<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Amendment August 27, 1997
MEDICAL RESOURCES, INC.
-----------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 0-20440 13-3584552
-------- ------- ----------
(State or Other (Commission (I.R.S. Employer
Jurisdiction) File Number) Identification No.)
155 State Street, Hackensack, N.J. 07013
- --------------------------------------- -----
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (201) 488-6230
--------------
</TABLE>
____________________________________________________________
AMENDMENT NO 3
The undersigned registrant hereby amends its
Current Report on Form 8-K, filed on September 13, 1996
to add Item 7 as set forth herein.
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
----------------------------------
(a) Financial statements
--------------------
The consolidated balance sheets of NMR as of March 31, 1996 and 1995
and the consolidated statements of income, cash flows and stockholders'
equity for the years ended March 31, 1996, 1995 and 1994 are incorporated
herein by reference to the Financial Statements of the Annual Report on
Form 10-KSB of NMR for the year ended March 31, 1996.
The consolidated balance sheets of NMR as of March 31, 1996 and June
30, 1996 and the consolidated statements of income, cash flows and
stockholders' equity for the three months ended June 30, 1996, are
incorporated herein by reference to the Financial Statements of the
Quarterly Report on Form 10-QSB of NMR for the three months ended June 30,
1996.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MEDICAL RESOURCES, INC.
By: /s/ William D. Farrell
-------------------------------------
William D. Farrell
President and Chief Operating Officer
Dated: August 27, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MRI-CT:
Independent Auditor's Report 8
Balance Sheet as of December 31, 1995 9
Statement of Income and Retained Earnings for the year ended
December 31, 1995 10
Statement of Cash Flows for the year ended December 31, 1995 11
Notes to the Financial Statements 13
Independent Auditor's Report on Additional Information 17
Operating Expenses for the Year Ended December 31, 1995 18
Independent Auditor's Report 19
Balance Sheets as of December 31, 1994, 1993 and 1992 20
Statements of Income for the years ended December 31, 1994,
1993 and 1992 22
Statements of Retained Earnings for the years ended
December 31, 1994, 1993 and 1992 23
Statements of Cash Flows for the years ended December 31,
1994, 1993 and 1992 24
Notes to the Financial Statements 27
</TABLE>
<PAGE>
MEDICAL RESOURCES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
As of December 31, 1995
--------------------------------------------------------
Pro Forma
Medical -------------------------
ASSETS Resources, Inc. MRI-CT, Inc. Adjustments Total
------ --------------- ------------ ----------- -----
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,934,677 $ 25,823 ($553,245) (1) $ 3,497,370
($25,823) (2)
Short term investments - - - -
Accounts receivable, net 13,837,637 1,419,266 (375,018) (2) 14,881,885
Inventory - - - -
Other assets 477,062 7,091 28,909 (2) 513,062
Deferred tax asset 1,871,397 - - 1,871,397
Prepaid expenses 1,074,459 12,584 (1,869) (2) 1,085,174
----------- ---------- ----------- -----------
Total current assets 21,195,232 1,464,764 (836,931) 21,823,065
Property, plant and
equipment 11,530,159 3,258,101 (2,174,601) (2) 12,613,659
Other assets 2,287,769 88,093 177,907 (2) 2,553,769
Goodwill 9,122,663 - 1,555,310 (1) 10,572,762
(1,093,587) (3)
1,078,491 (2)
----------- ---------- ----------- -----------
Total assets $44,135,823 $4,810,958 ($1,383,526) $47,563,255
=========== ========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of notes
payable $ 957,884 $1,143,830 $(1,143,830) (2) $ 957,884
Current portion of
obligations under
capital leases 3,244,652 668,456 (354,710) (2) 3,558,398
Accounts payable and
accrued expenses 4,602,926 690,146 263,092 (2) 5,556,164
Other current liabilities 1,405,875 - - -
Income taxes payable 245,899 - - 245,899
----------- ---------- ----------- -----------
Total current liabilities 10,457.236 2,502,432 (1,235,448) 11,724,220
Notes payable 4,448,974 56,556 88,315 (1) 4,537,289
(56,556) (2)
Obligations under capital
leases 6,707,650 1,158,383 - 7,866,033
Convertible debentures 4,350,000 - -
Other longterm liabilities 1,205,627 - - 1,205,627
----------- ---------- ----------- -----------
Total liabilities 27,169,487 3,717,371 (1,203,689) 29,683,169
----------- ---------- ----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par
value, 20,000,000 shares
authorized, 7,697,500 pro
forma number of shares issued
and outstanding at December
31, 1994 76,975 5,831 1,941 (1) 78,916
(5,831) (3)
Common stock to be issued 1,721,250 - - 1,721,250
Additional paid-in capital 20,834,922 - 911,809 (1) 21,746,731
Retained (deficit) (4,298,678) 1,087,756 (1,087,756) (3) (4,298,678)
Less 255,000 common shares
in treasury, at cost (1,368,133) - - (1,368,133)
----------- ---------- ----------- -----------
Total stockholders'
equity 16,966,336 1,093,587 (179,837) 17,880,086
----------- ---------- ----------- -----------
Total liabilities and
stockholders' equity $44,135,823 $4,810,958 ($1,383,526) $47,563,255
=========== ========== =========== ===========
</TABLE>
<PAGE>
MEDICAL RESOURCES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the year ended December 31, 1995
----------------------------------------------------------------
Pro Forma
Medical -------------------------------
Resources, Inc. MRI-CT, Inc. Adjustments Total
--------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net service revenue $51,993,758 5,104,532 $ 0 $57,098,290
----------- ---------- --------- -----------
Operating expenses of services 31,563,796 5,177,805 - 36,741,601
Provisions for uncollectible accounts receivable 3,377.862 - - 3,377,862
Corporate general and administrative 4,978,045 - - 4,978,045
Depreciation and amortization 4,567,144 971,105 (289,205) (4) 5,249,044
----------- ---------- --------- -----------
Operating income (loss) 7,506,911 (1,044,378) 289,205 6,751,738
Interest (income)/expense 1,829,017 (71,240) - 1,757,777
----------- ---------- --------- -----------
Income (loss) before minority interest and
income taxes 5,677,894 (973,138) 289,205 4,993,961
Minority interest in losses of joint ventures
and limited partnerships 124,085 - - 124,085
----------- ---------- --------- -----------
Income before income taxes 5,801,979 (973,138) 289,205 5,118,046
Provision for income taxes 1,659,111 4,282 (271,016) (5) 1,392,377
----------- ---------- --------- -----------
Income from continuing operations $ 4,142,868 ($977,420) $ 560,221 $ 3,725,669
=========== ========== ========= ===========
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[Mark one]
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------ -------------
Commission File Number 1-9367
------
NMR of America, Inc.
--------------------
(Name of small business issuer in its charter)
Delaware 22-2468314
-------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
430 Mountain Avenue
Murray Hill, New Jersey 07974-2732
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 908-665-9400
------------
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
8% Convertible Subordinated Philadelphia Stock Exchange
Debentures Due 2001
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--------- ---------
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $23,833,897
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 26, 1996
was $31,920,604
The number of shares outstanding of the issuer's common stock, as of June 26,
1996 was 6,260,519.
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 18
Item 4. Submission of Matters to a
Vote of Security Holders 18
PART II - Item 5. Market for the Company's
Common Equity and Related
Stockholder Matters 18
Item 6. Management's Discussion and
Analysis or Plan of Operation 19
Item 7. Financial Statements 30
Item 8. Changes in and Disagreements
With Accountants on Accounting
and Financial Disclosure 30
PART III - Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 30
Item 10. Executive Compensation 32
Item 11. Security Ownership of
Certain Beneficial
Owners and Management 36
Item 12. Certain Relationships and
Related Transactions 37
Item 13. Exhibits, Lists and Reports on
Form 8-K 37
-2-
<PAGE>
PART I
------
Item 1. Description of Business.
- ---------------------------------
(a) General Development of the Business. NMR of America, Inc. is
------------------------------------
engaged, directly and through limited partnerships, in installing, managing and
maintaining diagnostic imaging systems utilizing primarily magnetic resonance
("MR") as well as other modalities. MR is a relatively recent development in
the technology of diagnostic imaging. It does not utilize potentially damaging
ionizing radiation, and is believed to have no harmful physical effects. It is
also believed to provide images superior in certain respects to those provided
by other diagnostic imaging technologies and is potentially capable of providing
biochemical information about the tissues being scanned. Although the Company
acquires the diagnostic imaging systems, it has no proprietary interest in the
imaging technology. The Company acquires its diagnostic imaging systems from
various manufacturers and the diagnostic imaging systems are installed under
the Company's supervision in the offices of private physicians. As of June 26,
1996, the Company had under management eighteen operational diagnostic imaging
systems in physicians' offices. Of the eighteen operational diagnostic imaging
systems, eleven are located in installations owned by limited partnerships of
which the Company is the managing general partner, and seven are owned by the
Company. All eighteen centers include MR imaging systems and five centers also
include other imaging modalities. See "Description of Business."
The Company was incorporated in December 1982, completed its initial public
offering of securities in September 1983 and opened its first MR center in July
1984. In July 1986, the Company completed a public offering of $4,000,000
principal amount of its 8% Convertible Subordinated Debentures due 2001. On
July 1, 1987, the Company acquired Diagnostic Networks, Incorporated by merger
of a subsidiary of the Company with and into Diagnostic Networks, Incorporated.
During the fiscal year ended March 31, 1988, the Company reincorporated as a
Delaware corporation by merger into a newly-formed wholly owned subsidiary of
the Company incorporated in Delaware. On January 21, 1994, the Company acquired
90% of the outstanding common stock of Oak Lawn Imaging Center, Inc. and Oak
Lawn Magnetic Resonance Imaging Center, Inc. On January 1, 1995, the Company
acquired the assets of Advanced Specialty Imaging, L.P. ("Libertyville").
Effective January 1, 1995, the Company acquired a 75% interest, inclusive of
both a general partner and limited partner interest, in Golf MRI Center, L.P.
and Diagnostic Imaging Center, L.P. ("Golf/DIC").
-3-
<PAGE>
On September 14, 1995, the Company completed the acquisition of Morgan Medical
Holdings, Inc. ("Morgan"). 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.
Effective January 1, 1996, the Company acquired substantially all of the
operating assets of Central Diversey M.R.I. Center, Inc. ("Central Diversey")
which operates a magnetic resonance imaging center in Chicago, Illinois.
On May 7, 1996, the Company announced that it was in negotiations regarding a
possible business combination with Medical Resources, Inc. ("Medical
Resources"). A definitive merger agreement was executed on May 20, 1996 which
is subject to certain conditions. Medical Resources provides diagnostic imaging
equipment, facilities and management services to physicians through nineteen
outpatient centers located in New York, New Jersey and Florida. Pursuant to the
terms of the acquisition, each outstanding share of NMR common stock would
automatically be converted into 0.6875 of a share of Medical Resources common
stock. The merger is subject to certain conditions including shareholder and
regulatory approval and third party consents. Senior management of the combined
company would be composed of the current executives of Medical Resources with
NMR's current executive officers, Joseph G. Dasti and John P. O'Malley III
serving as consultants to the combined company. The closing of the merger is
anticipated to occur in the third quarter of fiscal 1997, although there can be
no assurance that the transactions will be completed as contemplated or that it
will occur when anticipated.
See Note 9 to Notes to Consolidated Financial Statements included herein for
information concerning the Company's Stockholders Rights Plan. As the term is
used herein, the Company includes NMR of America, Inc. and its consolidated
subsidiaries.
(b) Financial information about industry segments. The Company
------------------------------------------------
believes there is one business segment to its operations.
-4-
<PAGE>
(c) Description of Business.
------------------------
MR Technology.
- --------------
MR diagnostic imaging utilizes magnetic fields and applied radiowaves,
instead of the potentially damaging ionizing radiation utilized by certain
other diagnostic imaging technologies, to obtain images of the internal human
anatomy. The MR systems used by the Company operate substantially in the
following manner: In a static magnetic field produced by a superconductive
magnet, the patient is exposed to energy in the radio frequency range produced
by a radio antenna coil which surrounds the body part to be imaged. Nuclei in
the portion of the body being scanned are thus stimulated from their state of
equilibrium. When the radio signal is switched off, the nuclei "relax" and
return to their original state, releasing energy that is directly related to
their quantity and environment. The energy given off by the nuclei is recorded,
measured and converted to a visual display by a digital computer. The nuclei of
different elements, for example, hydrogen and phosphorus, within the same
magnetic field respond to different radio frequencies and will respond only if
exposed to radio waves of that frequency.
MR imaging is sensitive to subtle physio-chemical differences
between tissues and is capable of differentiating soft tissues and detecting
diseases which induce physio-chemical changes that may not be detected by other
diagnostic imaging technologies such as x-ray or computerized axial tomography
(CT) diagnostic imaging, which themselves are only sensitive to differences in
the electron density of tissue. MR images also detect structures smaller than
those detectable by CT scanning, thus producing images with comparable or better
spatial resolution and possibly enabling detection at earlier stages. Because
MR images are produced without any mechanical movement of the MR system, images
of any plane of the body may be obtained, thereby producing views of anatomy
difficult to capture with other diagnostic imaging technologies. These
factors enhance the physician's ability to make diagnoses based on observation
of abnormal anatomy and thus permit earlier detection and diagnosis of disease
and earlier and more effective treatment.
Experience and research to date have identified no known hazards from
magnetic and radio fields of even greater intensity than those to which a
patient is exposed in an MR system. Magnets utilized in MR systems may disrupt
the operation of cardiac pacemakers and disturb biomedical implants, curtailing
in certain circumstances the general applicability of the technique. Magnetic
fields produced by magnets require careful facilities management to isolate
certain patients from the magnet and to isolate the magnet from extraneous
interference.
-5-
<PAGE>
Disadvantages of MR systems compared with other available imaging
systems are that imaging times are longer with an MR system where up to one or
more minutes per scan are required compared with CT scanning where only two to
five seconds per scan is required. In addition, in certain MR systems, the
patient is largely enclosed within the magnet and claustrophobia can occur as
well as delayed access to the patient in an emergency. Claustrophobia is,
however, less likely to occur in the Company's open architecture MR imaging
systems housed in the Chicago, Illinois and Union, New Jersey facilities and in
the Oak Lawn, Illinois MR system which possesses a large rectangular bore. In
addition, MR systems which utilize superconductive magnets are generally more
expensive to purchase and maintain than other diagnostic imaging systems. The
use of superconductive magnets, which utilize liquid helium and nitrogen,
results in increased facilities management and service and support requirements,
adding to the cost of the total system.
MR Systems.
- -----------
The Company is engaged, directly and through limited partnerships in
which it is the general partner, in installing, managing and maintaining
diagnostic imaging systems, primarily utilizing magnetic resonance, in offices
operated by private physicians. The Company acquires or leases its diagnostic
imaging systems from various manufacturers and installs the systems under the
Company's supervision. Although the Company acquires or leases the diagnostic
imaging systems, it has no proprietary interest in the imaging technology. In
establishing a diagnostic imaging center, the Company's activities generally
involve selecting a site for the diagnostic imaging system, leasing or acquiring
the site, making the necessary leasehold or other improvements to the center or
supervising the construction of a building and related improvements to house the
diagnostic imaging system, arranging for the purchase, financing and
installation of the imaging equipment, and staffing the office with technical
and clerical personnel. In certain 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 26, 1996, MR systems at eighteen
operational locations including Chicago, Illinois (three locations); Des
Plaines, Illinois; Elgin, Illinois; Libertyville, Illinois; Oak Lawn, Illinois;
Cape Coral, Florida; Naples, Florida; Sarasota, Florida; Titusville, Florida;
Bel Air, Maryland; Seabrook, Maryland; Marlton, New Jersey; Morristown, New
Jersey; Union, New Jersey; Allentown, Pennsylvania and Philadelphia,
Pennsylvania. The Company's former Austin, Texas imaging center closed during
fiscal 1996.
-6-
<PAGE>
Information with respect to the Company's ownership interests in
diagnostic imaging centers is as follows:
<TABLE>
<CAPTION>
Company's
ownership
Commencement Square feet interest as of
Location date of center June 26, 1996(1)
- -------- ---- --------- ----------------
<S> <C> <C> <C>
Allentown, PA May 1986 3,350 95.9%(2)
Austin, TX October 1986 5,000 38.0%(4)
Bel Air, MD November 1991 8,000 62.9%(2) (3)
Cape Coral, FL June 1990 2,450 100%
Chicago, IL April 1987 1,800 87.2%(2)
Chicago, IL June 1992 2,900 79.6%(2)
Chicago, IL April 1992 2,000 100%
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%
Naples, FL March 1991 2,329 100%
Oak Lawn, IL February 1983 4,300 100%(2)
Philadelphia, PA January 1986 4,000 97.7%(2)
Sarasota, FL June 1994 3,303 100%
Seabrook, MD April 1995 3,302 87.1%(2)
Titusville, FL September 1992 3,200 100%
Union, NJ August 1984 3,370 63.6%(2)
- ----------------------
</TABLE>
(1) Represents the Company's interest in profits, losses and distributions of
the respective centers.
-7-
<PAGE>
(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.
(4) Center is no longer in operation.
The Company's Austin, Texas center was closed during December 1995.
The center operated pursuant to a limited partnership agreement (the "Austin
Partnership") which was scheduled to expire on January 31, 1996, but was
extended by the governing board of the partnership for the purpose of
liquidating and distributing the remaining assets of the Austin Partnership. It
is anticipated that such liquidation and distribution will be completed during
fiscal 1997 and will not have a material impact on the results of operations or
liquidity of the Company.
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.
-8-
<PAGE>
Physicians Agreements.
- ----------------------
Each MR center includes a turnkey MR system, including the machine and
related office and other equipment. Six 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 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 eight Illinois and Florida imaging centers which were acquired
by the Company during fiscal years 1994 through 1996, professional services are
provided by physicians under 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.
-9-
<PAGE>
Financing.
----------
From time to time, in connection with the acquisition by the Company
of new MR equipment, equipment upgrades or other leasehold improvements at one
of its imaging centers, the Company seeks financing from outside sources. The
Company seeks this financing from banks, leasing companies and equipment
vendors. Typically such arrangements provide for financing for up to 100% of the
cost of the project to be repaid over a period of three to seven years and are
collaterized by the related equipment and/or improvements. At March 31, 1996,
interest rates on such obligations range from 4.8% to 11.8%. To date, the
Company has been successful in obtaining this financing when required. See
Notes 5 and 8 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.
Government Regulation.
- ----------------------
-10-
<PAGE>
Various Federal and State statutes and regulations affect virtually
all aspects of the Company's operations. These include statutes intended to
facilitate health care planning, which seek to place limitations on unnecessary
capital expenditures and which seek to contain health care costs within the
various Federal health care reimbursement programs. Statutes also seek to
prohibit or limit referrals of patients to facilities in which the referring
physician has an ownership interest. In addition, the Company's operations are
subject to laws prohibiting the unlicensed practice of medicine by non-
physicians. Statutes and regulations relating to the acquisition of health care
equipment, the reimbursement policies of the various state and Federal
government programs and other aspects of government regulation of the health
care industry are subject to amendment, revision and further interpretation from
time to time. These amendments, revisions and interpretations could change the
regulatory environment relating to the Company's operations and the programs
under which physicians and others are reimbursed for undertaking MR procedures
and thereby affect materially the Company's business activities. The health
care industry is characterized by pervasive government regulation.
Certificates of Need. Certain states have enacted certificate of
---------------------
need ("CON") legislation in an attempt to regulate the acquisition of major
medical equipment and thereby limit what are possibly unnecessary capital
expenditures. Legislation of this type has been enacted in the states of New
Jersey, Pennsylvania and Illinois, where the Company has centers, as well as a
number of other states where the Company does not currently have centers. The
Company's locations in Allentown and Philadelphia, Pennsylvania, Chicago,
Illinois and Morristown, New Jersey have received certificates of need from the
state authorities. The Company's other diagnostic imaging systems have been
installed in reliance upon exemptions from state certificate of need
legislation.
Legislative Developments. The Federal Omnibus Budget Reconciliation
-------------------------
Act of 1989 contains provisions that, unless an exception applies, restrict
physicians from making referrals for services to be rendered to Medicare
patients to clinical laboratory facilities in which they have an ownership
interest, including a limited partnership interest, or with which they have a
compensation arrangement which is generally referred to as the "Stark I
Legislation." Recently, the Federal Omnibus Budget Reconciliation Act of 1993
added provisions to these restrictions on Medicare payment for physician
referrals which, effective January 1, 1995, will greatly broaden the services
which are subject to this referral and payment ban. These provisions are
generally referred to as the "Stark II Legislation." Specifically with regard
to the Company's operations, the Stark II Legislation adds to the referral
restriction "radiology or other diagnostic services." The Stark II Legislation
also extends these prohibitions to referrals of Medicaid patients. Both the
Stark I and the Stark II Legislation provide exceptions for certain types
-11-
<PAGE>
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.
State Referral Laws . Many states, including those states in which NMR
---------------------
conducts its business, have their own laws which impose restrictions on
physicians and other healthcare providers in connection with the referral of
patients to facilities in which such physicians and providers have an ownership
interest. Unlike the Anti-Kickback Statute, these state referral laws are not
limited to items and services reimbursed by Medicare and Medicaid.
Specifically, with respect to NMR's operations in Florida, the Florida
Patient Self-Referral Act of 1992 (the "Florida Act") regulates and, in some
cases, prohibits physicians' referrals of patients to facilities in which they
own an investment interest. Referrals to a diagnostic imaging center became
specifically prohibited effective October 1, 1994. Under the Florida Act, a
physician who owns NMR capital stock is also prohibited from making any patient
referrals to NMR's diagnostic imaging facilities.
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 (the "Anti-Kickback
Statute"). 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
-12-
<PAGE>
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 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 eight Illinois and Florida imaging
centers which were acquired by the Company during fiscal 1994 - 1996,
professional services are provided by licensed physicians under 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 these structures 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
-13-
<PAGE>
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 and/or
for the provision of diagnostic imaging services.
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.
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.
The enactment of national healthcare reform legislation is uncertain.
Although national healthcare reform laws, if enacted, may have the beneficial
effect of increasing the number of persons who will have access to services
provided by NMR, such reform laws may also reduce the fees that may be charged
for such services. In particular, there is a possibility that a significant
portion of healthcare services will be rendered and administered through a
system which could force price concessions from service providers such as NMR.
Moreover, national healthcare reform laws could cause greater analysis of each
patient's need for diagnostic testing, with the aim of eliminating unnecessary
tests and reducing the volume and cost of medical care. Depending on the nature
and extent of any new Federal laws and/or regulations, or possible changes in
the interpretation of existing laws and/or regulations, the foregoing
may have a material adverse effect on NMR's revenues, operating margins and
profitability.
-14-
<PAGE>
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.
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 is available to the Company.
-15-
<PAGE>
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.
Employees. As of June 26, 1996, the Company employed 197
----------
persons, including 61 who are employed on a part-time basis. Of such persons,
18 are employed in an executive and administrative capacity at the Company's
corporate office, 14 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.
-16-
<PAGE>
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.
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.
-17-
<PAGE>
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, 1996 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 since
September 21, 1983. Effective August 6, 1991, the Company's Common Stock trades
on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol:
NMRR. The following table sets forth the high and low sales prices for the
Company's Common Stock during the period January 1, 1994 through June 26, 1996.
Calendar Quarter High Low
----------------- ---- ---
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
3rd Quarter 5-1/8 4
4th Quarter 4-1/4 3-1/4
1996
----
1st Quarter 3-3/4 2-7/8
2nd Quarter 5-3/4 3-1/8
(through June 26)
As of June 26, 1996, the last sales price for the Common Stock was 5-3/8.
-18-
<PAGE>
As of March 31, 1996, the Company had approximately 726 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, 1996 Compared to Fiscal Year Ended March 31, 1995.
- ------------------------------------------------------------------------------
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, 1996, revenue, net was $23,833,897 versus
$17,987,824 for the fiscal year ended March 31, 1995 or a $5,846,073 (32.5%)
increase. The increase in revenue, net resulted primarily from the acquisition
of the assets of Central Diversey Center ("CD MRI") effective in January 1996,
Morgan Medical Holdings, Inc. ("Morgan") in September 1995 and the purchases of
Libertyville Imaging Center ("Libertyville") and Golf MRI and Diagnostic Imaging
Center ("Golf/DIC") which were effective in January 1995. These centers
generated revenue, net totaling $7,145,315 for fiscal year ended March 31, 1996
versus $825,081 in fiscal 1995 or an increase of $6,320,234. Same center
revenue, net decreased by $474,161 or 2.7% from $17,162,743 to $16,688,582
during the fiscal year ended March 31, 1996 primarily as a result of additional
discounted business offset by increased aggregate scan volume . 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.
Payroll and related costs for the fiscal year ended March 31, 1996 were
$6,442,710 versus $4,780,025 for the fiscal year ended March 31, 1995, or an
increase of $1,662,685 (34.8%). This increase is primarily due to the
acquisitions of CD MRI, Morgan, Libertyville and Golf/DIC which incurred payroll
and related costs totaling approximately $1,077,531 during the fiscal year ended
March 31, 1996 compared to $162,168 in fiscal 1995. In addition, the Company's
payroll and related costs increased due to the hiring of technical personnel to
accommodate increased patient flow at the Company's multi-modality imaging
centers, the
-19-
<PAGE>
hiring of managed care and marketing personnel and an increase in the cost of
providing health benefits to its employees. Payroll and related costs, as a
percentage of revenue, net, were 27.0% and 26.6% in fiscal 1996 and 1995,
respectively. Although the Company expects aggregate payroll and related
expense to increase in fiscal 1997 due to the inclusion of Morgan and CD MRI for
the entire period, it is anticipated that payroll, as a percentage of revenue,
net, will be relatively unchanged.
Depreciation and amortization expense increased by $142,216 (4.8%) from
$2,951,400 for the fiscal year ended March 31, 1995 to $3,093,616 for the fiscal
year ended March 31, 1996. These increases were primarily attributable to the
acquisitions of CD MRI, Morgan, Libertyville and Golf/DIC which resulted in
goodwill amortization and equipment depreciation aggregating $766,312 for the
fiscal year ended March 31, 1996 compared to $63,165 for the prior fiscal year.
This increase was offset by an approximately $561,000 decrease in aggregate same
center depreciation on the Company's more mature centers. In addition,
depreciation expense increased due to purchases of imaging equipment and related
upgrades during fiscal 1996. Depreciation and amortization expense, as a
percentage of revenue, net, was 13.0% and 16.4% in fiscal 1996 and 1995,
respectively. Although the Company expects aggregate depreciation and
amortization expense to increase in fiscal 1997 due to the inclusion of CD MRI
and Morgan for the entire period, it is anticipated that depreciation and that
amortization expense , as a percentage of revenue, net, will decline slightly.
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 $2,785,906 (46.1%) from $6,048,762 for the fiscal
year ended March 31, 1995 to $8,834,668 for the fiscal year ended March 31,
1996. These increases result, primarily, from the inclusion of approximately
$2,573,000 in medical supplies and operating expenses relating to the operations
of CD MRI, Morgan, Libertyville and Golf/DIC in fiscal 1996 versus $305,447 in
fiscal 1995. In addition, medical supplies and operating expenses increased by
approximately $200,000 due to the inclusion of operating rent paid for the
equipment at the Seabrook Radiological Center, $100,000 in increased radiology
fees at the Oak Lawn centers due to increased volume and approximately $200,000
in increased medical and office supplies due to increased aggregate scan volume.
Medical supplies and other operating costs, as a percentage of revenue, net,
were 37.1% and 33.6% in fiscal 1996 and 1995, respectively. The increase is
primarily due to the inclusion of radiology fees for newly acquired centers in
this line item. Although the Company expects aggregate medical supplies and
other operating costs to increase
-20-
<PAGE>
in fiscal 1997, due to the inclusion of CD MRI and Morgan for the entire period,
it is anticipated medical and operating costs, as a percentage of revenue, net,
will be consistent with fiscal 1996.
Other general and administrative expenses for the fiscal year ended March 31,
1996, were $763,662 versus $553,422 for the fiscal year ended March 31, 1995, or
an increase of $210,240 (38.0%). The increase during the fiscal year ended
March 31, 1996 results primarily from increased advertising and promotional
expenses ($156,206) relating to the Company's centers and an increase in
professional fees due to the inclusion of the GOLF/DIC management contracts for
an entire year. Other general and administrative expenses, as a percentage of
revenue, net, were 3.2% and 3.1% in fiscal 1996 and 1995, respectively. It is
anticipated that expenditures for general and administrative expenses will
continue at these levels in fiscal 1997.
Interest expense for the fiscal year ended March 31, 1996 was $1,677,698 versus
$1,186,811 for the prior fiscal year, or an increase of $490,887 (41.4%). This
increase results, primarily, from interest expense associated with the
acquisition and assumption of debt obligations relating to the CD MRI, Morgan,
Libertyville and Golf/DIC acquisitions, which generated interest expense
totaling approximately $505,000 for the fiscal year ended March 31, 1996 versus
$56,322 in fiscal 1995. In addition, aggregate same center interest expense
increased due to the financing of new equipment in the Company's Union, New
Jersey center and leasehold improvements at the Seabrook, Maryland center,
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. Interest expense, as a
percentage of revenue, net, was 7.0% and 6.6% in fiscal 1996 and 1995,
respectively. Although the Company expects aggregate interest expense to
increase slightly in fiscal 1997 due to the inclusion of CD MRI and Morgan for
the entire period, it is anticipated that interest expense, as a percentage of
revenue, net, will decline slightly due to reductions in outstanding principal
balances.
-21-
<PAGE>
Other income, net increased by $98,259 from $24,546 for the fiscal year ended
March 31, 1995 to $122,805 for the fiscal year ended March 31, 1996. The
increase results primarily from an increase in interest income on invested cash
balances, a gain realized in fiscal 1996 on the disposition of imaging equipment
and the absence of certain non-recurring charges, which were recorded during
fiscal 1995. These increases were offset by increased losses experienced in
the Austin Partnership during fiscal 1996, which included a $60,000 reduction in
the carrying value of the investment. The components of other income, net are
as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
------------ ------------
<S> <C> <C>
Interest income $ 252,167 $ 133,486
Austin equity (171,085) ( 68,770)
Chicago equity 48,691 90,730
Film copies 55,205 44,619
Bel Air prepayment fee ( 15,945)
Gain (loss) on sale of equipment 62,443 ( 12,084)
Greenbelt lease buyout ( 51,600)
Board fees ( 55,500) ( 50,000)
Other ( 69,116) ( 45,890)
---------
Other income, net $ 122,805 $ 24,546
========= =========
</TABLE>
Minority interest in income (loss) of limited partnerships decreased by $117,113
(22.2%) from $527,663 for the fiscal year ended March 31, 1995 to $410,550 for
the fiscal year ended March 31, 1996. The decrease is primarily due a $136,632
reduction in aggregate same center minority interest due to a reduction in the
aggregate pre-minority interest income of such centers offset by a $19,519
increase in minority interest in income of the GOLF/DIC limited partnerships,
which were acquired effective January 1, 1995.
The Company's provision for (benefit from) income taxes resulted in effective
tax rates (benefits) of 35.0% in fiscal 1996 and (73.3%) in fiscal 1995,
respectively. In fiscal 1995 the non-recurring benefit in the effective tax
rate was primarily attributable to the recognition of the net deferred tax
asset. In fiscal 1996, the effective tax rate is higher than the statutory tax
rate primarily as a result of a 3.9% impact of state income taxes, net of the
federal benefit, partially offset by other items amounting to (2.9%) (see rate
reconciliation in Note 10).
For the reasons described above, the Company's net income for the fiscal year
ended March 31, 1996 decreased by $656,535 to $1,777,377 from $2,433,912 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.
-22-
<PAGE>
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.
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, 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.
-23-
<PAGE>
In addition, the Company's payroll and related costs increased due to the hiring
of certain managed care and marketing personnel and an increase in the cost of
providing health benefits to its employees.
Depreciation and amortization expense increased by $406,292 (16.0%) from
$2,545,108 for the fiscal year ended March 31, 1994 to $2,951,400 for the fiscal
year ended March 31, 1995. These increases were primarily attributable to the
acquisitions of Oak Lawn, Libertyville and Golf/DIC which resulted in goodwill
amortization and equipment depreciation aggregating $381,368 for the fiscal year
ended March 31, 1995. In addition, depreciation expense increased due to
purchases of imaging equipment and related upgrades during fiscal 1995.
Medical supplies and other operating costs include the cost of equipment and
premises maintenance, medical supplies, radiology fees for acquired centers,
other center expenses, and patient billing fees. Medical supplies and other
operating costs increased by $861,879 (16.6%) from $5,186,883 for the fiscal
year ended March 31, 1994 to $6,048,762 for the fiscal year ended March 31,
1995. These increases result, primarily, from the inclusion of approximately
$500,000 of interpretation fees paid to radiologists at the Oak Lawn,
Libertyville and Golf/DIC centers. In addition, the Company experienced
increases aggregating approximately $500,000 in medical supplies and operating
expenses due to the operations of Oak Lawn, Libertyville and Golf/DIC. The
foregoing increase were offset by decreases in the cost of patient billing
services ($50,000), medical supplies at the Company's other centers and a
$91,620 credit received from a vendor as consideration for business lost during
the installation of an equipment upgrade. Various cost containment measures
previously enacted by the Company are intended to reduce operating expenses, as
a percentage of revenue, net during fiscal 1996 and beyond.
The Company's results of operations for the fourth quarter of fiscal 1995
includes a non-recurring charge of approximately $560,000 to write-off the
Company's Elgin, Illinois center fixed assets which are no longer believed to be
recoverable from the center's future operations. The center has operated at a
loss since it opened in May 1992. The Company intends to utilize the facility
to perform certain regional administrative functions and to perform limited
diagnostic imaging procedures at reduced staffing levels.
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.
-24-
<PAGE>
Interest expense for the fiscal year ended March 31, 1995 was $1,186,811 versus
$824,420 for the prior fiscal year, or an increase of $362,391 (44.0%). This
increase results, primarily, from interest expense associated with financing the
purchase of limited partnership interests, which totaled approximately $170,000
for the fiscal year ended March 31, 1995, the acquisition and assumption of debt
obligations relating to the Oak Lawn, Libertyville and Golf/DIC acquisitions,
which generated interest expense totaling approximately $203,000 for the fiscal
year ended March 31, 1995, the financing of additional hardware and software
upgrades and from increases in prevailing interest rates, which impact the
Company's variable rate debt obligations. These increases were offset by
decreases in interest expense relating to scheduled reductions in outstanding
principal balances.
Other (income) expense, net decreased by $106,148 from $130,694 for the fiscal
year ended March 31, 1994 to $24,546 for the fiscal year ended March 31, 1995.
The decrease for the fiscal year ended March 31, 1995, results primarily from a
$121,837 decrease in the Company's equity interest in the earnings of the
Austin, Texas limited partnership, a prepayment penalty of $15,945 incurred
during the third quarter of fiscal 1995 for the refinancing of the Bel Air,
Maryland center debt, a $12,084 loss on the disposition of ultrasound imaging
equipment in the Oak Lawn, Illinois center and $51,600 incurred to obtain the
landlord's release from the Greenbelt, Maryland center facility lease, offset by
an increase in interest income on invested cash of approximately $57,000.
The components of other income and expense, net are as follows:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1994
------------ ------------
<S> <C> <C>
Interest income $133,486 $ 76,651
Austin equity inc. (loss) (68,770) 53,067
Film copies 44,619 22,762
Bel Air Prepayment fee (15,945)
Gain (loss) on equipment (12,084)
Greenbelt lease buyout (51,600)
Other (5,160) (21,768)
-------- --------
Other income, net $ 24,546 $130,694
======== ========
</TABLE>
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.
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
-25-
<PAGE>
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.
-26-
<PAGE>
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.
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.
Liquidity
- ---------
The Company had net income of $1,777,377 for the fiscal year ended March 31,
1996 versus net income of $2,433,912 for the comparable prior fiscal year. At
March 31, 1996, the Company's working capital totaled $10,269,515 which includes
cash and cash equivalents totaling $3,782,315 and short-term investments
totaling $663,660. The Company generated $2,960,657 and $4,387,428 in net cash
flow from operating activities during the fiscal years ended March 31, 1996 and
1995, respectively, or a decrease of $1,426,771 (32.5%). Cash provided by
operating activities during the fiscal year ended March 31, 1996 resulted from
operating cash flows of $6,232,103 offset by a $3,271,446 net increase in the
Company's current assets and liabilities. The decrease in cash provided by
operating activities resulted primarily from the $3,546,074 increase in the
Company's due from affiliated physician associations and patient receivables,
which is primarily attributable to the conversion of substantially all of the
Company's third-party billing and collection services to a new vendor during the
third and fourth quarters of fiscal 1996. This resulted in a temporary reduction
in cash flow and higher outstanding balances as of March 31, 1996. This
transition was completed in order to consolidate all of the Company's billing
and collection activities for existing and acquired centers with
-27-
<PAGE>
one entity and for the purpose of reducing the cost and increasing the
efficiency of such services. As such, it is anticipated that cash flows will be
higher than historical experience during the first quarter of fiscal 1997 and
will return to normal levels during the remainder of fiscal 1997.
Investing activities provided $159,743 in cash during fiscal 1996. The Company
realized $1,391,227 from the sale of short-term investments and marketable
securities during the period ended March 31, 1996, net of purchases. 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. In addition, the Company's acquisition
of Morgan Medical Holdings, Inc. resulted in a $411,905 increase in cash based
upon Morgan's cash balance as of the date of acquisition. These increases were
offset by the Company's purchase of CD MRI for $40,000, net of cash acquired and
purchases ($1,411,389) of equipment and leasehold improvements primarily for the
Union, New Jersey 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.
Financing activities used net cash totaling $3,304,889 which is comprised of
$3,669,129 utilized for the repayment of debt and capital lease obligations,
$232,283 of limited partnership distributions and $353,007 utilized for the
purchase of treasury stock, offset by $912,686 in proceeds from borrowings
during the fiscal year ended March 31, 1996. The Company's borrowings related
primarily to financing obtained for the equipment and leasehold improvements at
the Union, New Jersey center. The Company intends to continue to monitor
prevailing market prices and other market conditions before purchasing
additional treasury stock during fiscal 1997.
At March 31, 1996, the Company had $1,765,440 in obligations under capital
leases compared to $767,781 at March 31, 1995. These obligations relate
primarily to the financing of imaging equipment at the Philadelphia,
Pennsylvania and OPEN MRI of Chicago centers and $1,444,779 of capital lease
obligations assumed during fiscal 1996 in connection with the Sarasota, Florida
diagnostic center. Repayments under capital leases totaling $447,120 were made
during the period ended March 31, 1996.
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 1997 wherever possible. Management of the Company believes
that various medical cost containment measures
-28-
<PAGE>
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.
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 Medical Resources,
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 June
26, 1996. 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.
-29-
<PAGE>
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, 1996, the Company has not filed any
Current Report on Form 8-K reporting any change in accountants in which there
was a reported disagreement on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
PART III
--------
Item 9. Directors, Executive Officers, Promoters and Control Persons:
- ----------------------------------------------------------------------
Compliance With Section 16 (a) of the Exchange Act.
- ---------------------------------------------------
The directors of the Company, their age, and the year in which each first
became a director of NMR are as follows:
Director
Name Age Since
- ---- ----- -----
Joseph Guy Dasti...................................... 63 1990
Donald W. Arthur...................................... 41 1990
Dr. David L. Bloom.................................... 66 1990
John A. Faraone....................................... 62 1990
Joseph Zappala........................................ 61 1990
-30-
<PAGE>
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 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 a 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 wholly-owned subsidiary of Advanced NMR
Systems, Inc., a publicly held company which manufactures MRI Systems and
provides 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.
See "Certain Transactions."
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 50% 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.
-31-
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of the Company.
Name Age Principal Occupation
- ---- --- --------------------
Joseph Guy Dasti 63 Chairman of the Board,
President and Chief Executive
Officer
John P. O'Malley III 34 Executive Vice President-
Finance, Chief Financial
Officer and Secretary
Mr. Dasti's employment background is described above.
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.
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 1996 fiscal year.
Item 10. Executive Compensation.
- ---------------------------------
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the Company's
three fiscal years ended March 31, 1996 to the chief executive officer of the
Company and the other executive officer(s) of the Company whose compensation
exceeded $100,000 in the last fiscal year.
-32-
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long term Compensation
--------------------------------------------------------
Awards
--------------------------------------------------------
Restricted Securities
Stock Awards Underlying
Name and Principle Annual Compensation Options/ All Other
Position Year(1) Salary($)(2) Bonus($) ($)(4) SARs (#) Compensation($)(5)
- -------- --------- ------------ ------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Guy Dasti 1996 215,193 15,384 47,500 50,000 21,481
President 1995 206,923 19,450 0 0 14,531
1994 150,384 50,000(3) 0 100,000 27,450
John P. O'Malley III 1996 169,519 12,617 47,500 50,000 33,869
Executive Vice 1995 155,369 15,951 0 0 20,302
President-Finance 1994 55,000(3) 0 100,000 12 105,726
</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) $40,000 of bonus was earned during fiscal 1994 and paid subsequent to year
end.
(4) The values of restricted stock awards were determined using the market
price for the stock at the date of the grant. Such restricted stock vests
ratably, on a quarterly basis, over two years from the date of the grant,
subject to provisions for acceleration of vesting in the event of a change
in control of the Company or the termination of the named executive without
cause.
(5) Amounts of All Other Compensation include (i) amounts contributed or
accrued to the Company's 401(k) plan, (ii) employee portion of premiums on
key-man life insurance and (iii) amounts paid for accumulated unused
vacation pay which was earned during prior fiscal years.
OPTION/SAR AND WARRANT GRANTS IN LAST FISCAL YEAR
No warrants or stock appreciation rights (SAR's) were granted to any named
executive officer of the Company during the fiscal year ended March 31, 1996.
The following table sets forth certain information concerning options granted
during the fiscal year ended March 31, 1996 to the named executives:
-33-
<PAGE>
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------
Number of % of Total
Securities Options/SAR's
Underlying and Warrants
Options/SAR's Granted To Exercise
and Warrants Employees in or Base Price Expiration
Name Granted Fiscal Year ($/Share) Date (1)
- -------------------- -------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Joseph Guy Dasti 50,000 34.89% 3.25 3/5/2006
John P. O'Malley III 50,000 34.89% 3.25 3/5/2006
- -----------------
</TABLE>
(1) Options are not exercisable when granted. 25% of the options granted
become exercisable on each of the first four anniversary dates of the grant
of the options.
-34-
<PAGE>
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 executives officers during the fiscal
year ended March 31, 1996. 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, 1996 and the potential value thereof based on the
year-end closing per share sales price of the Company's Common Stock of $3.38
on March 29, 1996.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SAR's and
Options/SAR's and Warrants Warrants at
Shares at Fiscal Year-End(#) Fiscal YearEnd($)
Acquired on Value Exercisable (E)/ Exercisable (E)/
Name Exercise(#) Realized($) Unexercisable(U) Unexercisable (U)
- ---- ------------------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Joseph Guy Dasti 0 0 255,000 E(1) 53,500 E
100,000 U(2) 31,500 U
John P. O'Malley III 0 0 61,250 E(3) 43,487 E
103,750 U(4) 45,262 U
</TABLE>
(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, 50,000 shares issuable pursuant to an option exercisable at $6.38
per share and 50,000 shares issuable pursuant to an option exercisable at
$2.88 per share.
(2) Includes 50,000 shares issuable pursuant to an option exercisable at $3.25
per share and 50,000 shares issuable pursuant to an option exercisable at
$2.88 per share.
(3) Includes 20,000 shares issuable pursuant to an option exercisable at $2.31
per share, 30,000 shares issuable pursuant to an option exercisable at $2.88
per share and 11,250 shares issuable pursuant to an option exercisable at
$2.75 per share.
(4) Includes 20,000 shares issuable pursuant to an option exercisable at $2.31
per share, 30,000 shares issuable pursuant to an option exercisable at $2.88
per share, 11,250 shares issuable pursuant to an option exercisable at $2.75
per share and 50,000 shares issuable pursuant to an option exercisable at
$3.25 per share.
DIRECTOR COMPENSATION
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
$77,000 per annum, payable monthly. The term of the agreement is for one year
expiring December 31, 1996, subject to automatic renewal unless terminated by
either party. In addition, Dr. Bloom was issued a warrant to purchase 20,000
shares of the
-35-
<PAGE>
Company's Common Stock at an exercise price of $6.38 per share exercisable
through August 29, 2001.
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.
EMPLOYMENT AGREEMENTS
The Company has entered into executive employment agreements with Messrs.
Dasti and O'Malley which expire on June 20, 2000 and provide for annual base
salaries in amounts of $225,000 and $175,000, 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:
<TABLE>
<CAPTION>
Percentage
Payable to Payable to
QUARTERLY PRE-TAX INCOME ("PTI") Mr. Dasti Mr. O'Malley
- -------------------------------- --------- ------------
<S> <C> <C>
PTI in excess of $450,000 but less 4.45% 3.65%
than $674,000
PTI in excess of $674,000 but less 2.92% 2.38%
than $900,000
PTI in excess of $900,000 but less 1.98% 1.62%
than $1,125,000
PTI in excess of $1,125,000 1.65% 1.35%
</TABLE>
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 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 event that the executive is
terminated for cause, he is not entitled to receive any monetary compensation
under his employment agreement beyond 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 purchase 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 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
-36-
<PAGE>
entitled in certain instances to have the shares subject to the warrant
registered under the Securities Act of 1933.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
- -------------------------------------------------------------------------
PRINCIPAL AND OTHER SHAREHOLDERS
The following table sets forth the number of shares of the Company's
Common Stock beneficially owned as of 1996 by (i) each person known to the
Company to be a beneficial owner of more than 5% of the outstanding Common
Stock of the Company; (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, 1996
exceeded $100,000, and (iv) all directors and officers of the Company as a
group:
<TABLE>
<CAPTION>
Amount and Nature
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
<S> <C> <C>
Joseph G. Dasti 392,357 (2) 6.0%
c/o NMR of America, Inc.
430 Mountain Avenue
Murray Hill, NJ 07974
John P. O'Malley III 87,795 (3) 1.4%
c/o NMR of America, Inc.
430 Mountain Avenue
Murray Hill, NJ 07974
Donald W. Arthur 60,000 (4) 1.0%
4 Kalman Court
Warren Township, NJ 07060
Dr. David L. Bloom 190,000 (5) 3.0%
Somerset Diagnostic
400 Commonwealth Avenue
Boston, MA 02215
John A. Faraone 104,000 (6) 1.6%
1213 King Street
Wilmington, DE 19899
Joseph T. Zappala 77,900 (7) 1.2%
30 South Broadway
Pennsville, NJ 08070
Dr. Donald A. Tobias 311,000 (8) 5.0%
97 Biltmore Estates
Phoenix, AZ 85016
All Directors and Officers 912,052 (9) 13.3%
as a Group (6 persons)
(1) through (7)
</TABLE>
- ---------------
(1) Unless otherwise disclosed, all of such persons hold their shares of
record and beneficially.
(2) Includes 124,700 shares held of record and beneficially,12,657 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 and 50,000 stock
options exercisable at $6.38 per share through December 18, 2001 and
50,000 shares issuable pursuant to a stock option exercisable at $2.88 per
share through March 14, 2004. Does not include 50,000 shares issuable
pursuant to a stock option exercisable at $2.88 per share through March
14,
-37-
<PAGE>
2004 and 50,000 shares issuable pursuant to a stock option exercisable at
$3.25 per share through March 5, 2006, which are not currently
exercisable.
(3) Includes 20,000 shares held of record and beneficially, 6,545
shares owned through the Company's 401 (k) Plan, 11,250 shares issuable
pursuant to a stock option exercisable at $2.75 per share through
December 16, 2002, 20,000 shares issuable pursuant to a stock option
exercisable at $2.31 per share through August 4, 2003 and 30,000 shares
issuable pursuant to a stock option exercisable at $2.88 per share
through March 14, 2004. Does not include 3,750 shares issuable pursuant
to a stock option exercisable at $2.75 per share through December 16,
2002, 20,000 shares issuable pursuant to a stock option exercisable at
$2.31 per share through August 4, 2003, 30,000 shares issuable pursuant
to a stock option exercisable at $2.88 per share through March 14, 2004
and 50,000 shares issuable pursuant to a stock option exercisable at
$2.75 per share through March 5, 2006, which are not currently
exercisable.
(4) Includes 3,000 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 40,000 shares issuable to a warrant exercisable at
$3.25 per share through April 16, 2001.
-38-
<PAGE>
(5) Includes 110,000 shares held of record and beneficially, 40,000 shares
issuable pursuant to warrants exercisable at $6.38 per share through
December 18, 2001 and 40,000 shares issuable to a warrant exercisable at
$3.25 per share through April 16, 2001.
(6) Includes 44,000 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 40,000 shares issuable to a warrant exercisable at
$3.25 per share through April 16, 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, 14,000 shares issuable pursuant to a warrant
exercisable at $3.92 per share through May 18, 1999 and 40,000 shares
issuable pursuant to a warrant exercisable at $3.25 per share through
April 16, 2001.
(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,
1996.
Item 12. Certain Relationships and Related Transactions.
- ---------------------------------------------------------
CERTAIN TRANSACTIONS
Ten of the operational diagnostic imaging systems owned by the Company at
March 31, 1996 have been installed in offices leased by professional
corporations whose principal is Dr. David L. Bloom, who is also a director of
NMR. 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,
$13,431,954 and $14,784,092 during the fiscal years ended March 31, 1996 and
1995, respectively.
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
through February 6, 1997, subject to vesting as services are provided. the
Company's consulting agreement with Seaboard expired on February 7, 1995. In
addition, the Company granted rights to certain persons who are shareholders of
Seaboard, including Mr. Zappala, a Director of the Company, to have the shares
of Common Stock issuable on exercise of warrants held by such persons
registered under the Securities Act of 1933 at the expense of such persons.
-39-
<PAGE>
Item 13. Exhibits, Lists and Reports on Form 8-K.
- --------------------------------------------------
(a) Exhibits and Financial Statements:
(1) Financial Statements.
The following documents are filed as part of this report:
(i) Report of Independent Accountants.
(ii) Consolidated Balance Sheets as of March 31, 1996 and March 31, 1995.
(iii) Consolidated Statements of Income for the years ended March 31,
1996, 1995 and 1994.
(iv) Consolidated Statements of Cash Flows for the years ended March 31,
1996, 1995 and 1994.
(v) Consolidated Statements of Changes in Shareholders' Equity for the
years ended March 31, 1996 1995 and 1994.
(vi) Notes to Consolidated Financial Statements.
2. Exhibits
Exhibit No. Description
- ----------- -----------
(2) Agreement and Plan of Merger dated May 20, 1996 by and among Medical
Resources Inc., MRI Sub, Inc. and Registrant.+
(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.**
-40-
<PAGE>
Exhibit No. Description
- ----------- -----------
(10) (i) Form of 8% Subordinated Note.**
(ii) Agreement between Image Sub, Inc. and Imaging
Associates, P.A., and amendments thereto.**
(iii) Certificate and Agreement of Limited Partnership of NMR
Associates I, a New Jersey limited
partnership.**
(iv) Certificate and Agreement of Limited Partnership of
MR Associates I, a Pennsylvania limited
partnership.**
(v) Certificate and Agreement of Limited Partnership of
MR Associates of Allentown, a Pennsylvania limited
partnership.**
(vi) Certificate and Agreement of Limited Partnership of
MR Associates of Morristown, a New Jersey limited
partnership.**
(vii) 1986 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 dated December 23, 1988.*****
(xiii) Amendments No. 1,2,3, and 4 to Rights Agreement
between the Registrant and American Stock Transfer &
Trust Company, dated as of December 23, 1988.
(xiv) Certificate and Agreement of Limited Partnership of
Garden State Imaging Partners, a Delaware limited
partnership.*******
-41-
<PAGE>
Exhibit No. Description
- ----------- -----------
(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) Second Amended and Restated Employment Agreement
dated December 12, 1995 between the Registrant and
John P. O'Malley, III.
(xx) Asset Purchase Agreement dated January 5, 1995 by
and between Advanced Specialty Imaging, L.P. and the
Registrant.********
(xxi) Agreement to Acquire Partnership Interests dated
February 10, 1995 among the Registrant, Parvez H.
Shirazi and Golf Western Imaging
Corporation.********
(xxii) Agreement and Plan of Merger dated April 11, 1995,
as amended, by and among the Registrant, NMR Sub.,
Inc. and Morgan Medical Holdings, Inc.***********
(xxiii) Asset Purchase Agreement among C.D. Acquisition,
Inc., a wholly owned subsidiary of the Registrant
and Central Diversey M.R.I. Center, Inc.**********
(xxiv) Second Amended and Restated Employemnt Agreement
dated December 13, 1995 between the Registrant and
Joseph G. Dasti.+
(11) Computation of Shares Used for Earnings Per Share Calculation+
-42-
<PAGE>
(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
Morgan Medical Holdings,
Incorporated Colorado
Morgan Medical Corporation Florida
C.D. Acquisition,
Incorporated Illinois
(23) (i) Consent of Coopers & Lybrand, L.L.P.+
(27) Financial Data Schedules.+
- ---------------------------
*Incorporated by reference from Company's Registration Statement on Form S-18
(File No. 2-85281-NY).
**Incorporated by reference from Company's Registration Statement on Form S-1
(File No. 33-5567).
***Incorporated by reference from Company's Current Report on Form 8-K for July
1, 1987.
****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.
********Incorporated by reference from Company's Current Report on Form 8-K
dated January 1, 1995.
*********Incorporated by reference from Company's Current Report on Form 8-K
dated September 15, 1995.
-43-
<PAGE>
**********Incorporated by reference from Company's Current Report on Form 8-K
dated February 1, 1996, as amended by a report on Form 8-K/A.
***********Incorporated by reference to Exhibit A of Joint Proxy
Statement/Prospectus forming part of the Registration Statement on Form S-4 of
the Registrant (Registration No. 33-61681).
+ Filed herewith
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the fiscal
year ended March 31, 1996:
(i) The Company filed a report on Form 8-K, dated January 1, 1995,
reporting the acquisition of a seventy-five percent (75%) limited partnership
interest in Golf MRI Partners, L.P. and Diagnostic Imaging Center, L.P. and the
acquisition of the assets of Advanced Specialty Imaging, L.P. The following
financial statements and pro forma information were included in the Form 8-K:
Financial Statements of Business Acquired.
1) Unaudited Historical Combined Balance Sheets as of December 31, 1994 and
March 31, 1994, respectively.
2) Unaudited Historical Combined Statements of Operations for the year ended
March 31, 1994.
3) Unaudited Historical Combined Statements of Operations for the nine
months ended December 31, 1994.
Pro Forma Financial Information.
1) Unaudited Pro Forma Combined Balance Sheets as of December 31, 1994.
2) Unaudited Pro Forma Combined Statements of Operations for the year ended
March 31, 1994.
3) Unaudited Pro Forma Combined Statements of Operations for the nine months
ended December 31, 1994.
(ii) The Company filed a report on Form 8-K dated September 1995
reporting the acquisition of Morgan Medical Holdings, Inc. The following
financial statements were included in the Form 8-K.
Financial Statements of Business Acquired.
1) The consolidated balance sheet of Morgan as of December 31, 1994 and the
consolidated statements of income, cash flows and changes in stockholders'
equity for the two years ending December 31, 1994.
-44-
<PAGE>
(iii) The Company filed a report of Form 8-K dated February 1, 1996, as
amended by a report on Form 8-K/A dated February 1, 1996, reporting the
acquisition of substantially all of the assets of Central Diversey M.R.I.
Center, Inc. The following financial statements and pro forma information were
included in the Form 8-K, as amended.
Financial Statements of Business Acquired.
1) Unaudited Historical Balance Sheets as of December 31, 1995 and March 31,
1995, respectively.
2) Unaudited Historical Statement of Income for the year ended March 31,
1995.
3) Unaudited Historical Statement of Income for the nine months ended
December 31, 1995.
Pro Forma Financial Information
1) Unaudited Pro Forma Condensed Balance Sheet as of December 31,1995.
2) Unaudited Pro Forma Condensed Statement of Operations for the year ended
March 31, 1995.
3) Unaudited Pro Forma Condensed Statement of Operations for the nine months
ended December 31, 1995.
-45-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NMR OF AMERICA, INC.
By/S/ JOSEPH G. DASTI
--------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/JOSEPH G. DASTI President and Director June 26, 1996
- ----------------------
Joseph G. Dasti (Principal Executive Officer)
/S/ JOHN P. O'MALLEY III
- ------------------------
John P. O'Malley III Executive Vice President- June 26, 1996
Finance (Principal Financial
and Accounting Officer)
/S/ DONALD W. ARTHUR Director June 26, 1996
- ----------------------
Donald W. Arthur
/S/ DAVID L. BLOOM, M.D. Director June 26, 1996
- ------------------------
David L. Bloom, M.D.
/S/ JOHN A. FARAONE Director June 26, 1996
- ----------------------
John A. Faraone
/S/ JOSEPH ZAPPALA Director June 26, 1996
- ----------------------
Joseph Zappala
-46-
<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, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended March 31, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Parsippany, New Jersey
June 14, 1996
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------
ASSETS MARCH 31,
- ------------------------------------------------------------
1996 1995
- ------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 3,782,315 $ 3,966,804
Marketable securities 1,125,643
Short-term investments 663,660 886,609
Due from affiliated physician
associations and patient
receivables, net 14,182,008 9,498,268
Other current assets 1,442,394 903,373
- ------------------------------------------------------------
Total current assets 20,070,377 16,380,697
- ------------------------------------------------------------
Land, buildings and equipment 31,832,051 31,360,133
Less, accumulated depreciation
and amortization 17,381,581 19,580,504
- ------------------------------------------------------------
14,450,470 11,779,629
Long-term investments 192,000
Cost in excess of net assets
acquired 10,804,971 4,497,974
Deferred income taxes 109,000 1,099,000
Other assets 1,446,868 1,571,547
- ------------------------------------------------------------
Total assets $47,073,686 $35,328,847
============================================================
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,
- ----------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------
Current Liabilities:
Accounts payable and
accrued expenses $ 4,276,846 $ 3,098,931
Current installments on capital
lease obligations 612,985 286,263
Current installments on notes and
mortgage payable 4,911,031 2,769,098
- ----------------------------------------------------------------------
Total current liabilities 9,800,862 6,154,292
- ----------------------------------------------------------------------
Convertible subordinated debt, net 1,975,752 2,056,417
Obligations under capital leases,
less current installments 1,152,455 481,518
Notes and mortgage payable,
less current installments 11,028,647 10,451,119
Minority interest in limited partnerships 2,126,708 2,155,665
Commitments and contingencies
Shareholders' Equity:
Common Stock, $.01 par value;
authorized 30,000,000 shares,
6,705,143 and 5,416,967 shares
issued and outstanding at
March 31, 1996 and 1995,
respectively 67,051 54,169
Additional paid-in capital 17,027,890 11,570,401
Unrealized gains 14,208
Retained earnings 5,631,632 3,854,255
Less, 437,712 and 364,958
common shares in Treasury at
March 31, 1996 and 1995,
respectively, at cost ( 1,737,311) (1,463,197)
- ----------------------------------------------------------------------
Shareholders' equity 20,989,262 14,029,836
- ----------------------------------------------------------------------
Total liabilities and shareholders'
equity $47,073,686 $35,328,847
======================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
- -------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue, net $ 23,833,897 $17,987,824 $15,597,260
- -------------------------------------------------------------------------------------
Costs and Expenses:
Payroll and related costs 6,442,710 4,780,025 3,957,626
Depreciation and amortization 3,093,616 2,951,400 2,545,108
Medical supplies and other
operating costs 8,834,668 6,048,762 5,186,883
Non-recurring write-down of
center equipment 560,091
Other general and administrative 763,662 553,422 689,347
- -------------------------------------------------------------------------------------
19,134,656 14,893,700 12,378,964
- -------------------------------------------------------------------------------------
Operating income 4,699,241 3,094,124 3,218,296
Interest expense 1,677,698 1,186,811 824,420
Other income,net ( 122,805)( 24,546)( 130,694)
- -------------------------------------------------------------------------------------
Income before minority
interest and income taxes 3,144,348 1,931,859 2,524,570
Minority interest in income of
limited partnerships 410,550 527,663 1,049,070
- -------------------------------------------------------------------------------------
Income before income taxes 2,733,798 1,404,196 1,475,500
Provision for (benefit from)
income taxes 956,421 ( 1,029,716) 108,000
- -------------------------------------------------------------------------------------
Net income $ 1,777,377 $ 2,433,912 $ 1,367,500
=====================================================================================
PER SHARE DATA:
PRIMARY:
Net income per share $ .30 $ .49 $ .29
=====================================================================================
FULLY DILUTED:
Net income per share $ .30 $ .47 $ .29
=====================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
- ----------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,777,377 $ 2,433,912 $1,367,500
- ----------------------------------------------------------------------------------------
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 3,093,616 2,951,400 2,545,108
Minority interest in income of
limited partnerships 410,550 527,663 1,049,070
Deferred income taxes 1,016,918 ( 1,099,000)
Equity in loss (income) from
unconsolidated partnership 171,085 68,770 ( 53,067)
Contractor reimbursement for lost
revenues ( 175,000) ( 91,620)
(Gain) loss on disposition of
center assets ( 62,443) 12,084 47,021
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 and patient
receivables, net ( 3,546,074) ( 965,897) ( 2,196,385)
Decrease (increase) in other
current assets 236,999 ( 130,104) 188,810
Decrease (decrease) in other assets 103,147 ( 92,931) 159,969
(Decrease) increase in accounts
payable and accrued expenses ( 80,001) ( 198,210) 531,966
Decrease in other liabilities ( 222,079)
Other 14,483
- ----------------------------------------------------------------------------------------
Total adjustments 1,183,280 1,953,516 2,040,949
- ----------------------------------------------------------------------------------------
Net cash provided by operating
activities 2,960,657 4,387,428 3,408,449
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
- -------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of equipment ( 1,411,389) ( 1,705,020) ( 338,080)
Purchase of short-term investments ( 2,814,660) ( 869,000)
Purchase of marketable securities ( 300,000) ( 1,111,435) ( 1,201,839)
Purchase of long-term investments ( 192,000)
Purchase of limited partnership
interests ( 48,800) ( 2,185,005)
Acquisition of purchase option ( 200,000)
Acquisition of centers, net of cash
acquired 371,905 ( 976,794) ( 325,000)
Proceeds from sale of marketable
securities 1,435,438 205,000 600,000
Proceeds from sale of short-term
investments 3,070,449
Proceeds from disposition of
center assets 6,250
Other ( 15,350) ( 11,014)
- -------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 159,743 ( 4,515,149) ( 3,660,938)
- -------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of debt, including capital
lease obligations ( 3,669,129) ( 2,134,292) ( 1,587,922)
Distributions to limited partners ( 232,283) ( 135,656) ( 683,067)
Proceeds from borrowings 912,686 2,617,683 2,319,500
Purchase of common stock warrants ( 12,000)
Proceeds from stock issuance and
exercise of stock options 36,844 27,812
Purchases of treasury stock ( 353,007)
- -------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities ( 3,304,889) 375,547 36,511
- -------------------------------------------------------------------------------------
Net (decrease) increase in cash
and cash equivalents ( 184,489) 247,826 ( 215,978)
Cash and cash equivalents
at April 1, 3,966,804 3,718,978 3,934,956
- -------------------------------------------------------------------------------------
Cash and cash equivalents
at March 31, $ 3,782,315 $ 3,966,804 $ 3,718,978
- -------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NMR OF AMERICA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
________________________________________________________________________________
1996 1995 1994
________________________________________________________________________________
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash (received) paid during the year for:
Income Taxes, net of refunds totaling
$46,052 in 1996, $26,474 in 1995
and $155,676 in 1994 ($ 13,320) $ 69,345 ($ 131,237)
Interest $ 1,680,158 $ 1,187,160 $ 829,419
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Capital lease obligations incurred
for use of equipment $ --- $ --- $ 591,517
Capital lease obligations assumed
in connection with acquisitions $ 1,444,779 $ --- $ ---
Notes payable obligation
assumed in connection with
acquisition $ 4,690,296 $ 1,982,617 $ 1,475,000
Stock issued in connection with
acquisitions $ 5,224,320 $ 500,000 $ 487,500
Notes payable issued in connection
with acquisition $ --- $ --- $ 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 debentures
to common stock $ 123,000 $ 111,999 $ ---
Unrealized gain on marketable
securities available-for-sale $ --- $ 14,208 $ ---
Contribution to 401(k) plan $ 36,098 $ 10,061 $ ---
Note payable incurred in connection
with financing annual insurance
premium $ 278,488 $ --- $ ---
Note payable incurred in connection
with equipment upgrade financing $ 60,000 $ --- $ ---
Issuance of restricted stock over
two year vesting period $ 94,800 $ --- $ ---
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
NMR of America, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Treasury Stock
Shares Amount Capital Shares Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1993 5,107,080 $51,071 $10,449,047 (377,326) ($1,494,117)
- ----------------------------------------------------------------------------------------------------
Purchase of warrants (12,000)
Issuance of common stock 150,000 1,500 486,000
Net income for fiscal 1994
- ----------------------------------------------------------------------------------------------------
Balances at March 31, 1994 5,257,080 52,571 10,923,047 (377,326) (1,494,117)
- ----------------------------------------------------------------------------------------------------
Issuance of common stock 135,000 1,350 528,650
Conversion of subordinated
debentures to common stock 24,887 248 111,751
Exercise of employee
stock options 2,187 10,250 25,625
401(k) plan contributions 4,766 2,118 5,295
Unrealized gain on securities
held for sale
Net income for fiscal 1995
- ----------------------------------------------------------------------------------------------------
Balances at March 31, 1995 5,416,967 $54,169 $11,570,401 (364,958) ($1,463,197)
- ----------------------------------------------------------------------------------------------------
Purchase of common stock (99,650) (353,007)
Issuance of common stock 1,260,848 12,609 5,319,120
Conversion of subordinated
debentures to common stock 27,328 273 122,727
Exercise of employee
stock options 5,906 12,375 30,938
401(k) plan contributions 9,736 14,521 47,955
Unrealized gain on securities
held for sale
Net income for fiscal 1996
- ----------------------------------------------------------------------------------------------------
Balances at March 31, 1996 6,705,143 $67,051 $17,027,890 (437,712) ($1,737,311)
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Unrealized Retained Total
Gains Earnings Shareholders'
(losses) (Deficit) Equity
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at March 31, 1993 $52,843 $9,058,844
- ----------------------------------------------------------------------------------------------------
Purchase of warrants (12,000)
Issuance of common stock 487,500
Net income for fiscal 1994 1,367,500 1,367,500
- ----------------------------------------------------------------------------------------------------
Balances at March 31, 1994 0 1,420,343 10,901,844
- ----------------------------------------------------------------------------------------------------
Issuance of common stock 530,000
Conversion of subordinated
debentures to common stock 111,999
Exercise of employee
stock options 27,812
401(k) plan contributions 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 $14,208 $3,854,255 $14,029,836
- ----------------------------------------------------------------------------------------------------
Purchase of common stock (353,007)
Issuance of common stock 5,331,729
Conversion of subordinated
debentures to common stock 123,000
Exercise of employee
stock options 36,844
401(k) plan contributions 57,691
Unrealized gain on securities
held for sale (14,208) (14,208)
Net income for fiscal 1996 1,777,377 1,777,377
- ----------------------------------------------------------------------------------------------------
Balances at March 31, 1996 $0 $5,631,632 $20,989,262
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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, 1996, 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 (Seabrook, 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 Chicago, Elgin,
Libertyville, and Oak Lawn, Illinois as well as Cape Coral, Naples, Sarasota and
Titusville, Florida. The Company owns a 38% interest in an Austin, Texas
limited partnership, which is accounted for using the equity method (See Note
13). 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.
Use of Estimates - The preparation of the consolidated financial statements in
- ----------------
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities in the
consolidated financial statements and accompanying notes. The most significant
estimates relate to contractual and other allowances, income taxes,
contingencies and the useful lives of equipment. Actual results could differ
from those estimates. In addition, healthcare industry reforms and
reimbursement practices will continue to impact the Company's operations.
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, 1996 and 1995, respectively, the Company had investments in money
market accounts and certificates of deposit of $1,792,251 and $729,759. Cash
and cash equivalents includes $571,477 and $1,673,598 as of March 31, 1996 and
1995, 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 the shorter of the useful life or the
remaining lease term, typically 10 years. Upon
F-10
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
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.
Organizational Costs - The Company capitalizes costs associated with the
- --------------------
organization 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.
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, 1996 and 1995, accumulated
amortization amounted to $694,783 and $274,544, respectively.
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' respective 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.
401(k) Plan - The Company maintains a 401(k) savings plan under which the
- -----------
Company matches one-half of employee contributions to purchase the Company's
common stock and one-quarter of employee contributions to purchase other plan
investments, up to 6% of qualified earnings and subject to Internal Revenue
Service limitations. Company matching contributions for fiscal 1996 have
utilized treasury stock. Plan expense amounted to $36,098 and $10,061 in fiscal
1996 and 1995, respectively.
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 year ended March 31, 1994, 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, Diagnostic Imaging Center, Morgan Medical Holdings,
Inc. and Central Diversey MRI Center were considered outstanding from the date
of acquisition.
F-11
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
1. The Company and Its Significant Accounting Policies (continued)
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 year ended March 31, 1994, as such conversion would
have been antidilutive for such year.
The number of common shares used to compute primary and fully diluted net income
per share are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Primary 5,870,494 5,017,952 4,757,102
Fully Diluted 6,324,716 5,589,900 4,757,102
</TABLE>
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 Company believes that the adoption of SFAS 121 will not have a
material effect on the Company's financial position or results of operations.
Statement of Financial Accounting Standards No. 123 "Accounting and Disclosure
of Stock-Based Compensation" ("SFAS 123") encourages but does not require
companies to recognize stock awards based on their fair value at the date of
grant. The Company currently follows, and expects to continue to follow, the
provisions of Accounting Principle Board Opinion No. 25 "Accounting for Stock
Issued to Employees" ("APB 25"), and related interpretations to account for its
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized. Although the
Company is permitted to continue to follow the provisions of APB 25 under SFAS
123, certain pro forma disclosure, to reflect the impact on reported earnings,
will be required beginning with the Company's fiscal year ending March 31, 1997,
as if the Company has accounted for its stock options in accordance with the
fair value method under SFAS 123.
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 Physicians'
principal, Dr. David L. Bloom, is a
F-12
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
2. Due from Affiliated Physician Associations (continued)
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 pays 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 and other allowances 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 income.
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, 1996 and 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-13
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
4. Marketable Securities
Marketable securities classified as available-for-sale are as follows:
<TABLE>
<CAPTION>
Gross Fair
unrealized market
Cost gains value
-------------- ----------- -----------
March 31, 1995
<S> <C> <C> <C>
Available-For-Sale:
U.S. Government obligations $1,111,435 $ 14,208 $ 1,125,643
========== =========== ===========
At March 31, 1995, all investments in debt securities had maturities of
less than one year.
5. Property and Equipment
Property and equipment stated at cost are set forth below:
March 31,
- -------------------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------------
Diagnostic equipment $18,328,154 $19,260,564
Diagnostic equipment under capital leases 2,272,367 1,402,367
Leasehold improvements 4,978,901 4,486,404
Leasehold improvements under capital leases 210,000
Land and buildings 1,353,569 1,353,569
Equipment 3,766,268 3,600,164
Equipment under capital leases 290,000
Furniture and fixtures 632,792 616,519
Construction in progress --- 640,546
- -------------------------------------------------------------------------------------------------------------------
$31,832,051 $31,360,133
===================================================================================================================
</TABLE>
Depreciation expense for the years ended March 31, 1996, 1995 and 1994 amounted
to $2,444,896, $2,527,773 and $2,197,181, respectively.
Accumulated amortization relating to property and equipment under capital leases
at March 31, 1996 and 1995 was $881,674 and $510,570, respectively.
F-14
<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, 1996:
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
1997 $ 731,728
1998 601,886
1999 487,624
2000 176,043
2001 ---
thereafter ---
- --------------------------------------------------------------------------------------------
Total minimum lease payments 1,997,281
Less: amount representing
interest (imputed at an average
rate of 7.9%) 231,841
- --------------------------------------------------------------------------------------------
Present value of
minimum lease payments 1,765,440
Less current installments 612,985
- --------------------------------------------------------------------------------------------
Obligations under capital leases,
less current installments $1,152,455
============================================================================================
</TABLE>
6. Long-term Investments
Long-term investments at March 31, 1996 are stated at cost plus accrued interest
and consist of certificates of deposit maturing in April and May 1997.
7. 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, 1996,
$1,956,000 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 July of
1996.
F-15
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
8. Notes and Mortgage Payable
Notes and mortgage payable consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage payable to bank (A) $ 517,169 $ 524,065
Allentown equipment note payable to bank (B) 1,561,907 1,980,952
Note payable for acquisition of limited
partnership interests (C) 1,029,343 1,861,835
Oak Lawn equipment note payable to bank (D) 1,218,476 1,334,594
Bel Air equipment note payable (E) 2,520,116 2,705,136
Notes payable from Morgan acquisition (F) 3,612,007
Notes payable from other acquisitions (G) 2,637,360 2,455,856
Other notes payable for equipment, equipment
upgrades and leasehold improvements (H) 2,843,300 2,357,779
- ------------------------------------------------------------------------------------
Total 15,939,678 13,220,217
Less, current installments 4,911,031 2,769,098
- ------------------------------------------------------------------------------------
Notes and mortgage payable less current
installments $11,028,647 $10,451,119
====================================================================================
</TABLE>
(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% (8.5% at March 31, 1996) and matures October 2019. The current
monthly payments are $4,310, 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 (8.75% at March 31, 1996),
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.
F-16
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
8. Notes and Mortgage Payable (continued)
(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 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 plus one percent (9.25% at March 31, 1996) . Monthly
payments, including principal and interest, for the first three years of
the note are fixed at $20,000, and $45,894 thereafter. 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 income 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 September 1995, in connection with the acquisition of Morgan ("Morgan")
the Company assumed Morgan's Medical Holdings, Inc. existing equipment debt
obligations, aggregating $4,018,574. These notes bear interest at rates
ranging from 7.36% to 11.5% and require monthly payments ranging from $623
to $33,335, including interest. The notes are payable over varying terms
with the last note due in September 1999. One of the notes restricts the
Company's ability to pay dividends. The foregoing notes are collateralized
by the respective centers' imaging equipment.
(G) 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
centers' existing equipment debt obligations,
F-17
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
8. Notes and Mortgage Payable (continued)
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 plus one
percent (9.25% at March 31, 1996). The note requires monthly installments
of $37,708, including interest, and is due on March 31, 2000. In addition,
the Company assumed $34,450 of notes payable to former limited partners of
Diagnostic Imaging Center which bear interest at a rate of 10%, require
quarterly payments of $8,612 plus interest which were paid 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 plus one percent (9.25% at March 31, 1995). The note requires monthly
installments of $11,721, including interest, and is due on March 31, 2000.
The note agreement requires the Company to meet certain financial ratios as
of March 31 of each year the agreement is in effect. The foregoing bank
notes are collateralized by the center's imaging equipment.
In January 1996, in connection with the acquisition of the assets of
Central Diversey MRI Center, Inc. the Company assumed a $631,784 note
payable bearing interest at 10% due September 1999. The note is
collateralized by cash deposits totaling $120,000 (included in other
assets) and the center's diagnostic equipment and requires monthly
installments of $16,894, including interest.
(H) Included in other debt obligations is $2,091,274 and $1,312,046 at March
31, 1996 and 1995, 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 $18,082, including interest. The notes are
payable over varying terms of four and five years with the last note due
September 2000. The notes are primarily collateralized by the related
imaging equipment.
Included in other debt obligations is $664,161 and $1,045,733 at March 31,
1996 and 1995, respectively of various notes payable relating to the
acquisition of the Des Plaines, Oak Lawn and Libertyville, Illinois imaging
centers and a purchase optionrelated 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
F-18
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
8. Notes and Mortgage Payable (continued)
terms are primarily monthly and range from $3,554 to $13,294,
including interest.
As of March 31, 1996, the Company has $6,360,573 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 1997 through 2001 and thereafter are as follows: 1997 -
$4,911,031; 1998 - $4,763,865; 1999 - $3,459,298; 2000 - $1,684,933; 2001 -
$648,838; thereafter $471,713.
9. 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, 1996, there were no shares of preferred stock issued or
outstanding.
On October 25, 1995 the Board of Directors authorized a common stock repurchase
program whereby the Company can purchase up to $1,000,000 of its outstanding
common stock from time to time in the open market. The shares will be held as
treasury shares for reissuance upon the exercise of employee stock options,
warrants and other convertible securities. The timing of purchases and the
number of shares purchased will depend upon prevailing market prices and other
market conditions. During the year ended March 31, 1996, under the 1995
repurchase program, the Company purchased 99,650 shares of its outstanding
common stock at an aggregate cost of $353,007. As of March 31, 1996 the
Company's cumulative stock purchases, net of reissuance of 39,614 shares,
amounted to 437,712 shares with an aggregated cost of $1,737,311.
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
F-19
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
9. Shareholders' Equity (continued)
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 15% or
more of the outstanding common shares, (i) 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 and (ii) prior to such exercise the Company's Board
of Directors, may, at its option exchange outstanding rights to shares of common
stock at an exchange ratio of one share for each right. 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, 2002, and are subject to redemption by
the Company's Board of Directors at $.01 per right at any time prior to the
first date upon which they become exercisable to purchase common shares.
STOCK OPTIONS AND EMPLOYEE STOCK GRANTS
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 1,000,000 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 409,809
shares were outstanding at March 31, 1996, at an exercise price ranging from
$2.25 to $6.38 per share for terms of five and ten years. As of March 31, 1996,
options with respect to 219,325 shares were exercisable. During the year ended
March 31, 1996, 12,375 options were exercised at exercise prices ranging from
$2.25 to $3.00 per share.
In September 1995, the Company granted 10,000 unregistered shares of common
stock to each of its two officers. The shares vest ratably on a quarterly basis
over two years from the date of grant.
F-20
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
9. Shareholders' Equity (continued)
STOCK PURCHASE WARRANTS
As of March 31, 1996, the Company had granted warrants to purchase its common
stock with the following terms:
<TABLE>
<CAPTION>
Number
of Exercise Expiration
shares price date
- ----------- -------- ------------------
<S> <C> <C>
50,000 $7.00 September 26, 1996
50,000 $8.00 September 26, 1996
50,000 $3.00 August 2, 1996
50,000 $3.50 August 2, 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
- -----------
757,000
===========
</TABLE>
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 had an initial term of
two years and are exercisable from the date of grant. During May 1996, the
Company extended the term of the EKN financial consulting agreement and warrants
for a period of three months to August 2, 1996.
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.
F-21
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
9. Shareholders' Equity (continued)
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 March 1992, the Company issued warrants to purchase 7,000
shares of common stock at an exercise price of $5.00 per share in connection
with the execution of a ground lease for one of its facilities. The 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 (an aggregate of 140,000 shares) of
common stock at $6.38 per share. These warrants have a term of ten years and
are exercisable from date of the grant.
On 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 vested 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
50,000 shares of the Company's common stock with an exercise price of $6.38 per
share. These warrants are exercisable from date of grant and have a term of ten
years.
In May 1989, the Company issued warrants to purchase 100,000 shares of common
stock at an exercise price of $3.92 per share to a non-employee director of the
Company. These warrants have a term of ten years and are exercisable from the
date of grant.
In February 1989, the Company issued warrants to purchase 25,000 shares of
common stock at an exercise price of $3.09 per share to a professional
corporation providing legal services to the Company. These warrants have a term
of ten years and are exercisable from the date of grant.
F-22
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
10. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, ("SFAS No. 109") "Accounting for Income Taxes.",
which requires 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.
As of March 31, 1996, the Company for Federal income tax purposes, has net
operating loss carryforwards which begin to expire in the year 2000, of
approximately $6,389,000, of which approximately $3,390,000 represent net
operating losses of acquired companies. Under Section 382 of the Internal
Revenue Code, the Company's acquired operating losses are subject to an annual
utilization limitation of approximately $520,000. Any unutilized annual
limitation may be carried forward to available future carryforward years.
Future changes in the ownership of the Company could result in additional
limitations on the utilization of its net operating loss carryovers. The state
tax jurisdictions in which the Company operates do not permit the carryback of
net operating losses to prior years in which taxes were paid. Such state tax
net operating losses were utilized to reduce the Company's fiscal 1996, 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 $81,000,
respectively, of which approximately $74,000 represents investment tax credits
of an acquired company. The Company's investment tax credits begin to expire in
the year 1999 and are accounted for under the flow through method. Alternative
minimum tax credits do not expire.
F-23
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
10. Income Taxes (continued)
assets and (liabilities) at March 31, 1996 and 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $(1,794) $(1,123)
Purchase option ( 249) ( 273)
Cash to accrual basis ( 784) --
------- -------
Deferred tax liabilities (2,827) (1,396)
------- -------
Deferred tax assets:
Net operating losses 2,332 1,527
Excess financial reporting
partnership losses -- 466
Tax credits 466 491
Accrued liabilities 82 --
Other 56 11
------- -------
Deferred tax assets 2,936 2,495
Valuation allowance --- ---
------- -------
Net deferred tax asset $ 109 $ 1,099
======= =======
</TABLE>
The net decrease in the Company's valuation allowance on deferred tax assets
during the year ended March 31, 1995 totaled $1,304,000.
Components of the provision for (benefit from) income taxes are as follows:
1996 1995 1994
---- ---- ----
Current:
Federal $ 10,000 $ 25,000 $ 12,000
State 29,421 44,284 96,000
---------- ---------- --------
39,421 69,284 108,000
---------- ---------- --------
Deferred:
Federal 847,000 (1,142,000) ---
State 70,000 43,000 ---
---------- ---------- --------
917,000 (1,099,000) ---
---------- ---------- --------
$ 956,421 $(1,029,716) $108,000
========== ========== ========
F-24
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
10. Income Taxes (continued)
A reconciliation of the Federal statutory income tax rate to the Company's
effective tax rate as reported is as follows:
1996 1995 1994
---- ---- ----
Expected Federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of
Federal benefit 3.9% 6.2% 5.4%
Net operating loss carryforwards -- (32.2%) (33.2%)
Recognition of net deferred tax asset -- (82.4%) --
Other ( 2.9%) 1.1% 1.1%
----- ----- ----
Effective income tax rate 35.0% (73.3%) 7.3%
===== ===== ====
11. Commitments and Contingencies
As of March 31, 1996, the Company has entered into noncancelable leases for
eighteen 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, 1996, the
Company has subleased the operating sites to the Physicians for the base rental
as stipulated in the original lease. For the years ended March 31, 1996, 1995
and 1994 the related sublease income has been offset by the lease rent expense.
The following summary of non-cancelable obligations includes the sublease
arrangements described above, certain equipment leases and the Company's
corporate rentals. As of March 31, 1996, the aggregate future minimum lease
payments and sublease rentals are as follows:
<TABLE>
<CAPTION>
Original
Year ended March 31, Leases Subleases Net
- ---------------------- ---------- ---------- ----------
<S> <C> <C> <C>
1997 $2,146,015 $ 848,226 $1,297,789
1998 1,706,451 649,482 1,056,969
1999 1,118,892 529,929 588,963
2000 689,964 507,098 182,866
2001 459,330 322,617 136,713
thereafter 315,292 99,795 215,497
- ----------------------------------------------------------
$6,435,944 $2,957,147 $3,478,797
==========================================================
</TABLE>
F-25
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
11. Commitments and Contingencies (continued)
Effective May 31, 1993, the Company terminated its leases for corporate
headquarters in Morristown, New Jersey. The Company entered into a lease
agreement for new executive and administrative office space under a 66 month
lease which commenced on May 19, 1993. The base agreement contains two five
year renewal options. Corporate rent expense for the years ended March 31,
1996, 1995 and 1994 amounted to $116,318, $114,035, and $123,061, respectively.
During August, 1993, the Board of Directors authorized the Company to guarantee
personal loans made by a bank to an officer 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 $75,000.
The shares of common stock purchased by the 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.
12. Related Parties
During the years ended March 31, 1996, 1995 and 1994, the Company, in
accordance with the related partnership agreements, allocated certain
corporate overhead costs to the limited partnerships which resulted in $7,230,
$7,865 and $19,982, respectively, of such costs being attributed to the minority
interests.
As of March 31, 1996, the Company has notes receivable from two former officers
of Morgan Medical Holdings, Inc. in the amounts of $315,625 and $35,366,
including accrued interest thereon, which are included as a component of other
current assets and other assets in the Company's March 31, 1996 balance sheet.
The notes bear interest at prime and are payable in eight equal semi-annual
principal installments, plus interest, commencing March 15, 1996. The notes are
collateralized by a pledge of the Company's common stock which is owned by the
individuals, one of whom now is an employee of the Company. Subsequent to March
31, 1996, the loan for $315,625 plus interest was paid in full.
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, 1996, and provides compensation of $77,000 per annum.
F-26
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
13. Imaging Center Matters
During the first quarter of fiscal 1996 the Company temporarily ceased
operations at its Union, New Jersey facility in order to replace the center's
existing magnetic resonance imaging equipment, which was installed in 1984. The
new system was installed during June 1995 and became operational in early July
1995. The project was completed for an aggregate cost of approximately $910,000,
which includes the cost of related leasehold improvements, diagnostic imaging
equipment and related upgrades. The Company financed the equipment and related
leasehold improvements in the form of a five year note payable.
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 income as
a component of other income, net.
The Company's Austin, Texas center was closed during December 1995. The center
operated pursuant to a limited partnership agreement (the "Austin Partnership")
which was scheduled to expire on January 31, 1996, but was extended by the
governing board of the partnership for the purpose of liquidating and
distributing the remaining assets of the Austin Partnership. It is anticipated
that such liquidation will be completed during fiscal 1997 and will not have a
material impact on the results of operations or liquidity of the Company.
On May 15, 1996, effective January 1, 1996, the Company acquired the remaining
10% ownership interest in Oak Lawn Imaging Center which increased the Company's
ownership percentage to 100%. As consideration for the acquisition, the Company
issued 35,000 unregistered shares of its common stock.
F-27
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
14. 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)
1996 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
-------- ------- ------- -------
Revenue, net $4,771 $5,289 $6,754 $7,020
Operating income 771 1,068 1,378 1,544
Net income 238 355 554 630
Per fully diluted
common share (1):
Net income .05 .07 .09 .10
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
(1) Quarterly income per fully diluted common share does not equal the
annual amount due to changes in the common and equivalent shares
outstanding.
(2) The Company's fourth quarter consolidated financial results include (i)
a non-recurring $560,000 adjustment to write-down the carrying value of
certain fixed assets (see Note 15) and (ii) the recognition of the
Company's net deferred tax asset in the amount of $1,099,000 (see Note
10).
Quarterly results are generally effected by the timing of acquisitions,
including limited partner interests, and the number of operating days in the
quarter.
F-28
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
15. Acquisitions
Effective January 1, 1996, the Company completed its acquisition of
substantially all of the operating assets of Central Diversey MRI Center, Inc.
("CD MRI") which operates a magnetic resonance imaging center located in
Chicago, Illinois. As consideration for the acquisition, NMR paid $80,000 in
cash at closing to the selling shareholders and issued 10,000 unregistered
shares of NMR common stock which are subject to a two-year holding period
restriction. In conjunction with the transaction, NMR acquired substantially
all of CD MRI's operating assets, which consist primarily of magnetic resonance
imaging equipment, related leasehold improvements, office equipment and deposits
on the MRI related equipment aggregating $120,000 which are pledged as
collateral therefor. In addition, NMR assumed certain trade accounts payable of
Central Diversey aggregating $90,000 and MRI related equipment debt, subject to
existing collateral, totaling approximately $632,000 of outstanding principal as
of January 1, 1996. The acquisition has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at the fair value
at the date of acquisition. The Company recorded $429,333 of excess cost over
fair value of the assets which is being amortized over twenty years on a
straight line basis.
On March 13, 1995, the Company announced that its Board of Directors had
approved an agreement, providing for the acquisition of Morgan Medical Holdings,
Inc. ("Morgan"). A definitive merger agreement was executed on April 11, 1995.
The transaction was approved by the shareholders of Morgan and the Company on
September 14, 1995 and became effective September 15, 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. Pursuant to the terms of the acquisition,
Morgan shareholders received 1,195,848 shares of the Company's common stock in
the transaction. Under the terms of the merger agreement, the Company exercises
control over the voting rights of Morgan's largest shareholder for a period of
three years. The Company accounted for the transaction as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their fair
values at the date of acquisition. In conjunction with the transaction, the
Company recorded $6,356,132 of costs in excess of fair value 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")(collectively the "Centers").
These limited partnerships collectively operate a multi-modality imaging center
located in Des Plaines, Illinois. As
F-29
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
15. Acquisitions (continued)
consideration for the acquisition, the Company paid $1,050,000 in cash and
issued 125,000 unregistered shares of the common stock of the Company and
assigned a fair value of $500,000. In conjunction with the acquisition, the
Company entered into agreements with the Center's radiologist to provide
radiologic and other administrative services to the Centers for three year
terms. In addition, the Company consolidated and refinanced the Centers'
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 was conditioned upon the center
achieving certain levels of revenue during calendar 1995 which were not attained
resulting in no additional consideration being payable. 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 Company's consolidated financial statements for the year ended March 31,
1996 include the results of operations of Morgan and CD MRI from the September
15, 1995 and January 1, 1996 effective dates of such transactions, respectively.
The Company's consolidated financial statements for the year ended March 31,
1995, do not include the results of operations of Morgan or CD MRI and include
the results of operations of Golf MRI, DIC and Libertyville ("Historical
Acquisitions") from the January 1, 1995 effective date of such transactions. The
following summarizes the unaudited proforma results of operations for the years
ended March 31, 1996 and 1995, assuming all of the foregoing acquisitions had
occurred on April 1, 1995 and 1994 (in thousands, except per share data):
F-30
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
15. Acquisitions (continued)
<TABLE>
<CAPTION>
Fiscal 1996
------------------------------------------
(unaudited)
NMR
Including
NMR Including Historical
Including Historical Acquisitions,
Historical Acquisitions Morgan and
Acquisitions and Morgan CD MRI
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ -------------
<S> <C> <C> <C>
Revenue, net $21,844 $26,435 $27,300
Operating income $ 3,903 $ 5,437 $ 5,773
Income before
income taxes $ 2,080 $ 3,189 $ 3,452
Income before extraordinary
item and cumulative effect
of change in accounting
principle $ 1,342 $ 2,033 $ 2,257
Fully diluted net
income per share $ .21 $ .31 $ .35
<CAPTION>
Fiscal 1995 (1)
------------------------------------------
(unaudited)
NMR
Including
NMR Including Historical
Including Historical Acquisitions,
Historical Acquisitions Morgan and
Acquisitions and Morgan CD MRI
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ -------------
Revenue, net $20,707 $25,962 $26,550
Operating income $ 3,637 $ 5,336 $ 5,647
Income before
income taxes $ 1,673 $ 2,934 $ 3,086
Income before extraordinary
item and cumulative effect
of change in accounting
principle $ 2,716 $ 3,806 $ 3,936
Fully diluted net
income per share $ .51 $ .58 $ .60
</TABLE>
(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 16) and (ii) the recognition of the Company's net
deferred tax asset in the amount of $1,099,000 (see Note 10).
F-31
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
16. 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 charge 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.
17. Fair Value of Financial Instruments
The following estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies. However,
considerable judgement is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
March 31, 1996
---------------------------
Carrying
Amount Fair Value
-------------- -----------
Assets:
Cash and cash equivalents $ 3,782,315 $ 3,782,315
Short-term investments 663,660 663,660
Long-term investments 192,000 192,000
Due from affiliated physician
associations and patient
receivables, net 14,182,008 14,182,008
Liabilities:
Notes payable $15,939,678 15,977,899
Capital lease obligations 1,765,440 1,765,541
Convertible debentures 1,975,752 1,849,578
The carrying amounts of cash and cash equivalents, short-term investments, long-
term investments and due from affiliated physician associations and patient
receivables, net are a reasonable estimate of their fair value. The fair value
of the Company's notes payable, capital lease obligations and convertible
debentures are based upon a discounted cash flow calculation utilizing rates
under which similar borrowing arrangements can be entered into.
F-32
<PAGE>
NMR of America, Inc, and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------
18. Subsequent Event
On May 7, 1996, the Company announced that it was in negotiations regarding a
possible business combination with Medical Resources, Inc. ("Medical
Resources"). A definitive merger agreement was executed on May 20, 1996 which is
the subject to the merger conditions set forth below. Medical Resources provides
diagnostic imaging equipment, facilities and management services to physicians
through nineteen outpatient centers located in New York, New Jersey and Florida.
Pursuant to the terms of the acquisition, 0.6875 shares of Medical Resources
common stock would be issued for each outstanding share of NMR. The merger is
subject to certain conditions including shareholder and regulatory approval and
certain third party consents. Senior management of the combined company would be
composed of the current executives of Medical Resources with NMR's current
executive officers, Joseph G. Dasti and John P. O'Malley III serving as
consultants to the combined company. The closing of the merger is anticipated to
occur in the third quarter of fiscal 1997, although there can be no assurance
that the transactions will be completed as contemplated or that it will occur
when anticipated.
In June 1996, the Company entered into a line of credit agreement with a lender
for an amount up to $4,000,000. Borrowing under the line of credit will bear
interest at a rate of one and one-half percent over the lender's prime rate and
will be collateralized by the Company's receivables.
F-33
<PAGE>
EXHIBIT 11
NMR OF AMERICA, INC., AND SUBSIDIARIES
EXHIBIT 11. COMPUTATION OF SHARES USED FOR EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
________________________________________________________________________________
1996 1995 1994
________________________________________________________________________________
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE INFORMATION:
Net income per consolidated
statements of income $1,777,377 $2,433,912 $1,367,500
========== ========== ==========
Weighted average number of
outstanding shares 5,721,462 4,890,791 4,757,102
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 149,032 127,161 ---
Incremental shares issuable on
conversion of Convertible
Subordinated Debentures --- --- ---
--------- --------- ---------
Weighted average number of shares
used to compute primary earnings
per share 5,870,494 5,017,952 4,757,102
========= ========= =========
Primary Earnings Per Share:
- ---------------------------
Primary net income per share $ .30 $ .49 $ .29
========= ========= ==========
</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,
____________________________________________________________________________________
1996(1) 1995 1994(1)
____________________________________________________________________________________
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE INFORMATION:
Net income per consolidated
statements of income $1,777,377 $2,433,912 $1,367,500
Add: Interest savings from proceeds
of conversion of outstanding
convertible debentures,
net of minority
interest and taxes 206,016 220,255 372,517
Net income (loss) used to compute fully ---------- ---------- ----------
diluted earnings per share $1,983,393 $2,654,167 $1,740,017
========== ========== ==========
Weighted average number of
outstanding shares 5,721,462 4,890,791 4,757,102
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 149,032 217,553 221,934
Incremental shares issuable on
conversion of Convertible
Subordinated Debentures 454,222 481,556 506,444
Weighted average number of shares ---------- ---------- ----------
used to compute fully diluted
earnings per share 6,324,716 5,589,900 5,485,480
========== ========== ==========
Fully Diluted Earnings Per Share:
- ---------------------------------
Fully diluted net income per share $ .31 $ .47 $ .32
========== ========== =========
</TABLE>
(1) The Company's calculation of fully diluted earnings per share for the year
ended March 31, 1996 and 1994 is antidilutive in comparison to its calculation
of primary earnings per share. As such, the Company has presented its primary
earnings per share on the face of its consolidated statement of operations for
both the primary and fully diluted earnings per share presentation.
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from to
----------- ---------
Commission file number 1-9367
NMR of America, Inc.
------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
Delaware 22-2468314
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
430 Mountain Avenue Murray Hill, New Jersey 07974-2732
------------------------------------------------------------
(address of principal executive offices)
(908) 665-9400
--------------
(Issuer's telephone number)
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
YES NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: June 30, 1996 - 6,284,346
------------------------------
<PAGE>
NMR of America, Inc., and Subsidiaries
PART I. FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
--------------------
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of
-----------------------------------------------
Operation
---------
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and reports on Form 8-K
--------------------------------
Exhibit 11. Computation of Shares Used For Earnings Per
Share Calculation
2
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Balance Sheets
- ----------------------------------
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,072,925 $ 3,782,315
Marketable securities 289,125
Short-term investments 1,830,405 663,660
Due from affiliated physician
associations, net 14,946,978 14,182,008
Other current assets
1,301,461 1,442,394
Total current assets ----------- -----------
20,440,894 20,070,377
----------- -----------
Land, buildings and equipment 32,037,838 31,832,051
Less, accumulated depreciation
and amortization
18,030,369 17,381,581
----------- -----------
14,007,469 14,450,470
Long-term investments 192,000 192,000
Cost in excess of net assets
acquired 10,660,167 10,804,971
Deferred income taxes 109,000
Other assets 1,231,880 1,446,868
----------- -----------
Total assets $46,532,410 $47,073,686
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Balance Sheets
- ---------------------------
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
----------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $ 4,448,686 $ 4,276,846
Current installments on capital
lease obligations 604,644 612,985
Current installments on notes and
mortgage payable 4,591,221 4,911,031
----------- -----------
Total current liabilities 9,644,551 9,800,862
Deferred tax liability 90,000
Convertible subordinated debt, net 1,890,835 1,975,752
Obligations under capital leases,
less current installments 1,009,479 1,152,455
Notes and mortgage payable,
less current installments 10,012,109 11,028,647
Minority interest in limited
partnerships 2,237,382 2,126,708
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value;
authorized 30,000,000 shares,
6,715,143 and 6,705,143 shares
issued and outstanding at
June 30, and March 31,
1996, respectively 67,151 67,051
Additional paid-in capital 17,072,790 17,027,890
Retained earnings 6,220,272 5,631,632
Less, 430,797 and 437,712 common
shares in Treasury at June 30,
and March 31, 1996 respectively
( 1,712,159) ( 1,737,311)
----------- -----------
Shareholders' equity 21,648,054 20,989,262
----------- -----------
Total liabilities and shareholders'
equity $46,532,410 $47,073,686
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Operations (unaudited)
- -------------------------------------
<TABLE>
<CAPTION>
Quarter ended June 30,
-------------------------
1996 1995*
----------- ------------
<S> <C> <C>
Revenue, net $7,263,367 $4,771,293
---------- ----------
Costs and expenses:
Payroll and related costs 1,788,463 1,439,737
Depreciation and amortization 796,530 653,414
Medical supplies and other
operating costs 2,776,614 1,828,170
Transaction costs 301,140
Other general and administrative 219,927 141,156
---------- ----------
5,882,674 4,062,477
---------- ----------
Operating income 1,380,693 708,816
Interest expense 447,048 372,589
Other income, net 39,810 82,075
Income before minority ---------- ----------
interest and income taxes 973,455 418,302
Minority interest in income of
limited partnerships 120,815 82,530
---------- ----------
Income before income taxes 852,640 335,772
Provision for income taxes:
Current 65,000 18,000
Deferred 199,000 80,000
---------- ----------
Net income $ 588,640 $ 237,772
========== ==========
Per share data
Primary:
Primary net income per share $ .09 $ .05
========== ==========
Fully diluted:
Fully diluted net income per share $ .09 $ .05
========== ==========
</TABLE>
* Reclassified to conform to current year presentation.
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
- -------------------------------------
<TABLE>
<CAPTION>
Quarter ended June 30,
___________________________________________________________________________
1996 1995
___________________________________________________________________________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 588,640 $ 237,773
___________________________________________________________________________
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 796,530 653,414
Minority interest in income of
limited partnerships 120,815 82,530
Deferred income taxes 199,000 80,000
Equity in loss from
unconsolidated partnership 30,939
Gain on disposition of
center assets ( 62,443)
Changes in assets and liabilities:
Increase in amount due from
affiliated physician
associations, net ( 764,970) ( 332,300)
Decrease in other
current assets 140,933 1,245
Decrease (increase) in other assets 172,133 ( 65,912)
Increase (decrease) in accounts
payable and accrued expenses 196,992 ( 150,475)
____________________________________________________________________________
Total adjustments 861,433 236,998
____________________________________________________________________________
Net cash provided by operating
activities 1,450,073 474,771
____________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
- -------------------------------------
<TABLE>
<CAPTION>
Quarter ended June 30,
________________________________________________________________________________________________________
1996 1995
________________________________________________________________________________________________________
<S> <C> <C>
Cash flows from investing activities:
Purchase of equipment ( 205,787) ( 80,841)
Purchase of short-term investments ( 1,495,745) ( 213,000)
Purchase of marketable securities ( 289,125) ( 300,000)
Proceeds from sale of marketable
securities 1,030,000
Proceeds from sale of short-term
investments 329,000 183,375
Advance to unconsolidated partnership ( 48,000)
Other ( 2,716) ( 17,164)
________________________________________________________________________________________________________
Net cash (used in) provided by
investing activities ( 1,664,373) 554,370
________________________________________________________________________________________________________
Cash flows from financing activities:
Repayments of debt, including capital
lease obligations ( 1,487,665) ( 693,687)
Distributions to limited partners ( 7,425) ( 5,730)
________________________________________________________________________________________________________
Net cash used in
financing activities ( 1,495,090) ( 699,417)
________________________________________________________________________________________________________
Net (decrease) increase in cash
and cash equivalents ( 1,709,390) 329,724
Cash and cash equivalents
at April 1, 3,782,315 3,966,804
________________________________________________________________________________________________________
Cash and cash equivalents
at June 30, $ 2,072,925 $4,296,528
________________________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
NMR of America, Inc., and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
- -------------------------------------
<TABLE>
<CAPTION>
Quarter ended June 30,
____________________________________________________________________________
1995 1994
____________________________________________________________________________
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
<S> <C> <C>
Income taxes $ 26,925 $ 3,195
Interest $402,488 $329,249
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES:
Fixed asset additions
included in accounts payable
and accrued expenses $ --- $750,332
Unrealized gain on marketable
securities available-for-sale $ --- $ 3,092
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (unaudited)
- -------------------------------------------
Condensed Consolidated Financial Statements
- -------------------------------------------
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations since the Company believes that the
disclosures contained herein are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be read
in conjunction with the financial statements, and notes thereto included in the
Company's latest Annual Report on Form 10-KSB. In the opinion of the Company,
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of June 30, 1996, as
well as the results of operations and cash flows for the three months ended June
30, 1996 and 1995 have been included. The results of operations for such
interim periods are not necessarily indicative of the results for the full year.
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 Physicians'
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 pays a quarterly fee
composed of a fixed sum based on the cost of the respective imaging system
installed, including 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 and
9
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------
other allowances 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.
Short-term investments
- ----------------------
Short-term investments at June 30, and March 31, 1996 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.
Marketable securities
- ---------------------
Marketable securities classified as available-for-sale, held-to-maturity and
trading are as follows:
Gross Fair
unrealized market
Cost gains value
---------- ---------- ----------
June 30, 1996
Available-For-Sale:
U.S. Government obligations $ 298,125 $ --- $ 298,125
========== ========== ==========
Long-term investments
- ---------------------
Long-term investments at June 30, and March 31, 1996 are stated at cost and
consist of certificates of deposit maturing in April and May 1997.
Shareholders' equity
- --------------------
On October 25, 1995, the Board of Directors authorized a common stock repurchase
program whereby the Company can purchase up to $1,000,000 of its outstanding
common stock from time to time in the open market. The shares will be held as
treasury shares for reissuance upon the exercise of employee stock options,
warrants and other convertible securities. The timing of purchases and the
number of shares purchased will depend upon prevailing market prices and market
10
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------
conditions. As of June 30, 1996, the Company had repurchased 99,650 shares of
its outstanding common stock at an aggregate cost of $353,007 under this
program. As of June 30, 1996 the Company's cumulative stock purchases, net of
reissuance of 46,529 shares, amounted to 430,797 shares with an aggregate cost
of $1,712,159.
On April 9, 1986, the Company's Board of Directors adopted the 1986 Incentive
Stock Option and Non-Statutory Option Plan (the "Plan") for employees of the
Company. Under the Plan, up to 1,000,000 shares of the common stock of the
Company may be issued upon the exercise of options to be granted during the ten-
year term of the Plan. Options with respect to 572,409 shares were outstanding
at June 30, 1996 at an exercise price ranging from $2.25 to $6.38 per share for
the terms of between five and ten years. As of June 30, 1996, options with
respect to 218,475 shares were exercisable. During the quarter ended June 30,
1996, no options were exercised.
Commitments and contingencies
- -----------------------------
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 or financial condition.
Imaging center matters
- -----------------------
The Company's Austin, Texas center was closed during December 1995. The center
operated pursuant to a limited partnership agreement (the "Austin Partnership")
which was scheduled to expire on January 31, 1996, but was extended by the
governing board of the partnership for the purpose of liquidating and
distributing the remaining assets of the Austin Partnership. It is anticipated
that such liquidation will be completed during fiscal 1997 and will not have a
material impact on the results of operations of liquidity of the Company.
During the first quarter of fiscal 1996 the Company temporarily ceased
operations at its Union, New Jersey facility in order to replace the center's
existing magnetic resonance imaging equipment, which was installed in 1984. The
new system was installed during June 1995 and became operational in early July
1995. The project was completed for an aggregate cost of approximately $910,000,
which includes the cost of related leasehold improvements, diagnostic imaging
equipment and related upgrades. The Company financed the equipment and related
leasehold improvements in the form of a five year note payable.
11
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------
Acquisitions
- ------------
Effective January 1, 1996, the Company completed its acquisition of
substantially all of the operating assets of Central Diversey MRI Center, Inc.
("CD MRI") which operates a magnetic resonance imaging center located in
Chicago, Illinois. As consideration for the acquisition, NMR paid $80,000 in
cash at closing to the selling shareholders and issued 10,000 unregistered
shares of NMR common stock which are subject to a two-year holding period
restriction. In conjunction with the transaction, NMR acquired substantially
all of CD MRI's operating assets, which consist primarily of magnetic resonance
imaging equipment, related leasehold improvements, office equipment and deposits
on the MRI related equipment aggregating $120,000 which are pledged as
collateral therefor. In addition, NMR assumed certain trade accounts payable of
Central Diversey aggregating $90,000 and MRI related equipment debt, subject to
existing collateral, totaling approximately $632,000 of outstanding principal as
of January 1, 1996. The acquisition has been accounted for as a purchase and,
accordingly, the acquired assets and liabilities were recorded at the fair value
at the date of acquisition. The Company recorded $429,333 of excess cost over
fair value of the assets which is being amortized over twenty years on a
straight line basis.
On March 13, 1995, the Company announced that its Board of Directors had
approved an agreement, providing for the acquisition of Morgan Medical Holdings,
Inc. ("Morgan"). A definitive merger agreement was executed on April 11, 1995.
The transaction was approved by the shareholders of Morgan and the Company on
September 14, 1995 and became effective September 15, 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. Pursuant to the terms of the acquisition,
Morgan shareholders received 1,195,848 shares of the Company's common stock in
the transaction. Under the terms of the merger agreement, the Company exercises
control over the voting rights of Morgan's largest shareholder for a period of
three years. The Company accounted for the transaction as a purchase and,
accordingly, the acquired assets and liabilities were recorded at their fair
values at the date of acquisition. In conjunction with the transaction, the
Company recorded $6,356,132 of costs in excess of fair value which will be
amortized over twenty years on a straight line basis.
12
<PAGE>
NMR of America, Inc., and Subsidiaries
Notes to Consolidated Financial Statements (continued)
- -------------------------------------------
On May 7, 1996, the Company announced that it was in negotiations regarding a
possible business combination with Medical Resources, Inc. ("Medical
Resources"). A definitive merger agreement was executed on May 20, 1996 which is
the subject to the merger conditions set forth below. Medical Resources provides
diagnostic imaging equipment, facilities and management services to physicians
through nineteen outpatient centers located in New York, New Jersey and Florida.
Pursuant to the terms of the acquisition, 0.6875 shares of Medical Resources
common stock would be issued for each outstanding share of NMR. The merger is
subject to certain conditions including shareholder and regulatory approval and
certain third party consents. Senior management of the combined company would be
composed of the current executives of Medical Resources with NMR's current
executive officers, Joseph G. Dasti and John P. O'Malley III serving as
consultants to the combined company. The closing of the merger is anticipated to
occur August 30, 1996, although there can be no assurance that the transactions
will be completed as contemplated or that it will occur when anticipated.
In June 1996, the Company entered into a line of credit agreement with a lender
for an amount up to $4,000,000. Borrowing under the line of credit will bear
interest at a rate of one and one-half percent over the lender's prime rate and
will be collateralized by the Company's receivables.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
- ---------------------
Three months ended June 30, 1996 compared to three months ended June 30, 1995.
- ------------------------------------------------------------------------------
Reference is made to Note 2 of the Company's consolidated financial statements
for a definition of revenue, net.
For the quarter ended June 30, 1996, revenue, net was $7,263,367 versus
$4,771,293 for the quarter ended June 30, 1995 or a $2,492,074 (52.2%) increase.
The increase in revenue, net resulted primarily from the purchase of Morgan
Medical Holdings, Inc. ("Morgan") effective September 15, 1995 and Central
Diversey Center ("CD MRI") effective January 1, 1996. These centers generated
revenue, net totaling $2,242,987 for quarter ended June 30, 1996. Same center
revenue, net increased by $249,087 or 5.2% from $4,771,293 to $5,020,380 during
the quarter ended June 30, 1996 primarily due to the
13
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
inclusion of revenue for the Company's Union, New Jersey center which was
temporarily shut down for the entire first fiscal quarter of fiscal 1996 for
equipment replacement and increased aggregate scan volume offset by additional
discounted business. Patient volume and reimbursement sources both significantly
impact the Company's revenue, net. Patient medical costs are paid by managed
care organizations, such as HMO's, Blue Cross/Blue Shield, Medicare and
Medicaid, and private pay organizations, such as commercial insurance carriers.
By virtue of contractual allowances obtained by certain of these reimbursement
sources under contracts entered into with the Company, shifts in the mix of
patients and their related reimbursement sources will impact revenue, net in the
period in which they occur.
Payroll and related costs for the quarter ended June 30, 1996 were $1,788,463
versus $1,439,737 for the quarter ended June 30, 1995, or an increase of
$348,726 (24.2%). This increase is due primarily to the acquisitions of Morgan
and CD MRI which incurred payroll and related costs totaling approximately
$246,913 during the quarter ended June 30, 1995. In addition, the Company's
clinical payroll and related costs increased due to the hiring of technical
personnel to accommodate increased patient flow at the Company's multi-modality
imaging centers, the hiring of managed care and marketing personnel and an
increase in the cost of providing health benefits to its employees. Although
the Company expects aggregate payroll and related expense to increase in fiscal
1997 due to the inclusion of Morgan and CD MRI for the entire period, it is
anticipated that payroll, as a percentage of revenue, net, will be relatively
unchanged.
Depreciation and amortization expense increased by $143,116 (21.9%) from
$653,414 for the quarter ended June 30, 1995 to $796,530 for the quarter ended
June 30, 1996. This increase was primarily attributable to the acquisition of
Morgan and CD MRI which resulted in goodwill amortization and equipment
depreciation aggregating $190,129 for the quarter ended June 30, 1996. This
increase was offset by an approximate $47,013 decrease in aggregate same center
depreciation expense on the Company's more mature centers. Although the Company
expects aggregate depreciation and amortization expense to increase in fiscal
1997 due to the inclusion of Morgan and CD MRI for the entire period, it is
anticipated that depreciation and amortization expense, as a percentage of
revenue, net, will decline slightly.
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 $948,444 (51.9%) from $1,828,170 for the quarter
ended June 30, 1995 to $2,776,614 for the quarter ended June 30, 1996. This
increase
14
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
results, primarily, from the inclusion of Morgan and CD MRI centers which
generated medical supplies and other operating expenses totaling $533,782 during
the quarter ended June 30, 1996. In addition, medical supplies and operating
expenses increased by approximately $66,000 due to the inclusion of operating
rent paid for the equipment at Seabrook Radiological Center, $50,000 in
increased billing fees based upon higher levels of cash collections and $300,000
in increased medical and office supplies due to increased aggregate scan volume.
Although the Company expects aggregate medical and other operating costs to
increase in fiscal 1997, due to the inclusion of Morgan and CD MRI for the
entire period, it is anticipated that medical and other operating costs, as a
percentage of revenue, net, will be consistent with fiscal 1996.
Other general and administrative expenses for the quarter ended June 30, 1996,
were $219,927 versus $141,156 for the quarter ended June 30, 1995, or an
increase of $78,771 (55.8%). The increase during the quarter ended June 30,
1996 results primarily from increased advertising and promotional expenses
relating to marketing efforts at the Company's centers. Other general and
administrative expenses, as a percentage of revenue, net, were 3.0% and 2.96%
for the quarters ended June 30, 1995 and 1996, respectively. It is anticipated
that expenditures for general and administrative expenses will continue at these
levels for the remainder of fiscal 1997.
Interest expense for the quarter ended June 30, 1996 was $447,048 versus
$372,589 for the comparable prior quarter, or an increase of $74,459 (20.0%).
This increase results, primarily, from interest expense associated with the
acquisition and assumption of debt obligations relating to the Morgan and CD MRI
acquisitions, which generated interest expense totaling approximately $126,833
for the quarter ended June 30, 1996. In addition, aggregate same center
interest expense decreased due to scheduled reductions in outstanding principal
balances offset by increases in prevailing interest rates, which impact the
Company's variable rate debt obligations. Although the Company expects interest
expense to increase in fiscal 1997 due to the inclusion of Morgan and CD MRI for
the entire period, it is anticipated that interest expense, as a percentage of
revenue, net, will slightly decline due to the reductions in outstanding
principal balances.
Other income, net decreased by $42,265 from $82,075 for the quarter ended June
30, 1995 to $39,810 for the quarter ended June 30, 1996. During the quarter
ended June 30, 1995, the Company realized a $62,443 non-cash gain on the sale of
the magnetic resonance imaging equipment formerly in use at its Union, New
Jersey facility. The decrease was
15
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
offset by a $30,939 reduction in the Company's equity interest in the losses of
the Austin, Texas limited partnership which ceased operations in December 1995.
Minority interest in income of limited partnerships increased by $38,285 (46.4%)
from $82,530 for the quarter ended June 30, 1995 to $120,815 for the quarter
ended June 30, 1996. The increase is primarily due to the increase in minority
interest in the operation of the Union, New Jersey center which had been
temporarily closed during the first quarter of fiscal 1996.
The Company's current provision for income taxes of $65,000 for the quarter
ended June 30, 1996, consists of current state income and franchise taxes. The
Company's current federal tax provision for the first fiscal quarter of 1996 was
substantially offset through the utilization of net operating loss carryforwards
available from prior years. The Company has recorded a deferred tax provision
of $199,000 for the quarter ended June 30, 1996, to reflect the reduction in the
Company's net deferred tax asset during such period.
For the reasons described above, the Company's net income for the quarter ended
June 30, 1996 increased by $350,868 to $588,640 from $237,772 for the comparable
prior fiscal quarter.
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.
16
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
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.
Liquidity
- ---------
The Company had net income of $588,640 for the fiscal quarter ended June 30,
1996 versus net income of $237,772 for the comparable prior fiscal quarter. At
June 30, 1996, the Company's working capital totaled $10,796,343 which includes
cash and cash equivalents totaling $2,702,925, marketable securities totaling
$289,125 and short-term investments totaling $1,830,405. The Company generated
$1,450,073 and $474,771 in net cash flow from operating activities during the
fiscal quarters ended June 30, 1996 and 1995, respectively, or an increase of
$975,302. Cash provided by operating activities during the fiscal quarter ended
June 30, 1996 resulted from operating cash flows of $1,704,985 offset by a
$254,912 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 net income during the first
quarter of fiscal 1997.
Investing activities used $1,664,373 in cash during fiscal 1997. The Company
purchased $205,787 of equipment and leasehold improvements primarily for the
Philadelphia and GOLF/DIC 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's net investments
from sales and purchases of short-term investments and marketable securities
totaled $1,455,870 during the quarter ended June 30, 1996. 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.
Financing activities used net cash totaling $1,495,090 which is comprised of
$1,487,665 utilized for the repayment of debt and capital lease obligations and
$7,425 of limited partnership distributions during the fiscal quarter ended June
30, 1996.
17
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
At June 30, 1996, the Company had $1,614,123 in obligations under capital leases
compared to $1,765,440 at March 31, 1996. 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 $151,317 were made during the quarter
ended June 30, 1996.
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 1997 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 MRI 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.
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 Medical Resources,
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
18
<PAGE>
NMR of America, Inc., and Subsidiaries
Item 2. Management's Discussion and Analysis or Plan of Operation (continued)
to the acquisition of additional centers at June 30, 1996. 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.
19
<PAGE>
NMR of America, Inc., and Subsidiaries
PART II. OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
Exhibit 11. Computation of Shares Used For Earnings Per
Share Calculation
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for
which this report is filed.
20
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share Calculation.
<TABLE>
<CAPTION>
Quarter ended June 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Primary earnings per share information:
Net income per consolidated statements
of operations $ 588,640 $ 237,772
Add: Interest savings from proceeds
of conversion of outstanding
warrants and exercise of stock
options, net of minority
interest and income taxes
---------- ----------
Net income used to compute primary
earnings per share $ 588,640 $ 237,772
========== ==========
Weighted average number of
outstanding shares 6,273,917 5,052,372
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 265,995 208,297
---------- ----------
Weighted average number of shares
used to compute primary earnings
per share 6,539,912 5,260,669
========== ==========
Primary earnings per share:
- ---------------------------
Primary net income per share $.09 $ .05
========== ==========
</TABLE>
21
<PAGE>
NMR of America, Inc., and Subsidiaries
Exhibit 11. Computation of Shares Used For Earnings Per Share Calculation.
<TABLE>
<CAPTION>
Quarter ended June 30,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Fully diluted earnings per share information:
Net income per consolidated statements
of operations $ 588,640 $ 237,772
Add: Interest savings from proceeds
of conversion of outstanding
warrants and exercise of stock
options, net of minority
interest and income taxes 44,245 52,388
---------- ----------
Net income used to compute fully
diluted earnings per share $ 632,885 $ 290,160
---------- ----------
Weighted average number of
outstanding shares 6,273,917 5,052,372
Add: Incremental shares issuable
on conversion of outstanding
warrants and exercise of
stock options 422,950 208,297
Incremental shares issuable on
conversion of convertible
subordinated debentures 444,222 481,556
Weighted average number of shares ---------- ----------
used to compute fully diluted
earnings per share 7,141,089 5,742,225
========== ==========
Fully diluted earnings per share:
- ---------------------------------
Fully diluted net income per share $ .09 $ .05
========== ==========
</TABLE>
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NMR of America, Inc.
By /s/ Joseph G. Dasti
__________________________
Joseph G. Dasti
President
(Chief Executive Officer)
By /s/ John P. O'Malley III
__________________________
John P. O'Malley III
Executive Vice President-Finance
(Chief Financial Officer)
Date: August 14, 1996
23
