activities.

A provision is recognized where the Company has a legal or constructive obligation to a third party arising from a past event that is likely or certain to result in an outflow of resources to this third party, with no equivalent consideration to be expected from it, and where the future cash outflows can be reliably estimated.

 

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The amount of the provision is the best estimate of the expenditure required to settle the obligation, where necessary discounted at the reporting date.

4.18.2Provisions for installation costs

The provision for installation costs is intended to cover the installation costs of equipment that has been sold but not yet installed. This provision is recognized for services still to be supplied by technicians including the supply of materials and time spent on the site. This provision concerns sites that were invoiced before 2019.

4.18.3Warranty provision

Sales are covered by a warranty period of at least one year. The assessment of the cost of the warranty as well as the likelihood that these costs will be incurred are based on an analysis of historical data. The provision represents the cost of maintaining systems under warranty, for a maximum one-year warranty period and for the remaining period at the reporting date for all systems sold. They are recognized in accordance with IAS 37. Revenue is recognized upon transfer of control and a separate liability is recognized for warranties in accordance with IAS 37.

4.18.4Retirement obligations

Company employees are covered by the retirement benefits provided for by law in France.

-

Receipt of a retirement lump sum, paid by the Company upon their retirement (defined benefit scheme);

-

Payment of pension benefits by social security entities, financed out of contributions by employers and employees (state-run defined contribution scheme).

For a defined benefit scheme, retirement benefit costs are estimated using the projected unit credit method. Under this method, the cost of retirement benefits is recognized through profit or loss evenly over the length of service of employees. Retirement obligations are measured at the present value of future payments estimated on the basis of the market rate of long-term investment-grade corporate bonds with maturities matching the estimated duration of the scheme.

Following the revision of IAS 19, actuarial gains and losses are no longer amortized in expenses but fully recognized in other items of comprehensive income; changes in the scheme are treated as the cost of past services and recognized immediately in profit and loss.

The Company retains actuaries to carry out an annual review of the valuation of these schemes.

Employees of foreign subsidiaries do not receive pension benefits.

4.19 Revenue from ordinary activities

4.19.1 Revenue

The Company's revenue is realised through sales of medical imaging equipment and related services.

Revenue represents the fair value of the consideration received or receivable for the goods sold in the normal course of the Company’s business activities. Revenue is net of value added tax, product returns, rebates and issued or estimated discounts and less intragroup sales.

 

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The Company recognises income when the amount can be reliably measured, it is likely that the future economic benefits will flow to the Company and that the specific criteria have been satisfied for the Company’s business activities.

In the case of equipment sales, revenue is recognized on the transfer of all inherent risks and benefits of ownership of the asset to the purchaser, which, depending on the case, may be upon shipping, delivery or installation of the equipment.

Equipment sales are covered by a warranty. Only income relating to the warranty period exceeding one year is deferred, and recognized in income in the relevant period, warranties of up to one year not being sold separately from the equipment.

The fundamental principle of IFRS 15 is based on the recognition of revenue reflecting the transfer of promised goods and services to customers for an amount corresponding to the remuneration to which the seller expects to receive.

Revenue recognition is based on an analysis of contracts entered into with customers, using a five-step analysis:

 

-

identifying the contract with a customer

 

-

identifying service obligations

 

-

estimating the transaction price

 

-

allocating the transaction price between the various performance obligations under the agreement

 

-

determining the revenue’s triggering event.

More specifically, the following two valuations are carried out at each balance sheet date:

- The Group considers the risk of downward revenue adjustment when there are factors that may change the transaction price and introduce uncertainty as to the amount still to be received. Therefore, at each balance sheet date, management assesses this risk, including sales made in prior years that have not yet been collected, and reflects the consequences by adjusting the revenue and trade receivables concerned. A specific analysis was carried out at 31 December 2020 on sales of older versions, which led to the write-back of 11 items of equipment and the assessment of an additional risk totalling €4.3m, reducing revenue in return for a reduction in the receivables item.

- When a contract includes a significant financing component created by an interval of more than 12 months between the service rendered and the collection, the revenue is adjusted by a financial income or expense.

At 31 December 2020, this financing component (advances granted by the customer and credit granted to the customer) was valued at €142k, increasing revenue by €12k and decreasing the financial result by €154k.

4.19.2Other income

a.Subsidies

 

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Since its inception, the Company has, by virtue of its innovative nature, received a certain number of grants or subsidies from the government or local authorities to defray its running costs or the cost of certain specific new hires. Subsidies are recognized in income as and when the associated expenses are incurred, independently of when they are actually received.

b.Research tax credit

Research tax credits are granted to companies by the French government to encourage them to carry out technical and scientific research. Companies demonstrating expenditure that satisfies the necessary criteria (research expenditure located in France or, since 1 January 2005, within the European Community or another State that is a part of the European Economic Area that has signed a tax agreement with France containing an administrative support clause) receive a tax credit that can be used to pay income tax due in the financial year in which the expenditure is incurred and the subsequent three financial years or, where applicable, be refunded the excess.

The Group has received research tax credits since its founding and since 2020 innovation tax credit. Annually EOS imaging requests those credits to be paid under the Community PME (Small and medium-sized enterprises) scheme in compliance with applicable legislation.

This financing is recognized under “other income” in the financial year in which the corresponding expenses are recognized. The portion of financing relating to capitalised expenses is deducted from the capitalised expenses in the statement of financial position and from the associated amortisation expenses in the income statement.

c.Tax on profits

Deferred tax is recognized in line with the broad interpretation and using the liability method, for any timing differences between the tax and accounting bases of assets and liabilities in the financial statements. The main timing differences are associated with tax losses available for carry-forward. The tax rates in force at the reporting date are used to calculate deferred taxes.

Deferred tax assets are only recognized where it is likely that there will be sufficient future earnings to absorb the carried forward tax loss. Given its stage of development, which means that it is not possible to produce sufficiently reliable earnings forecasts, the Company does not recognize net deferred tax assets.

4.19.3Sector information

The Company operates mainly in France and North America.

Research and development costs, production costs, regulatory expenses and the bulk of marketing, clinical and administrative costs are incurred in France.

At this stage, these costs are not strictly allocated by geographical region in which the Company’s products are sold. As a result, the Company’s performance is currently assessed on a consolidated basis.

Non-current assets and revenue by geographic region are described in detail in notes 5 to 9 and 17, respectively.

4.19.4Other items of comprehensive income

 

25

 


 

 

Components of income and expenses for the period recognized directly in equity are presented, where applicable, under “other items of comprehensive income”.

They concern €/$US, €/$CAD and €/$SING translation differences on the portion of inter-company receivables on the US, Canadian and Singaporean subsidiaries classified as a net investment in a foreign operation as well as actuarial gains and losses on retirement obligations.

Note 5 :Goodwill

Acquisition of OneFit Médical:

On 27 November 2013, EOS imaging acquired all the shares of OneFit Médical for €4 million, of which €0.5 million was paid in cash and €3.5 million by the issuance to OneFit Médical of 603,449 stand-alone warrants for EOS Imaging shares.

The acquisition memorandum of understanding provided for an earn-out clause of €1 million, tied to achieving regulatory and revenue objectives, to be paid to OneFit Médical as a grant of 1,810,347 warrants (BSA) to subscribe for 172,416 new shares of EOS Imaging.

Taking into account the partial achievement of the objectives at 31 December 2014, this earn-out of €1 million has been reduced to €750,000. With regard to the future economic advantages that the Group believes it can obtain from the acquisition of OneFit Médical, the acquisition price of €5 million including the entire earn-out has been maintained and the difference has been accounted for as financial revenue in 2014.

Impairment of the cash generating unit:

In accordance with the principles described in note 4.10 of the “Accounting principles and methods”, goodwill is not amortized but is the subject of impairment tests carried out at least annually. The impairment test is carried out in respect of the cash generating unit(s) to which the goodwill is allocated. These units are economic entities whose continuous activity generates cash flows which are broadly independent of each other. The Group considers that it only has one cash generating unit, comprising sales of equipment, maintenance contracts and related services. These three types of sale are considered to be interdependent. The Group also manages its worldwide activities homogeneously.

In accordance with IAS 36 “Impairment of Assets”, the Group carried out an impairment test. No impairment loss has been recognised as a result.

 

26

 


 

 

Note 6 :INTANGIBLE ASSETS

Changes in intangible assets may be analysed as follows:

 

Intangible assets

12/31/19

 

Increases

 

Reclassifications

 

Reductions

 

Change in

scope

 

Change in

exchange

rates

 

12/31/20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development costs

 

11,604

 

 

2,098

 

 

(857

)

 

(436

)

 

 

 

 

 

 

 

12,410

 

Software

 

1,409

 

 

113

 

 

(93

)

 

 

 

 

 

 

 

(8

)

 

1,422

 

Patents

 

721

 

 

168

 

 

950

 

 

 

 

 

 

 

 

 

 

 

1,840

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Gross total intangible assets

 

13,735

 

 

2,379

 

 

 

 

 

(436

)

 

 

 

 

(8

)

 

15,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development costs

 

3,651

 

 

1,226

 

 

 

 

 

(329

)

 

 

 

 

 

 

 

4,548

 

Software

 

1,205

 

 

18

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

1,215

 

Patents

 

129

 

 

228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total amortisation

 

4,985

 

 

1,472

 

 

 

 

 

(329

)

 

 

 

 

(8

)

 

6,120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Development costs

 

263

 

 

715

 

 

86

 

 

 

 

 

 

 

 

 

 

 

1,064

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total impairment

 

263

 

 

715

 

 

86

 

 

 

 

 

 

 

 

 

 

 

1,064

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net total intangible assets

 

8,488

 

 

192

 

 

(86

)

 

(107

)

 

 

 

 

 

 

 

8,487

 

 

During the year, the Group continued to develop new functionalities for its equipment and software applications.

In addition to internal developments, the intangible assets resulting from development include development costs related to partnerships.

 

27

 


 

 

Note 7 :RIGHTS OF USE AND LEASE OBLIGATIONS

Rights of use

 

Rights of use

12/31/19

 

Increases

 

Reclassifications

 

Reductions

 

Change in

scope

 

Change in

exchange

rates

 

12/31/20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate usage rights

 

4,787

 

 

163

 

 

 

 

 

 

 

 

(243

)

 

(24

)

 

4,683

 

Furniture usage right

 

220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

219

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total leases

 

5,008

 

 

163

 

 

 

 

 

 

 

 

(243

)

 

(24

)

 

4,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate usage rights

 

545

 

 

278

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

1,095

 

Furniture usage right

 

77

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

137

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total depreciation and impairment

 

621

 

 

309

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

1,232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net user fees

 

4,386

 

 

(146

)

 

 

 

 

 

 

 

(243

)

 

(20

)

 

3,671

 

 

The discount rate used by the Group on these real estate contracts is between 3.28% and 4.74% depending on the geographical area.

 

Net rights of use

12/31/18

 

12/31/19

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

France

 

3,385

 

 

4,164

 

North America

 

286

 

 

223

 

 

 

 

 

 

 

 

Total net rights of use

 

3,671

 

 

4,386

 

 

Leases liabilities

The majority of leases are operating leases covering premises used by the Group.

 

Maturity of lease liabilities

12/31/20

 

12/31/19

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

Lease liabilities due in more than one year

 

3,247

 

 

3,912

 

Lease liabilities due within one year

 

527

 

 

531

 

 

 

 

 

 

 

 

    Total liabilities

 

3,774

 

 

4,443

 

 

 

28

 


 

 

 

Change in lease liabilities

Offices

 

Equipment

 

Total

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2019

 

4,298

 

 

144

 

 

4,443

 

 

 

 

 

 

 

 

 

 

 

New lease

 

163

 

 

 

 

 

163

 

End lease

 

(243

)

 

 

 

 

(243

)

Repayments

 

(511

)

 

(60

)

 

(572

)

Currency impact

 

(17

)

 

 

 

 

(18

)

 

 

 

 

 

-

 

 

 

 

As at 31 December 2020

 

3,690

 

 

84

 

 

3,774

 

 

 

29

 


 

 

 

Note 8 :PROPERTY, PLANT, AND EQUIPMENT

Changes in property, plant and equipment may be analysed as follows:

 

Property, plant,

and equipment

12/31/19

 

Increases

 

Reclassifications

 

Reductions

 

Change in

scope

 

Change in

exchange

rates

 

12/31/20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixtures and fittings

 

1,274

 

 

1

 

 

 

 

 

 

 

 

 

 

 

(32

)

 

1,243

 

Technical installations and equipment

 

3,726

 

 

64

 

 

19

 

 

(9

)

 

 

 

 

 

 

 

3,801

 

Office and computer equipment

 

1,197

 

 

63

 

 

 

 

 

(1

)

 

 

 

 

(21

)

 

1,238

 

Furniture

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

66

 

Fixed assets in progress

 

303

 

 

5

 

 

(19

)

 

(212

)

 

 

 

 

 

 

 

76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Gross total property, plant & equipment

 

6,571

 

 

134

 

 

 

 

 

(222

)

 

 

 

 

(59

)

 

6,424

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixtures and fittings

 

877

 

 

104

 

 

 

 

 

 

 

 

 

 

 

(24

)

 

958

 

Technical installations and equipment

 

2,390

 

 

451

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

2,839

 

Office and computer equipment

 

952

 

 

133

 

 

 

 

 

(1

)

 

 

 

 

(18

)

 

1,066

 

Furniture

 

21

 

 

9

 

 

 

 

 

 

 

 

 

 

 

(4

)

 

26

 

Fixed assets in progress

 

263

 

 

 

 

 

(86

)

 

(177

)

 

 

 

 

 

 

 

(

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total amortisation

 

4,503

 

 

697

 

 

(86

)

 

(180

)

 

 

 

 

(46

)

 

4,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixtures and fittings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Technical installations and equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office and computer equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Furniture

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed assets in progress

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Total impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 


 

 

Net total property, plant & equipment

 

2,068

 

 

(563

)

 

86

 

 

(43

)

 

 

 

 

(13

)

 

1,535

 

 

Net intangible assets and property, plant and equipment by geographical sector are as follows:

 

Net rights of use

12/31/18

 

12/31/19

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

France

 

9,873

 

 

10,320

 

North America

 

149

 

 

236

 

 

 

 

 

 

 

 

Total net rights of use

 

10,022

 

 

10,556

 

 

Note 9 :: FINANCIAL ASSETS AND OTHER ASSETS

Changes in financial assets may be analysed as follows:

 

Others Fixed Assets

31 décembre 2019

 

Augmentations

 

Reclassements

 

Diminutions

 

Change in

scope

 

Variation de taux de change

 

31 décembre 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits in guarantee

 

197

 

 

13

 

 

 

 

 

(53

)

 

 

 

 

(2

)

 

155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net others fixed assets

 

197

 

 

13

 

 

 

 

 

(53

)

 

 

 

 

(2

)

 

155

 

 

The change in the financial assets item includes current operating movements.

Note 10 :INVENTORIES AND WORK IN PROGRESS

 

Inventories and work in progress

12/31/20

 

12/31/19

 

 

 

 

 

 

 

 

 

 

 

 

 

Component Parts

 

5,997

 

 

7,558

 

Finished Products

 

7,696

 

 

6,032

 

Inventories waiting for return

 

174

 

 

 

 

Depreciation

 

(490

)

 

(77

)

 

 

 

 

 

 

 

Total net des stocks et en-cours

 

13,378

 

 

13,513

 

 

The change in the business cycle in the first half of 2019, allowing for a reduction in the time between production and installation, should have led to a decrease in the level of inventory over the year 2020. Inventory excluding provisions was down 2%, as the year was impacted by the slowdown in installations and maintenance during containment.

The €1.5m decrease in component inventories is explained by the integration of the supplies of the new EOSedge imaging system components into the production cycle at the end of 2019. Inventories

 

31

 


 

 

for maintenance, in order to ensure customer service response times on an international installed base, increased slightly due to the expansion of the area covered.

At 31 December 2020, finished goods inventories also include the valuation of 8 pieces of equipment for which the trade-in was negotiated with customers who could not commit to a payment schedule, for an amount of €1,450 thousand.

Inventories of slow-moving components are subject to depreciation. The latter was updated at 31 December 2020, resulting in an additional provision of €413 thousand.

Note 11 :trade receivables

11.1Clients et comptes rattachés

 

Trade receivables

12/31/20

 

12/31/19

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

Customers and related accounts

 

11,068

 

 

19,564

 

Impairment of customers and related accounts

 

(1,245

)

 

(1,866

)

 

 

 

 

 

 

 

Net total of customer receivables

 

9,822

 

 

17,698

 

 

Trade receivables

 

12/31/20

 

 

12/31/19

 

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emea

 

 

4,786

 

 

 

6,234

 

 

North America

 

 

3,659

 

 

 

9,371

 

 

Asia- Pacific

 

 

2,653

 

 

 

3,959

 

 

 

 

 

 

 

 

 

 

 

 

Total brut des clients et comptes rattachés

 

 

11,068

 

 

 

19,564

 

 

 

Trade receivables before depreciation break down into 3,659 k€ for North America, 4,786 k€ for EMEA and 2,623 k€ for APAC.

At each balance sheet date, a review is carried out of any impairment losses on trade receivables, which takes account of the expected installation dates of the relevant equipment. This assessment affects revenue for the period if the Group considers that there is a probability of a material adjustment to expected inflows.

The difference between the initial receivables and their valuation at December 31, 2020 amounts to €1,245 thousand, or 11.2% of their gross amount.

During the period ended 31 December 2020, no customer individually accounted for more than 10% of consolidated revenue.

 

32

 


 

 

11.2Other current assets

 

Other current assets

12/31/20

 

12/31/19

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

Research tax credit / CICE / CII

 

1,043

 

 

1,899

 

Suppliers - receivables

 

278

 

 

231

 

Value added tax

 

665

 

 

646

 

Prepaid expenses

 

359

 

 

593

 

Subsidies receivable

 

698

 

 

783

 

Other receivables

 

148

 

 

1,063

 

 

 

 

 

 

 

 

Total other current assets

 

3,190

 

 

5,215

 

 

The item "Research tax credit/ITC" consists of research tax credits (CIR) recognized for expenses incurred during the period by EOS imaging and OneFIT for a total amount of €1,043k.

The item Trade creditors receivable mainly relates to goods returns awaiting reimbursement for 278k€.

The item Grants receivable corresponds to funding expected in the context of collaborative projects bringing together various partners for the development of highly innovative work. This grant income is recognized for expenses incurred up to December 31, 2020 and not yet paid at that date.

As of December 31, 2020, Eos imaging has written down a receivable related to a partnership for 167 k€ as it is estimated to be worthless at this date.

The decrease of the item Other receivables is explained by the settlement of supplier advances of 2019 for 663k€ and the repayment of a CVAE surplus for 99k€.

11.3Research tax credit, Competitiveness and Employment tax credit

 

Receivable balance sheet closing on 12-31-2018

 

1,504

 

Revenue

 

1,898

 

Payments

 

(1,476

)

Reallocation

 

(30

)

Change in exchange rate

 

2

 

Receivable balance sheet closing on 12-31-2019

 

1,898

 

Produit

 

1,043

 

Paiements

 

(1,898

)

Reclassement

 

 

 

Variation de change

 

 

 

Receivable balance sheet closing on 12-31-2020

 

1,043

 

 

 

33

 


 

 

 

Note 12 :cash and cash equivalents

 

Cash and cash equivalents

12/31/20

 

12/31/19

 

(en milliers d'euros)

 

 

 

 

 

 

 

 

 

 

 

Short-term bank deposits

 

9,674

 

 

8,084

 

Money market SICAVs

 

43

 

 

102

 

 

 

 

 

 

 

 

Total

 

9,717

 

 

8,186

 

 

Short-term bank deposits break down as follows

- Current accounts for €9.7 million, including €3.04 million held by the American, Canadian, Singaporean subsidiaries; these short-term investments are considered liquid, convertible into a known amount of cash and subject to a negligible risk of change in value.

- Amounts committed under a liquidity mandate, and not invested in treasury shares as of December 31, 2020, amounted to 43 k€.

These items are valued and recorded at amortized cost.

 

34

 


 

 

Note 13 :EQUITY

13.1SHARED CAPITAL ISSUED

The table below shows changes in the Company's capital over the period

 

Date

Transactions

Nominal

PE

Shares

created

Capital

 

Issue

premium

 

Total

 

Number of

shares forming

the capital

 

 

Total at 31 décember 2019

 

 

 

 

265,700

 

 

6,915,879

 

 

 

 

 

26,569,946

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6/30/2020

Allocation of loss carry-forward to issue premium

 

 

 

 

 

 

 

(6,815,879

)

 

 

 

 

 

 

2/5/2020

Capital increase following the exercice of options

 

 

 

 

200

 

 

(200

)

 

 

 

 

20,000

 

6/30/2020

Capital increase following the exercice of options

 

 

 

 

655

 

 

64,845

 

 

 

 

 

65,500

 

11/2/2020

Capital increase following the exercice of options

 

 

 

 

15

 

 

1,485

 

 

 

 

 

1,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total at 31 décember 2020

 

 

 

 

266,570

 

 

166,130

 

 

 

 

 

26,656,946

 

 

The capital increases result from the following operations:

- Exercise of 67,000 options, resulting in the creation of 67,000 new shares;

- Creation of 20,000 new ordinary shares with a par value of one euro cent each, allocated free of charge to the employees benefiting from these bonus shares.

At December 31, 2020, the share capital amounted to 266 570 euros. It is divided into 26,656,946 fully subscribed and paid-up ordinary shares with a par value of €0.01.

13.2Treasury shares

Under the liquidity agreement, the Company held 53,363 of its own shares at 31 December 2020. These shares have been deducted from consolidated equity in an amount of €443k.

 

35

 


 

 

13.3Stock options

The plans run by the company are the following:

 

Type

Fair value of option

 

Number of

`shares granted

 

Fair value of

plan (in

thousands of

euros)

 

 

 

 

 

 

 

 

 

 

 

SO 2007

5.26

 

 

255,900

 

 

1,345

 

SO 2009 (a)

0.47

 

 

395,845

 

 

487

 

SO 2009 (b)

1.49

 

 

200,657

 

 

299

 

SO 2010 (a)

1.04

 

 

413,500

 

 

429

 

SO 2010 (b)

1.09

 

 

53,000

 

 

58

 

Free shares

5.15

 

 

360,000

 

 

1,854

 

SO 2012 (a)

between 1,61€ and 1,84€

 

 

376,916

 

 

651

 

SO 2012 (b)

between 2,02€ and 2,18€

 

 

40,000

 

 

84

 

SO 2014

between 3,92€ and 4,33€

 

 

223,000

 

 

380

 

Free shares

between 1,97€ and 2,26€

 

 

181,500

 

 

593

 

Warrants 2015

2.25

 

 

120,000

 

 

270

 

Warrants 2016

between 0,68€ and 0,77€

 

 

190,000

 

 

137

 

Free shares 2016

between 3,86€ and 4,24€

 

 

133,000

 

 

432

 

Performance shares

between 0,74€ and 1,47€

 

 

280,000

 

 

353

 

Free shares

5.82

 

 

50,000

 

 

291

 

Performance shares

between 2,20€ and 2,37€

 

 

190,000

 

 

427

 

Free shares 2017

between 4,58€ and 4,89€

 

 

208,500

 

 

794

 

Performance shares 2018

1.27

 

 

40,000

 

 

51

 

Free shares 2018

between 4,78€ and 5,14€

 

 

20,000

 

 

101

 

SO 2019

between 0,09€ and 0,11€

 

 

1,362,000

 

 

82

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

9,119

 

 

The impact on the statement of comprehensive income of share-based payments is described in note 16.

 

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Note 14 :provisions

14.1Obligation to pay retirement bonuses

 

(in thousands of euros)

12/31/19

 

Increases

 

Reductions

 

12/31/20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

End-of-service indemnities

 

574

 

 

94

 

 

50

 

 

618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

574

 

 

94

 

 

50

 

 

618

 

 

Calculations of end-of-service indemnities are based on the following assumptions:

 

Valuation date

12/31/2020

 

12/31/2019

 

Retirement methods

For all employees: voluntary retirement at 65

 

For all employees: voluntary retirement at 65

 

Level of social security expenses

50%

 

50%

 

Discount rate

0.40%

 

0.80%

 

Mortality tables

INSEE TD / TV

 

INSEE TD / TV

 

 

2012 – 2014

 

2012 – 2014

 

Rate of salary increase (including inflation)

4%

 

4%

 

 

The rights of EOS Imaging's employees are defined by the following collective bargaining agreements:

- National Metallurgy Industry Agreements (executives and non-executives)

- Regional Metallurgy Industry Agreement: Paris region (non-executives only).

14.2Disputes

 

(in thousands of euros)

12/31/19

 

Increases

 

Reductions

 

12/31/20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Litigation

 

570

 

 

38

 

 

541

 

 

67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

570

 

 

38

 

 

541

 

 

67

 

 

One dispute has been identified and remains outstanding as of December 31, 2020.

Note 15 :NON-CURRENT FINANCIAL LIABILITIES

 

Financial liabilities

12/31/20

 

12/31/19

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

Bond loans

 

25,722

 

 

26,028

 

BPI advances - Ardea

 

283

 

 

356

 

Bank Loan

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

26,024

 

 

26,384

 

 

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Maturity schedule of financial liabilities

Carrying

amount

 

At up to 1

year

 

>1 yr up

to 5

years max.

 

Over 5

years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bond loans

 

25,722

 

 

1,551

 

 

24,171

 

 

-

 

BPI advances - Ardea

 

283

 

 

33

 

 

250

 

 

-

 

Bank Loan

 

19

 

 

-

 

 

19

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Total liabilities

 

26,024

 

 

1,584

 

 

24,440

 

 

-

 

 

Bond issue/OCEANEs

In 2018, the company issued a bond for a nominal amount of €29,543k. These OCEANES bear interest at a nominal annual rate of 6%, payable six-monthly. If these bonds are not converted into shares, they will be redeemed at par on 31 May 2023.

The substance of these convertible bonds has been analysed and their “debt” and “equity” components have been valued. The “debt” component was valued by determining the fair value of a similar debt through discounting future cash flows. On conclusion of this analysis, 89.5% of the nominal value was determined to be “debt”.

In relation to the consolidated financial statements at 31 December 2019, this transaction led to the recognition of a debt with a discounted value of €25.2 million (representing 88% of financial liabilities) and an equity component of €3 million.

BPI France advances

- In the context of its participation in the Industrial Strategic Innovation project, EOS imaging received a reimbursable advance from OSEO in July 2009, for a maximum amount of €1,275k.

As at 31 December 2020, amounts received totalled €822k. corresponding to the contractually financed portion of expenditure committed by the company, which was lower than the amount forecast on signing the agreement.

On 2 February 2016, BPI recognized that the project had been partially commercially successful: €269k of its receivable was waived and the reimbursement conditions were re-defined. The Company was therefore required to pay the amount of €553k over a six-year period. Repayments since 2016 amount to €520k, including a repayment in December 2020 of €69k. The discounting of this debt under IFRS reduced its balance to €33k at 31 December 2020.

- Onefit Medical also received an innovation partnership loan of €150k for eight years including a threeyear deferred amortisation period granted at the rate of three-month Euribor plus 5.6%, reduced to three-month Euribor plus 3.80% during the deferred amortisation period. This loan is repayable over five years beginning on 31 May 2015. The first repayments were made beginning in 2017. During 2020, reimbursements of €7.5k were made, reducing the balance to zero at 31 December 2020.

- As part of its development of a new generation of knee instrumentation, OneFit Médical also received an interest-free repayable advance of €250,000 granted in June 2014. The agreement associated with this advance was amended in January 2017, so that it was switched to a grant-funded project focused on the shoulder. Repayments under the amended advance agreement were deferred for 2 years and

 

38

 


 

 

should restart in September 2019, over 58 months. In the event that the project is not successful, repayments are to be made over a period of 34 months beginning in September 2019. In view of the characteristics of the project, OneFit Medical requested, on 29 January 2019, that the programme be technically recognized as having failed. At 31 December 2020, the partner had made no decision.

Note 16 :FINANCIAL LIABILITIES AND OTHER CURRENT LIABILITIES, TRADE PAYABLES

16.1Trade payables

 

Trade payables

12/31/20

 

12/31/19

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

Trade payables

 

3,434

 

 

3,969

 

 

 

 

 

 

 

 

Total

 

3,434

 

 

3,969

 

 

Trade payables, 90% of which are French, decreased by 13%, mainly in France, due to lower expenses during the year.

16.2Other current liabilities

16.2.1Provisions for amounts due within one year

 

(in thousands of euros)

12/31/19

 

Increases

 

Reductions

 

12/31/20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for litigation

 

91

 

 

 

 

 

 

 

 

91

 

Provision for installation costs

 

327

 

 

388

 

 

485

 

 

230

 

Guarantees given to customers

 

810

 

 

340

 

 

566

 

 

584

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

1,229

 

 

728

 

 

1,051

 

 

906

 

 

Changes in the provision for customer warranties are related to the increase in the number of items of equipment under warranty, taking into account equipment sales during the period. This provision represents the estimated cost under the contractual commitment given to customers to provide a twelve-month warranty after the EOS device is commissioned. These warranties provide the customer with assurance that the product will work as intended and that it complies with the agreed specifications. They are recognized in accordance with IAS 37. Revenue is recognized upon transfer of control and a separate liability is recognized for warranties in accordance with IAS 37.

The provision for installation costs is intended to cover the installation costs of equipment that has been sold but not yet installed. This provision is recognized for services still to be supplied by technicians including the supply of materials and time spent on the site.

 

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16.2.2Other current liabilities

 

Other current liabilities

12/31/20

 

12/31/19

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

Tax debts

 

829

 

 

716

 

Social debts

 

4,682

 

 

3,184

 

Other debts (including royalties & subsidies)

 

516

 

 

1,137

 

Down-Paiements customers

 

6,058

 

 

2,018

 

Refund liabilities

 

350

 

 

 

 

Prepaid income

 

7,413

 

 

8,582

 

 

 

 

 

 

 

 

Total other current liabilities

 

19,848

 

 

15,637

 

 

Tax liabilities consist mainly of VAT payable and payroll taxes.

Employment liabilities comprise salaries, social security charges, holiday pay and bonuses.

At December 31, 2020, these liabilities include a deferral of a portion of the contributions to French social security bodies negotiated as part of the exceptional assistance offered during the health crisis. This negotiated deferral amounts to €736,000 as of December 31, 2020 and is paid over 2021 according to a monthly schedule.

Other liabilities principally comprise royalties payable in respect of equipment.

Prepaid income primarily comprises maintenance charges invoiced in respect of a future period. These liabilities under contracts represent an obligation on the Company to provide services to a customer from whom EOS Imaging has received payment or from whom a proportion of the payment is outstanding (advance received). Net assets and liabilities under contracts are calculated separately for each contract. The application of IFRS 15 caused the Group to recognize a financing component on prepaid contracts of €81k with an impact on P/L for €43k in sales increase and €124k on financial expenses.

The change in the carrying amount is principally due to the recognition of revenue invoiced in advance both under equipment sales agreements that include a warranty of longer than one year and under equipment revenue invoiced before delivery.

In 2020, the amount received from customers in the form of advances on equipment orders amounted to €6.0m, compared with 2.0m in 2019. This change is explained by the change in the sales cycle and an improvement in the management of receivables. The application of IFRS 15 caused the Group to recognize a financing component on down-paiements of €62k with an impact on P/L on financial expenses.

16.3Financial instruments recognized on the balance sheet and impact

The fair value of an asset or a liability is the price that would be agreed between parties free to contract on market terms. The calculation of fair value must be based on observable market data that provides the most reliable indication of a financial instrument’s fair value.

 

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The tables below show, in accordance with the provisions of the amendment to IFRS 7 (Financial Instruments: Disclosure), the Group’s assets and liabilities that measured at fair value according to their valuation method:

 

Financial year ended on 31 December

2020 (in thousands of euros)

Carrying

amount

 

Fair value

through

profit

and loss

 

Loans and

receivables

 

Debt at

amortised

cost

 

Non-

financial

instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Non-current financial assets

 

155

 

 

-

 

 

155

 

 

-

 

 

-

 

       Customer receivables

 

9,822

 

 

-

 

 

9,822

 

 

-

 

 

-

 

       Other current assets

 

3,191

 

 

-

 

 

-

 

 

-

 

 

3,191

 

       Cash and cash equivalents

 

9,717

 

 

9,717

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

22,885

 

 

9,717

 

 

9,977

 

 

0

 

 

3,191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term financial liabilities

 

24,473

 

 

-

 

 

-

 

 

24,473

 

 

-

 

Short-term financial liabilities

 

1,551

 

 

-

 

 

-

 

 

1,551

 

 

-

 

Trade payables

 

3,434

 

 

-

 

 

-

 

 

3,434

 

 

-

 

Other current liabilities

 

20,754

 

 

-

 

 

-

 

 

-

 

 

20,754

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

50,212

 

 

0

 

 

0

 

 

29,458

 

 

20,754

 

 

Fair value throught the income statement

Fiscal year closed

on 31 December

 

(in thousands of euros)

2020

 

2019

 

 

 

 

 

 

 

 

Losses on cash equivalents

 

 

 

 

 

 

Revenue from cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value throught the income statement

 

 

 

 

 

 

 

Note 17 :revenue from ordinary activities

17.1Revenue and other income

 

Revenue

FY closed on December

 

(in thousands of euros)

12/31/20

 

12/31/19

 

 

 

 

 

 

 

 

Sales of equipment

 

10,656

 

 

9,592

 

Sales of services

 

12,040

 

 

10,450

 

Sales of consumables and related services

 

872

 

 

1,186

 

Renegotiation risk

 

249

 

 

(978

)

Financing component

 

12

 

 

(163

)

 

 

 

 

 

 

 

Total Revenue

 

23,829

 

 

20,087

 

 

In 2020 EOS Imaging recorded annual revenues of €23.8 million, compared to €20.1 million in fiscal 2019.

 

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Equipment sales amounted to €10.7 million compared to €9.6m in year 2019. The Group sold 34 equipment, including 10 EOSedge®, compared to 24 in 2019 with a significant increase in the average selling price of the equipment sold explained by the increase in volume of EOSedge (product mix) and a geographical mix effect.

Recurring revenues amounted to €12.9 million, compared with €11.6 million in 2019, representing growth of 11%. Recurring revenues thus represented 54% of total sales, compared with 58% of sales in 2019.

 

-

12.0 million in maintenance revenues, up +15.2%, driven by growth in the installed base; and

 

-

0.87 million in sales of consumables and services, down 26%, mainly due to the decline in non-critical surgical procedures during the period of health restrictions, contributing to a loss of revenue in the patient specific instruments activity.

Commercial performance3 achieved during the financial year was €31.2 million compared with €35.7 million in 2019, a decrease of 12%, due to the decrease in orders received in 2020 (-24% vs 2019) partially offset by the increase in recurring revenues (+11% vs 2019).

In fiscal year 2020, and in accordance with IFRS 15, an additional risk of transaction price adjustment impacts revenues by 249 k€, explained mostly by the reversal of adjustments from previous years.

In addition, when a contract includes a significant financing component created by an interval of more than 12 months between the service rendered and the collection, revenues are adjusted by a financial income or expense. At December 31, 2020, this financing component (advances granted by the customer and credit granted to the customer) was valued at €142,000, increasing revenues by €12,000 and decreasing financial income by €154,000.

17.2Revenue by geographical area

 

Revenue by geographical region

FY closed on December

 

(in thousands of euros)

12/31/20

 

12/31/19

 

 

 

 

 

 

 

 

France

 

5,942

 

 

6,424

 

EMEA excluding France

 

5,091

 

 

3,496

 

North America

 

7,437

 

 

6,317

 

Asia-Pacific

 

5,308

 

 

3,821

 

Latin America

 

51

 

 

29

 

 

 

 

 

 

 

 

Total revenue by geographical region

 

23,829

 

 

20,087

 

 

Despite the health context, overall revenues increased in all regions except France, the main country where health restrictions were significant at the beginning of the year and the leading market for cutting guides, where sales fell sharply following the decision to postpone non-priority surgical procedures.

Recurring revenues generated mainly by maintenance contracts grew in all regions, particularly in Asia-Pacific (+35%) and France (+16%).

 

3 Commercial performance: Indicator comparable to the commercial model of past years and corresponding to the addition of recurring revenues and equipment orders generated over a period.

 

42

 


 

 

 

Commercial performance, an indicator comparable to the commercial model of past years, achieved during the year reached €31.2 million (including total orders of €18.3 million) compared to €35.7 million in 2019, a decrease of 12%. This decrease is entirely due to the decline in orders in EMEA and North America.

Note 18 :Payroll costs

 

Payroll

FY closed on December

 

(in thousands of euros)

12/31/20

 

12/31/19

 

 

 

 

 

 

 

 

Salaries

 

12,185

 

 

12,927

 

Employment taxes and social security contribution

 

4,478

 

 

4,643

 

Retirement commitments

 

28

 

 

37

 

Share-based payments

 

38

 

 

743

 

 

 

 

 

 

 

 

Total payroll

 

16,729

 

 

18,351

 

 

 

 

 

 

 

 

Average Headcount

 

167

 

 

180

 

 

The elements presented above do not take into account the share of capitalised developments. The amount therefore differs from the sum of the personnel expenses presented in the summary statements in Note 20 / Details of operating expenses, which include the amounts net of IFRS restatements.

The impact resulting from the capitalization of research and development time amounts to €2,097k for the year 2020.

Personnel expenses decreased by 9% during the year. The 5% decrease in salaries and social charges is explained by the full rate impact on 2020 of recruitments in 2019 and by the freezing of replacements following departures at the end of 2019 or during 2020.

The average consolidated headcount for 2020 is 167, compared to 180 at 31 December 2019, i.e. a change of -7%.

Note 19 :SHARE-BASED PAYMENTS

Plans issued by the company and outstanding as of December 31, 2020 are described in note 13.3 - Stock options.

 

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Outstanding amounts on the various plans issued by the company were as follows at 31 December 2020 :

 

Type

Date

awarded

Exercise price

 

In force at 31/12/2020

 

 

 

 

 

 

 

 

 

SO 2010

7/6/2010

1.00

 

 

-

 

SO 2010

5/20/2011

1.00

 

 

6,000

 

SO 2012

9/21/2012

4.07

 

 

253,307

 

BSA Administrator

12/31/2012

4.24

 

 

40,000

 

BSA Administrator

1/25/2016

3.42

 

 

190,000

 

SO 2014

5/23/2014

6.14

 

 

201,875

 

BSA IPF

3/31/2015

4.71

 

 

120,000

 

Free shares

9/7/2017

-

 

 

 

 

Performance shares

9/7/2017

-

 

 

 

 

Free shares

12/12/2017

-

 

 

 

 

Performance shares

2/5/2018

-

 

 

-

 

Free shares

2/5/2018

-

 

 

-

 

SO 2019

1/30/2019

2.68

 

 

964,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,775,182

 

 

Terms and conditions of exercise:

Stock-options (S.O.) 2010:

- 25% of the S.O. can be exercised beginning on the award date;

- a further 25% of the S.O. can be exercised on each anniversary of the date they were awarded;

- company officers are required to keep at least 80% of their shares resulting from the exercise of the options until their duties are terminated.

- if they leave the Company or the affiliated company in question before the exercise date, the options that may be exercised on the departure date remain in the possession of the beneficiary without any exercise deadline other than their expiry date. The options that are not yet exercisable as of the date of the departure are automatically null and void on the date of the latter in any event.

Stock-options (S.O.) 2012 and 2014:

- 25% of the S.O. can be exercised beginning on the award date;

- a further 25% of the S.O. can be exercised on each anniversary of the date they were awarded;

- no later than ten years from the grant date;

- company officers are required to keep at least 80% of their shares resulting from the exercise of the options until their duties are terminated.

- if they leave the Company or the affiliated company in question before the exercise date, the options that may be exercised on the departure date remain in the possession of the beneficiary without any

 

44

 


 

 

exercise deadline other than their expiry date. The options that are not yet exercisable as of the date of the departure are automatically null and void on the date of the latter in any event.

Stock-options (S.O.) 2019:

The terms governing the exercise of the stock options (S.O.) are as follows:

a CEO’s package:

- 50,000 options subject to a specific condition of performance to be achieved in 2020 or 2021;

- 100,000 options upon expiry of a period of 24 months from the date of award;

- 50,000 options upon expiry of a period of 36 months;

- 50,000 options upon expiry of a period of 48 months;

- and no later than ten years from the grant date.

- the CEO will be obliged to hold in his name until he ceases his functions a minimum number of shares equal to 75% of the shares vested under the Plan.

b Executive Committee’s package:

- up to 1/3 of the options allocated upon the expiry of a period of 24 months;

- up to 2/3 of the options allocated upon expiry of a period of 36 months;

- the remaining options (up to 3/3) allotted upon expiry of a period of 48 months;

- and no later than ten years from the grant date.

c Other employees’ package:

- up to 100% of the options allotted upon expiry of a period of 36 months from the date of allotment, and no later than ten years from the grant date.

d Package for employees retiring during the period:

- up to 100% of the options allotted upon expiry of a period of 24 months from the date of allotment, and no later than ten years from the grant date.

Bonus shares:

- the vesting period for shares awarded is 2 years for all beneficiaries.

2016 performance shares:

Performance shares will vest at the end of a two-year vesting period and, if the weighted average share price for the 20 trading sessions preceding the vesting date is:

- At least equal to 8€, 100% of the shares granted by the Board of Directors will vest at the end of the vesting period,

 

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- Less than 4€, no shares will be acquired at the end of the vesting period,

- Between 4 and 8€, the number of shares granted that will vest at the end of the vesting period will be calculated on a straight-line basis between 0% and 100%.

The Board of Directors meeting of January 30, 2019 noted that none of the shares granted had vested at the end of the vesting period

2017 performance shares:

The performance shares shall vest at the end of a two-year vesting period, if the average weighted share price for the 20 trading sessions preceding the vesting date is:

- at least equal to €9, 100% of the shares allotted by the Board of Directors shall vest on the expiry of the vesting period,

- less than €5, no shares shall vest on expiry of the vesting period,

- between €5 and €9, the number of shares allotted that shall vest on expiry of the vesting period shall be calculated on a straight-line basis between 0% and 100%.

At its meeting held on 23 September 2019, the Board of Directors noted that none of the shares allotted had vested at the end of the vesting period.

Share warrants allocated to members of the Company's Board of Directors:

2012 warrants:

- 33% of the share warrants may be exercised beginning on 31 December 2013;

- a further 33% may be exercised on or after 31 December 2014;

- the balance may be exercised beginning on 31 December 2015.

2016 warrants:

- 33% of the share warrants may be exercised beginning on 24 January 2017;

- a further 33% may be exercised on or after 24 January 2018;

- the balance may be exercised beginning on 24 January 2019.

Share warrants awarded to third parties:

2015 warrants: IPF

- exercise parity of the warrants: one warrant gives the right to subscribe to one of the Company's shares;

- number of shares liable to be issued on exercise of the warrants: excluding changes in the Company's share capital, 180,000 warrants would give rise to the issuance of the same number of shares representing 0.83% of the Company's share capital;

 

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- exercise price of the warrants: €4.71.

- exercise period: the warrants may be exercised in whole or in part, in one or several times, within seven years of their subscription date. The warrants of the optional tranches will become void if these bond tranches are not subscribed;

- listing of the warrants: no.

In 2015, the Company issued 60,000 bonds with stock warrants attached (OBSAs) in the amount of €540,000, as well as three tranches of ordinary bonds (A, B and C) for a total principal amount of €14,460,000. The bonds with stock warrants attached were subscribed in January 2015 by IPF Partners.

Three warrants are attached to each OBSA, giving a total of 180,000 warrants, of which 120,000 shall lapse if the optional tranches of bonds are not subscribed for (Tranches B and C). The warrants are attached to the three tranches of vanilla bonds, at 60,000 warrants per tranche. They are exercisable on or after the date on which the bonds are issued. If the bonds are not issued, the warrants are void.

Tranche A of ordinary bonds, in the amount of €4,460,000, was subscribed for in March 2015, giving rise to the issue of 60,000 warrants.

Tranche B of optional, ordinary bonds, in the amount of €5 million, was subscribed for in December 2015, giving rise to the issue of 60,000 warrants.

As at 31 December 2015, the Company had therefore issue 120,000 warrants as a result of Tranches A and B being subscribed for.

Since Tranche C was not exercised, the remaining 60,000 warrants lapsed.

In June 2016, the Company issued a Tranche D of ordinary bonds for an amount of €5 million. No warrants are attached to this tranche.

As such, the number of warrants in circulation as part of this bond issue is 120,000.

The table below summarizes the costs shown in the income statement under “share-based payments” over the period.

 

(in

thousands

of euros)

SO

2014

 

Bonus

shares

 

BSA

2016

 

Bonus

shares

2016

 

Performance

shares 2016

 

Bonus

shares

Sept 2017

 

Performance

shares

Dec 2017

 

Bonus

shares

Dec 2018

 

Performance

shares

2019

Bonus

shares

2019

SO

2019

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17/12/31

 

43

 

 

253

 

 

44

 

 

356

 

 

46

 

 

49

 

 

119

 

 

 

 

 

 

 

 

 

 

910

 

18/12/31

 

14

 

 

-              43

 

 

19

 

 

171

 

 

 

 

 

 

 

 

201

 

 

408

 

 

 

 

 

 

 

770

 

19/12/31

 

-

 

 

-

 

 

1

 

 

 

 

 

 

 

 

217

 

 

328

 

 

172

 

 

 

 

36

 

 

754

 

20/12/31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

32

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Detailed information on the number of options by class and exercise price is given in note 13.3. “Capital / Stock options”.

Note 20 :Détail OF OPERATING EXPENSES

20.1Direct costs of production and service

 

 

47

 


 

 

 

Direct costs of production and service

Fiscal Year End

 

(in thousands of euros)

31-déc.-20

 

31-déc.-19

 

 

 

 

 

 

 

 

Purchasing and subcontracting

 

9,121

 

 

9,083

 

Staff costs

 

1,411

 

 

1,684

 

Royalties

 

372

 

 

238

 

Amortization and provisions

 

319

 

 

-                      43

 

 

 

 

 

 

 

 

Total direct costs of production and service

 

11,223

 

 

10,962

 

 

Direct costs of sales consist mainly of the costs of production, transport and installation of equipment sold during the financial year, as well as the costs of maintenance of equipment installed and maintained by EOS imaging.

As the equipment integration phase is subcontracted, production costs are mainly made up of the costs of purchasing components and subcontracting.

In value terms, the gross margin as a percentage of sales increased by 749 basis points (bps) to €12.6m compared with €9.1m in the previous year.

- A 12% increase in the average selling price of equipment due to the increased share of the new EOS Edge equipment in the product mix

- The structural increase in maintenance revenue and the cyclical drop in spare parts consumption due to the various containment and restrictions that occurred during the year generated an 827bp increase in the maintenance margin

- Personnel costs were down by €273k due to departures not being replaced during the year

20.2Indirect costs of production and service

 

Indirect costs of production and service

Financial year ended

 

(in thousands of euros)

31-déc.-20

 

31-déc.-19

 

 

 

 

 

 

 

 

Purchasing and subcontracting

 

1,402

 

 

1,335

 

Travelling expenses

 

690

 

 

1,037

 

Staff costs

 

2,327

 

 

1,871

 

Amortization and provisions

 

169

 

 

159

 

 

 

 

 

 

 

 

Total indirect costs of production and service

 

4,587

 

 

4,402

 

 

Indirect production and service costs increased by 4% compared to the previous year. This evolution is mainly explained by the increase in personnel costs following internal employee movements. This change is in response to the need to strengthen the services team, which is responsible for managing the installed base, which continues to grow significantly. The various health restrictions due to Covid-19 have significantly reduced travel expenses.

20.3Research and development

 

 

48

 


 

 

 

Research and development

Financial year ended

 

(in thousands of euros)

31-déc.-20

 

31-déc.-19

 

 

 

 

 

 

 

 

Purchasing and subcontracting

 

1,363

 

 

2,334

 

Travelling expenses

 

39

 

 

136

 

Staff costs

 

1,999

 

 

1,536

 

Amortization and provisions

 

2,196

 

 

793

 

 

 

 

 

 

 

 

Total research and development

 

5,597

 

 

4,799

 

 

At the end of 2019, a new generation of imaging systems, EOSedge, was released, the result for 2020 is:

- Decrease in the portion of expenses eligible for capitalization, which is reflected in an increase in personnel expenses of 30%

- Increase in amortization of capitalized expenses following the launch

- Decrease in subcontracting costs for the EOS Edge project

R&D costs increased by 17% over the year, from €4,799k in 2019 to €5,597k in 2020.

Expenses expensed during the year consisted mainly of salaries for the R&D team of 52 engineers based at three sites.

Costs incurred during the development phase of innovative projects are capitalized in accordance with IAS 38 "Property, Plant and Equipment". At December 31, 2020, capitalized development costs amounted to €2 097k and an amortization for € 967k.

Excluding the impact of IFRS restatements, costs incurred during the year amounted to €7.7m in 2020 compared with €7.5m in 2019.

20.4Sales, clinical and marketing

 

Sales, clinical and marketing

Financial year ended

 

(in thousands of euros)

31-déc.-20

 

31-déc.-19

 

 

 

 

 

 

 

 

Purchasing and subcontracting

 

910

 

 

1,602

 

Studies

 

(28

)

 

(16

)

Trade shows and congresses

 

638

 

 

2,035

 

Payroll costs

 

5,870

 

 

7,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total marketing and sales

 

7,390

 

 

11,168

 

 

Sales, clinical and marketing costs include:

- Commercial deployment and associated sales force development costs,

- Clinical studies and opinion leader meetings in the field of orthopedics and radiology,

- Costs related to participation in national and international conferences (RSNA, SOFCOT, JFR, etc.),

 

49

 


 

 

- Travel expenses mainly related to annual sales seminars and participation in national and international conferences.

Sales, clinical and marketing expenses fell by 34% during the year. This decrease is mainly due to

- A €1.7 million decrease in personnel expenses, as a result of internal mobility, departures not replaced during the year, and the waiver by Mr. Lobinski of his variable compensation for the year 2020.

- A €1 million reduction in travel expenses, as a direct consequence of global restrictions in the context of the health crisis

- The decrease in subcontracting and exhibition expenses following the cancellation of various congresses during the health crisis.

20.5Regulatory matters

 

Regulatory

Financial year ended

 

(in thousands of euros)

31-déc.-20

 

31-déc.-19

 

 

 

 

 

 

 

 

Purchasing and subcontracting

 

220

 

 

223

 

Travelling expenses

 

11

 

 

23

 

Staff costs

 

573

 

 

665

 

 

 

 

 

 

 

 

Total regulatory

 

804

 

 

911

 

 

Costs related to regulatory affairs and quality correspond mainly to

- Costs related to obtaining certifications for the Group's products,

- Personnel costs of the team organized around a Director of Regulatory Affairs.

Regulatory expenses are down 12% compared to the previous year. This is explained by a decrease of €100k related to travel restrictions and personnel costs following internal employee mobility

20.6Administrative costs

 

Administrative costs

Financial year ended

 

(in thousands of euros)

31-déc.-20

 

31-déc.-19

 

 

 

 

 

 

 

 

Purchasing and subcontracting

 

3,062

 

 

3,780

 

Travelling expenses

 

47

 

 

70

 

Staff costs

 

2,566

 

 

1,828

 

Amortization and provisions

 

297

 

 

245

 

 

 

 

 

 

 

 

Total administrative costs

 

5,972

 

 

5,924

 

 

The administrative costs are mainly composed of :

- Personnel costs

- Audit, legal and consulting fees,

 

50

 


 

 

- Insurance costs and rent.

Overall, administrative costs were stable over the year. The increase in personnel costs due to the impact of the full salary of three managers and the exceptional provision for retirement was entirely offset by the decrease in purchases and subcontracting due to the reduced use of certain expert opinions, which were internalized; the reversal of provisions for litigation; and the control of expenses during the year.

The main expenses related to the ongoing ATEC offer (and conditional on the success of the offer) are not taken into account as at 31 December 2020 (advisory fees and commissions, management remuneration, etc.).

Note 21 :: FINANCIAL INCOME AND EXPENDITURE

 

Financial income and expenditure

Financial year ended

 

(in thousands of euros)

31-déc.-20

 

31-déc.-19

 

 

 

 

 

 

 

 

Losses on cash equivalents

 

 

 

 

 

 

Interest expense

 

1,470

 

 

1,600

 

IFRS 16 expenses

 

124

 

 

134

 

Financing component - sales contracts

 

191

 

 

 

 

Exchange rate différences

 

961

 

 

170

 

 

 

 

 

 

 

 

Total financial costs

 

2,745

 

 

1,904

 

 

 

 

 

 

 

 

Income on cash equivalents

 

 

 

 

 

 

Repayment of bond borrowing

 

 

 

 

 

 

Financing component - sales contracts

 

36

 

 

163

 

Exchange rate différences

 

1,127

 

 

6

 

 

 

 

 

 

 

 

Total financial income

 

1,163

 

 

168

 

 

 

 

 

 

 

 

Financial result

 

(1,583

)

 

(1,736

)

 

he interest expenses mainly relate to the interest on the bond, as presented in note 2.

The other items of the financial result also include the impact of the new IFRS standards.

The application of IFRS 16 leads to the recognition of financial expenses in the amount of €124k.

When a contract includes a significant financing component created by an interval of more than 12 months between the service rendered and the collection, the turnover is adjusted by a financial income or expense.

The application of IFRS 15 and the financing component included in the valuation of services rendered to the client has a net impact of €154k.

Note 22 :income tax expense

Under current legislation, the company has the following tax losses:

 

51

 


 

 

 

-

Indefinitely carried forward in France for a total amount of €95,269k.

 

-

In the United States:

 

-

Can be carried forward for 20 years in the United States for losses generated before     2018 for an amount of US$20,916k

 

-

Losses generated from 2018 onwards can only be deducted up to 80% of taxable profits: they amount to US$11,945k

The losses carried forward thus amount to US$32,862k, i.e. a total of €26,780k at 31 December 2020.

 

-

Can be carried forward between 2029 and 2040 in Canada for an amount of C$4,031k, i.e. a total of €2,579k at 31 December 2020.

 

-

Indefinitely deferrable in Germany for €408k.

The deferred tax asset base net of passive temporary differences has not been activated as a matter of prudence, in application of the principles described in Note 4.19.

The tax rate applicable to the company is the rate in force in France, i.e. 28%.

 

 

2020

 

2020

 

 

 

 

 

 

 

 

Consolidated net profit (loss)

 

(11,179

)

 

(18,489

)

 

Effective income tax charge

 

6

 

 

 

 

 

Non-controlling interests

 

 

 

 

 

 

 

Impairment of goowll

 

 

 

 

 

 

 

Consolidated net profit (/(loss) before taxes, goodwill and non-controlling

 

(11,173

)

 

(18,429

)

 

 

 

 

 

 

 

 

 

Theoretical tax rate

 

28.00

%

 

28.00

%

 

Theoretical tax rate

 

(3,128

)

 

(5,160

)

 

 

 

 

 

 

 

 

 

Tax timing differences

 

 

 

 

 

 

 

- Other permanent difference

 

75

 

 

36

 

 

- Share-based payments

 

11

 

 

208

 

 

- Others non-taxable income

 

(331

)

 

(531

)

 

- Tax credits (CICE)

 

(15

)

 

 

 

 

- Tax losses non activated and temporary differences

 

3,394

 

 

5,448

 

 

 

 

 

 

 

 

 

 

Effective income tax charge

 

6

 

 

0

 

 

Effective tax rate

 

0.00

%

 

0.00

%

 

 

Note 23 :commitments

23.1Commitments under operating leases

EOS imaging SA :

The Company has a lease on its head office. The lease is for a period of ten full and consecutive years and the Company has the option to terminate the leases every three years.

 

52

 


 

 

The Company has taken out a sub-lease over a property where it carries out part of its production activities. The term of the sub-lease is equal to the remaining term of the principal lease i.e. 9 years, with the option for the Company to give notice every three years. This sub-lease was terminated on October 21, 2020 and will expire on June 20, 2021.

Total lease payments and future expenses break down as follows at 31 December 2020 :

 

Eos Imaging SA

TOTAL

 

Up to 1 year

 

More than 1

year but no

more than

5 years

 

5 years or

more

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease

 

4,510

 

 

606

 

 

2,334

 

 

1,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

4,510

 

 

606

 

 

2,334

 

 

1,570

 

 

EOS imaging Inc :

 

Eos Imaging Inc

TOTAL

 

Up to 1 year

 

More than 1

year but no

more than

5 years

 

5 years or

more

 

(in thousands of dollars US)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease

$

208

 

$

62

 

$

146

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

208

 

 

62

 

 

146

 

 

 

 

 

EOS image Inc :

 

Eos Image Inc

TOTAL

 

Up to 1 year

 

More than 1

year but no

more than

5 years

 

5 years or

more

 

(in thousands of dollars CAD)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease

$

229

 

$

55

 

$

174

 

$

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

229

 

 

55

 

 

174

 

 

 

 

 

OneFit Medical :

 

 

53

 


 

 

 

OneFit Medical

TOTAL

 

Up to 1 year

 

More than 1

year but no

more than

5 years

 

5 years or

more

 

(in thousands of euros)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease

 

4

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

4

 

 

4

 

 

 

 

 

 

 

 

The OneFit lease terminates in February 2021 and will be extended for 12 months for a commitment of €37k.

23.2Others commitments made

As part of its drive to control procurement costs, the Group has put in place medium-term supply contracts, some of which contain volume commitments. Under these contracts the Group may be required to pay compensation if these volumes are not honoured.

Note 24 :RELATED PARTIES

 

(in thousands of euros)

Financial Period Ended

 

 

déc-20

 

 

déc-20

 

 

 

 

 

 

 

 

 

 

 

 

Remuneration and benefits in kind

 

 

2,818

 

 

 

2,656

 

 

Payments in shares

 

 

-

 

 

 

1

 

 

Directors' fees

 

 

-

 

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

2,818

 

 

 

2,787

 

 

 

The valuation of share-based payments is disclosed in note 19.

Note 25 :Earnings per share

Basic earnings per share are calculated by dividing the net income attributable to the Company's shareholders by the weighted average number of common or preference shares in circulation during the financial year.

 

 

FY closed on December

 

(in thousands of euros)

12/31/20

 

12/31/19

 

 

 

 

 

 

 

 

Net profit/(loss)

 

(11,179

)

 

(18,429

)

 

 

 

 

 

 

 

Weighted average number of shares in circulation

 

26,621,290

 

 

26,328,829

 

 

 

 

 

 

 

 

Résultat net  par action  (en euros)

 

(0.42

)

 

(0.70

)

 

 

 

 

 

 

 

Weighted average number of potential shares

 

28,166,472

 

 

28,522,636

 

 

 

 

 

 

 

 

 

 

54

 


 

 

 

Instruments conferring deferred access to the Company's equity (stock options) are considered not to be dilutive, since they imply a reduction in the loss per share. Thus, diluted earnings per share are identical to basic earnings per share.

Note 26 :Financial risk management

The company's principal financial instruments comprise cash and financing instruments such as bonds. The aim of managing these instruments is to finance the Company's operations. The Company’s policy is not to subscribe for financial instruments for speculative purposes. The Company does not use derivatives.

The main risks to which the Company is exposed are liquidity risk, exchange risk, interest rate and credit risks.

Liquidity risk

Cash and cash equivalents are held to meet short-term cash commitments rather than for investment or other purposes. They are readily convertible into a known amount of cash and are subject to an insignificant risk of a change in value.

The Company has carried out a specific review of its liquidity risk. In particular, it carried out a detailed assessment of repayments under the repayable advance, as described in detail in note 15 (Non-current financial liabilities) and under the bond issue, the maturities of which are set out below:

 

Maturity schedule of financial liabilities

Carrying

amount

 

At up to 1

year

 

>1 yr up

to 5

years max.

 

Over 5

years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bond loans

 

25,722

 

 

1,551

 

 

24,171

 

 

-

 

BPI advances - Ardea

 

283

 

 

33

 

 

250

 

 

-

 

Bank Loan

 

19

 

 

-

 

 

19

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Total liabilities

 

26,024

 

 

1,584

 

 

24,440

 

 

-

 

 

If the Group does not comply with the contractual conditions of the repayable advance agreements entered into, it may be required to repay the sums advanced ahead of schedule. Such a situation could deprive the Group of some of the financial resources needed to successfully pursue its development projects. At 31 December 2020, the group was compliant with all the contractual terms and conditions.

In relation to the convertible bonds, in the event that their terms are breached (for example, where the Company fails to pay interest or principal), or in the event of cross-default or a change of control of the Company, the holders of these bonds may require all the convertible bonds to be redeemed early. This risk is considered by the Group to be low.

On the basis of this review, liquidity risk was reassessed in light of the impacts of the Covid crisis - see note 4.13 (going concern). Nevertheless, the Company will continue to have significant financing needs to develop its technologies and market its products.

Foreign exchange risk

* Operating income:

 

55

 


 

 

All Group sales made in Europe and Asia-Pacific are denominated in euros. Sales made in North America are denominated in local currencies.

69% of the 2020 revenue, i.e. €16.4 million, was denominated in euros and 31%, i.e. equivalent to €7.4 million, was denominated in US or Canadian dollars.

Other operating income, made up of public financings, was denominated in euros for 1.3 million or 61% or and was denominated in US and Canadian dollars representing 0.8 million euros or 39%.

* Operating expense:

The expenses incurred in France are denominated in euros, save for certain supplies and fees in insignificant amounts. Charges incurred in the US, Canada and Singapore subsidiaries are denominated in the respective local currencies.

89% of 2020 operating expenses, i.e. €31 million, were denominated in euros and 11%, i.e. the equivalent of €4 miillion, was denominated in foreign currencies, with €2.9 million of that amount denominated in US dollars.

* Financial expense:

The Group’s financing expenses are denominated in euros.

Thus, the effect of a change in the exchange rates as of 31 December 2020 has the same impact on the Company's results and shareholders’ equity, as follows:

-

a 10% rise in the euro against the Canadian, American and Singaporean dollars would have a negative impact on income of €331k;

a 10% fall in the euro against the Canadian, American and Singaporean dollars would have a positive impact on income of €331k.

This is the combined effect of two distinct components:

-

the operating risk : the 43% increase in Operating Income in 2019 at historical exchange rates would have been limited to 42% at constant exchange rates;

-

the risk associated with the investments made in the foreign subsidiaries materialises in the form of net financial income when translating the receivables associated with the equity interests in the consolidated accounts. This component represents the net balance of this effect.

In early 2021, the company put in place a forward currency hedge for a significant part of its turnover in order to preserve its commercial margin.

Credit risk

The Company conducts prudent management of its available cash. Cash and equivalents include cash on hand and common financial instruments held by the company (basically money market funds (SICAV) and term deposits).  At 31 December 2020, these securities were exclusively fixed or determinable income with fixed maturities, other than loans and accounts receivables, which the Group has the intention and the ability to hold until maturity. They are recognised at their amortised cost.

 

56

 


 

 

The credit risk related to cash, cash equivalents and common financial instruments is not significant given the quality of the financial institutions with which the Group works.

Concerning its customers, the Group does not have a significant concentration of credit risk.  The Group has implemented policies enabling it to ensure that its customers have an appropriate credit risk history. However, the Group must take account of variable customer payment terms, which depend on a number of different factors:

-

Sector-specific factors:

 

o

The Group sells medical imaging equipment for which installation, user training and acceptance of the equipment can be relatively long. These three items are pre-conditions to payment for the equipment, although pre-payments are sometimes obtained;

 

o

The Group may have cause to grant fairly long settlement terms in the context of negotiating sales contracts;

 

o

The payment terms for public hospitals are traditionally long, irrespective of the contractual conditions entered into.

-

Geographical factors:

 

o

Settlement terms are traditionally long in certain geographical regions (Asia and the Middle East).

Trade receivables recorded on the balance sheet fell from €17.7 million to €9.8 million thanks to the made to collect the amounts owed and the change in the commercial cycle in the first quarter of 2019. This change significantly reduced the working capital requirement.

When analysing its receivables under IFRS 15, the Group made adjustments if the transaction price was liable to vary.

Interest rate risk

The Company's exposure to interest rate risk primarily relates to cash and cash equivalents. These largely consist of term deposits. Changes in interest rates have no impact on the interest earned on term deposit accounts, since the return on those accounts is fixed.

As at 31 December 2020, the Company's financial liabilities were not subject to interest rate risk, given that they comprise the interest-free loan and the repayable fixed-rate advance.

Fair value

As shown in note 16.3 (Financial instruments recognised on the balance sheet and impact), the fair value of financial instruments traded on an active market is based on the market price at closing date. The market prices used for financial assets held by the Company are the market bid prices on the valuation date.

The nominal value, less the provisions for depreciation, of the accounts receivable and current debts is presumed to approximate the fair value of those items.

Note 27 :Statutory auditors’ fees

 

57

 


 

 

Summary table of Statutory Auditors' fees recognised as expenses for the financial year.

(*) These services cover those required by laws and regulations (reports on capital transactions, end of assignment letter).

 

(in thousands of euros

12/31/20

 

Deloitte

PKF

Acti

Audit

 

 

 

Statutory auditors, examination and certification of the company only and the consolidated financial statement

60

44

 

1) Eos Imaging SA 2) Fully consolidated

 

 

 

2) Fully consolidated subsidiairies (Eos Imaging Inc, Eos Imaging Inc , Eos Imaging Gmbh, Onefit Medical, Eos Imaging Pte Ltd)

13

 

4

 

 

 

 

Non-audit services

 

 

 

1) Eos Imaging SA

2

 

 

2) Fully consolidated subsidiairies (Eos Imaging Inc, Eos Imaging Inc , Eos Imaging Gmbh, Onefit Medical, Eos Imaging Pte Ltd)

 

 

 

 

 

 

 

Sub total

75

44

4

 

 

 

 

Other services provided by the networks to fully consolided subsidiaries

 

 

 

 

 

 

 

1) Legal, labour, tax

 

 

 

2) Other

 

 

 

Sub total

 

 

 

 

 

 

 

Total

75

44

4

 

Note 28 :Events after the reporting date

a.Alphatec's public offer process and EOS imaging change of control

On 15 January 2021, the Company's social and economic committee, after having examined the terms and conditions of the Offer, issued its opinion on the Offer (the opinion is available in the note in response published on the Company's website dedicated to the Offer and the AMF).

On 4 March 2021, the Board of Directors met and issued a favourable reasoned opinion on the proposed tender offer by Alphatec Holdings, Inc. ("ATEC") for the EOS shares and OCEANES (the "Offer").

 

-

The Board of Directors has taken note of the intentions expressed by ATEC in its draft offer document and of the opinion given by the EOS Economic and Social Committee (CSE). It has also taken note of the fairness opinion of Accuracy, as independent expert, which concludes that the Offer is fair from a financial point of view for the shareholders and the OCEANE holders.

 

-

Based in particular on the fairness opinion, the opinion of the CSE and the positive recommendation of the ad hoc committee, the Board of Directors unanimously considered that the Offer was in the interest of EOS, its shareholders and its OCEANE holders, to whom it

 

58

 


 

 

 

offers immediate and full liquidity under favourable price conditions, and its employees. It has therefore issued a favourable opinion on the Offer and has recommended to the shareholders and to the OCEANE holders to tender their shares and their OCEANEs respectively to the Offer.

On 5 March 2021, Alphatec filed the draft offer document relating to the Tender Offer with the AMF.

On 30 March 2021, the Offer obtained the authorisation of the Minister in charge of the economy, finance and recovery, pursuant to Article L. 151-3 of the French Monetary and Financial Code relating to the control of foreign investments made in France.

On 30 March 2021, the Autorité des marchés financiers (AMF) declared the proposed takeover bid compliant pursuant to Article 231-23 of the General Regulation.

On 31 March 2021, the Autorité des marchés financiers announced that the tender offer will be open from 1 April to 7 May 2021 inclusive.

As of 8 March 2021, following the filing of the proposed Tender Offer, Alphatec proceeded to purchase the Company's shares on the market. As of May 7, at the end of the tender offer period, Alphatec held 7,940,090 shares.  In addition, Alphatec acquired 174,061 convertible bonds of the company.

On May 10, 2021 Euronext Paris informed the Autorité des marchés financiers that on May 7, 2021, the last date set for the deposit by financial intermediaries of orders to the takeover bid, they had received 15,815,971 shares and 2,312,074 convertible bonds of EOS imaging stock in deposit.

In total, Alphatec holdings Inc held 23,756,061 EOS imagning shares representing 89.12% of the shares and voting rights of this company. In addition, the initiator held 2,486,135 EOS IMAGING "océanes" representing 57.22% of the "océanes" in circulation.

The minimum condition being met, the offer was thefore declared successful.

On May 13, 2021, the settlement delivery of the shares and Oceanes took place. This marking the date of change of control of the Company.

On June 3, 2021, following the re-opening period of the offer (May 17 to June 2), the Autorité des marchés financiers announced that Alphatec Holdings Inc. held

 

i.

24,815,737 EOS imaging shares representing 93.08% of the capital and voting rights of this company, and

 

ii.

2,486,135 EOS imaging "océanes" representing 57.22% of the "océanes" in circulation

On June 8, 2021, Oddo BHF SCA, acting on behalf of Alphatec Holdings Inc. informed the AMF of the decision of Alphatec Holdings Inc. to proceed with the implementation of a squeeze-out concerning the EOS imaging shares not tendered to the offer, the conditions being met.

On June 11, 2021 the squeeze-out of 1,790,846 EOS imaging shares, representing 6.72% of the share capital of this company took place, at a price of €2.45 per EOS imaging share. The suspension of the listing of the EOS imaging shares was maintained until the full implementation of the squeeze-out and the listing of the EOS imaging "océanes" resumed on June 9, 2021.

 

b.

Evolution of the Company governance

 

59

 


 

 

 

On May 18, 2021 the Board received the resignation of three directors, Mr. Michael Lobinski, Mr. Eric Beard, and Mr. Antoine Vidal, and co-opted Mr. Patrick Miles, Mr. Tyson Marshall, Mr. Eric Dasso in the respective position of the resigning board members until the end of their respective mandates.

On June 29, 2021, the shareholder ratified the nomination of the new shareholders.

Mike Lobinski remains the Company CEO.

 

c.

Obtaining State Guaranteed Loans (PGE) of €4.7m

As part of the support measures taken in France in response to the health crisis, the group has applied for State Guaranteed Loans.

On January 15, 2021, Onefit Medical, a subsidiary of EOS imaging, received a state-guaranteed loan of €0.4m from Crédit Mutuel.

On April 14, 2021, EOS imaging received a state-guaranteed loan of €4.3m from a banking syndicate consisting of BNP Paribas, Bpifrance and Société Générale.

 

d.

Communication of unaudited revenues for the 1st quarter of 2021

On 20 April 2021, the Company communicated its unaudited revenues for the 1st quarter of 2021, which amounted to €5.6m, up +48% compared to the 1st quarter of 2020. Commercial performance amounted to €7.9m, up +31% compared to Q1 2020.  The cash position at 31 March 2021 was €8.2m.

 

60

 

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On May 13, 2021, Alphatec Holdings, Inc. (“ATEC” or the “Company”) completed its initial tender offer (as set forth in Rule 14d-1(d) under the Securities Exchange Act of 1934) (“Tender Offer”) of EOS Imaging, SA (“EOS”) pursuant to the recommended cash offer of €2.45 (translated into $2.98 at the May 12, 2021 spot rate) per EOS Share (“EOS Share”) and €7.01 (translated into $8.52 at the May 12, 2021 spot rate ) per OCEANE outstanding convertible bond (“OCEANEs”) (such offer, the “Cash Offer Document,” published December 17, 2020 by ATEC such Tender Offer and its acceptance, “the Acquisition”).

The Acquisition of EOS will be accounted for using the acquisition method of accounting as per the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”), with ATEC representing the accounting acquirer under this guidance. The unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of Regulation S-X, as amended by SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses. The unaudited pro forma condensed combined financial information is presented to illustrate the estimated effects of the Acquisition. For each of the periods presented, the pro forma financial information reflects the combination of historical financial information of ATEC and EOS, adjusted to give effect to the acquisition method of accounting in accordance with ASC 805, as subsequently described in greater detail. Furthermore, additional pro forma adjustments have also been reflected to address differences in reporting currencies, differences in bases of accounting, and differences in the classification and presentation of certain financial information. For purposes of certain disclosures that follow, ATEC and EOS may be referred to collectively as the “Combined Company.”

The unaudited pro forma condensed combined balance sheet as of March 31, 2021, and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020, and the three months ended March 31, 2021 are presented herein. The unaudited pro forma condensed combined balance sheet combines the unaudited consolidated balance sheets of ATEC and EOS as of March 31, 2021 and gives effect to the Acquisition as if it occurred on March 31, 2021. The unaudited pro forma condensed combined statements of operations combine the historical results of ATEC and EOS for the year ended December 31, 2020 and the three months ended March 31, 2021 and give effect to the Acquisition as if it occurred on January 1, 2020.

The pro forma adjustments included in this document are subject to modification based on the final determination of the fair value of the assets acquired and liabilities assumed, additional analysis, and additional information that may become available, which may cause the final adjustments to be materially different from the pro forma condensed combined financial statements presented below. Following the consummation of the Acquisition, ATEC management will perform a detailed review of EOS’ accounting policies in an effort to determine if differences in accounting policies require further reclassification of EOS’ results of operations or reclassification of assets or liabilities to conform to ATEC’s accounting policies and classification. As a result, ATEC may subsequently identify additional material differences in the accounting policies which could have a material impact on the unaudited pro forma combined financial information.

 

The unaudited pro forma condensed combined financial information presented is for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Acquisition had been completed on the dates set forth above, nor is it indicative of future results or financial position of the Combined Company. Additionally, the final determination of the purchase price and the purchase price allocation, upon the completion of the Acquisition, will be based on EOS’ net assets acquired as of that date and will depend on a number of factors that cannot be predicted with certainty at this time. The unaudited pro forma condensed combined financial information does not reflect any anticipated synergies or dis-synergies, operating efficiencies or cost savings that may result from the Acquisition or potential divestitures that may occur subsequent to the completion of the Acquisition or any Acquisition and integration costs that may be incurred. The pro forma adjustments, which ATEC believes are reasonable under the circumstances, are preliminary and are based upon available information and certain assumptions described in the accompanying notes to the unaudited pro forma condensed combined financial information. Actual results and valuations may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.


These unaudited pro forma condensed combined financial statements should be read in conjunction with the following:

 

The historical audited consolidated financial statements of ATEC as of and for the year ended December 31, 2020 included in ATEC’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 5, 2021;

The historical unaudited consolidated financial statements of ATEC as of and for the three months ended March 31, 2021 included in ATEC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 filed with the SEC on May 6, 2021; and

EOS’ audited financial statements and notes for the year ended December 31, 2020 included elsewhere in this proxy statement/prospectus;


ALPHATEC HOLDINGS, INC
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 31, 2021
(in thousands)

 

 

 

Alphatec

Historical

 

EOS

Historical - As

Translated

(Note 5)

 

Reclassification

and Policy

Alignment

 

Note

Ref

 

IFRS to US

GAAP

Adjustments

 

Note

Ref

 

Transaction

Adjustments

 

Note

Ref

 

Pro Forma

Combined

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

191,137

 

 

9,662

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(79,442

)

7A

 

 

121,357

 

Accounts receivable, net

 

 

25,751

 

 

10,814

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

36,565

 

Inventories, net

 

 

57,376

 

 

16,043

 

 

475

 

5B

 

 

-

 

 

 

 

 

7,400

 

7E

 

 

81,294

 

Prepaid and other current assets

 

 

3,433

 

 

3,878

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

7,311

 

Withholding tax receivable from Officer

 

 

1,076

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

1,076

 

Current assets of discontinued operations

 

 

348

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

348

 

Total current assets

 

 

279,121

 

 

40,397

 

 

475

 

 

 

 

 

-

 

 

 

 

 

(72,042

)

 

 

 

 

247,951

 

Property and equipment, net

 

 

56,124

 

 

1,723

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

57,847

 

Right-of-use asset

 

 

21,704

 

 

4,155

 

 

-

 

 

 

 

 

-

 

 

 

 

 

133

 

7J

 

 

25,992

 

Goodwill

 

 

13,897

 

 

6,023

 

 

-

 

 

 

 

 

-

 

 

 

 

 

23,845

 

7K

 

 

43,765

 

Intangible assets, net

 

 

24,129

 

 

10,118

 

 

-

 

 

 

 

 

(4,212

)

6A

 

 

62,095

 

7F

 

 

92,129

 

Debt securities

 

 

1,313

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(1,313

)

7B

 

 

-

 

Equity securities

 

 

7,619

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(7,619

)

7A

 

 

-

 

Other assets

 

 

541

 

 

409

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

951

 

Noncurrent assets of discontinued operations

 

 

55

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

55

 

Total assets

 

 

404,503

 

 

62,825

 

 

475

 

 

 

 

 

(4,212

)

 

 

 

 

5,099

 

 

 

 

 

468,690

 

Liabilities and stockholders equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

26,416

 

 

4,340

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

30,756

 

Accrued expenses

 

 

36,730

 

 

12,689

 

 

-

 

 

 

 

 

536

 

6B

 

 

6,170

 

7D, 7I

 

 

56,125

 

Contract liabilities

 

 

-

 

 

14,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,902

 

Current portion of long-term debt

 

 

5,374

 

 

101

 

 

-

 

 

 

 

 

-

 

6B

 

 

-

 

 

 

 

 

5,475

 

Current portion of operating lease liability

 

 

1,486

 

 

636

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

2,122

 

Current liabilities of discontinued operations

 

 

143

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

143

 

Total current liabilities

 

 

70,149

 

 

32,668

 

 

-

 

 

 

 

 

536

 

 

 

 

 

6,170

 

 

 

 

 

109,523

 

Long-term debt, less current portion

 

 

38,580

 

 

30,933

 

 

-

 

 

 

 

 

3,724

 

 

 

 

 

(18,706

)

7B

 

 

54,531

 

Operating lease liability, less current portion

 

 

20,752

 

 

3,651

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

24,403

 

Deferred tax liabilities

 

 

-

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

1,801

 

7G

 

 

1,801

 

Other long-term liabilities

 

 

11,289

 

 

770

 

 

-

 

 

 

 

 

-

 

 

 

 

 

1,223

 

7G

 

 

13,282

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable preferred stock

 

 

23,603

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

23,603

 

Contingently redeemable preferred stock

 

 

131,838

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

131,838

 

Stockholder's equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

8

 

 

313

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(313

)

7H

 

 

8

 

Treasury Stock

 

 

(97

)

 

(520

)

 

-

 

 

 

 

 

-

 

 

 

 

 

520

 

7H

 

 

(97

)

Additional paid-in capital

 

 

774,031

 

 

197

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(197

)

7H

 

 

774,031

 

Shareholder note receivable

 

 

(2,900

)

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

-

 

 

 

 

 

(2,900

)

Noncontrolling interest

 

 

-

 

 

-

 

 

-

 

 

 

 

 

-

 

 

 

 

 

8,147

 

7C

 

 

8,147

 

Accumulated other comprehensive income

 

 

(1,848

)

 

(301

)

 

-

 

 

 

 

 

-

 

 

 

 

 

281

 

7H

 

 

(1,868

)

Accumulated deficit

 

 

(660,902

)

 

(4,886

)

 

475

 

5B

 

 

(8,472

)

6A, 6B

 

 

6,173

 

7D,7H,7I

 

 

(667,612

)

Total stockholder's equity

 

 

108,292

 

 

(5,197

)

 

475

 

 

 

 

 

(8,472

)

 

 

 

 

14,611

 

 

 

 

 

109,709

 

Total liabilities and stockholder's equity

 

 

404,503

 

 

62,825

 

 

475

 

 

-

 

 

(4,212

)

 

-

 

 

5,099

 

 

-

 

 

468,690

 

 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information

 

 

 


 

ALPHATEC HOLDINGS, INC
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2020
(in thousands)

 

 

 

Alphatec

Historical

 

EOS

Historical - As

Translated

(Note 5)

 

Reclassification

and Policy

Alignment

 

Note

Ref

IFRS to US

GAAP

Adjustments

 

Note

Ref

 

Transaction

Adjustments

 

Note

Ref

Pro Forma

Combined

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from products and services

 

 

141,079

 

 

27,191

 

 

-

 

 

 

-

 

 

 

 

 

-

 

 

 

168,270

 

Revenue from international supply agreement

 

 

3,782

 

 

-

 

 

-

 

 

 

-

 

 

 

 

 

-

 

 

 

3,782

 

Other income

 

 

-

 

 

2,502

 

 

(2,502

)

5A

 

-

 

 

 

 

 

-

 

 

 

-

 

Total Revenue

 

 

144,861

 

 

29,693

 

 

(2,502

)

 

 

-

 

 

 

 

 

-

 

 

 

172,052

 

Cost of revenue

 

 

42,360

 

 

18,042

 

 

(694

)

5A

 

-

 

 

 

 

 

7,400

 

7E

 

67,108

 

Gross Profit

 

 

102,501

 

 

11,651

 

 

(1,808

)

 

 

-

 

 

 

 

 

(7,400

)

 

 

104,944

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

18,745

 

 

6,387

 

 

(528

)

5A

 

(1,174

)

6A

 

 

-

 

 

 

23,430

 

Sales, general and administrative

 

 

129,156

 

 

16,209

 

 

(529

)

5A

 

(55

)

 

 

 

 

3,090

 

7B, 7I

 

147,871

 

Litigation - related expense

 

 

8,552

 

 

-

 

 

-

 

 

 

-

 

 

 

 

 

-

 

 

 

8,552

 

Amortization of Acquired Intangibles

 

 

688

 

 

-

 

 

-

 

 

 

-

 

 

 

 

 

7,186

 

7F

 

7,874

 

Transaction related expenses

 

 

4,223

 

 

-

 

 

-

 

 

 

-

 

 

 

 

 

6,358

 

7D

 

10,581

 

Total operating expenses

 

 

161,364

 

 

22,596

 

 

(1,057

)

 

 

(1,229

)

 

 

 

 

16,634

 

 

 

198,308

 

Operating loss

 

 

(58,863

)

 

(10,945

)

 

(751

)

 

 

1,229

 

 

-

 

 

(24,034

)

 

 

(93,364

)

Interest and other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

(12,374

)

 

(1,806

)

 

-

 

 

 

(250

)

6B

 

 

1,174

 

 

 

(13,256

)

Loss on debt extinguishment

 

 

(7,612

)

 

-

 

 

-

 

 

 

-

 

 

 

 

 

-

 

 

 

(7,612

)

Other income (expense), net

 

 

-

 

 

-

 

 

1,312

 

5A

 

-

 

 

 

 

 

-

 

 

 

1,312

 

Total interest and other expense, net

 

 

(19,986

)

 

(1,806

)

 

1,312

 

 

 

(250

)

 

 

 

 

1,174

 

 

 

(19,556

)

Loss from continuing operations before taxes

 

 

(78,849

)

 

(12,751

)

 

561

 

 

 

979

 

 

 

 

 

(22,860

)

 

 

(112,920

)

Income tax provision (benefit)

 

 

145

 

 

7

 

 

82

 

5A

 

-

 

 

 

 

 

-

 

 

 

234

 

Net loss

 

 

(78,994

)

 

(12,758

)

 

479

 

 

 

979

 

 

 

 

 

(22,860

)

 

 

(113,154

)

Net loss attributable to noncontrolling interests

 

 

-

 

 

-

 

 

-

 

 

 

-

 

 

 

 

 

(1,187

)

7C

 

(1,187

)

Net loss attributable to parent entity

 

 

(78,994

)

 

(12,758

)

 

479

 

 

 

979

 

 

 

 

 

(21,673

)

 

 

(111,967

)

 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information

 



ALPHATEC HOLDINGS, INC
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2021
(in thousands)

 

 

 

Alphatec

Historical

 

EOS

Historical - As

Translated

(Note 5)

 

Reclassification

and Policy

Alignment

 

Note

Ref

IFRS to US

GAAP

Adjustments

 

Note

Ref

Transaction

Adjustments

 

Note

Ref

Pro Forma

Combined

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from products and services

 

 

43,716

 

 

6,865

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,581

 

Revenue from international supply agreement

 

 

405

 

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

405

 

Other income

 

 

-

 

 

284

 

 

(284

)

5A

 

-

 

 

 

-

 

 

 

-

 

Total Revenue

 

 

44,121

 

 

7,149

 

 

(284

)

 

 

-

 

 

 

-

 

 

 

50,986

 

Cost of revenue

 

 

12,263

 

 

4,268

 

 

(552

)

5A

 

-

 

 

 

-

 

 

 

15,979

 

Gross Profit

 

 

31,858

 

 

2,881

 

 

268

 

 

 

-

 

 

 

-

 

 

 

35,007

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

5,801

 

 

1,395

 

 

(126

)

5A

 

(284

)

6A

 

-

 

 

 

6,786

 

Sales, general and administrative

 

 

40,426

 

 

6,836

 

 

(74

)

5A

 

(1

)

 

 

(2,258

)

7B, 7I

 

44,929

 

Litigation - related expense

 

 

3,335

 

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,335

 

Amortization of Acquired Intangibles

 

 

172

 

 

-

 

 

-

 

 

 

-

 

 

 

1,796

 

7F

 

1,968

 

Transaction related expenses

 

 

1,012

 

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,012

 

Restructuring

 

 

158

 

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

158

 

Total operating expenses

 

 

50,904

 

 

8,231

 

 

(200

)

 

 

(285

)

 

 

(462

)

 

 

58,188

 

Operating loss

 

 

(19,046

)

 

(5,350

)

 

468

 

 

 

285

 

 

 

462

 

 

 

(23,181

)

Interest and other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

(1,889

)

 

-

 

 

43

 

5A

 

(117

)

6B

 

-

 

 

 

(1,963

)

Interest income (expense), net

 

 

(1,938

)

 

266

 

 

-

 

 

 

-

 

 

 

(308

)

7B

 

(1,980

)

Loss on debt extinguishment

 

 

-

 

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total interest and other expense, net

 

 

(3,827

)

 

266

 

 

43

 

 

 

(117

)

 

 

(308

)

 

 

(3,943

)

Loss from continuing operations before taxes

 

 

(22,873

)

 

(5,084

)

 

511

 

 

 

168

 

 

 

154

 

 

 

(27,124

)

Income tax provision (benefit)

 

 

30

 

 

-

 

 

18

 

5A

 

-

 

 

 

-

 

 

 

48

 

Net loss

 

 

(22,903

)

 

(5,084

)

 

493

 

 

 

168

 

 

 

154

 

 

 

(27,172

)

Net loss attributable to noncontrolling interests

 

 

-

 

 

-

 

 

-

 

 

 

-

 

 

 

(465

)

7C

 

(465

)

Net loss attributable to parent entity

 

 

(22,903

)

 

(5,084

)

 

493

 

 

 

168

 

 

 

619

 

 

 

(26,707

)

 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information



 

NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

(In USD thousands, except per share data and as otherwise noted)

Note 1 – Description of Business Combination

 

On May 13, 2021, ATEC completed the purchase of 15,815,971 EOS Shares and 2,312,074 OCEANEs pursuant to the Tender Offer. Prior to March 31, 2021 ATEC acquired 2,665,694 EOS Shares and 157,671 OCEANEs on the open market outside of the Tender Offer which were recorded as investments in equity and debt securities, respectively. An additional 5,274,386 EOS Shares and 16,874 OCEANEs were purchased on the open market outside of the Tender Offer from March 31, 2021 through May 13, 2021.  After the completion of the initial Tender Offer, the Company’s holdings of EOS represent approximately 89.1% of the outstanding EOS Shares and 57.2% of the OCEANEs, equal to approximately 80.0% of the capital and voting rights of EOS on a fully diluted basis. Pursuant to applicable French laws and regulations, the Tender Offer was reopened by the Autorité des Marchés Financiers (the “AMF”) in France to purchase all of the remaining EOS Shares and OCEANEs at the same respective prices as in the initial Offer on May 17, 2021. The results of the completion of the initial Tender Offer were published on May 10, 2021, by the AMF, and settlement occurred on May 13, 2021. In connection with the proposed Acquisition of EOS, the Company announced in December 2020 a definitive securities purchase agreement to raise $138.0 million in a private placement of common stock at a price of $11.11 per share. The private placement, which closed on March 1, 2021, generated net proceeds of approximately $132.0 million, net of fees related to the private placement.

Note 2 – Basis of Presentation

 

The accompanying unaudited pro forma condensed combined balance sheet as of March 31, 2021, and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2020, and the three months ended March 31, 2021 are presented herein. The unaudited pro forma condensed combined balance sheet combines the unaudited consolidated balance sheets of ATEC and EOS as of March 31, 2021 and gives effect to the Acquisition as if it occurred on March 31, 2021. The unaudited pro forma condensed combined statements of operations combine the historical results of ATEC and EOS for the year ended December 31, 2020 and the three months ended March 31, 2021 and give effect to the Acquisition as if it occurred on January 1, 2020. The historical financial information has been adjusted to give effect to pro forma adjustments that address differences in reporting currencies, differences in bases of accounting, and differences in the classification and presentation of certain financial information and reflect transaction accounting adjustments, as well as other adjustments deemed to be directly related to the Acquisition, irrespective of whether such adjustment is deemed to be recurring or not. Any adjustments for differences in bases of accounting are determined after taking into effect the impacts of purchase accounting.  

ATEC is deemed to be the accounting acquirer and the pro forma adjustments are preliminary and are based on estimates that are subject to change. The Combined Company will not be a “foreign private issuer” as defined in Rule 405 under the Securities Act and Rule 3b-4(c) under the Exchange Act. Accordingly, the pro forma information of the Combined Company is prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP”).

ATEC’s historical audited financial statements were prepared in accordance with U.S. GAAP and presented in thousands of U.S. dollars (“USD”). EOS’ group consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and presented in thousands of Euros (“EUR”). Certain reclassifications were made to align EOS’ financial statement presentation with that of ATEC based on information available to date (see Note 5) and to conform EOS’ financial statements to be prepared in accordance with U.S. GAAP (see Note 6). The unaudited pro forma condensed combined statements of operations also include certain purchase accounting adjustments (see Note 7). Following the consummation of the Acquisition, ATEC management will conduct a detailed review of the accounting for the Acquisition and as a result of that review, ATEC management may identify differences that, when finalized, could have a material impact on the unaudited pro forma condensed combined financial information.

 

Note 3 – Purchase Price

 

The total cash paid for the acquisition of EOS is approximately $79.4 million for approximately 80% of the capital and voting rights of EOS. The acquisition consists of the purchase of both EOS Shares and OCEANEs.

 


 

EOS Shares

ATEC purchased approximately 89.1% of the total outstanding EOS Shares as of the date of the Acquisition for approximately $60.3 million. These purchases consisted of the following:

 

$45.1 million (translated from Euros to USD at the March 31, 2021 spot rate) and is based on  EOS shareholders receiving a collective €38.8 million in cash pursuant to the Tender Offer price of €2.45 (translated into $2.88 at the March 31, 2021 spot rate) per share of EOS stock;

 

$15.2 million (translated from Euros to USD at the March 31, 2021 spot rate) and is based on EOS shareholders receiving €12.9 million in cash for shares purchased on the open market from April 1, 2021 through May 12, 2021 at a price of €2.45 (translated into $2.88 at the March 31, 2021 spot rate) per share of EOS stock.

 

OCEANEs

ATEC additionally acquired 57.2% of outstanding OCEANE bonds for approximately $19.1 million. These purchases consisted of the following:

 

$19.0 million (translated from Euros to USD at the March 31, 2021 spot rate) and is based on OCEANE holders receiving a collective €16.2 million in cash based on the Tender Offer price of  €7.01 (translated into $8.23 at the March 31, 2021 spot rate) per unit of OCEANE bonds;

 

$0.1 million (translated from Euros to USD at the March 31, 2021 spot rate)  and is based on OCEANE holders receiving a collective €0.2 million purchased on the open market from April 1, 2021 through May 12, 2021 at a price of  €7.01 (translated into $8.23 at the March 31, 2021 spot rate) per unit of OCEANE bonds.

 

The remaining 10.9% of outstanding EOS Shares is recognized as noncontrolling interest on the balance sheet in the amount of $8.2 million as of March 31, 2021. Additionally, net loss attributable to such noncontrolling interest of $1.2 million is recognized for the year ended December 31, 2020 and $465 thousand for the three months ended March 31, 2021.

 

ATEC completed the purchase of EOS’ remaining outstanding and issued EOS Shares on June 2, 2021 for €7.0 million.

 

Note 4 - Preliminary Purchase Price Allocation

 

Under the acquisition method of accounting, EOS’ assets and liabilities will be recorded at fair value at the date of the completion of the Acquisition and combined with the historical carrying amounts of ATEC’s assets and liabilities. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC Topic 820, Fair Value Measurement (“ASC 820”). Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective and can involve a high degree of estimation. In the unaudited pro forma condensed combined balance sheet, ATEC’s cost to acquire EOS has been allocated to the assets acquired, liabilities assumed and goodwill based upon management’s preliminary estimate of what their respective fair values would be as if the Acquisition closed on March 31, 2021.  Accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions and estimates that, while considered reasonable under the circumstances, are subject to changes, which may be material.

 

ATEC has not completed a full, detailed valuation analysis necessary to determine the fair values of EOS’ identifiable assets to be acquired, liabilities to be assumed and noncontrolling interest. The preliminary calculation of assets acquired and liabilities assumed performed for the purposes of these unaudited pro forma condensed combined financial statements was primarily limited to the identification and calculation of preliminary values for the intangible assets, inventory, and deferred taxes. The calculations necessary to estimate the fair values of the assets acquired and liabilities assumed have been performed using methods under the “income approach”; the “multi-period excess earnings method” (or “MPEEM”) for the developed technology and certain customer relationships and the “relief from royalty” method for the tradename. ATEC will continue to refine its identification and valuation of assets acquired and the liabilities assumed. Refer to Note 7F for the fair values estimates of assets acquired and liabilities assumed.

 

The final determination of the purchase price allocation is anticipated to be completed as soon as practicable after completion of the Acquisition and will be based on the fair values of the assets acquired and liabilities assumed as of the Acquisition closing date. The final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the unaudited pro forma condensed combined financial statements.


 

The purchase price is allocated to the underlying assets acquired and liabilities assumed based on the midpoint of their respective estimated fair values, with any excess purchase price allocated to goodwill as follows (in USD thousands):

 

Equity/Debt Interest Held

 

 

 

 

 

$

 

8,912

 

Cash consideration

 

 

 

 

 

 

 

79,442

 

Noncontrolling interest

 

 

 

 

 

 

 

8,147

 

Cash and Cash Equivalents

 

 

9,662

 

 

 

 

 

 

Accounts receivable, net

 

 

10,814

 

 

 

 

 

 

Inventories

 

 

23,918

 

 

 

 

 

 

Goodwill

 

 

29,868

 

 

 

 

 

 

Other assets acquired

 

 

10,299

 

 

 

 

 

 

Identifiable intangible assets acquired

 

 

68,000

 

 

 

 

 

 

Estimated fair value of total assets acquired

 

 

152,562

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

 

4,340

 

 

 

 

 

 

Debt

 

 

15,951

 

 

 

 

 

 

Lease liabilities

 

 

4,288

 

 

 

 

 

 

Deferred tax liabilities

 

 

3,023

 

 

 

 

 

 

Other liabilities assumed

 

 

28,459

 

 

 

 

 

 

Estimated fair value of total liabilities assumed

 

 

56,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Estimated fair value of net acquired assets

 

 

 

 

 

$

 

96,501

 

 

Note 5 – Financial Statement Translation of and Adjustments to EOS’ Historical Financial Statements to Conform to ATEC’s Policies and Presentation

 

EOS’ consolidated statement of financial position for the period ended March 31, 2021 and statement of operations as of and for the year ended December 31, 2020 and the three months ended March 31, 2021 have been prepared in accordance with IFRS as adopted by the EU, which differs in certain material respects from U.S. GAAP and ATEC’s accounting policies. This balance sheet as of March 31, 2021 and statement of operations for the year ended December 31, 2020 and the three months ended March 31, 2021 have been adjusted to align EOS’ historical balance sheet as of March 31, 2021 and statement of operations for the year ended December 31, 2020 and the three months ended March 31, 2021 to ATEC’s U.S. GAAP accounting policies after taking into effect the impacts of purchase accounting.

 

For purposes of preparing the unaudited pro forma condensed combined financial information the historical financial information of EOS was translated from EUR to USD using the following historical exchange rates:

 

Period of Exchange Rate

 

$ / €

 

Balance Sheet as of March 31, 2021 period end exchange rate at March 31, 2021

 

 

1.17

 

Statement of Operations for the three months ended March 31, 2021 average exchange rate for that period

 

 

1.21

 

Statement of Operations for the year ended December 31, 2020 average exchange rate for that period

 

 

1.14

 

 

Translation, Reclassification, and Policy Alignment

 

Translation and Alignment of EOS Historical Financial Statements

 

EOS has historically prepared and reported its financial information in EUR. However, ATEC’s reporting currency is USD. Accordingly, EOS’ historical financial information was translated from EUR into USD, and aligned into certain ATEC financial statement line items prior to inclusion in the unaudited pro forma condensed combined balance sheet as of March 31, 2021 and unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020 and the three months ended March 31, 2021. Information regarding EOS’ historical financial information both prior to and subsequent to translation and grouping as well as the foreign currency exchange rates at which such information was translated into USD, is summarized below:


 

Unaudited Pro Forma Condensed Combined Balance Sheet - As of March 31, 2021:

For purposes of preparing the unaudited pro forma condensed combined balance sheet as of March 31, 2021, EOS’ consolidated statement of financial position (balance sheet) as of March 31, 2021 was translated from EUR to USD using the following foreign currency exchange rate in effect as of March 31, 2021: 1.00 to $1.17. The following table illustrates the impact of translating EOS’ consolidated statement of financial position as of March 31, 2021 into USD and aligning financial statement line items therein to conform to ATEC’s financial statement presentation:

 

 

 

EOS Historical

(in € '000's)

 

Groupings into

Alphatec

Presentation

(in € '000's)

 

EOS Historical

after Groupings

and Adjustments

(in € '000's)

 

EOS

Historical - As

Translated

(in $‘000)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

 

8,232

 

 

-

 

 

8,232

 

 

9,662

 

Accounts receivable, net

 

 

9,213

 

 

-

 

 

9,213

 

 

10,814

 

Inventories, net

 

 

13,668

 

 

-

 

 

13,668

 

 

16,043

 

Prepaid and other current assets

 

 

3,304

 

 

-

 

 

3,304

 

 

3,878

 

Withholding tax receivable from Officer

 

 

-

 

 

-

 

 

-

 

 

-

 

Current assets of discontinued operations

 

 

-

 

 

-

 

 

-

 

 

-

 

Total current assets

 

 

34,417

 

 

-

 

 

34,417

 

 

40,397

 

Property and equipment, net

 

 

1,468

 

 

-

 

 

1,468

 

 

1,723

 

Right-of-use asset

 

 

3,540

 

 

-

 

 

3,540

 

 

4,155

 

Goodwill

 

 

5,131

 

 

-

 

 

5,131

 

 

6,023

 

Intangible assets, net

 

 

8,620

 

 

-

 

 

8,620

 

 

10,118

 

Debt securities

 

 

-

 

 

-

 

 

-

 

 

-

 

Equity securities

 

 

-

 

 

-

 

 

-

 

 

-

 

Other assets

 

 

-

 

 

349

 

 

349

 

 

409

 

Financial assets

 

 

349

 

 

(349

)

 

-

 

 

-

 

Total assets

 

 

53,525

 

 

-

 

 

53,525

 

 

62,825

 

Liabilities and stockholders' equity

 

 

-

 

 

-

 

 

-

 

 

-

 

Current liabilities:

 

 

-

 

 

-

 

 

-

 

 

-

 

Accounts payable

 

 

3,698

 

 

-

 

 

3,698

 

 

4,340

 

Accrued expenses

 

 

-

 

 

10,810

 

 

10,810

 

 

12,689

 

Contract liabilities

 

 

-

 

 

12,696

 

 

12,696

 

 

14,902

 

Current portion of long-term debt

 

 

-

 

 

86

 

 

86

 

 

101

 

Current portion of operating lease liability

 

 

542

 

 

-

 

 

542

 

 

636

 

Current liabilities of discontinued operations

 

 

-

 

 

-

 

 

-

 

 

-

 

Financial liabilities

 

 

432

 

 

(432

)

 

-

 

 

-

 

Other current liabilities

 

 

23,160

 

 

(23,160

)

 

-

 

 

-

 

Total current liabilities

 

 

27,832

 

 

-

 

 

27,832

 

 

32,668

 

Lease liability, net of current portion

 

 

3,110

 

 

-

 

 

3,110

 

 

3,651

 

Financial liabilities

 

 

26,354

 

 

(26,354

)

 

-

 

 

-

 

Long-term debt, net of current portion

 

 

-

 

 

26,354

 

 

26,354

 

 

30,933

 

Other long-term liabilities

 

 

-

 

 

656

 

 

656

 

 

770

 

Provisions

 

 

656

 

 

(656

)

 

-

 

 

-

 

Total liabilities

 

 

57,953

 

 

-

 

 

57,953

 

 

68,022

 

Commitments and contingencies:

 

 

-

 

 

-

 

 

-

 

 

-

 

Redeemable preferred stock

 

 

-

 

 

-

 

 

-

 

 

-

 

Contingently redeemable preferred stock

 

 

-

 

 

-

 

 

-

 

 

-

 

Total commitments and contingencies

 

 

-

 

 

-

 

 

-

 

 

-

 

Stockholders' equity:

 

 

-

 

 

-

 

 

-

 

 

-

 

Common Stock

 

 

267

 

 

-

 

 

267

 

 

313

 

Treasury Stock

 

 

(443

)

 

-

 

 

(443

)

 

(520

)

Additional paid-in capital

 

 

-

 

 

168

 

 

168

 

 

197

 

Shareholder note receivable

 

 

-

 

 

-

 

 

-

 

 

-

 

Share premiums

 

 

168

 

 

(168

)

 

-

 

 

-

 

Reserves

 

 

23

 

 

(23

)

 

-

 

 

-

 

Translation reserves

 

 

(256

)

 

256

 

 

-

 

 

-

 

Accumulated other comprehensive income

 

 

-

 

 

(256

)

 

(256

)

 

(301

)

Accumulated deficit

 

 

(4,185

)

 

23

 

 

(4,162

)

 

(4,886

)

Total stockholders' equity

 

 

(4,428

)

 

-

 

 

(4,428

)

 

(5,197

)

Total liabilities and stockholders' equity

 

 

53,525

 

 

-

 

 

53,525

 

 

62,825

 

 


 

Unaudited Pro Forma Condensed Combined Statement of Operations – Year ended December 31, 2020:

For purposes of preparing the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2020, EOS’ audited consolidated income statement for the year ended December 31, 2020 was translated from EUR to USD using the following weighted-average foreign currency exchange rate for the period: 1.00 to $1.14. The following table illustrates the impact of translating EOS’ consolidated income statement for the year ended December 31, 2020 into USD and aligning financial statement line items therein to conform to ATEC’s financial statement presentation:

 

 

 

EOS Historical

(in € '000's)

 

Groupings into

Alphatec

Presentation

(in € '000's)

 

Adjustments

(in € '000's)

 

EOS Historical

after Groupings

and Adjustments

(in € '000's)

 

EOS

Historical - As

Translated

(in $‘000)

 

Revenue from U.S. products

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Revenue from international supply agreement

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Revenue

 

 

23,829

 

 

-

 

 

-

 

 

23,829

 

 

27,191

 

Other Income

 

 

2,192

 

 

-

 

 

-

 

 

2,192

 

 

2,502

 

Cost of revenues

 

 

11,223

 

 

4,587

 

 

-

 

 

15,810

 

 

18,042

 

Indirect costs of production and service

 

 

4,587

 

 

(4,587

)

 

-

 

 

-

 

 

-

 

Gross Profit

 

 

10,211

 

 

-

 

 

-

 

 

10,211

 

 

11,651

 

Operating cost and expenses:

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Research and development

 

 

5,597

 

 

-

 

 

-

 

 

5,597

 

 

6,387

 

Sales, general and administrative

 

 

7,390

 

 

6,814

 

 

-

 

 

14,204

 

 

16,209

 

General and administrative

 

 

5,972

 

 

(5,972

)

 

-

 

 

-

 

 

-

 

Litigation - related expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Amortization of Acquired Intangibles

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Impairment Charge

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Transaction related expenses

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Gain on settlement

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Restructuring

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Gain on sales of assets

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Regulatory

 

 

804

 

 

(804

)

 

-

 

 

-

 

 

-

 

Share-based payments

 

 

38

 

 

(38

)

 

-

 

 

-

 

 

-

 

Total operating expenses

 

 

19,801

 

 

-

 

 

-

 

 

19,801

 

 

22,596

 

Income (Loss) from operations

 

 

(9,591

)

 

-

 

 

-

 

 

(9,591

)

 

(10,945

)

Other income (expense)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Interest income (expense), net

 

 

-

 

 

(1,582

)

 

-

 

 

(1,582

)

 

(1,806

)

Loss on debt extinguishment

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Other income (expense), net

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Finance revenue

 

 

1,163

 

 

(1,163

)

 

-

 

 

-

 

 

-

 

Finance expense

 

 

(2,746

)

 

2,746

 

 

-

 

 

-

 

 

-

 

Total interest and other expense, net

 

 

(1,582

)

 

-

 

 

-

 

 

(1,582

)

 

(1,806

)

Loss from continuing operations before taxes

 

 

(11,173

)

 

-

 

 

-

 

 

(11,173

)

 

(12,751

)

Income tax provision (benefit)

 

 

6

 

 

-

 

 

-

 

 

6

 

 

7

 

Net loss

 

 

(11,179

)

 

-

 

 

-

 

 

(11,179

)

 

(12,758

)

Net loss attributable to noncontrolling interests

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Net loss attributable to parent entity

 

 

(11,179

)

 

-

 

 

-

 

 

(11,179

)

 

(12,758

)

 


 

Unaudited Pro Forma Condensed Combined Statement of Operations – Three months ended March 31, 2021:

For purposes of preparing the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2021, EOS’ consolidated income statement for the three months ended March 31, 2021 was translated from EUR to USD using the following weighted-average foreign currency exchange rate for the period: 1.00 to $1.21. The following table illustrates the impact of translating EOS’ consolidated income statement for the three months ended March 31, 2021 into USD and aligning financial statement line items therein to conform to ATEC’s financial statement presentation:

 

 

 

EOS Historical

(in € '000's)

 

Groupings into

Alphatec

Presentation

(in € '000's)

 

Adjustments

(in € '000's)

 

EOS Historical

after Groupings

and Adjustments

(in € '000's)

 

EOS

Historical - As

Translated

(in $‘000)

 

Revenue from U.S. products

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Revenue from international supply agreement

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Revenue

 

 

5,651

 

 

-

 

 

-

 

 

5,651

 

 

6,865

 

Other Income

 

 

233

 

 

-

 

 

-

 

 

233

 

 

284

 

Cost of revenues

 

 

2,447

 

 

1,066

 

 

-

 

 

3,513

 

 

4,268

 

Indirect costs of production and service

 

 

1,066

 

 

(1,066

)

 

-

 

 

-

 

 

-

 

Gross Profit

 

 

2,372

 

 

-

 

 

-

 

 

2,372

 

 

2,881

 

Operating cost and expenses:

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Research and development

 

 

1,148

 

 

-

 

 

-

 

 

1,148

 

 

1,395

 

Sales, general and administrative

 

 

1,803

 

 

3,825

 

 

-

 

 

5,628

 

 

6,836

 

General and administrative

 

 

3,579

 

 

(3,579

)

 

-

 

 

-

 

 

-

 

Litigation - related expense

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Amortization of Acquired Intangibles

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Impairment Charge

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Transaction related expenses

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Gain on settlement

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Restructuring

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Gain on sales of assets

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Regulatory

 

 

242

 

 

(242

)

 

-

 

 

-

 

 

-

 

Share-based payments

 

 

4

 

 

(4

)

 

-

 

 

-

 

 

-

 

Total operating expenses

 

 

6,776

 

 

-

 

 

-

 

 

6,776

 

 

8,231

 

Income (Loss) from operations

 

 

(4,404

)

 

-

 

 

-

 

 

(4,404

)

 

(5,350

)

Other income (expense)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Interest income (expense), net

 

 

-

 

 

219

 

 

-

 

 

219

 

 

266

 

Loss on debt extinguishment

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Other income (expense), net

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Finance revenue

 

 

650

 

 

(650

)

 

-

 

 

-

 

 

-

 

Finance expense

 

 

(431

)

 

431

 

 

-

 

 

-

 

 

-

 

Total interest and other expense, net

 

 

219

 

 

-

 

 

-

 

 

219

 

 

266

 

Loss from continuing operations before taxes

 

 

(4,185

)

 

-

 

 

-

 

 

(4,185

)

 

(5,084

)

Income tax provision (benefit)

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Net loss

 

 

(4,185

)

 

-

 

 

-

 

 

(4,185

)

 

(5,084

)

Net loss attributable to noncontrolling interests

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Net loss attributable to parent entity

 

 

(4,185

)

 

-

 

 

-

 

 

(4,185

)

 

(5,084

)

 

Reclassification Adjustments

 

 

A.

In addition to the translation and alignment of EOS’ historical financial information to conform to ATEC’s financial statements reporting currency and financial statement line items, the following summary represents reclassifications to conform EOS’ historical financial information to financial statement line items and presentation of the Combined Company based on ATEC’s accounting policies:

 

EOS December 31, 2020 Statement of Operations Reclassification Adjustments

 

i.

R&D tax credits of $1.2 million from Other income to Research and development.

 

ii.

CVAE tax expenses of $82 thousand from Sales, general and administrative to Income tax provision, net.

 

iii.

Payments received for government assistance of $1.3 million from Other income to Other income (expense), net.

 

iv.

Represents adjustments to align the treatment of certain rental, indirect production, and direct production costs with treatment by ATEC of $216 thousand from Cost of revenues and $447 thousand from Sales, general and administrative to Research and development.

 


 

EOS March 31, 2021 Statement of Operations Reclassification Adjustments

 

i.

R&D tax credits of $241 thousand from Other income and $62 thousand from Sales, general and administrative to Research and development.

 

ii.

CVAE tax expenses of $18 thousand from Sales, general and administrative to Income tax provision, net.

 

iii.

Payments received for government assistance of $43 thousand from Other income to Other income (expense), net.

 

iv.

Represents adjustments to align the treatment of certain rental, indirect production, and direct production costs with treatment by ATEC of $60 thousand from Cost of revenues and $118 thousand from Sales, general and administrative to Research and development.

 

Conforming Accounting Policies

 

The following adjustment has been made to align EOS’ historical balance sheet as of March 31, 2021, statement of operations for the year ended December 31, 2020, and statement of operations for the three months ended March 31, 2021 to ATEC’s accounting policies:

 

 

B.

Inventory. Represents adjustments to (1) capitalize additional costs into inventory associated with internal production wages, amortization of equipment used in production, and rent of space used in production and (2) utilize standard costing approximating average costs determined on a first-in first-out basis rather than weighted average unit cost.  The balance sheet impact is $475 thousand increase to inventories, offset by an equal decrease to accumulated deficit.  The December 31, 2020 statement of operations has a decrease in Cost of revenues of $477 thousand and the March 31, 2021 statement of operations has a decrease of $491 thousand.

 

Note 6 –Adjustments to EOS’ Historical Financial Statements to Conform to U.S. GAAP

 

The following adjustments have been made to align EOS’ historical balance sheet as of March 31, 2021, statement of operations for the year ended December 31, 2020, and statement of operations for the three months ended March 31, 2021, which were prepared in accordance with IFRS to U.S GAAP.

 

 

A.

Capitalized Development Costs. Represents an adjustment to record a reversal of capitalized development costs, since under U.S. GAAP, internally generated development costs are expensed as incurred, with certain exceptions for software and advertising that are not applicable to this balance.  The balance sheet impact is a decrease in intangible assets, net, of $4.2 million, offset by an equal increase to accumulated deficit.  On the statement of operations for the three months ended March 31, 2021 and the year ended December 31, 2020, this resulted in a decrease to research and development of $284 thousand and $1.2 million, respectively.

 

 

B.

Outstanding Convertible Bonds.

 

Balance Sheet Impact

 

Represents an adjustment to remove the equity-classified conversion option in the OCEANE bonds because the conversion option does not require separate accounting from the bonds under U.S. GAAP, and a reclassification of the short-term portion of the bonds to long-term and adjustment to accrued interest to reflect the OCEANE bonds balances under U.S. GAAP. These adjustments resulted in an increase to Accrued expenses of $536 thousand and an increase to Long-term debt, less current portion of $3.7 million, and a net increase to Accumulated deficit of $4.3 million.

 

Statement of Operations Impact

 

Represents an adjustment to interest income resulting from the change in interest expense recognized due to the removal of the equity-classified conversion option in the OCEANE bonds under U.S. GAAP, and results in a $250 thousand increase to Interest income (expense), net and a $55 thousand decrease to Sales, general and administrative for the year ended December 31, 2020 and a $117 thousand increase to Interest income (expense), net and a $1 thousand decrease to Sales, general and administrative for the three months ended March 31, 2021.


 

Note 7 –Transaction Adjustments

 

Adjustments included in the unaudited pro forma financial information are represented by the following:

 

A.

Purchase Price. Adjustment records the cash purchase consideration of $79.4 million comprised of $64.1 million paid in the Tender Offer and $15.3 million purchased on the open market from April 1, 2021 to May 12, 2021. Refer to Note 3 for additional details regarding the calculation of the cash purchase consideration.

 

B.

Convertible Debt held by ATEC: Adjustment records the cash consideration of $19.1 million comprised of $19.0 million paid in the Tender Offer and $0.1 million purchased on the open market from April 1, 2021 to May 12, 2021 offset by a reduction of Accrued expenses of $0.5 million and Long-term debt of $18.7 million for the OCEANEs held by EOS that were purchased by ATEC as a part of the acquisition, a reduction of Debt securities of $1.3 million for the OCEANEs purchased prior to March 31,2021, and the remainder an increase to Goodwill of $1.2 million.

 

C.

Noncontrolling Interest: Adjustment reflects the noncontrolling interest held for the 10.9% of total EOS outstanding shares with a resulting value of $8.2 million and EOS net loss attributable to such noncontrolling interest of  $1.2 million for the year ended December 31, 2020 and $465 thousand for the three months ended March 31, 2021.

 

D.

Transaction Costs:

 

Balance Sheet Impact

 

Represents an adjustment to reflect the accrual of additional transaction costs incurred by ATEC and EOS after March 31, 2021 and results in a $6.1 million increase to Accrued expenses and Other current liabilities and a corresponding increase in Accumulated deficit.

 

Statement of Operations Impact

 

Reflects the increase of transaction expenses of $6.4 million related to transaction costs incurred by ATEC and EOS resulting in a $6.4 million increase to Selling, general and administrative costs on the statement of operations for the year ended December 31, 2020.

 

E.

Inventory:

 

Balance sheet impact

Adjustment to estimate the fair value of inventory, ATEC considered the components of EOS’ inventory, as well as estimates of selling prices and selling and distribution costs resulting in a $7.4 million step-up to Inventory.  

 

Statement of operations impact

Inventory is expected to turnover during the first-year post-Acquisition. Therefore, Cost of revenues in the pro forma statement of income for the year ended December 31, 2020 has been adjusted by the full amount of the fair value adjustment of $7.4 million.

 

F.

Intangible Assets: Adjustment is recorded to reflect acquired identifiable intangible assets consisting of trade names, developed technology, and customer relationships, at the estimated fair values of $68.0 million. Adjustment also reflects incremental amortization expense of $7.2 million and $1.8 million on such acquired intangible assets in Amortization of acquired intangibles within operating expenses, for the year ended December 31, 2020 and the three months ended March 31, 2021, respectively. Management has performed a preliminary valuation analysis to determine the fair value of each of the identifiable intangible assets primarily using methods under the “income approach”; MPEEM for the developed technology and certain customer relationships and the “relief from royalty” method for the tradename. Application of the income approach requires ATEC management to forecast the expected future cash flows attributable to the intangible assets, which are then discounted to their present value. The relief from royalty method requires management to determine the


royalty rate they would hypothetically be charged to license the asset and apply that to expected future revenues. The preliminary valuation of acquired identifiable intangible assets includes values based on a percentage of purchase price as shown below. Pro forma adjustments for amortization and determination of goodwill in Note 7F assumes the fair value provided below.

 

The following table summarizes the estimated fair values of EOS’ identifiable intangible assets, the fair values as percentage of purchase price, their estimated useful lives, and amount of amortization recognized on such identified intangible assets under a straight line method of amortization (in USD thousands) for the year ended December 31, 2020 and the three months ended March 31, 2021:

 

 

 

Fair Value

 

% of

Purchase

Consideration

 

 

 

Useful life

(years)

Amortization

for

12 months

ended

12/31/2020

 

Amortization

for

the 3 months

ended

3/31/21

 

Trade Name

 

$

6,000

 

2.9%

 

 

 

10

$

600

 

$

150

 

Developed Technology

 

 

53,000

 

55.5%

 

 

 

10

 

5,300

 

 

1,325

 

Customer Relationships - Maintenance

 

 

9,000

 

6.7%

 

 

 

7

 

1,286

 

 

321

 

Total

 

$

68,000

 

65.1%

 

 

 

 

$

7,186

 

$

1,796

 

 

G.

Tax Valuation Adjustments: Adjustment to reflect a net estimated $1.8 million increase in deferred tax liabilities and a $1.2 million increase in non-current tax liabilities recorded in Other long-term liabilities arising from estimated purchase price adjustments in connection with the Acquisition.

 

H.

Equity: Adjustment eliminates EOS’ historical shareholders’ equity of $13.2 million, which includes the reclassification and policy adjustments and the IFRS to US GAAP adjustments impacting historical shareholders’ equity.

 

I.

Compensation Arrangements:

As a part of the transaction total success bonuses of $2.9 million are to be provided to management of EOS as approved by the EOS board and dictated by the Term Offer upon the close of the transaction. These bonuses are to be paid after the close.

 

Balance sheet impact

Adjustment to record an additional accrual of $631 thousand for success bonuses to be paid upon the closing of the transaction.

 

Statement of operations impact

Adjustment to include expenses of $2.8 million for the success bonuses for the year ended December 31, 2020 which would have been incurred prior to the acquisition date.

 

Adjustment to eliminate expenses of $2.3 million for the success bonuses for the three months ended March 31, 2021 which was moved into the December 31, 2020 period.

 

J.

Leases. Represents an adjustment to account for the acquired leases as new leases under purchase accounting pursuant to US GAAP. This adjustment results in an increase to the Right-of-use asset of $133 thousand.

 

K.

Goodwill:  Adjustment shows estimated goodwill of $29.9 million recognized from the Acquisition derived using the fair value estimate of net assets acquired and the purchase price (see Note 4 and Note 7F) inclusive of the elimination of historical EOS Goodwill of $6.0 million