UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
-------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from -------------- to --------------
Commission File Number: 0-11914
-------
Advanced NMR Systems, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2457487
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
46 Jonspin Road, Wilmington, Massachusetts 01887
-----------------------------------------------------
(Address or principal executive offices) (Zip Code)
(508) 657-8876
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
----- -----
As of July 31, 1996, there were 30,259,308 shares of Common
Stock, $.01 par value, outstanding.
<PAGE>
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Form 10-Q
for the quarterly period ended June 30, 1996 as set forth in the
pages attached hereto:
(List all such items, financial statements, exhibits
or other portions amended.)
1. Item 1 and 2 Financial Statements and Management's
Discussion and Analysis is amended to reflect a change
in accounting for the May 1996 issuance of the convertible
preferred stock and debentures. (See Note 1 in NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED).)
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
-------------------------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION Page No.
--------------------- --------
Item 1. Financial Statements
Consolidated Balance Sheets:
June 30, 1996 and September 30, 1995 4
Consolidated Statements of Operations:
Quarters and Nine Months Ended
June 30, 1996 and June 30, 1995 5
Consolidated Statement of Stockholders'
Equity 6
Consolidated Statements of Cash Flows:
Nine Months Ended June 30, 1996
and June 30, 1995 7
Notes to Consolidated Financial
Statements 8 - 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 12 - 14
PART II. OTHER INFORMATION
-----------------
Signatures 15
3
<PAGE>
FORM 10-Q/A
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, September 30,
ASSETS 1996 1995
------ -------- -------------
Current assets:
Cash and cash equivalents $6,592,955 $7,542,508
Accounts receivable, net of reserve
for bad debts of $2,407,000 at
June 30, 1996 and $2,103,000 at
September 30, 1995 8,932,649 9,741,892
Inventories 4,782,933 3,312,591
Other current assets 1,312,421 1,972,871
----------- -----------
Total current assets 21,620,958 22,569,862
----------- -----------
Equipment, building, furniture and
leasehold improvements, net 9,882,438 8,207,687
Patent costs, net 194,751 205,754
Goodwill, net 26,392,626 26,858,226
Other 859,241 590,180
----------- -----------
TOTAL $58,950,014 $58,431,709
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $3,210,524 $1,001,130
Accrued expenses 2,005,948 3,024,216
Due to shareholders 46,102 1,696,102
Customer deposits 842,120 --
Accrued compensation 741,656 1,331,188
Other current liabilities 80,857 159,971
Current portion of long-term debt
and capital lease obligations 4,062,279 4,274,110
----------- -----------
Total current liabilities 10,989,486 11,486,717
----------- -----------
Long-term debt and capital lease
obligations, less current portion 18,273,144 16,279,352
Deferred revenues, net of current -- 33,567
Minority interest in net assets of
consolidated entities 1,988,634 2,614,107
Stockholders' equity:
Preferred stock, $.01 par value;
authorized, 1,000,000 shares;
issued, 3,700 shares at June 30,
1996 37 --
Common stock, $.01 par value;
authorized, 50,000,000 shares;
issued, 30,259,308 shares at
June 30, 1996 and 30,151,821
shares at September 30, 1995 302,593 301,518
Additional paid-in capital 63,140,192 58,246,689
Accumulated deficit (35,741,822) (30,527,991)
----------- -----------
27,701,000 28,020,216
Less: treasury stock, at cost
225,000 common shares 2,250 2,250
----------- -----------
Total stockholders' equity 27,698,750 28,017,966
----------- -----------
TOTAL $58,950,014 $58,431,709
=========== ===========
The accompanying notes to financial statements are an integral
part hereof.
4
<PAGE>
FORM 10-Q/A
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
--------
1996 1995
---- ----
Revenues:
System sales $ 136,017 $4,333,414
Net patient service revenue 6,773,129 --
Management fees and other 146,254 --
---------- ----------
Total revenues 7,055,400 4,333,414
---------- ----------
Operating expenses:
Cost of goods sold 254,538 2,641,760
Cost of service operations 4,216,004 --
Research and development 533,017 613,586
Selling, general and
administrative 2,646,733 932,412
Provision for bad debt and
collection costs 603,510 --
---------- ----------
Total operating
expenses 8,253,802 4,187,758
---------- ----------
Income (loss) from operations (1,198,402) 145,656
Other income -- 8,215
Interest income 78,839 58,438
Interest expense (1,407,686) ( 3,694)
---------- ----------
Income (loss) before minority
interests and provision for
income taxes (2,527,249) 208,615
Minority interests in net
income (loss) of
consolidated entities (300,831) (184,546)
---------- ----------
Net income (loss) before
provision for income taxes (2,226,418) 393,161
Provision for income taxes (10,000) --
---------- ----------
Net income (loss) $(2,236,418) $393,161
=========== ==========
Net income (loss) per share $(.07) $.02
===== ====
Weighted average number
of shares outstanding 30,259,308 23,720,067
=========== ==========
Nine Months Ended
June 30,
--------
1996 1995
---- ----
Revenues:
System sales $ 2,404,621 $6,317,393
Net patient service revenue 19,052,622 --
Management fees and other 531,885 --
---------- ----------
Total revenues 21,989,128 6,317,393
---------- ----------
Operating expenses:
Cost of goods sold 1,637,225 3,873,489
Cost of service operations 11,970,632 --
Research and development 1,876,373 2,142,296
Selling, general and
administrative 7,767,088 3,258,708
Provision for bad debt and
collection costs 1,576,874 --
---------- ----------
Total operating
expenses 24,828,192 9,274,493
---------- ----------
Income (loss) from operations (2,839,064) (2,957,100)
Other income 126,263 400,465
Interest income 221,378 168,576
Interest expense (2,397,189) ( 11,847)
---------- ----------
Income (loss) before minority
interests and provision for
income taxes (4,888,612) (2,399,906)
Minority interests in net
income (loss) of
consolidated entities (360,487) (589,532)
---------- ----------
Net income (loss) before
provision for income taxes (4,528,125) (1,810,374)
Provision for income taxes (27,983) --
---------- ----------
Net income (loss) $(4,556,108) $(1,810,374)
=========== ==========
Net income (loss) per share $(.15) $(.08)
===== =====
Weighted average number
of shares outstanding 30,210,950 23,719,305
=========== ==========
The accompanying notes to financial statements are an integral
part hereof.
5
<PAGE>
FORM 10-Q/A
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Preferred Stock Common Stock
--------------- -----------------
Shares Amount Shares Amount
------ ------ ------ ------
Balance - September 30, 1995 -- -- $30,151,821 $301,518
Exercise of stock options -- -- 107,487 1,075
Issuance of Preferred Stock 3,700 37 -- --
Issuance of Warrants -- -- -- --
Deemed Preferred Stock
Dividend related to
beneficial conversion
feature of Convertible
Preferred Stock -- -- -- --
Increase in proportionate
share of subsidiaries
capital -- -- -- --
Net loss for period -- -- -- --
----- --- ---------- --------
Balance - June 30, 1996 3,700 $37 30,259,308 $302,593
===== === ========== ========
Paid-in Accumulated
Capital Deficit
------- -----------
Balance - September 30, 1995 $58,246,689 $(30,527,991)
Exercise of stock options 129,592 --
Issuance of Preferred Stock 3,316,608 --
Issuance of Warrants 183,380 --
Deemed Preferred Stock
Dividend related to
beneficial conversion
feature of Convertible
Preferred Stock 657,723 657,723
Increase in proportionate
share of subsidiaries
capital 606,200 --
Net loss for period -- (4,556,108)
----------- ------------
Balance - June 30, 1996 $63,140,192 $(35,741,822)
=========== ============
Treasury Stock
--------------
Shares Amount Total
------ ------ -----
Balance - September 30, 1995 225,000 $(2,250) $28,017,966
Exercise of stock options -- -- 130,667
Issuance of Preferred Stock -- -- 3,316,645
Issuance of Warrants -- -- 183,380
Deemed Preferred Stock
Dividend related to
beneficial conversion
feature of Convertible
Preferred Stock -- -- --
Increase in proportionate
share of subsidiaries
capital -- -- 606,200
Net loss for period -- -- (4,556,108)
------- ------- -----------
Balance - June 30, 1996 225,000 $(2,250) $27,698,750
======= ======= ===========
The accompanying notes to financial statements are an
integral part hereof.
6
<PAGE>
FORM 10-Q/A
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
June 30,
-----------------
1996 1995
---- ----
Cash flows from operating
activities:
Net loss $(4,556,108) $(1,810,374)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Minority interest in net loss
of consolidated entities (360,487) (589,532)
Depreciation and amortization 2,527,343 403,797
Amortization of beneficial
conversion feature 883,333 --
Common stock and warrant
issued for services -- 35,000
Changes in assets and
liabilities:
Accounts receivable, net 687,068 (1,574,216)
Inventories (2,479,731) (1,091,104)
Other current assets 674,463 (588,914)
Accounts payable and accrued
expenses 1,431,747 1,093,662
---------- ----------
Net cash used in operating
activities (1,192,372) (4,121,681)
---------- ----------
Cash flows from investing
activities:
Purchase of imaging and
rehabilitation business (1,650,000) --
Patent costs (36,203) (103,226)
Purchase of equipment,
furniture and leaseholds
improvements (527,184) (233,412)
Other assets (211,310) 14,875
---------- ----------
Net cash used in investing
activities (2,424,697) (321,763)
---------- ----------
Cash flows from financing
activities:
Exercise of stock options 130,667 233
Proceeds from issuance of
convertible debentures and
warrants 2,751,950 --
Proceeds from issuance of
long-term debt 680,000 --
Cancellation of stock and
options -- (392,250)
Proceeds from repayment of
note receivable -- 110,000
Repayment of long-term debt
and capital lease obligations (3,452,246) (82,472)
Distributions to minority
interests (759,500) --
Proceeds from issuance of
preferred stock 3,316,645 --
Sale of warrant rights -- 200
Sale of subsidiary stock -- 3,431,540
---------- ----------
Net cash provided by financing
activities 2,667,516 3,067,251
---------- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (949,553) (1,376,193)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 7,542,508 6,907,841
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $6,592,955 $5,531,648
========== ==========
Supplemental Disclosures of
Cash Flow Information:
Interest paid during the period $619,744 $11,847
======== =======
Supplemental Schedule of Non-cash
Investing and Financing
Activities:
Additions to capital leases $1,870,874 $ --
========== ==========
The accompanying notes to financial statements are an integral
part hereof.
7
<PAGE>
FORM 10-Q/A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
------------------------------------------------------
Note 1 - Basis of Presentation
------------------------------
The accompanying financial statements of Advanced NMR Systems,
Inc. ("ANMR" or the "Company") have been restated from those
originally issued to reflect a change in accounting for the
May 1996 issuance of the convertible preferred stock and
debentures described in Note 6 to the financial statements.
The preferred stock and debentures may be converted at a discount
to the traded market price of the common stock into which the
securities are convertible. Previously, the measurement of the
conversion features was calculated assuming that the estimated
fair value of the common stock into which the securities are
convertible was the quoted market price adjusted to reflect
transferability restrictions. Accordingly, no portion of the
proceeds of the issuances was allocated to the intrinsic value
of the "fixed discount". In March 1997, the Securities and
Exchange Commission's position was announced that a discount
should be computed based on the Company's quoted market price
and an allocation of a portion of the proceeds of the offerings
should be recognized as a deemed dividend in the case of the
preferred stock and as additional interest expense in the case
of the debentures. The Company is restating its financial
statements to comply with this accounting treatment.
This amended Form 10-Q should be read in conjunction with
all subsequent filings with the Securities and Exchange Commission
which disclose significant developments including the sale of a
subsidiary of the Company and a proposed merger of ANMR and
Advanced Mammography Systems, Inc. ("AMS"). The impact on the
financial statements for the three and nine months ended
June 30, 1996 was to increase the consolidated net loss by
approximately $536,000 and to increase dividends by approximately
$658,000 and to increase the net loss per share by $.01 and $.02,
respectively.
The results of operations for the interim periods shown in
this report are not necessarily indicative of results to be
expected for the fiscal year. In the opinion of management, the
information contained herein reflects all adjustments necessary
to make the results of operations for the interim periods a fair
statement of such operations. All such adjustments are of a
normal recurring nature.
The accompanying financial statements do not contain all of
the disclosures required by generally accepted accounting
principles and should be read in conjunction with the financial
statements and related notes included in the Company's annual
report on Form 10-K for the nine month period ended September 30,
1995.
Note 2 - The Company
--------------------
The Company operates its business under two segments
consisting of Imaging Systems and Imaging and Rehabilitation
Services.
Imaging Systems
---------------
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
8
<PAGE>
development activities. In 1992, ANMR received U.S. Food and
Drug Administration ("FDA") clearance for its InstaScan system
and commenced commercial marketing activities to clinical
institutions. InstaScan technology is currently incorporated in
several systems, including the 3T/4T very high field MRI systems
where the Company is the exclusive systems integrator for General
Electric Medical Systems, and a neurological product.
In 1992, the Company formed Advanced Mammography Systems,
Inc. ("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. At June 30, 1996, ANMR
had an approximately 61% ownership interest in AMS, a publicly-
traded company, which has developed a dedicated MR Breast Imaging
system and has received FDA clearance for commercial use. AMS is
traded on the NASDAQ stock market under the ticker symbol MAMO.
Imaging and Rehabilitation Services
-----------------------------------
The Imaging and Rehabilitation Services segment consists of
Medical Diagnostics, Inc. ("MDI"), which the Company acquired on
August 31, 1995 as the initial phase of the Company's strategy to
penetrate and expand its business into MRI and rehabilitation
services. 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,
Computerized Axial Tomography ("CT") medical imaging services and
physical therapy services. 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.
Note 3 - The GEMS Agreement
---------------------------
In July 1994, the Company concluded an agreement with
General Electric Medical Systems ("GEMS") for the sale of 3T and
4T research MR systems to GEMS which currently runs through June
1999. These systems, which have not yet been submitted to the
FDA for clearance for commercial use, are being sold to research
institutions throughout the world. To date, very high field
systems have been installed at University of Florida at
Gainesville, the University of California at Los Angeles and
Niigata University in Niigata, Japan. Another system is expected
to be shipped to a university in Japan during the fourth 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 Company's InstaScan
product.
The Company had marketed InstaScan through joint marketing
agreements with GEMS. The original 1993 Agreement had provided
for GEMS to purchase 100 InstaScan units over a two year period
which ended on December 31, 1994. If GEMS did not achieve the
minimum purchases under the contract, it was to have paid certain
amounts as a penalty. In July 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 July 31, 1996, GEMS has purchased
seventeen InstaScan systems and three 3T/4T systems and an
additional unit is expected to be delivered to a site in Japan
during the fourth quarter of fiscal 1996. As of July 31, 1996,
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. In January 1996, the Company
reached an agreement with GEMS to extend the contract between the
companies whereby the Company is the exclusive system integrator
9
<PAGE>
for 3T and 4T MR imaging systems through June 1999 and extended
the period for the payment of the minimum purchase obligation.
As of June 30, 1996, there have not been any further 3T/4T MR
imaging systems orders. The Company is reviewing its
relationship and obligation with GEMS.
Note 4 - AMS (Subsidiary) Escrow Shares
---------------------------------------
In connection with the AMS January 1993 public offering, the
Company, which was the sole stockholder of AMS, placed in escrow
an aggregate of 2,750,000 (the "Escrow Shares") of the 4,000,000
shares of Common Stock it owned. The Company may vote the Escrow
Shares, but cannot assign or transfer them while they remain
subject to the escrow.
The Escrow Shares would be released upon either the Company
meeting certain threshold amounts of pretax net income or the
average closing bid price of the Common Stock meeting certain
threshold price levels for certain prescribed periods. The only
unexpired threshold is the Company having a minimum pretax income
equal to at least $8.0 million for the year ending December 31,
1996. No Escrow Shares have been released from the escrow. The
Company expects the escrow shares will be forfeited and
contributed to the capital of AMS on May 1, 1997.
Note 5 - MDI Merger and Related Pro Forma Financial Information
---------------------------------------------------------------
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. 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, approximately 2,332,000 warrants to
purchase ANMR stock at $3.75 per share were issued to MDI
shareholders and the Company granted 1,218,000 options and
426,000 warrants upon assumption of outstanding MDI stock
options. The purchase price and costs associated with the
acquisition exceeded the fair value of the net assets acquired by
approximately $27,144,000 which has been assigned to goodwill and
is being amortized on a straight-line basis over thirty years.
The following unaudited pro forma financial information
combines the results of the Company and the acquired entity as if
the acquisition had occurred on October 1, 1994, 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
acquisition been made as of October 1, 1994 or results that may
occur in the future.
Nine months ended
June 30,1995
------------
Net revenues $24,400,000
Net loss $(3,062,000)
Loss per share $(0.10)
10
<PAGE>
Note 6 - Private Placement of Convertible Preferred Stock, Private
------------------------------------------------------------------
Placement of Subsidiary Convertible Debentures, Termination of
--------------------------------------------------------------
Plan of Merger
---------------
As of May 31, 1996, the Company closed a Regulation S private
placement (the "Placement") of 3,700 shares of its newly-created
Series A Convertible Preferred Stock, $.01 par value, (the
"Preferred Stock"), for an aggregate purchase price of $3,700,000.
Net proceeds from the Placement was approximately $3,320,000 after
payment of fees and related expenses.
Preferred Stock shareholders are entitled to receive
dividends at a rate of $40.00 per share per annum, when and as
declared by the Board of Directors of the Company. The Company
is restricted from declaring any cash dividends on the Preferred
Stock.
Holders of Preferred Stock may, at any time commencing
forty-five days after the closing date, convert 50% of its shares
of Preferred Stock into shares of the Company's Common Stock,
$.01 par value per share (the "Common Stock") and convert the
balance of its Preferred Stock commencing seventy-five days after
the closing date. Each share of Preferred Stock is convertible
into the number of shares of Common Stock determined by dividing
(i) 1,000 by (ii) a conversion price based on the product of (x)
.75 and (y) the average closing bid price of the Company's Common
Stock on the Nasdaq System for the five trading days immediately
preceding the date that the Company receives notice of
conversion, provided such conversion price shall be not more than
$1.93 per share (125% of the average closing bid prices of the
Common Stock for the five trading days immediately preceding the
closing date), subject to customary anti dilution provisions.
The Company may convert each share of Preferred Stock outstanding
on May 31, 1998 into Common Stock on such date at the conversion
price then in effect. Subsequent to June 30, 1996, 700 shares of
Preferred Stock were converted into 1,508,417 shares of Common
Stock.
In connection with the Placement, in addition to an 8%
placement fee, the Company issued to the placement agents
warrants for the purchase of 450,000 shares of Common Stock, of
which 225,000 shares are purchasable at a price of $2.00 per
share for a period of eighteen months from June 1, 1996 and
225,000 are purchasable at a price of $2.50 per share for a
period of five years from June 1, 1996.
As of May 15, 1996, AMS closed a private placement (the "AMS
Placement") of $3 million principal 4% Convertible Debentures.
Net proceeds from the AMS Placement was approximately $2,752,000,
after payment of fees and related expenses. Simultaneously with
the closing of the AMS Placement, the Company and AMS terminated
a previously announced Agreement and Plan of Merger dated as of
February 4, 1996 providing for the merger of AMS Merger
Corporation, a wholly owned subsidiary of the Company, with and
into AMS.
11
<PAGE>
FORM 10-Q/A
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion should be read in conjunction with
the attached notes thereto, and with the audited financial
statements and notes thereto for the nine month period ended
September 30, 1995. Results of operations for the three and nine
months ended June 30, 1996 include MDI's operations. The
following discussion includes forward-looking statements based
upon current expectations that include a number of business risks
and uncertainties. The factors that could cause results to
differ materially include the following: delays in product
development, lack of market acceptance of the Company's
technology and changes in health care regulations, including
reimbursement programs.
Results of Operations
---------------------
Net patient service revenue of $6,773,000 and $19,053,000
for the three and nine months ended June 30, 1996 represents the
contribution from the Imaging and Rehabilitation Services
business acquired on August 31, 1995. The cost of service
operations of $4,216,000 and $11,971,000 for the three and nine
month periods ended June 30, 1996 and the provision for bad debt
and collection costs of $604,000 and $1,577,000 for the three and
nine month periods ended June 30, 1996 similarly relate to these
service revenues. The Company expects that MDI will contribute
significant revenue and operating income in fiscal 1996 and
beyond, which earnings will be significantly enhanced by the tax
net operating loss carryforwards available to the Company.
Imaging Systems sales totaled $136,000 and $2,405,000 for
the three and nine months ended June 30, 1996 versus $4,333,000
and $6,317,000 for the three and nine month periods ended June
30, 1995. As a percentage of revenues, cost of goods sold was
approximately 187% and 68% for the three and nine month periods
ended June 30, 1996 versus 61% for the three and nine month
periods ended June 30, 1995. Costs of goods sold for the three
months ended June 30, 1996 included unabsorbed overhead
variances. As of July 31, 1996, there was a backlog for one 3T
system including one InstaScan Whole Body and one InstaScan Neuro
coils with a value of $2.2 million. This shipment is expected to
be made in the fourth quarter of fiscal 1996.
Research and development expenses related to Imaging Systems
decreased to $533,000 (including $253,000 by AMS) for the three
months ended June 30, 1996 from $614,000 (including $235,000 by
AMS) for the three months ended June 30, 1995. Similarly,
research and development expenses decreased to $1,876,000
(including $751,000 by AMS) for the nine months ended June 30,
1996 from $2,142,000 (including $754,000 by AMS) for the nine
months ended June 30, 1995. These spending levels reflect the
Company's investment in product upgrades and new products based
on its proprietary EPI technology, which the Company expects to
discontinue in the future thereby reducing research and
development expenses, 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
$932,000 and $3,259,000 (including $273,000 and $999,000 by AMS)
for the three and nine months ended June 30, 1995 to $2,647,000
and $7,767,000 (including $551,000 and $1,571,000 by AMS) for the
three and nine months ended June 30, 1996. These increases were
primarily due to the addition of $1,136,000 and $3,227,000 from
MDI operations for the three and nine month periods ended June
30, 1996.
12
<PAGE>
Interest expense increased from $4,000 and $12,000 for the
three and nine month periods ended June 30, 1995 to $1,408,000 and
$2,397,000 for the three and nine months ended June 30, 1996
primarily due to the financing of the MDI acquisition, effective
August 31, 1995, and MDI's operations for the first nine months
of fiscal 1996 along with the interest expense recorded from the
AMS issuance of the Convertible Debentures.
Effective with the merger with MDI, minority interests in
net income of consolidated entities consists of earnings
allocated to MDI's joint venture partners offset by losses
related to AMS minority shareholders. For the three months ended
June 30, 1996, the allocation of earnings to MDI's partners
exceeded the losses allocated to AMS shareholders by $47,000.
For the nine months ended June 30, 1996, losses allocated to AMS
shareholders exceeded the allocation of earnings to MDI partners
by $13,000. In the comparable three and nine month periods ended
June 30, 1995, the total minority interests represents only the
allocation of AMS losses to minority shareholders.
Liquidity and Capital Resources
-------------------------------
At June 30, 1996 the Company had working capital of
$10,631,000, including available cash and cash equivalents of
$6,593,000 (including $460,000 at MDI and $2,463,000 at AMS).
The Company does not have use of the AMS cash other than for
reimbursement of overhead and salaries pursuant to a shared
services agreement whereby the Company allocates facility costs
as well as making available its research scientists, engineers
and other personnel to AMS. The decrease from the September 30,
1995 cash and cash equivalents balance of $7,543,000 is the
result of payment of approximately $1,650,000 required to
complete the MDI acquisition, which included common stock not yet
converted by former MDI shareholders, a net paydown of the
Company's credit facility of approximately $1,500,000 as well as
funding working capital requirements offset by the proceeds, net
of fees and related expenses, from private placements of
convertible preferred stock and convertible debentures totaling
approximately $6,070,000.
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 July 31,
1996, $5,155,000 of the revolving loan has been utilized,
including $800,000 for letters of credit securing certain MRI and
SPECT units operated by MDI, and the balance of the term loan is
$8,000,000. As of August 19, 1996, the bank credit facility was
revised whereby the October 1, 1996 term loan payment of $500,000
is required to be prepaid, the Company will provide an additional
$500,000 in cash collateral for its guaranty and the availability
under the revolving credit facility will be limited to $5,155,000,
excluding the issuance of a stand-by letter of credit up to
$500,000 for the purchase of a MRI unit.
On August 6, 1996, the Company announced that it had
eliminated research, development and production of its Instascan
and head coil technologies. This restructuring program was
designed to enhance overall competitiveness, productivity and
efficiency through the reduction of overhead. In connection with
this announcement, the Company expects to make substantial
adjustments to the carrying value of certain assets during the
fourth quarter of fiscal 1996 in connection with the
restructuring. In the event that the facts and circumstances
indicate that the cost of assets may be impaired, the estimated
future undiscounted cash flows would be compared with the
carrying amount to determine if a write-down to market value or
discounted cash flow value is required.
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The Company expects that existing cash balances will be
sufficient to meet the Company's operating and related debt service
requirements in fiscal 1996. In addition, the Company is seeking
to obtain funds through debt or additional equity placements.
However, there is no assurance that such placements would be
successful or on terms not dilutive to present stockholders.
The decrease in cash used in operating activities for the
nine months ended June 30, 1996 as compared with the nine months
ended June 30, 1995 reflects a reduction in the cash used in
operating activities related to working capital purposes totaling
approximately $2,475,000 and a reduction of the net loss, after
adjustment for non-cash items, totaling approximately $455,000.
Cash used in investing activities for the nine months ended June
30, 1996 reflects payments to former MDI shareholders totaling
$1,650,000 which were payable at September 30, 1995. The
significant cash flows from financing activities for the nine
months ended June 30, 1995 include proceeds totaling $3,432,000
from the exercise of AMS warrants and partial repayment totaling
$110,000 of a note receivable. During the nine months ended June
30, 1996, cash provided by financing activities includes proceeds
from long-term debt, convertible debentures and warrants and
convertible preferred stock totaling approximately $6,749,000
offset by repayment of long-term debt totaling $3,452,000 and
distributions to minority interests totaling $759,500.
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FORM 10-Q/A
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Advanced NMR Systems, Inc.
--------------------------
(Registrant)
Date: August 4, 1997 /s/ Steven J. James
--------------------------
Steven J. James
Chief Financial Officer
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