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 March 31, 2000
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.)
1275 W. Washington Street, Tempe, Arizona 85281
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(602) 286-5520
----------------------------------------------------
(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. Yes [X] 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.
29,812,874 shares of common stock outstanding as of March 31, 2000
<PAGE>
ORTHOLOGIC CORP.
INDEX
Page No.
--------
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31,1999 ........................... 3
Condensed Consolidated Statements of Operations and of
Comprehensive Income Three months ended March 31, 2000
and 1999....................................................... 4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 1999 .................... 5
Notes to Condensed Consolidated Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 10
Part II Other Information
Item 1. Legal Proceedings .......................................... 12
Item 4. Submission of Matters to Vote of Security Holders........... 12
Item 6. Exhibits and Reports on Form 8-K ........................... 12
Page 2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
OrthoLogic, Corp.
Condensed Consolidated Balance Sheet
(in thousands)
Unaudited
March 31, December 31,
2000 1999
--------- ---------
ASSETS
Cash and cash equivalents $ 7,053 $ 6,023
Short term investments -- 250
Accounts receivable 30,827 30,429
Inventory 8,944 9,306
Prepaids and other current assets 1,136 987
Deferred income tax 2,628 2,631
--------- ---------
Total current assets 50,588 49,626
Furniture, rental fleet and equipment 27,768 26,361
Accumulated depreciation (14,945) (13,300)
--------- ---------
Furniture and equipment, net 12,823 13,061
Intangibles, net 28,251 28,749
Deposits and other assets 639 767
--------- ---------
Total assets $ 92,301 $ 92,203
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 2,443 $ 2,569
Accrued liabilities 5,595 6,192
--------- ---------
Total current liabilities 8,038 8,761
Deferred rent and capital lease obligations 190 209
--------- ---------
Total liabilities 8,228 8,970
--------- ---------
Series B Convertible Preferred Stock 4,720 10,180
--------- ---------
Stockholders' Equity
Common stock 15 14
Additional paid-in capital 130,823 125,206
Accumulated deficit (51,297) (51,992)
Comprehensive loss (188) (175)
--------- ---------
Total stockholders' equity 79,353 73,053
--------- ---------
Total liabilities and stockholders' equity $ 92,301 $ 92,203
========= =========
See notes to condensed consolidated financial statements
Page 3
<PAGE>
OrthoLogic, Corp.
Condensed Consolidated Statement of Operations and of Comprehensive Income
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
Three months ended March 31,
-----------------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues $ 22,490 $ 21,068
Cost of revenues 4,808 4,718
-------- --------
Gross profit 17,682 16,350
Operating expenses
Selling, general and administrative 16,316 15,738
Research and development 666 520
-------- --------
Total operating expenses 16,982 16,258
Operating income 700 92
-------- --------
Other income
Grant/other revenue 0 1
Interest income 85 56
-------- --------
Total other income 85 57
-------- --------
Income before income taxes 785 149
-------- --------
Provision for income taxes 91 16
-------- --------
Net income $ 694 $ 133
======== ========
Accretion of non-cash preferred stock dividend -- (618)
-------- --------
Net income (loss) applicable to common shareholder $ 694 $ (485)
======== ========
BASIC EARNINGS PER SHARE
Net income (loss) per common share $ 0.02 $ (0.02)
-------- --------
Weighted average number of common
shares outstanding 29,060 25,379
-------- --------
DILUTED EARNINGS PER SHARE
Net income (loss) per common and equivalent shares $ 0.02 $ (0.02)
-------- --------
Weighted shares outstanding 30,628 25,379
-------- --------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net income (loss) applicable to common shareholders $ 694 $ (485)
Foreign translation adjustment (13) (165)
-------- --------
Comprehensive income (loss) applicable to common
shareholders $ 681 $ (650)
======== ========
</TABLE>
See notes to condensed consolidated financial statements
Page 4
<PAGE>
ORTHOLOGIC, CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 694 $ 133
Noncash items:
Depreciation and amortization 1,441 1,441
Net change on other operating items:
Accounts receivable (557) (1,470)
Inventory 362 855
Prepaids and other current assets (147) (744)
Deposits and other assets 128 (372)
Accounts payable (126) (105)
Accrued liabilities (596) 206
------- -------
Cash flows provided by (used in) operating
activities 1,199 (56)
------- -------
INVESTING ACTIVITIES
Purchase of fixed assets, net (702) (1,614)
Officer note receivable, net 158
Cash paid for acquisition, net -- (176)
Sales (Purchases) of short-term investments 250 4,804
------- -------
Cash flows provided by (used in) investing
activities (294) 3,014
------- -------
FINANCING ACTIVITIES
Payments on capital leases (19) 73
Payment on loan payable -- (250)
Payments under co-promotion agreement -- (1,000)
Foreign exchange (13) (165)
Net proceeds from stock option exercises 157 368
------- -------
Cash flows provided by (used in) financing
activities 125 (974)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,030 1,984
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,023 1,714
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,053 $ 3,698
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Accretion of non-cash preferred stock dividend $ -- $ 618
Cash paid during the period for interest 44 35
Cash paid during the period for income taxes 1 80
</TABLE>
See notes to condensed consolidated financial statements
Page 5
<PAGE>
ORTHOLOGIC CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FINANCIAL STATEMENT PRESENTATION
The condensed consolidated balance sheet as of March 31, 2000, and the
condensed consolidated statements of operations and comprehensive income
for the three months ended March 31, 2000 and 1999 and the condensed
consolidated statements of cash flows for the three months ended March 31,
2000 and 1999 are unaudited, however, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary
for the fair presentation of the 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. The Balance Sheet as of December 31, 1999 is derived from the
Company's audited financial statements included in the 1999 Annual Report.
It is suggested that these financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's 1999
Annual Report.
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 revenue and
expenses during the reporting period. Actual results could differ from
those estimates. Significant estimates include the allowance for doubtful
accounts, which is based primarily on trends in historical collection
statistics, consideration of current events, payer mix and other
considerations. The Company derives a significant amount of its revenues in
the United States from third-party health insurance plans, including
Medicare. Amounts paid under these plans are generally based on fixed or
allowable reimbursement rates. In the opinion of management, adequate
allowances have been provided for doubtful accounts and contractual
adjustments. However, these estimates are subject to adjustments in the
near term, which could be material. Any differences between estimated
reimbursement and final determinations are reflected in the year finalized.
2. CO-PROMOTION AGREEMENT
The Company entered into an exclusive co-promotion agreement (the
"Agreement") with Sanofi Pharmaceuticals Inc. ("Sanofi") at a cost of $4.0
million on June 23, 1997 for the purpose of marketing Hyalgan, a hyaluronic
acid sodium salt, to orthopedic surgeons in the United States for the
treatment of pain in patients with osteoarthritis of the knee. During 1997
and 1998 the Company paid $3.0 million of this amount. The remaining $1.0
million was paid in the first quarter of 1999. The initial term of the
agreement ends on December 31, 2002. Upon the expiration of the initial
term, Sanofi may terminate the agreement, extend the agreement for up to
ten additional one year periods or enter into a revised agreement with the
Company. Upon termination of the agreement, Sanofi must pay the Company the
amount equal to 50% of the gross compensation paid to the Company for the
immediately preceding year, provided the Company met all contractual
obligations pursuant to the agreement. The Company's sales force began to
promote Hyalgan in the third quarter of 1997.
Page 6
<PAGE>
3. LICENSING AGREEMENT
The Company announced in January 1998 that it had acquired a minority
interest in a biotech firm, Chrysalis Bio Technology, Inc. ("Chrysalis")
for $750,000. As part of the transaction, the Company was awarded a
nine-month world-wide exclusive option to license the orthopedic
applications of Chrysalin, a patented 23-amino acid peptide that has shown
promise in accelerating the healing process and has completed an extensive
pre-clinical safety and efficacy profile of the product. In pre-clinical
animal studies, Chrysalin was also shown to double the rate of fracture
healing with a single injection into the fresh fracture gap. The Company's
agreement with Chrysalis contains provisions for the Company to continue
and expand its options to license Chrysalin contingent upon regulatory
approvals, successful preclinical trials, and certain trials and certain
milestone payments to Chrysalis by the Company. As part of the equity
investment, OrthoLogic acquired options to license Chrysalin for orthopedic
applications. An additional fee of $750,000 for the initial license was
expensed in the third quarter of 1998 and the Agreement was extended to
January 1999. In January 1999, the Company exercised its option to license
the U.S. development, marketing and distribution rights of Chrysalin, for
fracture indications. As part of the license agreement, and in conjunction
to the U.S. Food and Drug Administration (the "FDA") clearance to begin
human clinical trials, OrthoLogic made a $500,000 milestone payment to
Chrysalis Bio Technology which was expensed in the fourth quarter of 1999.
In June 1999, the Company elected not to pursue additional marketing and
distribution rights for Chrysalin for indications other than fracture
healing. However, discussions are continuing between the Company and
Chrysalis regarding other orthopedic indications. In January 2000, the
Company began enrolling patients in the combined Phase I/II clinical trial
for Chrysalin.
4. LITIGATION
During 1996, certain class action 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-6 promulgated thereunder.
Plaintiffs in these actions alleged that correspondence received by the
Company from the FDA pertaining principally to the promotion of the
Company's OrthoLogic 1000 Bone Growth Stimulator was material and
undisclosed, leading to an artificially inflated stock price. Plaintiffs
further allege practices referenced in the correspondence operated as a
fraud against plaintiffs. 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. On March 31, 1999, the judge in
the consolidated case before the United States District Court granted the
Company's Motion to Dismiss and entered an order dismissing all claims in
the suit against the Company and two individual officers/directors. The
judge allowed certain narrow claims based on insider trading theories to
proceed against certain individual defendants. On December 21, 1999, the
District Court granted plaintiffs' motion for class certification to
include purchasers of common stock between June 4 through June 18, 1996,
inclusive. Discovery is proceeding in the case.
In addition, the Company has been served with a substantially similar
action filed in Arizona State Court alleging state law causes of action
grounded in the same set of facts. The Company filed a Motion to Dismiss
the Complaint in Arizona State Court in May 1999. The Court denied the
motion in July 1999 and granted the plaintiffs' motion for the class
certification on November 24, 1999. The Company has appealed the state
court's class certification and the appeal is now pending in the Arizona
Supreme Court.
Page 7
<PAGE>
In addition, a shareholder derivative complaint alleging, among other
things, breach of fiduciary duty in connection with the conduct alleged in
the federal and state court class actions have also been filed in Arizona
state court. The Company filed a Motion to Dismiss the Complaint, which was
granted December 13, 1999.
Management believes that the allegations in the remaining federal and state
cases are without merit and will vigorously defend against them.
At March 31, 2000, in addition to the matters disclosed above, the Company
is involved in various other legal proceedings that arose in the ordinary
course of business.
The costs associated with defending the above allegations and the potential
outcome cannot be determined at this time and accordingly, no estimate for
such costs have been included in the accompanying Financial Statements. In
management's opinion, the ultimate resolution of the above legal
proceedings will not have a material effect on the financial position of
the Company.
5. LINE OF CREDIT
The Company has secured a $10.0 million accounts receivable revolving line
of credit with a bank. The Company may borrow up to 75% of the eligible
accounts receivable. The interest rate is at prime for the revolving note.
Interest accruing on the note and a monthly administration fee is due in
arrears on the first day of each month. The revolving note matures February
28, 2003. There are certain financial covenants and reporting requirements
associated with the loan. Included in the financial covenants are (1)
tangible net worth of not less than $43 million, (2) a quick ratio of not
less than 2.0 to 1.0, (3) a debt to tangible net worth ratio of not less
than 0.50 to 1.0, and (4) capital expenditures will not exceed more than
$7.0 million during any fiscal year.
6. SERIES B CONVERTIBLE PREFERRED STOCK
In July 1998, the Company completed a private placement with two investors,
an affiliate of Credit Suisse First Boston Corp. and Capital Ventures
International. Under the terms of the Purchase Agreement, OrthoLogic sold
15,000 shares of Series B Convertible Preferred Stock for $15 million
(prior to costs). The Series B Convertible Preferred Stock will
automatically convert, to the extent not previously converted, into Common
Stock four years following the date of issuance. Each share of Series B
Convertible Preferred Stock is convertible into Common Stock at a per share
price equal to the lesser of the average of the 10 lowest closing bids
during the 30 days prior to conversion or, $ 3.0353. In the event of
certain Mandatory Redemption Events, each holder of Series B Preferred
Shares will have the right to require the Company to redeem those shares
for cash at the Mandatory Redemption Price. Mandatory Redemption Events
include, but are not limited to: the failure of the Company to timely
deliver Common Shares as required under the terms of the Series B Preferred
Shares or Warrants; the Company's failure to satisfy registration
requirements applicable to such securities; the failure by the company to
maintain the listing of its Common Stock on NASDAQ or another national
securities exchange; and certain transactions involving the sale of assets
or business combinations involving the Company. In the event of any
liquidation, dissolution or winding up of the Company, holders of the
Series B Preferred Shares are entitled to receive, prior and in preference
to any distribution of any assets of the Company to the holders of Common
Stock, the Stated Value for each Series B Preferred Share outstanding at
that time. The Purchase Agreement contains strict covenants that protect
Page 8
<PAGE>
against hedging and short-selling of OrthoLogic Common Stock while the
purchasers hold shares of the Series B Convertible Preferred Stock.
In connection with the private placement of the Series B Convertible
Preferred Stock, OrthoLogic issued to the purchasers warrants to purchase
40 shares of Common Stock for each share of Series B Convertible Preferred
Stock, exercisable at $5.50 per share. These warrants expire in 2008. The
warrants were valued at $1,093,980. Additional costs of the private
placement were approximately $966,000. Both the value of the warrants and
the cost of the private placement were recognized over the 10 month
conversion period ending April 1999 as an "accretion of non-cash Preferred
Stock Dividends" for the amount of $617,994 per quarter. The Company filed
a registration statement covering the underlying Common Stock.
Proceeds from the private placement are being used to fund new product
opportunities, including SpinaLogic, Chrysalin and Hyalgan as well as to
complete the re-engineering of the Company's key business processes.
As of March 31, 2000, 10,280 shares of Series B Convertible Preferred Stock
had been converted into 4,147,639 shares of Common Stock.
7. RELATED PARTIES
In the second quarter of 1999, the Company extended the maturity date on a
loan of $157,800 to an officer of the Company to February 15, 2000. On
January 27, 2000, the loan was extended to a maturity date of February 29,
2000. An additional loan of $81,200 was entered into with the same officer
on January 27, 2000 with a maturity date of February 29, 2000. The
principal and interest of both loans were paid in full on the maturity
date.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS.
The following is management's discussion of significant factors that affected
the Company's interim financial condition and results of operations. This should
be read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
RESULTS OF OPERATIONS
REVENUES
The Company reported revenues of $22.5 million for the first quarter of 2000
representing a 6.7% increase over revenues of $21.1 million for the same quarter
of 1999. The increase in sales is attributable to the first full quarter of
SpinaLogic sales as well as strong sales for both the OL-1000 product line and
Hyalgan.
GROSS PROFIT
Gross profits increased from $16.4 million for the three months ended March 31,
1999 to $17.7 million for the three months ended March 31, 2000, an 8.1%
increase. Gross profits as a percentage of revenues was 78.6% for the quarter
compared to 77.6% for the same period last year. The emphasis in Continuous
Passive Motion business has been to improve overall profitability by offsetting
lower-margin business during the quarter by expanding more profitable market
segments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended March
31, 2000 were $16.3 million, an increase from $15.7 million for the three months
ended March 31, 1999. The largest component of this increase was for additional
bad debt reserves which is the result of increased sales.
RESEARCH AND DEVELOPMENT
Research and development expenses increased with expenses of $666,000 in the
three-month period ended March 31, 2000 compared to $520,000 for the same period
last year. The increase is attributable to the costs associated with the
addition of a size two single coil OL-1000, the development of a new CPM elbow
machine, and the combined Phase I/II human clinical trials for Chrysalin.
OTHER INCOME AND EXPENSES
Other income, consisting primarily of interest income, increased from $57,000 to
$85,000 for the three-month periods ended March 31, 1999 and 2000 respectively.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2000 the Company had cash and investments of $7.1 million compared
to $6.3 million as of December 31, 1999. The Company has an available $10.0
million accounts receivable revolving line of credit with a bank.
Page 10
<PAGE>
The Company anticipates that its cash and short-term investments on hand, cash
from operations and the funds available from the line of credit and revolving
term loan will be sufficient to meet the Company's presently projected cash and
working capital requirements for the next 12 months. There can be no assurances,
however, that this will prove to be the case. The timing and amounts of cash
used will depend on many factors, including the Company's ability to continue to
increase revenues, reduce and control its expenditures, become profitable and
collect amounts due from third party payers. Additional funds may be required if
the Company is not successful in any of these areas. The Company's ability to
continue funding its planned operations beyond the next 12 months is dependent
on its ability to generate sufficient cash flow to meet its obligations on a
timely basis, or to obtain additional funds through equity or debt financing, or
from other sources of financing, as may be required.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including projections of
results of operations and financial condition, statements of future economic
performance, and general or specific statements of future expectations and
beliefs. The matters covered by such forward-looking statements are subject to
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to differ materially
from those contemplated or implied by such forward-looking statements. Important
factors which may cause actual results to differ include, but are not limited
to, the following matters, which are discussed in more detail in the Company's
Form 10-K, as amended, for the 1999 fiscal year.
The Company intends to pursue sales in international markets. The Company,
however, has had little experience in such markets. Expanded efforts at pursuing
new markets necessarily involves expenditures to develop such markets and there
can be no assurance that the results of those efforts will be profitable. There
can be no assurance that the Company's estimates of the market will not cause
the nature and extent of that market to deviate materially from the Company's
expectations. To the extent that the Company presently enjoys perceived
technological advantages over competitiors, technological innovation by present
or future competitors may erode the Company's position in the market. To sustain
long-term growth, the Company must develop and introduce new products and expand
applications of existing products; however, there can be no assurance that the
Company will be able to do so or that the market will accept any such new
products or applications. The Company operates in a highly regulated environment
and cannot predict the actions of regulatory authorities. The action or
non-action of regulatory authorities may impede the development and introduction
of new products and new applications for existing products, and may have
temporary or permanent effects on the Company's marketing of its existing or
planned products. There can be no assurance that the influence of managed care
will continue to grow either in the United States or abroad, or that such growth
will result in greater acceptance or sales of the Company's products. In
particular, there can be no assurance that existing or future decision makers
and third party payors within the medical community will be receptive to the use
of the Company's products or replace or supplement existing or future
treatments. Moreover, the transition to managed care and the increasing
consolidation underway in the managed care industry may concentrate economic
power among buyers of the Company's products, which concentration could
foreseeable adversely affect the Company's margins. Although the company
believes that existing litigation initiated against the Company is without merit
and the Company intends to defend such litigation vigorously, an adverse outcome
of such litigation could have a material adverse effect on the Company's
business, financial condition and results of operation.
Page 11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Note 4 - Litigation" of the Notes to Consolidated Financial Statements
above.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index following the signature page which is incorporated
herein by reference.
(b) Reports on Form 8-K
None
Page 12
<PAGE>
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.
ORTHOLOGIC CORP.
(Registrant)
Signature Title Date
- --------- ----- ----
/s/ Thomas R. Trotter President and Chief Executive Officer May 10, 2000
- --------------------- (Principal Executive Officer)
Thomas R. Trotter
/s/ Terry D. Meier Sr. Vice-President and Chief Financial May 10, 2000
- --------------------- Officer (Principal Financial and
Terry D. Meier Accounting Officer)
Page 13
<PAGE>
OrthoLogic Corp.
Exhibit Index to Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2000
Incorporated by Filed
Exhibit No Description Reference to: Herewith
- ---------- ----------- ------------- --------
3 Amended and Restated X
Certificate of Incorporation
27 Financial Data Schedule X
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ORTHOLOGIC CORP.
Pursuant to Section 242
of the General Corporation Law of Delaware
The undersigned, Thomas R. Trotter and Terry D. Meier, being the President
and Secretary, respectively, of OrthoLogic Corp., a Delaware corporation (the
"Corporation"), do hereby certify as follows:
A. The present name of the Corporation is OrthoLogic Corp. The name
under which the Corporation was originally incorporated was IatroMed Inc.
B. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on July 30, 1987.
C. This Amended and Restated Certificate of Incorporation was duly
adopted by the stockholders of the Corporation in accordance with Sections 242
and 245 of the General Corporation Law of Delaware by written consent of the
stockholders pursuant to Section 228 accordance with the General Corporation Law
of Delaware dated November 16th, 1992.
D. The text of the Certificate of Incorporation of the Corporation as
heretofore amended is hereby amended by this certificate to read in full as
follows:
1. Name. The name of the corporation is OrthoLogic Corp.
2. Registered Agent. The name and address of the initial
registered office and registered agent of the Corporation is The Corporation
Trust company, Corporation Trust center, 1209 Orange Street, New Castle County,
Wilmington, Delaware 19801.
3. Purpose. The purpose for which this Corporation is organized
is the transaction of any or all lawful activity for which corporations may be
organized under the General Corporation Law of Delaware, as it may be amended
from time to time.
4. Election of Directors. Elections of directors at an annual or
special meeting of stockholders shall be by written ballot unless the Bylaws of
the Corporation shall otherwise provide. Advance notice of stockholder
nominations for the election of directors shall be given in the manner provided
in the Bylaws of the Corporation.
5. Authorized Capital. The total number of shares of stock which
the Corporation shall have authority to issue is 52,000,000 shares, consisting
of 50,000,000 shares of common stock having a par value of $.0005 per share (the
<PAGE>
"Common Stock") and 2,000,000 shares of preferred stock having a par value of
$.0005 per share (the "Preferred Stock").
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of Article 5, to provide for the issuance of the shares
of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(h) Any other relative rights, preferences and limitations of that
series.
6. Classification and Terms of Directors. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
consisting of not less than three directors nor more than nine directors, the
exact number of directors to be determined from time to time by resolution
2
<PAGE>
adopted by the Board of Directors. The directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. The terms of the initial Class I
directors shall terminate on the date of the first annual meeting of
stockholders held after the effective date of this Article 6; the term of the
initial Class II directors shall terminate on the date of the second annual
meeting of stockholders held after the effective date of this Article 6; and the
term of the initial Class III directors shall terminate on the date of the third
annual meeting of stockholders held after the effective date of this Article 6.
At each annual meeting of stockholders beginning with the first annual meeting
held after the effective date of this Article 6, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, and any additional directors of any
class elected to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining terms of that
class, but in no case will a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any vacancy on the Board of
Directors, howsoever resulting (including without limitation newly created
directorships), may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director. Any director
elected to fill a vacancy shall hold office for a term that shall coincide with
the term of the class to which such director shall have been elected.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article Five applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Article Six unless expressly provided by such terms.
7. Removal of Directors. Subject to the rights, if any, of the holders of
shares of Preferred Stock then outstanding, any or all of the directors of the
Corporation may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of a majority of the outstanding shares
of the Corporation then entitled to vote generally in the election of directors,
considered for purposes of this Article 7 as one class.
8. Director Liability. No director shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for breach
of the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware
3
<PAGE>
General Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
9. Action by Consent of Stockholders. Any action required or permitted to
be taken by the stockholders must be effected at a duly called and noticed
annual or special meeting of such, stockholders and may not be effected by any
consent in writing by such stockholders.
10. Compromise of Debts. Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them and/or between
this Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or on
the application of any receiver or receivers appointed for this Corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court direct. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
11. Special Voting Requirements.
(a) Except as set forth in Section (b) of this Article 11, the
affirmative vote of the holders of two-thirds of the outstanding stock of the
Corporation entitled to vote shall be required for:
(1) any merger or consolidation to which the Corporation, or any
of its subsidiaries, and an Interested Person (as hereinafter defined) are
parties;
(2) any sale or other disposition by the Corporation, or any of
its subsidiaries, of all or substantially all of its assets to an Interested
Person;
(3) any purchase or other acquisition by the Corporation, or any
of its subsidiaries, of all or substantially all of the assets or stock of an
Interested Person; and
(4) any other transaction with an Interested Person which
requires the approval of the stockholders of the Corporation under the GCL, as
in effect from time to time.
4
<PAGE>
(b) The provisions of Section (a) of this Article 11 shall not be
applicable to any transaction described therein if such transaction is approved
by resolution of the Corporation's Board of Directors, provided that a majority
of the members of the Board of Directors voting for the approval of such
transaction are Continuing Directors. The term "Continuing Director" shall mean
any member of the Board of Directors of the Corporation who is not the
Interested Person, and not an affiliate, associate, representative or nominee of
the Interested Person or of such an affiliate or associate that is involved in
the relevant transaction, and (A) was a member of the Board of Directors prior
to the date that the person, firm or corporation, or any group thereof, with
whom such transaction is proposed, became an Interested Person or (B) whose
initial election as a director of the Corporation succeeds a Continuing Director
or is a newly created directorship, and in either case was recommended by a
majority vote of the Continuing Directors then in office.
(c) As used in this Article 11, the term "Interested Person" shall
mean any person, firm or corporation, or any group thereof, acting or intending
to act in concert, including any person directly or indirectly controlling or
controlled by or under direct or indirect common control with such person, firm
or corporation or group, which owns of record or beneficially, directly or
indirectly, five percent (5%) or more of any class of voting securities of the
Corporation.
12. Special Meetings. Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time only by the
President, or the Board of Directors pursuant to a resolution approved by a
majority of the whole Board of Directors, or at the request in writing of
shareholders owning at least 35% of the capital stock issued and outstanding and
entitled to vote. Special meetings of the stockholders may not be called by any
other person or persons. Business transacted at any special meeting of the
stockholders shall be limited to the purposes stated in the notice of such
meeting.
13. Bylaws. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized by majority vote of the
whole Board of Directors to adopt, repeal, alter, amend or rescind the Bylaws of
the Corporation. In addition, the Bylaws of the Corporation may be adopted,
repealed, altered, amended, or rescinded by the affirmative vote of two-thirds
of the outstanding stock of the Corporation entitled to vote thereon; provided,
if the Continuing Directors, as defined in Article 11 shall by a majority vote
of such Continuing Directors have adopted a resolution approving the amendment
or repeal proposal and have determined to recommend it for approval by the
holders of stock entitled to vote thereon, then the vote required shall be the
affirmative vote of the holders of at least a majority of the outstanding shares
entitled to vote thereon.
14. Certificate. The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute and the Certificate of
5
<PAGE>
Incorporation, and all rights conferred on stockholders herein are granted
subject to the reservations in Article 14. Provided, however, the affirmative
vote of the holders of at least two-thirds of the voting power of the
outstanding stock of the Corporation entitled to vote thereon, shall be required
to alter, amend, or adopt any provision inconsistent with or repeal Articles 4,
6, 7, 9, 11, 12 and 13 and this Article 14; provided, if the Continuing
Directors, as defined in Article 11 shall by a majority vote of such Continuing
Directors have adopted a resolution approving the amendment or repeal proposal
and have determined to recommend it for approval by the holders of stock
entitled to vote thereon, then the vote required shall be the affirmative vote
of the holders of at least a majority of the outstanding shares entitled to vote
thereon.
EXECUTED this 9 day of May, 2000.
/s/ Thomas R. Trotter
----------------------------------------
Thomas R. Trotter, President
Attest:
/s/ Terry D. Meier
- -----------------------------------
Terry D. Meier, Secretary
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN ORTHOLOGIC CORPORATION'S REPORT ON FORM 10-Q FOR THE
QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 7,053,475
<SECURITIES> 0
<RECEIVABLES> 44,539,527
<ALLOWANCES> 13,712,087
<INVENTORY> 8,944,101
<CURRENT-ASSETS> 50,589,164
<PP&E> 27,767,907
<DEPRECIATION> 14,944,716
<TOTAL-ASSETS> 92,302,248
<CURRENT-LIABILITIES> 8,228,944
<BONDS> 0
0
4,720,000
<COMMON> 14,905
<OTHER-SE> 79,338,399
<TOTAL-LIABILITY-AND-EQUITY> 92,302,248
<SALES> 6,874,829
<TOTAL-REVENUES> 22,575,630
<CGS> 4,808,213
<TOTAL-COSTS> 16,937,045
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,498
<INCOME-PRETAX> 785,874
<INCOME-TAX> 90,521
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 695,353
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
