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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
Current Report Pursuant to
Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): April 12, 2000
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Commission File No. 1-10677
INTEGRATED ORTHOPAEDICS, INC.
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(Exact Name of Registrant as Specified in its Charter)
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TEXAS 76-0203483
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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5858 Westheimer, Suite 500, Houston, Texas 77057
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(Address of Principal Executive Offices)
(713) 225-5464
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(Registrant's Telephone Number, Including Area Code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective March 31, 2000 Integrated Orthopaedics, Inc., ("IOI" or the
"Company") and IOI Management Services of Pennsylvania ("IOI of
Pennsylvania"), a wholly-owned subsidiary of IOI, entered into an
agreement to terminate the Management Services Agreement between IOI of
Pennsylvania and Lancaster Orthopaedic Group, P.C. ("LOG"). In
conjunction with the transaction, IOI of Pennsylvania sold all of its
assets to LOG. The transaction was completed on April 12, 2000. The
transaction value of $4,210,000 is comprised of cash and the assumption
by LOG of certain liabilities.
As previously reported, the Company and IOI Management Services of
Colorado ("IOI of Colorado"), a wholly owned subsidiary of IOI, entered
into an agreement to terminate the Management Services Agreement
between IOI of Colorado and Front Range Orthopedic Center, P.C.
("FROC"). In conjunction with the transaction, IOI of Colorado sold all
of its assets to FROC and FROC, P.C. The transaction was completed on
January 27, 2000. The transaction value of $2,087,000 is comprised of
cash, secured promissory notes and the assumption by FROC, P.C. of
certain liabilities.
In January 1999, the Company and IOI Management Services of Connecticut
("IOI of Connecticut"), a wholly owned subsidiary of IOI, filed a
lawsuit against its Connecticut practice, Merritt Orthopaedics
Associates, P.C. The lawsuit sought to enforce certain repurchase
obligations under the related Management Services Agreement as a result
of the practice failing to satisfy certain of its obligations
thereunder. In March 2000, a settlement of $750,000 was reached between
the Company and the practice. The settlement is comprised of cash and
promissory notes.
ITEM 7. PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) Unaudited Pro Forma Financial Information (attached following the
signature page):
Unaudited Pro Forma Condensed Combining Statement of Operations
For the year ended December 31, 1999
Unaudited Pro Forma Condensed Combining Balance Sheet -
December 31, 1999
Notes to the Unaudited Pro Forma Condensed Combining Financial
Statements
(c) Exhibits
10.22(1) Asset Purchase Agreement dated April 12, 2000, by and between
IOI Management Services of Pennsylvania, Inc. and Lancaster
Orthopedic Group, P.C.
10.23(1) Agreement to terminate the Management Agreement dated
April 12, 2000 by and between IOI Management Services of
Pennsylvania, Inc. and Lancaster Orthopedic Group, PC.
(1)Incorporated by reference to the Company's Annual Report on Form
10-KSB dated April 14, 2000 (under the exhibit number indicated).
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SIGNATURE
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.
INTEGRATED ORTHOPAEDICS, INC.
By: /s/ Laurie Hill Gutierrez
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Laurie Hill Gutierrez
Chief Financial Officer
Senior Vice President
Dated: April 27, 2000
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INTEGRATED ORTHOPAEDICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements have been
prepared based on historical financial statements of the Company after giving
effect to the transaction and the adjustments outlined in the accompanying
notes. The Unaudited Pro Forma Condensed Combining Balance Sheet as of December
31, 1999 gives effect to the transactions as if they had occurred on December
31, 1999. The Unaudited Pro Forma Condensed Combining Statement of Operations
for the year ended December 31, 1999 gives effect to the transactions as if they
had occurred on January 1, 1999.
Effective March 31, 2000, Integrated Orthopaedics, Inc., ("IOI" or the
"Company") and IOI Management Services of Pennsylvania ("IOI of Pennsylvania"),
a wholly-owned subsidiary of IOI, entered into an agreement to terminate the
Management Services Agreement between IOI of Pennsylvania and Lancaster
Orthopedic Group, P.C. ("LOG"). In conjunction with the transaction, IOI of
Pennsylvania sold all of its assets to LOG. The transaction was completed on
April 12, 2000.
The transaction value of $4,210,000 is comprised of cash and the assumption by
LOG of certain liabilities.
As previously reported, the Company and IOI Management Services of Colorado
("IOI of Colorado"), a wholly owned subsidiary of IOI, entered into an agreement
to terminate the Management Services Agreement between IOI of Colorado and Front
Range Orthopedic Center, P.C. ("FROC"). In conjunction with the transaction, IOI
of Colorado sold all of its assets to FROC and FROC, P.C. The transaction was
completed on January 27, 2000. At December 31, 1999 the related net assets are
reflected as assets to be disposed of on the consolidated balance sheets
included in the Company's Annual Report on Form 10-KSB. The transaction value of
$2,087,000 is comprised of cash, secured promissory notes and the assumption by
FROC, P.C. of certain liabilities.
In January 1999, the Company and IOI Management Services of Connecticut ("IOI of
Connecticut"), a wholly owned subsidiary of IOI, filed a lawsuit against its
Connecticut practice, Merritt Orthopaedics Associates, P.C. ("Merritt"). The
lawsuit sought to enforce certain repurchase obligations under the related
Management Services Agreement as a result of the practice failing to satisfy
certain of its obligations thereunder. In March 2000, a settlement of $750,000
was reached between the Company and the practice. The settlement is comprised of
cash and promissory notes. At December 31, 1999 the related net assets are
reflected as assets to be disposed of on the consolidated balance sheets
included in the Company's Annual Report on Form 10-KSB.
These Unaudited Pro Forma Condensed Combining Financial Statements do not
purport to present the financial position or results of operations of the
Company had the above transactions occurred on the dates specified, nor are they
necessarily indicative of results of operations that may be expected in the
future. The Unaudited Pro Forma Condensed Combining Financial Statements are
qualified in their entirety by reference to, and should be read in conjunction
with, the Company's audited consolidated financial statements for the year ended
December 31, 1999, included in the Company's Annual Report on Form 10-KSB.
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INTEGRATED ORTHOPAEDICS, INC. UNAUDITED PRO FORMA
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
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INTEGRATED PRO FORMA PRO FORMA
ORTHOPAEDICS, ADJUSTMENTS REF. INTEGRATED
INC.(1) # ORTHOPAEDICS,
INC.
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Revenues $ 11,745 $ (7,163) 2 $ 4,582
Costs and expenses:
Practice compensation and benefits 4,296 (2,492) 2 1,804
Other direct costs 4,291 (2,244) 2 2,047
General and administrative 4,883 4,883
Depreciation and amortization 1,754 (1,179) 2,3 575
Impairment charges 4,678 (4,678) 17
Special charges 871 871
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20,773 (10,593) 10,180
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Loss From Operations (9,028) (3,430) (5,598)
Interest income 202 98 4 300
Interest expense (432) (45) 5 (477)
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Loss Before Income Tax Provision (9,258) (3,483) (5,775)
Income Tax Provision (637) 515 6 (122)
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Net loss before extraordinary items $ (9,895) (3,998) $ (5,897)
========== ========== ==========
Loss applicable to common shares $ (12,669) $ (3,998) $ (8,671)
========== ========== ==========
Loss per common share:
Basic and diluted $ (1.95) $ (0.62) $ (1.33)
========== ========== ==========
Weighted average common
shares outstanding 6,496 6,496 6,496
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See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
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INTEGRATED ORTHOPAEDICS, INC. UNAUDITED PRO FORMA
CONDENSED COMBINING BALANCE SHEET
DECEMBER 31, 1999 (IN THOUSANDS)
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INTEGRATED PRO FORMA PRO FORMA
ORTHOPAEDICS, ADJUSTMENTS REF. INTEGRATED
INC. (1) INCREASE/ # ORTHOPAEDICS,
(DECREASE) INC.
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ASSETS
Current Assets:
Cash and cash equivalents $ 1,889 $ 4,755 7 $6,644
Accounts receivable 2,101 (1,263) 9 838
Other current assets 751 (104) 8 647
Assets to be disposed of 1,529 (1,529) 16
Notes receivable 729 14 729
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Total Current Assets 6,270 2,588 8,858
Property and Equipment (including capital leases) 4,869 (979) 9 3,890
Less: Accumulated depreciation and amortization (2,532) 247 9 (2,285)
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Net property and equipment 2,337 (732) 1,605
Management services agreements, net 20,581 (15,755) 10 4,826
Deferred income taxes 1,925 1,925
Assets to be disposed of 895 (895) 16
Notes Receivable 895 14 895
Other assets 135 (14) 8 121
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TOTAL ASSETS $ 32,143 $ (13,913) $18,230
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 106 $ 27 8,15 $ 133
Accrued liabilities 1,741 (220) 8 1,521
Current maturities of notes payable and 432 (53) 11 379
capital lease obligations
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Total Current Liabilities 2,279 (246) 2,033
Notes payable 651 651
Obligations under capital leases 542 (201) 11 341
Dividends payable 735 735
Deferred income taxes 9,180 (5,436) 12 3,744
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Total Liabilities 13,387 (5,883) 7,504
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Commitments and contingencies -- -- --
Stockholders' Equity:
Preferred stock 3 -- 3
Common stock 7 -- 7
Additional paid-in capital 49,316 -- 49,316
Common stock to be issued --
Accumulated deficit (30,320) (8,030) 13 (38,350)
Treasury shares (250) -- (250)
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Total Stockholders' Equity 18,756 (8,030) 10,726
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TOTAL LIABILITIES AND STOCKHOLDERS' $ 32,143 $ (13,913) $18,230
EQUITY ========== ========= =======
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See notes to Unaudited Pro Forma Condensed Combining Financial Statements.
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INTEGRATED ORTHOPAEDICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL
STATEMENTS
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Reference
Number Description
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1. The statements of operations and balance sheet for Integrated Orthopaedics, Inc. as of and for
the year ended December 31, 1999, summarized from its December 31, 1999 Annual Report on Form
10-KSB.
2. To remove Lancaster Orthopedic, P.C.'s ("LOG") and Front Range Orthopedic, P.C.'s ("FROC")
historical results of operations.
3. To remove IOI Management Services of Pennsylvania's ("IOI of Pennsylvania") and IOI Management
Services of Colorado's ("IOI of Colorado") amortization expense for the Management Services
Agreements.
4. To record pro forma interest income for the year ended December 31, 1999, on the FROC, FROC,
P.C. and Merritt Orthopaedics Associates, P.C. ("Merritt") notes.
5. To remove the interest expense associated with the capital leases assumed by LOG and FROC.
6. To record the income tax benefit, after taking into effect the LOG transaction.
7. To record the consideration received from LOG, FROC, and FROC P.C. for the sale of the accounts
receivable, furniture, fixtures and equipment and the termination of the Management Services
Agreement and to record the settlement of the Merritt lawsuit.
8. To remove LOG's assets and liabilities.
9. To remove IOI of Pennsylvania's furniture, fixtures, equipment and accounts receivable.
10. To remove IOI of Pennsylvania's Management Services Agreement as well as the related
accumulated amortization.
11. To remove IOI of Pennsylvania's capital lease obligation, which was assumed by LOG.
12. To remove the deferred income tax liability associated with the LOG Management Services
Agreement.
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INTEGRATED ORTHOPAEDICS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL
STATEMENTS
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Reference
Number Description
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13. To record the estimated loss on the sale as follows (Dollars in thousands) :
Cash Proceeds $3,955
Capital lease obligation assumed by LOG 255
Other 115
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Total Consideration 4,325
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Legal and other closing cost 40
Write-off of Management Services Agreement, Net 10,320
Assets Sold:
Furniture, Fixtures, Equipment and Net Receivables 1,995
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12,355
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Pre-tax loss on sale 8,030
Income tax benefit
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Loss on Sale, net of tax $8,030
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14. To record the consideration associated with the FROC and Merritt transaction.
15. To record accrual for legal costs related to the transaction.
16. To reclass assets to be disposed of related to the FROC, LOG, and Merritt transactions to notes
receivable and cash.
17. To eliminate the impairment charge related to FROC and Merritt.
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