UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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):
DECEMBER 29, 1997 (DECEMBER 12, 1997)
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IMAGE GUIDED TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 001-12189 84-1139082
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(State or other jurisdiction (Commission file number) (IRS Employer
of incorporation or organization) Identification No.)
5710-B FLATIRON PARKWAY, BOULDER, CO 80301
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 447-0248
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Item 2. Acquisition or Disposition of Assets
On December 12, 1997, Image Guided Technologies, Inc. (the "Company")
finalized the acquisition of all the outstanding stock of Brimfield Precision,
Inc. ("Brimfield") for a purchase price of $9,285,000. The purchase price was
paid with a combination of $7,785,000 in cash and 579,510 shares of the
Company's common stock (valued at the average of the last price for the 10 days
prior to December 12, 1997).
Brimfield sells surgical instruments and orthopedic implants to OEM
surgical instrument companies. Brimfield's products are used for spinal
surgery, orthopedic surgery and minimally invasive surgical procedures. Prior
to its sale to the Company, Brimfield was owned by William and Matthew Lyons.
William Lyons will continue to act as President of Brimfield and has been
elected as a director of the Company.
The Company obtained the cash for the acquisition from bank financing and
its own funds. The Company has entered into a secured loan agreement with
Imperial Bank pursuant to which Imperial Bank has loaned the Company $4,000,000
pursuant to a three-year term loan (payable in thirty-six equal installments of
principal) and up to $2,000,000 (the actual amount to be determined by a
collateral audit) pursuant to a revolving loan payable on or before June 30,
1999. In connection with the loan agreement, the Company has agreed to raise
$1,000.000 in equity by March 15, 1998. The Company paid Cruttenden
1
Roth ("Cruttenden") a $300,000 finder's fee for introducing the Company to,
and advising the Company in negotiations with, Imperial Bank. The Company
has issued a one-year $500,000 subordinated note to Cruttenden to pay the
finder's fee plus an additional $200,000 owed to Cruttenden. In connection
with the loan and subordinated note, the Company issued a seven-year warrant
for 160,000 shares of the Company's common stock at $2.92 per share to
Imperial Bank and a seven-year warrant for 100,000 shares of the Company's
common stock at $2.92 per share to Cruttenden.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Page
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Report of Independent Accountants 3
Balance Sheet - October 31, 1997 4
Statement of Operations and Retained Earnings -- Year
Ended October 31, 1997 5
Statement of Cash Flows -- Year Ended October 31, 1997 6
Notes to Financial Statements 7
The following financial statements of Brimfield will be filed by
amendment to this Form 8-K no later than February 27,1998. Extension is
necessary in order to complete an audit of Brimfield for the year ended
October 31, 1996.
Financial Statements to be filed no later than February 27, 1998:
Report of Independent Accountants
Balance Sheet - October 31, 1996
Statement of Operations and Retained Earnings -- Year
Ended October 31, 1996
Statement of Cash Flows -- Year Ended October 31, 1996
Notes to Financial Statements
(b) Pro Forma Financial Information.
It is impractical to provide the required pro forma financial
information at the time of filing this report. The required pro forma
financial information will be filed by amendment to this Form 8-K not later
than February 27, 1998.
(c) Exhibits
Exhibit
Number Description
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2.1 Agreement of Purchase and Sale Among Image Guided
Technologies, Inc. and Stockholders of Brimfield
Precision, Inc. dated 11/25/97.
2.2 Amendment dated 12/12/97 to Agreement of Purchase
and Sale Among Image Guided Technologies, Inc. and
Stockholders of Brimfield Precision, Inc. dated
11/25/97.
2.3 Loan Agreement between Image Guided Technologies,
Inc. and Imperial Bank, dated December 12, 1997.
2.4 Subordinated Note from Image Guided Technologies,
Inc. payable to Cruttenden Roth, dated December 12,
1997.
2.5 Warrant from Image Guided Technologies, Inc. to
Imperial Bank, dated December 12, 1997
2.6 Warrant from Image Guided Technologies, Inc. to
Cruttenden Roth, dated December 12, 1997
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To the Board of Directors
BRIMFIELD PRECISION, INC.
Brimfield, Massachusetts
Independent Auditors' Report
We have audited the accompanying balance sheet of Brimfield Precision, Inc. (an
S-Corporation) as of October 31, 1997 and the related statements of operations
and retained earnings, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brimfield Precision, Inc. as of
October 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Aubrey, Dixon, Riley, Turgeon & Schultz LLC
December 3, 1997
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BRIMFIELD PRECISION, INC.
BALANCE SHEET
OCTOBER 31, 1997
ASSETS
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Current assets:
Cash and cash equivalents $ 284,007
Accounts receivable 1,627,969
Inventory 1,092,406
Other current assets 143,423
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Total current assets 3,147,805
Property and equipment, net of accumulated depreciation of
$3,002,166 at October 31, 1997 3,733,545
Other assets 251,651
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Total assets $7,133,001
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 545,170
Accrued liabilities 453,235
Due to officer 12,758
Current portion of long-term debt 219,106
Current portion of note payable - officer 173,400
Current portion of long-term capital lease obligation 348,967
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Total current liabilities 1,752,636
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Long-term debt 399,400
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Long-term capital lease obligation 1,104,473
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Stockholders' equity
Common stock, no par value, 100 shares
authorized and issued, 43 shares outstanding 10,500
Retained earnings 4,213,992
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4,224,492
Less 57 shares of treasury stock - at cost (348,000)
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Total stockholders' equity 3,876,492
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Total liabilities and stockholders' equity $7,133,001
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See accountants' audit report and accompanying notes to financial statements.
4
BRIMFIELD PRECISION, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED OCTOBER 31, 1997
Revenue $10,178,731
Cost of goods sold 7,026,213
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Gross profit 3,152,518
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Operating expenses:
Selling and marketing 355,929
Research and development 203,582
General and administrative 1,655,684
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Total operating expenses 2,215,195
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Income from operations 937,323
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Other income (expense):
Interest and other expense (180,567)
Interest and other income 81,384
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Total other expense (99,183)
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Net income before income taxes 838,140
Income taxes 10,609
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Net income 827,531
Retained earnings - beginning of year 3,810,629
Less dividends 424,168
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Retained earnings - end of year $ 4,213,992
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See accountants' audit report and accompanying notes to financial statements.
5
BRIMFIELD PRECISION, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1997
Cash flows from operations
Net income $ 827,531
Non-cash items included in net income
Depreciation and amortization 534,715
Gain on disposition of property and equipment (28,120)
Deferred tax asset (18,000)
Other changes in operating assets and liabilities
Accounts receivable (222,515)
Inventory (142,485)
Federal tax deposit (91,005)
Other current assets (100,308)
Other assets 3,572
Accounts payable 170,103
Accrued liabilities 218,376
Due to officer 12,758
Income taxes payable (72,381)
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Net cash provided by operations 1,092,241
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Cash flows from investing activities
Acquisition of property and equipment (540,567)
Proceeds on disposition of property and equipment 47,550
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Net cash used by investing activities (493,017)
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Cash flows from financing activities
Payments on note payable - officer (15,300)
Proceeds from long-term debt 42,839
Payments on long-term debt (235,418)
Payments on long-term capital lease obligations (251,837)
Payment of dividends (424,168)
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Net cash used by financing activities (883,884)
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Net decrease in cash and cash equivalents (284,660)
Net cash and cash equivalents- beginning of year 568,667
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Net cash and cash equivalents- end of year $ 284,007
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See accountants' audit report and accompanying notes to financial statements.
6
BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS: Brimfield Precision, Inc. manufactures
specialized medical instruments and medical equipment.
B. ACCOUNTS RECEIVABLE: The Company accounts for uncollectible accounts
receivable using the direct write-off method. Generally accepted
accounting principles require that the allowance method be used to account
for bad debts. The effects of this departure from generally accepted
accounting principles on financial position, results of operations, and
cash flows have been determined to be not material.
C. INVENTORY: Inventory is valued at the lower of cost, determined on
the first-in, first-out (FIFO) method, or market.
D. PROPERTY AND EQUIPMENT: Property and equipment are carried at cost.
Depreciation is computed on both the straight-line and accelerated methods
based on the estimated useful lives of the related assets. Depreciation
expense was $530,875 for the year ended October 31, 1997.
E. CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be
cash equivalents.
F. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles 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 revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
G. ADVERTISING: The Company expenses advertising costs as incurred.
Advertising expense was $42,737 in 1997.
H. INCOME TAXES: Effective November 1, 1986 the Company, with the consent
of its stockholders, elected to be treated as an S Corporation. In this
status, the corporation is generally not a taxable entity and elements of
income and expense flow through and are taxed to the stockholders on an
individual basis.
Effective for years ending on and after December 31, 1988, the Commonwealth
of Massachusetts imposes an income tax on S Corporations whose gross
receipts exceed $6,000,000.
Massachusetts Investment Tax Credits are accounted for using the flow-
through method which reduces income tax expense for the current year in
which the credits are utilized.
I. FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash and
short and long-term debt is a reasonable estimate of the fair value based
on instruments with similar terms and maturities.
J. AMORTIZATION: The costs of intangible assets are amortized on a
straight-line basis over a period of 5 to 17 years.
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
2. TRANSACTIONS WITH RELATED PARTIES
Note payable - officer of $173,400 at October 31, 1997, is due in monthly
principal installments of $1,275, plus interest at 8 3/4%. An additional
final principal payment of $159,375 is due October 1998, unless paid
sooner.
The Company leases a facility and land in Brimfield, Massachusetts which is
owned by a former stockholder of the Company. In addition, the Company has
constructed a building on the leased property. Rental expense for the
building and land in 1997 amounted to $108,000.
The Company subleases a facility in Springfield, Massachusetts from a
corporation in which the two stockholders are the same stockholders of
Brimfield Precision, Inc. The lease agreement requires payments of $4,927
per month until December 2001.
3. NOTE PAYABLE - BANK
At October 31, 1997 the Company had no borrowings under a line of credit
agreement with a bank. The agreement provides for interest at the bank's
prime lending rate, and is secured by all assets of the Company. The
maximum available credit on this note was $750,000 at October 31, 1997.
4. LONG-TERM DEBT
Long-term debt at October 31, 1997 consisted of the following:
Note payable to a bank, at prime, payable in monthly installments
of $12,500 plus interest, secured by all assets of the Company,
maturing in June 2000. $400,000
Note payable to a finance company, at 8 1/2 %, payable in monthly
installments of $1,060 including interest, secured by a motor
vehicle, maturing in October 2001. 42,839
Note payable to a bank, at prime plus 1/4%, payable in monthly
installments of $2,167 plus interest, secured by machinery,
maturing in October 2000. 73,667
Note payable to a bank, at prime plus 1/4%, payable in monthly
installments of $2,833 plus interest, secured by machinery,
maturing in August 2000. 102,000
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618,506
Less current portion 219,106
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Total long-term debt $399,400
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
4. LONG-TERM DEBT (CONTINUED)
Aggregate maturities on long-term debt are as follows:
Years Ending
October 31, Amount
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1998 $219,106
1999 220,240
2000 166,813
2001 12,347
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$618,506
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5. LEASE COMMITMENTS
The gross amount of the capitalized leased assets and the accumulated
depreciation are included in property and equipment as reported on the
balance sheet. The amortization of this lease is included in depreciation
expense.
Equipment Under
Capitalized Lease
at October 31, 1997
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Equipment $1,847,821
Less accumulated amortization 254,482
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$1,593,339
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Future minimum payments on lease in effect at October 31, 1997 are as
follows:
Years Ending
October 31, Amount
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1998 $ 460,348
1999 449,848
2000 408,633
2001 295,967
2002 130,870
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Total minimum lease payments 1,745,666
Less amount representing interest 292,226
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Net present value 1,453,440
Less current portion 348,967
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Long-term capital lease obligation $1,104,473
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6. CONCENTRATION OF CREDIT RISK
Substantially all of the Company's accounts receivable are due from
companies in the high technology medical industry located throughout the
United States. Two of the Company's customers accounted for approximately
$4,948,237 of total sales in 1997. Two customers accounted for
approximately $737,593 of accounts receivable at October 31, 1997.
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
6. CONCENTRATION OF CREDIT RISK (CONTINUED)
The Company performs regular credit reviews of its significant customers'
financial condition. Receivables generally are collected within 60 days.
The Company maintains its operating accounts in certain financial
institutions, which balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At times, the Company may maintain operating
account balances which exceed $100,000.
7. INVENTORY
Inventory consisted of the following at October 31, 1997:
Raw materials $ 144,871
Work in process 384,724
Finished goods 562,811
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$1,092,406
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8. INCOME TAXES
The components of income tax expense related to continuing operations at
October 31, 1997 were:
Tax computed at statutory rates $ 55,609
Investment tax credit taken currently (27,000)
Deferred taxes - State (18,000)
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Total provision for income taxes $ 10,609
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As of October 31, 1997, a Massachusetts Investment Tax Credit carryforward
of approximately $18,000, which begins to expire in 2003, is available to
offset future Massachusetts tax.
Deferred income taxes provide for the effects of timing differences in
reporting for financial statement and income tax purposes. Such timing
differences primarily relate to Massachusetts Investment Tax Credits.
At October 31, 1997 the long-term deferred tax asset consisted of the
following temporary difference component:
Massachusetts Investment Tax Credit $18,000
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BRIMFIELD PRECISION, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
9. DISCLOSURES FOR CASH FLOW STATEMENT
CASH PAID DURING THE YEAR FOR: 1997
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Interest $ 174,391
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Income taxes $ 119,441
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NONCASH INVESTING AND FINANCING ACTIVITIES:
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Capital lease obligations for new equipment $1,029,325
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10. RETIREMENT PLAN
Effective June 1, 1991 the Company implemented the Brimfield Precision,
Inc. 401(k) Savings and Retirement Plan covering substantially all
employees. Employees may contribute from 2% up to 15% of total salary not
to exceed Internal Revenue Service limits. The Company does not make
matching contributions.
11. SUBSEQUENT EVENT
In November 1997 the stockholders entered into a purchase and sale
agreement to sell 100% of the outstanding stock of the Company. At the
date of this report the terms of the transaction have not been formalized.
11
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.
IMAGE GUIDED TECHNOLOGIES, INC.
(Registrant)
By: /s/ Paul L. Ray
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December 29, 1997 Paul L. Ray
Chairman of the Board and Chief
Executive Officer
By: /s/ Jeffrey J. Hiller
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December 29, 1997 Jeffrey J. Hiller
Vice President and Chief Financial Officer
(Principal Accounting Officer)
12