=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1996
------------------
[ ] 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
46 JONSPIN ROAD
WILMINGTON, MASSACHUSETTS 01887
---------------------------------- ---------------
(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
---- ---
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, 1996 (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): $9,531,551.
Number of shares of the Registrant's Common Stock, $.01 par
value, outstanding as of December 31, 1996: 38,126,204
=================================================================
<PAGE>
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Form 10-K
for the Fiscal Year Ended September 30, 1996 as set forth in the
pages attached hereto:
(list all such items, financial statements, exhibits
or other portions amended)
1. Items 6, 8 and 14 - Amended to reflect a change in accounting
for the May 1996 issuance of the convertible preferred stock
and debentures (See Note A in Notes to Financial Statements.)
<PAGE>
INDEX
Page No.
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 6. Selected Financial Data . . . . . . . . . . . 4
Item 8. Financial Statements and Supplementary Data . 7
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 14. Exhibits, Financial Statement Schedules. . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 10
-3-
<PAGE>
PART II
-------
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Statement of Operations Data:
-----------------------------
The selected financial information for the year ended
September 30, 1996, the nine months ended September 30, 1995, and
for each of the years ended December 31, 1994, 1993 and 1992, 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/A.
-4-
<PAGE>
Year Ended Year Ended Nine Months ended
September 30, 1996 September 30, 1995 September 30, 1996
------------------ ------------------ ------------------
(unaudited)
Revenues:
Net patient
service revenue $25,480,813 $1,934,322 $1,934,322
Management fees
and other 653,425 40,220 40,220
revenue ------------ ------------ ------------
Total Revenues 26,134,238 1,974,542 1,974,542
------------ ------------ ------------
Operating
Expenses:
Cost of service
operations 16,205,961 1,203,497 1,203,497
Research &
development -- 940,141 664,786
Selling, general
& administrative 4,254,964 2,449,364 2,002,075
Provision for
bad debt & 2,126,471 162,377 162,377
collection costs ------------ ------------ ------------
Total Operating
Expenses 22,587,396 4,755,379 4,032,735
------------ ------------ ------------
Income (Loss) from
Continuing
Operations 3,546,842 (2,780,837) (2,058,193)
Interest expense (1,847,910) (139,020) (139,020)
Interest income 212,814 195,191 265,208
Other Income 126,263 579,758 579,758
Minority interest (1,005,831) 783,520 569,354
Equity in loss of
subsidiary (2,373,580) -- --
Provision for (42,288) -- --
income taxes ------------ ------------ ------------
Loss from
Continuing
Operations (1,383,690) (1,361,388) (782,893)
Loss from
operations of
Discontinued
Division (3,928,706) (2,521,580) (894,865)
Loss on Disposal
of Discontinued
Division (3,510,563) -- --
------------ ------------ ------------
Net Loss $(8,822,959) $(3,882,968) $(1,677,758)
============ ============ ============
Loss Per Share:
Loss from
continuing
operations $(.05) $(.06) $(.03)
Loss from
operations of
discontinued
division (.13) (.10) (.04)
Loss on disposal
of discontinued (.11) -- --
division ------------ ------------ ------------
Net loss per $(.29) $(.16) $(.07)
share ============ ============ ============
Weighted average
number of common 30,583,320 24,020,652 24,243,902
shares ============ ============ ============
Nine Months
ended Year Ended Year Ended Year Ended
September 30, December 31, December 31, December 31,
1995 1994 1993 1992
------------- ----------- ----------- -----------
(unaudited)
Revenues:
Net patient
service revenue $ -- $ -- $ -- $ --
Management fees
and other -- -- -- --
revenue ------------ ------------ ------------ ------------
Total Revenues -- -- -- --
------------ ------------ ------------ ------------
Operating
Expenses:
Cost of
service
operations -- -- -- --
Research &
development 717,010 992,365 822,994 239,423
Selling,
general &
administrative 1,135,531 1,582,820 870,414 --
Provision for
bad debt &
collection
costs -- -- -- --
------------ ------------ ------------ ------------
Total Operating
Expenses 1,852,541 2,575,185 1,693,408 239,423
------------ ------------ ----------- -----------
Income (loss)
from
Continuing
Operations (1,852,541) (2,575,185) (1,693,408) (239,423)
Interest expense -- -- -- --
Interest income 278,497 208,480 170,720 --
Other Income -- -- (801,750) --
Minority
interest 488,799 702,965 414,641 --
Equity in loss
of subsidiary -- -- -- --
Provision for
income taxes -- -- -- --
------------ ------------ ----------- -----------
Loss from
Continuing
Operations (1,085,245) (1,663,740) (1,909,797) (239,423)
Loss from
operations of
Discontinued
Division (256,543) (1,883,258) (4,040,764) (5,253,106)
Loss on Disposal
of Discontinued
Division -- -- -- --
------------ ------------ ----------- -----------
Net Loss $(1,341,788) $(3,546,998) $(6,166,950) $(5,492,529)
============ ============ ============ ============
Loss Per Share:
Loss from
continuing
operations $(.05) $(.07) $(.10) $(.01)
Loss from
operations of
discoontinued
division
(.01) (.08) (.21) (.33)
Loss on
disposal of
discontinued -- -- -- --
division ------------ ------------ ------------ ------------
Net loss per
share $(.06) $(.15) $(.32) $(.34)
------------ ------------ ------------ ------------
Weighted
average number
of common 23,543,842 23,603,251 19,184,275 16,157,623
shares. ============ ============ ============ ============
-5-
<PAGE>
BALANCE SHEET DATA: September September December
------------------- 30, 30, 31,
1996 1995 1994
----------- ----------- ----------
Working Capital $(6,735,989) $11,083,145 $ 8,614,161
(Deficit)
Total Assets 50,724,530 58,431,709 12,692,152
Total Liabilities 26,906,107 27,799,636 2,511,853
Stockholders' 23,818,423 28,017,966 9,698,924
Equity
BALANCE SHEET DATA: December December
------------------- 31, 31,
1993 1992
---------- ----------
Working Capital $12,452,896 $ (759,956)
(Deficit)
Total Assets 15,864,126 2,685,896
Total Liabilities 2,335,099 2,659,378
Stockholders' 12,551,838 26,518
Equity
-6-
<PAGE>
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.
-7-
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
------------------------------------------
(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)(3) Exhibits, including those incorporated by reference.
Exhibit Number:
23* Consent of Richard A. Eisner & Company, LLP independent
public accountant for the Company.
----------------------
* Filed herewith
-8-
<PAGE>
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 22, 1996 on the consolidated financial statements of the
Company and its subsidiaries for the year ended September 30,
1996, the nine month period ended September 30, 1995 and the year
ended December 31, 1994 appearing in this Annual Report on Form
10-K/A of the Company.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
August 1, 1997
-9-
<PAGE>
SIGNATURE
---------
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 4th day of August, 1997.
ADVANCED NMR SYSTEMS, INC.
Dated: August 4, 1997 By: /s/ Steven J. James
---------------------------
Name: Steven J. James
Title: Chief Financial Officer
-10-
<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, 1996 AND SEPTEMBER 30, 1995 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE YEARS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995 (UNAUDITED), THE NINE MONTH
PERIODS ENDED SEPTEMBER 30, 1995 AND
SEPTEMBER 30, 1994 (UNAUDITED) AND FOR THE YEAR
ENDED DECEMBER 31, 1994 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY FOR THE YEAR ENDED SEPTEMBER 30, 1996, THE
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995 AND FOR
THE YEAR ENDED DECEMBER 31, 1994 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED SEPTEMBER 30, 1996 AND
SEPTEMBER 30, 1995 (UNAUDITED), THE NINE
MONTH PERIODS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 30, 1994 (UNAUDITED) AND FOR THE
YEAR 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, 1996 and September 30, 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows
for year ended September 30, 1996, the nine month period ended
September 30, 1995 and the year 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, 1996 and September 30, 1995, and
the results of their operations and their cash flows for the year
ended September 30, 1996, the nine month period ended September
30, 1995 and the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
However, the Company has experienced recurring losses and based
on current estimates of cash flow, management does not believe
that it will have sufficient cash flow to make scheduled term
loan payments. Accordingly, the entire amount outstanding under
the bank credit facility of $11,855,000 has been classified as a
current liability in the accompanying consolidated financial
statements resulting in a working capital deficiency at September
30, 1996. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note L to the
consolidated financial statements. The financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note G to the consolidated financial
statements, the Company has switched from consolidation to the
equity method for one of its subsidiaries.
/s/ Richard A. Eisner & Company, LLP
---------------------------------------
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
November 22, 1996
January 13, 1997 as
to Note C and
March 13, 1997 as
to Note A
F-2
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
ASSETS 1996 1995
------ ----------- -----------
Current assets:
Cash and cash equivalents
$3,287,880 $7,542,508
Accounts receivable, net
of reserve for bad debts
of $2,459,000 at
September 30, 1996 and
$2,119,000 at September
30, 1995 . . . . . . . . 8,015,083 9,741,892
Inventories:
Work-in-process . . . . . 907,128
Raw materials . . . . . . 526,597 2,405,463
----------- -----------
526,597 3,312,591
----------- -----------
Other current assets . . 1,002,846 1,972,871
----------- -----------
Total current assets . . 12,832,406 22,569,862
----------- -----------
Equipment, building,
furniture and leasehold
improvements (Note C):
Medical equipment . . . . 8,633,505 4,562,423
Office furniture and
equipment . . . . . . . . 685,133 833,886
Other equipment . . . . . 899,983 2,714,170
Leasehold improvements . 1,912,115 1,852,778
Building . . . . . . . . 210,739 210,739
---------- ----------
12,341,475 10,173,996
Less: accumulated
depreciation and
amortization . . . . . . 2,759,911 1,966,309
----------- ----------
9,581,564 8,207,687
----------- ----------
Patent costs, net of
accumulated amortization
205,754
----------- ----------
Goodwill, net of
accumulated amortization
(Note J) . . . . . . . . 26,205,525 26,858,226
Investment in and
advances to
unconsolidated subsidiary
(Note G) . . . . . . . . 1,440,191
Other . . . . . . . . . . 664,844 590,180
----------- -----------
TOTAL . . . . . . . . . . $50,724,530 $58,431,709
=========== ===========
LIABILITIES AND
STOCKHOLDERS'
-------------------------
EQUITY
------
Current liabilities:
Accounts payable . . . . $1,870,274 $1,001,130
Accrued expenses . . . . 2,335,028 3,644,211
Accrued compensation . . 762,028 711,193
Due to shareholders
(Note J) . . . . . . . . 46,102 1,696,102
Current portion of long
-term debt and capital
lease obligations
(Note C) . . . . . . . . 14,495,637 4,274,110
Other current liabilities
59,326 159,971
----------- -----------
Total current liabilities
19,568,395 11,486,717
----------- -----------
Long-term debt and
capital lease
obligations, less current
portion (Note C) . . . . 5,682,719 16,279,352
Deferred revenues . . . . 33,567
Minority interest in net
assets of consolidated
entities . . . . . . . . 1,654,993 2,614,107
Commitments and
contingencies
(Note E)
Stockholders' equity
(Note F):
Preferred stock, $.01 par
value; authorized,
1,000,000 shares; issued,
2,194 shares in 1996 and
none in 1995 . . . . . . 22
Common stock, $.01 par
value; authorized,
50,000,000 shares;
issued, 34,180,777 shares
in 1996 and 30,151,821 in
1995 . . . . . . . . . . 341,808 301,518
Additional paid-in
capital . . . . . . . . 55,392,656 58,246,689
Accumulated deficit . . . (31,913,813) (30,527,991)
----------- -----------
23,820,673 28,020,216
Less: treasury stock, at
cost -225,000 common
shares . . . . . . . . . 2,250 2,250
----------- ----------
Total stockholders'
equity . . . . . . . . . 23,818,423 28,017,966
-----------
TOTAL . . . . . . . . . . $50,724,530 $58,431,709
=========== ===========
The accompanying notes to financial statements are an integral
part hereof.
F-3
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
September 30,
-----------------------------
1996 1995
-------------- --------------
(unaudited)
Revenues:
Net patient service revenue . $25,480,813 $1,934,322
Management fees and other . . 653,425 40,220
----------- -----------
Total revenues . . . . . . . . 26,134,238 1,974,542
----------- -----------
Operating expenses:
Cost of service operations . . 16,205,961 1,203,497
Research and development . . . 940,141
Selling, general and
administrative . . . . . . . 4,254,964 2,449,364
Provision for bad debt and 2,126,471 162,377
collection costs . . . . . . ----------- -----------
Total operating expenses . . . 22,587,396 4,755,379
----------- -----------
Operating income (loss) from
continuing operations . . . . . 3,546,842 (2,780,837)
Other income (Note F) . . . . . . 126,263 579,758
Interest income . . . . . . . . . 212,814 195,191
Interest expense . . . . . . . . (1,847,910) (139,020)
----------- -----------
Income (loss) from continuing
operations before
minority interests, equity in
loss of subsidiary
and provision for income taxes
2,038,009 (2,144,908)
Minority interests in net
(income) losses of
consolidated entities . . . . . (1,005,831) 783,520
Equity in loss of subsidiary . . (2,373,580) --
----------- -----------
Loss from continuing operations
before provision for income
taxes . . . . . . . . . . . . . (1,341,402) (1,361,388)
Provision for income taxes . . . (42,288)
----------- -----------
Loss from continuing operations . (1,383,690) (1,361,388)
Discontinued operations (Note K)
Loss from operations of
discontinued division . . . . . (3,928,706) (2,521,580)
Loss on disposal of discontinued
division, including provision
of $400,000 for operating
losses during (3,510,563)
phase-out period . . . . . . . ----------- -----------
Net loss . . . . . . . . . . . . $(8,822,959) $(3,882,968)
=========== ===========
Loss Per Common Share:
Loss from continuing operations . $(.05) $(.06)
Loss from operations of
discontinued division . . . . . (.13) (.10)
Loss on disposal of discontinued (.11)
division . . . . . . . . . . . ----------- -----------
Net loss per share . . . . . . . $(.29) $(.16)
=========== ===========
Weighted average number of common 30,583,320 24,020,652
shares outstanding =========== ===========
Nine Months Ended Year Ended
September 30, December 31,
------------------------------ ---------------
1995 1994 1994
-------------- -------------- ---------------
(unaudited)
Revenues:
Net patient
service revenue . $1,934,322 $ $
Management fees 40,220
and other . . . . ---------- ----------- -----------
Total revenues . 1,974,542
---------- ----------- -----------
Operating expenses:
Cost of service
operations . . . 1,203,497
Research and
development . . . 664,786 717,010 992,365
Selling, general
and administrative
2,002,075 1,135,531 1,582,820
Provision for bad
debt and 162,377
collection costs ---------- ----------- -----------
Total operating 4,032,735 1,852,541 2,575,185
expenses . . . . ---------- ----------- -----------
Operating income
(loss) from
continuing
operations . . . . (2,058,193) (1,852,541) (2,575,185)
Other income
(Note F) . . . . . 579,758
Interest income . . 265,208 278,497 208,480
Interest expense . (139,020)
---------- ----------- -----------
Income (loss) from
continuing
operations before
minority interests,
equity in loss of
subsidiary and
provision for income
taxes . . . . . . . (1,352,247) (1,574,044) (2,366,705)
Minority interests
in net (income)
losses of
consolidated
entities . . . . . 569,354 488,799 702,965
Equity in loss of
subsidiary . . . . ---------- ----------- -----------
Loss from continuing
operations before
provision for income
taxes . . . . . . . (782,893) (1,085,245) (1,663,740)
Provision for income
taxes . . . . . . . ---------- ----------- -----------
Loss from continuing
operations . . . . (782,893) (1,085,245) (1,663,740)
Discontinued
operations (Note K)
Loss from operations
of discontinued
division . . . . . (894,865) (256,543) (1,883,258)
Loss on disposal of
discontinued
division, including
provision of
$400,000 for
operating losses
during phase-out
period . . . . . . ---------- ----------- -----------
Net loss . . . . . $(1,677,758) $(1,341,788) $(3,546,998)
=========== =========== ===========
Loss Per Common
Share:
Loss from continuing
operations . . . . $(.03) $(.05) $(.07)
Loss from operations
of discontinued
division . . . . . (.04) (.01) (.08)
Loss on disposal of
discontinued
division . . . . . ---------- ----------- -----------
Net loss per share $(.07) $(.06) $(.15)
========== =========== ===========
Weighted average
number of common 24,243,902 23,543,842 23,603,251
shares outstanding ========== =========== ===========
The accompanying notes to financial statements are an integral
part hereof.
F-4
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Preferred Stock
------------------------------------
Shares Amount Shares Amount
----------- -------- ------- ------
Balance -
December 31, 1993 . 23,467,030 $234,670 -- $ --
Exercise of stock
options . . . . . 312,509 3,125 -- --
Issuance of
warrant (Note F) -- -- -- --
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
equity related
to sale of
subsidiary's stock
(Note F) . . . . -- -- -- --
Note received in
exchange for stock
issued (Note F) . -- -- -- --
Net loss for the -- -- -- --
year . . . . . . ---------- -------- ------- -----
Balance -
December 31, 1994 . 23,779,539 237,795 -- --
Exercise of stock
options . . . . . 15,125 151 -- --
Cancellation of
common stock
issued for
services (Note F) (63,000) (630) -- --
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) . . . . (250,000) (2,500) -- --
Common stock
issued related to
service business
acquisition
(Note J) . . . . 6,670,157 66,702 -- --
Net loss for the -- -- -- --
period . . . . . ---------- -------- ------- -----
Balance -
September 30, 1995 30,151,821 301,518 -- --
Exercise of stock
options . . . . . 107,487 1,075 -- --
Issuance of
convertible
preferred stock
(Note F) . . . . -- -- 3,700 37
Increase in
proportionate
share of
subsidiary's
equity related to
sale of
subsidiary's stock
(Note F) . . . . -- -- -- --
Cumulative effect
of change in
accounting for
subsidiary from
consolidation to
the equity method
(Note G) . . . . -- -- -- --
Conversion of
preferred stock
(Note F) . . . . 3,921,469 39,215 (1,506) (15)
Deemed Preferred
Stock Dividend
Related to Beneficial
Conversion Feature
of Convertible
Preferred Stock . -- -- -- --
Increase in
Proportionate
Share of
Subsidiaries
Capital . . . . . -- -- -- --
Net loss for the -- -- -- --
period . . . . . ---------- -------- ------- -----
Balance -
September 30, 1996
as restated . . . . 34,180,777 $341,808 2,194 $ 22
========== ======== ===== =====
Note
Additional Receivable
Paid-in For Stock Accumulated
Capital Issued Deficit
----------- ---------- -------------
Balance -
December 31, 1993 $37,622,653 $ -- $(25,303,235)
Exercise of
stock options . 841,095 -- --
Issuance of
warrant (Note F)
35,200 -- --
Increase in
proportionate
share of
subsidiary's
equity related
to sale 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 (3,546,998)
year . . . . . ----------- ---------- -------------
Balance -
December 31, 1994 39,001,112 (687,500) (28,850,233)
Exercise of
stock options . 9,680 -- --
Cancellation of
common stock
issued for
services
(Note F) . . . (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) . . . (685,000) 687,500 --
Common stock
issued related
to service
business
acquisition
(Note J) . . . . 18,543,258 -- --
Net loss for the -- -- (1,677,758)
period . . . . ----------- ---------- -------------
Balance -
September 30, 1995 58,246,689 -- (30,527,991)
Exercise of
stock options . 129,592 -- --
Issuance of
convertible
preferred
stock (Note F) 3,316,608 -- --
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
stock (Note F) 633,404 -- --
Cumulative
effect of change
in accounting
for subsidiary
from
consolidation to
the equity
method
(Note G) . . . (8,670,367) -- 8,670,367
Conversion of
preferred stock
(Note F) . . . (39,200) -- --
Deemed Preferred
Stock Dividend
Related to Beneficial
Conversion Feature
of Convertible
Preferred Stock . 1,233,230 -- (1,233,230)
Increase in
Proportionate
Share of
Subsidiaries
Capital . . . . . 542,700 -- --
Net loss for the -- -- (8,822,959)
period . . . . . ---------- --------- ----------
Balance -
September 30, 1996
as restated . . . . $55,392,656 $ -- $(31,913,813)
========== ========= ============
Treasury Stock
---------------------
Shares Amount Total
---------- ---------- -----------
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
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 -- -- (3,546,998)
year . . . . . ------- ------- -----------
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 -- -- (1,677,758)
period . . . . ------- ------- -----------
Balance -
September 30, 1995 225,000 (2,250) 28,017,966
Exercise of
stock options . -- -- 130,667
Issuance of
convertible
preferred
stock (Note F) -- -- 3,316,645
Increase in
proportionate
share of
subsidiary's
equity related
to sale of
subsidiary's
stock (Note F) -- -- 633,404
Cumulative
effect of change
in accounting
for subsidiary
from
consolidation to
the equity
method (Note G) -- -- --
Conversion of
preferred stock
(Note F) . . . -- -- --
Deemed Preferred
Stock Dividend
Related to Beneficial
Conversion Feature
of Convertible
Preferred Stock . -- -- --
Increase in
Proportionate
Share of
Subsidiaries
Capital . . . . . -- -- 542,700
Net loss for the -- -- (8,822,959)
period . . . . ------- ------- -----------
Balance -
September 30, 1996
as restated . . . . $225,000 $(2,250) $23,818,423
======== ======= ===========
The accompanying notes to financial statements are an integral
part hereof.
F-5
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
September 30,
-------------------------
1996 1995
------------ ------------
(unaudited)
Cash flows from operating
activities:
Net loss . . . . . . . . . . $(8,822,959) $(3,882,968)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Minority interest in net
income (loss) of
subsidiaries . . . . . . . . 1,005,831 783,520
Equity in loss of
unconsolidated subsidiary . 2,373,580 --
Loss on disposal of
discontinued operations . . 3,510,563 --
Depreciation and
amortization . . . . . . . . 3,373,278 779,007
Gain on sale of assets . . . (174,891) --
Common stock and warrant
issued (canceled) for
services . . . . . . . . . . -- (357,250)
Changes in assets and
liabilities:
Accounts receivable,
net . . . . . . . . . . 1,726,809 (667,558)
Inventories . . . . . . (50,949) (1,131,285)
Other assets . . . . . 249,001 (49,174)
Accounts payable and
accrued expenses . . . (2,375,539) 1,463,931
Other liabilities . . . -- (1,196,720)
------------ ------------
Net cash provided (used) in 814,724 (4,258,497)
operating activities . . . . ------------ ------------
Cash flows from investing
activities:
Purchase of imaging and
rehabilitation business
(Note J) . . . . . . . . . . (254,249) (12,055,201)
Proceeds from sale of
equipment . . . . . . . . . 344,527 --
Cash of formerly
consolidated subsidiary
(Note G) . . . . . . . . . . (1,832,563) --
Patent costs . . . . . . . . (39,998) (137,172)
Purchase of equipment,
furniture and leaseholds (5,537,275) (254,056)
improvements . . . . . . . . ------------ ------------
Net cash used in investing (7,319,558) (12,446,429)
activities . . . . . . . . . . ------------ ------------
Cash flows from financing
activities:
Exercise of stock options . 130,667 9,831
Proceeds from issuance of
preferred stock (Note F) . . 3,316,645 --
Proceeds from issuance of
long-term debt . . . . . . . 3,949,658 13,500,000
Repayment of long-term debt
and capital lease
obligations . . . . . . . . (4,324,764) (219,731)
Distributions to minority
interests . . . . . . . . . (822,000) (37,500)
Contributions from minority
interests . . . . . . . . . -- 67,593
Sale of subsidiary stock . . -- 3,909,400
Payments received on note -- 110,000
receivable (Note F) . . . . ------------ ------------
Net cash provided by 2,250,206 17,339,593
financing activities . . . . ------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS . . . . . (4,254,628) 634,667
CASH AND CASH EQUIVALENTS, 7,542,508 6,907,841
BEGINNING OF PERIOD . . . . . . ------------ ------------
CASH AND CASH EQUIVALENTS, END $3,287,880 $7,542,508
OF PERIOD . . . . . . . . . . . ============ ============
Supplemental disclosures of
cash flow information:
Interest paid during the period $1,842,591 $50,584
Note received in exchange for
stock (Note F) . . . . . . . .
See statement of
stockholders equity
for amount of non-cash
charges related to
conversion features . . . . . 1,233,230
Nine Months Ended
September 30, Year Ended
------------------------ December 31,
1995 1994 1994
------------------------ ------------
(unaudited)
Cash flows from operating
activities:
Net loss . . . . . . . . . . $(1,677,758)$(1,341,788) $(3,546,998)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Minority interest in net
income (loss) of
subsidiaries . . . . . . . . (569,353) (488,799) (702,965)
Equity in loss of
unconsolidated subsidiary . -- -- --
Loss on disposal of
discontinued operations . . -- -- --
Depreciation and
amortization . . . . . . . . 633,948 330,859 475,918
Gain on sale of assets . . . -- -- --
Common stock and warrant
issued (canceled) for
services . . . . . . . . . . (392,250) -- 35,000
Changes in assets and
liabilities:
Accounts receivable,
net . . . . . . . . . . (669,710) (2,082,539) (2,080,387)
Inventories . . . . . . (360,735) (154,603) (925,153)
Other assets . . . . . 25,193 24,312 (50,055)
Accounts payable and
accrued expenses . . . 780,867 (525,314) 157,750
Other liabilities . . . -- (712,669) 126,506
------------ ----------- ------------
Net cash provided (used) in
operating activities . . . . (2,229,798) (4,950,541) (6,510,384)
Cash flows from investing
activities:
Purchase of imaging and
rehabilitation business
(Note J) . . . . . . . . . . (12,055,201) -- --
Proceeds from sale of
equipment . . . . . . . . . -- -- --
Cash of formerly
consolidated subsidiary
(Note G) . . . . . . . . . . -- -- --
Patent costs . . . . . . . . (91,057) (83,465) (129,580)
Purchase of equipment,
furniture and leaseholds (198,328) (606,573) (662,301)
improvements . . . . . . . . ------------ ----------- ------------
Net cash used in investing (12,344,586) (690,038) (791,881)
activities . . . . . . . . . . ------------ ----------- ------------
Cash flows from financing
activities:
Exercise of stock options . 9,831 46,921 47,125
Proceeds from issuance of
preferred stock (Note F) . . -- -- --
Proceeds from issuance of
long-term debt . . . . . . . 13,500,000 -- --
Repayment of long-term debt
and capital lease
obligations . . . . . . . . (222,772) (110,948) (107,907)
Distributions to minority
interests . . . . . . . . . (37,500) -- --
Contributions from minority
interests . . . . . . . . . 67,593 -- --
Sale of subsidiary stock . . 3,199,885 469,060 709,515
Payments received on note -- -- 110,000
receivable (Note F) . . . . ------------ ----------- ------------
Net cash provided by 16,517,037 405,033 758,733
financing activities . . . . ------------ ----------- ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS . . . . . 1,942,653 (5,235,546) (6,543,532)
CASH AND CASH EQUIVALENTS, 5,599,855 12,143,387 12,143,387
BEGINNING OF PERIOD . . . . . . ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END $7,542,508 $6,907,841 $5,599,855
OF PERIOD . . . . . . . . . . . ============ =========== ============
Supplemental disclosures of
cash flow information:
Interest paid during the period $47,390 $ -- $21,017
Note received in exchange for
stock (Note F) . . . . . . . . 797,500
See statement of
stockholders equity
for amount of non-cash
charges related to
conversion features . . . . .
See Note J with respect to imaging and rehabilitation business
acquired.
See Note E with respect to noncash leasing transactions.
See Note G with respect to change to equity method for former
consolidated subsidiary.
The accompanying notes to financial statements are an integral
part hereof.
F-6
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE A) - Business:
--------------------
Through September 1995, Advanced NMR Systems, Inc. ("ANMR"
or the "Company") operated under two segments (one of which was
discontinued during fiscal 1996 see Note K) consisting of Imaging
Systems and Imaging and Rehabilitation Services. The Company's
results of operations for the year and nine months ended
September 30, 1995 include only one month of Imaging and
Rehabilitation Services operations.
The accompanying financial statements heve been restated from
those originally issued to reflect a change in accounting for the
May 1996 issuance of the convertible preferred stock and debentures
by ANMR and Advanced Mammography Systems, Inc. ("AMS") described
in Notes F and G 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 ("SEC")
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 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-K should be read in conjunction with
all subsequent filings with the SEC which disclose significant
developments including the sale of an ANMR subsidiary and a
proposed merger of ANMR and AMS. The impact on the financial
statements for the year ended September 30, 1996 was to
increase the consolidated net loss by approximately $543,000,
to increase dividends by approximately $1,233,000 and to
increase loss per share from continuing operations and net loss
per share by $.02.
[1] Imaging Systems
---------------
The Company and one of its subsidiaries have 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"). Effective August 6, 1996, the Company discontinued its
Imaging Systems operations (see Note K).
On July 2, 1992, the Company formed AMS as a wholly-owned
subsidiary. The subsidiary was formed to develop a dedicated MRI
system. AMS
F-7
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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 and
Computerized Axial Tomography ("CT") imaging services and
physical therapy services. The MRI, SPECT and CT units are
technologically advanced medical diagnostic devices that
formulate images of internal anatomy and vascular blood flow.
The Company's mobile MRI, SPECT and CT 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 40 hospitals and clinics and two free-standing
sites with three SPECT units, 10 mobile MRI units, two fixed MRI
centers and two managed MRI units. MDI currently operates
three centers in Massachusetts that provide 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.
(NOTE B) - Summary of Significant Accounting Policies
-----------------------------------------------------
[1] Principles of consolidation:
---------------------------
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries (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.
See "Note G" with respect to a change in consolidated entities
for fiscal 1996.
F-8
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE B) - Summary of Significant Accounting Policies - (Continued):
-----------------------------------------------------
[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, or term of the lease, if applicable. Assets are written
off when they become fully depreciated.
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.
F-9
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE B) - Summary of Significant Accounting Policies - (Continued):
-----------------------------------------------------
[5] Equipment, building, furniture and leasehold
--------------------------------------------
improvements: - (Continued)
------------
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:
--------
All patent costs have been written off in connection with
the discontinued Imaging Systems business segment.
[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 income (losses) of consolidated
---------------------------------------------------------
entities
--------
Minority interests in net income (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.
F-10
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE B) - Summary of Significant Accounting Policies - (Continued):
-----------------------------------------------------
[11] Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
[12] Recent Pronouncements
---------------------
The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). The Company will
adopt the disclosure requirements of SFAS 123 during the
Company's fiscal year ending September 30, 1997 but will account
for its employee stock option plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
as permitted under SFAS 123.
In addition, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets to be Disposed Of" ("SFAS
121"). SFAS 121 is also effective for the Company's fiscal year
ending September 30, 1997. The Company believes adoption of SFAS
121 will not have a material impact on its financial statements.
F-11
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE C) Long-term Debt and Capital Lease Obligations
-----------------------------------------------------
Long-term debt and capital lease obligations at September
30, 1996 and 1995 consisted of the following:
1996 1995
----------- ----------
Term loan and revolver loan
payable to a bank, $11,855,000 $13,500,000
collateralized by all the
business assets of the Company
Note payable to a leasing
company, interest at 11.5%,
monthly payments of principal
and interest of $40,147 payable 1,803,000 --
through September 2000,
collaterized by certain business
assets of the Company . . . . .
Note payable to a leasing
company, interest at 9.5%,
monthly payments of principal
and interest of $55,762 payable 1,214,077 1,698,000
through September 1998,
collaterized by certain business
assets of the Company . . . . .
Note payable to a leasing
company, interest at the prime
rate plus 0.5%, monthly
principal payments of $22,917
payable through September 1999
collaterized by certain business 804,061 1,077,440
assets of the Company . . . . .
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 30,797 156,817
Other notes payable . . . . . . 384,021 313,405
Capital lease obligations with
interest rates ranging primarily
from 9.6% to 16% . . . . . . . 4,086,510 3,807,800
---------- -----------
Total long-term debt and capital
lease obligations . . . . . . . 20,178,356 20,553,462
Less: Current maturities . . . 14,495,637 4,274,110
---------- -----------
$5,682,719 $16,279,352
=========== ===========
F-12
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE C) - Long-term Debt and Capital Lease Obligations - Continued
-------------------------------------------------------
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 expires August 31, 1998
and a $9,000,000 term loan. The term loan is required to be paid
in eighteen quarterly installments of $500,000 commencing March
31, 1996. As of September 30, 1996 and 1995, there was
$4,355,000 and $4,500,000, respectively, borrowed under the
revolving credit loan and $7,500,000 and $9,000,000,
respectively, borrowed under the term loan. 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 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, 1996, the Company was not in
compliance with several restrictive covenants which have only
been waived by the bank only through March 31, 1997. In
addition, the bank has deferred the December 31, 1996 scheduled
term loan payment of $500,000 until March 31, 1997. In addition,
the bank has deferred the December 31, 1996 scheduled term loan
payment of $500,000 until March 31, 1997. Accordingly, the
entire amount under the bank credit facility has been classified
as current in the accompanying financial statements (see Note L).
On August 19, 1996, the Company amended its Credit Facility
to reduce the revolving credit loan to a maximum of $5,555,000,
including letters of credit totaling $1,200,000. Further, under
the terms of the amendment, ANMR was required to contribute
$500,000 to MDI.
In addition to the $11,855,000 balance outstanding at
September 30, 1996 under the Credit Facility, the Company has
outstanding letters of credit totaling $1,200,000 which guarantee
certain MDI equipment financings.
F-13
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE C - Long-term Debt and Capital Lease Obligations - Continued
------------------------------------------------------
Capital Lease Obligations
--------------------------
Future minimum lease payments, under capital leases, for the
next five years and thereafter are as follows:
Fiscal Year
-----------
1997 $1,608,195
1998 1,223,072
1999 1,041,067
2000 752,175
2001 159,071
----------
4,783,580
Less: Amounts representing interest 697,070
----------
4,086,510
Less: Current maturities 1,263,771
----------
$2,822,739
==========
(NOTE C) - Long-term Debt and Capital Lease Obligations - Continued
-------------------------------------------------------
Maturities of long-term debt and capital lease obligations
over the next five years and thereafter are as follows:
Fiscal Year
1997 $14,495,637
1998 2,286,060
1999 1,574,319
2000 1,155,231
2001 667,109
-----------
$20,178,356
===========
Property and equipment under capital lease at September
30, 1996 is as follows:
Property and equipment $4,976,000
Less: Accumulated 1,109,000
amortization ----------
$3,867,000
===========
F-14
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE D) - Income Taxes:
-----------------------
As of September 30, 1996 and 1995, the components of the net
deferred tax asset and liability are as follows:
September 30, September 30,
1996 1995
-------------- -------------
Deferred tax assets:
Net operating loss $10,280,000 $9,000,000
carryforward . . . . . . .
Provision for discontinued 1,404,000 --
operations . . . . . . . .
Deferred gains . . . . 13,000 57,000
Stock option 322,000
compensation . . . . . . .
Capital lease . . . . 22,000 59,000
Other . . . . . . . . 57,000) 88,000)
Valuation Allowance . . . . (11.260,000) (8,760,000)
------------ -----------
$516,000 $766,000
------------ -----------
Deferred tax liabilities:
Depreciation . . . . . $296,000 $,420,000
Amortization . . . . . 184,000 137,000
------------ -----------
$480,000 $557,000
------------ -----------
$36,000 $209,000
============ ===========
At September 30, 1996 and September 30, 1995, the valuation
allowance relates principally to uncertainty surrounding the
realization of the net operating loss carryforward benefit.
At September 30, 1996 and September 30, 1995, the Company
had available net operating loss carryforwards for tax purposes,
expiring through 2011 of approximately $26,000,000 and
$21,000,000, 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.
F-15
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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:
Year Ended
September 30,
1996 1995
--------------- -----------------
(unaudited)
Pretax loss . . . . . . . . . $(8,139,575) $(3,882,968)
Loss attributable to AMS . . -- 2,414,331
----------- -----------
Parent company pretax $(8,139,575) $(1,468,637)
income (loss) . . . . . =========== ===========
Expected tax (benefit)
at 34% . . . . . . . . $(2,767,456) $(499,337)
Adjustment due to increase
in valuation reserve . . 2,767,456 499,337
Other . . . . . . . . . . . . 42,288 --
Utilization of available net
operating loss -- --
carryforward . . . . . . ----------- -----------
Tax provision per financial $ 42,288 $ --
statements . . . . . . . =========== ===========
Permanent Difference:
Amortization of discount
related to issuance of
convertible debentures
(Note C) . . . . . . . . $ 542,700 --
Nine Months Ended Year Ended
September 30, September 30,
1996 1995 1994
-------------- -------------- -------------
(unaudited)
Pretax loss . . . . . . . $(1,677,758) $(1,341,788) $(3,546,998)
Loss attributable to AMS 1,684,048 1,772,880 2,503,162
----------- ----------- -----------
Parent company pretax $6,290 $(431,092) $(1,043,836)
income (loss) . . . =========== =========== ===========
Expected tax (benefit) $2,000 $(147,000) $(355,000)
at 34% . . . . . .
Adjustment due to increase -- 147,000 355,000
in valuation reserve
Other . . . . . . . . . . -- -- --
Utilization of available (2,000) -- --
net operating loss ----------- ----------- -----------
carryforward . . . .
Tax provision per $ -- $ -- $ --
financial statements =========== =========== ===========
Permanent Difference:
Amortization of discount
related to issuance
of convertible
debentures (Note C) . $ 542,700
F-16
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE E) - Commitments and Contingencies:
----------------------------------------
[1] Operating leases:
----------------
The Company leases facilities and equipment under
noncancelable operating leases expiring at various dates through
fiscal 2001. Facility leases require the Company to pay certain
insurance, maintenance and real estate taxes. Rental expenses
totaled approximately $2,349,000 and $1,555,000 for the years
ended September 30, 1996 and 1995, $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.
Future basic rental commitments under operating leases are
as follows:
Fiscal Year
-------------
1997 $1,828,087
1998 1,426,630
1999 847,086
2000 618,138
2001 172,318
----------
Total $4,892,259
==========
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
------------
1997 $471,417
1998 435,581
1999 249,801
2000 135,401
2001 11,167
--------
Total $1,303,367
==========
Hospital rental expenses for the years ended September 30,
1996 and 1995 and the nine months ended September 30, 1995
totaled $481,000, $38,000 and $38,000, respectively.
F-17
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE E) - Commitments and Contingencies: - Continued
----------------------------------------
[2] Legal proceedings:
-----------------
Effective November 28, 1995, ANMR terminated the Key
Employment Agreement, dated May 2, 1995, of John A. Lynch, 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 Key
Employment Agreement. In March 1996, the Company's former Chief
Executive Officer filed a demand for arbitration seeking a
declaratory ruling, equitable relief and damages related to
claims arising out of the Key Employment Agreement. Although the
outcome of this arbitration is uncertain, the Company does not
believe that the results of this arbitration will have a material
effect on the consolidated financial position or results of
operations of the Company.
During 1996, the Company became engaged in litigation with
one of its customers regarding the performance of its enhancement
package for several MRI systems sold to the customer for
approximately $1,500,000. The Company believes that this
situation was exacerbated by its decision to discontinue its
imaging systems operations (see Note K). The Company is seeking
an equitable resolution to the dispute. The outcome of this
matter is unpredictable, but the Company does not believe that
the final outcome will have a material effect on the consolidated
financial position or results of operations of the Company.
The Company is also 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.
F-18
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE F) - Capital Transactions:
-------------------------------
[1] Convertible Preferred Stock:
In May 1996, the Company closed a private placement (the
"Placement") of $3.7 million principal amount of newly issued
Series A Convertible Preferred Stock, $.01 par value, (the
"Preferred Stock"). 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. At
December 31, 1996, approximately 2,200 shares of Preferred Stock
was still outstanding after certain conversions. The net
proceeds from the Placement of approximately $3,320,000, after
payment of fees and related expenses, is being used for working
capital.
Each share of Preferred Stock is convertible into shares of
common stock at a conversion price equal to the lesser of 125% of
the market price on the issuance date, or 75% of the market price
on the conversion date. The market price, as defined in the
agreement equals the average closing bid price of the common
stock for the five trading days immediately preceding the
issuance date or the conversion date, as may be applicable, as
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"). Through September 30,
1996, a total of 1,506 shares of Preferred Stock have been
converted into a total of 39,215 shares of common stock.
[2] Warrants: - Continued
--------
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 such
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 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, was recorded as consulting
expense in the financial statements for the year ended December
31, 1993. The Company canceled 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
F-19
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE F) - Capital Transactions: - Continued
--------------------------------------------
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.
[3] 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 F [2].
[4] 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. During fiscal 1996 certain options were canceled and
replaced with options exercisable at the then fair market value.
F-20
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(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, 1993 336,487 $.65 $4.38
Exercised in 1994 (12,409) $.65 $3.18
Canceled in 1994 (2,438) $.65 $3.18
--------
Balance, December 31, 1994 321,640 $.65 $4.38
Granted in 1995 6,000 $3.18
Exercised in 1995 (15,125) $.65
Canceled in 1995 (16,300) $3.13 $3.18
---------
Balance, September 30, 296,215 $.65 $4.38
1995
Exercised in 1996 (31,625) $0.65
Canceled in 1996 (112,500) $2.63 $4.38
----------
Balance, September 30, 152,090 $.65 $4.38
1996 ==========
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:
F-21
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE F) - Capital Transactions: - Continued
-------------------------------
[4] Stock options: - Continued
-------------
Number of Option Price
Shares Per Share
----------- ------------
Balance, December 31, 1993 960,000 $3.13 $3.25
Granted in 1994 849,000 $2.38 $5.25
Canceled 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
Canceled in 1995 (341,200) $2.38 $3.13
------------
Balance, September 30, 2,239,042 $.79 $5.25
1995
Granted in 1996 440,000 $.50 $2.19
Exercised in 1996 (75,862) $1.45 $2.56
Canceled in 1996 (622,492) $1.58 $5.25
----------
Balance, September 30, 1,980,688 $.50 $5.25
1996 ==========
Stock transactions not covered under the option plans in 1996,
1995 and 1994 are as follows:
Number of Option Price
Shares Per Share
-----------
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
Canceled in 1994 (7,000) $3.18
----------
Balance, December 31, 1994 276,750 $3.18 $3.38
Granted in 1995 860,318 $.79 $2.01
Canceled in 1995 (261,750) $.79 $3.38
-----------
Balance, September 30, 875,318 $.79 $3.38
1995
Granted in 1996 130,000 $.50 $1.41
Canceled in 1996 (150,000) $2.56
-----------
Balance, September 30, 855,318 $.79 $3.38
1996 ==========
Under all plan and nonplan stock options, as of September
30, 1996, options to purchase 894,312 shares were available for
grant and options to purchase 2,988,096 shares at a weighted
average price of $1.39 per share were exercisable. The
outstanding options expire at various dates within ten years from
the date of grant.
F-22
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE F) - Capital Transactions: - Continued
-------------------------------
[5] Common stock reserved:
---------------------
As of September 30, 1996, 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.
[6] 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 canceled and the stock issued was returned to the
Company.
(NOTE G) Unconsolidated 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 was
reduced to approximately 61% at September 30, 1995.
On 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. As of September 30,
1996, an additional 1,748,364 shares of common stock had been
issued in connection with the conversion of these debentures
whereby the Company's percentage ownership of AMS has been
reduced to approximately 48% at September 30, 1996. Accordingly,
the Company has switched from consolidation of AMS to the equity
method of accounting.
Also in connection with the AMS 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 accounting 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
F-23
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE G) - Unconsolidated Subsidiary (AMS):
------------------------------------------
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 $15,000
and $5,000 for the year ended September 30, 1996 and the nine
months ended September 30, 1995, respectively.
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.
(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 $530,000 and $44,000 for the year
ended September 30, 1996 and one month ended September 30, 1995,
respectively. 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.
F-24
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE I) - Joint Venture - Continued
------------------------
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 $134,000 and $11,000
related to the above transactions have been amortized during the
year ended September 30, 1996 and the one month ended September
30, 1995, respectively.
(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, 1996 and 1995, the Company owed former MDI
shareholders approximately $46,000 and $1,696,000, respectively,
for MDI common stock not yet converted.
F-25
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE K) - Discontinued Operations
----------------------------------
In August 1996, the Company's Board of Directors adopted a
formal plan to discontinue its Imaging Systems business segment.
The segment has been accounted for as discontinued operations in
accordance with APB 30, which among other provisions, requires
the plan of disposal to be carried out within one year.
Included in the loss from disposal of the Imaging Services
business segment totaling $3,511,000 is a provision of $400,000
for future expenses to be incurred in connection with the
disposal of the discontinued business. The operating results of
the discontinued operations are summarized as follows:
Year Ended
September 30,
---------------------------
Revenues: 1996 1995
---- ----
(unaudited)
Imaging systems sales and other
revenue . . . . . . . . . . . $ 4,847,648 $ 6,706,480
Operating expenses:
Cost of goods sold . . . . . . 3,914,329 4,581,864
Research and development . . . 1,320,044 1,735,022
Selling, general and 3,541,981 2,911,174
administrative . . . . . . . ----------- -----------
Total operating expenses . . . 8,776,354 9,228,060
----------- -----------
Loss from discontinued operations . $(3,928,706) $(2,521,580)
=========== ===========
Nine Months Ended Year Ended
September 30, December 31,
--------------------------- --------------
Revenues: 1995 1994 1994
---- ---- ----
(unaudited)
Imaging systems $6,643,090 $ 5,224,810 $ 5,288,200
sales and other
revenue . . . . .
Operating expenses:
Cost of goods sold 4,124,354 1,956,611 2,414,121
Research and 1,243,159 1,470,281 1,962,144
development . . .
Selling, general and 2,170,442 2,054,461 2,795,193
administrative . ----------- ----------- -----------
Total operating 7,537,955 5,481,353 7,171,458
expenses . . . . ----------- ----------- -----------
Loss from discontinued $ (894,865) $ (256,543) $(1,883,258)
operations . . . . . . =========== =========== ===========
The net assets of discontinued operations are summarized as
follows:
September 30, September 30,
1996 1995
---- ----
Current assets . . . . . . . . . . . . $3,263,394 $7,908,105
Equipment, building, furniture and
leasehold improvements, net . . . . 511,109 922,728
Other assets . . . . . . . . . . . . . 1,487,367 201,363
Current liabilities . . . . . . . . . . (1,000,000) (2,097,436)
Provision for estimated loss on
disposal of discontinued
operations . . . . . . . . . . . . . (400,000)
Long-term debt . . . . . . . . . . . . (133,440) (252,116)
----------- -----------
Net assets of discontinued operations . $3,351,189 $6,682,644
=========== ===========
F-26
<PAGE>
ADVANCED NMR SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(NOTE L) - Liquidity and Business Risks
---------------------------------------
Based on current estimates of cash flow, management does not
believe that it will have sufficient cash to make mandatory term
loan payments. Accordingly, the entire amount outstanding under
the bank credit facility of $11,855,000 has been classified as a
current liability in the accompanying consolidated financial
statements. The Company is continuing to actively pursue various
funding options, including the sale of certain portions of the
Imaging and Rehabilitation services business segment. If the
sale is successful, it will generate sufficient cash to meet
obligations as they come due through fiscal 1997 (See Note C).
F-27
