<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 Report (Date of earliest event reported):
May 30, 1997
MEDICAL RESOURCES, INC.
-----------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 1-12461 13-3584552
- -------------------------------- ------- ------------------
(State or Other (Commission (I.R.S. Employer
Jurisdiction) File Number) Identification No.)
155 State Street, Hackensack, N.J. 07601
--------------------------------- ------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code (201) 488-6230
------------------
AMENDMENT NO. 3
The Undersigned registrant hereby amends its Current Report on Form 8-K, dated
May 30, 1997 filed on June 16, 1997, as amended on Forms 8-K/A filed on August
13, 1997 and January 7, 1998 to amend Items 5 and 7 as set forth
herein.
<PAGE>
Item 5. Other Events
------------
On January 16, 1997, Medical Resources, Inc. (the "Company") acquired the
business operations of South Brevard Imaging, a diagnostic imaging center
located in Melbourne, Florida. Pursuant to the purchase agreement, a wholly
owned subsidiary of the Company, Melbourne Resources, Inc., acquired
substantially all of the business assets of South Brevard Imaging for
approximately $1,125,000 in cash.
On January 28, 1997, the Company acquired two diagnostic imaging centers in
southern California; Dedicated Medical Imaging, Inc., a multi-modality imaging
center in San Clemente, California and Long Beach Radiology Center, LTD., an
imaging facility in Oceanside, California for approximately $1,025,000 payable
in cash and contingent consideration based on the centers achieving certain
financial objectives during the one year period subsequent to the closing of the
transaction. Contingent consideration of up to $2,000,000 is payable in shares
of the Company's Common Stock within 90 days of the end of the measurement
period.
On March 10, 1997, the Company acquired the business operations of The
Magnet of Palm Beach, a diagnostic imaging center located in West Palm Beach,
Florida. Pursuant to the purchase agreement, a wholly owned subsidiary of the
Company, West Palm Beach Resources, Inc., acquired substantially all of the
business assets of The Magnet of Palm Beach for approximately $2,000,000 in cash
and 56,670 shares of the Company's Common Stock valued at approximately
$600,000. The shares of the Company's Common stock issued in connection with the
aquisition are subject to registration rights and price protection of the
issuance price ($12.59 per share) compared to the market price at effectiveness
of the registration statement. The Company may satisfy any price deficiency by
the issuance of additional shares of Common Stock.
On May 7, 1997, the Company acquired the business operations of Accessible
MRI of Montgomery County and Accessible MRI of Baltimore County, two diagnostic
imaging centers located in Silver Springs, Maryland and Towson, Maryland,
respectively. Pursuant to the purchase agreement, a wholly owned subsidiary of
the Company acquired substantially all of the business assets of Accessible MRI
of Montgomery County and Accessible MRI of Baltimore County for approximately
$2,830,000 in cash and 119,166 shares of the Company's Common Stock valued at
approximately $1,500,000. The shares of the Company's Common Stock issued in
connection with the aquisition are subject to registration rights and price
protection of the issuance price ($12.59 per share) compared to the market price
at effectiveness of the registration statement. The Company may satisfy any
price deficiency by the issuance of additional shares of Common Stock or by the
payment of cash.
On May 30, 1997, the Company acquired Capstone Management Group, Inc.
comprised primarily of ten diagnostic imaging centers, nine of which are located
in the Northeast and one of which is located in Ohio. Pursuant to the purchase
agreement, three wholly owned subsidiaries of the Company, MRI Capstone
Resources, Inc., Baltimore MRI Capstone, Inc. and Albany MRI Capstone, Inc.,
acquired substantially all of the business assets of Capstone Management Group,
Inc. for approximately $5,330,000 in cash and 397,204 shares of the Company's
Common Stock valued at $6,695,904 and contingent consideration based upon the
centers achieving certain financial objectives during the one year period
subsequent to the transaction. The shares of the Company's Common Stock issued
in connection with the acquisition are subject to registration rights and price
protection ($17.925 per share) compared to the market price at effectiveness.
The Company must satisfy any deficiency in cash. In the event that the shares
are not registered by December 26, 1997, the seller may sell up to $1,000,000 of
Company Common Stock back to the Company with the shares valued at the greater
of the then market value of the Company's Common Stock or $17.925 per share. The
Seller has an indentical right at March 3, 1998 to sell up to $1,000,000 of
Company Common Stock back to the Company, and another right to sell shares back
to the Company with respect to all remaining shares if the registration
statement is not declared effective by June 3, 1998. Contingent consideration
based upon future cash flow is payable within 90 days of the end of the
measurement period.
On June 11, 1997, the Company, through StarMed, acquired the assets of
Wesley Medical Resources, Inc. a medical staffing company in San Francisco,
California for 137,222 shares of the Company's Common Stock valued at $2,000,000
and contingent consideration based on the Company achieving certain financial
objectives during the three year period subsequent to the transaction. The
shares issued in connection with the acquisition are subject to registration
rights. Contingent consideration based upon future cash flow is payable within
90 days of the end of the measurement period.
On June 30, 1997, the Company acquired three diagnostic imaging centers in
New York, Staten Island Medical Imaging Inc., Meadows Medical Management, Inc.,
and Brooklyn Medical Imaging Center, for approximately $4,130,000 in cash and
152,356 shares of the Company's Common Stock valued at $2,546,250. The shares of
the Company's Common Stock issued in connection with the acquisition are subject
to registration rights. In the event that the registration statement is not
declared effective by December 30, 1997, the sellers may sell the shares back to
the Company for $2,546,250. In the event the registration statement is declared
effective by December 30, 1997, the shares of the Company's Common Stock issued
in connection with the aquisition are subject to price protection of the
issuance price ($16.7125 per share) compared to the market price at
effectiveness of the registration statement. The Company may satisfy any price
deficiency by the issuance of additional shares of Common Stock or by the
payment of cash.
On July 31, 1997, the Company acquired Medical Imaging of Hollywood, Inc. a
diagnostic imaging center in Hollywood, Florida for approximately $1,532,000 in
cash and 37,539 shares of the Company's stock valued at $674,000 plus the
assumption of indebtedness and additional consideration based on the center's
performance. The shares of the Company's Common Stock issued in connection with
the acquisition are subject to registration rights and price protection of the
issuance price ($18.00 per share) compared to the market price at effectiveness
of the registration statement. The Company may satisfy any price deficiency by
the issuance of additional registered shares of Common Stock or by the payment
of cash. In the event that the registration statement is not declared effective
by January 1, 1998, the seller may sell the shares back to the Company for
$674,000.
On August 13, 1997, the Company acquired MRI of Jupiter, Inc. a diagnostic
imaging center in Jupiter, Florida for approximately $2,000,000 in cash and
7,337 shares of the Company's stock valued at $125,000 plus additional
consideration based on the center's performance. The shares of the Company's
Common Stock issued in connection with the acquisition are subject to
registration rights and price protection of the issuance price ($17.00 per
share) compared to the market price at effectiveness of the registration
statement. The Company may satisfy any price deficiency by the issuance of
additional registered shares of Common Stock or by the payment of cash. In the
event that the registration statement is not filed by February 28, 1998, the
seller may sell the shares back to the Company for $125,000.
On August 21, 1997, the Company acquired four diagnostic imaging centers,
from PresGar Imaging of Tampa, LLC., PresGar Imaging of Florida, LLC, and
PresGar Imaging of Sarasota, LLC., (PresGar Centers) on the west coast of
Florida for approximately $5,550,000 in cash and up to $3,700,000 in notes
convertible into the Company's Common Stock, of which $1,200,000 in principal
amount is contingent upon the occurrence of certain events, plus the assumption
of indebtedness.
On August 29, 1997, the Company acquired a controlling interest in a
limited partnership and a limited liability company which each operate an
imaging center, O'Connor MRI and Diagnostic Imaging Network, L.L.C., located in
San Jose, California for approximately $2,007,000 in cash and 43,415 shares of
the Company's stock valued at $693,000, plus the assumption of indebtedness and
additional consideration based on each center's performance. The shares of the
Company's Common Stock issued in connection with the acquisition are subject to
registration rights and price protection of the issuance price ($15.96 per
share) compared to the market price at effectiveness of the registration
statement. The Company may satisfy any price deficiency by the issuance of
additional registered shares of Common Stock or by the payment of cash. In the
event that the registration statement is not declared effective by February 28,
1998, the seller may sell the shares back to the Company at their issuance
price.
On September 16, 1997, the Company acquired one diagnostic imaging center,
Bronx MRI Associates, L.P., located in Bronx, New York and one diagnostic
imaging center, Queens MRI Associates, L.P., located in Queens, New York
(collectively, the "Katz Centers") for approximately $1,750,000 in cash and
102,715 shares of the Company's stock valued at $1,750,000 plus the assumption
of indebtedness. The shares of the Company's Common Stock issued in connection
with the acquisition are subject to registration rights and price protection of
the issuance price ($17.00 per share) compared to the market price at
effectiveness of the registration statement. The Company may satisfy any price
deficiency by the issuance of additional shares of Common Stock or by the
payment of cash.
On October 3, 1997, the Company acquired six diagnostic imaging centers
(collectively, "Grajo/Bleggi") located in Ohio for aggregate consideration of
$6,925,000 payable in cash and $1,750,000 in notes convertible into Company
Common Stock plus the assumption of indebtedness.
Item 7. Financial Statements and Exhibits.
----------------------------------
(a) Financial Statements of Businesses Acquired
The following financial statements and the reports thereon of independent
accountants, all appearing after the signature page to this Form 8-K, are
included herein.
DEDICATED MEDICAL IMAGING, INC.
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Operations and Accumulated Deficit for the
Year Ended December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
LONG BEACH RADIOLOGY CENTER, LTD.
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Operations and Members' Deficit for the
Year Ended December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
SOUTH BREVARD IMAGING, A division of Melbourne Neurologic, P.A.
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Changes in Capital for the Year Ended December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
Schedule I - Operating Expenses for the Year Ended December 31, 1996
THE MAGNET OF PALM BEACH, LTD.
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Changes in Partners' Deficit for the Year Ended December 31,
1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
Schedule I - Operating Expenses for the Year Ended December 31, 1996
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
Independent Auditors' Report
Balance Sheet as of September 30, 1996
Statement of Operations for the Year Ended September 30, 1996
Statement of Retained Earnings for the Year Ended September 30, 1996
Statement of Cash Flows for the Year Ended September 30, 1996
Notes to Financial Statements
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
Independent Auditors' Report
Balance Sheet as of September 30, 1996
Statement of Operations for the Year Ended September 30, 1996
Statement of Accumulated Deficit for the Year Ended September 30, 1996
Statement of Cash Flows for the Year Ended September 30, 1996
Notes to Financial Statements
CAPSTONE MANAGEMENT GROUP, INC.
Report of Independent Certified Public Accountants
Balance Sheet as of December 31, 1996
Statement of Loss and Stockholders' Deficit for the Year Ended December 31,
1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
WESLEY MEDICAL RESOURCES, INC. and WESLEY MANAGEMENT GROUP, INC.
Independent Auditors' Report
Combined Balance Sheets as of December 31, 1996 and 1995
Combined Statement of Income for the Years Ended December 31, 1996 and 1995
Combined Statement of Shareholders' Equity for the
Years Ended December 31, 1996 and 1995
Combined Statement of Cash Flows for the Years Ended
December 31, 1996 and 1995
Notes to Combined Financial Statements
STATEN ISLAND MEDICAL IMAGING INC.
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Operations and Stockholders' Deficiency for the Year Ended
December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
MEADOWS MEDICAL MANAGEMENT, INC.
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Operations and Retained Earnings for the Year Ended December
31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
BROOKLYN MEDICAL IMAGING CENTER
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1995
Statement of Operations for the Years Ended December 31, 1996 and 1995
Statement of Partners' Capital for the Years Ended December 31, 1996 and
1995
Statement of Cash Flows for the Years Ended December 31, 1996 and 1995
Notes to Financial Statements
MEDICAL IMAGING OF HOLLYWOOD, INC.
Independent Auditor's Report
Balance Sheet as of December 31, 1996
Statements of Income and Retained Earnings for the Year Ended
December 31, 1996
Statements of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Income and Changes in Partners' Capital for the Year Ended
December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
Schedule I. - Operating Expenses for the Year Ended December 31, 1996
PRESGAR IMAGING OF TAMPA, LLC
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Changes in Members' Equity for the Year Ended December 31,
1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
PRESGAR IMAGING OF FLORIDA, LLC
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Changes in Members' Equity for the Year Ended December 31,
1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
PRESGAR IMAGING OF SARASOTA, LLC
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Changes in Members' Equity for the Year Ended December 31,
1996
Notes to Financial Statements
DIAGNOSTIC IMAGING NETWORK, L.L.C.
Independent Auditor's Report
Balance Sheet as of December 31, 1996
Statements of Operations for the Year Ended December 31, 1996
Statement of Members' Equity for the Year Ended December 31, 1996
Statements of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
O'CONNOR MRI
Independent Auditors' Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Partners' Capital for the Year Ended December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
BRONX MRI ASSOCIATES, L.P. and MAGNETIC RESONANCE IMAGING OF THE BRONX,
P.C.
Independent Auditors' Report
Combined Balance Sheet as of December 31, 1996
Combined Statement of Operations and Retained Earnings/Partners' Capital
for the Year Ended December 31, 1996
Combined Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Combined Financial Statements
QUEENS MRI ASSOCIATES, L.P. and MAGNETIC RESONANCE IMAGING OF QUEENS, P.C.
Independent Auditors' Report
Combined Balance Sheet as of December 31, 1996
Combined Statement of Operations and Retained Earnings/Partners' Capital
for the Year Ended December 31, 1996
Combined Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Combined Financial Statements
ADVANCED RADIOLOGY IMAGING SERVICES, INC.
Independent Auditor's Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Retained Earnings for the Year Ended December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
GRAJO IMAGING, INC.
Independent Auditor's Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Retained Earnings for the Year Ended December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
WESTERN RESERVE IMAGING CENTER, INC.
Independent Auditor's Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Deficit in Retained Earnings for the Year Ended December 31,
1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
COPLEY MAMMOGRAPHY CENTER, INC.
Independent Auditor's Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Deficit in Retained Earnings for the Year Ended December 31,
1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
REGIONAL IMAGING CONSULTANTS CORPORATION
Independent Auditor's Report
Balance Sheet as of December 31, 1996
Statement of Income for the Year Ended December 31, 1996
Statement of Retained Earnings for the Year Ended December 31, 1996
Statement of Cash Flows for the Year Ended December 31, 1996
Notes to Financial Statements
(b) Pro Forma Financial Information
The Pro Forma Consolidated Balance Sheet and Consolidated Statements of
Operations ("Financial Statements") combines the individual Financial Statements
of the Company and Capstone Management Group, Inc., Accessible MRI, The Magnet
of Palm Beach, Ltd. and South Brevard Imaging, Dedicated Medical Imaging, Inc.,
Long Beach Radiology Center, LTD., Wesley Medical Resources, Inc. and Wesley
Management Group, Inc., Staten Island Medical Imaging Inc., Meadows Medical
Management, Inc., Brooklyn Medical Imaging Center, Medical Imaging of Hollywood,
Inc., Magnetic Resonance Institute of Jupiter, LTD., PresGar Imaging of Tampa,
LLC, PresGar Imaging of Florida, LLC, PresGar Imaging of Sarasota, LLC, O'Connor
MRI, Diagnostic Imaging Network, L.L.C., Bronx MRI Associates, L.P. and Magnetic
Resonance Imaging of the Bronx, P.C., Queens MRI Associates, L.P. and Magnetic
Resonance Imaging of Queens, P.C., Advanced Radiology Imaging Services, Inc.,
Grajo Imaging, Inc., Western Reserve Imaging Center, Inc., Copley Mammography
Center, Inc., Regional Imaging Consultants Corporation for the year ended
December 31, 1996 and the quarter ended September 30, 1997 after giving effect
to the pro forma adjustments described in the Notes to Pro Forma Financial
Statements.
The following consolidated pro forma data reflect the acquisitions as if
they occurred on January 1, 1996. The following unaudited pro forma information
does not purport to be indicative of the results which would actually have been
obtained had the acquisitions been completed during the periods presented or
which may be obtained in the future.
<PAGE>
<TABLE>
<CAPTION>
MEDICAL RESOURCES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 1997
-------------------------------------------------------------
Advanced
ASSETS Medical Radiology Imaging Grajo
- ------ Resources, Inc. (A) Services, Inc. Imaging, Inc.
----------------------- ----------------- -------------
<S> <C> <C> <C>
Current Assets
Cash & cash equivalents $ 25,156,066 $ 54,581 $258,705
Accounts Receivable, net 77,343,077 103,868 254,748
Other receivables 14,373,729 5,378 -
Other current assets 3,250,000 - -
Prepaid expenses 7,026,504 - -
Deferred tax assets, net 1,888,000 - -
------------ -------- --------
Total Current Assets 129,037,376 163,827 513,453
Medical diagnostic and office equipment, net 58,434,042 89,321 242,027
Goodwill,net 164,738,869 - -
Other assets 4,686,331 265 79
Deferred tax assets, net 1,784,089 - -
Restricted cash 1,359,328 - -
------------ -------- --------
Total Assets $360,040,035 $253,413 $755,559
============ ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current portion notes & mortg payable $ 7,356,228 76,007 284,950
Current portion capital lease obligations 7,916,173 - -
Accounts payable and accrued expenses 30,990,241 7,982 11,111
Line of credit 2,550,000 - -
Income taxes payable 2,580,020 - -
Other current liabilities 2,941,517 560 1,754
------------ -------- --------
Total Current Liabilities 54,334,179 84,549 297,815
Senior notes payable 78,000,000 - -
Notes and mortgages payable -Long Term 18,768,564 137,363 126,602
Obligations under Capital Leases-Long Term 24,273,750 - -
Other long term liabilities 2,510,316 - -
------------ -------- --------
Total Liabilities 177,886,809 221,912 424,417
Redeemable common stock 9,734,441 - -
Minority Interest 9,891,737 - -
------------ -------- --------
19,626,178 - -
Stockholders' Equity
Common Stock 217,270 1,000 5,000
Preferred Stock 18,106,500 - -
Additional paid in Capital 129,273,583 - -
Retained Earnings 14,929,695 30,501 326,142
------------ -------- --------
Total Stockholder's Equity 162,527,048 31,501 331,142
------------ -------- --------
Total Liabilities and stockholders' equity $360,040,035 $253,413 $ 755,559
============ ======== ==========
<CAPTION>
September 30, 1997
-----------------------------------------------------
Western Copley Regional Imaging
ASSETS Reserve Imaging Mammography Consultants
------ Center, Inc. Center, Inc. Corporation
--------------- ------------ ----------------
<S> <C> <C> <C>
Current Assets
Cash & cash equivalents $ 47 $ 17,539 $ 7,209
Accounts Receivable, net - 40,184 541,594
Other receivables - - -
Other current assets - - -
Prepaid expenses - - -
Deferred tax assets, net - - -
------------ -------- ----------
Total Current Assets 47 57,723 548,803
Medical diagnostic and office equipment, net 18,297 41,079 591,076
Goodwill,net - - -
Other assets - 49,620 59,527
Deferred tax assets, net - - -
Restricted cash - - -
------------ -------- ----------
Total Assets $ 18,344 $148,422 $1,199,406
============ ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current portion notes & mortg payable 79,158 39,962 500,382
Current portion capital lease obligations - - -
Accounts payable and accrued expenses - 3,250 191,053
Line of credit - - -
Income taxes payable - - -
Other current liabilities - - -
------------ -------- ----------
Total Current Liabilities 79,158 43,212 691,435
Senior notes payable - - -
Notes and mortgages payable -Long Term 58,799 126,255 127,180
Obligations under Capital Leases-Long Term - - -
Other long term liabilities - - -
------------ -------- ----------
Total Liabilities 137,957 169,467 818,615
Redeemable common stock - - -
Minority Interest - - -
------------ -------- ----------
- - -
Stockholders' Equity
Common Stock 100 1,000 1,000
Preferred Stock - -
Additional paid in Capital - -
Retained Earnings (119,713) (22,045) 379,791
------------ -------- ----------
Total Stockholder's Equity (119,613) (21,045) 380,791
Total Liabilities and stockholders' equity $ 18,344 $148,422 $1,199,406
============ ======== ==========
<CAPTION>
September 30, 1997
---------------------------------------------------
ASSETS Pro Forma
- ------ ---------------------------------------------------
Adjustments Total
------------------- ----------------------
<S> <C> <C>
Current Assets
Cash & cash equivalents $(8,335,130) (B), (D) $ 17,159,017
Accounts Receivable, net (28,671) (B) 78,254,800
Other receivables (5,378) (B) 14,373,729
Other current assets - 3,250,000
Prepaid expenses - 7,026,504
Deferred tax assets, net - 1,888,000
----------- ------------
Total Current Assets (8,369,179) 121,952,050
Medical diagnostic and office equipment, net 198,168 (B) 59,614,010
Goodwill,net 8,050,336 (C), (D) 172,789,205
Other assets (109,491) (B) 4,686,331
Deferred tax assets, net - 1,784,089
Restricted cash - 1,359,328
----------- ------------
Total Assets $ (230,166) $362,185,013
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Current portion notes & mortg payable $ 838,949 (B), (D) $ 9,175,636
Current portion capital lease obligations - 7,916,173
Accounts payable and accrued expenses 112,174 (B) 31,315,811
Line of credit - 2,550,000
Income taxes payable - 2,580,020
Other current liabilities (2,314) (B) 2,941,517
----------- ------------
Total Current Liabilities 948,809 55,479,157
Senior notes payable - 78,000,000
Notes and mortgages payable -Long Term (576,199) (B) 18,768,564
Obligations under Capital Leases-Long Term - 24,273,750
Other long term liabilities - 2,510,316
----------- ------------
Total Liabilities 372,610 180,031,787
Redeemable common stock - 9,734,441
Minority Interest - 9,891,737
----------- ------------
- 19,626,178
Stockholders' Equity
Common Stock (8,100) (C) 217,270
Preferred Stock - 18,106,500
Additional paid in Capital - 129,273,583
Retained Earnings 594,676) (C) 14,929,695
----------- ------------
Total Stockholder's Equity (602,776) 162,527,048
----------- ------------
Total Liabilities and stockholders' equity $ (230,166) $362,185,013
========== ============
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MEDICAL RESOURCES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (F)
For the Quarter Ended September 30, 1997
(Unaudited)
Dedicated Medical
Imaging, Inc./Long
Medical South Brevard Beach Radiology
Resources, Inc. Imaging Center, LTD. (E)
INCOME STATEMENT --------------- ------------- -------------------
<S> <C> <C> <C>
Net service revenues $151,285,525 $ 92,657 $ 83,973
Operating expenses of services 93,356,302 66,922 61,500
Provisions for uncollectible accounts receivable 7,184,669 - -
Corporate general and administrative 12,112,070 - 10,546
Depreciation and amortization 12,587,695 - 11,712
------------ -------- --------
Operating income (loss) 26,044,789 25,735 215
Interest (income)/expense 5,418,993 2,597 9,072
------------ -------- --------
Income/(loss) before min. int. and inc. tax 20,625,796 23,137 (8,857)
Minority interest (499,815) - -
------------ -------- --------
Income before income taxes 21,125,611 23,137 (8,857)
Provision for income taxes 9,044,946 9,270 -
------------ -------- --------
Net Income $ 12,080,665 $ 13,868 $ (8,857)
============ ======== ========
Per Share Data
Primary:
Primary net income per share $ 0.55
=============
Fully diluted:
Fully diluted net income per share $ 0.52
=============
Weighted average shares outstanding
Primary 22,047,921
Fully diluted 23,083,790
<CAPTION>
The Magnet Capstone
of Palm Management
Beach, LTD. Group, Inc.
INCOME STATEMENT ---------- -----------
<S> <C> <C>
Net service revenues $ 774,809 $ 1,056,747
Operating expenses of services 709,833 483,933
Provisions for uncollectible accounts receivable - -
Corporate general and administrative - 695,042
Depreciation and amortization - 106,115
--------- -----------
Operating income (loss) 64,975 (228,342)
Interest (income)/expense 53,435 -
--------- -----------
Income/(loss) before min. int. and inc. tax 11,541 (228,342)
Minority interest - -
--------- -----------
Income before income taxes 11,541 (228,342)
Provision for income taxes - -
--------- -----------
Net Income $ 11,541 $ (228,342)
========= ===========
<CAPTION>
Accessible Wesley Medical Meadows Medical Mgt., Inc./
MRI of Baltimore/ Resources, Inc. Brooklyn Medical Imaging Medical
Montgomery & Wesley Mgt. Center/ Staten Island Imaging of
County, Inc. (E) Group, Inc. Medical Imaging Inc. (E) Hollywood, Inc.
INCOME STATEMENT ----------------- -------------- -------------------------- ---------------
<S> <C> <C> <C> <C>
Net service revenues $1,235,360 $1,767,189 $3,740,457 $ 475,928
Operating expenses of services 587,414 1,321,715 3,008,278 196,640
Provisions for uncollectible accounts receivable - - - -
Corporate general and administrative 404,787 365,593 - -
Depreciation and amortization 111,183 9,351 244,422 60,508
---------- ---------- ---------- -----------
Operating income (loss) 131,976 70,530 487,756 218,779
Interest (income)/expense 73,187 6,027 321,683 28,218
---------- ---------- ---------- -----------
Income/(loss) before min. int. and inc. tax 58,789 64,503 166,074 190,561
Minority interest - - - -
---------- ---------- ---------- -----------
Income before income taxes 58,789 64,503 166,074 190,561
Provision for income taxes - 4,069 - 75,387
---------- ---------- ---------- -----------
Net Income $ 58,789 $ 60,434 $ 166,074 $ 115,174
========== ========== ========== ===========
<CAPTION>
Magnetic Presgar Imaging Diagnostic
Resonance of Tampa, LLC/ Imaging Network,
Institute of Presgar Imaging LLC/ O'Connor
Jupiter, LTD. of Florida, LLC (E) MRI, LP (E)
INCOME STATEMENT --------------- ------------------- ---------------
<S> <C> <C> <C>
Net service revenues $ 1,033,785 $ 1,802,948 $ 3,543,652
Operating expenses of services 704,313 721,125 2,664,291
Provisions for uncollectible accounts receivable - - -
Corporate general and administrative - 279,585 -
Depreciation and amortization 230,725 306,214 872,709
------------ --------------- -----------
Operating income (loss) 98,747 496,024 6,653
Interest (income)/expense 5,102 257,905 461,117
------------ --------------- -----------
Income/(loss) before min. int. and inc. tax 93,644 238,120 (454,464)
Minority interest - - -
------------ --------------- -----------
Income before income taxes 93,644 238,120 (454,464)
Provision for income taxes - - 3,037
------------ --------------- -----------
Net Income $ 93,644 $ 238,120 $ (457,501)
============ =============== ===========
<CAPTION>
Bronx/Queens
MRI Assoc. Grajo/Bleggi
LP (E) Centers
INCOME STATEMENT ---------------- -----------------
<S> <C> <C>
Net service revenues $ 4,349,380 $ 4,207,310
Operating expenses of services 2,524,580 3,112,128
Provisions for uncollectible accounts receivable - -
Corporate general and administrative 1,525,339 -
Depreciation and amortization 345,177 326,097
----------------- -----------------
Operating income (loss) (45,717) 769,085
Interest (income)/expense 39,816 126,694
----------------- -----------------
Income/(loss) before min. int. and inc. tax (85,533) 642,391
Minority interest - -
----------------- -----------------
Income before income taxes (85,533) 642,391
Provision for income taxes 46,066 -
----------------- -----------------
Net Income $ (131,599) $ 642,391
================= =================
<CAPTION>
Pro Forma
-------------------------------------------------
INCOME STATEMENT Adjustments Total
-------------------------------------------------
<S> <C> <C>
Net service revenues $ - $175,449,721
Operating expenses of services
- 109,518,975
Provisions for uncollectible accounts receivable
- 7,184,669
Corporate general and administrative
- 15,392,962
Depreciation and amortization (889,950) (G)
2,558,625 (H) 17,770,533
----------- ------------
Operating income (loss)
Interest (income)/expense (1,668,675) 25,582,581
- 6,803,846
----------- ------------
Income/(loss) before min. int. and inc. tax
Minority interest (1,668,675) 18,778,735
(284,886) (J) (784,701)
----------- ------------
Income before income taxes
Provision for income taxes (1,383,789) 19,563,436
(622,705) (I) 8,560,070
----------- ------------
Net Income $ (761,084) $ 11,003,366
=========== ============
Per Share Data
Primary:
Primary net income per share $0.50
============
Fully diluted:
Fully diluted net income per share $0.48
============
Weighted average shares outstanding
Primary: 22,047,921
Fully diluted: 23,083,790
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MEDICAL RESOURCES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
(Unaudited)
Dedicated Medical
Imaging, Inc./Long The Magnet Capstone
Medical South Brevard Beach Radiology of Palm Management
INCOME STATEMENT Resources, Inc. Imaging Center, LTD. (E) Beach, LTD. Group, Inc.
--------------- ------------- ------------------ ----------- -----------
Net service revenues 93,785,117 $2,113,737 $1,094,651 $4,098,626 $3,187,709
Operating expenses of services 59,064,156 1,526,667 801,692 3,754,916 1,459,798
Provisions for uncollectible accounts receivable 4,783,306 - - - -
Corporate general and administrative 7,779,385 - 137,476 - 2,096,613
Depreciation and amortization 7,465,475 - 152,675 - 320,099
---------- -------- --------- ------- ---------
Operating income (loss) 14,692,795 587,070 2,808 343,710 (688,801)
Interest (income)/expense 2,968,206 59,249 118,266 282,661 -
---------- -------- --------- ------- ---------
Income/(loss) before min. int. and inc. tax 11,724,589 527,821 (115,458) 61,049 (688,801)
Minority interest 308,381 - - - -
---------- -------- --------- ------- ---------
Income before income taxes 11,416,208 527,821 (115,458) 61,049 (688,801)
Provision for income taxes 4,162,000 211,464 - - -
---------- -------- --------- ------- ---------
Net Income $7,254,208 $316,357 $(115,458) $61,049 $(688,801)
========== ======== ========= ======= =========
Per Share Data
Primary:
Primary net income per share $ 0.62
==========
Fully diluted:
Fully diluted net income per share $ 0.56
==========
Weighted average shares outstanding
Primary 11,670,000
Fully diluted 12,903,000
<CAPTION>
Accessible Wesley Medical Meadows Medical Mgt., Inc./
MRI of Baltimore/ Resources, Inc. Brooklyn Medical Imaging Medical
Montgomery & Wesley Mgt. Center/ Staten Island Imaging of
INCOME STATEMENT County, Inc. (E) Group, Inc. Medical Imaging Inc. Hollywood, Inc.
----------------- --------------- ------------------------- ---------------
<S> <C> <C> <C> <C>
Net service revenues $3,550,445 $3,981,630 $7,542,910 $ 819,404
Operating expenses of services 1,688,237 2,977,939 6,066,417 338,555
Provisions for uncollectible accounts receivable - - - -
Corporate general and administrative 1,163,365 823,713 - -
Depreciation and amortization 319,542 21,068 492,896 104,177
---------- ---------- ---------- ---------
Operating income (loss) 379,301 158,910 983,597 376,672
Interest (income)/expense 210,341 13,580 648,697 48,583
---------- ---------- ---------- ---------
Income/(loss) before min. int. and inc. tax 168,960 145,330 334,900 328,089
Minority interest - - - -
---------- ---------- ---------- ---------
Income before income taxes 168,960 145,330 334,900 328,089
Provision for income taxes - 9,167 - 129,794
---------- ---------- ---------- ---------
Net Income $ 168,960 $ 136,163 $ 334,900 $ 198,295
========== ========== ========== =========
Per Share Data
Primary:
Primary net income per share
Fully diluted:
Fully diluted net income per share
Weighted average shares outstanding
Primary
Fully diluted
<CAPTION>
Magnetic Presgar Imaging Diagnostic
Resonance of Tampa, LLC/ Imaging Network,
Institute of Presgar Imaging LLC/ O'Connor
INCOME STATEMENT Jupiter, LTD. of Florida, LLC (E) MRI, LP (E)
------------- -------------------- ----------------
<S> <C> <C> <C>
Net service revenues $1,677,029 $2,824,361 $5,366,942
Operating expenses of services 1,142,552 1,129,659 4,035,129
Provisions for uncollectible accounts receivable - - -
Corporate general and administrative - 437,977 -
Depreciation and amortization 374,288 479,691 1,321,737
---------- ---------- ----------
Operating income (loss) 160,189 777,034 10,076
Interest (income)/expense 8,277 404,014 698,372
---------- ---------- ----------
Income/(loss) before min. int. and inc. tax 151,912 373,020 (688,296)
Minority interest - - -
---------- ---------- ----------
Income before income taxes 151,912 373,020 (688,296)
Provision for income taxes - 4,600
---------- ---------- ----------
Net Income $ 151,912 $ 373,020 $(692,896)
========== ========== ==========
<CAPTION>
Bronx/Queens
MRI Assoc. Grajo/Bleggi
INCOME STATEMENT LP (E) Centers
------------ ------------
<S> <C> <C>
Net service revenues $6,129,435 $5,625,158
Operating expenses of services 3,557,806 4,160,904
Provisions for uncollectible accounts receivable - -
Corporate general and administrative 2,149,609 -
Depreciation and amortization 486,447 435,990
---------- ----------
Operating income (loss) (64,427) 1,028,264
Interest (income)/expense 56,112 169,389
---------- ----------
Income/(loss) before min. int. and inc. tax (120,539) 858,875
Minority interest - -
---------- ----------
Income before income taxes (120,539) 858,875
Provision for income taxes 64,919 -
---------- ----------
Net Income $ (185,458) $ 858,875
========== ==========
Per Share Data
Primary:
Primary net income per share
Fully diluted:
Fully diluted net income per share
Weighted average shares outstanding
Primary
Fully diluted
<CAPTION>
Pro Forma
--------------------------------
INCOME STATEMENT Adjustments Total
-------------- ---------------
<S> <C> <C>
Net service revenues $ - $141,797,154.00
Operating expenses of services - 91,704,427
Provisions for uncollectible accounts receivable - 4,783,306
Corporate general and administrative - 14,588,138
(1,186,600)(G)
Depreciation and amortization 3,411,500 (H) 14,198,985
------------ -----------
Operating income (loss) (2,224,900) 16,522,298
Interest (income)/expense - 5,685,747
------------ -----------
Income/(loss) before min. int. and inc. tax (2,224,900) 10,836,551
Minority interest (379,848)(J) (71,467)
------------ -----------
Income before income taxes (1,845,052) 10,908,018
Provision for income taxes (719,570)(I) 3,862,374
------------ -----------
Net Income $ (1,125,481) $ 7,045,645
============ ===========
Per Share Data
Primary:
Primary net income per share $ 0.60
===========
Fully diluted:
Fully diluted net income per share $ 0.55
===========
Weighted average shares outstanding
Primary 11,670,000
Fully diluted 12,903,000
</TABLE>
See Notes to Pro Forma Financial Statements.
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(A) The financial results of all acquisitions, with the exception of the
Grajo/Bleggi centers are included in the balance sheet of Medical
Resources, Inc. at September 30, 1997.
(B) Adjustment reflects the carrying value of the assets and liabilities of
the Grajo/Bleggi centers adjusted to the agreed upon purchase price of
such assets acquired and liabilities assumed which were a part of the
acquisitions.
(C) Adjustment reflects the elimination of the common stock and retained
earnings for the Grajo/Bleggi centers.
(D) Adjustment reflects the consideration given by the Company to acquire
the net business assets of the Grajo/Bleggi centers.
(E) The financial results of multiple imaging centers are combined to
reflect the operations of the acquisition as a whole for the period
presented.
(F) The financial results of all acquisitions, with the exception of the
Grajo/Bleggi centers are included in the income statement of Medical
Resources, Inc. from the acquisition date through 9/30/97. The income
statements included represent the period from 1/1/97 through the
acquisition date.
(G) Adjustment reflects the net change in depreciation relating to the
acquisitions. The decrease to fixed assets created from the
acquisitions was $5,933,000. Fixed assets are depreciated on a
straight-line basis over 5 years.
(H) Adjustment reflects the additional amortization of goodwill relating to
the acquisitions. The goodwill created from the acquisitions was
approximately $68,230,000 and is being amortized on a straight-line
basis over 20 years.
(I) Adjustment reflects the income tax effect of the pro-forma adjustments
at effective tax rates of 45% and 39% for the nine months ended
9/30/97 and the year ended 12/31/96, respectively.
(J) Adjustment reflects the minority interest portion of the operating
results for O'Connor MRI, LP and Diagnostic Imaging Network, LLC of
40% and 49% respectively.
<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/ Dennis T. Currier
____________________________________
Dennis T. Currier
Chief Financial Officer
January 14, 1998
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
=========================
AUDITED FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS' REPORT
YEAR ENDED DECEMBER 31, 1996
<PAGE>
FINANCIAL STATEMENTS
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
DECEMBER 31, 1996
--------------------
Contents
Page
----
Independent Auditors' Report . . . . . . . . . . 1
FINANCIAL STATEMENTS
Balance Sheet . . . . . . . 2
Statement of Income . . . . . . . 3
Statement of Changes in Capital . . . . . . . 4
Statement of Cash Flows . . . . . . . 5
Notes to Financial Statements . . . . . . . 6
SUPPLEMENTARY FINANCIAL INFORMATION
Schedule I - Operating Expense . . . . . . . 13
<PAGE>
Mark J. Burger, CPA
----------------
Denise Alpert, CPA
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
South Brevard Imaging, A Division of Melbourne Neurologic, P.A.
Melbourne, Florida 32901
We have audited the accompanying balance sheet of South Brevard Imaging, a
division of Melbourne Neurologic, P.A., as of December 31, 1996 and the related
statements of income, changes in capital and cash flows for the year then ended.
These financial statements are the responsibility of South Brevard Imaging's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of South Brevard Imaging, a
division of Melbourne Neurologic, P.A. as of December 31, 1996, and the results
of its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying information presented on page 13
is presented for the purpose of additional analysis and is not a required part
of the basic financial statements. Such information has been subject to the
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/S/ MARK J. BURGER, P.A.
West Palm Beach, Florida
July 11, 1997
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
BALANCE SHEET
DECEMBER 31, 1996
--------------------
ASSETS
Current Assets:
Cash $ 454,883
Patient accounts receivable, less allowance for
contractual adjustments and doubtful accounts of $161,266 313,270
Inter-divisional receivable 215,877
Medical and office supplies 12,930
----------
Total Current Assets 996,960
Property and Equipment:
Medical and office equipment 2,236,330
Leasehold improvements 679,173
Medical and office furniture and fixtures 56,584
----------
2,972,087
Less: Accumulated depreciation ( 2,336,896)
----------
Net Property and Equipment 635,191
Other Assets:
Loan costs, less accumulated amortization of $5,351 14,716
Deposits 3,450
----------
Total Other Assets 18,166
----------
TOTAL ASSETS $1,650,317
----------
LIABILITIES AND CAPITAL
Current Liabilities:
Accounts payable $ 14,625
Bank overdraft 51,256
Other accrued expenses 28,255
Patient refunds payable 63,493
Accrued management and collection fees 49,601
Current portion of long-term debt 244,011
Current portion of purchase commitments 11,628
Current income taxes payable 224,344
Current portion deferred income taxes payable 99,104
----------
Total Current Liabilities 786,317
Long-term debt, less current portion 352,291
Long-term purchase commitments, less current portion 29,246
Capital 482,463
----------
Total Liabilities and Capital $1,650,317
==========
See accompanying notes.
2
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
--------------------
Revenues:
Gross patient service revenue $ 3,380,811
Less allowances and contractual adjustments ( 1,267,074)
-----------
Net Patient Service Revenue 2,113,737
Operating Expenses 1,555,412
-----------
Income from Operations 558,325
Other Income and (Expenses):
Interest expense ( 66,102)
Interest income 6,853
Gain on sale of equipment 15,000
Other income 13,745
-----------
Total Other Expenses ( 30,504)
-----------
Income Before Income Taxes 527,821
Provision for Income Tax 211,464
-----------
Net Income $ 316,357
===========
See accompanying notes.
3
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
STATEMENT OF CHANGES IN CAPITAL
YEAR ENDED DECEMBER 31, 1996
-------------------------
Capital as of January 1, 1996 $ 166,106
Net income 316,357
----------
Capital as of December 31, 1996 $ 482,463
==========
See accompanying notes.
4
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
Operating Activities
Net income $ 316,357
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 47,372
Amortization 4,013
Gain on sale of equipment ( 15,000)
Changes in Operating Assets and Liabilities:
Decrease in operating assets:
Patient accounts receivable 23,556
Deposits 250
(Decrease) increase in operating liabilities:
Income taxes payable 122,636
Bank overdraft 51,256
Accrued management and collection fees 49,601
Accounts payable and patient refunds payable 10,994
Other accrued expenses 7,614
Purchase commitments ( 12,369)
----------
Net Cash Provided by Operating Activities 606,280
Investing Activities
Proceeds from sale of equipment 15,000
Financing Activities
Repayments of long-term debt ( 175,865)
Increase in inter-divisional receivable ( 103,877)
----------
Net Cash Used in Financing Activities ( 279,742)
----------
Increase in Cash 341,538
Cash at Beginning of Year 113,345
----------
Cash at End of Year $ 454,883
==========
Supplemental Disclosure of Cash Flows Information:
Cash paid during the year for interest expense $ 66,102
==========
Cash paid during the year for income taxes $ 88,829
==========
See accompanying notes.
5
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
South Brevard Imaging, (the "Company") is a division of Melbourne Neurologic,
P.A. The Company was formed to operate a magnetic resonance imaging center
located in Brevard County, Florida. On January 16, 1997, South Brevard Imaging
sold its operating assets to Melbourne Resources, Inc. ( See Note 9. )
Method of Accounting
- --------------------
The Company utilizes the accrual method of accounting for financial statement
reporting. Under this method, revenue is recognized when earned and expenses
are recognized when incurred. A significant portion of the Company's gross
patient service revenue for the year ended December 31, 1996 is from services
rendered to patients covered by Medicare, Medicaid, and managed-care
organizations. Payments for services rendered to patients covered by these
payors are generally less than standard charges. Provisions for contractual
adjustments are made to reduce the standard charges to the contracted
reimbursement rate. Final settlements under these programs are subject to
administrative review and audit.
Use of Estimates
- ----------------
The financial statements have been prepared in conformity with generally
accepted accounting principals and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Changes in such estimates may affect amounts reported in future periods.
Cash and Cash Equivalents
- -------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, checking accounts, and money market accounts. Such cash equivalents have
maturities of less than 90 days. There are no restrictions on future uses of
cash or cash equivalents at December 31, 1996.
The Company maintains its cash accounts in a commercial bank located in
Titusville, Florida. Accounts at the bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000, per bank. As of December 31, 1996,
there was an uninsured cash balance of $405,689.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is computed using
accelerated and straight-line methods over the estimated useful lives of the
assets as follows:
Leasehold improvements 7 - 40 years
Medical and office equipment 5 - 10 years
Medical and office furniture and fixtures 5 - 10 years
See independent auditors' report.
6
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Property and Equipment - Continued
- ---------------------- ---------
Maintenance and repairs are expensed as incurred; expenditures that enhance the
value of property and equipment or extend their useful lives are capitalized.
When assets are sold or returned, the cost and related accumulated depreciation
are removed from the accounts, and the resulting gain or loss is included in
income. Depreciation expense was $47,372 for the year ended December 31, 1996.
Capital
- -------
Capital represents the inter-divisional contributed capital and the accumulated
retained earnings of the division. The Company is not a separately incorporated
entity and is not authorized under state law to issue shares of stock.
Provision for Income Taxes
- --------------------------
The Company accounts for income taxes under an asset and liability approach.
This approach requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactment of changes in the tax laws or rates.
Concentration of Credit Risk
- ----------------------------
The Company grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. The
concentration of credit risk with respect to patient accounts receivables is
limited due to the large number of third party payor agreements. The mix of
receivables from patients and third-party payors at December 31, 1996 was as
follows:
Medicare 31.9 %
Commercial insurance companies 27.5
Workers Compensation Fund 17.7
Other patients and third party payors 12.3
Managed Care Organizations 8.3
Medicaid 2.3
-------
100.0 %
=======
NOTE 2 - INTANGIBLE ASSETS
Loan costs are stated at cost, net of accumulated amortization. The Company is
amortizing these items using the straight-line method over a period of five
years. Amortization expense was $4,013 for the year ended December 31, 1996.
See independent auditors' report.
7
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
-------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - PATIENT ACCOUNTS RECEIVABLE
Patient service revenue is recorded at the gross amount billed. Since an
increasing number of the Company's patients are members of various health
maintenance organizations and preferred provider networks, a portion of the
gross billings are subject to contractual adjustments. At December 31, 1996,
net patient accounts receivable were determined as follows:
Gross patient accounts receivable $ 474,536
Less allowance for contractual adjustments
and doubtful accounts ( 161,266)
----------
Net patient accounts receivable $ 313,270
==========
NOTE 4 - OPERATING LEASES
The Company leases a building from CNS Land Trust, a related party, and
equipment from others under operating leases expiring through December 31, 1998.
Annual rent expense, paid to CNS Land Trust inclusive of sales tax and pass-
through expenses, was $130,316 for the year ended December 31, 1996.
At December 31, 1996, future minimum lease payments were as follows:
Year ending December 31:
1997 $ 133,014
1998 130,316
----------
Total minimum operating lease payments $ 263,330
----------
NOTE 5 - LONG-TERM DEBT
Long-term debt at December 31, 1996, consisted
of the following:
Note payable to a bank, secured by certain assets
of the Company payable in monthly installments of
$18,301, including interest at a fixed rate of
9.75% per annum, with final payment due on September
6, 1999. $ 528,040
Note payable to a former shareholder of Melbourne
Neurologic, P.A., payable in quarterly installments
of $5,589, including interest at a fixed rate of
7.5% per annum. The note is classified as a current
liability because it became due upon the sale of
the Company's assets. ( See note 9. ) 68,262
----------
596,302
Less current portion ( 244,011)
----------
$ 352,291
==========
See independent auditors' report.
8
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - LONG-TERM DEBT - CONTINUED
Maturities of long-term debt in future years are as follows:
Year ending December 31:
1997 $ 244,011
1998 193,770
1999 158,521
-----------
Total maturities $ 596,302
-----------
NOTE 6 - TAXES ON INCOME
Provisions for federal and state income taxes in the statement of income
consisted of the following components:
Current taxes:
Federal income tax expense $ 193,373
State income tax expense 30,971
----------
Total 224,344
Deferred tax benefits:
Federal deferred tax benefits ( 11,173)
State deferred tax benefits ( 1,707)
----------
Total ( 12,880)
----------
Total provision for income taxes $ 211,464
==========
Deferred income taxes for the year ended December 31, 1996, reflects the net tax
effects of the temporary differences between the carrying amounts of assets and
the method of accounting used for federal and state income tax purposes. The
company uses the cash method of accounting for federal and state income tax
purposes.
The sources of the temporary differences and their effect on the net deferred
liability at December 31, 1996 are as follows:
Cash to accrual adjustments $ 95,219
Depreciation and amortization 7,102
-----------
Gross deferred tax liability 102,321
Vacation accrual ( 3,217)
Deferred tax asset valuation allowance -
-----------
Gross deferred tax assets ( 3,217)
-----------
Net current deferred liability $ 99,104
-----------
Management has not established a valuation allowance for the deferred asset
attributed to the vacation accrual timing difference. There has been no change
in the valuation allowance during 1996.
See independent auditors' report.
9
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
-------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - TAXES ON INCOME - CONTINUED
Melbourne Neurologic, P.A. allocates the current and deferred tax expense and
related liability as if the Company is taxed as a separate legal entity. There
are no inter-divisional tax obligations in the financial statements at December
31, 1996. There are no changes in the method of allocating the income tax
provisions and related tax assets and liabilities.
The effective tax rate on income before taxes differs from the United States
statutory rate. Since Melbourne Neurologic, P.A. is a professional service
corporation, the federal statutory rate is 36%. The following summary
reconciles taxes at the United States statutory rate with the effective income
tax rate for the Company at December 31, 1996:
Taxes on income at U.S. statutory rate 36.0%
Increase in taxes resulting from:
State income taxes net of federal benefit 3.5%
Other timing differences 0.5%
--------
Taxes on income at effective rate 40.0%
========
NOTE 7 - RELATED PARTY TRANSACTIONS
Due from related Party
- ----------------------
In 1995, the Company advanced Melbourne Neurologic, P.A. $112,000. During 1996,
Melbourne Neurologic, P.A. received advances on a portion of the Company's
patient receivables and the proceeds from the sale of depreciated assets
totaling $103,877. The total amount due from Melbourne Neurologic, P.A. at
December 31, 1996 is $215,877. Management has not charged or accrued interest
on the advances. These advances were repaid to the Company upon the sale to
Melbourne Resources, Inc.
Building Lease
- --------------
The Company has signed a lease with CNS Land Trust for the use of a building
located at 1317 Oak Street, Melbourne, Florida. The lease expires on December
31, 1998. The lease allows for two additional renewals of five years each at
the discretion of the Company.
Management and Collection Fees
- ------------------------------
Melbourne Neurologic, P.A. provides all management services to the Company. The
Company pays a management fee to Melbourne Neurologic, P.A. equal to 20% of net
cash collected and a collection fee of 5% of net cash collected. During the
year ended December 31, 1996, the Company incurred $531,553 of management and
collection fees. Accrued but unpaid management and collection fees to Melbourne
Neurologic, P.A. at December 31, 1996 amounted to $49,601.
See independent auditors' report.
10
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
-------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Purchase Commitment
- -------------------
The Company has entered into a purchase agreement to buy medical imaging film
and other imaging supplies. This agreement calls for the Company to purchase a
minimum of $117,463 of film and supplies per year for a five year period. The
agreement is expected to expire on May 31, 2000, or when the Company has
purchased film and supplies totaling $587,315. If annual volumes rise or fall
20%, the agreement is subject to re-negotiation. The Company received as part
of the purchase commitment, diagnostic imaging equipment. The ownership of the
equipment was assigned to the Company. The equipment at the date of assignment
had a total value of $58,140, which the supplier considers to be a discount off
the purchase price of medical imaging film and other imaging supplies. If the
agreement is terminated prior to completion, the Company would be obligated to
pay the residual value of the equipment determined on a straight-line basis over
the term of the contract.
The related accumulated depreciation attributed to the assigned equipment
amounted to $33,959 at December 31, 1996. Depreciation expense related to
equipment under this purchase commitment was $10,363 for the year ended December
31, 1996. The Company's total purchases under this agreement for 1996 were
$115,368, which has been reduced by $12,369; representing amortization of the
future purchase price commitment for the equipment received under this
agreement.
At December 31, 1996, the future amortization of the purchase price of the
diagnostic imaging equipment is as follows:
Year ending December 31:
1997 $ 11,628
1998 11,628
1999 11,628
2000 5,990
----------
Total purchase price commitment $ 40,874
Less current portion ( 11,628)
----------
Long-term purchase price commitment $ 29,246
==========
NOTE 9 - SUBSEQUENT EVENTS
Melbourne Resources, Inc., a subsidiary of Medical Resources, Inc., completed
the purchase of certain assets and assumed certain payables and accrued expenses
of the Company on January 16, 1997. At that time, a note payable in the amount
of $68,262 to a former shareholder of Melbourne Neurologic, P.A. became due and
was paid by the Company. Melbourne Resources, Inc., agreed to assume the
Company's obligation on a note payable to a bank with a balance of $528,040 at
December 31, 1996.
See independent auditors' report.
11
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
12
<PAGE>
SOUTH BREVARD IMAGING,
A DIVISION OF MELBOURNE NEUROLOGIC, P.A.
SCHEDULE I - OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
-------------------------
OPERATING EXPENSES:
Advertising $ 11,194
Amortization 4,013
Bank charges 795
Collection costs 6,790
Depreciation 47,372
Dues and subscriptions 3,556
Employee benefits 67,225
Employee lease fees 244,722
Equipment rent 277
Film supplies 115,368
HCCCB assessment 25,486
Housekeeping 5,350
Insurance 22,356
Legal and accounting 14,997
Management fees 531,554
Medical and lab supplies 92,301
Medical equipment maintenance 121,617
Miscellaneous expenses 2,752
Office supplies 5,246
Operating supplies 856
Outside storage 3,988
Postage 12,518
Professional fees 14,862
Property taxes 18,835
Rent 130,316
Repairs 12,366
Seminar and educational costs 257
Uniforms, linen and laundry 1,340
Utilities and telephone 30,911
Vehicle and transportation 6,192
-----------
TOTAL OPERATING EXPENSES $ 1,555,412
===========
See independent auditors' report.
13
<PAGE>
The Magnet of Palm Beach, Ltd.
( A Limited Partnership )
=============================
Audited Financial Statements
with Independent Auditors' Report
Year Ended December 31, 1996
<PAGE>
Financial Statements
THE MAGNET OF PALM BEACH, LTD.
(A Limited Partnership)
December 31, 1996
--------------------
Contents
Page
----
Independent Auditors' Report . . . . . . . 1
Financial Statements
Balance Sheet . . . . . . . 2
Statement of Income . . . . . . . 3
Statement of Changes in Partners' Deficit . . . . . . . 4
Statement of Cash Flows . . . . . . . 5
Notes to Financial Statements . . . . . . . 6
Supplementary Financial Information
Schedule I - Operating Expenses . . . . . . . 16
<PAGE>
Mark J. Burger, CPA
--------------------
Denise Alpert, CPA
INDEPENDENT AUDITORS' REPORT
To The Board of Directors of
MRI of Palm Beach, Inc., General Partner of
The Magnet of Palm Beach, Ltd.
West Palm Beach, Florida
We have audited the accompanying balance sheet of The Magnet of Palm Beach,
Ltd., as of December 31, 1996, and the related statements of income, changes in
partners' deficit, and cash flows for the year then ended. These financial
statements are the responsibility of The Magnet of Palm Beach, Ltd.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Magnet of Palm Beach, Ltd.,
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying information presented on page 16
is presented for the purpose of additional analysis and is not a required part
of the basic financial statements. Such information has been subject to the
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/S/ MARK J. BURGER, P.A.
West Palm Beach, Florida
July 25, 1997
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A Limited Partnership)
BALANCE SHEET
December 31, 1996
--------------------
Assets
Current Assets:
Cash $ 90,919
Patient accounts receivable, less allowance for
contractual adjustments and doubtful
accounts of $991,594 1,099,729
Other receivables 500
Medical and office supplies 48,721
Prepaid expenses 40,198
-------------
Total Current Assets 1,280,067
Property and Equipment:
Medical and computer equipment 4,114,967
Building and land 1,133,711
Leasehold improvements 346,584
Furniture and office equipment 130,946
Signs and security system 12,652
-------------
5,738,860
Less accumulated depreciation and amortization (3,860,902)
-------------
Net Property and Equipment 1,877,958
Other Assets:
Deposits 116,047
Intangible assets, net of
accumulated amortization of $39,459 41,356
-------------
Total Other Assets 157,403
-------------
TOTAL ASSETS $ 3,315,428
-------------
LIABILITIES AND PARTNERS' DEFICIT
Current Liabilities:
Accounts payable $ 44,975
Patient refunds payable 42,289
Current portion of capitalized lease obligations 524,213
Current portion of long-term debt 242,681
Accrued management and radiologist fees 882,974
Accrued expenses and payroll taxes 178,130
-------------
Total Current Liabilities 1,915,262
Capitalized Lease Obligations, less current portion 714,003
Long-Term Debt, less current portion 886,431
Partners' Deficit (200,268)
-------------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 3,315,428
=============
See accompanying notes.
2
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
-------------------------
Net Patient Service Revenue:
Gross Patient Service Revenue $7,985,904
Less allowances and contractual adjustments (3,887,278)
__________
Net Patient Service Revenue 4,098,626
Operating Expenses 3,773,418
__________
Operating Income 325,208
Other Income and (Expenses):
Interest expense (285,421)
Interest income 2,760
Other income 18,502
----------
Total Other Expenses (264,159)
__________
Net Income $61,049
==========
See accompanying notes.
3
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1996
-------------------------
General Limited
Partner Partners Total
------- -------- -----
Partners' Capital (Deficit)
as of January 1, 1996 $(604,370) $343,053 $(261,317)
Net income 18,315 42,734 61,049
------------ --------- ------------
Partners' Capital (Deficit)
as of December 31, 1996 $(586,055) $385,787 $(200,268)
------------ --------- ------------
See accompanying notes.
4
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
Operating Activities
Net income $ 61,049
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 578,007
Changes in Operating Assets and Liabilities:
(Increase) decrease in assets:
Accounts receivable 425,765)
Prepaid expenses and medical and office supplies (41,230)
(Decrease) increase in liabilities:
Accounts payable and patient refund payable 32,431
Accrued liabilities 472,369
----------
Net Cash Provided by Operating Activities 676,861
Investing Activities
Acquisition of building and land (1,133,711)
Acquisition of operating equipment (133,006)
Increase in deposits on operating equipment (9,741)
----------
Net Cash (Used) in Investing Activities (1,276,458)
Financing Activities
Receipt of related party receivable 55,704
Additions to short-term notes 120,239
Additions to long-term debt 874,395
Payment of 1995 partner distributions (200,000)
Repayments of short-term notes (13,886)
Repayments of long-term debt (83,718)
Repayments of capital leases (790,179)
Payment of finance costs related to
building acquisition (30,556)
----------
Net Cash (Used) by Financing Activities (68,001)
----------
Decrease in Cash (667,598)
Cash at Beginning of Year 758,517
----------
Cash at End of Year $ 90,919
==========
Supplemental Disclosure of Cash Flows Information:
Cash paid during the year for interest expense $ 283,644
==========
See accompanying notes.
5
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Magnet of Palm Beach, Ltd. (the "Partnership") is a limited partnership
formed to operate a comprehensive diagnostic imaging center located in Palm
Beach County, Florida. On March 10, 1997, The Magnet of Palm Beach, Ltd., sold
its operating assets to West Palm Beach Resources, Inc. ( See Note 8.)
Method of Accounting
- --------------------
The Partnership utilizes the accrual method of accounting for financial
statement reporting. Under this method, revenue is recognized when earned and
expenses are recognized when incurred. Approximately 87.8% of the gross patient
service revenue for the year 1996, relates to services rendered to patients
covered by Medicare, Medicaid, and managed care organizations. Payments for
services rendered to patients covered by these payors are generally less than
standard charges. Provisions for contractual adjustments are made to reduce the
standard charges to the contracted reimbursement rate. Final settlements under
these programs are subject to administrative review and audit.
Use of Estimates
- ----------------
The financial statements have been prepared in conformity with generally
accepted accounting principals and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Changes in such estimates may affect amounts reported in future periods.
Cash and Cash Equivalents
- -------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, checking accounts, and money market accounts. Such cash equivalents have
maturities of less than 90 days. There are no restrictions on future uses of
cash or cash equivalents at December 31, 1996.
The Partnership maintains its cash accounts in two commercial banks located in
Palm Beach County. Accounts at each bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000 per bank. There were no uninsured
cash balances at December 31, 1996.
Recoverability of Long - Lived Assets
- -------------------------------------
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," was issued. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used or disposed of by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Partnership
determined that no impairment loss need be recognized for applicable assets of
continuing operations.
See independent auditors' report.
6
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Property and Equipment
- ----------------------
Property and equipment is stated at cost. Depreciation is computed using
accelerated and straight-line methods over the estimated useful lives of the
assets as follows:
Building 39.5 years
Leasehold improvements 31 - 39 years
Medical and computer equipment 5 years
Furniture and office equipment 5 - 7 years
Signs and security equipment 10 years
Maintenance and repairs are expensed as incurred; expenditures that enhance the
value of property and equipment or extend their useful lives are capitalized.
When assets are sold, the cost and related accumulated depreciation are removed
from the accounts, and the resulting gain or loss is included in income.
Depreciation expense was $568,716 for the year ended December 31, 1996.
Concentration of Credit Risk
- ----------------------------
The Partnership grants credit without collateral to its patients, most of whom
are local residents and are insured under third-party payor agreements. The
concentration of credit risk with respect to patient accounts receivables is
limited due to the large number of third party payor agreements. The mix of
receivables from patients and third-party payors at December 31, 1996, was as
follows:
Third party managed-care payors 27.06 %
Health Options 20.13
Humana Health Plans 15.22
Letters of Protections 11.61
Commercial insurance and self-pay patients 11.27
Medicare 9.04
Medicaid 5.67
--------
100.00 %
========
See independent auditors' report.
7
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Income Taxes
- ------------
No provision for income taxes is reflected in the financial statements since the
Partnership's taxable income or loss is taxed at the partner level, rather than
the partnership level.
The following amounts represent the differences between net book income for
financial reporting purposes and net taxable income:
Net Book Income per Accompanying Financial Statements $ 61,049
Originating differences
1996 Allowance for doubtful accounts 83,653
Amortization of syndication costs 181
Reversing differences
1995 Allowance for doubtful accounts ( 50,770)
Permanent differences
Non-deductible key man life insurance premium 788
Non-deductible entertainment expenses 1,643
----------
Net Taxable Income $ 96,544
==========
NOTE 2 - PATIENT ACCOUNTS RECEIVABLE
Patient service revenue is recorded at the gross amount billed. Since a
majority of the Partnership's patients are members of various health maintenance
organizations and preferred provider networks, a significant portion of the
gross billings are subject to contractual adjustments. At December 31, 1996,
net patient accounts receivable were determined as follows:
Gross patient accounts receivable $ 2,091,323
Less: Contractual adjustments ( 907,942)
Allowance for doubtful accounts ( 83,652)
------------
Net patient accounts receivable $ 1,099,729
============
NOTE 3 - INTANGIBLE ASSETS
Organization, start-up, and finance costs are stated at cost, net of accumulated
amortization. The Partnership is amortizing these items over periods ranging
from five to fifteen years. Amortization expense was $9,291 for the year ended
December 31, 1996.
See independent auditors' report.
8
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
--------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - OPERATING AND CAPITAL LEASES
Operating Leases
- ----------------
The Partnership leases equipment and administrative office space from others
under operating leases expiring through 2003. Annual rent expense, inclusive of
sales tax and pass-through expenses, related to equipment and administrative
office space under operating leases was $76,384 for the year ended December 31,
1996.
At December 31, 1996, future minimum lease payments were as follows:
Year ending December 31:
1997 $ 70,209
1998 70,209
1999 67,239
2000 66,645
2001 66,645
Thereafter 77,752
---------
Total minimum lease payments $ 418,699
=========
Capital Leases
- --------------
The Partnership leases equipment and leasehold improvements under capital leases
which begin to expire in 1997. The following is an analysis of the leased
property under capital leases by major classes:
Classes of Property:
Medical equipment $3,733,204
Leasehold improvements 344,821
Computer equipment 88,028
Office equipment 39,870
----------
4,205,923
Less accumulated amortization (3,646,948)
----------
Adjusted net book value $ 558,975
==========
Amortization expense related to equipment and leaseholds under capital leases
was $486,204 for the year ended December 31, 1996.
See independent auditors' report.
9
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
---------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - OPERATING AND CAPITAL LEASES
Capital Leases - Continued
- --------------------------
At December 31, 1996, the present value of minimum capital lease payments were
as follows:
Year ending December 31:
1997 $ 635,354
1998 529,532
1999 214,250
2000 19,600
2001 2,441
----------
Total minimum lease payments 1,401,177
Amount representing interest imputed at 9% - 12% ( 162,961 )
----------
Present value of capital lease obligations 1,238,216
Less current portion ( 524,213 )
----------
$ 714,003
==========
NOTE 5 - LONG-TERM DEBT
Long-term debt at December 31, 1996, consisted of the following:
Installment note payable to Great Southern
Bank, bearing interest at a rate equivalent
to the prime rate as published in the Wall
Street Journal plus 1.50%, or 9.75 percent
(at December 31, 1996, the prime interest rate
was 8.25 percent). The note matures on
January 1, 1999, and is collateralized by the
accounts receivable of the Partnership, a
life insurance policy on the life of Robert A.
Cooney, M.D., and personal guarantees from certain
shareholders of MRI of Palm Beach, Inc. (the
General Partner) $ 96,242
Installment note payable to the Independent Order
of Foresters, bearing a fixed interest rate of 8.25%.
The note matures on February 1, 2011, and is
collateralized by the land and building located at
4477 Medical Center Way., West Palm Beach, FL 849,705
Installment note payable to Nationwide Insurance for
commercial liability insurance. There is no stated
interest rate for this obligation. The note matures
on November 11, 1997, when the insurance policy
expires. 18,462
See independent auditors' report.
10
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
---------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - LONG-TERM DEBT - CONTINUED
Note payable to MRI of Palm Beach, Inc., bearing
interest at 5.5% per annum. Principal and interest
are due on September 30, 1997. ( See Note 6. ) 33,109
Installment note payable to Great Southern Bank,
bearing interest at a rate equivalent to the prime
rate as published in the Wall Street Journal plus
1.50%, or 9.75 percent ( at December 31, 1996 the
prime interest rate was 8.25 percent). The note
matures on March 2, 1997, and is collateralized by the
accounts receivable of the Partnership and personal
guarantees from certain shareholders of MRI of Palm
Beach, Inc. 100,000
Installment note payable to Robert A. Cooney, M.D.
bearing interest at a rate equivalent to the prime
rate as published in the Wall Street Journal plus 2.00%,
or 10.25% ( at December 31, 1996 the prime interest rate
was 8.25 percent). The note matures on March 30, 2000,
and is collateralized by equipment.
( See Note 6. ) 31,594
---------
1,129,112
Less current portion ( 242,681)
---------
$ 886,431
=========
Maturities of long-term debt for the next five years and after are as follows:
Year ending December 31:
1997 $ 242,681
1998 93,937
1999 48,885
2000 43,811
2001 45,835
Thereafter 653,963
----------
Total maturities $ 1,129,112
==========
NOTE 6 - RELATED PARTY TRANSACTIONS
Debt
- ----
MRI loaned the Partnership $33,109 during 1996. Under the terms of the note,
interest accrues at 5.5% per annum. Principal and interest are due on September
30, 1997. Interest expense accrued but unpaid on this note was $1,777 for the
year ended December 31, 1996.
See independent auditors' report.
11
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
---------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - RELATED PARTY TRANSACTIONS - CONTINUED
Management Fees
- ---------------
The General Partner, MRI of Palm Beach, Inc. (MRI), provides all management
services to the Partnership. The Partnership pays a management fee to MRI equal
to 5% of net cash collected. During the year ended December 31, 1996, the
Partnership incurred $242,581 of management fees. Accrued, but unpaid
management fees to MRI at December 31, 1996 amounted to $337,577.
On September 25, 1996, the shareholders of MRI elected Patricia Cooney Sweeney
the sole director of MRI, replacing Robert A. Cooney, M.D. As sole director of
the MRI board, Patricia Cooney Sweeney elected herself president and secretary,
and MRI shareholder Joseph F. Cooney, vice president and treasurer.
Radiologist Fees
- ----------------
In 1996, the Partnership accrued $509,558 for radiology fees to Robert A.
Cooney, M.D., P.A. which represent 15 percent of the net cash collected by the
Partnership during 1996. In addition, the Partnership estimated and accrued
fees of $65,602 related to services rendered by Robert A. Cooney, M.D., P.A.
which have been billed by the Partnership, but have not been collected during
the year ended December 31, 1996. The Partnership paid $515,718 of the accrued
radiologist fees to Robert A. Cooney, M.D., P.A. during 1996.
Accrued, but unpaid radiologist fees due to Robert A. Cooney, M.D., P.A. at
December 31, 1996, amounted to $392,108. Management disputes that these amounts
are due and owing to Robert A. Cooney, M.D. and Robert A. Cooney, M.D., P.A. (
See Note 7 )
On October 16, 1996, Robert A. Cooney, M.D. and Robert A. Cooney, M.D., P.A.
resigned from providing radiology services to the Partnership. An unrelated
party provided radiology services to the Partnership from October 16, 1996 to
December 31, 1996.
Related Party Note Payable
- --------------------------
On March 30, 1995, Robert A. Cooney, M.D. borrowed $50,000 from Palm Beach
National Bank and Trust Company to secure financing for equipment currently
being utilized by the partnership. The loan matures on March 30, 2000. The
note bears a variable interest rate which is equal to 2.0 percentage points
above the prime rate of Large U.S. Money Center Commercial Banks as published in
The Wall Street Journal. Dr. Cooney simultaneously executed an agreement with
the Partnership mirroring his agreement with Palm Beach National Bank and Trust
Company. Interest expense paid on this note for 1996 was $3,523.
See independent auditors' report.
12
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
---------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Letters of Credit
- -----------------
The Partnership has an outstanding irrevocable standby letter of credit with
Great Southern Bank in the amount of $144,220. This letter of credit, which
expires on December 1, 1997, is collateral for the Partnership's obligations to
third parties for security deposits and future rent payments under capital
leases. The callable promissory notes described below and the accounts
receivable of the Partnership serve as collateral for this standby letter of
credit.
Litigation
- ----------
Robert A. Cooney M.D., and Robert A. Cooney, M.D., P.A., (the " Plaintiffs ")
filed a complaint on November 4, 1996 against the Partnership for damages
asserting breach of an open account, breach of contract, breach of a contract
implied in fact, and breach of a contract implied in law. Each of the
Plaintiffs' counts is premised upon a purported agreement between the Plaintiffs
and the Partnership, wherein it is alleged the parties agreed that Robert A.
Cooney, M.D., P.A. through Robert A. Cooney, M.D. would provide radiology
services to the Partnership, in exchange for payment varying from 15 percent to
20 percent of net fees collected by the Partnership. The Plaintiffs allege that
the Partnership has failed to make the agreed upon payments. In addition to the
fees set forth in Note 6 herein, the Plaintiffs are seeking to recover an
additional sum of approximately $192,000. This amount represents the difference
in the rate used to calculate the radiology fees in these financial statements
and the 20 percent rate asserted by the Plaintiffs. Management has not accrued
any of the additional fees stated above in these financial statements. The
Partnership has filed a counter claim. In its suit, management is disputing
that any fees are due and owing Robert A. Cooney, M.D. or Robert A. Cooney,
M.D., P.A. Since the partnership is vigorously defending itself, and, since it
is too early to determine the outcome of this matter, no additional amounts have
been accrued in these financial statements.
The accompanying balance sheet reflects a deposit made on July 9, 1996, in the
amount of $13,780 related to a disputed purchase contract for CT equipment worth
approximately $130,000, plus a three year service contract at an annual cost of
$104,000. The vendor has filed a suit to enforce the purchase contract.
Delivery of the equipment has not been made. The ultimate amount of the
obligation, if any, to the Partnership is not known at present.
Callable Promissory Notes
- -------------------------
During the year, certain limited partners executed promissory notes to the
Partnership to serve as collateral for the irrevocable standby letter of credit
referenced above. The notes are callable by the Partnership. If the
Partnership is required to call these notes, the notes will bear interest at an
annual interest rate of 18 percent. As of December 31, 1996, no amounts are due
as the partnership has not called these notes.
See independent auditors' report.
13
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - COMMITMENTS AND CONTINGENCIES - CONTINUED
Purchase Commitment
- -------------------
The Partnership has entered into a purchase agreement to buy medical imaging
film. This agreement calls for the Partnership to purchase a minimum of
$105,000 of film per year for a five-year period. The agreement is expected to
expire on March 16, 1998. The Partnership must reach at least 80% of their film
purchase commitment in any year of the agreement, otherwise the agreement is
subject to renegotiation. The Partnership received as part of the purchase
commitment, diagnostic imaging equipment. Ownership of the equipment transfers
to the Partnership upon completion of the commitment. At the date the agreement
was signed, the equipment had a total value of $124,500. If the agreement is
terminated prior to completion, title to the equipment does not transfer to the
Partnership.
NOTE 8 - SUBSEQUENT EVENTS
On March 10, 1997, the Partnership completed a transaction to sell substantially
all of its net assets to West Palm Resources, Inc., a subsidiary of Medical
Resources, Inc. The purchase included the patient accounts receivable and the
assumption of certain payables and accrued expenses, including of $158,616 of
the accrued radiology fees. The purchaser also assumed substantially all
capital leases and debt.
See independent auditors' report.
14
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
15
<PAGE>
THE MAGNET OF PALM BEACH, LTD.
(A LIMITED PARTNERSHIP)
SCHEDULE I - OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
-------------------------
OPERATING EXPENSES:
Advertising $ 39,855
Amortization 9,291
Bad debts 32,883
Bank charges 1,904
Casual labor 15,227
Collection costs 5,322
Contributions 2,361
Depreciation 568,716
Dues and subscriptions 1,124
Electronic claim fees 12,113
Employee benefits 45,882
Entertainment 16,580
Film supplies 122,107
Insurance 15,933
Key man insurance 788
Licenses and taxes 127,095
Line of credit bank charges 4,200
Maintenance contracts 344,248
Management fees 242,581
Medical supplies 126,363
Miscellaneous expenses 10,055
Office supplies 50,793
Operating supplies 1,470
Payroll taxes 64,939
Postage 14,378
Professional fees 820,049
Real Estate Taxes 12,735
Rent 83,000
Repairs 21,332
Salaries 851,770
Seminar and educational costs 11,347
Travel 1,370
Uniforms 493
Utilities and telephone 91,000
Workers compensation insurance 4,114
----------
TOTAL OPERATING EXPENSES $3,773,418
==========
See independent auditors' report.
16
<PAGE>
Accessible MRI of Montgomery
County, Inc.
====================================
Financial Statements
September 30, 1996
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
CONTENTS
--------
Page
----
Independent Auditors' Report . . . . . . . 1
Balance Sheet . . . . . . . 2
Statement of Operations . . . . . . . 3
Statement of Retained Earnings . . . . . . . 4
Statement of Cash Flows . . . . . . . 5
Notes to Financial Statements . . . . . . . 6 - 11
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Accessible MRI of Montgomery County, Inc.
We have audited the accompanying Balance Sheet of Accessible MRI of Montgomery
County, Inc. (an S corporation) as of September 30, 1996, and the related
Statements of Operations, Retained Earnings and Cash Flows for the year then
ended. 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 audit.
We conducted our audit 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 the significant estimates made by
management as well as evaluating the overall presentation of the financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Accessible MRI of Montgomery
County, Inc. as of September 30, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ellin & Tucker, Chartered
Certified Public Accountants
Baltimore, Maryland
August 6, 1997
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
BALANCE SHEET
September 30, 1996
ASSETS
------
CURRENT ASSETS:
--------------
Cash and Cash Equivalents $ 186,566
Patient Receivables, Net of Allowance
for Doubtful Accounts of $310,000 446,367
Due from Affiliate 46,204
Prepaid Expenses and Other Current Assets 14,348
----------
Total Current Assets 693,485
----------
PROPERTY AND EQUIPMENT:
----------------------
Property and Equipment, at Cost, Net
of Accumulated Depreciation (Notes 2 and 3) 206,483
Equipment Held Under Capital Leases,
Net of Accumulated Amortization (Note 4) 797,333
----------
Property and Equipment - Net 1,003,816
----------
OTHER ASSETS:
------------
Organizational Costs, Net of Accumulated
Amortization of $9,903 707
Deferred Lease Costs, Net of Accumulated
Amortization of $8,236 4,189
Deferred Start-up Costs, Net of
Accumulated Amortization of $19,600 1,400
Deposits 36,314
----------
Total Other Assets 42,610
----------
Total Assets $1,739,911
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
-------------------
Accounts Payable and Accrued Expenses $ 93,333
Current Maturities of Long-Term Debt (Note 3) 73,649
Current Maturities of Obligations
Under Capital Leases (Note 4) 160,570
----------
Total Current Liabilities 327,552
DEFERRED RENT 6,618
LONG TERM DEBT (Note 3) 60,950
OBLIGATIONS UNDER CAPITAL LEASES (Note 4) 864,693
----------
Total Liabilities 1,259,813
----------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
--------------------
Common Stock; $.01 Par Value, 5,000 Share Authorized;
3,185 Shares Issued and Outstanding 32
Additional Paid-in Capital 85,023
Retained Earnings 395,043
----------
Total Stockholders' Equity 480,098
----------
Total Liabilities and Stockholders' Equity $1,739,911
==========
(See Independent Auditors' Report and Accompanying Notes)
2
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
Patient Service Fees $ 2,122,380
LESS: Adjustments 463,841
-----------
Net Patient Service Revenue 1,658,539
-----------
DIRECT EXPENSES:
- ---------------
Salaries - Technician 72,902
Radiologist Fees 121,125
Medical Supplies 90,141
Laundry and Linen 2,308
Depreciation 152,567
Nurses' Services 7,364
-----------
Total Direct Expenses 446,407
-----------
Gross Profit 1,212,132
OPERATING EXPENSES 1,083,084
-----------
Income from Operations 129,048
OTHER INCOME, NET 40,591
GAIN ON SALE OF EQUIPMENT 71,660
INTEREST EXPENSE (98,313)
-----------
Net Income $ 142,986
===========
(See Independent Auditors' Report and Accompanying Notes)
3
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
RETAINED EARNINGS - BEGINNING OF YEAR $ 252,057
Net Income 142,986
----------
RETAINED EARNINGS - END OF YEAR $ 395,043
==========
(See Independent Auditors' Report and Accompanying Notes)
4
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
OPERATING ACTIVITIES:
- --------------------
Net income $ 142,986
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on Sale of Equipment (71,660)
Depreciation and amortization 188,157
Increase in Patient Receivables (21,859)
Decrease in Other Current Assets 12,230
Increase in Deposits (11,314)
Increase in Accounts Payable and Accrued
Expenses 52,696
Decrease in Deferred Rent (1,765)
---------
Net Cash Provided by Operating
Activities 289,471
---------
INVESTING ACTIVITIES:
- --------------------
Purchases of Equipment (124,798)
Net Repayments of Advances to Affiliate 24,739
Proceeds from Sale of Equipment 275,000
---------
Net Cash Provided by Investing
Activities 174,941
---------
FINANCING ACTIVITIES:
- --------------------
Lease Costs Paid (3,153)
Principal Repayments of Long-Term Debt (49,923)
Principal Repayments of Capital Lease Obligations (469,034)
Proceeds from Long-Term Debt 208,723
---------
Net Cash Used in Financing Activities (313,387)
---------
Net Increase in Cash
and Cash Equivalents 151,025
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 35,541
---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 186,566
=========
(See Independent Auditors' Report and Accompanying Notes)
5
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The Company provides magnetic resonance imaging services to patients from the
Washington, D.C. metropolitan area. Services are billed to patients or their
health insurance providers, and patient receivables are stated at the amounts
that the Company expects to collect after applicable adjustments.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company believes it is not exposed to
any significant credit risk on cash and cash equivalents.
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and Equipment
----------------------
Property and Equipment are stated at cost. Depreciation is calculated using
straight-line and accelerated methods over the estimated useful lives of the
related assets. Depreciation expense for the year ended September 30, 1996
was $179,947.
(See Independent Auditors' Report.)
6
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Advertising
-----------
The Company expenses advertising costs as incurred. The total amount charged
to advertising expense during the year ended September 30, 1996 was $189,530.
Amortization
------------
Organizational costs and deferred start-up costs are being amortized using
the straight-line method over five years.
Deferred lease costs are being amortized using the straight-line method over
the terms of the related leases.
Income Taxes
------------
The Company has elected to be treated as an S corporation for income tax
purposes. Consequently, income taxes have not been provided as the tax
effects of company activities are included in the individual income tax
returns of its stockholders.
2. PROPERTY AND EQUIPMENT
----------------------
Property and equipment at September 30, 1996 consisted of the following:
Leasehold Improvements $ 206,696
Furniture and Fixtures 23,601
Office Equipment 57,872
Auto 12,492
---------
300,661
Less: Accumulated Depreciation 94,178
---------
Property and Equipment- Net $ 206,483
=========
(See Independent Auditors' Report.)
7
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. LONG-TERM DEBT
--------------
Long-term debt at September 30, 1996 consisted of the following:
Finance Company; monthly installments of
$1,934 including interest at 12% until 1998;
guaranteed by the Company's stockholders $ 30,165
Finance Company; monthly installments of
$5,138 including interest at 11% until 1998;
collateralized by equipment; guaranteed by
the Company's stockholders 104,434
-----------
134,599
Less: Current Maturities 73,649
Long-Term Debt $ 60,950
===========
Long-term debt at September 30, 1996 matures as follows:
Year Ending September 30, 1997 $ 73,649
1998 60,950
4. CAPITAL LEASES
--------------
The Company is leasing equipment under capital leases that expire in 1997 and
2001. Equipment held under the capital leases at September 30, 1996 consisted
of the following:
Equipment $ 872,000
Less: Accumulated Depreciation 74,667
-----------
Equipment Held Under Capital Leases-Net $ 797,333
===========
(See Independent Auditors' Report.)
8
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Minimum future lease payments under these leases as of September 30, 1996 are as
follows:
Year Ending September 30, 1997 $ 236,068
1998 260,892
1999 260,892
2000 260,892
2001 217,410
-----------
Total Minimum Lease Payments 1,236,154
Less: Amount Representing Interest 210,891
-----------
Present Value of Net Minimum Lease Payments $1,025,263
===========
Payments are guaranteed by the Company's stockholders.
The Company and its affiliate (Note 7) have an agreement with their primary
medical imaging film manufacturer under which 15% discounts on all purchases of
the manufacturer's product are credited to an account maintained by the
manufacturer on behalf of the Company and its affiliate. The manufacturer makes
certain capital lease payments on behalf of the company and its affiliate from
the funds credited to this account. Amounts credited to this account are
recorded as reductions of medical supplies expense by the Company and its
affiliate. During the year ended September 30, 1996, purchase discounts of
$29,564 were credited to this account and capital lease payments of $30,757 were
charged to the account, $15,221 of which were capital lease payments made on
behalf of the Company and $15,536 of which were capital lease payments made on
behalf of the affiliate. The balance in the account at September 30, 1996 was
$3,816.
(See Independent Auditors' Report.)
9
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS
-----------
The Company is leasing office and storage space in Silver Spring, Maryland
under operating leases expiring in the year 2002. The office lease is
guaranteed by a stockholder.
Minimum future rentals under the leases are as follows:
Year Ending September 30, 1997 $ 66,355
1998 66,796
1999 68,798
2000 70,861
2001 72,985
2002 51,474
--------
Total Minimum Future Rentals $397,269
========
Rent expense for the year ended September 30, 1996 was $58,599.
The Company has contracts with various insurance providers under which agreed-
upon amounts must be accepted as payment in full for patient services.
The Company and its affiliate (Note 7) have various contracts for advertising
which commit the Company and its affiliate to a minimum of $202,000 in
advertising during 1997.
The Company and its affiliate (Note 7) have employment contracts with two
individuals which commit the Company and its affiliate to annual base salaries
of $275,000 plus incentive payments based on numbers of patients serviced. The
contracts expire in 1997.
The Company has an employment contract with another individual which commits
the Company to an annual base salary of $30,000 plus incentive payments based
on numbers of patients serviced. The contract expires in 1997.
(See Independent Auditors' Report.)
10
<PAGE>
ACCESSIBLE MRI OF MONTGOMERY COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. RETIREMENT PLAN
---------------
The Company has a 401(k) profit sharing plan covering all employees meeting
minimum service and age requirements. The Company matches 50% of the first
6% of participant contributions. Contributions made by the Company for the
year ended September 30, 1996 were $4,024.
7. RELATED PARTY TRANSACTIONS
--------------------------
Another magnetic imaging service center which is affiliated with the Company
through common ownership provides certain administrative services to the
Company. Amounts due from the affiliate result from advances to the
affiliate net of reimbursements for services.
General and administrative expenses include $25,204 in charges for services
rendered by the affiliate during the year ended September 30, 1996.
The Company has guaranteed up to $40,000 of the affiliate's debt to a
finance company.
The Company has leased office space from one of its stockholders for $2,000
per month through March 2002 (Note 5). Rent expense under the lease was
$18,000 for the year ended September 30, 1996.
8. SUPPLEMENTARY CASH FLOW INFORMATION
-----------------------------------
Cash payments during the year ended September 30,1996 included interest of
$98,313.
Capital lease obligations of $815,000 were incurred during the year ended
September 30, 1996 when the Company entered into an equipment lease.
9. SUBSEQUENT EVENT
----------------
The Company and its affiliate (Note 7) entered into an agreement to sell
substantially all of their assets in May 1997. As consideration for the
sale, the Company and its affiliate received $2,828,872 in cash and
$1,500,000 in the purchaser's common stock, and the purchaser assumed all
debt (Note 3), capital lease obligations (Note 4) and commitments (Note 5)
of the Company and its affiliate.
(See Independent Auditors' Report.)
11
<PAGE>
Accessible MRI of Baltimore
County, Inc.
======================================
September 30, 1996
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
CONTENTS
--------
Page
----
Independent Auditors' Report . . . . . . . 1
Balance Sheet . . . . . . . 2
Statement of Operations . . . . . . . 3
Statement of Accumulated Deficit . . . . . . . 4
Statement of Cash Flows . . . . . . . 5
Notes to Financial Statements . . . . . . . 6 - 11
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Accessible MRI of Baltimore County, Inc.
We have audited the accompanying Balance Sheet of Accessible MRI of Baltimore
County, Inc. (an S corporation) as of September 30, 1996, and the related
Statements of Operations, Retained Earnings and Cash Flows for the year then
ended. 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 audit.
We conducted our audit 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 the significant estimates made by
management as well as evaluating the overall presentation of the financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Accessible MRI of Baltimore
County, Inc. as of September 30, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Ellin & Tucker, Chartered
Certified Public Accountants
Baltimore, Maryland
August 6, 1997
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
BALANCE SHEET
September 30, 1996
ASSETS
------
CURRENT ASSETS:
--------------
Cash and Cash Equivalents $ 121,619
Patient Receivables, Net of Allowance
for Doubtful Accounts of $210,000 408,439
Due from Stockholders 9,321
Other Current Assets 13,033
-----------
Total Current Assets 552,412
-----------
PROPERTY AND EQUIPMENT:
----------------------
Property and Equipment, at Cost, Net
of Accumulated Depreciation (Notes 2 and 3) 225,041
Equipment Held Under Capital Leases,
Net of Accumulated Amortization (Note 4) 1,112,612
-----------
Property and Equipment - Net 1,337,653
-----------
OTHER ASSETS:
------------
Lease Acquisition Costs, Net of
Accumulated Amortization of $6,980 7,634
Deposits 52,880
-----------
Total Other Assets 60,514
-----------
Total Assets $ 1,950,579
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
-------------------
Accounts Payable and Accrued Expenses $ 188,450
Current Maturities of Long-Term Debt (Note 3) 106,558
Current Maturities of Obligations
Under Capital Leases (Note 4) 241,852
Due to Affiliate (Note 7) 46,204
-----------
Total Current Liabilities 583,064
DEFERRED RENT 30,747
LONG TERM DEBT (Note 3) 241,318
OBLIGATIONS UNDER CAPITAL LEASES (Note 4) 1,069,143
-----------
Total Liabilities 1,924,272
-----------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
--------------------
Common Stock; $.01 Par Value, 5,000 Share
Authorized;
115 Shares Issued and Outstanding 1
Additional Paid-in Capital 32,409
Accumulated Deficit (6,103)
-----------
Total Stockholders' Equity 26,307
-----------
Total Liabilities and Stockholders' Equity $ 1,950,579
===========
(See Independent Auditors' Report and Accompanying Notes)
2
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
Patient Service Fees $ 2,687,928
LESS: Adjustments 796,022
-------------
Net Patient Service Revenue 1,891,906
-------------
DIRECT EXPENSES:
- ---------------
Salaries - Technician 83,204
Radiologist Fees 145,175
Medical Supplies 120,780
Laundry and Linen 3,212
Depreciation 166,975
Courier Service 1,504
Nurses' Services 14,665
-------------
Total Direct Expenses 535,515
-------------
Gross Profit 1,356,391
GENERAL AND ADMINISTRATIVE EXPENSES 1,163,365
-------------
Income from Operations 193,026
INTEREST EXPENSE 112,028
LOSS ON SALE OF EQUIPMENT 15,804
OTHER EXPENSE, NET 39,220
-------------
Net Income $ 25,974
=============
(See Independent Auditors' Report and Accompanying Notes)
3
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
STATEMENT OF ACCUMULATED DEFICIT
FOR THE YEAR ENDED SEPTEMBER 30, 1996
ACCUMULATED DEFICIT - BEGINNING OF YEAR $ (32,077)
Net Income 25,974
----------
ACCUMULATED DEFICIT - END OF YEAR $ (6,103)
==========
(See Independent Auditors' Report and Accompanying Notes)
4
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
OPERATING ACTIVITIES:
- --------------------
Net income $ 25,974
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss on Sale of Equipment 15,804
Depreciation and amortization 187,460
Increase in Patient Receivables (163,952)
Decrease in Other Current Assets 5,945
Decrease in Deposits 147,566
Increase in Accounts Payable and Accrued
Expenses 49,403
Decrease in Deferred Rent (4,081)
---------
Net Cash Provided by Operating Activities 264,119
---------
INVESTING ACTIVITIES:
- --------------------
Purchases of Equipment (73,501)
Proceeds from Sale of Equipment 15,000
---------
Net Cash (Used) in Investing Activities (58,501)
---------
FINANCING ACTIVITIES:
- --------------------
Proceeds from Long-Term Debt 95,803
Repayment of Note to Officer (50,000)
Principal Repayments of Long-Term Debt (86,701)
Principal Repayments of Capital Lease Obligations (80,008)
Net Repayments of Advance from Affiliate (24,739)
---------
Net Cash (Used) in Financing Activities (145,645)
---------
Net Increase (Decrease) in Cash and
Cash Equivalents 59,973
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 61,646
---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 121,619
---------
(See Independent Auditors' Report and Accompanying Notes)
5
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The Company provides magnetic resonance imaging services to patients from the
Baltimore metropolitan area. Services are billed to patients or their health
insurance providers, and patient receivables are stated at the amounts that the
Company expects to collect after applicable adjustments.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
- -------------------------
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and Equipment
- ----------------------
Property and Equipment are stated at cost. Depreciation is calculated using
straight- line and accelerated methods over the estimated useful lives of the
related assets. Depreciation expense for the year ended September 30, 1996 was
$184,955.
(See Independent Auditors' Report)
6
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Advertising
- -----------
The Company expenses advertising costs as incurred. The total amount charged to
advertising expense during the year ended September 30, 1996 was $270,162.
Amortization
- ------------
Lease acquisition costs are being amortized using the straight-line method over
the terms of the related leases.
Other Expenses
- --------------
Other expenses for the year ended September 30, 1996 include $57,500 charged to
expense when an equipment deposit was surrendered pursuant to a lease agreement
which the Company terminated.
Income Taxes
- ------------
The Company has elected to be treated as an S corporation for income tax
purposes. Consequently, income taxes have not been provided as the tax effects
of company activities are included in the individual income tax returns of its
stockholders.
2. PROPERTY AND EQUIPMENT
----------------------
Property and equipment at September 30, 1996 consisted of the following:
Leasehold Improvements $ 199,756
Furniture and Fixtures 37,872
Office Equipment 79,633
---------
317,261
Less: Accumulated Depreciation 92,220
---------
Property and Equipment - Net $ 225,041
=========
(See Independent Auditors' Report)
7
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. LONG-TERM DEBT
--------------
Long-term debt at September 30, 1996 consisted of the following:
Finance Company; monthly installments of
$4,899 including interest at 9.9% until 1999;
collateralized by equipment and patient
receivables; guaranteed by the Company's
stockholders; $40,000 guaranteed by the
Company's affiliate (Note 7) $ 148,420
Finance Company; monthly installments of
$5,300 including interest at 9.9% until 1999;
collaterized by equipment and patient
receivables; guaranteed by the Company's
stockholders 164,482
Finance Company; monthly installments of $1,154
including interest at 9.9% until 1999;
collaterized by equipment; guaranteed by the
Company's stockholders 34,974
----------
347,876
Less: Current Maturities 106,558
----------
Long-Term Debt $ 241,318
==========
Long-term debt at September 30, 1996 matures as follows:
Year Ending September 30, 1997 $ 106,558
1998 117,595
1999 123,723
(See Independent Auditors' Report)
8
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. CAPITAL LEASES
--------------
The Company is leasing equipment under capital leases that expire in 2000 and
2001. Equipment held under the capital leases at September 30, 1996 consisted
of the following:
Equipment $ 1,285,900
Less: Accumulated Depreciation 173,288
-----------
Equipment Held Under Capital Leases - Net $ 1,112,612
===========
Minimum future lease payments under these leases as of September 30, 1996 are as
follows:
Year Ending September 30, 1997 $ 347,862
1998 362,436
1999 362,436
2000 359,865
2001 153,426
----------
Total Minimum Lease Payments 1,586,025
Less: Amount Representing Interest 275,030
----------
Present Value of Net Minimum Lease Payments $1,310,995
==========
Payments are guaranteed by the Company's stockholders.
The Company and its affiliate (Note 7) have an agreement with their primary
medical imaging film manufacturer under which 15% discounts on all purchases of
the manufacturer's product are credited to an account maintained by the
manufacturer on behalf of the Company and its affiliate. The manufacturer makes
certain capital lease payments on behalf of the Company and its affiliate from
the funds credited to this account. Amounts credited to this account are
recorded as reductions of medical supplies expense by the Company and its
affiliate. During the year ended September 30, 1996, purchase discounts of
$29,564 were credited to this account and capital lease payments of $30,757 were
charged to the account, $15,536 of which were capital lease payments made on
behalf of the Company and $15,221 of which were capital lease payments made on
behalf of the affiliate. The balance in the account as of September 30, 1996
was $3,816.
(See Independent Auditors' Report)
9
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS
-----------
The Company is leasing office and storage space in Towson, Maryland under
operating leases expiring in the year 2000. The office lease is guaranteed by a
stockholder.
Minimum future rentals under the leases are as follows:
Year ending September 30, 1997 $ 60,588
1998 63,295
1999 66,136
2000 33,805
---------
Total Minimum Future Rentals $ 223,824
=========
Rent expense for the year ended September 30, 1996 was $57,320.
The Company has contracts with various insurance providers under which agreed-
upon amounts must be accepted as payment in full for patient services.
The Company and its affiliate (Note 7) have various contracts for advertising
which commit the Company and its affiliate to a minimum of $202,000 in
advertising during 1997.
The Company and its affiliate (Note 7) have employment contracts with two
individuals which commit the Company and its affiliate to annual base salaries
of $275,000 plus incentive payments based on numbers of patients serviced. The
contracts expire in 1997.
6. PROFIT SHARING PLAN
-------------------
The Company has a 401(k) profit sharing plan covering all employees meeting
minimum service and age requirements. The Company matches 50% of the first 6%
of participant contributions. Contributions made by the Company for the year
ended September 30, 1996 were $7,048.
(See Independent Auditors' Report)
10
<PAGE>
ACCESSIBLE MRI OF BALTIMORE COUNTY, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. RELATED PARTY TRANSACTIONS
--------------------------
The Company provides certain administrative services to another magnetic imaging
service center which is affiliated with the company through common ownership.
Amounts due to the affiliate result from advances from the affiliate net of
reimbursements due for services provided.
General and Administrative expenses have been reduced by $25,204 during the year
ended September 30, 1996 for services charged to the affiliate.
8. SUPPLEMENTARY CASH FLOW INFORMATION
-----------------------------------
Cash payments during the year ended September 30, 1996 included interest of
$112,301.
Capital lease obligations of $1,249,000 were incurred when the Company entered
into equipment leases.
9. SUBSEQUENT EVENT
----------------
The Company and its affiliate (Note 7) entered into an agreement to sell
substantially all of their assets in May 1997. As consideration for the sale,
the Company and its affiliate received $2,828,872 in cash and $1,500,000 in the
purchaser's common stock, and the purchaser assumed all debt (Note 3), capital
lease obligations (Note 4) and commitments (Note 5) of the Company and its
affiliate.
(See Independent Auditors' Report)
11
<PAGE>
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
CAPSTONE MANAGEMENT GROUP, INC.
DECEMBER 31, 1996
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
DECEMBER 31, 1996
CONTENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 2
FINANCIAL STATEMENTS
BALANCE SHEET 3 - 4
STATEMENT OF LOSS AND STOCKHOLDERS' DEFICIT 5 - 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8 - 14
<PAGE>
Report of Independent Certified Public Accountants
To the Shareholders
Capstone Management Group, Inc.
We have audited the accompanying balance sheet of Capstone Management Group,
Inc. as of December 31, 1996, and the related statements of loss and
stockholders' deficit, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capstone Management Group, Inc.
as of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
BACA PIECZKOLON & ASSOCIATES
Trevose, Pennsylvania
August 1, 1997
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS
Cash $ 508,226
Accounts receivable (note 3) 1,201,839
Due to/from related parties (note 10) (223,338)
Prepaid expenses 29,301
----------
Total current assets 1,516,028
INVESTMENTS (note 1B and 4) (205,364)
PROPERTY AND EQUIPMENT - AT COST
Computer and office equipment $ 62,832
Leasehold improvements 290,000
Equipment 3,619,897
Furniture and fixtures 50,145
----------
4,022,874
Less accumulated
depreciation (note 1) (304,605)
----------
3,718,269
OTHER ASSETS
Security deposits 67,437
Organization costs 50,988
Goodwill 300,000
Licenses 175,000
----------
593,425
Less accumulated
amortization (note 1) ( 35,747)
----------
557,678
----------
$5,586,611
==========
The accompanying notes are an integral part of this statement.
- 3 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
BALANCE SHEET
December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable Corestates Bank (note 7) $ 314,871
Note payable Callowhill
Open MRI, L.P. (note 6) 42,847
Accounts payable 314,857
Pension payable (note 5) 44,817
Current maturities of
Long term debt 954,909
----------
Total current liabilities 1,672,301
LONG TERM DEBT, less current maturities (note 8) 4,854,701
STOCKHOLDERS' DEFICIT
Capital stock $ 100
Retained deficit ( 940,491)
---------
( 940,391)
----------
$5,586,611
==========
The accompanying notes are an integral part of this statement.
- 4 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
STATEMENT OF LOSS AND STOCKHOLDERS' DEFICIT
For the year ended December 31, 1996
Revenue
Revenue, net $3,187,709
Salaries and employee benefits
Salaries $1,277,793
Payroll taxes 111,781
Insurance - health 70,224 1,459,798
---------
General and administrative
Advertising and promotion 35,944
Amortization 35,330
Automobile 35,047
Bank charges 6,283
Computer and office equipment 42,403
Consumable supplies 135,075
Contributions 650
Depreciation 284,769
Dues and subscriptions 18,652
Equipment leases 20,031
Insurance - general 62,286
Legal and accounting 139,618
Maintenance - building 38,534
Marketing 50,351
Miscellaneous 15,295
Office supplies 51,206
Office expense 19,101
Pension 191,707
Postage 16,805
Printing 14,392
Project fee 10,500
Radiology fees 620,371
Rent 127,083
Service contracts 121,434
Seminars 15,293
Sub-contract - professional 35,417
Sub-contract - support 22,474
Telephone 74,363
Teleradiology 19,758
Travel and entertainment 35,940
Travel and lodging 85,209
Utilities 35,391 2,416,712
--------- ----------
Operating loss $( 688,801)
The accompanying notes are an integral part of this statement.
- 5 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
STATEMENT OF LOSS AND STOCKHOLDERS' DEFICIT - CONTINUED
For the year ended December 31, 1996
Other (income) deductions
Interest income $ ( 2,551)
Interest expense 208,917
Equity in net earnings
of invester
companies (note 1B and 4) ( 90,057) $ 116,309
-------- ----------
Net loss (805,110)
Retained deficit at January 1, 1996 (135,281)
----------
Retained deficit at December 31, 1996 $ (940,391)
==========
The accompanying notes are an integral part of this statement.
- 6 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
Cash flows from operating activities:
Net Loss $( 805,110)
-----------
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation 284,769
Amortization 35,330
Change in assets and liabilities:
Increase in accounts receivable (1,201,839)
Decrease in due to from related parties 173,455
Decrease in prepaid expenses 51,921
Decrease in Investments 152,313
Decrease in security deposits 151,480
Increase in organization costs (50,488)
Increase in Goodwill ( 300,000)
Increase in Licenses ( 175,000)
Increase in accounts payable 314,857
Decrease in Pension payable ( 10,283)
---------
Total Adjustments ( 573,485)
---------
Net cash used by operating activities: (1,378,595)
---------
Cash flows from investing activities:
Property and equipment acquisitions (3,988,807)
---------
Net cash used in investing activities (3,988,807)
---------
Cash flows from financing activities:
Increase in Note Payable - Corestates Bank 162,423
Decrease in Loan Payable - Constitution Bank ( 1,608)
Decrease in Note Payable - Callowhill
Open MRI, L.P. ( 14,283)
Increase in Long term debt 5,695,888
----------
Net cash provided by financing activities 5,842,420
----------
Net increase in cash 475,018
Cash - beginning 33,208
----------
Cash - ending $ 508,226
==========
The accompanying notes are an integral part of this statement.
- 7 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. The Company and its significant Accounting policies
---------------------------------------------------
A) The Company - Capstone Management Group, INC. is engaged in installing,
-----------
maintaining and managing imaging systems used for diagnostic purposes.
B) Investments - Investments in the companies of Albany Open MRI, L.P.,
-----------
Bensalem Open MRI, L.P., Callowhill Open MRI, L.P., Haverford Open MRI
Associates, L.P., Syracuse Open MRI, L.P., and Dayuton Open MRI LTD. are stated
at cost plus equity in undistributed net earnings since dates of investments
(note 4).
C) Property and Equipment - Property and equipment are being depreciated
----------------------
for financial accounting purposes using the Cost 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 expenditures for maintenance and repairs are charged to
operations.
D) 401(K) Plan - The company maintains a 401(K) savings plan under which
-----------
the company matches one-quarter (25%) of employee contributions to purchase plan
investments, up to 6% of qualified earnings and subject to Internal Revenue
Service limitations.
E) Pension Plan - The company maintains a Money Purchase Pension Plan under
------------
which the company contributes up to 5% of the employees earnings subject to
vesting and Internal Revenue Service limitations.
F) Revenue Recognition - Revenues are recognized on an accrual basis as
-------------------
earned and consist of (i) net patient service revenue allocated to the company
under the terms of the management and sub-lease agreements it maintains with its
affiliated physicians associations referred to below (ii) additional management
and billing service fees earned by the company for services provided to
unconsolidated limited liability corporation and limited partnerships, (iii)
equity in earnings (losses) of unconsolidated limited liability corporation and
limited partnerships.
2. Due from affiliated Physician Associations
------------------------------------------
The company has entered into arrangements with Physicians engaging in
business as professional associations "Physicians" pursuant to which the company
maintains and manages imaging systems operated by the Physicians. The
agreements have terms of up to
- 8 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
five years and are renewable at the option of the company. The Physicians'
Principal, Dr. James M. Domesek, is the majority shareholder in the company.
The Physicians are under service agreements through U.S. Radiology Associates,
P.C., Dr. James M. Domesek is the sole-shareholder of U.S. Radiology. Under the
agreements, physicians have agreed to be obligated to contract for radiology
services and to sublease each facility. The company is obligated to make
necessary leasehold improvements, provide furniture and fixtures, provide center
employees, provide radiology equipment and perform certain administrative
functions relating to the provisions of technical aspects of the centers for
which physicians pay a monthly fee. These fees, net of a contractual allowance
based upon physicians ability to pay after physicians have fulfilled their
obligations under facility subleases and radiology service contracts as set
forth above, constitute the company's revenue, net for overloded sites.
Certain revenues are subject to audit and retroactive adjustment by third
party payers. The company is aware of no pending audits or proposed negative
adjustments and no provisions for estimated retroactive adjustments have been
provided.
3. Accounts Receivable
-------------------
Accounts receivable is comprised of the following:
Accounts Receivable $ 1,733,855
Less: Allowance for Doubtful
Accounts and Contractual
Allowances 532,016
-----------
$ 1,201,839
===========
The only significant financial instrument is Accounts Receivable, which is
concentrated among third-party medical reimbursement organizations, principally
by insurance companies. Approximately 16.16% of the company's imaging revenue
was derived from the delivery of services of which the timing of payment is
substantially contingent upon the timing of the settlement of pending litigation
involving the recipient of services and third parties (letters of protection or
LOP type accounts receivable). At December 31, 1996 approximately 19.09% of
gross receivables represents amounts due from such patients. By its nature,
the realization of a substantial portion of these receivables is expected to
extend beyond one year from the date the service was rendered.
- 9 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
The company considers the aging of its accounts receivable in determining
the amount of the allowances for doubtful accounts.
4. Investments
-----------
The Company's investment in the subsequent list of Limited Partnerships and
Limited Liability Corporation which are representing various ownership
percentages are accounted for using the Equity method.
Ownership
----------
%
---
Albany Open MRI, L.P. 62.5 $( 347,622)
Bensalem Open MRI, L.P. 51.0 113,681
Callowhill Open MRI, L.P. 47.6 276,768
Haverford Open MRI Associates, L.P. 30.0 77,914
Syracuse Open MRI, L.P. 62.5 (188,436)
Dayton Open MRI LTD 90.0 (137,669)
---------
$( 205,364)
=========
5. Pension Plan
------------
The company has a money purchase pension plan covering substantially all of
its employees. The contributions are based on and a percentage of the
employee's qualifying compensation during the year of employment. The Company's
funding policy is to contribute annually the amount necessary to satisfy the
Internal Revenue Service's funding standards.
6. Note Payable - Callowhill Open MRI, L.P.
----------------------------------------
The company has an installment note payable with Callowhill Open MRI, L.P.
payable for 60 months starting January 1, 1995. The monthly payment including
interest is $1,190 and the remaining balance at December 31, 1996 is $42,847.
- 10 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
7. Line of Credit
--------------
The company has obtained a line of credit with Corestates Bank. The
Financial arrangement bears interest at one percent (1%) over the Bank's Prime
Rate and is to be used for start-up costs of new centers, acquisition of
existing centers and practices and general business purposes. The amount of the
line of credit is $500,000 of which $314,871 is outstanding at December 31,
1996. The line is secured by corporate assets and a limited personal surety of
the Principal shareholder.
8. Long term debt
--------------
Long -term debt consists of:
Capital leases $ 5,809,610
Less current maturities 954,909
----------
$ 4,854,701
==========
The capital lease payments are monthly installments with interest payable
at various rates. The leases are subject to the provisions of lease agreements
(note 9).
9. Commitments and Contingencies
-----------------------------
The company leases its corporate offices and certain centers for proceeds
generally ranging from one to seven years with revenues options for additional
periods. The leases generally require the company to pay utilities, taxes,
insurance and other costs. Rental expenses incurred under such leases were
approximately $ 127,083.
The company has entered into noncancelable lease agreements for certain
medical diagnosis equipment, furniture and fixtures, and has capitalized the
assets relating to these leases.
Future minimum payments under leases as of December 31, 1996 are as
follows:
Capital Operating
Leases Leases
1997 $1,674,726 $275,650
1998 1,674,727 276,288
1999 1,644,307 288,945
- 11 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
2000 $1,585,934 $ 289,621
2001 1,253,946 121,863
Thereafter - 85,978
---------- ----------
Total minimum lease
payments 7,833,640 $1,338,345
==========
Amount representing
interest 2,024,030
----------
Present value of net
minimum capital
lease payments $5,809,610
==========
10. Related Party Transactions
--------------------------
During the year ended December 31, 1996 the company, in accordance with the
related partnership interests realized management and billing and collections
fees of $290,000 and
$705,757 respectively.
11. Government Regulation
---------------------
The health care industry is highly regulated at the federal, state and
local levels. Current discussions within the Federal government regarding
national health care reform are emphasizing containment of health care costs as
well as expansion of the number of eligible parties. The implementation of this
reform could have a material effect on the financial results of the company by
limiting reimbursement levels, requiring the company to obtain certificates of
need in order to expand, limiting the types of
contracts which may be entered into with physicians who refer patients,
increasing the limitations on referrals by physicians to facilities in which
they have an investment or a compensation arrangement and other means.
12. Liability and Malpractice Insurance
-----------------------------------
The nature of the services provided by the Company exposes the Company to
greater risks of liability than are posed by other non-medical affiliated
businesses. The company maintains public liability and medical malpractice
insurance in amounts which it deems adequate to protect against this potential
risk. There can be no assurance that the amount of such insurance will be
adequate to cover all potential liabilities.
- 12 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
13. Litigation
----------
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 litigations will not have a material adverse effect on the company's
results of operations, cash flows, or financial condition.
14. Income Taxes
------------
Income taxes on net earnings are payable personally by the stockholders
pursuant to an election under Subchapter S of the Internal Revenue Code not to
have the Corporation taxed as a corporation. Accordingly, no provision has been
made for Federal income taxes.
15. Acquisition - Purchase
----------------------
On August 9, 1996 the Company entered into an Asset Purchase Agreement with
James K. Freyne, M.D., a physician licensed to practice medicine, specifically
radiology in the State on New Jersey, for approximately $350,000. The
acquisition has been included in the accompanying financial statements for the
period August 9, 1996 through December 31, 1996. The excess of the total
acquisition cost over the fair value of net assets acquired in the amount of
$50,000 is being amortized on a straight-line basis over forty years.
On September 6, 1996 the Company entered into an Asset Purchase Agreement
with Diagnostic of Springfield, Inc. who manages the operation of medical
diagnostic imaging services at a diagnostic imaging center located at 891
Baltimore Pike, Springfield, Pennsylvania and owns the assets used in the
operation of the Center, for approximately $1,850,000. The acquisition has been
included in the accompanying financial statements for the period September 6,
1996 through December 31, 1996. The excess of the total acquisition cost over
the fair value of net assets acquired in the amount of $250,000 is being
amortized on a straight-line basis over forty years.
- 13 -
<PAGE>
CAPSTONE MANAGEMENT GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
16. Subsequent Event
----------------
On March 19, 1997 the Company announced that it was in negotiations
regarding a possible sale of the company to Medical Resources, Inc.. Medical
Resources, Inc. provides diagnostic imaging equipment, facilities and management
services to physicians through 53 outpatient centers located in New York, New
Jersey, Florida, Illinois and California. Subsequently, on May 9, 1997 the
Company entered into an Asset Purchase Agreement with Medical Resources, Inc.
for approximately $10,000,000. The closing date for this transaction was May
30, 1997 with a retroactive effective date of operations transfer of May 1,
1997.
On April 4, 1997 the Company entered into an Asset Purchase Agreement with
Scott Scheer, M.D. and Hugh Mullin, M.D. who operate
a licensed radiology diagnostic facility: Oxford Valley Imaging Center located
at 330 Middletown Boulevard Suite 402, Langhorne,
Pennsylvania and own the assets used in the operation of the center, for
approximately $200,000.
- 14 -
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
COMBINED FINANCIAL STATEMENTS
December 31, 1996
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
TABLE OF CONTENTS
December 31, 1996
PAGE
COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report 1
Combined Balance Sheet 2
Combined Statement of Operations and Retained Earnings/Partners' Capital 3
Combined Statement of Cash Flows 4
Notes to Combined Financial Statements 5-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Bronx MRI Associates, L.P.
and the Stockholders of Magnetic Resonance Imaging
of the Bronx, P.C.
We have audited the accompanying combined balance sheet of Bronx MRI Associates,
L.P. and Magnetic Resonance Imaging of the Bronx, P.C. (collectively, the
"Company") as of December 31, 1996 and the related combined statements of
operations and retained earnings/partners' capital and cash flows for the year
then ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
as of December 31, 1996, and the combined results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Weisberg & Company, LLP
Carle Place, New York
October 29, 1997
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
COMBINED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents - note 1c $ 23,683
Accounts receivable, net - note 2 447,591
Prepaid expenses and other current assets 13,333
----------
Total Current Assets 484,607
Property and Equipment - notes 1d and 3 738,556
Security deposits 76,190
----------
Total Assets $1,299,353
==========
LIABILITIES AND STOCKHOLDERS' AND PARTNERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 190,324
Current portion of notes payable - note 4 95,563
Current portion of obligation under capital lease - note 6 84,503
Sales tax payable 23,615
Deferred rent 15,049
Deferred income taxes payable 17,904
----------
Total Current Liabilities 426,958
Notes payable - note 4 24,197
Obligation under capital lease - note 6 136,647
----------
Total Liabilities 587,802
----------
Commitments and Contingencies - note 6
STOCKHOLDERS' AND PARTNERS' EQUITY
Common stock 500
Retained earnings 452,016
Partners' capital 259,035
----------
Total Stockholders' and Partners' Equity 711,551
----------
Total Liabilities and Stockholders' and Partners' Equity $1,299,353
==========
</TABLE>
See notes to combined financial statements. Page 2
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
COMBINED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS/PARTNERS' CAPITAL
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
REVENUE $ 1,810,377
-----------
EXPENSES
Payroll and related costs 327,367
Medical supplies and other operating costs 603,974
General and administrative expenses 707,917
Depreciation and amortization 311,049
Interest expense 45,619
-----------
Total Expenses 1,995,926
-----------
Net loss before provision for income taxes (185,549)
Provision for income taxes - notes 1g and 5 23,652
-----------
Net loss (209,201)
Retained Earnings/Partners' Capital - beginning of year 970,252
Partners' distributions (50,000)
-----------
Retained Earnings/Partners' Capital - end of year $ 711,051
===========
</TABLE>
See notes to combined financial statements. Page 3
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
COMBINED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(209,201)
---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 311,049
Changes in assets and liabilities:
Accounts receivable 108,426
Prepaid expenses and other current assets 2,452
Security deposits 3,451
Accounts payable and accrued expenses 128,642
Sales tax payable 23,615
Deferred rent 15,049
Deferred taxes payable 17,904
Other liabilities (7,711)
---------
Total Adjustments 602,877
---------
Net cash provided by operating activities 393,676
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,000)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments - notes payable (89,336)
Principal payments - capital lease obligation (242,760)
Partners' distributions (50,000)
---------
Net cash used in financing activities (382,096)
---------
Net increase in cash and cash equivalents 7,580
Cash and cash equivalents - beginning of year 16,103
---------
Cash and cash equivalents - end of year $ 23,683
=========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 45,619
=========
Income taxes paid $ 5,748
=========
</TABLE>
See notes to combined financial statements. Page 4
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Nature of Business
Bronx MRI Associates, L.P. (a limited partnership) ("BMA") and Magnetic
Resonance Imaging of the Bronx, P.C. (a corporation) ("MRI") (collectively,
the "Company") operates and manages an outpatient diagnostic imaging center
in the Bronx, New York.
b) Principles of Combination
The combined financial statements include the accounts of BMA and MRI.
Certain shareholders of the general partner of "BMA" are shareholders of
MRI. By agreement, BMA subleases the facility and the equipment to MRI to
enable them to perform diagnostic services. Additionally, BMA manages the
operations of the imaging center. All sublease fees and management fees
charged by BMA to MRI have been eliminated in combination.
c) Cash and Cash Equivalents
Cash and cash equivalents for purposes of statement of cash flows includes
cash in banks and on hand.
d) Property and Equipment
Property and equipment are stated at cost and are depreciated or amortized
using accelerated methods in accordance with income tax statutes and lives.
Computed depreciation does not vary significantly from depreciation
computed using the straight-line basis over the shorter of the estimated
useful lives of the related assets or the term of the lease. Repairs and
maintenance which do not prolong normal asset life are charged to expense
as incurred.
e) Leases
Leases which meet the criteria for capitalization are capitalized and the
related capital lease obligations are included in current and long-term
liabilities. Amortization and interest are charged to expense with rent
payments being treated as payments of the capital lease obligation. All
other leases are accounted for as operating leases, with rent payments
being charged to expense as incurred.
f) Revenue Recognition
Revenue is recognized as services are rendered to patients.
Page 5
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Income Taxes
MRI
---
MRI applies the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires a
company to recognize deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
For the year ended December 31, 1996, differences between taxable income
and income for financial statement purposes were not significant.
Accordingly, no provision for deferred income taxes has been included in
the financial statements.
BMA
---
No provision for federal or state income taxes are necessary in the
financial statements of BMA as these taxes are the responsibility of the
individual partners. However, BMA is liable for the New York City
Unincorporated Business Tax and applies the provisions of SFAS 109 as it
relates to such taxes.
h) Use of Estimates
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Actual results could differ
from those estimates.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following:
<TABLE>
<S> <C>
Accounts receivable $ 1,115,717
Less: Allowance for doubtful accounts and
contractual adjustments (668,126)
-----------
$ 447,591
===========
</TABLE>
Page 6
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 3 - PROPERTY AND EQUIPMENT
Property and Equipment is comprised of the following:
<TABLE>
<S> <C>
Medical diagnostic and other equipment $ 613,402
Leasehold improvements 652,553
Furniture and fixtures 15,594
-----------
1,281,549
Less: accumulated depreciation and amortization (542,993)
-----------
$ 738,556
===========
</TABLE>
NOTE 4 - NOTES PAYABLE
Through June 1996, the Company leased certain medical equipment. Upon the
expiration of the lease, the Company purchased the equipment for $150,000 and
financed the purchase with a note payable. Terms of the note provide for monthly
payments, including interest of approximately 11 1/2% per annum, of $13,296
through June 1997. This purchase is a non-cash investing activity for purposes
of the statement of cash flows.
The Company entered into a note payable to finance leasehold improvements to its
facility. Terms of the note provide for monthly payments, including interest of
11% per annum, of $1,850 through maturity in February 1999.
Maturities of the notes payable are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 95,563
1998 20,547
1999 3,650
---------------------
$ 119,760
=====================
</TABLE>
NOTE 5 - INCOME TAXES
Provision for income taxes consists of the following:
<TABLE>
<S> <C>
Current
New York State Franchise Tax $ 283
New York City Corporation Tax 2,354
New York City Unincorporated Business Tax 3,111
-------
5,748
Deferred
New York City Unincorporated Business Tax 17,904
-------
$23,652
=======
</TABLE>
Page 7
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 5 - INCOME TAXES (continued)
The Company has elected to be taxed on the cash basis of accounting.
Accordingly, revenues are not taxed until received and expenses are not deducted
until paid. The deferred tax liability represents the taxes to be paid on the
excess of uncollected revenues over unpaid expenses.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company has entered into a lease for certain medical equipment and has
capitalized the asset relating to the lease. The lease is collateralized by the
related equipment.
The following is a summary of assets under capital lease:
<TABLE>
<S> <C>
Medical equipment $ 390,707
Less: accumulated amortization (279,826)
---------
$ 110,881
=========
</TABLE>
Future minimum lease payments under the capital lease as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
1997 $ 104,760
1998 104,760
1999 43,650
---------
253,170
Less: amount representing interest (32,020)
---------
Present value of net minimum capital lease payments
(including $84,503 classified as current portion
of obligation under capital lease) $ 221,150
=========
</TABLE>
Page 8
<PAGE>
BRONX MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF THE BRONX, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
In 1995, the Company entered into an operating lease for its facility. The lease
is for a term of five years with a renewal option for an additional five years.
The lease contains escalation clauses throughout the basic term and the option
period and requires additional payments for a portion of the real estate taxes
on the facility. Rent expense incurred under the lease amounted to $189,102 for
the year ended December 31, 1996.
Future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 178,849
1998 187,791
1999 197,181
2000 135,764
-------------
$ 699,585
=============
</TABLE>
NOTE 7 - SUBSEQUENT EVENTS
In September 1997, the Company sold all of its assets related to the diagnostic
imaging business for $1,500,000. Pursuant to the sale, BMA entered into a
settlement agreement to resolve pending litigation brought against them by the
former manager of the facility. The former manager, who is also a shareholder of
the general partner of BMA, claimed that BMA owed him management fees from prior
periods and obtained a temporary restraining order preventing the sale. In
consideration for the termination of the restraining order, BMA, together with
an affiliate, Queens MRI Associates, L.P., agreed to pay the former manager the
sum of $345,000 from the proceeds of the sale. BMA's portion of this settlement
amounted to $172,500 and has been included in the accompanying financial
statements.
Page 9
<PAGE>
DEDICATED MEDICAL
IMAGING, SAN CLEMENTE, INC.
FINANCIAL STATEMENTS
December 31, 1996
<PAGE>
DEDICATED MEDICAL IMAGING, SAN CLEMENTE, INC.
TABLE OF CONTENTS
December 31, 1996
FINANCIAL STATEMENTS PAGE
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations and Accumulated Deficit 3
Statement of Cash Flows 4
Notes to Financial Statements 5-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Dedicated Medical Imaging, San Clemente, Inc.
We have audited the accompanying balance sheet of Dedicated Medical Imaging, San
Clemente, Inc. as of December 31, 1996 and the related statements of operations
and accumulated deficit and cash flows for the year then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dedicated Medical Imaging, San
Clemente, Inc. as of December 31, 1996 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Weisberg & Company, LLP
Carle Place, New York
November 21, 1997
<PAGE>
DEDICATED MEDICAL IMAGING, SAN CLEMENTE, INC.
BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Accounts receivable, net - note 3 $ 348,815
Prepaid expenses 6,376
-----------
Total Current Assets 355,191
Property and equipment, net - notes 1c and 4 1,275,377
Deposits 61,670
Due from officer 140,519
-----------
Total Assets $ 1,832,757
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 399,800
Due to affiliates 11,365
Current portion of notes payable - note 5 210,723
Current portion of obligations under capital leases - note 6 144,059
-----------
Total Current Liabilities 765,947
Notes payable - note 5 401,697
Obligations under capital leases - note 6 689,630
-----------
Total Liabilities 1,857,274
-----------
COMMITMENTS AND CONTINGENCIES - note 6
STOCKHOLDERS' DEFICIT
Capital stock (no par value; 10,000 shares authorized,
5,000 shares issued and outstanding) --
Accumulated deficit (24,517)
-----------
Total Stockholders' Deficit (24,517)
-----------
Total Liabilities and Stockholders' Deficit $ 1,832,757
===========
</TABLE>
See notes to financial statements. Page 2
<PAGE>
DEDICATED MEDICAL IMAGING, SAN CLEMENTE, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
REVENUE $ 1,045,279
-----------
EXPENSES
Medical supplies and other operating costs 503,528
Payroll and related costs 274,089
Other general and administrative expenses 106,625
Depreciation and amortization 115,045
Interest expense 82,129
-----------
Total Expenses 1,081,416
-----------
Net Loss From Operations (36,137)
OTHER INCOME
Gain on sale of property and equipment 11,620
-----------
NET LOSS (24,517)
Accumulated deficit - beginning of year --
-----------
Accumulated deficit - end of year $ (24,517)
===========
</TABLE>
See notes to financial statements. Page 3
<PAGE>
DEDICATED MEDICAL IMAGING, SAN CLEMENTE, INC.
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (24,517)
---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 115,045
Gain on sale of property and equipment (11,620)
Changes in assets and liabilities:
Accounts receivable (172,615)
Prepaid expenses (6,376)
Deposits (37,125)
Due from officer (87,800)
Accounts payable and accrued expenses 267,109
Due to affiliates 11,365
---------
Total adjustments 77,983
---------
Net cash provided by operating activities 53,466
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (422,913)
Proceeds from sale of property and equipment 20,000
---------
Net cash used in investing activities (402,913)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 472,500
Principal payments - notes payable (91,809)
Principal payments - capital lease obligations (31,244)
---------
Net cash provided by financing activities 349,447
---------
Net increase in cash and cash equivalents --
Cash and cash equivalents - beginning of year --
---------
Cash and cash equivalents - end of year $ --
=========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 74,431
=========
Income taxes paid $ --
=========
Non-cash investing and financing activities:
Equipment financing $ 803,500
=========
</TABLE>
See notes to financial statements. Page 4
<PAGE>
DEDICATED MEDICAL IMAGING, SAN CLEMENTE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Nature of Business
Dedicated Medical Imaging, San Clemente, Inc. (the "Company") was organized
to acquire and operate a diagnostic imaging center in San Clemente,
California. The Company acquired the center and commenced operations in
February 1995. The acquisition was funded by the assumption of the debt on
the equipment acquired in the amount of $141,000. The value of the
equipment on the date of the acquisition was substantially the same as the
debt assumed; accordingly, no goodwill was recorded in connection with the
transaction.
b) Cash and Cash Equivalents
Cash and cash equivalents for purposes of statement of cash flows includes
cash in banks and on hand.
c) Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the shorter of the estimated
useful lives of the respective assets or the lease term. Maintenance and
repairs are charged to expense as incurred.
d) Leases
Leases which meet certain criteria evidencing substantive ownership are
capitalized and the related capital lease obligations are included in
current and long-term liabilities. Amortization and interest are charged to
expense, with rent payments being treated as payments of the capital lease
obligations. All other leases are accounted for as operating leases, with
rent payments being charged to expenses as incurred.
e) Revenue Recognition
Revenue is recorded as services are rendered to patients in accordance with
the radiology services agreement (see note 2).
f) Income Taxes
The Company has elected to be treated as a Sub-chapter "S" corporation for
federal and state income tax purposes. Accordingly, no provision has been
made for federal income taxes as such taxes are the responsibility of the
individual stockholders. However, the company is liable for certain minimum
state income taxes.
Page 5
<PAGE>
DEDICATED MEDICAL IMAGING, SAN CLEMENTE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
g) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
NOTE 2 - RADIOLOGISTS AGREEMENTS
The Company entered into a radiology services agreement and billing and
collection agreement with a group of radiologists. Under the agreements, the
radiologist group provides technical and professional services to the Company to
enable them to operate the center. Additionally, the radiologist group provides
billing and collection services for the center. The Company is responsible for
providing the non-technical services including management of the operations,
securing and maintaining the facility and the equipment, employment of personnel
and other administrative services.
Patients are billed globally with the radiologist group retaining the technical
component approximating 25% of aggregate patient charges; the balance of the
charges, which relate to the non-technical component, revert to the Company.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following:
<TABLE>
<S> <C>
Accounts receivable $ 676,837
Less: allowance for doubtful accounts and contractual
adjustments (328,022)
---------
$ 348,815
=========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<S> <C>
Medical diagnostic equipment $ 1,090,996
Office equipment, furniture and fixtures 6,196
Leasehold improvements 326,566
-----------
1,423,758
Less: accumulated depreciation and amortization (148,381)
-----------
$ 1,275,377
===========
</TABLE>
Page 6
<PAGE>
DEDICATED MEDICAL IMAGING, SAN CLEMENTE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 5 - NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<S> <C>
a) Promissory note - to radiologist group, interest only payable quarterly
at a rate of 10.25% per annum; principal due September 1997.
$ 50,000
b) Promissory note - to radiologist group, due in weekly installments of
$5,000, non interest bearing; balance was fully due and payable at
December 31, 1996. 25,000
c) Note payable - due in monthly installments of $6,006, including
interest at a rate of 16% per annum, through March 1999; collateralized
by medical equipment. 135,418
d) Note payable - due in monthly installments of $2,010, including
interest at a rate of 10.948% per annum, through
March 200l; collateralized by medical equipment. 80,398
e) Note payable - due in monthly installments of $2,650, including
interest at a rate of 12.338% per annum, through
August 2000; collaterized by medical equipment. 93,412
f) Note payable - due in monthly installments of $5,481, including
interest at a rate of 10.5% per annum, through
April 2001. $ 228,192
-----------
612,420
Less: current portion (210,723)
-----------
$ 401,697
===========
</TABLE>
Maturities of notes payable are as follows:
<TABLE>
Year Amount
---- ------
<S> <C>
1997 $ 210,723
1998 154,565
1999 119,103
2000 102,640
2001 25,389
-------------
$ 612,420
=============
</TABLE>
Page 7
<PAGE>
DEDICATED MEDICAL IMAGING, SAN CLEMENTE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
In February 1995, the Company entered into a three-year agreement to lease space
for its facility. The lease provides for certain escalation clauses and three
three-year renewal options. Rent expense under the lease amounted to $143,460
for the year ended December 31, 1996.
The Company has entered into non-cancelable lease agreements for certain medical
diagnostic equipment and has capitalized the assets related to these leases. The
leases are secured by the related equipment.
Future minimum payments under leases at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
1997 $ 220,944 $ 146,016
1998 220,944 24,531
1999 220,944 --
2000 218,264 --
2001 170,720 --
----------- -----------
Total minimum lease payments 1,051,816 $ 170,547
===========
Less: amount representing interest (218,127)
-----------
Present value of minimum lease payments $ 833,689
===========
</TABLE>
Litigation
Counsel advises that the Company has no material liability in any commercial
litigation.
NOTE 7 - SUBSEQUENT EVENTS
In January 1997, the Company sold all of its assets related to the diagnostic
imaging center, except for the accounts receivable, for $1,030,000. In addition,
the Company will receive an "earnout" of four times the excess of the net income
(as defined) of the center over $250,000 for the first twelve month period
following the closing of the sale. This additional consideration is subject to a
maximum of $2,000,000 and will be reduced by losses, if any, incurred by Long
Beach Radiology Center, Ltd., a related entity whose assets were sold pursuant
to the sale of the Company's assets. In connection with the sale, the
liabilities associated with the medical equipment were assumed by the purchaser.
Page 8
<PAGE>
LONG BEACH RADIOLOGY
CENTER, LTD.
(A limited liability company)
FINANCIAL STATEMENTS
December 31, 1996
<PAGE>
LONG BEACH RADIOLOGY CENTER, LTD.
(A limited liability company)
TABLE OF CONTENTS
December 31, 1996
FINANCIAL STATEMENTS PAGE
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations and Members' Deficit 3
Statement of Cash Flows 4
Notes to Financial Statements 5-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Members of Long Beach
Radiology Center, Ltd.
We have audited the accompanying balance sheet of Long Beach Radiology Center,
Ltd. as of December 31, 1996 and the related statements of operations and
members' deficit and cash flows for the period October 1, 1996 (inception)
through December 31, 1996. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Long Beach Radiology Center,
Ltd. as of December 31, 1996 and the results of its operations and its cash
flows for the period October 1, 1996 (inception) through December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Weisberg & Company, LLP
Carle Place, New York
November 21, 1997
<PAGE>
LONG BEACH RADIOLOGY CENTER, LTD.
(A limited liability company)
BALANCE SHEET
December 31, 1996
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents - note 1b $ --
Accounts receivable, net - note 3 46,680
Due from affiliates 11,365
-----------
Total Current Assets 58,045
Property and equipment, net - notes 1c and 4 593,750
Goodwill (net of accumulated amortization of $6,380) 500,895
Deposits 57,791
-----------
Total Assets $ 1,210,481
===========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 66,356
Current portion of notes payable - note 5 214,678
-----------
Total Current Liabilities 281,034
Notes payable - note 5 1,020,388
-----------
Total Liabilities 1,301,422
COMMITMENTS AND CONTINGENCIES - note 6
MEMBERS' DEFICIT (90,941)
-----------
Total Liabilities and Members' Deficit $ 1,210,481
===========
</TABLE>
See notes to financial statements. Page 2
<PAGE>
LONG BEACH RADIOLOGY CENTER, LTD.
(A limited liability company)
STATEMENT OF OPERATIONS AND MEMBERS' DEFICIT
For the Period October 1, 1996 (inception) through December 31, 1996
<TABLE>
<S> <C>
REVENUE $ 49,372
---------
EXPENSES
Medical supplies and other operating costs 26,168
Payroll and related costs 9,527
Other general and administrative expenses 30,851
Depreciation and amortization 37,630
Interest expense 36,137
---------
Total Expenses 140,313
---------
NET LOSS (90,941)
Members' deficit - beginning of period --
---------
Members' deficit - end of period $ (90,941)
=========
</TABLE>
See notes to financial statements. Page 3
<PAGE>
LONG BEACH RADIOLOGY CENTER, LTD.
(A limited liability company)
STATEMENT OF CASH FLOWS
For the Period October 1, 1996 (inception) through December 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (90,941)
---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 37,630
Changes in assets and liabilities:
Accounts receivable (46,680)
Due from affiliates (11,365)
Deposits (57,791)
Accounts payable and accrued expenses 66,356
---------
Total adjustments (11,850)
---------
Net cash used in operating activities (102,791)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 102,791
---------
Net increase in cash and cash equivalents --
Cash and cash equivalents - beginning of period --
---------
Cash and cash equivalents - end of period $ --
=========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ --
=========
Income taxes paid $ --
=========
</TABLE>
See notes to financial statements. Page 4
<PAGE>
LONG BEACH RADIOLOGY CENTER, LTD.
(A limited liability company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Nature of Business
Long Beach Radiology Center, Ltd. (the "Company") was organized to acquire
and operate a diagnostic imaging center in Long Beach, California. The
Company acquired all of the assets of the center and commenced operations
on October 1, 1996. The acquisition was funded by the assumption of the
debt on the equipment acquired in the amount of $1,132,275. The excess of
the debt assumed over the fair value of the assets acquired amounted to
$507,275 and has been recorded as goodwill.
b) Cash and Cash Equivalents
Cash and cash equivalents for purposes of statement of cash flows includes
cash in banks and on hand.
c) Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally five years. Maintenance and repairs are charged to expense as
incurred.
d) Goodwill
Goodwill is being amortized using the straight-line method over twenty
years.
e) Revenue Recognition
Revenue is recorded as services are rendered to patients in accordance with
the radiology services agreement (see note 2).
f) Income Taxes
No provision for federal income taxes are necessary in the financial
statements of the Company as these taxes are the responsibility of the
individual members. However, the Company is subject to certain minimum
state income taxes.
g) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Page 5
<PAGE>
LONG BEACH RADIOLOGY CENTER, LTD.
(A limited liability company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 2 - RADIOLOGISTS AGREEMENTS
The Company entered into a radiology services agreement and billing and
collection agreement with a group of radiologists. Under the agreements, the
radiologist group provides technical and professional services to the Company to
enable them to operate the center. Additionally, the radiologist group provides
billing and collection services for the center. The Company is responsible for
providing the non-technical services including management of the operations,
securing and maintaining the facility and the equipment, employment of personnel
and other administrative services.
Patients are billed globally with the radiologist group retaining the technical
component equal to $70 per patient scan; the balance of the patient charges,
which relate to the non-technical component, revert to the Company.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following:
<TABLE>
<S> <C>
Accounts receivable $ 87,824
Less: allowance for doubtful accounts and contractual
adjustments (41,144)
--------
$ 46,680
========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<S> <C>
Medical diagnostic and other equipment $ 625,000
Less: accumulated depreciation (31,250)
---------
$ 593,750
=========
</TABLE>
Page 6
<PAGE>
LONG BEACH RADIOLOGY CENTER, LTD.
(A limited liability company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 5 - NOTES PAYABLE
In connection with the acquisition of the diagnostic imaging center (see note
1), the Company assumed the note payable on the medical equipment in the amount
of $1,132,275. Terms of the note provide for monthly payments, including
interest of approximately 11 1/2% per annum, of $23,500 through January 2002 and
one payment of $34,648 in February 2002. The note is secured by the related
medical equipment.
The Company entered into a note payable to finance a deposit on the purchase of
certain medical equipment and to provide additional working capital in the
aggregate amount of $102,791. Terms of the note provide for monthly payments,
including interest of approximately 12% per annum, of $2,298 through September
2001.
Maturities of the notes payable are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 214,678
1998 205,947
1999 230,189
2000 257,287
2001 280,607
Thereafter 46,358
---------------
$ 1,235,066
===============
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
In connection with the acquisition of the diagnostic imaging center (see note
1), the Company assumed the obligation under the former owners' ground lease.
The lease provides for monthly payments of $500 through its expiration in
December 2003. The lease also provides for certain other charges as well as an
option for renewal periods. For the period October 1, 1996 (inception) through
December 31, 1996, rent expense amounted to $1,500.
Page 7
<PAGE>
LONG BEACH RADIOLOGY CENTER, LTD.
(A limited liability company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
Future minimum payments under the lease at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $ 6,000
1998 6,000
1999 6,000
2000 6,000
2001 6,000
Thereafter 12,000
-----------------
Total minimum lease payments $ 42,000
================
</TABLE>
Litigation
Counsel advises that the Company has no material liability in any commercial
litigation.
NOTE 7 - SUBSEQUENT EVENTS
In January 1997, the Company sold all of its assets related to the diagnostic
imaging center. As consideration for the assets sold, the Company will receive
an amount equal to four times net income (as defined) of the center for the
first twelve month period following the closing of the sale. To the extent that
the center operations result in a net loss, the amount of the "earnout" received
in connection with the sale of Dedicated Medical Imaging, San Clemente, Inc., a
related party whose assets were sold pursuant to the sale of the Company's
assets, will be reduced accordingly. In connection with this sale, substantially
all liabilities were assumed by the purchaser.
Page 8
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
COMBINED FINANCIAL STATEMENTS
December 31, 1996
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
TABLE OF CONTENTS
December 31, 1996
PAGE
COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report 1
Combined Balance Sheet 2
Combined Statement of Operations and Retained Earnings/Partners' Capital 3
Combined Statement of Cash Flows 4
Notes to Combined Financial Statements 5-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Queens MRI Associates, L.P.
and the Stockholders of Magnetic Resonance Imaging
of Queens, P.C.
We have audited the accompanying combined balance sheet of Queens MRI
Associates, L.P. and Magnetic Resonance Imaging of Queens, P.C. (collectively,
the "Company") as of December 31, 1996 and the related combined statements of
operations and retained earnings/partners' capital and cash flows for the year
then ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Company
as of December 31, 1996, and the combined results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Weisberg & Company, LLP
Carle Place, New York
October 29, 1997
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
COMBINED BALANCE SHEET
December 31, 1996
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents - note 1c $ 121,952
Accounts receivable, net - note 2 792,915
Prepaid expenses 5,442
----------
Total Current Assets 920,309
Property and Equipment, net - notes 1d and 3 449,219
Security deposits 18,902
Due from affiliates - note 4 51,812
----------
Total Assets $1,440,242
==========
LIABILITIES AND STOCKHOLDERS' AND PARTNERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 179,423
Sales tax payable 16,296
Deferred rent 38,587
Deferred income taxes payable - note 5 31,717
Distributions payable 981
----------
Total Current Liabilities 267,004
----------
Commitments and Contingencies - note 6
STOCKHOLDERS' AND PARTNERS' EQUITY
Common stock 500
Retained earnings 796,464
Partners' capital 376,274
----------
Total Stockholders' and Partners' Equity 1,173,238
----------
Total Liabilities and Stockholders' and Partners' Equity $1,440,242
==========
</TABLE>
See notes to combined financial statements. Page 2
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
COMBINED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS/PARTNERS' CAPITAL
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
REVENUE $ 4,319,058
-----------
EXPENSES
Payroll and related costs 341,350
Medical supplies and other operating costs 2,285,115
General and administrative expenses 1,441,692
Depreciation and amortization 175,398
Interest expense 10,493
-----------
Total Expenses 4,254,048
-----------
Net income before provision for income taxes 65,010
Provision for income taxes - notes 1f and 5 41,267
-----------
Net income 23,743
Retained Earnings/Partners' Capital - beginning of year 1,360,595
Partners' distributions (211,600)
-----------
Retained Earnings/Partners' Capital - end of year $ 1,172,738
===========
</TABLE>
See notes to combined financial statements. Page 3
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
COMBINED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 23,743
---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 175,398
Changes in assets and liabilities:
Accounts receivable 110,430
Prepaid expenses (3,279)
Due from affiliates (1,290)
Security deposits 2,933
Accounts payable and accrued expenses 126,552
Sales tax payable 12,464
Deferred rent (5,317)
Deferred taxes payable 31,717
---------
Total Adjustments 449,608
---------
Net cash provided by operating activities 473,351
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments - notes payable (149,828)
Partners' distributions (249,200)
---------
Net cash used in financing activities (399,028)
---------
Net increase in cash and cash equivalents 74,323
Cash and cash equivalents - beginning of year 47,629
---------
Cash and cash equivalents - end of year $ 121,952
=========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 10,493
=========
Income taxes paid $ 4,036
=========
</TABLE>
See notes to combined financial statements. Page 4
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Nature of Business
Queens MRI Associates, L.P. (a limited partnership) ("QMA") and Magnetic
Resonance Imaging of Queens, P.C. (a corporation) ("MRI") (collectively,
the "Company") operates and manages an outpatient diagnostic imaging center
in Queens, New York.
b) Principles of Combination
The combined financial statements include the accounts of QMA and MRI.
Certain shareholders of the general partner of "QMA" are shareholders of
MRI. By agreement, QMA subleases the facility and the equipment to MRI to
enable them to perform diagnostic services. Additionally, QMA manages the
operations of the imaging center. All sublease fees and management fees
charged by QMA to MRI have been eliminated in combination.
c) Cash and Cash Equivalents
Cash and cash equivalents for purposes of statement of cash flows includes
cash in banks and on hand.
d) Property and Equipment
Property and equipment are stated at cost and are depreciated or amortized
using accelerated methods in accordance with income tax statutes and lives.
Computed depreciation does not vary significantly from depreciation
computed using the straight-line basis over the shorter of the estimated
useful lives of the related assets or the term of the lease. Repairs and
maintenance which do not prolong normal asset life are charged to expense
incurred.
e) Revenue Recognition
Revenue is recognized as services are rendered to patients.
Page 5
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f) Income Taxes
MRI
MRI applies the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires a
company to recognize deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in a company's
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
For the year ended December 31, 1996, differences between taxable income
and income for financial statement purposes were not significant.
Accordingly, no provision for deferred income taxes has been included in
the financial statements.
QMA
No provision for federal or state income taxes are necessary in the
financial statements of QMA as these taxes are the responsibility of the
individual partners. However, QMA is liable for the New York City
Unincorporated Business Tax and applies the provisions of SFAS 109 as it
relates to such taxes.
g) Use of Estimates
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Actual results could differ
from those estimates.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable is comprised of the following:
<TABLE>
<S> <C>
Accounts receivable $ 1,789,330
Less: Allowance for doubtful accounts and
contractual adjustments (996,415)
-----------
$ 792,915
===========
</TABLE>
Page 6
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 3 - PROPERTY AND EQUIPMENT
Property and Equipment is comprised of the following:
<TABLE>
<S> <C>
Medical diagnostic and other equipment $ 1,614,405
Leasehold improvements 553,980
Furniture and fixtures 13,893
-----------
2,182,278
Less: accumulated depreciation and amortization (1,733,059)
-----------
$ 449,219
===========
</TABLE>
NOTE 4 - DUE FROM AFFILIATES
Due from affiliates represents advances made by QMA to its general partner for
the purpose of funding its corporate tax obligations. The advances are
non-interest bearing and do not provide for specific repayment terms.
NOTE 5 - INCOME TAXES
Provisions for income taxes consists of the following:
<TABLE>
<S> <C>
Current
New York City Corporation Tax 5,514
New York City Unincorporated Business Tax 4,036
-------
9,550
Deferred
New York City Unincorporated Business Tax 31,717
-------
$41,267
=======
</TABLE>
The Company has elected to be taxed on the cash basis of accounting.
Accordingly, revenues are not taxed until received and expenses are not deducted
until paid. The deferred tax liability represents the taxes to be paid on the
excess of uncollected revenues over unpaid expenses.
Page 7
<PAGE>
QUEENS MRI ASSOCIATES, L.P.
MAGNETIC RESONANCE IMAGING
OF QUEENS, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES
In 1990, the Company entered into a ten year operating lease for its facility.
The lease contains escalation clauses throughout the term and requires
additional payments for a portion of the increase in real estate taxes on the
facility. Rent expense incurred under the lease amounted to $79,285 for the year
ended December 31, 1996.
Future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 84,583
1998 88,811
1999 85,126
----------
$ 258,520
==========
</TABLE>
NOTE 7 - SUBSEQUENT EVENTS
In September 1997, the Company sold all of its assets related to the diagnostic
imaging business for $2,000,000. Pursuant to the sale, QMA entered into a
settlement agreement to resolve pending litigation brought against them by the
former manager of the facility. The former manager, who is also a shareholder of
the general partner of QMA, claimed that QMA owed him management fees from prior
periods and obtained ta temporary restraining order preventing the sale. In
consideration for the termination of the restraining order, QMA, together with
an affiliate, Bronx MRI Associates, L.P., agreed to pay the former manager the
sum of $345,000 from the proceeds of the sale. QMA's portion of this settlement
amounted to $172,500 and has been included in the accompanying financial
statements
Page 8
<PAGE>
WESLEY MEDICAL RESOURCES, INC.
AND WESLEY MANAGEMENT GROUP, INC.
Combined Financial Statement for the
Years Ended December 31, 1996 and 1995
and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Wesley Medical Resources, Inc. and
Wesley Management Group, Inc.:
We have audited the accompanying combined balance sheets of Wesley Medical
Resources, Inc. and Wesley Management Group, Inc (an affiliated corporation)
both of which are under common ownership and common management, as of December
31, 1996 and 1995, and the related combined statements of income, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Companies' 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, such financial statements present fairly, in all material
respects, the combined financial position of Wesley Medical Resources, Inc. and
Wesley Management Group, Inc. (an affiliated corporation) at December 31, 1996
and 1995, and the combined results of their operations and their combined cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Our audits were conducted for the purpose of forming an opinion on the basic
combined financial statements taken as a whole. The combining schedules on pages
10-15 are presented for the purpose of additional analysis of the basic combined
financial statements rather than to present the financial position, results of
operations, and cash flows of the individual companies, and are not a required
part of the basic combined financial statements. These schedules are the
responsibility of the Companies' management. Such schedules have been subjected
to the auditing procedures applied in our audits of the basic combined financial
statements and, in our opinion, are fairly stated in all material respects when
considered in relation to the basic combined financial statements taken as a
whole.
/s/ Deloitte & Touche, LLP
San Jose, California
June 3, 1997
<PAGE>
WESLEY MEDICAL RESOURCES, INC. AND
WESLEY MANAGEMENT GROUP, INC.
Combined Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 244 $ 200,388
Accounts receivable, net of allowance for doubtful
accounts of $4,680 in 1996 and $2,732 in 1995 828,742 1,000,066
Prepaid expenses and other assets 87,487 47,227
----------- -----------
Total current assets 916,473 1,247,681
PROPERTY AND EQUIPMENT, Net 51,399 50,713
DUE FROM OFFICER 607,001 327,803
GOODWILL 32,275 41,375
----------- -----------
TOTAL $ 1,607,148 $ 1,667,572
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 565,036 $ 582,998
Accounts payable 191,826 141,917
Accrued liabilities 31,870 83,418
Payroll taxes payable 371 16,552
Deferred income taxes 22,935 17,788
Notes payable 13,769 15,799
----------- -----------
Total current liabilities 825,807 858,472
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock 155,079 111,079
Deferred stock compensation -- (3,500)
Retained earnings 626,262 701,521
----------- -----------
Total shareholders' equity 781,341 809,100
----------- -----------
TOTAL $ 1,607,148 $ 1,667,572
=========== ===========
</TABLE>
See notes to combined financial statements.
2
<PAGE>
WESLEY MEDICAL RESOURCES, INC. AND
WESLEY MANAGEMENT GROUP, INC.
Combined Statements of Income
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
REVENUES $ 3,981,630 $ 4,371,068
----------- -----------
Nurse wage 2,669,517 2,937,587
Payroll taxes 242,260 261,452
Insurance and benefits 66,162 57,936
----------- -----------
Total 2,977,939 3,256,975
----------- -----------
GROSS PROFIT 1,003,691 1,114,093
----------- -----------
GENERAL AND ADMINISTRATIVE:
Auto expense 1,800 12,676
Bank service fees 12,939 12,445
Consulting 14,603 112,670
Depreciation and amortization 21,068 15,247
Insurance (Group Health) 20,516 18,538
Legal and accounting 21,386 70,009
Salaries 442,833 371,287
Payroll taxes 38,339 29,298
Rent 74,409 39,354
Telephone 30,163 23,426
Travel 27,476 41,205
Other general and administrative expenses 139,249 81,021
----------- -----------
Total operating expenses 844,781 827,176
----------- -----------
OPERATING INCOME 158,910 286,917
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 28,845 20,081
Interest expense (42,425) (37,529)
----------- -----------
Total other expenses (13,580) (17,448)
----------- -----------
INCOME BEFORE INCOME TAXES 145,330 269,469
PROVISION FOR INCOME TAXES 9,167 13,856
----------- -----------
NET INCOME $ 136,163 $ 255,613
=========== ===========
</TABLE>
See notes to combined financial statements.
3
<PAGE>
WESLEY MEDICAL RESOURCES, INC. AND
WESLEY MANAGEMENT GROUP, INC.
Combined Statements of Shareholders' Equity
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Deferred
Common Stock Retained
Stock Compensation Earnings Total
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 58,085 $ (10,500) $ 445,908 $ 493,493
Amortization of deferred stock
compensation 7,000 7,000
Contributed capital 40,391 -- -- 40,391
Issuance of common stock 12,603 -- -- 12,603
Net income -- -- 255,613 255,613
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1995 111,079 (3,500) 701,521 809,100
Amortization of deferred stock
compensation 3,500 3,500
Contributed capital 44,000 -- -- 44,000
Issuance of common stock -- -- (211,422) (211,422)
Net income -- -- 136,163 136,163
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 $ 155,079 $ -- $ 626,262 $ 781,341
========= ========= ========= =========
</TABLE>
See notes to combined financial statements.
4
<PAGE>
WESLEY MEDICAL RESOURCES, INC. AND
WESLEY MANAGEMENT GROUP, INC.
Combined Statements of Cash Flows
Years Ended December 31, 996 and 1995
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 136,163 $ 255,613
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,034 11,122
Noncash expense in exchange for contributed capital 44,000 40,391
Noncash charge for stock compensation 3,500 7,000
Goodwill amortization 9,100 4,125
Deferred income taxes 5,147 --
Changes in assets and liabilities:
Accounts receivable 171,324 (409,896)
Prepaid expenses and other assets (43,324) 5,203
Accounts payable 49,909 3,844
Accrued and other liabilities (51,548) 72,289
Payroll taxes payable (16,181) 14,466
--------- ---------
Net cash provided by operating activities 320,124 4,157
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (12,720) (8,932)
Loans to officer (276,134) (27,803)
Purchase of RNE Medstaff -- (62,500)
--------- ---------
Net cash used in investing activities (288,854) (99,235)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (repayments) on line of credit, net (17,962) 282,998
Borrowing on note payable -- 15,799
Repayment of notes payable (2,030) (16,470)
Distribution to shareholder (211,422) --
Proceeds form issuance of common stock -- 12,603
--------- ---------
Net cash provided (used in) by financing activities (231,414) 294,930
--------- ---------
NET INCREASE (DECREASE IN CASH & CASH EQUIVALENTS (200,144) 199,852
CASH AND CASH EQUIVALENTS, Beginning of year 200,388 536
--------- ---------
CASH AND CASH EQUIVALENTS, End of year $ 244 $ 200,388
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 42,425 $ 34,872
========= =========
Cash paid for income taxes $ 2,500 $ --
========= =========
</TABLE>
See notes to combined financial statements.
5
<PAGE>
WESLEY MEDICAL RESOURCES, INC. AND
WESLEY MANAGEMENT GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996 AND 1995
1. Summary of Organization and Significant Accounting Policies
Basis of Combination - The accompanying combined financial statements
include the accounts of Wesley Medical Resources ("WMR") and the related
entity Wesley Management Group, Inc. ("WMG"), collectively referred to as
the "Companies." The President of WMR and WMG is the sole shareholder of
WMR and WMG. All significant related company transaction have been
eliminated.
Organizaton - Wesley Medical Resources, Inc. was incorporated in 1988 in
the State of California. WMR provides supplemental health care staffing to
hospitals, clinics and similar health care institutions. WMR also operates
under the names of Wesley Nursing Services, Inc. and Medstaff Personnel
Services. Wesley Management Group was incorporated in 1995 in the State of
California and provides administrative and accounting services primarily
for WMR and provides supplemental healthcare staffing to hospitals, clinics
and similar healthcare in the state of Nevada under the name StaffMates.
Property and Equipment are recorded at cost and are depreciated using the
straight-line method over five to ten years, the estimated useful life of
the related assets.
Goodwill are the costs in excess of net assets acquired resulting from a
1995 business acquisition. Goodwill is being amortized on a straight-line
basis over five years (Note 2). The carrying value of goodwill is reviewed
periodically based on the projected undiscounted cash flows of the related
business over the remaining amortization period. If the cash flow indicates
that the goodwill is not recoverable, the carrying value will be reduced by
the estimated shortfall of the cash flows. No reduction in goodwill was
necessary for 1995 and 1996.
Revenue Recognition - The Companies recognize revenues as services are
provided.
Income Taxes - The Companies record income taxes based on Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
requires the asset and liability approach for financial accounting and
reporting of income taxes.
Income taxes are provided for federal income tax and California franchise
tax. WMR and its shareholder have elected, under federal and California tax
law, to be treated as an S Corporation. Under these provisions, the
shareholder is taxed individually on the allocated share of WMR's income.
Therefore, no provision is made for federal income taxes for WMR. Although
S Corporation status is recognized for California income tax purposes, the
state requires S Corporation to pay a tax of 1.5% of taxable income. Tax
liabilities for WMG reflect tax rates applies to corporations other than S
corporations.
Cash Equivalents - The Companies consider all highly liquid investment with
original maturities not exceeding three months to be cash equivalents. All
cash equivalents at December 31, 1996 are held with one financial
institution.
6
<PAGE>
Use of Estimates - The preparation of the Companies' financial statements
in conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates and the reported amounts
of revenues and expenses for the periods presented. Actual results could
differ from those estimates.
Effect of Recent Accounting Pronouncements - In 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets," which requires that the Company review
for impairment of long-lived assets, and certain identifiable intangibles,
and goodwill related to those assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management believes that there was no impairment of long-lived
assets as of December 31, 1996.
2. Acquisition
On July 16, 1995, WMR acquired substantially all of the assets and assumed
certain liabilities of RNE Medstaff ("RNE") for approximately $62,500. WMR
recorded the acquisition using the purchase method of accounting.
Accordingly, WMR allocated the purchase price to assets and liabilities
based on their estimated fair values as of the date of acquisition and
recorded goodwill of $45,500 which is being amortized on a straight-line
basis over five years. The results of operations of RNE since the
acquisition date have been included in the financial statements.
3. Property and Equipment
Property and equipment consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Equipment $ 17,938 $ 8,933
Furniture and fixtures 65,277 61,628
-------- --------
Total 83,215 70,561
Less accumulated depreciation (31,816) (19,848)
-------- --------
Total $ 51,339 $ 50,713
======== ========
</TABLE>
4. Due from Officers
At December 31, 1995, the sole shareholder of WMR had a note payable
bearing interest at 6.66%, to WMR for $300,000, which was paid in full in
1996. On December 31, 1996, the shareholder entered into another borrowing
agreement for $475,000 with WMR. The note bears interest at the Applicable
Federal Rate (5.52% at December 31, 1996).
At December 31, 1995, $27,803 was due from two officers of WMG on notes
bearing interest at 7.44%, and was paid in full in 1996. On December 31,
1996, the sole shareholder of WMG, entered into another borrowing agreement
for $120,000 with WMG. The note bears interest at the Applicable Federal
Rate (5.52% at December 31, 1996).
At December 31, 1996, the above notes have $12,001 of related interest
receivable included in the balances.
7
<PAGE>
5. Borrowing Arrangements
WMR had a $1,000,000, limited to 75% of eligible accounts receivable,
revolving line of credit agreement with a bank which expired on April 30,
1997. Borrowings under the line of credit are collateralized by
substantially all of the assets of the Companies and bear interest at the
Bank's reference interest rate (8.25% and 8.5% at December 31, 1996 and
1995) plus 3%. The Companies had outstanding borrowings of $565,036 and
$582,998 under the line of credit at December 31, 996 and 1995. The
revolving line of credit agreement requires the Companies to maintain
certain financial covenants. At December 31, 1996, the Companies were not
in compliance with such covenants.
In May 1997, WMR entered into a $750,000 credit facility, limited to 90% of
eligible accounts receivable, which is due upon the collection of WMR
accounts receivables. WMR incurs a daily finance charge of 0.05% on the
face amount of each outstanding unpaid receivable. Proceeds from this new
credit facility were used to repay WMR's revolving line of credit agreement
which expired on April 30, 1997. The credit facility is due upon the demand
of the lender.
The Companies finance a portion of their annual insurance premiums through
a note payable with the insurance company. At December 31, 1996 and 1995,
the notes had an outstanding balance of $13,769 and $15, 799, respectively.
The notes bear interest at a rate of 9.75% and are due within one year.
Interest expense related to these notes approximately $220 for both of the
years ended December 31, 1996 and 1995, respectively.
6. Income Taxes
The components of the provision (benefit) for income taxes for the years
ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current -
California $ 4,020 $ 1,600
------- -------
Deferred:
Federal 5,326 2,445
California (179) 9,811
------- -------
Total deferred 5,147 12,256
------- -------
Provision for income taxes $ 9,167 $13,856
======= =======
</TABLE>
The deferred tax liability at December 31, 1996 and 1995 of $22,935 and
$17,778, respectively, consisted of adjustments to cash basis tax
accounting and reserves recognized in different periods.
7. Operating Leases
The Companies' facilities are leased under operating leases which expire
through fiscal year 1997. Future minimum payments on operating leases at
December 31, 1996 was $30,908.
Rental expense under operating leases was approximately $74,409 and $39,535
for the years ended December 31, 1996 and 1995, respectively.
8
<PAGE>
8. Shareholders' Equity
At December 31, 1996, WMR had 1,000,000 shares of no par value common stock
authorized and 1,000 shares issued and outstanding. During 1995, WMR
recorded $40,391 as contributed capital from WMR's sole shareholder. During
1996, WMG recorded $44,000 as contributed capital form WMG's sole
shareholder. Such amounts represent certain WMR and WMG expense paid by the
sole shareholder which were treated as contributed capital in lieu of
reimbursement to the sole shareholder.
At December 31, 996 and 1995, WMG had 2,000,000 shares of no par common
stock authorized. During 1995, WMG issued 1,000 shares of common stock,
which amounted to WMG's total issued and outstanding shares at December 31,
1996 and 1995.
9. Stock Compensation
In 1991, the Company entered into an employment agreement with an officer,
to distribute 3% of WMR's common shares annually until the officer had
acquired 15% of WMR's common shares. In the years ended December 31, 1996
and 1995, the Companies recognized $3,500 and $7,000 respectively, of
compensation expense related to this agreement. As of December 31, 1996, no
shares have been issued under this agreement.
10. Significant Customers
Substantially all of the Companies' customers are in the health care
industry in Northern California and Nevada. Two customers accounted for 48%
and 18% of total revenues in the year ended December 31, 1996, one of which
accounted for 71% of accounts receivable at December 31, 1996. One customer
represented 70% of revenues for the year ended December 31, 1995, and 70%
of accounts receivable at December 31, 1995.
11. Subsequent Events
In January 1997, the shareholder of WMR formed a new corporation, Allied
Personnel Services, and transferred certain operations ("StaffMates"),
which were included in the 1996 WMG results, to Allied Personnel Services.
StaffMates accounted for $82,000 of revenues, $59,000 of cost of sales and
$49,000 of expenses in 1996 and did not contribute to 1995 results.
In 1997, WMR received a draft agreement and plan of reorganization to merge
WMR and Allied Personnel Services with Medical Resources, Incorporated
("MRI") for shares of MRI worth $2,000,000 upon closing and future payments
based upon earnings of WMR and Allied Personnel Services through the year
2000. Prior to the merger with MRI, Allied Personnel Services is expected
to merge with WMR.
On June 3, 1997, in anticipation of the merger with MRI, WMR agreed to
issue 15% of WMR's common stock to an officer in connection with an
employment agreement (see Note 9). The common stock issuance is expected to
occur immediately prior to the merger with MRI and after the merger of
Allied Personnel Services with WMR. The common stock issuance is expected
to occur immediately prior to the merger with MRI and after the merger of
Allied Personnel Services with WMR. In addition, WMR agreed to lend the
officer $200,000.
9
<PAGE>
MEADOWS MEDICAL MANAGEMENT, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE>
MEADOWS MEDICAL MANAGEMENT, INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
Table of Contents
Financial Statements:
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5
Notes to Financial Statements 6
Notes to Financial Statements 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Meadows Medical Management, Inc.
Brooklyn, New York
We have audited the accompanying balance sheet of Meadows Medical Management,
Inc. as of December 31, 1996 and the related statements of operations and
retained earnings, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 misstatements. 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 the significant estimates made by management, as
well as evaluating the overall financial statements presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Meadows Medical Management, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ IVES & SULTAN, LLP
Certified Public Accountants
Woodbury, New York
January 21, 1997
1
<PAGE>
MEADOWS MEDICAL MANAGEMENT, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
Assets
<S> <C>
Current Assets
Cash and Cash Equivalents (Note 1b) $ 312
Accounts Receivable 524,898
----------
525,210
Fixed Assets - Net of Accumulated Depreciation (Note 3) 1,982,171
----------
$2,507,381
==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 113,048
Accrued Expenses (Note 4) 12,452
Current Portion of Long-Term Debt (Note 5) 345,784
Due to Affiliates (Note 2) 140,256
----------
611,540
----------
Long-Term Liabilities
Long-Term Debt - Less: Current Portion (Note 5) 1,519,530
----------
Stockholders' Equity
Capital Stock, No Par Value - 200 Shares Authorized,
Issued and Outstanding 1,000
Paid-In Capital 46,000
Retained Earnings 329,311
----------
376,311
----------
$2,507,381
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
MEADOWS MEDICAL MANAGEMENT, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues $1,782,622
----------
Expenses
Medical Supplies 36,050
Film 37,768
Payroll 380,822
Payroll Taxes 34,832
Office and Miscellaneous 46,089
Telephone 26,420
Maintenance and Repairs 13,539
Legal and Accounting 35,683
Rent 218,039
Insurance 67,430
Advertising 49,954
Travel and Entertainment 14,370
Equipment Rental 91,052
Outside Services 58,444
Interest 212,106
Sales Tax 17,565
Employee Expenses 9,366
Depreciation 314,032
----------
1,663,561
----------
Net Earnings 119,061
Retained Earnings - At Beginning 210,250
----------
Retained Earnings - At End $ 329,311
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
MEADOWS MEDICAL MANAGEMENT, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Operations
Cash Provided By (Used For) Operations:
Net Earnings $ 119,061
---------
Adjustment to Reconcile Net Earnings to
Net Cash Provided By (Used For) Operations:
Depreciation 314,032
Accounts Receivable (118,538)
Accounts Payable (2,154)
Accrued Expenses 12,452
---------
205,792
---------
Total Cash Provided By Operations 324.853
---------
Investing
Cash Provided By (Used For) Investing:
Purchase of Fixed Assets (268,346)
---------
Financing
Cash Provided By (Used For) Financing:
Loans to Affiliates 71,498
Principal Payments on Long-Term Debt (136,834)
---------
Total Cash Used For Financing (65,336)
---------
Net Decrease in Cash and Cash Equivalents (8,829)
Cash and Cash Equivalents - At Beginning 9,141
---------
Cash and Cash Equivalents - At End $ 312
=========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During The Period For:
Interest $ 199,654
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MEADOWS MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
1. Summary of Significant Accounting Policies
a. Type of Organization
Meadows Medical Management, Inc. is a New York corporation duly
organized and validly existing under the laws of the State of New
York. The corporation was organized on August 29, 1994 for the purpose
of operating a radiological health facility located in Queens, New
York. During 1995 and 1996, the Company was in the process of
constructing a new office at 163-03 Horace Harding Expressway while
operating at 161-05 Horace Harding Expressway. As of January 1, 1996,
the construction was completed and all activity is conducted out of
the new office.
b. Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid financial instruments purchased with an original
maturity of three months or less to be cash equivalents.
c. Current Assets and Current Liabilities
Current assets and current liabilities include such items expected to
be realized or liquidated during the next year.
d. Fixed Assets
Depreciation of equipment for financial reporting purposes is computed
at rates adequate to allocate the cost of applicable assets over their
expected useful lives. Straight line depreciation methods are being
utilized.
Equipment, renewals and improvements are capitalized at cost by
additions to the related asset accounts, while repairs and maintenance
costs are charged against income. The Company records sales and
retirements by removing the cost and accumulated depreciation form the
asset and reserve accounts, reflecting any resulting gain or loss in
earnings.
e. Leases and Rentals
Where equipment is leased under long term leases and the Company can
acquire the asset at prices less than fair market value upon
expiration of the lease, the asset is capitalized and the lease
obligation is included in long-term debt. Under net leases where no
opportunities exist to acquire the asset at less than fair market
value and where no residual values are available at nominal cost, the
rentals are recorded as equipment rental and the asset is not
capitalized.
f. Income Taxes
As of January 1, 1995, the Shareholders' elected to treat the Company
as a small business corporation ("S" Corporation) for income tax
purposes as provided in Section 1372 (a) of the Internal Revenue Code
and applicable state statutes. As such, the corporate income or loss
and credits are passed through to the stockholders and combined with
their other personal income and deductions to determine taxable income
on their individual returns. New York State currently imposes a tax on
S Corporation earnings in excess of $200,000.
5
<PAGE>
MEADOWS MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
2. Due to Affiliates
Due to affiliates are amounts due to related parties, Brooklyn Medical
Imaging Center and Staten Island Medical Imaging, Inc. in the amount of
$115,256 and $25,000, respectively. The amounts are due on demand and are
non-interest bearing. These related parties have similar ownership and/or
common officers.
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life
<S> <C> <C>
Medical Equipment 7 years $ 2,160,394
Leasehold Improvements 30 years 127,800
Furniture and Fixtures 7 years 8,009
-----------
2,296,203
Less: Accumulated Depreciation 314,032
-----------
$ 1,982,171
===========
</TABLE>
Depreciation expense for the year ended December 31, 1996 is $314,032. As
of December 31, 1996, the gross amount of assets recorded under capital
leases totaled $1,640,000 and accumulated depreciation related to those
assets totaled $231,071.
4. Accrued Expenses
Accrued expenses consist of interest in the amount of $12,452.
5. Long-Term Debt
<TABLE>
<S> <C>
Long-termdebt consist of the following: Lease payable - DVI Financial
Services, Inc.; capital lease secured by medical equipment; 51
monthly payments remain of $1,961 including interest at
11.08%; final payment due
March, 2001 $ 79,453
Lease payable - DVI Financial Services Inc.; capital lease
secured by medical equipment; 49 monthly payments remain of
$21,696 including interest
at 11.51%; final payment due December, 2000 852,840
Lease payable - Meadows CT Inc.; capital lease secured by
medical equipment; 104 monthly payments remain of $7,500
including interest at 9.9%; final payment
due June, 2005 516,354
Note payable - Mark D. Novick, MD, PC; 50 monthly
principal payments remain of $8,333.33 plus interest at 9.5% 416,667
----------
1,865,314
Less: Current Portion 345,784
----------
$1,519,530
==========
</TABLE>
6
<PAGE>
MEADOWS MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
5. Long-Term Debt (Continued)
Future principal debt repayments are estimated to be as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
<S> <C>
1997 $ 345,784
1998 360,853
1999 392,104
2000 421,793
2001 and Thereafter 344,780
----------
$1,865,314
==========
</TABLE>
6. Commitments and Contingencies
a. Rent
The company entered into a five year lease with Banle Associates in
August, 1995. The lease calls for rent payments of $15,000 per month
plus reimbursement for utilities and real estate taxes. Future minimum
lease payments are as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
<S> <C>
1997 $ 180,000
1998 189,000
1999 198,432
2000 202,392
-----------
$ 769,824
===========
</TABLE>
b. Equipment Rental
Meadows Medical Management, Inc. has entered into various operating
leases for equipment. These leases require total monthly payments of
approximately $7,500 per month.
7. Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade
accounts receivable. The Company places its cash and temporary cash
investments with high credit quality institutions. At times such
investments may be in excess of the FDIC insurance limit. The Company
routinely assesses the financial strengths of its customers and, as a
consequence, believes that its trade accounts receivable credit risk
exposure is limited.
8. Subsequent Events
Subsequent to the date of this report, the assets of this Company were
sold. The sale of these assets was included with the sale of other medical
imaging centers with similar ownership. This sale included all equipment
and goodwill.
7
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
Table of Contents
Financial Statements:
Independent Auditors' Report 1
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Notes to Financial Statements 7
Notes to Financial Statements 8
Notes to Financial Statements 9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Partners
Brooklyn Medical Imaging Center
Brooklyn, New York
We have audited the accompanying balance sheets of Brooklyn Medical Imaging
Center as of December 31, 1996 and 1995 and the related statements of
operations, partners' capital and cash flows for the years then ended. 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 audit.
We conducted our audit 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 misstatements. 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 the significant estimates made by management, as
well as evaluating the overall financial statements presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Brooklyn Medical Imaging Center as
of December 31, 1996 and 1995 and the results of its operations, partners'
capital and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ IVES & SULTAN, LLP
Certified Public Accountants
Woodbury, New York
February 19, 1997
1
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
Assets
<S> <C> <C>
Current Assets
Cash and Cash Equivalents (Note 1b) $ 8,807 $ 5,334
Accounts Receivable 1,210,876 578,206
Prepaid Expenses 17,751 --
Due From Affiliates (Note 2) 108,362 205,221
---------- ----------
1,345,796 788,761
---------- ----------
Fixed Assets - Net of Accumulated Depreciation (Note 3) 2,715,237 2,093,628
---------- ----------
Other Assets
Security Deposits 35,700 35,700
---------- ----------
$4,096,733 $2,918,089
========== ==========
Liabilities and Partners' Capital
Current Liabilities
Accounts Payable $ 295,340 $ 194,063
Accrued Expenses (Note 4) 24,810 --
Current Portion of Long-Term Debt (Note 5) 846,152 656,221
Line of Credit - Key Bank (Note 6) 199,203 199,203
---------- ----------
1,365,505 1,049,487
Long-Term Liabilities
Long-Term Debt - Less: Current Portion (Note 5) 1,228,364 645,874
---------- ----------
Partners' Capital 1,502,864 1,222,728
---------- ----------
$4,096,733 $2,918,089
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $ 5,295,918 $ 4,437,171
----------- -----------
Expenses
Payroll 1,478,549 1,365,309
Payroll Taxes 134,640 127,158
Employee Medical Insurance 150,589 144,678
Pension Contribution 3,459 2,362
Maintenance Contracts 188,948 243,480
Film 212,710 181,002
Medical Supplies 368,117 285,350
Rent 174,797 252,182
Real Estate Taxes 43,194 38,036
Equipment Rental 112,356 97,452
Depreciation 517,592 365,619
Maintenance and Repair 54,642 83,313
Utilities 64,394 64,007
Telephone 37,643 37,263
Advertising 60,945 19,712
Legal and Accounting 93,849 86,577
Outside Services 860,184 1,004,089
Office and miscellaneous 100,662 127,958
Postage and Messenger 29,675 22,005
Insurance 63,575 59,401
Interest 222,504 126,303
Automobile 10,538 10,938
Sales and Other Miscellaneous Taxes 32,220 42,979
----------- -----------
5,015,782 4,787,173
----------- -----------
Net Earnings (Loss) $ 280,136 $ (350,002)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Partners' Capital - Beginning $ 1,222,728 $ 1,637,730
Net Earnings (Loss) 280,136 (350,002)
----------- -----------
1,502,864 1,287,728
Less: Equity Distributions -- 65,000
----------- -----------
Partners' Capital - Ending $ 1,502,864 $ 1,222,728
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Operations
Cash Provided By (Used For) Operations:
Net Earnings (Loss) $ 280,136 $ (350,002)
----------- -----------
Adjustment to Reconcile Net Earnings to
Net Cash Provided By (Used For) Operations:
Depreciation 517,592 365,619
Accounts Receivable (632,670) 695,960
Prepaid Expenses (17,750) --
Security Deposits -- (35,700)
Accounts Payable and Accrued Expenses 101,277 29,609
Accrued Expenses 24,810 --
----------- -----------
(6,741) 1,055,488
Total Cash Provided By Operations 273,395 705,486
----------- -----------
Investing
Cash Provided By (Used For) Investing:
Advances to Affiliates 96,858 (170,351)
Purchases of Capital Assets (1,139,201) (40,224)
----------- -----------
Total Cash Used For Investing (1,042,343) (210,575)
----------- -----------
Financing
Cash Provided By (Used For) Financing:
Line of Credit - Key Bank -- 199,203
Proceeds on Long-Term Debt 1,110,640 --
Principal Payments on Long-Term Debt (338,219) (628,294)
Partners' Distributions -- (65,000)
----------- -----------
Total Cash Provided By (Used For) Financing 772,421 (494,091)
----------- -----------
Net Increase in Cash and Cash Equivalents 3,473 820
Cash and Cash Equivalents - At Beginning 5,334 4,514
----------- -----------
Cash and Cash Equivalents - At End $ 8,807 $ 5,334
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During The Period For:
Interest $ 197,694 $ 126,303
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. Summary of Significant Accounting Policies
a. Type of Organization
Brooklyn Medical Imaging Center ("Partnership") is a New York
partnership duly organized and validly existing under the laws of the
State of New York. The Partnership was organized on June 1, 1998 for
the purpose of maintaining radiological health services.
Prior to September 1, 1994, Brooklyn Medical Imaging Center, Brooklyn
Investors Group L.P. and Diagnostic Imaging Associates, which have
interrelated owners/officers, shared common facilities and personnel
at 450 Avenue P in Brooklyn. As of September 1, 1994, all business
activities of these three companies were merged. All assets and
liabilities have been transferred at book value.
b. Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers
all highly liquid financial instruments purchased with an original
maturity of three months or less to be cash equivalents.
c. Current Assets and Current Liabilities
Current assets and current liabilities include such items expected to
be realized or liquidated during the next year.
d. Fixed Assets
Depreciation of equipment for financial reporting purposes is computed
at rates adequate to allocate the cost of applicable assets over their
expected useful lives. Both straight line and accelerated depreciation
methods are being utilized.
Equipment, renewals and improvements are capitalized at cost by
additions to the related asset accounts, while repairs and maintenance
costs are charged against income. The Partnership records sales and
retirements by removing the cost and accumulated depreciation form the
asset and reserve accounts, reflecting any resulting gain or loss in
earnings.
e. Leases and Rentals
Where equipment is leased under long term leases and the Partnership
can acquire the asset at prices less than fair market value upon
expiration of the lease, the asset is capitalized and the lease
obligation is included in long-term debt. Under net lease where no
opportunities exist to acquire the asset at less than fair market
value and where no residual values are available at nominal cost, the
rentals are recorded as equipment rental and the asset is not
capitalized.
f. Income Taxes
Provisions have not been made in these financial statements for any
income tax ramifications. As a partnership, all tax implications pass
directly to the partners on their personal income tax returns.
6
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
2. Due From Affiliates
Due from affiliates are net amounts due form/to related parties, Meadows
Medical Management, Inc. and Staten Island Medical Imaging, Inc. in the
amounts of $115,256 due form and $(6,894) due to, respectively. The amounts
are due on demand and are non-interest bearing. These related parties have
similar ownership and/or common officers.
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1996 1995
<S> <C> <C> <C>
Medical Equipment 7 years $5,467,529 $4,362,038
Leasehold Improvements 30 years 260,320 226,610
---------- ----------
5,727,849 4,588,648
Less: Accumulated Depreciation 3,012,612 2,495,020
---------- ----------
$2,715,237 $2,093,628
========== ==========
</TABLE>
Depreciation expenses for the years ended December 31, 1996 and 1995 is
$517,592 and $365,619, respectively. As of December 31, 1996 and 1995, the
gross amount of assets recorded under capital leases totaled $2,199,714 and
$1,094,222 respectively. Accumulated depreciation related to those assets
totaled $579,114 and $361,832, respectively.
4. Accrued Expenses
Accrued expenses consist of interest in the amount of $24,810.
5. Long-Term Debt
Long-term debt consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Lease payable - DVI Financial Services, Inc.;
capital lease secured by medical equipment;
26 monthly payments remain of $10,679
including interest at 9%; final payment due
May, 1999. $ 251,404 $ 327,656
Lease payable - Siemens Credit Corp.; capital
lease secured by medical equipment; 31 monthly
payments remain of $12,142 including interest
at 9.9%; final payment due May, 1999. 330,927 420,912
</TABLE>
7
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
5. Long-Term Debt (Continued)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable - Key Bank; note secured by
equipment; 5 monthly principal payments of
$13,330 plus interest at prime plus 1%
remain; final balloon payment of $359,904
due March, 1997. 426,554 553,527
Lease payable - DVI Financial Services Inc.;
capital lease secured by medical equipment;
55 monthly payments remain of $22,652
including interest at 12%; final payment due
June, 2001. 954,531 ---
Lease payable - DVI Financial Services Inc.;
capital lease secured by medical equipment;
59 monthly payments remain of $2,502
including interest at 12%; final payment due
October, 2001. 111,100 ---
---------- ----------
2,074,516 1,302,095
Less: Current Portion 846,152 656,221
---------- ----------
$1,228,364 $ 645,874
========== ==========
</TABLE>
Future principal debt repayments are estimated to be as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
<S> <C>
1997 $ 846,152
1998 416,441
1999 425,931
2000 225,060
2001 and Thereafter 160,932
-----------
$ 2,074,516
===========
</TABLE>
6. Line of Credit - Key Bank
Line of credit - Key Bank consists of a revolving line with interest
payable at 9.25% per annum.
8
<PAGE>
BROOKLYN MEDICAL IMAGING CENTER
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
7. Commitments and Contingencies
a. Rent
Brooklyn Medical Imaging Center is leasing space form an affiliated
entity, 450 Avenue P Corp. at approximately $15,000 per month, based
on the pass through of total expenditures of 450 Avenue P Corp. 450
Avene P Corp. has various mortgages and notes that require monthly
expenditures of approximately $25,000 through August, 1995 and then
approximately $15,000 per month through December 2008. The premises
are owned by 450 Avenue P Corp. subject to a land lease expiring on
September 30, 2010.
b. Equipment Rental
Brooklyn Medical Imaging Center has entered into various operating
leases for equipment. These leases require total monthly payments of
approximately $9,500 per month through September of 1996 and $3,400
per month thereafter (See Note 1e).
8. Concentration of Credit Risk
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade
accounts receivable. The Company places its cash and temporary cash
investments with high credit quality institutions. At times such
investments may be in excess of the FDIC insurance limit. The Company
routinely assesses the financial strengths of its customers and, as a
consequence, believes that its trade accounts receivable credit risk
exposure is limited.
9. Prior Periods
Prior periods financial statements have been reclassified to conform with
the current years presentation.
10. Subsequent Events
Subsequent to the date of this report, the assets of this Company were
sold. The sale of these assets was included with the sale of other medical
imaging centers with similar ownership. This sale included all equipment
and goodwill.
9
<PAGE>
STATEN ISLAND MEDICAL IMAGING INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE>
STATEN ISLAND MEDICAL IMAGING INC.
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
Table of Contents
Financial Statements:
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations and Stockholders' Deficiency 3
Statement of Cash Flows 4
Notes to Financial Statements 5
Notes to Financial Statements 6
Notes to Financial Statements 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Staten Island Medical Imaging Inc.
Brooklyn, New York
We have audited the accompanying balance sheet of Staten Island Medical Imaging
Inc. as of December 31, 1996, and the related statements of operations and
stockholders' deficiency and cash flows for the year then ended. 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 audit.
We conducted our audit 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 misstatements. 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 the significant estimates made by management, as
well as evaluating the overall financial statements presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Staten Island Medical Imaging Inc.
as of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ IVES & SULTAN, LLP
Certified Public Accountants
Woodbury, New York
February 20, 1997
1
<PAGE>
STATEN ISLAND MEDICAL IMAGING INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current Assets
Cash and Cash Equivalents (Note 1b) $ 312
Accounts Receivable 100,641
Prepaid Expenses and Other Current Assets 2,000
Due From Affiliates (Note 2) 31,894
-----------
134,934
-----------
Fixed Assets - Net of Accumulated Depreciation (Note 3) 1,224,160
-----------
$ 1,359,094
===========
Liabilities and Stockholders' Deficiency
Current Liabilities
Accounts Payable $ 49,793
Accrued Expenses (Note 4) 111,027
Current Portion of Long-Term Debt (Note 5) 300,000
-----------
460,820
-----------
Long-Term Liabilities
Long-Term Debt - Less: Current Portion (Note 5) 1,048,307
-----------
Stockholders' Deficiency
Capital Stock, No Par Value - 200 Shares Authorized,
Issued and Outstanding 2,150
Paid-In Capital 20,850
Deficit (173,033)
-----------
(150,033)
-----------
$ 1,359,094
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
STATEN ISLAND MEDICAL IMAGING INC.
STATEMENT OF OPERATIONS AND STOCKHOLDERS' DEFICIENCY
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues $ 464,370
---------
Expenses
Film 15,251
Advertising 25,637
Office and Miscellaneous 16,873
Telephone 7,222
Insurance 10,733
Interest 214,087
Depreciation 178,864
Equipment Rental 60,000
---------
528,667
---------
Net Loss (64,297)
Deficit - At Beginning (108,736)
---------
Deficit - At End $(173,033)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
STATEN ISLAND MEDICAL IMAGING INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Operations
Cash Provided By (Used For) Operations:
Net Loss $ (64,297)
---------
Adjustment to Reconcile Net Loss to
Net Cash Provided By (Used For) Operations:
Depreciation 178,864
Accounts Receivable (34,384)
Loans to Affiliates (126,689)
Accounts Payable 46,632
Accrued Expenses 111,027
---------
176,450
---------
Total Cash Provided By Operations 112,153
---------
Investing
Cash Provided By (Used For) Investing:
Acquisition of Fixed Assets (2,500)
Financing
Cash Provided By (Used For) Financing:
Principal Payments on Long-Term Debt (109,713)
---------
Net Decrease in Cash and Cash Equivalents (60)
Cash and Cash Equivalents - At Beginning 450
---------
Cash and Cash Equivalents - At End $ 399
=========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During The Period For:
Interest $ 103,060
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
STATEN ISLAND MEDICAL IMAGING INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
1. Summary of Significant Accounting Policies
a. Type of Organization
Staten Island Medical Imaging Inc., is a New York corporation duly
organized and validly existing under the laws of the State of New
York. The corporation was organized on August 9, 1993 for the purpose
of operating a radiological health facility located in Staten Island,
New York.
b. Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid financial instruments purchased with an original
maturity of three months or less to be cash equivalents.
c. Current Assets and Current Liabilities
Current assets and current liabilities include such items expected to
be realized or liquidated during the next year.
d. Fixed Assets
Depreciation of equipment for financial reporting purposes is computed
at rates adequate to allocate the cost of applicable assets over their
expected useful lives. Straight line depreciation methods are being
utilized.
Equipment, renewals and improvements are capitalized at cost by
additions to the related asset accounts, while repairs and maintenance
costs are charged against income. The Company records sales and
retirements by removing the cost and accumulated depreciation from the
asset and reserve accounts, reflecting any resulting gain or loss in
earnings.
e. Leases and Rentals
Where equipment is leased under long term leases and the Company can
acquire the asset at prices less than fair market value upon
expiration of the lease, the asset is capitalized and the lease
obligation is included in long-term debt. Under net leases where no
opportunities exist to acquire the asset at less than fair market
value and where no residual values are available at nominal cost, the
rentals are recorded as equipment rental and the asset is not
capitalized.
f. Income Taxes
As of January 1, 1994, the Shareholders' elected to treat the Company
as a small business corporation ("S" Corporation) for income tax
purposes as provided in Section 1372 (a) of the Internal Revenue Code
and applicable state statutes. As such, the corporate income or loss
and credits are passed through to the stockholders and combined with
their other personal income and deductions to determine taxable income
on their individual returns. New York State currently imposes a tax on
S Corporation earnings in excess of $200,000.
5
<PAGE>
STATEN ISLAND MEDICAL IMAGING INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
2. Due From Affiliates
Due from affiliates are amounts due from related parties, Brooklyn Medical
Imaging Center and Meadows Medical Management, Inc. in the amount of $6,894
and $25,000, respectively. The amounts are due on demand and are
non-interest bearing. These related parties have similar ownership and/or
common officers.
3. Fixed Assets
Fixed assets consist of the following:
Estimated
Useful Life
MRI and Enclosure 7 years $1,441,006
Less: Accumulated Depreciation 216,846
----------
$1,224,160
==========
The depreciation expense for the year ended December 31, 1996 is $178,864.
As of December 31, 1996, the gross amount of assets recorded under capital
leases totaled $1,441,006 and accumulated depreciation related to those
assets totaled $216,846.
4. Accrued Expenses
Accrued expenses consist of interest in the amount of $111,027.
5. Long-Term Debt
Long-term debt consist of the following:
<TABLE>
<S> <C>
Note payable - DVI Financial Services Inc.; installment loans
secured by medical equipment and building; variable payments
totaling $38,282 including interest
at 11.75%; final payment due October 2000. $1,348,307
Less: Current Portion 300,000
----------
$1,048,307
==========
</TABLE>
Future principal debt repayments are estimated to be as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
<S> <C>
1997 $ 300,000
1998 329,000
1999 372,000
2000 347,307
----------
$1,348,307
==========
</TABLE>
6
<PAGE>
STATEN ISLAND MEDICAL IMAGING INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
6. Commitments and Contingencies
Equipment Rental
In July 1995 the Company entered into an operating lease agreement with
Elscint Inc. for the use of a cat scan machine. The lease requires payments
of $150 per cat scan for the first sixty-three cat scans per month,
followed by $125 for the next twenty-one scans then $75 for each additional
cat scan. An additional $5,000 per month is due for year 2 through year 5
as compensation for service of the equipment.
7. Concentration of Credit Risk
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash and cash equivalents and trade
accounts receivable. The Company places its cash and temporary cash
investments with high credit quality institutions. At times such
investments may be in excess of the FDIC insurance limit. The Company
routinely assesses the financial strengths of its customers and, as a
consequence, believes that its trade accounts receivable credit risk
exposure is limited.
8. Subsequent Events
Subsequent to the date of this report, the assets of this Company were
sold. The sale of these assets was included with the sale of other medical
imaging centers with similar ownership. This sale included all equipment
and goodwill.
7
<PAGE>
MAGNETIC RESONANCE
INSTITUTE OF JUPITER, LTD.
=======================================================
Audited Financial Statements
and Independent Auditors' Report
December 31, 1996
<PAGE>
Financial Statements
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
December 31, 1996
Contents
Page
----
Independent Auditors' Report .............................................. 1
Financial Statements
Balance Sheet ......................................................... 2
Statement of Income and Changes in Partners' Capital .................. 3
Statement of Cash Flows ............................................... 4
Notes to Financial Statements ......................................... 5
Supplementary Financial Information
Schedule I. - Operating Expenses .......................................... 11
<PAGE>
Mark J. Burger, P.A.
Certified Public Accountants
470 Columbia Drive, Suite D-201
West Palm Beach, FL 33409-1949
(561) 686-0200 Telephone
(561) 686-0248 Facsimile Mark J. Burger, CPA
[email protected] E-Mail Denise Alpert, CPA
Independent Auditors' Report
To The Board of Directors of
Vascular Services, Inc., General Partner of,
Magnetic Resonance Institute of Jupiter, Ltd.
Jupiter, Florida
We have audited the accompanying balance sheet of Magnetic Resonance Institute
of Jupiter, Ltd., as of December 31, 1996, and the related statements of income
and changes in partners' capital, and cash flows for the year then ended. These
financial statements are the responsibility of the Magnetic Resonance Institute
of Jupiter, Ltd.'s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Magnetic Resonance Institute of
Jupiter, Ltd., at December 31, 1996, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying information presented on page 12,
Schedule I - Operating Expenses, is presented for the purpose of additional
analysis and is not a required part of the basic financial statement. Such
information has been subjected to the procedures applied in the audit of the
basic financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Mark J. Burger, P.A.
West Palm Beach, Florida
October 26, 1997
1
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
BALANCE SHEET
December 31, 1996
----------
<TABLE>
<S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 152,184
Patient accounts receivable, less allowance for
adjustments and doubtful accounts of $187,469 331,356
Prepaid expenses 20,392
Other receivables 14,437
-----------
Total Current Assets 518,369
Property and Equipment:
Equipment 1,960,328
Furniture and fixtures 83,845
Leasehold improvements 44,712
-----------
2,088,885
Less, accumulated depreciation (1,999,387)
-----------
Net Property and Equipment 89,498
Other Assets:
Deposits 27,533
-----------
Total Assets $ 635,400
===========
Liabilities and Partners' Capital
Current Liabilities:
Accounts payable $ 29,154
Accrued expenses 23,723
Accrued management and professional fees payable 103,592
Current portion of capitalized lease obligations 33,237
Current portion of purchase commitments 37,452
-----------
Total Current Liabilities 227,158
Partners' Capital 408,242
-----------
Total Liabilities and Partners' Capital $ 635,400
===========
</TABLE>
See accompanying notes.
2
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
STATEMENT OF INCOME AND CHANGES IN PARTNERS' CAPITAL
Year Ended December 31, 1996
----------
<TABLE>
<S> <C>
Revenue:
Net Patient Service Revenue $ 1,677,029
Interest and other revenue 15,581
-----------
Total revenue 1,692,610
-----------
Operating Expenses:
Depreciation and amortization 374,288
Management, professional and billing fees 488,629
Medical supplies and drugs 119,221
Occupancy 157,408
Other operating expenses 214,851
Salaries and benefits 162,443
-----------
Total operating expenses 1,516,840
-----------
Operating Income 175,770
Nonoperating expense:
Interest expense 23,858
-----------
Net Income 151,912
Partners' capital, beginning of year 518,830
Distributions (262,500)
-----------
Partners' capital, end of year $ 408,242
===========
</TABLE>
See accompanying notes.
3
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
STATEMENT OF CASH FLOWS
Year Ended December 31, 1996
----------
<TABLE>
<S> <C>
Operating Activities
Cash received from patients and third party payors $ 1,785,750
Cash paid to suppliers and employees (1,142,141)
Interest paid (26,088)
Interest received 5,097
-----------
Net Cash Provided by Operating Activities 622,618
Investing Activities
Acquisition of property and equipment (18,742)
-----------
Net Cash Used in Investing Activities (18,742)
Financing Activities
Partial refund of security deposit 25,000
Payments under capital lease obligations (408,908)
Distributions to partners (262,500)
-----------
Net Cash Used in Financing Activities (646,408)
-----------
Decrease in Cash (42,532)
Cash and cash equivalents, beginning of year 194,716
-----------
Cash and cash equivalents, end of year $ 152,184
===========
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Net income $ 151,912
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 371,095
Amortization 3,193
Changes in Operating Assets and Liabilities:
(Increase) decrease in:
Accounts receivable 98,237
Prepaid expenses 1,771
Other receivables (10,630)
(Decrease) increase in:
Accounts payable (6,187)
Accrued expenses (7,842)
Accrued management and professional fees payable 28,557
Purchase commitments (7,488)
-----------
Net Cash Provided by Operating Activities $ 622,618
===========
</TABLE>
See accompanying notes.
4
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 1 - Organization and Summary of Significant Accounting Policies
Magnetic Resonance Institute of Jupiter, Ltd. (the "Partnership") was formed to
operate a diagnostic imaging center located in Palm Beach County, Florida. On
August 13, 1997, Magnetic Resonance Institute of Jupiter, Ltd. sold its
operating assets to Jupiter MRI, Inc. (See Note 7.)
Method of Accounting
The Partnership utilizes the accrual method of accounting for financial
statement reporting. Under this method, revenue is recognized when earned and
expenses are recognized when incurred. Approximately 88% of the Partnership's
gross patient service revenue for the year ended December 31, 1996, is rendered
to patients covered by Medicare, Medicaid, and managed care organizations.
Payments for services rendered to patients covered by these payors are generally
less than standard charges. Provisions for contractual adjustments are made to
reduce the standard charges to the contracted reimbursement rate. Final
settlements under these programs are subject to administrative review and audit.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principals and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Changes in such estimates may affect amounts reported in future periods.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, checking accounts, and money market accounts. Such cash equivalents have
maturities of less than 90 days. There are no restrictions on future uses of
cash or cash equivalents at December 31, 1996. The Partnership maintains its
cash accounts in a commercial bank located in Palm Beach County. Accounts at the
bank are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to
$100,000 per bank. As of December 31, 1996, there was an uninsured cash balance
of $51,934.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
accelerated and straight-line methods over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Equipment 3 - 7 years
Furniture and fixtures 3 - 7 years
Leasehold improvements 31.5 years
</TABLE>
See independent auditors' report.
5
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 1 - Organization and Summary of Significant Accounting Policies - Continued
Property and Equipment - Continued
Maintenance and repairs are expensed as incurred; expenditures that enhance the
value of property and equipment or extend their useful lives are capitalized.
When assets are sold or returned, the cost and related accumulated depreciation
are removed from the accounts, and the resulting gain or loss is included in
income. Depreciation expense was $371,095 for the year ended December 31, 1996.
Concentration of Credit Risk
The Partnership grants credit without collateral to its patients, most of whom
are local residents and are insured under third-party payor agreements. The
concentration of credit risk with respect to patient accounts receivables is
limited due to the large number of third party payor agreements. The mix of
receivables from patients and third-party payors at December 31, 1996, was as
follows:
<TABLE>
<S> <C>
Managed care organizations 52.2%
Commercial insurance 21.8
Medicare 14.7
Workers Compensation Fund 6.9
Self-pay patients 4.2
Public assistance .2
-----
100.0%
=====
</TABLE>
Income Taxes
No provision for income taxes is reflected in the financial statements since the
Partnership's taxable income or loss is taxed at the partner level, rather than
the partnership level.
Note 2 - Patient Accounts Receivable
Patient service revenue is recorded at the gross amount billed. As a result of
treating members of various health maintenance organizations and preferred
provider networks, a portion of the gross billings is subject to contractual
adjustments. At December 31, 1996, net patient accounts receivable were
determined as follows:
<TABLE>
<S> <C>
Patient accounts receivable $ 518,825
Less: Allowance for contractual adjustments ( 120,300)
Allowance for doubtful accounts ( 67,169)
-----------
Net patient accounts receivable $ 331,356
===========
</TABLE>
See independent auditors' report.
6
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 3 - Organizational Costs
Organizational costs are stated at cost, net of accumulated amortization. As of
December 31, 1996, organizational costs are fully amortized. Amortization
expense was $3,193 for the year ended December 31, 1996.
Note 4 - Operating and Capital Leases
Operating Leases
The Partnership through its general partner, Vascular Services, Inc., (the
"General Partner") leases administrative office space from Three Palms
Associates, a related party, under an operating lease expiring through January
2002. Annual rent expense, inclusive of sales tax under the operating lease was
$111,854 for the year ended December 31, 1996.
At December 31, 1996, future minimum lease payments were as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997 $ 92,234
1998 96,865
1999 97,251
2000 97,251
2001 97,251
Thereafter 8,104
------------
Total minimum lease payments $ 488,956
============
</TABLE>
Capital Leases
The Partnership leases MRI equipment under a capital lease which expires in
1997. The MRI equipment at December 31, 1996, had a cost basis and accumulated
depreciation of $1,823,030 resulting in a net book value of zero.
The future minimum lease payments under this lease for 1997 total $33,237.
Depreciation expense related to equipment under capital lease was $334,224 for
the year ended December 31, 1996. Total interest expense related to the capital
lease, for the year ended December 31, 1996, was $23,140.
See independent auditors' report.
7
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 5 - Related Party Transactions
Management Fee
The General Partner provides management services to the Partnership. The
Partnership pays a management fee to the General Partner in a range from 1% to
8% of gross cash collected less patient refunds paid and fees paid to the other
physicians. The percentage rate charged for management services is adjusted
based on the actual cash distributions made during the year to the partners.
During the year ended December 31, 1996, the Partnership incurred $71,735 of
management fees. Accrued, but unpaid management fees to the General Partner at
December 31, 1996, amounted to $29,107.
Physician Service Fee
The General Partner also receives a professional fee for physician services
provided to the Partnership. The Partnership pays professional fees equal to 20%
of gross cash collected less patient refunds paid and fees paid to the other
physicians. During the year ended December 31, 1996, the Partnership incurred
$358,677 of professional fees. Accrued, but unpaid professional fees to the
General Partner at December 31, 1996 amounted to $74,485.
Billing Fee
Boca Radiology Group, an affiliated organization, provides billing services to
the Partnership. The Partnership pays a billing fee to Boca Radiology Group
equal to $10 per procedure performed. During the year ended December 31, 1996,
the Partnership incurred $30,680 of billing fees. Accrued, but unpaid billing
fees to Boca Radiology Group at December 31, 1996, amounted to $7,100 and is
included in accrued expenses.
Note 6 - Commitments and Contingencies
Purchase Commitment
In a prior year the Partnership entered into a purchase agreement to buy medical
imaging film. The agreement was amended in March of 1995. The amended agreement
calls for the Partnership to purchase a minimum of $110,000 of film for the
contract years ending in 1996, 1997 and 1998. The amended agreement expires in
March 1998.
The Partnership received as part of the purchase commitment, film processing
equipment. Ownership of the equipment was assigned to the Partnership. The
equipment at the date of assignment had a total value of $107,795. The related
accumulated depreciation attributed to the assigned equipment amounted to
$81,754 at December 31, 1996. Depreciation expense related to equipment under
this purchase commitment was $15,625 for the year ended December 31, 1996. The
Partnership's total purchases under the revised agreement as of November 1996
were $180,438. During 1997, the Partnership terminated the Agreement and
negotiated a reduced contract buy-out of $ 25,000, plus sales tax.
See independent auditors' report.
8
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 6 - Commitments and Contingencies - Continued
Purchase Commitment
At December 31, 1996, the purchased price is expected to be reduced as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
Total Capital Purchase Commitments 1997 $ 37,452
Less Current Portion (37,452)
--------
Long-term purchase commitments $ --
========
</TABLE>
Note 7 - Subsequent Events
On August 13, 1997, the Partnership completed a transaction to sell
substantially all of its net assets to Jupiter MRI, Inc., a subsidiary of
Medical Resources, Inc. The purchase included the patient accounts receivable
and the assumption of certain payables and accrued expenses. Jupiter MRI, Inc.,
paid approximately $2,125,000 for the net assets.
See independent auditors' report.
9
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
10
<PAGE>
MAGNETIC RESONANCE INSTITUTE OF JUPITER, LTD.
(A Limited Partnership)
SCHEDULE I. - OPERATING EXPENSES
Year Ended December 31, 1996
----------
<TABLE>
<S> <C>
Depreciation and amortization
Depreciation $ 371,095
Amortization 3,193
---------
$ 374,288
=========
Professional, management, and billing fees
Professional fees $ 358,677
Management fees 71,735
Billing expenses 30,680
Outside reading fees 27,537
---------
$ 488,629
=========
Occupancy
Rent $ 111,854
Maintenance and repairs 21,701
Utilities 16,209
Telephone 7,644
---------
$ 157,408
=========
Other operating expenses
Accounting $ 12,000
Advertising 504
Bad debt recovery (8,642)
Collection fees 8,579
Equipment rental 4,002
Insurance 41,305
Laundry 4,369
Licenses 1,752
Maintenance contract 85,021
Marketing 9,776
Miscellaneous 4,512
Office expense 4,679
Supplies 4,481
Taxes 32,790
Transcription 9,723
---------
$ 214,851
=========
Salaries and benefits
Salaries $ 150,628
Payroll taxes 11,815
---------
$ 162,443
=========
</TABLE>
See independent auditors' report.
11
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996
WITH INDEPENDENT AUDITOR'S REPORT
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
YEAR ENDED DECEMBER 31, 1996
CONTENTS
Page
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . 1
Financial Statements:
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Income . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Changes in Members' Equity . . . . . . . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . 6-11
<PAGE>
Independent Auditor's Report
To the Members of
PresGar Imaging of Tampa, LLC
Tampa, Florida
We have audited the accompanying balance sheet of PresGar Imaging of Tampa, LLC
(a Tennessee limited liability company) as of December 31, 1996, and the related
statement of income, changes in members' equity, and cash flows for the year
then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PresGar Imaging of Tampa, LLC
as of December 31, 1996 and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Peed, Koross, Finkelstein & Crain, P.A.
Fort Lauderdale, Florida
October 30, 1997
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
ASSETS
<S> <C>
Current assets:
Accounts receivable, net (Note 2) $ 326,445
Due from related parties 171,961
----------
Total current assets 498,406
Equipment and leasehold improvements, net (Notes 1 and 3) 2,913,796
Other assets 32,159
----------
$3,444,361
==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 162,466
Notes payable, current portion (Note 4) 376,702
Due to related parties 143,979
----------
Total current liabilities 683,147
Long-term liabilities:
Note payable, net of current portion (Note 4) 2,650,147
Members' equity 111,067
----------
$3,444,361
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues, net (Note 1) $1,373,270
Other income 3,361
----------
1,376,631
----------
Costs and expenses:
Payroll and related costs 243,228
Depreciation and amortization 263,849
Interest 245,718
Medical equipment maintenance 18,191
Medical supplies 107,384
Management fee (Note 6) 73,278
Marketing fee (Note 6) 58,270
Other general and administrative 255,646
----------
1,265,564
----------
Net income $ 111,067
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Members' Equity - December 31, 1995 $ --
Net income 111,067
--------
Members' Equity - December 31, 1996 $111,067
========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 111,067
-----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 263,849
(Increase) decrease in:
Accounts receivable (326,445)
Due from related parties (171,961)
Other assets (34,199)
Increase (decrease) in:
Accounts payable and accrued liabilities 162,466
Due to related parties 143,979
-----------
Total adjustments 37,689
-----------
Net cash provided by operating activities 148,756
-----------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (104,149)
-----------
Net cash used in investing activities (104,149)
-----------
Cash flows from financing activities:
Principal payments on long-term debt (44,607)
-----------
Net cash used in financing activities (44,607)
-----------
Net (decrease) increase in cash --
Cash at beginning of year --
-----------
Cash at end of year $ 0
===========
Supplemental disclosure of cash flow information
Cash paid for interest $ 253,764
===========
Noncash investing transactions
Equipment and leasehold improvements financed with debt $ 3,071,457
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
Note 1 - Summary of Significant Accounting Policies
This summary of significant accounting policies of PresGar Imaging of Tampa, LLC
(the Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
members who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Nature of Business
The Company was organized on November 13, 1995, under the limited liability
company laws of the State of Tennessee. The Company operates two medical
diagnostic clinics in Florida utilizing magnetic resonance imaging systems and
other radiology diagnostic equipment.
Basis of Presentation
The accompanying financial statements have been prepared on the accrual method
of accounting.
Revenue Recognition
Radiology services are performed by physicians affiliated with Drs. Sheer,
Ahearn & Associates, Professional Association (the Physician Group). The
Physician Group has exclusive licenses to provide professional services at the
Company's facilities. The terms of these license agreements require the
Physician Group to bill patients for services and pay the Company a management
fee equal to 74.2% of the Physician Group's net collections for one facility and
77.4% of the Physician Group's net collections at the second facility.
Diagnostic service revenues are recorded by the Physician Group when services
are rendered at the facilities. Net patient service revenues are based on
established billing rates, less allowances for contractual adjustments for
patients covered by Medicare, Medicaid and various other discount arrangements.
Payments received under these programs and arrangements, which generally are
based on predetermined rates, are generally less than customary charges, and the
estimated differences are reflected in the accompanying financial statements as
contractual adjustments or policy discounts.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Depreciation is
calculated using the straight-line method over the assets' respective estimated
useful lives which are generally five or eight years. Leasehold improvements are
amortized over the remaining lease term. Upon
6
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 1 - Summary of Significant Accounting Policies (continued)
Equipment and Leasehold Improvements (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.
Concentrations of Risk
The Company derives substantially all of its revenue from its license agreements
with the Physician Group. The Company's operations are limited to medical
imaging diagnostic services. Accordingly, there is a risk of changes in the
technology of equipment used to render such services and in the methods used by
the medical industry to deliver and pay for such services. Additionally, the
Company's operations are limited to two facilities located in Florida.
Income Taxes
The Company is treated as a partnership for federal income tax purposes and does
not incur income taxes. Instead, its earnings and losses are included in the
income tax returns of the corporate members and taxed accordingly. These
financial statements do not reflect a provision for federal income taxes. For
state income tax purposes, the Company is treated as a taxable corporation. No
provision for state income taxes is reported.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the balance sheet
and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
New Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-lived Assets
and Long-lived Assets to be Disposed Of" ("SFAS 121") effective for fiscal years
beginning after December 15, 1995. The Company believes that the adoption of
SFAS 121 has no material effect on the Company's financial position or results
of operations.
7
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying value of accounts receivable, accounts payable and notes payable
approximate fair value.
Note 2 - Accounts Receivable
Accounts receivable principally represent the Company's share of amounts due
from patients, third-party payers, and others for diagnostic services provided
by the Physician Group in accordance with the license agreements (see Note 1).
Such amounts are recorded net of estimated contractual allowances and bad debts.
At December 31, 1996, accounts receivable consist of the following:
<TABLE>
<S> <C>
Accounts receivable $ 527,445
Less allowance for discounts, adjustments and bad debts (201,000)
---------
Accounts receivable, net $ 326,445
=========
</TABLE>
Note 3 - Equipment and Leasehold Improvements
At December 31, 1996, major classes of equipment and leasehold improvements
consisted of the following:
<TABLE>
<S> <C>
Medical equipment $ 2,267,218
Office furniture and equipment 45,617
Leasehold improvements 862,771
-----------
3,175,606
Less accumulated depreciation and amortization (261,810)
-----------
$ 2,913,796
===========
</TABLE>
Depreciation expense was $261,810 for the year ended December 31, 1996.
8
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 4 - Notes Payable
As of December 31, 1996, the Company has the following notes payable:
<TABLE>
<S> <C>
Note payable to lender collateralized by certain diagnostic equipment and
leasehold improvements, with an imputed interest rate of 11.7%, payable in
monthly installments beginning February 1, 1996 through July 1, 2001. Payments
include principal and interest. Payments began at $13,000 a month through
October 1, 1996 at which time required payments escalated to $19,000 per month
On February 1, 1997 and thereafter, required payments
increase to $29,464 $ 1,231,424
Notes payable to lender collateralized by certain medical diagnostic equipment,
leasehold improvements and office furniture, with imputed interest rates
approximating 11.5%, payable in monthly installments from September 1, 1996
through February 1, 2002. Monthly payments (including both principal and
interest) range from $300 to $7,000. Total monthly payment obligations were
$17,300 at December 31, 1996. The notes contain payment escalations increasing
the total monthly obligation to $23,725 on January 1, 1997, $28,950 on May 1,
1997 and $38,722 on
September 1, 1997 1,698,974
Note payable to lender collateralized by certain medical equipment, with imputed
interest approximating 12.6%, payable in monthly installments beginning
September 1, 1996 through February 1, 2002. Initial monthly principal and
interest payments were $1,050. Required monthly payments are scheduled to
increase to $1,200 on January 1, 1997, $1,400 on May 1, 1997 and $2,297 on
September 1, 1997 96,451
-----------
Total notes payable 3,026,849
Less current portion (376,702)
-----------
Note payable, net of current portion $ 2,650,147
===========
</TABLE>
Substantially all of the assets of the Company are pledged as collateral for the
loans.
9
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 4 - Notes Payable
Principal payments on debt follows:
<TABLE>
<S> <C>
1997 $ 376,702
1998 566,443
1999 636,167
2000 714,476
2001 652,199
Thereafter 80,862
----------
Total $3,026,849
==========
</TABLE>
Note 5 - Leases
The Company leases office space under non-cancelable operating leases. The
future minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1997 $ 203,147
1998 211,848
1999 211,848
2000 198,613
2001 158,916
Thereafter 92,701
-----------
Total $ 1,077,073
===========
</TABLE>
In addition, the Company has various service contracts including equipment
maintenance and supply purchase agreements. Office rent expense for the year
ended December 31, 1996 was $76,991, and equipment rent expense was $885 for the
year then ended.
Note 6 - Related Party Transactions
The accompanying financial statements reflect amounts due from and due to
related parties. These amounts represent cash receipts and disbursements made on
the Company's behalf during the regular course of operations. Substantially all
of the Company's cash receipts and disbursements are recorded by a related
party. Intercompany accounts reflect the net amount due to or from these related
parties.
10
<PAGE>
PRESGAR IMAGING OF TAMPA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 6 - Related Party Transactions (continued)
The Company has Marketing Services Agreements with two related parties. These
agreements require, among other things, the Company to pay marketing fees of 3%
of monthly net collections to both parties. Marketing fees approximating $58,000
are reflected in the accompanying financial statements.
In addition, the Company has Management Agreements with two related parties.
These agreements require, among other things, the Company to pay management fees
of 5% of monthly net collections to both parties. Management fees approximating
$73,000 are reflected in the accompanying financial statements.
Note 7 - Commitments
The Company has equipment maintenance contracts for terms of one year for the
maintenance of equipment. Such contracts require monthly payments of
approximately $4,500.
Note 8 - Subsequent Event
On August 13, 1997, the Company's members sold substantially all of the
Company's assets to Venice Resources, Inc., a wholly-owned subsidiary of Medical
Resources, Inc. (both Delaware corporations) for $1,738,715. The terms of the
asset purchase agreement required a cash payment of $1,043,229 and a promissory
note of $695,486.
11
<PAGE>
PRESGAR IMAGING OF SARASOTA, LLC
(A Development Stage Company)
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996
WITH INDEPENDENT AUDITOR'S REPORT
<PAGE>
PRESGAR IMAGING OF SARASOTA, LLC
(A Development Stage Company)
YEAR ENDED DECEMBER 31, 1996
CONTENTS
Page
Independent Auditor's Report . . . . . . . . . . . . . . . . . 1
Financial Statements:
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Changes in Members' Equity . . . . . . . 3
Notes to Financial Statements . . . . . . . . . . . . . . . 4-7
<PAGE>
Independent Auditor's Report
To the Members of
PresGar Imaging of Sarasota, LLC
(A Development Stage Company)
Tampa, Florida
We have audited the accompanying balance sheet of PresGar Imaging of Sarasota,
LLC (a Development Stage Company) as of December 31, 1996, and the related
statement of changes in members' equity for the period from November 1, 1996
(inception) to December 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PresGar Imaging of Sarasota,
LLC (a Development Stage Company) as of December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Peed, Koross, Finkelstein & Crain, P.A.
Fort Lauderdale, Florida
October 30, 1997
<PAGE>
PRESGAR IMAGING OF SARASOTA, LLC
(A Development Stage Company)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
ASSETS
<S> <C>
Current assets:
Members' contributions receivable $ 94,750
Installment deposit on equipment purchase 109,990
--------
Total current assets 204,740
Construction in progress 95,037
Other assets (Note 4) 4,000
--------
$303,777
========
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Notes payable, current portion (Note 3) $ 30,090
Due to related parties (Note 4) 4,000
--------
Total current liabilities 34,090
Long-term liabilities:
Note payable, net of current portion (Note 3) 174,937
Members' equity 94,750
--------
$303,777
========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
PRESGAR IMAGING OF SARASOTA, LLC
(A Development Stage Company)
STATEMENT OF CHANGES IN MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Members' Equity - November 1, 1996 $ --
Members' contributions receivable 94,750
-------
Members' Equity - December 31, 1996 $94,750
=======
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
PRESGAR IMAGING OF SARASOTA, LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
Note 1 - Summary of Significant Accounting Policies
This summary of significant accounting policies of PresGar Imaging of Sarasota,
LLC (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
the members who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Nature of Business
The Company was organized on November 1, 1996, under the limited liability
company laws of the State of Tennessee. As of December 31, 1996, the Company has
not earned any revenue nor has it incurred any costs or expenses. As a result, a
statement of operations is not presented.
Basis of Presentation
The accompanying financial statements have been prepared on the accrual method
of accounting.
Concentrations of Risk
The Company will derive substantially all of its revenues from a License and
Management Services Agreement with one entity (see Note 5). The Company's
operations will be limited to medical imaging diagnostic services. Accordingly,
there is a risk of changes in the technology of equipment used to render such
services and in the methods used by the medical industry to deliver and pay for
such services. Additionally, the Company's operations will be limited to a
facility located in Sarasota, Florida.
Income Taxes
The Company is treated as a partnership for federal income tax purposes and does
not incur income taxes. Instead, its earnings and losses are included in the
income tax returns of the corporate members and taxed accordingly. These
financial statements do not reflect a provision for federal income taxes. For
state income tax purposes, the Company is treated as a taxable corporation. No
provision for state income taxes is reported.
4
<PAGE>
PRESGAR IMAGING OF SARASOTA, LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 2 - Development Stage Operations
The Company will conduct business under the name of Gulf Side Open MRI. The
Company has two members.
The Company has obtained financing and is in the process of purchasing an MRI
scanner and improving a leased operating facility. The Company will operate an
"open" MRI scanner which accommodates both patients requiring regular MRI
procedures as well as claustrophobic patients and obese patients who have
difficulties with traditional MRI scanners.
Note 3 - Notes Payable
As of December 31, 1996, the Company has the following note payable obligations:
Note payable to lender collateralized by certain
medical equipment, with an imputed interest rate
approximating 10.7%, with installments (including
principal and imputed interest) payable monthly
beginning May 1, 1997 and continuing through
October 2002. (A)
$109,990
Note payable to a lender collateralized by certain
leasehold improvements with an imputed interest rate
approximating 10.7%, with monthly installments
(including principal and imputed interest) beginning
May 1, 1997 and continuing through October 2002.
(B)
95,037
--------
Total notes payable 205,027
Less current portion (30,090)
--------
Note payable, net of current portion $174,937
========
Commitments for the above notes were dated December 16, 1996, and the
outstanding balances as of December 31, 1996 represent partial draws on those
commitments.
5
<PAGE>
PRESGAR IMAGING OF SARASOTA, LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 3 - Notes Payable (continued)
(A) The total outstanding, fully funded balance as of May 1, 1997 was $998,310.
(B) The total outstanding, fully funded balance as of May 1, 1997 was $273,290.
In addition, the Company's lender committed to lend $79,467 for the purchase of
equipment and furniture and $9,831 for additional construction and buildout of
the facility. Both commitments were also dated December 16, 1996, and had no
outstanding balances as of December 31, 1996.
Note 4 - Commitments
The Company entered into a lease agreement dated September 30, 1996, for the
facility premises. The agreement required monthly payments on this lease to
begin on November 15, 1996, and to terminate November 2001. Rental payments were
paid by a related party and are not reflected in the accompanying financial
statements. In addition, a non-refundable deposit of $4,000 was paid by a
related party upon inception of the lease and is reflected in the financial
statements.
Future minimum lease payments required under this lease agreement are as
follows:
<TABLE>
<S> <C>
1997 $ 45,297
1998 48,000
1999 49,920
2000 51,917
2001 53,993
---------
Total $ 249,127
=========
</TABLE>
Note 5 - Subsequent Events
On March 26, 1997, the Company entered into a License and Management Services
Agreement with a physician group which has a one-year term with an automatic
one-year renewal if not terminated by either party. According to the Agreement,
the physician group pays the Company a management fee of 77.4% of net
collections. Under the terms of this agreement, the physician group has a
license to provide professional services at the Company's facility.
6
<PAGE>
PRESGAR IMAGING OF SARASOTA, LLC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 5 - Subsequent Events (continued)
On March 26, 1997, the Company entered into a Professional Services Agreement
with a professional medical services company. Under this agreement, the Company
will pay professional service fees equal to the professional component billed
patients for services rendered, or for procedures that require one global
billing for both the professional and technical component, the Company will pay
20% of net collections. The initial term of the Agreement is March 27, 1997
through March 27, 2002, with an automatic three year renewal unless terminated
by either party.
On August 13, 1997, the Company's members sold substantially all of the
Company's assets to Sarasota Resources, Inc., a wholly-owned subsidiary of
Medical Resources, Inc. (both Delaware corporations), for $2,424,625. The terms
of the asset purchase agreement required a cash payment of $1,454,775 and a
promissory note of $969,850.
7
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996
WITH INDEPENDENT AUDITOR'S REPORT
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
YEAR ENDED DECEMBER 31, 1996
CONTENTS
Page
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . 1
Financial Statements:
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Changes in Members' Equity . . . . . . . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 6-10
<PAGE>
Independent Auditor's Report
To the Members of
PresGar Imaging of Florida, LLC
Tampa, Florida
We have audited the accompanying balance sheet of PresGar Imaging of Florida,
LLC (a Tennessee limited liability company) as of December 31, 1996, and the
related statement of income, changes in members' equity, and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PresGar Imaging of Florida, LLC
as of December 31, 1996 and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Peed, Koross, Finkelstein & Crain, P.A.
Fort Lauderdale, Florida
October 30, 1997
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
ASSETS
<S> <C>
Current assets:
Accounts receivable, net (Notes 1 and 2) $ 352,915
Due from related parties (Note 6) 344,168
----------
Total current assets 697,083
----------
Equipment and leasehold improvements, net (Notes 1 and 3) 1,119,714
----------
Other assets:
Goodwill, net of amortization 43,611
Other assets 23,000
----------
Total other assets 66,611
----------
$1,883,408
==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 147,679
Notes payable, current portion (Note 4) 219,042
Due to related parties 7,684
----------
Total current liabilities 374,405
Long-term liabilities:
Note payable, net of current portion (Note 4) 1,175,904
Members' equity 333,099
----------
$1,883,408
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues, net (Note 1) $1,439,916
Other income 7,814
----------
1,447,730
----------
Costs and expenses:
Payroll and related costs 214,274
Depreciation and amortization 215,842
Interest 158,296
Medical equipment maintenance 147,289
Medical supplies 108,398
Management fee (Note 6) 106,231
Marketing fee (Note 6) 53,116
Other general and administrative 182,331
----------
1,185,777
----------
Net income $ 261,953
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Members' Equity - December 31, 1995 $ 71,146
Net income 261,953
--------
Members' Equity - December 31, 1996 $333,099
========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 261,953
---------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 215,842
(Increase) decrease in:
Accounts receivable 48,155
Due from related parties (334,168)
Other assets (11,691)
Increase (decrease) in:
Accounts payable and accrued liabilities (111,970)
Due to related parties 7,684
---------
Total adjustments (186,148)
---------
Net cash provided by operating activities 75,805
---------
Cash flows from investing activities:
Purchase of property and equipment (1,729)
---------
Net cash used in investing activities (1,729)
---------
Cash flows from financing activities:
Principal payments on long-term debt (212,790)
---------
Net cash used in financing activities (212,790)
---------
Net decrease in cash (138,714)
Cash at beginning of year 138,714
---------
Cash at end of year $ 0
=========
Supplemental disclosure of cash flow information
Cash paid for interest $ 158,296
=========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
Note 1 - Summary of Significant Accounting Policies
This summary of significant accounting policies of PresGar Imaging of Florida,
LLC (the Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
the members who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Nature of Business
The Company was organized on January 16, 1995, under the limited liability
company laws of the State of Tennessee. The Company operates a medical
diagnostic clinic in Bradenton, Florida, utilizing a magnetic resonance imaging
system.
Basis of Presentation
The accompanying financial statements have been prepared on the accrual method
of accounting.
Revenue Recognition
Radiology services are performed by physicians affiliated with Drs. Sheer,
Ahearn & Associates, Professional Association (the Physician Group). The
Physician Group has an exclusive license to provide professional services at the
Company's facility. The terms of this license agreement require the Physician
Group to bill patients for services and pay the Company a management fee equal
to 79.4% of the Physician Group's net collections.
Diagnostic service revenues are recorded when services are rendered at the
facility. Net patient service revenues are based on established billing rates,
less allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which generally are based on predetermined rates, are
generally less than customary charges, and the estimated differences are
reflected in the accompanying financial statements as contractual adjustments or
policy discounts.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Depreciation is
calculated using the straight-line method over the estimated useful life of the
asset which is generally five or eight years. Leasehold improvements are
amortized over the remaining lease term. Upon the
6
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 1 - Summary of Significant Accounting Policies (continued)
Equipment and Leasehold Improvements (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.
Concentrations of Risk
The Company derives substantially all of its revenues from its license agreement
with the Physician Group. The Company's operations are limited to medical
imaging diagnostic services. Accordingly, there is a risk of changes in the
technology of equipment used to render such services and in the methods used by
the medical industry to deliver and pay for such services. Additionally, the
Company's operations are limited to one facility located in Bradenton, Florida.
Income Taxes
The Company is treated as a partnership for federal income tax purposes and does
not incur income taxes. Instead, its earnings and losses are included in the
income tax returns of the corporate members and taxed accordingly. These
financial statements do not reflect a provision for federal income taxes. For
state income tax purposes, the Company is treated as a taxable corporation. No
provision for state income taxes is reported.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the balance sheet
and the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
New Accounting Standards
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-lived Assets
and Long-lived Assets to be Disposed Of" ("SFAS 121") effective for fiscal years
beginning after December 15, 1995. The Company believes that the adoption of
SFAS 121 has no material effect on the Company's financial position or results
of operations.
7
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying value of accounts receivable, accounts payable and notes payable
approximate fair value.
Note 2 - Accounts Receivable
Accounts receivable principally represent the Company's share of amounts due
from patients, third-party payers, and others for diagnostic services provided
by the Physician Group in accordance with the license agreement (see Note 1).
Such amounts are recorded net of estimated contractual allowances and bad debts.
At December 31, 1996, accounts receivable consist of the following:
<TABLE>
<S> <C>
Accounts receivable $ 656,028
Less allowance for discounts, adjustments and bad debts (303,113)
---------
Accounts receivable, net $ 352,915
=========
</TABLE>
Note 3 - Equipment and Leasehold Improvements
At December 31, 1996, major classes of equipment and leasehold improvements
consisted of the following:
<TABLE>
<S> <C>
Medical equipment $ 1,253,924
Office furniture and equipment 18,360
Leasehold improvements 250,000
-----------
1,522,284
Less accumulated depreciation and amortization (402,570)
-----------
$ 1,119,714
===========
</TABLE>
Depreciation expense was $210,200 for the year ended December 31, 1996.
Note 4 - Note Payable
The Company had a note payable to a lender with an outstanding balance of
$1,394,946 at December 31, 1996. The loan agreement does not contain a specific
interest rate. Imputed interest approximates 10.5% based on the terms of the
agreement. The loan is collateralized by substantially all assets of the
Company. Loan payments of $29,630 (including principal and interest) are payable
monthly through January 2002.
8
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 4 - Note Payable (continued)
The loan is presented as follows in the accompanying financial statements:
<TABLE>
<S> <C>
Total note payable $ 1,394,946
Less current portion (219,042)
-----------
Note payable, net of current portion $ 1,175,904
===========
</TABLE>
Scheduled principal payments on long-term debt is as follows:
<TABLE>
<S> <C>
1997 $ 219,042
1998 243,254
1999 270,142
2000 300,002
2001 333,162
Thereafter 29,344
-----------
Total $ 1,394,946
===========
</TABLE>
Note 5 - Leases
The Company leases office space under non-cancelable operating leases. Future
minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1997 $ 20,340
1998 20,340
1999 20,340
2000 20,340
--------
Total $ 81,360
========
</TABLE>
In addition, the Company has various service contracts including equipment
maintenance and supply purchase agreements. Office rent expense for the year
ended December 31, 1996 was $20,340 and equipment rent expense was $7,105 for
the year then ended.
Note 6 - Related Party Transactions
The accompanying financial statements reflect amounts due from and due to
related parties. These amounts represent cash receipts and disbursements made on
the Company's behalf during the regular course of operations. Substantially all
of the Company's cash receipts and disbursements are recorded by a related
party. Intercompany accounts reflect the net amount due to or from these related
parties.
9
<PAGE>
PRESGAR IMAGING OF FLORIDA, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
Note 6 - Related Party Transactions (continued)
The Company has a Marketing Services Agreement with one of its members. This
agreement requires, among other things, the Company to pay a marketing fee of 3%
of monthly net collections. Marketing fees approximating $53,000 are reflected
in the accompanying financial statements.
In addition, the Company has a Management Agreement with one of its members.
This agreement requires, among other things, the Company to pay management fees
of 6% of monthly net collections. Management fees approximating $106,000 are
reflected in the accompanying financial statements.
Note 7 - Commitments
The Company has equipment maintenance contracts with terms ranging from one to
three years. Such contracts require monthly payments of approximately $12,500.
Note 8 - Subsequent Event
On August 13, 1997, the Company's members sold substantially all of the
Company's assets to Bradenton Resources, Inc., a wholly-owned subsidiary of
Medical Resources, Inc. (both Delaware corporations), for $5,086,660. The terms
of the asset purchase agreement required a cash payment of $3,051,996 and a
promissory note of $2,034,664.
10
<PAGE>
DIAGNOSTIC IMAGING
NETWORK, L.L.C.
FINANCIAL STATEMENTS
December 31, 1996
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
TABLE OF CONTENTS
December 31, 1996
FINANCIAL STATEMENTS PAGE
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Members' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Members of
Diagnostic Imaging Network, L.L.C.
We have audited the accompanying balance sheet of Diagnostic Imaging Network,
L.L.C. as of December 31, 1996 and the related statements of operations,
members' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Diagnostic Imaging Network,
L.L.C. as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ Weisberg & Company, LLP
Carle Place, New York
December 10, 1997
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
BALANCE SHEET
December 31, 1996
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,100
Accounts receivable (net of
allowance for contractual discounts
of $832,120) 623,143
Deposits 2,152
-----------
Total Current Assets $ 626,395
PROPERTY AND EQUIPMENT
Capital leases-medical equipment 3,008,290
Furniture and equipment 127,718
-----------
3,136,008
Less: accumulated depreciation and amortization (898,465)
-----------
Property and Equipment, net 2,237,543
OTHER ASSETS
Organization expenses (net of accumulated
amortization of $6,750) 15,750
-----------
Total Assets $ 2,879,688
===========
</TABLE>
<PAGE>
LIABILITIES AND MEMBERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 445,138
Accrued liabilities - related party (note 11) 350,123
Accrued liabilities - affiliates (note 12) 129,732
Accrued interest 43,034
Employee benefits payable 887
Obligations under capital leases-
current portion (note 6) 634,727
-----------
Total Current Liabilities $ 1,603,641
LONG-TERM LIABILITIES
Line of credit-related party (note 7) 428,238
Line of credit payable (note 8) 177,204
Obligations under capital leases (note 6) 2,254,214
-----------
Total Long-term Liabilities 2,859,656
-----------
Total Liabilities 4,463,297
COMMITMENTS AND CONTINGENCIES (note 9)
MEMBERS' EQUITY (1,583,609)
-----------
Total Liabilities and Members' Equity $ 2,879,688
===========
</TABLE>
See notes to financial statements. Page 2
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1996
<TABLE>
<S> <C> <C>
REVENUE
Fee income $ 4,360,698
Less: contractual discounts (2,120,513)
-----------
Total Revenue $ 2,240,185
OPERATING EXPENSES
Depreciation and amortization 701,914
Wages and salaries 548,792
Radiology fees (note 10) 525,622
Medical and film supplies 238,637
Repairs and maintenance 174,449
Billing and management (note 10) 208,413
Rent 125,732
Furniture and equipment rent 120,056
Outside services 67,182
Miscellaneous 57,618
Employee benefits 52,020
Payroll taxes 47,838
Insurance 44,505
Telephone and utilities 43,541
Office expense 33,397
Advertising and marketing 26,755
Professional fees 14,107
Bank fees 7,670
License and fees 6,204
Education and training 2,812
Travel and entertainment 1,958
-----------
Total Operating Expenses 3,049,222
-----------
Loss From Operations (809,037)
OTHER INCOME (EXPENSE)
Other income 4,537
Interest expense (332,701)
State income tax expense (note 2) (3,800)
-----------
Total Other Income (Expense) (331,964)
-----------
Net Loss $(1,141,001)
===========
</TABLE>
See notes to financial statements. Page 3
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
STATEMENT OF MEMBERS' EQUITY
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Members' Equity - December 31, 1995 $ (442,608)
Net Loss (1,141,001)
-----------
Members' Equity - December 31, 1996 $(1,583,609)
===========
</TABLE>
See notes to financial statements. Page 4
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $(1,141,001)
-----------
Net loss
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 701,914
Changes in assets and liabilities:
(Increase) in accounts receivable (412,525)
(Increase) in deposits (2,002)
Increase in accounts payable 416,658
Increase in accrued liabilities-related party 204,047
Increase in accrued liabilities-affiliates 129,732
Increase in accrued interest 35,399
(Decrease) in employee benefits payable (1,854)
-----------
Total adjustments 1,071,369
-----------
Net cash used in operating activities (69,632)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (114,222)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lines of credit, net 286,372
Principal payments under capital lease obligations (328,317)
-----------
Net cash used in financing activities (41,945)
-----------
Net increase in cash and cash equivalents (225,799)
Cash and cash equivalents - beginning of year 226,899
-----------
Cash and cash equivalents - end of year (note 16) $ 1,100
===========
</TABLE>
See notes to financial statements. Page 5
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 -NATURE OF BUSINESS
Diagnostic Imaging Network, L.L.C. (the "Company" or "L.L.C.") was formed as a
limited liability company under the laws of the state of California on June 13,
1995, for the purpose of developing and operating facilities to manage the
delivery of health care services at a location adjacent to the O'Connor Hospital
campus in San Jose, California, at a location adjacent to St. Louise Hospital in
Morgan Hill, California, as well as at other potential locations.
The members of the L.L.C. are O'Connor Hospital, which holds a 49% equity
interest, and National Medical Resources, Inc. ("NMRI"), a Washington
corporation which holds a 51% equity interest. On August 15, 1996, NMRI merged
its operations with an affiliate, National Medical Development, Inc. ("NMD").
The Company began operations at the O'Connor Hospital campus on July 1, 1995 and
at the St. Louise Hospital location on June 15, 1995. The latest date upon which
the L.L.C. will be dissolved is June 13, 2020.
Effective February 1, 1996, O'Connor Hospital and the L.L.C. entered into a
billing and factoring agreement whereby the hospital assigned 97% of the cash
collected from its heart lab to the L.L.C. In exchange, the L.L.C. assumed all
operating costs of the heart lab.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Patient Service Revenues
Patient service revenues consist of charges for diagnostic services. Such
charges represent global fees, which include the technical component of the
charge for patient services for the facility and equipment usage, as well as the
related radiologist fees (note 10).
Inventories
Inventories of MRI supplies and office supplies are considered immaterial and
are not accumulated for more than one month. For accounting purposes, all
amounts expended are treated as expenses when paid.
Property and Equipment
Property and equipment are recorded at their original cost. Improvements are
capitalized, while maintenance and repairs, which do not appreciably extent the
useful live of the related assets, are expensed when incurred.
Depreciation is provided in amounts sufficient to relate the cost of depreciable
assets to operations over the respective estimated service lives by use of the
straight-line method over five to seven years.
Page 6
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Leases
Leases which meet certain criteria evidencing substantive ownership are
capitalized and the related capital lease obligations are included in current
and long-term liabilities. Amortization and interest are charged to expense,
with rent payments being treated as payments of the capital lease obligations.
All other leases are accounted for as operating leases, with rent payments being
charged to expense as incurred.
Income Taxes
Diagnostic Imaging Network, L.L.C., was formed under the Beverly-Killea Limited
Liability Act of the California Corporations Code, and has relied on the Act's
default provisions whereby the L.L.C. will be treated as a partnership by the
Internal Revenue Service and the State of California. Therefore, the members of
the L.L.C. are taxed on their share of the L.L.C.'s income. Thus, no provision
or liability for federal income taxes has been included in these financial
statements.
Under the California Act, the Company is subject to an annual $800 L.L.C. tax
for the privilege of doing business in California, as well as an annual L.L.C.
fee based on the total income as defined by the Act.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents. At the date of these financial statements, the Company owned no
investments considered to be cash equivalents.
Advertising Costs
Costs incurred for producing and communicating advertising are expensed when
incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 3 - CREDIT CONCENTRATIONS
The Company provides diagnostic services for patients of hospitals, physicians,
and medical clinics in the greater San Jose and Morgan Hill, California area. As
of December 31, 1996, the majority of the Company's outstanding, unsecured
accounts receivable were due from insurance companies that provide health
insurance coverage. Payment of these receivables depends primarily upon the
contractual arrangements with these third-party payors (note 4).
Page 7
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable represent charges for the technical component and outside
physician radiology services.
Contractual discounts result when patient charges are generated under
contractual arrangements with third-party insurance payors who do not pay full
charges. The difference between the Company's billing rates and the amount paid
by the third-party payors, who contract for services, is a contractual discount.
For the year ended December 31, 1996, contractual discounts and the provision
for uncollectible accounts are estimated by management to be approximately 50%
of the patient service revenues.
NOTE 5 - ORGANIZATION EXPENSES (Including Certain Related Party
Transactions)
Organization expenses consists of a one-time set up fee in the amount of $15,000
paid to NMRI, as well as a one-time billing set-up fee in the amount of $7,500
paid to Cascade Medical Billing, Inc. (now National Medical Management, Inc.), a
Washington corporation whose controlling stockholder is the controlling
stockholder of NMD.
Organization expenses are amortized over five years, using the straight-line
method.
NOTE 6 - CAPITAL LEASE OBLIGATIONS
MRI Equipment
One June 1, 1995, the Company entered into a lease agreement for the MRI
diagnostic radiology equipment and modular building housing the equipment
located in Morgan Hill, California. This obligation has been recorded in the
accompanying financial statements as a capital lease at the present value of the
future minimum lease payments, discounted at an interest rate of 11.0%. The
capitalized cost of the equipment is $1,740,492. Monthly payments began May 18,
1995 at $34,945 for 66 months.
Pursuant to the lease agreement, the payments on this lease obligation have
priority over any payments to third parties. The lessor has a security interest
in the Company's existing and future accounts receivable.
Medical Equipment
On May 15, 1995, the Company entered into a lease agreement for the diagnostic
radiology equipment located in San Jose, California. This obligation has been
recorded in the accompanying financial statements as a capital lease at the
present value of the future minimum lease payments, discounted at an interest
rate of 12.5%. The capitalized cost of the equipment is $230,000. Monthly
payments began June 16, 1995 at $2,395 for three months and $4,998 for 63
months. This lease is subject to similar terms and conditions as the lease for
the MRI equipment.
Page 8
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 6 - CAPITAL LEASE OBLIGATIONS (continued)
Medical Equipment - continued
On May 15, 1995, the Company entered into a lease agreement for diagnostic
radiology equipment located in San Jose, California. This obligation has been
recorded in the accompanying financial statements as a capital lease at the
present value of the future minimum lease payments, discounted at an interest
rate of 12.44%. The capitalized cost of the equipment is $251,671. Monthly
payments began June 16, 1995 at $2,622 for three months and $5,460 for 63
months. This lease is subject to similar terms and conditions as the lease for
the MRI equipment.
On February 21, 1996, the Company entered into a lease agreement for diagnostic
radiology equipment located in San Jose, California. This obligation has been
recorded in the accompanying financial statements as a capital lease at the
present value of the future minimum lease payments, discounted at an interest
rate of 11.37%. The capitalized cost of the equipment is $28,000. Monthly
payments began May 1, 1996 at $614 for 60 months. This lease is subject to
similar terms and conditions as the lease for the MRI equipment.
On February 22, 1996, the Company entered into a lease agreement for diagnostic
radiology equipment located in San Jose, California. This obligation has been
recorded in the accompanying financial statements as a capital lease at the
present value of the future minimum lease payments, discounted at an interest
rate of $11.56%. The capitalized cost of the equipment is $85,000. Monthly
payments began May 1, 1996 at $1,872 for 60 months. This lease is subject to
similar terms and conditions as the lease for the MRI equipment.
On, April 23, 1996, the Company entered into a lease agreement for used
diagnostic radiology equipment located in San Jose, California. This obligation
has been recorded in the accompanying financial statements as a capital lease at
the present value of the future minimum lease payments, discounted at an
interest rate of 12%. The capitalized cost of the equipment is $74,000. Monthly
payments began July 1, 1996 at $1,646 for 60 months. This lease is subject to
similar terms and conditions as the lease for the MRI equipment.
Medical Equipment/Working Capital Lease
On May 15, 1995, the Company entered into a lease agreement for radiology camera
equipment to be located in San Jose, California. Funds in the amount of $426,738
were advanced by the lessor to O'Connor Hospital for the purchase of the
equipment. However, the purchase of the camera equipment was never consummated
and the hospital advanced the funds to the L.L.C., which the L.L.C. used as
working capital. This obligation was recorded in the financial statements as a
lease obligation at the present value of the future minimum lease payments,
discounted at an interest rate of 12.5%. Monthly payments began June 16, 1995 at
$2,395 for three months and continued at $4,998 until May, 1996.
Page 9
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 6 - CAPITAL LEASE OBLIGATIONS(continued)
Medical Equipment/Working Capital Lease - continued
In 1996, the Company converted the lease and a liability in the amount of
$558,621 owed to O'Connor Hospital for a nuclear medical camera into a new
capital lease. Monthly payments began June 15, 1996 at $9,720 for three months
and $21,801 for 60 months. This lease is subject to similar terms and conditions
as the lease for the MRI equipment.
Leasehold Improvements
On August 22, 1995, the Company entered into a lease agreement for the tenant
improvements located in San Jose, California. This obligation has been recorded
in the accompanying financial statements as a capital lease at the present value
of the future minimum lease payments, discounted at an interest rate of 13.85%.
The capitalized cost of the improvements is $40,506. Monthly payments began
September 1, 1995 at $442 for three months and $911 for 63 months. This lease is
subject to similar terms and conditions as the lease for the MRI equipment.
Future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 971,787
1998 866,952
1999 866,952
2000 785,694
2001 194,221
Thereafter --
-----------
Total future minimum lease payments 3,685,606
Less: amount representing interest (796,665)
-----------
Present value of net minimum lease payments $ 2,888,941
===========
</TABLE>
Amortization expense related to the capital leases in the amount of $682,124 is
included in depreciation expense.
Page 10
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 7 - LINE OF CREDIT-RELATED PARTY
Pursuant to Article VI of the Limited Liability Company Operating Agreement and
as evidenced by a separate promissory note, O'Connor Hospital provided a
revolving, working capital line of credit for five years, in the amount of
$350,000. Interest only at the prime rate of interest offered by the Bank of
America, NT&SA, plus one percent as of the date of each advance, is required to
be paid monthly beginning July, 1995. At the end of five years, the then
outstanding balance of principal and interest due shall be converted to a
two-year note whereby the L.L.C. will be required to make monthly payments of
principal and interest.
At December 31, 1996, the outstanding principal balance was $348,238. The
outstanding balance is secured by all of the Company's tangible and intangible
assets, including accounts receivable, and is subordinate to the leases payable
to DVI (note 6).
On January 1, 1996, the Company executed another revolving, working capital line
of credit with the hospital in the amount of $200,000. Interest only is payable
monthly at a floating rate based on the prime rate offered by the Bank of
America, NT&SA at December 31, 1996,the interest rate was 6.7%. Effective
December 31, 1998, the Company will be required to make payments of principal
and interest for a period of 24 months, with the balance due and payable in full
December 31, 2000. At December 31, 1996, the outstanding principal balance was
$80,000.
NOTE 8 - LINE OF CREDIT
On May 22, 1996, the L.L.C. executed an agreement with DVI for a revolving line
of credit of up to $400,000 and secured by accounts receivable. Interest is
computed at prime plus 2.5%. Outstanding principal and interest are due May 22,
1998.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Ground Lease
In conjunction with the lease of the MRI equipment and modular building located
in Morgan Hill, California (note 6), the L.L.C. entered into an oral agreement
with St. Louise Hospital and Health Center to lease, on a month-to-month basis,
certain real property which is the site of the modular building and MRI
equipment. For the year ended December 31, 1996, rent expense was recorded in
the amount of $6,210.
Page 11
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued)
Operating Lease
On June 1, 1995, the Company entered into a sublease agreement with O'Connor
Hospital (and agreed to by the master lease lessor) for office space as a site
in San Jose for its diagnostic radiology equipment. The lease term commenced
June 1, 1995 and was scheduled to expire the earlier of (i) the date on which
the Master Lease terminates, or (ii) June 1, 2000. The monthly base rent was
$2,138 plus 12% of O'Connor's triple net obligation. Rent expense for January
through March, 1996, was $7,315.
On April 1, 1996, the Company moved into larger office space. The new lease term
is for five years, expiring April 1, 2001, with one renewal option for five
years. Monthly rent is $12,176 plus 12% of the common area fees. Rent expense
for the nine months ended December 31, 1996, was $112,207.
On May 15, 1995, the Company assigned its tenant rights under the lease to the
lessor of the MRI, medical equipment, and tenant improvements as additional
security for the Company's performance of its obligations under the equipment
and tenant improvements leases (note 6).
Future minimum lease payments of the San Jose sublease as of December 31, 1996,
are as follows:
<TABLE>
<S> <C>
1997 $ 146,112
1998 146,112
1999 146,112
2000 146,112
2001 36,528
Thereafter --
-------------
$ 620,976
=============
</TABLE>
Page 12
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 9 - COMMITMENTS (continued)
Repair and Maintenance Contracts
Pursuant to the capital lease obligations, the Company maintains repair and
maintenance contracts on its medical equipment (note 6). As of December 31,
1996, future obligations under these contracts are as follows:
<TABLE>
<S> <C>
1997 $ 162,560
1998 162,560
1999 162,560
2000 27,560
2001 13,547
-----------
$ 528,787
===========
</TABLE>
At December 31, 1996, contract payments in the amount of $85,848 were included
in accounts payable. These represent outstanding amounts due for the service
contract for equipment at the St. Louise Hospital location.
NOTE 10 - OUTSIDE PURCHASED SERVICES (including some services
purchased from related parties)
Radiology Services
On May 15, 1995, the Company entered into a contract for radiology services with
a third party. The exclusive contract for services is for 1 year, with automatic
renewals on a year to year basis unless either party terminates the agreement
with a written notice at least 60 days prior to the end of the term. The
radiology service fee, which is payable monthly, was computed at an initial rate
of 14.5% of fees received (net of collection charges). Pursuant to the contract,
the rate can be increased or decreased by 2% per quarter based upon a formula as
specified in the contract, to a maximum of 24.5% or minimum of 12.5%. At
December 31, 1996, the rate was 14.5%.
Patient Billing Services
The patient billing service fee is computed at 8.5% of cash collections each
month and is payable to National Medical Management, Inc., an affiliate of NMD.
The exclusive contract for services is for five years, with an automatic renewal
for 1 year, unless either party terminates the agreement with a written notice
at least 90 days prior to the end of the term.
Page 13
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 11 - ACCRUED LIABILITIES-RELATED PARTY
At December 31, 1996, accrued liabilities-related party represent the following:
<TABLE>
<S> <C>
Reimbursements for wages, salaries,
and miscellaneous expenses owed to
O'Connor Hospital $ 65,175
Accounts receivable billed and collected
on behalf of O'Connor Hospital Heart Lab
(note 16) 284,948
--------
$350,123
========
</TABLE>
NOTE 12 - ACCRUED LIABILITIES-AFFILIATES
At December 31, 1996, accrued liabilities-affiliates represent the following:
<TABLE>
<S> <C>
Billing fees payable to National
Medical Management, Inc. $ 54,732
Short-term working capital loan
payable to O'Connor MRI, L.P. 75,000
--------
$129,732
========
</TABLE>
NOTE 13 - EMPLOYEE BENEFITS
The Company maintains a qualified deferred compensation plan under section
401(k) of the Internal Revenue Code. Under the plan, all employees may elect to
defer up to 15% of their salary, subject to the Internal Revenue Service limits.
The plan also allows for discretionary employer contributions. For the year
ended December 31, 1996, the Company did not make any discretionary
contributions.
NOTE 14 - REPAIRS AND MAINTENANCE
Repairs and maintenance expense for the period includes a service contract in
the amount of $135,181 on the MRI and medical equipment located at the Morgan
Hill facility. It also includes service contract expense in the amount of
$14,655 at the San Jose facility. Most of the radiology equipment located at the
San Jose facility is included under warranty service contracts with the various
equipment manufacturers through December 31, 1996 (note 9).
Page 14
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 15 - MEMBERS' EQUITY
The members of the Company have the following equity interests and voting
rights:
<TABLE>
<CAPTION>
Equity Voting
Interest Rights
-------- ------
<S> <C> <C>
O'Connor Hospital 49% 49%
National Medical Development, Inc. 51% 51%
</TABLE>
Limited Liability
Pursuant to Article III, section 3.5, of the Limited Liability Company Operating
Agreement, no member shall be personally liable for any debts, obligations,
damages, or liabilities of the Company, except as required by law.
Mandatory Preferred Return
Pursuant to the provisions of Article VIII of the Limited Liability Company
Operating Agreement, a preferred return in the aggregate amount of $50,000 shall
be paid to O'Connor Hospital, as distributions are made.
Operating Distributions
Pursuant to the provisions of Article VIII of the Limited Liability Company
Operating Agreement, an operating distribution may be made from time to time as
follows: First, 99% to O'Connor and 1% to NMD until the aggregate of all amounts
distributed to O'Connor equals the preferred return. Then, any remainder shall
be made according to their respective percentage interests.
NOTE 16 - CASH FLOW INFORMATION-SUPPLEMENTAL INFORMATION
Interest expense paid during the year ended December 31, 1996 totaled $297,099.
In addition, the Company paid $1,300 in California Limited Liability Company
taxes and fees.
During the year ended December 31, 1996, the Company entered into capital lease
obligations for the acquisition of medical diagnostic equipment (note 6).
Page 15
<PAGE>
DIAGNOSTIC IMAGING NETWORK, L.L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 17 - SUBSEQUENT EVENTS
In August 1997, NMD sold its membership interest in the L.L.C. to a third party.
Under the terms of the agreement, the operations at the St. Louise Hospital
location was assumed by NMD. Also under terms of the agreement, the buyer did
not assume any current or long-term debt payable to a related party or
affiliate. December 31, 1996, payables in the amount of $43,240 for billing and
management fees due to an affiliate (note 12) were forgiven.
Page 16
<PAGE>
O' CONNOR MRI, L.P.
FINANCIAL STATEMENTS
December 31, 1996
<PAGE>
O' CONNOR MRI, L.P.
TABLE OF CONTENTS
December 31, 1996
FINANCIAL STATEMENTS PAGE
Independent Auditors' Report 1
Balance Sheet 2
Statement of Income 3
Statement of Partners' Capital 4
Statement of Cash Flows 5
Notes to Financial Statements 6-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of O' Connor MRI, L.P.
We have audited the accompanying balance sheet of O' Connor MRI, L.P. as of
December 31, 1996 and the related statements of income, partners' capital and
cash flows for the year then ended. These financial statements are the
responsiblity of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of O' Connor MRI, L.P. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Weisberg & Company, LLP
Carle Place, New York
December 10, 1997
<PAGE>
O' CONNOR MRI, L.P.
BALANCE SHEET
December 31, 1996
<TABLE>
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,534
Accounts receivable (note 3) 744,475
Prepaid expenses 16,746
Notes receivable-partners and related parties 88,999
-----------
Total Current Assets $ 854,754
PROPERTY AND EQUIPMENT
Capital leases-equipment 3,076,894
Medical equipment 40,932
Capital lease-building 487,874
Capital lease-building improvements 410,000
Leasehold improvements 37,245
Office furniture and equipment 35,804
-----------
4,088,749
Less: accumulated depreciation and amortization (1,355,675)
Property and Equipment, net 2,733,074
OTHER ASSETS
Organizational expense 40,890
Loan fees 4,000
Development fees 70,000
-----------
114,890
Less: accumulated amortization (51,870)
-----------
Other Assets, net 63,020
-----------
Total Assets $ 3,650,848
===========
</TABLE>
<PAGE>
<TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
CURRENT LIABILITIES
State income tax payable $ 800
Accounts payable 87,474
Distribution payable-limited partner 69,200
Accrued expenses (note 4) 339,974
Line of credit (note 5) 426,036
Obligations under capital leases-current
portion(note 6) 744,144
-----------
Total Current Liabilities $ 1,667,628
Obligations under capital leases (note 6) 2,102,382
-----------
Total Liabilities 3,770,010
COMMITMENTS AND CONTINGENCIES (notes 7 and 8)
PARTNERS' CAPITAL (119,162)
-----------
Total Liabilities and Partners' Capital 3,650,848
===========
</TABLE>
See notes to financial statements. Page 2
<PAGE>
O' CONNOR MRI, L.P.
STATEMENT OF INCOME
For the year ended December 31, 1996
<TABLE>
<S> <C> <C>
REVENUE
Fee income $ 5,397,583
Less: contractual discounts (2,270,826)
-----------
Total Revenue $ 3,126,757
OPERATING EXPENSES
Depreciation 595,644
Salaries and wages 415,818
Radiology fees (note 8) 431,789
Medical and film supplies 253,218
Repairs and maintenance 240,920
Billing and management (note 8) 156,873
Taxes - other 80,305
Miscellaneous 63,554
Insurance 38,198
Payroll taxes 32,939
Amortization 24,179
Office 18,392
Advertising costs (note 9) 15,209
Bank charges 13,893
Professional fees 10,756
Outside services 10,194
Telephone 5,740
Rent 5,328
Travel and entertainment 3,130
-----------
Total Operating Expenses 2,416,079
-----------
Income From Operations 710,678
OTHER INCOME (EXPENSE)
Interest expense (365,671)
Settlement income, net (note 10) 103,898
-----------
Total Other Income (Expense) (261,773)
-----------
Income Before Income Taxes 448,905
State income taxes (800)
-----------
Net Income $ 448,105
===========
</TABLE>
See notes to financial statements. Page 3
<PAGE>
O' CONNOR MRI, L.P.
STATEMENT OF PARTNERS' CAPITAL
For the year ended December 31, 1996
<TABLE>
<CAPTION>
General Limited
Total Partner Partner
--------- --------- ---------
<S> <C> <C> <C>
Capital- December 31, 1995 (289,317) (203,591) (85,726)
Net Income 448,105 268,863 179,242
Partner distributions (277,950) (166,770) (111,180)
--------- --------- ---------
Capital - December 31, 1996 $(119,162) $(101,498) $ (17,664)
========= ========= =========
</TABLE>
See notes to financial statements. Page 4
<PAGE>
O' CONNOR MRI, L.P.
STATEMENT OF CASH FLOWS
For the year ended December 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 448,105
---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 619,823
Changes in assets and liabilities:
(Increase) in accounts receivable (335,179)
(Increase) in prepaid expenses (12,933)
Increase in accounts payable 87,474
(Decrease) in accounts payable - related party (194,388)
(Decrease) in accrued expenses 317,496
(Decrease) in deferred revenue (30,000)
---------
Total adjustments 452,293
---------
Net cash provided by operating activities 900,398
---------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) in notes receivable-partners
and related parties (87,403)
Purchase of property and equipment (31,050)
---------
Net cash used in investing activities (118,453)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, net 11,006
Principal payments under capital lease obligations (637,248)
Partner distributions paid (208,750)
---------
Net cash used in financing activities (834,992)
---------
Net decrease in cash and cash equivalents (53,047)
Cash and cash equivalents - beginning of year 57,581
---------
Cash and cash equivalents - end of year (note 12) $ 4,534
=========
</TABLE>
See notes to financial statements. Page 5
<PAGE>
O' CONNOR MRI, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 1- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
O' Connor MRI, L.P. (the "Partnership") was formed as a limited partnership
under the laws of the State of California, for the purpose of developing and
operating a medical diagnostic imaging center located in San Jose, California.
Patient Service Revenues
The patient service revenues consist of charges for MRI and CT diagnostic
services. MRI charges comprise approximately 78% of the total gross revenues and
represent global fees, which include the technical component of the charge for
patient services for the facility and equipment usage, as well as the related
radiologist fees (note 8).
CT charges comprise approximately 22% of the total gross revenues and represent
a flat fee paid per diagnostic procedure, which is paid by the referring
institution which is also the limited partner of the Partnership (note 8).
Property and equipment, depreciation and amortization
Property and equipment are recorded at cost. Depreciation is provided in amounts
sufficient to relate the cost of depreciable assets to operations over the
respective estimated service lives by use of the straight-line method over five
to forty year lives for the building, building improvements and leasehold
improvements, and by use of the straight-line method over five and seven year
lives for medical equipment and office furniture and equipment. Improvements are
capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Organizational expenses, loan fees, and development fees
are amortized over five years by use of the straight-line method.
Leases
Leases which meet certain criteria evidencing substantive ownership are
capitalized and the related capital lease obligations are included in current
and long-term liabilities. Amortization and interest are charged to expense,
with rent payments being treated as payments of the capital lease obligations.
All other leases are accounted for as operating leases, with rent payments being
charged to expense as incurred.
Income Taxes
No provision or benefit for income taxes has been included in these financial
statements since the taxable income or loss passes through to, and is reportable
by, the individual partners.
Limited partnerships doing business in California are subject to a limited
partnership tax of $800 per year commencing in the year operations begin. For
California State income tax purposes, this tax cannot be deducted as an expense
of the partnership, nor can it be deducted from the partners' distributive
share.
Page 6
<PAGE>
O' CONNOR MRI, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
Inventories
Inventories of MRI supplies and office supplies are considered immaterial and
are not accumulated for more than one month. For accounting purposes, all
amounts expended are treated as expenses when paid.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Partnership considers all
highly liquid investments with a maturity of three months or less to be cash
equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 2 - CREDIT CONCENTRATIONS
The Partnership provides diagnostic services for patients of hospitals,
physicians, and medical clinics located in the greater San Jose area. As of
December 31, 1996, the majority of the Partnership's outstanding unsecured
accounts receivable were due from insurance companies that provide health
insurance coverage. Payment of these receivables depends primarily upon the
contractual arrangements with these third-party payors (note 3).
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable represent charges for the technical component and outside
physician radiology services.
Contractual discounts result when patient charges are generated under
contractual arrangements with third-party insurance payors who do not pay full
charges. The difference between the Partnership's billing rates and the amount
paid by the third-party payors, who contract for services, is a contractual
discount. For the year ended December 31, 1996, contractual discounts and the
provision for uncollectible accounts are estimated by management to be
approximately 42% of the patient service revenues.
At December 31, 1996, accounts receivable consisted of the following:
<TABLE>
<S> <C>
CT fees due from related party (note 8) $ 70,274
MRI technical and radiologist fees 1,197,455
-----------
1,267,729
Less: allowance for contractual discounts (523,254)
-----------
$ 744,475
===========
</TABLE>
Page 7
<PAGE>
O' CONNOR MRI, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 4 - ACCRUED EXPENSES - (Including Amounts Due to Related Party)
At December 31, 1996, accrued expenses consisted of the following:
<TABLE>
<S> <C>
Billing fees payable to an entity related to general
partner (note 8) $ 37,267
Radiology fees payable to third parties (note 8) 302,707
--------
$339,974
========
</TABLE>
NOTE 5 - LINE OF CREDIT
The Partnership has a revolving line of credit through DVI Financial Services,
Inc., the lessor of the capital leases (note 6), with a borrowing limit of
$600,000. The line is due December, 1997. Interest is payable monthly at prime
plus 2.5%. The line is secured by accounts receivable.
NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES
MRI System
The Partnership leases an MRI system under a noncancelable lease agreement,
commencing November 20, 1993, with three monthly payments of $16,729, then sixty
monthly payments of $39,680, including imputed interest of 10.3%. Payments on
this lease obligation have priority over any payments to related parties for
services rendered or over any distributions to the partners. The lease is
secured by accounts receivable, the MRI equipment, general intangibles,
inventory, equipment, money deposit accounts and the assignment of the
Partnership's tenant rights in the commercial lease with the limited partner. In
addition, the lease is 100% guaranteed by the general partner.
Modular Building
The Partnership leases a modular building under a noncancelable lease agreement,
commencing November 20, 1993, with three monthly payments of $4,474, then sixty
monthly payments of $10,607, including imputed interest of 10.6%. The lease is
secured by the same accounts that secure the MRI equipment lease.
CT Scanner
The Partnership leases a CT Scanner under a noncancelable lease agreement,
commencing September 29, 1995, with sixty-six monthly payments of $19,540,
including imputed interest of 12.4%. The lease is secured by the same accounts
that secure the MRI equipment lease. The lease is also 100% guaranteed by the
general partner.
Page 8
<PAGE>
O' CONNOR MRI, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 6 - OBLIGATIONS UNDER CAPITAL LEASES -continued
Construction Improvements for CT Scanner
The Partnership leases tenant improvements made for the CT scanner under a
noncancelable lease agreement, commencing December 29, 1995, with sixty monthly
payments of $9,120, including imputed interest of 12.0%. The lease is secured by
the same accounts that secure the MRI equipment lease. The lease is also 100%
guaranteed by the general partner.
Diagnostic Equipment
On April 1, 1996, the Partnership leased diagnostic equipment under a capital
lease agreement with sixty-six monthly payments of $2,814, including imputed
interest of 11.5%. The lease is secured by the same accounts that secure the MRI
equipment lease.
On September 30, 1996, the Partnership leased additional diagnostic equipment
under a capital lease agreement with sixty monthly payments of $3,827, including
imputed interest of 11.5%. The lease is secured by the same accounts that secure
the MRI equipment lease.
The leased equipment, building and tenant improvements listed above are
capitalized at a cost of $3,974,768. Amortization expense related to the
capitalized leases of $584,839 is included in depreciation expense. Accumulated
amortization related to these assets at December 31, 1996, was $1,312,354.
Future minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 1,027,053
1998 1,027,053
1999 865,585
2000 423,609
2001 130,320
Thereafter --
------------
Total future mimimum lease payments 3,473,620
Less: amount representing interest (627,094)
------------
Present value of net minimum lease
payments $ 2,846,526
============
</TABLE>
Page 9
<PAGE>
O' CONNOR MRI, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Lease
The Partnership leases a copy machine under an operating lease expiring in June,
1997.
The Partnership leases, under an operating lease from its limited partner, the
land and improvements to the land where it conducts its business. The lease
expires on December 31, 2003, with an option to renew the lease for three
additional consecutive five-year periods. The amount of rent charged is $500
monthly, with the provision that the rent amount will be adjusted annually in
relation to the increase in the Consumer Price Index for All Urban Consumers,
Oakland-San Francisco Area 1984=100.
Equipment Service Agreements
In November, 1996, the Partnership entered into service agreements for its MRI
and CT equipment for a period of four years. Services provided under the
agreements include scheduled maintenance service and remedial repairs. Payments
in the amount of $19,533 are due at the beginning of each month.
Future minimum payments required under the above agreements as of December 31,
1996 are as follows:
<TABLE>
<S> <C>
1997 $ 240,835
1998 240,400
1999 240,400
2000 220,867
2001 6,000
Thereafter 12,000
------------
$ 960,502
============
</TABLE>
Page 10
<PAGE>
O' CONNOR MRI, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 8 - OTHER COMMITMENTS AND OUTSIDE PURCHASED SERVICES
(Including Some Services From Related Parties)
Management and Billing Services - MRI
The Partnership has an agreement for management and billing services with
National Medical Management, Inc., an affiliate of the general partner. The
patient billing service fee is computed at 5% of cash collections each month.
The management fee is $1,250 per month. The exclusive contract for services is
for five years, with an automatic renewal for 1 year, unless either party
terminates the agreement with a written notice at least 90 days prior to the end
of the term. For the year ended December 31, 1996, the Partnership recorded fees
in the amount of $156,873 pursuant to this agreement.
Management Services - CT Suite
The Partnership entered into an agreement with the limited partner for the
Partnership to provide management and services for the CT scanner suite. As
compensation for these services, the limited partner has agreed to pay the
Partnership $280 per scan for each of the first 2,350 scans each year, plus $290
per scan for each scan in excess of 2,350 scans during such year. The
Partnership's fee for each month that this agreement is in effect shall never be
less than $54,833. This agreement remains in effect until March, 2002. At the
end of this term, the limited partner may extend the agreement for up to two
years. The amount received in 1996 related to this agreement was $1,220,688.
Radiology Services
The Partnership entered into a contract for MRI radiology services with a third
party. The exclusive contract for services is for 1 year, with automatic
renewals on a year to year basis unless either party terminates the agreement
with a written notice at least 60 days prior to the end of the term. The
radiology service fee is computed at a rate of 17% of fees received (net of
collection charges) and is payable monthly.
NOTE 9 - ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to $15,209 for the year
ended December 31, 1996.
Page 11
<PAGE>
O' CONNOR MRI, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE 10 -SETTLEMENT INCOME AND EXPENSE
The Partnership was involved in litigation to recover $96,571 paid to repair the
damage that occurred to the MRI equipment during its installation. During 1996,
the Partnership incurred $18,860 in legal fees and received $122,758 as a
settlement.
NOTE 11 -RETIREMENT PLAN
The Partnership maintains a qualified deferred compensation plan under section
401 (k) of the Internal Revenue Code. Under the plan, employees may elect to
defer up to 15% of their salary, subject to Internal Revenue Service limits. The
plan allows for the Partnership to make discretionary contributions based on the
participant's compensation. The Partnership made no discretionary contributions
for the year ended December 31, 1996.
NOTE 12 -CASH FLOW INFORMATION
Cash paid during the year ended December 31, 1996 for interest and income taxes
was $307,846 and $800, respectively.
During the year ended December 31, 1996, the Partnership entered into capital
lease obligations in the amount of $311,167 (note 6).
NOTE 13 -SUBSEQUENT EVENT
In August 1997, the general partner of the Partnership sold its partnership
interest to a third party.
Page 12
<PAGE>
Advanced Radiology Imaging Services, Inc.
Financial Statements
Year Ended December 31, 1996
<PAGE>
Advanced Radiology Imaging Services, Inc.
December 31, 1996
Contents Page
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Retained Earnings . . . . . . . . . . . . . . . . . . . . 5
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . 7-9
-1-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Advanced Radiology Imaging Services, Inc.
Youngstown, Ohio
We have audited the accompanying balance sheet of Advanced Radiology Imaging
Services, Inc. (a Corporation) as of December 31, 1996 and the related statement
of income, retained earnings, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 in significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Radiology Imaging
Services, Inc. as of December 31, 1996, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Yurchyk and Davis, CPA's, Inc.
Canfield, Ohio
December 1, 1997
- 2 -
<PAGE>
Advanced Radiology Imaging Services, Inc.
Balance Sheet
December 31, 1996
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 54,581
Accounts Receivable - Net 103,868
Notes Receivable 5,378
---------
Total Current Assets 163,827
Fixed Assets:
Furniture and Fixtures 5,969
Leasehold Improvements 22,271
Medical Equipment 87,000
---------
Total Fixed Assets 115,240
Less: Accumulated Depreciation (25,919)
---------
Net Fixed Assets 89,321
Other Assets:
Deposits 265
---------
Total Assets $ 253,413
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 7,982
Current Portion Long Term Debt 76,007
State Tax Withheld 290
City Tax Withheld 270
---------
Total Current Liabilities 84,549
Long-Term Liabilities:
Notes Payable- SME 143,744
Notes Payable- Equipment 69,626
---------
Total Long Term Liabilities 213,370
Less: Current Portion Long-Term Debt (76,007)
---------
Net Long-Term Liabilities 137,363
---------
Total Liabilities 221,912
Stockholders' Equity:
Common Stock, no par value; 100 Shares
authorized, issued and outstanding 1,000
Retained Earnings 30,501
---------
Total Stockholders' Equity 31,501
---------
Total Liabilities
and Stockholders' Equity $ 253,413
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
Advanced Radiology Imaging Services, Inc.
Statement of Income
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Revenue:
Professional Fees $ 529,031
Less: Refunds (7,992)
---------
Total Income 521,039
Operating Expenses:
Equipment Rental and Lease 26,574
Automobile Expense 1,557
Salaries and Wages 75,572
Radiology Services 8,781
Outside Services 144,315
Bank Service Charges 358
Depreciation 13,828
Drugs and Medical Supplies 45,329
Dues, Books & Subscriptions 1,222
Gifts and Flowers 1,683
Insurances 3,831
Interest Expense 4,966
Professional Fees 5,075
Collection Expense 4,773
License and Permits 1,483
Legal Fees 3,235
Rent Expense 77,062
Office Expense 8,863
Equipment Rent 1,530
Professional Entertainment 2,287
Professional Development 1,500
Office Services 172
Repairs and Maintenance 23,520
Postage 4,583
Employee Benefits 15,569
Alarm Expense 514
Advertising and Marketing 9,021
Payroll Taxes 10,225
Telephone 9,920
Utilities 16,338
Cleaning Expense 3,776
---------
Total Operating Expenses 527,462
Income Before Other Income (6,423)
---------
Other Income:
Shared Expense Income 41,313
---------
Net Income $ 34,890
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
Advanced Radiology Imaging Services, Inc.
Statement of Retained Earnings
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Deficit in Retained Earnings - January 1, 1996 $ (4,389)
Add: Net Income 34,890
--------
Retained Earnings - December 31, 1996 $ 30,501
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
Advanced Radiology Imaging Services, Inc.
Statement of Cash Flows
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Income $ 34,890
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 13,828
Changes in Assets and Liabilities:
Decrease/(Increase) in
Accounts Receivable (3,867)
Increase/(Decrease) in Accounts
Payable and Accrued Expenses (3,522)
--------
Net Cash Provided by Operating Activities 41,329
Cash Flows from Investing Activities:
Capital Expenditures (87,169)
Proceeds on Sale of Fixed Assets --
--------
Net Cash Provided (Used) by
Investing Activities (87,169)
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 69,626
Payment on Debt --
--------
Net Cash (Used) by Financing Activities 69,626
--------
Net Increase/(Decrease) in Cash 23,786
Cash and Cash Equivalents-Beginning of Period 30,795
--------
Cash and Cash Equivalents-End of Period 54,581
========
Interest Paid $ 4,966
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
Advanced Radiology Imaging Services, Inc.
Notes to Financial Statements
December 31, 1996
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1). Basis of Accounting-The Company's policy is to prepare its financial
statements on the accrual basis of accounting.
2). Organization and Business Activity-The Company was incorporated on December
1, 1990 under the Corporation laws of the State of Ohio. The company provides
general radiology services in Northeast Ohio.
3). Fixed Assets-Property and Equipment are stated at cost. Depreciation is
computed at rates adequate to allocate the cost of the applicable assets over
their expected useful lives. Equipment and improvements are capitalized at cost
by additions to the related asset accounts, while repairs and maintenance are
charged against income. Upon retirement or other disposition of these assets,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gains or losses are reflected in the statement of income.
4). Cash and Cash Equivalents-Cash and cash equivalents consist of cash on
hand, cash in the bank, and cash equivalents with original maturities of three
months or less.
5). Use of Estimates in the Preparation of Financial Statements-The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
6). Income Taxes- Amounts for deferred tax assets and liabilities at December 31
are as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Deferred Tax Asset, net of
valuation allowance of
$ 18,700 in 1996 $ --
=======
Deferred Tax Liability $ --
=======
</TABLE>
The Company's effective income tax rate is lower than what would be expected if
the federal statutory rate were applied to income from continuing operations
primarily because of a net operating loss carryforward for tax purposes. The
Company has a net operating loss carryforward in the approximate amount of
$55,000 expiring in 2005.
- 7 -
<PAGE>
Advanced Radiology Imaging Services, Inc.
Notes to Financial Statements
December 31, 1996
7). Accounts Receivable-Accounts Receivable principally represent the Company's
share of amounts due from patients, third party payers, and others. These
amounts are recorded net of allowances for discounts and bad debts. At December
31, 1996, accounts receivable was comprised of the following:
<TABLE>
<S> <C>
Accounts receivable $ 172,899
Less: Allowance for discounts and bad debts (69,031)
---------
Accounts receivable, net $ 103,868
=========
</TABLE>
8). Leases-Where equipment is leased under long term leases and the Company can
acquire the asset at prices less than fair market value upon expiration of the
lease, the asset is capitalized and the lease obligation is included in
long-term debt. Under net leases where no opportunities exist to acquire the
asset at less than fair market value and where no residual values are available
at nominal cost, the rentals are recorded as equipment rental and the asset is
not capitalized.
NOTE B-LONG TERM DEBT
Long term debt outstanding is as follows:
<TABLE>
<CAPTION>
12/31/96
--------
<S> <C>
Note payable - Scientific Medical Equipment,
payable on demand but classified as long-term
based on intent of the parties, interest at 12% $ 143,744
Note payable - Keybank, payable in
monthly installments of $2,793 including interest
at 9.5%, due April 1999 69,626
---------
Total Long Term Debt 213,370
Less: Current Portion (76,007)
---------
Net Long Term Debt $ 137,363
=========
</TABLE>
- 8 -
<PAGE>
Advanced Radiology Imaging Services, Inc.
Notes to Financial Statements
December 31, 1996
NOTE B-LONG TERM DEBT-CONTINUED
The following are maturities of long term debt for each of the next five years:
<TABLE>
<CAPTION>
Years ended December 31, Amount
------------------------ ------
<S> <C>
1997 $ 76,007
1998 78,795
1999 58,568
2000 --
2001 --
2002 and thereafter --
--------
Total Long Term Debt $213,370
========
</TABLE>
NOTE C-RELATED PARTY TRANSACTIONS
The Company conducts certain transactions with the Company's principal
stockholder and affiliated companies controlled by the Company's principal
stockholder. Following is a summary of balances and transactions with related
parties for the year ended December 31
<TABLE>
<CAPTION>
1996
----
<S> <C>
Accounts Payable--Affiliated Companies $143,744
--------
</TABLE>
NOTE D-COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases residential space and office equipment under various
operating leases. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
NOTE E-SUBSEQUENT EVENTS
On October 6th, the assets of this Company were sold. The sale of these assets
was included with the the sale of other local medical imaging centers with
similiar ownership. This sale included all company assets.
- 9 -
<PAGE>
Grajo Imaging, Incorporated
Financial Statements
Year Ended December 31, 1996
<PAGE>
Grajo Imaging, Incorporated
December 31, 1996
Contents Page
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . 4
Statement of Retained Earnings. . . . . . . . . . . . . . . . . . . 5
Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . 7-9
-1-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Grajo Imaging, Inc.
Youngstown, Ohio
We have audited the accompanying balance sheet of Grajo Imaging, Inc. as of
December 31, 1996 and the related statement of income, retained earnings, and
cash flows for the year then ended. 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 audit.
We conducted our audit 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 in significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Grajo Imaging, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Yurchyk and Davis, CPA's, Inc.
Canfield, Ohio
December 1, 1997
- 2 -
<PAGE>
Grajo Imaging, Incorporated
Balance Sheet
December 31, 1996
ASSETS
Current Assets:
Cash and Cash Equivalents $ 258,705
Account Receivable - Net 254,748
-----------
Total Current Assets 513,453
Fixed Assets:
Equipment and Fixtures 1,027,026
Buildings and Land 116,180
-----------
Total Fixed Assets 1,143,206
Less: Accumulated Depreciation (901,179)
-----------
Net Fixed Assets 242,027
Other Assets:
Restricted Deposits 79
-----------
Total Assets $ 755,559
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 11,111
Current Portion of Long-Term Debt 284,950
Accrued and Withheld Taxes 1,754
-----------
Total Current Liabilities 297,815
Long Term Debt:
Capitalized Leases and Bank Loans 319,052
Loans From Related Entities 92,500
-----------
Total Long Term Debt 411,552
Less: Current Portion Long-Term Debt (284,950)
-----------
Total Long Term Liabilities 126,602
-----------
Total Liabilities 424,417
Stockholders' Equity:
Common Stock, no par value; 100 Shares
authorized, issued and outstanding 5,000
Retained Earnings 326,142
-----------
Total Stockholders' Equity 331,142
-----------
Total Liabilities and Stockholders' Equity $ 755,559
===========
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
Grajo Imaging, Incorporated
Statement of Income
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Revenue $ 1,681,914
Cost of Revenues Earned:
MRI Maintenance Contracts 106,289
Imaging and Medical Supplies 208,486
Nonemployee Physician Services 60,022
-----------
Total Cost of Revenues Earned 374,797
-----------
Operating Income 1,307,117
Operating Expenses:
Employee Wages 108,322
Repairs and Maintenance 9,348
Nonemployee Compensation 20,667
Taxes 27,082
Advertising 18,390
Travel and Entertainment 6,255
Telephone and Utilities 21,377
Office Supplies 13,371
Insurances 8,384
Professional Fees 19,688
Continuing Education 766
Bank Merchant Fees 1,111
Dues and Publications 2,241
Collection and Service Fees 7,295
Employee Benefits 7,509
Gas, Oil and Mileage 4,503
Licenses and Permits 1,429
Consulting Fees 19,553
Charitable Contributions 8,675
Building Rentals 59,845
Depreciation and Amortization 165,232
Stockholders' Compensation 100,000
-----------
Total Operating Expenses 631,043
Income Before Other Income and (Expenses) 676,074
-----------
Other Income and (Expenses):
Interest Charges (73,309)
Investment Income 7,983
-----------
Total Other Income and (Expenses) (65,326)
-----------
Net Income $ 610,748
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
Grajo Imaging, Inc.
Statement of Retained Earnings
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Retained Earnings - January 1, 1996 $ 315,394
Add: Net Income 610,748
Less: Sub S Distributions (600,000)
---------
Retained Earnings - December 31, 1996 $ 326,142
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
Grajo Imaging, Inc.
Statement of Cash Flows
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Income $ 610,748
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 165,232
Changes in Assets and Liabilities:
Decrease/(Increase) in
Accounts Receivable (18,280)
Increase/(Decrease) in Accounts
Payable and Accrued Expenses (2,712)
---------
Net Cash Provided by Operating Activities 754,988
Cash Flows from Investing Activities:
Capital Expenditures (10,300)
Proceeds on Sale of Fixed Assets --
---------
Net Cash Provided (Used) by
Investing Activities (10,300)
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 20,500
Distributions (600,000)
Payment on Debt (217,205)
---------
Net Cash (Used) by Financing Activities (796,705)
---------
Net Increase/(Decrease) in Cash (52,017)
Cash and Cash Equivalents-Beginning of Period 310,722
---------
Cash and Cash Equivalents-End of Period 258,705
=========
Interest Paid $ 73,309
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
Grajo Imaging, Inc.
Notes to Financial Statements
December 31, 1996
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1). Basis of Accounting-The Company's policy is to prepare its financial
statements on the accrual basis of accounting.
2). Organization and Business Activity-The Company was incorporated on March 30,
1992 under the S Corporation laws of the State of Ohio. The company provides
general radiology services in Northeast Ohio.
3). Fixed Assets-Property and Equipment are stated at cost. Depreciation is
computed at rates adequate to allocate the cost of the applicable assets over
their expected useful lives. Equipment and improvements are capitalized at cost
by additions to the related asset accounts, while repairs and maintenance are
charged against income. Upon retirement or other disposition of these assets,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gains or losses are reflected in the statement of income.
4). Cash and Cash Equivalents-Cash and cash equivalents consist of cash on hand,
cash in the bank, and cash equivalents with original maturities of three months
or less.
5). Use of Estimates in the Preparation of Financial Statements-The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
6). Income Taxes-The Company has elected by unanimous consent of its
stockholders to be taxed under the provisions of subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay Federal corporate
income taxes on its taxable income. Instead, the stockholders are liable for
individual Federal income taxes on their respective share of the Company's
taxable income.
7). Accounts Receivable-Accounts Receivable principally represent the Company's
share of amounts due from patients, third party payers, and others. These
amounts are recorded net of allowances for discounts and bad debts. At December
31, 1996, accounts receivable was comprised of the following:
<TABLE>
<S> <C>
Accounts receivable $ 425,430
Less: Allowance for discounts and bad debts (170,682)
---------
Accounts receivable, net $ 254,748
=========
</TABLE>
- 7 -
<PAGE>
Grajo Imaging, Inc.
Notes to Financial Statements
December 31, 1996
8). Leases-Where equipment is leased under long term leases and the Company can
acquire the asset at prices less than fair market value upon expiration of the
lease, the asset is capitalized and the lease obligation is included in
long-term debt. Under net leases where no opportunities exist to acquire the
asset at less than fair market value and where no residual values are available
at nominal cost, the rentals are recorded as equipment rental and the asset is
not capitalized.
NOTE B-LONG TERM DEBT
Long term debt outstanding is as follows:
<TABLE>
<CAPTION>
12/31/96
--------
<S> <C>
Note payable - MRI Partners, payable
on demand but classified as long-term
based on intent of the parties $ 92,500
Note payable - MRI Equipment and Consulting
Equipmemt, monthly installments of $20,500
including interest at 20.25%, due December 1997 221,647
Note payable - Dupont capitalized lease,
payable in monthly installments 97,405
---------
Total Long Term Debt 411,552
Less: Current Portion (284,950)
---------
Net Long Term Debt $ 126,602
=========
</TABLE>
The following are maturities of long term debt for each of the next five years:
<TABLE>
<CAPTION>
Years ended December 31, Amount
------------------------ ------
<S> <C>
1997 $ 284,950
1998 63,301
1999 63,301
2000 --
2001 --
2002 and thereafter --
---------
Total Long Term Debt $ 411,552
=========
</TABLE>
- 8 -
<PAGE>
Grajo Imaging, Inc.
Notes to Financial Statements
December 31, 1996
NOTE C-RELATED PARTY TRANSACTIONS
The Company conducts certain transactions with the Company's principal
stockholder and affiliated companies controlled by the Company's principal
stockholder. Following is a summary of balances and transactions with related
parties for the year ended December 31
<TABLE>
<CAPTION>
1996
----
<S> <C>
Accounts Payable--Affiliated Companies $ 92,500
--------
</TABLE>
NOTE D-COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases residential space and office equipment under various
operating leases. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
NOTE E-SUBSEQUENT EVENTS
On October 6th, the assets of this Company were sold. The sale of these assets
was included with the the sale of other local medical imaging centers with
similiar ownership. This sale included all company assets.
- 9 -
<PAGE>
Western Reserve Imaging
Center, Incorporated
Financial Statements
Year Ended December 31, 1996
<PAGE>
Western Reserve Imaging Center, Incorporated
December 31, 1996
Contents Page
Independent Auditor's Report ......................................... 2
Financial Statements
Balance Sheet .................................................... 3
Statement of Income .............................................. 4
Statement of Deficit
in Retained Earnings ........................................... 5
Statement of Cash Flows .......................................... 6
Notes to Financial Statements .................................... 7-9
- 1 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Western Reserve Imaging Center, Incorporated
Youngstown, Ohio
We have audited the accompanying balance sheet of Western Reserve Imaging
Center, Incorporated as of December 31, 1996 and the related statement of
income, deficit in retained earnings, and cash flows for the year then ended.
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 audit.
We conducted our audit 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 in significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western Reserve Imaging Center,
Incorporated as of December 31, 1996, and the results of its operations and it
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Yurchyk and Davis, CPA's, Inc.
Canfield, Ohio
December 1, 1997
- 2 -
<PAGE>
Western Reserve Imaging Center, Inc.
Balance Sheet
December 31, 1996
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 47
Fixed Assets:
Equipment and Furniture 53,804
Automobile 10,205
---------
Total Fixed Assets 64,009
Less: Accumulated Depreciation (45,712)
---------
Net Fixed Assets 18,297
---------
Total Assets $ 18,344
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 79,158
Long-Term Debt:
Capitalized Leases and Bank Loans 88,199
Loans From Related Entities 49,758
---------
Total Long-Term Debt 137,957
Less: Current Portion Long-Term Debt (79,158)
---------
Net Long-Term Debt 58,799
---------
Total Liabilities 137,957
Stockholders' Equity:
Common Stock, no par value; 100 Shares
authorized, issued and outstanding 100
Deficit in Retained Earnings (119,713)
---------
Total Stockholders' Equity (119,613)
---------
Total Liabilities and Stockholders' Equity $ 18,344
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
Western Reserve Imaging Center, Inc.
Statement of Income
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Revenue $ 64,246
Cost of Revenue Earned:
MRI Maintenance Contracts 21,084
Imaging and Medical Supplies 14,794
Nonemployee Physician Services 39,753
---------
Total Cost of Revenues Earned 75,631
---------
Operating Income (11,385)
Operating Expenses:
Employee Wages 34,747
Repairs and Maintenance 3,050
Nonemployee Compensation 2,040
Taxes 3,495
Advertising 335
Travel and Entertainment 819
Telephone and Utilities 4,052
Office Supplies 1,275
Professional Fees 1,868
Insurances 231
Continuing Education 500
Bank Merchant Fees 607
Collection and Service Fees 677
Employee Benefits 2,908
Gas, Oil and Mileage 322
Charitable Contributions 379
Building Rentals 44,890
---------
Total Operating Expenses 102,195
Income Before Other Income and (Expenses) (113,580)
---------
Other Income and (Expenses):
Interest Charges (5,134)
Investment Income 323
Depreciation and Amortization (7,498)
---------
Total Other Income and (Expenses) (12,309)
---------
Net Income (Loss) $(125,889)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
Western Reserve Imaging Center, Incorporated
Statement of Deficit in Retained Earnings
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Retained Earnings - January 1, 1996 $ 6,176
Add: Net Income (125,889)
Less: Sub S Distributions 0
---------
Deficit in Retained Earnings - December 31, 1996 $(119,713)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
Western Reserve Imaging Center, Incorporated
Statement of Cash Flows
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $(125,889)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 7,498
Changes in Assets and Liabilities:
Decrease/(Increase) in
Investments 55,363
Decrease/(Increase) in
Accounts Receivable 121,850
Increase/(Decrease) in Accounts
Payable and Accrued Expenses (11,139)
---------
Net Cash Provided by Operating Activities 47,683
Cash Flows from Investing Activities:
Capital Expenditures --
Proceeds on Sale of Fixed Assets --
---------
Net Cash Provided (Used) by
Investing Activities --
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt --
Payment on Debt (17,319)
---------
Net Cash (Used) by Financing Activities (17,319)
---------
Net Increase/(Decrease) in Cash 30,364
Cash and Cash Equivalents-Beginning of Period (30,317)
---------
Cash and Cash Equivalents-End of Period 47
=========
Interest Paid $ 5,134
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
Western Reserve Imaging Center, Incorporated
Notes to Financial Statements
December 31, 1996
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1). Basis of Accounting-The Company's policy is to prepare its financial
statements on the accrual basis of accounting.
2). Organization and Business Activity-The Company was incorporated on August 1,
1991 under the S Corporation laws of the State of Ohio. The company provides
general radiology services in Northeast Ohio.
3). Fixed Assets-Property and Equipment are stated at cost. Depreciation is
computed at rates adequate to allocate the cost of the applicable assets over
their expected useful lives. Equipment and improvements are capitalized at cost
by additions to the related asset accounts, while repairs and maintenance are
charged against income. Upon retirement or other disposition of these assets,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gains or losses are reflected in the statement of income.
4). Cash and Cash Equivalents-Cash and cash equivalents consist of cash on hand,
cash in the bank, and cash equivalents with original maturities of three months
or less.
5). Use of Estimates in the Preparation of Financial Statements-The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
6). Income Taxes-The Company has elected by unanimous consent of its
stockholders to be taxed under the provisions of subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay Federal corporate
income taxes on its taxable income. Instead, the stockholders are liable for
individual Federal income taxes on their respective share of the Company's
taxable income.
- 7 -
<PAGE>
Western Reserve Imaging Center, Incorporated
Notes to Financial Statements
December 31, 1996
7). Leases-Where equipment is leased under long term leases and the Company can
acquire the asset at prices less than fair market value upon expiration of the
lease, the asset is capitalized and the lease obligation is included in
long-term debt. Under net leases where no opportunities exist to acquire the
asset at less than fair market value and where no residual values are available
at nominal cost, the rentals are recorded as equipment rental and the asset is
not capitalized.
NOTE B-LONG TERM DEBT
Long term debt outstanding is as follows:
<TABLE>
<CAPTION>
12/31/96
--------
<S> <C>
Note payable - Grajo Imaging, payable
on demand but classified as long-term
based on intent of the parties $ 45,000
Note payable - Advanced Radiology Imaging
Services, payable on demand but classified as long-term
based on intent of the parties 4,758
Note payable - Radiology Equipment and
Consulting Group, payable on demand but
classified as long-term based on intent
of the parties 88,199
---------
Total Long Term Debt 137,957
Less: Current Portion (79,158)
---------
Net Long Term Debt $ 58,799
=========
</TABLE>
The following are maturities of long term debt for each of the next five years:
<TABLE>
<CAPTION>
Years ended December 31, Amount
------------------------ ------
<S> <C>
1997 $ 79,158
1998 29,400
1999 29,399
2000 -
2001 -
2002 and thereafter -
---------
Total Long Term Debt $ 137,957
=========
</TABLE>
- 8 -
<PAGE>
Western Reserve Imaging Center, Incorporated
Notes to Financial Statements
December 31, 1996
NOTE C-RELATED PARTY TRANSACTIONS
The Company conducts certain transactions with the Company's principal
stockholder and affiliated companies controlled by the Company's principal
stockholder. Following is a summary of balances and transactions with related
parties for the year ended December 31
1996
----
Accounts Payable--Affiliated Companies $ 49,758
--------
NOTE D-COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases residential space and office equipment under various
operating leases. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
NOTE E-SUBSEQUENT EVENTS
On October 6th, the assets of this Company were sold. The sale of these assets
was included with the the sale of other local medical imaging centers with
similiar ownership. This sale included all company assets.
- 9 -
<PAGE>
Regional Imaging Consultants Corporation
Financial Statements
Year Ended December 31, 1996
<PAGE>
Regional Imaging Consultants Corporation
December 31, 1996
Contents Page
Independent Auditor's Report ............................................. 2
Financial Statements
Balance Sheet ........................................................ 3-4
Statement of Income .................................................. 5-6
Statement of Retained Earnings ....................................... 7
Statement of Cash Flows .............................................. 8
Notes to Financial Statements ........................................ 9-11
-1-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Regional Imaging Consultants Corporation
Youngstown, Ohio
We have audited the accompanying balance sheet of Regional Imaging Consultants
Corporation as of December 31, 1996 and the related statement of income,
retained earnings, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Regional Imaging Consultants
Corporation as of December 31, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Yurchyk and Davis, CPA's, Inc.
Canfield, Ohio
November 21, 1997
-2-
<PAGE>
Regional Imaging Consultants Corporation
Balance Sheet
December 31, 1996
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 7,209
Accounts Receivable - Net 541,594
-----------
Total Current Assets 548,803
Fixed Assets:
Leasehold Improvements 23,652
Equipment 1,602,080
Furniture and Fixtures 63,594
Vehicles 89,231
-----------
Total Fixed Assets 1,778,557
Less: Accumulated Depreciation (1,187,481)
-----------
Net Fixed Assets 591,076
Other Assets:
Goodwill - Net of Amortization 10,000
Loan Fees - Net of Amortization 897
Origination Cost - Net of Amortization 5,000
Employee Advance 7,800
Accounts Receivable - Precision 19,785
Accounts Receivable - Other 15,000
Accounts Receivable - United Rehab 1,045
-----------
Total Other Assets 59,527
-----------
Total Assets $ 1,199,406
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
Regional Imaging Consultants Corporation
Balance Sheet
December 31, 1996
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Checking - (Overdraft) $ 43,444
Accounts Payable 145,418
Accrued and Withheld Payroll Taxes 2,191
Notes Payable - Copley 49,500
Line of Credit - Metropolitan 120,000
Line of Credit - Metropolitan 59,639
Notes Payable - U. S. Concord 63,359
Notes Payable - Metropolitan 4,137
Current Portion Long Term Debt 203,747
-----------
Total Current Liabilities 691,435
Long Term Liabilities:
Notes Payable - Shareholders 36,068
Notes Payable - DVI Financial 21,237
Notes Payable - Citicorp 64,894
Notes Payable - Shareholders 142,526
Notes Payable - Metropolitan 30,552
Notes Payable - Metropolitan 9,786
Notes Payable - Metropolitan 16,464
Notes Payable - DOY Credit Union 9,400
-----------
Total Long Term Liabilities 330,927
Less: Current Portion Long Term Debt (203,747)
-----------
Net Long Term Liabilities 127,180
-----------
Total Liabilities 818,615
Stockholders' Equity:
Common Stock, no par value; 100 Shares
authorized, 50 shares issued and outstanding 1,000
Treasury Stock - no par value; 50 shares (33,506)
Retained Earnings 413,297
-----------
Total Stockholders' Equity 380,791
-----------
Total Liabilities
and Stockholders' Equity $ 1,199,406
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
Regional Imaging Consultants Corporation
Statement of Income
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Revenue:
Patient Revenue $ 3,161,921
Patient Reimbursements (14,509)
-----------
Total Revenue 3,147,412
Operating Expenses:
Advertising 18,442
Amortization 7,604
Auto Expense 20,393
Bank Charges 7,051
Business Gifts 1,151
Cleaning 1,916
Collection Fees 57,461
Contributions 1,629
Depreciation 209,485
Drugs & Supplies 46,559
Dues & Subscriptions 6,800
Employee Benefits 24,114
Employee Leasing 49
Equipment Maintenance 99,314
Insurance 26,457
Leased Equipment 12,523
Legal & Accounting 28,956
Malpractice Insurance 10,699
Marketing 11,464
Meals & Entertainment 3,982
Meetings & Seminars 9,431
Miscellaneous 306
Office Supplies 22,639
Outside Services 7,560
Payroll Taxes 71,977
Permits & License 3,396
Personal Property Tax 17,572
Petty Cash 854
Postage 10,016
Professional Fees 15,762
Rent 163,207
Repairs and Maintenance - Buildings 311
Salaries 1,565,149
Subcontractors 36,060
Telephone 27,316
Travel & Lodging 1,000
Utilities 24,473
X-Ray Supplies 168,730
-----------
Total Operating Expenses 2,741,808
-----------
Income Before Other
Income and (Expenses) 405,604
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
Regional Imaging Consultants Corporation
Statement of Income - Continued
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Other Income and (Expenses):
Interest Income 442
Interest Expense (86,760)
Fines & Penalties (529)
---------
Total Other
Income and (Expenses) (86,847)
---------
Net Income $ 318,757
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
Regional Imaging Consultants Corporation
Statement of Retained Earnings
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Retained Earnings - January 1, 1996 $ 447,708
Add: Net Income 318,757
Less: Sub S Distributions (353,168)
---------
Retained Earnings - December 31, 1996 $ 413,297
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
Regional Imaging Consultants Corporation
Statement of Cash Flows
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Income $ 318,757
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and amortization 217,089
Changes in Assets and Liabilities:
Decrease/(Increase) in
Accounts Receivable 13,391
Decrease/(Increase) in
Other Assets 29,737
Increase/(Decrease) in Accounts
Payable and Accrued Expenses (59,572)
---------
Net Cash Provided by Operating Activities 519,402
Cash Flows from Investing Activities:
Capital Expenditures (4,931)
Proceeds on Sale of Fixed Assets --
---------
Net Cash Provided (Used) by
Investing Activities (4,931)
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 229,500
Distributions (353,168)
Payment on Debt (414,734)
---------
Net Cash (Used) by Financing Activities (538,402)
---------
Net Increase/(Decrease) in Cash (23,931)
Cash and Cash Equivalents-Beginning of Period 31,140
---------
Cash and Cash Equivalents-End of Period 7,209
=========
Interest Paid $ 86,760
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 8 -
<PAGE>
Regional Imaging Consultants Corporation
Notes to Financial Statements
December 31, 1996
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1). Basis of Accounting-The Company's policy is to prepare its financial
statements on the accrual basis of accounting.
2). Organization and Business Activity-The Company was incorporated on January
1, 1991 under the S Corporation laws of the State of Ohio. The company provides
general radiology services in Northeast Ohio.
3). Fixed Assets-Property and Equipment are stated at cost. Depreciation is
computed at rates adequate to allocate the cost of the applicable assets over
their expected useful lives. Equipment and improvements are capitalized at cost
by additions to the related asset accounts, while repairs and maintenance are
charged against income. Upon retirement or other disposition of these assets,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gains or losses are reflected in the statement of income.
4). Cash and Cash Equivalents-Cash and cash equivalents consist of cash on hand,
cash in the bank, and cash equivalents with original maturities of three months
or less.
5). Use of Estimates in the Preparation of Financial Statements-The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
6). Income Taxes-The Company has elected by unanimous consent of its
stockholders to be taxed under the provisions of subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay Federal corporate
income taxes on its taxable income. Instead, the stockholders are liable for
individual Federal income taxes on their respective share of the Company's
taxable income.
7). Accounts Receivable-Accounts Receivable principally represent the Company's
share of amounts due from patients, third party payers, and others. These
amounts are recorded net of allowances for discounts and bad debts. At December
31, 1996, accounts receivable was comprised of the following:
<TABLE>
<S> <C>
Accounts receivable $ 903,848
Less: Allowance for discounts and bad debts (362,254)
---------
Accounts receivable, net $ 541,594
=========
</TABLE>
- 9 -
<PAGE>
Regional Imaging Consultants Corporation
Notes to Financial Statements
December 31, 1996
8). Leases-Where equipment is leased under long term leases and the Company can
acquire the asset at prices less than fair market value upon expiration of the
lease, the asset is capitalized and the lease obligation is included in
long-term debt. Under net leases where no opportunities exist to acquire the
asset at less than fair market value and where no residual values are available
at nominal cost, the rentals are recorded as equipment rental and the asset is
not capitalized.
NOTE B-LONG TERM DEBT
Long term debt outstanding is as follows:
<TABLE>
<CAPTION>
12/31/96
--------
<S> <C>
Note payable - Shareholder, payable
on demand but classified as long-term
based on intent of the parties, interest at 9.25% $ 36,068
Note payable - DVI Financial, payable in
monthly installments of $2,067 including interest
at 13.80%, due September 1997 21,237
Note payable - Citicorp, payable in
monthly installments of $3,416 plus
interest, due April 1997 64,894
Note payable - Shareholder, payable on
demand but classified as long-term based on intent
of the parties, interest at 9.25% 142,526
Note payable - Metropolitan Bank, payable
in monthly installments of $1,528 plus interest
at 9.25%, due August 1998 30,552
Note payable - Metropolitan Bank, payable in
monthly installments of $349 including interest
at 9.88%, due August 1999 9,786
Note payable - Metropolitan Bank, payable in
monthly installments of $878 including
interest at 7.5%, due September 1998 16,464
Note payable - DOY Credit Union, payable in
monthly installments of $377 including
interest at 6.95% due February 1999 9,400
---------
Total Long Term Debt 330,927
Less: Current Portion (203,747)
---------
Net Long Term Debt $ 127,180
=========
</TABLE>
- 10 -
<PAGE>
Regional Imaging Consultants Corporation
Notes to Financial Statements
December 31, 1996
NOTE B-LONG TERM DEBT-CONTINUED The following are maturities of long term debt
for each of the next five years:
<TABLE>
<CAPTION>
Years ended December 31, Amount
------------------------ ------
<S> <C>
1997 $ 203,747
1998 123,362
1999 3,818
2000 --
2001 --
2002 and thereafter --
---------
Total Long Term Debt $ 330,927
=========
</TABLE>
NOTE C-RELATED PARTY TRANSACTIONS
The Company conducts certain transactions with the Company's principal
stockholder and affiliated companies controlled by the Company's principal
stockholder. Following is a summary of balances and transactions with related
parties for the year ended December 31
<TABLE>
<CAPTION>
1996
----
<S> <C>
Accounts Payable--Affiliated Companies $ 49,500
--------
Accounts Payable--Stockholder $178,594
--------
</TABLE>
NOTE D-COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases residential space and office equipment under various
operating leases. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
NOTE E-SUBSEQUENT EVENTS
On October 6th, the assets of this Company were sold. The sale of these assets
was included with the the sale of other local medical imaging centers with
similiar ownership. This sale included all company assets.
- 11 -
<PAGE>
Copley Mammography Center, Inc.
Financial Statements
Year Ended December 31, 1996
<PAGE>
Copley Mammography Center, Inc.
December 31, 1996
Contents Page
Independent Auditor's Report ............................................ 2
Financial Statements
Balance Sheet ....................................................... 3-4
Statement of Income ................................................. 5
Statement of Deficit in
Retained Earnings ................................................. 6
Statement of Cash Flows ............................................. 7
Notes to Financial Statements ....................................... 8-10
- 1 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Copley Mammography Center, Inc.
Youngstown, Ohio
We have audited the accompanying balance sheet of Copley Mammography Center,
Inc. as of December 31, 1996 and the related statement of income, deficit in
retained earnings, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Copley Mammography Center, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Yurchyk and Davis, CPA's, Inc.
Canfield, Ohio
November 21, 1997
- 2 -
<PAGE>
Copley Mammography Center, Inc.
Balance Sheet
December 31, 1996
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and Cash Equivalents $ 17,539
Accounts Receivable - Net 40,184
---------
Total Current Assets 57,723
Fixed Assets:
Vehicles 8,615
Medical Equipment 87,509
Office Equipment 3,203
---------
Total Fixed Assets 99,327
Less: Accumulated Depreciation (58,248)
---------
Net Fixed Assets 41,079
Other Assets:
Deposits 120
Accounts Receivable - RICC 49,500
---------
Total Other Assets 49,620
---------
Total Assets $ 148,422
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
Copley Mammography Center, Inc.
Balance Sheet
December 31, 1996
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
Current Liabilities:
Accounts Payable $ 935
Accrued and Withheld Payroll Taxes 2,315
Current Portion Long Term Debt 39,962
---------
Total Current Liabilities 43,212
Long Term Liabilities:
Notes Payable - Officer 100,000
Notes Payable - Officer 29,506
Notes Payable - Second National 4,132
Notes Payable - Second National 32,579
---------
Total Long Term Liabilities 166,217
Less: Current Portion Long Term Debt (39,962)
---------
Net Long Term Liabilities 126,255
---------
Total Liabilities 169,467
Stockholders' Equity:
Common Stock, no par value; 100 Shares
authorized, issued and outstanding 1,000
Deficit in Retained Earnings (22,045)
---------
Total Stockholders' Equity (21,045)
---------
Total Liabilities and
Stockholders' Equity $ 148,422
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
Copley Mammography Center, Inc
Statement of Income
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Revenue:
Patient Revenue $ 211,687
Patient Reimbursement (1,140)
---------
Total Revenue 210,547
Expenses:
Advertising 513
Bank Charges 33
Conferences 300
Depreciation 32,343
Dues & Subscriptions 1,544
Federal Unemployment 323
FICA Expense 5,900
General Supplies 864
Office Supplies 2,015
Outside Services 184
Permits & License 10
Personal Property Tax 168
Petty Cash 300
Postage 1,472
Professional Fees 7,473
Rent 16,422
Repairs & Maintenance 543
Salaries - Staff 77,129
State Unemployment 1,210
Technicians Supplies 23,989
Telephone 1,914
Utilities 2,129
Workers' Compensation 995
---------
Total Expenses 177,773
---------
Income Before Other
Income and (Expenses) 32,774
Other Income and (Expenses):
Interest Income 359
Interest Expense (12,764)
---------
Total Other
Income and (Expenses) (12,405)
---------
Net Income $ 20,369
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
Copley Mammography Center, Inc
Statement of Deficit in Retained Earnings
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Retained Earnings (Deficit) - January 1, 1996 $ (2,936)
Add: Net Income 20,369
Less: Sub S Distributions (39,478)
--------
Retained Earnings (Deficit)- December 31, 1996 $(22,045)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
Copley Mammography Center, Inc.
Statement of Cash Flows
For The Year Ended December 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net Income $ 20,369
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 32,343
Changes in Assets and Liabilities:
Decrease/(Increase) in
Accounts Receivable (357)
Decrease/(Increase) in
Other Assets (49,500)
Increase/(Decrease) in Accounts
Payable and Accrued Expenses (6,850)
---------
Net Cash (Used) in Operating Activities (3,995)
Cash Flows from Investing Activities:
Capital Expenditures (30,662)
Proceeds on Sale of Fixed Assets --
---------
Net Cash Provided (Used) by
Investing Activities (30,662)
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 140,000
Distributions (39,478)
Payment on Debt (69,912)
---------
Net Cash (Used) by Financing Activities 30,610
---------
Net Increase/(Decrease) in Cash (4,047)
Cash and Cash Equivalents-Beginning of Period 21,586
---------
Cash and Cash Equivalents-End of Period 17,539
=========
Interest Paid $ 12,764
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
Copley Mammography Center, Inc.
Notes to Financial Statements
For The Year Ended December 31, 1996
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1). Basis of Accounting-The Company's policy is to prepare its financial
statements on the accrual basis of accounting.
2). Organization and Business Activity-The Company was incorporated on May 27,
1992 under the S Corporation laws of the State of Ohio. The company provides
mammography services in Northeast Ohio.
3). Fixed Assets-Property and Equipment are stated at cost. Depreciation is
computed at rates adequate to allocate the cost of the applicable assets over
their expected useful lives. Equipment and improvements are capitalized at cost
by additions to the related asset accounts, while repairs and maintenance are
charged against income. Upon retirement or other disposition of these assets,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gains or losses are reflected in the statement of income.
4). Cash and Cash Equivalents-Cash and cash equivalents consist of cash on hand,
cash in the bank, and cash equivalents with original maturities of three months
or less.
5). Use of Estimates in the Preparation of Financial Statements-The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and the disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
6). Income Taxes-The Company has elected by unanimous consent of its
stockholders to be taxed under the provisions of subchapter S of the Internal
Revenue Code. Under those provisions, the Company does not pay Federal corporate
income taxes on its taxable income. Instead, the stockholders are liable for
individual Federal income taxes on their respective share of the Company's
taxable income.
7). Accounts Receivable-Accounts Receivable principally represent the Company's
share of amounts due from patients, third party payers, and others. These
amounts are recorded net of allowances for discounts and bad debts. At December
31, 1996, accounts receivable was comprised of the following:
<TABLE>
<S> <C>
Accounts receivable $ 57,643
Less: Allowance for discounts and bad debts (17,459)
--------
Accounts receivable, net $ 40,184
========
</TABLE>
- 8 -
<PAGE>
Copley Mammography Center, Inc.
Notes to Financial Statements
For The Year Ended December 31, 1996
NOTE B-LONG TERM DEBT
Long term debt outstanding is as follows:
<TABLE>
<CAPTION>
12/31/96
--------
<S> <C>
Note payable - Shareholder, payable
on demand but classified as long-term
based on intent of the parties, interest at 9.5% $ 29,506
Note payable - Shareholder, payable
on demand but classified as long-term based on
intent of the parties, interest at 8.5% 100,000
Note payable - Second National, payable in
monthly installments of $289 including
interest at 12.5%, due May 1998 4,132
Note payable - Second National, payable in
monthly installments of $1,025 including interest
at 9.5%, due February 2000 32,579
---------
Total Long Term Debt 166,217
Less: Current Portion (39,962)
---------
Net Long Term Debt $ 126,255
=========
</TABLE>
The following are maturities of long term debt for each of the next five years:
<TABLE>
<CAPTION>
Years ended December 31, Amount
------------------------ ------
<S> <C>
1997 $ 39,962
1998 42,432
1999 36,833
2000 22,378
2001 24,612
2002 and thereafter --
--------
Total Long Term Debt $166,217
========
</TABLE>
- 9 -
<PAGE>
Copley Mammography Center, Inc.
Notes to Financial Statements
For The Year Ended December 31, 1996
NOTE C-RELATED PARTY TRANSACTIONS
The Company conducts certain transactions with the Company's principal
stockholder and affiliated companies controlled by the Company's principal
stockholder. Following is a summary of balances and transactions with related
parties for the year ended December 31:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Accounts Receivable--Affiliated Companies $ 49,500
--------
Accounts Payable--Stockholder $129,506
--------
</TABLE>
NOTE D-COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases residential space and office equipment under various
operating leases. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
NOTE E-SUBSEQUENT EVENTS
On October 6th, the assets of this Company were sold. The sale of these assets
was included with the the sale of other local medical imaging centers with
similiar ownership. This sale included all company assets.
- 10 -
<PAGE>
MEDICAL IMAGING OF
HOLLYWOOD, INC.
==========================================================
Audited Financial Statements
And Independent Auditors' Report
December 31, 1996
<PAGE>
Financial Statements
Medical Imaging of Hollywood, Inc.
December 31, 1996
----------
Contents
Page
----
Independent Auditors' Report .............................................. 1
Financial Statements
Balance Sheet ......................................................... 2
Statements of Income and Changes in Retained Earnings ................. 3
Statement of Cash Flows ............................................... 4
Notes to Financial Statements ......................................... 5
Supplementary Financial Information
Schedule 1. - Operating Expense ........................................... 12
<PAGE>
Independent Auditors' Report
To The Board of Directors of
Medical Imaging of Hollywood, Inc.
Hollywood, Florida
We have audited the accompanying balance sheet of Medical Imaging of Hollywood,
Inc., as of December 31, 1996 and the related statements of income and retained
earnings, and cash flows for the year then ended. 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 audit.
We conducted out audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Medical Imaging of Hollywood,
Inc., as of December 31, 1996, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying information presented on page 14
is presented for the purpose of additional analysis and is not a required part
of the basic financial statement. Such information has been subject to the
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Mark J. Burger, P.A.
West Palm Beach, Florida
December 16, 1997
1
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
BALANCE SHEET
December 31, 1996
----------
<TABLE>
<S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,149
Patient accounts receivable, less allowance for
adjustments and doubtful accounts of $400,747 336,794
Prepaid operating expenses 4,125
Medical and office supplies 5,500
-----------
Total Current Assets 347,568
Property and Equipment:
MRI equipment 1,008,159
Leasehold improvements 67,241
-----------
1,075,400
Less: Accumulated depreciation (104,177)
-----------
Net Property and Equipment 971,223
Other Assets:
Capital lease obligation prepaid rent 20,089
-----------
Total Assets $ 1,338,880
===========
Liabilities and Shareholder's Equity
Current Liabilities:
Accrued expenses $ 25,134
Due to related party 25,339
Current income taxes payable 7,004
Current portion deferred income taxes payable 112,553
Current portion of capitalized lease obligation 159,741
-----------
Total Current Liabilities 329,771
Capitalized lease obligation, less current portion 752,829
Deferred income taxes payable 10,237
-----------
Total Long-Term Liabilities 763,066
Shareholders Equity:
Common Stock, $1.00 par value, 500 shares issued and outstanding 500
Additional paid in capital in excess of par value 1,500
Retained earnings 244,043
-----------
Total Stockholder's Equity 246,043
-----------
Total Liabilities and Shareholder's Equity $ 1,338,880
===========
</TABLE>
See accompanying notes.
2
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
Year Ended December 31, 1996
----------
<TABLE>
<S> <C>
Revenues:
Net patient service revenue $677,904
Usage fees from affiliated organizations 141,500
Interest income 476
--------
819,880
Operating Expenses:
Depreciation 104,177
Management, professional and billing fees 93,865
Medical supplies 39,144
Occupancy 49,413
Other operating expenses 156,133
--------
Total operating expenses 442,732
--------
Operating Income 377,148
Non-operating expense:
Interest expense 49,059
--------
Income Before Income Taxes 328,089
Provision for Income Tax 129,794
--------
Net Income 198,295
Retained earnings, beginning of year 45,748
--------
Retained earnings, end of year $244,043
========
</TABLE>
See accompanying notes.
3
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1996
----------
<TABLE>
<S> <C>
Operating Activities
Cash received from patients and third party payors $ 534,463
Cash paid to suppliers and employees (348,367)
Interest paid (49,059)
-----------
Net Cash Provided by Operating Activities 137,037
Investing Activities
Acquisition of property and equipment (1,075,400)
-----------
Net Cash Used in Investing Activities (1,075,400)
Financing Activities
Proceeds under capital lease obligation 1,000,000
Payments under capital lease obligation (87,430)
Proceeds from related party 25,339
-----------
Net Cash Provided by Financing Activities 937,909
-----------
Decrease in Cash (454)
Cash and cash equivalents, beginning of year 1,603
-----------
Cash and cash equivalents, end of year $ 1,149
===========
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Net income $ 198,295
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 104,177
Changes in Operating Assets and Liabilities:
(Increase) in:
Accounts receivable (285,417)
Prepaid rent (20,089)
Prepaid expenses (4,125)
Increase in:
Accrued expenses 14,402
Income tax payable 7,004
Current portion of deferred income taxes 112,553
Deferred income taxes 10,237
-----------
Net Cash Provided by Operating Activities $ 137,037
===========
</TABLE>
See accompanying notes.
4
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 1 - Organization and Summary of Significant Accounting Policies
Medical Imaging of Hollywood, Inc. (the "Company") was formed to operate a
magnetic resonance imaging center located in Broward County, Florida. On July
16, 1997, Medical Imaging of Hollywood, Inc. sold its operating assets to
Hollywood Resources Inc. See Note 9.
Method of Accounting
The Company utilizes the accrual method of accounting for financial statement
reporting. Under this method, revenue is recognized when earned and expenses are
recognized when incurred. A portion of the Company's gross patient service
revenue for the year ended December 31, 1996, is rendered to patients covered by
Medicare, Medicaid, and managed care organizations. Payments for services
rendered to patients covered by these payors are generally less than standard
charges. Provisions for contractual adjustments are made to reduce the standard
charges to the contracted reimbursement rate. Final settlements under these
programs are subject to administrative review and audit.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principals and, as such, include amounts based on informed
estimates and judgments of management with consideration given to materiality.
Changes in such estimates may affect amounts reported in future periods.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, checking accounts, and money market accounts. Such cash equivalents have
maturates of less than 90 days. There are no restrictions on future uses of cash
or cash equivalents at December 31, 1996.
The Company maintains its cash accounts in a commercial bank located in Broward
County, Florida. Accounts at the bank are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000, per bank. There was no uninsured
cash balance at December 31, 1996.
Advertising Costs
The Company's policy is to expense advertising and promotional costs as
incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
straight-line methods over the estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
MRI equipment 5 years
Leasehold improvements 10 years
</TABLE>
See independent auditors' report.
5
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 1 - Organization and Summary of Significant Accounting Policies - Continued
Property and Equipment - Continued
Maintenance and repairs are expensed as incurred; expenditures that enhance the
value of property and equipment or extend their useful lives are capitalized.
When assets are sold or returned, the cost and related accumulated depreciation
are removed from the accounts, and the resulting gain or loss is included in
income. Depreciation expense was $104,177 for the year ended December 31, 1996.
Concentration of Credit Risk
The Company grants credit without collateral to its patients, most of whom are
local residents. The concentration of credit risk with respect to patient
accounts receivables is limited due to the large number of third party payors.
The mix of receivables from patients and third-party payors at December 31,
1996, was as follows:
<TABLE>
<S> <C>
Personal injury and automobile litigation 68.5%
Commercial insurance 16.2
Medicare 1.6
Medicaid 1.1
Workers compensation fund 7.9
Other 4.7
------
100.0%
======
</TABLE>
Provision for Income Taxes
The Company accounts for income taxes under an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences, the
Company generally considers all expected future events other than enactment of
changes in the tax laws or rates.
Note 2 - Patient Accounts Receivable
Patient service revenue is recorded at the gross amount billed. Since an
increasing number of the Company's patients are members of various health
maintenance organizations and preferred provider networks, a portion of the
gross billings are subject to contractual adjustments. At December 31, 1996, net
patient accounts receivable were determined as follows:
<TABLE>
<S> <C>
Gross patient accounts receivable $ 737,541
Less: Allowance for contractual adjustments (339,143)
Allowance for doubtful accounts (61,604)
---------
Net patient accounts receivable $ 336,794
=========
</TABLE>
See independent auditors' report.
6
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 3 - Operating and Capital Leases
Operating Leases
The Company leases equipment from a related party. It also leases office space
from others under operating leases expiring through July 31, 2006. The related
party leases did not require rental payments for the year ended December 31,
1996. Annual rent expense, inclusive of sales tax, under the operating leases
amounted to $29,534.
At December 31, 1996, future minimum lease payments were as follows:
<TABLE>
<S> <C>
1997 $ 82,758
1998 76,095
1999 76,095
2000 76,095
2001 69,431
Thereafter 270,459
----------
Total minimum operating lease payments $ 650,933
==========
</TABLE>
Capital Leases
The Company entered into a capital lease during 1996, to lease MRI equipment.
The lease expires in 2001. The MRI equipment at December 31, 1996, had a cost
basis of $1,008,159 and accumulated depreciation of $100,815, resulting in a net
book value of $907,344. Depreciation expense was $100,815. Total interest
expense related to the capital lease, for the year ended December 31, 1996, was
$45,234.
At December 31, 1996, future minimum lease payments were as follows:
<TABLE>
<S> <C>
1997 $ 241,069
1998 241,069
1999 241,069
2000 241,069
2001 206,446
-------------
Total minimum capital lease payments $ 1,170,722
Amount representing interest and Florida sales taxes (258,152)
-------------
Present value of capital lease obligations 912,570
Less current portion (159,741)
-------------
$ 752,829
=============
</TABLE>
See independent auditors' report.
7
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 6 - Taxes on Income
Provisions for federal and state income taxes in the statement of income
consisted of the following components:
<TABLE>
<S> <C>
Current taxes:
Federal income tax expense $ 5,445
State income tax expense 1,559
--------
Total current taxes payable 7,004
Deferred taxes:
Current portion
Federal deferred tax expense 97,701
State deferred tax 14,852
--------
112,553
Long-term portion
Federal deferred tax expense 8,878
State deferred tax 1,359
--------
10,237
--------
Total deferred taxes payable 122,790
--------
Total provision for income taxes $129,794
========
</TABLE>
Deferred income taxes for the year ended December 31, 1996, reflect the net tax
effects of the temporary differences between the carrying amounts of assets and
the method of accounting used for federal and state income tax purposes. The
company uses the cash method of accounting for federal and state income tax
purposes.
The sources of the temporary differences and their effect on the net deferred
liability at December 31, 1996 are as follows.
<TABLE>
<S> <C>
Cash to accrual adjustments $112,553
Capital lease obligation 10,237
--------
Total deferred tax liability $122,790
========
</TABLE>
The following summary reconciles taxes at the United States statutory rate with
the effective rate for the Company at December 31, 1996:
<TABLE>
<S> <C>
Taxes on income at U.S. statutory rate 35.0%
Increase (reduction) in taxes resulting from:
State income taxes net of federal benefit 3.5%
Tax effect of apportionment of tax benefits and
phase-out of tax brackets 1.1%
----
Taxes on income at effective rate 39.6%
====
</TABLE>
See independent auditors' report.
8
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 7 - Related Party Transactions
Collection Fees
DIKI, Inc, an affiliated organization provides billing and collection services
for the Company. The fee is based on 7% of net cash collected. During the year
ended December 31, 1996, the company incurred $46,966 of collection fees.
Accrued but unpaid collection fees to DIKI, Inc. at December 31, 1996 amounted
to $10,065.
Other Payables
During 1996, an affiliated company advanced money for the construction of the
leasehold improvements. These advances are not documented by a promissory note.
Management has not charged or accrued interest on the advance, which is in the
amount of $26,202.
Usage Fees
The Company allows affiliated organizations to contract time to use the
Company's equipment. The affiliated companies reimburse Medical Imaging of
Hollywood, Inc. based on its financial needs. There is no written agreement
supporting this arrangement. Total reimbursements amounted to $141,500 for the
year ended December 31, 1996.
Radiology Fees
The Company contracts with unrelated radiologists to read films for the Company
as well as other affiliated organizations. The invoices received do not specify
which of the affiliated companies the services pertain. Since the invoices do
not specify which company they pertain to; management does not allocate the cost
of the radiology fees among the affiliated companies. The payment of these
invoices is based on the cash available in the affiliated organizations.
Management has no intention to calculate and allocate these fees among the
affiliated organizations.
Employees
The Company utilizes the employees of an affiliated company. There is no
employee-leasing fee charged and there is no agreement between the affiliated
companies.
Note 8 - Commitments and Contingencies
Letters of Credit
The Company has an outstanding standby letter of credit with Northern Trust of
Florida, N.A. in the amount of $300,000. This letter of credit is collateral for
the Company's future rent payments under the capital lease. The letter of
credit, which originated on May 9, 1996, is for a maximum term of sixty-one
months and a minimum term of twenty-four months.
See independent auditors' report.
9
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996
----------
Note 8 - Commitments and Contingencies - Continued
Service Maintenance Agreement
In conjunction with the lease of MRI equipment, the Company entered into a four
- - year service maintenance agreement for the MRI equipment. Coverage begins in
July 1997; one year after the warranty period expires. This agreement calls for
the Company to make monthly payments, which will total $85,000 annually.
Note 9 - Subsequent Events
Consolidation of Affiliated Companies
During 1997 the management merged the operations of certain affiliated
organizations into the Company.
Sale of Company Assets
On July 16, 1997, the Company completed a transaction to sell substantially all
of its net assets to Hollywood Resources, Inc., a subsidiary of Medical
Resources, Inc. The purchase included certain patient accounts receivable and
the assumption of certain payables, accrued expenses, and capital lease
obligations. Hollywood Resources, Inc. paid approximately $2,123,000 for the net
assets of the combined affiliated companies.
See independent auditors' report.
10
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
11
<PAGE>
MEDICAL IMAGING OF HOLLYWOOD, INC.
SCHEDULE I. - OPERATING EXPENSES
Year Ended December 31, 1996
----------
<TABLE>
<S> <C>
Professional, management, and billing fees
Billing expenses $ 46,966
Radiology fees 32,485
Consulting fees 6,671
Professional fees 7,743
--------
$ 93,865
========
Occupancy
Rent $ 29,534
Maintenance and repairs 14,286
Telephone 4,442
Utilities 1,151
--------
$ 49,413
========
Other operating expenses
Accounting $ 5,000
Advertising and promotion 21,747
Bad debt expense 58,367
Bank charges 3,000
Collection fees 3,015
Donations 4,855
Equipment rental 5,255
Insurance 14,795
Licenses and taxes 8,845
Miscellaneous 1,129
Office expense 10,532
Postage and shipping 6,172
Supplies 9,662
Temporary services 3,759
--------
$156,133
========
</TABLE>
See independent auditors' report.
12
