-----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, KtxQZFmSBI7cwnhgsNfPTk5X2xNM3nwzUUvd1HipD+uKFYefSN5HI1r1bvEAj8iS nN4f+xsMe3o9iUqwgypcEg== 0000950147-96-000560.txt : 19961118 0000950147-96-000560.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950147-96-000560 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960830 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19961114 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: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21214 FILM NUMBER: 96665889 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 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A Amendment No. 1 to Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of report (Date of earliest event reported) August 30, 1996 ------------------------ OrthoLogic Corp. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware - -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 0-21214 86-0585310 - --------------------------------------- ---------------------------------------- (Commission File Number) (I.R.S. Employer Identification No.) 2850 South 36th Street, Phoenix, Arizona 85034 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (602) 437-5520 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Item 2. Acquisition or Disposition of Assets. On August 30, 1996, OrthoLogic Corp., a Delaware corporation ("OrthoLogic"), consummated its previously announced acquisition of all of the issued and outstanding capital stock of Sutter Corporation, a California corporation ("Sutter"), from Smith Laboratories, Inc., an Illinois corporation ("SmithLabs"), pursuant to a Stock Purchase Agreement (the "Agreement") dated August 30, 1996, which is filed as an exhibit to this report. OrthoLogic paid the purchase price of $24,500,000 in cash from existing corporate resources. The acquisition transaction was negotiated at arm's length between OrthoLogic and SmithLabs. Prior to the acquisition, none of the directors, officers or associates of SmithLabs or Sutter, or their affiliates, were or are affiliated with OrthoLogic, its affiliates, its directors and officers and their associates. OrthoLogic is accounting for the acquisition of Sutter as a purchase. Sutter's principal business is the manufacturing, marketing and distribution of orthopaedic rehabilitation products, including continuous passive motion ("CPM") devices. Item 7. Financial Statements and Exhibits. (a) Financial Statements of Businesses Acquired. SUTTER CORPORATION (A Wholly-Owned Subsidiary of Smith Laboratories, Inc., a Wholly-Owned Subsidiary of Columbia/HCA Healthcare Corporation) Financial Statements Six Month Periods Ended June 30, 1996 and 1995 (Unaudited), Years Ended December 31, 1995, 1994, and 1993, and Independent Auditors' Report INDEPENDENT AUDITORS' REPORT Board of Directors Sutter Corporation We have audited the accompanying balance sheets of Sutter Corporation (a wholly-owned subsidiary of Smith Laboratories, Inc., a wholly-owned subsidiary of Columbia/HCA Healthcare Corporation) as of December 31, 1995 and 1994, and the related statements of income, stockholder's equity and cash flows for each of the three years in the period ended December 31, 1995. 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, such financial statements present fairly, in all material respects, the financial position of Sutter Corporation at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP DELOITTE & TOUCHE LLP Phoenix, Arizona August 16, 1996 SUTTER CORPORATION (A Wholly-Owned Subsidiary of Smith Laboratories, Inc., A Wholly-Owned Subsidiary of Columbia/HCA Healthcare Corporation) BALANCE SHEETS (In Thousands) - --------------------------------------------------------------------------------
December 31, June 30, ---------------- ASSETS 1996 1995 1994 Unaudited) (Note 11) CURRENT ASSETS: Cash and cash equivalents $ 630 $ 480 $ 57 Accounts receivable - net (Notes 4 and 5) 12,197 11,713 9,177 Inventories (Notes 2 and 5) 1,606 1,809 2,650 Prepaids and other current assets 94 104 193 Deferred income taxes (Note 8) 2,197 2,110 1,636 ------- ------- ------- Total current assets 16,724 16,216 13,713 RENTAL FLEET, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Net of accumulated depreciation and amortization (Notes 3, 5 and 7) 7,887 7,889 7,178 DEFERRED INCOME TAXES (Note 8) 13 201 499 ------- ------- ------- TOTAL $24,624 $24,306 $21,390 ======= ======= ======= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Accounts payable $ 1,888 $ 1,633 $ 1,423 Accrued salaries, wages and commissions 1,486 1,899 1,400 Other accrued expenses 2,705 2,315 1,438 Current portion of capital lease obligation (Note 7) 41 41 ------- ------- ------- Total current liabilities 6,120 5,888 4,261 DEFERRED RENT AND CAPITAL LEASE OBLIGATION (Note 7) 403 369 307 ------- ------- ------- Total liabilities 6,523 6,257 4,568 ------- ------- ------- COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDER'S EQUITY (Note 10): Common stock, $1 par value - authorized, 1,000 shares; issued and outstanding, 1,000 shares 1 1 1 Additional paid-in capital 8,434 8,874 7,855 Retained earnings 9,666 9,174 8,966 ------- ------- ------- Total stockholder's equity 18,101 18,049 16,822 ------- ------- ------- TOTAL $24,624 $24,306 $21,390 ======= ======= =======
See notes to financial statements. -2- SUTTER CORPORATION (A Wholly-Owned Subsidiary of Smith Laboratories, Inc., A Wholly-Owned Subsidiary of Columbia/HCA Healthcare Corporation) STATEMENTS OF INCOME (In Thousands) - --------------------------------------------------------------------------------
Six Month Periods Ended June 30, Years Ended December 31, ------------------- -------------------------------- 1996 1995 1995 1994 1993 (Unaudited) (Note 11) REVENUES: Equipment rentals $ 14,928 $ 13,111 $ 26,458 $ 24,896 $ 23,784 Sales 3,567 3,049 5,926 2,052 1,954 -------- -------- -------- -------- -------- Total revenues 18,495 16,160 32,384 26,948 25,738 -------- -------- -------- -------- -------- COST OF REVENUES: Equipment rentals 3,284 3,282 6,115 4,924 4,801 Sales 2,280 1,348 3,446 1,458 1,615 -------- -------- -------- -------- -------- Total cost of revenues 5,564 4,630 9,561 6,382 6,416 -------- -------- -------- -------- -------- GROSS MARGIN 12,931 11,530 22,823 20,566 19,322 -------- -------- -------- -------- -------- OPERATING EXPENSES: Selling 7,063 6,628 13,280 11,630 10,276 Marketing 759 754 1,259 1,282 1,056 General and administrative (Note 9) 4,261 4,226 7,566 7,168 6,241 -------- -------- -------- -------- -------- Total operating expenses 12,083 11,608 22,105 20,080 17,573 -------- -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 848 (78) 718 486 1,749 INCOME TAXES (Note 8) 356 (33) 320 335 765 -------- -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS 492 (45) 398 151 984 -------- -------- -------- -------- -------- DISCONTINUED OPERATIONS (Note 6): Income (loss) from operations - net of income tax provision (benefit) of $(144) in 1995, $15 in 1994 and $(38) in 1993 39 (192) 22 (51) Gain on disposal - net of income tax provision of $2 in 1995 and $45 in 1994 2 69 -------- -------- -------- -------- -------- INCOME (LOSS) FROM DISCONTINUED OPERATIONS 39 (190) 91 (51) -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 492 $ (6) $ 208 $ 242 $ 933 ======== ======== ======== ======== ========
See notes to financial statements. -3- SUTTER CORPORATION (A Wholly-Owned Subsidiary of Smith Laboratories, Inc., A Wholly-Owned Subsidiary of Columbia/HCA Healthcare Corporation) STATEMENTS OF STOCKHOLDER'S EQUITY (In Thousands) - --------------------------------------------------------------------------------
Common Stock --------------- Paid-In Retained Shares Amount Capital Earnings Total BALANCE, JANUARY 1, 1993 1,000 $ 1 $ 6,511 $ 7,791 $14,303 Net income 933 933 Net capital contributions (Note 10) 1,175 1,175 ----- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1993 1,000 1 7,686 8,724 16,411 Net income 242 242 Net capital contributions (Note 10) 169 169 ----- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1994 1,000 1 7,855 8,966 16,822 Net income 208 208 Net capital contributions (Note 10) 1,019 1,019 ----- ------- ------- ------- ------- BALANCE, DECEMBER 31, 1995 1,000 1 8,874 9,174 18,049 ----- ------- ------- ------- ------- Net income (unaudited) 492 492 Net capital distribution (unaudited) (440) (440) ----- ------- ------- ------- ------- BALANCE, JUNE 30, 1996 (UNAUDITED) 1,000 $ 1 $ 8,434 $ 9,666 $18,101 ===== ======= ======= ======= =======
See notes to financial statements. -4- SUTTER CORPORATION (A Wholly-Owned Subsidiary of Smith Laboratories, Inc., A Wholly-Owned Subsidiary of Columbia/HCA Healthcare Corporation) STATEMENTS OF CASH FLOWS (In Thousands) - --------------------------------------------------------------------------------
Six Month Periods Ended June 30, Years Ended December 31, -------------------- ----------------------------- 1996 1995 1995 1994 1993 (Unaudited) (Note 11) OPERATING ACTIVITIES: Net income (loss) $ 492 $ (6) $ 208 $ 242 $ 933 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,269 1,248 2,842 2,568 2,448 Deferred income taxes 101 (176) 315 (178) Change in assets and liabilities: Accounts receivable (484) (1,428) (2,536) (274) (1,183) Inventories 203 328 841 (716) 127 Prepaids and other current assets 10 106 89 76 74 Accounts payable 255 829 210 1 (18) Deferred rent (14) (68) (71) (117) 54 Other accrued expenses (23) 482 1,376 201 641 ------- ------- ------- ------- ------- Net cash provided by operating activities 1,809 1,491 2,783 2,296 2,898 ------- ------- ------- ------- ------- INVESTING ACTIVITIES - Expenditures for rental fleet, equipment and leasehold improvements (1,189) (1,662) (3,364) (3,320) (3,271) ------- ------- ------- ------- ------- FINANCING ACTIVITIES: Capital contributions (1,000) 650 Expenses assumed by stockholder 560 114 1,019 169 525 Payments under capital lease obligations (30) (15) ------- ------- ------- ------- ------- Net cash provided by financing activities (470) 114 1,004 169 1,175 ------- ------- ------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 150 (57) 423 (855) 802 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 480 57 57 912 110 ------- ------- ------- ------- ------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 630 $ $ 480 $ 57 $ 912 ======= ======= ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for income taxes $ 11 $ 100 $ 128 $ 217 $ 201 ======= ======= ======= ======= ======= Equipment acquired through capital lease obligation $ 48 $ 189 ======= ======= ======= ======= =======
See notes to financial statements. -5- SUTTER CORPORATION (A Wholly-Owned Subsidiary of Smith Laboratories, Inc., A Wholly-Owned Subsidiary of Columbia/HCA Healthcare Corporation) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - Sutter Corporation, a California corporation, (the "Company") is a wholly-owned subsidiary of Smith Laboratories, Inc., an Illinois corporation ("Smith Laboratories"). All of the outstanding stock of Smith Laboratories is owned by Columbia/HCA Healthcare Corporation, a Delaware corporation ("Columbia"). The Company is engaged in the development, manufacturing, marketing and rental of continuous passive motion ("CPM") devices. These CPM devices are designed to aid in the recovery of patients with joints and appendages that have undergone a surgical operation. Significant Accounting Policies - The following describes the significant accounting policies of the Company: a. Inventories are stated at the lower of cost (first-in, first-out ("FIFO") basis) or market. An obsolescence reserve is recorded for quantities which may not be saleable in the foreseeable future. b. Rental Fleet is stated at cost, net of accumulated depreciation. Depreciation is computed utilizing the straight-line method based on the estimated useful lives of the rental assets, generally five or six years. c. Equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed utilizing the straight-line method based on the estimated useful lives of the related assets or, for leasehold improvements, the lease term, if shorter. Estimated useful lives are as follows: Useful Life Equipment 3-5 years Furniture and fixtures 7 years Leasehold improvements 5 years d. Other Accrued Expenses - Other accrued expenses includes credit balances in receivable accounts totaling approximately $1,800,000 and $1,100,000 at December 31, 1995 and 1994, respectively. e. Income taxes are provided based upon the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, which among other things, requires that recognition of deferred income taxes be measured by the provisions of enacted tax laws in effect at the date of the financial statements. The Company's operations are included in the consolidated federal income tax return of Columbia. In accordance with the income tax allocation policy, income tax provision or benefit is determined on a separate return basis and any current federal income tax liability is assumed by Columbia through a capital contribution. f. Revenue Recognition - All of the Company's rental contracts are accounted for as operating leases. The Company recognizes revenue from product sales upon shipment. Rental revenues, including unbilled revenues, are recorded as the service is provided. -6- g. Statements of Cash Flows - For purposes of the statements of cash flows, the Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. h. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. i. Product Concentration - The Company derives the majority of its revenues from the rental of CPM equipment to patients recovering from surgical procedures throughout the United States. The Company internally assembles most of their rental equipment using parts purchased from various outside vendors. j. New Accounting Pronouncement - In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Management does not believe the adoption will have a significant impact on the Company's financial position and results of operations. 2. INVENTORIES Inventories consisted of the following at December 31: 1995 1994 (In thousands) Raw materials $ 1,045 $ 1,527 Work-in-progress 150 478 Finished goods 1,049 1,287 --------- --------- Total 2,244 3,292 Less reserve for obsolescence 435 642 --------- --------- Inventories - net $ 1,809 $ 2,650 ========= ========= 3. RENTAL FLEET, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Rental fleet, equipment and leasehold improvements consisted of the following at December 31:
1995 1994 (In thousands) Rental fleet $ 17,766 $ 15,119 Equipment 3,916 3,505 Furniture and fixtures 673 639 Leasehold improvements 430 430 ----------- ---------- Total 22,785 19,693 Less accumulated depreciation and amortization 14,896 12,515 ----------- ---------- Rental fleet, equipment and leasehold improvements - net $ 7,889 $ 7,178 =========== ==========
-7- Capitalized computer equipment and software under lease totaling $188,767 is included in equipment at December 31, 1995. 4. ACCOUNTS RECEIVABLE Accounts receivable consisted of the following at December 31: 1995 1994 (In thousands) Trade accounts receivable $ 13,159 $ 9,816 Unbilled revenue 2,259 1,902 ---------- ---------- Total 15,418 11,718 Less allowance for doubtful accounts 3,705 2,541 ---------- ---------- Accounts receivable - net $ 11,713 $ 9,177 ========== ========== Unbilled revenue relates to revenue earned but not billed on rental contracts outstanding at year-end. 5. REVOLVING LINE OF CREDIT The Company has a revolving line of credit equal to $2,000,000. The line is collateralized by the accounts receivable, inventories, rental fleet and equipment of the Company. As of December 31, 1995 and 1994, no amount of the line of credit was outstanding. Interest is charged on the outstanding balance at prime (10.5% at December 31, 1995) plus 2.65%. The agreement expires January 31, 1997. 6. DISCONTINUED OPERATIONS In August 1994, the Company sold its rehabilitative health services division, Sutter Rehabilitative Services ("SRS"), for approximately $886,000. The Company realized a gain of $114,000 as a result of this transaction. Summary operating results of discontinued operations, excluding the above gain are as follows: 1994 1993 (In thousands) Net sales $ 1,642 $ 1,945 ======= ======== Income (loss) from discontinued operations $ 30 $ (67) ======= ======== The net assets of SRS at the time of the sale are summarized as follows: (In thousands) Accounts receivable $ 824 Property, plant and equipment - net 7 Current liabilities (59) ------- Net assets $ 772 ======= -8- In August 1995, the Company sold its small joint manufacturing division, Small Joint Orthopedics ("SJO"), for $700,000 in cash. The Company realized a loss of $4,000 as a result of this transaction.
1995 1994 1993 (In thousands) Net sales $ 992 $ 1,718 $ 1,942 ======= ======= ========= Gross profit $ 270 $ 817 $ 1,180 ======= ======= ========= Income (loss) from discontinued operations $ (332) $ (8) $ 16 ======= ======= =========
The net assets of SJO at the time of the sale and at December 31, 1994 are summarized as follows: Disposal December 31, Date 1994 (In thousands) Accounts receivable $ 378 $ 415 Property, plant and equipment - net 132 146 Inventories 229 398 Accounts Payable (35) (44) -------- -------- Net assets $ 704 $ 915 ======== ======== 7. COMMITMENTS AND CONTINGENCIES The Company is involved in various legal proceedings in the ordinary course of business which are covered under its existing insurance policy. In management's opinion, the insurance coverage is sufficient based upon past experience and outstanding claims. Furthermore, in management's opinion, the outstanding legal proceedings will be resolved without a material effect on the financial position or results of operations of the Company. The insurance coverage is provided through an affiliate of Columbia. Further, as part of the transaction discussed in Note 10, Columbia and Smith Laboratories have agreed to assume existing liabilities from litigation. The Company is obligated under certain non-cancelable capital and operating leases. Capital Lease - The Company leases certain computer equipment and software under a capital lease agreement. This agreement has been recorded at the present value of future minimum lease payments. Amortization of capital leases is included with depreciation on equipment. Operating Leases - The Company leases its facilities and certain equipment under operating lease agreements. Certain leases require the Company to pay property taxes, insurance, and maintenance costs. -9- The following is a schedule of future minimum lease payments for the years ending December 31 under non-cancelable lease agreements with original terms in excess of one year:
Leases ------------------------- Capital Operating Total 1996 $ 56 $ 898 $ 954 1997 56 703 759 1998 56 603 659 1999 42 36 78 Thereafter --------- ----------- ----------- Total future minimum lease payments 210 $ 2,240 $ 2,450 Less amount representing interest 35 =========== =========== --------- Present value of net minimum lease payments 175 Less current portion 41 --------- Long-term portion $ 134 ========
Rent expense for the years ended December 31, 1995, 1994 and 1993 was $857,000, $791,000, and $802,000, respectively. 8. INCOME TAXES Income tax provision (benefit) consisted of the following for the years ended December 31: 1995 1994 1993 (in thousands) Current $ 496 $ 20 $ 943 Deferred (176) 315 (178) ------- ------ ------- Total $ 320 $ 335 $ 765 ======= ====== ======= -10- Deferred income tax assets and liabilities consist of the following at December 31: 1995 1994 (In thousands) Current assets and liabilities: Allowance for bad debts $ 1,512 $ 1,012 Inventory reserves 174 262 Accrued commissions and vacation 252 219 Other 172 143 --------- --------- Net current deferred tax assets 2,110 1,636 --------- --------- Non-current assets and liabilities: Difference in basis of fixed assets (726) (704) Amortization of intangibles 832 1,086 Other 95 117 --------- --------- Net non-current deferred tax assets 201 499 --------- --------- Total deferred tax assets $ 2,311 $ 2,135 ========= ========= The difference between the recorded income tax provision and the amount that would be computed using the federal statutory rate results from the following for the years ended December 31: 1995 1994 1993 (In thousands) Statutory rate (34%) $ 246 $ 165 $ 595 State taxes 49 142 162 Other 25 28 8 ------ ------- ------- Income tax provision $ 320 $ 335 $ 765 ====== ======= ======= 9. RELATED PARTY TRANSACTIONS Certain expenses are charged by Columbia to the Company each year. These expenses primarily represent employee benefits and legal expenses paid by Columbia on behalf of the Company. The total charges from Columbia were approximately $700,000, $525,000 and $500,000 for the years ended December 31, 1995, 1994 and 1993, respectively. In addition, Columbia makes capital contributions to the Company each year by assuming certain liabilities such as income taxes. During the years ended December 31, 1995, 1994 and 1993, commission expenses were incurred and paid totaling approximately $374,000, $471,000 and $400,000, respectively, to a company owned by an officer of the Company. 10. SUBSEQUENT EVENT On July 18, 1996, Smith Laboratories signed a letter of intent to sell all of the outstanding stock of the Company to OrthoLogic Corp. for $24,500,000. Under the terms of the agreement, Smith Laboratories will assume the cash and certain liabilities, including income tax liabilities and litigation. The net advances and contributions from Smith Laboratories and Columbia at each balance sheet date have been classified as paid-in capital. -11- 11. UNAUDITED INTERIM PERIODS The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the six month periods are not necessarily indicative of the results that may be expected for the years ending December 31. The accompanying financial statements should be read in conjunction with the Company's most recent audited financial statements. * * * * * * -12- (b) Pro forma Financial Information. ORTHOLOGIC CORP. PRO FORMA FINANCIAL INFORMATION JUNE 30, 1996 - -------------------------------------------------------------------------------- On August 30, 1996, OrthoLogic Corp., a Delaware corporation ("OrthoLogic"), consummated its previously announced acquisition of all of the issued and outstanding capital stock of Sutter Corporation, a California corporation ("Sutter"), from Smith Laboratories, Inc., an Illinois corporation ("SmithLabs"), pursuant to a Stock Purchase Agreement (the "Agreement") dated August 30, 1996, which is filed as an exhibit to this Form 8-k. OrthoLogic paid the purchase price of $24,500,000 in cash from existing corporation resources. The acquisition transaction was negotiated at arm's length between OrthoLogic and SmithLabs. Prior to the acquisition, none of the directors, officers or associates of SmithLabs or Sutter, or their affiliates, were or are affiliated with OrthoLogic, its affiliates, its directors and officers and their associates. OrthoLogic is accounting for the acquisition of Sutter as a purchase. The accompanying pro forma financial information shows what the consolidated balance sheet would have been, had the transaction been consummated on June 30, 1996, and additionally shows what the consolidated statement of income for the six month period ended June 30, 1996 would have been, assuming that the transaction was consummated on January 1, 1996, and shows what the consolidated statement of operations for the year ended December 31, 1995 would have been, assuming that the transaction was consummated on January 1, 1995. -1- ORTHOLOGIC CORP. UNAUDITED PRO FORMA BALANCE SHEET JUNE 30, 1996 (In Thousands) - --------------------------------------------------------------------------------
Pro Forma OrthoLogic Sutter Pro Forma Consolidated ASSETS Corp. Corporation Adjustments Totals CURRENT ASSETS: Cash and cash equivalents $ 63,129 $ 630 $ (25,047)(a) $ 38,712 Short-term investments 22,777 22,777 Accounts receivable - net 11,597 12,197 23,794 Inventories - net 2,865 1,606 4,471 Prepaids and other current assets 941 94 1,035 Deferred income taxes 2,197 2,197 --------- --------- --------- --------- Total current assets 101,309 16,724 (25,047) 92,986 RENTAL FLEET, EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Net of accumulated depreciation and amortization 886 7,887 8,773 INTANGIBLES - Net 3,620 6,946 (b) 10,566 DEPOSITS AND OTHER ASSETS 93 13 106 --------- --------- --------- --------- TOTAL $ 105,908 $ 24,624 $ (18,101) $ 112,431 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,307 $ 1,888 $ $ 3,195 Accrued expenses 2,882 4,191 7,073 Current portion of capital lease obligation 41 41 --------- --------- --------- --------- Total current liabilities 4,189 6,120 10,309 DEFERRED RENT AND CAPITAL LEASE OBLIGATION 403 403 --------- --------- --------- --------- Total liabilities 4,189 6,523 10,712 --------- --------- --------- --------- STOCKHOLDERS' EQUITY: Common stock 12 1 (1)(c) 12 Additional paid-in capital 118,748 8,434 (8,434)(c) 118,748 (Deficit) retained earnings (17,041) 9,666 (9,666)(c) (17,041) --------- --------- --------- --------- Total stockholders' equity 101,719 18,101 (18,101) 101,719 --------- --------- --------- --------- TOTAL $ 105,908 $ 24,624 $ (18,101) $ 112,431 ========= ========= ========= =========
See pro forma adjustment legend. -2- ORTHOLOGIC CORP. UNAUDITED PRO FORMA BALANCE SHEET JUNE 30, 1996 (In Thousands) - -------------------------------------------------------------------------------- Pro Forma Adjustment Legend (a) Reflects a pro forma adjustment for the Company's cash payments plus acquisition costs at the time of acquisition. (b) Reflects a pro forma adjustment for the capitalization of the cost of acquisition in excess of net assets acquired resulting from the application of purchase accounting principles. (c) Reflects the pro forma elimination of Sutter Corporation capital as a result of being consolidated into the OrthoLogic Corp. financial statements. -3- ORTHOLOGIC CORP. UNAUDITED PRO FORMA STATEMENT OF INCOME SIX MONTH PERIOD ENDED JUNE 30, 1996 (In Thousands, except per share and share data) - --------------------------------------------------------------------------------
Pro Forma OrthoLogic Sutter Pro Forma Consolidated Corp. Corporation Adjustments Totals REVENUES - Net $ 14,672 $ 18,495 $ $ 33,167 ------------ ------------ ------------ ------------ COST OF REVENUES: Equipment rentals 3,284 3,284 Sales 2,374 2,280 4,654 ------------ ------------ ------------ ------------ Total cost of revenues 2,374 5,564 7,938 ------------ ------------ ------------ ------------ GROSS PROFIT 12,298 12,931 25,229 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Selling, general and administrative 9,951 12,083 231 (a) 22,265 Research and development 1,098 1,098 ------------ ------------ ------------ ------------ Total operating expenses 11,049 12,083 231 23,363 ------------ ------------ ------------ ------------ OTHER INCOME 1,196 (626)(b) 570 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 2,445 848 (857) 2,436 INCOME TAXES 30 356 (229)(c) 157 ------------ ------------ ------------ ------------ NET INCOME $ 2,415 $ 492 $ (628) $ 2,279 ============ ============ ============ ============ NET INCOME PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING $ 0.11 $ 0.10 ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 22,733,854 22,733,854 ============ ============
Pro Forma Adjustment Legend (a) Reflects a pro forma increase in amortization expense associated with the capitalization of the cost of acquisition in excess of net assets acquired resulting from the application of purchase accounting principles. (b) Reflects a pro forma decrease in interest income imputed on consideration paid for the acquisition. (c) Reflects a pro forma decrease in income tax expense as a result of utilization of federal net operating loss carryforwards in a consolidated entity. -4- ORTHOLOGIC CORP. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 (In Thousands, except per share and share data) - --------------------------------------------------------------------------------
Pro Forma OrthoLogic Sutter Pro Forma Consolidated Corp. Corporation Adjustments Totals REVENUES - Net $ 14,678 $ 32,384 $ $ 47,062 ------------ ------------ ------------- ------------ COST OF REVENUES: Equipment rentals 6,115 6,115 Sales 3,065 3,446 6,511 ------------ ------------ ------------- ------------ Total cost of revenues 3,065 9,561 12,626 ------------ ------------ ------------- ------------ GROSS PROFIT 11,613 22,823 34,436 ------------ ------------ ------------- ------------ OPERATING EXPENSES: Selling, general and administrative 11,304 22,105 463(a) 33,872 Research and development 2,132 2,132 ------------ ------------ ------------- ------------ Total operating expenses 13,436 22,105 463 36,004 ------------ ------------ ------------- ------------ OTHER INCOME (EXPENSE) 472 (1,252)(b) (780) ------------ ------------ ------------- ------------ (LOSS) INCOME BEFORE INCOME TAXES (1,351) 718 (1,715) (2,348) INCOME TAXES 320 (192)(c) 128 ------------ ------------ ------------- ------------ NET (LOSS) INCOME $ (1,351) $ 398 $ (1,523) $ (2,476) ============ ============ ============ ============ NET LOSS PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING $ (0.09) $ (0.16) ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,548,856 15,548,856 ============ ============
Pro Forma Adjustment Legend (a) Reflects a pro forma increase in amortization expense associated with the capitalization of the cost of acquisition in excess of net assets acquired resulting from the application of purchase accounting principles. (b) Reflects a pro forma decrease in interest income imputed on consideration paid for the acquisition. (c) Reflects a pro forma decrease in income tax expense as a result of utilization of federal net operating loss carryforwards in a consolidated entity. -5- (c) Exhibits. See the Exhibit Index, which is incorporated herein by reference, immediately following the Signature page to this Report. 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. ORTHOLOGIC CORP. November 14, 1996 By /s/ Allen R. Dunaway --------------------- Allen R. Dunaway Chief Financial Officer 2 EXHIBIT INDEX Sequentially Exhibit No. Description of Exhibit Paginated No. - ------------------ ---------------------------------- --------------- 2.1 Stock Purchase Agreement dated * August 30, 1996 by and among OrthoLogic Corp., a Delaware corporation, Sutter Corporation, a California corporation, and Smith Laboratories, Inc., an Illinois corporation............ - ---------- * Previously filed. E-1 -----END PRIVACY-ENHANCED MESSAGE-----