<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) August 12, 1999 (June 1, 1999)
------------------------------
SABRATEK CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 1-11831 36-3700639
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
8111 North St. Louis, Skokie, Illinois 60076
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(847) 720-2400
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS.
(a) On June 16, 1999 Sabratek filed with the Securities and Exchange
Commission a current report on Form 8-K (the "June 8-K") regarding its
June 1, 1999 acquisition of all of the outstanding capital stock of
LifeWatch, Inc., an Illinois corporation ("LifeWatch"), pursuant to a
certain Stock Purchase Agreement (the "Agreement"), dated as of May 19,
1999, by and between Sabratek and Ralin Medical, Inc, a Delaware
corporation.
In accordance with Rule 3-05 (b) and Article 11 under
Regulation S-X, as referenced by Items 7 (a) and 7 (b) of Form 8-K,
Sabratek is required to furnish (i) the below-listed financial
statements of LifeWatch and (ii) certain pro forma information with
regard to Sabratek in filing its Form 8-K. Sabratek hereby amends the
June 8-K to file such financial statements and pro forma information,
in accordance with Item 7 (a) (4) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C>
(a) Financial Statements of the acquired business.
Audited Financial Statements of LifeWatch, Inc.
Report of Independent Public Accountant
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the Years Ended December 31, 1998 and
1997
Statements of Stockholder's Equity for the Years Ended December 31,
1998 and 1997
Statements of Cash Flows for the Years Ended December 31, 1998 and
1997
Notes to Financial Statements
Unaudited Financial Statements
Balance Sheet As Of March 31, 1999
Statements of Operations for the Three Months Ended March 31,
1999 and 1998
Statements of Cash Flows for the Three Months Ended March 31,
1999 and 1998
Notes to Unaudited Financial Statements
(b) Pro forma financial information
Pro Forma Consolidated Financial Statements
Pro Forma Consolidated Balance Sheet As Of March 31, 1999 (unaudited)
Pro Forma Consolidated Statement of Operations for the Year Ended December
31, 1998 (unaudited)
Pro Forma Consolidated Statement of Operations for the Three Months Ended
March 31, 1999 (unaudited)
Notes to Pro Forma Consolidated Financial Information
(c) Exhibits
23.1 Consent of Arthur Andersen LLP
</TABLE>
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
LifeWatch, Inc.:
We have audited the accompanying balance sheets of LIFEWATCH, INC. (a wholly
owned subsidiary of Ralin Medical, Inc., a Delaware corporation) as of December
31, 1998 and 1997, and the related statements of operations, stockholder's
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LifeWatch, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 15, 1999
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<PAGE> 4
LIFEWATCH, INC.
(A WHOLLY OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,938 $ 159,142
Accounts receivable, net of allowance for doubtful accounts of $3,131,000 3,862,653 3,549,372
and $2,545,000 in 1998 and 1997, respectively
Other - 316,726
------------------- ----------------
Total current assets 3,864,591 4,025,240
------------------- ----------------
PROPERTY AND EQUIPMENT:
Monitoring units 7,512,500 5,498,810
Equipment and computers 975,125 642,212
Furniture 303,091 85,015
Leasehold improvements 38,034 19,951
------------------- ----------------
8,828,750 6,245,988
Less-Accumulated depreciation (5,619,878) (2,550,136)
------------------- ----------------
Property and equipment net 3,208,872 3,695,852
------------------- ----------------
PATENTS net of accumulated amortization of $99,000 and $78,000 in 1998 172,798 194,208
and 1997 respectively
------------------- ----------------
DEPOSITS 90,393 81,551
------------------- ----------------
GOODWILL net of accumulated amortization of $178,000 and $25,000 in 2,872,666 3,025,736
1998 and 1997 respectively
------------------- ----------------
OTHER ASSETS 133,078 173,577
------------------- ----------------
Total Assets $ 10,342,398 $ 11,196,164
=================== ================
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of note payable $ 91,808 $ 91,973
Accounts payable 376,632 542,687
Accrued expenses 1,059,008 1,679,209
Current portion of capital lease obligations 914,904 524,463
------------------- ----------------
Total current liabilities 2,442,352 2,838,332
------------------- ----------------
CAPITAL LEASE OBLIGATIONS less current portion 1,068,775 679,375
------------------- ----------------
NOTE PAYABLE less current portion 46,151 111,114
------------------- ----------------
STOCKHOLDER'S EQUITY:
Common stock $0.01 par value; 1,000 shares authorized; 100 shares 1 1
issued and outstanding
Additional paid-in capital 29,616,911 26,120,342
Accumulated deficit (22,831,792) (18,553,000)
------------------- ----------------
Total stockholder's equity 6,785,120 7,567,343
------------------- ----------------
Total liabilities and stockholder's equity $10,342,398 $11,196,164
=================== ================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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<PAGE> 6
LIFEWATCH, INC.
(A WHOLLY OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES $ 15,578,333 $ 11,300,299
COST OF SALES 9,822,956 6,311,337
------------ ------------
Gross profit 5,755,377 4,988,962
------------ ------------
OPERATING EXPENSES:
General and administrative 3,543,652 7,010,491
Sales and marketing 3,504,964 3,900,756
Provision for uncollectible accounts 2,670,382 1,715,456
Research and development 18,164 277,954
------------ ------------
Total operating expenses 9,737,162 12,904,657
------------ ------------
Operating loss (3,981,785) (7,915,695)
OTHER EXPENSES 297,007 288,187
------------ ------------
Net loss before income taxes (4,278,792) (8,203,882)
PROVISION FOR INCOME TAXES - -
------------ ------------
Net loss $ (4,278,792) $ (8,203,882)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
- 6 -
<PAGE> 7
LIFEWATCH, INC.
(A WHOLLY OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL
CONTRIBUTIONS ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT FROM PARENT DEFICIT EQUITY
------ ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 100 $1 $16,139,373 $(10,349,118) $5,790,256
Contributions from parent - - 9,980,969 - 9,980,969
Net loss - - - (8,203,882) (8,203,882)
----- ------ ----------- ------------ ----------
BALANCE, December 31, 1997 100 1 26,120,342 (18,553,000) 7,567,343
Contributions from parent - - 3,496,569 - 3,496,569
Net loss - - - (4,278,792) (4,278,792)
----- ------ ----------- ------------ ----------
BALANCE, December 31, 1998 100 $1 $29,616,911 $(22,831,792) $6,785,120
===== ====== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 8
LIFEWATCH, INC.
(A WHOLLY OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,278,792) $(8,203,882)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 1,884,981 571,285
Provision for loss on monitoring units 1,241,078 377,492
Write-off of impaired asset - 4,456,350
Changes in working capital, net of acquisition
Accounts receivable (313,281) (671,556)
Other 307,954 209,187
Accounts payable (166,056) (408,325)
Accrued expenses (482,702) 281,105
----------- -----------
Net cash used in operating activities (1,806,818) (3,388,344)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (805,472) (573,390)
Net cash acquired in purchase of Monitor Medx - 45,307
----------- -----------
Net cash used in investing activities (805,472) (528,083)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (1,041,483) (2,424,719)
Contributions from parent 3,496,569 6,415,041
----------- -----------
Net cash provided by financing activities 2,455,086 3,990,322
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH (157,204) 73,895
EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of year 159,142 85,247
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,938 $ 159,142
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 9
LIFEWATCH, INC.
(A WHOLLY OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
GENERAL
LifeWatch, Inc. (the "Company"), a wholly owned subsidiary of Ralin
Medical, Inc. ("Ralin"), is primarily in the business of providing
telephonic monitoring for cardiac patients through the use of
monitoring devices to patients located across the United States. The
Company also sells monitoring devices to third parties.
FUTURE OPERATIONS
As reflected in the accompanying financial statements, the Company
incurred net losses of approximately $4.3 million and $8.2 million in
1998 and 1997, respectively, and has an accumulated deficit of
approximately $23 million at December 31, 1998. The Company has
historically relied on Ralin to fund its operating losses and capital
expenditures. Management believes that these losses result primarily
from costs incurred to expand its business and customer base and to
continually enhance its monitoring units.
To improve future operating results, the Company has made and continues
to make operational changes intended to reduce costs associated with
bad debts and monitor unit management. In addition, the Company
continues to invest in expanding its customer base to reach a critical
mass for providing services. Management believes that the combined
effect of these factors will favorably impact future operating results.
However, there can be no assurances that these operational changes will
be successful. If management's plans to improve future operating
results are not successful, management will need to implement an
alternative business strategy, as well as raise additional capital
necessary for the Company to continue operations.
BASIS OF PRESENTATION
The accompanying financial statements include those assets,
liabilities, revenues and expenses directly attributable to the
Company's operations. In addition, certain Ralin expenses totaling
approximately $1.9 million and $2.6 million for 1998 and 1997,
respectively, have been allocated to the Company and are included in
the accompanying statements of operations. The method of allocating
costs has been deemed reasonable by management (Note 3).
As a result of the Company's relationships with its parent, the
financial information included herein does not necessarily reflect what
the financial position and results of operations would have been had it
operated as a stand-alone, taxable entity during 1998 and 1997.
Additionally, the accompanying financial statements may not be
indicative of future operations or financial position.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the amounts reported in its financial
statements and accompanying notes. Actual results could differ from
those estimates.
- 9 -
<PAGE> 10
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for major
additions are capitalized; the cost of repairs and maintenance are
expensed as incurred. Depreciation is computed on the straight-line
basis over the estimated useful lives of the assets, as follows:
Monitoring units 5 years
Equipment and computers 5 years
Furniture 7 years
Leasehold improvements Life of lease
Monitoring units are generally kept in physician offices, patients'
homes and other offsite locations. In order to assess the monitors'
existence and working order, the Company performs physical counts and
inspections of the monitors throughout the year. Based on the results
of these counts and other procedures, the Company provided
approximately $990,000 and $400,000 during 1998 and 1997, respectively,
as a reserve against the value of the monitors, which is included in
accumulated depreciation.
On an ongoing basis, the Company reviews the carrying value of
monitoring units and records an impairment loss if carrying value
exceeds the future cash flows to be generated by the monitoring units.
To date, no such impairment loss has been incurred.
PATENTS
Patents are recorded at cost and amortized over the estimated economic
life of the patent (17 years). Amortization of patent costs begins once
the related patent has been granted.
GOODWILL
Goodwill represents costs in excess of net assets of businesses
acquired and is amortized on a straight-line basis over the estimated
economic life of the operations (20 years). Amortization expense was
approximately $153,000 and $25,000 in 1998 and 1997, respectively.
On an ongoing basis, the Company measures the realizability of goodwill
by the ability of the business to generate future operating income and
cash flows. If such realizability is in doubt, an adjustment will be
made to write off the carrying value of the goodwill. As a result of
this review, the Company recorded an adjustment of approximately $4.5
million in 1997 to reduce the carrying value of goodwill from the 1996
purchase of Cardio Life Corp. Since the date of its acquisition, Cardio
Life Corp. has failed to generate net income or positive cash flows
from operations. Based on management's analysis of expected future cash
flows over the remaining life of the goodwill, the value of the
goodwill had been deemed impaired. Management estimated the
realizability of the goodwill by discounting expected future cash flows
to their present value at a rate of 15%, and adjusted the balance
accordingly. This adjustment is included general and administrative
expense on the accompanying 1997 statement of operations.
- 10 -
<PAGE> 11
INCOME TAXES
Management believes that recognition of future tax benefits for net
operating losses is not probable and, accordingly, has not recorded any
tax assets. Net operating loss carryforwards of approximately $19.1
million for income tax purposes are available to offset future taxable
income. If not utilized, these carryforwards will expire in varying
amounts beginning in 2007.
REVENUE RECOGNITION
The Company provides services under contracts that are typically signed
for one-year periods and renewed annually.
Service revenue under these contracts is recognized upon transmittal by
the patient of electrocardiogram data from a cardiac event. Product
sales revenue is recognized at the time of shipment.
SEGMENTS
The Company operates in one industry segment.
SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities were approximately as
follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash paid for interest $ 295,123 $ 288,187
Noncash investing and financing activities-
Property and equipment obtained under capital lease 1,618,627 707,447
obligations
Acquisitions-
Fair market value of assets acquired (including goodwill - 4,760,058
of $3,050,327)
Liabilities assumed - 1,330,130
Conversion of notes payable - 300,000
</TABLE>
3. TRANSACTIONS WITH PARENT
Ralin performs certain accounting, legal, communications, data
processing, administrative and other services ("corporate services")
that are not specifically attributable to the Company. Charges for
corporate services are allocated to the Company on the basis of the
underlying cost drivers in each area. Management believes that the
Ralin corporate services allocated to the Company are reasonable
estimates of the costs of services provided. Allocations from Ralin of
approximately $1.9 million and $2.6 million are included in general and
administrative expense in the accompanying statements of operations for
1998 and 1997, respectively.
From time to time, Ralin has funded the operations of the Company and
certain capital acquisitions. These contributions, estimated at $29.6
million as of December 31, 1998, are included in stockholder's equity
in the accompanying balance sheet.
4. CONVERTIBLE NOTE PAYABLE
The Company had a convertible note payable outstanding in the amount of
$300,000, which the holder converted into 173,690 shares of Ralin
common stock and 79,528 warrants to purchase Ralin common stock
- 11 -
<PAGE> 12
during 1997. The impact of settling the Company's debt with Ralin
common stock has been included in contributions from parent in the
accompanying 1997 statement of stockholder's equity.
5. NOTE PAYABLE
The Company has a note payable to a bank, due in monthly installments
of $7,664 through June, 2000. Interest is paid monthly at an annual
rate of 11.96%. At December 31, 1998, the outstanding balance was
$137,959.
6. LEASES
The Company leases certain of its office space and equipment under
noncancelable operating lease arrangements. Rent expense under
operating leases was approximately $435,000 and $344,000 for the years
ended December 31, 1998 and 1997, respectively. Leases expire at
various dates through 2003.
The Company leases monitoring units and other capital assets under
capital leases. The gross amount of assets under capital leases
included in property and equipment was approximately $4.1 million and
$2.5 million at December 31, 1998 and 1997, respectively.
Future minimum lease payments under noncancelable operating and capital
leases are as follows:
OPERATING Capital
LEASES Leases
----------- ----------
Years ending December 31-
1999 $ 484,616 $1,200,917
2000 433,420 897,090
2001 404,647 391,090
2002 394,565 -
2003 395,766 -
---------- ----------
$2,113,014 2,489,097
==========
Less- Amount representing interest (505,418)
----------
$1,983,679
==========
7. EMPLOYEE SAVINGS PLAN
LifeWatch, Inc. participates in the Ralin Medical, Inc. Incentive
Savings Plan ("Plan"). Eligible employees can contribute an amount up
to 15% of compensation, as defined in the Plan document, subject to
certain limitations under the Internal Revenue Code. Ralin may elect to
make a matching contribution equal up to 50% of each participant's
contribution up to a maximum of 3% of compensation. Ralin may also
elect to make a profit sharing contribution in the amount determined by
Ralin. No matching or profit sharing contributions were made in 1998 or
1997.
8. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is involved in various legal proceedings incidental to the
normal course of business. Company management is of the opinion that
although the outcome of such litigation cannot be forecast with
certainty, the final disposition will not have a materially adverse
effect on the Company's financial position or results of operations.
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<PAGE> 13
9. THIRD-PARTY REIMBURSEMENT PROGRAMS
Approximately 20% and 19% of revenues were derived from federal and
state sponsored reimbursement programs during 1998 and 1997,
respectively. These revenues are subject to audit and retroactive
adjustment by the respective third-party payors. In the opinion of
management, retroactive adjustments, if any, will not be material to
the financial position or results of operations of the Company.
The healthcare industry is subject to numerous laws and regulations of
federal, state and local governments. These laws and regulations
include, but are not necessarily limited to, matters such as licensure,
accreditation, government healthcare program participation
requirements, reimbursement for patient services, and Medicare and
Medicaid fraud and abuse. Recently, government activity has increased
with respect to investigations and allegations concerning possible
violations of fraud and abuse statutes and regulations by healthcare
providers. Violations of these laws and regulations could result in
expulsion from government healthcare programs together with the
imposition of significant fines and penalties, as well as significant
repayments for patient services previously billed. Management believes
that the Company is in compliance in all material respects with fraud
and abuse as well as other applicable government laws and regulations.
While no regulatory inquiries have been made, compliance with such laws
and regulations can be subject to future government review and
interpretation as well as regulatory actions unknown or unasserted at
this time.
10. ACQUISITIONS
On September 18, 1997, the Company acquired 100% of the outstanding
stock of Monitor MedX, a company with similar operations to the
Company. This acquisition was accounted for as a purchase and,
accordingly, the acquired assets and assumed liabilities were recorded
at their estimated fair market values at the date of acquisition. The
purchase price consisted of approximately 1.7 million shares of Ralin
common stock, which exceeded the estimated fair market value of assets
acquired and liabilities assumed, resulting in goodwill of
approximately $3 million. The final purchase price allocation did not
differ significantly from the amounts recorded at the opening balance
sheet. Monitor MedX was merged into the Company and ceased to exist as
of the date of the merger. The impact of acquiring Monitor MedX with
Ralin common stock has been included in contributions from parent in
the accompanying 1997 statement of stockholder's equity.
In connection with the purchase of Monitor MedX, the Company recorded a
restructuring reserve of $553,000. Restructuring activities related to
the closing of the existing Monitor MedX facility. Exit costs consisted
primarily of severance costs and lease cancellation payments. During
1998, management decided to transfer certain operations to the Monitor
MedX facility rather than close it. As a result, approximately $200,000
of the restructuring reserve was reversed to goodwill in 1998.
On October 9, 1996, the Company acquired the shares of Florida-based
Cardio-Life Corp. This acquisition was accounted for as a purchase and,
accordingly, the acquired assets and assumed liabilities were recorded
at their estimated fair market values at the date of acquisition. The
purchase price of approximately $7.1 million, including related costs
and the assumption of certain liabilities, exceeded the fair market
value of net assets acquired, resulting in goodwill of approximately
$4.8 million.
In connection with the transaction, the Company recorded $2.0 million
in notes payable to the former stockholders of Cardio-Life Corp. The
notes were paid in full in 1997. In addition, the Company assumed a
$136,000 note payable to a former shareholder of Cardio-Life Corp.,
which was also paid in 1997.
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<PAGE> 14
11. SUBSEQUENT EVENT
In June 1999, Ralin sold 100% of the Company's outstanding common stock
to Sabratek Corporation for approximately $12 million cash and 900,000
shares of Sabratek Corporation common stock. The Company values the
total purchase price at $28 million.
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<PAGE> 15
LIFEWATCH, INC.
(A WHOLLY OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
BALANCE SHEETS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31, 1999
<TABLE>
<CAPTION>
ASSETS
- ---------------------------------------------------------------------------------------------------
<S> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 2
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF $5,136 4,616
-------------------
TOTAL CURRENT ASSETS 4,618
-------------------
PROPERTY AND EQUIPMENT:
MONITORING UNITS 3,630
EQUIPMENT AND COMPUTERS 1,052
FURNITURE 290
LEASEHOLD IMPROVEMENTS 38
-------------------
5,010
LESS- ACCUMULATED DEPRECIATION (1,525)
-------------------
PROPERTY AND EQUIPMENT NET 3,485
-------------------
PATENTS NET OF AMORTIZATION OF $105 168
-------------------
DEPOSITS 90
-------------------
GOODWILL NET OF AMORTIZATION OF $201 2,849
-------------------
OTHER ASSETS, NET OF AMORTIZATION OF $54 120
-------------------
TOTAL ASSETS $ 11,330
===================
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
- ---------------------------------------------------------------------------------------------------
<S> <C>
CURRENT LIABILITIES:
Current portion of note payable $ 84
Accounts payable 472
Accrued expenses 1,152
Current portion of capital lease obligations 908
------------
Total current liabilities 2,616
------------
CAPITAL LEASE OBLIGATIONS less current portion 1,032
------------
NOTE PAYABLE less current portion 46
------------
STOCKHOLDER'S EQUITY:
Common stock 0.01 par value; 1000 shares authorized; 100 shares 1
issued and outstanding
Additional paid-in capital 30,296
Accumulated deficit (22,661)
------------
Total stockholder's equity 7,636
------------
Total liabilities and stockholder's equity $ 11,330
============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
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<PAGE> 17
LIFEWATCH, INC.
(A WHOLLY OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
UNAUDITED
(IN THOUSANDS)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES $ 4,235 $ 3,734
COST OF SALES 2,195 1,930
---------------------------------------
Gross profit 2,040 1,804
OPERATING EXPENSES:
General and administrative 771 1,011
Sales and marketing 745 823
Provision for uncollectible accounts 317 655
---------------------------------------
Total operating expenses 1,833 2,489
---------------------------------------
Operating income (loss) 207 (685)
OTHER EXPENSES 36 43
---------------------------------------
Net income (loss) before 171 (728)
income taxes
PROVISION FOR INCOME TAXES ---- ----
Net income (loss) $ 171 $ (728)
=======================================
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 18
LIFEWATCH, INC.
(A WHOLLY OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
STATEMENT OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED
MARCH 31
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 171 $ (728)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 324 514
Provision for loss on monitoring units ---- 185
Changes in working capital, net of acquisition
Accounts receivable (753) (984)
Accounts payable and other accrued expenses 188 83
---------- ----------
Net cash used in operating activities (70) (930)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (558) (287)
---------- ----------
Net cash used in investing activities (558) (287)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (258) (244)
Contributions from parent 886 1,324
---------- ----------
Net cash provided by financing activities 628 1,080
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH (0) (137)
EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of quarter 2 159
---------- ----------
CASH AND CASH EQUIVALENTS, end of quarter $ 2 $ 22
========== ==========
</TABLE>
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<PAGE> 19
LIFEWATCH, INC.
(A WHOLLY-OWNED SUBSIDIARY OF RALIN MEDICAL, INC.)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(UNAUDITED)
(1) Financial Statements
The financial statements included herein have been prepared by
management, without audit, and include all adjustments of a normal recurring
nature which are, in the opinion of management, necessary for fair presentation
of the results of operations for the three month periods ended March 31, 1999
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures in these financials statements are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the audited financial statements
and the notes hereto included in this filing for the year ended December 31,
1998. The results of operations for the three month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
(2) Supplemental Disclosures of Cash Flow Information
Cash paid for interest during the three month periods ended March 31,
1999 and 1998 was $37,118 and $43,390, respectively.
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<PAGE> 20
SABRATEK CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidated balance sheet of Sabratek
as of March 31, 1999 gives effect to the acquisition of LifeWatch, Inc.
completed by Sabratek subsequent to such date and financing of such acquisition,
as if all such transactions had occurred on March 31, 1999.
The following unaudited pro forma consolidated statements of operations
of Sabratek for the three months ended March 31, 1999 and the year ended
December 31, 1998 give effect to the acquisition and the financing thereof, as
if all such transactions had occurred at the beginning of the respective
periods.
The unaudited pro forma consolidated financial statements are based upon
certain assumptions and estimates which are subject to change. These statements
are not necessarily indicative of the actual results of operations that might
have occurred, nor are they necessarily indicative of expected results in the
future.
The pro forma consolidated financial statements should be read in
conjunction with Sabratek's historical consolidated financial statements and
related notes and the consolidated financial statements of LifeWatch, Inc.
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<PAGE> 21
SABRATEK CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
( IN THOUSANDS)
<TABLE>
<CAPTION>
Sabratek LifeWatch, Pro Forma Pro Forma
Corporation Inc. Adjustments Consolidated
--------------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash, cash equivalents and investments $ 26,337 $ 2 $ (13,194)(a) $ 13,145
--------------- --------------- ------------------- ----------------
Total receivables 26,038 4,616 30,654
--------------- --------------- ------------------- ----------------
Inventories 24,332 24,332
Other current assets 1,389 1,389
--------------- --------------- ------------------- ----------------
Total current assets 78,096 4,618 (13,194) 69,520
--------------- --------------- ------------------- ----------------
Property, plant and equipment, net 8,538 3,485 12,023
Notes receivable 12,806 12,806
Investments in marketable securities 14,562 14,562
Intangible assets, net 34,545 3,017 25,205 (b) 62,767
Other 3,331 210 3,541
--------------- --------------- ------------------- ----------------
Total assets $ 151,878 $ 11,330 $ 12,011 $ 175,219
=============== =============== =================== ================
Liabilities and stockholders'
equity
Current liabilities:
Short-term debt, including current
portion of long term debt and capital
lease obligation $ 33 $ 992 $ 1,025
Accounts payable and other
accrued expenses 7,887 1,624 9,511
--------------- --------------- ------------------- ----------------
Total current liabilities 7,920 2,616 10,536
--------------- --------------- ------------------- ----------------
Long-term debt 85,000 85,000
Long-term obligations 312 1,078 1,390
--------------- --------------- ------------------- ----------------
</TABLE>
- 21 -
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C>
Total liabilities 93,232 3,694 96,926
-------------------------------------------------
Stockholders' equity:
Common stock 109 1 $ 8 (a)(c) 118
Additional paid-in capital 79,316 30,296 (10,658)(a)(c) 98,954
Accumulated deficit (1,466) (22,661) 22,661 (c) (1,466)
Treasury stock (19,340) (19,340)
Accumulated other comprehensive
income 27 27
-------- -------- -------- ---------
Total stockholder's equity 58,646 7,636 12,011 78,293
-------- -------- -------- ---------
Total liabilities and
stockholder's equity $151,878 $ 11,330 $ 12,011 $ 175,219
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
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<PAGE> 23
SABRATEK CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Sabratek LifeWatch, Pro Forma Pro Forma
Corporation Inc. Adjustments Consolidated
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 66,910 $ 15,578 $ 82,488
Cost of Sales 29,966 9,823 39,789
Provision for inventory
reserve 2,116 2,116
-------------- --------- ------- --------
Gross margin 34,828 5,755 40,583
Selling, general and
administrative expenses 26,248 9,737 $ 1,748(a)(b) 37,733
-------------- --------- ------- --------
Operating income (loss) 8,580 (3,982) (1,748) 2,850
-------------- --------- ------- --------
Other expense 221 297 518
Net income (loss) before
income taxes 8,359 (4,279) (1,748) 2,332
Provision for income taxes 3,487 - (2,013)(c) 1,474
-------------- --------- ------- --------
Net income (loss) $ 4,872 $ (4,279) $ 265 $ 858
-------------- --------- ------- --------
Basic income (loss) per
share $ 0.47 0.08
-------------- --------- ------- --------
Diluted income per share $ 0.44 0.07
-------------- --------- ------- --------
</TABLE>
The accompanying notes are an integral part of these pro forma
consolidated financial statements.
- 23 -
<PAGE> 24
SABRATEK CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Sabratek LifeWatch, Pro Forma Pro Forma
Corporation Inc. Adjustments Consolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 13,580 $ 4,235 $17,815
Cost of Sales 5,452 2,195 7,647
-----------------------------------------------------------------------
Gross margin 8,128 2,040 10,168
Selling, general and
administrative expenses 6,403 1,833 $ 437(a)(b) 8,673
-----------------------------------------------------------------------
Operating income 1,725 207 (737) 1,495
-----------------------------------------------------------------------
Other expenses 554 36 590
-----------------------------------------------------------------------
Net income (loss) before
income taxes 1,171 171 (737) 905
Provision for income taxes 445 (101)(c) 344
-----------------------------------------------------------------------
Net income $ 726 $ 171 $(336) $ 561
-----------------------------------------------------------------------
Basic income per share $ 0.07 $ 0.05
-----------------------------------------------------------------------
Diluted income per share $ 0.07 $ 0.05
-----------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these pro forma
consolidated financial statements.
- 24 -
<PAGE> 25
SABRATEK CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(1) Balance sheet adjustments:
(a) Records the funding of the purchase price paid in cash and
common stock.
(b) Records the preliminary allocation of the purchase price over
the estimated fair value of the net assets acquired and
goodwill.
(c) Records the elimination of the historical stockholders' equity
of LifeWatch, Inc.
(2) Statements of operations adjustments:
(a) Records the elimination of the historical amortization expense
of goodwill from a previous acquisition of LifeWatch.
(b) Records the amortization of the goodwill attributable to the
acquisition over a period of fifteen years.
(c) To adjust the provision for income taxes to reflect the effect
of the acquisition.
(3) Earnings per share.
Earnings per share is calculated by dividing the net income by the
weighted average outstanding shares during the period. The historical weighted
average outstanding shares during the periods are as follows:
March 31, 1999 December 31, 1999
-------------- -----------------
Basic 10,774,613 11,216,418
-------------- -----------------
Diluted 11,059,633 12,045,926
- 25 -
<PAGE> 26
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: August 12, 1999 By: /s/ Stephen L. Holden
--------------- ----------------------------
Stephen L. Holden, President
- 26 -
<PAGE> 1
23.1 Consent of Arthur Andersen LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K/A, into SABRATEK CORPORATION's previously
filed Registration Statements, which Registration Statements and their
respective File Numbers are set forth below.
Form S-8 333-13315
Form S-8 333-31495
Form S-8 333-31503
Form S-3 333-31891
Form S-3 333-56797
Form S-3* 333-83105
Form S-3* 333-83181
Form S-3* 333-83431
Form S-3* 333-83433
* Filed but not yet effective
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
August 11, 1999
