SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[Mark one]
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1995
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission File Number 1-9367
------
NMR of America, Inc.
--------------------
(Name of small business issuer in its charter)
Delaware 22-2468314
-------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 Mountain Avenue
Murray Hill, New Jersey 07974-2732
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 908-665-9400
------------
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
8% Convertible Subordinated Philadelphia Stock Exchange
Debentures Due 2001
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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 ________
---------
Check if disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were
$17,987,824.
The aggregate market value of voting stock held by non-affiliates
of the issuer, computed by reference to the closing sales price
of such stock on June 27, 1995 was $21,264,615.
The number of shares outstanding of the issuer's common stock, as
of June 27, 1995 was 5,052,009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1995 Annual Meeting of
Shareholders of NMR of America, Inc. are incorporated herein by
reference in Part III.
Certain exhibits are incorporated herein by reference as set
forth in Items 13(a)3, 13(a)4 and 13(a)10.
<PAGE>
INDEX TO FORM 10-KSB - PARTS I-III
PAGE
----
PART I - Item 1. Description of Business 3
Item 2. Description of Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a
Vote of Security Holders 17
PART II - Item 5. Market for the Company's
Common Equity and Related
Stockholder Matters 17
Item 6. Management's Discussion and
Analysis or Plan of Operation 18
Item 7. Financial Statements 27
Item 8. Changes in and Disagreements
With Accountants on Accounting
and Financial Disclosure 27
PART III - Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 27
Item 10. Executive Compensation 28
Item 11. Security Ownership of
Certain Beneficial
Owners and Management 28
Item 12. Certain Relationships and
Related Transactions 28
Item 13. Exhibits, Lists and Reports on
Form 8-K 28
-2-
<PAGE>
PART I
- ------
Item 1. Description of Business.
- ---------------------------------
(a) General Development of the Business. NMR of America, Inc. is engaged,
------------------------------------
directly and through limited partnerships, in installing, managing and
maintaining diagnostic imaging systems utilizing primarily magnetic resonance
("MR") as well as other modalities. MR is a relatively recent development in
the technology of diagnostic imaging. It does not utilize potentially damaging
ionizing radiation, and is believed to have no harmful physical effects. It is
also believed to provide images superior in certain respects to those provided
by other diagnostic imaging technologies and is potentially capable of providing
biochemical information about the tissues being scanned. Although the Company
acquires the diagnostic imaging systems, it has no proprietary interest in the
imaging technology. The Company acquires its diagnostic imaging systems from
various manufacturers and the diagnostic imaging systems are installed under
the Company's supervision in the offices of private physicians. As of June 27,
1995, the Company had under management fourteen operational diagnostic imaging
systems in physicians' offices. Of the fourteen operational diagnostic imaging
systems, eleven are located in installations owned by limited partnerships of
which the Company is the managing general partner, two are owned by the
Company and one is ninety percent (90%) owned by the Company. All fourteen
centers include MR imaging systems and five centers also include other imaging
modalities. See "Description of Business."
The Company was incorporated in December 1982, completed its initial public
offering of securities in September 1983 and opened its first MR center in July
1984. In July 1986, the Company completed a public offering of $4,000,000
principal amount of its 8% Convertible Subordinated Debentures due 2001. On
July 1, 1987, the Company acquired Diagnostic Networks, Incorporated by merger
of a subsidiary of the Company with and into Diagnostic Networks, Incorporated.
During the fiscal year ended March 31, 1988, the Company reincorporated as a
Delaware corporation by merger into a newly-formed wholly owned subsidiary of
the Company incorporated in Delaware. On January 21, 1994, the Company acquired
90% of the outstanding common stock of Oak Lawn Imaging Center, Inc. and Oak
Lawn Magnetic Resonance Imaging Center, Inc. On January 1, 1995, the Company
acquired the assets of Advanced Specialty Imaging, L.P. ("Libertyville").
Effective January 1, 1995, the Company acquired a 75% interest, inclusive of
both a general partner and limited partner interest, in Golf MRI Center, L.P.
and Diagnostic Imaging Center, L.P. ("Golf/DIC").
-3-
<PAGE>
On March 13, 1995, the Company announced that its Board of Directors had
approved, subject to the merger conditions set forth below, an agreement
providing for the acquisition of Morgan Medical Holdings, Inc. ("Morgan").A
definitive merger agreement was executed on April 11, 1995. Morgan provides
diagnostic imaging equipment, facilities and management services to physicians
through four outpatient centers located in the Florida cities of Cape Coral,
Naples, Sarasota and Titusville. In addition, Morgan operates a physical
therapy center in Albany, Georgia. Pursuant to the terms of the acquisition,
Morgan shareholders will receive approximately 1,220,000 shares of the Company's
common stock which includes approximately 100,000 shares reserved for issuance
upon exercise of Morgan's outstanding stock options and warrants. Approximately
0.3330886 shares of the Company's common stock would be issued for each
outstanding share of Morgan. The merger is subject to conditions including the
sale of Morgan's physical therapy business, receipt of fairness opinions,
shareholder and regulatory approval and consents. Senior management of the
combined company would be composed of the current executives of NMR with Joseph
G. Dasti serving as President and Chief Executive Officer and John P. O'Malley
III serving as Executive Vice President-Finance, Chief Financial Officer, and
Secretary. J. Mark Strong, Morgan's current President and Chief Executive
Officer would be retained as a consultant to the combined company. In
connection with the transaction, NMR would expand its Board of Directors to
include Mr. Strong. The closing of the merger is anticipated to occur in August
or September of 1995, although there can be no assurance that the closing will
occur or that it will occur at such time.
See Note 8 to Notes to Consolidated Financial Statements included herein for
information concerning the Company's Stockholders Rights Plan. As the term is
used herein, the Company includes NMR of America, Inc. and its consolidated
subsidiaries.
(b) Financial information about industry segments. The Company
------------------------------------------------
believes there is one business segment to its operations.
(c) Description of Business.
------------------------
-4-
<PAGE>
MR Technology
- -------------
MR diagnostic imaging utilizes magnetic fields and applied radiowaves,
instead of the potentially damaging ionizing radiation utilized by certain
other diagnostic imaging technologies, to obtain images of the internal human
anatomy. The MR systems used by the Company operate substantially in the
following manner: In a static magnetic field produced by a superconductive
magnet, the patient is exposed to energy in the radio frequency range produced
by a radio antenna coil which surrounds the body part to be imaged. Nuclei in
the portion of the body being scanned are thus stimulated from their state of
equilibrium. When the radio signal is switched off, the nuclei "relax" and
return to their original state, releasing energy that is directly related to
their quantity and environment. The energy given off by the nuclei is recorded,
measured and converted to a visual display by a digital computer. The nuclei of
different elements, for example, hydrogen and phosphorus, within the same
magnetic field respond to different radio frequencies and will respond only if
exposed to radio waves of that frequency.
MR imaging is sensitive to subtle physio-chemical differences
between tissues and is capable of differentiating soft tissues and detecting
diseases which induce physio-chemical changes that may not be detected by other
diagnostic imaging technologies such as x-ray or computerized axial tomography
(CT) diagnostic imaging, which themselves are only sensitive to differences in
the electron density of tissue. MR images also detect structures smaller than
those detectable by CT scanning, thus producing images with comparable or better
spatial resolution and possibly enabling detection at earlier stages. Because
MR images are produced without any mechanical movement of the MR system, images
of any plane of the body may be obtained, thereby producing views of anatomy
difficult to capture with other diagnostic imaging technologies. These
factors enhance the physician's ability to make diagnoses based on observation
of abnormal anatomy and thus permit earlier detection and diagnosis of disease
and earlier and more effective treatment.
Experience and research to date have identified no known hazards from
magnetic and radio fields of even greater intensity than those to which a
patient is exposed in an MR system. Magnets utilized in MR systems may disrupt
the operation of cardiac pacemakers and disturb biomedical implants, curtailing
in certain circumstances the general applicability of the technique. Magnetic
fields produced by magnets require careful facilities management to isolate
certain patients from the magnet and to isolate the magnet from extraneous
interference.
-5-
<PAGE>
Disadvantages of MR systems compared with other available imaging
systems are that imaging times are longer with an MR system where up to one or
more minutes per scan are required compared with CT scanning where only two to
five seconds per scan is required. In addition, in certain MR systems, the
patient is largely enclosed within the magnet and claustrophobia can occur as
well as delayed access to the patient in an emergency. Claustrophobia is,
however, less likely to occur in the Company's open architecture MR imaging
system housed in the Chicago, Illinois facility which opened in June 1992 and in
the Oak Lawn, Illinois MR system which possesses a large rectangular bore. In
addition, MR systems which utilize superconductive magnets are generally more
expensive to purchase and maintain than other diagnostic imaging systems. The
use of superconductive magnets, which utilize liquid helium and nitrogen,
results in increased facilities management and service and support requirements,
adding to the cost of the total system.
MR Systems.
- -----------
The Company is engaged, directly and through limited partnerships in
which it is the general partner, in installing, managing and maintaining
diagnostic imaging systems, primarily utilizing magnetic resonance, in offices
operated by private physicians. The Company acquires or leases its diagnostic
imaging systems from various manufacturers and installs the systems under the
Company's supervision. Although the Company acquires or leases the diagnostic
imaging systems, it has no proprietary interest in the imaging technology. In
establishing a diagnostic imaging center, the Company's activities generally
involve selecting a site for the diagnostic imaging system, leasing or acquiring
the site, making the necessary leasehold or other improvements to the center or
supervising the construction of a building and related improvements to house the
diagnostic imaging system, arranging for the purchase, financing and
installation of the imaging equipment, and staffing the office with technical
and clerical personnel. In most locations, limited partnerships have been
organized, with the Company as the general partner, to provide financing for the
establishment and operation of the center.
The Company has installed, as of June 27, 1995, MR systems at fourteen
operational locations including Chicago, Illinois (two locations); Des Plaines,
Illinois; Elgin, Illinois; Libertyville, Illinois; Oak Lawn, Illinois; Bel Air,
Maryland; Seabrook, Maryland; Marlton, New Jersey; Morristown, New Jersey;
Union, New Jersey; Allentown, Pennsylvania; Philadelphia, Pennsylvania and
Austin, Texas.
-6-
<PAGE>
Information with respect to the Company' s ownership interests in diagnostic
imaging centers is as follows:
Company's
ownership
Commencement Square feet interest as of
Location date of center June 27, 1995(1)
- -------- ---- --------- ----------------
Allentown, PA May 1986 3,350 95.9%(2)
Austin, TX October 1986 5,000 38.0%(2)
Bel Air, MD November 1991 8,000 62.9%(2) (3)
Chicago, IL April 1987 1,800 87.2%(2)
Chicago, IL June 1992 2,900 79.6%(2)
Des Plaines, IL April 1990 4,000 75.0%(2)
Elgin, IL May 1992 3,700 100%
Libertyville, IL June 1992 5,063 100%
Marlton, NJ July 1984 3,671 91.0%(2)
Morristown, NJ December 1984 5,568 94.2%
Oak Lawn, IL February 1983 4,300 90.0%(2)
Philadelphia, PA January 1986 4,000 97.7%(2)
Seabrook, MD April 1995 3,302 87.1%(2)
Union, NJ August 1984 3,370 63.6%(2)
- ----------------------
(1) Represents the Company's interest in profits, losses and distributions
of the respective centers.
(2) The Company receives management fees at these centers.
(3) During the second quarter of the fiscal year ended March 31,
1993, the accumulated losses attributed to the limited partners 37.1% pro
rata interest in Harford County Imaging Partners (Bel Air, Maryland)
exceeded the limited partners contributed capital. Additional losses of
this partnership are accrued, in full, to the Company as general partner.
-7-
<PAGE>
The Company's Austin, Texas center operates pursuant to a limited
partnership agreement (the "Austin Partnership") which expires on January 31,
1996. The Company also receives a management fee based upon five percent of the
center's cash collections. No assurance can be given that the Austin
Partnership will be operated beyond its current expiration date, that the
Company will continue to manage the center or that the terms of any new or
extended management contract will be substantially similar to the Company's
existing management contract.
Each of the centers includes a reception area, examination rooms in
which the diagnostic imaging equipment is located, computer rooms, patient
changing rooms and various service areas. Since MR systems generally use
magnets weighing in excess of 20,000 pounds, special site improvements are
required in the premises where they are installed including structural support
for the magnet and special protective walls (radio frequency shielding) to
reduce outside radio frequency interference with the operation of the MR
systems. The magnet in the MR system can cause interference with the use of
other computer systems within a distance of approximately thirty to fifty feet.
External mechanical devices, such as automobiles and trains, if operated within
thirty to fifty feet of the MR system, could cause interference with readings
from the MR system. Accordingly, the Company has incurred substantial costs for
site improvements in installing the MR systems at its various locations.
The MR systems used by the Company are characterized by continuing
technological advances which generally involve the need to make periodic
upgrades to the MR systems, which primarily involve computer software. It is
the Company's policy where consistent with utilization to acquire refinements to
and enhancements of its imaging equipment as available to remain competitive
with innovations. However, the development of new technologies or refinements
of existing technologies may at times place utilization of the Company's
existing MR systems at a disadvantage relative to systems utilizing the newer
technologies or systems having available the refinements to the technology which
may not have been included in the Company's systems.
Physicians Agreements.
- ----------------------
Each MR center includes a turnkey MR system, including the machine and
related office and other equipment. Five centers also include other imaging
modalities. In accordance with the terms of agreements entered into relating to
each center, all medical aspects of the center are under the supervision of the
professional corporations with whom agreements have been entered into to staff
or lease the center. Such medical aspects include establishing professional
fees, leasing the offices, analysis of diagnostic information, preparation of
reports to referring physicians, care of patients while at the center and
contacts with
-8-
<PAGE>
referring physicians. The Company has entered into agreements with physician
professional corporations to use and operate the MR systems in each of the
locations where the Company has MR sites. In ten of these locations, such
agreements are with professional corporations whose principal is Dr. David L.
Bloom ("Dr. Bloom"). Dr. Bloom is a Director of the Company. These agreements
in general provide for the payment to the Company of a periodic fixed fee, a fee
based upon the number of scans performed and a billing charge. Local
radiologists are under contract with these professional corporations pursuant
to which such local radiologists serve as the professional staff at the center
and read and interpret the scans produced at the center for a fee. The Company
believes that it is materially dependent on its relationships with physicians in
its operations.
Under the agreements with the physician professional corporations, the
Company is obligated to make the necessary leasehold alterations or site
improvements at each installation for the diagnostic imaging systems, and
provide the furniture, fixtures and furnishings necessary for the operation of
the office. The Company is also obligated to provide all the ancillary supplies
and equipment used by the diagnostic imaging systems and for arranging and
paying for maintenance of the diagnostic imaging systems. The Company also
provides consultation with respect to the financial management of the center,
including billing and collecting fees. All fees are collected by the physician
professional corporations, however, the Company has the contractual
responsibility to maintain all financial and other records and prepare and
transmit bills.
At the three Illinois imaging centers which were acquired by the
Company during fiscal 1995 and 1994 and are consolidated, professional
services are provided by licensed physicians under radiology contracts
administered by Dr. Bloom.
The Company from time to time makes periodic improvements in and
upgrades to the diagnostic imaging systems at the locations. The Company also
provides periodic technical training sessions to technologists employed by the
Company.
Financing.
- ----------
Of the Company's fourteen operational MR systems at June 27, 1995,
five were acquired on various dates between July 1984 and January 1986 and the
original financing related to their acquisition has been fully paid.
From time to time, in connection with the acquisition by the Company
of new MR equipment, equipment upgrades or other leasehold improvements at one
of its imaging centers, the Company seeks financing from outside sources. The
Company seeks this financing from banks, leasing companies and equipment
vendors. Typically such arrangements provide for financing for up to 100% of the
cost of the project to be repaid over a period of three to seven years and are
collaterized by the related equipment or improvements. At March 31, 1995,
interest rates on such obligations range from 4.8% to 11.3%. To date, the
Company has
-9-
<PAGE>
been successful in obtaining this financing when required. See Notes 5 and 7
to Notes to Consolidated Financial Statements included herein. Where limited
partnerships or subsidiary corporations have been organized or acquired, the
Company remains contingently liable under the terms of the bank borrowings or
leases.
The purchase price of MR systems similar to those used by the Company
presently ranges from approximately $650,000 to $2,000,000. Site improvements
are additional and cost up to approximately $300,000 to $700,000. The MR
systems are maintained pursuant to agreements entered into with the
manufacturers of the equipment or other independent contractors.
Marketing
- ---------
Through its center-based marketing personnel, the Company seeks to
stimulate physician awareness of the Company's centers, the superiority of the
professional and technical staffs associated with those centers, as well as the
capabilities of the Company's equipment at the centers. Center marketing
activities are conducted through direct marketing contacts with physicians
supplemented by sponsorship of medical seminars, direct mailings and attendance
at medical association meetings and conventions. Physicians are believed to
refer patients to the Company's centers on the basis of the center's imaging
capabilities and quality and the level of patient and professional services
provided.
As part of its corporate marketing strategy, the Company directly
markets magnetic resonance and other diagnostic imaging services provided at its
centers to the managed care market, including health maintenance organizations
("HMO's"), preferred provider organizations ("PPO's") and self insured groups,
on an exclusive and non-exclusive basis. The Company believes marketing to
managed care organizations and groups is important since it believes that such
groups will control a larger portion of the reimbursement market for magnetic
resonance and other diagnostic imaging services in the future.
-10-
<PAGE>
Government Regulation.
- ----------------------
Various Federal and State statutes and regulations affect virtually
all aspects of the Company's operations. These include statutes intended to
facilitate health care planning, which seek to place limitations on unnecessary
capital expenditures and which seek to contain health care costs within the
various Federal health care reimbursement programs. Statutes also seek to
prohibit or limit referrals of patients to facilities in which the referring
physician has an ownership interest. In addition, the Company's operations are
subject to laws prohibiting the unlicensed practice of medicine by
non-physicians. Statutes and regulations relating to the acquisition of health
care equipment, the reimbursement policies of the various state and Federal
government programs and other aspects of government regulation of the health
care industry are subject to amendment, revision and further interpretation from
time to time. These amendments, revisions and interpretations could change the
regulatory environment relating to the Company's operations and the programs
under which physicians and others are reimbursed for undertaking MR procedures
and thereby affect materially the Company's business activities. The health
care industry is characterized by pervasive government regulation.
Certificates of Need. Certain states have enacted certificate of
---------------------
need ("CON") legislation in an attempt to regulate the acquisition of major
medical equipment and thereby limit what are possibly unnecessary capital
expenditures. Legislation of this type has been enacted in the states of New
Jersey, Pennsylvania and Illinois, where the Company has centers, as well as a
number of other states where the Company does not currently have centers. The
Company's locations in Allentown and Philadelphia, Pennsylvania, Chicago,
Illinois and Morristown, New Jersey have received certificates of need from the
state authorities. The Company's other diagnostic imaging systems have been
installed in reliance upon exemptions from state certificate of need
legislation.
Legislative Developments. The Federal Omnibus Budget Reconciliation
-------------------------
Act of 1989 contains provisions that, unless an exception applies, restrict
physicians from making referrals for services to be rendered to Medicare
patients to clinical laboratory facilities in which they have an ownership
interest, including a limited partnership interest, or with which they have a
compensation arrangement which is generally referred to as the "Stark I
Legislation." Recently, the Federal Omnibus Budget Reconciliation Act of 1993
added provisions to these restrictions on Medicare payment for physician
referrals which, effective January 1, 1995, will greatly broaden the services
which are subject to this referral and payment ban. These provisions are
generally referred to as the "Stark II Legislation." Specifically with regard
to the Company's operations, the Stark II Legislation adds to the referral
restriction "radiology or other diagnostic services." The Stark II Legislation
also extends these
-11-
<PAGE>
prohibitions to referrals of Medicaid patients. Both the Stark I and the Stark
II Legislation provide exceptions for certain types of physicians such as
radiologists and for certain types of employment and contractual relationships.
In response to the Stark I and Stark II Legislation, the Company purchased
limited partnership interests from physician and non-physician investors in
certain of its limited partnerships during the fourth quarter of fiscal 1994.
Although the Company believes that it is in material compliance with all
applicable Federal and State laws and regulations which place limitations on
referrals of patients, there can be no assurance that such laws or regulations
will not be enacted, interpreted or applied in the future in such a way as to
have a material adverse impact on the Company, or that federal or state
governments will not impose additional restrictions upon all or a portion of the
Company's activities, which might adversely affect the Company's business.
Fraud and Abuse. The Company is subject to the federal Medicare and
----------------
Medicaid anti-fraud and abuse statutes, which prohibit bribes, kickbacks,
rebates and any direct or indirect remuneration in connection with the
furnishing or arranging of services, items or equipment for which payment may be
made in whole or in part under Medicare or Medicaid. These statutes are
intended to prevent the improper referral of patients for medical tests or
treatment by health service providers who may have a financial interest in the
entity which provides such services. Among other situations to which this
legislation may be applicable, governmental authorities have from time to time
maintained under certain circumstances that where physicians or other health
care providers have made investments in medical care enterprises, although no
express agreement regarding referrals of patients to the enterprise may exist,
payments to the physicians or health care providers who refer patients to the
enterprise may violate the anti-fraud and abuse statutes. Violation of these
anti-fraud and abuse statutes may result in significant criminal penalties and
exclusion from participation in Medicare and Medicaid programs for both the
entity paying the kickback or rebate and the entity receiving it.
On July 29, 1991, the Department of Health and Human Services ("HHS")
issued "safe harbor" regulations under the anti-fraud and abuse statutes. Among
other provisions, these regulations set forth eight tests which, if met, assure
a partnership that distributions of profits to its partners who refer patients
to or provide services for the partnership will be deemed not to violate the
anti-fraud abuse statutes. Additional safe harbor regulations relating to other
aspects of the referral process have been and are expected to be adopted. The
safe harbor regulations are not the sole determinant of whether a health care
business is operating in compliance with the anti-fraud and abuse statutes.
Since the safe harbors are not exclusive, a health care
-12-
<PAGE>
business can fail to meet the safe harbor tests and still be operating lawfully
under such statutes. Although the Company believes that it is in general and
substantial compliance with the anti-fraud and abuse statutes, there can be no
assurance that HHS will not challenge the Company's position on compliance with
such statutes or that, if such a challenge occurred, a court would uphold the
Company's position.
Practice of Medicine. The physicians with whom the Company enters
---------------------
into agreements are subject to licensing by the States in which they practice
medicine. This licensing is intended to assure that such persons meet the
requirements necessary to practice medicine and is intended for the protection
of the public. The practice of medicine and the operation of certain health
care facilities are subject to existing laws and regulations.
The Company's imaging centers are also subject to laws prohibiting the
practice of medicine by non-physicians and the rebate or division of fees
between physicians and non-physicians. Professional radiology services are
performed at ten of the Company's consolidated centers by licensed physicians
under contract with a professional corporation that is a party to an agreement
with the Company and whose principal is Dr. David L. Bloom, a Director and
principal shareholder of the Company. At the three Illinois imaging centers
which were acquired by the Company during fiscal 1995 and 1994 and are
consolidated, professional services are provided by licensed physicians under
radiology contracts administered by Dr. Bloom. The Company provides the imaging
equipment and technical employees. There can be no assurance that state
authorities or others may not challenge this structure as involving the Company
in the unlawful practice of medicine.
Health Care Cost Containment and Reimbursements. Federal and state
------------------------------------------------
agencies have adopted or are considering medical cost containment
legislation which has restricted or may restrict prices charged by hospitals and
other health care facilities. Such legislation, together with cost constraints
imposed by insurance companies and other third party payers has and can be
expected to continue to reduce the fees the Company can collect for the use of
its diagnostic imaging equipment.
When patients are billed directly by the radiologist for professional
services, most of their health care insurers, including, for example, Blue
Cross and Blue Shield, reimburse the provider for a portion or all of the
physician's charge for MR services provided the fee is "reasonable and
customary" for that area. The health care reimburser determines what is
considered "reasonable and customary." The Company expects that increasing
pressure on these fees from health care insurers may adversely effect the
Company's revenue, net, results of operations and liquidity.
-13-
<PAGE>
The Company has also been pursuing agreements with HMOs, PPO's, and
others to provide services to these organizations and their members. These
organizations typically negotiate for and receive an allowance deducted from the
standard fee thereby reducing revenues per procedure performed to the Company.
The Company expects these contracts to become an increasingly significant part
of its mix of business. Significant changes in coverage, possibly combined with
a reduction in payment rates by third-party payers, would have a material
adverse effect on the Company's revenue, net, results of operations and
liquidity.
Recently, there have been numerous public announcements of proposed
legislation also directed to containing the cost of health care, as well as
expansion of the number of eligible parties. Currently, the Clinton
Administration has under consideration proposals to substantially reform the
Federal health care system and various states also have proposals under
consideration. These proposals have not been fully formulated at this time.
Management of the Company is unable to determine at this time how any such
proposals that are adopted may effect its business but expects that these
proposals will reduce the average revenue, net realized for diagnostic imaging
procedures.
FDA Regulation. The use of diagnostic imaging systems are subject to
---------------
regulation by the Food and Drug Administration ("FDA") as a medical device.
The FDA has approved all of the devices used by the Company in substantially all
currently utilized procedures. Although considered by the Company to be
unlikely, there can be no assurance that the FDA may not promulgate regulations
in the future that may affect the use of diagnostic imaging systems.
Competition.
- ------------
MR systems compete with a variety of other scanning technologies which
are available in physicians offices, hospitals and other diagnostic imaging
centers. Competition with other imaging modalities is generally based on the
nature of the medical procedure to be performed and the condition of the
patient. The Company also experiences competition from other MR systems located
in the vicinity of its centers in addition to other imaging modalities. The use
of MR imaging as a diagnostic tool continues to gain both professional and
public acceptance as MR imaging and diagnostic techniques improve, equipment
software is enhanced and attention is directed to MR's diagnostic successes.
The Company's performance is dependent upon physician and patient confidence in
the superiority of its MR imaging and service over other competing modalities
and systems.
-14-
<PAGE>
Competition in the diagnostic imaging field, generally, is based on
such factors as equipment performance and reliability, quality of diagnostic and
patient services, center location and reputation, marketing and relationships
with the local medical community. These factors influence the likelihood that
referring physicians will direct prospective patients to a center operated by
the Company.
There are a number of manufacturers of MR imaging systems. These
manufacturers' marketing efforts can be expected to stimulate others, including
hospitals, to purchase and install the MR systems. Periodically, manufacturers
introduce innovations or newly designed MR systems with enhanced features.
Therefore, the Company encounters strong competition from other MR diagnostic
systems with innovative or enhanced features installed in the areas where the
Company has installed its MR systems, as well as strong competition in its
endeavors to establish new locations.
In its efforts to expand its operations the Company experiences
competition from others also engaged in the acquisition, installation and
operation of MR systems. Many of these competitors may be deemed to be larger
with access to greater amounts of financing than available to the Company.
Liability Insurance.
- --------------------
Although the Company does not provide any medical treatment and only
provides support for diagnostic functions, the patients on whom imaging
procedures are performed, represent, by the nature of their illness or suspected
illness, a risk of suffering injury or death on the premises of one of the
centers, an occurrence which could subject the Company to the risk of litigation
seeking substantial damages. Although the Company has obtained liability
insurance, there can be no assurance that a claim may not be asserted for an
amount exceeding the liability limits of the policy or that the basis of the
claim may not be excluded from coverage under the policy. The Company's
agreements with physicians require that the physicians maintain medical
malpractice liability insurance with limits ranging from $1,000,000 to
$3,000,000. In addition, the Company also maintains insurance against claims
which may be asserted against it arising from the installation of the MR systems
and related activities. However, there cannot be any assurance that any claims
will not exceed the amount of the insurance coverage obtained by the Company.
The Company also maintains insurance against physical damage to the diagnostic
imaging systems, public liability insurance and workmen's compensation
insurance.
-15-
<PAGE>
Employees. As of June 27, 1995, the Company employed 150 persons,
----------
including 31 who are employed on a part-time basis. Of such persons, 16 are
employed in an executive and administrative capacity at the Company's corporate
office, 13 are employed in center based marketing activities, and the remainder
are employed as technologists and in other capacities at the imaging centers.
To date, the Company has not experienced any difficulty in employing
technologists to staff its diagnostic imaging system locations. The Company
believes that its relationship with its employees is satisfactory. None of the
Company's employees are covered by a collective bargaining agreement.
Raw Materials. The Company believes that the chemicals and other
--------------
materials and supplies used in its MR installations are readily available from a
number of sources.
Patents and Trademarks. The Company believes that its business is not
-----------------------
dependent upon any patents, trademarks, licenses, franchises or concessions.
Seasonality. The Company believes that its business activities are
------------
not seasonal.
Customers. The Company's customers are comprised of physicians and
----------
physician groups, managed care entities, regional health care systems and
patients. The Company believes that it is not dependent upon any customer or
few customers. However, the Company believes that patient referrals by
physicians in the areas of the offices it equips are important to its success.
In addition, all medical aspects of the utilization of the Company's diagnostic
imaging installations are under the control of the professional corporations
with which the Company has entered into agreements. Such medical aspects include
the establishment of fees, leasing of offices, analysis of diagnostic
information, preparation of reports to referring physicians, care of patients
while at the center and contacts with the referring physicians. Accordingly, the
Company's success is directly dependent upon the ability of the professional
corporations, and the local radiologists under contract with the professional
corporations, to attract patient referrals and to operate the centers on a
profitable basis.
Backlog. Backlog is not a material aspect of the Company's business.
--------
Research and Development. The Company does not engage in any material
-------------------------
research and development activities.
Environmental Factors. Compliance with Federal, State or local
----------------------
provisions relating to the protection of the environment do not have any
material impact on the Company.
-16-
<PAGE>
Item 2. Description of Properties.
- -----------------------------------
The Company leases its principal executive and administrative offices
pursuant to a five and one-half year lease with a term commencing May 19, 1993
and expiring November 18, 1998, subject to two (2) five (5) year renewal
options. The facility occupies approximately 5,000 square feet of space in a
building located in Murray Hill, New Jersey. The effective rental over the five
and one-half year term is approximately $106,000 per year plus increases in real
estate taxes and operating expenses.
All of the Company's present diagnostic imaging centers are located on
leased premises except the Union, New Jersey location which is owned by the
Company, subject to a mortgage obligation. Generally, the Company's other
leases are for an initial term of not less than five years with varying
provisions to extend the term for additional periods. The premises are
subleased or by contract made available to the physicians operating the offices.
The sublessee is generally obligated for the fixed monthly rental payment and
the Company meets any additional expenses required to be paid under the lease
such as maintenance, taxes and insurance.
Item 3. Legal Proceedings.
- ---------------------------
The Company is not a party to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------
No matter was submitted during the fourth quarter of the fiscal year ended
March 31, 1995 to a vote of security holders.
PART II
-------
Item 5. Market for the Company's Common Equity and Related
- ------------------------------------------------------------
Stockholder Matters.
- --------------------
The Company's Common Stock has been quoted on the NASDAQ system under the
symbol NMRR since September 21, 1983. Effective August 6, 1991, the Company's
Common Stock was included in the National Market System of NASDAQ. The
following table sets forth the high and low sales prices on the NASDAQ -
National Market System for the period January 1, 1993 through June 27, 1995.
Calendar Quarter High Low
----------------- ---- ---
1993
----
1st Quarter 2-9/16 2
2nd Quarter 2-5/8 1-9/16
3rd Quarter 2-15/16 2-1/8
4th Quarter 4 2
-17-
<PAGE>
1994
----
1st Quarter 3-3/8 2-1/4
2nd Quarter 4-3/8 2-1/2
3rd Quarter 4-1/2 3
4th Quarter 5-1/8 3-3/8
1995
----
1st Quarter 5-1/4 3-7/8
2nd Quarter 5-1/2 4-1/8
(through June 27)
On June 27, 1995, the last sales price for the Common Stock was 4-1/2.
As of March 31, 1995, the Company had approximately 748 shareholders of record.
The Company has never paid a cash dividend on its Common Stock and management
has no present intention of commencing to pay dividends.
Item 6. Management's Discussion and Analysis or Plan of Operation.
- -------------------------------------------------------------------
Results of Operations
- ---------------------
Fiscal Year Ended March 31, 1995 Compared to Fiscal Year Ended
- --------------------------------------------------------------
March 31, 1994.
- ---------------
For the fiscal year ended March 31, 1995, revenue, net was $17,987,824 versus
$15,597,260 for the fiscal year ended March 31, 1994 or a $2,390,564 (15.3%)
increase. The increase in revenue, net resulted primarily from the acquisition
of Oak Lawn Imaging Center ("Oak Lawn") in January 1994 and the purchases of
Libertyville Imaging Center ("Libertyville") and Golf MRI and Diagnostic Imaging
Center ("Golf/DIC") which were effective January 1, 1995. These centers
generated revenue, net totaling $3,203,782 for fiscal year ended March 31, 1995
versus $406,959 in fiscal 1994 or an increase of $2,796,823. Same center
revenue, net decreased by $406,259 or 2.7% from $15,190,301 to $14,784,042
during the fiscal year ended March 31, 1995 primarily as a result of increased
aggregate scan volume offset by additional discounted business. Patient volume
and reimbursement sources both significantly impact the Company's revenue, net.
Patient medical costs are paid by managed care organizations, such as HMO's,
Blue Cross/Blue Shield, Medicare and Medicaid, and private pay organizations,
such as commercial insurance carriers. By virtue of contractual allowances
obtained by certain of these reimbursement sources under contracts entered into
with the Company, shifts in the mix of patients and their related reimbursement
sources will impact revenue, net in the period in which they occur.
-18-
<PAGE>
Payroll and related costs for the fiscal year ended March 31, 1995 were
$4,780,025 versus $3,957,626 for the fiscal year ended March 31, 1994, or an
increase of $822,399 (20.8%). This increase is primarily due to the
acquisitions of Oak Lawn, Libertyville and Golf/DIC which incurred payroll and
related costs totaling approximately $581,000 during the fiscal year ended March
31, 1995. In addition, the Company's payroll and related costs increased due to
the hiring of certain managed care and marketing personnel and an increase in
the cost of providing health benefits to its employees.
Depreciation and amortization expense increased by $406,292 (16.0%) from
$2,545,108 for the fiscal year ended March 31, 1994 to $2,951,400 for the fiscal
year ended March 31, 1995. These increases were primarily attributable to the
acquisitions of Oak Lawn, Libertyville and Golf/DIC which resulted in goodwill
amortization and equipment depreciation aggregating $381,368 for the fiscal year
ended March 31, 1995. In addition, depreciation expense increased due to
purchases of imaging equipment and related upgrades during fiscal 1995.
Medical supplies and other operating costs include the cost of equipment and
premises maintenance, medical supplies, radiology fees for acquired centers,
other center expenses, and patient billing fees. Medical supplies and other
operating costs increased by $861,879 (16.6%) from $5,186,883 for the fiscal
year ended March 31, 1994 to $6,048,762 for the fiscal year ended March 31,
1995. These increases result, primarily, from the inclusion of approximately
$500,000 of interpretation fees paid to radiologists at the Oak Lawn,
Libertyville and Golf/DIC centers. In addition, the Company experienced
increases aggregating approximately $500,000 in medical supplies and operating
expenses due to the operations of Oak Lawn, Libertyville and Golf/DIC. The
foregoing increase were offset by decreases in the cost of patient billing
services ($50,000), medical supplies at the Company's other centers and a
$91,620 credit received from a vendor as consideration for business lost during
the installation of an equipment upgrade. Various cost containment measures
previously enacted by the Company are intended to reduce operating expenses, as
a percentage of revenue, net during fiscal 1996 and beyond.
The Company's results of operations for the fourth quarter of fiscal 1995
includes a non-recurring charge of approximately $560,000 to write-off the
Company's Elgin, Illinois center fixed assets which are no longer believed to be
recoverable from the center's future operations. The center has operated at a
loss since it opened in May 1992. The Company intends to utilize the facility
to perform certain regional administrative functions and to perform limited
diagnostic imaging procedures at reduced staffing levels.
-19-
<PAGE>
Other general and administrative expenses for the fiscal year ended March 31,
1995, were $553,422 versus $689,347 for the fiscal year ended March 31, 1994, or
a decrease of $135,925 (19.7%). The decrease during the fiscal year ended March
31, 1995 results primarily from a $171,000 reduction in legal expenses offset by
increased advertising and promotional expenses relating to the Company's
centers.
Interest expense for the fiscal year ended March 31, 1995 was $1,186,811 versus
$824,420 for the prior fiscal year, or an increase of $362,391 (44.0%). This
increase results, primarily, from interest expense associated with financing the
purchase of limited partnership interests, which totaled approximately $170,000
for the fiscal year ended March 31, 1995, the acquisition and assumption of debt
obligations relating to the Oak Lawn, Libertyville and Golf/DIC acquisitions,
which generated interest expense totaling approximately $203,000 for the fiscal
year ended March 31, 1995, the financing of additional hardware and software
upgrades and from increases in prevailing interest rates, which impact the
Company's variable rate debt obligations. These increases were offset by
decreases in interest expense relating to scheduled reductions in outstanding
principal balances.
Other (income) expense, net decreased by $106,148 from $130,694 for the fiscal
year ended March 31, 1994 to $24,546 for the fiscal year ended March 31, 1995.
The decrease for the fiscal year ended March 31, 1995, results primarily from a
$121,837 decrease in the Company's equity interest in the earnings of the
Austin, Texas limited partnership, a prepayment penalty of $15,945 incurred
during the third quarter of fiscal 1995 for the refinancing of the Bel Air,
Maryland center debt, a $12,084 loss on the disposition of ultrasound imaging
equipment in the Oak Lawn, Illinois center and $51,600 incurred to obtain the
landlord's release from the Greenbelt, Maryland center facility lease, offset by
an increase in interest income on invested cash of approximately $57,000.
Minority interest in income (loss) of limited partnerships decreased by $521,407
(49.7%) from $1,049,070 for the fiscal year ended March 31, 1994 to $527,663 for
the fiscal year ended March 31, 1995. The decrease is primarily due to the
impact of purchases of additional interests in certain limited partnerships by
the Company during January 1994.
-20-
<PAGE>
The Company's current provision for income taxes of $69,284 for the fiscal year
ended March 31, 1995, consists primarily of current state income and franchise
taxes ($44,284). The Company's current federal tax provisions of $25,000 and
$12,000 for the fiscal years ended March 31, 1995 and 1994, respectively,
represent amounts calculated in accordance with the alternative minimum tax
provisions of the Internal Revenue Code. The Company's fiscal 1995 taxable
income was offset through the utilization of net operating loss carryforwards
available from prior years. During the fourth quarter of fiscal 1995, the
Company recorded a benefit of $1,099,000 to reflect the recognition of the
Company's net deferred tax assets calculated in accordance with Statement of
Financial Accounting Standards No. 109. The recognition of this asset is
based upon the Company's current belief that it is more likely than not that
such assets will be realized. Due to the recognition of the foregoing net
deferred tax asset, the Company will record provisions for income taxes on
future taxable income at significantly higher effective rates than in fiscal
1995 and prior years.
For the reasons described above, the Company's net income for the fiscal year
ended March 31, 1995 increased by $1,066,412 to $2,433,912 from $1,367,500 for
the prior fiscal year. Fiscal 1995 net income includes the impact of two non-
recurring items relating to the write down of the Elgin, Illinois center assets
($560,091) and the recognition of a deferred tax asset of $1,099,000, which
increased the Company's net income for the year ended March 31, 1995 by
approximately $539,000.
Federal legislation was enacted during the second quarter of fiscal 1994, which
prohibits, effective January 1, 1995, the referral of Medicare or Medicaid
patients to outpatient diagnostic imaging centers by physicians possessing a
financial interest in such centers. In addition, certain states in which the
Company operates have proposed or enacted similar legislation. As a result of
this legislation, the Company purchased limited partnership interests in
certain of the Company's imaging centers which were owned by physicians and
other non-physician limited partners. Although, to date, the Company does not
believe it has experienced any significant changes in its referral patterns
resulting from such acquisitions, the Company is unable to predict the
long-term effect of the foregoing legislation or the impact of the Company's
purchases of limited partner interests on referrals to the Company's centers.
The loss of referrals from former limited partners who refer Medicare, Medicaid
or other patients to the Company's centers would have a material adverse
impact on the Company's future net revenues, results of operations and
liquidity.
-21-
<PAGE>
Fiscal Year Ended March 31, 1994 Compared to Fiscal Year Ended March 31, 1993.
- ------------------------------------------------------------------------------
For the year ended March 31, 1994, revenue, net was $15,597,260 versus
$14,829,554 for fiscal 1993 or a 5.2% increase. Increases in revenue, net
resulted primarily from the acquisition of Oak Lawn Imaging center in January
1994 and the impact of the Company's newer centers such as OPEN MRI of Chicago
and Airlite Imaging Center, which operated for the entire fiscal year ended
March 31, 1994. Revenue, net of the Company's other centers decreased by
approximately $183,213 or 1.3% reflecting reductions in patient volume and
changes in reimbursement mix at certain of the Company's more mature centers
offset by on approximately $630,000 reduction in fees paid to radiologists at
these centers during fiscal 1994. Patient volume and reimbursement sources both
significantly impact the Company's revenue, net. Patient medical costs are paid
by managed care organizations, such as HMO's, Blue Cross/Blue Shield, Medicare
and Medicaid, and private pay organizations, such as commercial insurance
carriers. By virtue of contractual allowances obtained by certain of these
reimbursement sources under contracts entered into with the Company, shifts in
the mix of patients and their related reimbursement sources will impact revenue,
net in the period in which they occur. Volume reductions are believed to result
primarily from the impact of competition, increased utilization reviews by third
party payers and the current national focus on reducing health care costs.
Payroll and related costs for the year ended March 31, 1994 decreased by
$618,676 (14%) to $3,957,626 from $4,576,302 for fiscal 1993. This decrease is
primarily due to reductions in administrative and clinical staffing levels
pursuant to a restructuring of the Company's operations during the third
quarter of fiscal 1993. The Company expects to continue to operate at its
current staffing levels during fiscal 1995.
Depreciation and amortization expense was $2,545,108 for the year ended March
31, 1994 versus $2,765,645 for the year ended March 31, 1993. This decrease
resulted from a reduction in the level of equipment related capital expenditures
during fiscal 1994 coupled with lower depreciation expense at certain of the
Company's more mature imaging centers. Based on an increase in the Company's
costs in excess of net assets acquired relating to the acquisition of Oak Lawn
Imaging Center and currently anticipated levels of future capital spending,
total depreciation and amortization expense is expected to increase in fiscal
1995.
-22-
<PAGE>
Medical supplies and other operating costs include the cost of equipment and
premises maintenance, medical supplies, other center expenses, and patient
billing fees. Medical supplies and other operating costs increased by $48,598
from $5,138,285 for the year ended March 31, 1993 to $5,186,883 for the year
ended March 31, 1994. This increase results primarily from an approximate
$310,000 increase in operating rent expense incurred during the twelve months
ended March 31, 1994 to lease the magnetic resonance imaging equipment installed
in the Company's Philadelphia, Pennsylvania imaging center which was operational
for the entire fiscal year. This increase was offset by decreases in the cost
of patient billing services, film, contrast and other medical supplies, premises
and certain other operating expenses which have resulted from various cost
containment measures enacted by the Company. Medical supplies and other
operating expenses, as a percentage of revenue, net declined during fiscal 1994.
Management intends to continue to implement cost containment measures, where
possible, during fiscal 1995 which are intended to further reduce this
percentage.
Other general and administrative expenses for the year ended March 31, 1994 were
$689,347 compared to $772,019 for fiscal 1993. The decrease results primarily
from legal and consulting costs relating to the Company's proxy context and the
Company's proposed merger with Medical Resources, Inc. (not completed) offset by
reductions in substantially all other advertising, public relations and
professional fees incurred by the Company.
Interest expense for the year ended March 31, 1994 was $824,420 as compared to
$787,489 for fiscal 1993. This increase results primarily from interest expense
incurred on capital leases entered into during fiscal 1994 and the debt
financing of equipment and leasehold improvements at the Company's Allentown,
Pennsylvania and OPEN MRI of Chicago, Illinois centers which were outstanding
for the entire 1994 fiscal year. Increased interest expense at these centers
was partially offset by a reduction in interest expense relating to other
facilities. The financing of acquisitions of limited partnership interests,
the Oak Lawn Imaging Center and any additional hardware and software upgrades
coupled with recent increases in prevailing interest rates, which impacts the
Company's variable rate mortgage and Allentown, Pennsylvania center debt
obligations, is expected to cause interest expense to increase during fiscal
1995.
-23-
<PAGE>
Other income, net decreased from $180,590 from the year ended March 31, 1993 to
$130,694 for the year ended March 31, 1994. The decrease in the current fiscal
year results primarily from a $225,874 gain on the sale of the Company's
interest in a Birmingham, Alabama partnership which the Company realized during
the prior fiscal year and a decrease in the Company's equity earnings in the
Austin, Texas limited partnership. These decreases were offset by reduced
financial, advisory and related expenses during fiscal 1994.
Minority interest in income (loss) of limited partnerships increased by $67,329
from $981,741 the year ended March 31, 1993 to $1,049,070 for year ended March
31, 1994. The increase is primarily due to increases in profitability
experienced by certain of the Company's limited partnerships during the current
fiscal year. In addition, the Company is no longer allocating losses of one
partnership to its limited partners whose original capital contributions have
been fully utilized. Due to the acquisition, effective January 1, 1994, of
$2,185,005 of limited partnership interests by the Company, minority interest in
income (loss) of limited partnerships is expected to decrease in fiscal 1995.
The Company's provision for income taxes of $108,000 for the year ended March
31, 1994 consists primarily of current state income and franchise taxes. The
Company's current federal income tax provision for the fiscal years ended March
31, 1994 and 1993 was substantially reduced through the utilization of net
operating loss carryforwards from prior years. The Company will record
provisions for income taxes on future taxable earnings at less than standard
federal and state income tax rates due to additional net operating losses which
are available to the Company as of March 31, 1994.
For the reasons described above, the Company's net income for the year ended
March 31, 1994 was $1,367,500 compared to a net loss of ($593,982) for fiscal
1993.
Inflation
- ---------
Inflation and changing prices have generally impacted the Company only in the
salary and benefit areas and have not been material to the Company's operations.
In the event of increased inflation, management believes that the Company may
not be able to raise the prices for its services by an amount sufficient to
offset the cost of inflation.
Management believes the Company is well positioned to counter the
impact of inflation on its operating margins given its mix of mature centers
with upgraded equipment, as well as newer facilities which offer the increased
efficiency and the high volume capacity of state of the art diagnostic imaging
equipment.
-24-
<PAGE>
Liquidity
- ---------
The Company had net income of $2,433,912 for the fiscal year ended March 31,
1995 versus net income of $1,367,500 for the comparable prior fiscal year. At
March 31, 1995, the Company's working capital totaled $10,226,405 which includes
cash and cash equivalents totaling $3,966,804, marketable securities totaling
$1,125,643 and short-term investments totaling $886,609. The Company generated
$4,387,428 and $3,408,449 in net cash flow from operating activities during the
fiscal years ended March 31, 1995 and 1994, respectively, or an increase of
$978,979. Cash provided by operating activities during the fiscal year ended
March 31, 1995 resulted from operating cash flows of $5,774,570 offset by a
$1,387,142 net increase in the Company's current assets and liabilities. The
increase in operating cash flows and cash provided by operating activities
results primarily from the increase in the Company's profitability during fiscal
1995.
Investing activities utilized $4,515,149 in cash during fiscal 1995. The
Company invested $1,705,020 in purchases of equipment, leasehold improvements
and upgrades primarily for the Oak Lawn and Libertyville, Illinois and Bel Air
and Seabrook, Maryland imaging centers. The Company intends to continue to
evaluate hardware and software upgrades for imaging equipment and expects to
acquire such upgrades where deemed advisable. The Company invests substantially
all of its excess cash balances in government securities, certificates of
deposit and other fixed income instruments with maturities of up to one year.
Such maturities are scheduled to coincide with the Company's anticipated
capital needs. The Company's net purchases of short-term investments and
marketable securities totaled $1,775,435 during fiscal 1995. In addition, the
Company expended $976,794, net of cash acquired, substantially all of which
was for the acquisition of Golf/DIC. The Company acquired $48,800 of limited
partnership interests for cash during fiscal 1995 and may acquire additional
limited partnership interests in certain of its centers due to Federal
legislation relating to the referral of Medicare and Medicaid patients by
physician investors in such centers.
Financing activities provided net cash totaling $375,547 which is comprised of
$2,134,292 utilized for the repayment of debt and capital lease obligations and
$135,656 of limited partnership distributions during the fiscal year ended March
31, 1995. These uses of cash were offset by proceeds from borrowings of
$2,617,683 representing notes payable incurred for financing of purchases of new
imaging equipment placed in service at the Oak Lawn and Libertyville, Illinois
centers ($950,087), equipment upgrades for the Bel Air, Maryland and New Jersey
centers ($401,654), leasehold improvements at the Philadelphia, Pennsylvania and
Seabrook, Maryland facilities ($715,942) and acquisition financing related to
the purchase of Golf/DIC ($550,000).
-25-
<PAGE>
At March 31, 1995, the Company had $767,781 in obligations under capital leases
compared to $1,103,833 at March 31, 1994. These obligations relate primarily to
the financing of imaging equipment at the Philadelphia, Pennsylvania and OPEN
MRI of Chicago centers.
Repayments under capital leases totaling $336,052 were made during the year
ended March 31, 1995.
In addition to the foregoing financing transactions, the Company entered into an
operating lease for its equipment in the Seabrook, Maryland center, and assumed
$1,982,617 of note payable obligations in conjunction with its acquisition of
Golf/DIC.
During the fiscal year ended March 31, 1993, on the basis of declining amounts
of cash generated by operating activities, the Company adopted a policy of
reducing operating expenses and enhancing cash management. Management reduced
the size of the Company's staff and reorganized administrative and imaging
center personnel. Management intends to continue to implement cost reductions
throughout fiscal 1996 wherever possible. Management of the Company believes
that various medical cost containment measures being implemented by Federal and
state governments and third party payers can be expected to place pressure on
both the amounts charged for MR and other diagnostic imaging procedures and
the number of patient referrals from physicians. Management expects that
these efforts will put downward pressure on the Company's revenue, net and
cash generated by operating activities. Management is seeking to offset these
pressures by controlling the costs and expenses described above, by increased
marketing efforts and steps taken to enhance the Company's professional medical
representation in the communities where its centers are located.
To date, the Company has been able to obtain financing for its diagnostic
imaging equipment through equipment vendors, equipment financing companies and
banks and the Company expects to be able to obtain additional financing, as
required, in the future. However, there can be no assurance that such financing
will be available from such lending sources or any other party on terms that
will be favorable to the Company.
Capital Resources
- -----------------
The Company believes that the existing cash and cash equivalents, short-term
investments and cash generated from operating activities will be sufficient to
meet the needs of its current operations, any acquisitions of additional limited
partnership interests in the Company's centers, anticipated capital
expenditures, scheduled debt repayments and limited partner distributions.
-26-
<PAGE>
Management of the Company believes that there are and will continue to be
opportunities to acquire additional diagnostic imaging centers, as well as
companies which own multiple imaging centers. Other than the Morgan Medical
Holdings, Inc. transaction, which is described in the accompanying Notes to the
Consolidated Financial Statements, the Company is not a party to any agreements
or letters of intent relating to the acquisition of additional centers at March
31, 1995. Management reviews proposals to acquire additional centers and
evaluates these opportunities on the basis of the price at which it believes the
centers can be acquired, relevant demographic characteristics, competitive
centers, physician referral patterns, location and other factors. Management
intends to pursue the acquisition of additional centers if its analysis of these
factors indicates the Company would receive a favorable return from investing in
these centers. Any centers that are acquired can be expected to involve the
payment of the purchase price in either cash, notes or shares of common stock or
a combination thereof. No assurances can be given that additional centers will
be acquired or as to the terms thereof. In the event that the Company engages
in the acquisition of additional centers, it may be required to raise additional
long-term capital through the issuance of debt or equity securities. No
assurance can be given that such capital will be available on terms acceptable
to the Company. The unavailability of capital for this purpose would adversely
affect the Company's ability to acquire additional centers.
Item 7. Financial Statements.
- ------------------------------
The response to this item is included in a separate section of this report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
- ---------------------
During the fiscal year ended March 31, 1995, the Company has not filed any
Current Report on Form 8-K reporting any change in accountants in which there
was a reported disagreement on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control
- --------------------------------------------------------------
Persons: Compliance With Section 16 (a) of the Exchange Act.
- ------------------------------------------------------------
The information required by this Item will be included in the
Company's definitive Proxy Statement, which will be filed with the Securities
and Exchange Commission in connection with the Company's 1995 Annual Meeting of
the Shareholders and is incorporated herein by reference.
-27-
<PAGE>
Item 10. Executive Compensation.
- ---------------------------------
The information required by this Item will be included in the
Company's definitive Proxy Statement, which will be filed with the Securities
and Exchange Commission in connection with the Company's 1995 Annual Meeting of
the Shareholders and is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------
The information required by this Item will be included in the
Company's definitive Proxy Statement, which will be filed with the Securities
and Exchange Commission in connection with the Company's 1995 Annual Meeting of
the Shareholders and is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
The information required by this Item will be included in the
Company's definitive Proxy Statement, which will be filed with the Securities
and Exchange Commission in connection with the Company's 1995 Annual Meeting of
the Shareholders and is incorporated herein by reference.
Item 13. Exhibits, Lists and Reports on Form 8-K.
- --------------------------------------------------
(a) Exhibits:
(1) Financial Statements.+
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of March 31, 1995 and March 31, 1994.
(iii)Consolidated Statements of Operations for the years
ended March 31, 1995, 1994 and 1993.
(iv) Consolidated Statements of Cash Flows for the years ended March 31,
1995, 1994 and 1993.
(v) Consolidated Statements of Changes in Shareholders'
Equity for the years ended March 31, 1995 1994 and
1993.
(vi) Notes to Consolidated Financial Statements.
(3) (i) Certificate of Incorporation.****
-28-
<PAGE>
(ii) Certificate of Ownership of NMR of Delaware, Inc.****
(iii)By-laws.****
(4) Indenture dated as of July 1, 1986 between Company and The Trust Company of
New Jersey including form of Debenture.**
(10) (i) Form of 8% Subordinated Note.**
(ii) Agreement between Image Sub, Inc. and Imaging
Associates, P.A., and amendments thereto.**
(iii) Certificate and Agreement of Limited Partnership of
NMR Associates I, a New Jersey limited partnership.**
(iv) Certificate and Agreement of Limited Partnership of MR
Associates I, a Pennsylvania limited partnership.**
(v) Certificate and Agreement of Limited Partnership of MR
Associates of Allentown, a Pennsylvania limited
partnership.**
(vi) Certificate and Agreement of Limited Partnership of MR
Associates of Morristown, a New Jersey limited partnership.**
(vii) Incentive Stock Option and Non-statutory Option
Plan.**
(viii) Certificate of Limited Partnership of MR Partners of
Greenbelt, a Maryland limited partnership.**
(ix) Certificate and Agreement of Limited Partnership of
MR Associates of Chicago, an Illinois limited partnership.**
(x) Acquisition Agreement among Registrant, Diagnostic
Network, Incorporated (DNI) and NMR Newco, Inc.***
(xi) Plan of Reorganization and Agreement of Merger dated
as of June 26, 1987 among Registrant, DNI and NMR
Newco, Inc.***
(xii) Rights Agreement dated as of December 23, 1988
between Registrant and American Stock Transfer and
Trust Company*****
(xiii) Employment Agreement dated March 1, 1991, between NMR
of America, Inc. and Joseph Guy Dasti, and amendments
and restatements thereto dated March 1, 1993,
August 5, 1993 and June 21, 1994.+
(xiv) Certificate and Agreement of Limited Partnership of
-29-
<PAGE>
Garden State Imaging Partners, a Delaware limited
partnership.*******
(xv) Certificate and Agreement of Limited Partnership of
Harford County Imaging Partners, a Delaware limited
partnership.*******
(xvi) Certificate and Agreement of Limited Partnership of
Accessible MRI, a Delaware limited partnership.*******
(xvii) Stock Purchase Agreement dated January 21, 1994 among
Registrant, Eduardo Nijensohn, M.D. and John A. Gall,
M.D.******
(xviii) Agreement and Plan of Reorganization, dated January
21, 1994, among the Registrant and Eduardo Nijensohn,
M.D.******
(xix) Employment Agreement dated December 7, 1992, between
NMR of America, Inc. and John P. O'Malley III, and
amendments and restatements thereto dated August 5,
1993 and June 21, 1994.+
(11) Computation of Shares Used for Earnings Per Share Calculation+
(21) Subsidiaries
Name State of Incorporation
---- ----------------------
Imaging Networks,
Incorporated Delaware
Diagnostic Networks
of Texas, Incorporated Texas
Oak Lawn Imaging Center,
Incorporated Illinois
Oak Lawn Magnetic Resonance
Imaging Center, Incorporated Illinois
(23) Consents of experts and counsel
(i) Consent of Coopers & Lybrand L.L.P. Independent Accountants
- ---------------------------
*Incorporated by reference from Company's Registration Statement on Form S-18
(File No. 2-85281-NY).
**Incorporated by reference from Company's Registration Statement on Form S-1
(File No. 33-5567).
***Incorporated by reference from Company's Current Report on Form 8-K for July
1, 1987.
-30-
<PAGE>
****Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1989.
*****Incorporated by reference from the Company's Current Report on Form 8-K for
December 23, 1988.
******Incorporated by reference from Company's Current Report on Form 8-K dated
January 21, 1994, as amended.
******Filed as an exhibit to the Company's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1994.
+ Filed herewith
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fiscal year ended
March 31, 1995.
-31-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NMR OF AMERICA, INC.
By/s/ Joseph G. Dasti
--------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Joseph G. Dasti President and Director June 27, 1995
- ----------------------
Joseph G. Dasti (Principal Executive Officer)
/s/ John P. O'Malley III
- ------------------------
John P. O'Malley III Executive Vice President- June 27, 1995
Finance (Principal Financial
and Accounting Officer)
/s/ Donald W. Arthur Director June 27, 1995
- ----------------------
Donald W. Arthur
/s/ David L. Bloom, M.D. Director June 27, 1995
- ------------------------
David L. Bloom, M.D.
/s/ John A. Faraone Director June 27, 1995
- ----------------------
John A. Faraone
/s/ Joseph Zappala Director June 27, 1995
- ----------------------
Joseph Zappala
-32-
<PAGE>
NMR of America, Inc., and Subsidiaries
Report of Independent Accountants
- ---------------------------------
The Shareholders of NMR of America, Inc.
We have audited the accompanying consolidated balance sheets of NMR of America,
Inc., and Subsidiaries as of March 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NMR of America,
Inc., and Subsidiaries as of March 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
June 16, 1995
F-1
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Balance Sheets
- ---------------------------
Assets March 31,
_______________________________________________________________________
1995 1994
_______________________________________________________________________
Current Assets:
Cash and cash equivalents $3,966,804 $ 3,718,978
Marketable securities $1,125,643 611,303
Short-term investments 886,609
Due from affiliated physician
associations, net 9,498,268 8,024,542
Other current assets 903,373 807,837
_______________________________________________________________________
Total current assets 16,380,697 13,162,660
_______________________________________________________________________
Land, buildings and equipment 31,360,133 27,945,883
Less, accumulated depreciation
and amortization 19,580,504 16,494,306
_______________________________________________________________________
11,779,629 11,451,577
Cost in excess of net assets
acquired 4,497,974 2,575,221
Deferred income taxes 2,495,000
Other assets 1,571,547 1,783,720
_______________________________________________________________________
Total assets $36,724,847 $28,973,178
_______________________________________________________________________
- -----------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Balance Sheets
- ---------------------------
Liabilities and Shareholders' Equity March 31,
_______________________________________________________________________
1995 1994
_______________________________________________________________________
Current Liabilities:
Accounts payable and
accrued expenses $ 3,098,931 $2,701,579
Current installments on capital
lease obligations 286,263 336,059
Current installments on notes and
mortgage payable 2,769,098 1,733,721
_____________________________________________________________________
Total current liabilities 6,154,292 4,771,359
______________________________________________________________________
Convertible subordinated debt, net 2,056,417 2,126,083
Obligations under capital leases,
less current installments 481,518 767,774
Notes and mortgage payable,
less current installments 10,451,119 8,684,435
Deferred income taxes 1,396,000
Minority interest in limited partnerships 2,155,665 1,721,683
Commitments and contingencies
Shareholders' Equity:
Common Stock, $.01 par value;
authorized 30,000,000 shares,
5,416,967 and 5,257,080 shares
issued and outstanding at
March 31, 1995 and 1994,
respectively 54,169 52,571
Additional paid-in capital 11,570,401 10,923,047
Unrealized gains and (losses) 14,208
Retained earnings 3,854,255 1,420,343
Less, 364,958 and 377,326
common shares in Treasury at
March 31, 1995 and 1994,
respectively, at cost ( 1,463,197) (1,494,117)
_______________________________________________________________________
Shareholders' equity 14,029,836 10,901,844
_______________________________________________________________________
Total liabilities and shareholders'
equity $36,724,847 $28,973,178
_______________________________________________________________________
- -----------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Operations
- -------------------------------------
Years Ended March 31,
_______________________________________________________________________________
1995 1994 1993
_______________________________________________________________________________
Revenue, net $17,987,824 $15,597,260 $14,829,554
_______________________________________________________________________________
Costs and Expenses:
Payroll and related costs 4,780,025 3,957,626 4,576,302
Depreciation and amortization 2,951,400 2,545,108 2,765,645
Medical supplies and other
operating costs 6,048,762 5,186,883 5,138,285
Center upgrade costs 582,645
Non-recurring write-down of
center equipment 560,091
Other general and administrative 553,422 689,347 772,019
______________________________________________________________________________
14,893,700 12,378,964 13,834,896
______________________________________________________________________________
Operating income 3,094,124 3,218,296 994,658
Interest expense 1,186,811 824,420 787,489
Other (income) expense, net ( 24,546)( 130,694)( 180,590)
_______________________________________________________________________________
Income before minority
interest and income taxes 1,931,859 2,524,570 387,759
Minority interest in income of
limited partnerships 527,663 1,049,070 981,741
_______________________________________________________________________________
Income (loss) before income taxes 1,404,196 1,475,500 ( 593,982)
(Benefit from) provision
for income taxes ( 1,029,716) 108,000
_______________________________________________________________________________
Net income (loss) $ 2,433,912 $ 1,367,500 ($ 593,982)
_______________________________________________________________________________
- -------------------------------------------------------------------------------
Per Share Data:
Primary:
Net income (loss) per share $ .49 $ .29 ($ .12)
_______________________________________________________________________________
- -------------------------------------------------------------------------------
Fully diluted:
Net income (loss) per share $ .47 $ .29 ($ .12)
_______________________________________________________________________________
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
NMR of America, Inc., and Subsidiaries
<TABLE><CAPTION>
Consolidated Statements of Cash Flows
- -------------------------------------
Years Ended March 31,
__________________________________________________________________________________
1995 1994 1993
__________________________________________________________________________________
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $2,433,912 $1,367,500 ($ 593,982)
___________________________________________________________________________________
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 2,951,400 2,545,108 2,765,645
Minority interest in income of
limited partnerships 527,663 1,049,070 981,741
Deferred income taxes ( 1,099,000)
Equity in loss (income) from
partnership 68,770 ( 53,067) ( 159,457)
Gain on sale of limited partnership
interests ( 269,509)
Contractor reimbursement for lost
revenues ( 91,620)
Proceeds from sale of marketable
securities-trading 411,270
Loss on disposition of
center assets 12,084 47,021 212,075
Non-recurring write-down of center
equipment 560,091
Unrealized gain on
marketable securities ( 9,464)
Changes in assets and liabilities,
net of acquired centers:
Increase in amount due from
affiliated physician
associations, net ( 965,897) ( 2,196,385) ( 30,798)
(Increase) decrease in other
current assets ( 130,104) 188,810 480,624
(Increase) decrease in other assets ( 92,931) 159,969 367,914
(Decrease) increase in accounts
payable and accrued expenses ( 198,210) 531,966 36,111
Decrease in other liabilities ( 222,079) ( 142,124)
__________________________________________________________________________________
Total adjustments 1,953,516 2,040,949 4,242,222
__________________________________________________________________________________
Net cash provided by operating
activities 4,387,428 3,408,449 3,648,240
__________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
NMR of America, Inc., and Subsidiaries
<TABLE><CAPTION>
Consolidated Statements of Cash Flows
- -------------------------------------
Years Ended March 31,
___________________________________________________________________________________
1995 1994 1993
___________________________________________________________________________________
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of equipment ( 1,705,020) ( 338,080) ( 4,230,970)
Purchase of short-term investments ( 869,000)
Purchase of marketable securities ( 1,111,435) ( 1,201,839)
Purchase of limited partnership
interests ( 48,800) ( 2,185,005) ( 347,432)
Acquisition of purchase option ( 200,000)
Acquisition of centers, net of cash
acquired ( 976,794) ( 325,000)
Proceeds from sale of marketable
securities 205,000 600,000
Proceeds from disposition of
center assets 6,250
Other ( 15,350) ( 11,014)
__________________________________________________________________________________
Net cash used in investing activities ( 4,515,149) ( 3,660,938) ( 4,578,402)
___________________________________________________________________________________
Cash flows from financing activities:
Repayments of debt, including capital
lease obligations ( 2,134,292) ( 1,587,922) ( 1,707,178)
Distributions to limited partners ( 135,656) ( 683,067) ( 1,135,972)
Capital contributions from
limited partners, net 443,285
Proceeds from borrowings 2,617,683 2,319,500 3,415,000
Purchase of common stock warrants ( 12,000) ( 11,139)
Proceeds from conversion of warrants
to common stock, net 27,000
Proceeds from stock issuance and
exercise of stock options 27,812 17,500
Purchases of treasury stock ( 1,213,804)
- ----------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 375,547 36,511 ( 165,308)
- ----------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 247,826 ( 215,978) ( 1,095,470)
Cash and cash equivalents
at April 1, 3,718,978 3,934,956 5,030,426
- ---------------------------------------------------------------------------------
Cash and cash equivalents
at March 31, $3,966,804 $3,718,978 $3,934,956
__________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NMR of America, Inc., and Subsidiaries
<TABLE><CAPTION>
Consolidated Statements of Cash Flows
- -------------------------------------
Years Ended March 31,
___________________________________________________________________________________
1995 1994 1993
___________________________________________________________________________________
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Income Taxes, net of refunds
totaling $26,474 in 1995,
$155,676 in 1994 and
$269,491 in 1993 $ 69,345 ($ 131,237) $ 54,125
Interest $ 1,187,160 $ 829,419 $ 784,169
Supplemental Schedule of Noncash Activities:
Capital lease obligations incurred
for use of equipment $ --- $ 591,517 $ 815,400
Notes payable obligation
assumed in connection with
acquisition of center $ 1,982,617 $ 1,475,000 $ ---
Stock issued in connection with
acquisition of center $ 500,000 $ 487,500 $ ---
Notes payable issued in connection
with acquisition of center $ --- $ 435,000 $ ---
Note payable obligation incurred in
connection with acquisition
of purchase option $ --- $ 593,000 $ ---
Note payable obligation incurred in
connection with refinancing of Bel
Air, Maryland center debt $ 2,493,683 $ --- $ ---
Additions to fixed assets included
in accounts payable and accrued
expenses $ 214,410 $ --- $ ---
Conversion of subordinated debebtures
to common stock $ 111,999 $ --- $ 84,000
Unrealized gain on marketable
securities available-for-sale $ 14,208 $ --- $ ---
Contribution to 401(k) plan $ 10,061 $ --- $ ---
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
<TABLE><CAPTION>
NMR of America, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
Additional Unrealized Retained Total
Common Stock Paid-In Treasury Stock Gains Earnings Shareholders'
Shares Amount Capital Shares Amount (losses) (Deficit) Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances At March 31, 1992 5,058,312 $50,583 $10,332,174 (78,906) ($280,313) $646,825 $10,749,269
Purchase of common stock (298,420) (1,213,804) (1,213,804)
Issuance of common stock 3,103 31 17,469 17,500
Conversion of subordinated
debentures to common stock 18,665 187 83,813 84,000
Purchase of warrants (11,139) (11,139)
Conversion of warrants to
common stock 27,000 270 26,730 27,000
Net income for fiscal 1993 (593,982) (593,982)
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1993 5,107,080 51,071 10,449,047 (377,326) (1,494,117) 52,843 9,058,844
- ----------------------------------------------------------------------------------------------------------------------------------
Purchase of warrants (12,000) (12,000)
Issuance of common stock 150,000 1,500 486,000 487,500
Net income for fiscal 1994 1,367,500 1,367,500
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1994 5,257,080 52,571 10,923,047 (377,326) (1,494,117) 1,420,343 10,901,844
- ----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock 135,000 1,350 528,650 530,000
Conversion of subordinated
debentures to common stock 24,887 248 111,751 111,999
Exercise of employee
stock options 2,187 10,250 25,625 27,812
401(k) plan contributions 4,766 2,118 5,295 10,061
Unrealized gain on securities
held for sale 14,208 14,208
Net income for fiscal 1995 2,433,912 2,433,912
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at March 31, 1995 5,416,967 $54,169 $11,570,401 (364,958) ($1,463,197) $14,208 $3,854,255 $14,029,836
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
1. The Company and Its Significant Accounting Policies
The Company - NMR of America, Inc., and Subsidiaries (the "Company") is engaged
- -----------
in installing and maintaining imaging systems used for diagnostic purposes in
offices operated by private physicians.
Consolidation - The accompanying consolidated financial statements include the
- -------------
accounts of NMR of America, Inc., its wholly-owned subsidiaries and certain
limited partnerships in which the Company is a general partner. All material
intercompany balances and transactions have been eliminated. As general
partner, the Company is subject to all the liabilities of a general partner and
as of March 31, 1995, is entitled to share in partnership profits, losses and
distributable cash as follows:
Company Share of
Profits, Losses and
Partnership Distributions
----------- -------------
NMR Associates I (Union, New Jersey) 64%
MR Associates I (Philadelphia, Pennsylvania) 98%
MR Associates of Allentown (Allentown, Pennsylvania) 96%
MR Associates of Morristown (Morristown, New Jersey) 94%
MR Partners of Greenbelt (Greenbelt, Maryland) 87%
MR Associates of Chicago (Chicago, Illinois) 87%
Garden State Imaging Partners (Marlton, New Jersey) 91%
Harford County Imaging Partners (Bel Air, Maryland) 63%
Accessible MRI (Chicago, Illinois) 80%
Golf MRI Center (Des Plaines, Illinois) 75%
Diagnostic Imaging Center (Des Plaines, Illinois) 75%
The Company owns a 100% interest in imaging centers located in Elgin, and
Libertyville, Illinois and 90% of the outstanding common stock of a multi-
modality imaging center located in Oak Lawn, Illinois. The Company owns a 38%
interest in an Austin, Texas limited partnership, which is accounted for using
the equity method. The Company is also paid a monthly management fee based on
patient cash collections and/or patient volume under management agreements with
certain of the partnerships.
During the second quarter of the fiscal year ended March 31, 1993, accumulated
losses, from inception, of the Company's Harford County, Maryland limited
partnership fully offset the capital contributed by its limited partners.
Accordingly, losses incurred in excess of such limited partnership capital have
been charged, in full, to the Company as general partner. Future profits, if
any, in the Harford County partnership will be allocated, in full, to the
Company as general partner until such profits equal the Company's excess share
of allocable losses. Thereafter, future profits and losses will be allocated in
accordance with the parties respective ownership interests.
F-9
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
Reclassification - Certain prior year items have been reclassified to conform to
- ----------------
the current year presentation.
Cash and Cash Equivalents - For financial statement purposes cash equivalents
- -------------------------
include short-term investments with an original maturity of ninety days or less.
At March 31, 1995 and 1994, respectively, the Company had investments in money
market accounts and certificates of deposit of $729,759 and $1,060,564. Cash
and cash equivalents includes $1,673,598 and $428,733 as of March 31, 1995 and
1994, respectively, representing funds of the various partnerships.
Marketable Securities - The Company adopted effective April 1, 1994, Statement
- ---------------------
of Financial Accounting Standards No. 115, ("SFAS 115") "Accounting for Certain
Investments in Debt and Equity Securities". SFAS 115 requires a more detailed
disclosure of debt and equity securities held for investment, the methods to be
used in determining fair value and when to record unrealized holding gains and
losses in earnings or in a separate component of shareholders' equity. Debt
securities for which the Company does not have the intent or the ability to hold
to maturity are classified as available-for-sale along with the Company's
investments in equity securities. Securities available for sale are carried at
fair value with unrealized gains and losses, net of tax, reported as a separate
component of shareholders' equity. Any realized gains and losses are determined
on the specific identification method. In accordance with SFAS 115, prior year
financial statements have not been restated to reflect the change in accounting
method. The cumulative effect as a result of adopting SFAS 115 in fiscal 1995
was not material.
Property and Equipment - Property and equipment are being depreciated for finan-
- ----------------------
cial accounting purposes using the straight-line method over their respective
estimated useful lives ranging from three to ten years. Leasehold improvements
are being amortized over ten years. Upon retirement or other disposition of
these assets, the cost and related accumulated depreciation are removed from the
accounts and the resulting gains or losses are reflected in the results of
operations. Expenditures for maintenance and repairs are charged to operations.
Renewals and betterments are capitalized.
Deferred Pre-Operating and Organizational Costs - The Company capitalizes costs
- -----------------------------------------------
associated with the organization and start-up of the various limited partner-
ships and Company-owned centers. Such costs are amortized on a straight-line
basis over a five-year period beginning with the commencement of operations at
each location.
F-10
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
Cost in Excess of Net Assets Acquired - The excess of the purchase price over
- -------------------------------------
the fair market value of net assets acquired is being amortized using the
straight-line method over 20 years. As of March 31, 1995 and 1994, accumulated
amortization amounted to $274,544 and $115,425, respectively.
During the year ended March 31, 1993, the Company reallocated $318,000 of cost
in excess of net assets acquired to property, plant and equipment as a result of
a vendor discount received in connection with a business acquisition made by the
Company. The magnetic resonance imaging equipment has been installed in the
Company's Philadelphia, Pennsylvania imaging center. As a result, the
unamortized carrying value ($318,000) of the related cost in excess of net
assets acquired is being amortized over a five year period.
The Company periodically reviews goodwill to assess recoverability, and an
impairment would be recognized in operating results if a permanent diminution in
value were to occur.
Earnings Per Share - Earnings per share is computed on the basis of the weighted
- ------------------
average number of common shares outstanding and dilutive common stock
equivalents. Common stock equivalents consist of stock options and warrants.
For the years ended March 31, 1994 and 1993, earnings per share is computed on
the basis of the weighted average number of common shares outstanding during
each year as the Company's common stock equivalents had an anti-dilutive effect.
The shares issued by the Company in connection with the purchases of Oak Lawn
Imaging Center, Golf MRI Center and Diagnostic Imaging Center were considered
outstanding from the date of acquisition.
The Convertible Subordinated Debentures are not common stock equivalents and are
not included in the calculation of primary earnings per share. The debentures
were also not assumed converted for purposes of calculating fully diluted
earnings per share for the years ended March 31, 1994 and 1993, as such
conversion would have been antidilutive for such years.
The number of common shares used to compute primary and fully diluted net income
(loss) per share are as follows:
1995 1994 1993
---- ---- ----
Primary 5,017,952 4,757,102 4,800,122
Fully Diluted 5,589,900 4,757,102 4,800,122
New Accounting Standards - Statement of Financial Accounting Standards No. 121
- ------------------------
"Accounting for the Impairment of Long-Lived Assets and for
F-11
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
Long-Lived Assets to Be Disposed Of" ("SFAS 121") is effective for the Company's
year ending March 31, 1997. The adoption of FAS 121 is not expected to have a
material effect on the Company's financial position or results of operations.
2. Due from Affiliated Physician Associations
For consolidated centers which the Company developed, it has entered into
agreements with physicians engaging in business as professional associations
("Physicians") pursuant to which the Company maintains and operates imaging
systems in offices operated by the Physicians. The agreements have terms
of up to six years and are renewable at the option of the Company. The
Physician's principal, Dr. David L. Bloom, is a director of the Company.
Under the agreements, Physicians has agreed to be obligated to contract for
radiological services at the centers and to sublease each facility. The Company
is obligated to make necessary leasehold improvements, provide furniture and
fixtures and perform certain administrative functions relating to the provision
of technical aspects of the centers operations for which Physicians pay a
quarterly fee composed of a fixed sum based on the cost of the respective
imaging system installed, including the related financing costs, a charge per
invoice processed and a charge based upon system usage for each
Company-installed imaging system in operation. These fees, net of a contractual
allowance based upon Physicians ability to pay, constitute the Company's
revenue, net for developed sites.
For consolidated centers which the Company has acquired, subsidiaries of the
Company have entered into agreements with unaffiliated professional corporations
to provide radiological services under Dr. Bloom's administration. Accordingly,
revenue, net for acquired centers consists of patient billings adjusted for
contractual reductions which have been negotiated with various third-party
payers. Fees paid to radiologists at these centers are reflected as a component
of medical supplies and other operating expense in the accompanying statements
of operations.
Certain revenues are subject to audit and retroactive adjustment by third party
payers. The Company is aware of no pending audits or proposed adjustments and
no provisions for estimated retroactive adjustments have been provided.
3. Short-term Investments
Short term investments at March 31, 1995 are stated at cost plus accrued
interest and consist of certificates of deposit having original maturities of
greater than three months but not in excess of one year.
F-12
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
4. Marketable Securities
Marketable securities classified as available-for-sale, held-to-maturity and
trading are as follows:
Gross Fair
unrealized market
Cost gains value
---------- ---------- ---------
March 31, 1995
Available-For-Sale:
U.S. Government obligations $1,111,435 $ 14,208 $1,125,643
========== ========== ==========
March 31, 1994
Available-For-Sale:
U.S. Government obligations $ 201,839 $ 4,262 $ 206,101
Trading:
Equity securities 400,000 5,202 405,202
---------- ---------- ----------
$ 601,839 $ 9,464 $ 611,303
========== ========== ==========
There were no investments in debt or equity securities classified as trading or
held-to-maturity at March 31, 1995.
At March 31, 1995, all investments in debt securities have maturities of
less than one year.
5. Property and Equipment
Property and equipment stated at cost are set forth below:
March 31,
--------------------------------------------------------------------
1995 1994
--------------------------------------------------------------------
Diagnostic equipment under capital leases $19,260,564 $18,269,704
Diagnostic equipment under capital leases 1,402,367 1,406,917
Leasehold improvements 4,486,404 4,237,068
Land and buildings 1,353,569 1,337,835
Equipment 3,600,164 2,105,694
Furniture and fixtures 616,519 545,279
Construction in progress 640,546 43,386
--------------------------------------------------------------------
$31,360,133 $27,945,883
====================================================================
Depreciation expense for the years ended March 31, 1995, 1994 and 1993 amounted
to $2,527,773, $2,197,181 and $2,522,996, respectively.
Accumulated amortization relating to property and equipment under capital leases
at March 31, 1995 and 1994 was $510,570 and $269,281, respectively.
F-13
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
5. Property and Equipment (continued)
The following is a schedule by fiscal year of the minimum future lease payments
under capital leases as of March 31, 1995:
Year ending March 31,
1996 $ 322,138
1997 288,796
1998 165,604
1999 53,558
2000 ---
thereafter ---
- ----------------------------------------------------------------------
Total minimum lease payments 830,096
Less: amount representing
interest (imputed at an average
rate of 5.8%) 62,315
- ----------------------------------------------------------------------
Present value of
minimum lease payments 767,781
Less current installments 286,263
- ----------------------------------------------------------------------
Obligations under capital leases,
less current installements $ 481,518
======================================================================
6. Convertible Subordinated Debentures
In July 1986, the Company completed a public offering of 8% Convertible
Subordinated Debentures of $4,000,000 due 2001 and received $3,365,000, net of
underwriting discount and other expenses. The debentures are redeemable at a
declining premium after July 1988, contain a mandatory sinking fund provision
calculated to retire 90% of the debentures before maturity at a rate of 10% per
year commencing in July 1992, and are convertible into the Company's common
stock at any time prior to maturity at $4.50 per share. As of March 31, 1995,
$1,833,000 of the debentures have been converted into the Company's common
stock. Under the provisions of the indenture, the Company has not been required
to meet its sinking fund requirement as a result of the cumulative debenture
conversions and does not expect to make a sinking fund payment until fiscal
1997.
7. Notes and Mortgage Payable
In March 1995 the Company financed leasehold improvements made at its new
Seabrook, Maryland center necessary for the installation of MR and computerized
axial tomography (CT) imaging equipment with an aggregate cost of $672,546.
These leaseholds were financed using a four year note due March 1999, which
bears interest at 11.8% and requires monthly payments of $17,473, including
interest.
F-14
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
7. Notes and Mortgage Payable (continued)
In January 1995, in connection with the acquisition of Golf MRI L.P. and
Diagnostic Imaging Center L.P. the Company consolidated and refinanced the
center's existing equipment debt obligations, aggregating $1,823,167, using a
five year bank term note bearing interest at a variable rate equal to the bank's
prevailing prime rate (9.0% at March 31, 1995) plus one percent. The note
requires monthly installments of $36,729, including interest, and is due on
March 31, 2000. In addition, the Company assumed $34,450 of notes payable to
former limited partners of Diagnostic Imaging Center which bear interest at a
rate of 10%, require quarterly payments of $8,612 plus interest and are due in
December 1995, and a $125,000 two year note payable to the former general
partner, which does not bear interest. The Company financed $550,000 of the
cash portion of the acquisition price with a bank using a five year term note
bearing interest at a variable rate equal to the bank's prevailing prime rate
(9.0% at March 31, 1995) plus one percent. The note requires monthly
installments of $11,417, including interest, and is due on March 31, 2000. The
note agreement requires the Company to meet certain financial ratios as of March
31 of each year the agreement is in effect. The foregoing bank notes are
collateralized by the center's imaging equipment.
In January 1995, in conjunction with the acquisition of an imaging center in
Libertyville, Illinois, the Company renegotiated the remaining principal on the
Center's equipment debt and refinanced the $650,000 balance using a five year
note payable to a bank which bears interest at a variable rate equal to the
bank's prevailing prime rate (9.0% at March 31, 1995) plus one-half percent.
The note requires monthly installments of $13,294, including interest, and is
due in December 1999. The note is collateralized by the center's magnetic
resonance imaging equipment.
In December 1994, the Company refinanced the imaging equipment and leasehold
improvement debt of its Bel Air, Maryland center with a remaining principal
balance of $2,493,683 as of the date of the refinancing. In conjunction with
the refinancing, the Company also financed the cost of upgrades to its MR and
nuclear medicine equipment with an aggregate cost of $238,614. The Company
incurred a prepayment penalty of $15,945 in conjunction with the refinancing,
which was included as a component of other expense (income), net in the
accompanying statement of operations for the year ended March 31, 1995. The
note payable obligation, aggregating $2,748,242 of principal is payable over a
seven year term due January 2001, bears interest at 11.25% and requires fixed
monthly payments of $40,000, including interest, during the first 24 months and
$61,465, including interest, or the remaining term. The note is collateralized
by the related imaging equipment.
F-15
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
7. Notes and Mortgage Payable (continued)
In December 1994, the Company financed equipment upgrades aggregating $147,095
at its Marlton, Union and Morristown, New Jersey and Chicago,
Illinois centers using a five year note due January 2000, which bears interest
at a rate of 11.25% and requires monthly payments of $3,217, including
interest. The note is collateralized by the related imaging
equipment.
In November 1994, the Company purchased mammography imaging equipment for its
Oak Lawn, Illinois center at a cost of $59,478. The Company financed the
purchase using a five year bank note due November 1999, which bears interest at
a variable rate equal to the bank's prevailing prime rate (9.00% at March 31,
1995) plus one half percent, and requires monthly payments of $1,216, including
interest. The note is collateralized by the related imaging equipment.
In November 1994, the Company financed leasehold improvements made at its
Philadelphia, Pennsylvania center necessary for the installation of CT imaging
equipment with an aggregate cost of $43,396. These leaseholds were financed
with a four year note due November 1998 which bears interest at 10.75% and
requires monthly payments of $1,106, including interest.
In June 1994, the Company purchased ultrasound equipment for its Oak Lawn,
Illinois center at a cost of $197,625. The Company financed the purchase using
a five year bank note due July 1999, which bears interest at a variable rate
equal to the bank's prevailing prime rate (9.00% at March 31, 1995) plus one
half percent, and requires monthly payments of $3,995, including interest. The
note is collateralized by the related imaging equipment.
In March 1994, the Company financed the acquisition of limited partnership
interests using a $2,200,000 three year note payable which bears interest at a
rate of 8.9% and requires monthly payments of $49,830, including interest
through April 1995 and $83,378, including interest per month thereafter. The
note is collateralized by the imaging equipment and receivables of certain of
the limited partnerships in which additional interests were acquired.
In March 1994, the Company financed equipment upgrades aggregating $79,500 at
its Marlton, Union and Morristown, New Jersey centers using three year notes due
April 1997, which bear interest at rates of 8.9% and are collateralized by the
related imaging equipment.
F-16
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
7. Notes and Mortgage Payable (continued)
In January 1994, in connection with the acquisition of Oak Lawn Imaging Center,
the Company issued promissory notes in the aggregate principal amount of
$435,000, which bear interest at rates of 7.0% and require an aggregate monthly
payment of $13,432 including interest over a three year period. In addition,
the Company assumed a five year $1,475,000 note payable to a bank which bears
interest at a variable rate equal to the bank's prevailing prime rate (9.0% at
March 31, 1995) plus one percent. Monthly payments, including principal and
interest, for the first three years of the note are fixed at $20,000. The note
is collateralized by substantially all of the equipment of the Oak Lawn Imaging
Center.
The Company has arrangements that provide long-term financing for leasehold
improvements aggregating $215,000 at its OPEN MRI of Chicago, Illinois and
Philadelphia, Pennsylvania centers. The financing arrangements provide for five
year notes due September 1997 and January 1998, respectively, which bear
interest at rates of 9.6% and 9.8%, respectively, and are collateralized by the
related imaging equipment.
During the year ended March 31, 1992, the Company completed an upgrade at its
Allentown, Pennsylvania center which included both new imaging equipment,
related leasehold improvements and a five year prepaid equipment maintenance
agreement aggregating approximately $3,200,000. The Company financed these
amounts using a note payable (the "Note") over a five year term which commenced
in August 1992. The Note requires monthly installments of $38,095 plus interest
and a balloon payment of $952,395 due in July 1997. The Note bears interest at
a variable rate equal to the bank's prevailing prime rate plus one-half percent
(9.5% at March 31, 1995), however, the Note provides an option to fix the
interest rate at any time during the term. The Note is collateralized by
substantially all of the assets of the MR Associates of Allentown partnership.
Effective for fiscal 1994, the Note's financial covenants were modified
requiring the Partnership to meet two debt coverage ratios, as defined, as of
March 31 of each fiscal year through the expiration of the Note. As of March
31, 1993, the Company's partnership received a waiver of compliance with respect
to meeting the Note's financial covenant requirements to maintain a minimum
aggregate capital level of $200,000 and a debt coverage ratios of 1.8 to 1.0 as
defined in the Note agreement.
Pursuant to a ten year lease agreement expiring in June 1996, the Illinois
Masonic Medical Center ("IMMC") as lessor of the land underlying the Chicago,
Illinois location, which commenced operations in April 1987, had the option to
purchase the Company's general partnership interest in the MR Associates of
Chicago limited partnership. On April
F-17
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
7. Notes and Mortgage Payable (continued)
21, 1993, the Company acquired IMMC's purchase option for $793,000, which
included notes aggregating $593,000. The notes are payable over varying terms
of two and three years commencing in May 1993.
The Company has a thirty-year mortgage collateralized by the Union, New Jersey
imaging center land and building. At March 31, 1995 and 1994, the aggregate
outstanding balance due under the mortgage was $524,065 and $533,594,
respectively. The mortgage bears interest at a variable rate, adjusted annually
based on the one-year Treasury bill rate plus 2.75% (8.25% at March 31, 1995)
and matures October 2019.
As of March 31, 1995 the Company has $6,863,377 outstanding obligations with
certain financial institutions under agreements which include a material adverse
change in financial condition or other similar subjective acceleration clauses.
Aggregate maturities of the Company's notes and mortgage payable for
fiscal years 1996 through 2000 and thereafter are as follows: 1996 -
$2,769,098; 1997 - $2,948,792; 1998 - $3,044,599; 1999 - $2,098,278; 2000 -
$1,355,586; thereafter $1,003,864.
8. Shareholders' Equity
Authorized Stock
The Board of Directors is authorized to issue, without further action by the
shareholders, 500,000 shares of preferred stock, par value $.05, and to fix and
alter the rights related to such stock. The Company has a Shareholders' Rights
Plan (described below) which may require the issuance of Series A Preferred
Stock, $.05 par value, in connection with the exercise of certain stock purchase
rights. At March 31, 1995, there were no shares of preferred stock issued or
outstanding.
On February 6, 1991, the Board of Directors authorized a common stock repurchase
program whereby the Company may purchase not more than 1,000,000 shares of its
outstanding common stock from time to time. The shares will be held as treasury
shares for reissuance upon the exercise of employee stock options, warrants and
other convertible securities. As of March 31, 1995, the Company had repurchased
348,420 shares of common stock under this program.
Shareholders' Rights Plan
Under the Shareholders' Rights Plan each outstanding share of the Company's
common stock has attached to it one stock purchase right.
F-18
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
8. Shareholders' Equity (continued)
These rights will continue to be represented by and trade with the Company's
common stock certificates unless and until certain takeover-related events
occur. Following such events, each right will become exercisable to purchase
one one-hundredth of a share of Series A Preferred Stock, par value $.05, at an
exercise price of $15 per one one-hundredth share subject to adjustment. In the
event any person acquires beneficial ownership of 20% or more of the outstanding
common shares, each right will be exercisable, for a sixty-day period following
the announcement of such acquisition, to purchase the Company's common stock or
common stock equivalent having a market value equal to two times the exercise
price. The Shareholders' Rights Plan further provides that if, after the
occurrence of such an acquisition, the Company is merged into any other
corporation or 50% or more of the Company's assets are sold, each right will be
exercisable to purchase common shares of the acquiring corporation having a
market value equal to two times the exercise price. The rights expire on
December 23, 1995, and are subject to redemption by the Company's Board of
Directors at $.01 per right at any time prior to the first date upon which they
become exercisable to purchase common shares.
Stock Options
The Company maintains an Incentive Stock Option and Non-Statutory Option Plan
(the "Plan") for employees of the Company. Under the Plan, established in 1986,
up to 600,000 shares of common stock of the Company may be issued upon the
exercise of options to be granted during the ten-year term of the Plan. The
exercise price of options granted is equal to the fair market value of the
Company's common shares on the date of grant. Options with respect to 365,500
shares were outstanding at March 31, 1995, at an exercise price ranging from
$2.25 to $6.38 per share for terms of five and ten years. As of March 31, 1995,
options with respect to 141,725 shares were exercisable. During the year ended
March 31, 1995, 10,250 options were exercised at exercise prices ranging from
$2.25 to $3.25 per share.
F-19
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
8. Shareholders' Equity (continued)
Stock Purchase Warrants
As of March 31, 1995 the Company had granted warrants to purchase its common
stock with the following terms:
Number
of Exercise Expiration
shares price date
------- -------- -----------------
40,000 $4.00 December 2, 1995
20,000 $4.50 December 2, 1995
40,000 $5.00 December 2, 1995
50,000 $7.00 September 26, 1996
50,000 $8.00 September 26, 1996
50,000 $3.00 May 5, 1996
50,000 $3.50 May 5, 1996
100,000 $8.00 February 6, 1997
7,000 $5.00 March 30, 1997
75,000 $3.00 November 5, 1998
35,000 $3.00 January 20, 1999
25,000 $3.09 February 23, 1999
100,000 $3.92 May 18, 1999
25,000 $5.00 September 30, 1999
190,000 $6.38 December 18, 2001
100,000 $7.63 March 12, 2002
100,000 $10.00 March 12, 2002
- ---------
1,057,000
=========
In October 1994, the Company issued warrants to purchase 25,000 shares of the
Company's common stock at an exercise price of $5.00 per share to a
radiology group providing services to one of its centers. These warrants have a
term of five years and are exercisable from the date of grant.
In May 1994, the Company entered into an agreement with Ehrenkrantz King
Nussbaum, Inc. ("EKN") under which EKN will provide financial consulting
services to the Company for a term of two years. Pursuant to this agreement,
EKN received warrants to purchase 100,000 shares of the Company's common stock;
50,000 warrants with an exercise price of $3.00 per share and 50,000 warrants
with an exercise price of $3.50 per share. These warrants have a term of two
years and are exercisable from the date of grant.
In January 1994, the Company entered into a three year administrative services
agreement with Radiology Business Management Inc. ("RBM") to
F-20
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
8. Shareholders' Equity (continued)
provide office and clerical services to the Oak Lawn Imaging Center, pursuant to
which the Company issued RBM warrants to purchase 35,000 shares of the Company's
common stock at an exercise price of $3.00 per share. These warrants have a
term of five years and are exercisable from the date of grant.
On May 1, 1993, warrants with respect to 50,000 shares at $3.25 per share
expired unexercised.
In connection with the Company's fiscal 1992 stock purchase warrant redemption
offer, the Company issued Strategic Growth International warrants to purchase
100,000 shares of the Company's common stock; 50,000 warrants with an exercise
price of $7.00 per share and 50,000 warrants with an exercise price of $8.00 per
share. These warrants have a term of five years and are exercisable from the
date of grant.
In February 1992, the Company entered into an agreement with Seaboard
Securities, Inc. ("Seaboard") under which Seaboard will provide financial
consulting services for a term of three years. Pursuant to the agreement,
Seaboard received warrants to acquire 100,000 shares of the Company's common
stock at $8.00 per share. The warrants have a term of five years and vest as
services are provided. A member of the Company's board of directors is an
officer of Seaboard.
On December 19, 1991, the non-employee Directors of the Company were each
granted warrants to purchase 20,000 shares of common stock at $6.38 per share.
These warrants have a term of ten years and are exercisable from date of the
grant.
On May 17, 1991 the Company issued warrants to acquire 52,500 shares of its
common stock at $5.00 per share to the thirty five partners of its Union, New
Jersey limited partnership. In conjunction with the Company's August 1992
purchase of an additional 1.4% interest in the partnership, 1,500 warrants to
purchase common stock were canceled. On December 17, 1992, the Board of
Directors authorized the Company to offer to (i) reduce the warrant exercise
price from $5.00 to $1.00 per share, exercisable into restricted common stock or
(ii) purchase the warrants for $.50 per warrant. Pursuant to this offer,
27,000 warrants were converted into restricted common stock during the year
ended March 31, 1993. In addition, in June of 1993, the Company purchased the
remaining 24,000 warrants for $.50 per warrant.
On November 6, 1990, the Board of Directors granted an officer and
director of the Company warrants to acquire 75,000 shares of common
stock at $3.00 per share. The warrants vest over a three year period
F-21
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
8. Shareholders' Equity (continued)
from the date of the grant and have a term of eight years. During the year
ended March 31, 1992, the Company granted the same officer and director warrants
to acquire 250,000 shares of the Company's common stock; 50,000 warrants with an
exercise price of $6.38 per share; 100,000 warrants with an exercise price of
$7.63 per share, and 100,000 warrants with an exercise price of $10.00 per
share. These warrants are exercisable from date of grant and have a term of ten
years.
9. Income Taxes
Effective April 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, ("SFAS No. 109") "Accounting for Income Taxes." The adoption
of SFAS No. 109 changed the Company's method of accounting for income taxes
from the deferred method, Accounting Principles Bulletin No. 11, to an asset
and liability approach. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the financial reporting basis and
tax basis of the Company's assets and liabilities. The adoption of SFAS No.
109 resulted in no cumulative effect adjustment during the year ended
March 31, 1993.
As of March 31, 1995, the Company for Federal income tax purposes, has net
operating loss carryforwards which begin to expire in the year 2000, of
approximately $4,266,000, of which approximately $2,052,000 represent net
operating losses of an acquired company. Under Section 382 of the Internal
Revenue Code, the Company's acquired operating losses are subject to an annual
utilization limitation of approximately $231,000. Any unutilized annual
limitation may be carried forward to future years.
Future changes in the ownership of the Company could result in additional
limitations on the utilization of its net operating loss carryovers. The state
tax jurisdictions in which the Company operates do not permit the carryback of
net operating losses to prior years in which taxes were paid. Accordingly, for
the year ended March 31, 1993, a state tax benefit was not recognized for state
tax net operating losses which were generated.
Such state tax net operating losses were utilized to reduce the Company's fiscal
1995 and 1994 state income tax liability. For Federal income tax purposes, the
Company also has investment and alternative minimum tax credits of $386,000 and
$105,000, respectively, of which approximately $74,000 represents investment tax
credits of an acquired company. The Company's investment tax credits begin to
expire in the year 1999 and are accounted for under the flow through method.
Alternative minimum tax credits do not expire.
F-22
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
9. Income Taxes (continued)
Significant components, tax effected, of the Company's deferred tax assets and
(liabilities) at March 31, 1995 and 1994 are as follows (in thousands):
1995 1994
---- ----
Deferred tax liabilities:
Fixed assets $(1,123) $ ( 798)
Purchase option ( 273) ( 296)
------ ------
Deferred tax liabilities (1,396) (1,094)
------ ------
Deferred tax assets:
Net operating losses 1,527 1,921
Excess financial reporting
partnership losses 466 ---
Tax credits 491 454
Other 11 23
------ ------
Deferred tax assets 2,495 2,398
Valuation allowance --- (1,304)
------ ------
Net deferred tax asset $ 1,099 $ ---
====== ======
The net decrease in the Company's valuation allowance on deferred tax assets
during the year ended March 31, 1995 totaled $1,304,000. The Company has
reduced its deferred tax asset valuation allowance, as management believes it is
more likely than not that the tax benefits will be realized in the future based
upon expected future taxable income. In the event the Company is unable to
generate sufficient taxable income in the future, increases in the valuation
allowance will be required and charged to expense.
Components of the provision for (benefit from) income taxes are as follows:
1995 1994 1993
---- ---- ----
Current:
Federal $ 25,000 $ 12,000 $ ---
State 44,284 96,000 ---
---------- -------- --------
69,284 108,000 ---
---------- -------- --------
Deferred:
Federal (1,142,000) --- ---
State 43,000 --- ---
---------- -------- --------
(1,099,000) --- ---
---------- -------- --------
$(1,029,716) $108,000 $ ---
========== ======== ========
F-23
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
9. Income Taxes (continued)
A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate as reported is as follows:
1995 1994
---- ----
Expected Federal income tax rate 34.0% 34.0%
State income taxes, net of
Federal benefit 6.2% 5.4%
Net operating loss carryforwards (32.2%) (33.2%)
Recognition of net deferred tax asset (82.4%) ---
Other 1.1% 1.1%
----- -----
Effective income tax rate (73.3%) 7.3%
===== =====
10. Commitments and Contingencies
As of March 31, 1995, the Company has entered into noncancelable leases for
twelve offices that have imaging systems in current operation as well as
operating leases for magnetic resonance imaging equipment installed in its
Philadelphia, Pennsylvania and Seabrook, Maryland imaging centers and computed
axial tomography equipment installed in the Seabrook, Maryland imaging center.
Ten of the offices are subleased to affiliated Physicians. The office leases
are generally for terms of five and ten years and include rent escalation
clauses generally tied to the consumer price index and contain provisions for
additional terms at the option of the tenant. By reason of the sublease
arrangements, if the respective Physicians should be unable to pay the rental on
the site, the Company would be contingently liable. As of March 31, 1995, the
Company has subleased the operating sites to the Physicians for the base rental
in the original lease. For the years ended March 31, 1995, 1994 and 1993 the
related sublease income has been offset by the lease rent expense.
The following summary of non-cancelable obligations includes the sublease
arrangements described above, certain equipment leases and the Company's
corporate rentals. As of March 31, 1995, the aggregate future minimum lease
payments and sublease rentals are as follows:
Original
Year ended March 31, Leases Subleases Net
- -------------------- ---------- ---------- ----------
1996 $1,735,309 $ 721,980 $1,013,329
1997 1,678,638 663,671 1,014,967
1998 1,383,629 560,925 822,704
1999 904,703 529,930 374,773
2000 507,098 507,098 ---
thereafter 422,412 422,412 ---
- ------------------------------------------------------------------
$6,631,789 $3,406,016 $3,225,773
==================================================================
F-24
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
10. Commitments and Contingencies (continued)
Effective May 31, 1993, the Company terminated its leases for corporate
headquarters in Morristown, New Jersey. The Company entered into a lease
agreement for new executive and administrative office space under a 66 month
lease which commenced on May 19, 1993. The base agreement contains two five
year renewal options. Corporate rent expense for the years ended March 31,
1995, 1994 and 1993 amounted to $114,035, $123,061, and $168,853, respectively.
During August, 1993, the Board of Directors authorized the Company to guarantee
personal loans made by a bank to two officers of the Company for the purpose of
purchasing the Company's common stock in the open market. The guarantee was
provided to the bank in the form of certificates of deposit aggregating
$100,000. During fiscal 1995, one of the officers repaid the personal loan in
full. The shares of common stock purchased by the other officer are pledged to
the Company as collateral for the continuing guarantee of the related loan.
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management and its counsel believe that such pending
litigation will not have a material adverse effect on the Company's results of
operations, cash flows or financial condition.
11. Related Parties
During the years ended March 31, 1995, 1994 and 1993, the Company, in accordance
with the related partnership agreements, allocated certain corporate overhead
costs to the limited partnerships which resulted in $7,865, $19,982 and $30,688,
respectively, of such costs being attributed to the minority interests.
The Company has a consulting agreement with a member of the Board of Directors.
The consulting agreement has a one year term expiring on December 31, 1995,
and provides compensation of $72,000 per annum.
12. Imaging Center Matters
The Company's Greenbelt, Maryland magnetic resonance imaging center facility
lease expired on January 31, 1995. The Company constructed a new center
offering both magnetic resonance and CT imaging which opened April 1995. The
Company financed the cost of equipment, totaling $918,750, using an operating
lease and financed the $672,546 cost of related leasehold improvements using a
term note. The Greenbelt lease required the Company to repair damage caused by
the removal of equipment at that location. In lieu of performing such repairs,
the Company paid $51,600 to obtain the landlord's full release from such
obligations.
F-25
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
12. Imaging Center Matters (continued)
This amount is reflected in the fiscal 1995 statement of operations as a
component of other (income) expense, net.
Effective December 31, 1994, the Company acquired an additional .33%
limited partnership interest in MR Associates I for $8,800. This purchase
increased the Company's share of profits, losses and distributable cash from
97.4% to 97.7%.
Effective April 1, 1994, the Company acquired an additional 3.2% limited
partnership interest in MR Associates of Chicago for $40,000. This purchase
increased the Company's share of profits, losses and distributable cash from
84.0% to 87.2%.
During July 1992, the Company sold its 6.25% interest in a Birmingham, Alabama
limited partnership for approximately $226,000. The aggregate proceeds were
equal to the gain on the sale which is reflected in the fiscal 1993 consolidated
statement of operations as a component of other (income) expense, net.
Effective April 1, 1992, the Company acquired for $300,000 an additional 20%
interest in the Austin, Texas limited partnership. The Company's Austin, Texas
center operates pursuant to a limited partnership agreement (the "Austin
Partnership") which expires on January 31, 1996. The Company also receives a
management fee based upon five percent of the center's cash collections. No
assurance can be given that the Austin Partnership will be operated beyond its
current expiration date, that the Company will continue to manage the center
or that the terms of any new or extended management contract will be
substantially similar to the Company's existing management contract.
Effective April 1, 1992, the Company sold approximately 2.9% of its interest in
the Allentown, Pennsylvania limited partnership for aggregate proceeds of
approximately $67,000. The Company recognized a gain of $44,253 on this
transaction which is reflected in the accompanying 1993 consolidated statement
of operations as a component of other (income) expense, net.
Effective January 1, 1992, the Company acquired for $1,128,000 an additional 28%
interest in the MR Associates I partnership through the pro rata purchase of
limited partnership interests. The Company's share of profits, losses and
distributable cash increased from 43% to 71% as of the date of the acquisition.
F-26
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
13. Quarterly Consolidated Financial Information (Unaudited)
The following is a summary of unaudited quarterly consolidated financial
results for the years ended March 31:
(000's omitted, except for per share amounts)
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr(2)
-------- ------- ------- -------
Revenue, net $4,437 $4,299 $4,376 $4,875
Operating income 1,082 920 865 227
Net income 622 501 382 929
Per fully diluted
common share (1):
Net income .13 .10 .08 .18
1994 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
Revenue, net $3,711 $4,069 $3,895 $3,922
Operating income 691 1,000 793 734
Net income 210 399 334 425
Per fully diluted
common share (1):
Net income .04 .08 .07 .09
(1) Quarterly income per fully diluted common share does not equal the
annual amount due to changes in the common and equivalent shares
outstanding.
(2) The Company's fourth quarter consolidated financial results include (i)
a non-recurring $560,000 adjustment to write-down the carrying
value of certain fixed assets (see Note 15) and (ii) the
recognition of the Company's net deferred tax asset in the amount
of $1,099,000 (see Note 9).
Quarterly results are generally effected by the timing of acquisitions,
including limited partner interests, and the number of operating days in the
quarter.
F-27
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
14. Acquisitions
On March 13, 1995, the Company announced that its Board of Directors had
approved an agreement, subject to certain conditions, providing for the
acquisition of Morgan Medical Holdings, Inc. ("Morgan"). A definitive merger
agreement was executed on April 11, 1995. Morgan provides diagnostic imaging
equipment, facilities and management services to physicians through four
outpatient centers located in the Florida cities of Cape Coral, Naples, Sarasota
and Titusville. In addition, Morgan operates a physical therapy center in
Albany, Georgia. Pursuant to the terms of the acquisition, Morgan shareholders
will receive approximately 1,220,000 shares of the Company's common stock in the
transaction, which includes approximately 100,000 shares reserved for issuance
upon exercise of Morgan's outstanding stock options and warrants. Pursuant to
the merger agreement, 0.3330886 shares of the Company's common stock would be
issued for each outstanding share of Morgan. The merger is subject to
conditions including the sale of Morgan's physical therapy business, receipt of
fairness opinions, shareholder and regulatory approval and consents. On May 15,
1995, the Company filed a joint proxy and prospectus with the Securities and
Exchange Commission relating to the transaction. Under the terms of the merger
agreement, the Company will exercise control over the voting rights of Morgan's
largest shareholder for a period of three years. As such, if this acquisition
is consummated, the Company intends to account for the transaction as a purchase
and, accordingly, the acquired assets and liabilities will be recorded at their
fair values at the date of acquisition. The Company currently estimates that
approximately $5,732,000 of costs in excess of fair value will be recorded in
conjunction with the transaction which will be amortized over twenty years on a
straight line basis.
Effective January 1, 1995, the Company acquired, approximately 75% of the
general and limited partnership interests of Diagnostic Imaging Center, L.P.
("DIC") and Golf MRI Center, L.P. ("Golf MRI"). These limited partnerships
collectively operate a multi-modality imaging center located in Des Plaines,
Illinois. As consideration for the acquisition, the Company paid $1,050,000 in
cash and issued 125,000 unregistered shares of the common stock of the Company
and assigned a fair value of $500,000. In conjunction with the acquisition, the
Company entered into agreements with the center's radiologist to provide
radiologic and other administrative services to the center for three year terms.
In addition, the Company consolidated and refinanced the center's existing debt
obligations, aggregating $1,823,167. The acquisitions have been accounted for
as purchases and, accordingly, the acquired assets and liabilities have been
recorded at their fair value at the date of acquisition. The excess of the cost
over the fair value of the net assets acquired of $2,114,693 is being amortized
over twenty years on a straight line basis.
F-28
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
14. Acquisitions (continued)
Effective January 1, 1995, the Company acquired the operations of a magnetic
resonance imaging center located in Libertyville, Illinois ("Libertyville").
As consideration for the acquisition, the Company acquired certain of the
seller's assets and assumed certain liabilities. In addition, the Company
agreed to pay deferred consideration of up to $300,000 which is conditioned
upon the center achieving certain levels of revenue during calendar 1995.
The acquisition has been accounted for as a purchase and, accordingly, the
acquired assets and liabilities have been recorded at their fair value at the
date of acquisition. The excess of the cost over the fair value of the net
assets acquired was not material. The deferred consideration, if paid, will
be capitalized to goodwill.
Effective January 21, 1994, the Company acquired 90% of the outstanding capital
stock of Oak Lawn Imaging Center, Inc., and Oak Lawn Magnetic Resonance Imaging
Center, Inc. (collectively "Oak Lawn Imaging Center"), for $1,247,500 comprised
of $325,000 in cash, three year promissory notes in the aggregate principal
amount of $435,000 and the issuance of 150,000 unregistered shares of the
Company's common stock assigned a fair value of $487,500. In addition, the
Company assumed a note payable obligation of $1,475,000. The acquisitions have
been accounted for as purchases and, accordingly, the acquired assets and
liabilities have been recorded at their fair value at the date of acquisition.
The excess of the cost over the fair value of the net assets acquired of
$1,824,207 is being amortized over twenty years on a straight line basis.
Effective January 1, 1994, the Company acquired additional limited partnership
interests in seven of its existing centers for $2,185,005. The acquisitions
were accounted for as purchases resulting in the ownership interests reflected
in Note 1. The acquisition of such limited partnership interests on a
consolidated basis resulted in a difference between the purchase price of such
interests and the estimated fair value of the net assets of the respective
partnerships amounting to $15,593.
F-29
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
14. Acquisitions (continued)
The Company's consolidated financial statements for the year ended March 31,
1995, do not include the results of operations of Morgan and include the results
of operations of Golf MRI, DIC and Libertyville from the January 1, 1995
effective date of such transactions. The Company's consolidated financial
statements for the year ended March 31, 1994, included the results of operations
of Oak Lawn Imaging Center commencing January 21, 1994, and reflect the impact
of the Company's purchases of additional limited partnership interests effective
January 1, 1994. The following summarizes the unaudited proforma results of
operations for the years ended March 31, 1995 and 1994, assuming all of the
foregoing acquisitions had occurred on April 1, 1994 and 1993 (in thousands,
except per share data):
Fiscal Fiscal
1995(1) 1994
(Unaudited) (Unaudited)
----------- -----------
Revenue, net $25,962 $25,763
Operating income $ 5,260 $ 5,964
Income before
income taxes $ 2,858 $ 3,671
Income before extraordinary
item and cumulative effect
of change in accounting
principle $ 3,730 $ 3,396
Fully diluted net
income per share $ .57 $ .55
(1) The Company's fiscal 1995 pro forma financial results include (i) a
non-recurring $560,000 adjustment to write-down the carrying value
of certain fixed assets (see Note 15) and (ii) the recognition of
the Company's net deferred tax asset in the amount of $1,099,000
(see Note 9).
15. Asset Write-down
The Company's results of operations for the fourth quarter of fiscal 1995
includes a charge to expense of approximately $560,000 representing the
remaining net book value of the diagnostic imaging equipment of the Company's
Elgin, Illinois imaging center which are no longer believed to be recoverable
from the center's future operations. The center has operated at a loss since it
opened in May 1992. The impact of this change on fiscal 1995 and fourth quarter
net income, net of the related tax benefit, was approximately ($338,000) or
($.06) per share. The Company intends to utilize the facility to perform
certain regional administrative functions and to perform limited diagnostic
imaging procedures at reduced staffing levels in the future.
F-30
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
16. Subsequent Event (Unaudited)
During April 1995, the Company temporarily ceased operations at its Union, New
Jersey facility in order to replace the existing magnetic resonance imaging
equipment which was installed in 1984. It is anticipated that the new system
will be operational in early July 1995, and that the project will be completed
for an aggregate cost of approximately $760,000, which includes the cost of
leasehold improvements and equipment.
F-31
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
AGREEMENT made and entered into as of this 21st day of June, 1994, between
NMR OF AMERICA, INC., a Delaware corporation (the "Employer") and JOSEPH G.
DASTI, residing at 28-I Morris Avenue, Summit, New Jersey 07901 (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Employer and Employee have previously entered into that certain
Employment Agreement, dated as of March 1, 1991, as the same has been amended by
Amendment No. 1, dated March 1, 1993, and Amendment No. 2, dated August 5, 1993,
thereto
(the Employment Agreement, as so amended, referred to herein as the "Original
Agreement"); and
WHEREAS, the Compensation Committee of the Board of Directors of the
Employer, pursuant to extensive consideration at meetings duly called and held,
has previously recommended to the full Board of Directors of the Employer that
the Original Agreement be further amended and restated with respect to certain
matters, including, without limitation, the amount of the Employee's
compensation, the duration of Employee's contract, the payment of performance
bonuses to Employee and the requirement that Employee agree not to compete with
the business of the Employer during Employee's employment and for a period of
one (1) year thereafter; and
WHEREAS, the Board of Directors of the Employer, following consideration of
the recommendations of the Compensation Committee, at meetings duly called and
held on March 24, 1994 and June 21, 1994, has approved the recommendations of
the Compensation Committee to amend and restate the Original. Agreement in the
manner set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment and Term. Subject to the provisions for termination as
---------------------
hereinafter provided, Employer agrees to and does hereby employ Employee as
President and Chief Executive Officer of Employer and Employee agrees to serve
Employer in such capacities for a five-yea. r term expiring June 2_0, 1999 (the
"Initial Term of Employment"). Thereafter, this Agreement shall continue for
successive one (1) year periods (each one year period hereinafter referred to as
the "Extended Term of Employment") unless the Employer or the Employee elects to
terminate this Agreement as provided below. If either the Employer or the
Employee elects to terminate this Agreement upon
<PAGE>
the expiration of the Initial Term of Employment, or the Extended Term of
Employment, such party shall provide the other party with written notice of
election to terminate at least ninety (90) days prior to the last day of the
Initial Term of Employment or the Extended Term of Employment, as the case may
be. As used herein, the term "Termination Date" shall mean the last day of the
Initial Term of Employment, except that if this Agreement shall be extended as
provided above, the Termination Date shall be the last day of the Extended Term
of Employment.
2. Employee's Duties. Employee shall perform such executive,
-------------------
administrative and supervisory duties as may be assigned to him by Employer's
Board of Directors, not inconsistent with the duties customarily performed by
the President and Chief Executive Officer of a corporation of the size and
engaged in the business of Employer. Employee shall devote substantially his
full time, labor, attention and best ability to the performance of his duties
hereunder, except for customary vacations and reasonable absence due to illness
or to other incapacity, and except for such reasonable time as Employee may be
required to devote to his other business interests, it being understood that
such business interests will not interfere with the ability of the Employee to
devote substantially his full time to the business activities of Employer.
3. Compensation. Employer shall pay to Employee and Employee shall accept
--------------
from Employer as compensation for his services hereunder:
(a) A salary at the annual rate of $200,000, effective March 24, 1994, to be
payable in equal monthly or more frequent installments, less the usual required
deductions, which annual salary shall be subject to increase on each anniversary
date of this agreement at the sole discretion of the Board of Directors of the
Employer.
(b) (i) A quarterly performance bonus with respect to each fiscal quarter of
the Employer commencing with the fiscal quarter ending June 30, 1994 (the
"Initial Quarter") equal to (A) 4.45% of the first $224,000 of quarterly pretax
income, if any, of the Employer in excess of pretax income of $450,000, plus (B)
2.92% of the first $226,000 of quarterly pretax income, if any, of the Employer
in excess of pretax income of $674,000, plus (C) 1.98% of the first $225,000 of
quarterly pretax income, if any, of the Employer in excess of pretax income of
$900,000, plus (D) 1.65% of all quarterly pretax income, if any, of the Employer
in excess of pretax income of $1,125,000. For purposes of this agreement,
"quarterly pretax income" shall mean with respect to each fiscal quarter of
Employer, the sum of (y) the Employer's income before income taxes, but without
taking into account any unusual, non-recurring gains or losses recognized during
such
-2-
<PAGE>
quarter ("Ordinary Pretax Income"), and (z) any amount of the performance
bonus payable under this Section 3(b) for such fiscal quarter which has been
accrued as an expense and included in Employer's payroll and related expenses
for such quarter in arriving at the amount of Employer's income before
income taxes. For purposes of this agreement, Ordinary Pretax Income for any
quarter shall be as reported on a consolidated basis in the Employer's quarterly
report filed with the Securities and Exchange Commission for such fiscal quarter
("Quarterly Report"), except that Ordinary Pretax Income of Employer for the
fourth quarter of any fiscal year of Employer shall equal Ordinary Pretax Income
for such- fiscal year as reported in the Employer's audited financial statements
included in its annual report filed with the SEC, less the aggregate Ordinary
Pretax Income reported by Employer in the three Quarterly Reports during such
fiscal year.
(ii) Any bonus payable to Employee with respect to any quarter shall be paid to
Employee no later than forty-five (45) days following the last day of such
quarter, except that any bonus payable with respect to the fourth quarter of any
fiscal year of Employer shall be paid no later than ninety (90) days after the
end of such fiscal year; provided, however, that Employee may, in his sole
-------------------
discretion, elect to defer payment and receipt of any performance bonus payable
by Employer hereunder for a period of up to one year following the date on which
such bonus payment would otherwise be payable.
(iii) Notwithstanding anything contained herein to the contrary, but without
limiting Employee's rights pursuant to Section 5(b)(ii) hereof, the foregoing
performance bonus is subject to annual review on or about each anniversary date
of this agreement at the sole discretion of the Board of Directors of the
Employer.
(c) Such other and further compensation or benefits as Employer's Board of
Directors may, in its discretion, award to Employee from time to time under any
bonus, stock purchase, stock option, profit sharing or other employee benefit
plan that may hereafter be adopted.
4. Employment Expenses, Vacations and Other Benefits.
--------------------------------------------------
(a) Employee shall be entitled to reimbursement from Employer for reasonable
expenses incurred by him in connection with the performance of his duties
hereunder upon the receipt of vouchers therefor in accordance with such
procedures as Employer has heretofore or may hereafter establish.
(b) Employee shall be entitled to reasonable vacations as may be allowed by
Employer in accordance with its general practices and commensurate with
Employee's position and office.
-3-
<PAGE>
(c) Employee shall be entitled to receive health and medical insurance and
other insurance and benefits on the same basis as such insurance and benefits
are afforded employees of Employer.
5. Termination and Severance. Notwithstanding any other provision of
--------------------------
this agreement to the contrary:
(a) This agreement may be terminated by Employer for cause only if Employee
commits a material act of dishonesty against the Employer in the performance of
his duties. In the event this agreement is terminated by Employer for cause,
Employer shall pay Employee all salary and performance bonus (without reduction
or termination on the basis of annual Board of Directors review pursuant to
Section 3(b)(iii)) payable to Employee pursuant to Sections 3(a) and 3(b) of
this agreement through the date of termination. In the event this agreement is
terminated by Employer without cause, Employee shall be entitled to continue to
receive the salary and bonus payable to Employee pursuant to Sections 3(a) and
3(b) of this agreement (in the case of salary, at the rate in effect at the time
notice of termination is given, and in the case of the quarterly performance
bonus, calculated on the basis of the Employer's quarterly pretax income for the
fiscal quarter immediately preceding the time notice of termination was given)
for the period from the date the Employee ceases to be employed by the Employer
to the Termination Date. During this period, the Employer also shall provide to
the Employee health, medical and life insurance benefits at the same level and
on the same basis as such benefits are afforded employees of the Employer. If
Employee elects, such benefits will be in lieu of any such benefits required to
be provided by Employer by Section 4980B of the Internal Revenue Code ("COBRA").
In the event Employee shall become employed by any entity which provides to
Employee the same or substantially similar health, medical and life insurance
benefits as are required to be supplied by Employer pursuant to this Section
5(a), Employer's obligation to provide such benefits shall terminate. Any salary
and performance bonus payable to Employee following the date Employee ceases to
be employed by the Employer shall be in addition to any salary, bonus or other
accrued compensation due to Employee subsequent to the giving of notice of
termination of employment by Employer and prior to the date Employee ceases to
be employed by the Employer.
(b) This agreement may be terminated by Employee for cause if Employer
materially breaches any provision of this agreement, including, without
limitation, Employer's reduction of any salary or reduction or termination of
any performance bonus payable to Employee pursuant to Section 3(b).
(i) In the event this agreement is terminated by Employee for cause (other
than for cause due to Employer's
-4-
<PAGE>
reduction or termination of any performance bonus payable to Employee pursuant
to Section 3(b)), Employee shall be entitled to continue to receive the salary
and bonus payable to Employee pursuant to Sections 3(a) and 3(b) of this
agreement (in the case of salary, at the rate in effect at the time notice of
termination is given, and in the case of the quarterly performance bonus,
calculated on the basis of the Employer's quarterly pretax income for the fiscal
quarter immediately preceding the time notice of termination was given) for the
period from the date the Employee ceases to be employed by the Employer to the
Termination Date. During this period, the Employer also shall provide to the
Employee health, medical and life insurance benefits at the same level and on
the same basis as such benefits are afforded employees of the Employer. If
Employee elects, such benefits will be in lieu of any such benefits required to
be provided by Employer by COBRA. In the event Employee shall become employed by
any entity which provides to Employee the same or substantially similar health,
medical and life insurance benefits as are required to be supplied by Employer
pursuant to this Section 5(b), Employer's obligation to provide such benefits
shall terminate. Any salary and performance bonus payable to Employee following
the date Employee ceases to be employed by the Employer shall be in addition to
any salary, bonus or other accrued compensation due to Employee subsequent to
the giving of notice of termination of employment by Employer and prior to the
date Employee ceases to be employed by the Employer.
(ii) In the event this agreement is terminated by Employee for cause due to
Employer's reduction or termination of any performance bonus payable to Employee
pursuant to Section 3(b), Employee shall be entitled to receive all salary and
bonus payable to Employee pursuant to Sections 3(a) and 3(b) of this agreement
through the date of termination and Employee shall, upon termination, be
immediately released from, and shall in no way be bound by, any of the terms,
conditions or requirements of Section 7 which shall be null and void and of no
force or effect.
(iii) Notwithstanding the foregoing, but without limiting or waiving any
other available legal rights, Employee, in his sole discretion may, following a
reduction or termination of the performance bonus payable pursuant to Section
3(b) above, elect in writing to continue his employment under this agreement
whereupon Employer and Employee shall continue to be bound by the terms and
conditions of this agreement other than Section 3(b) hereof (which shall be
deemed modified to reflect the reduction or termination of performance bonus),
but Employee shall have the right at any time to terminate his employment
hereunder without penalty, upon thirty (30) days prior written notice to
Employer.
-5-
<PAGE>
(iv) Subject to the limitations set forth above, in the event this agreement
is terminated by Employee for cause, in addition to any other remedies specified
herein, Employee shall be entitled to pursue against Employer any and all
remedies legally available to him consistent with the terms of this agreement.
(c) (i) If a Change of Control (as defined below) of the Employer shall
occur during the term of this agreement, the Employee shall have the right to
terminate this agreement upon thirty (30) days prior written notice to Employer
if, at any time after such Change in Control, any of the following shall occur
without the prior written consent of the Employee:
(A) the assignment to the Employee of any duties materially inconsistent
with, or the material reduction of the powers or functions associated with, the
Employee's position, duties and responsibilities with the Employer immediately
prior to the Change in Control;
(B) the failure by the Employer or any successor to the Employer to award
the Employee annual increases in base salary substantially consistent with
annual salary increases granted by the Employer prior to the Change in Control;
(C) the assignment to the Employee by the Employer or any successor to the
Employer of a principal office for the performance of his duties hereunder which
is more than 25 miles from the principal office of Employee immediately prior to
the Change in Control;
(D) the failure by the Employer or any successor to the Employer to continue
in effect any employee benefit or bonus plan or arrangement in which the
Employee participated immediately prior to the Change in Control (except that
the Employer or any successor to the Employer may establish plans or
arrangements providing substantially similar benefits), or the taking of any
action which would adversely affect the Employee's participation in or
materially reduce the Employee's benefits under, any of the foregoing;
(E) the failure by the Employer or any successor to the Employer to provide
the Employee with substantially the same number of paid vacation and sick days
to which the Employee was entitled immediately prior to the Change in Control.
(ii) In the event Employee shall terminate this agreement pursuant to this
Section 5(c), Employee shall be entitled to receive the salary and performance
bonus and be provided the benefits set forth in Section 5(a) in the case of
Employer's termination of Employee without cause.
-6-
<PAGE>
(iii) A Change of Control shall be deemed to have occurred if (i) any person
or group (as such terms are used in Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Employer representing 25% or more of the combined
voting power of the Employer's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by
Employer's stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the period.
(d) If Employee shall be prevented by illness, accident or disability from
discharging his duties hereunder for a period of six (6) months during the term
of this agreement, Employer may terminate Employee's employment hereunder at the
end of such period. If, thereafter, Employee is again able to fully perform his
duties hereunder and, by notice, requests reemployment, he shall be so
reemployed by Employer under the terms of this agreement at the same position,
or a position of comparable duties and responsibilities.
(e) In the event of Employee's death during the term hereof, his right to
all further payments of his salary shall cease, except that his legal
representatives shall be entitled to receive his salary and pro rata portion of
his performance bonus for the period up to the date of his death and one year
thereafter.
6. Issuance of Warrant upon Termination by Employee. Upon termination of
------------------------------------------------
this agreement by Employee pursuant to Section 5(b) or 5(c) above, or by
Employer for any reason other than for cause pursuant to Section 5(a) above, in
addition to any other rights available to Employee, any option to purchase
shares of the capital stock of Employer previously issued to Employee pursuant
to any stock option plan of Employer shall, to the extent permissible under such
plan, become immediately exercisable to the extent such options are not
exercisable at the time of termination. In the event the terms of the plan do
not permit such options to become immediately exercisable, Employer shall (i)
promptly issue to Employee a non-transferable stock purchase warrant ("Warrant")
which shall be immediately exercisable for a period of five (5) years by
Employee for the purchase of the same number of shares of capital stock of
Employer as was subject to such option and at the same per share exercise price
set forth in such option, and (ii) if Form S-3 is available for use by the
Employer, grant to Employee the right to demand that the Employer, upon thirty
(30) days' prior written
-7-
<PAGE>
notice, register under the Securities Act of 1933, as amended (the "Securities
Act"), the shares of capital stock of Employer received by Employee upon
exercise of the Warrant, and to keep the registration statement filed by
Employer effective for a period of two years from the date such registration
statement is declared effective by the Securities and Exchange Commission
("SEC"), or, if Form S-3 is not available for use by the Employer, grant to
Employee the right to require, upon thirty (30) days' prior written notice,
that Employer include in any registration statement covering shares of the
same class of capital stock of Employer filed by the Employer with the SEC
under the Securities Act (other than a registration statement on Form S-8 or
Form S-4) such number of shares of capital stock of Employer as are then held
by Employee pursuant to the exercise of the Warrant.
7. Restrictions.
-------------
(a) During the term of Employee's employment hereunder and for a period of
[one (1)] year thereafter, Employee will not, directly or indirectly, as
principal, agent, employee, officer, director or shareholder (except as an
investor in securities of publicly owned corporations so long as Employee's
ownership of stock of any one company does not exceed 5% of the outstanding
stock of said company) engage in any business or enterprise in the United States
which is competitive with the business heretofore conducted or hereafter
conducted by Employer or any present subsidiary or affiliate of Employer,
including any business or enterprise involving magnetic resonance imaging or
other diagnostic imaging procedure; provided, however, that the restrictions
----------
contained in this Section 7 shall not apply, and shall be of no force and
effect, in the event Employee terminates this agreement for cause due to
Employer's reduction or termination of any performance bonus payable to Employee
pursuant to Section 3(b) or in the event Employer terminates this agreement
without cause; and provided, further, that nothing contained in this Section
-------------------
7(a) shall prevent Employee from engaging in any such business or enterprise as
principal, agent, employee, officer, director or shareholder of any entity
which, as its primary business, performs clinical laboratory services or engages
in the testing, development or manufacturing of pharmaceutical products.
(b) If, in any judicial proceeding, the duration or scope of any covenant or
agreement of Employee contained in this Section 7 shall be adjudicated to be
invalid or unenforceable, the parties agree that this agreement shall be deemed
amended to reduce such duration or scope to the extent necessary to permit
enforcement of such covenant or agreement, such amendment to apply only with
respect to the operation of such covenant or agreement in the particular
jurisdiction in which such adjudication is made.
-8-
<PAGE>
(c) Employee acknowledges that Employer's business and marketing methods,
referral contacts, physician relationships, vendor relationships, projections
and budgets, costs and expenses, constitute good and valuable trade secrets of
Employer and Employee will not at any time during the term of this agreement or
thereafter, without the consent of Employer, disclose the same to any person,
firm or corporation except on behalf of Employer.
(d) For a period of one (1) year after termination or cessation of
Employee's employment with the Employer for any reason whatsoever other than
Employee's termination of this agreement for cause due to Employer's reduction
or termination of any performance bonus payable to Employee pursuant to Section
3(b), Employee shall not, without the prior written consent of the Employer,
solicit for employment, either on his own behalf or on behalf of any other
person or entity, any person who is employed by the Employer or by any entity
owned or otherwise affiliated with Employer.
(e) The parties hereto acknowledge and agree that money damages would
constitute an inadequate remedy in the event of a breach of this Section 7, and
that, in addition to any other remedies which may be available, the obligations
of Employee under this Section 7 shall be specifically enforceable.
8. Insurance. During the term of this agreement, Employer shall maintain
---------
at all times an insurance policy or policies insuring against the death of
Employee, naming Employee's estate as beneficiary of such policy or policies and
providing for death benefits payable to Employee's estate of not less than
$200,000.
9. Arbitration. Any controversy or claim arising under or in relation
-----------
to this agreement shall be settled by arbitration. Such arbitration shall be
held in the State of New Jersey in accordance with the rules then obtaining of
the American Arbitration Association and judgment upon the award rendered may be
entered into any court having jurisdiction.
10. Entire Agreement. This agreement contains the entire agreement
----------------
between the parties hereto in regard to Employee's employment by Employer and
there have been no oral or other agreements of any kind whatsoever as a
condition precedent or inducement to the signing of this agreement or otherwise
concerning this agreement or the subject matter hereof, nor shall any change,
addition or amendment be made hereto or to any of the terms, covenants or
conditions hereof except by written agreement signed by the parties hereto.
11. Benefits of Agreement. This agreement shall be legally binding upon
---------------------
and shall inure to the benefit of the
-9-
<PAGE>
parties hereto and their respective legal representatives, successors and
assigns, and shall be governed in all respects by the laws of the State of New
Jersey.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the day
and year first above written.
NMR OF AMERICA, INC.
Attest:
/s/ John McCue By: /s/ Joseph G. Dasti
- ------------------------------- ---------------------------
John McCue, Assistant Secretary Name: Joseph G. Dasti
Title: President
Witness
/s/ Sherri DePrisco /s/ John P. O'Malley, III
- ------------------------------- ------------------------------
John P. O'Malley, III
-10-
EXECUTION COPY
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
AGREEMENT made and entered into as of this 21st day of June, 1994, between
NMR OF AMERICA, INC., a Delaware corporation (the "Employer") and JOHN P.
O'MALLEY, III, residing at 8 Webster Avenue, Summit, New Jersey 07901 (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Employer and Employee have previously entered into that certain
Employment Agreement, dated as of December 7, 1992, as the same has been amended
by Amendment No. 1, dated August 5, 1993, thereto (the Employment Agreement, as
so amended, referred to herein as the "Original Agreement"); and
WHEREAS, the Compensation Committee of the Board of Directors of the
Employer, pursuant to extensive consideration at meetings duly called and held,
has previously recommended to the full Board of Directors of the Employer that
the Original Agreement be further amended and restated with respect to certain
matters, including, without limitation, the amount of the Employee's
compensation, the duration of Employee's contract, the payment of performance
bonuses to Employee and the requirement that Employee agree not to compete with
the business of the Employer during Employee's employment and for a period of
one (1) year thereafter; and
WHEREAS, the Board of Directors of the Employer, following consideration of
the recommendations of the Compensation Committee, at meetings duly called and
held on March 24, 1994 and June 21, 1994, has approved the recommendations of
the Compensation Committee to amend and restate the Original Agreement in the
manner set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Employment and Term. Subject to the provisions for termination as
-------------------
hereinafter provided, Employer agrees to and does hereby employ Employee as
Executive Vice President-Finance and Chief Financial Officer of Employer and
Employee agrees to serve Employer in such capacities for a five-year term
expiring June 20, 1999 (the "Initial Term of Employment"). Thereafter, this
Agreement shall continue for successive one (1) year periods
(each one year period hereinafter referred to as the "Extended Term of
Employment") unless the Employer or the Employee elects to terminate this
Agreement as provided below. If either the Employer or the Employee elects to
terminate this Agreement upon
<PAGE>
the expiration of the Initial Term of Employment, or the Extended Term of
Employment, such party shall provide the other party with written notice of
election to terminate at least ninety (90) days prior to the last day of the
Initial Term of Employment or the Extended Term of Employment, as the case may
be. As used herein, the term "Termination Date" shall mean the last day of the
Initial Term of Employment, except that if this Agreement shall be extended as
provided above, the Termination Date shall be the last day of the Extended Term
of Employment.
2. Employee's Duties. Employee shall perform such executive,
------------------
administrative and supervisory duties as may be assigned to him by Employer's
Board of Directors, not inconsistent with the duties customarily performed by
the Executive Vice President-Finance and Chief Financial Officer of a
corporation of the size and engaged in the business of Employer. Employee shall
devote substantially his full time, labor, attention and best ability to the
performance of his duties hereunder, except for customary vacations and
reasonable absence due to illness or to other incapacity, and except for such
reasonable time as Employee may be required to devote to his other business
interests, it being understood that such business interests will not interfere
with the ability of the Employee to devote substantially his full time to the
business activities of Employer.
3. Compensation. Employer shall pay to Employee and Employee shall accept
------------
from Employer as compensation for his services hereunder:
(a) A salary at the annual rate of $150,000, effective March 24, 1994, to be
payable in equal monthly or more frequent installments, less the usual required
deductions, which annual salary shall be subject to increase on each anniversary
date of this agreement at the sole discretion of the Board of Directors of the
Employer.
(b) (i) A quarterly performance bonus with respect to each fiscal quarter of
the Employer commencing with the fiscal quarter ending June 30, 1994 (the
"Initial Quarter") equal to (A) 3.65% of the first $224,000 of quarterly pretax
income, if any, of the Employer in excess of pretax income of $450,000, plus (B)
2.38% of the first $226,000 of quarterly pretax income, if any, of the Employer
in excess of pretax income of $674,000, plus (C) 1.62% of the first $225,000 of
quarterly pretax income, if any, of the Employer in excess of pretax income of
$900,000, plus (D) 1.35% of all quarterly pretax income, if any, of the Employer
in excess of pretax income of $1,125,000. For purposes of this agreement,
"quarterly pretax income" shall mean with respect to each fiscal quarter of
Employer, the sum of (y) the Employer's income before income taxes, but without
taking into account any unusual, non-recurring gains or losses recognized during
such quarter ("Ordinary Pretax Income"), and (z) any amount of the
- 2 -
<PAGE>
performance bonus payable under this Section 3{h) for such fiscal quarter which
has been accrued as an expense and included in Employer's payroll and related
expenses for such quarter in arriving at the amount of Employer's income before
income taxes. For purposes of this agreement, Ordinary Pretax Income for any
quarter shall be as reported on a consolidated basis in the Employer's quarterly
report filed with the Securities and Exchange Commission for such fiscal quarter
("Quarterly Report"), except that Ordinary Pretax Income of Employer for the
fourth quarter of any fiscal year of Employer shall equal Ordinary Pretax Income
for such fiscal year as reported in the Employer's audited financial statements
included in its annual report filed with the SEC, less the aggregate Ordinary
Pretax Income reported by Employer in the three Quarterly Reports during such
fiscal year.
(ii) Any bonus payable to Employee with respect to any quarter shall be paid to
Employee no later than forty-five (45) days following the last day of such
quarter, except that any bonus payable with respect to the fourth quarter of any
fiscal year of Employer shall be paid no later than ninety (90) days after the
end of such fiscal year; provided, however, that Employee may, in his sole
-------------------
discretion, elect to defer payment and receipt of any performance bonus payable
by Employer hereunder for a period of up to one year following the date on which
such bonus payment would otherwise be payable.
(iii) Notwithstanding anything contained herein to the contrary, but without
limiting Employee's rights pursuant to Section 5(b)(ii) hereof, the foregoing
performance bonus is subject to annual review on or about each anniversary date
of this agreement at the sole discretion of the Board of Directors of the
Employer.
(c) Such other and further compensation or benefits as Employer's Board of
Directors may, in its discretion, award to Employee from time to time under any
bonus, stock purchase, stock option, profit sharing or other employee benefit
plan that may hereafter be adopted.
4. Employment Expenses, Vacations and Other Benefits.
--------------------------------------------------
(a) Employee shall be entitled to reimbursement from Employer for reasonable
expenses incurred by him in connection with the performance of his duties
hereunder upon the receipt of vouchers therefor in accordance with such
procedures as Employer has heretofore or may hereafter establish.
(b) Employee shall be entitled to reasonable vacations as may be allowed by
Employer in accordance with its general practices and commensurate with
Employee's position and office.
-3-
<PAGE>
(c) Employee shall be entitled to receive health and medical insurance and
other insurance and benefits on the same basis as such insurance and benefits
are afforded employees of Employer.
5. Termination and Severance. Notwithstanding any other provision of
-------------------------
this agreement to the contrary:
(a) This agreement may be terminated by Employer for cause only if Employee
commits a material act of dishonesty against the Employer in the performance of
his duties. In the event this agreement is terminated by Employer for cause,
Employer shall pay Employee all salary and performance bonus
(without reduction or termination on the basis of annual Board of Directors
review pursuant to Section 3(b)(iii)) payable to Employee pursuant to Sections
3(a) and 3(b) of this agreement through the date of termination. In the event
this agreement is terminated by Employer without cause, Employee shall be
entitled to continue to receive the salary and bonus payable to Employee
pursuant to Sections 3(a) and 3(b) of this agreement (in the case of salary, at
the rate in effect at the time notice of termination is given, and in the case
of the quarterly performance bonus, calculated on the basis of the Employer's
quarterly pretax income for the fiscal quarter immediately preceding the time
notice of termination was given) for the period from the date the Employee
ceases to be employed by the Employer to the Termination Date. During this
period, the Employer also shall provide to the Employee health, medical and life
insurance benefits at the same level and on the same basis as such benefits are
afforded employees of the Employer. If Employee elects, such benefits will be in
lieu of any such benefits required to be provided by Employer by Section 4980B
of the Internal Revenue Code ("COBRA"). In the event Employee shall become
employed by any entity which provides to Employee the same or substantially
similar health, medical and life insurance benefits as are required to be
supplied by Employer pursuant to this Section 5(a), Employer's obligation to
provide such benefits shall terminate. Any salary and performance bonus payable
to Employee following the date Employee ceases to be employed by the Employer
shall be in addition to any salary, bonus or other accrued compensation due to
Employee subsequent to the giving of notice of termination of employment by
Employer and prior to the date Employee ceases to be employed by the Employer.
(b) This agreement may be terminated by Employee for cause if Employer
materially breaches any provision of this agreement, including, without
limitation, Employer's reduction of any salary or reduction or termination of
any performance bonus payable to Employee pursuant to Section 3(b).
(i) In the event this agreement is terminated by Employee for cause (other
than for cause due to Employer's
-4-
<PAGE>
reduction or termination of any performance bonus payable to Employee pursuant
to Section 3(b)), Employee shall be entitled to continue to receive the salary
and bonus payable to Employee pursuant to Sections 3(a) and 3(b) of this
agreement (in the case of salary, at the rate in effect at the time notice of
termination is given, and in the case of the quarterly performance bonus,
calculated on the basis of the Employer's quarterly pretax income for the fiscal
quarter immediately preceding the time notice of termination was given) for the
period from the date the Employee ceases to be employed by the Employer to the
Termination Date. During this period, the Employer also shall provide to the
Employee health, medical and life insurance benefits at the same level and on
the same basis as such benefits are afforded employees of the Employer. If
Employee elects, such benefits will be in lieu of any such benefits required to
be provided by Employer by COBRA. In the event Employee shall become employed by
any entity which provides to Employee the same or substantially similar health,
medical and life insurance benefits as are required to be supplied by Employer
pursuant to this Section 5(b), Employer's obligation to provide such benefits
shall terminate. Any salary and performance bonus payable to Employee following
the date Employee ceases to be employed by the Employer shall be in addition to
any salary, bonus or other accrued compensation due to Employee subsequent to
the giving of notice of termination of employment by Employer and prior to the
date Employee ceases to be employed by the Employer.
(ii) In the event this agreement is terminated by Employee for cause due to
Employer's reduction or termination of any performance bonus payable to Employee
pursuant to Section 3(b), Employee shall be entitled to receive all salary and
bonus payable to Employee pursuant to Sections 3(a) and 3(b) of this agreement
through the date of termination and Employee shall, upon termination, be
immediately released from, and shall in no way be bound by, any of the terms,
conditions or requirements of Section 7 which shall be null and void and of no
force or effect.
(iii) Notwithstanding the foregoing, but without limiting or waiving any
other available legal rights, Employee, in his sole discretion may, following a
reduction or termination of the performance bonus payable pursuant to Section
3(b) above, elect in writing to continue his employment under this agreement
whereupon Employer and Employee shall continue to be bound by the terms and
conditions of this agreement other than Section 3(b) hereof (which shall be
deemed modified to reflect the reduction or termination of performance bonus),
but Employee shall have the right at any time to terminate his employment
hereunder without penalty, upon thirty (30) days prior written notice to
Employer.
-5-
<PAGE>
(iv) Subject to the limitations set forth above, in the event this agreement
is terminated by Employee for cause, in addition to any other remedies specified
herein, Employee shall be entitled to pursue against Employer any and all
remedies legally available to him consistent with the terms of this agreement.
(c) (i) If a Change of Control (as defined below) of the Employer shall
occur during the term of this agreement, the Employee shall have the right to
terminate this agreement upon thirty (30) days prior written notice to Employer
if, at any time after such Change in Control, any of the following shall occur
without the prior written consent of the Employee:
(A) the assignment to the Employee of any duties materially inconsistent
with, or the material reduction of the powers or functions associated with, the
Employee's position, duties and responsibilities with the Employer immediately
prior to the Change in Control;
(B) the failure by the Employer or any successor to the Employer to award
the Employee annual increases in base salary substantially consistent with
annual salary increases granted by the Employer prior to the Change in Control;
(C) the assignment to the Employee by the Employer or any successor to the
Employer of a principal office for the performance of his duties hereunder which
is more than 25 miles from the principal office of Employee immediately prior to
the Change in Control;
(D) the failure by the Employer or any successor to the Employer to continue
in effect any employee benefit or bonus plan or arrangement in which the
Employee participated immediately prior to the Change in Control (except that
the Employer or any successor to the Employer may establish plans or
arrangements providing substantially similar benefits), or the taking of any
action which would adversely affect the Employee's participation in or
materially reduce the Employee's benefits under, any of the foregoing;
(E) the failure by the Employer or any successor to the Employer to provide
the Employee with substantially the same number of paid vacation and sick days
to which the Employee was entitled immediately prior to the Change in Control.
(ii) In the event Employee shall terminate this agreement pursuant to this
Section 5(c), Employee shall be entitled to receive the salary and performance
bonus and be provided the benefits set forth in Section 5(a) in the case of
Employer's termination of Employee without cause.
-6-
<PAGE>
(iii) A Change of Control shall be deemed to have occurred if (i) any person
or group (as such terms are used in Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Employer representing 25% or more of the combined
voting power of the Employer's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by
Employer's stockholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the period.
(d) If Employee shall be prevented by illness, accident or disability from
discharging his duties hereunder for a period of six (6) months during the term
of this agreement, Employer may terminate Employee's employment hereunder at the
end of such period. If, thereafter, Employee is again able to fully perform his
duties hereunder and, by notice, requests reemployment, he shall be so
reemployed by Employer under the terms of this agreement at the same position,
or a position of comparable duties and responsibilities.
(e) In the event of Employee's death during the term hereof, his right to
all further payments of his salary shall cease, except that his legal
representatives shall be entitled to receive his salary and pro rata portion of
his performance bonus for the period up to the date of his death and one year
thereafter.
6. Issuance of Warrant upon Termination by Employee. Upon termination of
------------------------------------------------
this agreement by Employee pursuant to Section 5(b) or 5(c) above, or by
Employer for any reason other than for cause pursuant to Section 5(a) above, in
addition to any other rights available to Employee, any option to purchase
shares of the capital stock of Employer previously issued to Employee pursuant
to any stock option plan of Employer shall, to the extent permissible under such
plan, become immediately exercisable to the extent such options are not
exercisable at the time of termination. In the event the terms of the plan do
not permit such options to become immediately exercisable, Employer shall (i)
promptly issue to Employee a non-transferable stock purchase warrant ("Warrant")
which shall be immediately exercisable for a period of five (5) years by
Employee for the purchase of the same number of shares of capital stock of
Employer as was subject to such option and at the same per share exercise price
set forth in such option, and (ii) if Form S-3 is available for use by the
Employer, grant to Employee the right to demand that the Employer, upon thirty
(30) days' prior written
-7-
<PAGE>
notice, register under the Securities Act of 1933, as amended (the "Securities
Act"), the shares of capital stock of Employer received by Employee upon
exercise of the Warrant, and to keep the registration statement filed by
Employer effective for a period of two years from the date such registration
statement is declared effective by the Securities and Exchange Commission
("SEC"), or, if Form S-3 is not available for use by the Employer, grant to
Employee the right to require, upon thirty
(30) days' prior written notice, that Employer include in any registration
statement covering shares of the same class of capital stock of Employer filed
by the Employer with the SEC under the Securities Act (other than a registration
statement on Form S-8 or Form S-4) such number of shares of capital stock of
Employer as are then held by Employee pursuant to the exercise of the Warrant.
7. Restrictions.
-------------
(a) During the term of Employee's employment hereunder and for a period of
one (1) year thereafter, Employee will not, directly or indirectly, as
principal, agent, employee, officer, director or shareholder (except as an
investor in securities of publicly owned corporations so long as Employee's
ownership of stock of any one company does not exceed 5% of the outstanding
stock of said company) engage in any business or enterprise in the United States
which is competitive with the business heretofore conducted or hereafter
conducted by Employer or any present subsidiary or affiliate of Employer,
including any business or enterprise involving magnetic resonance imaging or
other diagnostic imaging procedure; provided, however, that the restrictions
-------------------
contained in this Section 7 shall not apply, and shall be of no force and
effect, in the event Employee terminates this agreement for cause due to
Employer's reduction or termination of any performance bonus payable to Employee
pursuant to Section 3(b) or in the event Employer terminates this agreement
without cause; and provided, further, that nothing contained in this Section
-------------------
7(a) shall prevent Employee from engaging in any business or enterprise as
principal, agent, employee, officer, director or shareholder of any entity
which, as its primary business, performs clinical laboratory services or engages
in the testing, development or manufacturing of pharmaceutical products.
(b) If, in any judicial proceeding, the duration or scope of any covenant or
agreement of Employee contained in this Section 7 shall be adjudicated to be
invalid or unenforceable, the parties agree that this agreement shall be deemed
amended to reduce such duration or scope to the extent necessary to permit
enforcement of such covenant or agreement, such amendment to apply only with
respect to the operation of such covenant or agreement in the particular
jurisdiction in which such adjudication is made.
- 8 -
<PAGE>
(c) Employee acknowledges that Employer's business and marketing methods,
referral contacts, physician relationships, vendor relationships, projections
and budgets, costs and expenses, constitute good and valuable trade secrets of
Employer and Employee will not at any time during the term of this agreement or
thereafter, without the consent of Employer, disclose the same to any person,
firm or corporation except on behalf of Employer.
(d) For a period of one (1) year after termination or cessation of
Employee's employment with the Employer for any reason whatsoever other than
Employee's termination of this agreement for cause due to Employer's reduction
or termination of any performance bonus payable to Employee pursuant to Section
3(b), Employee shall not, without the prior written consent of the Employer,
solicit for employment, either on his own behalf or on behalf of any other
person or entity, any person who is employed by the Employer or by any entity
owned or otherwise affiliated with Employer.
(e) The parties hereto acknowledge and agree that money damages would
constitute an inadequate remedy in the event of a breach of this Section 7, and
that, in addition to any other remedies which may be available, the obligations
of Employee under this Section 7 shall be specifically enforceable.
8. Insurance. During the term of this agreement, Employer shall maintain
---------
at all times an insurance policy or policies insuring against the death of
Employee, naming Employee's estate as beneficiary of such policy or policies and
providing for death benefits payable to Employee's estate of not less than
$200,000.
9. Arbitration. Any controversy or claim arising under or in relation
-----------
to this agreement shall be settled by arbitration. Such arbitration shall be
held in the State of New Jersey in accordance with the rules then obtaining of
the American Arbitration Association and judgment upon the award rendered may be
entered into any court having jurisdiction.
10. Entire Agreement. This agreement contains the entire agreement
----------------
between the parties hereto in regard to Employee's employment by Employer and
there have been no oral or other agreements of any kind whatsoever as a
condition precedent or inducement to the signing of this agreement or otherwise
concerning this agreement or the subject matter hereof, nor shall any change,
addition or amendment be made hereto or to any of the terms, covenants or
conditions hereof except by written agreement signed by the parties hereto.
11. Benefits of Aqreement. This agreement shall be legally binding upon
---------------------
and shall inure to the benefit of the
-9-
<PAGE>
parties hereto and their respective legal representatives, successors and
assigns, and shall be governed in all respects by the laws of the State of New
Jersey.
IN WITNESS WHEREOF, the parties hereto have executed this agreement the day
and year first above written.
NMR OF AMERICA, INC.
Attest:
/s/ John McCue By : /s/ John P. O'Malley, III
- ------------------------------ --------------------------
John McCue, Assistant Secretary Name: John P. O'Malley, III
Title: Executive Vice
President - Finance
Witness:
/s/ Sherri Deprisco /s/ Joseph G. Dasti
- ------------------------------ ------------------------------
Joseph G. Dasti
-10-
NMR of America, Inc., and Subsidiaries
<TABLE><CAPTION>
Exhibit 11. Computation of Shares Used for Earnings Per Share Calculation
Years Ended March 31,
___________________________________________________________________________________
1995 1994 1993
___________________________________________________________________________________
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE INFORMATION:
Net income (loss) per consolidated
statements of operations $2,433,912 $1,367,500 ($ 593,982)
========== ========== ==========
Weighted average number of
outstanding shares 4,890,791 4,757,102 4,800,122
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 127,161 --- ---
Incremental shares issuable on
conversion of Convertible
Subordinated Debentures --- --- ---
--------- --------- ---------
Weighted average number of shares
used to compute primary earnings
per share 5,017,952 4,757,102 4,800,122
_________ _________ _________
--------- --------- ---------
Primary Earnings Per Share:
- ---------------------------
Primary net income (loss) per share $ .49 $ .29 ($ .12)
_________ _________ _________
--------- --------- ---------
</TABLE>
<PAGE>
NMR of America, Inc., and Subsidiaries
<TABLE><CAPTION>
Exhibit 11. Computation of Shares Used for Earnings Per Share Calculation
Years Ended March 31,
___________________________________________________________________________________
1995 1994(1) 1993(1)
___________________________________________________________________________________
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE INFORMATION:
Net income (loss) per consolidated
statements of operations $2,433,912 $1,367,500 ($ 593,982)
Add: Interest savings from proceeds
of conversion of outstanding
convertible debentures,
net of minority
interest and taxes 220,255 372,517 421,580
--------- --------- ---------
Net income (loss) used to compute fully
diluted earnings per share $2,654,167 $1,740,017 ($ 172,402)
_________ _________ _________
--------- --------- ---------
Weighted average number of
outstanding shares 4,890,791 4,757,102 4,800,122
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 217,553 221,934 178,934
Incremental shares issuable on
conversion of Convertible
Subordinated Debentures 481,556 506,444 506,444
--------- --------- ---------
Weighted average number of shares
used to compute fully diluted
earnings per share 5,589,900 5,485,480 5,485,500
_________ _________ _________
--------- --------- ---------
Fully Diluted Earnings Per Share:
- ---------------------------------
Fully diluted net income (loss) per share $ .47 $ .32 ($ .03)
_________ _________ _________
--------- --------- ---------
(1) the registrant's calculation of fully diluted earnings per share for the year ended March
31, 1994 and 1993 is antidilutive in comparison to its calculation of primary earnings (loss)
per share. As such, the registrant has presented its primary earnings (loss) per share on the
face of its consolidated statement of operations for both the primary and fully diluted
earnings (loss) per share presentation.
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
---------
We consent to the incorporation by reference in the registration statement of
NMR of America, Inc., and Subsidiaries on Form S-8 of our report dated June 16,
1995, on our audits of the consolidated financial statements of NMR of America,
Inc., and Subsidiaries as of March 31, 1995 and 1994, and for the three years
in the period ended March 31, 1995, which report is included in the Company's
Annual Report on Form 10-KSB.
Coopers & Lybrand L.L.P.
Parsippany, New Jersey
June 29, 1995
