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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended _______________
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from January 1, 1995 to September 30, 1995
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Commission File Number 0-11914
ADVANCED NMR SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 22-2457487
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 657-8876
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF
THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value per share
Warrants for purchase of Common Stock
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 requirement for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
The aggregate market value of the Registrant's Common Stock, $.01 par
value, held by non-affiliates computed by reference to the average of the
closing bid and asked prices as reported by NASDAQ on December 31, 1995 (based
upon the assumption that each officer, director and person who is known by the
Registrant to own more than five percent of the outstanding common Stock of the
Registrant is an affiliate of the Registrant for purposes of this computation):
$35,864,831.
Number of shares of the Registrant's Common Stock, $.01 par value,
outstanding as of December 31, 1995: 30,186,805.
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INDEX
Page No.
PART I ...............................................................3
Item 1. Business.............................................3
Item 2. Properties..........................................17
Item 3. Legal Proceedings...................................17
Item 4. Submission of Matters To A Vote of Security Holders.18
PART II ..............................................................19
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................19
Item 6. Selected Financial Data.............................20
Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations................23
Item 8. Financial Statements and Supplementary Data.........25
Item 9. Changes and Disagreements with Accountants on
Accounting and Financial Disclosure.................26
PART III ..............................................................27
Item 10. Directors and Executive Officers of the Registrant..27
Item 11. Executive Compensation..............................31
Item 12. Security Ownership of Certain Beneficial Owners and
Management..........................................38
Item 13. Certain Relationships and Related Transactions......40
PART IV ..............................................................42
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.................................42
SIGNATURES.............................................................79
<PAGE>
PART I
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ITEM I. BUSINESS
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GENERAL
Advanced NMR Systems, Inc. ("ANMR" or the "Company"), through its
Imaging Systems business, develops, manufactures and markets technically
advanced magnetic resonance imaging ("MRI") systems for clinical applications
and advanced research. The Company is developing additional MRI-based products,
including very high field whole body systems and lower cost, dedicated MRI
systems for functional neuro-imaging and orthopedic applications. ANMR has an
approximately 61% ownership interest in Advanced Mammography Systems, Inc.
("AMS"), a publicly-traded company, which has developed a dedicated MR Breast
Imaging system that is pending U. S. Food and Drug Administration ("FDA")
clearance for commercial use. AMS is traded on the NASDAQ stock market under the
ticker symbol MAMO. On August 31, 1995, ANMR acquired Medical Diagnostics, Inc.
("MDI"), a provider of diagnostic imaging and rehabilitation services for
approximately $30 million in cash and stock. This unit is referred to as the
Imaging and Rehabilitation Services business.
ANMR was founded in 1983 to develop echo planar imaging ("EPI"), an
ultrafast MRI technology. From its inception through November 1992, the Company
engaged exclusively in research and development activities. In 1992, ANMR
received FDA clearance for its InstaScan(TM) system and commenced commercial
marketing activities to clinical institutions. In 1992, the Company formed AMS
as a subsidiary for the purpose of financing the development of the MR Breast
Imaging system. In early 1993, AMS completed its initial public offering. The
acquisition of MDI in August 1995 represents the initial phase of the Company's
strategy to penetrate and expand its business into MRI and rehabilitation
services.
MAGNETIC RESONANCE IMAGING TECHNOLOGY
A majority of the Company's business is based on magnetic resonance
imaging technology. MRI provides very high resolution medical images of soft
tissue. When interpreted by a trained physician, the images can be used in many
applications, including determining the extent and contour of tumors,
assessing damage from brain hemorrhage, and detecting a wide variety of
neurological and joint disorders. A technique called MR angiography is used
for noninvasively imaging blood flow through blood vessels. More recent
applications include EPI technology, first commercialized by ANMR. Due to
the ultra fast acquisition of images, EPI has expanded the applications
of MR to include imaging of dynamic and functional processes as well as
imaging moving anatomy without motion artifacts, such as may be present in
the heart or abdomen or with an uncooperative patient. Current research
applications of EPI include functional brain studies for diagnosis of stroke,
evaluation of tumor perfusion, functional brain mapping, surgical planning,
psychiatric evaluation, and for a wide variety of pharmaceutical research.
MRI systems use large magnets, digital computers and controlled radio
waves to derive cross-sectional (two dimensional) and volume (three-dimensional)
high resolution images of the body's internal organs, tissues and function.
Information can be displayed either on film or video monitor about the
concentration and the physical and chemical environment of atomic nuclei without
the need for invasive surgery. MRI systems present no known risks to patients in
contrast to other diagnostic techniques that subject the patient to potentially
harmful ionizing radiation (including Positron Emission Tomography ("PET"),
Computerized Axial Tomography ("CT") and conventional x-ray).
IMAGING SYSTEMS BUSINESS
ANMR manufactures the InstaScan system, an ultrafast retrofit for
enhancing conventional MRI systems. It is also the exclusive systems integrator
of very high field (3 and 4 Tesla) MRI systems using components provided by
General Electric Medical Systems ("GEMS"),
proprietary ANMR components and a magnet from another third party.
The Company plans to build on its proprietary technologies by
developing a multi-product line of dedicated, low cost MR systems. It has built
a prototype of its first functional neuroimaging product known as the Gradient
Head Coil. The prototype was shipped to a functional neuroimaging research site
at the University of Texas Health Science Center at San Antonio where it will be
used to develop product enhancements and other products in this field.
ANMR maintains a network of university collaborations. These research
sites are used to gain clinical experience with products prior to release for
commercial use, as well as to help define new product directions. Data obtained
from these sites are often used in product submissions to the FDA.
Massachusetts General Hospital ("MGH"), Boston, Massachusetts, has been
the Company's premier research site for several years. Currently, MGH has two
InstaScan systems, one in their MRI research facility and one that is used in a
clinical setting in the hospital. Additionally, MGH has been very involved in
the continuous development of new applications. For example, functional imaging
research at MGH has helped spawn a new field of clinical applications. MGH is
also developing clinical protocols in use at the hospital for early diagnosis of
stroke.
Other research sites using ANMR systems include the University of Iowa
Hospitals and Clinics, Memorial Sloan Kettering Cancer Center, Yale University,
McLean Hospital, University of Pittsburgh Medical Center, Bowman Gray School of
Medicine, Duke University, and the University of Texas Health Science Center at
San Antonio.
MARKETING AND PRODUCT DEVELOPMENT
The Company has developed the InstaScan system, based on its
proprietary echo planar imaging technology, which is significantly faster than
other commercially available MRI systems and has demonstrated that the adverse
effects of any motion, voluntary or involuntary, can be substantially
eliminated. For clinicians, InstaScan also provides an important advantage by
saving patient billing slots with uncooperative or very ill patients who
otherwise could not complete exams.
Currently, the InstaScan system is configured to GE Signa MRI machines.
The Company believes it has the capability to reconfigure InstaScan to be
compatible with other manufacturers' MRI systems. To date, no other agreements
with other manufacturers are in effect, although the Company believes the
possibility exists that a relationship with an Original Equipment Manufacturer
may be developed utilizing InstaScan technology.
In July 1994, the Company concluded an agreement with GEMS for the sale
of 3T and 4T research MR systems to GEMS through June 1997. These systems, which
have not yet been submitted to the FDA for clearance for commercial use, will be
sold to research institutions throughout the world. To date, very high field
systems utilizing "InstaScan" have been installed at University of Florida at
Gainsville and the University of California at Los Angeles ("UCLA"). Two systems
are expected to be shipped to universities in Japan during the second quarter of
fiscal 1996. In addition, a 3T system installed at the University of Pittsburgh
and a 4T system at the National Institutes of Health were upgraded with the
InstaScan product.
The Company had marketed InstaScan through joint marketing agreements
with GEMS. The 1993 Agreement had provided for GEMS to purchase 100 InstaScan
units over a two year period which ended on December 31, 1994, and if GEMS did
not achieve the minimum purchases it was to have paid certain liquidated
amounts. In June 1994, the 1993 Agreement was modified to commit revenues
realized from the sale of 3T and 4T systems through December 31, 1995 towards
GEMS' obligation under the 1993 Agreement. As of December 1995, GEMS has
purchased 17 InstaScan systems and two 3T/4T systems and two additional units
are expected to be delivered to sites in Japan during the second fiscal quarter
of 1996. As of December 31, 1995, GEMS had not satisfied its minimum obligations
under the InstaScan contract. The minimum purchase obligation is subject to
usual conditions of sale, including changes in health care regulation covering
MRI products. The Company is currently negotiating new terms with GEMS under
which it expects to continue to provide 3T and 4T systems to GEMS.
MANUFACTURING
The Company's manufacturing facility in Wilmington, Massachusetts has
sufficient capacity to manufacture and assemble all the products the Company
currently expects to produce for its imaging systems. The components necessary
to manufacture these systems are available from more than one source.
The Company currently has 33 customer sites in the United States, Great
Britain, South America and Japan that utilize InstaScan or 3T systems. The field
service organization has continued to work closely with the engineering and
manufacturing organizations to provide prompt response to all customer service
issues. The Company provides a one year warranty on major systems and components
and expects to provide or arrange for ongoing equipment maintenance following
the end of the warranty period.
As of December 31, 1995, there was a backlog for two 3T systems
including two InstaScan Whole Body and two InstaScan Neuro coils with a value of
$4.5 million.
RESEARCH AND DEVELOPMENT
The Company is principally engaged in the development of MRI-based
products for use in clinical and research applications, with an emphasis on the
further development of its proprietary InstaScan high-speed imaging system and
lower cost, dedicated MRI systems. During 1995, the Company installed its first
advanced gradient wave shaping ("AGW") system, delivered its first of a new
generation of EPI systems known as InstaScan Neuro to University of Texas Health
Sciences Center in San Antonio, and delivered 3T systems to each of UCLA and to
the University of Florida Gainsville. During the nine months period ended
September 30, 1995, the Company incurred $1,243,000 of expense related to
research and development, excluding $665,000 incurred by AMS.
The Company continues to develop a third generation of its AGW
technology that optimizes the anatomical presentation by enabling double oblique
EPI imaging (any plane orientation) as well as faster conventional imaging. The
first of these systems was installed in the first quarter of fiscal 1996 as a
research unit at Bowman Gray Medical Center in Winston-Salem, North Carolina;
discussions with additional sites are ongoing. The primary use at the Bowman
Gray site will be cardiac imaging.
Significant applications using InstaScan EPI technology are developing
in the area of functional imaging of the brain and stroke assessment. As part of
the Company's efforts to continue to broaden its product line, ANMR has been
developing a dedicated head gradient coil to address these emerging
applications. The coil promises to greatly reduce the cost of providing high
quality EPI images of the brain by eliminating some of the higher cost power
electronics in its conventional EPI system. The first of the coils was shipped
as a research unit to University of Texas Health Sciences Center. The Company
expects to file a 510(k) application with the FDA in mid 1996 for clearance to
market the device.
The Company is developing a new configuration of the basic InstaScan
system for installation in mobile and transportable MR systems.
Under the ANMR License Agreement, AMS holds an exclusive license to
proprietary rights and know-how, including the rights to any patents owned by
the Company which relate to, or are useful in connection with, the development
of an MRI scanner for use in the field of breast imaging.
MAJORITY-OWNED SUBSIDIARY
Through its majority-owned subsidiary, AMS, the Company has developed a
dedicated MR Breast Imaging system known as Aurora(TM). AMS filed a 510(k)
application in February 1995 seeking FDA clearance to begin commercial marketing
activities for its breast imaging system. The application is pending. AMS has
entered into an agreement with the University of Texas Medical Branch at
Galveston for the installation of the first breast imaging unit. The unit will
be shipped to the University's Breast Imaging Clinic in February 1996, where it
is expected to be an important adjunct to x-ray mammography and ultrasound in
the diagnostic workup of patients. AMS is negotiating with several other breast
imaging centers to establish additional beta test sites for this product and is
engaged in pre-market activities to educate potential customers about the
product's capabilities. AMS plans to market the Aurora system to mammography
clinics and practices where patient volume is sufficient to justify the cost of
adding MR Breast Imaging to the diagnostic workup of certain breast patients.
AMS is continuing to develop the Aurora dedicated MR Breast Imaging
system. AMS has developed an imaging technique to suppress fat in breast images.
This technique is anticipated to be particularly helpful in imaging dense breast
tissue that is often difficult to interpret using conventional x-ray
mammography. In addition to the patent pending imaging technique to suppress fat
in breast images, the Company has begun developmental work to integrate a MR-
guided localization and biopsy device. MR Breast Imaging may also prove useful
as an adjunct technology in the evaluation of the 15-20% of x-ray mammograms
that are ambiguous or indeterminate, for earlier diagnostic intervention among
high risk individuals, for characterizing breast lesions, for staging cancer
treatment and for post surgery and post radiation follow-up.
In June 1992, the Company licensed (the "ANMR License Agreement") to
AMS the right to use ANMR's technology in the development of a dedicated breast
imaging system (the "Field of Use").
The Company expects to develop other dedicated MRI scanners in addition
to its breast imaging system. With respect to future product development, AMS
has not been granted the right to use any technology now or hereafter obtained
by the Company in connection with any other dedicated use MRI scanners. However,
AMS has been granted a 50% interest in any net profits, as defined in the ANMR
License Agreement (after allocation of development expenses), derived by the
Company from the sale or license of dedicated use MRI scanners utilizing or
based upon the Licensed Technology outside of the Field of Use. The ANMR License
Agreement provides that (i) any inventions outside the Field of Use
developed solely by the Company or an ANMR entity shall be owned by the Company
or such ANMR entity and automatically licensed to AMS on an exclusive, worldwide
basis, within the Field of Use, (ii) any inventions developed solely by AMS
shall be automatically licensed to the Company on an exclusive, worldwide basis
for use solely outside the Field of Use, and (iii) any inventions outside the
Field of Use jointly developed by the Company and AMS or an ANMR entity shall be
jointly owned in equal shares by the Company, on the one hand, and AMS or an
ANMR entity, on the other hand, and AMS or an ANMR entity shall automatically
license its interest to the Company on an exclusive, worldwide basis.
Accordingly, the Company would obtain the right to future technology developed
by AMS for use in connection with mammography, and AMS shall obtain the right to
further technology developed by the Company for use outside the Field of Use.
To optimize the Company's and AMS's operating efficiency, the Company
and AMS entered into a Shared Services Agreement as of January 25, 1993, whereby
the companies share common expenses and functions, for example, executive
officers, marketing, field service, accounting, regulatory approval, and
manufacturing operations. This Agreement has been extended through April 24,
1996. From an engineering and manufacturing perspective, this Shared Services
Agreement has greatly facilitated development of the prototype breast imaging
scanner and has also benefited the Company's development of enhancements to its
InstaScan products.
IMAGING AND REHABILITATION SERVICES
Through its 100% owned subsidiary, MDI, the Company provides advanced
radiology services such as MRI, Single Photon Emission Computed Tomography
("SPECT") and Computerized Axial Tomography ("CT") to patients in Massachusetts,
New York, Virginia, West Virginia and Tennessee through a network of hospital
and clinic-affiliated and freestanding facilities. MDI believes its operations
are unique as to utilization rates achieved and, further, believes it is the
only operator of mobile radiology services in the United States that operates as
a full-service medical provider under its own clinic licenses where that
operation is allowed under state regulation.
MDI often acts as a full-service medical provider in its radiology
services business, particularly MRI services. As a full-service medical
provider, MDI provides MRI and SPECT equipment and technologists and typically
provides for the necessary physician and support personnel, scheduling and
screening of patients, maintaining medical and administrative records,
establishing charges and billing and collecting revenues from patients and
third-party payers. In these instances, host hospitals generally function as a
landlord for the MDI subsidiary or affiliate operating the MRI or SPECT service.
By operating in this manner, MDI is able to control the hours of operation for
its units and manage patient scheduling, permitting MDI to more fully utilize
its equipment. MDI is also able to expand demand for its services by marketing
directly to referring physicians and third-party payers, the primary
sources of MRI patient business, including physicians who are not affiliated
with the host hospitals. MDI believes that controlling all or most of the
radiology services, including holding the required clinic licenses when
possible, enhances its ability to negotiate renewals or extensions of its
arrangements with the host hospitals.
A majority of MDI's MRI services are provided under the "full-service"
model. SPECT services are provided under both vendor and provider models. In
circumstances where MDI does not operate as a provider, it endeavors to achieve
an equivalent level of operating control through contracted services offered to
hospital and clinic customers.
"FULL-SERVICE PROVIDER"
MDI's MRI facilities are generally open from 10 to 18 hours per day up
to seven days per week to enhance patient convenience and increase the
utilization of the MDI's medical equipment.
On the scheduled examination date, the patient goes to the area in the hospital
where the MRI unit is located. MDI's MRI technologists, or other professionals,
interview patients to screen them for claustrophobia, obesity, electronic
implants or other potential problems and complete the necessary paper work.
Patients are encouraged to view an educational video about the procedure prior
to the exam and are offered audio and video entertainment options to relieve
possible anxiety.
MRI examinations typically last 30 to 60 minutes. Once the patient is
inside the scanner, the technologist communicates with him or her using an
intercom system. The patient experiences no physical sensations during the
procedure and hears only a knocking sound as the gradients within the magnetic
field are altered to generate the image. Once the MRI scans are generated, they
are reviewed and interpreted by trained radiologists. Written reports are
forwarded to the referring physicians, usually within 48 to 78 hours of the
examination.
Upon receipt of the written report, MDI generates an invoice that is
sent to the patient's insurance company or other third-party payer and/or to the
patient, completes any necessary insurance forms and follows up on and collects
the payment for the services rendered. Generally, MDI renders a bill that covers
the charges for its technical services. Total charges billed vary depending on
the type and duration of examination. Insurance reimbursements are normally less
than rates charged by MDI. In addition, MDI enters into contractual arrangements
with third-party payers that provide for volume or group discounts. Professional
service charges due to the radiologists who read and interpret the examination
results are generally billed separately by the radiologists.
VENDOR-OPERATOR SERVICES
When necessary or advantageous for competitive reasons, MDI functions
as a vendor-operator in dealing with medical service providers that desire to
offer mobile radiology services. When competing on this basis, MDI offers its
full range of additional services. The medical service providers can select
those services that they find most troublesome or expensive to handle
internally, including patient scheduling, marketing, transcription and/or
billing. Because MDI already provides these services in connection with its
full-service provider operations, it can offer these additional services as an
adjunct to vendor-operator arrangements on a profitable basis at attractive
rates to the medical service providers.
OPERATIONS AND EQUIPMENT
MDI's mobile MRI and SPECT units are located in custom-designed
trailers that are driven to specially prepared sites at hospitals, clinics and
other appropriate sites according to a planned schedule. MDI currently operates
or manages two fixed-site MRI facilities and 10 mobile MRI units serving 43
hospital customers and two free-standing facilities, three mobile SPECT units
that serve 12 hospitals and clinics, generally under three to five-year
agreements with each facility, and one fixed CT unit. Two hospitals are
contracted for both MRI and SPECT services with MDI and one hospital is
contracted for both SPECT and CT services with MDI. Of these units, MDI owns
six, leases eight and manages two others for a non-affiliated hospital
consortium. MDI plans to continue to expand its operations within its
present service area and extend its operations into other geographic markets as
attractive opportunities are developed.
CUSTOMERS
Many medical service providers do not own MRI or SPECT equipment
because of insufficient patient volume to justify costs associated with
acquiring and operating such equipment. Depending upon features and options
selected, a MRI unit similar to the units operated by MDI costs between
approximately $700,000 and $1,700,000 plus siting and facility costs. Many
medical service providers in rural or other small hospitals and clinics cannot
afford a capital investment of this size or cannot utilize the equipment in a
cost-effective manner. Moreover, a medical service provider that does not
have sufficient patient volume and resources may still wish to contract for
services with a third-party company like MDI for a variety of reasons,
including avoidance of the risk of technological obsolescence of the
equipment, elimination of the need to recruit and employ qualified
technologists, elimination of the need for the medical service
providers to expend the time and resources necessary to obtain
regulatory approval for a MRI unit, where applicable, and elimination
of the costs and risks associated with billing and collecting from third-
party payers.
MDI generally enters into three to five-year affiliation agreements
with medical service providers served by its MRI and SPECT units. These
contracts are generally non-cancelable except for cause.
MARKETING
MDI has developed a multi-faceted marketing strategy. MDI markets its
services to referring physicians through visits to physicians' offices, by
exhibiting MDI's services at professional association meetings and through
direct mailings of MDI's quarterly newsletter, notices of equipment enhancements
and upgrades and reprints of pertinent articles from professional journals. MDI
also markets its services to physicians by offering seminars and training
programs. MDI encourages appropriate referrals by promoting wider acceptance of
MRI and SPECT as diagnostic tools among physicians and third-party payers, by
offering these physicians and third-party payers educational programs, training
sessions, seminars and informational updates concerning the use of MRI and SPECT
technologies.
In addition to its direct marketing efforts aimed at physicians and
hospitals, MDI markets its services directly to third-party payers, including
insurance companies, managed care entities, and government payers. By operating
regional MRI networks, MDI is able to offer third-party payers aggressive
discount pricing schedules geared to the volume of examinations provided to each
third-party payer's subscriber population.
In marketing its services, MDI emphasizes its commitment to quality
service, and to this end has instituted a Quality Council comprised of
interdepartmental employees. MDI places substantial emphasis on the training and
motivation of its technologists by both MDI's personnel and equipment
manufacturers. MDI regularly conducts surveys of its contracted hospitals,
physicians and patients to monitor customer satisfaction and reports survey
results to its Quality Council for action should that be required.
EXPANSION OF MARKETS AND SERVICES
MDI believes that, as imaging technology continues to develop, new
applications should increase and the demand for diagnostic imaging as a means of
detecting diseases at an earlier stage will be greater. Current pressures on
utilization should be offset in the future as a result of an increased number of
cost-effective new applications for advanced imaging that replace exploratory
surgeries and invasive diagnostic procedures, as well as the increased demand
that should occur from the aging of a large percentage of the population.
Further, earlier detection of diseases, particularly through non-invasive and
minimally invasive imaging technologies, can help reduce medical costs to
third-party payers by reducing treatment costs and malpractice claims. MDI
believes that, as physicians and third-party payers become more knowledgeable
and familiar with advanced imaging capabilities, these services may become the
primary diagnostic tools for many additional clinical conditions.
MDI plans to develop its radiology services business by expanding its
fleet of mobile MRI and SPECT units to service those hospitals and other health
care providers who are not currently able to provide these services to their
patients and through the possible acquisition of currently existing imaging
businesses in new geographic markets.
EQUIPMENT; SUPPLIES
Each of MDI's mobile MRI and SPECT units is installed by the manufacturer
in a custom-designed trailer, which is designed to provide medical facilities
approximating those found in fixed-site MRI facilities.
All of the diagnostic equipment utilized by MDI is technologically
complex. MDI contracts with equipment manufacturers and third-party service
organizations for comprehensive maintenance and repair services for its MRI and
SPECT units to minimize the period of time equipment is unavailable during
scheduled use hours because of unanticipated malfunctions or breakdowns. MDI
also has extensive relationships with other vendors for maintenance and repair
of all of the related and auxiliary equipment on the units that are subject to
mechanical failures, such as on-board generators and air conditioning systems.
A significant portion of MDI's tangible assets consists of diagnostic
imaging equipment and trailers. Generally, each trailer is moved, sometimes
daily, or even during the day, from one location to another, and there is always
a risk that a traffic accident or trailer breakdown will occur while the
equipment is in transit. Although MDI's major equipment is insured against the
risks of damage in an accident, repairs to damaged equipment may not restore the
equipment to its original condition and level of performance. MDI also maintains
business interruption insurance to offset lost revenue that may occur in the
event of prolonged equipment downtime. However, no assurance can be given that
MDI would receive sufficient insurance proceeds following any damage to its
equipment to fully compensate it for the losses resulting from such damage.
There are at least three suppliers of FDA-approved MRI contrast agents
used to enhance the images produced in certain types of examinations. Further,
several new organ-specific contrast agents are in the FDA approval process that
are expected to increase abdominal applications for MRI which may have
significant value in diagnosing a variety of benign and malignant conditions
that would otherwise require exploratory surgery. MDI has not experienced any
problems in obtaining sufficient quantities of contrast agents. In addition,
there are numerous suppliers of radiopharmaceuticals required to perform SPECT
imaging.
REHABILITATION SERVICES
MDI has diversified a portion of its business in niche rehabilitation
markets through its acquisition of a majority interest in MVA Rehabilitation
Associates. Through the MVA centers, MDI provides comprehensive physician care,
physical therapy and case management for motor vehicle accident patients. The
MVA Center has developed a unique system to document valid personal injury
claims and exclude false claims that enable it to provide more efficient patient
care. MDI intends that MVA Rehabilitation Associates will be the model for
other MVA centers to be established in 1996 and beyond. MVA has current
commitments to establish one new center and one satellite center during fiscal
1996 in Massachusetts where the business is concentrated.
MDI's rehabilitation services business operates with lower fixed costs
than its radiology services, providing a lower risk diversification opportunity.
GOVERNMENT REGULATION AND REIMBURSEMENT
The Company's operations are subject to extensive federal and state
regulations and are directly and indirectly impacted by government regulations
with respect to reimbursement for medical services.
Magnetic Resonance Diagnostic Devices ("MRDD") are subject to
regulation by the U. S. FDA and certain state and federal agencies that regulate
the provision of health care, particularly the Health Care Financing
Administration ("HCFA") and the Environmental Protection Agency ("EPA"). In
addition, providers of diagnostic imaging services are subject to various state
regulations that limits the acquisition of MRI equipment through Certificate of
Need ("CON") and "Determination of Need" ("DON") programs and other federal and
state regulation that is directed at cost containment.
FDA REGULATION
AMS has one application currently pending before the FDA for its Aurora
Breast Imaging system. The Company has several products in development for which
FDA 510(k) clearance will be required.
In addition, there are numerous applications for contrast agents and
pharmaceuticals currently pending before the FDA that have significant potential
to positively impact Company operations. New organ specific contrast agents will
enhance MRI sensitivity and specificity in diagnosing disease. Pharmaceuticals
in clinical trials show significant potential for stroke treatment. MRI can not
only detect stroke within minutes of onset, but it can differentiate between
strokes caused by blood clots and those caused by hemorrhage. Strokes arising
from clots can be treated with thrombolytic agents while strokes that involve
bleeding are appropriately treated with neuron protector drugs. MRI is the only
imaging technology that can effectively distinguish between the two causes of
strokes.
HCFA AND RELATED HEALTH CARE REGULATION
Imaging Systems
---------------
The market for MRI systems and services is significantly affected by
the amount that Medicare and Medicaid, or other third party payers including
indemnity insurance and managed care organizations, reimburse providers of
diagnostic imaging procedures. With the emphasis on limiting costs for health
care, MR manufacturers must more clearly demonstrate the clinical efficacy and
cost-effectiveness of upgrades and new MR systems in order to generate sales.
The Company's focus on developing ultrafast and dedicated MR systems and
components are directed towards reducing costs for physician end users while
producing the highest throughput and greatest efficacy for patients and third
party payers. In addition, the Company emphasizes cost reduction in its
manufacturing operations to maximize the opportunity of offering its products at
the lowest possible cost.
Imaging and Rehabilitation Services
-----------------------------------
In its Imaging Services operations, the Company is subject to HCFA
Medicare and Medicaid anti-fraud and abuse statutes which prohibit bribes,
kickbacks, rebates and any direct or indirect remuneration in connection with
providing services, items or equipment for which payment may be made in whole or
in part under Medicare or Medicaid. These statutes are intended to prevent the
improper referral of patients for medical tests or treatment by health service
providers who may have a financial interest in the entity which provides such
services. Violation of these provisions may result in significant criminal
penalties and exclusion from participation in Medicare and Medicaid programs for
both the entity paying the kickback or rebate and the entity receiving it.
The Company believes that none of its operations are in violation of
the anti-fraud and abuse statutes.
Congress has also enacted legislation generally prohibiting physicians
from billing Medicare and Medicaid for patients referred by a physician to any
of a broad range of health services (including diagnostic imaging services) if
the physician has (i) an ownership or investment interest in the health service,
or (ii) otherwise receives compensation (broadly defined in the legislation)
from the health service. The legislative prohibitions were effective January 1,
1995. The Company has no physician ownership in its businesses that would
violate this statute.
MDI currently delivers diagnostic imaging services in Massachusetts,
New York, Virginia, West Virginia and Tennessee and SPECT services in Virginia,
West Virginia and Tennessee. In New York, Virginia, West Virginia and Tennessee,
a Certificate of Need ("CON"), and in Massachusetts, a Determination of Need
("DON"), generally must be obtained by an MRI operator and/or the hospital where
services are provided in order for services to be provided at hospital sites or
to hospital inpatients and/or to receive certain third-party reimbursement
payments. The CON and DON programs of each of the five states in which MDI
currently conducts business vary significantly from each other in the scope of
regulation. Generally, however, the CON or DON authorizes the holder to
provide, or in the instance of a hospital, to receive, services at specific
sites and/or to acquire equipment to provide services. In Massachusetts, a
DON is also required to obtain a clinic license. Where required, MDI holds all
CONs and DONs necessary for it to conduct business where it currently operates.
In New York, MDI is presently ineligible to obtain a CON as state law
prohibits publicly-held corporations from qualifying for a CON. Thus,
MDI contracts to provide MRI equipment andmanagement to a professional
medical corporation ("P.C.") that is licensed to actually provide the MRI
and other services.
In addition to its DON requirements, Massachusetts licenses and
regulates MDI's MRI operations. Massachusetts clinic licensure regulations
establish physical plant requirements for each MRI service site, require
inspection of the MRI unit and require that certain operational policies be in
place, in addition to other standards. MDI believes that it is in compliance
with the Massachusetts licensure requirements.
ENVIRONMENTAL PROTECTION AGENCY ("EPA") REGULATION
The Company, and any research facility which it operates, is required
to comply with any applicable federal and state environmental regulations and
other regulations related to hazardous materials used, generated, and/or
disposed of in the course of its operations. The Company currently has
registered as a Very Small Quantity Generator of hazardous waste. This means
that the Company is making an effort to reduce hazardous waste produced, and to
track the waste generated.
Future EPA regulations may impact Company policies on air pollution,
waste management, and radon testing. While the Company does not expect to have
to incur substantial costs in order to comply with existing regulations, no
assessment may be made as to the impact of future regulations upon operations of
the Company.
NUCLEAR REGULATORY AGENCY REGULATION
In providing SPECT services, the Company is also subject to the Nuclear
Regulatory Commission regulations established for the safe use, storage,
transport and disposal of radioisotopes. The Company employs a Radiation Safety
Officer, as required, to monitor its compliance with applicable regulations.
COMPETITION
The health care industry in general and the market for diagnostic
imaging equipment, in particular, is highly competitive.
With respect to the Imaging Systems business, virtually all of the
competitors known to the Company possess substantially greater resources than
the Company. Such manufacturers include General Electric Company; Toshiba;
Bruker Medical Imaging Inc.; Elscint Ltd.; Siemens Corporation; Philips Medical
Systems, a division of Philips Industries, N.V.; Picker International
Corporation; Shimadzu; and Hitachi. The Company competes with these
manufacturers as manufacturers of components and enhancements to MRI systems and
with these manufacturers and others who develop and market other types of
diagnostic imaging systems. Competitive factors include price, product
performance, service and support capabilities, financing terms and brand name
recognition.
With respect to the Imaging and Rehabilitation Services business, the
Company competes with other MRI and SPECT providers at hospitals, private
clinics, physician practices and other independent providers of MRI and SPECT
services at fixed sites. Competitive factors include the range of services
provided, equipment capabilities and the ability to serve a broad range of
patients. Barriers to entry into the Company's markets include the cost of
equipment, hiring of qualified technologists and management, proprietary
business practices and, where applicable, CON or DON regulation and other
regulatory constraints.
Although the Company's rehabilitation services are also considered to
be in highly competitive markets, the Company believes the market sector it is
targeting, (value-added services for motor vehicle accident victims and their
insurers) is unique. The Company is not aware of any other significant
participants in this industry.
PATENTS
The Company currently owns 18 U. S. patents relating to MRI imaging.
Four additional patents are in various stages of submission, two were filed by
ANMR and two by AMS. All major patents are protected in Japan, Canada and the
European Market countries.
EMPLOYEES
As of December 31, 1995, the Imaging Systems business had a staff of 56
full time employees and 6 short-term contractors, including 12 persons who were
full time employees of AMS. Pursuant to a Shared Services Agreement with AMS,
ANMR provides the services of its executives, administrative personnel and
research scientists to AMS on an as-needed basis.
As of December 31, 1995, the Imaging and Rehabilitation Services
business had 145 full time employees and 39 part-time employees including 7
senior management personnel, 85 MRI technologists, 7 non-executive employees
involved in marketing and development and 85 employees involved in general and
administrative activities, including patient scheduling and billing.
None of the Company's employees is represented by labor organizations
and the Company is not aware of any activities seeking such organization. The
Company considers its relations with employees to be good.
ITEM 2. PROPERTIES
----------
The Company leases a facility in Wilmington, Massachusetts (the "Shared
Facility") consisting of approximately 61,000 square feet of office, research
and development, manufacturing and warehouse space. The Company has exercised
its option to renew its lease as of May 1996 for another 5 year term at a base
monthly rental of approximately $37,000. The lease may be renewed for a second
five-year term at an increased rental rate. As of December 31, 1995, the
activities of the subsidiary AMS utilized approximately 28% of the Shared
Facility. The Company believes that the space it currently occupies is adequate
for the Company's needs for the foreseeable future.
MDI maintains its principal executive offices in Burlington,
Massachusetts. MDI leases approximately 8,400 square feet of office space under
a five-year lease that originally expired on March 31, 1998. On September 15,
1995, MDI exercised its right under the lease to terminate it effective March
31, 1996, upon delivery of a payment of $35,000. The current rent for this
facility is $126,347 per annum, plus operating expenses. The Company and MDI
plan to move the operations in the Burlington, Massachusetts facility to the
Wilmington, Massachusetts facility in the second fiscal quarter of 1996. MDI
owns a facility in Roanoke, Virginia consisting of approximately 6,000 square
feet of office space. MDI also leases approximately 2,000 square feet of space
in West Springfield, Massachusetts at a current rental rate of $57,084 per
annum, plus operating expenses under a lease that expires on August 31, 1996.
MDI has the option to extend this lease for two additional 10-year periods.
MDI also leases specially prepared sites and patient waiting areas at
certain hospitals and other locations at which it operates its mobile MRI, SPECT
and CT units. These leases generally are for the term of the hospital's
affiliation agreement with MDI, with monthly rental payments generally ranging
from approximately $1,000 to $5,000. The rental amount is generally designed to
reimburse the hospital or landlord for its cost of preparing the site.
MDI leases a facility for its Rehabilitation operations in Springfield,
Massachusetts. This facility includes approximately 7,400 square feet under a
six-year lease that expires on June 30, 2001. The current rent for this facility
is $142,200 per annum, plus operating expenses.
ITEM 3. LEGAL PROCEEDINGS
-----------------
MDI, as general partner of Mass. Mobile Imaging Venture (MMIV), and
Western Massachusetts Magnetic Resonance Services, Inc. (WMMRS) filed a
complaint in September 1992 in Middlesex County Superior Court, Cambridge,
Massachusetts against Medical Imaging Partners, L.P. (MIP), which is wholly
owned by Raytel Medical Corporation (Raytel), and certain of its affiliates,
seeking a declaration, damages and equitable relief relating to an alleged
breach by MIP of certain fiduciary and contractual obligations with
respect to the business of MMIV. MIP has filed a counterclaim against MDI also
seeking a declaratory judgment, damages and equitable relief on the basis of an
alleged breach of fiduciary and contractual obligations by MDI with respect to
the business of MMIV. The parties have nearly completed pre-trial proceedings,
including discovery. Several pre-trial motions have been argued and are awaiting
decision. A trial date has not yet been set. Although the outcome of this
litigation cannot be predicted, MDI does not believe that the results of this
litigation will have a material effect on MDI.
On November 29, 1994, Raytel filed a complaint in Delaware Chancery
Court naming MDI as a defendant. The lawsuit relates to matters arising in
conjunction with a tender offer launched by Raytel to acquire MDI's predecessor.
Raytel is seeking injunctive relief against certain actions that MDI's
predecessor took or may have taken to defend itself against Raytel's tender
offer. On December 22, 1994, Raytel filed an amended complaint. No trial date
has been set. On May 4, 1995, Raytel terminated its tender offer. MDI believes
that it has meritorious defenses to this lawsuit and, if necessary, intends to
defend this lawsuit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
(a) On August 31, 1995, the Company held its 1995 Annual Meeting of
Stockholders.
(b) The following persons were elected as directors for a term expiring
at the next meeting for election of directors and their successors are duly
elected and qualified:
Jack Nelson Robert Spira George A. Silver
George Aaron Leonard Toboroff Sol Triebwasser
Enrique Levy
On August 31, 1995, upon consummation of the MDI merger, the number of
directors was expanded to 10 persons, and John A. Lynch, Edward J. Connors and
Milton L. Glass were appointed as directors to fill the vacancies.
(c) The following additional matters were acted upon at the meeting (and
as to the authorization of the Preferred Stock, the meeting was adjourned to
September 21, 1995):
Votes Broker
Matter Votes For Against Abstain Non-Vote
- ------ --------- ------- ------- --------
MDI Merger 13,674,292 405,953 218,157 8,563,797
Increase Common Stock 19,612,727 1,449,594 343,297 1,585,746
Authorize Preferred Stock 12,344,635 2,319,230 348,832 9,581,625
Amend Option Plan 17,491,390 3,569,660 798,783 2,872,013
(d) Not applicable.
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
(A) Since February 1994, the Company's Common Stock has been included
in the NASDAQ National Market System under the symbol ANMR. Prior thereto, the
Common Stock traded in the over-the-counter market and was listed on the Boston
Stock Exchange and the Pacific Stock Exchange. Trading in the Warrants (NASDAQ:
ANMRW) commenced on August 31, 1995, after the closing of the MDI merger.
The following table sets forth the quarterly high and low bid prices
for the Common Stock and the Warrants as reported by NASDAQ for the periods
indicated. These prices are based on quotations between dealers, and do not
reflect retail mark-up, mark-down or commissions.
Common Stock High Low
- ------------ ---- ---
1995
- ----
January 1 through March 31 3 11/16 2 3/4
April 1 through June 30 3 1/4 2 1/8
July 1 through September 30 3 1/16 2 1/32
1994
- ----
January 1 through March 31 6 1/2 4 1/8
April 1 through June 30 5 1/4 2 5/8
July 1 through September 30 4 2 5/8
October 1 through December 31 4 1/4 2 1/4
1993
- ----
July 1 through September 30 8 1/2 2 7/8
October 1 through December 31 7 9/16 4 5/8
Warrants
- --------
1995
- ----
August 31 through September 30 1/8 1/8
(B) On December 31, 1995, there were 1,125 holders of record of the
Common Stock of the Company. Since certain of the shares of Common Stock are
held in street name, it is believed that there are substantial additional
beneficial holders of the Company's Common Stock. On December 31, 1995, there
were 30,186,805 shares outstanding.
(C) The Company has paid no dividends on its shares of Common Stock
since its organization in July 1983. The Company is prohibited from the payment
of cash dividends under the provisions of its credit facility with its primary
lender.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Statement of Operations Data:
- -----------------------------
The selected financial information for the nine months ended September
30, 1995, and for each of the years ended December 31, 1994, 1993, 1992, and
1991, is derived from the audited financial statements of the Company and its
subsidiaries, AMS and MDI.
This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this Form 10-K.
<PAGE>
Nine Months ended Nine Months ended
September 30, 1995 September 30, 1994
REVENUES: (unaudited)
System sales $ 6,643,090 $5,174,310
Net patient service revenue 1,934,322 --
Management fees and other
revenue 40,220 50,500
------------ -----------
TOTAL REVENUES 8,617,632 5,224,810
------------ -----------
OPERATING EXPENSES:
Cost of goods sold 4,124,354 1,956,611
Cost of service operations 1,203,497 --
Research & development 1,907,945 2,187,291
Selling, general & administrative 4,162,585 3,115,186
Provision for bad debt and
collection costs 162,377 --
------------ -----------
TOTAL OPERATING EXPENSES 11,560,758 5,302,477
------------ -----------
LOSS FROM OPERATIONS (2,943,126) (2,034,278)
INTEREST EXPENSE (148,952) (74,806)
INTEREST INCOME 265,208 278,497
OTHER INCOME (EXPENSE) 579,758 --
MINORITY INTEREST 569,354 488,799
------------ -----------
NET LOSS $ (1,677,758) $(1,341,788)
============ ===========
NET LOSS PER SHARE $ (.07) $ (.06)
============ ===========
Weighted Average Number
of Common Shares 24,243,902 23,543,842
========== ==========
Year Ended December 31,
--------------------------------------------------
1994 1993 1992 1991
REVENUES:
System sales $ 5,237,700 $ 1,894,900 $ 395,000 $ --
Net patient service revenue -- -- -- --
Management fees and other
revenue 50,000 41,057 35,390 324,391
----------- ----------- ----------- ----------
TOTAL REVENUES 5,288,200 1,935,957 430,390 324,391
OPERATING EXPENSES: ----------- ----------- ----------- ----------
Cost of goods sold
Cost of service operations 2,414,121 1,528,248 767,080 --
Research & development -- -- -- --
Selling, general & 2,954,509 3,290,002 2,816,485 2,346,141
administrative 4,356,996 2,913,043 1,839,354 1,561,104
Provision for bad debt and
collection costs -- -- -- --
----------- ----------- ----------- ----------
TOTAL OPERATING EXPENSES 9,725,626 7,731,293 5,422,919 3,907,245
----------- ----------- ----------- ----------
LOSS FROM OPERATIONS (4,437,426) (5,795,336) (4,992,529) 3,582,854)
INTEREST EXPENSE (21,017) (155,225) (500,000) --
INTEREST INCOME 208,480 170,720 -- --
OTHER INCOME (EXPENSE) -- (801,750) -- 43,675
MINORITY INTEREST 702,965 414,641 -- --
----------- ----------- ------------ ----------
NET LOSS $(3,546,998) $(6,166,950) $ (5,492,529)$(3,539,179)
=========== =========== ============ ===========
NET LOSS PER SHARE $ (.15) $ (.32) $ (.34)$ (.27)
=========== =========== ============ ============
Weighted Average Number 23,603,251 19,184,275 16,157,623 13,273,447
of Common Shares =========== =========== ============ ===========
BALANCE SHEET DATA:
-------------------
December 31,
--------------------------------------
September 30,
1995 1994 1993 1992
------------ ----------- ----------- ------------
Working Capital (Deficit) $ 11,083,145 $ 8,614,161 $12,452,896 $ (759,956)
Total Assets 58,431,709 12,692,152 15,864,126 2,685,896
Total Liabilities 27,799,636 2,511,853 2,335,099 2,659,378
Stockholders' Equity 28,017,966 9,698,924 12,551,838 26,518
December 31,
--------------
1991
--------
Working Capital (Deficit) 1,778,322
Total Assets 2,819,324
Total Liabilities 461,738
Stockholders' Equity 2,357,590
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITIONS AND RESULTS OF OPERATIONS
------------------------------------
Nine Months Ended September 30, 1995 Compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1994 (unaudited)
- ----------------
Imaging Systems sales increased to $6,643,000 in the nine months ended
September 30, 1995, a 28% increase from revenues of $5,174,000 in the comparable
1994 period. The growth in system sales resulted from increasing sales of the
Company's high field 3T systems. The Company expects system sales to continue to
fluctuate significantly from quarter to quarter as products continue to be
commercialized. However, fluctuations in ANMR's revenues should be offset by
MDI's steadier revenue patterns.
Net patient service revenue for September 30, 1995 represents one month
of operations from the Imaging and Rehabilitation Services business acquired on
August 31, 1995. The cost of service operations of $1,203,000 and provision for
bad debt and collection costs of $162,000 similarly represent one month of
operations of MDI. The Company expects that MDI will contribute significant
revenue and operating income in 1996 and beyond, which earnings will be
significantly enhanced by the tax net operating loss carryforwards available
from the Company.
As a percentage of revenues, cost of goods sold was approximately 62%
in the nine months ended September 30, 1995 compared with 38% for the comparable
1994 period. The increase was principally the result of system shipments being
significantly less than forecast, which resulted in increased manufacturing
variances due to higher fixed overhead costs.
Research and development expenses as a percentage of Imaging Systems
sales decreased to 29% or $1,908,000 (including $665,000 by AMS) in the nine
months ended September 30, 1995 compared with 42% of Imaging Systems sales or
$2,187,000 (including $717,000 by AMS) in the comparable 1994 period. These
spending levels reflect the Company's investment in product upgrades and new
products based on its proprietary EPI technology as well as software enhancement
and the development of a localization and biopsy device for the dedicated MR
Breast Imaging system of its subsidiary AMS.
Selling, general, and administrative expenses increased from $3,115,000
to $4,163,000, respectively, in the 1994 and 1995 nine month periods. This
increase was primarily due to the one month of operations of MDI, which included
an accrual of approximately $500,000 for certain severance benefits due to a
former executive officer of MDI.
The decrease of $13,000 in interest income reflects the reduced average
cash and short-term investment balances available due to cash used in operations
and the acquisition of MDI.
Other income of $580,000 consists largely of $392,000 from the
cancellation of certain stock options previously granted as consideration to a
consultant and $180,000 in proceeds from an insurance claim.
Interest expense increased from $75,000 to $149,000 primarily due to
the financing of the MDI acquisition, effective August 31, 1995 and MDI's one
month of operations.
The increased allocation of losses to minority interests is due to the
increase of the minority shareholders percentage ownership of AMS from 1994 as a
result of the exercise of $3.2 million in warrants and options, partially offset
by one months' allocation of income in certain subsidiaries of MDI.
Fiscal Year Ended December 31, 1994 Compared to Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
1993
- ----
Imaging Systems sales increased 176% from $1,895,000 in 1993 to
$5,238,000 in 1994 primarily as a result of increases in sales of InstaScan
systems, as the Company transitioned from a development stage, and the start-up
of sales of the Company's 3T and 4T systems.
Cost of goods sold was 46% of Imaging systems sales in 1994 compared to
80% in 1993 reflecting higher efficiencies gained from an increased number of
systems manufactured.
Research and development expenses decreased to $2,955,000 (including
$992,000 by AMS) in fiscal 1994 compared to $3,290,000 (including $823,000 by
AMS) in fiscal 1993. Research and development represented almost 56 percent of
revenues in fiscal 1994. Since the Company was still in transition from a
development stage company to a manufacturing entity in 1993, research and
development expenses of $3,290,000 represented 170 percent of revenues in fiscal
1993. Research and development expenses reflect the Company's commitment to
continued development of state of the art technology and the next generation of
EPI, enhancements to the existing InstaScan system and the inclusion of research
and development costs to complete a prototype of a dedicated MR Breast Imaging
system of its subsidiary AMS.
The increase in selling, general and administrative expense from
$2,914,000 in 1993 to $4,356,000 in 1994 reflects the Company's increased
marketing efforts to generate sales and enhance product visibility.
The Company earned $208,000 in interest income in 1994 from its short
term investments compared to $170,000 in 1993 due to higher invested funds
primarily attributable to the exercise of certain stock warrants and options.
Liquidity and Capital Resources
- -------------------------------
The Company has available cash and cash equivalents of $7,543,000 at
September 30, 1995 (including $3,119,000 at MDI and $1,833,000 at AMS). The
increase is primarily due to cash acquired related to the MDI acquisition.
However, as of September 30, 1995, approximately $1,696,000 was estimated to be
required to complete the MDI acquisition, which included common stock not yet
converted by former MDI shareholders and accrued merger costs.
As part of the MDI acquisition, the Company entered into a $15,000,000
bank credit facility, consisting of a $6,000,000 revolving credit loan which
matures in August 1998, and a $9,000,000 term loan which expires in August 2001.
As of December 31, 1995, $5,555,000 of the revolving loan has been utilized,
including $800,000 for letters of credit securing certain MRI units operated by
MDI, and all of the term loan has been utilized.
The Company expects that 1) liquidity provided by existing cash
balances, 2) revenues expected to be generated by Imaging Systems sales and 3)
expected MDI profits, which will be substantially sheltered from income taxes
due to the Company's significant net operating loss carryforwards, will be
sufficient to meet the Company's operating and related debt service requirements
in fiscal 1996. In addition, depending on market conditions, the Company may
seek to obtain funds through debt or additional equity placements.
The significant cash flows from investing activities for the nine
months ended September 30, 1995 reflect the cash portion of the MDI acquisition,
net of MDI's cash balances acquired. Cash flows from financing activities for
the nine months ended September 30, 1995 consists primarily of the proceeds from
the bank credit facility together with proceeds from the exercising of AMS
warrant holders.
Inflation
- ---------
To date, inflation has not had a material effect on the Company's
business. The Company believes that the effects of future inflation may be
minimized by controlling costs and increasing efficiency through an increase in
the volume of MRI examinations performed.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See Item 14 and the Index therein for a listing of the financial
statements and supplementary data as a part of this report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
No change in the Registrant's accountants occurred during the 24 months
prior to the date of the Registrant's most recent financial statements, nor did
any disagreements occur on any matter of accounting principles or practices or
financial statement disclosure that would be required to be reported on a Form
8-K.
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The directors and executive officers of the Company are:
Name Age Position
- ---- --- --------
Jack Nelson (1)(4) 45 Chairman of the Board,
Chief Executive Officer
and Treasurer
Robert Spira, MD(1)(4) 47 Vice Chairman of the Board
Enrique Levy (1)(4) 58 President, Chief Operating Officer
and Director
Charles Moche 46 Chief Financial Officer
Robert Kwolyk 48 Vice President, Sales and Marketing
George Aaron(2)(3) 43 Director
Edward J. Connors (1)(4) 66 Director
John A. Lynch 49 Director
George A. Silver, MD(3) 82 Director
Sol Triebwasser, PhD(2) 74 Director
- --------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation/Option Committee.
(4) Member of the Strategic Development Committee
The principal occupations and brief summary of the background of each
Director and executive officer of ANMR during the past five years is as follows:
Jack Nelson. Mr. Nelson has been Chairman of the Board since June 1991
------------
and Treasurer since November 1990. He has also been Chairman of the Board of AMS
since its formation in July 1992. From 1976 through 1993, Mr. Nelson had been
engaged in the private practice of law in New York, New York, and for more than
five years prior to December 31, 1993, he had been a senior partner with the law
firm of Zaslowsky, Marx & Nelson. Since January 1994, he has been employed
full-time with the Company and AMS. Mr. Nelson serves on the Board of Directors
of ARC Capital, a publicly traded company (NASDAQ: ARCCA). Mr. Nelson holds a
B.A. degree from Yeshiva University and J.D. degree from Hofstra University
School of Law.
Robert Spira, M.D. Dr. Spira has been a director of the Company since
-------------------
September 1990, and Vice Chairman since February 1994, and a director and Vice
Chairman of AMS since August 1992. Since October 1992, he has been the Director
of the Department of Gastroenterology at St. Michael's Medical Center in Newark,
New Jersey, and for more than five years prior thereto, he served as Chief of
Gastrointestinal Endoscopy at St. Michael's Medical Center. Dr. Spira is a
graduate of New York University Medical School, a past president of the New
Jersey Society for Gastrointestinal Endoscopy and President-elect of the New
Jersey Society of Gastroenterology. Dr. Spira is a graduate of New York
University School of Medicine.
Enrique Levy. Mr. Levy has been President and Chief Operating Officer
-------------
of ANMR and AMS since October 1995 and a Director of ANMR and AMS since August
31, 1995. From May 1994 to October 1995 he was Manager, Manufacturing for Xerox
Graphic Systems, the manufacturer of Verde Digital Recording Film, Purchase, New
York, a venture of Xerox Corporation. From April 1989 to May 1994, he was
Executive Vice President of Worldwide Process Technologies, Allendale, New
Jersey, a manufacturer of machinery and equipment for the web handling and film
and paper coating industries. He holds a B.S. in Chemical Engineering from the
Louisiana State University.
Charles Moche, CPA. Mr. Moche has been Chief Financial Officer of the
--------------------
Company and AMS since January 1, 1994. He has practiced accounting in New York
with a concentration on tax planning and auditing from 1987 to 1993. Mr. Moche
holds an MBA in Accountancy from the Bernard M. Baruch Graduate School of
Business, and a BA in Economics from Yeshiva University. He received an Advanced
Certificate Degree in Taxation from the New York University Graduate School of
Business. He is a member of the American Institute of Certified Public
Accountants, the New York State Society of CPA's, and the Board of Accountancy
of the State of New Jersey Consumer Affairs Division.
Robert Kwolyk. Mr. Kwolyk has been Vice President, Sales and Marketing
--------------
since May 1, 1994. From 1988 through 1994, Mr. Kwolyk served as Manager, MR
Sales Planning and Sales Support and subsequently Manager, MR Market Development
of General Electric Medical Systems. Mr. Kwolyk received his B.S. in Electrical
Engineering from Stevens Institute of Technology.
George Aaron. Mr. Aaron has been a director of both the Company and AMS
-------------
since August 1992. He is the President of Portman Group Inc. in Fort Lee, New
Jersey, an investment and consulting firm primarily in the health care and
consumer goods industries, which he co-founded in 1981. He is a founder, Vice
President and Chief Operating Officer of Portman Pharmaceuticals, Inc., which is
engaged in the research and development of therapeutic and diagnostic products
for autoimmune diseases and immunomodulation. He also serves in various
capacities with other private health care companies. He is a graduate of the
University of Maryland.
Edward J. Connors. Mr. Connors has served as a director of ANMR since
------------------
August 1995 and as a director of MDI and its predecessor since June 1993. He
served as President of Mercy Health Services, a private diversified health care
system, from 1984 until his retirement in 1993. He also has been active with the
American Hospital Association ("AHA"), serving as Chairman of the Board of the
AHA in 1989. He is an elected member of the Institute of Medicine of the
National Academy of Sciences and Chairman of the Board of Trustees of Fletcher
Allen Health Care. Mr. Connors holds a B.S. degree in Mathematics from the
University of South Dakota and a Master's degree in Health Administration from
the University of Minnesota.
John A. Lynch. Mr. Lynch has served as a director of ANMR and AMS
---------------
since August 31, 1995. He was Senior Vice President of ANMR and Chief Executive
Officer and President of MDI from August 1995 through November 1995 when his
employment was terminated. Previously, he co-founded MDI's predecessor in 1984
and served as its Chairman of the Board, Chief Executive Officer, President and
Treasurer until 1995. Mr. Lynch holds a B.A. degree in American History from
Boston College.
George A. Silver, M.D. Dr. Silver has been a director of the Company
-----------------------
since June 1983 and a director of AMS since August 1992. He is a Senior Member
of the Institute of Medicine of the National Academy of Sciences, a member of
the Medical Advisory Board of the Maternity Center Association and a member of
the National Council of the Federation of American Scientists, of which he was
Secretary. Dr. Silver was a Professor of Public Health at Yale University
between 1969 and 1984 and a faculty member of the Institute for Social and
Policy Studies at Yale University. Dr. Silver is the author of, among other
books, "A Spy In The House Of Medicine" and Child Health: America's Future," as
well as twenty-five chapters in health books and more than 170 articles on
health care. Dr. Silver is a graduate of the University of Pennsylvania (B.A.),
Thomas Jefferson Medical College (M.D.) and the Johns Hopkins University
(M.P.H.).
Sol Triebwasser, Ph.D. Dr. Triebwasser has been a director of the
------------------------
Company since July 1984 and a director of AMS since August 1992. He is the
Director of Technical Journals and Professional Relations for the IBM
Corporation in Thornwood, New York. Since receiving his Ph.D. in physics from
Columbia in 1952, he has managed various projects in device research and
applications at IBM. Dr. Triebwasser is a fellow of the Institute for Electrical
and Electronic Engineers, the American Physical Society and the American
Association for the Advancement of Science.
All directors hold office until the next annual meeting of stockholders
of the Company or until their successors are elected and qualified. Executive
officers hold office until their successors are chosen and qualify, subject to
earlier removal by the Board of Directors. The annual compensation to
non-salaried Board members (four) is $10,000 plus stock options. See Item 12. -
Security Ownership of Certain Beneficial Owners and Management.
- --------------------------------------------------------------
The Board of Directors met, either in person or telephonically, seven
times in fiscal 1995. Each of the directors attended or participated in 75% or
more of the meetings.
The Executive Committee exercises all the powers and authority of the
Board of Directors in the management and affairs of the Company between meetings
of the Board of Directors, to the extent permitted by law.
The Audit Committee reviews with the Company's independent accountants
the scope and timing of the accountants' audit services and any other services
they are asked to perform, their report on the Company's financial statements
following completion of their audit and the Company's policies and procedures
with respect to internal accounting and financial controls. In addition, the
Audit Committee reviews the independence of the independent public accountants
and makes annual recommendations to the Board of Directors for the appointment
of independent public accountants for the ensuing year. The Audit Committee met
twice in fiscal 1995.
The Compensation/Option Committee reviews and recommends to the Board
of Directors the compensation and benefits of all officers of the Company,
reviews general policy matters relating to compensation and benefits of
employees of the Company and administers the Company's Stock Option Plans. The
Compensation/Option Committee met once in fiscal 1995.
The Strategic Development Committee reviews and recommends to the Board
of Directors major business prospects and future planning as to products,
marketing and joint ventures. The Committee was organized on August 31, 1995,
and did not meet in fiscal 1995.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth the aggregate cash compensation paid by
the Company to (i) its Chief Executive Officer and (ii) its most highly
compensated officers whose cash compensation exceeded $100,000 for services
performed during the nine month period ended September 30, 1995. The Company is
reimbursed by AMS for a portion of the executive salaries pursuant to the Shared
Services Agreement.
Annual Compensation
-------------------
Other Annual
Name and Principal Salary Bonus Compensation
Position Year ($) ($) ($)
- ------------------ ---- ------ ----- ------------
Jack Nelson(1) 1995(4) $176,250 -0- -0-
-
Chairman and CEO 1994 239,853 -0- -0-
1993 97,692 $115,000 -0-
Charles Moche(2) 1995(4) 135,000 -0- -0-
CFO 1994 120,000 -0- -0-
Robert Kwolyk 1995(4) 109,615 -0- -0-
Long-Term Compensation
----------------------
Awards Payouts
------ -------
Stock
Restricted Options LTIP All Other
Name and Principal Stock Award(s) Award(s) Payouts Compensation
Position ($) (#) ($) ($)
- ------------------ -------------- -------- ------- -----------
Jack Nelson(1) -- -- -0- $12,150(3)
Chairman and CEO -- 300,000 -0- 18,900(3)
-- 250,000 -0- -0-
Charles Moche(2) -- -- -0- 6,000(3)
CFO -- 100,000 -0- 8,000(3)
Robert Kwolyk -- -- -0- 4,500(3)
(1) Mr. Nelson became a full-time employee beginning January 1, 1994.
(2) Mr. Moche became Chief Financial Officer beginning January 1, 1994.
(3) Paid to Mr. Nelson for the purpose of reimbursing him for transportation and
other expenses; and to Mr. Moche and Mr. Kwolyk for the purpose of reimbursing
them for transportation.
(4) Salary, all other compensation and stock options awarded during the nine
months ended September 30, 1995.
Employment Agreements
- ---------------------
As of December 6, 1993, the Company entered into an employment
agreement with Jack Nelson (the "Nelson Employment Agreement"), employing him as
Chairman of the Board, Chief Executive Officer and Treasurer of the Company
through December 31, 1996 at a base salary of $235,000, with a 10% increase in
base salary effective during the second year and an additional 10% increase in
base salary effective during the third year, such increases being subject to the
Company meeting revenue and net income budget projections. On December 20, 1995,
the Board of Directors authorized an extension of Mr. Nelson's employment
contract through December 31, 2000, under terms similar to his present
employment agreement.
Mr. Nelson is entitled to receive annual cash bonuses equal to 5% of
the Company's net income before interest and taxes. Mr. Nelson also was granted
options to purchase (i) 300,000 shares of the Company's Common Stock, with
100,000 shares to vest each year, provided that the Company exceeds certain
budget projections, and (ii) 150,000 shares of common stock of AMS, with
50,000 shares to vest each year, provided that AMS meets certain financial
and performance goals. Neither company reached the projected goals for 1994
or 1995. The Nelson Employment Agreement further provides that if Mr. Nelson
terminates his employment "for cause" or the Company terminates his employment
"without cause" (as each such term is defined in the Nelson
Employment Agreement), or upon Mr. Nelson's death or disability, Mr. Nelson or
his representative shall receive his annual base salary for two full years from
the date of his termination, less any amounts received under the Company's
insurance policies. In the event that the Company, without the consent of Mr.
Nelson, assigns its rights and obligations under the Nelson Employment Agreement
to any company with or into which the Company may merge or consolidate, or to
which the Company may sell or transfer all or substantially all of its assets or
of which 50% or more of the equity investment and of the voting control is
owned, directly or indirectly, by the Company, and if the assignee was not
previously part of a consolidated group with the Company, then Mr. Nelson may
terminate the Nelson Employment Agreement within thirty days after notice of
assignment, and he shall receive 2.99 times his full annual base salary plus any
bonuses, but not to exceed such amount which would result in an excise tax.
As of January 1, 1994, the Company entered into an Employment Agreement
with Charles Moche (the "Moche Employment Agreement"), employing him as Chief
Financial Officer of the Company through December 31, 1995 at a base salary of
$120,000 per annum and $180,000 per annum for the second year. Mr. Moche's
Employment Agreement has been extended through March 31, 1996, pending Board
approval of the recommendations by the Compensation Committee to extend his
employment.
Under the present agreement, Mr. Moche was granted options to purchase
100,000 shares of the Company's Common Stock to vest over a three-year period.
The Moche Employment Agreement further provides that if Mr. Moche terminates his
employment "for cause" (as such term is defined in the Moche Employment
Agreement), or upon Mr. Moche's death or disability, Mr. Moche or his
representative shall receive his annual base salary for one full year less any
amounts received under the Company's insurance policies. In the event that the
Company, without the consent of Mr. Moche, assigns its rights and obligations
under the Moche Employment Agreement to any company with or into which the
Company may merge or consolidate, or to which the Company may sell or transfer
all or substantially all of its assets or of which 50% or more of the equity
investment and of the voting control is owned, directly or indirectly, by the
Company, and if the assignee was not previously part of a consolidated group
with the Company, then Mr. Moche may terminate the Moche Employment Agreement
within thirty days after notice of assignment, and he shall receive 2.99 times
his full annual base salary, but not to exceed such amount which would result in
an excise tax.
As of May 1, 1994, the Company entered into an Employment Agreement
with Robert Kwolyk (the "Kwolyk Employment Agreement"), employing him as Vice
President, Sales and Marketing of the Company through April 30, 1997, at a base
salary of $150,000 per annum with a $15,000 increase in base salary effective
on each anniversary during its term. Mr. Kwolyk also received a $20,800
"signing" bonus and is entitled to receive annual cash bonuses based upon
the recommendation of the Compensation Committee. No bonuses were awarded
for 1994 or 1995. Mr. Kwolyk was also granted options to purchase (i) 200,000
shares of the Common Stock of the Company to vest over a three year period
and (ii) 50,000 shares of Common Stock of AMS to vest over a three year
period. The Kwolyk Employment Agreement further provides that if Mr. Kwolyk
terminates his employment "for cause" or the Company terminates his
employment "without cause" (as such term is defined in the Kwolyk Employment
Agreement), or upon Mr. Kwolyk's death or disability, Mr. Kwolyk or his
representative shall receive his annual base salary for two full years from the
date of his termination, less any amounts received under the Company's insurance
policies. In the event that the Company, without the consent of Mr. Kwolyk,
assigns its rights and obligations under the Kwolyk Employment Agreement to any
company with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets or of which
50% or more of the equity investment and of the voting control is owned,
directly or indirectly, by the Company, and if the assignee was not previously
part of a consolidated group with the Company, then Mr. Kwolyk may terminate the
Kwolyk Employment Agreement within thirty days after notice of assignment, and
he shall receive 2.99 times his full annual base salary plus any bonuses, but
not to exceed such amount which would result in an excise tax.
As of September 1995, the Company entered into an Employment Agreement
with Enrique Levy (the "Levy Employment Agreement"), employing him as President
and Chief Operating Officer of the Company commencing October 1, 1995, through
December 31, 2000, at a base salary of $225,000 per annum with a 10% increase in
base salary effective during the second year, with any additional increases
during the third, fourth and fifth years to be based upon increasing net income
of the Company and AMS in excess of the annual budgeted net income of the
respective companies. Mr. Levy also received a $30,000 "signing" bonus and is
entitled to receive annual cash bonuses based upon Mr. Levy's overall
performance including a comparison of the actual annual financial results of
each of the Company and AMS as compared to budgets for the year. Mr. Levy was
also granted options to purchase (i) 250,000 shares of the Common Stock of the
Company to vest over a three year period and (ii) 100,000 shares of Common Stock
of AMS to vest over a three year period. The Levy Employment Agreement further
provides that if Mr. Levy terminates his employment "for cause" or the Company
terminates his employment "without cause" (as such term is defined in the Levy
Employment Agreement), or upon Mr. Levy's death or disability, Mr. Levy or his
representative shall receive his annual base salary for two full years from the
date of his termination, less any amounts received under the Company's insurance
policies. In the event that the Company, without the consent of Mr. Levy,
assigns its rights and obligations under the Levy Employment Agreement to any
company with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets or of which
50% or more of the equity investment and of the voting control is owned,
directly or indirectly, by the Company, and if the assignee was not previously
part of a consolidated group with the Company, then Mr. Levy may terminate the
Levy Employment Agreement within thirty days after notice of assignment, and he
shall receive 2.99 times his full annual base salary plus any bonuses,
but not to exceed such amount which would result in an excise tax.
On May 2, 1995, John A. Lynch entered into an Employment Agreement (the
"Lynch Employment Agreement") with ANMR and MDI that became effective on August
31, 1995, the effective date of the MDI merger. Under the Lynch Employment
Agreement Mr. Lynch became the Chief Executive Officer and President of MDI and
Senior Vice President of ANMR. The Lynch Employment Agreement provided that Mr.
Lynch would be an unpaid director of MDI as well as AMS and ANMR, including
serving as the co-chairman of ANMR's Executive Committee.
Under the Lynch Employment Agreement, Mr. Lynch's annual base salary
was $375,000. The Lynch Employment Agreement was to terminate on the fifth
anniversary date of its August 31, 1995, effective date, unless otherwise
extended in accordance with its terms. Mr. Lynch also was entitled to
performance-based annual bonus payment based on the percentage of budgeted net
income actually earned by MDI, but not to exceed $500,000, as well as
participation in a performance unit plan and certain payments upon a "change in
control" of the Company.
Upon the effective date of the Lynch Employment Agreement, Mr. Lynch
was granted non-qualified stock options to acquire 150,000 shares of ANMR Common
Stock, exercisable for ten years.
In addition, Mr. Lynch entered into a Registration Rights Agreement
(the "Registration Rights Agreement") dated as of May 2, 1995, with ANMR giving
him the right, subject to customary terms and conditions, to include any shares
of ANMR Common Stock owned by him (except for shares acquired after the
termination of his employment other than pursuant to options outstanding on the
date of termination) in any registration statement filed by ANMR in connection
with the sale of ANMR Common Stock (other than registrations on Forms S-4 and
S-8), and to have such shares included as part of an underwritten public
offering of ANMR Common Stock. The Registration Rights Agreement contains
customary indemnification and contribution obligations on the part of ANMR and
Mr. Lynch.
Effective November 28, 1995, ANMR terminated the Lynch Employment
Agreement. Upon such termination, Mr. Lynch is receiving: (i) continuation for
thirty-six months of welfare and insurance benefits, (ii) pro-rated annual
performance bonus and performance unit incentive payments, (iii) the
supplemental retirement payment which would have been due and payable on January
1, 1996, (iv) continued accrual and vesting credit under the pension benefit
plans maintained by ANMR of the surviving corporation, and (v) accelerated
vesting and exercisability of all stock options and certain other equity-based
awards held by Mr. Lynch as of the date of termination. In addition, Mr. Lynch
agreed not to compete with ANMR and MDI for the twelve-month period following
the termination of his employment. In consideration of this non-competition
restriction, ANMR and MDI are obligated to pay Mr. Lynch the sum of $405,000,
50% has already been paid to Mr. Lynch and the balance is being paid in twelve
equal monthly installments of $16,875.
Robert Spira, M.D. received $25,000 in fiscal 1995 in salary as Vice
Chairman of the Board.
The Company does not have any annuity, retirement, pension or deferred
compensation plan or other arrangement under which any executive officers are
entitled to participate without similar participation by other employees.
STOCK OPTIONS
- -------------
In 1983, the Company adopted an Incentive and Non-Qualified Stock
Option Plan (the "1983 Plan") (which was amended and restated as of February 1,
1988), which provided for the granting of options to purchase not more than
1,000,000 shares of Common Stock. The options could have been "incentive stock
options" within the meaning of the Internal Revenue Code of 1986 as amended (the
"Code"), or non-qualified. The 1983 Plan terminated on June 29, 1993. Options
for an aggregate of 264,590 shares of Common Stock at exercise prices ranging
from $0.65 to $4.38 were outstanding under the 1983 Plan as of December 31,
1995.
In November 1993, the Company adopted the 1993 Employee Stock Option
Plan (the "1993 Employee Plan") and the 1993 Directors Stock Option Plan for
Non-Employee Directors (the "1993 Directors Plan").
1993 EMPLOYEE STOCK OPTION PLAN
The 1993 Employee Plan is open to all employees and officers of the
Company, and certain advisors or consultants to the Company as selected by the
Option Committee, which administers the Plan. This Plan includes Non-Qualified
Options and Incentive Options, as denominated under the Code. The maximum number
of shares of Common Stock which may be issued by the Company under the 1993
Employee Plan is 2,250,000 shares.
The Option Committee determines, subject to the provisions of the Plan,
to whom options are granted, the number of shares of Common Stock subject to
option, whether or not options shall be incentive stock options or non-qualified
stock options, the exercise price of incentive stock options granted under the
Plan must be at least equal the fair market value (110% of the fair market value
if the recipient owns more than 10% of the combined voting power of all classes
of outstanding stock of the Company ("10% Stockholder")) of the Common Stock on
the date of the grant. The aggregate fair market value (determined as of the
date of the grant) of the shares of Common Stock with respect to which incentive
stock options are exercisable for the first time by an employee during any
calendar year may not exceed $100,000. The exercise price of non-qualified
options may not be less than such fair market value. As of December 31, 1995,
incentive and non-qualified stock options to purchase an aggregate of 1,811,850
shares of Common Stock at per share exercise prices ranging from $0.88 to
$5.25 were outstanding under the Plan, and no options have been exercised under
this Plan.
Options and warrants assumed in the MDI Merger are exercisable for ANMR
Common Stock and warrants to purchase ANMR Common Stock.
1993 DIRECTORS STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1993 Directors Plan covers all directors of the Company who are not
employees of the Company. In 1994, this Plan was amended to reduce the number of
options to 15,000 shares from 25,000 shares of Common Stock a person is granted
upon becoming a director, and thereafter annually if such person has been a
director of the Company for more than six months. The maximum number of shares
which may be issued under the 1993 Directors Plan is 625,000. At December 31,
1995, there were outstanding options under this Plan for the purchase of 327,192
shares of Common Stock at per share exercise prices ranging from $1.58 to $3.94.
OTHER STOCK OPTIONS
In addition to the above plans, at December 31, 1995, there were
outstanding options and warrants to purchase 1,466,698 shares of Common Stock at
prices ranging from $0.79 to $10.63 per share exercisable through March 2005.
- -------------------------------------------------------------------------------
OPTION / SAR GRANTS IN LAST FISCAL YEAR
Individual
Grants
(a) (b) (c) (d) (e)
% of
Total
Number of Options/
Securities SARS
Underlying Granted to Exercise
Options/ Employees on Base
SARs in Fiscal Price Expiration
Name Granted (#) Year ($/Sh) Date
- -------------------------------------------------------------------------------
Jack Nelson -0-
Charles Moche -0-
Robert Kwolyk -0-
Potential Realizable Value Alternative
at Assumed Annual Rates to (f) and (g)
of Stock Price Appreciation Grant Date
for Option Term Value
(f) (g) (h)
Grant
Date
Present
Name 5% ($) 10% ($) Value $
- -------------------------------------------------------------------------------
Jack Nelson
Charles Moche
Robert Kwolyk
- -------------------------------------------------------------------------------
FISCAL YEAR END OPTION VALUE
NAME Value of Unexercised
- ---- NUMBER OF UNEXERCISED In-the-Money Options
OPTIONS AT SEPT. 30, 1995 at Sept. 30, 1995
EXERCISABLE/UNEXERCISABLE Exercisable
------------------------- --------------------
Jack Nelson....... 275,000/100,000 $34,531
Charles Moche..... 33,333/66,667 -0-
Robert Kwolyk..... 66,667/133,333 -0-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
AND MANAGEMENT
--------------
The following table sets forth, as of December 31, 1995, certain
information regarding the beneficial ownership of Common Stock by (i) each
person who is known by the Company to own beneficially more than five percent of
the outstanding Common Stock, (ii) each director of the Company, and (iii) all
directors and executive officers as a group:
Amount and Nature Percentage
Name and Address Position with of Beneficial of Common
of Beneficial Owner Company Ownership (1) Stock
- ------------------- ------------- ----------------- ----------
J. Morton Davis None 1,562,142 (2) 5.2%
44 Wall Street
New York, NY 10005
D.H. Blair Holdings, Inc. None 1,562,142 (2) 5.2%
44 Wall Street
New York, NY 10005
Jack Nelson Chairman of the 575,000 (3) 2.2%
Board; Chief
Executive Officer
Treasurer
Enrique Levy President; Chief -0- (4) *
Operating Officer;
Director
George Aaron Director 87,000 (5) *
Edward Connors Director 14,305 (6) *
John A. Lynch Director 1,335,081 (7) 4.4%
George A. Silver, MD Director 112,500 (8) *
Robert Spira, MD Director 87,350 (9) *
Sol Triebwasser, Ph.D. Director 87,250 (10) *
All directors and
executive officers as 2,298,486 7.5%
a group (8 persons) (3)(4)(5)(6)(7)(8)(9)(10)
(1) All shares of Advanced NMR Common Stock are beneficially owned, and the
sole voting and investment power is held by the persons named, except as
set forth in the notes below. A person is deemed to be the beneficial
owner of shares that can be acquired within 60 days of the date of this
table upon exercise of options or warrants.
(2) Includes (i) 1,291,242 shares held by D.H. Blair Investment Banking
Corp., an investment banking firm of which D.H. Blair Holdings
Inc. is the sole stockholder, of which Mr. Davis is the Chairman and
sole stockholder, and (ii) 270,900 shares held by Engex, Inc., a
closed-end investment company of which Mr. Davis is the President
and Chairman of the Board and as to which Mr. Davis disclaims beneficial
ownership. The information set forth with respect to the holdings of
J. Morton Davis is taken from Amendment No. 2 to Schedule 13G filed by
J. Morton Davis and D.H. Blair Investment Banking Corp. ("D.H. Blair")
with the Securities and Exchange Commission with respect to their
holdings of Advanced NMR Common Stock.
(3) Includes 250,000 shares underlying presently exercisable options granted
under the 1993 Employee Plan. Excludes (i) 2,000 shares owned by Mr.
Nelson's wife, as to which shares he disclaims beneficial ownership; and
(ii) 100,000 shares underlying options granted under the 1993 Employee
Plan which are subject to vesting thereunder.
(4) Excludes 250,000 shares underlying options granted which become
exercisable subject to vesting thereunder.
(5) Includes 85,000 shares underlying options presently exercisable under the
1983 Plan and the 1993 Directors Plan, and excludes 30,000 shares
underlying options under the 1983 Plan and the 1993 Directors Plan which
are not presently exercisable.
(6) Includes 14,305 shares underlying options presently exercisable under the
1993 Directors Plan, and excludes 15,000 shares underlying options under
the 1993 Directors Plan which are not presently exercisable.
(7) Includes 411,363 shares underlying presently exercisable options granted
under the 1993 Employee Plan.
(8) Includes 66,250 shares underlying presently exercisable options granted
under the 1983 Plan and the 1993 Directors Plan, and excludes 13,750
shares underlying options under the 1983 Plan and the 1993 Directors Plan
which are not presently exercisable.
(9) Includes 83,750 shares underlying options presently exercisable granted
under the 1983 Plan and the 1993 Directors Plan, and excludes 6,250
shares underlying options under the 1983 Plan which are not presently
exercisable.
(10) Includes 66,250 shares underlying presently exercisable options granted
under the 1983 Plan and the 1993 Directors Plan, and excludes 13,750
shares underlying options granted under the 1983 Plan and the 1993
Directors Plan which are not presently exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
In July 1992, the Company in forming AMS as a subsidiary for the
purpose of financing the development of MRI scanners for breast imaging entered
into the ANMR License Agreement, pursuant to which the Company licensed to AMS
the right to use the Company's technology in the development of a dedicated
breast imaging system. In consideration, AMS paid $1,680,000 and issued to the
Company 4,000,000 shares of AMS Common Stock, of which 2,750,000 shares are
subject to an escrow agreement described below.
As of January 25, 1993, the effective date of AMS' initial public
offering, the Shared Services Agreement with AMS became effective. Under the
Agreement, (i) the Company makes available its research scientists, engineers
and other personnel to AMS and, to the extent that more than 51% of the time of
any such individual is devoted to performing work for AMS, such person is deemed
a full time employee of AMS, (ii) the Company causes its executive officers to
serve as executive officers of AMS, and (iii) AMS continues to occupy its
required office and research space at the Company's facility and to utilize the
Company's administrative and clerical staff and services. To the extent
feasible, if any non-administrative full-time employees of either the Company or
AMS perform services for the other entity, the Company or AMS, as the case may
be, reimburses the other entity for such services based upon an hourly rate,
calculated as provided in the Shared Services Agreement (which is based on
direct expenses and allocation of overhead). The Shared Services Agreement had
an initial term of one year expiring January 24, 1994, and two one-year renewal
options. These renewal options have been exercised and the Agreement has been
extended to April 1996. AMS also pays the Company a monthly fee for overhead
services, which is calculated by apportioning the total amount spent by the
Company on all general overhead expenses, based on a fixed percentage of
overhead expenses plus an allocation of compensation of the executive officers
based upon the amount of time spent with the respective companies. The Company's
officers and employees are required by the Shared Services Agreement to devote
as much time to AMS business as they, in their discretion, consider appropriate.
The Boards of Directors and the President of both the Company and AMS are
responsible for determining the appropriate amount of time spent by the
Company's officers and employees pursuant to the Shared Services Agreement, and
overseeing the provision of such services. Seven of the ten officers and
directors of AMS are also officers and directors of the Company. Any conflicts
will be resolved by Jack Nelson, Chairman of the Board of both the Company and
AMS, and by the Board of Directors of each company, consistent with their
fiduciary duties.
As of September 30, 1995, the Company had made advances and been
reimbursed for expenses incurred on behalf of AMS for research and development
and other activities relating to the development of AMS' MRI scanner for breast
imaging aggregating approximately $2,698,000.
Also, in connection with the public offering, the Company placed
2,750,000 of its 4,000,000 shares of AMS Common Stock into escrow. The escrow
shares will be released based upon AMS achieving certain levels of pretax income
or share price in the future as follows: (a) 916,667 escrow shares are released
if AMS's minimum pretax income is at least $3.0 million during fiscal year 1995
and (b) the remaining 1,833,333 escrow shares are released or, if none of the
escrowed shares have been released under (a), then all 2,750,000 of the escrowed
shares are released, if (i) AMS's minimum pretax income is at least $5.0 million
during fiscal year 1995; or (ii) AMS's minimum pretax income is at least $8.0
million during fiscal year 1996; or (iii) beginning 19 months from January 25,
1993 and ending 36 months from the same date, the bid price for AMS's Common
Stock averages in excess of $20.00 per share for 30 consecutive days. On May 1,
1997, all escrow shares not released from escrow will be forfeited and
contributed to the capital of AMS. If and when the shares are released from
escrow, AMS will incur an expense based on the fair market value of AMS Common
Stock at the time they are released. For consolidation purposes, the Company
treats the escrow shares as if they were outstanding.
The Company believes that the transactions between the Company and AMS,
its subsidiary, described above were on terms not less favorable to the Company
than the terms that would have been available from unaffiliated parties under
similar circumstances. Actual comparisons with other transactions are not
possible, however.
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
-------------------------------------------------------
FORM 8-K
--------
(a)(1) The following financial statements are filed herewith:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
(a)(2) The following Financial Statement Schedules are filed herewith: None
All schedules have been omitted because they are inapplicable or not
required, or the information is included in the financial statements or
notes thereto.
(a)(3) Exhibits, including those incorporated by reference.
<PAGE>
Exhibit
No. Description
- ------- -----------
2 Agreement and Plan of Merger among Registrant, ANMR Acquisition
Corp. and Medical Diagnostics, Inc. ("MDI"), dated May 2, 1995
(incorporated by reference to Annex A to the Joint Proxy
Statement/Prospectus to Registrant's Registration Statement on Form
S-4, declared effective August 3, 1995 (File No.
33-95302)("Registrant's Form S-4")).
3.1 Certificate of Incorporation of Registrant. (incorporated by
reference to Exhibit 3 filed with Registrant's Registration Statement
on Form S-2, and amendments thereto, declared effective August 18,
1993 (File No. 2084785 ("Registrant's Form S-2"))
3.2 Amendment to Certificate of Incorporation of Registrant filed
November 5, 1993 (incorporated by reference to Exhibit 3.2 to
Registrant's Form S-4).
3.3 Amendment to Certificate of Incorporation of Registrant, filed August
31, 1995, (incorporated by reference to Exhibit 3.1 to Registrant's
Form 8-K for an event of August 31, 1995 (the "August 1995 Form
8-K")).
3.4* Amendment to Certificate of Incorporation of Registrant, filed
September 21, 1995.
3.5 Amended and Restated By-laws of Registrant (incorporated by reference
to Exhibit 3.4 to Registrant's Form S-4).
4.1.1 Form of Warrant Agreement between Registrant and American Stock
Transfer & Trust Company, as Warrant Agent (incorporated by reference
to Exhibit 4 to Registrant's August 1995 Form 8-K).
4.1.2 Form of Warrant Certificate (incorporated by reference to Annex B to
the Registrant's Joint Proxy Statement, dated August 31, 1995).
4.2 Specimen Certificate for Common Stock, par value $.01 per share, of
Registrant (incorporated by reference to Exhibit 4.2 to Registrant's
Form S-4).
4.3.1 Form of Supplemental Agreement relating to Registrant's assumption of
MDI's Obligations under the Warrant Agreement between MDI and First
Albany Corporation and Janney Montgomery Scott, Inc. (incorporated by
reference to Exhibit 4.3.1 to Registrant's Form S-4).
4.3.2 Form of Supplemental Agreement relating to Registrant's assumption of
MDI's Obligations under the Warrant Agreement between MDI and Jacob
Agam (incorporated by reference to Exhibit 4.3.2 to Registrant's Form
S-4).
4.4 Form of Warrant Certificate, dated as of March 6, 1994, issued to
Dominick & Dominick Incorporated (incorporated by reference to
Exhibit 4.4 to Registrant's Form S-4).
10.1 Registrant's 1983 Incentive and Non-Qualified Stock Option Plan,
Amended and Restated as of February 1, 1988, and form of incentive
stock option (incorporated by reference to Exhibit 10.4 to
Registrant's Form S-2).
10.2 Registrant's 1993 Employee Stock Option Plan (incorporated by
reference to Exhibit A of the Proxy Statement for Registrant's 1993
Annual Meeting of Stockholders (File No.
0-11914)).
<PAGE>
Exhibit
No. Description
- ------- -----------
10.3 Registrant's 1993 Directors Stock Option Plan for Non-Employee
Directors (incorporated by reference to Exhibit B of the Proxy
Statement for Registrant's 1993 Annual Meeting of Stockholders
(File No. 0-19914)).
10.4.1 Amended and Restated Agreement between the Registrant and General
Electric Company, dated November 30, 1989 (incorporated by reference
to Exhibit 10.6 filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990 (File No. 0-19914)).
10.4.2 Amended 1989 Agreement with General Electric Company, dated March 5,
1993 (incorporated by reference to Exhibit 10.12 filed with
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 0-11914)).
10.4.3 Amended 1993 Agreement with General Electric Company, dated March 5,
1993 (incorporated by reference to Exhibit 10.4.2 filed with
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 0-11914) (the "ANMR 1994 Form 10-K")).
10.4.5 1994 Agreement between Registrant and General Electric Company, dated
July 29, 1994 (incorporated by reference to Exhibit 10.4.5 to
Registrant's Form S-4).
10.5 Employment Agreement between Registrant and Jack Nelson, dated as of
December 6, 1993 (incorporated by reference to Exhibit 10.5 filed
with the ANMR 1994 Form 10-K).
10.6* Employment Agreement among Registrant, Advanced Mammography Systems,
Inc. ("AMS") and Enrique Levy, dated September 17, 1995.
10.7 Employment Agreement between Registrant and Charles Moche, dated
November 22, 1993 (incorporated by reference to Exhibit 10.7 to the
1994 ANMR Form 10-K).
10.8 Employment Agreement between Registrant and Robert L. Kwolyk, dated
as of April 25, 1994 (incorporated by reference to Exhibit 10.8 to
Registrant's Form S-4).
10.9 Employment Agreement among Registrant, MDI and John A. Lynch, dated
May 2, 1995 (incorporated by reference to Exhibit 47 to MDI's
Schedule 14D-9 (Amendment No. 18) filed on May 3, 1995).
10.10 Lease Agreement between Registrant and John T. Spinelli, dated May 5,
1991 (incorporated by reference to Exhibit 10.9 filed with
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 0-19914)).
10.11 License Agreement between Registrant and AMS, dated July 29, 1992
(incorporated by reference to Exhibit 10.13 to Registrant's Form
S-2).
10.12.1 Shared Services Agreement between Registrant and AMS dated October
28, 1992 (incorporated by reference to Exhibit 10.14 to Registrant's
Form S-2).
10.12.2 Letter Agreement, dated July 26, 1993 extending term of Shared
Services Agreement between Registrant and AMS (incorporated by
reference to Exhibit 12.2 to Registrant's Form S-4).
<PAGE>
Exhibit
No. Description
- ------- -----------
10.13 Escrow Agreement among Registrant, AMS and American Stock Transfer &
Trust Company, dated December 1992 (incorporated by reference to
Exhibit 10.15 to Registrant's Form S-2).
10.14 Loan and Security Agreement, dated as of August 31, 1995, between MDI
and Chemical Bank (without exhibits) (incorporated by reference to
Exhibit 10.2 to Registrant's August 1995 Form 8-K).
10.15 Guaranty and Security Agreement, dated as of August 31, 1995, between
Registrant and Chemical Bank (without exhibits) (incorporated by
reference to Exhibit 10.3 to Registrant's August 1995 Form 8-K).
10.16 Guaranty and Security Agreement, dated as of August 31, 1995, between
certain subsidiaries of MDI and Chemical Bank (without exhibits)
(incorporated by reference to Exhibit 10.4 to Registrant's August
1995 Form 8-K).
10.17 Pledge Agreement, dated as of August 31, 1995, between Registrant and
Chemical Bank (incorporated by reference to Exhibit 10.5 to
Registrant's August 1995 Form 8- K).
10.18 Pledge Agreement, dated as of August 31, 1995, between MDI and
Chemical Bank (incorporated by reference to Exhibit 10.6 to
Registrant's August 1995 Form 8-K).
10.19 Amended and Restated Joint Venture Agreement among MDI and Medical
Imaging Partners, L.P., dated August 6, 1990 (incorporated by
reference to Exhibit 10(b)(1) to MDI's Registration Statement on Form
S-1 as amended on October 30, 1991 (File No.
33-42748)) (the "MDI Registration Statement").
10.20 Restated Management Agreement between MDI and Mass. Mobile Imaging
Venture, dated August 6, 1990 (incorporated by reference to Exhibit
10(b)(2) to the MDI Registration Statement).
10.21 Restated and Amended Medical Imaging Lease and Services Agreement
between Western Mass. Magnetic Resonance Services, Inc. and Mass.
Mobile Imaging Venture, dated August 6, 1990 (incorporated by
reference to Exhibit 10(b)(3) to the MDI Registration Statement).
10.22 Medical Imaging Lease and Services Agreement between Mobile MRI of
Western Massachusetts Associates and Mass. Mobile Imaging Venture,
dated August 6, 1990 (incorporated by reference to Exhibit 10(b)(4)
to the MDI Registration Statement).
10.23 Lease Agreement between Medical Imaging Partners, L.P. and Mass.
Mobile Imaging Venture, dated December 31, 1986 (incorporated by
reference to Exhibit 10(b)(9) to the MDI Registration Statement).
10.24 MRI Management Services Agreement between Merrimack Valley Health
Services, Inc. and MDI dated October 1, 1990 (incorporated by
reference to Exhibit 10(f)(1) to the MDI Registration Statement).
<PAGE>
Exhibit
No. Description
- ------- -----------
10.25 Joint Venture Agreement of Mobile MRI of Western Massachusetts
Associates, between Mobile MRI of Western Massachusetts, Inc. and MRI
Associates Inc., dated December 22, 1986 (incorporated by reference
to Exhibit 10(h)(1) to the MDI Registration Statement).
10.26.1 Lease Agreement between MDI and the Trustees of Six New England
Executive Park, dated January 22, 1988 (incorporated by reference to
Exhibit 10(j) to the MDI Registration Statement).
10.26.2 First Amendment to Lease Agreement between MDI and the Trustees of
Six New England Executive Park, dated October 15, 1992.
10.26.3 Second Amendment to Lease Agreement between MDI and the Trustees of
Six New England Executive Park, dated April 6, 1993.
10.27 Severance Agreements between MDI and each of Judy C. Erbstein, David
C. Gaynor, Steven J. James, Eileen H. Kirrane, Elaine H. McCarthy,
Ruselle W. Robinson and John F. Sweeney, each dated February 16,
1995 (incorporated by reference to Exhibit 35 to MDI's Schedule
14D-9 (Amendment No. 13) filed with the Commission on February
23, 1995).
10.28 Stock Purchase Agreement between MDI, John W. Hammer and Hi-Chicago
Trust, dated October 12, 1988 (incorporated by reference to Exhibit
10(o) to the MDI Registration Statement).
10.29 Clinical License for MRI Services by Western Mass. Magnetic Resonance
Services, Inc. (incorporated by reference to Exhibit 10(p)(1) to the
MDI Registration Statement).
10.30 Clinical License for MRI Services by Mobile MRI of Western
Massachusetts Associates (incorporated by reference to Exhibit
(10(p)(2) to the MDI Registration Statement).
10.31 Clinical License for MRI Services by Central Mass. MRI Limited
Partnership ("Central Mass.") (incorporated by reference to Exhibit
10(p)(4) to the MDI Registration Statement).
10.32 Clinical License for MRI Services by Greater Boston MRI Limited
Partnership ("Greater Boston") (incorporated by reference to Exhibit
10(p)(3) to the MDI Registration Statement).
10.33.1 Determination of Need issued to Western Mass. Magnetic Resonance
Services, Inc., to provide Mobile MRI Services, dated May 29, 1986
(incorporated by reference to Exhibit 10(q)(1) to the MDI
Registration Statement).
10.33.2 Determination of Need issued to Western Mass. Magnetic Resonance
Services, Inc., to provide free-standing, fixed site MRI services,
dated April 3, 1989 (incorporated by reference to Exhibit 10(q)(2) to
the MDI Registration Statement).
10.34 Determination of Need issued to Central Mass., dated July 20, 1988
(incorporated by reference to Exhibit 10(q)(3) to the MDI
Registration Statement).
<PAGE>
Exhibit
No. Description
- ------- -----------
10.35.1 Determination of Need issued to Greater Boston MRI Services, Inc.
("Greater Boston"), dated April 8, 1988, with letter transferring
ownership of the Determination of Need to Greater Boston
(incorporated by reference to Exhibit 10(q)(4) to the MDI
Registration Statement).
10.35.2 Determination of Need issued to Greater Boston, dated October 12,
1989 (incorporated by reference to Exhibit 10(q)(5) to the MDI
Registration Statement).
10.36 Determination of Need issued to Mobile MRI of Western Massachusetts
Associates, dated August 28, 1989 (incorporated by reference to
Exhibit 10(q)(6) to the MDI Registration Statement).
10.37 Agreement between Stephen O.Dell, Seacoast Scanning, Inc., MDI and
Casco Bay MR Services, Inc., dated June 20, 1987 (incorporated by
reference to Exhibit 10(u) to the MDI Registration Statement).
10.38 Agreement in principle between MDI and Toshiba America Medical
Systems, Inc., dated November 8, 1991 (incorporated by reference to
Exhibit 10(ae)(7) to the MDI Registration Statement).
10.39 "Maxiservice" MRI Lease Agreement between General Electric Company
and Mass. Mobile Imaging Venture, dated February 21, 1991
(incorporated by reference to Exhibit 10(af)(1) to the MDI
Registration Statement).
10.40 "Masterline" Van Lease Agreement between General Electric Company and
Mass. Mobile Imaging Venture, dated February 21, 1991 (incorporated
by reference to Exhibit 10(af)(2) to the MDI Registration Statement).
10.41 Asset Purchase Agreement and Support Services Agreement
(incorporated by reference to Exhibit E-1 and E-2 to MDI's Report on
Form 8-K filed on November 17, 1993 (File No. 0-11914)).
10.42 Stock Purchase Agreement and First Amendment to Stock Purchase
Agreement (incorporated by reference to Exhibit E-1 and E-2 to MDI's
Report on Form 8-K/A filed on July 25, 1994 (File No. 0-11914)).
10.43 Amended License and Services Agreement between Burlington Imaging
Associates, Inc., P.C. and MDI (incorporated by reference to Exhibit
10 to MDI's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (File No. 0-19736)).
10.44 Purchase and Sale Agreement dated November 17, 1994 between MDI
Rehab, Inc. and MVA Center for Rehabilitation, P.C. (incorporated by
reference to Exhibit 2 to MDI's Report on Form 8-K filed on February
15, 1995 (File No. 0-19736)).
10.45 Amended Management Agreement between MDI and ICI dated October 30,
1987 and amended October 1, 1991 (incorporated by reference to
Exhibit 10(a)(1) and 10(a)(2) to the MDI Registration Statement).
10.46 Key Employment Agreement between MVA Rehabilitation Associates and
Eric T. Shebar, M.D. dated as of January 31, 1995 (incorporated by
reference to Exhibit 10(b) to MDI's Report on Form 8-K filed on
February 15, 1995 (File No. 0-19736)).
Exhibit
- -------
No. Description
- --- -----------
10.47 Amended and Restated Agreement of Partnership of MVA
Rehabilitation Associates (incorporated by reference to Exhibit 10(a)
to MDI's Report on Form 8-K filed on February 15, 1995 (File No.
0-19736)).
21. List of Registrant's subsidiaries.
23.* Consent of Richard A. Eisner & Company, LLP, independent public
accountants for Registrant.
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K for an event of August 31,
1995, announcing the merger of Medical Diagnostics, Inc. with the
Company. In addition, the Company announced the change in the
Company's fiscal year to September 30 from December 31.
- ----------------
* Included herewith
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
- I N D E X -
---------
PAGE
NUMBER
------
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS AS AT
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1994 (UNAUDITED) AND FOR
EACH OF THE YEARS IN THE TWO-YEAR PERIOD ENDED
DECEMBER 31, 1994 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1995 AND FOR EACH OF THE
YEARS IN THE TWO-YEAR PERIOD ENDED
DECEMBER 31, 1994 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1994 (UNAUDITED) AND FOR EACH
OF THE YEARS IN THE TWO-YEAR PERIOD ENDED
DECEMBER 31, 1994 F-6
NOTES TO FINANCIAL STATEMENTS F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Advanced NMR Systems, Inc.
We have audited the accompanying consolidated balance sheets of
Advanced NMR Systems, Inc. and subsidiaries as at September 30, 1995 and
December 31, 1994, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the nine month period ended
September 30, 1995 and each of the years in the two-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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, the consolidated financial statements enumerated
above present fairly, in all material respects, the consolidated financial
position of Advanced NMR Systems, Inc. and subsidiaries at September 30,
1995 and December 31, 1994, and the results of their operations and their
cash flows for the nine month period ended September 30, 1995 and for each
of the years in the two-year period ended December 31, 1994 in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
November 29, 1995
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30,
ASSETS 1995
------ ----
Current assets:
Cash and cash equivalents $7,542,508
Accounts receivable, net of reserve for bad debts of
$2,119,000 at September 30, 1995 9,741,892
Inventories:
Work-in-process 907,128
Raw materials 2,405,463
Finished goods --
----------
3,312,591
----------
Other current assets (Note D) 1,972,871
----------
Total current assets 22,569,862
----------
Equipment, building, furniture and leasehold
improvements (Note C):
Medical equipment 4,562,423
Office furniture and equipment 833,886
Research and production equipment 2,545,498
Leasehold improvements 1,852,778
Demonstration equipment 168,672
Building 210,739
----------
10,173,996
Less: accumulated depreciation and amortization 1,966,309
----------
8,207,687
----------
Patent costs, net of accumulated amortization 205,754
----------
Goodwill, net of accumulated amortization (Note J) 26,858,226
Other 590,180
----------
TOTAL $58,431,709
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $1,001,130
Accrued expenses (Note M) 4,355,404
Due to shareholders (Note J) 1,696,102
Customer deposits --
Current portion of long-term debt and capital
lease obligations (Note C) 4,274,110
Current maturities of deferred revenue 134,289
Due to affiliates 25,682
----------
Total current liabilities 11,486,717
----------
Long-term debt and capital lease obligations,
less current portion (Note C) 16,279,352
Deferred revenues, net of current 33,567
Minority interest in net assets of consolidated entities 2,614,107
Commitments (Note E)
Stockholders' equity (Note F):
Preferred stock, $.01 par value;
authorized, 1,000,000 shares;
issued, none --
Common stock, $.01 par value;
authorized, 50,000,000 shares;
issued, 30,151,821 shares in 1995
and 23,779,539 in 1994 301,518
Additional paid-in capital 58,246,689
Note receivable for stock issued (Note F) --
Accumulated deficit (30,527,991)
----------
28,020,216
Less: treasury stock, at cost - 225,000 common shares 2,250
----------
Total stockholders' equity 28,017,966
TOTAL $58,431,709
==========
The accompanying notes to financial statements are an integral part hereof.
December 31,
ASSETS 1994
------ ----
Current assets:
Cash and cash equivalents $5,599,855
Accounts receivable, net of reserve for bad debts of
$2,119,000 at September 30, 1995 2,110,712
Inventories:
Work-in-process 1,683,260
Raw materials 1,109,056
Finished goods 159,540
----------
2,951,856
----------
Other current assets (Note D) 125,182
----------
Total current assets 10,787,605
----------
Equipment, building, furniture and leasehold
improvements (Note C):
Medical equipment --
Office furniture and equipment 649,946
Research and production equipment 2,066,898
Leasehold improvements 270,809
Demonstration equipment 168,672
Building --
----------
3,156,325
Less: accumulated depreciation and amortization 1,448,231
----------
1,708,094
----------
Patent costs, net of accumulated amortization 148,511
----------
Goodwill, net of accumulated amortization (Note J) --
Other 47,942
----------
TOTAL $12,692,152
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $649,196
Accrued expenses (Note M) 405,078
Due to shareholders (Note J) --
Customer deposits 1,007,685
Current portion of long-term debt and capital
lease obligations (Note C) 111,485
Current maturities of deferred revenue --
Due to affiliates --
----------
Total current liabilities 2,173,444
----------
Long-term debt and capital lease obligations,
less current portion (Note C) 338,409
Deferred revenues, net of current --
Minority interest in net assets of consolidated entities 481,375
Commitments (Note E)
Stockholders' equity (Note F):
Preferred stock, $.01 par value;
authorized, 1,000,000 shares;
issued, none --
Common stock, $.01 par value;
authorized, 50,000,000 shares;
issued, 30,151,821 shares in 1995
and 23,779,539 in 1994 237,795
Additional paid-in capital 39,001,112
Note receivable for stock issued (Note F) (687,500)
Accumulated deficit (28,850,233)
----------
9,701,174
Less: treasury stock, at cost - 225,000 common shares 2,250
----------
Total stockholders' equity 9,698,924
TOTAL $12,692,152
==========
The accompanying notes to financial statements are an integral part hereof.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
------------
1995 1994
---- ----
Revenues: (unaudited)
System sales $6,643,090 $5,174,310
Net patient service revenue 1,934,322 --
Management fees and other 40,220 50,500
---------- ----------
Total revenues 8,617,632 5,224,810
---------- ----------
Operating expenses:
Cost of goods sold 4,124,354 1,956,611
Cost of service operations 1,203,497 --
Research and development 1,907,945 2,187,291
Selling, general and administrative 4,162,585 3,115,186
Provision for bad debt and
collection costs 162,377 --
---------- ----------
Total operating expenses 11,560,758 5,302,477
---------- ----------
Loss from operations (2,943,126) (2,034,278)
Other income (expense) (Note F) 579,758 --
Interest income 265,208 278,497
Interest expense (148,952) (74,806)
---------- ----------
Loss before minority interests (2,247,112) (1,830,587)
Minority interests in net losses of
consolidated entities 569,354 488,799
---------- ----------
Net loss $(1,677,758) $(1,341,788)
=========== ===========
Net loss per share $(.07) $(.06)
===== =====
Weighted average number of shares
outstanding 24,243,902 23,543,842
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
Year Ended
December 31,
-----------
1994 1993
---- ----
Revenues:
System sales $5,237,700 $1,894,900
Net patient service revenue -- --
Management fees and other 50,500 41,057
---------- ----------
Total revenues 5,288,200 1,935,957
---------- ----------
Operating expenses:
Cost of goods sold 2,414,121 1,528,248
Cost of service operations -- --
Research and development 2,954,509 3,290,002
Selling, general and administrative 4,356,996 2,913,043
Provision for bad debt and
collection costs -- --
---------- ----------
Total operating expenses 9,725,626 7,731,293
---------- ----------
Loss from operations (4,437,426) (5,795,336)
Other income (expense) (Note F) -- (801,750)
Interest income 208,480 170,720
Interest expense (21,017) (155,225)
---------- ----------
Loss before minority interests (4,249,963) (6,581,591)
Minority interests in net losses of
consolidated entities 702,965 414,641
---------- ----------
Net loss $(3,546,998) $(6,166,950)
========== ==========
Net loss per share $(.15) $(.32)
===== =====
Weighted average number of shares
outstanding 23,603,251 19,184,275
=========== ===========
The accompanying notes to financial statements are an integral part hereof.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional
------------ Paid-in
Shares Amount Capital
------ ------ -------
Balance - December 31, 1992 16,518,021 $165,180
$18,999,873
Increase in proportionate share of
subsidiary's equity related to public
offering of subsidiary's stock -- --
6,072,681
Issuance of common stock and
compensatory stock options for
services (Note F) 189,000 1,890
799,860
Exercise of Class A warrants 3,096,504 30,965
4,613,791
Exercise of Class B warrants 3,166,242 31,662
6,300,822
Commissions paid upon warrant exercise -- --
(382,630)
Exercise of stock options 497,263 4,973
1,218,256
Net loss for the year -- -- --
---------- -------- ----------
Balance - December 31, 1993 23,467,030 234,670 37,622,653
Exercise of stock options 312,509 3,125 841,095
Issuance of warrant (Note F) -- -- 35,200
Increase in proportionate share of
subsidiary's equity related to sale
of subsidiary's stock (Note F) -- -- 502,164
Note received in exchange for
stock issued (Note F) -- -- --
Net loss for the year -- -- --
---------- -------- ----------
Balance - December 31, 1994 23,779,539 237,795 39,001,112
Exercise of stock options 15,125 151 9,680
Cancellation of common stock
issued for services (Note F) (63,000) (630) (391,620)
Increase in proportionate share of
subsidiary's equity related to sale
of subsidiary's stock (Note F) -- -- 1,769,259
Cancellation of note received for
stock issued (Note F) (250,000) 2,500) (685,000)
Common stock issued related to
service business acquisition
(Note J) 6,670,157 66,702 18,543,258
Net loss for the period -- -- --
---------- -------- ---------
Balance - September 30, 1995 30,151,821 $301,518 $58,246,689
========== ======== ==========
The accompanying notes to financial statements are an integral part hereof.
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Note
Receivable
For Stock Accumulated
Issued Deficit
------ -------
Balance - December 31, 1992 $ -- $(19,136,285)
Increase in proportionate share of
subsidiary's equity related to public
offering of subsidiary's stock -- --
Issuance of common stock and
compensatory stock options for
services (Note F) -- --
Exercise of Class A warrants -- --
Exercise of Class B warrants -- --
Commissions paid upon warrant exercise -- --
Exercise of stock options -- --
Net loss for the year -- (6,166,950)
----------- ------------
Balance - December 31, 1993 -- (25,303,235)
Exercise of stock options -- --
Issuance of warrant (Note F) -- --
Increase in proportionate share of
subsidiary's equity related to sale
of subsidiary's stock (Note F) -- --
Note received in exchange for
stock issued (Note F) (687,500) --
Net loss for the year -- (3,546,998)
----------- ------------
Balance - December 31, 1994 (687,500) (28,850,233)
Exercise of stock options -- --
Cancellation of common stock
issued for services (Note F) -- --
Increase in proportionate share of
subsidiary's equity related to sale
of subsidiary's stock (Note F) -- --
Cancellation of note received for
stock issued (Note F) 687,500 --
Common stock issued related to
service business acquisition (Note J) -- --
Net loss for the period -- (1,677,758)
----------- ------------
Balance - September 30, 1995 $ -- $(30,527,991)
=========== ============
The accompanying notes to financial statements are an integral part hereof.
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Treasury Stock
--------------
Shares Amount Total
------ ------ -----
Balance - December 31, 1992 225,000 $(2,250) $26,518
Increase in proportionate share of
subsidiary's equity related to public
offering of subsidiary's stock -- -- 6,072,681
Issuance of common stock and
compensatory stock options for
services (Note F) -- -- 801,750
Exercise of Class A warrants -- -- 4,644,756
Exercise of Class B warrants -- -- 6,332,484
Commissions paid upon warrant exercise -- -- (382,630)
Exercise of stock options -- -- 1,223,229
Net loss for the year -- -- (6,166,950)
------- ------- ----------
Balance - December 31, 1993 225,000 (2,250) 12,551,838
Exercise of stock options -- -- 844,220
Issuance of warrant (Note F) -- -- 35,200
Increase in proportionate share of
subsidiary's equity related to sale
of subsidiary's stock (Note F) -- -- 502,164
Note received in exchange for
stock issued (Note F) -- -- (687,500)
Net loss for the year -- -- (3,546,998)
------- ------- ----------
Balance - December 31, 1994 225,000 (2,250) 9,698,924
Exercise of stock options -- -- 9,831
Cancellation of common stock
issued for services (Note F) -- -- (392,250)
Increase in proportionate share of
subsidiary's equity related to sale
of subsidiary's stock (Note F) -- -- 1,769,259
Cancellation of note received for
stock issued (Note F) -- -- --
Common stock issued related to
service business acquisition (Note J) -- -- 18,609,960
Net loss for the period -- -- (1,677,758)
------- ------- ----------
Balance - September 30, 1995 225,000 $(2,250) $28,017,966
The accompanying notes to financial statements are an integral part hereof.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
------------
1995 1994
---- ----
Cash flows from operating activities: (unaudited)
Net loss $(1,677,758) $(1,341,788)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Minority interest in net loss of
subsidiaries (569,353) (488,799)
Depreciation and amortization 633,948 330,859
Common stock and warrant issued
(cancelled) for services (392,250) --
Issuance of compensatory stock options -- --
Changes in assets and liabilities:
Accounts receivable, net (669,710) (2,082,539)
Inventories (360,735) (154,603)
Other assets 25,193 24,312
Accounts payable and accrued expenses 780,867 (525,314)
Other liabilities -- (712,669)
---------- ----------
Net cash used in operating activities (2,229,798) (4,950,541)
---------- ----------
Cash flows from investing activities:
Purchase of imaging and rehabilitation
business (Note J) (12,055,201) --
Patent costs (91,057) (83,465)
Purchase of equipment, furniture and
leaseholds improvements (198,328) (606,573)
Other assets -- --
---------- ----------
Net cash used in investing activities (12,344,586) (690,038)
---------- ----------
Cash flows from financing activities:
Payment of notes payable -- --
Public offering of subsidiary's stock -- --
Cost of subsidiary's public offering -- --
Exercise of stock options 9,831 46,921
Exercise of stock warrants, net of
commissions -- --
Proceeds from issuance of long-term
debt 13,500,000 --
Repayment of long-term debt and capital
lease obligations 222,772) (110,948)
Distributions to minority interests (37,500) --
Contributions from minority interests 67,593 --
Sale of warrant rights -- --
Sale of subsidiary stock 3,199,885 469,060
Payments received on note receivable
(Note F) -- --
---------- ----------
Net cash provided by financing
activities 16,517,037 405,033
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,942,653 (5,235,546)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,599,855 12,143,387
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $7,542,508 $6,907,841
========= =========
Supplemental disclosures of cash flow
information:
Interest paid during the year $47,390 $ --
Note received in exchange for stock (Note F)
See Note J with respect to imaging and rehabilitation business acquired.
See Note E with respect to noncash leasing transactions.
The accompanying notes to financial statements are an integral part hereof.
Year Ended
December 31,
-----------
1994 1993
---- ----
Cash flows from operating activities:
Net loss $(3,546,998) $(6,166,950)
Adjustments to reconcile net loss to
net cash used in operating activities:
Minority interest in net loss of
subsidiaries (702,965) (414,641)
Depreciation and amortization 475,918 475,854
Common stock and warrant issued (cancelled)
for services 35,000 614,250
Issuance of compensatory stock options -- 187,500
Changes in assets and liabilities:
Accounts receivable, net (2,080,387) 246,175
Inventories (925,153) (840,845)
Other assets (50,055) (59,927)
Accounts payable and accrued expenses 157,750 361,514
Other liabilities 126,506 673,432
----------- ----------
Net cash used in operating activities (6,510,384) (4,923,638)
----------- -----------
Cash flows from investing activities:
Purchase of imaging and rehabilitation
business (Note J) -- --
Patent costs (129,580) (11,019)
Purchase of equipment, furniture and
leaseholds improvements (662,301) (639,294)
Other assets -- 59,726
----------- ----------
Net cash used in investing activities (791,881) (590,587)
----------- ----------
Cash flows from financing activities:
Payment of notes payable -- (2,000,000)
Public offering of subsidiary's stock -- 8,901,129
Cost of subsidiary's public offering -- (1,436,617)
Exercise of stock options 47,125 1,223,229
Exercise of stock warrants, net of
commissions -- 10,594,610
Proceeds from issuance of long-term debt -- --
Repayment of long-term debt and capital lease
obligations (107,907) (17,559)
Distributions to minority interests -- --
Contributions from minority interests -- --
Sale of warrant rights 200 --
Sale of subsidiary stock 709,315 --
Payments received on note receivable (Note F) 110,000 --
----------- ----------
Net cash provided by financing activities 758,733 17,264,792
----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (6,543,532) 11,750,567
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 12,143,387 392,820
----------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $5,599,855 $12,143,387
========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the year $21,017 $103,400
Note received in exchange for stock (Note F) 797,500
See Note J with respect to imaging and rehabilitation business acquired.
See Note E with respect to noncash leasing transactions.
The accompanying notes to financial statements are an integral part hereof.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE A) - Business:
-------------------
The Company operates its business under two segments consisting of
Imaging Systems and Imaging and Rehabilitation Services. The Company's
results of operations for the nine months ended September 30, 1995 include
only one month of Imaging and Rehabilitation Services operations.
[1] Imaging Systems
---------------
The Company and one of its subsidiaries are engaged in the
development, manufacture and sale of Magnetic Resonance Imaging ("MRI")
systems. In 1989, the Company completed fabrication of a high-speed
imaging option enhancement package for existing MRI systems. In 1991, the
Company commenced commercial manufacturing of the option enhancement system
and in August 1992 received clearance by the United States Food and Drug
Administration ("FDA").
On July 2, 1992, the Company formed a wholly-owned subsidiary,
Advanced Mammography Systems, Inc. ("AMS"). The subsidiary was formed to
develop a dedicated MRI system. AMS obtained its mammography technology
from the Company and retained certain rights to other dedicated MRI systems
utilizing the technology rights. As more fully discussed in Note G, AMS
completed an initial public offering of its securities in 1993.
In October 1992, the Company entered into a Shared Services Agreement
with AMS that commenced on January 25, 1993 and provides that (i) the
Company shall make available its research scientists, engineers, and other
personnel and, (ii) provide executive officers to AMS and (iii) allow AMS
the use of its administrative and research facilities and clerical staff.
Costs are allocated between the companies based on estimated usage.
Certain of AMS's officers serve as officers of the Company and the Company
provides management and administrative support to AMS.
[2] Imaging and Rehabilitation Services
-----------------------------------
The Imaging and Rehabilitation Services segment consists of Medical
Diagnostics, Inc. ("MDI"), which the Company acquired on August 31, 1995.
MDI is an operator and manager of a network of mobile and fixed MRI units
in Massachusetts, New York, Virginia, West Virginia and Tennessee. MDI
also provides Single Photon Emission Computer Tomography ("SPECT") nuclear
medicine imaging services and physical therapy services. MDI's mobile MRI
and SPECT units are located in trailers that can be driven to specially
prepared sites at hospitals and clinics according to a predefined schedule.
MDI currently serves 43 hospitals and clinics with three SPECT units, 8
mobile MRI units, two fixed MRI centers and two managed MRI units. MDI
currently operates one center in Massachusetts that provides comprehensive
physician care, physical therapy and case management for motor vehicle
accident patients. MDI operates much of its business through various
partnerships and joint ventures in which MDI or a wholly-owned subsidiary
of MDI serves as a general partner.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE B) - Summary of Significant Accounting Policies
-----------------------------------------------------
[1] Principles of consolidation:
---------------------------
The consolidated financial statements include the accounts of the
Company, its majority-owned subsidiary, AMS and its wholly-owned
subsidiary, MDI (including MDI's wholly-owned subsidiaries and various
majority-owned or controlled partnerships and joint ventures). All
significant intercompany transactions have been eliminated in
consolidation.
[2] Revenue recognition:
-------------------
The Imaging Systems segment generally recognizes revenue when its
systems and products are shipped to the customer. During 1994, a special
order was received for a prototype system with customer-determined
specifications whereby revenue was recognized when the system was
substantially complete.
The Imaging and Rehabilitation Services segment recognizes revenue as
services are provided to patients. Reimbursements for services provided to
patients covered by Blue Cross/Blue Shield, Medicare, Medicaid, HMO's and
other contracted insurance programs are generally less than rates charged
by the Company. Differences between gross charges and estimated third-
party payments are recorded as contractual allowances in determining net
patient service revenue during the period that the services are provided.
MDI provides management services to its subsidiaries, affiliates and
outside parties. Fees for management services are generally based on a
standard monthly amount plus a percentage of net income, as defined.
Management fees are recognized as revenue during the period in which the
services are provided.
[3] Cash equivalents:
----------------
The Company considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents.
[4] Inventories:
-----------
Inventories are accounted for at the lower of cost or market using the
first-in, first-out ("FIFO") method.
[5] Equipment, building, furniture and leasehold improvements:
---------------------------------------------------------
Property, equipment, furniture and leasehold improvements are recorded
at cost. Expenditures for repairs and maintenance are charged to expense
as incurred, whereas major betterments are capitalized. Depreciation and
amortization are computed by the straight-line method over the estimated
lives of the applicable assets (3 to 10 years), or term of the lease, if
applicable. Assets are written off when they become fully depreciated.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE B) - Summary of Significant Accounting Policies - (Continued):
-------------------------------------------------------------------
Property and equipment under capital lease is stated at the lower of
the fair market value or the net present value of the minimum lease
payments at the inception of the lease. Capitalized lease equipment is
amortized over the shorter of the term of the lease or the estimated useful
life.
Asset Classification Useful Lives
-------------------- ------------
Medical and other equipment 5-8 years
Office furniture and equipment 5 years
Research and production equipment 5 years
Leasehold improvements Term of lease
Building 30 years
[6] Patents:
-------
Patent costs are being amortized on a straight-line basis over a five-
year period. Amortization charged to operations was approximately $34,000
and $51,000 for the nine month periods ended September 30, 1995 and 1994
and $58,000 and $46,000 for the years ended December 31, 1994 and 1993,
respectively.
[7] Net loss per share:
------------------
Net loss per common share was computed using the weighted average
common shares outstanding during the period. Outstanding warrants and
options had an anti-dilutive effect and were therefore excluded from the
computation of net loss per common share.
[8] Minority interests in net losses of consolidated entities
---------------------------------------------------------
Minority interests in net losses of consolidated entities represents
the allocation of net losses from certain consolidated entities to the
respective minority interest shareholders and joint venture partners.
[9] Fiscal year end
---------------
During 1995, the Company changed its fiscal year from December 31 to
September 30.
[10] Letters of credit
-----------------
The Company utilizes letters of credit to back certain financing
instruments. The letters of credit reflect fair value as a condition of
their underlying purpose and are subject to fees competitively determined
in the market place.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE C) - Long-term Debt and Capital Lease Obligations
-------------------------------------------------------
Long-term debt and capital lease obligations at September 30, 1995
consisted of the following:
Term loan and revolver loan payable to a bank
collateralized by substantially all the business
assets of the Company $13,500,000
Note payable to a leasing company, interest at 9.5%,
monthly payments of principal and interest of $55,762
payable through September 1998, collateralized by
certain business assets of the Company 1,698,000
Note payable to a leasing company, interest at the
prime rate plus 0.5%, monthly principal payments of
$22,917 payable through September 1999 collateralized
by certain business assets of the Company 1,077,440
Note payable to a bank, interest at 8.7%, monthly
payments of principal and interest of $10,415 payable
through January 1997, collateralized by certain
business assets of the Company 156,817
Other notes payable 313,405
Capital lease obligations with interest rates ranging
primarily from 7.5% to 16% 3,807,800
----------
Total long-term debt and capital lease obligations 20,553,462
Less: current maturities 4,274,110
----------
$16,279,352
==========
The Company has outstanding letters of credit totaling $800,000
which guarantee certain MDI equipment financings.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE C) Long-term Debt and Capital Lease Obligations
-----------------------------------------------------
On August 31, 1995, MDI entered into a bank credit facility to
borrow up to $15,000,000 (the "Credit Facility") under a $6,000,000
revolving credit loan which is due August 31, 1998 and a $9,000,000 term
loan which commenced on August 31, 1995. The term loan is required to be
paid in eighteen quarterly installments of $500,000 commencing March 31,
1996. As of September 30, 1995, there was $13,500,000 borrowed under the
Credit Facility. Borrowings under the revolving credit loan bear interest
at either 0.25% over the prime rate or 2.5% over the 30 day LIBOR rate.
Borrowings under the term loan will bear interest at either 0.5% over the
prime rate or 3.0% over the 30 day LIBOR rate. A condition of default
would increase the term loan rate to 2% over the prime rate. The lenders
have a security interest in substantially all of the assets of the Company.
The Credit Facility contains various restrictive operating and financial
covenants typically included in bank credit arrangements (including
limitations on incurring additional indebtedness, paying cash dividends to
the parent company, and maintaining certain financial ratios and default
provisions). At September 30, 1995, the Company was not in compliance with
several covenants which have been waived by the bank through September 30,
1996 or modified.
Future minimum lease payments, under capital leases, for the next
five years and thereafter are as follows:
Fiscal Year
-----------
1996 $1,904,188
1997 949,976
1998 724,052
1999 542,047
2000 221,478
Thereafter --
----------
4,341,741
Less: Amounts representing interest 533,941
----------
3,807,800
Less: Current maturities 1,620,203
----------
$2,187,597
==========
Maturities of long-term debt and capital lease obligations over
the next five years and thereafter are as follows:
Fiscal Year
-----------
1996 $ 4,274,110
1997 3,721,231
1998 8,067,359
1999 2,767,796
2000 1,722,966
Thereafter --
-----------
$20,553,462
===========
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE C) Long-term Debt and Capital Lease Obligations: - (Continued)
--------------------------------------------------------------------
Property and equipment under capital lease at September 30, 1995 is as
follows:
Property and equipment $3,050,822
Less: Accumulated amortization 379,761
---------
$2,671,061
=========
(NOTE D) - Income Taxes:
-----------------------
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109 (SFAS 109) "Accounting
for Income Taxes". SFAS 109 requires an asset and liability method of
accounting for income taxes. As of September 30, 1995 and December 31,
1994, after giving effect to SFAS No. 109, the components of the net
deferred tax asset and liability are as follows:
September 30, 1995 December 31, 1994
------------------ -----------------
Deferred tax assets:
Net operating loss carryforward $9,000,000 $8,000,000
Deferred gains 57,000 --
Stock option compensation 322,000 --
Capital lease 59,000 --
Other 88,000 10,000
Valuation allowance (8,760,000) (7,966,000)
--------- ---------
$ 766,000 $ 44,000
--------- ---------
Deferred tax liabilities:
Depreciation $ 420,000 $ 44,000
Amortization 137,000 --
--------- ---------
$ 557,000 $ 44,000
--------- ---------
Net deferred tax asset $ 209,000 $ --
========= =========
At September 30, 1995 and December 31, 1994, the valuation
allowance relates principally to uncertainty surrounding the realization of
the net operating loss carryforward benefit.
At September 30, 1995 and December 31, 1994, the Company had
available net operating loss carryforwards for tax purposes, expiring
through 2010 of approximately $23,100,000 $20,200,000, respectively. The
Internal Revenue Code contains provisions which may limit the net operating
loss carryforward available for use in any given year if significant
changes in ownership interest of the Company occur.
The Company and MDI file a consolidated tax return. The Company
and AMS file separate income tax returns. Accordingly, losses incurred by
AMS are not available to the Company to offset its future income.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE D) - Income Taxes: - (Continued)
-----------------------
The following table reconciles the tax provision per the
accompanying statements of operations with the expected provision obtained
by applying statutory tax rates to the pretax loss:
Nine Months Ended
September 30,
1995 1994
---- ----
(unaudited)
Pretax loss $(1,677,758) $(1,341,788)
Loss attributable to AMS 1,684,048 1,772,880
----------- -----------
Parent company pretax income (loss) $6,290 $(431,092)
=========== ===========
Expected tax (benefit) at 34% $2,000 $(147,000)
Adjustment due to increase in
valuation reserve -- 147,000
Utilization of available net operating loss
carryforward (2,000) --
----------- -----------
Tax provision per financial statements $ -- $ --
=========== ===========
Year Ended
December 31,
1994 1993
---- ----
Pretax loss $(3,546,998) $(6,166,950)
Loss attributable to AMS 2,503,162 1,764,596
----------- -----------
Parent company pretax income (loss) $(1,043,836) $(4,402,354)
=========== ===========
Expected tax (benefit) at 34% $(355,000) $(1,497,000)
Adjustment due to increase in
valuation reserve 355,000 1,497,000
Utilization of available net operating loss
carryforward -- --
Tax provision per financial statements $ -- $ --
=========== ===========
At September 30, 1995, other current assets include refundable federal
and state taxes totaling approximately $709,000.
(NOTE E) - Commitments:
----------------------
[1] Operating leases:
----------------
The Company leases facilities and equipment under noncancelable
operating leases expiring at various dates through fiscal 2000. Facilities
leases require the Company to pay certain insurance, maintenance and real
estate taxes. Rental expenses totalled approximately $485,000 and $300,000
for the nine month periods ended September 30, 1995 and 1994 and $398,000
and $370,000 for the years ended December 31, 1994 and 1993, respectively.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE E) - Commitments: - (Continued)
----------------------
Future basic rental commitments under operating leases are as
follows:
Fiscal Year
-----------
1996 $1,721,875
1997 1,365,966
1998 1,024,384
1999 447,524
2000 264,864
---------
Total $4,824,613
==========
Hospital Sites
--------------
The Company also leases specially prepared sites at certain
hospitals at which it operates its mobile MRI units. Space is also
generally leased within the hospital facilities for patient registration
and clinical and other administrative services. Lease agreements with the
hospitals are typically for five years.
Future rentals under hospital rent agreements are as follows:
Fiscal Year
-----------
1996 $ 379,724
1997 323,951
1998 259,699
1999 120,500
2000 51,000
Thereafter --
---------
Total $1,134,874
=========
Hospital rental expenses for the nine months ended September 30,
1995 totalled $38,272.
[2] GE agreement:
------------
During 1993, the Company entered into an agreement with General
Electric Company ("GE") to manufacture and distribute its option
enhancement systems exclusively for GE customers, which terminated as to
exclusivity on December 31, 1994. The agreement provides for certain
royalties to be paid to GE under certain conditions subsequent to the
period of exclusivity. Under the above agreement, GE is obligated to
purchase certain equipment from the Company through December 31, 1995. As
of December 31, 1995, GE had not satisfied its minimum obligations under
the above agreement. The Company is currently negotiating new terms with
GE under which it expects to continue to provide systems to GE.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE E) - Commitments: - (Continued)
----------------------
[3] Employment agreements:
---------------------
The Company has entered into employment agreements with several
of its officers expiring at various dates through December 31, 1996. The
agreements provide for annual base salaries aggregating approximately
$421,000 for the nine months ended September 30, 1995. The agreements also
provide for certain bonuses including a bonus equal to 5% of the Company's
net income before interest and taxes, and certain death and disability
benefits. Further, the agreements provide for benefits in the event, as
defined, that the officers terminate their relationships with the Company.
[4] Other commitments:
-----------------
In June 1991, an action was commenced alleging that the Company
breached a written agreement to lease a new facility. The action was
settled in 1993. Under the terms of the settlement, the Company agreed to
pay a total of $130,000, of which $60,000 was paid in 1993, $35,000 was
paid in 1994, and the remaining $35,000 was paid in 1995.
The Company is subject to legal proceedings and claims that arise
in the normal course of business. Management believes, based on
consultation with counsel, that any such liabilities resulting from these
matters would not materially affect the consolidated financial position of
the Company or its results of operations.
(NOTE F) - Capital Transactions:
-------------------------------
[1] Warrants:
--------
In connection with the acquisition of MDI (see Note J), the
Company issued 2,331,722 warrants to purchase the Company's stock at a
purchase price of $3.75 per share at any time up to the expiration date on
August 31, 2000.
In connection with various debt and equity financing arrangements
prior to 1994, the Company had issued warrants to purchase the Company's
common stock. During 1993, all outstanding warrants were either exercised
or expired. The warrants exercised resulted in the Company issuing
6,262,746 shares of common stock for net proceeds of approximately
$10,600,000.
In 1993, a consultant was engaged to assist the Company in
connection with the exercise of the above warrants. In lieu of a cash
payment, the consultant was granted 189,000 shares of common stock and an
option to purchase 250,000 shares of common stock at a
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE F) - Capital Transactions: - (Continued)
-------------------------------
purchase price of $2.50 per share. The difference between the fair market
value of the common stock and the amount to be paid therefore, amounting to
$801,750, has been recorded as consulting expense in the accompanying
financial statements for the year ended December 31, 1993. The Company
cancelled all of the options and 63,000 of the shares previously granted
resulting in other income of approximately $392,000 during the nine months
ended September 30, 1995.
During 1994, in connection with an agreement with a financial
advisory firm, the Company issued a warrant to the advisory firm to
purchase 350,000 shares of the Company's common stock. The warrant is
exercisable at $5.00 per share at any time up to the expiration date on
March 6, 2005. The number of shares under the warrant and the exercise
price are subject to adjustment in the event of stock dividends or splits.
The warrant was sold to the investment advisor for $200 and has been valued
at $35,200 in the accompanying financial statements. In addition to the
warrant, the advisory firm received a quarterly retainer fee of $15,000 and
received an additional fee for specific financing, merger or acquisition
services. The agreement is cancelable by either party at any time.
[2] Related-party transactions:
--------------------------
One of the Company's former directors who is the brother of the
president and sole shareholder of the underwriting firm used in the
Company's initial public offering in 1983 was a director at the time of the
offering. The underwriting firm has also assisted the Company in other
financing transactions, including the public offering of the Company's
subsidiary. The underwriting firm has received substantial fees,
commissions and expenses for its services. During 1993, the underwriting
firm exercised the remaining portion of a unit purchase option granted in
connection with a private placement of securities whereby the underwriter
purchased 146,000 shares of common stock and 146,000 class A warrants for
$438,000. The warrants were also exercised in 1993 as indicated in Note E.
[3] Stock options:
-------------
The Company has an Incentive and Nonqualified Stock Option Plan
which provides for the granting of options to purchase not more than
1,000,000 shares of common stock. Exercise prices for any incentive
options are at prices not less than the fair market value at the date of
grant, while exercise prices for nonqualified options may be at any price
in excess of $.01. When fair market value at the date of issuance is in
excess of the option exercise price, the excess is recorded as compensation
expense. The total number of shares authorized for grant under this plan
were reached during 1993 and no additional options can be granted.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE F) - Capital Transactions: - (Continued)
-------------------------------
Stock option transactions under the above plan for the past three
years are as follows:
Number of Option Price
Shares Per Share
------ ---------
Balance, December 31, 1992 325,750 $ .65 - $3.31
Granted in 1993 55,000 $3.13
Exercised in 1993 (41,263) $ .65 - $3.18
Cancelled in 1993 (3,000) $ .65 - $3.13
-----
Balance, December 31, 1993 336,487 $ .65 - $3.31
Exercised in 1994 (12,409) $ .65 - $3.18
Cancelled in 1994 (2,438) $ .65 - $3.18
-----
Balance, December 31, 1994 321,640 $ .65 - $3.31
Granted in 1995 6,000 $3.18
Exercised in 1995 (15,125) $ .65
Cancelled in 1995 (16,300) $3.13 - $3.18
------
Balance, September 30, 1995 296,215 $ .65 - $3.31
=======
During 1993, the Company adopted a new employee stock option plan
and a stock option plan for nonemployee directors. The employee stock
option plan provides for the granting of options to purchase not more than
2,250,000 shares of common stock. The options issued under the plan may be
incentive or nonqualified options. The exercise price for any incentive
options cannot be less than the fair market value of the stock on the date
of the grant, while the exercise price for nonqualified options will be
determined by the option committee. The Directors' stock option plan
provides for the granting of options to purchase not more than 625,000
shares of common stock. The exercise price for shares granted under the
Directors' plan cannot be less than the fair market value of the stock on
the date of the grant. Both plans expire May 25, 2003. Stock option
transactions under the 1993 plans are as follows:
Number
of Option Price
Shares Per Share
------ ---------
Granted in 1993 and outstanding
at December 31, 1993 960,000 $3.13 - $3.25
Granted in 1994 849,000 $2.38 - $5.25
Cancelled in 1994 (100,000) $5.25
-------
Balance, December 31, 1994 1,709,000 $2.38 - $5.25
Granted in 1995 871,242 $ .79 - $3.94
Cancelled in 1995 (341,200) $2.38 - $3.13
-------
Balance, September 30, 1995 2,239,042 $ .79 - $5.25
=========
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE F) - Capital Transactions: - (Continued)
-------------------------------
Through September 30, 1995, options to purchase a total of
1,235,318 shares of common stock (net of cancellations) not covered by the
stock option plans had been granted. Stock transactions not covered under
the stock option plans in 1995, 1994 and 1993 are as follows:
Number Option
of Price
Shares Per Share
------ ---------
Balance, December 31, 1992 633,750 $1.00 - $3.75
Granted in 1993 (Note E[1]) 250,000 $2.50
Exercised in 1993 (310,000) $1.00 - $3.75
-------
Balance, December 31, 1993 573,750 $2.75 - $3.38
Granted in 1994 10,000 $2.75
Exercised in 1994 (300,000) $2.75 - $3.18
Cancelled in 1994 (7,000) $3.18
-----
Balance, December 31, 1994 276,750 $3.18 - $3.38
Granted in 1995 610,318 $ .79 - $2.01
Cancelled in 1995 (261,750) $ .79 - $3.38
Balance, September 30, 1995 625,318 $ .79 - $3.38
=======
Under all plan and nonplan stock options, as of September 30,
1995, options to purchase 10,958 shares were available for grant and
options to purchase 2,265,325 shares at a weighted average price of $2.15
per share were exercisable. The outstanding options expire at various
dates within ten years from the date of grant.
[4] Common stock reserved:
---------------------
As of September 30, 1995, the Company has reserved approximately
2,725,000 shares of common stock for issuance upon the exercise of the
outstanding stock options granted in accordance with the stock option plans
and stock options not covered by stock option plans.
[5] Note receivable from stock sale:
-------------------------------
During 1994, a former employee of the Company exercised stock
options in exchange for a note. The note was a nonrecourse promissory note
bearing interest at the prime rate and was collateralized by the stock
issued upon the exercise of the stock option. Interest was payable
annually and the principal was due upon the sale of the shares by the
former employee. During 1995, the note was cancelled and the stock issued
was returned to the Company.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE G) - Majority-Owned Subsidiary (AMS):
------------------------------------------
AMS completed its initial public offering of stock in 1993 which
generated net cash proceeds to AMS of approximately $7,400,000. As a
result of the offering, the Company's percentage ownership of AMS was
reduced to 73%. Prior to the offering, AMS issued bridge notes with
warrants to purchase shares of common stock at a price of one-half the
public offering price. In connection with the offering, AMS also granted
an option to the underwriter to purchase shares at a price of 130% of the
public offering price. AMS has also established an employee stock option
plan under which certain options have been granted. As the warrants and
options are exercised, the Company's percentage ownership of AMS will be
further reduced. During 1994 and 1995, most of the above warrants and
options were exercised whereby the Company's percentage ownership of AMS
has been reduced to approximately 61% at September 30, 1995.
Also in connection with the public offering, the Company agreed
to place 2,750,000 of its 4,000,000 shares of AMS stock into escrow. The
escrow shares will be released based upon AMS achieving certain levels of
pretax income or share price in the future. If and when the shares are
released from escrow, AMS will incur an expense based on the fair market
value of AMS's stock at the time they are released. For consolidation
purposes, the Company treats the escrow shares as if they were outstanding.
If the shares are not ultimately released from escrow, the Company's future
interest in the earnings or losses of AMS will be reduced. The Company
does not currently believe that the escrow shares will be released.
(NOTE H) - Related Party Transactions
-------------------------------------
MDI has a management agreement with a professional corporation
owned by an officer/director of MDI (the "Professional Corporation").
Pursuant to the management agreement, MDI manages all business and
administrative aspects of the Professional Corporation, excluding medical
and related services. Management fees under this contract totaled $5,000
for the one month ended September 30, 1995.
Certain of the consolidated entities have entered into an
agreement with the Professional Corporation whereby the Professional
Corporation provided overall supervision and direction of medical services
provided by the consolidated entities. Each of the agreements was for a
five-year period, and required the payment of an annual fee and an initial
training fee. Currently, each agreement renews automatically for one-year
periods unless terminated by either party with appropriate advance notice.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE I) - Joint Venture
------------------------
MDI and an unrelated party (the "Joint Venture Partner") formed a
joint venture (the "Joint Venture") under an agreement dated December 31,
1986, as amended (the "Joint Venture Agreement"). The Joint Venture was
organized to license an MRI unit to an MDI operating entity (the "MDI
Operating Entity") and to manage the MDI Operating Entity. The Joint
Venture Partner was entitled to 46% of the net earnings of the Joint
Venture during the ten-year term of the Joint Venture Agreement.
The Joint Venture Partner purchased, for approximately
$2,620,000, the necessary MRI equipment/van and leasehold improvements
which it licenses to the Joint Venture. The Joint Venture Agreement
requires licensing fees to be paid as weekly priority payments to the Joint
Venture Partner. Licensing fees have aggregated approximately $44,170 for
the one month ended September 30, 1995. The Joint Venture in turn
sublicenses the equipment/van and leasehold improvements to the MDI
Operating Entity on the same terms under a Restated and Amended Medical
Imaging Lease and Services Agreement dated August 6, 1990 and expiring on
December 31, 1996 (the "Lease and Services Agreement"). These transactions
have been accounted for as a capital lease in the accompanying consolidated
financial statements and are included in the disclosures in Note C.
In 1990, the parties agreed to amend and restate various existing
agreements and to sign a Medical Imaging Lease and Services Agreement
effective June 1, 1990 and expiring on December 31, 1996 between the Joint
Venture and a second MDI operating entity. Also, the Joint Venture Partner
agreed to loan MDI up to $487,500 which amount was, on December 20, 1990,
converted to purchase from MDI an additional 5% interest in the earnings of
the Joint Venture. In connection with this transaction, MDI deferred a
$445,730 gain, which is being amortized on a straight-line basis over the
remaining term of the Joint Venture Agreement as an offset to minority
interest in consolidated partnerships' net income in the accompanying
consolidated statements of income.
The Company filed a complaint in September 1992 against the Joint
Venture Partner and certain of its affiliates, seeking a declaration,
damages, and equitable relief relating to an alleged breach by the Joint
Venture Partner of certain fiduciary and contractual obligations with
respect to the business of the Company. The Joint Venture Partner filed a
counterclaim against the Company also seeking damages and equitable relief
while alleging breach of fiduciary and contractual obligations by the
Company. Although the outcome of this litigation is uncertain, the Company
does not believe that the results of this litigation will have a material
effect on the consolidated financial position or results of operations of
the Company.
Deferred gains, including $60,000 per year related to the Joint
Venture Agreement, of approximately $11,000 related to the above
transactions have been amortized during the one month ended September 30,
1995.
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE J) - Acquisition of Medical Diagnostics, Inc.
---------------------------------------------------
Effective August 31, 1995, Medical Diagnostics, Inc. ("MDI")
merged (the "Merger") with a wholly-owned subsidiary of the Company. In
connection with the Merger, MDI entered into a loan and security agreement
with a bank to finance the cash portion of the merger (see Note C). The
acquisition has been accounted for under the purchase method of accounting
and the purchase price of $29,806,000, exclusive of related costs,
consisted of cash of approximately $11,196,000 and stock valued at
approximately $18,610,000. In addition, 2,331,722 warrants to purchase
ANMR stock at $3.75 per share were issued to MDI shareholders (see Note F).
The purchase price and costs associated with the acquisition exceeded the
fair value of the net assets acquired by approximately $26,933,000 which
has been assigned to goodwill and is being amortized on a straight-line
basis over thirty years. At September 30, 1995, the Company owed former
MDI shareholders approximately $1,696,000 for MDI common stock not yet
converted.
The following unaudited pro forma financial information combines
the results of the Company and the acquired entity as if these acquisitions
had occurred on January 1, 1994 and 1995, after giving effect to
amortization of goodwill and deferred financing fees, increased interest
expense on the borrowings, reversal of direct acquisition costs, reversal
of tax benefit recorded and decreases in interest income. The pro forma
financial information does not purport to be indicative of what would have
occurred had the acquisitions been made as of January 1, 1994 and 1995 or
results that may occur in the future.
Nine months ended Twelve months ended
September 30, 1995 December 31, 1994
------------------ -----------------
Net revenues $25,423,000 $26,312,000
Net loss $(3,481,000) $(4,420,000)
Loss per share $(0.12) $(0.15)
(NOTE K) - Business Segment Information
---------------------------------------
The nature of the products and services classified in the
business segments presented herein are described in Note A. Imaging
Systems includes revenues and expenses of the Company's manufacturing
business and Imaging and Rehabilitation Services includes the revenues and
expenses of the Company's Services business.
For the nine months ended September 30, 1995:
Imaging and
Imaging Rehabilitation
Systems Services Consolidated
------- -------- ------------
Sales $6,643,000 $1,975,000 $8,618,000
Operating loss (2,657,000) (286,000) (2,943,000)
Identifiable assets 39,331,000 19,101,000 58,432,000
Depreciation and amortization 397,000 237,000 634,000
Capital expenditures 182,000 16,000 198,000
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(NOTE L) - Subsequent Event
---------------------------
Effective November 28, 1995, the Company terminated the Key
Employment Agreement, dated May 2, 1995, of John A Lynch, Senior Vice
President of the Company and Chief Executive Officer of MDI. MDI's Chief
Operating Officer was named the Acting President of MDI. At September 30,
1995, accrued expenses include approximately $500,000 of severance benefits
accrued in accordance with the terms of the The Key Employment Agreement.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Section 13 or 15(d) 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 on
the 12th day of January 1996.
ADVANCED NMR SYSTEMS, INC.
By: /s/ Enrique Levy
---------------------------
Enrique Levy, President/COO
Pursuant to the requirements of the Securities Exchange Act of 1934
this report has been signed by the following persons in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Jack Nelson Chairman of the January 12, 1996
------------------------------ Board
Jack Nelson
/s/ Enrique Levy President, Chief January 12, 1996
------------------------------ Operating Officer
Enrique Levy and Director
/s/ Robert Spira, M.D. Vice Chairman of January 12, 1996
------------------------------ the Board
Robert Spira, M.D.
/s/ Charles Moche Chief Financial and January 12, 1996
------------------------------ Accounting Officer
Charles Moche
Director January , 1996
------------------------------
George Aaron
/s/ Edward Connors Director January 12, 1996
------------------------------
Edward Connors
Director January , 1996
------------------------------
John A. Lynch
/s/ George A. Silver, M.D. Director January 12, 1996
------------------------------
George A. Silver, M.D.
/s/ Sol Triebwasser, Ph.D. Director January 12, 1996
------------------------------
Sol Triebwasser, Ph.D.
<PAGE>
EXHIBIT INDEX
Exhibit
-------
3.4 Certificate of Amendment of Certificate of
Incorporation of Advanced NMR Systems, Inc.
10.6 Employment Agreement of Enrique Levy
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent
27 Financial Data Schedule
Exhibit 3.4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ADVANCED NMR SYSTEMS, INC.
(PURSUANT TO SECTION 242 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
ADVANCED NMR SYSTEMS, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of
the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The Board of Directors of the Corporation
-----
duly adopted resolutions setting forth a proposed amendment (the
"Amendment") to the Certificate of Incorporation of the
Corporation, declaring the Amendment to be advisable and calling
for the submission of the Amendment to the stockholders of the
Corporation pursuant to Section 242(b)(2) of the General
Corporation Law of the State of Delaware (the "DGCL"), and
stating that the Amendment will be effective only after approval
thereof by the holders of a majority of the outstanding shares of
stock of the Corporation entitled to vote thereon.
SECOND: Thereafter, pursuant to a resolution of the
------
Board of Directors of the Corporation, the Amendment was
submitted to the holders of all of the outstanding shares of
Common Stock of the Corporation at the 1995 Annual Meeting of
Stockholders, and a majority of such holders at that Meeting,
adopted the following resolution to amend the Certificate of
Incorporation of the Corporation:
RESOLVED, that the Certificate of Incorporation
be, and it hereby is, amended by deleting in its entirety
the present Article FOURTH and substituting in lieu thereof
the following new Article FOURTH:
FOURTH: Capital Stock. The total number of
------ -------------
shares of stock which the Corporation shall have authority
to issue is fifty-one million (51,000,000) shares, of which
fifty million (50,000,000) shares shall be Common Stock of
the par value of one cent ($.01) per share (hereinafter
called "Common Stock") and one million (1,000,000) shares
shall be Preferred Stock of the par value of one cent ($.01)
per share (hereinafter called "Preferred Stock").
A. Provisions relating to Preferred Stock.
--------------------------------------
Shares of Preferred Stock may be issued from time to time in
series, and the Board of Directors of the Corporation is
hereby authorized, subject to the limitations provided by
law, to establish and designate one or more series of the
Preferred Stock, to fix the number of shares constituting
each series, and to fix the designations, powers,
preferences and relative, participating, optional or other
special rights, and qualifications, limitations or
restrictions thereof, of each series and the variations and
the relative rights, preferences and limitations as between
series, and to increase and to decrease the number of shares
constituting each series. The authority of the Board of
Directors of the Corporation with respect to each series
shall include, but shall not be limited to, the authority to
determine the following:
(i) The designation of such series.
(ii) The number of shares initially
constituting such series.
(iii) The increase, and the decrease to
a number not less than the number of the outstanding shares
of such series, of the number of shares constituting such
series theretofore fixed.
(iv) The rate or rates, and the
conditions upon and the times at which dividends on the
shares of such series shall be paid, the preference or
relation which such dividends shall bear to the dividends
payable on any other class or classes or on any other series
of stock of the Corporation, and whether or not such
dividends shall be cumulative, and, if such dividends shall
be cumulative, the date or dates from and after which they
shall accumulate.
(v) Whether or not the shares of such
series shall be redeemable, and, if such shares shall be
redeemable, the terms and conditions of such redemption,
including, but not limited to, the date or dates upon or
after which such shares shall be redeemable and the amount
per share which shall be payable upon such redemption, which
amount may vary under different conditions and at different
redemption dates.
(vi) The rights to which the holders of
the shares of such series shall be entitled upon the
voluntary or involuntary liquidation, dissolution or winding
up of, or upon any distribution of the assets of, the
Corporation, which rights may be different in the case of a
voluntary liquidation, dissolution or winding up than in the
case of such an involuntary event.
(vii) Whether or not the shares of such
series shall have voting rights, in addition to the voting
rights provided by law, and, if such shares shall have such
voting rights, the terms and conditions thereof, including,
but not limited to, the right of the holders of such shares
to vote as a separate class either alone or with the holders
of shares of one or more other series of Preferred Stock and
the right to have more than one vote per share.
(viii) Whether or not a sinking fund or
a purchase fund shall be provided for the redemption or
purchase of the shares of such series, and, if such a
sinking fund or purchase fund shall be provided, the terms
and conditions thereof.
(ix) Whether or not the shares of such
series shall be convertible into, or exchangeable for,
shares of any other class or classes or any other series of
the same or any other class or classes of stock of the
corporation, and, if provision be made for conversion or
exchange, the terms and conditions of conversion or
exchange, including, but not limited to, any provision for
the adjustment of the conversion or exchange rate or the
conversion or exchange price.
(x) Any other relative rights,
preferences and limitations.
B. Provisions relating to Common Stock.
------------------------------------
(i) Subject to the preferential
dividend rights applicable to shares of the Preferred Stock,
as determined by the Board of Directors of the Corporation
pursuant to the provisions of part A of this Article FOURTH,
the holders of shares of the Common Stock shall be entitled
to receive such dividends as may be declared by the Board of
Directors of the Corporation.
(ii) Subject to the preferential
liquidation rights and except as determined by the Board of
Directors of the Corporation pursuant to the provisions of
part A of this Article FOURTH, in the event of any voluntary
or involuntary liquidation, dissolution or winding up of, or
any distribution of the assets of, the Corporation, the
holders of shares of the Common Stock shall be entitled to
receive all of the assets of the Corporation available for
distribution to its stockholders ratably in proportion to
the number of shares of the Common Stock held by them.
(iii) Except as otherwise determined by
the Board of Directors of the Corporation pursuant to the
provisions of part A of this Article FOURTH, the holders of
shares of the Common Stock shall be entitled to vote on all
matters at all meetings of the stockholders of the
Corporation, and shall be entitled to one vote for each
share of the Common Stock entitled to vote at such meeting,
voting together with the holders of the Preferred Stock who
are entitled to vote, and not as a separate class.
THIRD: The Amendment was duly adopted in
-----
accordance with the provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, said Advanced NMR Systems, Inc. has
caused this certificate to be signed by Jack Nelson, its Chairman
of the Board, as of the 21st day of September, 1995.
ADVANCED NMR SYSTEMS, INC.
By: /s/ Jack Nelson
--------------------------
Jack Nelson,
Chairman of the Board
Exhibit 10.6
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of September 13, 1995, by and
among ADVANCED NMR SYSTEMS, INC., a Delaware corporation
("ANMR"), ADVANCED MAMMOGRAPHY SYSTEMS, INC., a Delaware
corporation ("AMS") (ANMR and AMS sometimes referred to
collectively as the "Companies"), and ENRIQUE LEVY ("the
Executive").
WHEREAS, AMS, an affiliate of ANMR, and ANMR are
both engaged in research and development and applications in
the field of magnetic resonance imaging; and
WHEREAS, each of the Companies desires to retain
the services of the Executive as President and Chief
Operating Officer of the Companies, and the Executive desires
to render such services;
NOW, THEREFORE, in consideration of the foregoing
and the mutual agreements contained herein, the Companies and
the Executive agree as follows:
1. Employment. Each of the Companies hereby
----------
employs the Executive as its President and Chief Operating
Officer, and the Executive hereby accepts such employment and
agrees to perform services for the Companies, for the period
and upon the other terms and conditions set forth in this
Agreement.
2. Term. The term of the Executive's
----
employment (the "Term") shall be for a period of five years
commencing on October 1, 1995 (the "Commencement Date") and
terminating on September 30, 2000, and shall be automatically
renewable for an additional five year period unless
terminated by either the Executive or the Companies giving
written notice of non-renewal to the other prior to March 31,
2000. Should the Executive be unable for any reason to
commence his employment on the Commencement Date hereof, this
Agreement shall be void and of no force or effect and the
Executive shall promptly return to the Company all amounts he
received as a signing bonus pursuant to Section 5.01 hereof.
3. Representations of the Executive. The
--------------------------------
Executive represents to the Companies that (i) he is not
bound by any restrictive covenant or other agreement (written
or oral) which would prevent or restrict him in any manner
whatsoever from performing his duties as the Chief Operating
Officer or President of the Companies as provided in this
Agreement, (ii) his entry into and the performance under this
Agreement will not cause a breach under his present
employment arrangement, and (iii) he does not possess
confidential information arising out of his prior employment
which would be utilized in connection with his employment by
the Companies.
4. Position and Duties.
-------------------
4.01 Service with the Companies. The Executive
--------------------------
agrees to perform his executive employment duties consistent
with the positions specified in Section 1 hereof and he shall
be the most senior operating officer of both Companies with
exclusive senior authority and responsibility for all
operating decisions including, without limitation, those
involving hiring and firing of employees, research and
development, sales and marketing, administration and
financial reporting, subject to consultation with and
reporting to the Chairman of the Board and the Chief
Executive Officer and to the direction of the Board of
Directors of the respective Companies and in accordance with
the approved budget and business plan of the Companies. It
is understood that the Executive shall devote a portion of
his time hereunder to AMS serving as President and Chief
Operating Officer while AMS and ANMR are parties to a Shared
Services Agreement. The Executive shall allocate his time
between ANMR and AMS, as directed by the Chairman of the
Board and Chief Executive Officer of each of ANMR and AMS.
The Executive is serving as a member of the Board of
Directors of each of ANMR and AMS and the Executive shall
hereafter be on the management slate for election to the
Board of Directors of each of the Companies so long as this
Agreement is in effect; provided, however, that in the event
-------- -------
the Executive's employment hereunder is terminated as to one
of the Companies, the Executive shall immediately resign as a
Director of the affected Company. The Executive shall also
serve on the Executive Committee of each of ANMR and AMS and,
if requested, serve as a director of their subsidiaries as
may be in existence from time to time.
4.02 Performance of Duties. The Executive agrees
---------------------
to serve each of the Companies faithfully and to the best of
his ability and to devote the time, attention and efforts
necessary to advance the business and affairs of each of the
Companies during the Term of this Agreement. The Executive
shall operate primarily out of the executive offices located
in Fort Lee, N.J. (the "Executive Offices"), but it is
understood that the Executive shall also spend considerable
time as business operations require at the Companies' office
in Wilmington, Massachusetts and he will undertake such
travel as is necessary to perform his duties under this
Agreement. It is further understood that the Executive shall
devote his full and exclusive business time to ANMR, AMS and
any of their affiliates (excluding the business of Medical
Diagnostics, Inc. and its subsidiaries with respect to
operating decisions of such entities), subject to the
discontinuation of services to AMS upon termination of the
Shared Services Agreement, as provided for in Section 8.02
hereof. During the Term hereof, as provided herein, the
Executive shall not serve as a director, consultant or
advisor to any other corporation or business entity not
affiliated with the Companies without the prior written
consent of the Companies' Executive Committees, which consent
shall not be unreasonably withheld.
5. Compensation.
------------
5.01 Signing Bonus. In consideration of the
-------------
Executive agreeing to be President of the Companies in
accordance with this Agreement, the Executive shall receive a
$30,000 bonus upon his execution of this Agreement.
5.02 Base Salary. As compensation for all
-----------
services to be rendered by the Executive under this
Agreement, ANMR and AMS shall pay to the Executive an initial
base annual salary (the "Base Salary") of $225,000. The Base
Salary shall be paid in installments in accordance with
ANMR's normal payroll procedures and policies. The Base
Salary for the second year of this Agreement shall
automatically increase by an amount equal to at least ten
percent (10%) of the initial Base Salary for the first year.
Thereafter, the Base Salary shall be reviewed annually by the
Compensation Committee of the Board of Directors of ANMR and
AMS with any increases to be based upon the Executive's
success in increasing net income of the ANMR (excluding the
results of MDI) and AMS in excess of the annual budgeted net
income of the respective companies.
5.03 Payment by AMS. As between ANMR and AMS,
--------------
AMS shall bear a portion of the Base Salary as determined by
the Chief Financial Officer of the Companies based upon the
Executive's time which is devoted and allocated to AMS in
accordance with Section 4.01 hereof and other factors deemed
relevant by the Chief Financial Officer. The payment by AMS
may be either direct to the Executive or a reimbursement to
ANMR of amounts previously paid by ANMR to the Executive.
5.04 Bonus. In addition to the Base Salary, the
-----
Executive shall be eligible for an annual bonus, payable by
ANMR or AMS, as determined by the Compensation Committee of
the Board of Directors of each of the Companies. Such Bonus
shall be based upon the Executive's overall performance,
including a comparison of the actual annual financial results
of each of the Companies (excluding the results of Medical
Diagnostics, Inc. and its subsidiaries) as compared to the
budgets for such year.
5.05 Stock Options. Effective upon the
-------------
Commencement Date, the Executive shall be granted stock
options to purchase 250,000 shares of ANMR Common Stock under
the ANMR 1993 Employee Stock Option Plan and 100,000 shares
of AMS Common Stock under the AMS 1992 Employee Stock Option
Plan, exercisable at the respective market prices on the date
upon which the options are granted for a period of five years
and vesting as to one-third of the options at the conclusion
of each year commencing with the vesting of one-third the
options one year after the Commencement Date, which vesting
may be accelerated as provided for in Sections 7 and 8
hereof. The Executive may be granted such additional stock
options in each of ANMR and AMS as determined by the
respective Option Committees of the Boards of Directors of
the Companies.
5.06 Participation in Benefit Plans. During the
------------------------------
Term hereunder, to the extent that his position, title,
tenure, salary, age, health and other qualifications make him
eligible, the Executive shall be entitled to the following
employment benefits:
(i) vacation of four (4) weeks each calendar year and
sick leaves in accordance with ANMR's policies from time to
time in effect for officers and executive employees of ANMR;
and
(ii) participation, subject to requirements, in major
medical and dental, term life (with beneficiary selected by
the Executive), disability, or other insurance or
hospitalization plans and any pension, profit sharing or
other employee benefit plans, directors and officers
liability insurance, presently in effect or hereafter
instituted by ANMR and applicable to its officers and
executive employees generally.
5.07 Reimbursement of Expenses. In accordance
-------------------------
with the Companies' policies established from time to time,
ANMR or AMS, as applicable, shall pay or reimburse the
Executive for all reasonable and necessary out-of-pocket
expenses incurred by him in the performance of his duties to
either of the respective Companies under this Agreement.
Such expenses shall include, without limitation, $700 per
month for automobile expenses, as well as cellular and home
telephone charges for business use. It is understood that
the Executive shall make regular visits to the offices of the
Companies in Massachusetts for which he shall be reimbursed
for (i) travel expenses directly incurred in connection with
such commuting to and from Wilmington and (ii) hotel
accommodations in the Wilmington, Massachusetts area.
6. Protective Covenants.
--------------------
6.01 Confidentiality. Except as permitted or
---------------
directed by the Companies' Board of Directors, the Executive
shall not during the Term of this Agreement nor at any time
thereafter divulge, furnish or make accessible to anyone for
use in any way (other than in the ordinary course of the
business of the Companies) any confidential or secret
knowledge or information of either of the Companies or any of
their affiliates which the Executive has acquired or become
acquainted with prior to the termination of the period of his
employment by the Companies concerning any trade secrets,
confidential or secret designs, processes, formulae, plans,
devices or material (whether or not patented or patentable)
and budgets, business plans and contractual arrangements
directly or indirectly useful in any aspect of the business
of either of the Companies, any confidential customer or
supplier lists of either of the Companies, any confidential
or secret development or research work of either of the
Companies, or any other confidential or secret aspects of the
business of either of the Companies. The Executive
acknowledges that the above-described knowledge or
information constitutes a unique and valuable asset of each
of the Companies acquired at great time and expense by each
of the Companies, and that any disclosure or other use of
such knowledge or information other than for the sole benefit
of either of the Companies would be wrongful and would cause
irreparable harm to each of the Companies. Both during and
after the Term of this Agreement, the Executive shall refrain
from disclosing any confidential information that would
reduce the value of the use of such knowledge or information
to either of the Companies. The foregoing obligations of
confidentiality, however, shall not apply to any knowledge or
information which (i) at the time of disclosure or thereafter
is generally available to and known by the public (other than
as a result of its disclosure by the Executive), (ii) was
available to the Executive on a nonconfidential basis from a
source other than the Companies, provided that source is not
known by the Executive to be bound by any confidentiality
agreement with the Companies or otherwise subject to another
contractual, legal or fiduciary obligation of confidentiality
to the Companies or any other party or (iii) has been
independently acquired or developed by the Executive without
violating any of his obligations under this Agreement.
6.02 Non-Competition. The Executive recognizes
---------------
that the services to be performed by him for each of the
Companies are special and unique. The Executive further
recognizes that the nature of each of the Companies' business
is such that the Executive will have full knowledge of each
of the Companies' business plans, practices and secrets. The
parties therefore confirm that, in order to protect each of
the Companies' goodwill, it is necessary that the Executive
agree, and the Executive hereby does agree that during the
Term of his employment hereunder and for a period of one (1)
year following the termination of such employment (except if
this Agreement is not renewed at the end of any then Term,
the foregoing period shall be six (6) months following the
termination of employment), he shall not directly or
indirectly engage anywhere in the United States in
competition with either ANMR or AMS by being an employee,
shareholder, sole proprietor, partner, member or consultant
to an entity which is engaged in a business (the "Competitive
Business") similar to that conducted by ANMR, AMS or any of
their affiliates at any time during the six (6) month period
preceding his termination of employment with either ANMR or
AMS, as the case may be, provided that the termination of
employment with either of the Companies shall not, by reason
of this Section 6.02, restrict the Executive from continued
employment with the other Company.
6.03 Application. The restrictions in
-----------
Section 6.02 hereof shall not apply with respect to (i) a
passive investment by the Executive of less than 2% of the
outstanding shares of voting capital stock of any
corporation, (ii) employment by the Executive with an entity
in a management capacity in an area of business which does
not, directly or indirectly, include a Competitive Business,
(iii) a termination of this Agreement by both Companies other
than for cause pursuant to 7.05 hereof or by the Executive
for cause pursuant to Section 7.06 hereof or upon a change of
control pursuant to Section 7.07 hereof.
6.04 Remedies. The Executive agrees that any
--------
breach or threatened breach by him of any provision of this
Agreement shall entitle either or both of the Companies
affected by the breach, in addition to any other legal
remedies available to them, to apply to any court of
competent jurisdiction to enjoin such breach or threatened
breach.
7. Termination.
-----------
7.01 Disability of the Executive. The Executive
---------------------------
shall be considered disabled if, due to illness or injury,
either physical or mental, he is unable to perform his
customary duties and responsibilities as required by this
Agreement for more than six (6) months in the aggregate out
of any period of twelve (12) consecutive months. The
determination that the Executive is disabled shall be made by
the Executive Committee or by the Board of Directors of ANMR
based upon an examination and certification by a physician
selected by ANMR subject to the Executive's approval, which
approval shall not be unreasonably withheld. The Executive
agrees to submit timely to any required medical or other
examination, provided that such examination shall be
conducted at a location convenient to the Executive and that
if the examining physician is other than the Executive's
personal physician, the Executive shall have the right to
have his personal physician present at such examination.
7.02 Effect of Disability. If the Executive is
--------------------
found to be disabled pursuant to Section 7.01 hereof, within
30 days of such determination of disability, ANMR shall have
the option to terminate this Agreement by written notice to
the Executive stating the date of termination, which date may
be at any time subsequent to the date of such determination.
Upon termination of this Agreement due to disability as
provided herein, (i) the Companies shall pay to the
Executive, in proportion to the amounts they respectively
owe, the accrued amount of the Base Salary (and any Bonus),
prorated through the date of termination (other than expense
reimbursements which shall be paid in full), if, as and when
such amounts would be paid but for the termination of this
Agreement (ii) the Executive's inclusion in the health plan
shall continue at the expense of ANMR for a period of ninety
(90) days, provided the Executive does not obtain any
employment during that time which provides him with
comparable health plan coverage and also subject to any
changes in such plan as applicable to other executive
officers, (iii) the Companies shall pay to the Executive an
amount equal to (A) two (2) times his then Base Salary, less
(B) the aggregate amount of all income disability benefits
which he may be entitled to during the first twenty-four (24)
months after termination by reason of ANMR's disability
policies for which ANMR paid the premiums thereon, commencing
on the first day of the month immediately following the month
during which the foregoing termination of employment
occurred, and payable in twenty-four (24) equal monthly
installments, (iv) each of the Companies shall pay to the
Executive an amount equal to the product of (A) any Bonus
such Company had paid to the Executive for the immediately
preceding year of this Agreement multiplied by (B) a fraction
the numerator of which shall be the number of whole months
during the current year hereof that the Executive was an
employee of the respective Company and the denominator shall
be 12, and (v) all stock options and other equity based
awards granted by the Companies to the Executive shall become
fully vested and immediately exercisable subject to their
respective terms.
7.03 Death. If the Executive shall die during
-----
the term of this Agreement, this Agreement and the
Executive's employment hereunder shall terminate immediately
upon the Executive's death. Upon such termination, (i) the
Companies shall pay to the Executive's estate, in proportion
to the amounts they respectively owe, accrued amount of the
Base Salary (and any Bonus), benefits, reimbursements or
other sums payable pursuant to this Agreement accrued to the
date of death, (ii) the Companies shall pay to the Executive
an amount equal to two (2) times the Base Salary in effect at
his death, payable in twenty-four (24) equal monthly
installments, commencing on the first day of the month
immediately following the month in which the Executive died,
(iii) each of the Companies shall pay to the Executive's
estate an amount equal to the product of (A) any Bonus such
Company had paid to the Executive for the immediately
preceding year of this Agreement multiplied by (B) a fraction
the numerator of which shall be the number of whole months
during the current year hereof prior to the month in which
the Executive died and the denominator shall be 12, and (iv)
all stock options and other equity based awards granted by
the Companies to the Executive shall become fully vested and
immediately exercisable by the Executive's estate subject to
their respective terms.
7.04 By ANMR For Cause. Each of the Companies
-----------------
may terminate this Agreement for cause at any time. For
purposes of this Section 7.04, the term "cause" shall be
limited to (i) the willful engaging by the Executive in
misconduct which is materially injurious to ANMR or AMS or
their affiliates, (ii) the conviction of the Executive of a
crime involving any financial impropriety or which would
materially interfere with the Executive's ability to perform
his services required under this Agreement or otherwise be
materially injurious to ANMR or AMS, (iii) the failure of the
Executive to have disclosed to ANMR or AMS any prior
misconduct by the Executive which would adversely affect his
position with or status of the Companies, (iv) the failure of
the Executive to perform in any material respect any of his
material obligations under this Agreement without proper
justification, which failure is not cured within ten (10)
days after notice thereof from either of the Companies, or
(v) the breach by the Executive of any of his representations
herein. In the event this Agreement is terminated pursuant
to this Section 7.04, the Executive shall not be entitled to
any compensation other than his then current Base Salary or
any payments owed by ANMR or AMS which have accrued through
his date of termination, subject to the Companies' right of
offset based upon acts of the Executive which gave rise to
the termination and any other claims which the Companies may
then have against the Executive, and all stock options and
other equity based awards granted by the Companies to the
Executive which have not yet vested shall terminate.
7.05 By ANMR Not for Cause. If ANMR terminates
---------------------
this Agreement other than for cause as defined in
Section 7.04 hereof prior to the end of the then Term hereof,
the Executive shall be entitled to (i) the continuation of
his then Base Salary for three (3) full years from the date
of termination if the termination date is within two (2)
years of the Commencement Date or for two (2) full years from
the date of termination if the termination date is more than
two (2) years after the Commencement Date, which payments
shall be made in monthly installments, (ii) any payments owed
by ANMR or AMS which have accrued through his date of
termination, (iii) any Bonus through the end of the current
fiscal year, (iv) the continuation of his participation in
the health plan at the expense of ANMR for a period of two
(2) years subject to termination of such health benefits upon
the Executive becoming covered by a comparable plan offered
by a subsequent employer and also subject to any changes in
such plan as applicable to other executive officers, and (v)
all stock options and other equity based awards granted by
the Companies to the Executive under a plan of either of the
Companies shall become fully vested and immediately
exercisable subject to their respective terms.
7.06 By the Executive for Cause. The Executive
--------------------------
may terminate this Agreement for cause at any time upon
written notice given to the Companies not more than thirty
(30) days after the Executive becomes aware of an event which
may constitute "cause." For purposes of this Section 7.06,
the term "cause" shall be limited to (I) the failure of
either of the Companies to perform in any material respect
any of its material obligations under this Agreement without
proper justification, and such failure continues for at least
fifteen (15) days after written notice from the Executive to
the Companies specifying the nature of the alleged failure,
(II) a change in title or responsibilities or functions of
the Executive, (III) a change in reporting to Jack Nelson,
the current Chairman and CEO of ANMR or AMS, unless such
person's employment is terminated by reason of his death,
disability, voluntary resignation or removal for cause by the
respective Boards of Directors, or (IV) the relocation of the
Executive Offices of the Company to a site more than 30 miles
away from the current Executive Offices without the prior
consent of the Executive. In the event that the Executive
terminates this Agreement pursuant to this Section 7.06, the
Executive shall then be entitled to a severance payment equal
to an amount equal to: (i) three (3) times his then Base
Salary if the termination date is within two (2) years of the
Commencement Date or two (2) times his then Base Salary if
the termination date is more than two (2) years after the
Commencement Date, payable within thirty (30) days after the
termination of this Agreement by reason of this Section 7.06,
(ii) any payments owed by ANMR or AMS which have accrued
through his date of termination, (iii) any Bonus through his
date of termination, (iv) the continuation of his
participation in the health plan at the expense of ANMR for a
period of two (2) years subject to termination of such health
plan benefits upon the Executive becoming covered by a
comparable plan offered by a subsequent employer and also
subject to any changes in such plan as applicable to other
executive officers, and (v) all stock options and other
equity based awards granted to the Executive under a plan of
either of the Companies shall become fully vested and
immediately exercisable subject to their respective terms.
7.07 Change in Control of the Company. If, at
--------------------------------
anytime during the Term hereof, a change in control of ANMR
(as defined in Section 7.08 hereof) occurs, then within sixty
(60) days after receipt of written notice of such change in
control of ANMR, the Executive may, by written notice to ANMR
(or its successor), terminate this Agreement. In the event
of said termination, (i) the Executive shall receive a lump
sum payment equal to 2.99 times his then current Base Salary,
payable within thirty (30) days after termination of this
Agreement, (ii) ANMR (or its successor) shall maintain, at
its expense, the health plan coverage of the Executive for a
period of twelve (12) months after such termination, subject
to termination of such health plan benefits upon the
Executive becoming covered by a comparable plan offered by a
subsequent employer and also subject to any changes in such
plan as applicable to other executive officers and (iii) all
stock options and other equity based awards granted to the
Executive under a plan of either of the Companies shall
become fully vested and exercisable subject to their
respective terms; provided, however, if the amount to be paid
-------- -------
or distributed to the Executive pursuant to this Section 7.07
(taken together with any amounts otherwise to be paid or
distributed to the Executive by the Companies) (such amounts
collectively the "Section 7.07 Payment") would result in the
application of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or
any successor or similar provision thereto, the Section 7.07
Payment shall not be paid or distributed in the amounts or at
the times otherwise required by this Agreement, but shall
instead be paid or distributed annually, beginning within
thirty (30) days after the termination date pursuant to
Section 7.06 hereof and thereafter on each anniversary
thereof, in the maximum substantially equal amounts and over
the minimum number of years that are determined to be
required to reduce the aggregate present value of Section
7.07 Payment to an amount that will not cause any Section
7.07 Payment to be non-deductible under Section 280G of the
Code. For purposes of this Section 7.07, present value shall
be determined in accordance with Section 280G(d)(4) of the
Code. All determinations to be made under the foregoing
proviso to this Section 7.07 shall be made by the accounting
firm which served as the Company's independent public
accountant immediately prior to the change of control (the
"Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to the
Company and the Executive within twenty (20) days of the
termination date. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive.
7.08 Change of Control, Defined. "Change of
--------------------------
control of ANMR" shall be deemed to have occurred if:
(a) any "person" or "group" (as "person" and
"group" are defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than (i) the Executive or a person controlled
by him, (ii) a trustee or other fiduciary holding securities
under an employee benefit plan of ANMR, (iii) a person or
group by reason of a transaction with ANMR approved by the
ANMR Board of Director as constituted in accordance with
Subsection (b) below, or (iv) a corporation owned, directly
or indirectly, by the stockholders of ANMR in substantially
the same proportions, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of ANMR representing 20% or more
of the combined voting power of ANMR's then outstanding
securities; or
(b) individuals who on the Commencement Date
constitute members of the Board of Directors, or successors
chosen by such individuals, shall cease for any reason to
constitute a majority of the whole Board of Directors.
8. Assignment.
----------
8.01 Assignment and Inurement. This Agreement
------------------------
shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, administrators, successors
and permitted assigns. ANMR may, without the consent of the
Executive, assign its rights and obligations under this
Agreement to any corporation, firm or other business entity,
subject to the Executive's right to terminate this Agreement
pursuant to Section 7.06 hereof.
8.02 Separation. In the event that the Shared
----------
Services Agreement between AMS and ANMR terminates for any
reason and is not replaced by a similar sharing arrangement,
AMS would cease to have any obligation hereunder from the
date of the termination of the Shared Services Agreement and
the Executive's services shall thereafter be rendered solely
at the direction of ANMR, and the Executive's post-employment
obligations to AMS under Section 6.02 hereof shall commence
upon AMS ceasing to have any further obligation hereunder.
The termination of AMS's obligations hereunder pursuant to
the immediately preceding sentence shall not reduce the
compensation payable to the Executive under this Agreement.
9. Miscellaneous.
-------------
9.01 Governing Law. This Agreement is made under
-------------
and shall be governed by and construed in accordance with the
laws of the State of New Jersey.
9.02 Prior Agreements. This Agreement contains
----------------
the entire agreement of the parties relating to the subject
matter hereof and supersedes all prior agreements and
understandings (written or oral) with respect to such subject
matter. The parties hereto have made no agreements,
representations or warranties relating to the subject matter
of this Agreement which are not set forth herein.
9.03 Withholding Taxes. The Companies may
-----------------
withhold from any benefits payable under this Agreement all
federal, state, city and other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
9.04 Amendments. No amendment or modification of
----------
this Agreement shall be deemed effective unless made in
writing and executed by the parties hereto. Any written
waiver shall not be deemed a continuing waiver unless
specifically stated, shall operate only as to the specific
term or condition for the future or as to any act other than
that specifically waived.
9.05 Notices. Any notice, request, demand or
-------
other document to be given hereunder shall be in writing, and
shall be delivered personally or sent by registered,
certified or express mail or facsimile followed by mail as
follows:
If to ANMR:
Advanced NMR Systems, Inc.
46 Jonspin Road
Wilmington, Massachusetts 01887
Attn: Chairman of the Board
(Fax) (508) 658-3581
If to AMS:
Advanced Mammography Systems, Inc.
46 Jonspin Road
Wilmington, Massachusetts 01887
Attn: Chairman of the Board
(Fax) (508) 658-3581
If to the Executive:
Enrique Levy
436 Cape May Street
Englewood, New Jersey 07631
Fax (201) 568-5338
or to such other address as either party hereto may
hereinafter duly give to the other parties hereto.
9.06 Severability. To the extent any provision
------------
of this Agreement shall be invalid of unenforceable, it shall
be considered deleted here from and the remainder of such
provision and of this Agreement shall be unaffected and shall
continue in full force and effect. In furtherance and not in
limitation of the foregoing, should the duration of
geographical extent of, or business activities covered by any
provisions of this Agreement be in excess of that which is
valid or enforceable under applicable law, then such
provision shall be construed to cover only that duration,
extent or activities which may valid and enforceable be
covered. The Executive acknowledges the uncertainty of the
law in this respect and expressly stipulates that this
Agreement be given the construction which renders its
provisions valid and enforceable to the maximum extent (not
exceeding its express term) possible under applicable law.
9.07 Counterparts. This Agreement may be
------------
executed in counterparts, each of which shall be deemed an
original and all of which shall constitute a single
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year set forth above.
ADVANCED NMR SYSTEMS, INC.
By: /s/ Jack Nelson
------------------------
Jack Nelson, Chairman
ADVANCED MAMMOGRAPHY SYSTEMS, INC.
By: /s/ Jack Nelson
------------------------
Jack Nelson, Chairman
/s/ Enrique Levy
------------------------
ENRIQUE LEVY
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State of Percentage
Subsidiary Incorporation of Ownership
--------------------------------------------------------------
Advanced Mammography
Systems, Inc. Delaware 61.7
Medical Diagnostics, Inc. Delaware 100
Western Massachusetts
Magnetic Resonance
Services, Inc.* Massachusetts 100
MRI Associates, Inc.* Massachusetts 100
MDI Investment, Inc.* Massachusetts 100
Greater Springfield
MRI, Inc.* Massachusetts 100
Greater Boston MRI
Services, Inc.* Massachusetts 100
Mobile MRI of Western
Mass., Inc.* Massachusetts 100
Central Massachusetts
MRI Services, Inc.* Massachusetts 100
Casco Bay MR Services,
Inc.* Maine 100
MDI Finance and Leasing,
Inc.* Massachusetts 100
Merrimack Scanning, Inc.* New Hampshire 100
Middlesex MRI Center,
Inc.* Massachusetts 100
MDI-New York Inc.* New York 100
MDI Rehab, Inc.* Massachusetts 100
Meritus Health Systems,
Inc.* Virginia 100
Technician Services, Inc.* Virginia 100
Meritus-Southwestern
Virginia, Inc.* Virginia 100
Meritus-Iowa, Inc.* Virginia 100
Meritus West Virginia,
Inc.* Virginia 100
Meritus MRI, Inc.* Virginia 100
Meritus PLS, Inc.* Virginia 100
* Owned directly by Medical Diagnostics, Inc.
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements No. 33-47517, 33-70834 and 33-78928 of Advanced NMR
Systems, Inc. (the "Company") on Form S-8 of our report dated
November 29, 1995 on the consolidated financial statements of the
Company and its subsidiaries for the nine month period ended
September 30, 1995 and the years ended December 31, 1994 and
December 31, 1993 appearing in this Annual Report on Form 10-K of
the Company.
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
January 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVANCED
NMR SYSTEMS, INC.'S CONSOLIDATED BALANCE SHEET, STATEMENT OF INCOME, AND
STATEMENT OF CASH FLOW FOR THE PERIOD ENDED SEPTEMBER 30, 1995, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,543
<SECURITIES> 0
<RECEIVABLES> 11,861
<ALLOWANCES> (2,119)
<INVENTORY> 3,313
<CURRENT-ASSETS> 22,570
<PP&E> 10,174
<DEPRECIATION> 1,966
<TOTAL-ASSETS> 58,432
<CURRENT-LIABILITIES> 11,487
<BONDS> 0
<COMMON> 302
0
0
<OTHER-SE> 27,716
<TOTAL-LIABILITY-AND-EQUITY> 28,018
<SALES> 8,577
<TOTAL-REVENUES> 8,618
<CGS> 5,328
<TOTAL-COSTS> 11,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 162
<INTEREST-EXPENSE> 149
<INCOME-PRETAX> (1,677,758)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,677,758)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,677,758)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
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