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
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(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
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(Address of Principal Executive Offices) (Zip Code)
(602) 437-5520
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(Registrant's Telephone Number, Including Area Code)
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
SUTTER CORPORATION
(A Wholly-Owned Subsidiary of Smith Laboratories, Inc.,
A Wholly-Owned Subsidiary of Columbia/HCA Healthcare Corporation)
BALANCE SHEETS (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
June 30, ----------------
ASSETS 1996 1995 1994
Unaudited)
(Note 11)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
See notes to financial statements.
-2-
<PAGE>
SUTTER CORPORATION
(A Wholly-Owned Subsidiary of Smith Laboratories, Inc.,
A Wholly-Owned Subsidiary of Columbia/HCA Healthcare Corporation)
STATEMENTS OF INCOME (In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Month Periods Ended
June 30, Years Ended December 31,
------------------- --------------------------------
1996 1995 1995 1994 1993
(Unaudited)
(Note 11)
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
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)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
--------------- Paid-In Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
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
===== ======= ======= ======= =======
</TABLE>
See notes to financial statements.
-4-
<PAGE>
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)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Month Periods Ended
June 30, Years Ended December 31,
-------------------- -----------------------------
1996 1995 1995 1994 1993
(Unaudited)
(Note 11)
<S> <C> <C> <C> <C> <C>
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
======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
-5-
<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
1995 1994
(In thousands)
<S> <C> <C>
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
=========== ==========
</TABLE>
-7-
<PAGE>
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-
<PAGE>
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.
<TABLE>
<CAPTION>
1995 1994 1993
(In thousands)
<S> <C> <C> <C>
Net sales $ 992 $ 1,718 $ 1,942
======= ======= =========
Gross profit $ 270 $ 817 $ 1,180
======= ======= =========
Income (loss) from discontinued operations $ (332) $ (8) $ 16
======= ======= =========
</TABLE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Leases
-------------------------
Capital Operating Total
<S> <C> <C> <C> <C>
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
========
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(b) Pro forma Financial Information.
<PAGE>
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-
<PAGE>
ORTHOLOGIC CORP.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1996
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
OrthoLogic Sutter Pro Forma Consolidated
ASSETS Corp. Corporation Adjustments Totals
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
See pro forma adjustment legend.
-2-
<PAGE>
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-
<PAGE>
ORTHOLOGIC CORP.
UNAUDITED PRO FORMA STATEMENT OF INCOME
SIX MONTH PERIOD ENDED JUNE 30, 1996
(In Thousands, except per share and share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
OrthoLogic Sutter Pro Forma Consolidated
Corp. Corporation Adjustments Totals
<S> <C> <C> <C>
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
============ ============
</TABLE>
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-
<PAGE>
ORTHOLOGIC CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(In Thousands, except per share and share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma
OrthoLogic Sutter Pro Forma Consolidated
Corp. Corporation Adjustments Totals
<S> <C> <C> <C>
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
============ ============
</TABLE>
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-
<PAGE>
(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
<PAGE>
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
