-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ni3FeNkaJdpjml0udEKKVPF9M+eDwv21eOluUs5AB251ALgGqsKQF07vs+eWrDsE x3KI+Rz85mnlMHU1uw08/w== 0000950147-96-000357.txt : 19960816 0000950147-96-000357.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950147-96-000357 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORTHOLOGIC CORP CENTRAL INDEX KEY: 0000887151 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 860585310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21214 FILM NUMBER: 96614994 BUSINESS ADDRESS: STREET 1: 2850 S 36TH ST #16 CITY: PHOENIX STATE: AZ ZIP: 85034 BUSINESS PHONE: 6024375520 MAIL ADDRESS: STREET 1: 2850 S 36TH ST STREET 2: SUITE 16 CITY: PHOENIX STATE: AZ ZIP: 85034 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 -------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ___________________ Commission File Number: 0-21214 ORTHOLOGIC CORP. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 86-0585310 - -------------------------------------------------------------------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2850 S. 36th Street, #16, Phoenix, Arizona 85034 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (602) 437-5520 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 25,008,346 shares of common stock outstanding as of July 31, 1996 PART I - FINANCIAL INFORMATION Item 1. Financial Statements ORTHOLOGIC CORP. BALANCE SHEETS
June 30, December 31, 1996 1995 ------------------ ------------------ ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $63,128,560 $8,830,514 Short-term investments 22,777,045 9,149,360 Accounts receivable, net 11,596,784 6,488,203 Inventory 2,865,150 1,829,865 Prepaids and other current assets 940,801 273,237 ------------------ ------------------ Total current assets 101,308,340 26,571,179 FURNITURE AND EQUIPMENT: Furniture and equipment 2,249,824 1,891,987 Less accumulated depreciation and amortization (1,363,844) (1,196,055) ------------------ ------------------ Furniture and equipment - net 885,980 695,932 INTANGIBLES, net 3,620,472 --- DEPOSITS AND OTHER ASSETS 93,113 97,748 NOTE RECEIVABLE - Officer --- 125,000 ------------------ ------------------ $105,907,905 $27,489,859 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $1,307,210 $1,053,323 Accrued expenses 2,881,721 1,999,924 ------------------ ------------------ Total current liabilities 4,188,931 3,053,247 STOCKHOLDERS' EQUITY: Common stock, $.0005 par value - authorized, 40,000,000 shares; 24,980,846 and 19,251,728 shares issued 12,491 9,626 Additional paid-in capital 118,747,555 43,882,991 Retained deficit (17,041,072) (19,456,005) ------------------ ------------------ Total stockholders' equity 101,718,974 24,436,612 ------------------ ------------------ $105,907,905 $27,489,859 ================== ==================
See notes to financial statements. ORTHOLOGIC CORP. STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended June 30, June 30, --------------------------------------- ----------------- ----------------- 1996 1995 1996 1995 ------------------ -------------- ----------------- ----------------- NET SALES $7,911,929 $3,073,503 $14,671,661 $5,590,586 COST OF GOODS SOLD 1,252,095 642,090 2,374,374 1,202,394 ------------------ -------------- ----------------- ----------------- GROSS PROFIT 6,659,834 2,431,413 12,297,287 4,388,192 OPERATING EXPENSES: Selling, general and administrative 5,526,632 2,603,233 9,950,780 4,940,583 Research and development 546,009 534,501 1,097,620 1,156,231 ------------------ -------------- ----------------- ----------------- Total operating expenses 6,072,641 3,137,734 11,048,400 6,096,814 ------------------ -------------- ----------------- ----------------- Operating income (loss) 587,193 ( 706,321) 1,248,887 (1,708,622) ------------------ -------------- ----------------- ----------------- OTHER INCOME (EXPENSE): Grant revenue 44,747 37,561 94,147 73,377 Interest income 863,366 49,544 1,101,899 100,607 Interest expense --- (13,046) --- (33,438) ------------------ -------------- ----------------- ----------------- Total other income 908,113 74,059 1,196,046 140,546 ------------------ -------------- ----------------- ----------------- Income (loss) before taxes 1,495,306 (632,262) 2,444,933 (1,568,076) Income tax expense 15,000 --- 30,000 --- ------------------ -------------- ----------------- ----------------- Net income (loss) $1,480,306 ($632,262) $2,414,933 ($1,568,076) ================== ============== ================= ================= NET INCOME (LOSS) PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING $0.06 ($0.04) $0.11 ($0.11) ================== ============== ================= ================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 24,768,690 14,976,564 22,733,854 14,636,764 ================== ============== ================= =================
See notes to financial statements. ORTHOLOGIC CORP. STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, ----------------------------------------- 1996 1995 ------------------- ------------------ OPERATING ACTIVITIES: Net income (loss) $2,414,933 ($1,568,076) Adjustment to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 183,443 151,206 Change in operating assets and liabilities: Accounts receivable (5,108,581) (1,438,974) Inventory (1,035,285) (411,455) Prepaids and other current assets (667,565) (15,122) Deposits and other assets 4,635 (1,866) Accounts payable 253,887 17,188 Accrued expenses 881,797 279,404 ------------------- ------------------ Net cash used in operating activities (3,072,736) (2,987,695) INVESTING ACTIVITIES: Intangibles (3,675,939) --- Expenditures for furniture and equipment (318,023) (73,513) Purchase of short-term investments, net (13,627,685) --- Repayment of note receivable 125,000 --- ------------------- ------------------ Net cash used in investing activities (17,496,647) (73,513) FINANCING ACTIVITIES: Payments under long term debt --- (19,706) Proceeds from issuance of common stock 74,867,429 1,973,270 ------------------- ------------------ Net cash provided by financing activities 74,867,429 1,953,564 ------------------- ------------------ NET INCREASE (DECREASE) IN CASH AND 54,298,046 (1,107,644) CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,830,514 3,265,350 =================== ================== CASH AND CASH EQUIVALENTS, END OF PERIOD $63,128,560 $2,157,706 =================== ================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - Cash paid during the period for interest --- $33,438 =================== ==================
See notes to financial statements. ORTHOLOGIC CORP. NOTES TO FINANCIAL STATEMENTS 1. Financial Statement Presentation -------------------------------- The balance sheet as of June 30, 1996, and the statements of operations for the three and six months ended June 30, 1996 and 1995 and the statements of cash flows for the six months ended June 30, 1996 and 1995 are unaudited but, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position, results of operations and cash flows. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the complete fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's 1995 Annual Report and Form 10-K. 2. Net Income (Loss) per Common Share ---------------------------------- Net income (loss) per common share is computed on the weighted average number of common and common equivalent shares outstanding during each period after giving effect to the stock split as described in Note 6. Common equivalent shares represent the dilutive effect of the assumed exercise of outstanding stock options. 3. Inventory --------- Inventory is stated at the lower of cost (FIFO method) or market and consists of the following: June 30, 1996 ---------------------- Raw materials $2,130,076 Work-in process 99,236 Finished goods 635,838 ====================== $2,865,150 ====================== 4. Intangibles ----------- The Company is in the process of converting from a dealer network to a network of direct salespeople. In connection with this conversion the Company had paid $3.7 million as of June 30, 1996, to certain former independent dealers for the return of territory rights, covenants-not-to-compete with varying terms and the right to hire former independent dealer sales representatives as Company employees. This amount is being amortized over seven years. ORTHOLOGIC CORP. NOTES TO FINANCIAL STATEMENTS (continued) 5. Income Taxes ------------ The Company has recorded a deferred tax asset of $7.5 million relating to its NOL carry forward. This amount is completely offset by a valuation allowance. For the six months ended June 30, 1996, the Company has recognized the estimated alternative minimum tax which will be due. 6. Equity ------ On April 30, 1996 the Company issued 2,530,000 shares of common stock upon the closing of a public offering of its common stock. Gross proceeds to the Company were $78.4 million. The net proceeds to the Company after deducting costs of the offering were approximately $73.5 million. The common stock was sold at $31 per share. During the first quarter of 1996 the Company amended its Articles of Incorporation to authorize 40,000,000 shares of common stock, $.0005 par value. In addition, the Board of Directors approved a 2 for 1 stock split in the form of a 100 percent common share dividend which was paid on June 25, 1996, to stockholders of record as of June 4, 1996. The accompanying financial statements have been restated to give effect to the split. 7. Litigation ---------- During June and July 1996 certain lawsuits were filed in the United States District Court for the District of Arizona against the Company and certain officers and directors alleging violations of Section 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder. Plaintiffs in these actions allege that correspondence received by the Company from the Food and Drug Administration (the "FDA") regarding the promotion and custom configurations of the Company's OrthoLogic 1000 Bone Growth Stimulator was material and undisclosed, leading to an artificially inflated stock price. Plaintiffs further allege that the Company's non-disclosure of the FDA correspondence and of the alleged practices referenced in that correspondence operated as a fraud against plaintiffs, in that the Company made untrue statements of material facts or omitted to state material facts necessary in order to make the statements not misleading. Plaintiffs further allege that once the FDA letter became known, a material decline in the stock price of the Company occurred, causing damage to the Plaintiffs. All plaintiffs seek class action status, unspecified compensatory damages, fees and costs. Plaintiffs also seek extraordinary, equitable and/or injunctive relief as permitted by law. Management believes that the allegations are without merit and will vigorously defend them. The costs associated with defending these allegations and the potential outcome cannot be determined at this time and accordingly, no estimate for such costs have been included in these financial statements. ORTHOLOGIC CORP. NOTES TO FINANCIAL STATEMENTS (continued) 8. Subsequent Event ---------------- On July 22, 1996 the Company signed a Letter Agreement to acquire all of the outstanding stock of Sutter Corporation, a subsidiary of Columbia/HCA Healthcare Corporation for approximately $25 million cash. The transaction is subject to regulatory approval, normal due diligence and the completion of a definitive purchase agreement. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Since receiving approval of its PMA (pre-market approval application) from the Food and Drug Administration ("FDA") in March 1994 of its OrthoLogic 1000 Bone Growth Stimulator, the Company has marketed its products primarily through a network of independent orthopaedic specialty dealers and a small number of direct sales representatives. During May and June of 1996, the Company initiated a plan to convert the primary marketing channel from an independent dealer network to a direct sales force. As of June 30, 1996, the Company had paid approximately $3.7 million to certain former independent dealers for the return of territory rights, covenants-not-to-compete with varying terms and the right to hire former independent dealer sales representatives as Company employees. These expenditures are classified on the balance sheet as intangibles and are being amortized over seven years. The Company expects to continue negotiating additional similar transactions with remaining independent dealers. Results of Operations Net Sales. Total net sales during the three and six months ended June 30, 1996, were $7.9 million and $14.7 million, respectively, compared to $3.1 million and $5.6 million during the comparable periods in 1995, respectively, reflecting an increase of 157% and 162%, respectively. The increase in the net sales was primarily attributable to higher sales levels of the OrthoLogic 1000. Gross Profit. The increased sales levels generated gross profit of $6.7 million and $12.3 million for the three and six months ended June 30, 1996, which was an increase of 174% and 180% over the comparable periods in 1995, respectively. Gross profit as a percentage of net sales increased from 79.1% to 84.2% for the three months ended June 30, 1995 and 1996, respectively and from 78.5% to 83.8% for the six months ended June 30, 1995 and 1996, respectively. The gross profit percentage improved as a result of the fixed manufacturing costs being absorbed over a higher volume of manufactured product and from a change in product sales mix to a higher gross profit product in 1996 compared to 1995. Selling, General and Administrative. Total selling, general, and administrative expenses ("SG&A") increased 112% and 101% for the three and six months ended June 30, 1996 versus the same periods during 1995, respectively. As a percentage of sales, SG&A went from 84.7% to 69.9% for the three months ended June 30, 1995 versus 1996, respectively, and from 88.4% to 67.8% for the six months ended June 30, 1995 versus 1996, respectively. The increased SG&A dollars are due primarily to the variable component of SG&A (commissions, bad debts, royalties) associated with the increased sales. The fixed component of SG&A has also increased due to the additional personnel and other infrastructure required to support the growing sales volume. As a result SG&A is expected to be higher throughout 1996 compared to 1995. Research and Development. Research and development expenses during the six months ended June 30, 1996 were down approximately 5% compared to the same period during 1995. The decreased expenses are primarily attributable to a lower number of patients enrolled in one of the Company's clinical trials during 1996 than in 1995. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Other Income. Other income increased substantially during 1996 due primarily to interest income which was $863,000 and $1.1 million for the three and six months ended June 30, 1996, respectively, versus $50,000 and $101,000 in the comparable periods during 1995, respectively. This increase is due primarily to an increased level of cash and short-term investments resulting from the sale of common stock. Liquidity and Capital Resources As discussed in Note 6 to the financial statements, the Company issued 2,530,000 shares of its common stock at $31 per share through a public offering, generating net proceeds of approximately $73.5 million. At June 30, 1996, the Company had cash, cash equivalents and short-term investments of $85.9 million. Working capital increased over 300% from $23.5 million at December 31, 1995 to $97.1 million at June 30, 1996, primarily due to proceeds from the stock offering. As discussed in Note 8 to the financial statements, the Company signed a Letter Agreement to acquire all of the outstanding stock of Sutter Corporation for approximately $25 million cash. This transaction is subject to regulatory approval, normal due diligence and the completion of a definitive purchase agreement. In addition, the Company is in the process of converting from a dealer network to a network of direct salespeople. In connection with this conversion, the Company had paid approximately $3.7 million as of June 30, 1996, to certain former independent dealers for the return of territory rights, covenants-not-to-compete with varying terms and the right to hire former independent dealer sales representatives as Company employees. It is anticipated that approximately $5 million will be paid for similar transactions during 1996. The Company anticipates that the cash generated from the proceeds of the stock offering (Note 6), product sales and current cash balances will be sufficient to meet the Company's capital requirements for the foreseeable future. There can be no assurance however, that the Company will not require additional financing in the future, or that such sources of capital will be available on terms favorable to the Company, if at all. PART II - OTHER INFORMATION Item 1. Legal Proceedings Commencing on June 24, 1996, certain lawsuits were filed in the United States District Court for the District Court of Arizona against the Company and certain officers and directors alleging violations of Sections 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and SEC Rule 10b-5 promulgated thereunder, and, as to other defendants, Sections 20(a) of the Exchange Act. These lawsuits are: Mark Silveria v. Allan M. Weinstein, Allen R. Dunaway, David E. Derminio and OrthoLogic Corporation, Cause No. CIV 96-1563 PHX EHC, filed in the United States District Court for the District of Arizona (Phoenix Division) on July 1, 1996. Derric C. Chan and Anna Chan as attorney in fact for Moon-Yung Chow, on behalf of themselves and all others similarly situated v. OrthoLogic Corporation, Allan M. Weinstein, Frank P. Magee and David E. Derminio, Cause No. CIV 96-1514 PHX RCB, filed in the United States District Court for the District of Arizona (Phoenix Division) on June 27, 1996. Jeffrey M. Boren and Charles E. Peterson, Jr., on behalf of themselves and all others similarly situated v. Allan M. Weinstein and OrthoLogic Corp., Cause No. CIV 96-1520 PHX RCB, filed in the United States District Court for the District of Arizona (Phoenix Division) on June 24, 1996. Dorothy Cohen, on behalf of herself and all others similarly situated v. OrthoLogic Corp. and Allan M. Weinstein, Cause No. CIV 96-1615 PHX SMM, filed in the United States District Court for the District of Arizona (Phoenix Division) on July 9, 1996. Joseph C. Barton, on behalf of himself and all others similarly situated v. OrthoLogic Corp. and Allan M. Weinstein, Cause No. CIV 96-1643 PHX ROS, filed in the United States District Court for the District of Arizona (Phoenix Division) on July 12, 1996. Jeffrey Draker, on behalf of himself and all others similarly situated v. Allan M. Weinstein, and OrthoLogic Corp., Cause No. CIV 96-1667 PHX RCB, filed in the United States District Court for the District of Arizona (Phoenix Division) on July 16, 1996. Edward and Eleanor Katz v. OrthoLogic Corp. and Allan M. Weinstein, Cause No. CIV 96-1668 PHX RGS, filed in the United States District Court for the District of Arizona (Phoenix Division) on July 17, 1996. Mark J. Rutkin, Paul A. Wallace, Malcolm E. Brathwaite, Elaine K. Davies and David G. Davies, Larry E. Carder, and Carl Hust, on behalf of themselves and all others similarly situated v. Allan M. Weinstein, Allen R. Dunaway, David E. Derminio, Frank P. Magee and OrthoLogic Corp., Cause No. CIV 96-1678 PHX EHC, filed in the United States District Court for the District of Arizona (Phoenix Division) on July 17, 1996. Frank J. DeFelice, on behalf of himself and all others similarly situated v. OrthoLogic Corp. and Allan M. Weinstein, Cause No CIV 96-1713 PHX EHC, filed in the United States District Court for the District of Arizona (Phoenix Division) on July 23, 1996. PART II - OTHER INFORMATION (continued) Item 1. Legal Proceedings (continued) Plaintiffs in these actions allege the correspondence received by the Company from the FDA regarding the promotion and custom configuration of the Company's OrthoLogic 1000 Bone Growth Stimulator was material and undisclosed, leading to an artificially inflated stock price. Plaintiffs further allege that the Company's non-disclosure of the FDA correspondence and of the alleged practices referenced in that correspondence operated as a fraud against plaintiffs, in that the Company made untrue statements of material facts or omitted to state material facts necessary in order to make the statements not misleading. Plaintiffs further allege that once the FDA letter became known, a material decline in the stock price of the Company occurred, causing damage to plaintiffs. All plaintiffs seek class action status, unspecified compensatory damages, fees and costs. Plaintiffs also seek extraordinary, equitable and /or injunctive relief as permitted by law. On or about June 20, 1996, a lawsuit entitled Norman Cooper et. al. v. OrthoLogic Corp., et al., Cause No. CV 96-10799, was filed in the Superior Court, Maricopa County, Arizona. The plaintiffs allege violations of Arizona Revised Statutes Sections 44-1991 (state securities fraud) and 44-1522 (consumer fraud) and common law fraud and factual allegations substantially similar to those alleged in the federal court class action complaints. Plaintiffs also seek class action status, unspecified compensatory and punitive damages, fees and costs. Plaintiffs also seek injunctive and/or equitable relief. On July 10, 1996, a complaint was filed by Randall Hutchens in the California Superior Court, Small Claims Division (No. SSB1415) against Allan M. Weinstein, supposedly based on the same legal and factual issues as the class action cases. Plaintiff seeks damages of $5,000. On June 24, 1996, the Company received notice that the National Association of Securities Dealers, Inc. ("NASD") is conducting a routine review of the trading activity in the Company's stock. The Company responded to this inquiry on July 17, 1996. On August 7, 1996, the Company received a subpoena from the Arizona Corporation Commission Securities Division for the production of records regarding the above lawsuits and NASD review. PART II - OTHER INFORMATION (continued) Item 4. Submission of Matters to a Vote of Security Holders The reconvened annual meeting of stockholders of the Company was held on May 17, 1996 to vote on an amendment to the Company's Stock Option Plan to increase the number of shares of common stock available for grant thereunder by 600,000 shares. The results are as follows: BROKER ------ FOR AGAINST ABSTAIN NON-VOTES --- ------- ------- --------- 5,055,889 1,741,914 43,360 2,275,894 Results of votes on other matters submitted to the stockholders during the annual meeting are reported in Item 4 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. Item 5. Other Information A. The Company received a warning letter from the FDA dated May 31, 1996 regarding the promotion and custom configurations of the Company's OrthoLogic 1000 Bone Growth Stimulator. The FDA letter expressed concerns regarding representations with respect to using patient registry data, promotion of the OrthoLogic 1000 for new indications without an approved supplemental application and changes in design or physical layout of the device for these new indications and using the FDA name in promotional literature. Through subsequent correspondence and conversations with the FDA, the Company believes that the issues raised in the warning letter have been resolved. B. On July 22, 1996, the Company issued a press release, filed as Exhibit 99.1 hereto, announcing that it has signed a Letter Agreement to acquire all of the outstanding stock of Sutter Corporation, a subsidiary of Columbia/HCA Healthcare Corporation for approximately $25 million cash. The transaction is subject to regulatory approval, normal due diligence and the completion of a definitive purchase agreement. PART II - OTHER INFORMATION (continued) Item 6. Exhibits and Reports on Form 8-K A. See Exhibit Index following the Signatures page which is incorporated herein by reference. B. Reports on Form 8-K. On July 1, 1996, the Company filed a current report on Form 8-K dated June 28, 1996, to report in Item 5 receipt of an FDA warning letter, shareholder lawsuits and the NASD inquiry and the Company's appointment of a new President and Chief Operating Officer. 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 thereunto duly authorized.
Signature Title Date - --------- ----- ---- /s/ Allan M. Weinstein Chairman of the Board of Directors and August 13, 1996 Allan M. Weinstein Chief Executive Officer (Principal Executive Officer) /s/ Allen R. Dunaway Vice-President and Chief Financial Officer August 13, 1996 Allen R. Dunaway (Principal Financial and Accounting Officer)
ORTHOLOGIC CORP. EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
Exhibit Incorporated by Filed No. Description Reference to: Herewith --- ----------- ------------- -------- 3.1 Amended and Compiled Certificate of Exhibit 3.1 to the Company's Quarterly Incorporation of the Company Report on Form 10-Q for the period ended March 31, 1996 3.2 Bylaws of the Company Exhibit 3.4 to the Company's Amendment No. 2 to Registration Statement on Form S-1 (No. 33-47569) filed with the SEC on January 25, 1993 10.1 Addendum to Lease between the Company Exhibit 10.8.1 to the Company's and Cook Inlet Region, Inc. commencing Registration Statement on Form S-3 (No. April 1, 1996 333-3082) filed with the SEC on April 2, 1996 ("April 1996 S-3") 10.2 Underwriting Agreement between the Exhibit 1.1 to April 1996 S-3 Company and Volpe, Welty & Company, Hambrecht & Quist and Dain Bosworth Inc., as Representatives of the Underwriters 10.3 Maturity Modification Letter dated Exhibit 10.21 for April 1996 S-3 March 29, 1996, by Silicon Valley Bank
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 (continued)
Exhibit Incorporated by Filed No. Description Reference to: Herewith --- ----------- ------------- -------- 10.4 Employment Agreement dated March 28, Exhibit 10.28 to April 1993 1996, between the Company and Nicholas S-3 A. Skaff 10.5 Employment Agreement dated July 1, X 1996, between the Company and George A. Oram, Jr. 11.1 Statement of Computation of Net Income X (Loss) per Weighted Average Number of Common Shares Outstanding 27 Financial Data Schedule X 99.1 Press release announcing intent to X acquire Sutter Corporation from Columbia/HCA Healthcare Corporation
EX-10.5 2 EMPLOYMENT AGREEMENT Exhibit 10.5 EMPLOYMENT AGREEMENT This Agreement is to be effective, as of July 1, 1996, by and between OrthoLogic Corp., a Delaware corporation (the "Company"), and George A. Oram, Jr. ("Employee"). RECITALS: - --------- A. The Company wishes to employ Employee, and Employee wishes to be employed by the Company. B. The parties wish to set forth in this Agreement the terms and conditions of such employment. AGREEMENT: In consideration of the mutual covenants and agreements set forth herein, the parties agree as follows: 1. Employment and Duties. Subject to the terms and conditions of this Agreement, the Company employs Employee to serve in a managerial capacity and Employee accepts such employment and agrees to perform such reasonable responsibilities and duties as may be assigned to him from time to time by the Company's Board of Directors. Employee's title shall be President of the Company, with general responsibility for Company operations. Such title and duties may be changed from time to time by the Board of Directors (the "Board"). Initially, Employee will report to the Company's Chief Executive Officer, but on January 1, 1997 Employee will commence reporting directly to the Board. During the term of Employee's employment pursuant to this Agreement, the Company shall use its best efforts to maintain Employee as a member of the Board. 2. Term. The term of this Agreement shall be for two years beginning on the effective date. Thereafter this Agreement may be renewed only by a written agreement signed by both parties. 3. Compensation. (a) Salary. From the effective date of this Agreement through to December 31, 1996, the Company shall pay Employee a minimum base annual salary, before deducting all applicable withholdings, of $200,000 per year, payable at the times and in the manner dictated by the Company's standard payroll policies. On January 1, 1997 the annual base salary will be increased to $250,000. Thereafter, the minimum base annual salary shall be reviewed annually by the Compensation Committee of the Board. (b) Bonus. Employee shall be eligible to participate in such bonus and incentive programs as determined from time to time by the Board. Any such bonuses shall be based upon the achievement of individual goals and Company performance. Beginning January 1, 1997, the Company shall implement a bonus plan providing a bonus of up to 50% of Employee's base salary for achievement of the Board-approved plan and up to 100% of Employee's base salary for achievement of specified Board approved goals exceeding such plan. (c) Stock Options. On July 1,1996, the Company shall grant to Employee options to purchase 175,000 shares of the Company's common stock at the fair market value of such stock on the date of grant. Additionally, on July 1 of each of 1997, 1998 and 1999 so long as Employee is still employed by the Company on the applicable date, the Company shall grant to Employee options to purchase 50,000 shares of the Company's common stock at the then market price. After each such grant, so long as Employee is still employed by the Company on the date of each such partial vesting, the options in each grant shall vest monthly over 48 months, on a straight-line basis. Thus, 1/48th of each option grant shall vest on the first day of the first calendar month that is at least one month after the date of such grant, and on the first day of each calendar month thereafter, until all options in such grant have been vested. Once each option has vested, it shall be exercisable until the date 10 years after such option was granted. 4. Fringe Benefits. In addition to the options for shares of the Company's common stock granted to Employee as part of this Agreement and any other employee benefit plans (including without limitation pension, savings and disability plans) generally available to employees, the Company shall include Employee in any group health insurance plan and, if eligible, any group retirement plan instituted by the Company. Employee shall be eligible for the grant of additional options as determined from time to time by the Board of Directors based upon Employee's performance hereunder. The manner of implementation of such benefits with respect to such items as procedures and amounts are discretionary with the Company but shall be commensurate with Employee's executive capacity. The Company agrees to maintain term life insurance during the term of this Agreement in an amount equal to two times Employee's base salary, as it may be adjusted from time to time, with the beneficiary to be designated by Employee. 5. Vacation. Employee shall be entitled to vacation with pay in accordance with the Company's vacation policy as in effect from time to time. In addition, Employee shall be entitled to such holidays as the Company may approve. 2 6. Expenses. (a) Reimbursement. In addition to the compensation and benefits provided above, the Company shall, upon receipt of appropriate documentation, reimburse Employee each month for his reasonable travel, lodging, entertainment, promotion and other ordinary and necessary business expenses consistent with Company policies. Employee shall also be entitled to a automobile allowance of $450 per month. (b) Moving. Employee shall be reimbursed for the direct relocation cost of moving his household effects, cars and family from New Jersey to the Phoenix Metropolitan Area. In addition, Employee will be reimbursed, up to a maximum of $15,000, for non-deductible costs related to the purchase of a new home in the Phoenix Metropolitan Area. (c) Home Equity Loan. The Company will lend up to $200,000 to Employee, at prime rate, for the purchase of a new home in the Phoenix Metropolitan Area. Interest and principal on such loan shall be paid in full at the earlier to occur of the time of the sale of Employee's New Jersey home or the date three years after the funding of such loan. 7. Termination. (a) For Cause. The Company may terminate this Agreement for cause upon written notice to Employee stating the facts constituting such cause, provided that Employee shall have 30 days following such notice to cure any conduct or act, if curable, alleged to provide grounds for termination for cause hereunder. In the event of termination for cause, the Company shall be obligated to pay Employee only the minimum base salary due him through the date of termination. The written notice shall state the cause for termination. Cause shall include neglect of duties, willful failure to abide by instructions or policies from or set by the Board of Directors, commission of a felony or serious misdemeanor offense or pleading guilty or nolo contendere to same, Employee's breach of this Agreement or Employee's breach of any other material obligation to the Company. (b) Without Cause. The Company may terminate this Agreement at any time, immediately and without cause, by giving written notice to Employee. If the Company terminates under this Section 7(b) during the first year of this Agreement, it shall continue to pay to Employee (at the time and in the manner dictated by the Company's standard payroll policies) the base salary in effect at the time of termination for a period equal to the greater of six months or the time remaining in the first year of this 3 Agreement. If the Company terminates Employee under this Section 7(b) after the first anniversary of this Agreement, it shall continue to pay to Employee his minimum base salary in effect at the time of termination for a period of one year following the date of termination, at the time and in the manner dictated by the Company's standard payroll policies. (c) Disability. If during the term of this Agreement, Employee fails to perform his duties hereunder on account of illness or other incapacity for a period of three consecutive months, or for 120 days during any nine-month period, the Company shall have the right to terminate this Agreement without further obligation hereunder except as otherwise provided in disability plans generally applicable to executive employees. (d) Death. If Employee dies during the term of this Agreement, this Agreement shall terminate immediately, and Employee's legal representatives shall be entitled to receive the base salary due Employee through the last day of the calendar month in which his death shall have occurred and any other death benefits generally applicable to executive employees. 8. Nondelegability of Employee's Rights and Company Assignment Rights. The obligations, rights and benefits of Employee hereunder are personal and may not be delegated, assigned or transferred in any manner whatsoever, nor are such obligations, rights or benefits subject to involuntary alienation, assignment or transfer. Upon mutual agreement of the parties, the Company upon reasonable notice to Employee may transfer Employee to an affiliate of the Company, which affiliate shall assume the obligations of the Company under this Agreement. This Agreement shall be assigned automatically to any entity merging with or acquiring the Company. 9. Amendment. Except for documents regarding the grant of stock options and an Invention, Confidential Information and Non-Competition Agreement, this Agreement contains, and its terms constitute, the entire agreement of the parties and supersedes any prior agreements, and it may be amended only by a written document signed by both parties to this Agreement. 10. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Arizona, exclusive of the conflict of law provisions thereof, and the parties agree that any litigation pertaining to this Agreement shall be in courts located in Maricopa County, Arizona. 4 11. Attorneys' Fees. If any party finds it necessary to employ legal counsel or to bring an action at law or other proceeding against the other party to enforce any of the terms hereof, the party prevailing in any such action or other proceeding shall be paid by the other party its reasonable attorneys' fees as well as court costs all as determined by the court and not a jury. 12. Notices. All notices, demands, instructions, or requests relating to this Agreement shall be in writing and, except as otherwise provided herein, shall be deemed to have been given for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service from and to locations within the Continental United States, (iii) five days after posting when sent by United States registered or certified mail, with return receipt requested and postage paid, or (iv) on the date of transmission when sent by facsimile with a hard-copy confirmation; if directed to the person or entity to which notice is to be given at his or its address set forth in this Agreement or at any other address such person or entity has designated by notice. To the Company: ORTHOLOGIC CORP. 2850 South 36th Street, Suite 16 Phoenix, AZ 85034 Attention: President To Employee: GEORGE A. ORAM, JR. 324 Kelly Drive Neshanic Station, NJ 08853 Fax: 908-369-0620 13. Entire Agreement. This Agreement constitutes the final written expression of all of the agreements between the parties (except those relating to Employee's service as a director of the Company), and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by either party that differ in any way from the terms of this written Agreement shall be given no force or effect. The parties specifically represent, each to the other, that there are no additional or supplemental agreements between them related in any way to the matters herein contained unless specifically included or referred to herein. No addition to or modification of any provision of this Agreement shall be binding upon any party unless made in writing and signed by all parties. 14. Waiver. The waiver by either party of the breach of any covenant or provision in this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party. 5 15. Invalidity of Any Provision. The provisions of this Agreement are severable, it being the intention of the parties hereto that should any provisions hereof be invalid or unenforceable, such invalidity or unenforceability of any provision shall not affect the remaining provisions hereof, but the same shall remain in full force and effect as if such invalid or unenforceable provisions were omitted. 16. Headings. Headings in this Agreement are for informational purposes only and shall not be used to construe the intent of this Agreement. 17. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same agreement. 18. Binding Effect; Benefits. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors, executors, administrators and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. This Agreement has been executed by the parties as of July 1, 1996. ORTHOLOGIC CORP. (the "Company") By: ___________________________________ Allan M. Weinstein Chief Executive Officer GEORGE A. ORAM, JR. By: __________________________ "EMPLOYEE" 6 EX-11.1 3 STATEMENT OF COMPUTATION OF NET INCOME Exhibit 11.1 ORTHOLOGIC CORP STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (1) (In thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, -------------------------------- -------------------------------- 1996 1995 1996 1995 -------------- -------------- -------------- -------------- Net income (loss) $1,480 ($632) $2,415 ($1,568) ============== ============== ============== ============== Common shares outstanding at end of period 24,981 14,978 24,981 14,978 Adjustment to reflect weighted average for shares issued during the period (1,588) (2) (3,472) (342) Assuming conversion of stock options and warrants 1,376 --- 1,225 --- -------------- -------------- -------------- -------------- Weighted average number of common shares outstanding, as adjusted 24,769 14,976 22,734 14,636 ============== ============== ============== ============== Net loss per weighted average number of common shares outstanding $0.06 ($0.04) $0.11 ($0.11) ============== ============== ============== ==============
(1) The common shares outstanding have been adjusted for a 2 for 1 stock split in the form of a 100 percent common share dividend for all periods presented. EX-27 4 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 63,128,560 22,777,045 14,540,111 2,943,327 2,865,150 101,308,340 2,249,824 1,363,844 105,907,905 4,188,931 0 0 0 12,491 101,706,483 105,907,905 7,911,929 7,911,929 1,252,095 1,252,095 5,068,621 1,004,020 0 1,495,306 15,000 1,480,306 0 0 0 1,480,306 .06 .06
EX-99.1 5 NEWS BULLETIN Exhibit 99.1 NEWS BULLETIN ------------- For Further Information: AT THE COMPANY: RCG Capital Markets Group Allan M. Weinstein Max Ramras or Jim Estrada Chairman and CEO or 7373 N. Scottsdale Road Richard R. Cartwright Scottsdale, AZ 85253 Director, Investor Relations 602.998.7555 602.437.5520 FOR IMMEDIATE RELEASE July 22, 1996 ORTHOLOGIC CORP. TO ACQUIRE SUTTER CORPORATION ---------------------------------------------- Phoenix, Arizona, July 22, 1996 -- OrthoLogic (NASDAQ/OLGC) today announced that it has concluded a binding letter of intent to acquire Sutter Corporation for approximately $25.0 million in cash from Columbia/HCA Healthcare Corporation. Subject to the negotiation and satisfaction of terms and conditions, OrthoLogic expects to complete the acquisition on or before September 30. Sutter's principal business is the manufacturing, marketing and distribution of orthopaedic rehabilitation products and is a leading supplier of continuous passive motion ("CPM") devices. The Company is headquartered in San Diego, CA. Sutter's 1995 sales were approximately $30.0 million. According to Allan M. Weinstein, Chairman of the Board and CEO of OrthoLogic: " We believe that the acquisition of Sutter positions OrthoLogic to become a leading supplier of orthopaedic products. OrthoLogic and Sutter have a complementary fit. The acquisition brings together two companies whose direct sales forces call on orthopaedic surgeons in their offices. Additionally, both companies focus on managed care providers and obtain third party reimbursement for their orthopaedic home healthcare products. The combined companies will employ approximately 400 individuals, with a direct sales force of over 150 salespeople." OrthoLogic develops, manufacturers and markets proprietary technologically advanced orthopaedic devices designed to promote the healing of musculoskeletal tissue. Founded in 1987, the Company is headquartered in Phoenix, Arizona. This release may contain forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Important factors that could cause actual results to differ materially include the risk that integrating the sales forces and/or the managements and operating and information systems of both companies will prove to be difficult and costly; costs incurred in eliminating redundancies and achieving a common vision for the combined companies; the ability of the Company's executives to manage growth; and/or the risk that one or more of the conditions to close may not be satisfied. # # # -----END PRIVACY-ENHANCED MESSAGE-----