SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Admendment No. 2
to
FORM 10-KSB/A
[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
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[ ] 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
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NMR of America, Inc.
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(Name of small business issuer in its charter)
Delaware 22-2468314
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 Mountain Avenue Murray Hill, New Jersey 07974-2732
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 908-665-9400
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Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each exchange on which registered
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8% Convertible Philadelphia Stock Exchange
Subordinated 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 ________
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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
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 30
Item 11. Security Ownership of
Certain Beneficial
Owners and Management 33
Item 12. Certain Relationships and
Related Transactions 35
Item 13. Exhibits, Lists and Reports on
Form 8-K 36
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PART I
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Item 1. Description of Business.
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(a) General Development of the Business. NMR of America, Inc. is
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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").
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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
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believes there is one business segment to its operations.
(c) Description of Business.
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<PAGE>
MR Technology
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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.
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<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.
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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.
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<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.
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<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
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<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.
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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.
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<PAGE>
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 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.
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<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
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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
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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
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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.
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<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.
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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.
---------------
Reference is made to Note 2 of the Company's consolidated financial
statements for a definition of revenue, net.
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,
-18-
<PAGE>
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.
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.
-19-
<PAGE>
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.
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 and 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. The components
of other income and expense, net are as follows:
Fiscal Fiscal
1995 1994
------ ------
Interest Income $ 133,486 $ 76,651
Austin equity inc. (loss) (68,770) 53,067
Film copies 44,619 22,762
Bel Air debt prepayment fee (15,945)
Gain (loss) on equipment (12,084)
Greenbelt lease buyout (51,600)
Other/ mis (5,160) (21,786)
--------- ---------
Other income, net $ 24,546 $ 130,964
========= =========
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.
-----
Reference is made to Note 2 of the Company's consolidated financial
statements for a definition of revenue, net.
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.
-27-
<PAGE>
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons;
-----------------------------------------------------------------------
Compliance with Section 16(a) of the Exchange Act.
--------------------------------------------------
Directors
The directors of the Company, their age, and the year in which each
first became a director of the Company are as follows:
Director
Name Age Since
---- --- --------
Joseph G. Dasti............................ 62 1990
Donald W. Arthur........................... 40 1990
Dr. David L. Bloom......................... 65 1990
John A. Faraone............................ 61 1990
Joseph T. Zappala.......................... 60 1990
All of the Company's directors serve for a period of one year and
until their successors are elected and qualified.
Mr. Dasti was elected Chairman of the Board of the Company in August
1990 and President and Chief Executive Officer in October 1990. Prior
thereto he was engaged for more than five years in the securities business
with Seaboard Securities, Inc., except that from January 1985 to October
1986, Mr. Dasti was employed by Swartwood, Hesse Inc., a securities broker-
dealer. Mr. Dasti was a director of the Company from 1986 to February 1990
and was re-elected as director in August 1990.
Mr. Arthur has been employed by Schering Plough Research Institute in
various capacities in its research and development activities for more than
the past five years. Mr. Arthur is currently a Foreperson, engaged in
pharmaceutical process development.
Dr. Bloom is Medical Director and Director of Magnetic Resonance
Imaging for Somerset Diagnostic Centers, a privately held provider of MRI
services located in Boston, Massachusetts. He is also a Senior Vice
President and a director of Medical Diagnostics, Inc., a publicly-held
provider of MRI services, and the President and Clinical Director of
Imaging Consultants, Inc., positions he has held since 1987. From 1983 to
1987, Dr. Bloom was President and Chief Executive Officer and a director of
the Company.
-28-
<PAGE>
Mr. Faraone has been a practicing attorney specializing in real estate
and personal injury law as a sole practitioner in Wilmington, Delaware for
more than the past five years.
Mr. Zappala has been engaged as a retail equities broker in the
securities business for more than the past five years with Seaboard
Securities, Inc. ("Seaboard"). Mr. Zappala is a principal owning 33% of
Seaboard. From January 1985 until September 1986, he was employed by
Swartwood, Hesse Inc., a securities broker-dealer.
Except for Dr. Bloom, who is also a director of Medical Diagnostics
Inc., no director of the Company is a director of any other corporation
which is subject to the periodic reporting requirements of the Securities
Exchange Act of 1934 or is a registered investment company under the
Investment Company Act of 1940.
Executive Officers
The following table sets forth certain information regarding the
executive officers of the Company.
Name Age Offices Held
---- --- ------------
Joseph G. Dasti 62 Chairman of the Board, President
and Chief Executive Officer
John P. O'Malley III 33 Executive Vice President-Finance,
Chief Financial Officer and
Secretary
Mr. O'Malley was appointed Secretary in March 1994 and Executive Vice
President-Finance and Chief Financial Officer in December 1992, and was
initially employed by the Company in May 1992. Prior thereto, he was,
commencing in August 1984, employed by Ernst & Young, a public accounting
firm, and its predecessors, most recently as a manager in its Audit
Department. Mr. O'Malley holds a B.S. degree in Accounting from the
University of Delaware and is a Certified Public Accountant.
All of the Company's executive officers hold office for a term of one
year unless removed earlier by the Board of Directors.
-29-
<PAGE>
Director and Officer Securities Reports
The Federal securities laws require the Company's directors and executive
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file with the SEC reports of changes in
ownership of any equity securities of the Company. Copies of such reports are
required to be furnished to the Company. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the Company, all
persons subject to these reporting requirements filed the required reports on a
timely basis during the 1995 fiscal year.
Item 10. Executive Compensation.
----------------------------------
The following table sets forth the compensation paid during the Company's
three fiscal years ended March 31, 1995 to the chief executive officer of the
Company and the other executive officer(s) of the Company whose compensation
exceeded $100,000 in the last fiscal year.
<TABLE><CAPTION>
SUMMARY COMPENSATION TABLE
Long term
Compensation
Annual Compensation Awards
---------------------- ----------------------
Securities Underlying
Name and Options/SARs All Other
Principal Position Year(1) Salary($)(2) Bonus($) and Warrants (#) Compensation ($)(4)
------------------ ------- ------------ -------- ---------------------- -------------------
<S> <C> <C> <C> <C> <C>
Joseph G. Dasti 1995 206,923 19,450 0 14,531
President 1994 150,384 50,000(3) 100,000 27,450
1993 148,461 25,000 0 1,504
John P. O'Malley III 1995 155,369 15,951 0 20,302
Executive Vice 1994 105,726 55,000(3) 100,000 12
President-Finance 1993 71,654 7,800 0 0
</TABLE>
---------------------------
(1) Information relates to the fiscal years ended March 31.
(2) Includes amounts for periods during which executive officers were employed
by the Company, regardless of capacity in which employed.
(3) $40,000 of bonus was earned during fiscal 1994 and paid subsequent to year-
end.
(4) Amounts of All Other Compensation include (i) amounts contributed or
accrued to the Company's 401(k) profit sharing plan, (ii) employee portion
of premiums on key-man life insurance and (iii) amounts paid for
accumulated unused vacation pay which was earned during prior fiscal years.
-30-
<PAGE>
OPTION/SAR AND WARRANT GRANTS IN LAST FISCAL YEAR
No options, warrants or stock appreciation rights (SAR's) were granted to
any executive officer during the fiscal year ended March 31, 1995.
AGGREGATED OPTION/SAR AND WARRANT EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR AND WARRANT VALUES
No options or warrants were exercised by executive officers during the
fiscal year ended March 31, 1995. The following table sets forth for each of
the named executive officers the number of unexercised options/SAR's and
warrants remaining at March 31, 1995 and the potential value thereof based on
the year-end closing per share sales price of the Company's Common Stock of
$4.75 on March 31, 1995.
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SAR's and
Options/SAR's and Warrant Warrants at
at Fiscal Year-End(#) Fiscal Year-End($)
Exercisable (E)/ Exercisable (E)/
Name Unexercisable(U) Unexercisable (U)
---- -------------------------- -----------------
Joseph G. Dasti 417,500 E(1) 202,900 E
87,500 U(2) 140,250 U
John P. O'Malley III 25,000 E(3) 52,495 E
75,000 U(4) 157,485 U
(1) Includes 30,000 shares issuable pursuant to a warrant exercisable at $3.92
per share, 75,000 shares issuable pursuant to a warrant exercisable at $3.00 per
share, 50,000 shares issuable pursuant to a warrant exercisable at $6.38 per
share, 37,500 options exercisable at $6.38 per share, 100,000 shares issuable
pursuant to a warrant exercisable at $7.63 per share, 100,000 shares issuable
pursuant to a warrant exercisable at $10.00 per share, and 25,000 shares
issuable pursuant to an option exercisable at $2.88 per share.
(2) Includes 12,500 shares issuable pursuant to an option exercisable at $6.38
per share and 75,000 shares issuable pursuant to an option exercisable at $2.88
per share.
(3) Includes 10,000 shares issuable pursuant to an option exercisable at $2.31
per share, and 15,000 shares issuable pursuant to an option exercisable at $2.88
per share.
(4) Includes 30,000 shares issuable pursuant to an option exercisable at $2.31
per share and 45,000 shares issuable pursuant to an option exercisable at $2.88
per share. exercisable.
-31-
<PAGE>
Director Compensation
Directors of the Company received compensation at the rate of $2,500 per
quarter plus $500 for each meeting of a committee of directors attended.
The Company has entered into an agreement with Dr. Bloom, a director of the
Company, whereby he provides consulting and advisory services to the Company in
connection with the purchase and technical use of diagnostic imaging equipment
and other services. As compensation for these services, Dr. Bloom receives
$72,000 per annum, payable monthly. The term of the agreement is for one year
expiring December 31, 1995, subject to automatic renewal unless terminated by
either party. In addition, pursuant to the agreement Dr. Bloom was issued a
warrant to purchase 20,000 shares of the Company's Common Stock at an exercise
price of $6.38 per share exercisable through August 29, 2001.
Employment Agreements
The Company has entered into executive employment agreements with Messrs.
Dasti and O'Malley which expire on June 20, 1999 and provide for annual base
salaries in amounts of $200,000 and $150,000, respectively. Pursuant to the
contracts, Messrs. Dasti and O'Malley are entitled to receive quarterly bonus
payments calculated as a percentage of the Company's consolidated quarterly pre-
tax income (as defined in the agreements) as follows:
Percentage Percentage
Payable to Payable to
Quarterly Pre-Tax Income ("PTI") Mr. Dasti Mr. O'Malley
-------------------------------- --------- ------------
PTI in excess of $450,000 up to 4.45% 3.65%
$674,000
PTI in excess of $674,000 up to 2.92% 2.38%
$900,000
PTI in excess of $900,000 up to 1.98% 1.62%
$1,125,000
PTI in excess of $1,125,000 1.65% 1.35%
Each of the employment agreements of Messrs. Dasti and O'Malley
provides that if the executive is terminated without cause, he shall be entitled
to receive severance pay equal to his base salary and bonus for the remainder of
the term of his contract. In addition, he would be entitled to continued
participation in all the Company benefit plans until the earlier of (i) the
expiration date of his contract or (ii) the date he becomes employed by another
company providing similar benefits. In the
-32-
<PAGE>
event that the executive is terminated for cause, he is not entitled to receive
any monetary compensation under his employment agreement other than compensation
accruing to the date his employment is terminated.
Each of the employment agreements also provides that if following a
change of control (as defined in the agreements) of the Company, the Company,
among other things, assigns to the executive duties inconsistent with his
position, materially reduces his powers or functions, fails to provide annual
salary increases consistent with past practices or requires the executive to
change his place of employment, then the executive will have the right to
terminate his employment agreement. In such an event, the executive would be
entitled to receive the same severance pay as he would receive in the event his
employment is terminated without cause.
In the event either executive terminates his employment agreement for
cause, any stock options held by him issued pursuant to any stock option plan of
the Company would, to the extent permissible, become immediately vested and
exercisable. If the immediate vesting of such options is not permitted, he
would be entitled to receive a five-year warrant immediately exercisable for the
same number of shares of the Company's Common Stock subject to such options and
exercisable at the same per share exercise price. The executive would also be
entitled in certain instances to have the resale of the shares subject to the
warrant registered under the Securities Act.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------------------
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of March 31, 1995 by (i) each person known to
the Company to be a beneficial owner of more than 5% of the outstanding the
Company's Common Stock; (ii) each director of the Company; (iii) the Company's
chief executive officer and its other four most highly compensated executive
officers whose total salary and bonus for the fiscal year ended March 31, 1995
exceeded $100,000, and (iv) all directors and officers of the Company as a
group:
-33-
<PAGE>
Amount and Nature
Name and Address
-----------------
of Beneficial Owner of Beneficial Ownership (1)Percent of Class
------------------- ----------------------- -------------------
Joseph G. Dasti 559,513(2) 10.2%
c/o NMR of America, Inc.
430 Mountain Avenue
Murray Hill, NJ 07974
John P. O'Malley III 38,626(3) 0.8%
c/o NMR of America, Inc.
430 Mountain Avenue
Murray Hill, NJ 07974
Donald W. Arthur 33,000(4) 0.6%
4 Kalman Court
Warren Township, NJ 07060
Dr. David L. Bloom 150,000(5) 2.9%
Somerset Diagnostic
400 Commonwealth Avenue
Boston, MA 02215
John A. Faraone 64,000(6) 1.3%
1213 King Street
Wilmington, DE 19899
Joseph T. Zappala 37,900(7) 0.7%
30 South Broadway
Pennsville, NJ 08070
Dr. Donald A. Tobias 311,000(8) 6.2%
97 Biltmore Estates
Phoenix, AZ 85016
All Directors and Officers 883,039(9) 15.8%
as a Group (6 persons)
(1) through (7)
---------------
(1) Unless otherwise disclosed, all of such persons hold their shares of
record and beneficially.
(2) Includes 134,700 shares held of record and beneficially, 7,313 shares
owned through the Company's 401(k) plan, 30,000 shares issuable pursuant to a
warrant exercisable at $3.92 per share through May 18, 1999, 75,000 shares
issuable pursuant to a warrant exercisable at $3.00 per share through November
5, 1998, 50,000 shares issuable pursuant to a warrant exercisable at $6.38 per
share through December 18, 2001, 37,500 stock options exercisable at $6.38 per
share through December 18, 2001, 100,000 shares issuable pursuant to a warrant
exercisable at $7.63 per share through March 12, 2002, 100,000 shares issuable
pursuant to a warrant exercisable at $10.00 per share through March 12, 2002 and
25,000 shares issuable pursuant to a stock option exercisable at $2.88 per share
through March 14, 2004. Does not include 12,500 shares issuable pursuant to a
stock option exercisable at $6.38 per share through December 18, 2001 and 75,000
shares issuable pursuant to a stock option exercisable at $2.88 per share
through March 14, 2004, which are not currently exercisable.
-34-
<PAGE>
(3) Includes 10,000 shares held of record and beneficially, 3,626 shares owned
through the Company's 401 (k) plan, 10,000 shares issuable pursuant to a stock
option exercisable at $2.31 per share through August 4, 2003 and 15,000 shares
issuable pursuant to a stock option exercisable at $2.88 per share through March
14, 2004. Does not include 30,000 shares issuable pursuant to a stock option
exercisable at $2.31 per share through August 4, 2003 and 45,000 shares issuable
pursuant to a stock option exercisable at $2.88 per share through March 14,
2004, which are not currently exercisable.
(4) Includes 13,000 shares held of record and beneficially and 20,000 shares
issuable pursuant to a warrant exercisable at $6.38 per share through December
18, 2001.
(5) Includes 110,000 shares held of record and beneficially and 40,000 shares
issuable pursuant to warrants exercisable at $6.38 per share through December
18, 2001.
(6) Includes 44,000 shares held of record and beneficially and 20,000 shares
issuable pursuant to a warrant exercisable at $6.38 per share through December
18, 2001.
(7) Includes 3,900 shares held of record and beneficially, 20,000 shares
issuable pursuant to a warrant exercisable at $6.38 per share through December
18, 2001 and 14,000 shares issuable pursuant to a warrant exercisable at $3.92
per share through May 18, 1999.
(8) Based on information set forth in Schedule 13D dated February 19, 1986
filed by Dr. Tobias.
(9) Includes shares issuable on exercise of options and warrants held by
officers and directors which are exercisable within 60 days of March 31, 1995.
Item 12. Certain Relationships and Related Transactions.
----------------------------------------------------------
Ten of the operational diagnostic imaging systems owned by the Company
at March 31, 1995 have been installed in offices leased by professional
corporations whose principal is Dr. David L. Bloom, who is also 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 the scans produced at the center for a fee. Under
the agreements, 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. Pursuant to the foregoing agreements, the Company
billed affiliated professional corporations, net of contractual adjustments,
$14,784,092 and $15,190,299 during the fiscal years ended March 31, 1995 and
1994, respectively.
-35-
<PAGE>
On January 21, 1992, the Board of Directors authorized the Company to
enter into an agreement with Seaboard Securities, Inc. ("Seaboard") to provide
advisory services to the Company in exchange for a warrant to purchase 100,000
shares of the Company's Common Stock at an exercise price of $8.00 per share,
subject to vesting as services are provided. In addition, the Company granted
rights to certain persons who are shareholders of Seaboard, including Mr.
Zappala, a director of the Company and 33.3% shareholder of Seaboard, to have
resales of the shares of Common Stock issuable on exercise of warrants held by
such persons registered under the Securities Act at the expense of such persons.
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.****
(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.**
-36-
<PAGE>
(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 Garden
State Imaging Partners, a Delaware limited
partnership.*******
-37-
<PAGE>
(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+
(27) Financial data schedule +
---------------------------
*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).
-38-
<PAGE>
***Incorporated by reference from Company's Current Report on Form 8-K for July
1, 1987.
****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.
-39-
<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 Guy 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 August 7, 1995
----------------------
Joseph G. Dasti (Principal Executive Officer)
/s/ John P. O'Malley III
------------------------
John P. O'Malley III Executive Vice President- August 7, 1995
Finance (Principal Financial
and Accounting Officer)
/s/ Donald W. Arthur Director August 7, 1995
----------------------
Donald W. Arthur
/s/ David L. Bloom, M.D. Director August 7, 1995
------------------------
David L. Bloom, M.D.
/s/ John A. Faraone Director August 7, 1995
----------------------
John A. Faraone
/s/ Joseph Zappala Director August 7, 1995
----------------------
Joseph Zappala
-40-
<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 1,099,000
Other assets 1,571,547 1,783,720
_______________________________________________________________________
Total assets $35,328,847 $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
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 $35,328,847 $28,973,178
_______________________________________________________________________
-----------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
<TABLE><CAPTION>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Operations
-------------------------------------
Years Ended March 31,
_______________________________________________________________________________
1995 1994 1993
_______________________________________________________________________________
<S> <C> <C> <C>
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.
</TABLE>
F-4
<PAGE>
<TABLE><CAPTION>
NMR of America, Inc., and Subsidiaries
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)
Loss on disposition of
center assets 12,084 47,021 212,075
Non-recurring write-down of center
equipment 560,091
Proceeds from sale of marketable
securities - trading 411,270
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
__________________________________________________________________________________
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
F-5
<PAGE>
<TABLE><CAPTION>
NMR of America, Inc., and Subsidiaries
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
__________________________________________________________________________________
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE><CAPTION>
NMR of America, Inc., and Subsidiaries
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 $ --- $ ---
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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 financial 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 partnerships 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
based upon expectations of undiscounted cash flows and operating
income of each consolidated entity having a material goodwill balance.
An impairment would be recognized in operating results, based upon the
difference between each consolidated entities' repective undiscounted
cash flows and the carrying value of the related costs in excess of
net assets acquired, 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
F-11
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
New Accounting Standards - Statement of Financial Accounting Standards
------------------------
No. 121 "Accounting for the Impairment of Long-Lived Assets and for
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 after Physicians have fulfilled their obligations under facility
subleases and radiological service contracts as set forth above,
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 $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 installments $ 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.
F-14
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
7. Notes and Mortgage Payable
Notes and mortgage payable consist of the following:
March 31, March 31,
1995 1994
----------------------------------------------------------------------
Mortgage payable to bank (A) $ 524,065 $ 533,594
Allentown equipment note payable to bank (B) 1,980,952 2,438,095
Note payable for acquisition of limited
partnership interests (C) 1,861,835 2,240,000
Oak Lawn equipment note payable to bank (D) 1,334,594 1,452,142
Bel Air equipment note payable (E) 2,705,136 2,785,963
Notes payable from acquisitions (F) 2,455,856
Other notes payable for equipment, equipment
upgrades and leasehold improvements (G) 2,357,779 968,362
----------------------------------------------------------------------
Total 13,220,217 10,418,156
Less, current installments 2,769,098 1,733,721
----------------------------------------------------------------------
Notes and mortgage payable less current
installments $10,451,119 $ 8,684,435
======================================================================
(A) The Company has a thirty-year mortgage collateralized by the
Union, New Jersey imaging center land and building. 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. The current monthly payments are
$4,224, including interest.
(B) 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
F-15
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
7. Notes and Mortgage Payable (continued)
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.
(C) In March 1994, the Company financed the acquisition of limited
partnership interests using a $2,240,000 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.
(D) In January 1994, 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.
(E) 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, for
the remaining term. The note is collateralized by the related
imaging equipment.
(F) 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
F-16
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
7. Notes and Mortgage Payable (continued)
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.
(G) Included in other debt obligations is $1,312,046 and $249,429 at
March 31, 1995 and 1994, respectively, of various notes payable
relating to the purchase of equipment, equipment upgrades and
leasehold improvements. These notes bear interest at rates
ranging from 8.9% to 11.8% and require monthly payments ranging
from $1,106 to $17,473, including interest. The notes are
payable over varying terms of four and five years with the last
note due January 2000. The notes are primarily collateralized by
the related imaging equipment.
Included in other debt obligations is $1,045,733 and $718,933 at
March 31, 1995 and 1994, respectively of various notes payable
relating to the acquisition of the Des Plaines, Oak Lawn and
Libertyville, Illinois imaging centers and a purchase option
related to the general partner interest in MR Associates of
Chicago. These notes bear interest at rates ranging from 7.0% to
9.0%, and have varying terms of two to five years. The payment
terms are primarily monthly and range from $3,554 to $13,294,
including interest.
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.
F-17
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
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.
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.
F-18
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
8. Shareholders' Equity (continued)
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.
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
=========
F-19
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
8. Shareholders' Equity (continued)
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
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.
F-20
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
8. Shareholders' Equity (continued)
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
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.
F-21
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
9. Income Taxes (continued)
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.
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.
F-22
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
9. Income Taxes (continued)
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 $ ---
========== ======== ========
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.
F-23
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
10. Commitments and Contingencies (continued)
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
==================================================================
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.
F-24
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
11. Related Parties (continued)
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. 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.
F-25
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
12. Imaging Center Matters (continued)
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.
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.
F-26
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
13. Quarterly Consolidated Financial Information (Unaudited)(continued)
(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.
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
F-27
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
14. Acquisitions (continued)
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.
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-28
<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 1995 (1)
--------------------------
NMR
NMR Including
Including Historical
Historical Acquisitions
Acquisitions and Morgan
(Unaudited) (Unaudited)
----------- -----------
Revenue, net $20,707 $25,962
Operating income $ 3,637 $ 5,336
Income before
income taxes $ 1,673 $ 2,934
Income before extraordinary item
and cumulative effect of change
in accounting principle $ 2,716 $ 3,806
Fully diluted net
income per share $ .51 $ .58
Fiscal 1994
--------------------------
NMR
NMR Including
Including Historical
Historical Acquisitions
Acquisitions and Morgan
(Unaudited) (Unaudited)
----------- -----------
Revenue, net $20,793 $25,763
Operating income $ 4,452 $ 5,836
Income before
income taxes $ 2,626 $ 3,671
Income before extraordinary item
and cumulative effect of change
in accounting principle $ 2,415 $ 3,396
Fully diluted net
income per share $ .49 $ .55
F-29
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------
14. Acquisitions (continued)
(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.
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-30
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used for Earnings Per Share Calculation
<TABLE><CAPTION>
Years Ended March 31,
----------------------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------------------------
PRIMARY EARNINGS PER SHARE INFORMATION:
<S> <C> <C> <C>
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
Exhibit 11. Computation of Shares Used for Earnings Per Share Calculation
<TABLE><CAPTION>
Years Ended March 31,
---------------------------------------------------------------------------------------
1995 1994(1) 1993(1)
---------------------------------------------------------------------------------------
FULLY DILUTED EARNINGS PER SHARE INFORMATION:
<S> <C> <C> <C>
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 computed 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)
========== ========== ===========
</TABLE>
(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.
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 of Form 10-KSB/A.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
August 7, 1995
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