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SOLARA MEDICAL SUPPLIES, LLC
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2019 AND 2018 (SUCCESSOR),
AND FOR THE YEAR ENDED DECEMBER 31, 2019
AND THE PERIOD FROM JUNE 1, 2018 TO
AND FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 2018 TO
SOLARA MEDICAL SUPPLIES, LLC
CONSOLIDATED FINANCIAL STATEMENTS
| Independent Auditor's Report | F-3 | |
| Consolidated Balance Sheets as of December 31, 2019 and 2018 (Successor) | F-4 | |
| Consolidated Statements of Operations for the Year Ended December 31, 2019 (Successor) and the Period from June 1, 2018 to December 31, 2018 (Successor), and Statement of Operations for the Period from January 1, 2018 to May 31, 2018 (Predecessor) | F-5 | |
| Consolidated Statements of Members' Equity for the Year Ended December 31, 2019 (Successor) and the Period from June 1, 2018 to December 31, 2018 (Successor) | F-6 | |
| Statement of Stockholder's Equity for the Period from January 1, 2018 to May 31, 2018 (Predecessor) | F-7 | |
| Consolidated Statements of Cash Flows for the Year Ended December 31, 2019 (Successor) and the Period from June 1, 2018 to December 31, 2018 (Successor), and Statement of Cash Flows for the Period from January 1, 2018 to May 31, 2018 (Predecessor) | F-8 | |
| Notes to Consolidated Financial Statements | F-9 - F-22 |
Independent Auditor's Report
To the Board of Directors of
Solara Medical Supplies, LLC
Report on the Financial Statements
We have audited the accompanying consolidated
financial statements of Solara Medical Supplies, LLC (Successor), which comprise the consolidated balance sheets as of December 31,
2019 and 2018, the related consolidated statements of operations, members' equity and cash flows for the year ended December 31,
2019, and for the period from June 1, 2018, through December 31, 2018, and the related notes to the consolidated financial
statements. We have also audited the accompanying financial statements of Solara Medical Supplies, Inc. (Predecessor), which comprise
the statements of operations, stockholder's equity and cash flows for the period from January 1, 2018, through May 31,
2018, and the related notes to the financial statements. The financial statements of the Predecessor and the Successor, and the
related notes to the consolidated financial statements, are collectively referred to herein as the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation
and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP); this includes the design, implementation and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion
on these 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 financial statements are free from material misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation
of the 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 entity'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 financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Solara Medical Supplies, LLC as of December 31,
2019 and 2018, and the results of their operations and their cash flows for the year ended December 31, 2019, and for the
period from June 1, 2018, through December 31, 2018, and the results of the operations and cash flows of Solara Medical
Supplies, Inc. for the period from January 1, 2018, through May 31, 2018, in accordance with accounting principles generally
accepted in the United States of America.
San Diego, California
MEDICAL SUPPLIES, LLC
DECEMBER 31, 2019 AND 2018 (SUCCESSOR)
| Successor | Successor | |||||||
| December 31, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 9,768,000 | $ | 10,643,000 | ||||
| Accounts Receivable, Net | 26,970,000 | 21,889,000 | ||||||
| Inventory | 18,213,000 | 8,528,000 | ||||||
| Prepaid Expenses and Other Current Assets | 3,155,000 | 811,000 | ||||||
| Total Current Assets | $ | 58,106,000 | $ | 41,871,000 | ||||
| Property and Equipment, Net | 2,181,000 | 2,088,000 | ||||||
| Rental Pumps, Net | 2,323,000 | 1,922,000 | ||||||
| Goodwill | 110,355,000 | 110,924,000 | ||||||
| Intangible Assets, Net | 54,801,000 | 61,296,000 | ||||||
| Other Assets | 70,000 | 36,000 | ||||||
| TOTAL ASSETS | $ | 227,836,000 | $ | 218,137,000 | ||||
| LIABILITIES AND MEMBERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 26,498,000 | $ | 17,717,000 | ||||
| Accrued Expenses | 19,527,000 | 18,049,000 | ||||||
| Debt, Current Portion | 1,660,000 | 4,000,000 | ||||||
| Contingent Consideration, Current Portion | 5,156,000 | 15,750,000 | ||||||
| Total Current Liabilities | $ | 52,841,000 | $ | 55,516,000 | ||||
| Debt, Net of Debt Acquisition Costs | 159,708,000 | 72,770,000 | ||||||
| Contingent Consideration, Long-Term | - | 4,516,000 | ||||||
| Other Long-Term Liabilities | 149,000 | 334,000 | ||||||
| TOTAL LIABILITIES | $ | 212,698,000 | $ | 133,136,000 | ||||
| Commitments and Contingencies (Notes 5 and 6) | ||||||||
| Members' Equity | ||||||||
| Common Units | 944,000 | 896,000 | ||||||
| Preferred Units (Class A) | 63,240,000 | 62,938,000 | ||||||
| Preferred Units (Class B) | 25,740,000 | 25,740,000 | ||||||
| Accumulated Deficit | (74,786,000 | ) | (4,573,000 | ) | ||||
| TOTAL MEMBERS' EQUITY | $ | 15,138,000 | $ | 85,001,000 | ||||
| TOTAL LIABILITIES AND MEMBERS' EQUITY | $ | 227,836,000 | $ | 218,137,000 |
See accompanying notes to the consolidated
financial statements.
SOLARA MEDICAL SUPPLIES, LLC
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2019
AND THE PERIOD FROM JUNE 1, 2018 TO
DECEMBER 31, 2018 (SUCCESSOR),
AND STATEMENT OF OPERATIONS FOR THE
PERIOD FROM JANUARY 1, 2018
TO MAY 31, 2018 (PREDECESSOR)
| Successor | Predecessor | |||||||||||
| Year End December 31, 2019 | Period from June 1, 2018 to December 31, 2018 | Period from January 1, 2018 to May 31, 2018 | ||||||||||
| Revenue, Net | $ | 183,352,000 | $ | 99,928,000 | $ | 44,186,000 | ||||||
| Cost of Goods Sold | 113,335,000 | 63,184,000 | 29,660,000 | |||||||||
| Gross Profit | $ | 70,017,000 | $ | 36,744,000 | $ | 14,526,000 | ||||||
| Operating Expenses | ||||||||||||
| Selling, General and Administrative Expenses | 44,360,000 | 22,400,000 | 6,039,000 | |||||||||
| Operating Income | $ | 25,657,000 | $ | 14,344,000 | $ | 8,487,000 | ||||||
| Interest Expense | (13,261,000 | ) | (5,201,000 | ) | - | |||||||
| Other Income | 135,000 | 107,000 | 80,000 | |||||||||
| Income Before Income Taxes | $ | 12,531,000 | $ | 9,250,000 | $ | 8,567,000 | ||||||
| Income Tax Expense | (294,000 | ) | (7,000 | ) | (120,000 | ) | ||||||
| Net Income | $ | 12,237,000 | $ | 9,243,000 | $ | 8,447,000 |
See accompanying notes to the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF MEMBERS'
FOR THE YEAR ENDED DECEMBER 31, 2019
AND THE PERIOD FROM JUNE 1, 2018 TO
DECEMBER 31, 2018 (SUCCESSOR)
| Common Units | Preferred Units (Class A) | Preferred Units (Class B) | Total | |||||||||||||||||||||||||||
| Amount | Number of Units | Amount | Number of Units | Amount | Number of Units | Accumulated Deficit | Members' Equity | |||||||||||||||||||||||
| Balance at June 1, 2018 | $ | 896,000 | 895,740 | $ | 62,938,000 | 62,938 | $ | 25,740,000 | 25,740 | $ | (7,528,000 | ) | $ | 82,046,000 | ||||||||||||||||
| Distributions to Members | - | - | - | - | - | - | (6,288,000 | ) | (6,288,000 | ) | ||||||||||||||||||||
| Net Income | - | - | - | - | - | - | 9,243,000 | 9,243,000 | ||||||||||||||||||||||
| Balance at December 31, 2018 | $ | 896,000 | 895,740 | $ | 62,938,000 | 62,938 | $ | 25,740,000 | 25,740 | $ | (4,573,000 | ) | $ | 85,001,000 | ||||||||||||||||
| Members Contributions | 48,000 | 3,000 | 302,000 | 302 | - | - | - | 350,000 | ||||||||||||||||||||||
| Distributions to Members | - | - | - | - | - | - | (82,450,000 | ) | (82,450,000 | ) | ||||||||||||||||||||
| Net Income | - | - | - | - | - | - | 12,237,000 | 12,237,000 | ||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 944,000 | 898,740 | $ | 63,240,000 | 63,240 | $ | 25,740,000 | 25,740 | $ | (74,786,000 | ) | $ | 15,138,000 |
See accompanying notes to the consolidated
financial statements.
STATEMENT OF STOCKHOLDER'S
FOR THE PERIOD FROM JANUARY 1, 2018
TO MAY 31, 2018 (PREDECESSOR)
| Common Stock | Retained | Total | |||||||||||
| Amount | Number of Shares | Earnings | Stockholder's Equity | ||||||||||
| Balance at December 31, 2017 | $ | 20,000 | 20,000 | $ | 18,855,000 | $ | 18,875,000 | ||||||
| Net Income | - | - | 8,447,000 | 8,447,000 | |||||||||
| Dividends | - | - | (12,668,000 | ) | (12,668,000 | ) | |||||||
| Balance at May 31, 2018 | $ | 20,000 | 20,000 | $ | 14,634,000 | $ | 14,654,000 |
See accompanying notes to the consolidated
financial statements.
SOLARA MEDICAL SUPPLIES, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2019 (SUCCESSOR)
AND THE PERIOD FROM JUNE 1, 2018 TO DECEMBER 31, 2018
AND STATEMENT OF CASH FLOWS FOR THE PERIOD FROM JANUARY 1, 2018
MAY 31, 2018 (PREDECESSOR)
| Successor | Predecessor | |||||||||||
| Year Ended December 31, 2019 | Period from June 1, 2018 to December 31, 2018 | Period from January 1, 2018 to May 31, 2018 | ||||||||||
| Cash Flows from Operating Activities | ||||||||||||
| Net Income | $ | 12,237,000 | $ | 9,243,000 | $ | 8,447,000 | ||||||
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities | ||||||||||||
| Depreciation and Amortization | 7,110,000 | 4,232,000 | 135,000 | |||||||||
| Rental Pump Amortization | 4,173,000 | 1,671,000 | 912,000 | |||||||||
| Loss on Disposition of Assets | - | - | 166,000 | |||||||||
| Deferred Rent | 62,000 | 190,000 | - | |||||||||
| Change in Fair Value of Contingent Liability | 640,000 | 576,000 | - | |||||||||
| Bad Debt Expense and Contractual Allowance | 6,730,000 | 3,649,000 | 394,000 | |||||||||
| Amortization of Debt Acquisition Costs | 640,000 | 1,088,000 | - | |||||||||
| Changes in Operating Assets and Liabilities | ||||||||||||
| Accounts Receivable, Net | (11,811,000 | ) | (13,511,000 | ) | 7,433,000 | |||||||
| Inventory | (14,259,000 | ) | (8,616,000 | ) | 2,329,000 | |||||||
| Prepaid Expenses and Other Current Assets | (2,378,000 | ) | 150,000 | (114,000 | ) | |||||||
| Accounts Payable | 8,781,000 | 14,090,000 | (5,425,000 | ) | ||||||||
| Accrued Expenses | 1,479,000 | 8,565,000 | 2,368,000 | |||||||||
| Net Cash Provided by Operating Activities | $ | 13,404,000 | $ | 21,327,000 | $ | 16,645,000 | ||||||
| Cash Flows from Investing Activities | ||||||||||||
| Purchases of Property and Equipment | (930,000 | ) | (1,351,000 | ) | (248,000 | ) | ||||||
| Purchase of Intangible Asset | (25,000 | ) | - | - | ||||||||
| Purchase Price Adjustment | 569,000 | - | - | |||||||||
| Net Investment in Acquired Business | - | (1,506,000 | ) | - | ||||||||
| Net Cash Used in Investing Activities | $ | (386,000 | ) | $ | (2,857,000 | ) | $ | (248,000 | ) | |||
| Cash Flows from Financing Activities | ||||||||||||
| Proceeds from Term Loan | 87,700,000 | - | - | |||||||||
| Payments of Debt Acquisition Costs | (2,173,000 | ) | - | - | ||||||||
| Term Loan Repayments | (1,570,000 | ) | (2,000,000 | ) | (25,000 | ) | ||||||
| Dividends | - | - | (12,668,000 | ) | ||||||||
| Distributions | (82,450,000 | ) | (13,816,000 | ) | - | |||||||
| Contributions | 350,000 | - | - | |||||||||
| Payments of Contingent Consideration | (15,750,000 | ) | - | - | ||||||||
| Net Cash Used in Financing Activities | $ | (13,893,000 | ) | $ | (15,816,000 | ) | $ | (12,693,000 | ) | |||
| (Decrease) Increase in Cash | $ | (875,000 | ) | $ | 2,654,000 | $ | 3,704,000 | |||||
| Cash, Beginning of the Year | 10,643,000 | 7,989,000 | 6,522,000 | |||||||||
| Cash, End of the Year | $ | 9,768,000 | $ | 10,643,000 | $ | 10,226,000 | ||||||
| Supplemental Disclosures of Cash Flow Information | ||||||||||||
| Cash Paid During the Period for Interest | $ | 12,621,000 | $ | 4,113,000 | $ | - | ||||||
| Cash Paid During the Period for Income Taxes | 294,000 | 7,000 | 120,000 | |||||||||
| Contingent Liability Recognized at Purchase Date | - | 19,690,000 | - |
See accompanying notes to the consolidated
financial statements.
SOLARA MEDICAL SUPPLIES, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Company and Basis of Presentation
Description of Company
Solara Medical Supplies, LLC, a Delaware
limited liability company ("LLC"), and its subsidiaries (collectively, the "Company") were formed upon
the completion of the purchase of Solara Medical Supplies, Inc. on May 31, 2018. Solara Medical Supplies, LLC is a subsidiary
of Solara Intermediate, LLC, and Solara Intermediate, LLC is a subsidiary of Solara Holdings, LLC ("Holdings"), which
operates under an LLC agreement ("LLC Agreement") (Note 8). The Company is a direct-to-customer supplier of advanced
diabetic devices, including continuous glucose monitors, insulin pumps and other supplies for the intensely managed diabetic. The
Company is headquartered in Chula Vista, California, and operates additional offices in Michigan, Texas, Alabama, Ohio and South
Basis of Presentation
consolidated financial statements for the year ended December 31, 2019 and the period from June 1, 2018 to December 31,